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Picture of Wayne Swan

Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

4 August 2011

Interview with Neil Mitchell

Radio 3AW, Melbourne

4 August 2011

SUBJECTS: Australian economy; international outlook; retail trade; small business conditions; investment pipeline; carbon price

MITCHELL:

On the line is the Federal Treasurer Wayne Swan, good morning.

TREASURER:

Good morning Neil, good to be with you.

MITCHELL:

Thank you for your time.  You said yesterday the economy is good, it’s just there’s some soft spots.  Where are they?

TREASURER:

Well, certainly retail is pretty soft.  If you have a look at the figures yesterday in terms of volumes: [growth of] 0.3 per cent in the quarter, 0.6 for the year.  We’ve been seeing some pretty cautious consumers out there.  Savings are up and spending is down.  That’s been with us since the end of last year and I think it will be with us for a little while yet because of the events that we’ve seen unfold in particular in the United States and Europe in recent times. And we’ve seen the impact of those events on global markets through the last couple of days.

MITCHELL:

Well, doesn't that mean jobs eventually?

TREASURER:

Well, certainly it’s soft there but we’ve also got a pretty strong investment pipeline coming through into the Australian economy.  So it’s chalk and cheese between what’s going on here and what’s going on in the rest of the world.  At the time we brought down the budget…

MITCHELL:

Sorry what do you mean – investment pipeline?

TREASURER:

Well, it’s all the money particularly going into resources.  It’s for example the one that was announced last week – the US $20 billion investment in LNG up in Gladstone – many other investments going on particularly in the resources sector. It is absolutely huge and it’s going to be with us for some years to come.  But some sectors of the economy are soft and that’s why we talk about the economy as being a bit of a patchwork economy.  Not everybody is in the fast lane of the resources sector, but at the moment the retail sector is soft because Australians are basically saving. They’re in jobs, but they’re not spending in retail like they were.

MITCHELL:

So you accept it’s a two-speed economy?

TREASURER:

Of course I do.  I’ve described it as thus.  It’s a bit more than a two-speed economy, it’s a patchwork economy, and I’ve been talking about that for a long time now because essentially there’s a few things that we are living with at the moment.  We’re still living with the aftershocks of the global financial crisis and the global recession.  We see that unfold in the United States and Europe but we also see it here.  We see it in our stock market.  We also see it in terms of retirement savings and so on. But the really good thing as you indicated in your remarks is that unemployment is low and that’s a good thing and we do still have a very strong investment going on in our economy.

MITCHELL:

But the retail sector, as you say, is soft.  It employs what – 1.5 million people just about.

TREASURER:

Yes it does.  It’s a very big employer and has been a very big employer and it will continue to be a big employer but there’s no doubt it’s under a bit of pressure at the moment and the reason it’s under pressure is that people are saving more and spending a bit less particularly out there in the shops.  That’s what’s clear in the figures.  But the figures are up by a small amount over the year but it’s not the big clod of increases that many retailers have been used to in recent years.

MITCHELL:

Well, is it another soft spot when $30 billion is wiped off the market in one day?

TREASURER:

Yes and that’s essentially to do with the global impacts of the uncertainty flowing out of the United States and Europe.

MITCHELL:

Yes but these aren’t soft spots.  These are serious problems, aren’t they?

TREASURER:

They’re serious challenges in the global economy but you shouldn't lose sight of the fact that we live in the part of the global economy that is continuing to grow strongly.  And we are the beneficiaries of the fact that almost alone amongst developed economies we never went into recession, and as a consequence have got very good employment outcomes and we still have very good investment in our economy. But we’re not immune from what goes on in global markets and you can see that really starkly in the stock market yesterday.

MITCHELL:

Okay, well what’s happening in small business in your view?

TREASURER:

It depends where they are.  If they’re near the resources sector they’re doing reasonably well but in many other small businesses if they are in that patchwork part of the economy, if they’re out there and they’re trade exposed or they’re impacted by the higher dollar, many of them are doing it really tough, no doubt about that at all.

MITCHELL:

I’ll just play you something.  Well, I’d like your reaction.  This is some of the comments we’ve got from small business this morning.

CALLER 1:

About six or seven weeks ago it was like somebody just pulled the roller shutter down and didn't put it back up again.

MITCHELL:

And you’re a small business owner?

CALLER 1:                

Yeah we are.  We’ve been in business for 10 years.  The global financial crisis did not affect us in one bit.

MITCHELL:

What’s your business Jackie?  What sort of thing?

CALLER 1:

We do car detailing but we also work for a lot of car yards and they’re not selling cars.

MITCHELL:

You said you’ve been in business since the ‘70s and you haven’t seen it this bad.

CALLER 2:

No and I think I’m on the verge of going back to the worst of the worst.

CALLER 3:

I’ve been in business for about 16 to 18 years – commercial cleaning – and we rode through this GFC no problem whatsoever.  Just in the last couple of weeks two or three of our main contracts have decided to reduce the frequency and reduce it by about 20 per cent - cost cutting.  So I was prepared to put someone on full time.  That's looks like it’s going to be on the backburner.

MITCHELL:

Treasurer, do you accept there’s a crisis for small business?

TREASURER:

I accept that a lot of small businesses are doing it tough at the moment.  There’s no doubt about that and I’ve made that very clear. And that’s one of the reasons why I’ve been talking about the patchwork economy and what we need to do in the future to ensure that we grow sustainably, not just in the resources sector, but outside the resources sector.

MITCHELL:

And what if the US goes into recession which they’re talking about overnight.  What happens to Australia?

TREASURER:

Well, look I don't speculate about that.  The United States is in for a pretty long and painful adjustment because they can't continue to run their budget deficits at 9 and 10 per cent of GDP.  What they’ve got to do is to show global markets and global investors that they’re serious about dealing with that and they’ve got to do that in the longer term.  That’s what markets are looking for in terms of the United States. 

And when it comes to Europe, they’re looking for a sustainable outcome when it comes to Greece and all of their sovereign problems. But once again what that contrasts with here is a very strong state of our public budget and a very strong state of our economy notwithstanding the fact that many people are doing it really tough here too.

MITCHELL:

Alright I accept you won’t talk about the US possibly going into recession but as you say they’ve got some tough times coming.  Surely that affects us in various ways, not the least of which is our sales of resources to China which aren’t going to be much good if they haven’t got anywhere to sell what they’re making with our resources.

TREASURER:

Well, no the US have not been growing very strongly for some time...

MITCHELL:

But it’s around the world now. As you said, Greece, Europe.

TREASURER:

No, but the US has been growing slowly.  Europe has been growing relatively slowly. But even in the middle of all of that growth in our region – and it’s not just China, it’s places like South Korea, it’s places like India – has continued to grow very strongly.  I mean, in this environment – just think about this Neil – our commodity prices are at 140 year highs despite the fact that there have been these very big problems in the United States and in Europe right through  the last 12 months because what’s going on is a changing of the guard in the global economy and a shift in economic power basically from west to east and we benefit from that as well.  I’m not saying that things are great elsewhere in the global economy but we should recognise differences here between our situation and what’s going on in the US and in Europe.

MITCHELL:

So why aren’t people spending?  I mean, economies are about confidence.  It would seem to me there is not the confidence for people to spend. Why?

TREASURER:

Well, the savings ratio in Australia ticked up towards the end of last year and I think it’s a consequence largely of global uncertainty.  There’s no doubt that people have also been fearful that rates may rise.  I think that’s been a factor as well.  I also think the domestic debate, particularly with Tony Abbott talking down the economy all the time, has been a factor as well. But what I can say is that the fundamentals underlying our economy are strong relative to the rest of the world and also in this country we have a proven track record of handling global economic instability. 

MITCHELL:

By your own words we’ve got a patchwork economy.  The world economy is uncertain.  The US is in for tough times whether it’s recession or not.  We’re not spending here.  We’ve got problems with our stock market.  The inflation level is higher in Australia than the RBA band.  Those trade figures are bad.

TREASURER:

You can run through a litany of the downside of every figure.  The point is there is an upside to some of those things.  That is the point I’m trying to make.  I don't think we ought to be talking the economy down.

MITCHELL:

We shouldn't be putting our heads in the sand either.

TREASURER:

No we’re not, and we’re not doing that either....

MITCHELL:

The small businesses that are telling me that people aren’t knocking on the door anymore.  They haven’t stopped knocking on the door because Tony Abbott’s been saying silly things...

TREASURER:

...and as I said I said to you at the very beginning, the savings ratio in Australia started to tick up towards the end of last year. And I’d be happy to take you through why I think that is the case.  It is the case because people are wary about the impact of what is going on elsewhere in the world and it is the case that we still live with the after-effects of the global financial crisis.  For example, our stock market is not back to where it was prior to the global financial crisis.  Many people with retirement incomes are still struggling to get them back to where they were.  So there is an income effect and a wealth effect still flowing through our economy. 

The flipside for us of all of that is that we’ve continued with relatively strong employment.  We have low unemployment.  We still do have a lot of investment coming into the economy.  Not everybody is the immediate beneficiary of that and I fully understand that there are many small businesses out there doing it tough, particularly because Australians are saving more than they’re spending.

MITCHELL:

Okay but where I was going with that, I mean by your own words, you’ve got a patchwork economy.  The world economy is uncertain.  We’re still feeling the effects of the global financial crisis on our own markets.

TREASURER:

Yeah sure.

MITCHELL:

The US is headed for problems, got our spending issue.  This is all beyond debate.  Surely the carbon tax is only going to add to that.  Why go ahead?  Isn’t it time to just pull the pin and say not now – the world is in such an uncertain situation, with the world economy so fragile, not now.

TREASURER:

No, I think what we have to do is put some certainty into what’s going on with carbon pricing and that’s what we’re doing.  The carbon price doesn't start until next year so let’s just be very clear about where we are.

MITCHELL:

Well, true but it’s adding uncertainty now.

TREASURER:

No it’s not.  It’s bringing certainty to the Australian economy so people know what they’ve got to deal with and that’s really important to get the investment particularly into our energy sector, into our electricity sector.  It’s really important to fire the starter’s gun and get the energy efficiency going.  All of these things are really important and it is not the massive cost impost that people like Tony Abbott and others are saying that it is.

MITCHELL:

But with all this uncertainty around the world you say it is still a good time for a carbon tax to be introduced.

TREASURER:

I’m saying it’s the appropriate course of action for the Australian economy to start next year, from 1 July, and we ought to get it into perspective and we ought to understand that Australia is prosperous today because in the past we’ve faced up to dealing with the challenges of the future and putting in place the big reforms that make us the strong economy that we are today.

MITCHELL:

Thank you very much for your time.

TREASURER:

Good to be with you.

MITCHELL:

Are you sure you don’t want to get out from under the carbon tax?  It would be a good way out this one.  It’s very unpopular.  You can say: `we’re going to do the right thing by the economy which is call it all off?’  No?  Mr Swan?

TREASURER:

Oh sorry I thought you’d called the interview off.

MITCHELL:

Oh no.  Sorry, I thought you’d finished.  I just had that other thought.  I mean, it’s so unpopular the carbon tax.  It looks as if it could destroy the government.  This is a way out…

TREASURER:

What we do to get the economic fundamentals is govern by what is right for the country and the economy.  We don't do it because we’re worried about opinion polls.  I don't know what I’d say to my grandchildren in 10 or 20 years time if I baulked the big reform to make Australia strong because I was scared of opinion polls.

MITCHELL:

You could say it was the right thing to do for Australia.

TREASURER:

It’s the right thing to do for Australia.  It’s the right thing to do for the country.  It’s the right thing to do for the future.  In the past we’ve done those right things and they’ve made our economy strong.

MITCHELL:

Okay I think we have finished there.  Thank you for your time

TREASURER:

Okay bye.

MITCHELL:

Sorry about the confusion.