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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

9 August 2011

Interview with Madonna King

ABC Radio, Brisbane

9 August 2011

SUBJECTS: Global outlook; Australian economy; returning the Budget to surplus

KING:

Treasurer, thank you very much for your time this morning.

TREASURER:

Good morning, Madonna.

KING:

Take us inside your thinking, what are your main concerns here?

TREASURER:

Well we're certainly witnessing turbulence and uncertainty in global markets. That reflects concerns in Europe about sovereign debt and those concerns are spreading to other countries, although there has been some improvements in that regard over night. We're seeing concerns about the downgrade in the United States in terms of their credit rating and we've also got concerns about the strength of growth in the United States, but in the middle of that here in Australia our economic fundamentals are strong and they're also strong in the region. What I would say to Australians is that Australia has a proven track record of dealing with financial instability and uncertainty, and we are located in the best part of the world at the right time. But we're not immune from all of these events as we saw on stock markets yesterday, and of course that impacts on self-funded retirees and so on. So yes there are impacts here and people feel it, but we are in a very strong position to deal with it.

KING:

Alright, let's go through a couple of those things. The G20 group, which includes Australia, says all reasonable steps will be taken to support financial stability. Does that mean anything specific here in Australia?

TREASURER:

Well this is where we have great strength. Our financial institutions are well capitalised, they're well funded; our banks are among the strongest in the world. Australia is seen as a very safe place when it comes to financial institutions. Capital has come here because we are seen in some ways as a safe haven – this is one of our great strengths along with very low unemployment and a very strong pipeline of investment into resources, and of course most importantly here low public debt.

KING:

Alright, you say those things but when the global financial crisis hit overseas, you did move to protect the banks, there was the fiscal stimulus package, are you thinking of anything like that ahead of time now?

TREASURER:

Well the first point I'd make Madonna is that one of the reasons we are in such a strong position and have low public debt is precisely because we moved to stimulate the economy at that time.

KING:

But might you have to do that again do you think?

TREASURER:

Well, I can't speculate about how events will play out but what I can say is that we have a very, very strong position...

KING:

But would you rule out, you wouldn't rule out another fiscal stimulus package if you thought that was needed to keep that strong position?

TREASURER:

Well, Madonna I think all Australia can have great confidence in the strength of Australian public policy. We got a very big tick from the IMF just the other day for our economic management. We do have the policy flexibility should we be required to use it to deal with these events but we will cross that bridge when we come to it. I think what Australians can have confidence in is the capacity of the Government, our regulators, our financial institutions, to deal with these matters.

KING:

I know you say that, but when you look at what happened on the Australian share market yesterday, there has been a lot of panic selling in Australia by Australian investors. I see the Australian Tax Office this morning is saying to people "don't access your retirement savings early". There is a sense of concern in Australia and I'm just wondering do you have a plan to try and calm those fears I guess?

TREASURER:

Well I think what we should concentrate on is the strong fundamentals that I was talking about before. The difference between Australia and just about every other developed economy is stark and clear. We avoided recession last time - very few other advanced or developed economies avoided recession - because the Government responded. The Government put in place fiscal stimulus, our financial regulators responded, the Reserve Bank responded, our banks were strong. All of those things gave Australia very great strength, and almost alone amongst developed economies avoided recession, and now as we go through another bout of global instability, we still have those underlying strengths. Compared to other developed economies, we are even stronger than we were then.

KING:

You just mentioned then the Reserve Bank, is it able to make an emergency cut in interest rates?

TREASURER:

Well the Reserve Bank takes it decision independently.

KING:

But it is able to do that independently?

TREASURER:

Well yes, absolutely it is, and the Reserve Bank has also a proven track record of dealing with these issues.

KING:

Do you subscribe to this commentary around this morning that the United States and Europe could be headed for years of weak growth now? What's your assessment of that?

TREASURER:

Well certainly the growth outlook for Europe is one that is concerning because there has been political gridlock in Europe in dealing with these issues of sovereign debt. We would like to see clearer communication of the objectives of what they're trying to do to deal with these problems in the global economy. And also in the United States the economic outcomes in recent times have been weaker. That's why through the G20 we called yesterday for very close cooperation between counties in the G20 to make sure we put in place policy settings which will support global growth. That's terribly important, but I think what Australia needs to understand is that there has been a changing of the guard in the global economy, basically from West to East, and that changing of the guard means that we are in the strongest part of the global economy at the right time.

KING:

Well on that point, I see some economic analysis in the Financial Review this morning warning that our ability to withstand what is happening in the United States and Europe might be compromised by what the Chinese Government is able to do. Do you expect it to embark on the huge stimulus it did after the collapse of Lehman Brothers, for example?

TREASURER:

Well the Chinese Government has the flexibility to respond should it need to do so, but we shouldn't forget that it's not just China when we're talking about Asia; it's India, it's Indonesia, it's South Korea. There're a whole host of economies there that are growing strongly. Now none of those economies are ultimately immune from the events that occur in Europe or the United States, but they start from a far stronger position and that's the point I've been constantly making, and Australia is in this region and that gives us a stronger position as well. But our economic fundamentals as a developed economy compared to other developed economies are very, very strong.

KING:

You are making the point and still vowing to return the Budget to surplus in the same time frame. Does that matter when we're faced with something like that. Is that such a priority still in your mind?

TREASURER:

Well I think what markets like to see and they should see is that governments put in place very firm fiscal policy, so we do expect to come back to surplus as planned but obviously the more global markets drag down on our market, that does hit government tax revenue and does make our return to surplus harder. But we're committed to return to surplus for good reasons of economic management.

KING:

And you'd tell Australians looking at accessing their retirement savings early or selling anything today, to hold their nerve?

TREASURER:

Well certainly what I would say to them is to be very calm and be very methodical in accessing these events. The fact is that this economy is strong, the investments that you have are in very good financial institutions and strong institutions and take a very calm and considered view of what is happening,

KING:

Alright, I know you have a busy day and busy week ahead of you, I appreciate the time you have taken to talk to me and my listeners, Wayne Swan thank you.

TREASURER:

Good to be with you.