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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

10 August 2011

Interview with Karen Tso and Bernie Lo

CNBC Asia Pacific

10 August 2011

SUBJECTS: Australian economy; interest rates; Australian dollar; global action; banking sector

TSO:

Treasurer, always a pleasure to speak with you and let's talk first up about the dynamics now around the Australian economy.  There's all this international volatility.  Are risks more elevated now than they were at the start of the year?

TREASURER:

Well, we're not immune from developments in international markets and I think you've seen that play out on our stock market in recent days, but I think what is recognised is the underlying strength of the Australian economy, our strong public finances, our low public debt, our low levels of unemployment, our very strong investment pipeline and of course our very strong financial institutions.  So we're not immune from these events but there is an underlying strength that gives me great confidence that we can ride out this international uncertainty and turbulence.

TSO:

What the last 24 hours has shown us is an enormous disconnect between what the market expects on Australian interest rates and what the likes of CBA, Westpac, ING all lowering their fixed rates in anticipation of a rate cut, but the RBA is still talking about increasing rates.  They are still leaning on the interest rate lever.  Perhaps you can clear up some of this confusion for us.  I know the RBA is independent but where do you think monetary policy should be going at this stage and do you have a view?

TREASURER:

Well, I don't speak for the Reserve Bank.  They do act independently.  Last Friday they issued a very detailed statement, the Statement on Monetary Policy, which gave their updated analysis of the Australian economy and the state of play.  These are matters entirely for the Reserve Bank, just as fiscal policy is a matter entirely for the Government. But what I can say about Australia is that when it comes to our policy stance, be it fiscal policy or monetary policy, there is a degree of flexibility and scope for Australian authorities to act if they need to.  But at this stage we've seen a degree of uncertainty and turbulence in international markets, but I think our strengths are shining through in the middle of that.

LO:

Mr Swan, it's Bernie Lo in Hong Kong.  I appreciate your time today.  You've been talking this morning about maintaining a stance of fiscal prudence in Australia.  You know at a time when the markets are deciding what a country is with, you know, north of 60, 70 or 80 per cent accumulated debt to GDP are or are not still deserving a sterling AAA rating, doesn't that buy Australia some wriggle room?  You know the press here, I don't know about there, has been full of stories about prudence in Australia.  The fact that you have all this accumulated money and the fact that infrastructure is lagging behind so many parts of Asia, isn't it time to be spending and maybe, I don't know, throwing caution to the wind a little bit?

TREASURER:

Well, we've put in place a very strict fiscal policy and we are currently engaged in a very significant fiscal consolidation.  Our public debt is low.  Our public finances are strong.  We will certainly be impacted upon by these events on markets because they then flow through to tax revenues but the Government takes its fiscal stance very seriously.  We took it very seriously at the height of the last global recession when we moved to stimulate our economy, we avoided recession almost alone amongst advanced economies.  That is one of the reasons why we are strong and we understand the need to put in place strong fiscal policy for strong public finances to give us the buffer against these sorts of events in the future.

TSO:

We also know there's a near obsession to sticking to surpluses in Australia.  It's something that voters seem to applaud.  Let's not put a finger on tax revenues that are (inaudible) Treasurer, because how much or how significant a hit are you expecting to tax revenues because of what we're seeing and because of the slowdown in China and the slowdown in the United States and other developed nations?

TREASURER:

Look it is simply too early to tell.  We'll have to see how events play out over the next few months and the impact on global growth and so on. It is simply too early to make that judgement.  Common sense tells you it's too early to make that judgement.  I'm not going to speculate about it but what I can do is to outline the strength of the Australian economy.  I can outline our fiscal policy stance.  The Reserve Bank has outlined its monetary policy stance.  All of that means that Australia is in a pretty strong position in the environment we are in.  We are very keen to see many of the issues internationally worked through.

LO:

Let's talk about that crisis management on a global basis.  You took part in the G7 teleconference over the weekend.  You talked about coordinated action if things got worse.  What form would that action take, sir?

TREASURER:

Well, there have been no decisions taken as yet, but as you saw, there was a statement from the G20 Finance Ministers a couple of days ago saying that we should work together as we go forward to deal with the circumstances that may arise.  I certainly hope that's where the G20 will be.  I expect that is where the G20 will be but no further decisions have been taken amongst Finance Ministers about what we may do next. 

The most important thing is to remember is that when the G20 worked together during the last global financial crisis and global recession we were very, very effective in achieving the outcomes that avoided an even worse result in the global economy and we've got to bring that same good will to bear and that same determination to bear as we go forward through the events we're experiencing right now.

TSO:

Well, Australia has certainly taken some good will when it comes to the Australian dollar Treasurer, right up at $1.10 at one point and speculation it would get to $1.20 when a lot of other countries have been intervening in their currencies.  Since then we've seen it smash right back through parity probably to the joy of many manufacturers in Australia.  Is it helpful to see the Aussie dollar at these rates?

TREASURER:

Well, I don't talk about the pathway for the Aussie dollar.  What I can say is that the Aussie dollar has been strong reflecting the strength of our domestic economy relative to other developed economies, also reflecting very strong commodity prices.  Those two factors are responsible for the strength of the Aussie dollar.  But the other thing is that I think there is now recognition globally that Australia's fundamentals are not only strong but the fundamentals in the region are strong as well and those two things combined certainly work for Australia in terms of our international standing in the global economic community.

TSO:

And just a quick one before I let you go Mr Swan, in terms of wholesale funding costs in Australia, there's been a lot of concerns about that with this credit squeeze this week.  Do you have any concerns around any of the major banks or some of the second tier ones?

TREASURER:

None at all.  Absolutely none at all.  Our banks are in great shape.  They're in very good shape.  I talk regularly to our regulators.  We have some of the strongest banks in the world and they are not experiencing any challenges at the moment.

TSO:

We do appreciate your time and as you know we always enjoy speaking with you.  Thank you so much for joining us live today.