The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Wayne Swan

Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

17 October 2011

Interview with Ali Moore

ABC TV, Lateline

17 October 2011

SUBJECTS: European sovereign debt; G20 Finance Ministers meeting; people smuggling; Australian budget; carbon price

MOORE:

Treasurer, many thanks for being there tonight for Lateline.

TREASURER:

Good to be with you, Ali.

MOORE:

I understand you've met with the Governor of the Bank of England, Mervyn King, in the past few hours.  Of course, just last week he had a very downbeat assessment of the situation the world is facing.  He said it could be confronting its worst ever financial crisis.  Was he more upbeat in his meeting with you?

TREASURER:

Well, Ali, I don't comment on the private meetings that I have with either finance ministers or central bank governors, but I believe there is a serious situation in the global economy.  Two of our very big economic engines are misfiring, in both Europe and the United States.  There's been a very big hit to global economic confidence that is reverberating around the world.  We can see the impact on stock markets. So there is a serious situation and that's why ministers over the weekend in Paris concentrated in particular on the problem that we've got with Europe, the European sovereign debt crisis. And we said to the European ministers that the time for half measures and blame-shifting was over.  What we needed to see from European leaders was a comprehensive plan to deal with the sovereign debt crisis in Europe.

MOORE:

What did you say exactly?  Because the report, in fact the reports in Australia this morning include the headline 'Swan berates EU over slow debt crisis action'.  How exactly did those conversations go?

TREASURER:

Well, this challenge has been going on for 18 months.  It first erupted in May last year.  So I think there has been a frustration amongst global finance ministers, particularly in the G20 and particularly outside of Europe that this has not been dealt with with the speed that it required. I'm confident now, as a result of these meetings both in Washington two weeks ago and in Paris over the weekend, that European ministers are responding with the urgency that is required, and that we need to see and hopefully will see from European leaders this weekend a comprehensive response, which markets will judge as being appropriate, which deals in a credible way with the recapitalisation of banks, that deals with the issue of Greece and deals with the financial stability facility.  All of those things are required from European leaders this coming weekend.

MOORE:

Can you give us some detail on exactly what that package will look like or what it needs to look like, in your view?

TREASURER:

Well, that's a matter entirely for European leaders, but I think what it does need to do is to instil confidence in markets. But it's entirely a matter for the European ministers to talk about what they intend to do via their leaders this weekend.

MOORE:

But when you were at this meeting, surely if you were urging them to come up with a resolution, there was also a discussion about what that resolution would look like because there's been plenty of talk over a very long period.

TREASURER:

Sure.

MOORE:

It's the detail that counts.  So in your mind what does that detail need to be?  What does this package need to include?

TREASURER:

Well, it needs to include a sizeable facility to assist a European Financial Stability Facility so it needs more resources in that area.  That's on the public record and that view has been expressed by ministers. There does need to be a resolution in terms of Greece.  That is very much on the public record. These are short-term issues. There are long-term issues of fiscal consolidation, getting their finances in shape.  All of these things are part of the architecture of a comprehensive response that people want to see from the Europeans this coming weekend.

MOORE:

Isn't part of the problem the fact that, or indeed the whole problem, the fact that the European banks are holding assets on their balance sheets that are not worth anything like the values that they're written up as and that they haven't got the capital to take those sorts of losses? Has the EU, as a whole, got the money to recapitalise those banks?

TREASURER:

Well, first and foremost I think ministers acknowledge that they need to deal with the sovereign debt issues, and when they've dealt with the sovereign debt issues they've also got to have a good, hard look at the recapitalisation of their banking system and there are processes in train for that right now.  All of these things will need to be done together.  They will need to be part of a comprehensive package. You can't separate them out.

MOORE:

But where does the money come from, I guess?  I mean, to deal with the sovereign debt problem, to deal with the private debt problem.

TREASURER:

Well, it will have to come from within Europe, and that's a decision for European leaders.

MOORE:

Is it possible that countries like Australia will be asked to contribute more to, in particular the IMF, so the IMF can play a bigger role?

TREASURER:

Well, there is a separate question of resources for the IMF and whether its resources are big enough given the volatility that we are seeing in the global economy.  But ministers are not looking at providing additional resources to the IMF over time if they're required as an aid to Europe.  They're prepared to play their role in backing up Europe, but what the issue of IMF resources is about is the appropriate size of those resources for the global economy, not just a question of Europe.

MOORE:

So it's not likely that we'd be looking to tip in more from Australia's end?

TREASURER:

Well, the IMF is already involved in a joint program with the Europeans in Greece.  If there were to be an increase in resources for the IMF it wouldn't be something which was going straight into Europe, it would be put into a broader pot that the IMF has available for the future.  Australia would do what it has done for years and years; we would contribute our fair share, nothing more, nothing less.

MOORE:

You make the point regularly that Australia is well placed to withstand the ill winds from Europe, but the EU is one of our largest trading partners.  I think trade, two-way trade last year, was worth some $78 billion.  That's around 14 per cent of our total trade.  What will the impact of Europe's woes be on Australia?

TREASURER:

Well, there is already an impact in terms of global growth.  Global growth is slowing.  That impacts upon growth in Australia.  That has a subsequent impact particularly on budget revenues.  So we're already seeing an impact flow through to Australia but of course, our fundamentals are strong.  We are in the best position of perhaps any developed economy to withstand the fallout that we are seeing from these events in Europe.  But we're not immune from the fact that there are consequences when two of the big economic engines in the global economy begin to slow.

MOORE:

Do you expect those trade numbers though to be hit substantially, that $78 billion will drop dramatically?

TREASURER:

Well, we've just seen in the last couple of weeks very strong trade numbers for Australia.  Our exports, particularly to our region, are very strong at the moment.  As you know, our terms of trade are at 140 year highs.  The prices for coal and iron ore are holding up.

MOORE:

Sure, but I'm talking to Europe.  Do you expect our trade with Europe to be hit?

TREASURER:

Well, naturally if Europe continues to slow and there is a long and painful adjustment in Europe, that will impact on trade between Australia and Europe.  The point I was making is that our trade focus is shifting increasingly to the Asia-Pacific, which is still growing strongly.  But I would make this point: that even the Asia Pacific is not immune from a slowdown in Europe.  So it is all interconnected, but we are fortunate to be in the right part of the world at precisely the right time, given these events emanating out of Europe.  We're stronger here, we're just not immune.

MOORE:

But of course you are in London.  You have though missed a fairly crucial Cabinet meeting in Canberra tonight.  Probably a relief, I imagine, given that leaks were top of the agenda.  Have you had a briefing about that…

TREASURER:

I always enjoy Cabinet meetings, Ali.  I always enjoy Cabinet meetings.

MOORE:

Have you had a briefing about tonight's meeting?

TREASURER:

No, I have not had a briefing about tonight's meeting.  I've been having important discussions, as you indicated earlier.  I've been tied up with very important work via the G20 Finance Ministers, dealing with these issues in the global economy and what they mean not just for our region, but for the Australian economy.  That's been the focus I've had over the past few days and it's a pretty important focus for Australia.

MOORE:

Indeed, I don't doubt that, but you are the Deputy Prime Minister.  How can the Cabinet leaks of recent days not undermine the authority of Julia Gillard?

TREASURER:

Oh, look, I think this wouldn't be the first time that we've seen reported leaks from Cabinet and it won't be the last under a whole series of governments, but this is not my focus, Ali.  My focus is getting on with making sure that we strengthen the global economy, making sure there's a good agenda for the leaders when they get to the G20 summit in France in a couple of weeks' time.  That's been my focus.  I think the Australian people are interested in the things that really matter, which is jobs and economic prosperity.  I don't think they're all that interested in many of these reports that we're seeing in the media.

MOORE:

I think though they are - I think it's fair to say - interested in the process of government and ensuring that we get the best possible government.  And Julia Gillard said today that she's, quote: `rebuilt a proper Cabinet system of government'.  How is the current Cabinet system different to the one before?

TREASURER:

Well, the current Cabinet system is one which uses committees extensively. Proposals go through subcommittees. They come through to the major Cabinet.  They are submitted to all of the processes within the bureaucracy.  It's a very formal Cabinet process - a lot of consultation.  It's working well under the outstanding leadership of Julia Gillard.

MOORE:

And how is that different to what was before?

TREASURER:

Well, there's been criticism of processes before, but it's not my role tonight to go through all of that.  What I do know is the Cabinet process that we have now is a very good process. There's lots of consultation.  We go through all of the normal formalities that you'd expect of a Westminster process.

MOORE:

Would it have made sense for Cabinet to have accepted Nauru as an option for dealing with asylum seekers as well as the Malaysia solution?

TREASURER:

No, it would not, because it doesn't break the people smugglers' model.  All of our advice, all of our formal advice from the agencies is that it will not break the people smugglers' model.  That was the advice.  That is public.  It has been well known.  It has been repeated by the head of the department in recent days and it sums up the position of the Government.

MOORE:

But it does beg the question then of why it was raised in Cabinet.

TREASURER:

Well, I don't know whether those reports are accurate or not.

MOORE:

But you must; you were in Cabinet weren't you, last week, last Monday?

TREASURER:

I don't go into discussions in Cabinet.  There have been a whole lot of reports which I treat with a grain of salt about what goes on in Cabinet.  I don't talk about what goes on in Cabinet, but I can talk about what is public from the head of the major department concerned here, and his unambiguous advice both to the Government and the Opposition is that that particular policy objective of going to Nauru doesn't work.

MOORE:

Well you are Treasurer, you're the one who has to make the numbers add up and you are still aiming for a surplus.  The cost of detaining and assessing asylum seekers I think was put at just over $1 billion in this year's budget, forecast spending of $677 million next year.  Now the policy is different and all asylum seekers will have to be processed onshore, what does it do to those budget numbers?  Do they still hold up?

TREASURER:

Well, we're going through all of that assessment right now.  I couldn't give you an update on that, but there will be an update on that in the normal processes through the mid-year review at the end of the year.  That's the appropriate time to provide the update, given the change that has been forced upon the Government by the decision of the High Court.

MOORE:

And would it be fair to say that we could expect those numbers to increase?

TREASURER:

I'm not going to speculate about the nature of the numbers.  They'll be provided, they'll be there for everybody to see and to discuss at the appropriate time.

MOORE:

Can you rule out an increase in the budget on this, affecting your desire for a surplus?

TREASURER:

I'm not ruling anything in or out, but the Government is determined to return the budget to surplus in 2012-13.

MOORE:

Well, another key issue, if businesses do buy carbon permits in the lead up to a full emissions trading scheme and the Coalition wins the next election and the ETS is repealed, the clean energy legislation is repealed, will those businesses be compensated?

TREASURER:

Well, the Government is putting this legislation up to the Senate, it's been through the House of Representatives, it will become the law of the land.  It's really important for business certainty that we progress with these reforms.  It's also important to tax reform, tripling the tax-free threshold and so on. So the sale of permits will become the law of the land.  It is deeply reckless of Mr Abbott and the Liberal Party to talk in the way in which they've been talking about this issue in the last few days. But given how reckless they are, nothing surprises me.

MOORE:

But under the law of the land – and of course laws can change – under the law of the land and according to this legislation, the permits are described as property, but does that mean that they have compensation attached?

TREASURER:

Look, I'm not going into speculate about what may or may not happen.  It's the law of the land.  We have put in place...

MOORE:

But Treasurer, it's actually not speculation.  I'm reading to you directly, quote: `a carbon unit is personal property.'  So, extrapolating from that, does that mean that there is attached to the property rights compensation?

TREASURER:

Ali, it's not my job to give legal advice on your program.  It will be the law of the land and I believe we've put in place for a very important reason: to drive investment in renewable energy and in cleaner energy.  And for Mr Abbott or anyone else to go out and advocate people breaching that law is deeply irresponsible, deeply irresponsible.

MOORE:

Wayne Swan, I appreciate you looking at domestic issues because I know you are a long way away.  Many thanks for joining Lateline tonight.

TREASURER:

Thank you, Ali.