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

26 October 2011

Press Conference

Melbourne

26 October 2011

SUBJECTS: Consumer Price Index; Australian economy; interest rates; European sovereign debt crisis

TREASURER:

Well, good morning everyone. I just wanted to say a few words about today's CPI. Today's data show that both CPI inflation and underlying inflation have moderated. That is certainly welcome. Today's figures show CPI inflation has moderated to 0.6 per cent in the September quarter, down from 0.9 per cent in the June quarter. Through the year to September, CPI inflation came down to 3.5 per cent. It's encouraging to see that underlying inflation has fallen to 0.3 per cent in the September quarter, down from 0.8 per cent in the June quarter. Now that's one of the lowest quarterly figures in over a decade. This puts underlying inflation squarely in the middle of the Reserve Bank's target band at 2.5 per cent through the year to September. The decline in headline inflation primarily reflects a seasonal decline in health prices, which fell 1 per cent over the quarter, as well as falls in petrol prices.

Now today's result is encouraging but we know that many households are certainly still doing it tough. We can see in the figures that housing prices rose 1.9 per cent this quarter, contributing 0.4 percentage points to the quarterly outcome. Now this is largely driven by high utility bills, which are putting additional pressure on family budgets.

Today's result also reflects the fact that fruit prices are unwinding more slowly than previously expected in the aftermath of last summers natural disasters. While fruit and vegetable prices fell by 1.8 per cent in the quarter, the prices of some fruit and vegetables remain at elevated levels due to the natural disasters. Now this is pretty obvious I think to anybody doing the weekly shopping. Some people are still paying around $8 a kilo for bananas at the supermarket checkout. So it's taking a bit longer than expected. These prices however should unwind further as production is restored to levels which were seen prior to the disasters.

Now despite all of this, today's figures shine another light on the very strong fundamentals of our economy - the strong fundamentals of our economy that set us apart from the rest of the developed world. Most advanced economies are facing the worst possible combination – slowing growth, high unemployment and rising inflation. Our situation couldn't be more different. We do have our challenges - particularly the challenges which will flow from events in Europe and the United States, and they will add to pressures on our economy and also on our budget - but we can't lose sight of the fact that we have a growing economy, we have low unemployment, we have contained inflation, we have strong public finances and low public debt.

Just think about this for a minute: unemployment in Australia has a five in front of it. When you look around the developed world you're looking at almost twice that figure and in some countries, particularly with youth unemployment, far higher. We have moderating inflation, when you look around the world many other developed economies have increasing inflation. We have an unprecedented investment pipeline, particularly in the resources sector - $430 billion in resources alone. And on top of that we've got very low public debt - net debt less than a tenth of the level across the major advanced economies.

So rock solid fundamentals in the Australian economy but we have to get on with the big tough reforms of the future to lock in the prosperity of the future and to build the resilience of our economy for the long term. That's why we're putting a price on carbon pollution. It's why we're reforming mining taxation to spread the benefits of the mining boom to all corners of our economy, and in particular to give a tax cut to small business and to invest in infrastructure. It's why we're investing in the National Broadband Network, to build the resilience of our economy for the future. Because what we've seen in Europe - and it's playing out right now - is the failure of those developed economies to reform for the future over 10 and 20 years. The absence of reform is leading to economic weakness now. For Australia, reform for the future to build the strength and the resilience of our economy, that's what stands apart when you look at the Australian economy compared to other economies. Over to you.

JOURNALIST:

Mr Swan, what do you think (inaudible) mean for home owners on Melbourne Cup day?

TREASURER:

Well, these are matters for the independent Reserve Bank. The Reserve Bank has made it very clear that it's got room to move should there be a change in the situation in the global economy. They made that very clear in their minutes of a couple of weeks ago. For our part, the Government through fiscal policy has put in place the quickest return to surplus seen in our history. What that means is that there is more room to move when it comes to monetary policy for the Reserve Bank. We're playing our part, these are decisions taken by the independent Reserve Bank and they'll do that next Tuesday.

JOURNALIST:

Why do you think utilities have gone up?

TREASURER:

Well, there's been a lack of investment in critical infrastructure when it comes to particularly electricity. That is what is showing through in increased prices over time, which is putting a lot of families under tremendous pressure. What we have to do is get investment certainty into the industry and that's why putting a price on carbon is absolutely essential to get the investment into the sector, to provide certainty for that investment ,to make sure that the supply is looked after for the future. That's why we're pricing carbon, to provide investment certainty, to deal with the increases in carbon pollution in the atmosphere and to protect our environment.

JOURNALIST:

Do you think the inflation figures possibly a sort of double edge sword in that (inaudible)?

TREASURER:

No, I think what we've seen is a variety of influences on our headline rate of inflation. I mean, we are still living with the ongoing affects of the natural disasters earlier this year. What we also see in the figures is a seasonal increase in utility bills. They flow through in this quarter. So those two things are evident but what is most encouraging here is the underlying inflation figure. I know that's cold comfort for many households out there that are facing increased bills but the figure the Reserve Bank in particular concentrates on is the underlying inflation figure, and I would think they would take great heart in the figures we've seen here today that underlying inflation is well within the Reserve Bank's target band. That's the encouraging figure from the perspective of the setting of monetary policy and the decisions that the Reserve Bank takes. But look we've got this very big investment pipeline into Australia. It is one that is, in large part, locked in and that's a very big advantage for Australia given the volatility that we are seeing in the global economy.

JOURNALIST:

How much did you last pay for bananas when you bought them?

TREASURER:

Well, my wife does the shopping but I think down at our local supermarket they were about $8 a kilo.

JOURNALIST:

Are you comfortable with (inaudible)?

TREASURER:

I haven't seen the research that you're referring to. I'd be quite happy to go and look at the research and give you a response to your questions but in the absence of seeing the research and the numbers I can't respond to that.

JOURNALIST:

Mr Swan, are you concerned that banks will use the European debt crisis as an excuse not to pass on reductions on interest rates by the RBA?

TREASURER:

There would be absolutely no excuse for the banks not to pass on any rate cut that was delivered by the Reserve Bank should they chose to do so, absolutely none whatsoever. Can I also make the point that we have put in place a range of very substantial reforms to increase competition in the banking sector so if customers are unhappy with their bank they can walk down the road and go somewhere else – a whole series of measures to strengthen the mutual sector, for example, which is offering very, very competitive rates out there at the moment and as you've seen there has been an outbreak of competition between the big four. That's been encouraging to see in recent times as well. As you know, we've banned mortgage exit fees from 1 July this year. We've got a whole series of other reforms coming through the system which gives customers the capacity to walk down the road and get a better deal elsewhere.

JOURNALIST:

The asset management firm BlackRock said today, said yesterday rather, the carbon tax and the Resource Rent Tax (inaudible) less attractive place to invest, what's your response?

TREASURER:

Well, my response to that is in the investment figures that we are seeing at the moment. This year we have investment in resources alone of $80 billion, that's in 2011-12. One year ago it was almost $50 billion. I think the correct figure is $47 [billion] and the year before that it was $35 billion. So over that period investment in resources has doubled. So investors are investing here like they have never ever invested before and one of the reasons they're investing here is because Australia is a great place to invest and it will continue to be a great place to invest.

The MRRT – the Resource Rent Tax – is a really important long-term reform for Australia. First of all it makes sure that Australians get fair value for the non-renewable resources they own 100 percent. It takes the money that is raised through that tax and spreads it around our economy by giving a tax cut to 2.7 million small businesses. A significant boost also to the superannuation savings of the lowest paid workers in Australia, plus it funds additional investment in infrastructure. This is really important reform which is recognised as being necessary even by the largest mining companies in this country.

We have been through an extensive consultation about both the policy and its technical application over the past 18 months and we've reached agreement on that and we're putting that into legislation so we can further strengthen our economy and in particular support those businesses that aren't in the fast lane of the resources boom. That's the sort of reform that organisations like the IMF and like the OECD give a huge tick to. When you look at any of these external bodies that examine the Australian economy, they say a price on carbon is absolutely essential – tick. They say a resource rent tax is best practice taxation policy – tick. And the reason they do that is that they understand the importance of long-term reform.

This Government is doing the hard yards when it comes to long-term reform. We have an Opposition, for example, that believes that mining companies pay too much tax and thinks they deserve a tax cut and wants to deny 2.7 million small businesses a tax cut and deny a boost to the superannuation savings of 3.5 million Australian low income workers. I think there's a very clear choice here between a Government doing the hard yards on policy, building the resilience of the economy for the long term and an Opposition which simply just plays politics and is negative all of the time.

JOURNALIST:

On the euro zone crisis, I understand (inaudible) have postponed (inaudible)?

TREASURER:

Well, look the time for half measures, the time for blame shifting is simply over when it comes to Europe. The world is looking for Europe to take some very significant decisions which will not only have a big impact on the European-wide economy but on the global economy. So what we want to see from the leaders is some very significant commitments across a range of areas from the recapitalisation of their banking system all the way through to the building of a firewall which will protect the economies of countries like Italy and Spain because if we don't see that – plus an enduring solution for Greek sovereign debt – the events in Europe will spread throughout the global economy, slow global growth dramatically, and that will have consequences for even the strongly growing economies in our region, including Australia. That's why we need to see some real action from the European leaders. It's been going on for 18 months. The world is on tenterhooks waiting for Europe to take some definite decisions. The time has come for those decisions. Thank you.