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

27 October 2011

Interview with Fran Kelly

ABC Radio National

27 October 2011

SUBJECTS: European sovereign debt crisis; global economic outlook; interest rates; problem gambling

KELLY:

Treasurer, welcome back to Breakfast.

TREASURER:

Good morning, Fran.

KELLY:

Wayne Swan, what do you want to see out of this euro zone leaders meeting in Brussels? What's your bottom line?

TREASURER:

Well, we need a comprehensive plan that's credible. This is an extremely serious situation, Fran. The world economy has paid a very, very high price for the failure of the Europeans to act over the past 18 months and now it's time for those European leaders to deliver.

KELLY:

Okay, well the British Prime Minister wants a comprehensive plan too. He's called it a big bazooka. Do you have faith that this meeting will agree on the measures needed? And we've heard this morning those measures include the bailout fund being increased, the banks officially recapitalised and the bond holders on the Greek loans to take a haircut of around 50 per cent or more.

TREASURER:

Well, those are all the essential elements of a comprehensive plan but as this week has gone on I've got more and more concerned about the failure of the European leaders to agree to the plan because the global economy can't afford any more stumbles or anymore missteps. You see Fran, this has been going on for 18 months, since May last year, and every time the can has been kicked down the road. So the fact is that what we've seen is volatility, extreme volatility in international markets, a weakening of global growth. What is at risk here is a recession in Europe, which is then transmitted to the rest of the global economy. That's how serious it is, and the stakes now are really high.

KELLY:

So everyone knows the plan, as you've just agreed, but you're not confident. You're losing faith that they're going to get to this. We've got meeting fatigue on this, you'd have to say. It's not conceivable is it that these European leaders could head to the G20 Meeting next week without a result here?

TREASURER:

I think that is inconceivable. The fact is we have seen in Europe the consequences of political gridlock and we're seeing that still play out with the extension of these meetings. I mean, it was supposed to be last Sunday that we were going to see a comprehensive response. So there is an enormous amount of pressure. The eyes of the world are on Europe. It is a scary situation as the US President has said. What we need to see is a comprehensive plan that is credible and what that's going to require is political leadership in Europe.

KELLY:

And if it fails, if it doesn't produce a comprehensive plan today and tomorrow, the risk for the world economy - starting with Europe and then beyond - is what, a global downturn?

TREASURER:

Well, it's significant. We've already seen a weakening of global growth. We've heard the head of the IMF talk about a dangerous situation in the global economy. All of that is true. I mean, ask anyone who has been watching the stock market and ask our retirees here who've been impacted upon by these events, not just in Europe, but also in the United States. You see we've got two of the very big economic engines in the global economy misfiring and sending out negative messages which are impacting upon markets, causing extreme volatility. That has its own ramifications in terms of growth and uncertainty.

KELLY:

Australia would not be immune from another global downturn but at least we still have China. What did you think of Nouriel Roubini's warning this week that China is in for a hard landing, he said in the next couple of years, if strong growth is unsustainable?

TREASURER:

Well, I don't agree with that assessment of China. I think the fundamentals in China are strong but China is certainly not immune from a significant slowdown in the global economy and neither is Australia. It does have consequences for our growth and it does have consequences for our Budget but our fundamentals here are very strong and we're certainly in a better position than just about any other developed economy. And of course we saw yesterday an easing of inflationary pressures. We've got low unemployment, and we have a very strong investment pipeline, and we have low public debt. All of those things are fundamental strengths for Australia in this uncertain environment.

KELLY:

Australia has some of the highest interest rates in the Western world. Considering the fundamentals you talked to there, including the inflation numbers yesterday muted, do interest rates need to be so high here?

TREASURER:

Well, that's a matter for the Reserve Bank. They take those decisions independently. They made it clear in their statement a couple of weeks ago that there was room to move, particularly if the signs were that the global economy was weakening. So they are decisions that they will take independently but from the Government's point of view we've got a very strong fiscal policy in place. We've got the fastest return to surplus in our history. Fiscal policy is certainly playing a role but these are decisions that the Reserve Bank can take and does take independently.

KELLY:

We all remember the banks moved higher and faster than the Reserve Bank did. If the Reserve Bank starts to move down, is there any excuse for the banks not to move down by an equal amount, or perhaps even is there pressure on the banks to do more?

TREASURER:

There's certainly no excuse for the banks not moving down if the Reserve Bank was to cut rates. No excuse whatsoever.

KELLY:

Treasurer, can I move to another issue now on the poker machine reforms. Tony Abbott has now said a Coalition government would rescind mandatory pre-commitment technology if he won government. Why would Labor go ahead with the Wilkie legislation which is causing a lot of political pain for Labor MPs?

TREASURER:

Well, because we've got a commitment to deal with problem gambling through mandatory commitment. Yet again we're seeing from Tony Abbott this entirely negative approach. The fact is that there does need to be action in this area. Yes, it is controversial and it is causing a degree of public debate. But we can't walk away from this issue. It does have to be dealt with and the Government is working its way through a set of complex issues. It's not a question on the one hand of not supporting the clubs and on the other of dealing with problem gambling. They're one and the same. You can support the club industry and want to deal with problem gambling at the same time and that's what the Government is doing.

KELLY:

We do know that the Government moved on this because Andrew Wilkie urged it to in exchange or partly for his support for the Gillard Government.

TREASURER:

I think you would be aware Fran, that there's been a pretty strong debate about the need for there to be action in this area. It's not just a question of what has come from Andrew Wilkie. I mean, I think there is a community concern, a wide community concern about this issue. We are having a vigorous debate about it but it's one that we have to have.

KELLY:

And so you're making the pledge here that the Labor Government, the Gillard Government, will not water down its plans for mandatory technology?

TREASURER:

We'll meet our commitments. We are working our way through these issues. We're talking to the industry.

KELLY:

Well, they are your commitments...

TREASURER:

That's right, yes of course. We're working our way through all of the issues with the industry.

KELLY:

So you won't water it down? You're going to stick with mandatory pre-commitment technology?

TREASURER:

Yes.

KELLY:

Treasurer, thank you very much for joining us.

TREASURER:

Thank you.