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

Press Conference

Canberra

27 October 2011

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

TREASURER:

Well, good afternoon. The world is still waiting for the Europeans to announce their resolution to the sovereign debt crisis in Europe. I think the world has paid a very high price for Europe's failure to act over the past 18 months. So the world is watching. Now is the time for the Europeans to act. The global economy cannot afford anymore stumbles or missteps from the Europeans. It's critical that we see a comprehensive plan announced by European leaders as soon as possible and it needs to be a durable and credible plan, and it needs to be for the long term. It's got to deal with Greece's challenges of sovereign debt. It's got to deal with the recapitalisation of the European banking system, and it's also got to build a war chest to stop the contagion spreading throughout Europe, particularly for some of the larger economies in Europe.

As you would be aware, through the G20, finance ministers like myself and from elsewhere outside of Europe have been making our views very clearly known to our European colleagues. So it is important that we see a credible strategy not just for the short term but for the long term. So this situation in Europe will continue to impact upon the global economy. If they do not act we could well see a European recession which would then flow on to global growth and that would have implications for growth in the region, as well as in Australia and that could, in turn, impact upon our budget bottom line.

I want to make this point, that Australians should remain confident about our economic prospects because we have strong fundamentals in our economy. We have very low debt, very low unemployment, and we have a massive investment pipeline. So we are in a better position than just about any other developed economy to deal with the fallout from what's occurring in Europe as we speak. Over to you.

JOURNALIST:

Treasurer, who do you think is most to blame for the fact that Europe can't get this together? Is this Italy and Greece resisting?

TREASURER:

No, I think it's a collective responsibility. This issue first emerged in May-June last year. The Europeans have been kicking the can down the road for the past 18 months. So I think there's a collective responsibility in Europe to deal with this. The challenges that they are dealing with have taken a long time to develop, and of course there will be long and painful adjustment in Europe when they put in place the policy settings that are required, but unless those policy settings are put in place we will not get the degree of certainty that we need in global markets for the rest of the world to continue to grow.

We have seen the impact here, particularly in terms of our share market and what that means, for example, for retirees. Even though our economy is strong, even though our region is strong, we are not immune from the fallout from these events, but they may well go to a new stage unless we see a comprehensive plan, not just announced, but also a plan which will fight the war for the longer term. What that means is a credible plan when it comes to fiscal consolidation, for example, in a number of European countries, a credible plan that recapitalises the banks.

Now, fortunately for the global economy, the Americans dealt with this challenge in their country over the past couple of years. Unfortunately it was not dealt with in Europe – the stress tests didn't work. Now all that is coming back to haunt the Europeans that is why we do need a comprehensive plan that deals with, not only firstly the sovereign debt crisis in Greece, but also with bank recapitalisation, and you can't really deal with that unless you come to grips with the size of their stability fund or their bailout fund. It needs to be big enough to provide assurance to markets that they can deal with the challenges from some of the larger economies.

JOURNALIST:

What sort of growth trajectory are we talking about here, Treasurer? You're saying that there could be these knock-on effects.

TREASURER:

Well, there has already been knock-on effects. We've seen the IMF, for example, revise down global growth figures and we've also seen their projection for European growth revised down and it could go further. But look we are in a situation where there isn't a degree of certainty. What we do know is that the uncertainty continues and it is heightened and it is accompanied by heightened volatility that will produce a number of effects. One will be the flow of credit, it will be endangered in key parts of the global economy, and that is what is worrying, for example, many people in emerging markets.

JOURNALIST:

Sure, but just let me finish the question.

TREASURER:

Sure.

JOURNALIST:

Given the sorts given the sorts of trajectory, even if there is a solution reached out of the meeting, do you think that the knock-on effects on things like credit and economic activity is such that the Government would have to consider resetting its fiscal settings in terms of macro…

TREASURER:

Laura, it's far too early to tell.

JOURNALIST:

Before the Budget I'm saying.

TREASURER:

In the ideal world we'd see a comprehensive plan from the Europeans which they quickly set about implementing and restoring a degree of confidence in their actions and therefore a degree of confidence back into global markets. That is going to take time but the implications for us in terms of the next two, there, four months are not clear at all.

At the moment our region is still growing strongly. Growth in China is still very healthy. I mean, you will see various reports about that but the fact is that growth in China, the most recent figures there, are strong. You will see reports about commodity prices coming off, but volumes still remaining high.

So, growth in our region is still relatively strong. I would just make the point that the problem we've got in the global economy is we've got two of the big economic engines misfiring. It's not just what's going on in Europe, it's also what is going on in the United States and whilst in the last week or so we have seen some evidence of green shoots in the United States' economy, most people are pretty sceptical about whether growth there can lift and be sustainably lifted. With those two events going on then that proposes challenges to global growth and that's really the problem we face.

JOURNALIST:

Well, just on the policy implications here. The mining tax and its associated (inaudible) measures, are due to come, be debated fairly soon. Does this put more pressure for that legislation to at least be through the House by the end of this year as a possible vehicle for helping any fallout from Europe in the first months of next year?

TREASURER:

Well, we think it is absolutely vital legislation for the future of our country and it goes to the very core of having sustainable growth which is spread to all quarters of our country. The revenue from the MRRT will be spread right around the country, spread right around the country by giving a boost to the superannuation savings of some of our lowest paid workers, spread right around the country by giving a very significant tax cut to 2.7 million small businesses through providing, over time, a reduction in the company tax rate.

So the mining tax is one way that we spread the opportunity of resources boom to all of our country, and that is why when you look at the pipeline of resource investment that we've got, some $430 billion, you can see the importance of legislation such as this. It's the vehicle or one of the vehicles by which we spread the opportunity of the mining boom.

JOURNALIST:

Gina Rinehart says it will damage investment and confidence in the mining sector.

TREASURER:

Yes, well we've heard this familiar cry from a number of individuals who are very good at claiming the sky is going to fall in whenever they think their immediate economic interests may be challenged. Let me say this: the mining investment pipeline has continued to grow year after year after year, and we've heard the likes of Ms Rinehart and others predict over the past two years the end of the mining boom, the fact that there wouldn't be investment and so on, and it's all come to nought. Investment has continued to flow and it's continued to get bigger.

So $80 billion in terms of resource investment in 2011-12 compared to $47 billion the year before, compared to $35 billion the year before that. So enough of this Jeremiah-type activity. The truth is that mining investment is very healthy, is continuing to grow, and is a very, very important part of our economy, and having in place a resource rent tax which gives a fair value to the Australians who own those non-renewable resources 100 per cent and which can only be mined once is a critical objective of public policy.

JOURNALIST:

Treasurer, do the problems in Europe and the United States make the budget surplus target more difficult to achieve?

JOURNALIST:

Yes it does. It's only commonsense to observe that an impact upon growth will make that surplus target harder to achieve, that is true. I've said that on many occasions before today, but the Government is determined to achieve that target, but there is no doubt a slowing of growth does have an impact on revenue and on the Budget.

JOURNALIST:

Treasurer, can I have your reaction to the massive profit announced by the National Australia Bank today and what that should mean in terms of passing on any future interest rate cuts?

TREASURER:

What it demonstrates is that our banks are very profitable and there is absolutely no excuse for any bank not to pass on any Reserve Bank rate cut, absolutely no excuse whatsoever.

JOURNALIST:

Treasurer, you've been offering the EU a fair bit of free advice - the Government, yourself and the Prime Minister - on the need to, I guess, stabilise in Europe. Would Australia be willing to put its money where its mouth is and actually contribute to a stabilisation fund or bailout fund?

TREASURER:

Well, can I just say that the advice that has been offered has been offered face to face through meetings in both Washington with the IMF, World Bank, G20 and once again G20 meetings back in Paris about two weeks ago. So there's nothing that's been said here that hasn't been said directly to the Europeans, not just by Australia, but by many other countries.

Now what we have said is that we think it's appropriate that the international community have a look at what resources the International Monetary Fund has available to it, because it's appropriate we would evaluate that in an environment where there is now obviously much greater global volatility. As you know, the IMF is still involved with the Europeans in some of the issues relating to Greece, but in the first instance, any bailout fund in Europe is the responsibility of the Europeans.

JOURNALIST:

When are we going to see the mining tax through?

TREASURER:

Well, we'd like to get it through the House of Representatives as quickly as we can. As you know, we've been extensive process of consultation through the tax group that we've established, and that implementation group finalised the technical detail of all the legislation in the last three or four days and we're just getting the legislation into shape to put into Parliament.

JOURNALIST:

(Inaudible)

TREASURER:

I won't commit myself to a time frame just yet but we would like to get it through the lower house this year.

JOURNALIST:

Treasurer, some of your Ministerial colleagues seem increasingly cold on the idea of the pokies changes. How committed is the Government to pursuing the changes as demanded by Wilkie?

TREASURER:

Well, we are absolutely committed to taking substantial action to deal with problem gambling. It wrecks lives. It destroys families and we do need to deal with this issue and it's not an issue which has just arrived with an independent. It's an issue that has been with us for some time and one that the Government has been talking about dealing with for some time. So I just want to put that into perspective and I will come to the nub of your question.

We are determined to put in place mandatory pre-commitment technology. We are working with the industry bearing in mind that key objective and Minister Macklin has been engaging with the industry as to how we go about doing that and we'll continue to engage with the industry to do that.

Now it's no secret that there is very substantial opposition from some sections of industry and of course a lot of money is made on the pokies and there's nothing wrong with that, but what we have to do and what we have to see is that we do something really substantial about problem gambling and we believe that the recommendations that came through from the Productivity Commission were the basis of a response and the Government is moving forward with that response working with the industry.

JOURNALIST:

Do you accept that your reforms will damage Crown Casino's business?

TREASURER:

Well, I've not seen any commentary today but Crown Casino makes a lot of money out of poker machines, there's no doubt about that. I haven't seen their figures today. But the Government is determined to put in place fundamental reforms that deal with problem gambling and we shouldn't lose sight of that and mandatory pre-commitment technology is the vehicle that we are implementing to do that and we think that's a very important objective to not lose sight of. At the end of the day this is about dealing with problem gambling which hurts a lot of people, and there are various and different opinions about the way in which you go about that. People will express their views vigorously and the Government will pursue our agenda.

JOURNALIST:

Treasurer, (inaudible)?

TREASURER:

I beg your pardon?

JOURNALIST:

There appears to be a deal done in Europe.

TREASURER:

Well, okay.

JOURNALIST:

It includes banks paying for the loss of 50 per cent on Greek bonds. I just wonder what your thoughts are?

TREASURER:

Well, I haven't seen what's, sort of, finally come out of the meeting. What is it 3am or 2am at the moment? But, as I ran through before, there are essentially three or four elements of what must be done to sort out the Greek sovereign debt issues and the size of the haircut associated with those.

JOURNALIST:

It's supposed to be 50 per cent.

TREASURER:

You've just informed me that it's 50 per cent but I haven't seen all the detail but that's an important part of the equation and secondly recapitalisation of banks and how that is going to be done and then there is the European financial stability facility, how big that will be to prevent contagion spreading from Greece to other larger economies.

So I don't think any one thing on its own is going to work here. I want to make this very, very clear. It is a range of issues which have to be put together and are all interconnected. So, you know, I'll go away and I will make sure I have a look at what the early reports are, but what is most important here is a comprehensive package of reforms which is credible for markets and which is enduring over time. Thanks a lot.

JOURNALIST:

Does the Government welcome the Malaysian Prime Minister's commitment to the deal that it's done with Australia?

TREASURER:

We think this was the most effective measure that could be put in place to break the people smugglers' model and we still believe that. Thanks.