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

30 November 2011

Interview with Fran Kelly

ABC Radio National

30 November 2011

SUBJECTS: Mid-Year Economic and Fiscal Outlook; global economic outlook

KELLY:

Wayne Swan, welcome to Breakfast.

TREASURER:

Good morning Fran, good to be with you.

KELLY:

Treasurer, this entire package is designed to deliver a budget surplus next year. Is that a goal rather than a guarantee?

TREASURER:

Well, it's right for the economy. It's right for confidence and it's right for jobs. It's the right economic policy for the times. I mean, if you look at what's been happening in Europe overnight but also over the past few weeks, the fundamentals in our economy are strong but we're not immune from the fallout. Let's just look at those fundamentals: low unemployment, a very strong investment pipeline, low debt, moderate income growth. These are all very strong fundamentals in our economy which are barely replicated in any other developed economy elsewhere in the world. But what we've had from events in Europe in particular is a very big revenue hit so we've had to take the tough decisions to make savings to return to surplus in 2012-13 to send that message to the world that this economy is in good shape.

KELLY:

All very well to send the message but the truth is you need everything to go right to meet that surplus target. Yesterday you were talking of the storm clouds gathering over Europe, the world economy is enduring the most difficult and turbulent time since the Great Depression, is what you said. It's not going to take much to wipe out such a very small surplus, is it?

TREASURER:

Well, we certainly need the Europeans to get their act together and we also do need the US to deal with its challenges, but fortunately we are forecasting trend growth here in Australia, and of course that is a forecast which the Reserve Bank is making as well. Most private forecasters are making that forecast, and of course the IMF and the OECD and many others have made similar forecasts. So we believe our forecasts are realistic. We do have a very strong investment pipeline and indeed investment in resources was just upgraded just yesterday from something like $430 billion to $455 billion. What we're trying to do here is to strike the right balance between keeping the budget in good shape on the one hand and supporting jobs and growth on the other.

KELLY:

It's a wafer thin surplus, there's no bones about that, 1.5 billion.

TREASURER:

It's certainly a modest surplus, Fran, there's no doubt about that.

KELLY:

Modest to the point that if it was applied to the average household budget of $67,000 a year, your spending would have to increase by just $5 a week just to push you into the red.

TREASURER:

Well Fran, you could make that comment about many surpluses over the years. There's been a number of things that have happened that have come out of the blue only in the last 12 months. Take the Queensland floods, they've had a very dramatic impact on our budget. And indeed in terms of the deficit that we're projecting for this year, what has happened here is that there has been extra provision for floods in Queensland, not just the floods this year because we've had back-to-back disasters in Queensland over two summers. So it's true that things can happen, Fran.

KELLY:

And of course we might have more disasters. I mean that's true and with respect Treasurer, if you look at the papers today virtually nobody believes you can deliver this surplus given the world economy, and a lot of people struggle to understand why it is so crucial. Can you explain to us why it is so important?

TREASURER:

Well, I certainly don't accept that nobody believes that we're not going to grow by 3.25 per cent Fran. That is trend growth. You will find that that figure is replicated not only by many of the international agencies that make judgements about our economy such as the OECD but it is also replicated by the Reserve Bank and it is also replicated by many private forecasters. So I think we just have to distinguish between what you might call some of the tabloid reaction and what some of those who work on these matters are saying. We've got really two camps. There's a group of people out there that says it doesn't matter whether we return to surplus and there's a group of people out there that say we should be really wielding the axe much harder than the very significant savings we've made in this budget.

We've chartered a middle course, and why have we chartered that middle course? Well, because we think first of all this sends a very important message to the world that fiscal policy in Australia is in good nick, That's a very important message to send when you look at what is the cause of the current instability in the global economy which is lax fiscal policy. We also believe Fran that having a surplus now is appropriate economically because we are still forecast to grow at trend and because we still have a very big investment pipeline. So we've chartered the middle course and some will agree, some will not agree, but what we have done is right for our country.

KELLY:

And if you accept it's important and appropriate as you've just argued, I guess you have to accept too it's also going to be difficult because – just to go on again about the fragility of this surplus – the Australian dollar, it's $1.5 billion surplus in your figures is predicated on an Aussie dollar at $1.01 to the greenback. A rise in the Australian dollar by just a few cents – and let's face it we've seen it up to $1.10 in the last 12 months – would wipe away the surplus. There's nothing you can do about that.

TREASURER:

Well, Fran you can make that comment about any surplus at any time, delivered by anybody. There are a whole set of assumptions that are made in the forecast. The Treasury are very conservative in the way in which they go about doing their forecasting. There's always a whole team of people that will be out there taking pot shots at the Treasury. All I can say to you is that we've put these forecasts together in good faith. They have been done by the Treasury who did the forecasting for this government, the forecasting for the previous government. The forecasts are very similar to what the Reserve Bank has put forward in recent times. In fact earlier in the year the Treasury was more conservative in its forecast than the Reserve Bank was. So what I say to you is that this is the best possible advice given by a group of professional economists who've been paid to do it by both sides of politics over a long period of time and in whom most people in this country have a high degree of faith.

KELLY:

Treasurer, the Opposition has complained of accounting gymnastics to engineer the surplus and they point to the $1.4 billion in nation building road and rail projects brought forward to this financial year which inflates the deficit this year but helps to engineer a surplus after that. Would your surplus have been achieved if you hadn't changed that around?

TREASURER:

Well, there certainly have been some deferrals and there have been some bring forwards and that is entirely normal in any budget process. When it comes to the acceleration of investment and infrastructure of $1.4 billion, I'm proud of that because that's important. Things are still relatively weak in what is called the non-residential construction sector. We did have the capacity to accelerate some projects so we brought them forward, that's important. What we also brought forward as well was a prepayment in terms of flood money to Queensland, entirely legitimate. And there were also additional expenses in the year from previous floods and natural disasters around Australia. They are the sorts of things that the Opposition won't tell you about when they talk about and make their allegations of how the surplus has been achieved. The fact is that these bring forwards, if you like, are unavoidable or essential and we certainly don't apologise for them and there is nothing abnormal about them.

KELLY:

What about one of the, one of the major savings measures is the one-off 2.5 per cent efficiency dividend across the Commonwealth Public Service. Now the CPSU says that could result in as many as 3,000 jobs going. How many public servants will lose their job?

TREASURER:

Well, I don't believe there will be any forced redundancies and I don't necessarily accept those sorts of characterisations of the efficiency dividend.

KELLY:

Well, it's not a magic pudding. I mean, how do you cut all this money out?

TREASURER:

Look we've got to tighten our belt. We make no apologies for that. There is belt tightening going on across a range of areas and it's very important for the public sector to be part of that, but of course there are plenty of people who move in and out of the public service on a regular basis. What we will do and what we've said to the public service is that we will make these savings which should be targeted to the more discretionary areas.

KELLY:

And it will include cuts to advertising, the Finance Minister told us yesterday. Does that mean the carbon tax ad campaign will be put on hold?

TREASURER:

Well, we've certainly been much more prudent in this government than the previous government.

KELLY:

Does that mean no carbon tax ad campaign?

TREASURER:

Well, what we'll have to do is provide essential information in a range of areas, but what we will do is be more prudent certainly than the previous government, that's important, and that area should be targeted as should other areas in terms of legal services and so on, and consultants and the rest of it.

KELLY:

Okay, and Treasurer, the ratings agency Fitch yesterday upgraded Australia's sovereign rating to AAA, bringing it line with Standard and Poor's and Moody's. I think that's the first time we've had all three agencies give Australia a AAA rating. Would that have happened without the spending cuts you announced yesterday?

TREASURER:

Well, that certainly predates this update but it does say that it's very important that we keep our fiscal rules in place and continue to apply them. This is a very significant event for Australia. It's the first time that gold-plated AAA rating has come from the three major rating agencies in the world. The first time in history and what it refers to here is low levels of debt in Australia and good public policy in Australia.

KELLY:

And just finally Treasurer, what percentage chance to you give of a global recession next year, fifty-fifty?

TREASURER:

Well, what we want to see is the Europeans get their act together. We want to see the Americans do the same. We're hoping for a better outcome in both of those big economic engines in our global economy.

KELLY:

Can we avoid a global recession?

TREASURER:

Well, I think we have to do everything we possibly can. I don't think we should get too pessimistic about it, but there is a risk on the downside here which is why we need the Europeans to make some substantial progress.

KELLY:

Wayne Swan, thank you very much for joining us.

TREASURER:

Good to be with you.