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 Sabra Lane

ABC Radio, AM Program

30 November 2011

SUBJECTS: Mid-Year Economic and Fiscal Outlook

LANE:

Wayne Swan, welcome to AM.

TREASURER:

Good to be with you.

LANE:

How can you give a cast iron guarantee to return the budget to surplus next year when the European debt crisis has already blown a hole in the coffers and no one seems to have any idea of just how bad this contagion from Europe's going to be?

TREASURER:

Well because we rely on forecasts from the Treasury. They are a very professional organisation. They are forecasting growth of 3.15 per cent this year. That is trend growth. There are fundamentals in the Australian economy that are very strong. If you look at the fundamentals: low levels of unemployment, very strong investment pipeline, low levels of debt.

We stand out in the world when it comes to the strength of our domestic economy but it is true, we're certainly not immune from events in Europe and of course our forecasting takes that into account. Our forecasting, for example, expects a recession in Europe and of course our forecast has downgraded growth in China by a little. So what the Treasury does is make its best judgement about the prospects for the year ahead based on where we are at this point in time.

LANE:

But Treasury obviously seriously underestimated the eurozone crisis. It was $15 billion out on forecasting this year's deficit. Can Treasury's forecast be relied on now?

TREASURER:

Well, first and foremost, let's just go through what's happened. There's been a change for the worse - a dramatic change for the worse - in Europe. The fact is that nobody expected it would take that turn. People expected that the Europeans would have got their act together, to put in place...

LANE:

And who's not to say that's going to continue?

TREASURER:

Well, nobody can say that won't continue but what we can do is look at the fundamentals in our economy, look at the fundamentals in our region, look at what is going on elsewhere in the world.

And as I said yesterday in the press conference, growth has been downgraded for Europe. We do expect a recession in Europe. Growth has been downgraded in the United States. That is taken into account in terms of the forecasts that we have here.

But I just would caution you, or any one of your listeners, about making a judgement at just one particular point in time. What we have to do is assess the situation in total. We have to give our best endeavours in doing that. The world isn't perfect when it comes to forecasting. But what I can say is that the Treasury has always been much more conservative than many other organisations. The Treasury's forecasts are very similar to the forecasts from the Reserve Bank of Australia, from the OECD, from the IMF and of course many private forecasters.

LANE:

Last year Government ministers attacked the Coalition's 2 per cent efficiency dividend on the public service. The Prime Minister Julia Gillard said that the result would cut services to families. So how can you argue that a 4 per cent efficiency dividend on the public service won't affect services?

TREASURER:

Well because our proposal is different from the Coalition. The Coalition actually announced a complete freeze on staff in the public service. So they've been a little cute in comparing their policy to ours.

Now, we've said very clearly in the past - and we've said it in this statement - that there needs to be restraint and belt-tightening across the economy, and of course the public sector has to be part of that. So this is very substantial belt-tightening in the public sector but with common sense attached. The proposal that we've seen from the Coalition in the past has been a very blunt instrument.

LANE:

But the Government has brought forward a lot of spending to this year. More than $200 million for coal sector jobs, more than a billion in infrastructure spendings brought forward. Is this a smoke and mirrors trick, as the Opposition says, to protect your budget surplus next year?

TREASURER:

Not at all and I'm happy to go through the reasons why the deficit has increased. For example, there's been a $5 billion revenue right down. But there's also been extra flood payments made to Queensland - absolutely essential.

It's not just what happened with the floods in January this year and Cyclone Yasi. There are also additional payments for previous natural disasters. That's unavoidable.

It is true that we have brought forward an accelerated investment in infrastructure. That's important because there is weakness in non-residential construction and we've seen that we've been able to do that more quickly. That's entirely a reasonable thing to do.

And these things are not uncommon in terms of budgeting for any side of politics. So for the Opposition to characterise these things in the way that they have is simply unfair and part-and-parcel really of them continuing to talk down the budget and our economy.

LANE:

At a time when the Government talks about increased productivity and a lack of interest in science and maths, why are you making HECS fees higher for science and maths students now?

TREASURER:

Well this was a measure which was put in place to increase participation of students in science and maths. It hasn't worked. What the Prime Minister has said is we want to go back to the drawing board and come forward with fresh initiatives.

We remain absolutely committed in this area. We have put a lot more resources into education broadly from early childhood, all the way through primary, secondary and tertiary education.

And we're also engaged at a very fundamental reform of vocational education and training. What we've seen here is that we haven't got the result that we want. We want to go back to the drawing board and put in place new initiatives.

LANE:

Many of these changes - the HECS changes, the cut to the baby bonus - will need parliamentary approval. The Greens and the Independents already are saying they're going to fight these measures. How are you going to woo them now, given that you don't have the cash for the usual horse-trading.

TREASURER:

First and foremost we have to get these savings through the House of Representatives. Now the Coalition has said that they want a faster return to surplus. They want lower tax and they've said they don't support some of these savings. And on top of that they've already got a $70 billion crater in their budget bottom line. So if they don't support these savings, that $70 billion crater will get higher. So we'll see who is serious about disciplined fiscal policy in the House of Representatives when these matters come to the Parliament.

LANE:

But the Independents and the Greens are probably the people that you're going to need to woo through the House of Reps. You don't have the cash on hand now to woo them. What are you going to do?

TREASURER:

It would be a good idea to see an outbreak of common sense in the Liberal and National parties when it comes to economic policy instead of their wrecking tactics.