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

25 January 2012

Interview with George Roberts

ABC Radio, AM program

SUBJECTS: IMF World Economic Outlook; Australia's economy and bank system

EASTLEY:

Despite some of the gloomy IMF predictions the Federal Treasurer Wayne Swan is upbeat about Australia's financial position. He says Australia doesn't need to change its financial forecasts and he believes a budget surplus is possible next financial year. AM's George Roberts is speaking to Wayne Swan.

TREASURER:

Well, certainly there's a substantial downgrade in terms of global growth but that downgrade is not unexpected, and indeed we have taken that downgrade into account when we produced our mid-year budget update at the end of last year.

ROBERTS:

But this is lower than previously thought. I mean, this is a worse outlook than we have seen before. So surely that means you now need to reassess your situation.

TREASURER:

Not at all. In fact the growth figures that they are using for global growth are similar to what we included in the mid-year update which was published last November, and I think Australians should take that into account. Australia is projected to grow by 3.25 per cent this coming year and the year after by 3.25 per cent. We're certainly not immune but we're fortunate to be in the region of the world which is least affected by these events in Europe.

ROBERTS:

We'll come to our region in a second, but if we can just focus on Europe. The IMF's forecasts have dropped since September to now and that shows that things can change in that short period of time. If this continues over the next year, surely that affects the Budget.

TREASURER:

Well, what we've factored into our forecast is a recession in Europe. We anticipated that at the end of last year but of course if things were to get even worse in Europe that would have a further impact on global growth and a further impact in our region. If you have a look at the forecasts of the IMF for our region, and whilst they've come off somewhat, the region still does have the prospect of reasonably healthy growth in places such as China and India and across the region.

ROBERTS:

So do you still think you can achieve a budget surplus of $1.5 billion next financial year?

TREASURER:

Well, we're absolutely determined to bring our budget back to surplus. A surplus in 2012-13 is very important, particularly given the sovereign debt problems that we are seeing in Europe.

ROBERTS:

The IMF has also warned that there is a potential of a world-wide 1930s style crash. Have you factored that into your future budget forecasts?

TREASURER:

No of course we haven't because that would be completely irresponsible. The fact is that the IMF is commenting about what the extreme outcome could be if those circumstances were to arise. They've not arisen as yet and therefore it would be irresponsible to factor that into forecasts.

ROBERTS:

But surely you must have to factor that, you know, if circumstances head that way that the Government has to do something drastic. So what would you do?

TREASURER:

Well, we've handled global instability of that type before. We handled that in 2008 and 2009 and we came out of it in the best position of just about any other developed economy. So what…

ROBERTS:

But in 2008 and 2009 – I'm sorry to interrupt – you had a large budget surplus that you were able to spend to stimulate the economy and you say that protected you. You don't have that advantage this time.

TREASURER:

Well, the first point I'd make is that 2012 isn't 2008 and we're not facing those circumstances where there was a dramatic drop in global demand.

ROBERTS:

The IMF says that we could be though.

TREASURER:

Well, it's a potential risk, but the fact is we're not facing that at the moment but the fact is also that Australia has the most policy flexibility of just about any other developed economy when it comes to both fiscal policy and monetary policy.

ROBERTS:

What would you do?

TREASURER:

Well, what I've said before is that we've got policy flexibility in both monetary policy and fiscal policy.

ROBERTS:

What specifically though in monetary and fiscal policy do you have left though?

TREASURER:

Well, I think the Reserve Bank has made the point that there's room to move when it comes to monetary policy. In terms of fiscal policy, the Government would have to take choices at the time but we're not anticipating that happening.

ROBERTS:

You don't have control over the Reserve Bank, but if we can move to banks, the IMF report says that Australia's big four banks don't have enough capital to withstand a severe financial crisis which it's predicting could happen. Does that mean that banks need tougher capital requirements in Australia?

TREASURER:

Well, banks are already putting in place tougher capital requirements through the Basel III process and our banks are capitalised compared to other banks to a far higher degree than just about any others elsewhere in the world.

ROBERTS:

This report says that they don't have enough though to withstand a severe financial crisis so do they need to take tougher measures or does the government need to step in and make them take tougher measures?

TREASURER:

Well, we have one of the best regulators in the world, APRA, they supervise our banking system and they are satisfied with the existing capital abilities of our banks.