The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

30 January 2012

Interview with Fran Kelly

ABC Radio National

30 January 2012

SUBJECTS: Global Outlook, Australian Economy, Tony Abbott's Negativity, Interest Rates, Australia Day

KELLY:

The Treasurer joins you now from Canberra. Treasurer, welcome back to Breakfast.

TREASURER:

Good morning Fran, How are you going?

KELLY:

I'm well thank you Treasurer. Can we go to the EU debt crisis first because it looks like private investors have done a deal. Does this reduce the chance of a major blow-up in the financial systems?

TREASURER:

Well, if that's true that would be welcome news. I've read that report as well and this has dragged on, as you know, for well over 12 months. So if that deal is finally done that certainly is a significant advance because, you see, one of the challenges we have in the global economy and one of the challenges we have here locally is there is too much focus on the downside risk.

And of course we do know that there is risk which emerges from the European situation and sorting out this matter with the bond holders is quite important and that's been dragging on for some time and of course it's led to the revisions downwards in global growth from the IMF and the World Bank.

But it's also led to excessive pessimism in my view both globally and here in our region because whilst there are serious problems in Europe, here in Australia we shouldn't let the downside risk that we see in Europe blind us to the fundamental strengths in our economy which are showing through week after week, month after month.

KELLY:

As I mentioned, you said overnight that Australia can deal with the worst the world can throw at us but what if it is a deep recession in Europe? Are you saying that won't affect us?

TREASURER:

Well, we've already factored into our mid-year forecasts, which were published last November, a recession in Europe. You see, when those IMF downgrades were published a week or so ago the debate here was as if this was a new turn in the global economy. When we put our forecasts together for trend growth in Australia this year and next we had already factored into those forecasts a downgrade in global growth. So you see, part of the feedback loop we're having here in terms of confidence is these continual reports about downgrades are assumed to be a new event in the economic outlook for the global economy and also for ours and they simply are not. They have been expected and factored in to many people's forecasts already.

You see, here in Australia we still are expecting trend growth this year and next year and if you look at our economy Fran, it's 7 per cent bigger than it was prior to the Global Financial Crisis. We had some data out on the weekend from growth in the United States and the United States economy has only now got back to the size it was prior to the Global Financial Crisis. So that 7 per cent increase in the size of our economy is a measure of our economic health relative to other developed economies.

KELLY:

So what you're saying is that the Australian Government and Treasury has already factored in the impact of a recession in Europe, not so much that the potential danger to the economy has been overstated, or do you think it has been?

TREASURER:

Look, I think there are great dangers emanating from Europe but we shouldn't be blind to the opportunities which will flow to countries in our region and opportunities which are already here for our economy. I mean, we've got an unemployment rate at 5.2 [per cent]. We've got a really strong investment pipeline in this country in resources alone - something like $455 billion. There's been something like 700,000 jobs created in Australia in the past four years, that's a record which is not equalled by just about any other developed economy and of course we've got contained inflation and reasonably strong consumption and income growth. All of those things are really rock solid fundamentals in our economy and which do give us the capacity to resist the worst that the world can throw at us but we're not immune from that.

KELLY:

Treasurer, what we've also got in this country is a confidence problem and I think I'm hearing your frustration here. The Prime Minister is planning to use her speech to drive home the point, all those points you made - interest rates lower, taxes and unemployment, all lower under Labor. That's going to be the pitch. But outside the mining sector, business confidence is below par and has been stuck below par, consumer confidence is low, small business is struggling. Why aren't they feeling the optimism you feel?

TREASURER:

Well, certainly we do live with some of the effects of the Global Financial Crisis and the global recession. You see, events in Europe, for example, weigh very heavily on our stock market and of course when they weigh heavily on the stock market that affects the prospects of retirees. We've also got a higher dollar which impacts on manufacturing and tourism and so on and that's why the Government talks about the patchwork economy and that's why we're focusing so strongly on spreading the opportunities which flow from investment in the resources sector. That $455 billion worth of investment is a very big boost to our economy but we've got to make sure that as much of that as possible is felt in every sector of our economy.

But on top of that I think we've had an excessive preoccupation with the downside. I think there has been a lot of talking down of our economy certainly from our political opponents, the Liberal Party, constantly out there misrepresenting our economic fundamentals.

I mean we've now got the gold plated AAA credit rating, sovereign rating, from the three major credit rating agencies in the world for the first time in our history. Not something that ever occurred under the Liberal Party and we've got the Liberal Party out there all the time talking up debt and deficit and misrepresenting it. That sort of talking down of our economy is something that we don't need.

KELLY:

Consumers struggle to make sense of all these different indicators and you talk about the economy being rock solid, you talk about the gold plated triple rated economy but there are still problems if we look at the Labor market which is obviously crucial for all of us - zero jobs growth last year, youth unemployment up 17 per cent.

TREASURER:

I think that's a very good example to raise because that jobs number that we got a couple of weeks ago left unemployment at 5.2 [per cent] but it is true that employment growth has softened. We've had relatively strong employment growth in Australia over the past few years and it has softened somewhat but the reporting of that figure was an example of people being excessively pessimistic and going too far to the downside. You would have sworn reading that coverage of that employment number that somehow we had an unemployment level which was back at the early 1990s of 10 per cent or 11 per cent, similar to what they've got in Europe and the United States.

We've got unemployment at 5.2 [per cent], job growth has slowed. Certainly some sectors are very tough. The auto industry is tough. Tourism has been tough, particularly on top of the flood and all of those effects. So there are different things happening in the economy at different times and not everybody is doing well in the economy, but we've got to get some balance, a reality check if you like, back into that discussion and that's what I'm arguing.

KELLY:

In terms of the positives though, the Government positively forecast half a million new jobs over the next few years to be created. Given the zero jobs growth last year, are you still confident that that figure holds, that it can be achieved?

TREASURER:

Well, certainly we will do less than that and we indicated that when we brought down the mid-term review at the end of last year. Certainly employment growth has slowed, no doubt about that, but the outlook for our labour market is still far stronger here than just about any other developed economy and what we have to do is to look at the opportunities that are out there. But the reporting of that unemployment number was such that you'd swear that people were thinking that unemployment in Australia was heading to 10 per cent like it is in Europe or 8 or 9 per cent like it is in the United States, that's simply not the case.

KELLY:

You're talking about people talking down our economy, talking down our prospects. A report by accounting firm Pricewaterhouse Coopers quoted in The Australian newspaper today says political interference is one of the top threats to Australia's banking system. Will you be pulling back from your criticisms of the banks and interest rates?

TREASURER:

I won't be pulling back from my discussion about the important issues associated with interest rates. I will be making frank and fearless comment about that. The fact is that we have very highly profitable banks in this country; their return on equity is unequalled in the world. So they are very profitable. And I've put a lot of time and effort into supporting the banking system. I'm very supportive of our banks. I'm very delighted that our banks are profitable, that they are strong, that they are highly capitalised. All of those things are highly desirable features of our banking system but at the same time we need a banking system which is competitive and which delivers to its customers a good deal, and that's why I spent a lot of time put in place a whole series of measures to make our banking system more competitive so that if customers are unhappy with the behaviour of their bank they can walk down the road and get a better deal.

KELLY:

It's 18 minutes to 8, our guest this morning is the Federal Treasurer Wayne Swan. Treasurer, another issue really consuming the headlines at the moment and really overshadowing the economy, the fallout from the Australia Day protest which has now claimed the job of one Gillard media staff person. The Opposition is demanding a full police investigation. Would you welcome a police probe into this?

TREASURER:

Well, I don't think the Government has got anything to be concerned about and that's entirely a matter for the Federal Police but, as I understand it, they've already announced that they will not be necessarily be investigating this but that's a matter for them. But what we're simply getting here from Tony Abbott and the Liberals is a fully-fledged smear campaign. That's what we're getting and we should call it for what it is.

The fact is that the behaviour of those people from around the tent embassy outside the Lobby restaurant was appalling. It was a blight on the country. Those people who engaged in that activity have done enormous damage to their cause and to our national standing, but for Mr Abbott now to try and turn all of that on its head and to throw mud at Julia Gillard and the Government over it is yet another example of just how negative Tony Abbott is.

KELLY:

But isn't it the point though that the protesters wouldn't have moved onto the Lobby restaurant if they hadn't got the news that Tony Abbott was there, and that news came via a third party from the Prime Minister's office?

TREASURER:

Fran, the Prime Minister has dealt decisively with that. The Prime Minister was the butt of that demonstration. It has been very damaging to our country, but the fact is Mr Abbott, as is usual, is seeking to divide the country over the issue, seeking to take political advantage of it by turning it into another smear campaign against the Prime Minister and that's entirely typical of Tony Abbott.

KELLY:

Police probe or not, this throws a light on the way spin and media manipulation can occur, you know, with the help of political staffers. Are you concerned about that? Would you like to see practices change?

TREASURER:

Fran, that's entirely a matter for the Federal Police. They exercise their powers independently. It's entirely a matter for them. And the actions of a staffer have resulted in his resignation, that is entirely appropriate and all of those events are entirely regrettable.

KELLY:

Wayne Swan, thank you very much for joining us.

TREASURER:

Thank you.