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

18 April 2012

Interview with Sabra Lane

ABC Radio, AM Program

SUBJECTS: IMF World Economic Outlook shows Australia performing better than every major advanced economy, upcoming G20, IMF, World Bank meetings in Washington; $1000 Jobs Bonus; Economic Potential of Senior Australians report and Government response; Andrew Forrest, Clive Palmer; RBA charter; RBA minutes yesterday on bank funding costs

LANE:

Deputy Prime Minister, welcome to AM.

TREASURER:

It's good to be with you, Sabra.

LANE:

You're off to Washington today for G20 and World Bank meetings. The IMF's latest economic snapshot says the global recovery is still very fragile. It shaved Australia's growth rate down to 3 per cent [sic]. You're still aiming for a surplus next month. Why, given that fragile outlook?

TREASURER:

The IMF forecasts are consistent with our forecasts that were in the mid-year budget update but I'd like to make this point about the IMF forecasts. The IMF forecasts show that the Australian economy will outperform every other major advanced economy this year and next.

LANE:

But it still points to the fact that things are fragile around the world, it even points to the banks in our region saying that they're reliant on wholesale funding and they're very vulnerable to further tightening in access to credit.

TREASURER:

Well, going to the IMF meeting and having the G20 meeting is an ideal opportunity to take the temperature in the global economy, to meet with people like Christine Lagarde and Ben Bernanke. What we do know is that the global economy has, if you like, strengthened slightly in the first quarter of this year but the outlook is still uncertain. As they say in the IMF jargon, the risk is on the downside.

LANE:

The former Commonwealth Bank boss and respected businessman, Ralph Norris, says that your pursuit of a surplus is mindless.

TREASURER:

Look, I think that a surplus in the conditions that Australia finds itself is the responsible thing to do. You see, we have an economy which is growing around trend. We have unemployment at 5.2 per cent and we have a huge investment pipeline. This is the best defence for Australia at a time of global uncertainty but it also provides the maximum opportunity for the Reserve Bank to reduce interest rates if they desire.

LANE:

You've already flagged that tax receipts will be downgraded again in this budget. The estimates were revised down in the mid-year update late last year. There's a report this morning that suggests that Treasury is investigating itself for overestimating its forecasts. Is that right and why can't it get its sums right?

TREASURER:

Well, first of all the reason we've got revenue write downs, some $140 billion since 08-09, is because of the global uncertainty that we've been talking about before. That is a consequence of a weak global economy and it's also a consequence of impacts on financial markets particularly with flow from Europe. So we have had to write down our revenues by $140 billion and we will write them down again in this budget. But we still have an economy which is growing around trend, we still have unemployment at 5.2 per cent and we still have a strong investment pipeline. Now in those circumstances, given the global uncertainty, a surplus is more important than ever, and that's what I think some people don't understand. The Greens don't understand that and people like Mr Norris don't understand that but international financial markets certainly understand that and the IMF absolutely understands that.

LANE:

You say the Greens don't understand that, but they're your partners virtually in Government. You've formed a deal with them to form this Government. What will you be saying to Christine Milne in the lead up to the Budget?

TREASURER:

Well, putting in place a surplus is the responsible thing to do. It's a buffer against the global uncertainty. It's the best opportunity if the Reserve Bank wishes to reduce interest rates. For all of those reasons and because we've got an economy growing around trend, because we've got contained inflation, and because we've got a strong investment pipeline, this is the best opportunity to reinforce our fundamentals.

You see, Australia didn't go into recession because of the actions this Government took during the global financial crisis. We have an economy which is now 7 per cent larger than it was prior to the global financial crisis. When I sit around the table at the G20 meetings and the IMF [meetings] I will be looking at countries whose economies have not got back to where they were prior to the global financial crisis. We are stronger now because of the actions this Government took to support jobs and small business and we've got to reinforce that strength by bringing the budget back to surplus.

LANE:

You're announcing incentives today for employers to hire older workers, $1000 for those over 50s. Why do you need to offer these sweeteners?

TREASURER:

Because we've got a very important report on the Economic Potential of Senior Australians and what it shows is that too many senior Australians have been locked out of the workforce by discrimination, by stereotypes and so on. We think it's very important to make sure we unlock that economic potential of so many people who do wish to work. So we've accepted their advice and what we are going to do is to work with the business community to encourage them to hire more mature age Australians.

You see, the labour force participation rate of mature age Australians is lower here than it is elsewhere in the OECD. We need to lift that up and we need to unlock that enormous potential and that's what the report recommended to us and that's what we're doing. That's what we're announcing today.

LANE:

Mining magnate Andrew Forrest says Kevin Rudd was just days away, just days before he was dumped as Prime Minister, agreed with him to dump the super profits tax in favour of miners contributing an estimated $200 billion into an infrastructure fund for Australia. That sounds like a far better deal than the tax that starts on 1 July.

TREASURER:

Well, Mr Forrest has opposed the mining resource rent tax. He's opposing that tax which will give a tax cut to something like 2.7 million small businesses and which boost the superannuation…

LANE:

But in regards to the substance there, of the claim.

TREASURER:

Well, there's all sorts of claim and counter-claim. It just gets weirder. You see, you've had Mr Palmer out there with all of his conspiracy theories. Now we've got Mr Forrest making all sorts of claims. What happened here is that Julia Gillard and I got this done. We've got an MRRT in place, a resource rent tax which provides the opportunity to give significant tax cuts to Australian small businesses and also to boost the superannuation savings of our workforce. We got it done. There will be all sorts of claims and counter-claims. I mean, Mr Forrest's company admitted last year that it hadn't paid any company tax.

LANE:

Mr Forrest says that you personally assured him that the Minerals Resource Rent Tax would be benign. Does this now explain the animosity between you and him?

TREASURER:

Well, Mr Forrest just could never support a resource rent tax. He didn't want to pay a resource rent tax. He is out there all of the time making all sorts of extraordinary claims. I don't intend to respond to them.

LANE:

So this deal is just a claim, is it?

TREASURER:

I don't intend to respond to them one by one. Mr Forrest and Mr Palmer are out there all of the time because they oppose a resource rent tax which is being used to cut tax for small business, to cut the company tax overall. The only people who agree with them is Mr Abbott who is also opposed to a resource rent tax and opposed to a tax cut for businesses right across Australia.

LANE:

Garry Weaven, a former union official who now oversees $120 billion in super funds for the industry says it's time for the Government to sit down with the Reserve Bank and examine its charter to broaden out its responsibility to beyond just keeping inflation in the 2 – 3 per cent target band. He says the bank should also have a role in trying to drive down the value of the dollar. What do you think?

TREASURER:

Well, I think the Reserve Bank follows its charter. I think its charter is more than adequate…

LANE:

But he's saying it's time to look at the charter again.

TREASURER:

Well, I don't agree with Mr Weaven. What I do is I support the Reserve Bank implementing its current charter. It takes its decisions independently of the Government and that is as it should be.

LANE:

And it shouldn't be tweaked?

TREASURER:

No I don't believe it should be tweaked, no.

LANE:

The Reserve Bank minutes yesterday seemed to expose the commercial banks. It says that their wholesale funding costs have come down but at the same time the minutes also point out that they're paying a lot more for deposits. In part, does that back what the ANZ bank has been saying about the need to put up its variable home loan interest rates?

TREASURER:

No, I don't believe it does. I think what the Reserve Bank said yesterday repudiates the claims that have been made by the ANZ about funding costs. They said very clearly yesterday that funding costs have come down substantially in the first part of this year. The fact is that the ANZ and other banks have decided that they are going to keep their existing margins no matter what., keep their existing levels of profitability no matter what, and that is why I am so absolutely clear in my view that what they have done is something that will make the Australian people very angry and they should therefore take the opportunity to look around and get a better deal. To walk down the road because there are better deals available at any number of financial institutions.

LANE:

Mr Swan thanks for your time this morning.

TREASURER:

Thank you.