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

24 April 2012

Press Conference

Canberra

SUBJECTS: CPI Inflation Figures, Abbott Gaffe on Interest Rates, Peter Slipper, Election

TREASURER:

Well, today’s inflation figures are welcome. In particular, underlying inflation remains contained after moderating to 2.1 per cent through the year to March. Now that’s down from 2.6 per cent through the year to December. Now this means that underlying inflation now sits at the bottom of the Reserve Bank target band after falling to its lowest level in over a decade. So by any means these are very much welcome figures.

So let’s just go through some of the detail. CPI inflation increased by 0.1 per cent in the March quarter, after being flat in the previous quarter. There was also a significant decline in CPI inflation through the year to March which fell to 1.6 per cent, down from 3.1 per cent through the year to December. The result is lower than expected, largely reflecting a very strong decline in fruit prices which fell by 30 per cent in the quarter and detracted 0.4 percentage points from the quarterly CPI outcome. Now this not only reflects the ongoing recovery in production from last year’s natural disasters but [also] more favourable growing conditions with banana prices alone falling by 60 per cent in the quarter. What this now means is that fruit and vegetable prices are nearly 8 per cent below the level seen prior to the natural disasters of 2011. Now this result is welcome, but we do know that many households are still doing it tough. We can see this in the figures.

There are a number of seasonal factors affecting, in particular, health and education. Health prices rose 4.4 per cent in the quarter, contributing 0.2 percentage points to the quarterly outcome. Now despite this, I think what we can say is that contained inflation is a reminder of our strong economic fundamentals that puts the Australian economy in a league of its own. What we have here is solid growth, low unemployment, strong public finances, a huge investment pipeline, plus contained inflation and that does create room, and it has created room, for interest rate cuts last year.
Last year’s interest rate cuts mean that a family with a $300,000 mortgage is now paying around $3,000 a year less in mortgage payments than they were prior to us coming to office. So there’s no doubt that solid growth, low unemployment and contained inflation is a very, very healthy combination.

And with growth returning to trend, it’s appropriate to return the budget to surplus despite all of the challenges that we see with an economy in transition. Returning to surplus gives the Reserve Bank maximum flexibility when it takes its decisions independently of the government. Home owners and businesses all recall how much it hurt when interest rates rose ten times under the previous government and that’s why this government has been so disciplined about its budgets.

Returning to surplus is Australia’s best defence at times of global economic uncertainty and in times of a changing global economy. It creates a buffer in uncertain times and it’s a very clear sign of a strong economy. So the upcoming budget will lock in confidence by delivering a surplus, despite the fact that the government has lost something like $140 billion in revenues since the Global Financial Crisis.

Now, I want to say a few words about what Mr Abbott has said today and what Mr Abbott said last night. Now, if Mr Abbott was more focused on the economy, if he was more focused on family budgets, if he was less focussed on his mud bucket and the baseball bat then he would have known that the Reserve Bank is meeting on interest rates next week, not this week.

I think it's not a great surprise that Mr Abbott hasn't got any idea about interest rate decisions because he never had any idea about them when he was in Government and rates went up ten times in a row. Rates are now 250 basis points below the level that applied when Mr Abbott was last in government. So it's not a surprise that he has little knowledge of how and when interest rate decisions are taken.

And of course, this comes on top of his contribution last night on [730] which would have, I think, sent shivers down the spine of many Australians that were watching that performance.

While on the one hand he ran a mile from Mr Hockey's performance when he was in London, he did confirm that there would be pain under an Abbott-led Government. He does have a responsibility to spell out in great detail what his economic plans are and where he will cut because we know the significance of the cuts that were outlined by Mr Hockey are something like $90 billion if you use the measure that Mr Hockey was using, which is of course expenditure in Korea. Over to you.

REPORTER:

Mr Swan, two things. To borrow a phrase, would you say that these figures have shown that the inflation dragon has been slain? And secondly, if the independent Reserve Bank agree with your assessment of the economy and cut interest rates next week, do you think there is any case for banks not to pass on the rate cut in full and what will you be doing to make sure that they do (inaudible)?

TREASURER:

Well, what I do say is that these figures are very welcome and they're very encouraging. They give us a very healthy combination when it comes to our strong economic fundamentals. Growth returning to trend, unemployment at 5.2 per cent, solid consumption, contained inflation, a strong investment pipeline. That's a very, very healthy outlook, but in terms of the Reserve Bank, they take their decisions independently from the Government. You would only have to look at their minutes published a week or two ago to see that they themselves have said that they'll be looking closely at this inflation number, and they will do that and take their decision independently.

In terms of what may happen next week and what the response of the banks would be, I don't intend to put the cart before the horse.

JOURNALIST:

Mr Swan, these figures, coupled with yesterday’s PPI (PPI) which seem to show price pressures in the business sector falling. Is there a threat of seeing deflation in the next six to nine months?

TREASURER:

I don't think you could draw that conclusion from these numbers. We ought to run through them in some detail and I'm sure you're familiar with them, but if you look at it, there's a very big impact here from fruit and vegetables and it's not just the unwinding of what occurred with Cyclone Yasi and the floods in Queensland last year. They're even lower than before then and that reflects, as I said in my remarks, favourable growing conditions. So there's also no doubt that there's a flow through here and a benefit that has come through in terms of the impact of the currency, that is reflected in the figures as well.

Going back to something that Phil said before, when you look at the non-tradable sector there have been seasonal increases, for example in health and education, and of course they will be felt by many families who are trying to get by. But if you look at, I think, the 10 year average for the non-tradable sector, the non-tradable figure here is about at that 10 year average. So I think that figure will be focussed on.

So if you put all those things together, I think we've just got a very welcome and encouraging outcome and I think it would be wrong, given the fundamentals that we're seeing here, to be drawing some conclusion that this reflects a greater weakness, if you like, in the economy. I think it reflects those factors that I've outlined in my remarks today.

JOURNALIST:

Mr Swan, doesn’t it on the other hand show that growth is weakening? That the economy is weakening, and therefore there can be an interest rate rise which of course will stimulate the economy.

TREASURER:

No, it doesn't necessarily indicate….

JOURNALIST:

Interest rate fall, I’m sorry.

TREASURER:

That’s okay. It doesn't indicate that growth is weakening. What it indicates is that there's been a big impact from fruit and vegetables for example, a number of other areas have turned in encouraging results as well. There have been increases in other parts of the basket and I've spoken about those. What I think it does reflect overall is a very good outcome for Australia, that our economic fundamentals are strong and that inflation is contained and that's happening in an environment where we've got relatively low unemployment, well very low unemployment particularly compared to other developed economies at 5.2 per cent, and this really strong investment pipeline. And in those circumstances, this is precisely the environment in which you ought to be returning to surplus with growth returning to trend, which is precisely what the Government is going to do in the Budget. But also, given the international circumstances, it's absolutely the time to be returning to surplus to send a really strong message to global markets and the global economy about the strength of our economic fundamentals.

JOURNALIST:

Mr Swan, does low inflation mean lower revenue growth?

TREASURER:

Well, I think it would be too early for me to be going through all of the detail here in terms of our economic forecasts. I think David, as a student of these things you'll be happy to wait until budget night to see all that detail.

JOURNALIST:

Treasurer, many of these things are rising (inaudible) are rising faster, things which are either (inaudible) by the government or are under government regulation. For example there’s tobacco prices, electricity, water and sewerage, property rates, (inaudible) public transport fares, medical and hospital services, child-care. Does this impose some sort of restraints on you when it comes to confronting the Budget in terms of being careful not to do things which will drive up inflation?

TREASURER:

Well, first of all I don't quite accept the premise of your question that it largely reflects government induced price rises which is, I think, the point that you made. If you have look at education for example, this is largely seasonal and it's been a significant price mover in here, and also in health. This is the quarter where education and health generally have a bigger impact on the CPI and as we go through the year it is somewhat less when it comes to both of those areas. But you're right in terms of utilities, that is a significant factor and has been for some time. I think everybody knows that, but I don't think it's fair to say that when it comes to the non-tradable inflation that the major driver of that is government induced price rises.

JOURNALIST:

Sorry, just on this. On electricity, do you think it would help if the government put out information, there’s a lot of anger out there in the community about electricity…

TREASURER:

I think the state governments ought to be putting out accurate explanations of why they've been moving on electricity prices the way they have for a long period of time. I think it would be very helpful to the public discussion if the state governments did that. I absolutely agree with that. An accurate one, rather than what some of them have been putting out.

JOURNALIST:

Mr Swan, do you think that the Speaker will be cleared in time for Budget?

TREASURER:

Well, I think there are processes here that we should all respect and no government on either side of politics has ever or should have ever interfered in the processes which happen through the Department of Finance and for that matter through the AFP. But the fact is that what we've seen here is an attempt by Mr Abbott to get out his baseball bat for political advantage and he might continue to do that but I don't think that really assists our public discussion.

And of course Mr Abbott today has been very slippery in his response to a number of questions about these matters, for example, he has refused to rule out the fact that there has been some form of Liberal Party involvement in all of this. I just think Mr Abbott has a few questions he ought to be answering about all of these matters and if you looked at his press conference today, I mean, you could only reach that conclusion.

JOURNALIST:

Nicola Roxon said last night that it was very unlikely that the Government would be meeting any of Mr Slipper's legal costs. Can you be absolutely categorical on this question that the government will not meet any of his legal costs?

TREASURER:

Well, I leave these matters to the Attorney-General and she dealt with them at length last night. She’s the appropriate person to actually deal with these matters.

JOURNALIST:

Mr Swan, you said that Mr Abbott has been slippery in refusing to rule out Liberal Party involvement in all of this but do you have any evidence at all of any involvement?

TREASURER:

What I can say is that if you're as quick with the mud bucket as Mr Abbott is, you'd better be pretty clean yourself.

JOURNALIST:

Tony Windsor said yesterday that he won't be assisting in the passage of any cut to the diesel fuel rebate in the budget. Do you accept that this latest crisis involving Peter Slipper may make the task more difficult in terms of getting (inaudible) passed through the Parliament?

TREASURER:

No I don’t…

JOURNALIST:

And does the current situation impacting the government (inaudible)?

TREASURER:

Not at all. I mean, what the government is doing is coming to our budget deliberations with the economic interests of the country at our heart and none of these political considerations really interfere with the way in which we’re going through that process. I mean, this has been, as I’ve said in this room a few weeks ago, one of the toughest or the toughest budget of the five that I have delivered and I’ve explained the reasons for that at some length.

So everything that we're doing in this process recognises that getting the settings right for the future is absolutely essential so we can maximise all the opportunities that will flow to this country from what we call the Asian century and that’s the spirit we bring to our budget deliberations in a context where, while growth is returning to trend, we’ve seen very significant revenue write downs for reasons that I’ve explained at some length.

JOURNALIST:

Treasurer, are you planning to contest the next election?

TREASURER:

You know, I read this story today and then I looked at the by-line and I thought you know, why would we get a story like this today? And I thought back on last week and, you know it was just a shocker. Last week was a shocker for the Coalition economic team. You know, they get a gold medal for stuff-ups last week. So then Niki Savva, who is a well known proponent of the Liberal cause, then decides to drag a red herring through the middle of it, that somehow there's some question mark over my future. There is none. Thank you.

JOURNALIST:

(Inaudible) with regards to Ford down in Melbourne. (Inaudible) stop production at Ford and is there anything the Federal Government can do?

TREASURER:

These are matters for the Industry Minister but we would do everything we possibly could in these circumstances to resolve these matters. If there is anything that we can possibly do, but I've got to go.

JOURNALIST:

So does that mean you will be contesting the next election?

TREASURER:

Absolutely.