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

1 May 2012

Press conference

Canberra

SUBJECTS: Reserve Bank cuts the cash rate, Christopher Pyne's links to James Ashby

TREASURER:

Today the Reserve Bank cut the official cash rate by 50 basis points. This is the interest rate cut that households and small businesses have been hanging out for. It's something they've waited a while for. It's very welcome. It is well deserved and it is certainly much needed by households under financial pressure.

Now, combine the two rate cuts last year, a family on a $300,000 standard variable rate mortgage is now paying more than $3,000 a year less in repayments than when the Liberals left office. Today at 3.75 per cent, the Reserve Bank's cash rate is lower than it was at any time under the last Liberal government, and 300 basis points lower than when the Liberals left office.

Today's interest rate cut and the two before it, have been made possible by disciplined fiscal policy delivered by this Government. A responsible approach to the budget and disciplined fiscal policy is very, very important given the economic circumstances in which Australia finds itself and given global uncertainty. So obviously it would not have happened if we didn't have the right economic strategy and contained inflation.

Delivering a surplus in 2012-13 is appropriate for an economy returning to trend growth and is imperative given global economic challenges. Returning to surplus ensures the Government is not generating price pressures in the economy and it does give the Reserve Bank of Australia maximum flexibility to cut interest rates if they think that is appropriate, but of course they do take those decisions independently of the Government.

So today at 3.75 per cent, the Reserve Bank's cash rate is a full 300 basis points lower than it was when the Liberals left office and nobody can forget the fact that interest rates went up 10 times in a row under the last Liberal government when they didn't pay attention to disciplined economic policy and did not invest in infrastructure.

So returning a budget to surplus is an economic imperative in the circumstances in which we find ourselves. It is the Australia's best defence in a global economy that is changing dramatically and it certainly does send a very clear message to international markets that this country is committed to responsible fiscal policy. And of course, it is our credible approach to fiscal policy that has been responsible for the fact that we have the AAA credit rating from all three of the global rating agencies for the first time in our history.

Now, of course global turbulence and revisions downwards to revenue will make it more difficult to return to surplus in 2012-13 but we're certainly determined to get there and we will. But delivering a surplus is not just about Australia's international reputation or the fact that we are a stand-out performer among developed economies. It's about recognising that families sitting around the kitchen table trying to pay the bills and bring up their kids are under financial pressure. It's about ensuring that we can do everything possible to make sure that the RBA has the flexibility to cut rates if it thinks it's necessary as it did today.

JOURNALIST:

Treasurer, you're clearly very proud of these low interest rates but the majority of Australians have their home loans with one of the big four banks. They can't go to the Reserve Bank to get a loan. Should the big four banks all cut their interest rates by 50 basis points and what will you do if they do not?

TREASURER:

My view here is very clear and I've expressed it consistently here and publicly, and I've expressed it consistently to all of those involved and it is this: the banks are very profitable. The banks have the capacity to pass through, given the fact that they are very profitable, and the fact is that if Australians are unhappy with their bank or the approach of their bank in these circumstances, they should walk down the road and get a better deal because there are certainly better deals available. I think their customers will be very, very angry with them if they do not pass through this rate cut…

JOURNALIST:

…All of it?

TREASURER:

They will be very angry and will expect the rate cut passed through…

JOURNALIST:

…in full?

TREASURER:

Well, they'll expect that. Consumers will certainly expect that. Consumers will expect that, but the fact is that if they are unhappy with their financial institution, people can go down the road and get a better deal and indeed they have been doing so. Since the abolition of mortgage exit fees, hundreds of thousands of Australians have moved their financial institutions, more are contemplating it. People do have the capacity to go elsewhere if they're not happy with their financial institution.

But let's be very clear here. This is a 50 basis point cut. It is of significant benefit, not just to households and people with home loans, but to small business as well, and everyone out there has been hanging out for this rate cut. It is here, it is welcome, and people do want to experience it in their pocket.

JOURNALIST:

Treasurer, was the Reserve Bank's decision informed by any briefing from the Government about what would be in next week's budget? You're taking some credit for the budget strategy. Or are they just presuming, are you thinking that they have made this decision on the presumption that you will return to surplus?

TREASURER:

They take their decisions independently but they will take into account all of the circumstances in the economy, including the approach of the Government to fiscal policy. The Government has been very clear about our approach to fiscal policy. About our determination to bring the budget back to surplus in 2012-13 to send a message to international markets, to send a message to the world and we've been very clear that we are very keen to give the Reserve Bank maximum flexibility by not adding to price pressures in the economy. As the Reserve Bank said in its last set of minutes, it was going to look very closely at the inflation rate. That number came out a week ago and of course they would take into account the overall growth outlook and the stance of the Federal Government in taking their decision.

JOURNALIST:

Treasurer, doesn't that suggest that the Reserve Bank has made a very big cut, that it's worried that the budget may (inaudible) the economy?

TREASURER:

Not at all. I don't know how we could turn this story, which is a very good story for Australia, on its head like that. And I'll just refer you to the Reserve Bank minutes because I think they go through their assessment of the economy and it is not in any way vastly different from the Government's assessment of the economy. The Government's assessment of the economy is that we are returning to trend growth. We are doing that in an environment where there was some weakness in the global economy at the end of last year. Temporary weakness in our economy at the end of last year, structural pressures unfolding in our economy, particularly the higher dollar, all of those things are impacting in a patchwork economy. They are looking at the same data and the same economic assessments that we are looking at and they have provided their reasons for the cut. So what we have done through fiscal policy is provide maximum flexibility for the Reserve Bank to act on rates, should it decide to do so today, and today it has done so.

JOURNALIST:

Given the structural problems in the economy, particularly the two-speed economy, is one of the good results this decision that the Australian dollar has already fallen half a US cent?

TREASURER:

I don't comment on movements in the Australian dollar Laura, but there's no doubt that one of the structural pressures on the Australian economy has been the level of the dollar and it has impacted on the tourist sector, it has impacted on the manufacturing sector and of course in terms of our policy making it has been the focus of our attention.

We have an economy which is in transition which is why the Government is so determined to provide significant tax relief for 2.7 million small businesses, to boost the superannuation savings of workers and generally to do everything we possibly can to assist Australians not just to be in work, but with the cost of living pressures which impact upon them every day.

JOURNALIST:

Treasurer, the Reserve Bank says that both the world economy and the domestic economy are growing below trend. Does that raise a question over your confidence that it will return to trend in (inaudible)?

TREASURER:

Not at all. If you have a look at the Reserve Bank statement it talks about some weakness in the economy due to temporary factors, particularly at the end I think, of last year and it refers to the exchange rate. These are factors that we are all taking into account in our forecasts. We are forecasting an economy returning to trend growth. I don't think there's any great gap between what the Government is saying there and what the Reserve Bank is saying.

JOURNALIST:

It also said the economic conditions have been somewhat weaker than expected. So it is concerned about the…

TREASURER:

Well, I think we had a discussion in this room when the December quarter national accounts came out about that very fact.

JOURNALIST:

Will the budget give you room, or will the budget create room for the banks to cut further beyond this, should they decide to do so? Sorry, will the budget create room for the Reserve Bank to cut further, should it decide to do so?

TREASURER:

Well, the Government has made it very clear through our disciplined fiscal policy that we take it seriously, that we want to bring the budget back to surplus, and continue to build surpluses after that.

JOURNALIST:

Will it create more room for the Reserve Bank to do more?

TREASURER:

That will be a matter for the Reserve Bank at the time and it's assessment of all the other factors in the economy as well, including the inflation rate.

JOURNALIST:

The National Times is reporting that Christopher Pyne had a discussion and a drink with Mr Ashby about a month before Mr Ashby's claims, federal court claims. Do you see this as further evidence, or evidence for your claim, to the Government's claim that (inaudible) so far that the Coalition was involved in those…

TREASURER:

Well, I think when you've listened to Mr Abbott's slippery answers about these questions, he has not answered the question of whether he had any knowledge of the Ashby claim. I don't think he's fully answered that question at all. He has not answered the question about what role any of his staff may have played in the events that have unfolded. I think he needs to answer that question fully.

I think Mr Pyne has many questions to answer. Did he phone Mr Ashby after he requested his telephone number? Is he prepared to provide his phone records and make those public if he hasn't phoned Mr Ashby?

JOURNALIST:

Do you think he should?

TREASURER:

Well, I certainly think he should. I think the same standard that is being applied to Mr Slipper ought to be applied to the Opposition. Let's see some consistency from them. They've had plenty to say about this. Let's see them answer a few of these questions.

......