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

4 May 2012

Doorstop interview

The Treasury, Canberra

SUBJECTS: Reserve Bank Statement on Monetary Policy, the importance of returning to surplus, Budget speculation, more questions for Mr Abbott and Mr Pyne

TREASURER:

I just wanted to say a few words about the Statement on Monetary Policy from the Reserve Bank today and of course I'll take your questions about any other matters while we've got a bit of time on this beautiful Canberra day. The statement from the Reserve Bank today I think indicates that our economic fundamentals are strong. The Australian economy is expected to outperform every other major developed economy in the next couple of years.

The statement makes a number of points. That is that growth is expected to be around trend over the next couple of years, the outlook for mining investment in particular still looks very strong, and it makes very particular reference to our AAA credit rating, the gold plated AAA credit rating that we have from the three major credit rating agencies. It also confirms what the Government has been talking about for some time as well, and that is that there are uneven conditions across our economy.

The Government is acutely aware that we have a patchwork economy where not everybody is in the fast lane of the mining boom. So there are boom times for some and also challenging conditions for others, and of course that's a consequence of a sustained higher dollar and that does weigh heavily on some sectors of the economy. But we shouldn't let this get in the way of understanding that for us here in Australia, we are in a completely different league from most other developed economies. We've got contained inflation, we've got solid growth, we've got growth around trend, and we've got record levels of mining investment. Now, this is in stark contrast as the Reserve Bank points out to conditions in most other developed economies.

In many other developed economies we have unacceptable levels of unemployment. Unemployment across the Eurozone well over 10 per cent. Unemployment in Spain, now almost 25 per cent. What we've seen is the UK economy go into recession. So when you compare our economy to other developed economies or the United States, we have to be acutely aware that Australia stands tall in the world. It's very important to understand that because in these conditions, there is a premium for strong, stable fiscal discipline and that's why it's very important for us to come back to surplus.

Returning to surplus is the best defence for Australia given uncertainty in the global economy and of course returning to surplus is driven by our strong domestic economic fundamentals - solid growth, low unemployment, and a huge pipeline of investment. Of course returning to surplus ensures that the Government is not generating price pressures in the economy and that gives maximum flexibility to the Reserve Bank when it sets monetary policy.

Now, the cash rate in this country is now lower than it was at any time under the previous government. If you're a family with a $300,000 mortgage, you're now paying $3,000 a year less in your repayments. That's a very substantial benefit for many householders out there and certainly for small businesses. Of course under the previous government interest rates went up ten times in a row and put many households and small businesses under pressure. Here, with a return to surplus and strict fiscal discipline over a period of time, we provide maximum flexibility for the Reserve Bank when it takes its independent decisions in terms of the deployment of monetary policy. Over to you.

JOURNALIST:

Treasurer, the statement notes that employment growth is subdued and says labour shedding could accelerate. Won't your tough budget in fact put even more pressure on the jobs market?

TREASURER:

Well, let's go through where we are in terms of our economic fundamentals, Paul. We have an unemployment rate of 5.2 per cent, we have growth returning to around trend, we have solid consumption in our economy, and we have a record pipeline of investment in the resources sector. Having said that, there are some sectors of the economy that are weaker than others. That's why we describe our economy as a patchwork economy. As I said before we, like the Reserve Bank, fully appreciate that some sectors of the economy are under sustained pressure not just from the higher dollar, but also from the cautious consumer because, as you would be aware, Australians themselves are now saving more than they have in many previous years.

So yes, there are some weaker sections in our economy and this is pointed to by the Reserve Bank and also by the Government, but what we have to understand is that coming back to surplus is the best guarantee, as I said before, of continued strong growth in our economy. I do not accept the calculations that have been made by some in the economics profession that there is some automatic correlation between the size of the fiscal consolidation we are putting in place and a direct impact on growth. I don't accept that at all. In fact our fiscal consolidation is factored into our forecast of growth returning to trend which is 3.25 per cent in 2012-13.

So by any standard, growth in 2012-13 with our fiscal consolidation factored in is strong growth but that doesn't mean to say that there aren't weaker sections of our economy at the moment where they're finding it pretty tough.

JOURNALIST:

Treasurer, the Reserve Bank says the weak sections of the economy are actually getting weaker. Will the budget do anything to help them?

TREASURER:

Can I just draw your attention to the Reserve Bank forecasts. I mean, the Reserve Bank is forecasting for 2012-13, reasonably solid growth, about the same that the Government is actually forecasting for 2012-13. So our forecasts are the same for 2012-13 as the Reserve Bank published today, or around the same. So we have the same view that there are challenges in sectors of our economy but the Reserve Bank has, in terms of its forecast for 2012-13, forecasts similar to ours on which we are basing our budget.

JOURNALIST:

Should people expect some real pain in this budget?

TREASURER:

There's no doubt that we've got to have belt tightening across the board. Returning to surplus is really important. It's not just some remote economic objective. It actually matters around the kitchen table because a return to surplus and the deployment of strong fiscal policy gives that maximum flexibility to the Reserve Bank to reduce interest rates. As I said to you before, that's a very substantial benefit to a lot of people sitting around the kitchen table when rates come down as they did this week by 50 basis points.

JOURNALIST:

(Inaudible) parents cop it next Tuesday?

TREASURER:

Well, I think there's going to be a lot of stories between now and the budget about what may be in the budget and it's not my role today to comment on what those direct matters will be but I would make a couple of points. This Government values employment as the most important objective of any government to make sure that people can get a job, to make sure they can get the training to get them into work to earn an income so they can support their family.

The independence that comes with the world of work is something that goes to the core what the Government did during the last global recession to support employment in our economy. It goes to the core of what the Government has put in place in recent years in terms of welfare reform. It's really important that everybody has the opportunity to get into work, to get the training, to get the childcare, so they can get a job and support their families. That's the principle that the Government adopts in its approach to matters whether it's the economy generally or to welfare reform on the other hand.

JOURNALIST:

Treasurer, is this a welfare reform then or a savings measure, which is it, what's it designed to do?

TREASURER:

I've just said that I can't confirm the details of what will be in the budget. What I'm saying is that the Government over a period of time has put a premium on getting people into work and having the training and childcare available for people to work and look after their families.

We're a Labor Government and first and foremost our concerns are always for low and middle income earners and ensuring they get the best chance they can to get a job, to support themselves and their families, to reward their hard work, which is why the government for example, has put in place very clearly some policies which really do support those groups in our community and one coming up is the tripling of the tax free threshold. That's a very important reform which will encourage people into the workforce and reward hard work. But not just there, look at what the Government is going to do in terms of our instant asset write-off for those small businesses around the country that aren't in the fast lane of the resources boom. The $6,500 instant asset write-off is pretty important in that regard.

JOURNALIST:

Treasurer, how many public servants should expect to lose their jobs over the next 12 months as a result of the efficiency dividend and the budget cuts?

TREASURER:

You're asking me to comment on budget forecasts which will be there on budget night for everybody to see. Over and above that, I don't intend to comment.

JOURNALIST:

Treasurer, Christopher Pyne today has changed his story for what seems like the third time. I mean, do we need to hear, should the Coalition come clean? Is there a cover up? Do we need to hear more from Christopher Pyne and from Tony Abbott on this?

TREASURER:

Well, when it comes to Mr Abbott and Mr Pyne, every day the plot thickens. Every day new questions arise. Why don't Mr Pyne and Mr Abbott front a press conference here in Canberra and answer all of those questions?

JOURNALIST:

Treasurer, I've got a question about petrol. What do you think about the ACCC beginning a formal inquiry into petrol prices?

TREASURER:

Well, I'm very supportive of the job that the ACCC does and I'm pleased to hear it.