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

7 June 2012

Interview with Leigh Sales

7.30 ABC

SUBJECTS: Australia's economic strength, the importance of strong public finances, Opposition negativity, productivity, interest rates and the banking sector

Leigh Sales

Treasurer, how much of a buffer do these figures give Australia in the event of the Eurozone fracturing?

Treasurer

Well these figures are broadly comparable with our forecasts that were contained in the budget. They're probably a little stronger, so that's a pleasant surprise, but nevertheless very consistent with our forecasts for growth in 2013 of 3.25 per cent.

I'm very pleased with the outcome here because it is broadly spread right across our economy. Strong consumption, broadly spread across the economy, strong business investment. A great outcome for Australia and I think it's one that should give Australians great confidence in our economic fundamentals, particularly when we consider the challenges that we see in the Eurozone.

Leigh Sales

Does it mean that if we were to see in the worst case scenario another global recession that Australia would avoid that?

Treasurer

Well, we've already factored in a contraction in the Eurozone of three quarters of a per cent. We don't react and I don't comment on hypothetical situations, but certainly in our budget figuring, we took into account the fact there's going to be a very long and painful adjustment in Europe.

Leigh Sales

But since you would have looked at the figures that you based your budget on, there have been some new figures showing a slowdown of growth in China, the US, India, Brazil, I think the threat of the instability in Europe has become greater. To just go back to my question: do you think that if we end up in a global recession, Australia is going to be poised to avoid that?

Treasurer

Well I think we've got a proven track record of dealing with global instability. I think you'll find that in terms of our forecasts for Europe, we were more pessimistic than many other forecasters.

But you have posed a hypothetical situation. We would deal with that if that arose. I do expect that we will see further action in Europe, hopefully in the near future, by the European authorities to calm markets in particular.

Leigh Sales

Given the severe instability in Europe, why do you keep insisting that Australia will return to a surplus in 2012-2013? Wouldn't it be more prudent to just keep maximum flexibility in your fiscal policy?

Treasurer

Ah, not at all. You see, we should come back to surplus because we are growing at trend, we have a strong investment pipeline. But, you see, a surplus sends a very, very clear message to the world and in particular to financial markets that finances in Australia are in good shape and of course coming back to surplus provides a buffer against global instability.

I couldn't think of a better reason than those circumstances to come back to surplus to send a very clear message to the world that Australia is in good shape and that's the great thing about these figures today, because they demonstrate very clearly that the economic fundamentals of the Australian economy are very strong.

Leigh Sales

But don't you think that the Australian people and investors around the world and observers would understand if you said, "Look, we are committed to bringing the economy back to surplus as soon as we possibly can, but given the great uncertainty in global markets, we are going to keep as much flexibility in our fiscal policy as we can and not get pinned down to some arbitrary date"?

Treasurer

Well, Leigh, I think for the first time in our history we have now got the gold-plated triple A credit rating from the three major agencies, something the previous government never had. That's very important.

I've also made the point that we do have a track record of dealing with global volatility and instability and we've taken actions in the past when global demand has fallen off a cliff.

But I'm not going to deal with hypothetical situations. What we are doing now is right for Australia in the circumstances we are in at the moment, and that is why international financial organisations and plenty of other organisations in the private sector give our approach a big tick and these figures today demonstrate why that's very important.

Leigh Sales

You referred today to some people in the business community who from time to time talk our economy down. Who specifically are you talking about?

Treasurer

Well I'm not getting into the business of naming names. The main people talking our economy down on a daily and hourly basis are in fact Mr Abbott and Mr Hockey.

Leigh Sales

No, but today you made that accusation about the business community. Why won't you name names if you're making that accusation?

Treasurer

Well, because I said the great bulk of the business community go out there and give very genuine commentary, but there are one or two in the business community who go out there and run the economy down all of the time.

Leigh Sales

But who are they?

Treasurer

I don't propose to name names, but what I do want to do is make this point:

Leigh Sales

But why don't you wanna name names?

Treasurer

Well because I don't think it assists the debate. What I want to do is have a very clear conversation about the fundamental strengths in our economy and it is not helped when we get a lot of commentary, some of it inaccurate about those fundamental strengths, and in the media environment we're in at the moment, that gets exaggerated.

The point I made today and I'd like to make it again is the glass is more than half full when it comes to the Australian economy. It's not half empty. The problem is we get a lot of commentary along those lines, it gets exaggerated in our daily media cycle and it has an impact on confidence.

And when Mr Hockey and Mr Abbott go out there and talk our economy down and then bemoan a lack of confidence, it demonstrates how insincere they are.

Leigh Sales

Well, let ask you about some comments by the BHP boss Marius Kloppers who said that governments need to do everything they can in this environment to keep Australia internationally competitive; in other words, be careful what taxes you implement. What do you say to that?

Treasurer

Well let me say we are doing that. In fact it was very interesting in the figures today was to see the productivity growth in the figures today - something like 2.4 per cent for the quarter over five per cent for the year.

Now we are having a debate in Australia about productivity growth. We should have that. There's been a long-term structural decline in productivity growth in Australia. We do need to lift it. But when it comes to our underlying productivity, we're in the top 12 nations in the world when it comes to overall levels of productivity and these figures show today that the productivity discussion needs to be more nuanced than it's been so far.

So when it comes to competition and those issues, I'm engaged in those discussions with people like Mr Kloppers all of the time and I value those discussions.

Leigh Sales

But when it comes to, say, the carbon tax, when that's implemented in July, Australia's going to have the highest carbon tax in the world. Isn't that what Mr Kloppers is referring to when he says we need to be very careful about remaining competitive in this international environment?

Treasurer

Well I don't believe that the.. putting in place the carbon price is any way going to make us dramatically uncompetitive. That's the propaganda of the Liberal Party.

What we have done when it comes to those trade-exposed industries that are energy intensive is we've put in place assistance.

We will continue to grow strongly with a carbon price. Jobs will continue to be created with a carbon price. Wealth will continue to be created with a carbon price. And indeed, these figures demonstrate that because since the carbon price has become law, we've seen investment continue, particularly into our mining sector.

Leigh Sales

On interest rates, given today's strong growth figures along with the volatility in Europe, isn't there a case for the big four banks not to pass on the RBA's rate cut this week?

Treasurer

Ah, I don't believe so. I believe that our banks are very profitable in terms of their return on equity. Net interest margins are back where they were prior to the Global Financial Crisis.

They say that their funding costs are up not so much because of international costs, but because of what they're paying for domestic deposits. The fact is they're very profitable and I think they could well afford to pass that rate cut through in full.

Leigh Sales

But just last week the Treasury Secretary told a Senate's Estimates committee that the coming crisis in Europe will primarily hit the financial sector. Don't we want to do everything we possibly can to ensure that our banking sector remains as strong as possible to withstand that hit?

Treasurer

Well the Government has been doing that and we've put in place a whole range of reforms to ensure that our banking sector is strong.

For example, the introduction of covered bonds, very very important for our major banks in particular, but also some of our smaller banks and financial institutions, they've played a major role in securing finance for our banking system.

The Government has been very active in that area. We believe in a healthy banking system. But of course, our banks are very profitable and I believe they do have the capacity to pass on this rate cut in full.

Leigh Sales

Treasurer Wayne Swan, thank you very much.

Treasurer

Thank you.