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 Fran Kelly

ABC Radio National

SUBJECTS: Australia's economic strength, Liberal Party negativity, global conditions, productivity levels, interest rates.

KELLY:

Treasurer joins us now. Wayne Swan, good morning.

TREASURER:

Good morning Fran.

KELLY:

Treasurer how much credit can the federal government take for this strong economic performance, the best in the developed world right now?

TREASURER:

Well I certainly think it confirms the forecasts we had in our recent budget, and I think it confirms…

KELLY:

It surpasses them, doesn't it?

TREASURER:

Well, a little stronger, but not dramatically so. As you know we had a pretty healthy debate about the forecasts around budget time but what we see here is a strong economy and Australians having woken up this morning in the strongest economy in the developed world.

What that reflects is a lot of hard work from millions of Australian workers and small businesses and entrepreneurs. They've done a fantastic job over recent years, and it's great to see the rewards in the figures because in the middle of global uncertainty, it's a great thing to be the strongest growing developed economy. It sends a very clear message to the world about the strength of our economy, and about the strength about our public policy, and about the hard work of the Australian people.

KELLY:

I wonder if Australians are going to wake up feeling any different because we know from surveys over the past month and years that consumer confidence and business confidence is not so positive. How do you tally these strong GDP numbers with the ongoing negative?

TREASURER:

Well a couple of things here Fran. We've got the ongoing international uncertainty, a big bout of that at the end of last year, and another bout now, that transfers immediately to confidence here.

We've also had the Liberal Party talking the economy down, and a few in the business community doing that, then in the next breath bemoaning a lack of confidence. The fact is that these figures blow away a lot of that negative commentary. The glass is more than half full in Australia, it's not half empty, we are in pretty good nick, and we are in a stronger position than many other countries to deal with the consequences of uncertainty in the global economy.

The great thing about these numbers yesterday is the broadness of the strength across the economy. Yes mining's going strongly and that's great, it's good for Australia, and that mining investment of course also repudiates all of the lines that have been run by the Federal Liberal Party about carbon pricing and the mining tax. This investment has gone ahead in the middle of that debate and it disproves all of the scare mongering from Mr Abbott and Mr Hockey.

KELLY:

I'll come back to that in a minute but you're clearly in the optimist camp, the glass half-full camp. How optimistic are you that these numbers are not a one-off, that the pace of growth will continue throughout the year, given what we're looking at overseas?

TREASURER:

Well we forecast in the budget growth for the coming year of three and a quarter per cent, that is growth at trend. We had a pretty healthy debate about those figures at budget time, we're fairly confident we can achieve those outcomes, we're determined in the situation where we've got low unemployment, where we've got strong investment pipeline, where we've got contained inflation, where we've got healthy income growth, where we've got a savings ratio that's elevated that we ought to be bringing our budget back to surplus so we can give the Reserve Bank room to move when it comes to interest rates.

And I think all Australians will be welcoming the rate cuts that we've seen from the Reserve Bank in recent times. If you've got a $300,000 mortgage at the moment, you're paying something like $3,500 a year less than you were under the Liberal government.

KELLY:

Sure, but Treasurer and not trying to sound too pessimistic myself but the European crisis began deteriorating again in April and May, Chinese growth weakened at the same time. Is it possible or even likely that these figures for the March quarter, for the first quarter of the year are as good as it gets this year? That's what economists are already predicting.

TREASURER:

Well some economists are predicting that. Let's just deal with the reality and the figures yesterday. I mean very broad consumption growth across our economy, very broad in a whole range of service sectors, even strong in areas like food, also a strong investment pipeline.

All of these things mean that our economy has broad-based strength and we are in a better position to deal with the fall-out from Europe.

And of course the other thing, the stand out figure yesterday was that productivity increased, labour productivity increased by over 2 per cent and over 5 per cent through the year. This was a pretty stunning outcome, because as you know we've been having a discussion about productivity levels in the Australian economy.

Look we've the 13th largest economy in the world, and when it comes to overall levels of productivity we're in the top dozen countries in the world. We do need to improve our productivity growth, but we should also be honest about what the facts are. We've got in this country a strong economy with high levels of productivity, and many advantages that many other developed economies don't have, we should talk about our positives…

KELLY:

Talking about productivity though, there's a new study out today from the Business Council highlighting the expense of doing business here compared with America. It says resource projects are 40 per cent more expensive to deliver here than in America and one element of that is productivity.

TREASURER:

Yes, and if you look at the figures that came out, it shows that investment in resources is continuing to increase…

KELLY:

They won't if it keeps being 40 per cent more expensive, will it?

TREASURER:

Well the first thing is that people have been making these sorts of claims for a long time and as they've made these claims investment has continued to increase.

I do take the discussion about productivity and competitiveness very seriously, it's a discussion the government is up for and is having with the business community, and we're looking at it through a variety of policy prisms and we're having that discussion again next week with the business community.

What can we do to lift our productivity growth levels? What can we do with skills, training and infrastructure – already doing a lot there? What can we do in terms of regulatory reform? We're already doing a lot there.

The high dollar is a very big part of this cost debate, and of course what we must do in the face of the high dollar is make our economy more productive and more competitive and that brings great challenges.

So we're up for that discussion with the business community. I just say let's be realistic about where we are and not talk down our economy when we've got such good data and such strong underlying fundamentals.

KELLY:

Would you suggest that the Business Council of Australia is one of the business groups talking down the economy? You pointed the finger at business leaders yesterday talking down the economy. Is BCA part of that?

TREASURER:

No I don't think they are. But we do have a few that are out there almost on a daily basis talking it down. You've got Mr Abbott and Mr Hockey doing it as a matter of course, but those people who go out there on almost a daily basis and talk it down are the same people who in the next breath turn around and bemoan a lack of confidence.

The fact is that these figures should blow away a lot of that commentary. We should have a much more nuanced and balanced discussion about the strength in our economy. And of course there are challenges, and we should be talking about them intelligently, not in a way some of these critics are out there almost every day really running a political agenda not an economic one.

KELLY:

Who?

TREASURER:

Well I think they identify themselves; a couple of them are out there again today. I don't intend to go on and name them every day, they name themselves. And they're out there again today.

KELLY:

Who's out there today? I haven't seen an individual out there today. The only individual I've seen out there today is BHP boss Marius Kloppers, he wasn't talking down the economy but he was saying that the signs, the future signs are difficult and he's becoming more nervous about China and clearly signalling that BHP Billiton will slow down its capital expenditure including possibly on the $80 billion Olympic Dam expansion here.

TREASURER:

Well we'll see what they do. BHP is a very big investor in Australia and has continued to invest strongly over recent years. I enjoy my discussions with Mr Kloppers and I think they're important discussions; they're not at the same level that we get from one or two of the critics that area out there every day whinging about the economy and handling.

KELLY:

Treasurer, I don't think we can necessarily call the Reserve Bank a doomsayer. But the Reserve Bank did slash rates by 125 basis points now since November and on Tuesday they were talking about modest growth in the economy. Has the RBA got it all wrong?

TREASURER:

No, not at all. In fact, you should go back and have a look at the statement they issued because they made it clear they were acting firstly in response to conditions that were changed in the global economy. And once again, as they always do, they made it clear that they were responding to contained inflation, which is the remit of the Reserve Bank, so those are the points that they made.

It's a great thing that rates have come down and of course, one of the reasons that rates can move is because of our medium-term fiscal strategy, our return to surplus and the building of surpluses over the years ahead, that's a very important part of the equation.

The government has been absolutely determined given that growth is returning to trend, to bring the budget back to surplus and to build surpluses into the future. That means that it can have more freedom with monetary policy. But of course the Reserve Bank takes its decisions independently and it takes them particularly in light of what it sees to be the inflation outlook.

KELLY:

Will growth like this do you think put a hold on rate cuts for a while? The RBA will be comforted, they'll keep rates on hold for now, or only in WA and Queensland?

TREASURER:

Well I don't speculate as you know about future decisions of the Reserve Bank, they take their decisions independently and they put their reasons out there as indeed they did this week.

What I do know is that Australians will welcome the fact that interest rates now are lower than they were at any time under the previous Liberal Government. That if you've got a $300,000 mortgage you're paying considerably less than you were than under the previous Liberal government.

We've got lower interest rates, we've got strong growth, we've got strong consumption, we've got a strong investment pipeline, we've got contained inflation and we've got a higher savings rate. They're pretty strong fundamentals Fran.

KELLY:

We've got those lower rates thanks to the RBA but not so much the big banks who've yet to pass on Tuesday's rate cut. Is this delay in a decision from the four big banks much help to the economy, does it make you a little worried?

TREASURER:

I just wish they'd be fair dinkum and pass it on and I certainly hope that they don't have the strategy of waiting till Friday night of the long weekend to make some announcement that their customers don't want to hear.

KELLY:

What would be an acceptable rate cut in your mind from the big banks?

TREASURER:

I think they should pass it all through. I made that really clear. They are very profitable, their return on equity is very high compared to their peers globally, their net interest margins are back to where they were prior to the global financial crisis, and I believe they out to do the right thing and pass it through in full.

KELLY:

And Treasurer more data today on jobs. The labour force figures, the expectation is that unemployment will tick up again to above 5 per cent. Is that what you're expecting?

TREASURER:

Yeah, I think it could tick up a little. We've certainly forecast this in the budget because there are parts of the economy in the middle of this strength that are very soft as you know; the manufacturing sector for example, the tourism sector. A number of them are doing it tough in this environment, particularly with the consequences of a higher dollar and a more cautious consumer in certain sectors..

KELLY:

That's what makes the household consumption figure out yesterday surprising, isn't it? Because a number of sectors are doing it tough and as we saw a number of states don't have the strong growth that we're seeing in the boom states.

TREASURER:

Well there's a couple of things here Fran. One is that is people are shifting their consumption, and their shifting it to services, you see that very strongly. They're not necessarily buying the same amount of goods that they were, although even those figures were stronger then some expected.

But there's a structural shift going on in what is broadly the retail sector and that means some of them are doing it really tough. So, these things are happening at the same time, so not everyone is in the fast lane of the resources boom and certainly many people feel that it's somebody else's boom, it's not one that they're participating in which is why we put in place in the recent budget some of those initiatives to boost small business, tax relief for small business on the one hand and the additional support for families particularly with educating their kids and the cost of doing that.

They were all in there recognising that you know there are differences out there and people are in different conditions in different parts of the country.

KELLY:

Treasurer, thanks very much for joining us again on Breakfast.

TREASURER:

Good to be with you.