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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

12 October 2012

Interview with CNBC

Tokyo

A video of this interview is available on the CNBC website.

SUBJECTS: IMF and World Bank Annual Meetings in Tokyo; IMF World Economic Update; Global economic instability; IMF governance; Australian Mid-Year Budget Update

PRESENTER:

The Treasurer of Australia joins us at the venue for the IMF Annual World Bank Meeting. Thank you so much for joining us. All through the week we've been hearing about the global slowdown, it's going to be a little bit deeper than people initially thought, the contagion is going to be a little bit wider as well. How is that going to impact you economy?

TREASURER:

It's fair to say that there is more uncertainty around in terms of the global economic discussion and you've seen that come from the report from the IMF during the week which is forecasting lower global growth. But when you look at the Australian economy we're not immune from these events but our fundamentals are really strong. We've just recorded 21 consecutive years of growth, and in fact if you look at the IMF report this week you'll see that we are now the world's 12th largest economy. We've come three spots from 15th to 12th in the last four years. What that does reflect is rock-solid economic fundamentals. The fact that we've got around trend growth, the fact that we've got low unemployment, a strong investment pipeline, contained inflation, low interest rates and strong financial institutions. So we're in a good position to deal with these changes in the global economy, but they'll have an impact on Australia as they are now having an impact on Asia more generally

PRESENTER:

Manufacturing is slowing down everywhere. 21 years as you say is enviable for many of the Treasurers and Central Bankers here in attendance but how deep, how much of an impact do you expect in 2013? Do you expect it to be a fairly short-lived phenomenon?

TREASURER:

Well, for Australia we're still expecting around trend growth next year, and for that reason we intend to bring our Budget back to surplus in 2012-13, and of course we've got lower interest rates. But when you look more broadly we've still got two of the big economic engines in the global economy misfiring. We've got Europe in recession, and of course you've got very modest growth in the United States. Now, Asia's been carrying a lot of the load for the past few years but I don't think it can continue to carry the load they have carried unless we get some more growth in the global economy coming out of Europe and the United States, at least one of those.

PRESENTER:

Treasurer, it is great to have you with us today. If global growth is really the issue here which we talk about a lot here of course on CNBC, what is the catalyst in your view that is actually going to bring forward some of that growth? Over in the US we have the fiscal cliff, we have the one and only Vice Presidential debate which just finished around about 20 minutes ago. You've got this slowing situation in Europe, more downgrades coming through from S&P. I mean clearly we're not immune from what's going on overseas. What do you think is going to change this?

TREASURER:

I think what it requires is confidence in the global economy and I think Madame Lagarde spoke about that here at the IMF this morning. The fact is we do need to see, particularly when it comes to Europe, they meet their commitments and do it more quickly than they are. They've come a long way I think in the last six months and what Mario Draghi has done is very important. But I also believe that they are going to have to put in place some policy positions which will stimulate growth in the shorter term, as well as putting in place the medium term and longer term fiscal consolidation. Until they are seen to take charge of the issues in their banking system and to deal with some of these shorter term issues of growth then we'll see the lack of confidence that flows from that. And in the United States, I think the conditions there are ready for a good spurt of growth, but once again there is uncertainty about the fiscal cliff. Hopefully after we see the outcome of the Presidential election we'll see the United States deal with that challenge, a credible medium-term fiscal policy. I think that will do a lot for global confidence.

This region has been providing very substantial amount of growth in the global economy for a long period of time, but it can't do it on its own. That's why we do need to see - particularly in Europe and the United States - a bit more emphasis on growth, and I think a lot of that will come from confidence, and the confidence will come if authorities are seen to be dealing with these matters in a much more efficient and quicker way.

PRESENTER:

As you're very well aware a quarter or more of our exports are heading over to China. We know that Mitt Romney is taking a pretty tough stance on what's going on in China saying he will be labelling China as a currency manipulator. Should Mitt Romney get into the White House what do you believe is going to happen between the US and China? How will that affect us here in Australia?

TREASURER:

I'm not going to speculate about the outcome of the US Presidential election. But China is a very large economy; it's slowed its economy over the past twelve months to deal with inflationary pressures in the economy. They are also rebalancing their economy more to domestic consumption. All of that is going on, however, in a difficult international environment and that is one of the challenges. China has been growing very strongly; the region has been growing very strongly. We shouldn't forget the rest of non-China Asia because it's been growing pretty well as well. But we can't rely on all of those countries to continue to be almost the sole significant source of growth in the global economy. That's why it's so important that we see actions taken in Europe with greater speed to reinforce the need for confidence in the system and why these matters should be resolved in the US. But I'm not going to buy into a discussion about the outcome of the Presidential election in the United States.

PRESENTER:

If so much of the growth is here in Asia than the emerging economies these days, shouldn't they have a voice in the decision making process of the IMF? I mean how frustrating has it been to get these reforms on board and have better governance of the IMF?

TREASURER:

If you look at the pledges that were made to top up IMF funding should it be required last year, where did they come from? They came from Asia. The contribution from Japan was magnificent and a very strong contribution from China. Because I think all the countries in this region understand how interconnected we are. We haven't seen that sort of co-operation coming to the table like that virtually in any of our global arrangements until now, and it reflects on the importance of the G20 and the importance that many emerging countries put on the IMF. That's why I think it is important that we try and sort the rest of these issues out this weekend.

PRESENTER:

Treasurer, I wanted to talk to you about the Federal Budget here in Australia. You, more than once, in fact a number of times, you have committed to deliver a surplus in 2012-13. I wanted to ask you for a little bit more detail in terms of how you're planning to do that now given revenues are down, weak commodity prices, slower growth has been coming through in Australia. How are you going to rebalance that in the Budget?

TREASURER:

Well I've said that revenues are down because commodity prices are down. As you know, iron-ore prices have come down, coal prices have come down. But we should keep that in perspective. The fact is that iron-ore prices in Australia are now six times what they were a decade ago, so whilst the prices have come off historic highs and they are down more than we thought, they're still relatively high in terms of the history of commodities in Australia. So there will be an impact of that on our Budget, I've said it makes it harder to get back to surplus, but I've said that we will come back to surplus. Because for an economy which is growing at trend, it is appropriate that we do come back to surplus, if you've got an economy with our fundamentals then you should be coming back to surplus. So I've said through the mid-year update we'll be making further savings to ensure that we do

PRESENTER:

So where exactly is the money going to come from?

TREASURER:

You'll have to wait until I deliver the mid-year Budget update.

PRESENTER:

Can I ask if tax increases are off the table then Treasurer?

TREASURER:

I'm not going into what may or may not happen in the mid-year update. I don't do that in the lead up to a Budget and I've never done it in the lead up to our mid-year updates either.

PRESENTER:

What kind of policy assurances are you hoping to hear from the US this week as to this looming fiscal cliff?

TREASURER:

I believe the authorities in the US understand the importance of dealing with the fiscal cliff. I absolutely do. And I'm very hopeful when the Presidential election is out of the way that it will be done in a prompt way. I mean, we saw what happened when we had the debate in the US about the debt cap and the uncertainty that that caused to the global economy, the impact it had not only on the US but the rest of the global economy. I'm pretty confident they understand how important this issue is, and it is very important for the global economy and they deal with it swiftly and effectively.

PRESENTER:

The market seems to work on a different time frame than policy makers, in the since that waiting is not really their forte. We've had comments from Madame Lagarde saying maybe we should give Greece a little bit more time. Isn't this a mismatch between the markets and the policy makers?

TREASURER:

I think what Madame Lagarde said about Greece and austerity was just common sense, and I believe markets understand that. You can get to a point where more austerity just breeds more austerity and higher debt because you get involved in a spiral. I think everybody understands, and policy makers understand, that when you have fiscal consolidation it's got to be done in a way which may promote growth in the short term but brings the consolidation in the long-term. Because if you just have austerity piled on austerity, piled on austerity, you can't shrink your way to growth.

PRESENTER:

Thank you so much for joining us. The Treasurer from Australia, Wayne Swan, joining us here live from the World Bank and IMF Annual Meetings.