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

23 January 2013

Doorstop Interview

Brisbane

SUBJECTS: CPI; Carbon Price; Campbell Newman's Health Cuts; NDIS

TREASURER:

Today's data confirms that inflation remains well contained with both headline and underlying inflation moderating in the quarter. CPI inflation was 0.2 per cent in the December quarter, down significantly from the 1.4 per cent recorded in the September quarter. That takes CPI inflation to 2.2 per cent over the year to December which remains at the very bottom of the RBA's target band. I think it's particularly encouraging to see that inflation has moderated in the December quarter after a number of one-off factors boosted the result in the previous quarter.

I think importantly, today's result provides further evidence that there has been no significant broad-based increase in consumer prices as a result of the carbon price. And that is a result which is entirely consistent with Treasury modelling. In fact, much of the impact of the carbon price on inflation occurred in the previous quarter. Today's result reflects subdued price pressures across the board, with a number of seasonal factors putting downward pressure on inflation. One of the key drivers of this modest result was a decline in vegetable prices after more favourable growing conditions had boosted supply in the quarter. Vegetable prices fell 5.7 per cent, detracting 0.1 percentage points from the CPI in the quarter.

Now on top of this, there was a seasonal decline in pharmaceutical prices which fell by 3.5 per cent in the quarter. The main contributors to headline inflation in the quarter included a seasonal increase in domestic holiday travel and accommodation, and an increase in petrol prices reflecting international oil price movements. It was encouraging today to see the underlying inflation has moderated to 0.5 per cent in the quarter, to be 2.3 per cent through the year. So contained inflation is certainly a healthy sign and it's a reminder of Australia's strong economic fundamentals, along with solid growth, low unemployment and strong public finances.

The Government's fiscal discipline has contributed to contained inflation giving the RBA room to move to the cut the cash rate by something like 175 basis points over the year. It does pay to compare this result with what we saw at the end of the last Liberal government, where underlying inflation was pushed to its highest level in 16 years and where reckless spending pushed up the inflation rate to more than double what we see today. I think the IMF pointed out this factor recently, that the high spending of the previous Howard Government led to a situation where there were ten interest rate rises in a row. The fact that rates have come down means that someone with a $300,000 mortgage is paying $5,000 a year less than they were paying when the Liberals were last in office. Or to put that another way, if you have a $300,000 mortgage, and you kept your payments at the same level, you're now able to repay your mortgage around eight years faster than when the Liberals were last in government.

The other point to be made about the figures today is this: the scare campaign that we've seen from Mr Abbott and the Liberals about the carbon price has been exposed for what it is and was, which was a fraudulent campaign - there has been a very modest impact on inflation. Mr Abbott's prediction of legs of lamb costing $100, Gladstone and Whyalla being wiped out have come to nought. Yet we've got a situation now where the Liberals are still intent on ripping out of the system the assistance that was provided to Australian families by way of tripling the tax free threshold, increases in family payments and increases in pensions. So there is a very clear contrast here. The Government has a forward-looking agenda, a positive agenda to grow the economy, to support jobs, and to provide assistance to families. And the Government looks forward over the coming year to getting on with that job, to supporting jobs and growth in the Australian economy.

Before I conclude I just wanted to make some remarks about what the LNP in Queensland is now doing with the health workforce. We now read in the paper this morning that there are plans to cut up to another 1,000 workers, 1,000 additional workers, including up to something like 700 nurses from the health workforce. Now, this is simply staggering. And it is certainly another example of how cruel and heartless the Newman Government is. Because what they will do if they proceed with these savage cuts, is put pressure on services and endanger the lives of people particularly living in the northern health area. Now, Mr Newman, Mr Springborg ought to come clean today about what they're doing and rule out these savage cuts. The Newman Government has been ripping billions of dollars, billions of dollars out of its health budget. At the same time as the Gillard Government has been increasing funding to Queensland Health. Over the next four years, funding from the Federal Government goes from $3.1 billion to $3.7 or $3.6 billion - an increase of $600 million over four years. Whilst the LNP are ripping out billions of dollars and sacking thousands of workers from the Queensland health workforce. Making sure that Queenslanders get access to quality health care is a very significant priority for the Gillard Government and we will continue to work hard to support that sector in Queensland. Over to you.

JOURNALIST:

(inaudible)

TREASURER:

Could I just go through the figures here? We really need to get a handle on these. I don't know who Campbell Newman thinks he's kidding. Because when they brought down their budget last year, they fessed up to at least a cut of 4,000 in the health workforce. And this is what they had in their budget in terms of cuts to health: $944 million, nearly a billion dollars, from regional hospitals and Health Board budgets; a further $1.7 billion in wages by slashing jobs in hospitals and the health services; $120 million cutback in health grants to community and illness prevention organisations. And $283 million in other cuts to Queensland health spending. So what you've basically got is an announced cut from the LNP of $3 billion to the Queensland health budget. At the same time over the next four years a $600 million increase from the Commonwealth Government. Now I think he's really crossed the line, this morning he indicated on radio he may turn round and use public funds to conduct a political campaign against the Federal Government, in an environment where he has cut $3 billion from the state health budget. I don't think Queenslanders are in any way going to be deflected from making a judgement on Campbell Newman's cuts by a political campaign funded by their tax dollars to try and save his political hide.

JOURNALIST:

Are you saying the Federal Government has not taken out any money out of the Queensland state.

TREASURER:

The Federal Government is increasing our [Queensland health] budget by $600 million over four years and in contrast with that is the $3 billion cut. Now Campbell Newman is referring to an indexation provision in the agreements which is entirely normal and is adjusted from time to time and which has been signed up by the State Premiers for some period of time which happens automatically. That's what he's referring to. He's seeking to use that, seeking to use that to camouflage the fact that federal funding for Queensland is increasing by $600 million over four years, precisely at the time that he is cutting the state health budget by $3 billion.

JOURNALIST:

So the 400 jobs that he's claiming, is that a complete furphy?

TREASURER:

He's cutting around 4,000 jobs, no-one can quite get a handle on the number of jobs, but if you live in the northern suburbs of Brisbane, you cannot walk down the street without meeting someone who has either themselves or in their household or in their street lost a job in Queensland Health.

JOURNALIST:

(inaudible)

TREASURER:

He cannot say that. Our grants are made directly to the State Government under agreements signed, sealed and delivered and signed up by the State Governments, including the Newman Government. They signed up to a health agreement, which delivers a record 21 per cent increase in federal funding, but because he's now got into a bit of political trouble, by cutting health budget in Queensland by $3 billion at his last budget he's now seeking to save his political hide by concocting an argument about federal funding which is entirely untrue and not credible. Everyone in this room has covered State politics for most of the last year, have you not? Was there any mention when they cut the health budget by $3 billion that it was the fault of the Federal Government? No. There was no mention then. As they've got into political trouble as they've started to close hospitals, as they've started to sack workers and as their political fortunes have fallen they've sought to deflect political attention from their very harsh and cruel cuts not just to health but to health and education and more broadly.

JOURNALIST:

(inaudible)

TREASURER:

It indicates a couple of things. It indicates that inflation is contained and one of the reasons that inflation is contained is because of the fiscal discipline of the Federal Government. We've created room for the Reserve Bank to cut rates by our fiscal discipline and rates have come down significantly. Any future decision of course is taken independently by the Reserve Bank. If you run through our economic fundamentals: we have very low unemployment; we have a strong investment pipeline; we have contained inflation; we have strong public finances and lower interest rates. In saying that, that's not to disguise the fact that there are sectors in the Australian economy which are impacted by the higher dollar, a cautious consumer, and global volatility. So within that framework, there are some sectors of the Australian economy that are doing it tough. But unlike other countries, we've got low unemployment, strong public finances, low debt, and lower interest rates.

JOURNALIST:

(inaudible)

TREASURER:

There's a lot in that question. We'll start from fruit and vegetables and move over to monetary policy in Japan. In terms of fruit and vegetables, there was a spike, if you like, and they come from time to time in the last quarter caused by difficult seasonal conditions. So that's washed its way out of the system. All exporters do suffer when the dollar is high. But efforts that have been made to boost global growth in both the United States and Japan, I believe, should be welcomed because the most fundamental thing that we can do to secure our future is to see growth in the major advanced economies. At the moment, global growth is around 3 per cent - it doesn't cut the mustard in terms of reducing those high levels of unemployment across a range of developed economies around the world. We're in a much better position than any of those - our economy is 13 per cent larger now than it was prior to the global financial crisis. The American economy is one or two or three per cent [larger]. The British economy is 4 per cent smaller. Most of the developed economies in Europe are in recession and there are particular challenges in Japan. The efforts by the monetary authorities in both the United States and Japan are directed towards increasing global growth and increasing global growth is what we need to do for the prosperity of the global economy. What's good for the global economy is always good for our country.

JOURNALIST:

(inaudible)

TREASURER:

I know there is a vigorous debate about this internationally, but as I say to my colleagues in the G20, particularly from some of the developing countries, the most fundamental thing we can do to lift the global economy and our economies as well, the most fundamental thing we'd wish to see, is a return to stronger growth in the United States and stronger growth in Japan. I mean Japan after all is our second biggest trading partner, so stronger growth in Japan's got to be good for Australia. Stronger growth in the United States has also got to be good for Australia.

JOURNALIST:

Treasurer, the quarterly figure was well below 0.5 expected by economists. Surely, this is a sign the economy is growing now at a much slower pace than expected (inaudible)?

TREASURER:

If you go back to the quarter last year, they were a bit surprised the other way with the strength of the figure. There are swings and roundabouts in every inflation number. And there are always results which differ a little from expectations. I'd caution against drawing too firm a conclusion from simply one quarter's numbers. The fact is that inflation is contained. That's a good thing. And good budget policy and contained inflation is one of the things that gives the Reserve Bank room to move when it comes to monetary policy and I was asked a question about monetary policy before. Well, we're in the fortunate position of being able to deploy monetary policy. Unlike the countries that we were talking about before who are now deploying unconventional monetary policy.

JOURNALIST:

(inaudible)

TREASURER:

Well, electricity prices without the carbon price have gone up something like 40 per cent over four years. Round about that. Nothing to do with the carbon price at all. The estimate of the impact of the carbon price on electricity prices was 10 per cent. That's exactly the figure that came through from all of the state regulatory bodies. And the impact of that was seen in the inflation number last quarter and I don't think you will see any substantial reflection of it in this quarter.

JOURNALIST:

Tony Abbott on radio this morning, he was saying that Islamic terrorism is a bigger issue than the rise of China in relation to Julia Gillard's national security announcement. Do you think Tony Abbott's wrong to say that Islamic terrorism is a bigger issue than the rise of China to Australian security?

TREASURER:

I didn't quite hear it like that so I don't necessarily accept that characterisation. I mean, when you're dealing with a national security statement, you take into account in a balanced assessment of risk. And I think that's precisely what our statement does.

JOURNALIST:

(inaudible)

TREASURER:

As I indicated at the end of last year the very substantial revenue write-downs we saw over the first four months of the financial year in fact accounted for the write-down for the whole year that we had had in the mid-year budget update. And in those circumstances, I indicated it was unlikely we would be returning to surplus. The fact is as I indicated before, there are competing pressures in the Australian economy. Our fundamentals are strong but a higher dollar along with volatile commodity prices, global instability and a cautious consumer means there are also sectors of the economy that are patchy. But overall, you'd rather be here than in any other developed economy and unlike other developed economies, our unemployment is low, our public finances are strong and our debt is low.

JOURNALIST:

Kurt Fearnley's comments, Treasurer, last night he says the National Disability Insurance Scheme isn't good enough, what's your reaction to that?

TREASURER:

Well I didn't see Mr Fearnley's comments but what I did hear of them as I was walking past the radio this morning was that he was very supportive of the National Disability Insurance Scheme. The country's waited a long, long time for this fundamental reform and it's one that the Government is determined to get done, despite the entrenched opposition that we see and sabotage that we see from states like the state of Queensland.

JOURNALIST:

(inaudible) we're doing so poorly by OECD standards?

TREASURER:

I think the Government has always had the view that the amount of unmet need in the area of disability is huge. Which is why we have moved so fundamentally to put in place a National Disability Insurance Scheme.

JOURNALIST:

Is the scheme too weak Treasurer?

TREASURER:

The scheme we've put forward is first class. Thank you.