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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

19 April 2013

Interview with David Speers

Sky News AM Agenda

SUBJECTS: G20/IMF/World Bank meetings; Global economy; Budget; Carbon price; Tony Abbott's Cuts to Families

SPEERS:

Thank you for your time. One of the things you will be saying to your G20 counterparts there in the United States is it that they need to cut back on some of the severe austerity measures and do more on to stimulate growth. Are you suggesting that they should be running up bigger debt and deficits?

TREASURER:

Well firstly David, I think what we need to understand is that the IMF is predicting a global growth rate this year only with a '3' in front of it. And with a global growth with rate with '3' in front of it, we've got enormously high unemployment right across the developed world and we're certainly not going be lifting many people in the developing world out of poverty. So it's very important that we get global growth up and the IMF itself has observed that the harsh austerity policies - particularly those being implemented in Europe - are a hand brake on growth. They have also observed here in the United States that some of the fiscal consolidation that is taking place is also a hand brake on growth leading to higher unemployment than people would wish. What the IMF is simply saying is that you can support growth in the short-term as long as you've got strong medium-term fiscal consolidation in place. So the IMF is very critical, particularly of the policies in Europe, which are actually dragging down global growth. As I said, global growth with a '3' in front of it is not good for the global economy. Australia in these circumstances has still done very well, with low unemployment, solid growth, a big investment pipeline, lower interest rates, contained inflation and strong public finances. But we still feel the impact of this volatility in the global economy. And we see it particularly in a higher Australian dollar which impacts particularly on the profitability of companies and government revenue, and leading to significantly high revenue downgrades in our economy. So we live with the consequences of this despite having a much stronger economy than most other developed economies.

SPEERS:

But just to get back that question, what you are urging them to do, and you point out often our debt is a lot lower than some of these countries. They have enormous debt. You seem to be saying they shouldn't be worrying about that - they should go even deeper?

TREASURER:

Well, first of all when you look to Australia, our debt is a fraction of the debt of the major advanced economies. But the IMF observes in the outlook that they have published that some of those major advanced economies, some of the European economies which have shrunk and are smaller than they were at the end of 2007, and in particular the United States, could have a less harsh fiscal consolidation in the short-term while still putting in place big structural changes and consolidation to come back to surplus and get out of debt in the longer term. You've got to do both. At the moment, we are really relying only on central banks in the United States and Europe to keep growth going. And really, that is a one sided, lopsided attempt at policy. If we are going to get global growth up, for the benefit of nation's right across the globe, then we are going to have to see a major contribution come out of Europe. At the moment, it's dragging down global growth and that's the observation that the IMF is making, it is not an observation that I am making, although I absolutely agree with it. It is an observation that many are making that the fiscal austerity in Europe is a drag on growth, it is far too harsh, and the consequence is very high unemployment and misery for tens of millions of people.

SPEERS:

As you point out the fact that they are relying on low interest rates to stimulate some growth, and also in some cases, now including Japan, essentially printing money, that's keeping their currencies low, driving the Australian dollar high, keeping the Australian dollar high. Is there anything we can do about this, and I've got to ask, is it a strategy that we should be looking at here as well to tackle the dollar?

TREASURER:

Well first of all the principle source of the strength of the dollar is not what the central banks in the US, or in Japan or in Europe are doing. The principle source of the strength of the dollar is the fact that our economy is thirteen per cent larger than it was at the end of 2007. The British economy is three to four per cent smaller. The US economy is four or five per cent larger. Half of the developed economies in the world are currently smaller than they were at the end of 2007. So we need to get global growth going, and any policy, even from central banks that is supporting global growth is good for the global economy. But there is…

SPEERS:

But this issue of printing currency, quantitative easing, whatever you call it. Surely that must frustrate you?

TREASURER:

Well I think that's good that we have someone in US and someone in Europe who is supporting growth through stimulation through monetary policy. The problem is that fiscal policy is not on table in the US or on the table throughout much of Europe. And the observation that I am making, the observation that the IMF is making, is that they could use fiscal policy more intelligently like we did during the Global Financial Crisis, in particular to support jobs and growth. You can do that in the short term whilst having medium term consolidation policies in place which pay down debt over time.

SPEERS:

Turning to your own budget then in Australia. There is another layer of problem here in that the carbon price in a couple of years is going to be linked to Europe and all signs at the moment point to a pretty steep drop in that price. Was it a mistake, can you now acknowledge, to set the price so high in Australia?

TREASURER:

No I don't believe that at all. We have set a fixed price. It was a realistic price to set. What has occurred in Europe is due to these weak economic conditions that I have just talking to you about. The fact is that we are moving to a floating price in two years' time, but there is weakness in carbon markets in Europe at the moment and you see that in the events that have unfolded. But we will look at all these issues as we prepare our budget forecasts, and we will publish our response in the budget. But I just would urge you not to get too taken by a particular price at a particular time around a particular event in Europe. Our floating price is still two years away.

SPEERS:

But it has been dropping and dropping, the European price. And when the Australian price was set, the signs were there about the trouble Europe was facing. Why was it set so high?

TREASURER:

Well, two years ago the carbon price in Europe was far, far higher. I think it was around 30 Euros. So this is a market that has experienced some challenges that are not unlike the general challenges that we are observing in Europe. I mean, the last quarter in Europe, the European economy, not just the countries at the fringe but even the central countries, were contracting. It takes us back to the point I was making before. What we need in terms of growth in employment and growth in the economy is stronger fiscal policy particularly in Europe. And that would also have an impact on issues like the one we were just discussing.

SPEERS:

You have said that in next month's budget that there will be revision on the Carbon price and revenues post-2015. Will there also be a revision of the household assistance that it is tied to? Because the Government has always said if that if the carbon price goes up and up the household assistance will presumably rise as well. Now if it looks like it is going down, surely it is prudent and responsible for that household assistance to come down as well?

TREASURER:

We are committed to our Household Assistance Package, but that is something that Tony Abbott wants to rip away. He wants to cut to the bone. He wants to get rid of the tripling, for example, of the tax free-threshold. He also wants to get rid of the School Kids' Bonus. He also wants to get rid of a number of pension increases which have come through. All of those things are policies of the Opposition. We are committed to our Household Assistance Package.

SPEERS:

So even if that carbon tax revenue is a whole lot lower, you are still going to pay out the same level of household assistance?

TREASURER:

Well first of all, can I just caution you on drawing conclusions on what the implications will be for the budget from what occurred in Europe only a couple of days ago. We will work our way through those issues and we will put all of our forecasts in our budget in the usual way.

SPEERS:

Okay. But the household assistance is guaranteed - that will not be revised down?

TREASURER:

The household assistance that we have got in place is guaranteed.

SPEERS:

Will there still be then be more structural saves in this Budget on top of the measures you have already announced on superannuation and higher education?

TREASURER:

Look, I have made it very clear that just because the global economy has taken an axe to our revenues we have absolutely no intention of taking an axe to our budget and taking an axe to jobs. That is why I announced that it would be unlikely that we would come back to surplus at the end of last year. Because of the international circumstances which have impacted on our economy via the high dollar, that's had a dramatic impact on revenue. But we're absolutely determined to keep in place fiscal settings which will support jobs and growth and of course that stands in stark contrast to Tony Abbott wh has got a $70 billion hole in his budget bottom line. And he will be out there cutting out to the bone to make that $70 billion target, which I gather he is now trying to fudge day, in and day out

SPEERS:

But does that mean there will be more spending cuts?

TREASURER:

Well what we we'll do is we'll publish all our budget figures in the usual way. I have said when we are putting in place fundamental reforms for the future such as our Gonski education reforms - a fundamental reform – and also in terms of the National Disability Insurance Scheme, that there will be saves made within the budget to make room for those very important initiatives. You see, just because we are challenged in the global economy by all of these events, we can't afford to starve the future by not making the investments we need to make in education and disability and elsewhere to enhance prosperity and fairness in the future. So you have got to do a bit of both.

SPEERS:

Treasurer Wayne Swan we are going to have to leave it there. Thanks for joining us

TREASURER:

Good to be with you.