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

24 May 2013

Press conference
CPI

Brisbane

SUBJECTS: CPI; AAA credit rating; School Improvement Plan; Qld Government cuts.

TREASURER:

Today's data shows that inflation in Australia remains well contained sitting squarely in the middle of RBA's target band. Headline inflation was 0.4% in the March quarter and 2.5% over the year. This is up from 2.2% over the year to December 2012. Underlying inflation remains unchanged at 2.4% through the year, rising by 0.4% in the quarter

So this result is welcome, but we know that not all families are on easy street and that rises in prices can put pressure on family budgets. We can see in these figures today the impact of seasonal influences that have contributed to inflation in the quarter, particularly in areas like health and education. For example, health prices rose by 3% in the quarter, contributing 0.2 percentage points to the quarterly outcome. Now, these rises were partially offset by falls in tradable price such as clothing and footwear, with the sustained high dollar still putting downward pressure on prices across a broad range.

The CPI basket - and it's important to remember this - measures 87 items which reflect the spending patterns of Australian households. But price growth for domestic goods and services, which is over a broader group of prices compared to the CPI has generally been much weaker than the CPI prices that we are seeing today. Quarterly growth in the prices for all goods and services in our economy, as measured by the GDP deflator, has been negative in four of the past five quarters. This measure not only reflects consumer prices but also prices for our exports and prices faced by businesses such as prices for machinery and equipment.

Now, I think it's pretty fair to say that contained inflation and the low interest rates that we have is good news for family budgets. For example, somebody with a $300,000 mortgage is paying $5,000 a year less in repayments than they were at the end of 2007. But the high dollar is weighing on prices, and the flipside of the high dollar weighing on prices is that this is putting immense pressure on the profitability of many businesses, large and small, right across our economy. And of course, just as the high dollar is affecting the profitability of businesses, it's also having a very big impact on government revenues across the forward estimates, largely through the impact on profits and prices.

This sustained hit to revenues means we're going to have to make some difficult and tough decisions in this year's Budget, but Labor's choice will always be to support jobs and growth. Of course in doing that, consistent with our medium-term fiscal strategy for surpluses on average across the economic cycle, we will continue to run a tight ship offsetting new spending over the forward estimates and that will build on our record of fiscal discipline. Part of this, of course is making room in the Budget for those historic reforms which means that we invest in the future. Making room for investments which makes sure our kids get the best start in life in the educational system, and making sure we don't leave the profoundly disabled behind.

Now, I think there is a very clear contrast here between our approach and the savage cuts that you would see under a Tony Abbott-led government, the sort of approach that you've seen in Europe which has sent unemployment through the roof in many advanced economies around the world. So our government will continue to build on our responsible approach which has seen solid growth, low unemployment, low interest rates, strong public finances, and contained inflation, which of course is underscored again today by these CPI figures.

Now, before I take your questions, I did want to say just a couple of things about educational reform and how important it is that every child in Australia, no matter what postcode they live in, and no matter what state they live in, gets the benefit of a good education, the best start in life, and is not left behind because some State Governments won't sign up to a package of reforms which will lift our schools up and improve educational outcomes.

I think what we saw yesterday from Premier O'Farrell was a bold decision. It was the right decision, to put the kids of New South Wales ahead of politics, and to put the kids of New South Wales above the phone calls from Tony Abbott and other Liberals begging him not to sign up. I think it is a disgrace that the Queensland Government has not yet signed up to these reforms.

Why should a child in Sandgate receive less educational resources than a child in Sydney? Or why should a child in Nundah receive less educational resources than a child in Newcastle?

This is an important national reform to make sure that our kids aren't left behind. So I think what the Premier of Queensland ought to do is put the kids of Queensland first and not bow down to the interests of Tony Abbott. There is something like $3.8 billion on the table for the kids of Queensland to spend in ensuring that they get the best start in life. We do have a once-in-a-generation opportunity here to do something fundamental for education in this State, and our government is determined to make sure that all kids, particularly in Queensland, do get the best start in life.

Over to you.

JOURNALIST:

Do today's inflation figures give the RBA give any further room to reduce interest rates?

TREASURER:

Well, these are matters for the RBA, but what you can see today is that inflation is contained. Both headline inflation and underlying inflation. And of course the RBA will take its decisions. It does that independently from the Government, but the Government's fiscal policy has given the RBA a lot more room to move over time, but the RBA will evaluate these matters in the normal way.

JOURNALIST:

Given the Standard & Poor's warning about the need for a pathway back to surplus, what is your pathway back to surplus?

TREASURER:

Can I just say I reject the terminology that you've just used because there are a few facts we ought to have on the table here. I mean, for the first time in our history, Australia has a gold-plated AAA credit rating from the three major rating agencies, and of course, the commentary in the paper today, as opposed to the headlines, reaffirms their strong assessment of Australia's strong public finances.

Australia's public finances are among the strongest in the world with our debt a fraction of that of other developed economies. And if you would like to go through what the rating agencies have said as opposed to the headlines that we've seen today, they reaffirm the strong fundamentals of the Australian economy and particularly our strong public finances.

Take S &P, on the 27th February: "Fiscal flexibility is high, underpinned by the country's low public debt and strong fiscal discipline. In summary, Australia remains on a sound path on our base case scenario with a number of key strengths supporting the AAA rating."

Now, when Mr Abbott today says he's got a plan for a AAA rating, that's just a bald-faced lie. Because not once when Mr Abbott was a minister in the previous government, when Mr Hockey was the minister in the previous government, did that government have the AAA credit rating from all three major rating agencies.

JOURNALIST:

But Standard & Poor's, are they sending a threat about potentially downgrading...

TREASURER:

No, sorry, you've got to go and read the articles today, instead of taking your cue from the headlines. If you go and read the articles today, the comments from the rating agencies are exactly where the Government is. The Government is operating within its medium-term fiscal strategy. First and foremost supporting jobs and growth, but also committed to a medium-term fiscal strategy which means surpluses on average over the cycle. That's the Government's fiscal policy, that's why we have a AAA credit rating from the three major global rating agencies, and nothing has changed over the last 24 hours.

JOURNALIST:

You've spoken a lot about billion dollar revenue write-downs in recent days. Are you just trying to soften people up so that the deficit doesn't seem as bad when it's announced?

TREASURER:

No, what I'm doing is responding to conditions which have evolved in the Australian economy over the latter part of last year and through this year. And what I said then is confirmed by the data that we are seeing not just in terms of today's inflation data, but more broadly in terms of prices across our economy. The higher dollar has put a huge squeeze on many businesses, both large and small, across our economy. That combined with the impact of lower commodity prices at the end of last year in particular has meant that profitability for many businesses is down substantially.,In my remarks today, I talked about the GDP price deflator, and how it has been negative for a number of quarters, and what that reflects is the squeeze on profitability of Australian businesses.

What I've been talking to the Australian people about, since the end of last year and through this year, is the impact of that on our Budget. Because government revenue depends upon nominal growth in the economy, not real GDP growth. And nominal growth in the economy is the product of the volume and the price, and the fact is that the loss of profitability by a large sections of businesses has been caused largely by externally-induced events on the Australian economy, namely the prolonged level of the Australian dollar and a level that stayed where it is even when commodity prices at the end of last year went down. We've never seen that happen before.

So what we've had in our economy is a period when nominal growth in our economy has been below real GDP growth. That is why we've had this sledgehammer smash into our revenues. At the end of last year and again this year, I've reaffirmed this Government's number one commitment to always support jobs and do it within the context of a medium-term fiscal strategy. That is precisely what we are doing and that is the right policy for Australia.

Conditions change in the global economy, and governments must respond. This government has responded in the way in which I indicated at the end of last year and the way I've been talking about this year. We do want to have a detailed discussion with the Australian people about these issues because in a volatile and uncertain global economy, the responsible thing that governments must do is to take those factors into account as conditions change and respond, and respond within sound fiscal frameworks, and that's what our government has been doing.

JOURNALIST:

On something totally different, a 24-year-old from Gosford was arrested for hacking. Do you think we need to be putting more money and energy into anti-hacking efforts given that the news that a cyber-attacker has in the AFP's words presented a considerable risk?

TREASURER:

Well, a number of ministers in the government have spoken about cyber hacking. I will leave further commentary to them, thanks.

JOURNALIST:

Have you got any advice for the Newman Government ( inaudible)

TREASURER:

Well, I mean, the Newman Government has basically broken every election commitment is gave in the last State election campaign and gone out and hacked into health funding and sacked around 20,000 public servants, 4 to5,000 in health. They could do really anything, but it's not up to me to be their political adviser. I just wish that they would take a much more responsible attitude to investment in health and education than they are taking so far. And I would urge them to put the kids of Queensland first and the politics of Tony Abbott last. Thanks very much.