SUBJECTS: RBA interest rate decision, National Accounts, pension reform
MARIUS BENSON:
Chris Bowen, the public guessing game today is what the growth figures will be there, are coming out later this morning? is the Assistant Treasurer given prior notice of those figures?
CHRIS BOWEN:
No and nor do I predict them; it would be irresponsible for a Treasury Minister to do so. The only thing I know is whatever the figures we see today they would have been a lot worse if we didn't have our economic security package, which hit the deck last December, which was a very important element in keeping growth as robust as it can be.
BENSON:
And the guessing game at the moment revolves around figures of maybe a little bit of growth, maybe a little bit negative, somewhere around zero?
BOWEN:
Well look they are the market predictions, but as I say I don't predict. The only thing that I know is that whatever figures we see today, they would have been significantly worse if we didn't have the stimulus to the economy both through monetary policy and the actions of the Reserve Bank, at fiscal policy and the actions of the Rudd Government.
BENSON:
And the figure that we saw yesterday came from the Reserve Bank and it was zero, there was no change to interest rates, that's been seen as a vote of confidence by the Reserve Bank. But its sort of a wish of confidence really as it's being reported, that the Reserve Bank is trying to instil confidence in the economy rather than reflecting confidence, it feels its justified now?
BOWEN:
Well, I think the decision of the Reserve can be characterised as recognising there are significant stimuli in the economy. We have the government stimulus package and the Reserve Bank's reductions which are yet to fully flow through the economy. So that they took the approach of pausing while those flow through, bearing in mind that we have had very significant interest rate reductions of course, 400 basis points, and if you look at the normal way these things happen in 25 basis point lots these reductions normally would have taken sixteen months. If you assume the Reserve Bank had reduced interest rates by point 25 basis points every month that would normally take sixteen months they have done it in six.
So I don't think a pause is particularly surprising and they have taken the view that it's prudent to that the stimulus flow through before they make further decisions.
BENSON:
In fact that total cut of 4% has come in a little less than six months more like five months, but there is a view now that the good news, in terms of interest rates, is bottoming out. The economy is far from bottoming in fact the Prime Minister subscribed to that view being clear yesterday that there are still plenty of problems until private credit flow resumes.
BOWEN:
That's right and that is one of the key issues facing the world that will need to be tackled at the G20 meeting. The Prime Minister's made clear that's Australia's priority because you can have growth as robust as you like, unless businesses can access their credit then they are going to find difficulties if they can't rollover their credit or if they can't get credit to expand or maintain their operations then there are going to be difficulties. And until we deal with the issue around the world or toxic assets not something that really effects Australia directly, but certainly affects indirectly, then we are not going to see major progress around the world.
BENSON:
The Treasurer and other leading Government Ministers have said that the Government and the Reserve Bank are ready to take further action to aid the economy, for the Reserve that obviously means cutting interest rates, although the cuts are going to be much less than we have seen. For the Government what further action lies ahead?
BOWEN:
Well, obviously, we will be monitoring the situation very closely in the lead up to the budget and the Government will be taking what ever action is necessary, within the budget, but look we have made it very clear from the beginning, from last October, that we'll respond as appropriate and that means we respond to the circumstances. We get ahead of the game, our stimulus packages have come earlier in the economic cycle than others have around the world and stood us in very good stead and that's meant that we have seen better figures then you are seeing around the world in terms of retail trade [inaudible] growth et cetera.
So we are very well placed, our fundamental are strong, but importantly our response has been robust and early, which has stood us in very good stead.
BENSON:
On the Budget, it's clear that something have been put in the too expensive basket already, are some things sacrosanct like increases in pensions?
BOWEN:
We have made it very clear that pensions will be dealt with in the Budget, from the Prime Minister down. We said that is very much a priority that the long term sustainability of pensions has been neglected too long and it needs to be dealt with. We've made that very clear; we'll work through the Harmer report and the Henry report in a very detailed and comprehensive way as you would expect us to but we will be dealing with pensions.
BENSON:
Chris Bowen, thanks very much.
BOWEN:
Great, good on you.