SUBJECTS: Reserve Bank Governor Glenn Stevens, stimulus, interest rates, unemployment
CHRIS BOWEN:
Well this morning Governor Stevens has provided more compelling evidence of the effectiveness of the Government's stimulus package. Governor Stevens has this morning confirmed his view that without the Government's stimulus package, Australia would be in recession.
Governor Stevens has confirmed that the stimulus package, along with other factors, has been vital in supporting Australia through this very severe downturn in the rest of the world.
Perhaps most importantly, Governor Stevens has made two compelling points about going forward.
Governor Stevens has made it clear that arguments that Australia's fiscal strategies are putting upward pressure on interest rates are fallacious. He's made it very clear that the impact of Australia's fiscal policy on interest rates is not that claimed by Messrs Turnbull and Hockey.
Secondly, Governor Stevens has made very clear his view that fiscal policy and monetary policy are working together and will continue to work together. He says this because the fiscal stimulus is designed to wind down as the economy improves. This is what the Government has said all along. It's completely contrary to the arguments of Messrs Turnbull and Hockey.
In short, Governor Stevens' evidence today knocks the economic credibility of Mr Turnbull and Mr Hockey for six.
I'm happy to take some questions.
JOURNALIST:
It indicates that the budget is now way out of line with reality; the forecast in the budget is way out of line with what you're dealing with. But on the upside, this is happy enough. So, what can you tell us about where you see the economy really going as those figures can no longer be relied on?
BOWEN:
Well you'll recall when we released our budget figures in May; there was a common criticism that they were too optimistic. That is not a criticism you hear very often anymore, that is true, but we release our updates in accordance with the guidelines and the precedents set down by successive governments and that is we will release our mid year economic forecast later this year, and it will see revisions to budget parameters - you would expect that - that would be the case and this would be no different.
It is true that our stimulus package is having an effect on the economy and that will have a positive impact, but in relation to how much of a positive impact, that is a matter for the mid year economic predictions.
JOURNALIST:
Do you expect that unemployment will have a seven rather than an eight in front of it when MYEFO is released?
BOWEN:
Look I will not be predicting what will be in my MYEFO. That will be a matter that will be very clear to all of us when my MYEFO is released.
JOURNALIST:
When you talk about a need for Plan B, do you have a Plan B and if so, what is this Plan B?
BOWEN:
Well Glenn Stevens today gave a very good endorsement of the Government's actions so far. He does indicate that there are continuing to be risks in the world economy - again that is a point that the Government has continually made, one that has been dismissed by those who sit in the Opposition. It's a point now made by Governor Stevens, by Dr Henry and by the Government continually.
So, yes there is continuing downside risks in the world economy and we will need to be alert to those but when you read Governor Stevens' testimony, it's very clear that he endorses, and is comfortable with the approach taken by the Government so far.
JOURNALIST:
So what's the Plan B? You talked about a Plan B....
BOWEN:
We continue to say there are risks in the world economy and we'll be alert to those but we are sticking to the strategy outlined in the Budget and the stimulus packages before then and we see no reason at this stage to divert from that.
JOURNALIST:
You also said that interest rates will have to go up or there will be other problems that you'll experience. How soon would be 'too soon' in your view?
BOWEN:
Oh look, Governor Stevens has said before, and the Government has said before, interest rates are at an emergency levels, at emergency lows and people need to factor in increases in interest rates into their calculations.
However, we don't predict or pre-empt decisions by the Reserve Bank -as to timing - that is completely a matter for them.
JOURNALIST:
Minister, would you be prepared to see interest rates go up before unemployment reaches a peak?
BOWEN:
As I say, Malcolm, interest rate levels are a matter for the Reserve Bank, they need to make that judgment
We need to make the judgment to ensure that fiscal policy and monetary policy are heading in the same direction, working together. Governor Stevens has today confirmed that is the case, despite the protestations of Mr Turnbull and Mr Hockey.
JOURNALIST:
He did say, as I understand it, that rates would go up soon, go back to normal soon. Isn't the pace of an increase just as important to household budgets as the size of an increase, and if people could be hit by a sudden rush of extra repayments?
BOWEN:
Well of course the timing of the increase is just as important to people's household budgets but decisions for the Reserve Bank are just that - decisions for the Reserve Bank, in relation to quantum and in relation to timing.
Thank you.