SUBJECTS: RBA's cash rate decision, stimulus package, monetary policy, fiscal policy, First Home Owners Grant
JASON MORRISON:
Chris Bowen is the Minister for Financial Services in the Federal Government and he's on the line this afternoon. Minister, good afternoon.
CHRIS BOWEN:
Good afternoon Jason. Welcome back to the afternoon.
MORRISON:
Yeah, thank you. I look at the graph – a year ago we were paying about 7.25 percent and that's not that long ago. So you look at the graph and it shows now down at 3 percent and it's about to start creeping up. We do have a long way to go before we're back to what I'll call normal – back to the old days again.
BOWEN:
Well you're right Jason. We have seen today the Reserve Bank lift rates from what the Governor's called the 'emergency levels'. But you're dead set right, we need to remember they are still 4 percent below their peak last year. So they're still a lot lower than where we were 12 months ago or more, and that's to say there is still a lot of stimulus in the economy flowing out of the Reserve Bank's interest rate cuts over that period.
MORRISON:
I'm sure at a personal budget level, you'd concede this, knowing as a Western Sydney MP, you'd know that probably the greatest impact on stimulating people to go out and spend during the tough times we've been through has been low mortgage rates and probably low petrol prices. The two together have been a lovely coincidence for the Australian economy. Now that's sort of changing and the Reserve is hinting that it's time to gradually lessen the stimulus that's out there. So what do you interpret that will mean now with what the Government is doing in all the stimulus spending?
BOWEN:
The thing is Jason, the Reserve Bank today has indicated that they want to gradually reduce the stimulus from monetary policy, and that's the same thing that's happening with our fiscal policy, with our stimulus package. That is designed, we designed it such that it would gradually wind down. So we've seen the cash payments, and I would add them into what you correctly identify as being important for household budgets, I would also add in the Government's cash payments, we've seen them now effectively wash through the system.
We've seen the First Home Owners Boost start to wind back, we've seen a lot of our expenditure on schools already happen and a lot of our expenditure on social housing already happen, so this was designed as a stimulus for the very pointy end of the emergency that we've been facing, and it was designed to gradually wind down and that's exactly what's happening. And just last week the Governor made it clear that he saw fiscal policy as winding back, and just as he is now winding back monetary policy as well.
MORRISON:
So the Government is winding back stimulus?
BOWEN:
Well, it's happening gradually and automatically; that's the way we designed the package. As I say Jason, we had the cash payments right up front for families and pensioners and carers, right up the front of the package. We had the money into social housing and defence housing and schools, that's happening very quickly. If you go around schools and the community, you can see it happening but you can see that a lot of it has already occurred in terms of the developments of housing.
And as I say, the First Home Owners Boost is starting to wind down. We've pared that back as of last week, and that's as it was automatically designed to do. So we are seeing the fiscal stimulus withdraw gradually. That's as we designed it to do, and we are now seeing the Reserve Bank gradually wind back their monetary stimulus as well.
MORRISON:
Okay, just a final question on this because you know that there is a perception out there that the Government is continuing to put money, or I'll use the phrase 'throw money out there' to people. That's still going on. We still have spending in areas that you know people would say, 'it's unnecessary', so do we stop now, we say, 'hang on, let's just stop for a second, let's slow down for a minute and have a look at this'? There's a lot of billions of dollars being thrown out there and already the indications are that the emergency is over. Do you have a serious sit down this afternoon and put the brakes on this?
BOWEN:
No, Jason. Look, a couple of points in response to that.
Firstly, I know some people argue that the spending is in areas where it's wasted. I certainly would disagree with that. I'm happy to go through all the schools that I've been to and seen the good work that's going on there. I've talked to the principals and presidents of the P and C – they certainly wouldn't think it's wasted. Certainly I know that you've spoken about, and many other people have spoken about, the need to invest more in our infrastructure, our rail, our roads and our ports. That's really important for productivity going forward so I would reject the argument that this spending is in any way wasted.
The other point is that we still have a long way to go. We still are going to see a lot more flow through the international economy. There's still a lot of our major trading partners that are in a very serious situation and that's going to continue to flow through to us. We are still expecting more to happen in unemployment, so the Reserve Bank has very gradually started to withdraw the stimulus today by a 25 basis point increase, 0.25 percent, but as I say, it's still 4 percent below where we were at the peak, so they still have a very stimulatory monetary policy. They're still pumping money into the economy via those very low interest rates.
The interest rates we have today, even after this increase, are very close to record lows, very close to the lowest we've seen in generations. That is an indication, I think, that the Reserve acknowledges that yes, we are doing well, we're doing better than any other developed economy in the world, but we still have some way to go yet before we're through this crisis.
MORRISON:
Alright, Chris Bowen thanks for coming on this afternoon.
BOWEN:
Good on you Jason, any time.