SUBJECTS: Budget, inflation, health insurance premiums, petrol prices
DAVID SPEERS:
First though to the Shadow Treasurer's withering critique of last week's Budget and joining me now for some Government response is the Assistant Treasurer, Chris Bowen, from Sydney.
Chris Bowen thank you for your time.
CHRIS BOWEN:
Pleasure.
DAVID SPEERS:
Malcolm Turnbull says the Treasurer was either disingenuous or gutless on inflation. Can you point to one economist that agrees that this Budget is going to put downward pressure on inflation?
CHRIS BOWEN:
Well a lot of economists have congratulated the Government for getting Government spending under control for the first time in many years. We've reduced Government spending as a percentage of GDP by a full percentage point. There's lots of economists, credible economic commentators who say that's welcome and that this is the first Government to have fiscal policy and monetary policy actually working in the same direction. In contrast, I've yet to see one economic commentator who agrees with Malcolm Turnbull, that inflation is not a major problem in this country and that the Budget did not need to be contractionary.
DAVID SPEERS:
But the point he makes is that we need to judge this Budget by the bar the Government set itself; and Wayne Swan said it would put downward pressure on inflation. Now again, is any economist agreeing you've done that?
CHRIS BOWEN:
Absolutely, as I say, there are lots of economic commentators who say at last we have a Government serious about getting Government expenditure under control, actually reducing Government expenditure as a percentage of the economy.
DAVID SPEERS:
Who's saying it puts downward pressure on inflation?
CHRIS BOWEN:
Well if you look across the board, if you look at the commentary from Mr. Turnbull's old firm, Goldman Sachs, if you look at commentary from Access Economics and others…
DAVID SPEERS:
Well they're saying, Goldman Sachs is saying it wont put upward pressure on inflation, I don't think they've said it will put downward pressure on inflation, which is what the Government said it would do.
CHRIS BOWEN:
Well, when you reduce Government expenditure as a proportion of GDP, when you make difficult cuts, when you make difficult decisions and none of them were easy, as a member of the ERC I can tell you none of these decisions were easy, you do have the benefit of putting downward pressure on interest rates and inflation. Now in contrast, Mr. Turnbull says there's no problem with inflation and Dr. Nelson, in his Budget response, said inflation was 6% in the 90's so therefore it's ok, which is in stark contrast to serious commentators like the Governor of the Reserve Bank and the Secretary of the Treasury who have, in recent days, pointed out that inflation is a problem in this country and that fiscal policy should be working – the Secretary of the Treasury in particular – hand in hand with monetary policy, which Mr. Turnbull doesn't seem to accept; and we saw more confused narrative from him today.
DAVID SPEERS:
Well he also pointed out that while spending may decrease – well it's still increased but the increase will be lower in the coming financial year – the year after that, 2009-2010, spending is going to rise faster than it did in all but one of the Howard-Costello years.
CHRIS BOWEN:
Well the forward estimates indicate forecasts and of course, next year's Budget will reassess the economic situation and make changes accordingly. This is a fine balancing act and no Budget is the same as the one that preceded it. We'll assess the fiscal situation; there are conflicting forces upon the Australian economy at the moment and 12 months is a very long time and we'll reassess at the next Budget what the appropriate spending and fiscal settings are.
DAVID SPEERS:
Well, on some of the specific measures, the Shadow Treasurer said the increase in the Medicare levy threshold was the most ideological and misguided decision in this Budget. Access Economics, who you just referred to earlier, they are a highly respected forecaster, today they're saying that it was a mistake as well, that it will drive up health insurance premiums by 10%. Why didn't the Government say that in the Budget?
CHRIS BOWEN:
Well I thought it was extraordinary that Mr. Turnbull today said that the Liberal Party is the party of choice and free will yet will force people on $50,000 to take out private health insurance or will tax them. They seem to think that $50,000 is high income. When this tax was introduced, $50,000 was regarded as high income, it hasn't been increased once in the last 10 years, the threshold hasn't been increased once, but wages and inflation have increased, so it just makes eminent sense to say 'well this tax was introduced when $50,000 was a reasonably high income, $50,000 is not high income for anybody anymore and people on $50,000 should be given the choice about whether they take out private health insurance or not'. The Government should not make that choice for them.
DAVID SPEERS:
Do you accept this is going to drive up private health insurance premiums for those who are left in the system?
CHRIS BOWEN:
Well the Treasury modelling is clear and we stand by the Treasury modelling. I don't disrespect Access or the other commentators, but they've done their work for people involved in the industry, either for the AMA or the private health insurance lobby, that's completely appropriate, that's up to them; but the Treasury is the model of the Governments choice and we stand by the Treasury modelling.
DAVID SPEERS:
On petrol Chris Bowen, this is your particular area. Do you acknowledge that the FuelWatch scheme that you're introducing won't reduce prices by as much as the 5 cent a litre cut that the Opposition is now promising?
CHRIS BOWEN:
Well I certainly do acknowledge that the evidence from Western Australia is that there would be downward pressure on prices by about 2 cents a litre, but I would point out that FuelWatch costs the tax payers about $20 million over four years as opposed to Dr. Nelson and Mr. Turnbull's answer which would cost $2 billion a year. So in terms of value for money, I know which one I'd rather go with. People aren't silly; they will go for the policy response which provides taxpayers with the best value for money.
Now, of course with FuelWatch, the other benefit is that the difference between the most expensive and cheapest petrol in any given city can be 10 or 15 cents a litre, so if you've got so much more information at your disposal and you can find petrol which is 10 cents or 15 cents a litre cheaper than what you would otherwise be buying, that's a major benefit for, as I say, very little Government outlay, very little use of taxpayers funds. Compared to the massive unfunded $2 billion a year expense that Mr. Turnbull and Dr. Nelson are advocating as good fiscal policy and on the issue of responsible economic commentators, not one commentator in the country, that I've been able to see, thinks is good policy.
DAVID SPEERS:
Still, a lot of motorists would welcome any sort of relief. They did believe Kevin Rudd largely, when he said during the election campaign that he would put downward pressure on petrol prices. In Sydney today where you are, bowser prices have crashed through $1.60 a litre, so what do you say to those motorists today?
CHRIS BOWEN:
Well we say, as we did before the election and we were very clear then and we're very clear now, the biggest impact on Australian petrol prices is world oil prices, but we can shine a light and introduce more transparency and competition and that's exactly what we're doing. We've seen an impact from the Petrol Commissioner over the last week: the Petrol Commissioner out there doing his job, highlighting the companies which have been leading the price hikes.
DAVID SPEERS:
But prices are still going up. Prices are still going up and you're the side of politics refusing to cut the tax.
CHRIS BOWEN:
World oil prices are still going up, whether you cut the tax or not and there's significant evidence, of course from the United States where some candidates who are having difficulty in the election there have promised to have a tax cut and there, the response from every responsible commentator is the same. This in the longer run, wont work because it will be a massive impost on taxpayers' finances, will be inflationary in the long run and will not provide the sorts of benefits which FuelWatch can provide for much, much less cost. What benefit is it David, if you have a massive raid on Government surplus, when the surplus is what puts downward pressure on inflation and interest rates, to reach this result which Dr. Nelson and Mr. Turnbull are talking about?
DAVID SPEERS:
Alright, Chris Bowen we'll have to leave it there. Thanks very much for joining us today.
CHRIS BOWEN:
Very great pleasure.