SUBJECTS: MYEFO, Budget surplus, infrastructure spending, employment, U.S. Presidential election
DEBORAH CAMERON:
Unemployment is on the rise, it rose to 4.4% in October and that was discovered on the same day that a $40 billion dollar hole was smashed in the federal budget according to the Treasurer's own words.
The threat of recession looms so he says he's less worried about that he expects 2% growth. Business and consumer confidence though is rattled and there is degraded trust in world markets, demand in China is in decline, but it's those unemployment figures that are most worrying; more likely to affect you at your place than anything else.
Chris Bowen is the Assistant Treasurer, the Treasurer's on his way to Brazil for a G20 meeting. Good morning Chris Bowen.
CHRIS BOWEN:
Good morning Deb, nice to talk to you.
CAMERON:
Thank you Mr Bowen. The $40 billion hole; how much of your agenda now has to be put under review because of that gap?
BOWEN:
Well, it will make things very tight Deb, there's no doubt about that if you just look at our tax revenue down substantially this year, next year and projected. That will make budget surpluses and budgeting very tight. We've committed to thin; we are committed to fixing the pension, etc, but other priorities will be tough decisions to make in the budgetary context.
CAMERON:
NSW is looking for money from the Federal Government. Infrastructure promises have been held out and the state can't do it's on its own. The federal coffers have therefore been looked at from with NSW eyes what options now does NSW have?
BOWEN:
Well, we have already put aside $26 billion into our fund, our infrastructure funds and that money is still there. Now there was projected to be, further money from the surpluses and those surpluses are a lot smaller than they were going to be. So there will be less money there but we do have $26 billion already set aside in those funds to be spent on infrastructure so its not as though there is no money there, but the top ups to those funds are likely to be less then people may have expected.
CAMERON:
Well a $40 billion hole is an enormous hole. The government remains and I've just heard Lindsay Tanner speaking about this, really quite fixed on the idea of a surplus but lots of economists say there are deficits and there are deficits. If you have a deficit that is responsible, that can be paid for, then there's no real harm into going into deficit. In fact at times like this deficit might be the better aim, why is the government so allergic to deficit?
BOWEN:
We are committed to a surplus over the cycle so that means when you take the budgetary cycle - the growth period and the decline period - at the end of it you should have a net surplus and that's what we are committed to.
Now we'll respond flexibly as we need to; I mean we are one of the few countries in the world even talking about a surplus. Many countries would be very thankful to have these projections of a surplus that we have, but we'll need to respond flexibly, if the world situation gets worse then that will impact on the surplus and we'll need to respond as we need to, to ensure Australia remains in positive territory for growth. Because we'll be one of the few western countries in the world with positive growth and we'll need to respond and make sure that we keep that up.
CAMERON:
And if that meant dipping into deficit you wouldn't shy away from it?
BOWEN:
Well as I say our commitment is a surplus over the cycle so that means at the end of the cycle you need to have a net surplus. We'll respond in the budgetary context to the situation as it emerges. This situation doesn't emerge weekly or monthly, it emerges hourly - await for bad news from around the world hourly - we'll need to weigh up the situation when we sit down to write the next budget.
CAMERON:
Unemployment forecasts are heading up and obviously the news even from the U.S. on this front is very bad, unemployment there is rising rapidly. How well equipped are you, do you think, to manage unemployment if it gets away from you in the next year or two?
BOWEN:
One of the things we have been very keen to do Deb, is act before those sorts of things happen. So we were criticised in some quarters for the $10 billion stimulus package saying you are going too early, why would you do that now? Well if you wait until it's too late, then it's too late. You've got to get out ahead of the curve. Now our stimulus package is expected to create seventy five thousand jobs for example. If you wait for the unemployment figures to show that unemployment's gone up before you do things like that, then things can get out of control, so we've done that and we'll continue to respond as we need, to the emerging figures.
CAMERON:
Knowing that there's a 2% growth rate predicted and that's possibly on the optimistic side. How much will business confidence be affected if that even very low level of growth isn't met and business's start to look at really declining orders. How bad could unemployment get in Australia?
BOWEN:
Well, this is the Treasury's best estimate of the projections. Now no doubt business confidence is very important and that's why, we are very careful Deb to be up front with people and say look this is a serious situation, here are the facts; also pointing out that we are much better off than most other countries around the world to get through this. Our fundamentals are very sound and in many respects the biggest thing we have to fear is fear itself to paraphrase somebody else.
We need to ensure that our confidence levels are realistic that we don't over react to what is a very, very difficult situation around the world which is impacting on us but that we also remind people that our fundamentals are sound.
CAMERON:
Lindsay Tanner on AM was just saying that he felt that it was possible that there would be a lift in confidence in the U.S. after the election of President Obama but the immediate response on the markets was a colossal collapse, 5% down in one trading session the worse reaction to a new president in the history of the stock exchange. Does that mean we'll bump along for long time yet?
BOWEN:
Look, I don't think we could read too much into one day's movements at this time, in particular, with the worlds markets being more volatile than they have been at any time in memory. We do find around the world once an election's over, regardless of the winner, you do find a boost of confidence. People are uncertain until the election is over, particularly there was a good, solid, strong result in the United States - I think the worst result would have been a very close one with ongoing uncertainty - a good, solid, strong result which should impact on confidence in the United States, you would have thought.
CAMERON:
Will that mood spread? Does the world catch the hope contagion?
BOWEN:
Well, let's hope so Deb. Look obviously we were ready to work with either administration but nobody could have watched the events of the last 24 hours without being very excited about the impact that Barack Obama may have. He is setting out to be a transformational president and I'm sure we all wish him the best. I had the opportunity to meet him briefly when he was a state senator and he certainly is a very impressive character and I think he will certainly have an impact around the world as we've seen over the last 24 hours.
CAMERON:
Now the vast kind of pallet of things he has to fix, although there are many foreign policy challenges and many domestic challenges, a central plank of the world economy is really the regulation of markets. Do you expect that he will engage on a better structure for the regulation of world markets promptly?
BOWEN:
Well, I think the really encouraging thing is that President Bush has indicated that he will involve the President-elect, to some degree, in the G20 discussions. I think that's important. We have obviously put forward a reform agenda for the G20. We've argued very strongly that the G20 should be the forum not only so we are at the table, so that countries like China, India, Brazil and Indonesia are at the table. We argue that very strongly, we are very pleased that the world economic community has responded to that by convening the G20 meeting and also that the President has indicated that the President-elect will be consulted and I think that is a very good sign.
CAMERON:
Thank you very much.
BOWEN:
Pleasure Deb, any time
CAMERON:
Chris Bowen, Federal Assistant Treasurer there.