SUBJECTS: Budget, interest rates, inflation, Australian dollar, Executive Salaries, Petrol Commissioner.
The Reserve Bank put a scare in to financial markets and mortgage holders yesterday when it was revealed its board came close to backing a rate rise earlier this month. Minutes from the boards meeting shows it considered a rate rise then, and that it believes another rise could be needed to help curb inflationary pressures.
To look at the rates outlook we're joined by the Assistant Treasurer, in the Rudd Government, Chris Bowen. And here to speak with him is Marius Benson.
MARIUS BENSON:
Chris Bowen, the words from the Reserve Bank seem pretty ominous, in their minutes they thought long and they thought hard before letting Australia off from another interest rate rise.
CHRIS BOWEN:
Well this underlines the need for a tough Budget. This underlines the need for bringing government spending under control, which is what we've just done, which the opposition just doesn't seem to get. Opposition keeps saying 'well we're not sure what's happening with the economy, don't cut too hard'. Well people dealing with rising interest rates would expect fiscal policy to be working in the same direction as monetary policy, which is exactly what we're doing.
MARIUS BENSON:
But nonetheless the prospect of another rate rise is, according the bank minutes, still a very real one.
CHRIS BOWEN:
Well we make a habit of not commenting on the banks deliberation as they're independent. We don't try and second-guess them, We don't try and intimidate them. We try and make sure that fiscal policy is working in the same direction as monetary policy and try and take some pressure off interest rates, that's what we've been doing. I think that's the appropriate policy setting for the times.
MARIUS BENSON:
Do you think you should've been a little tougher, a lot of people thought the rhetoric before the Budget wasn't really matched by what the Budget delivered in terms of spending cuts?
CHRIS BOWEN:
Well we reduced spending as a percentage of GDP by a full percentage point and reduced it to the lowest level it's been since 1989. These cuts aren't easy, this was a significant turnaround in the direction of fiscal policy and it is not an easy process to do and I think we got the balance 100% right. We need to balance support for people doing it tough, with getting government spending under control and that's what we've done.
MARIUS BENSON:
The Reserve Bank though, seems to think the inflation threat is still real.
CHRIS BOWEN:
Well of course the inflation threat is still real, the only people who doesn't seem to believe that is Brendan Nelson and Malcolm Turnbull. The Government knows just how big a problem inflation is in this country and that's why we've brought down a Budget which brings Government spending back under control.
MARIUS BENSON:
Chris Bowen, could ask you about a couple of the other economic indicators this morning; the Aussie dollar is at a two-decade high or more, it's hovering around 96 US cents and everyone seems to gets a sense of pride and certainly travellers are happy, is it an unmitigated good for Australia to have the dollar at that level?
CHRIS BOWEN:
Well it certainly is a double-edged sword for the Australian economy. Everybody knows that a rising dollar is good for some sectors of the economy and makes life more difficult for others. Any country going through that experiences that, that's part of the balancing act of government.
MARIUS BENSON:
Is there anything the Government can do, or should do, or wants to do?
CHRIS BOWEN:
Well our main focus is of course on inflation and interest rates. The dollar floats and the dollar responds to movements in the world economy and the Australian economy. We've got to get the fundamentals right, which is what we're doing, by putting downward pressure on inflation by a tough Budget.
MARIUS BENSON:
Looking at petrol prices you must've drawn some encouragement this morning from statements from the Petrol Commissioner you appointed, the ACCC's Petrol Commissioner Pat Walker. They have found some evidence of a moderation in the weekly fuel cycle as a result of the Petrol Commissioners monitoring of prices.
CHRIS BOWEN:
This just goes to show what transparency in the market can do and that the Petrol Commissioner, despite the naysayer's, can play a role, a constructive role, in putting downward pressure on prices through more transparency. The Petrol Commissioner made public comments and we've seen a change in behaviour as a result, that's, I think, a very good thing.
MARIUS BENSON:
The Prime Minster has, certainly since he took over as opposition leader last year, he has spoken strongly about the need for some equity in financial arrangements across the board in Australia, for some moderation by executives in terms of their salaries, when other Australians are tightening their belts. Not much evidence of that from the Macquarie Bank yesterday…
CHRIS BOWEN:
Well the Prime Minister repeated his statements yesterday which of course we all fully support. There needs to be moderation across the board, people doing it tough are entitled to look at those figures yesterday and be a little disappointed.
MARIUS BENSON:
But apparently the people who aren't doing it tough simply shrug, talk about global remuneration and pocket $26 million a year.
CHRIS BOWEN:
Well, we do live in a market economy and people are entitled to make their own necessary remuneration arrangements, however the Prime Minister has made clear the Governments view on these things and he said it at the time that we knocked back our pay rise, this is members of parliament, that everybody needs to show moderation and we will continue with that view.
MARIUS BENSON:
But in this regard it's safe to ignore the Prime Minister seemingly?
CHRIS BOWEN:
Well, as I say, we live in a market economy where people can negotiate their own remuneration arrangements and the market will make a judgment but the Prime Minister has, on behalf of the Government and I think on behalf of the vast majority of Australians, made it clear what we think.
MARIUS BENSON:
Chris Bowen, I'll leave it there. Thank you very much.
CHRIS BOWEN:
Pleasure. Thanks Marius.