SUBJECTS: Budget deficit, IMF, economic cycle, retail trade figures
MICHAEL SMITH:
The Assistant Treasurer is on the phone, Chris g'day.
CHRIS BOWEN:
G'day Michael how are you?
SMITH:
I'm well. The news today. When you say it quickly '$115 billion slug in revenue for the government' . That is a hell of a big number.
BOWEN:
It certainly is and it's a big proportion of our government revenue and you will recall last year we were open with the community and said our revenue will be down $40 billion. That has now blown out to $115 billion as a result of the global economy. As you would understand Michael, of course we are closely linked to the global economy half of our trading partners are in recession; China of course which is very important to the Australian economy has its lowest growth in seven years. So we are seeing a big impact on Australia, $50 billion reduction in company tax over the next four years, $10 billion reduction in GST and a $13 billion reduction in income tax over and above what we have announced last year.
SMITH:
Chris you promised us that you would keep the budget in surplus over the economic cycle. What is the economic cycle?
BOWEN:
The economic cycle varies in length but basically what it means Michael is that when economic growth, when the situation returns to where we can have a surplus, we will. What a surplus over the economic cycle means, when its sensible to have a deficit then we will have a deficit and when we can return to surplus then we will return to a surplus and what it means over the cycle, you have a surplus so when you see growth picking up…
SMITH:
It's a bit meaningless to say cycle isn't it Chris?
BOWEN:
They do vary in size. You have shorter and longer cycles but what the important thing is that we are committed to a surplus over that cycle. Now the rest of the world we have the IMF just come out over the last couple of days say the rest of the world is going to go to a deficit of 7% of GDP in some cases. We're talking about that just going into deficit for the first time, certainly not 7% of GDP.
When you are looking at that situation around the world - the rest of the world going into deficit - then of course the responsible course of action is for us to as well. When you've got a reduction in government revenue of that order; if we were to say well we're going to have a surplus that would mean putting taxes up and cutting expenditure which would be absolutely the opposite of what we should be doing at this point.
SMITH:
Chris it took the previous government ten odd years to get rid of an accrued deficit of about $96-100 billion. How long do you think it is going to take you to get rid of the deficit that we're creating right now?
BOWEN:
As I say Michael, as soon as the economic situation returns to if you like normal. Anyone who gives you a prediction around the world is taking a huge punt. This crisis has some way to go, the IMF is talking about next year, 2010, returning a positive growth but they've changed their forecast three times in the last four months and they have all been down. All the news from around the world is bad let's not beat around the bush and so our response is to do whatever it takes, to move heaven and earth…
SMITH:
The news around the world Chris may be bad but in this country the retail sales figures don't seem to show that and given that our prudential regulation is vastly different to what they have in the US it seems to me to be an overstatement of just how badly we should expect this to be.
BOWEN:
As you say there are some encouraging signs out of the December figures now that shows us a number of things, partly that our December stimulus package was the right button to push. You are seeing big reductions in December sales figures around the world but in Australia some modest growth, growth in the order of 3% by some figures that I have seen, but you know any positive growth is better than the rest of the world and that just shows partly our economic stimulus package was the right decision but you have to be up front and honest with people.
It's a globalised world and we are linked to our trading partners. When half of our top ten trading partners go into recession, it is going to have an impact here in terms of government revenue, in terms of employment and unemployment across the board, is going to have an impact.
Now what we've said we will do is be up front with people about how bad this problem is around the world pointing out as you say that we have a lot going for us. We need to always keep that in mind. You would rather have the Australian economy at the moment then the United States, the UK or anywhere else but because we do have a lot going for us, nevertheless, things are going to get tough and we need to respond.
We've responded in December with a stimulus package we are going to need to respond again and we are going to need to keep responding throughout the year for what will be a tough year.
SMITH:
Chris this question may seem flippant but it's not its deadly serious. Do you know what you're doing?
BOWEN:
Look certainly around the world policy makers are being challenged with a set of circumstances that nobody's seen before there is no text book on this Michael. Normally you can reach to the economic advisers and your economic text books and you would say when situation Y happens respond with X. Look around the world policy makers are being challenged with a whole new set of arrangements. Here in Australia, we the government, the Prime Minister, the Treasurer, the rest of us are spending a lot of time making sure that we have the right solutions, based on the best advice available to us. As I say we will do whatever it takes to ensure our growth, is robust as it can be.
SMITH:
You have told us that over the cycle that you will return us to a surplus at what point do you say 'geeze these revenues remain flat we've got to cut Government expenditure'?
BOWEN:
Well, you need to weigh this up, budget by budget, and you need to respond to circumstances at the time. Now we've said a surplus over the cycle, the Treasurer has made it clear for example today that the worst thing we could do is cut government expenditure or increase taxes. Now there is always waste and inefficiencies that you can deal with but in total we need to stimulate the economy and that's what we're going to be doing.
SMITH:
Thanks for taking the time to have a chat with us Chris.
BOWEN:
Thanks, anytime.