SUBJECTS: Global economy, interest rates, Reserve Bank
STEVE PRICE:
Wednesday morning politics with our political team in place joining us on the line is the Federal Assistant Treasurer - Chris Bowen good to talk to you again thanks for your time.
CHRIS BOWEN:
Good Morning Steve. Good Morning Joe.
STEVE PRICE:
And in the studio with us is the Shadow Finance Minister Joe Hockey, good morning to you
JOE HOCKEY:
Good Morning Chris. Good Morning Steve
STEVE PRICE:
Very nice to have you with us.
JOE HOCKEY:
It's great to be here
STEVE PRICE:
You both look very well having a little break from parliament. Minister first up - the interest rate cut yesterday, and the banks passing on point eight per cent of that cut, the biggest fall in one hit in 16 years.
What impact do you think that's going to have on the economy?
CHRIS BOWEN:
Of course it is very welcome relief for people with mortgages and other debts. For somebody with a mortgage of $300 000 for example equates to $165 a month - so that's welcome relief. The Reserve, in very extraordinary circumstances internationally, has taken an extraordinary step of a large reduction, the largest we have seen in many years. And I think that was designed in some respect to get people to sit up and take notice and …
STEVE PRICE:
Did it take you by surprise? I have some confusion here this morning from St George bank, their staff don't know that they're passing on point eight and the banks have said that's because it all happened in a bit of a hurry and we didn't know it was going to happen.
CHRIS BOWEN:
I think it did take many people by surprise. I think most of the speculation was a half of a per cent reduction. I had thought they might go a bit higher than that, I thought they might go for point seven five, but they've gone for one and at the end of the day it just underlines the point that speculation is a mugs game when it comes to the Reserve Bank, they're very independent and they'll call it as they see fit.
STEVE PRICE:
Mr Hockey your leader Malcolm Turnbull is taking credit for this morning?
JOE HOCKEY:
Well, I think what we successfully did was put pressure on the banks to deliver big cuts. I don't think anyone out there really expected a 100 basis point cut, especially given that we have been hearing all year from the government that the inflation genie is out of the bottle. Bear in mind Steve that this time last year, at election time, the Reserve Bank was increasing interest rates to 6.75 per cent when inflation was three per cent. Now inflation if five per cent and they've dropped interest rates down to six per cent.
So they're dropping interest rates while inflation is going up, the Government said that inflation is the number one priority.
The Government has badly misread all of this and as has the Reserve Bank.
STEVE PRICE:
Chris Bowen?
CHRIS BOWEN:
I think that is an extraordinary thing for Joe to say with respect Steve, on a couple of levels. Firstly, to claim credit for the banks passing on this reduction…
STEVE PRICE:
I don't know if you have heard this - let's just play what Malcolm Turnbull said.
[Plays recorded grab of Malcolm Turnbull]
TURNBULL: I have stood up for borrowers and I think borrowers have got a better deal as a result.
CHRIS BOWEN:
Well that's just an extraordinary thing for Malcolm and Joe to be saying. I think people will see through that. There is a couple of points to make here.
Firstly, the Reserve Bank when they were making their decision yesterday, had due reference to the increase in funding costs and knew that banks will find it very difficult to pass on a full cut. I think that's why they went for such a large cut. They needed a large cut for a substantial amount to be passed on to borrowers and to take some of the pressure off the increase in funding costs that we have seen internationally over the last couple of weeks. So that's the first point to make.
STEVE PRICE:
Let's just hear what Joe. Joe the Minister's right, isn't he? I mean what you're saying; you can't compare the global atmosphere back before the last election in 2007 with the greatest financial crisis the world has seen since the great depression.
I mean the Reserve Bank's is an administrator operating in entirely different circumstances.
JOE HOCKEY:
On the 7th of November 2007
STEVE PRICE:
Yes.
JOE HOCKEY:
Last year, Glenn Stevens in his statement - which is up on the Reserve Bank website - says we are looking carefully at developments in the international financial markets. Confidence remains fragile. He goes on about funding costs and various other things are still difficult, but he increased interest rates and now interest rates are coming down. Now you know what that means?
STEVE PRICE:
You're not seriously suggesting that he would of done that if he knew then what he might know today?
JOE HOCKEY:
Of course not but you know what the difference is Steve.
The difference is that we have been saying consistently for 12 months or since August last year when it started.
The Coalition has been consistently saying that this is something that no one has expected. You need to be sensible, calm, reflective, not go over the top; we've had three interest rate increases and two interest rate decreases since that time.
So the Reserve, I thing will have to answer some questions before the House Economics Committee.
STEVE PRICE:
So you're saying the Reserve Bank's not going a good job?
JOE HOCKEY:
Well I think the Reserve Bank needs to answer some questions about what they knew, and what they were aware of, late last year and the House of Economics Committee will properly quiz them on that.
The second thing is you have to wonder what the Government's thinking. I mean the Governments said that inflation was its number one target, now inflations gone up to 5%, a 16 year high. 5% inflation rate and interest rates are being dropped because the Reserve Bank is concerned about the state of the economy.
Now our argument about passing on the full one percent in interest rate decrease - the full one percent to consumers - is that any one says the banks are in great shape. Well of that one percent, if 20 per cent of it, 20 basis points, go to the banks, that goes to their profits.
So the question is do you want to get those the banks greater profits or do you want to put the money in the hands of the consumers?
STEVE PRICE:
Minister?
CHRIS BOWEN:
Oh, look back in March, Malcolm Turnbull was saying that funding costs have gone up and we can't expect the banks to pass on all interest rate reductions. He changed his tune, but he's changed his tune the wrong way.
JOE HOCKEY:
No, now Malcolm predicted in March, as I did, that the economy was going in for a very hard landing. You guys laughed at us in Parliament. I predicted that we were heading towards a recession and I was laughed at in Parliament.
Tell you what; sadly it's turning out true.
CHRIS BOWEN:
If you let me get more than two words in Joe I'll answer that.
Firstly, the first point to make is that Malcolm Turnbull has changed his tune quite substantially.
The other point to make is that the Reserve Bank still thinks inflations an issue as we do. But you can't ignore what is happening in the world and the Reserve Bank has predicted that inflation will fall as a result of their interest rate increases earlier and as a result the Governor has said of the more contractionary fiscal policy which he said helps the Reserve Bank in their job. Which the Liberal party is doing their best to wreck in the senate.
So look I don't think that Joe can have three positions on the one issue. Inflation is still an issue. Joe, in this same debate between him and I, and with you Steve, some months ago said that inflation is not at a crisis until it gets to Weimar levels you know.
JOE HOCKEY:
The Reserve Bank is saying that.
CHRIS BOWEN:
What the Reserve Bank has said is that we need to take action early on inflation. That's what they did. That's what we did and I am going to defend the Reserve Bank here.
The Reserve Bank has handled this international crisis as well as, if not better than, any other central agency in the world and I would stand up for the Reserve Bank on this.
And I think Joe and Malcolm Turnbull are making cheap political points and engaging in cheap populism when exactly the opposite approach is necessary at this time.
JOE HOCKEY:
Well explain to me Chris - why is it a good idea to increase taxes now, take money out of peoples pockets with increased taxes on cars, on alcohol and a range of other things, when the Reserve Bank is trying to put money into peoples pockets with an interest rate.
CHRIS BOWEN:
Well the Reserve Bank has indicated that an increased budget surplus has helped them with their job and you're doing your best to wreck that increased surplus
JOE HOCKEY:
When did they say that?
CHRIS BOWEN:
The Reserve has said that it is helpful that the Federal Government has increased the budget surplus
JOE HOCKEY:
No, no, no, where did they say increasing taxes is a great idea?
CHRIS BOWEN:
Well you talk about increasing taxes, I mean you defend cheaper luxury cars and you defend cheaper alcopops and you defend lower taxes on big resources companies at a time when we are trying to increase the surplus to help the Reserve Bank do their job Joe, and you're completely out of touch with economic reality with the greatest of respect.
JOE HOCKEY:
Chris I'm sorry I don't think increasing taxes at this moment is a good idea at all. It's taking out of one pocket when the Reserve Bank with an interest rate cut is trying to put money back.
CHRIS BOWEN:
Well, I also saw you say yesterday that you don't think increased investment in infrastructure is a good idea.
JOE HOCKEY:
No, I didn't say that. I said I think Kevin Rudd is in cloud cuckoo land focusing on one hundred billion dollar expenditure on infrastructure this year when clearly the private sector is not going to be able to borrow that much to finance the infrastructure that he expects us to be building.
STEVE PRICE:
Just on that Chris, Walt King is quoted from that same conference in Brisbane yesterday saying that he simply can't get the money to get involved in these private government partnerships on infrastructure spending
JOE HOCKEY:
Absolutely.
CHRIS BOWEN:
Of course there's a credit issue around the world and that's why increased Federal Government involvement is entirely appropriate. We've had massive under investment in infrastructure for many years. We're going to see….
JOE HOCKEY:
Mainly because of state labour governments.
CHRIS BOWEN:
Well it's not about pointing blame, it's about getting in and fixing it. Saying well the Federal Government is prepared to invest in infrastructure not only in the regions but in capital cities because we are going to see increased economic costs and we are going to see grid lock over the next 10-20 years, unless we get some serious investment happening.
Now the Liberal Party didn't do anything about it now they're just sitting on the side lines.
JOE HOCKEY:
That's right, we didn't do anything about it…. AusLink 1 and AusLink 2 which Kevin Rudd referred to yesterday which was 34 Billion dollars of infrastructure over the last 10 years, and Chris says we didn't do anything at all.
CHRIS BOWEN:
You certainly criticise the Building Australia Fund which is investing in infrastructure and you certainly don't recognise that there needs to be more investing in infrastructure and there has needed to be for some time.
STEVE PRICE:
Well on that infrastructure question we've got again Minister the Herald today suggesting that your infrastructure funding projects will be marginal seat targeted.
The Opposition's called it a slush fund to get re-elected. Is that what you're doing?
CHRIS BOWEN:
Absolutely not. I mean again this is extraordinary. We have put in place, as announced yesterday, the most transparent process for infrastructure investment. An independent panel recommending to the Government. A panel which is beyond reproach. A former Liberal state minister on the panel - very respected people from the public and private sector.
I mean this is transparency that John Howard would have had a kitten about, there is no way that he would of allowed this much transparency.
STEVE PRICE:
Let's take the North West metro twelve billion dollars. Labor sources have been telling the Herald, that the former Premier Morris Iemma was told don't bother asking for funding - there's no Labor votes in it.
CHRIS BOWEN:
Well the Prime Minister's made it clear that that's just not right, and it's not on the states submission to the infrastructure building Australia fund list.
STEVE PRICE:
Why isn't it on there?
CHRIS BOWEN:
Well that's a matter for them Steve, that they've indicated that it was always meant to be a fully state funded…
STEVE PRICE:
Well they're saying, or the sources are telling the Herald, that at that meeting they were told don't put it on.
CHRIS BOWEN:
The Premier has said that it was always meant to be a fully state funded project and they haven't requested Federal Government funding for it. They have requested Federal Government funding for a range of other projects which will go through that transparent process.
STEVE PRICE:
Now Joe you're going to have to pass legislation to set up this infrastructure investment vehicle is that right?
JOE HOCKEY:
Well I expect that's the case yeah.
STEVE PRICE:
So is there enough transparency there for you yet to say you'll tick that legislation?
JOE HOCKEY:
No.
STEVE PRICE:
No?
JOE HOCKEY:
No, well we haven't seen the legislation. There is further evidence now of two things, one is that the Labor party is going to the source and saying don't put forward a project - doesn't matter what transparency and accountability happens in an assessment. They're ruling out projects before they're even put up because of where they're located.
STEVE PRICE:
So what included this transparent vehicle headed by Rod Eddington, you're not confident that that is arms length enough away from the Government.
JOE HOCKEY:
Well Steven we need to see that the legislation…
STEVE PRICE:
Minister?
CHRIS BOWEN:
Well as is say I just find it extraordinary. As you say Rod Eddington, Ken Henry, Terry Moran and Mark Birrell, a former Liberal minister, Heather Ridout…
I mean some of the most respected people ever in the country will be putting these projects to the Government and for the opposition to say there's not enough transparency? I mean these are people who dredged a creek which didn't need to be dredged because it was in a marginal Liberal seat.
JOE HOCKEY:
Oh mate, come on mate. You're putting millions of dollars into a dead tree in Barcaldine. Three million dollars into a dead Labor tree ….
CHRIS BOWEN:
With the greatest of respect, these are the guys who rorted Government money for their own political purposes. We are putting place a very transparent very open process with independent advice to the Government. It's the height of hypocrisy.
If hypocrisy was a crime, these guys would be doing time.
STEVE PRICE:
It wouldn't surprise either of you that the electorate is very cynical when it comes to Government's spending our money, and you just have to talk in NSW, and you both come from here.
The people who live on the Northern Beaches were told by Eric Roozendaal and Morris Iemma that they would widen Spit Bridge. And on the night of the election, Eric Roozendaal looked at me and said yes it would happen, and two days later it was cancelled.
JOE HOCKEY:
The Cross City tunnel, the Lane Cove Tunnel – these have all been enormous Labor Party successes over the years. I mean there is a huge conga line of great Labor Party infrastructure …
STEVE PRICE:
Minister what you are telling our listeners, which is the important part of this discussion, is that they will get the infrastructure improvements they need across NSW on a needs basis rather than who they vote for.
CHRIS BOWEN:
Absolutely. On a needs basis with an impendent process and they will have to meet a cost benefit analysis. Absolutely rock solid.
JOE HOCKEY:
Can I just have one further point, and this is putting on my hat as shadow finance Minister – I'll be interested to see just how much money will be available for these infrastructure projects. Yesterday, Kevin Rudd uttered those words that should send a shiver down the spine of so many Australians that remember Gough Whitlam. He said that we were going to have an ambitious nation building agenda. The stuff that Gough Whitlam used to talk about – an ambition nation building agenda – I tell you what, I really wonder there is going to be the money for the ambition nation building agenda there. When you you've got almost every Government in the Western world now pumping money into financial markets.
Australia so far, thankfully, has been basically inoculated from that but you can't rule out that demand might come down the track. And I really wonder whether all this money and all these policies are ever going to be deliverable.
STEVE PRICE:
And also a promise I guess Minister that you are seriously reviewing pensions and the rate of the pension for single aged pensioners.
CHRIS BOWEN:
Yes we are and there are a lot of constrains on Government expenditure at the moment. But this was a fund that was set up out of the surplus.
JOE HOCKEY:
Which hasn't got any money in it yet….
CHRIS BOWEN:
This was a fund that was set up out of the surplus – all these pot shots from Joe just underline the fact that in his heart of hearts he just doesn't believe in federal Government involvement in infrastructure funding.
He doesn't believe in the Federal Government getting involved in big projects in big cities. We actually think that the Federal Government should be interested and care about how people move around our big cities.
We are one of the few national governments in the world that haven't been doing that. You look at the United States and Canada, any of the other great federations; the national government gets involved in these transport projects…
JOE HOCKEY:
Who put up money for the M7?
CHRIS BOWEN:
That would be the Federal and State Government.
JOE HOCKEY:
[Inaudible]
CHRIS BOWEN:
We are talking about massive investment in how our big cities work. You can point to this project and that project. You can condemn the Cross City and Lane Cove Tunnel projects on then you praise the M7. That was a joint Federal-State project, administered by the NSW Government, partly funded by the Federal Government with a toll.
So you can take those cheap pot shots Joe, but it all comes down to the fact that you don't believe, and your colleagues don't believe, in Federal Government involvement in infrastructure.
JOE HOCKEY:
Hang on, hang on, you say that, but I just pointed out we put money into the M7, we built the Adelaide to Alice Springs railway. We built, we built, over $34 billion in rail and transport links around the country and you say we don't believe?
CHRIS BOWEN:
Alice Springs to Darwin doesn't move people around Western Sydney.
JOE HOCKEY:
You know what the biggest investment in infrastructure is? Investing in people. Giving them tax cuts, helping them pay their bills everyday. Giving them a job. That's what I call investing in infrastructure.
CHRIS BOWEN:
I call investing in infrastructure, investing in roads, in rail, and ports.
STEVE PRICE:
And I don't think there is anyone in Australia who thinks there has been enough investment put in by any government. No one thinks that.
JOE HOCKEY:
Well you can always spend more money on infrastructure, there's no doubt about that…
STEVE PRICE:
…You were there for 12 years and you just…
JOE HOCKEY:
There have been record levels of spending on infrastructure, not just by government, but by superannuation in particular. Superannuation and private investment in infrastructure are at record levels. Kevin Rudd said it yesterday…
STEVE PRICE:
Why if I catch a train from Melbourne to Adelaide it still does 60km/h?
JOE HOCKEY:
I reckon that's a damn good question. I reckon that's an absolutely fantastic question…
STEVE PRICE:
Why doesn't anyone fix it?
JOE HOCKEY:
Everyone says there should be a Melbourne to Sydney fast rail, but if you can get on a Virgin plane or Jetstar for $40, $100, or $150, are people going to spend five hours on a fast train for $400?
STEVE PRICE:
Yes.
JOE HOCKEY:
Oh…okay.
STEVE PRICE:
Sorry about that.
CHRIS BOWEN:
Joe is just proving the point, he doesn't believe in investment in infrastructure. He keeps taking pot shots at these different projects. He keeps taking pot shots at a government that would dare to say we care about how people move in big cities and between big cities.
JOE HOCKEY:
Okay, great, you go ahead and spend it, on a range of different projects. You will get support from the Coalition on a number of projects, but I tell you what. The biggest challenge for Australia today, is keeping people in jobs, putting food on their tables, and making sure that Australians have a quality of life over the next few years. If you are underestimating the impact of this downturn, it will be the cost of…
CHRIS BOWEN:
You believe in continuing the last 12 years of minimal Federal Government involvement in major infrastructure projects.
STEVE PRICE:
Chris Bowen, appreciate the time this morning.
CHRIS BOWEN:
Always a pleasure Steve.