SUBJECTS: Reserve Bank Governor Glenn Steven's testimony, stimulus, interest rates, unemployment, Liberal Party split on Emissions Trading Scheme.
ASHLEIGH GILLON:
Good morning to Chris Bowen and Helen Coonan.
CHRIS BOWEN:
Good morning Ashleigh.
HELEN COONAN:
Good morning Ashleigh. Good morning Chris.
BOWEN:
Good morning Helen.
GILLON:
Chris, let's start with you, what was your interpretation of Mr Stevens' comments yesterday?
BOWEN:
Well Ashleigh, for months now, the Liberal Party has had a narrative that the Government's stimulus package would push up interest rates, that monetary policy and fiscal policy weren't working together and yesterday, Mr Stevens debunked that completely.
Mr Stevens, the independent central bank governor pointed out that fiscal policy and monetary policy are working together, and will continue to work together.
He pointed out that the stimulus package, by its design is winding back as the economy improves. And he pointed out that the Government's arguments over the last several months have been absolutely vindicated and the Opposition's arguments have been completely debunked, and any other interpretation on that evidence is simply incorrect.
GILLON:
Well I'm guessing that Senator Coonan has a different interpretation. Senator, you were one of the senators grilling the RBA chief at that Senate inquiry yesterday, what's your take on his comments?
COONAN:
Yes Ashleigh, I was there and I was there for the two hours of the Governor's evidence and during his evidence he actually confirmed that the emergency settings that were responding to the stimulus package had in fact peaked, so in other words the stimulus package had largely done its job as a means of responding to an emergency. The economy is clearly in recovery.
He said that the expansionary monetary and fiscal settings must both be wound back and then he went on to respond to suggestions that as the economy recovers and overheats – he alluded to the fact that the Government might well have in mind, as part of its budget process, really looking at whether or not they continue to spend, to recklessly spend another $20 or $30 billion on the remaining stimulus and he then said that if that were taken out of the economy, that is, if it were wound back or deferred, there would be less pressure, less upward pressure on interest rates which we clearly know are going to go up.
So, in the totality of his evidence he gave a very comprehensive and long account of over two hours but it is simplistic to say he just said one side of the equation.
GILLON:
Well Senator, Mr Stevens says, and I quote here, "It's important these measures should be wound back over time", so that part he agrees with you but then says "but they're on track to do so". Do you agree that the Government's stimulus packages have actually built a withdrawal into them?
COONAN:
I absolutely do. It is clear that the $20 or $30 billion not yet spent is going to be spent over the forward estimates, through to I think about 2011 or 2012, that will be contributing in an expansionary way to GDP and putting up pressure on interest rates if the economy continues to fire - and the Governor in fact referred to the potential boom in trade - the mining boom, that looks like it's going to pick up again, in terms of trade with China.
And in fact, I think there was a very clear warning from the Governor that the Government had better not continue to pump this sort of money into the economy in circumstances where interest rates will go up, and also in circumstances, where we don't know yet, whether unemployment will continue to rise. So I would think that the Government would want to be very careful that they're not through this reckless spending that's still to come because it's now a political spend - it's not because it's an emergency - whether this reckless spend would put upward pressure on interest rates and increasing unemployment.
GILLON:
Well Chris Bowen, Glenn Stevens did seem to warn that if there is an overheating of the economy over the next couple of years and the Government may want to revert to a Plan B, he called it, to wind back the stimulus. Are you saying that there's no way that overheating will occur if you do continue with the stimulus spending as planned?
BOWEN:
Well Ashleigh, Helen's just confirmed that Governor Stevens gave evidence that the government stimulus package had peaked – that's what we've been saying, that's what the Opposition has been denying.
Julie Bishop was out there saying there's still a lot of the stimulus yet to be spent and arguing it hasn't peaked in effect. And Governor Stevens had said, in his evidence yesterday, made it clear that he's entirety comfortable with the withdrawal phase that was built into the stimulus to begin with.
Ashleigh, here's the transcript. Helen, with all due respect, says she was there for two hours but she has the only interpretation, she's the only person putting that interpretation on this evidence in the country, quite frankly.
I mean, Governor Stevens made it quite clear that he's entirely comfortable with the stimulus package, with its design, and with its phase out. He's made it entirely clear that there's no argument that it is working to put upward pressure on interest rates.
He's made it clear that if it wasn't for the stimulus package then we would be in recession at the moment…
GILLON:
But Chris Bowen is there a Plan B if the economy does overheat?
BOWEN:
Well Ashleigh, the stimulus is designed to withdraw as the economy improves and the Governor made it clear yesterday that he's entirely comfortable with that. He did say, in a hypothetical situation that if things turned out dramatically differently then you might have a Plan B on the table, but it was a very hypothetical statement, completely contradictory to the way Helen is painting it.
In Australian political discourse, you just can't make things up. The evidence stands there for itself. There was two hours of evidence and he has completely debunked the entire economic narrative of the Liberal Party over the last 12 months. I mean he hit the argument of Messrs Turnbull and Hockey, and Helen Coonan for six.
COONAN:
Well can I just hop in there Ashleigh and say it's interesting that Chris is trying to reinterpret the Governor's statement in that way. What he clearly did was to say that, quite contrary to what the Government's been doing, running around for months now, saying that they were the saviour of the economy because of the stimulus package, what in fact the Governor debunked was the fact that the stimulus is solely responsible for Australia's good conditions.
The Governor repeated several times in his opening statement and during his testimony, the fact that the reason why there was able to be a response of the kind of magnitude, that there has been to the emergency, was because of the very good state the economy was left in by the former government.
Quite clearly, if you go through all of the factors, including the depreciation in the dollar, the good banking and regulatory sector and the expansionary monetary policy, all of these factors – and the terms of trade with China, let's not forget that – all of these factors played a role in making the economy withstand the global shock…
GILLON:
Let's ask Chris Bowen about that. Chris why is it so difficult for the Government to acknowledge the strong budgetary position that the Coalition Government left for you? It wasn't just the stimulus that kept Australia out of the recession.
BOWEN:
Well firstly I am glad that Helen and I can agree on something this morning. We can agree that there have been several factors leading to Australia's economic success. Comparatively, over the last twelve months; we've said that consistently; we've said that the links with China have been important, that the state of our financial system has been important, and that the stimulus, both monetary and fiscal have been important.
The Governor confirmed that yesterday and said that the impact of the fiscal stimulus has been material and that we would be in recession without it, something the Opposition has denied…
COONAN:
Well that's not quite true…
BOWEN:
The Governor has said that we're in a situation where we could use the fiscal stimulus and we did use the fiscal stimulus and that we were in a situation, everybody acknowledges that, largely because of the mining boom, we've always acknowledged that.
We've used the fiscal stimulus which the Opposition opposed, opposed relentlessly, opposed at votes a 5 o'clock in the morning, and on the third reading, opposed because they didn't want to stimulate the Australian economy. They voted against supporting Australian jobs, they voted against seeing Australia through…
COONAN:
Well that's not…
BOWEN:
Did you vote against it or not?...
GILLON:
I think we're going around in circles a bit here…
COONAN:
What we in fact advocated was a smaller package, a more targeted one that wasn't going to spend so much so quickly. In fact, when you look at what's happened with all the waste and inefficiency that we've seen in the schools package, with money being sent overseas stimulating other economies and you look at the fact that this building program, the schools program is such a shambles that the deadline has now had to be deferred.
The emergency has passed and the Government is stubbornly refusing to recognise that you don't continue to roll out this kind of money simply because all of their political cards are to continue to roll out this money. It's nothing about the economy…
BOWEN:
Helen…
GILLON:
That is in the past. I want to just focus on the future for a second. Chris Bowen, later today we're expecting to see the final budget outcome to be unveiled by the Treasurer, Wayne Swan. Do you expect that we will see that the Budget's bottom line is a whole lot better off that anyone had imagined or indeed was forecast a bit earlier in the year?
BOWEN:
Ashleigh, you'll recall that we released the Budget figures in May, many commentators, including Helen and her colleagues said that they were too optimistic, said that we were being too optimistic, that we were over-egging it, that's not a criticism that you hear very often now. Now you hear a criticism that perhaps we were a little too pessimistic, well we'll cop that.
The Treasurer will be releasing figures when he chooses to, which will relate to the budget bottom line and I'm not going to pre-empt those. Of course, the majority of figures will come out in the mid-year economic forecast later in the year – that's the normal process and we'll stick to that.
GILLON:
Helen Coonan, yesterday Glenn Stevens was looking at the issue of debt as well, this is an Opposition argument we've heard for some time, that higher levels of debt will lead to higher taxes and higher interest rates but Glenn Stevens says he thinks that the debt the Government has racked up is actually quite manageable. Do you agree with him?
COONAN:
That doesn't mean to say there's not going to be higher levels of taxes and in fact a big impact on taxpayers…
GILLON:
But it is quite manageable?
COONAN:
What I think what we have to say about the forecasts are that they were out, and out to a fairly large degree. Quite clearly, the economy has done better than expected and it shows how difficult it is for the Government to be relying on these forecasts as a mechanism to then talk about a rolling national security crisis.
Remember back in, I think it was October, when the Prime Minister was saying that this was akin to a rolling national security crisis. Now he was relying on, obviously advice he had received. Clearly that advice was perhaps too, over-egging the omelette and we've got a situation now, as we'll see no doubt in the final budget outcome – I don't know what's in it, I imagine Chris may not know either – the Treasurer will announce it, but clearly there will be a significant improvement to the bottom line. We welcome that, we think it's a very good thing if the economy is in recovery and we think that it is important that both sides of politics acknowledge the fragility in many respects of forecasts. They are not accurate, it's not an accurate size and you can only do your best with the figures you are given.
GILLON:
Okay, well of course have full coverage here on Sky News of the final budget outcome when receive that this afternoon. Helen Coonan and Chris Bowen, stay with us, we'll be back in just a minute after a quick break.
Well today The Australian newspaper is reporting that a majority of Liberal backbenchers aren't supporting Malcolm Turnbull's plan to negotiate with the Government on the emissions trading scheme before the Senate votes on it again in November. Just twelve people contacted by The Australian support Mr Turnbull. Forty one people didn't want Mr Turnbull to negotiate at all, or before the Copenhagen conference in December.
Joining me this morning in our Sydney studio are Helen Coonan and Chris Bowen. Helen does it worry you that it seems there is a majority of people who aren't backing Malcolm Turnbull's approach on this?
COONAN:
Well I think what the bottom line here is, most of us, if not all of us, are very concerned that we're going to be asked that we're going to be asked to vote on a very complex scheme prior to knowing what the rest of the world is going to do in Copenhagen and the concerns we've had about that relate to the fact that the standard setters, if you like, perhaps the United States will be in a better position to indicate to the rest of the world, what's going to happen at Copenhagen and we feel that our scheme should be calibrated to understand what the rest of the world is doing so that we don't put unnecessary pressure on Australian jobs and Australian industry. Export emissions have no real net gain for the pain that's obviously necessary in it.
Now let me make perfectly clear that what we've said is of course we don't control the Government's program and Mr Rudd has indicated that he is determined to bring this particular piece of legislation back for another look.
The concerns we've got then are to try to make that bill as good as it possibly can be. We've got an obligation to look at that. Clearly we're doing that. Mr McFarlane has got the carriage of it. He's working through as I understand it, with the Minister, to try and get better information so that we might try and get some amendments.
The information we've asked for is a report by Morgan Stanley into the impact on the electricity industry. Obviously, we've asked to see the regulations, that's not unreasonable in the scheme of this kind that regulations, at least are in contemplation and in draft form because that is the nuts and bolts, the guts if you like, of how the scheme will work.
So the concerns on our side, are not so much Mr Turnbull negotiating as such, it's the fact that the Coalition is being asked to look at a very incomplete piece of legislation before a critical vote or a critical decision in Copenhagen.
GILLON:
Chris Bowen, isn't it fair enough that the Opposition is saying it needs as much information as it can possibly get its hands on in order to draft these amendments? Couldn't the Government give the Opposition that Morgan Stanley report today if you wanted to?
BOWEN:
Well Ashleigh, I noticed that Helen neatly sidestepped your question about climate change scepticism on the Liberal Party backbench because the sad fact is that the Liberal Party are a party of climate sceptics. There are some who believe in climate change but they are very much in the minority.
They will use any excuse, they have used excuse after excuse to avoid dealing with the emissions trading scheme. They were waiting for this report, and then that report, they keep moving the goal posts. Now it's Copenhagen, now it's the Government's not giving them enough information. Tomorrow it'll be a different excuse…
GILLON:
Chris Bowen, now you're neatly sidestepping my question about why the Government won't give the Opposition that Morgan Stanley report into the impact of the ETS on electricity generators, isn't that fair enough?
BOWEN:
Well, Ashleigh, what's fair enough is what we've said, is show us your amendments and we'll sit down and talk. We're not going to sit down and talk when you don't have a position. There is nothing to negotiate when you don't have a position, when your only position is to keep avoiding dealing with the issue. Draft some amendments, I mean the Liberal Party, its last position that I saw was, well, if the Government wrote some amendments for us, we'd have a look at them. I mean, give us a break, they've got to write some amendments, we'll sit down, and we'll negotiate with them in good faith if they actually come up with a position, but they've got to do that first.
GILLON:
Okay, well Helen Coonan, we'll ask you again about, it seems a majority of people in your party, who now are saying that they don't want an ETS at all and certainly don't want to negotiate before the end of December. How worried are you about the climate change scepticism you've seen coming from a lot of your colleagues, we've seen Ron Boswell, the Nationals Senator, today questioning whether or not the Nationals ever agreed to having an ETS, even when John Howard was in Government, when he took an ETS to the last election?
COONAN:
Well I think it really depends on what ETS one is talking about. I was a member of the Howard Cabinet when we discussed and adopted a different, a slightly different ETS with some variations, as recommended by Dr Shergold and my recollection is that was taken to the joint party room, it was clearly endorsed as a part of Coalition policy and, my view about this is that; whether the Coalition had won Government or whether or not we're dealing with Labor's version, there would be a version of a response of an emission trading nature that the Parliament would have to grapple with.
We think that we have a better way of dealing with it, we think that the economy, the country, industry and consumers, deserve the very best ETS and that is really at the bottom of the concerns of my colleagues, namely that there is still this ‘ducks and drakes' game going on with critical information being withheld from the Opposition which clearly impacts on being able to draft amendments, but Mr Macfarlane, who has the carriage of it; my colleague has the carriage of the ETS, is doing his very best to be able to draft some amendments and then that will go to the joint party room.
There will be opportunities for us to make sure that it is the very best that we can do if we have to vote on this bill before Copenhagen, but our clear preference has always been that the Government would see sense eventually and allow us to be in step with the rest of the world, rather than out of step.
GILLON:
Chris Bowen, the final regulations on the ETS won't be finalised until the end of the year; after the Copenhagen Conference, and after the second vote in the Senate, that's right isn't it?
BOWEN:
Oh well, Penny Wong is the responsible Minister in terms of the timing of the regulations, but the bottom line is that normal process will be followed, and the normal process is that the legislation is passed and the regulations are…
GILLON:
But the point is you're asking the Opposition to vote on this before they have all of the details in front of them.
BOWEN:
Well, look, this has been a national debate for a long time, and Helen rightly points out that the Liberal Party went to the last election with an Emissions Trading Scheme as their policy. When we announced our policy, Greg Hunt said, 'oh, they've just copied ours, it's exactly the same as our scheme', now the line is that it's a disaster, they can't possibly agree to it without more detail. I mean, there is enough detail out there, there is plenty of detail out there, I'm delighted to hear that Ian Macfarlane is now working on some amendments, that's an encouraging development, it should have happened a long time ago. But now that they're actually drafting some amendments it gives us something that we can sit down and talk about.
GILLON:
Ok, Chris Bowen, Senator Helen Coonan, thank you very much for joining us this morning.
BOWEN:
My pleasure, nice to talk to you.
COONAN:
Thank you.