SUBJECTS: Reserve Bank, interest rates, monetary and fiscal policy, MYEFO, global financial crisis, unemployment, Newspoll, asylum seekers
DAVID SPEERS:
Whether it's next month or whether it's next year, we are going to see rates continuing to rise in the lead up to the next Federal election. What does that mean for the Government? Well, joining me now is the Minister for Financial Services, Corporate Law, Human Services, Superannuation, Chris Bowen. Minister, thanks for joining us.
CHRIS BOWEN:
Pleasure, David.
SPEERS:
Has the Reserve Bank made the right call today?
BOWEN:
Well, decisions on interest rates are a matter for the Reserve Bank. As a Minister in the Government, I don't have the luxury of being a commentator on their decisions. It no doubt will have an impact on people's weekly budgets, mortgage holders in particular. That is very clear but it is a matter, at the end of the day, for the Reserve Bank.
SPEERS:
Does the Government take or accept any responsibility for this increase?
BOWEN:
Well, as the Prime Minister says, he is the Prime Minister and the Government takes responsibility for all news in the Australian economy, good and bad. But I'd make this point: monetary policy in Australia is still expansionary. As you said in your opening comments, interest rates are still significantly below their normal levels and the Reserve Bank is gradually withdrawing that stimulus, just as the Federal Government is gradually withdrawing the fiscal stimulus. So the important thing is fiscal policy and monetary policy continue to work hand in glove, and they are.
SPEERS:
A couple of things in the Reserve Bank's statement today accompanying this decision, which I want to raise with you. They stood out to me. The Reserve Bank says the risk of a serious economic contraction in Australia has now passed. Does that mean we're out of the woods?
BOWEN:
No, it doesn't. There's still significant downside in the Australian economy. You saw in our figures released yesterday, some of those - for example, the terms of trade - are expected to fall by close to 10 per cent over the next year. Company profits are expected to fall; company returns to the Commonwealth are expected to fall close to record levels and business investment is still very weak.
So there's still significant downside in the Australian economy and that underlines the importance of keeping our fiscal stimulus in place, and as the Reserve Bank have indicated, only the gradual withdrawal of monetary stimulus.
SPEERS:
But you're saying there's still significant downside risks there. The Reserve is saying there's no risk of a serious economic contraction.
BOWEN:
Well, the Reserve has said, I think to be fair, that the worst of the risk has passed but that doesn't mean there aren't still significant impacts on Australia of the global financial crisis, through the mechanisms of our trading partners primarily. Of course there are.
SPEERS:
Alright, another thing that was in the Reserve Bank statement. It says growth is likely to be close to trend over the year ahead. In the Government's budget update you talked about yesterday, it says that we're looking at growth of 1.5 per cent this year and 2.75 per cent next year. That isn't close to trend. It seems the Reserve Bank's more optimistic. Why is there such a difference?
BOWEN:
Well, I've yet to see any two economic forecasts from Government agencies or elsewhere, David, which are carbon copies of each other.
SPEERS:
You worry when the Reserve Bank and Government or Treasury are at odds over the economic outlook.
BOWEN:
Well no, I don't think you can say they're at odds. You're always going to get different parameters, different timeframes and different analyses based on different inputs. You're always going to get some of that but the important point is, as I say, fiscal policy and monetary policy are working hand in glove. Monetary policy is still expansionary, only gradually being withdrawn, and the fiscal stimulus by its design is gradually being withdrawn. So they are working for the same objective.
SPEERS:
But doesn't this go to the concern the Opposition and others have that the Reserve Bank is more bullish, saying growth is going to return to trend or close to trend over the year ahead. It's putting up interest rates because of that. And yet the Government is less optimistic. It thinks we're only going to get growth of 1.5 per cent this year, 2.75 per cent next year, and that's why it's continuing with the stimulus spending.
BOWEN:
Well, we're continuing with the stimulus spending because of the impact it's having on jobs, on employment. You know, our figures out yesterday showed unemployment peaking at 6.75 per cent. That is still significant. That still shows 105,000 more people joining the unemployment queue. And that figure is predicated on stimulus remaining in place.
If we withdrew stimulus now, as Mr Turnbull and Mr Hockey would have us do, that would see 200,000 more Australians out of work. So that's the reason we keep stimulus in place, because it's the right thing to do to keep more Australians in work and to keep the unemployment lines as low as they possibly can be.
SPEERS:
So do we take from that the Government's priority is protecting jobs, rather than keeping interest rates lower than they otherwise could be?
BOWEN:
Well, our priority is seeing Australia through this global financial crisis and keeping unemployment as low as is possible. Now, in relation to interest rates, they are coming off 50 year lows and I think most Australians, when they hit 50 year lows, recognise that the trend would be up from there and that's what we're seeing. And the Governor has made it clear, when you hit 50 year lows for emergency reasons, then Australians need to factor in increases over time and that's what's happening.
SPEERS:
Are you worried about the political implications of rates going up in an election year?
BOWEN:
Well, I'm worried about the economic implications of seeing Australia through the global financial crisis.
SPEERS:
You're a politician as well, Minister.
BOWEN:
Well yes, but we base our public policy decisions on public policy merits. And look, I think the Australian people recognise that Australia has withstood the global financial crisis better than any other comparable nation and they recognise that the stimulus has been very important, and they recognise that Mr Turnbull and Mr Hockey have stood against stimulus and still think the stimulus should be withdrawn, which would see unemployment go up by 200,000 more Australians. So they are the economic facts and others can draw the political implications from that.
SPEERS:
Alright, let me try you on another political question though. What do you make of today's Newspoll slump for the Government?
BOWEN:
Well David, you'll be shocked to hear me say that polls go up and down, and there are going to be times when the Government gets good polls; there are going to be times when the polls aren't so good. We just need to remain focused on the job.
SPEERS:
But what do you put it down to? Why do you think we've seen a turn today?
BOWEN:
Well David, there are political commentators out there who will be filling the pages today and tomorrow on their reasons for that. Some people have pointed to the asylum seeker debate, and it's true to say that we've been attacked from the left, we've been attacked from the right, and on some days Mr Turnbull, with his normal policy consistency, has attacked us from both the left and right. So of course you're going to see some impact from that but that, at the end of the day, is for commentators to pass judgement on, not for political participants.
SPEERS:
Alright, but it sounds like you do think the border protection issue is one of the factors or the main factor behind these figures today.
BOWEN:
Well look, it is no state secret that that has been something that is very prominent in the public eye over recent weeks. But commentators will draw their conclusions on each poll. I simply make the point that it is not necessarily easy to be popular when it comes to asylum seeker issues and border protection issues but the imperative on us is to make the right policy decisions.
Previous administrations, David, always made these policy decisions in relation to border protection with one eye on the polls. We make these decisions firmly focused on what's the right thing to do. The right thing to do in terms of the messages we send around the world; the right thing to do by individuals seeking protection, both on boats and in refugee camps spread around the world. We need to remain focused on what are the right policy decisions, not what are the short term political implications.
SPEERS:
If it is the right policy position, if it is in the national interest as you say, do you at least acknowledge the Government needs to do a better job explaining to people why it's doing what it's doing?
BOWEN:
Well as I say David, these are not easy issues. They're not easy issues to be popular about, and therefore the objective should not be to be popular when it comes to these issues. The objective should be to reach the right decisions and to communicate them as clearly as you possibly can in what are difficult circumstances, with an Opposition determined to opportunistically make political mileage while they can and to attack us from both the left and the right, seemingly failing to see the logical inconsistencies in their own argument.
SPEERS:
Alright. Chris Bowen, good to talk to you. Thanks for joining us.
BOWEN:
Always good to talk to you, David.