HOST:
I'm joined now by David Bradbury, the Assistant Federal Treasurer. G'day David.
DAVID BRADBURY:
Hi Paul, good to be with you.
HOST:
And nice to have you on the program. How serious is the situation confronting the economy at the moment?
BRADBURY:
I think it's important to recognise with a cash rate at 3.25 per cent, we still have plenty of room to move. If the Reserve Bank were to wish to take future decisions to cut interest rates, they've still got a fair bit of room to move. Whereas if you look at many of our competitor economies around the world you see that they've long run out of room when it comes to cutting interest rates and in some cases they're already moving into what we call quantitative easing. So, I think it's important to note that, but the Reserve Bank do make the point that whilst many of the indicators suggest that the Australian economy continues to be doing quite well and performing quite strongly, that it's the international backdrop that presents the challenges, whether it be those issues in Europe, the sluggishness in the US or indeed concerns about where China might be heading in the near to medium term. So it's against that backdrop that I think it's important to recognise that many of the fundamentals, the indicators that you look at for the strength of an economy, continue to be reasonably strong here in Australia.
HOST:
But David, at 3.25 per cent we're one cut away from the emergency levels we hit in the GFC. Are we at that same extreme level of concern?
BRADBURY:
No, I don't think we are. But these things are all relative. Obviously, rates have come down from much higher levels at that point. The cuts that the Reserve Bank initiated back during the GFC were much more aggressive. We were talking about, in some instances, one percentage point cuts at a time. Whereas obviously we are seeing a 25 basis point movement. As I said, there is still plenty of room to move as far as monetary policy is concerned. From a fiscal policy perspective, which is one of the other levers that is very much in the hands of the government, we are looking to continue to run a tight fiscal operation and central to that is our commitment to return the budget to surplus, which obviously means that, in a very targeted way, we are ensuring that we are giving the Reserve Bank even more room to move for any future decisions that they may need to take. Let's not forget that one of the key factors that the Reserve Bank will always consider will be inflation and where inflation is tracking and inflation continues to be at very contained levels.
HOST:
There was the good sign yesterday in the Reserve Bank statement.
BRADBURY:
That's right. And I think we shouldn't understate many of the good signs that were in the statement as well. That's been glossed over I think by many. But the Reserve Bank makes the point that growth is running at trend. Now, just to put this into a little bit of context, I saw Mr Abbott making some comments recently where he said if he were elected, he would return the Australian economy to growth. Well, we have been growing for 21 consecutive years in this country. That's a performance that we should all be very proud of. Cuts across numerous governments, it's not a particular indicator that any one government can claim credit for, but the Australian economy continues to endure, to grow solidly. And when the Reserve Bank says that we're at close to trend, what that means, by way of comparison, is that our economy today is about 11 per cent larger than it was before the global financial crisis. There aren't any other competitor economies out there that even come close.
HOST:
To me, what is essentially a political commitment, and that is the return of the budget to surplus by the end of this financial year. It looks like you're going to have to cut the guts out of government spending. Is this a good time to be cutting back on government spending? I mean, surely the economy needs government spending at the moment.
BRADBURY:
I think it's important that we live within our means and that is always something that we should be holding as an objective. Now, we went through a very difficult period through the global financial crisis and moving out of that, where government revenues were hit by $150 billion. That means the money coming into government was reduced by $150 billion. Now, anyone running a budget, whether it's a household budget or a business budget, if you take such a significant hit to your income, then that's going to present some challenges in terms of you balancing your budget. We went through a period where we've run some deficits, but as the economy continues to grow at reasonably strong levels, around trend, we're doing that at a time when we've got contained inflation, low unemployment, we see consumption growth is reasonably robust, the Reserve Bank makes that point, and we have a significant pipeline of capital investment coming into the country, still coming into the country, in the resources sector in particular. These are the sorts of factors that should be presenting the backdrop of a government trying to return the budget to surplus. That's what we're doing, we're not saying that that's an easy exercise to do, but we want to do it in a responsible way by making sure that any cuts that are necessary are cuts that are targeted to those areas that are going to have the least impact on the economy more generally.
HOST:
Just finally David, I'm just told there have been some export figures that are released, just been released, which are not very flattering at all.
BRADBURY:
Look, I haven't seen those figures that have been released in terms of what our latest data is on exports. But, obviously you can take a snapshot of any of the figures at any particular point in time and sometimes they can tell a very positive story or they may not tell a positive story, but you've got to put all of these things into a broader context and I think the broader context is this: that having come through some very difficult economic times in the global economy, the Australian economy continues to be the envy of just about every other major advanced country in the world, we have the AAA credit rating, the gold plated AAA rated credit rating from all three of the major ratings agencies. Now, this is something that we should be very proud of, it doesn't mean that everybody's going through the halcyon days of economic prosperity, but what it does mean is that we've got a very strong and robust economy, certainly in comparison to others around the world, and there continue to be challenges, but we will be working very hard to try and make sure that we keep people in jobs, we keep the economy growing, we keep inflation contained, and we ensure that our economy is one that is making the changes necessary for us to be able to continue to prosper into the future.
HOST:
Thanks David.
BRADBURY:
Good to talk to you Paul.
Good to talk to you Paul.