5 May 2015

Press conference, Canberra

TREASURER:

Well today’s announcement by the Reserve Bank of a cut in the official interest rates is good news. Good news for families, good news for small businesses. Importantly, it will help to further stimulate economic growth and help to create more jobs. I say to the Australian people directly, now is the time to borrow and invest. Whether you be a household or a small business, now is the time to have a go, to borrow some money and to invest. Invest in the things that help to create jobs. The interest rate decision by the Reserve Bank follows on from a cut in February this year. I think it’s important to acknowledge the words of the Governor in his statement, where he acknowledged the recent encouraging trends in household demand and employment growth. There are many green shoots in the Australian economy. This interest rate cut is going to help to facilitate those green shoots. In fact, to carry on the metaphor, it's as much about putting fertiliser on the green shoots as anything else. The economic objectives of the Reserve Bank are totally in sync with what the Government will hand down in the Budget next week. I have said before and I say again, monetary policy and fiscal policy must work together and when I deliver the Budget next week, you will see that everything we are doing is going according to plan. That means we have monetary policy and fiscal policy working together in the same direction and this is hugely important. It's hugely important, because ultimately we need to take advantage of the opportunities that are before us. We also need to be mindful of the global head winds that we have faced. We need to be realistic about the challenges that have been before us over the last couple of years, but also some of the challenges that may be before us over the next couple of years as well. So all of the settings we're putting in place are about strengthening the Australian economy and creating more jobs.

JOURNALIST:

Mr Hockey, when interest rates first hit record lows under Labor you called it the end of days economically, why is it bad then and why is it good now?

TREASURER:

No I didn’t, it was Wayne Swan that described them as emergency levels not Joe Hockey, and I always reflected on his statement about emergency levels. What we've seen is an extraordinary period over the last two years where you have a significant easing in monetary policy. In Europe and Japan you've seen interest rates and more accommodative monetary policy in China. Obviously, the United States is still at zero rates effectively, and there have been some extraordinary fluctuations in the currency. The Australian dollar whilst it has come down, it's obviously being heavily influenced by movements in the US dollar. But, having said that, it's not moving a great deal against some other currencies. So the currency's always been a shock absorber for Australia. I have no doubt that might have weighed on the minds of the Reserve Bank in making this decision. I also have no doubt that the Reserve Bank shares my view. That is, we need to keep momentum in the Australian economy and even gain momentum over the months and years ahead.

JOURNALIST:

Mr Hockey one of the challenges in getting that momentum is business confidence. What's your message to those in the business community that would be disappointed that the Government has stepped back from a full-scale attack on debt and deficit?

TREASURER:

Well, I would suggest that the Government still has its structural plans in place. But as I said earlier today, it is vitally important that we have the right Budget for these times and we will, and we will continue with our record investment in infrastructure. That's good for business. We will have a small business package that works in tandem with the decision of the Reserve Bank today to encourage small business to invest. And importantly, I would say to the business community, go out and invest and create more jobs. Go out and invest and create more jobs. Look for those opportunities that are going to grow your business over the medium and long-term, because they are there and we will do everything we can to facilitate that sort of investment.

JOURNALIST:

Treasurer, you talked about tipping fertiliser on the economy, on the green shoots. Is that what you're saying the Budget will do? And, the Governor of the Reserve Bank has previously talked about the limitations of using monetary policy to get growth going and to stimulate growth, because he says there's not a liquidity problem in the economy, it's more a problem of confidence. So here he is a week out from your Budget and he's pulled that lever again. Doesn't that reflect the Bank's concern there isn't adequate fertiliser coming to the economy on the fiscal side?

TREASURER:

Well, if I could refer you to the statement by the Governor when he says, "In Australia, the available information suggests improved trends in household demand over the past six months and stronger growth in unemployment". That doesn't sound very sanguine to me, does it? Does that sound like a pessimist? No, I wouldn't think so. He said, “At today's meeting, the board judged that the inflation outlook provided the opportunity for monetary policy to be eased further, so as to reinforce recent encouraging trends in household demand”. Encouraging trends, now part of those - I have been saying for years, we wanted to give the Reserve Bank room to move. You could do that by reducing government expenditure as we have been doing, even in the face of falling revenue on expectations. The second thing is we said we want to get inflation down and getting rid of the carbon tax as the statement of the Reserve Bank said in February, getting rid of the carbon tax has helped to reduce electricity prices, which in turn has helped to lower inflation, which again gives the Reserve Bank room to move. We have given the Reserve Bank room to move by structural changes, but importantly, we are also working in tandem with the Reserve Bank to strengthen the Australian economy.

JOURNALIST:

Treasurer, with you looking at a deficit for next year and super low interest rates to come back to the green shoots, are you in danger of killing them with fertiliser burn, so much is coming through?

TREASURER:

No.

JOURNALIST:

Do you expect this will be the end of the rate cut cycle?

TREASURER:

That's a matter for the Reserve Bank.

JOURNALIST:

The governor says in his comments…

TREASURER:

Sorry, just on that. Australia still has amongst the highest interest rates in the world on a comparison basis and we always saw that the Reserve Bank had room to move. When you look at other countries, our interest rates are comparatively high and that has been one of the upward pressures on the Australian dollar. So frankly, this is welcome news on a number of fronts, a number of fronts. I want to emphasise, it's going to be very hard for people who retire and rely on their savings being in the bank and that's one of the reasons why the Government has decided that it is unacceptable to have any increases in taxation on superannuation in the upcoming Budget. Because now is not the time to hit superannuants who are facing potentially many years of lower returns on their savings in bank accounts, and that's weighed heavily on our consideration of a range of different issues. You cannot tax your way to prosperity, but also importantly, it's only the Labor Party that wants to increase taxes on superannuation at exactly the wrong time, when returns are lower than they have been for some period of time for people who invest in bank accounts.

JOURNALIST:

Treasurer, the Governor says that there'll be very little support to growth over the next year coming from public sector demand, from public demand. So how does the Government with the Budget act to support growth, given that it's presumably aiming to reduce its spending?

TREASURER:

Well David, I see some entrapment in that question. For a start, I'd remind you that public sector demand is a reflection of the States as well as the Commonwealth and it is the States that are running surpluses at this particular point and it's also the States that have reduced their infrastructure spending to some degree which is incredibly frustrating for us, given that we have increased our infrastructure commitment quite significantly. So you will see the Budget next week. It's a terrific Budget. It is focused on jobs, growth and opportunity.

JOURNALIST:

Treasurer, you say you can't tax your way to prosperity, but when you have a $40 billion plus deficit, don't tax measures have to be part of the solution to that and surely, you can't be ruling out any tax measures in next week's Budget as part of the solution?

TREASURER:

No, but you will see next week's Budget. It is measured, it is fair, it's responsible. We gave commitments, we gave commitments that households would not carry the burden of changes in the Budget. We are sticking to that. We want households to go out and spend. We want businesses to go out and invest. We want more jobs and we're going to do everything we can in the Budget and through our reform program to deliver that outcome.

JOURNALIST:

Treasurer, have you spoken to APRA? Business touched on the statement about lending standards in the last few weeks?

TREASURER:

I have spoken to APRA in the last few weeks about a range of different issues. I'll continue to do so.

JOURNALIST:

Treasurer, just so we know what you mean by measured, fair and responsible, was last year’s Budget measured, fair and responsible?

TREASURER:

Last year's Budget was an important Budget for its time. Every Budget needs to be appropriate for the economic circumstances. Last year, we inherited a mess. We are still dealing with that mess. There's no argument about it. If you look at everything Labor is saying and doing at the moment, it is all about increasing taxes. Nothing is about reining in spending and yet, they locked in that expenditure by legislation on a trajectory that was simply and is simply unsustainable over the medium term. Now we're getting the balance right, we’re getting the balance right. Even though we've faced some difficult challenges over the last 18 months, the massive drop in iron ore prices. We've seen global growth revised downward on a number of different occasions. We are absolutely confident that our plan is on track.

JOURNALIST:

There were tax increases the last Budget, the deficit levy, the reintroduction of indexation of fuel excise? Were…

TREASURER:

The tax burden in the last Budget was less than it would have been if Labor were re-elected. We got rid of the carbon tax, and God bless Labor, when they talk about taxes I just constantly remind them of the mining tax.

JOURNALIST:

On that point, when you're saying that you won't be introducing any new taxes, are you saying as a proportion of GDP you won't be increasing that level? Or…

TREASURER:

You'll have to wait and see, I don't want to ruin your lock-up. I don't want to take away the mystery. Thanks very much.