O'BRIEN:
Wayne Swan, how does it feel to have been singled out by the Opposition as the Government's weak link in the Parliament?
TREASURER:
Well, Kerry, I think I took something like a quarter of all questions in the Parliament and I think it might have taken me an over or two to get my eye in. But I think I belted a few to the boundary by mid-week.
O'BRIEN:
Which ones were they?
TREASURER:
Plenty of them, particularly on inflation, the neglect of the previous government over a long period of time to attend to the inflationary pressures in the Australian economy. We've made it very clear that we're going to deal with that problem. We took up responsibility for it on day one and put out our alternative plans. It just seems that in the Parliament the now Opposition won't accept any responsibility for the inflationary pressures that this country is facing at the moment.
O'BRIEN:
But just in terms of how the Parliament is scored by observers, you were certainly scored down, were you not? And I guess, you've acknowledged that your performance in the Parliament over the past two weeks hasn't been flash. Would you also acknowledge that you are going to have to lift your game particularly with two capable aspirants for your job in Julia Gillard and Lindsay Tanner, performing pretty well around you and looking over your shoulder?
TREASURER:
I think people are sick of the sort of vaudeville act that they saw from Peter Costello over a long period of time. I think what the Australian people will pay on is performance. And that's where the Budget really matters because what Australians want is a government that gets down and gets the fundamentals right. And of course in recent years, as you can see from the BCA report today, the fundamentals weren't right and in fact we've got to the point now where we've got the highest underlying inflation in 16 years. That's the legacy left to us and that's what we're going to deal with.
O'BRIEN:
The Business Council wants you to cut spending by more than $30 billion over the next three years. Is that doable?
TREASURER:
Well, certainly we've got a very big savings task ahead of us. I won't nominate a figure except to say that we've said we'll be looking for a budget surplus of at least 1.5% of GDP. As you know, Kerry, during the last campaign we outlined $10 billion worth of savings and during this Budget process we will find more because the reckless spending of recent years has put upward pressure on inflation and it falls to us to rein it in. And rein it in, Kerry, we will.
O'BRIEN:
But those $10 billion of cuts that you identified before the election, pretty much were offset by the extra spending. In other words, those were about shifting spending priorities, not dropping the Budget bottom line. Credible economists are saying that a surplus of the size you are talking about, that is 1.5 per cent or thereabouts of GDP, is not going to be that difficult to achieve, partly at least because of the resources boom. Now, there seems to be a consensus that these cuts that you're talking about are going to have to cause pain in the community to have the desirable effect, but if it's an easy process then there isn't going to be pain?
TREASURER:
Well, Kerry, there'll be nothing easy about this process. The previous government was budgeting for a surplus of 1.1 per cent or 1.2 per cent. We're saying a surplus of at least 1.5 per cent of GDP, and we're also saying that we will bank additional revenue. So that's a fairly ambitious target and that's what we're going to do. We're going to let the automatic stabilisers in this Budget work, unlike the previous government who spent recklessly and put the Reserve Bank under tremendous pressure. Under tremendous pressure because fiscal policy was simply too loose and the consequence of that has been seven interest rate rises in the last three years.
O'BRIEN:
But whatever else flows into the government coffers over this next 12 months, quite clearly there's going to be a further big corporate tax windfall to you from the resources sector by way of the huge increases in coal and iron ore prices that have been achieved by some of those resources companies. Now, is that windfall going to be on top? If and when that flows to you, is that going to be on top of this 1.5 per cent surplus that you're going to create in the Budget?
TREASURER:
That's exactly what I said, Kerry. We will bank additional revenue surprises but it's by no means clear how large they will be.
O'BRIEN:
Spending under the previous government included many tens of billions of dollars in tax cuts. You supported most of those tax cuts from Opposition, and you're now going to spend another $31 billion of tax cuts over the next three years, which really was as much a political as an economic decision, that $30-odd billion. How responsible is that in the light of the fresh information that keeps pouring in about how high inflation is?
TREASURER:
Kerry, what counts here is the total Commonwealth Government spend. The tax cuts are very important. Very important to lift workforce participation, very important to provide incentive for people to increase their skills. They are very responsible. But what we have to do is elsewhere in the Budget find the savings that are imperative, and find them we will. But I make no apologies, no apologies at all for supporting these tax cuts. They are the reward for effort for a lot of people who were left behind in recent years by the previous government. They deserve some incentive in the tax system and they're going to get it from a Rudd Labor Government.
O'BRIEN:
There have been many, many billions of dollars of tax handed back to taxpayers since you made, well, and you made your promise in the context of the previous government. In a sense you were politically matching each other dollar for dollar on tax. That's what I mean by it being a political decision as much as an economic one. Why is it not responsible now to find some other way of giving that money back that doesn't flow to inflation via, for instance, money into superannuation?
TREASURER:
Well, Kerry, because we are facing very severe capacity constraints and we also have skills shortages out there. We need to increase the labour supply. So measures in the tax system that support increased labour force participation, encourage people to work additional hours and reward them for it are a very important component of addressing the supply side problems when it comes to labour and the economy. We are in the middle of labour shortages and a skills crisis. These measures are a very important part of the solution on the supply side of the economy that was neglected by the Liberal Party for a long period of time and has produced this elevated level of inflation we're facing today.
O'BRIEN:
What is the evidence that these tax cuts will do what you say they will do? And, how do you demonstrate that they are, at best, inflation neutral and that they won't feed into inflation?
TREASURER:
Well, all the research shows that it will increase labour force participation and along with our childcare initiatives, they will do that as well. So there's plenty of evidence out there. But what we need to do, Kerry, is address the total Commonwealth Government spend. It's not just what we do on tax, it's what the previous government has been doing in a whole range of areas which produced a reckless increase in spending over a prolonged period of time. What Lindsay Tanner and I are doing is were sitting down and going through the Budget line by line, page by page to pull back that reckless spending.
O'BRIEN:
Is there no circumstance when it's more responsible to drop an election promise than to keep it?
TREASURER:
Kevin Rudd has made it very clear we will be keeping all of our election promises, and that's what we'll be doing, Kerry, whether it's on tax…
O'BRIEN:
What I'm asking is, is there no circumstance where it's more responsible to drop a promise than to keep it?
TREASURER:
Well, Kerry, we will be bringing down a very responsible Budget which will have a substantial surplus which will, in effect, withdraw Commonwealth demand from the economy through our savings, and that will be the responsible thing to do.
O'BRIEN:
Wayne Swan, thanks for talking with us.
TREASURER:
Good to talk to you.