LONG:
Wayne Swan, thanks for you time.
Your own Treasury Department is telling you that inflation is a significant threat, so why not scrap or modify the promise of $30 billion plus in tax cuts, which could only add to demand and inflation pressure in the economy?
TREASURER:
Because that misunderstands the purpose and the impact of the tax cuts. 70 per cent of the tax cuts go to low and middle income earners who have earnt their tax cuts. But most importantly, those tax changes will drive further participation in the labour force and in the environment of skill shortages and labour shortages generally, these incentives are required to deal with those challenges.
LONG:
You seem to be ignoring a large body of economic research and opinion that says it's better to build a budget surplus in boom times, rather than hand it back in tax cuts.
TREASURER:
I made it very clear today that we do intend to build a larger budget surplus because of the inflationary pressures, and that's why we need a new era of fiscal discipline.
LONG:
So, you'll scrap that commitment, that 'me too' commitment that Labor gave to keep the Budget surplus at a mere one per cent of GDP, and not allow it to build any higher that that?
TREASURER:
We are going to have a savings round which will add to the surplus. The inflationary pressures that we are experiencing deserve an approach which first of all finds further savings in the Budget to support the Reserve Bank and the job that they do.
And secondly, and most importantly, to rearrange and modernise our spending priorities to expand the productive capacity of our economy to deal with inflation.
LONG:
Just to clarify first, that means then that the view that the previous government had, which Labor backed in principle at the time, that the Budget surplus should only be one per cent of Gross Domestic Product maximum, is gone. You are happy to allow the Budget surplus to build beyond that to reduce demand and inflation pressures in the economy?
TREASURER:
Yes, it's important in the current environment to have further savings. We are engaging in a spending review to find those savings, but also to redirect resources towards the productive side of the economy, to enhance our productive capacity and therefore to put downward pressure on inflation.
LONG:
Yes, well you mentioned in your speech, your commitment to fiscal discipline and cutting government spending. So, who are you going to take the pork barrel away from?
TREASURER:
We're engaging in a spending review at the moment, and that will be ongoing through next year. So, I'm not going to pre-empt the outcome of that review.
LONG:
But spending cuts aren't without pain. Are there going to be cuts to the public service, cuts to the self-funded retirees, middle-class welfare, they all seem obvious candidates? You said yourself that you want to shift the spending to productive purposes, not just handouts in the economy.
TREASURER:
We will get our spending priorities right for the economic conditions that we currently face, and we won't shirk out responsibility when it comes to finding further savings in this Budget by eliminating wasteful spending and wrong priorities.
LONG:
What do you think about the middle-class welfare at the moment?
TREASURER:
As I said to you, I'm not dealing with any issue individually. We have commenced our budget process and we will announce our savings in the Budget.
LONG:
Now, you reckon the tax cuts that you're promising will actually build the workforce. You have a figure of an extra 2.5 million hours of labour supply thanks to these tax cuts. Where do you get that from?
TREASURER:
From the Federal Treasury.
LONG:
So you're buying the Treasury line?
TREASURER:
Well we happen to believe that Australian workers out there have earnt and deserve incentive in the tax system, and we also know that these changes will further drive increased labour force participation.
LONG:
This sounds like a bit of an echo of the discredited supply side economics of the Reagan era in America which said that you could cut tax and build revenues and have a better economy all round. It was an abysmal failure.
TREASURER:
It's nothing like that, Stephen, and you know it.
LONG:
Do you want to explain why?
TREASURER:
Because we believe in running a healthy surplus, Stephen. I don't think that was part and parcel of the equation of the political leader you spoke about before.
LONG:
So what is a healthy surplus in these economic times, when on your own view, the level of demand in the economy and inflation pressure is too high?
TREASURER:
Well as I said, we're going to engage in a savings round through the Budget process, and you'll see the outcome of that on Budget night.
LONG:
Wayne Swan, thanks for your time.