TREASURER:
I’ve just briefed the Cabinet on developments in US financial markets over the past 48 hours. I think as you would all be aware, there have been substantial developments over the weekend, and of course, that has culminated in the announcement today, our time, that Lehman Brothers, the fourth largest US investment bank, will file for bankruptcy. It’s also been announced that the Bank of America will buy Merrill Lynch, the world’s largest brokerage firm.
Just prior to briefing the Cabinet, I was briefed by the Treasury and I was also briefed by our regulators. And of course, the Government and the regulators are closely monitoring the situation and indeed in recent weeks, I’ve been in regular contact with my counterparts around the world.
Now, while our economy is not immune from these developments, we are better placed than most countries in the world to weather the storm. It remains the case that Australian banks are well capitalised, they’re well regulated and we just don’t have the same problems that banks in the United States are facing. So, we have a financial system that is strong, a financial system that is well regulated.
Over to you.
JOURNALIST:
Do you think that there’s an increasing risk of a world recession?
TREASURER:
I haven’t bought into that sort of talk in the past and I won’t do it now. What I can say is that these events, as we’re acutely aware, and as Mr Lipsky from the International Monetary Fund reminded us over the last week or two, these episodes in world financial markets are slowing world growth. No doubt about that. We’re certainly not immune from that. But when it comes to Australia and our outlook, we’ve got to have a sense of perspective. The fundamentals remain strong here and one of the things that really runs in our favour is that we do have a strong financial system and a financial system that is well regulated. That, along with our strong surplus, that along with the high terms of trade, means that Australia is in a much, much better position than many other countries in the world. But I think as I said at a conference in this room a week or two ago, we can’t defy gravity forever. But if there’s one country in the world that you wanted to be in, it’s Australia. We do have strong fundamentals going our way, and one of those big positives is the strength of our financial sector.
JOURNALIST:
Treasurer, have you discussed the issue with the Reserve Bank Governor?
TREASURER:
I’ve discussed it with our regulators, as well as discussed it with the Treasury. I’m in regular contact with our regulators, including the RBA, APRA, and of course, the Treasury. I’m in regular discussions with all of those bodies, including a number of individuals within those bodies.
JOURNALIST:
There’s suggestions that some of the large private banks are going to move to make sure there’s enough credit in the market to avoid further tightening of (inaudible)?
TREASURER:
Well, these are matters for the Reserve Bank. I think it’s done a very good job in the circumstances that have evolved since these matters commenced last August. You would be aware of the public reports that it has injected some increased liquidity into the system, but they are matters for the Reserve Bank to comment upon and I’m am certainly not going to comment upon them. The Reserve Bank, I think, is first class when it comes to understanding these issues. It is involved also internationally and it has worked through the Financial Stability Forum. Working with other Reserves around the world is also very important.
JOURNALIST:
Mr Swan, do the briefings you’ve received extend to problems in insurance markets and the risks that the financial crisis could spill into insurance markets worldwide?
TREASURER:
I’m not going to go into the detail of all of my briefings. Just to make the point that our system here is strong, very sound and very well regulated.
JOURNALIST:
Mr Swan, just on another matter. In the Senate the Greens have knocked out the dental plan (inaudible) maintain the Coalition’s dental scheme. Plus Nick Xenophon’s said he’s not supporting the Medicare Levy Surcharge. What can you do about this? What’s happening to the surplus?
TREASURER:
Can I just make this point, that if there was ever a set of circumstances which demonstrated why this country needs a strong surplus, it is what’s going on now in international financial markets. We do need a strong surplus as a buffer against global uncertainty. That should be obvious to everybody. It should most certainly be obvious to the Liberal Party but they’re into acting so irresponsibly that they can’t see the responsible economic path ahead. They’re so focused on each other, they’re not actually focusing on the long term national interest.
Now, when it comes to the Greens and other independents in the Senate, we will continue to talk with them. We will continue to have a mature discussion with them about why we need a strong surplus.
Now, when it comes to the dental measures, their actions in the Senate will simply mean there will be less resources available for the most needy when it comes to public dental care. That is a very perverse outcome, if that’s what they have brought about. But I haven’t been briefed in detail on where that one is up to. But from my point of view, from the Government’s point of view, we will do everything within our power to reason with and talk with the Opposition in the Senate and the minor parties because this country, in these circumstances, needs a strong surplus as a buffer against international financial uncertainty and global financial turbulence.
JOURNALIST:
Mr Swan, the intergenerational report warned of the looming fiscal crisis from the ageing of the population. How will your pension increases not add to that problem?
TREASURER:
Well, we’ve said we will look at this in a measured and responsible way. That’s one of the reasons why we are going through the Henry process. The Opposition simply has this notion that you can spend unsustainably, not have to account for how and why you are doing it, and at the end of the day it doesn’t matter whether the country has a healthy surplus or your adding such a burden to future generations that, in itself, becomes unsustainable. We will do this in a measured and sustainable way, informed by the best advice to produce the best outcome for the country, and that’s what we are going to do. We put in place a down payment on future action in the Budget through the bonus for aged pensioners, through the increase in the Utilities Allowance. We did that recognising that that wasn’t enough and more needs to be done. But we will do it in a financially sustainable way and we’ll do it based on the best advice. I mean, Dr Nelson rushed the proposal out there and left out 2.2 million pensioners. I mean, how slap-dash, how irresponsible can you get?
JOURNALIST:
Treasurer, any comments on the Liberal leadership spill?
TREASURER:
Well, you know if you look at it, what are you choosing between? You are choosing between any number of candidates who all support WorkChoices, all support slashing the surplus and acting in an economically irresponsible way. As I said before, same horse, different jockey.
JOURNALIST:
Have you secured Steve Fielding’s vote on the Luxury Car Tax?
TREASURER:
We’re still talking to Steve Fielding, as we’re talking to the minor parties. All I can do is to present our proposals and talk to them in a reasonable and measured way and they’ll take their decisions. At the end of the day, I hope we get our measures through. The country needs these measures passed and I hope that they see some sense. Thank you.