Interview with Greg Cary
Radio 4BC, Brisbane
23 February 2009
SUBJECTS: Global Recession; Bank Lending; Economic Stimulus Packages; Payroll Tax; Henry Review.
CARY:
Treasurer, Wayne is on the line. Good morning, Treasurer.
TREASURER:
Good morning, Greg.
CARY:
Can you think of something positive out of all that?
TREASURER:
Well, I think it is the case that we're probably seeing the sharpest synchronised downturn in the global economy in our lifetime, and that is happening simultaneously in the developed world and the developing world. It's just stunning what has occurred in recent times. Europe contracted by 1.5 per cent in the December quarter. Japan contracted by 3.3 per cent. Taiwan shrunk by six per cent. These are very dramatic figures and of course they are impacting across the country, and particularly in Queensland – we are seeing the coal price cut in half. These are dramatic impacts and of course that's why the national government moved so quickly early this year with our Nation Building and Jobs Plan, because in this environment what governments have to do is to support jobs and business. Because there's been such a dramatic impact in demand, the alternative to do that is even higher unemployment.
CARY:
Okay. I also want to come back to that point about supporting businesses at various levels in just a moment. But can I ask you, and you've talked about this package, how confident are you given the rapidly changing environment that the stimulus package that you've announced and enacted and the stimulus package round about the trillion dollars (inaudible) President Obama has enacted leaving to one side what Europe's doing and what the rest of the world is doing, how confident are you that this is going to solve the problem?
TREASURER:
Well, it's very important to act and to act quickly. That is the advice from international bodies such as the International Monetary Fund because failure to act in these circumstances can have a dramatic impact and cause even bigger problems down the track. We estimate that the package that we put forward will support something like 90,000 jobs over a two year period. It's very important that governments get in there and fill the gap, if you like, created by this dramatic drop in demand. Now, our political opponents are saying that their approach is to sit and wait. Well, I think we saw the evidence from Governor Stevens of the Reserve Bank on Friday why we should move now, because if we don't move now the cost is even greater down the track in terms of lost output, higher unemployment and the damage that that does to our economy and our society.
CARY:
Governor Stevens made the point as well that he thought things would improve in the second half of this year. Do you share that confidence?
TREASURER:
We're certainly doing everything we possibly can to cushion this economy from the impact of this very significant global recession.
CARY:
Do you share his confidence?
TREASURER:
I'm certainly optimistic about the fact that Australia is better placed than just about any other country in the world to handle these circumstances. We've got a strong balance sheet. We've got more room to move when it comes to fiscal and monetary policy. Those were all of the points that Governor Stevens made to the committee on Friday, and I certainly share that view that if there was any other country in the world you wanted to be in in these circumstances it would be Australia, and our governments do have the capacity to respond. The package that we responded with for example, not just in terms of extra support for consumers to increase their consumption, but this massive investment package that we have put forward in terms of schools and social housing which will of course be a very significant benefit to Queensland. Queensland's share of that will be something like $8.4 billion.
CARY:
Okay. A couple of points on the points you've just made. One about the banks. It seems out banks are coping better than any banks in the world. How worried are you about the impact of what's happening to the banks, particularly in the United States, on Australia?
TREASURER:
Well certainly that's a significant concern for us in this country, but we have four of the 11 AA or AAA rated banks left in the world in this country. So, that is one of our great strengths in this environment. But there's no doubt that if we are to achieve some coordinated action internationally, it needs to be in the area where there is coordinated action to solve the problems in the banking system in Europe and in the United States.
CARY:
We're hearing a lot about that.
TREASURER:
We certainly are.
CARY:
What does that entail? What do the banks internationally need to do?
TREASURER:
Many international banks, unlike our banks here, have on their books some what is termed "bad assets". And how the banks deal with those assets and how governments work with the banking system to deal with those assets is being debated right across Europe and the United States as we speak, and will be the subject of consideration at the G20 Leaders' Meeting in London in early April and also the subject of discussions when I'm there in late March for the Finance Ministers' Meeting.
CARY:
One of the important things, of course, is for the economy to get back to somewhere approaching normality in terms of spending and that will require lending to the banks, which as you rightly say, are well positioned to do that. Are you happy with the level of lending and the understanding of the banks to that commitment?
TREASURER:
Certainly there is a stronger flow of credit in this country through our banking system than there is in any of the other countries we've been talking about. Our banking system is in a healthy state and it is still lending strongly. But there are certain sectors in the economy that could well be experiencing problems in terms of obtaining credit and we are keeping an eye on all of those. But what's important here is that the flow of credit does remain strong in aggregate terms. But what we do need to back that up is strong action from governments – strong action from the national government that we put in place through our Nation Building Plan, and I've got to say I've been pretty disappointed at the approach of the Liberal and National parties, both nationally and in Queensland, to that plan. Because we have for our plan the support of the Business Council of Australia, the Australian Industry Group, the Australian Chamber of Commerce and Industry, most community groups and the unions. The only people that are one-out here are people like Malcolm Turnbull, Joe Hockey and Mr Springborg.
CARY:
Do you think you could have averted some of that though by being a bit more bipartisan before you brought in that stimulus package? Did you have a talk to them? I mean, they're not devoid of good ideas. Surely you could approach them, (inaudible) get their thoughts, maybe you could have got around this total opposition?
TREASURER:
Well, I would've hoped we would have received their support. I was very hopeful that we would've received their support…
CARY:
Did you ask?
TREASURER:
And shocked that it was not forthcoming. I'll just take you back to what occurred with the package we put forward [last October]. They came out and did support it in the Parliament and then took pot shots at it all the way through. When we announced this package they opposed it immediately, walked into the Parliament and said "no, not under any circumstances". They didn't say can you make some minor amendments or amendments to it. They just said they were opposing it in total and they were very quick to come to that judgement.
CARY:
I understand that. I suppose what I'm getting to, could you have avoided that total opposition if you'd talked to them in a bipartisan spirit prior to announcing it?
TREASURER:
I don't think we could have talked to them confidentially about that package. It is market sensitive and it was a package that had to be developed and announced the way it was. I was hopeful that we would have received their cooperation and support for the package but what we received was immediate opposition. They didn't put their hand up and say, oh look, we think it's a good idea if you could just change this or that. They didn't do that at all. They've entered the Parliament all guns blazing and opposed it. Of course, you've got the same happening up in Queensland with Mr Springborg and Mr Nicholls. They're doing the same thing because they don't understand the depth of this global recession, its impact on this country and the need for governments to act to support jobs.
CARY:
Okay. There's one thing I don't understand. Maybe you can explain it. At a time when we, and you're right, we all want to support jobs and save as many jobs and, you know, create jobs in certain areas if we can. Where does payroll tax play into that? That's got to be one of the greatest disincentives in the history of the world, and I was noticing as it relates to Queensland and the Minister for Finance was saying the other day, payroll tax revenue estimates remain steady at $2.76 billion. How is it possible for payroll tax revenue estimates to stay steady if unemployment rises to the seven per cent they're talking about? Beyond that, what's the logic at a time when we want business to be supported, asking them to pay for the honour of employing Australians?
TREASURER:
Well, can I just make this point: There is a debate about payroll tax and that's a legitimate debate, Greg, but can I just go back a step and say business is supporting our Nation Building and Jobs Plan very strongly and the reason it is supporting it very strongly is that they understand that there needs to be a significant boost to consumption and investment in our economy to make up for this dramatic drop in global demand which is hitting our export industries and shattering confidence around the world, which in itself is slowing world growth. So, business absolutely understands that their number one priority at the moment has to be to support measures which boost domestic consumption. That is, customers coming through the door of the business, and if customers don't come through the doors of their business, they won't be employing anybody.
CARY:
But equally, just on that point, there needs to be a business for customers to come through.
TREASURER:
Sure.
CARY:
And you couldn't disagree that there would be more businesses if you put a moratorium, let's say for six months, on payroll tax. That would cost you $15 billion.
TREASURER:
Business is not saying that to us.
CARY:
I know that, but I'm asking you, is it a good idea or not?
TREASURER:
Well, not in the current circumstances, no, because the priority in the current circumstances has to be to boost private consumption, which has dropped dramatically, that is customers walking through the door, and secondly, for governments to move in and replace the private investment that has been removed. Private investment is dropping dramatically because of these global circumstances, which is why we announced the Nation Building package we did – the investment in schools, the investment in social housing, the investment in energy efficiency – because what this does is it boosts demand.
CARY:
I understand that.
TREASURER:
And it does all of those things and they understand that this must be our most immediate priority at the moment, and they are supporting it.
CARY:
I totally understand that, but at a time when we're talking about a $42 billion stimulus package, even if you've got to add to that a little bit to reduce payroll tax there, what was it, 4.7 per cent now over $1 million. I don't understand the logic. Why should we ask employers to pay?
TREASURER:
Well, the priority that we put in place for business, in addition to boosting demand, both public and private, was to put in place an Investment Allowance of 30 per cent so that anyone in business that wanted to go out and buy a capital item of a certain value would get a 30 per cent additional investment allowance. That is going to bring forward investment and boost demand as well. That was the measure that we put in, and for the reasons I explained before, these are our priorities in this environment – to boost the economy in the face of the global recession, and that is something that has been strongly supported by business.
CARY:
I'm sure they'd also support, though, a reduction or the abolition of the payroll tax. Is there a time do you think that will happen?
TREASURER:
Well, that's a matter of tax reform. As you know, we've put forward the Henry committee of inquiry into the future of our tax system. Because when you take decisions about tax they have lasting impacts on your budget, not just in one year or two years, but out into the future for a very long period of time. So, we're looking at all of those things – the incentives in the system, the incentives to employ, the incentives to invest – and of course, payroll tax is all part of that debate. But it wouldn't produce the outcome you were looking for in the current environment, which is one which is caused by a dramatic drop in demand across the whole economy – a circumstance we probably haven't seen in our lifetimes.
CARY:
Look, I understand what you're saying but I still don't understand the logic that says by supporting businesses who are employing enough employees to be paying payroll tax which only kicks in after $1 million, I can't see how that doesn't support people employing…
TREASURER:
Well, I think business would agree with me in saying that at the moment the most important priority is the one I've outlined. In different circumstances I'm sure business would have a different view and we'd be having a different discussion. So, I guess my point to you is I don't think that one fits the bill in terms of the circumstances that we currently face.
CARY:
The pension review goes ahead, pension increases will kick in?
TREASURER:
Well, we've certainly been committed to a serious process of looking at the pension. We understand that the base rate of pension, particularly for singles, has been an issue. We made pensioners a priority at the end of last year when we made those payments to boost demand and recognise the justice of their case and of course we'll have a report in a few weeks' time from the Harmer Review and that will be considered in the context of the May Budget.
CARY:
Our Treasurer, Wayne Swan, appreciate your time this morning.
TREASURER:
Good to be with you Greg.
