Doorstop Interview
Canberra
6 April 2010
SUBJECTS: RBA interest rate decision; budget; effectiveness of stimulus; border protection; unemployment levels; banks pass through of cash rate change; new Population Minister; Intergenerational Report; house prices
TREASURER:
Today's decision by the independent Reserve Bank is a painful reminder that as the economy recovers the Reserve Bank will independently move rates from emergency levels through to more normal levels. Now I know that's cold comfort for a lot of families and a lot of people in business, but that's the reality of a strengthening economy. I think it pays to remember that rates are still lower than they were prior to the global recession, significantly.
For somebody with a $300,000 mortgage that's $500 less per month or something like $6000 less per year. The fact is that the Reserve Bank will continue to take its decisions as it assesses economic conditions month by month. The economy is strengthening which is why the Government is absolutely focused on investing in skills and investing in infrastructure to ensure that a growing economy can do so with a low inflation outlook.
Over to you.
JOURNALIST:
Does the Reserve Bank's run of rate rises put pressure on you to deliver a tight budget?
TREASURER:
Well, certainly the Government has been withdrawing our stimulus put in place. It will detract from growth to the tune of about one per cent this year. I note in the statement today we have some commentary from the Reserve Bank. I'd just like to quote from that. The Reserve Bank makes this comment:
'The board has been lessening the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker'.
And of course, that's what the Government has been doing as well – gradually withdrawing stimulus. But we have a strict set of fiscal rules, a medium-term fiscal strategy and you will see that applied in the Budget.
JOURNALIST:
Mr Swan do you believe the Government is taking the people along with it on the issue of people smugglers and border protection? Do you believe that the Government has public support for its policy stance on this?
TREASURER:
Well, the most important thing to do is to ensure that we do everything we possibly can to deter people smugglers, to disrupt their activities particularly in countries in the region, and the Government has been doing that.
JOURNALIST:
Are you worried about the effect these rate rises will have in voters' minds to the upcoming election?
TREASURER:
Well, I think what the public are looking for is strong economic management. The Government has delivered that. We have the strongest growing economy – the strongest growing advanced economy. If you look around the world you see that what has occurred in Australia is something very special. Australians during this global recession came together. The consequence of working together, the consequence of economic stimulus, has been a level of unemployment which is the envy of the world.
If you look to our political opponents – who no doubt will be out there today with all sorts of hysterical and erratic commentary about this rate rise – rates are now at the level that they were when the Liberal Party imposed on Australia ten rate rises in a row. So rates are still at relatively historically low levels.
It's very important for the Government in terms of its overall fiscal stance to put in place our medium-term fiscal policy and to make the necessary investments so that we can grow sustainably.
JOURNALIST:
What would you say to a home owner – a first home owner – who took out the grant last year, built a new home with 21,000 of Wayne Swan's dollars and has now got an extra one and a quarter - or facing $260 increased in mortgage repayments?
TREASURER:
Well, what I'd say is the Government understands how tough it can be for someone who is a first home owner and a first home buyer. But the fact is that rates went to 50-year lows during the global recession. And as the Reserve Bank Governor was pointing out today, and pointed out last week, they are merely returning to more normal levels. That is the statement of the Reserve Bank today.
What the Government says is that we will do everything as we move forward to ensure that our fiscal settings are right. But what we are seeing here today is a consequence of a strengthening economy. And the consequence of a strengthening economy is that tens of thousands of Australians are employed who otherwise would not have been employed if the Government had not acted in such a decisive way during the global recession.
So a strengthening economy is a good thing for the country, but it is a painful and uncomfortable fact that with a strengthening economy unfortunately we do see rates moving to more normal levels.
JOURNALIST:
Mr Swan the Reserve Bank statement today said that borrowing levels are still below average. Are you worried that that will send a signal to the banks that they can go beyond today's cash rate?
TREASURER:
There would be no justification whatsoever for any bank to move up and above this cash rate increase decided by the independent Reserve Bank. The Reserve Bank had a piece of analysis some weeks ago pointed out that the net interest margin of the banks is 20 to 25 basis points above what it was before the global crisis.
There is absolutely no justification whatsoever for any bank to consider going up over and above the official increase from the Reserve Bank, and in fact, if any bank did that, it would be arrogant in the extreme and it would not be justified.
JOURNALIST:
Mr Swan can you explain the extent of the role that Treasury might play in this population strategy (inaudible)?
TREASURER:
Well, Treasury will be working both with myself and Minister Burke.
Treasury has done a lot of work in this area. It produced the third Intergenerational Report, and unlike the first two, this Government is acting on the Intergenerational Report which it commissioned. And the consequence of that Intergenerational Report is that the Government is dealing with some of the sustainability issues that have been put in the too hard basket under the Liberal Party for far too long.
For example, what we need to have is sustainable spending on health. The Government is acting in that area.
And the third Intergenerational Report put forward analysis that had previously not been in any of the previous two reports. Analysis about environmental sustainability, analysis about well-being and the quality of life. These are all factors that go to the core of how we can grow sustainably. When we're talking about population and we're talking about outcomes for the country, what we must do is produce sustainable outcomes.
JOURNALIST:
Mr Swan that figure of 36 million on the report, is that based on Treasury forecasts or is that from the ABS?
TREASURER:
That is a projection that the Treasury has done, and it is a projection based on expected levels of fertility, and expected levels of permanent migration - permanent migration at the level of the last 40 years for the next 40 years. So it's a projection, it's not a target, it's just a projection based on current levels of fertility and where they're expected to go over the next 40 years, and based on a level of net migration - the level of which we saw for the past 40 years.
JOURNALIST:
Do you think 36 million would be sustainable, just setting aside what the projections…
TREASURER:
The Government has made it – and I made this abundantly clear when we produced the Intergenerational Report – that what we must do if we are going to grow sustainably is to make the necessary investments in infrastructure, the necessary investment in skills, the necessary investment in transport, and the necessary investment in water and all of those key area where the Government is doing so much work. If we can't make those investments, that does put strain on our economy and on our environment.
JOURNALIST:
Do you share the Reserve Bank Governor's concern about high house prices?
TREASURER:
Look this is a complex issue and it's developed that way over a long period of time. There has simply not been enough housing built in this country over a long period of time to cope with the natural rate of increase in our population. And that's why the Government has put on the COAG agenda, as we have, a whole range of measures that we're discussing with the states which can increase the range of supply. It's why the Government put up the very heart of its stimulus package the investment in social housing. It's why we brought down in our early Budgets our National Housing Affordability Scheme. All of those schemes have been put in place to respond to the fact that there has developed a housing shortage in this country over a long period of time, and if we are to grow sustainably over a long period of time we need to do something about it. Which is why it is fairly and squarely on the Government's agenda, and it's why we've got a Minister of Mr Burke's calibre out there bringing together all of these policy areas and responding to them.
Thank you.
