Interview with Peter Ryan

ABC Radio, AM Program

30 September 2010

SUBJECTS: IMF Article IV Consultation with Australia; Interest Rates

RYAN:

Throughout the global economic crisis Australia has remained the envy of the developed world, thanks largely to the China fuelled resources boom.  The IMF has endorsed the Government's economic management but the Treasurer, Wayne Swan, is doing his best not to crow too much.

TREASURER: 

It's certainly not a time to be complacent.  It's encouraging that this is another big tick for our economy and also for the Government's responsible economic management.

RYAN:

But the IMF warns Australia might be too reliant on Chinese demand and that the currently bullish terms of trade could decline in the event of a slow down in China.  Wayne Swan says 'don't worry, the economic settings are just right.'

TREASURER:

Well, this is a down side risk that bodies like the IMF and others always assess, but the fact is I believe in our forecasts we have been prudent and we have been cautious.  We are located in the right part of the world, at the right time, for the first time in our history and this region is growing more strongly than other regions in the global economy, and I believe the forecasts that we've put in place are realistic.

RYAN:

So you believe that you are able to calibrate the settings to ensure that there is enough of a cushion if there is a global decline or decline in Chinese demand?

TREASURER:

Well, certainly we have put in place a very quick and strong fiscal consolidation, and that's what the IMF is arguing for and I believe that is right and that is prudent. 

RYAN:

The IMF has also endorsed the Government's controversial Mining Tax, but thinks it should be extended to other minerals to make the most of the resources boom.  It's also suggesting a greater use of consumption taxes like the GST.  But Wayne Swan is saying no to both recommendations.

TREASURER:

We've already reached a breakthrough agreement with the miners and that agreement is one which is being implemented through the Argus process.

RYAN:

So that's something that is politically too hot for you to touch at the moment?

TREASURER:

No, we've reached our breakthrough agreement, certainty demands that we stick to that agreement, and we are.

RYAN:

So a broadening of the minerals tax and, of course, the Goods and Services Tax are still both off the agenda for the tax summit next year?

TREASURER:

That's right.

RYAN:

The IMF also has a view on monetary policy and says the Reserve Bank has room to wait before lifting interest rates.  Mr Swan won't comment on RBA deliberations but says the Government is trying to ease capacity constraints that might give the Reserve Bank no choice.

TREASURER:

The Government has a very big agenda to expand capacity to invest in core economic infrastructure, particularly the NBN, because we understand that lifting productivity and expanding economic capacity is the key to grow sustainably.

RYAN:

Regardless of what the Reserve Bank decides, commercial banks have signalled recently that they are thinking about independent increases regardless of official policy.  What's your message to them?

TREASURER:

I don't believe there is any justification, and the Australian people believe there is no justification, for any of the banks to move outside the official Reserve Bank rate cycle.