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Rate rise 'a black mark' against Howard, Cost -

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Rate rise 'a black mark' against Howard, Costello

Surveys suggest that 90 per cent of senior economists expect a rate rise of at least 0.25 per cent
after the Reserve Bank board meets this week. Labor treasury spokesman Wayne Swan says Peter
Costello and John Howard's banana alibi doesn't stack up. He says inflation is up across the board,
because the Government has been ignoring core inflationary trends.

BARRIE CASSIDY: The big news this week will break at precisely 9:30 on Wednesday morning when the
Reserve Bank makes an announcement on interest rates. Surveys suggest that 90 per cent of senior
economists expect a rate rise of at least 0.25 per cent. That would be the third rise since the
last election. Joining me now from Brisbane is the Shadow Treasurer, Wayne Swan. Good morning.


BARRIE CASSIDY: How is it that a single fruit, a banana, can be responsible for boosting the
inflation rate by 0.5 per cent?

WAYNE SWAN: Well it hasn't boosted the inflation rate at all, Barrie. You see, Peter Costello and
John Howard's banana alibi simply doesn't stack up. You can walk down any supermarket in the
country and see that fruit prices are up across the board. You can sit down to pay your health
bills, you can sit down to pay your education bills, you can sit down to pay your transport bills
and you can see that inflation is up across the board. Prices are rising across the board and core
inflation has been rising for some years now, which is why core inflation has hit 3 per cent, in
terms of the Reserve Bank's measurement and, of course, that's at the top of their target band...

BARRIE CASSIDY: But even so...

WAYNE SWAN: ..So, inflation's up across the board.

BARRIE CASSIDY: But just on that factor, though, if bananas go up by 250 per cent, but surely that
assumes that people are buying them in the same numbers and clearly, they're not. So what you're
getting from the bureau, surely, is a distorted figure. The situation is not as bad as you and
others say it is?

WAYNE SWAN: No, inflation is up across the board. When you look at the Reserve Bank measure of core
inflation, it strips out the volatile items - it strips out price rises of a huge nature; it strips
out price falls. What it does is give you an underlying measure and that is at 3 per cent. But if
you look at the Australian Bureau of Statistics, Barrie, something like 70 of the 90 expenditure
items are up across the board. Look, every family in the country understands this and Peter
Costello and John Howard's alibi has no credibility out there in the public. It doesn't wash and it
doesn't wash with the economics' profession either, Barrie. It simply doesn't wash because they've
been ignoring core inflationary trends in the Australian economy since the last election, and they
went to the last election promising a low inflationary, low interest rate environment. The pledge
was to keep interest rates at record lows. And since that time, they've ignored all of the warnings
from the Reserve Bank about the capacity constraints in the economy and the consequence of that
now, Barrie, is the prospect of a third interest rate rise. Well, Barrie, if that happens, that
will be a very big black mark against the economic record of the Howard/Costello Government.

BARRIE CASSIDY: So what should they have done? What should they have done to resist these

WAYNE SWAN: Well, they should have been heeding the warnings from the Reserve Bank that they've
been making for the past -

BARRIE CASSIDY: And doing what?

WAYNE SWAN: Well, they should be dealing with the capacity constraints in the economy, Barrie.
They've ignored the skills' crisis, they've ignored investment in education and training, they've
not been providing the national leadership when it comes to infrastructure, and they've not been
reforming the tax system to enhance participation. Barrie, that's what a modern productivity agenda
is all about, that can put downward pressure on inflation and downward pressure on interest rates.
But for the past 18 months, it's slipped off the table. All they've been listening to, Barrie, is
their pollster. So, we've had some tax cuts, they've given back some of their record tax take, but
they haven't been investing in the future. Now, Barrie, that's not a way to run a modern economy.

BARRIE CASSIDY: Are you saying now that Labor could do better than the Coalition at keeping
inflation down and, therefore, keeping interest rates lower?

WAYNE SWAN: Well, Barrie, for the long term, you have to have an investment agenda, particularly
given what's happening with the price of petrol - because that is a factor here. But because it is
a factor, it makes all the more urgent the need to invest in the future; to lift productivity. And
to lift productivity, we've got to do something about the skills crisis, education; we've got to do
something about the infrastructure bottlenecks that are choking our cities and our drag on growth.
That's an agenda for a modern, low-inflationary environment that can maintain prosperity into the
future and keep interest rates low. But the Howard Government's just been playing politics. They
haven't had an eye on the future; and particularly this Treasurer - he's had his eye on the Prime
Minister; he hasn't had his eye on the job of looking after a low inflationary environment.

BARRIE CASSIDY: But are you prepared to go to the next election and pretty much turn the
Coalition's claim on its head by saying Labor can keep interest rates lower than the Coalition?

WAYNE SWAN: Well, we've been arguing that for the past 18 months, Barrie. We've been arguing for -

BARRIE CASSIDY: The message didn't get through in the run-up to the last election and, of course,
you had a record in the 1980s that you didn't want to talk about?

WAYNE SWAN: Well, Barrie, what this government has done is lost a low-inflationary outlook and
they've lost it because they've refused to invest in productivity. The one thing the Labor Party
absolutely understands is this: if we are to maintain prosperity, we must invest in the future; we
must do it by investing in the skills of our work force; we must lift participation levels,
particularly through tax reform; and we've got to provide some political leadership from the
national level when it comes to infrastructure. That's what the Reserve Bank says is putting upward
pressure on inflation and that's why this Government has backed the Reserve Bank into a corner when
it comes to their decision next Wednesday.

BARRIE CASSIDY: What are your thoughts on 40-year loans. There are reports in the Fairfax media
today that GE Money has become the first lender in Australia to offer 40-year housing loans and
some banks are considering 50-year housing loans. Are these a good idea?

WAYNE SWAN: Well, Barrie, the record of the Howard Government is very simply that people are now up
to their eyeballs in debt. There's no such thing as cheap house in this country anymore and there's
no such thing as a small housing loan; so Australians now have record levels of personal debt. So,
I would be extremely wary about another facility out there which encourages Australians to go
further into debt. I'd like to see the detail before I commented any further.

BARRIE CASSIDY: But what it might enable people to do, though, is to get into the housing market
where otherwise they could not.

WAYNE SWAN: Yes, it may, but they need their eyes wide open and understand the nature of the debt
they're taking on and the responsibilities that it would bring.

BARRIE CASSIDY: The minimum-wage claim that the unions have put in for, for $30, do you see that as
an ambit claim or a reasonable one?

WAYNE SWAN: Well, that $30 claim covers 18 months. The state commissions have been granting $20 for
a 12-month period. It's quite reasonable to have adjustments to the minimum wage that broadly
follow the inflation rate and those $20 decisions have been doing. But the minimum wage is not the
problem here, Barrie. The problem is the skills' crisis that is out there and the pressure that
it's putting on wages in certain sections of the work force. That is why the failure of this
Government to invest in skills and education more broadly is having such a dramatic impact. The
chickens are coming home to roost. Their failure to invest in the future of the country through
investing in the skills of our people is one significant factor putting upward pressure on
inflation and upward pressure on interest rates.

BARRIE CASSIDY: Now, the Fair Pay Commission will determine this. Have you already written them
off, or are you prepared to see how they go?

WAYNE SWAN: Well, I think it's a very big test for the Fair Pay Commission, Barrie, because times
have been good, unemployment is low, the economy is relatively prosperous, but those on minimum
wages are doing it very tough out there, Barrie, given the price of petrol, given what's going on
at the supermarket and, in particular, given the extreme industrial relations legislation, which is
going to eat away at the wages of many people on low incomes.

BARRIE CASSIDY: You talk about wages, though, but their primary role is to maximise employment for
the lower paid workers. That's surely the bottom-line outcome?

WAYNE SWAN: Yes, it certainly is, but both the Reserve Bank and the OECD have observed recently
that the level of the minimum wage is not a significant factor in the employment equation in
Australia today.

BARRIE CASSIDY: On uranium: do you support the opening up of new mines and how tough should Labor
be in terms of imposing new conditions on the export of uranium?

WAYNE SWAN: Well, I do certainly support Kim Beazley's decision. I think it's sensible. I think
it's for the good of the country in the long term. I think the really important question here
relates to the terms and conditions under which we mine the uranium in the first place is and the
terms and conditions under which we export it. That's where we can have some real influence in
terms of the economic and social outcomes. So, I think Kim Beazley's decision is very sensible and
I support it fully.

BARRIE CASSIDY: Is the uranium industry in for a bit of a shock though when they look at the detail
and see just to what extent you want to tighten up those guidelines?

WAYNE SWAN: Well, I believe we do need stringent guidelines, Barrie, when it comes to occupational
health and safety and when it comes to who we are seeing uranium to, because the last thing we want
to do is to contribute to the proliferation of nuclear weapons on this planet.

BARRIE CASSIDY: But you are prepared, though, to contribute to the availability of uranium around
the world. You're prepared to export it and yet you are arguing against enrichment and you argue
against nuclear power.

WAYNE SWAN: Barrie, let me make it very clear: I am absolutely opposed to enrichment; I am
absolutely opposed to nuclear power.

BARRIE CASSIDY: Well, why sell uranium to others so they can enrich and provide nuclear power?

WAYNE SWAN: Because we're not the only supplier in the world, Barrie, and we happen to have the
largest uranium mine in the world. But if you take the Prime Minister's logic to its conclusion,
what he would say is, " Well, why not produce nuclear weapons? If you want to go down the road of
nuclear enrichment, nuclear power station, why don't you go further?" Barrie, we are a sovereign
country. We can take decisions about what we do with our mineral wealth and how we affect its use
in the world. We ought to be a responsible international citizen and put the most stringent
controls on the export of that uranium.

BARRIE CASSIDY: Would you like to get a little more support from the premiers than you've received
so far?

WAYNE SWAN: Barrie, this is a vigorous debate where the positions held by various people, including
the premiers, are generally held. The position held by our environment spokesman, Anthony Albanese,
is generally held. He's a good friend, I just happen to have a disagreement with him on this
important question. We all hold our views genuinely and we will have a civilised debate.

BARRIE CASSIDY: What about the Premier in your own State, Peter Beattie? Is his opposition simply
self-interest because he's in a coal-rich State?

WAYNE SWAN: He will always defend the interests of Queensland, first, and I'm sure he's doing that
on this occasion. But I don't begrudge him that attitude. People are entitled to take a point of
view. We'll have a full and frank debate, and I think we'll get a sensible outcome, not just for
the Labor Party but also for the country.

BARRIE CASSIDY: And just finally, on the man that you shadow, there's talk of a prime ministerial
decision on 7 August, though that's by no means clear. What do you think? Do you think that this
will be sorted out before Parliament sits?

WAYNE SWAN: Well, Barrie, I think this will probably be the fifth act in the play of his ritual
humiliation. I think that's what we'll see on the 7th.

BARRIE CASSIDY: And on your side of politics, there were mutterings earlier this year - certainly,
from NSW - about Kim Beazley being on notice. Has that passed?

WAYNE SWAN: Well, they certainly weren't true then and they're certainly not true now, Barrie.

BARRIE CASSIDY: Thanks for your time this morning.

WAYNE SWAN: Thank you.