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Revised Budget forecasts optimistic -

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ALI MOORE, PRESENTER: The Government has given its mid-year economic update, revising the Budget
forecast with a more optimistic view of what lies ahead. Unemployment will peak at 6.75 of a per
cent, not 8.5 per cent.

For more on the numbers and for his reaction to the last - or the latest - Newspoll figures, I was
joined earlier this evening by Finance Minister Lindsay Tanner.

Lindsay Tanner, welcome to Lateline Business.

LINDSAY TANNER, FINANCE MINISTER: Good evening, Ali.

ALI MOORE: If I can generalise about the response to today's revised numbers, it seems to be very
much, "Well, it's been a long time coming and they're still conservative." How likely is it, do you
think, that even these numbers will end up being too cautious?

LINDSAY TANNER: Anything's possible with forecasting at the moment, Ali. We've seen over the last
couple of years forecasting generally around the world become much harder than it already has been.
So, you never quite know. But it's certainly good news that we've got much more positive
projections than we had five or six months ago with the Budget, but we got a lot of hard yards in
front of us. It's good news that we're expecting unemployment to peak at a significantly lower
level, that debt will be significantly lower. All of those things are great news for Australia, but
we shouldn't underestimate the challenges we've still got and the fact that the economy is still in
a very fragile, weak situation.

ALI MOORE: You say fragile and yet you've upped the growth forecast. You did have it at 0.5 a per
cent contraction; it's now 1.5 per cent growth in the current year and yet the deficit actually
gets bigger.

LINDSAY TANNER: In fact the deficit just gets marginally bigger from what was previously projected.
The key reason is that the main thing that's improving the shape of the deficits over the next few
years is better-than-expected tax revenues, but there is typically a lag involved there, so that
the tax that's accrued in this financial year in many cases won't be paid until the next financial
year. So, if you look at the four years, you'll see that the projected deficits are in fact quite a
lot smaller over the following three years, whereas they are - it is roughly the same in the
current financial year.

ALI MOORE: You say that the economy's not out of the woods, it's going to be a bumpy road ahead
despite the upgrades to the forecast. But overall, better economic news does equal higher interest
rates, doesn't it?

LINDSAY TANNER: We've come from a position in recent months where we've had interest rates at
record lows, lowest for 50 years, three per cent has been the Reserve Bank rate until very
recently. And of course what the Reserve Bank Governor has said is that you're never going to have
that kind of level of interest rates indefinitely. You have to walk back from the emergency levels
at some point. Of course we don't know when and at what rate. That's ultimately a decision for the
Reserve Bank.

ALI MOORE: Are you betting there's not going to be a rate rise tomorrow?

LINDSAY TANNER: One thing I can assure you, Ali, is that there'll only one thing I'll be betting on
tomorrow and it's not interest rates. It'll be on the Melbourne Cup.

ALI MOORE: You talk about the Reserve Bank. We're getting the Reserve Bank statement on monetary
policy quarterly statement on Friday. Is there a growing gap between the bank's forecasts and your
own, particularly when you look at the growth outlook? We've heard from the bank on a number of
occasions and just recently from the Assistant Governor on the extent to which the Asian region can
grow itself without the requirement of external demand from places like America and Europe. Is
there a difference in emphasis and certainly a difference in confidence, if you like, between
yourselves and the bank?

LINDSAY TANNER: I don't think there's a substantive difference. Forecasting's a very tricky game
and even relatively short periods of time can mean that the input data changes a bit and so you can
end up with a different outcome. So I don't think that there is any substantive difference in
perspective between the Treasury and the Reserve Bank. We've had instances in the past, for
example, where there have been small methodological differences where the way that the calculations
are done is slightly different and that produces slightly different outcomes. It's a very complex
business, all this economic modelling and forecasting, so I don't believe you can read too much
into it where there's an occasional variation by half a percentage point or something like that.

ALI MOORE: Minister, on the Reserve Bank, we have a story on the program tonight that looks at one
of the things that happens prior to an interest rate move and that is that a couple of particular
market commentators in the way of journalists usually give an indication of what they think.
They're considered widely by the market to be in the know, if you like, and then you will get
market economists changing their forecasts off the back of those commentaries. The Reserve Bank, it
won't say yes or no whether or not it does brief people. What do you think of that process: that
there are two, perhaps three particular commentators in this market whose views are watched and who
can move the general forecast prior to an interest rate rise - or fall?

LINDSAY TANNER: Look, I'm not aware of anything untoward in that, Ali. Obviously there are
particular commentators who tend to be highly-respected who tend to get it right more often than
not and perhaps that's why they are ...

ALI MOORE: For a reason? Do you think that there's a little phone call here or there?

LINDSAY TANNER: Well, look, I'm in no position to say and I've got no reason to believe that's the
case. Organisations from time to time can have the odd, quiet, behind-the-scenes chat with the
media. Individuals can sometimes when they're not supposed to - we tend to take that as a given in
politics, unfortunately, so - but I'm not aware of anything of that kind. I don't believe the
Reserve Bank as an institution does that and I don't believe there's any reason for thinking that
anything out of order is occurring here. It could well just be that the people you're referring to
are in the position they're in because they have a track record of being pretty good at sniffing
out which direction rates are going to head.

ALI MOORE: The other one of your most recent announcements was that Peter Costello will be joining
the board of governors of the Future Fund. Malcolm Turnbull points out that not so long ago the
Prime Minister was blaming the Liberal Party's economic policies for bringing the world to the edge
of the abyss. Why then put the fox in charge of the hen house?

LINDSAY TANNER: Well, Ali, some of the commentary about this appointment seems to assume that Peter
Costello has been appointed to something that is far more wide-ranging and controlling than he
actually has been. We haven't put him in charge of Australia's economic policy. We haven't made him
Governor of the Reserve Bank. We've made him a board member, with about eight other people, of the
Future Fund. That is a position of administering the fund, of being responsible for the governance,
for the accounting and for all of the responsibilities that are associated with managing the Future
Fund.

ALI MOORE: But at the same time you're putting him on the fund because of his economic experience,
clearly, and on the other hand you're criticising that experience and the outcome of it over the
decade that they were in power?

LINDSAY TANNER: Well, we're putting him on the fund for things like his extensive knowledge of the
international economy, international regulators. He, for example, was a key player in establishing
the G20 Finance Ministers meeting. He's got a lot of knowledge about the world, which we certainly
don't criticise or attack. The views he might have about policy, that's a different matter. But
there's no question that Peter Costello's got excellent credentials for being a Future Fund board
member. He knows the Future Fund very well. He set it up, and he's got a lot of expertise both in
things like regulation of the Australian economy, financial regulation, and more particularly, the
global market, and that's where a significant proportion of the Future Fund's investments are and
where they will continue to be.

ALI MOORE: Finally, Minister, if I can ask you about the latest Newspoll numbers in tomorrow's
Australian. They're taken over last Friday and Saturday. According to the results, on primary
votes, Labor has lost seven points; Coalition's gained seven points. What do you attribute that to?

LINDSAY TANNER: Well, that's the first I've heard of that poll, Ali, and that strikes me as being
somewhat strange. You do occasionally get big fluctuations in opinion polls for no particular
reason, but I suspect the main reason would be that the previous poll had us at 59 per cent two
party preferred, and from memory, 48 per cent primary, so I suspect you might find that the
previous poll was probably an unrealistic positive poll for the Government and maybe this one's a
bit in the other direction. But there's no particular reason that I could attribute to that. These
polls do tend to move around quite a bit. They can be heavily influenced by what's happened over
the previous 24 hours.

ALI MOORE: Well let me ask you: do you think it is any way connected to the Oceanic Viking - the
only key bit of information that's changed since the last poll?

LINDSAY TANNER: Oh, look, I'm not in a position to say, Ali. I genuinely don't know. These polls
come and go. We all have a look at them, obviously. We pay some attention to them. And they only
real mean something in my view over a lengthy period of time when you can establish a trend, and
here you've got a very major shift in the trend. If that is replicated in the next two or three
polls then that starts to become something of significance. Again, I'd suggest to you that probably
one of the key factors here is that the one that we had before that which showed us at astronomical
levels is one that was probably a bit out of whack.

ALI MOORE: Lindsay Tanner, many thanks for joining Lateline Business.

LINDSAY TANNER: Thanks very much.