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Meet The Press -

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MEET THE PRESS

INTERVIEW WITH TREASURER WAYNE SWAN

18th May 2008

DISCUSSIONS ABOUT THE BUDGET, INFLATION, INTEREST RATES, ALCOPOPS TAX, MEDICARE SURCHARGE, SKILLS
SHORTAGE, IMMIGRATION, FOREIGN INVESTMENT IN RESOURCE COMPANIES.

MEET THE PRESS PRESENTER PAUL BONGIORNO: Hello and welcome to Meet the Press. Inflation light or
just right? The Budget debate has dominated the week. The first Labor economic blueprint in 13
years seems to have given the Treasurer a new confidence as he went on the big sell.

TREASURER WAYNE SWAN (Treasurer): You shouldn't confuse tough with stupid. (Audience laughs) If we
took some of the advice we've been given to cut spending and to rein in demand you could slam the
economy into a wall!

OPPOSITION LEADER BRENDAN NELSON (Thursday): This is an old-fashioned, high-taxing, high-spending
Labor Budget, that seeks to punish those it does not like and discourage aspiration.

PAUL BONGIORNO: Wayne Swan is our guest. But first what the nation's press is reporting this Sunday
May 18. The Sun-Herald leads with, "Medicare Budget Bungle." According to an audit commissioned by
the private health funds the Federal Government has underestimated the number of people set to go
back to the public hospitals and that will leave the States $1.7 billion worse off. The 'Sunday
Telegraph' reports, "Quake survivors now face floods." Thousands are fleeing areas near the
epicentre of last week's China earthquake amid fears of flooding and landslides. And to add to
their misery, in pictures just in, after-shocks this morning saw panic-stricken people running for
their lives in the devastated province. The tremors were measured at or near the same intensity as
the original quake. The 'Sunday Mail' has, "Queensland soldier injured by Iraq roadside bomb." The
attack on an Australian patrol occurred in Dhi Qar province in southern Iraq. The man who has not
been named is in a serious but stable condition. The Sunday 'Age' says, "Former Liberal minister
blindsides Nelson on alcopop tax." Now the chairman of the Australian National Council on Drugs, Dr
John Herron, has written to the Prime Minister congratulating him on the use of taxation to address
teenage binge drinking. There seems to be parallel universes in the Budget debate - the Opposition
describes it as the biggest taxing and spending outing ever, the Government says the figures show
it was the tightest in 19 years with huge tax cuts. To carry on the debate we wlcome back to the
program the Treasurer.

WAYNE SWAN: Good morning, Paul. It's great to be here.

PAUL BONGIORNO: At the end of the biggest week in your political career, how do you read the
reaction to your budget?

WAYNE SWAN: I think, satisfying. I think people have responded positively to our investments for
the future, our very substantial working families package, and basically people are very pleased to
see that we've brought down a responsible budget which reins in reckless spending, but still makes
the room to deliver the support for working families, giving us the capacity for the future to make
the necessary investments in health, education and infrastructure while still tackling the
inflation challenge.

PAUL BONGIORNO: The reports this morning based on an audit by Price Waterhouse Coopers of the
budget's own figures, that at least a million will go back into the public system, and the downside
of that, according to the audit, is that the States over three years will be $1.76 billion worse
off.

WAYNE SWAN: You would expect the private health industry to say that. I don't accept the validity
about the modelling, but I certainly welcome a debate about public hospitals, the health system in
general. We are investing an additional $1 billion in public hospitals after a decade of neglect,
$600 million over four years for elective surgery waiting lifts, these are important investments.
But what we did in the Budget was one very important thing, Paul. We took off a tax slug that the
Liberals left on average working families for a decade. So people on modest incomes were paying
this Medicare surcharge - for some, $500 a year, for some, up to $1,000 a year. We removed that
because when it was put in place it was meant to be for high income earners, and over the last
decade bracket creep means people on average incomes have been paying too much tax, and we decided
in the Budget it was unfair and should be removed. If the private health industry and the Liberal
Party both want to argue that the tax slug should remain in place on people earning $50,000 $60,000
a year, let them do it. But this government has proudly removed the tax slug.

PAUL BONGIORNO: But you removed it knowing full well you won't have to pay the 30% rebate for those
on private health insurance. Are the funds you allocated enough to cover these people not taking
out private health?

WAYNE SWAN: We stand by our modelling. We don't accept the assessment of the private health
industry that this will necessarily have the impact that the work they put out today says it will.
We haven't seen their modelling, they haven't given it to the Government. The Treasury has done its
modelling, we are satisfied that the figures are correct. But at the core is a decision by the
Liberal Party to support the continuation of a tax slug of people on modest incomes, and we think
that tax slug is absolutely unacceptable, which is why we removed it.

PAUL BONGIORNO: Brendan Nelson says his calls for a 5% cut in petrol excise was in a response for
pleas to help from his listening tour.

BRENDAN NELSON (Thursday): It was the Keating Labor government that put 5 cents on to the excise in
1993. We opposed it. I challenge the Rudd Labour Government to help us take it out in 2008. This is
not a review, it's not a committee, it's not a summit, it's not an idea to have a meeting, it's a
decision. It's decisive action.

PAUL BONGIORNO: Treasurer, a double barb there, but Labour gave the impression it would do
everything to lower petrol prices. This move would.

WAYNE SWAN: It's by no means certain it would lower petrol prices at all. We saw from Brendan
Nelson's performance on radio Friday he doesn't even know how much it will cost. He was forced to
admit they haven't costed this proposal accurately. He and Mr Turnbull are prepared to blow a $22
billion hole in the surplus. On the one hand they turn around and say our budget is inflationary,
and on the other they want to spend $22 billion more. They have no economic credibility any more.
So anything that Brndan Nelson put in that that Budget reply is simply not deliverable because it
doesn't add up.

PAUL BONGIORNO: One of his one-liners in that speech was you don't bring petrol prices down by
looking at them.

WAYNE SWAN: No, but what you can do is have a competitive market. We always said that petrol
responded to changes in the international price, what we committed to do was to put a petrol
commissioner in the ACCC and to make sure the market worked in a competitive way so consumers that
could access the cheapest prices. That's the point of the fuel watch program we are putting in
place, something the previous government refused to even look at through 10 and 11 long years.

PAUL BONGIORNO: Isn't it a fact that petrol prices are going to have to rise if for no other reason
that in the fight against greenhouse gases and climate change these fuels are going to have to rise
in price?

WAYNE SWAN: It is true there'll be some impact as we move through with an emission missions trading
system on the price level of a number of levels on the product. But the cost of not acting is
greater than acting. As we go through this year we'll engage in the conversation with the
Australian community about the construction of the emission and we'll work through that at that
time.

PAUL BONGIORNO: When you took the decision to take the rebate for solar panels off people $100,000
or more, weren't you going against the Government's message that it was a climate change believer?

WAYNE SWAN: There's a very, very big climate change package in this Budget, a record amount of
money provided. The previous government was means testing a hot water solar rebate. We are means
testing this rebate, there's nothing exceptional about that.

PAUL BONGIORNO: But it will stop a number of panels now being sold.

WAYNE SWAN: This program was fully subscribed. One way of making it work responsibly was to means
test it.

PAUL BONGIORNO: When we return with the panel - we ask has Wayne Swan whipped a real showdown with
the inflation dragon? And the biggest blast from the past came from Peter Costello aimed at
journalists for suggesting his backbench sojourn is damaging the Liberals.

PETER COSTELLO: Why don't you interview yourselves?

JOURNALIST: What's your pledge to the people, are you going to stick around?

PETER COSTELLO: 'David Spears', "It's damaging." "Is it?" "I say it is." "No, it's not."

MICHELLE GRATTAN: Do you feel a bit sensitive?

PETER COSTELLO: Oh, I'm sensitive, am I , Michelle? How sensitive do I look, Michelle? You ought to
go and get a new prescription.

PAUL BONGIORNO: You are on Meet the Press with Treasurer Wayne Swan. Welcome to the panel, Jennifer
Hewett from the 'Australian' and Peter Hartcher from the 'Sydney Morning Herald'. On Tuesday inside
the budget lock-up the Treasurer produced graphics to boost his claims to fiscal rectitude. The key
points - he has cut spending as a percentage of the economy and come up with $7 billion of savings
in year one alone. But he didn't abandon new spending completely or shy away from increasing a
range of taxes and that gave Malcolm Turnbull a line of attack.

SHADOW TREASURER MALCOLM TURNBULL (Wednesday): I ask the Treasurer how can he reduce inflation by
increasing prices? What kind of voodoo economics is he pedalling?

PETER HARTCHER, THE 'SYDNEY MORNING HERALD': Well, Mr Swan, you promised a Budget that would exert
maximum downward pressure on inflation and interest rates, yet the most independent arbiter, if you
like, the futures market which is sensitive to interest rate expectations, and future expectations,
didn't blink, your budget came and went and no change whatsoever. Does that mean that if the market
can't see you exerting downward pressure on inflation, you've broken your first promise?

WAYNE SWAN: No, I think we delivered and in spades, we found $7 billion worth of savings, spending
as a percentage of outlays is lower than any previous budget delivered by the previous government,
delivered by the Howard Government. You'd have to go back to 1989, 1990 to find percentages as a
percentage of GDP as low as this. Tax as a percentage of GDP is going down. So there have been big
savings, every single new program that we funded was matched by cuts in other programs in the
Budget. It was a responsible Budget, and basically it produced a surplus of 1.8% GDP compared to
the forecast surplus of the previous government of 1.2% of GDP. I think we achieved those
objectives, it's a responsible budget, but you have to find the balance, between building a very
strong surplus on one hand and having a buffer, particularly against international uncertainty on
the other.

PETER HARTCHER: Overall, still, you are handing out stimulatory tax cuts and still net overall real
outlays from Federal Government are growing.

WAYNE SWAN: No, we are not handing out stimulatory tax cuts. We have actually contracted in this
budget. It's a modest contraction, and important as I've just explained, 1.8% of GDP compared to
the forecast of 1.2% of the GDP or compared to the forecast outcome of 07/08 of 1.5% of GDP.

PETER HARTCHER: You mentioned the uncertainty in the international economy. yesterday just
yesterday we saw the US Treasury Secretary Henry Paulson, saying the worst is over, financial
markets are returning to normal. Haven't you mistimed this?

WAYNE SWAN: Not at all, I hope the worst is over. But we wanted to build a strong surplus so on the
one hand we can invest in the future responsibly over time, on the other to provide a buffer
against international uncertainty, but also to pull back public demand because of the the very
strong inflationary pressures in the economy. So you do get those comments from Mr Turnbull, his
economic credibility is on life support. If he described the budget on inflationary, how does he
describe the last four budgets of Peter Costello, with spending increases of 4%. We pulled that
back to 1% in this Budget.

JENNIFER HEWETT, THE 'AUSTRALIAN: Treasurer, the biggest savings measure that you had was the tax
on alcopops or ready-to-drinks. In terms of the tax raised is this not more of an alcocon?

WAYNE SWAN: Not at all. Nice try, Jenny. $7 billion worth of savings, $5 billion of savings from
program, not revenue increases, not the alcopops. I think people have missed that when looking at
the savings, a very big savings exercise where we've taken $5 billion away from programs,
reallocating it to programs we committed to. That's an important change in the way in which budgets
have been constructed in this country on recent years.

JENNIFER HEWETT: Back on alcopops, however, do you think there won't be a substitution effect, that
people won't just swap to other drinks?

WAYNE SWAN: Dr Nelson and Mr Turnbull don't know what they're talking about. I have teenage
children.

JENNIFER HEWETT: Are they drinking a lot of alcopops?

WAYNE SWAN: Well, they do and they do mix in that scene, and I have observed that scene a lot. Some
of these alcopops are quite dangerous, because you have a mix disguising the alcohol content. When
this tax loophole was put in by the Liberals in 2000, binge drinking amongst young women took off.
Basically it was a huge gift to the alcopop industry. Mr Nelson and Mr Turnbull are arguing for
that to remain. I have no doubt in my mind this will target consumption by a group of people who
are engaging in drinking practices undesirable for them and for the country.

PAUL BONGIORNO: The Budget has $40 billion salted away in three funds for infrastructure, health
and administration. The opposition smells crude politicking.

SHADOW FINANCE MINISTER PETER DUTTON (Thursday): I don't think taxpayers accept the setting up of
the biggest slush fund in political history in this country with announcements to be made on eve of
the next election. I think Mr Rudd has a lot of explaining to do.

PETER HARTCHER: What guarantee do we have that the money from those big funds, which according to
the structure of this Budget is available to roll from next year, won't just be rolled out to pump
inflation up before the next election in an attempt to spend your way to re-election?

WAYNE SWAN: The guarantees that we've given are in the Budget. All of these moneys will be budgeted
for on the bottom line. Before we get to the bottom line, thorough evaluation, rigorous evaluation,
in the case of the Building Australia fund we've established Infrastructure Australia. In addition
to that, many of these funds will be put to work through a COAG process. There'll be an open,
transparent, accountable process at multiple points as we go about allocating the funds.

PETER HARTCHER: It will still be you, Kevin Rudd and others around the Cabinet table making the
final decisions on this spending.

WAYNE SWAN: Absolutely, because this spending hat not been put in place for a long period of time.
One of the problems we have is is the productive capacity of the economy has been exhausted because
the economy has been starved of investment. We'll put this in place.

PETER HARTCHER: So your safeguard is to say, "Trust us"?

WAYNE SWAN: We are the government. That's what people elect us for.

PETER HARTCHER: (Laughs) Will that reassure the Australian public?

WAYNE SWAN: No, no, that's what people elected us to do. People are tired of the fact the previous
government did not take the product of the mining boom and invest it wisely for the future of the
economy to expand our productive capacity to put downward pressure on inflation, making sure we
could put in place first world infrastructure so we could have first world prosperity.

JENNIFER HEWETT: Treasurer, the Howard Government did a lot to protect single income families. The
budget is moving away from that. Why is that? Are you actually trying to encourage more mothers
into work quickly.

WAYNE SWAN: We are not moving away from protecting single income families, all our measures are
targeted at low or middle income, whether single or double.

PAUL BONGIORNO: The gobsmacking quote of the week came from that old Liberal warhorse Wilson
Tuckey, when he defended giving the baby bonus to millionaires.

LIBERAL MP WILSON TUCKEY (Wednesday): I've been in the racing business for many years. And we tend
to look at the high achievers as those that should have foals.

PAUL BONGIORNO: Coming up after the break - can seniors and pensioners wait for a boost to their
incomes? Syndicated cartoonist Zanetti sees a twist in the politics of envy over the baby bonus.
The childless Bentley driver looks down his nose at the happy family, "Lucky sods." You are on Meet
the Press. Apart from the Opposition, the most strident criticism of the Budget came from
pensioners and carers, who were looking for at least a $30 a week boost for their incomes. The
Treasurer has announced a review, but nothing would placate one older woman when she called into
the Prime Minister on the Neil Mitchell 3AW program.

WOMAN (Wednesday) Hello, my husband is well into his 80s, a returned serviceman from World War II.
We've been married for over 60 years. We get absolutely nothing from this budget, nothing at all,
and I have to look after him. And I'm in my 80s too. For a fellow with a millionaires as a wife it
doesn't do anything for me, Neil. I'm still working my butt off and I'm well into my 80s.

JENNIFER HEWETT: Treasurer, the anger is palatable. Are they just being unrealistic in their
demands of the Government?

WAYNE SWAN: I think it's a variety of things, Jenny. In was out talking to pensioners yesterday and
many of them didn't even know what we had done in the Budget, that there was the $500 bonus there,
they didn't know we increased the utilities allowance by $400, and that was a $500 payment. So
there's something like $900 additional in this Budget for pensioners and seniors. But I accept that
many of them are doing it really tough. And that we do have to look at the underlying issues here,
which is why we did announce the Henry review. This is the first budget in the first six months of
the life of the Rudd Government. One of the reasons that I entered politics was to help people on
low incomes and make sure that people on low incomes can live with dignity, so we'll look at these
issues responsibly, and do it properly.

JENNIFER HEWETT: On another subject that's a rather different one, the level of foreign investment
in Australian resources companies, you have said that the policy is non-discriminatory. But there's
a large focus in the Government on the level of Chinese investment. Is that because of the size or
potential for demand by the Chinese?

WAYNE SWAN: Jenny there has been a substantial increase in Chinese investment in Australia in
recent times. But we welcome foreign investment from wherever it might come. But as you know, we
published our guidelines as they effect sovereign wealth funds and Government-owned entities
earlier in the year and we are applying those as applications come through the Foreign Investment
Review Board process.

PETER HARTCHER: Can I ask you about the proposed merger between Westpac and St George? Is there
enough competition in the Australian banking sector that you would contemplate allowing this merger
to go ahead?

WAYNE SWAN: Said fairly clearly that I have no intention of commenting on that merger, at the end
of the day I'll be taking a decision about that. It is working its way through all the regulatory
authorities at the moment. When I have all that advice on my desk I'll be in a position to take a
decision. So I don't want to be engaged in public commentary about that individual merger.

PETER HARTCHER: How long will shareholders need to wait to get response from the Government?

WAYNE SWAN: It has to go through the processes, then it will be off to the ACCC. I make the general
comment that I'm strongly in favour of a competitive banking sector, I have talked a lot about that
this year. But it's important to have a strong and robust banking sector as well. If there's one
thing the US subprime crisis taught us is we need to have a strong, robust banking sector, and in
the context of what's occurred overseas, our banking sector has been found to have those features,
unlike the banking sector in other countries, so a variety of competing demands, I acknowledge we
need a competitive banking sector. But I'll take my decisions in due course under the law.

JENNIFER HEWETT: Mr Swan, back on foreign investment, is it in the national interest to have a
high-level of foreign ownership of resource companies?

WAYNE SWAN: We are in favour of foreign investment and we encourage foreign investment in the
resources sector. But what we have to look at, in individual cases, is whether those cases meet our
guidelines, and as you know, in the case of the guidelines we published recently, when we define
national interest we do look to the extent at which Australia as a whole gains from that
investment, we look at the implications for competition and so on. I'll take those decisions on a
case by case basis in the national interest. As a general principle we welcome foreign investment
into the resources sector, it is capital hungry, we need that capital to develop our resources, so
I'll take those decisions one by one.

JENNIFER HEWETT: In terms of one by one, would you have a problem with having a 20% 30% stake in
some of the major resources players? I am not going to speculate about particular individual
investments which are hypothetical.

PETER HARTCHER: Mr Swan, the Budget encompassed a 30% increase in the intake of skilled immigrants
and the Government's committing to going ahead with a scheme for guest workers along the lines of
the New Zealand scheme. These are issues, proposals, which weren't canvassed before the election.
Does the Government have a mandate for these decisions? Certainly. We've had a skilled migration
program and always supported a strong skilled migration program. If you look at a map of Australia,
there's a map in the Budget papers of all the projects being implemented on the ground or may go
ahead in the future, there's an enormous array of projects. What we have to do as a government is
make sure that all of those projects progress in a timely way. We have skill shortages, and as you
know we have a domestic program to ramp up our investment in skills and education, and that's
important. But we'll still have a requirement if all of those projects are to move forward, for
skilled labour, and more broadly in parts of the country there are labour shortages more generally,
and we have to respond to that and we've done that with the program announced in the Budget.

PAUL BONGIORNO: Keeping faith with the migration project is important. Can you keep the public on
side?

WAYNE SWAN: I think so, we need a balance between skilled migration, and migration generally,
family reunion. On the other hand, making sure Australians get the most of the opportunities that
this country can provide.

PAUL BONGIORNO: Thank you very much for being with us today, Treasurer Wayne Swan. Thanks to the
panel, Jennifer Hewett and Peter Hartcher. Until next week, goodbye.