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ABC News Breakfast -

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Interview with Virginia Trioli

News Breakfast ABC 2

Tuesday 2 December 2008

SUBJECTS: Global Financial Crisis, National Accounts, Budgets, economic cycle.

VIRGINIA TRIOLI:

In just a few hours the Reserve Bank will announce a decision on yet another interest rate cut; and
for more we're joined by the Assistant Treasurer, Chris Bowen, from Canberra.

Assistant Treasurer, good morning.

CHRIS BOWEN:

Good morning Virginia.

TRIOLI:

Moving on from just the interest rates cut - we'll return to that in a moment - we're talking about
the growth figures which we expect to have released tomorrow, what's the figure that you would be
looking for that would give you some comfort?

BOWEN:

Well Look around the world we are seeing a slow down in the economy overnight more figures than the
United States showing the United States is probably in recession. Yesterday, we saw Sweden go into
recession, so there is a slow down in the economy around the world that's going to have an impact
in Australia. There are lots of people with capable indicators whose job it is to predict numbers
like this. Our job is to keep the economy strong and robust as possible.

TRIOLI:

You think you're softening the way there for a very poor figure a figure that might even be
entering into negative territory?

BOWEN:

Well no it's simply making the point that around the world the economy is slowing that at some
point is going to have an impact in Australia. That is why we have taken the action we have in the
economic stimulus package to ensure that growth is as robust as it can be in these very difficult
economic circumstances around the world.

TRIOLI:

Yes, indeed and you have spent your way virtually entirely through the surplus particular with the
announcements made over the weekend at COAG, if we do head into the same negative sort of negative
territory as you say yours and other countries have. What more can you do?

BOWEN:

We will continue to respond flexibly as we need to. The Reserve has responded decisively over the
last several months; we've responded decisively and we will continue to do so and that means doing
what the Prime Minister has indicated over the last week that it may be appropriate to go into a
temporary deficit, unlike the Opposition which says surpluses at all costs even at the costs of
growth and jobs. So while we continue to respond to these circumstances which are very fluid.

TRIOLI:

A temporary deficit, how do you imagine you could stay in a so called temporary deficit for a short
period of time when it is so difficult to get out of once you're in it?

BOWEN:

Well the important thing is that if you have a surplus of your cycle so while there is downward
pressure on economic growth that you continue to stimulate the economy in contrast to the previous
government which tried to spend its way out of the boom and continued to have high spending growth
in high growth economic circumstances.

We take the conservative approach that a surplus is necessary over the cycle that there will be
times when the appropriate, responsible and sensible thing to do is to go into a deficit.

TRIOLI:

Chris Bowen can I get you to clarify what you mean by over the cycle what cycle what period of
time?

BOWEN:

Well over the economic cycle Virginia so...

TRIOLI:

But the economic cycle could go for centuries Chris Bowen.

BOWEN:

What you will find is you have times of lower economic growth and higher economic growth and when
economic growth is low it is appropriate to have a more stimulatory fiscal setting and when
economic growth is higher it is appropriate to have a more contractionary setting. That is what
surplus out of the cycle means.

TRIOLI:

No, I understand what you're saying there but that still actually doesn't make any sense. I mean if
you want to say have a surplus over cycle you must then define what the cycle is but you're not
prepared to do that?

BOWEN:

Well the cycle is the economic cycle. Now economic cycles sometimes are quicker than other times
but the appropriate thing is to have that surplus over the economic cycle.

TRIOLI:

The Reserve Bank seems to be on the course of taking it I guess in the end that would have the cash
rate at about 3%. Does that seem right to you?

BOWEN:

That is entirely the matter for the Reserve Bank. We do have an independent Reserve Bank in
Australia and again there are other people who are paid to speculate as to what the Reserve Bank
might do. I'm not one of those people; it's my job to support the PM and Treasurer in managing the
economy as best we can. But the important thing Virginia is that all the levers of policy are
rowing in the same direction that the Reserve Bank and the Government through its budget are rowing
in the same direction as we have been and as we continue to do.

TRIOLI:

So if the figures come out tomorrow and they are poised to return to that original observation, how
much more can you do you say you are prepared to go into deficit for a brief period of time but not
specified. How much more can you do what more can you do what more can you spend if we are still in
that difficult place?

BOWEN:

These things have to be weighed up at the time in response to the circumstances at the time. I
can't sit here for days and tell you what we'll do next year in relation to any particular figure
because this is a very fluid situation we'll respond as we have done and we will continue to do so.

We have shown that we are willing to press the buttons we are willing to use the levers that the
government has at its disposal to make sure unemployment in Australia is as low as it can be and as
robust as it can be.

TRIOLI:

Chris Bowen thanks so much for joining us this morning.

BOWEN:

Virginia nice to talk you.