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Lindsay Tanner joins Lateline Business -

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Finance Minister Lindsay Tanner joins Lateline Business to discuss today's National Account


ALI MOORE, PRESENTER: There's no question today's news that Australia is not in a technical
recession was welcome in the corridors power in Canberra.

Finance Minister Lindsay Tanner joined me from our Parliament House studio earlier this evening.

Lindsay Tanner, welcome to Lateline Business.


ALI MOORE: When those GDP numbers came out today, was there a quiet but distinct whoop for joy?

LINDSAY TANNER: I wouldn't say a whoop for joy, but certainly they're very welcome numbers and they
do show that the Government's stimulus strategy is having an effect, is working. But there's long
way to go, Ali. We're not out of the woods yet. We've got a very challenging environment, very
uncertain international environment, but it's always good to get positive numbers and, certainly,
the indication that the Australian economy's holding up relatively well under very powerful
negative pressures is good news for Australia.

ALI MOORE: Positive numbers in a technical sense, but do you think we're in a recession
nonetheless? A number of economists have said they think that employment or unemployment is
probably a more meaningful measure, and on the basis of jobs lost, we are in recession.

LINDSAY TANNER: There's no doubt we're in middle of a serious economic downturn, Ali, and in some
respects I think it's a bit pointless to get involved in the debates about technical recession and
all of those things 'cause they don't alter the serious nature of the challenge that we're facing.
We got a huge set of difficulties to tackle. Real - major problems that the Australian economy
faces because of the global recession and the huge impact that that's had in major economies around
the world, all of which is flowing through to Australia. So, I don't think there's much point in
having debates about what definition of recession we should use. The fact is, we are in a serious
downturn. Things are better here than they are in virtually any other major developed economy, but
nonetheless, we still got a lot of challenges to tackle.

ALI MOORE: At the same time, it's a huge psychological point and a great confidence boost if you
can stand up and say the country is not in recession and that's of course why you and the Treasurer
and the Prime Minister were so hesitant to use the recession word. I wonder if the recession, or a
recession, is still inevitable as the Prime Minister had in April, and indeed yourself. You said
that another quarter or a further degree of negative growth is - there's doubt that we'd have one.

LINDSAY TANNER: I did say that and I think there's a fair chance that we could still have further
negative growth at some point during the course of this year. That's certainly a prospect we don't
rule out. I do distinctly remember saying in several interviews that I would wait until we actually
got the data before declaring that we were in recession, and I think the wisdom of that's been
proved in hindsight. Today's figures will be helpful for confidence; there's no doubt about that,
but they're only one part of a longer picture where there's still lots of challenges.

ALI MOORE: But given your caution, were both the Prime Minister and the Treasurer perhaps a little
unwise to say - well, to use words such as inevitable, which is very definitive and doesn't leave
any wiggle room?

LINDSAY TANNER: Oh, no, I don't think so, Ali, and in fact, if you look through my transcripts,
you'll probably find the odd appearance of the word inevitable or close to inevitable. I don't
think we should get too hung up about language here. There's a lot more to go, and unemployment
clearly is gonna rise during the course of the rest of the year. So, it's an important issue for
confidence, no doubt about it, but we don't want to endlessly debate definitions and words. The
real question is the challenge, getting Australia's economy in strong shape.

ALI MOORE: So the question really is, I guess: what comes next, and how well placed we are for it?
If you break down these numbers, business investment especially in equipment and machinery's
collapsed, imports have fallen, every state bar South Australia had negative growth in the March
quarter. So, against that background, where do you think we are?

LINDSAY TANNER: I think there is serious issues that we do need to address, and of course, we are
projecting further increases in unemployment and I think that is still going to occur. We need to
bear in mind...

ALI MOORE: So the Budget forecasts hold?

LINDSAY TANNER: Oh, I don't see any reason why we'd be revising those forecasts at this point, but
obviously forecasts are always under examination and that there are various points in the cycle,
particularly later in the year where we have the mid-year economic and fiscal outlook where they
are revised, they are re-examined, and that'll occur in the normal course of events.

But we need to keep in mind that business investment, for example, is coming off record highs. So
we had only up to a year or ago, and even more recently, extraordinary levels of business
investment. So, although there is now a decline occurring and that's a decline that we've
anticipated, it still shows fairly solid levels of business investment in a longer term sense. So,
we do have some things softening. The factors that are going produce higher unemployment are
starting to work out. But at the same time, the decisions Government has taken to get money moving
quickly, to stimulate activity, to strengthen jobs and to build for the future are clearly having
an effect and we're going to continue with those things, because the most important thing here is
sustaining jobs and economic activity.

ALI MOORE: But given all that you just said, and particularly given the point that business
investment is coming off such a high base, is it possible that the forecasters, including Treasury,
are simply too pessimistic. Let me put to you something that one of the country's biggest
retailers, Woolworths, said today. The head of Woolworths said that if we get another quarter of
positive growth, the Government will likely have to revise down its unemployment forecast.

LINDSAY TANNER: Well, I won't speculate on the hypothetical scenarios of that kind, Ali, because we
do revise our forecasts all the time, of course. So, every six months there's a revision, and of
course we've had a particular revision that occurred in February this year as well, which was an
unusual event. So, forecasts...

ALI MOORE: Is there too much official pessimism, though?

LINDSAY TANNER: Oh, no, I don't think there is. I think we've had to tread to very fine line here
and it's been a source of some controversy between being realistic and frank with the Australian
people about the challenges we face on the one hand, and at the same time sustaining confidence.
Now that's not an easy thing to. It's something I've been very focused on - to maintain confidence.
Now, the figures today are very positive. They're certainly a good sign for the Australian economy.
But one swallow doesn't make a summer. We shouldn't assume anything necessarily in particular other
than it's always better to have good figures, and it's particularly good that it shows the
Government's strategy is working at least thus far and we can reasonably expect it to continue to
have a positive impact.

ALI MOORE: Minister, a slightly different issue, but still very much connected to the global
financial crisis: the boss of the ANZ, Mike Smith, has been quoted as telling London's 'Financial
'Times' that the Government guarantee that's helped all the banks raise billions of dollars in the
offshore and the local credit markets, he says that guarantee is, "No longer required. Markets have
improved." And in fact, he says, there's now a case to argue it's disrupting the market. Is he

LINDSAY TANNER: I don't believe he's right to say it's disrupting the market and the Government
guarantee is actually structured in a way that it is designed to fall away in use over time as
markets normalise, because there is a fee that applies. It starts at 70 basis point for money
raised. And by definition, a bank is only going to access that if they need to.

ALI MOORE: So are the banks still accessing it? If the ANZ doesn't need it, are the other banks
still using it?

LINDSAY TANNER: Well, it is still being used, but there are signs of banks moving into
non-guaranteed debt. So, we would expect over time that the use would diminish as the economy and
the financial circumstances internationally start to normalise. So, the whole structure is designed
to allow the market to influence the exit from the guarantee. And that's entirely reasonable. I
don't agree that it has unduly disrupted markets. It's certainly an intervention that will always
change market activity, market behaviour, but it was unavoidable. So we have no plans to remove the
guarantee facility, but we do expect over time that use of it will decline, and at a point, it will
no longer be necessary. But we're certainly not at that stage now, in the Government's view, and
it's something that we need to keep in place in order to protect our financial system, which is
fundamental to the functioning of our economy.

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

LINDSAY TANNER: Thanks very much, Ali.