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Wayne Swan interview -

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Wayne Swan interview

Broadcast: 11/05/2010

Reporter: Kerry O'Brien

Kerry O'Brien interviews Federal Treasurer Wayne Swan on the details of the Budget.

Transcript

KERRY O'BRIEN, PRESENTER: For the first of his marathon round of post-Budget interviews, I'm joined
by the Treasurer Wayne Swan who's come here straight from the House of Representatives where he's
just finished his speech.

Wayne Swan, you're basking tonight in the warm inner glow of a budget returning to surplus three
years early, thanks substantially to Australia's economic recovery. The speed of that recovery is
due in no small part - in fact in very large part - to the resources boom and how that has impacted
back on the whole economy. Yet you want billions more with your new mining tax. So why risk killing
the fatted calf when it's already delivering so much?

WAYNE SWAN, TREASURER: Well, Kerry, this is like Groundhog Day. I remember having this sort of
discussion with you one year ago.

KERRY O'BRIEN: Well we weren't talking about a mining tax.

WAYNE SWAN: No, no, but just listening to your panel, it's almost as if the global recession didn't
happen and it didn't have a dramatic impact on our budget and it didn't give very great challenges
for the Government to deal with and the Government dealt with the challenge of the global recession
by putting in place fiscal stimulus. We didn't come out of the global recession because of the
mining boom, although the mining boom is adding some cream on top of that; it is getting stronger
by the day.

But the point I want to make, as it relates to some of the commentary you had before, is that we
are still down $110 billion through to '12-'13 in terms of revenue. Last year I was talking to you
here with a revenue downgrade, a wrecking ball through the revenue of $210 billion. I want to make
that point to make the point that in the circumstances we are in with revenues still being
substantially down that we have done a very, very thorough job of holding back spending - the point
George was making before - imposing a two per cent cap and making sure that we offset all new
spending and banking every single dollar of the revenue upgrade, as we said we would do last year.
And there's never been a government in the history of this country that's done that and
particularly done it in an election year.

So, the point I want to make is that first and foremost we've been very serious about our fiscal
rules. But now, because of the success of stimulus, because unemployment is only 5.3 per cent, we
do face new challenges, and those new challenges come with the mining boom and how the Government
responds to the emerging capacity constraints in our economy and we're doing that in the Budget as
well.

KERRY O'BRIEN: So, how firm is the foundation for the Treasury estimates in terms of the terms of
trade and how that is going to kick back into the economy?

WAYNE SWAN: Well, once again, last year there was a lot of criticism by this panel of Treasury
estimates. The Treasury is a reasonably conservative organisation when it makes its estimates. Last
year they were criticised for being too optimistic. They said the figures we had there could never
be achieved. Of course, we've done a lot better. So, the Treasury is conservative.

So, let's go to this point about the terms of trade 'cause I do think it's very important. Terms of
trade, as Alan was saying before, are about to hit or are hitting a 60 year high. We don't assume
that goes on forever. The Treasury doesn't believe that. But we are having a very substantial boost
to national income which is coming from these very high commodity prices that we've got at the
moment. And what we as a nation have to do is think very seriously for the long term about how we
deal with commodity boom Mark II, because our criticism of the previous government was they didn't
deal with the consequence of commodity boom Mark I.

KERRY O'BRIEN: But one of the first things you're doing is raking in this big new tax.

WAYNE SWAN: Well, it's not the first thing we're doing. It doesn't even commence till 1st July,
2012.

KERRY O'BRIEN: Well, you've done it before you've actually (inaudible) the Budget.

WAYNE SWAN: And there was some criticism that everything we're doing is delayed. The reason why we
are doing things that are delayed is because we are being financially responsible, not taking the
decisions to spend money, to bring the budget back to surplus, but we've got an eye on the long
term. And that eye on the long term means that we have not been getting a fair share of the
minerals in the ground which belong to the Australian people. That is not even contested by the
mining industry. The mining industry acknowledge they are going to have to pay a bit more. We've
put a framework out there to consult with the mining industry about that on, but also what we've
said is: when that revenue comes in, if we get it, we'll attend to the capacity constraints in the
economy, we'll give a company tax cut so we can do something for all those other businesses that
are missing out on the benefits of the boom. That's the plan ...

KERRY O'BRIEN: Do you rule out any prospect of taking a backward step on this resources tax in the
short term, between now and the election?

WAYNE SWAN: Kerry, the Government put our framework out there last Sunday week. We said that we
would engage in consultation with the industry. There are well over 80 companies currently talking
to the Government and consulting with us. We said there would be generous transitional provisions;
that's in the documentation that we put out.

KERRY O'BRIEN: But that's something that's kind of off maybe 12 months from now.

WAYNE SWAN: No, it's not something that's just off 12 months from now.

KERRY O'BRIEN: Well are you saying that you will have a more detailed ...

WAYNE SWAN: Kerry, I'm saying we're going through a consultation process intensely at the moment in
the short term. The normal process of finalisation of any piece of complex tax design is a long
time. But in terms of the initial phase, we're sitting down and talking to the industry, as we said
we would, about transitional provisions for existing projects. That's what we're talking to them
about.

KERRY O'BRIEN: OK, so it's entirely possible that we'll see some tweaking of this in the short
term.

WAYNE SWAN: Well, we're not changing the rate and we believe in having a rent tax. We've had a rent
tax in this country for a long period of time and when the last one came in everybody said the roof
would fall in then.

KERRY O'BRIEN: OK. But I'd like to talk about inflation for a minute because you've insisted on
continuing the stimulus packages despite the fact that by every measure the economy is dramatically
better than you thought it would be in framing the stimulus spending to rescue the economy. And
even with your spending cap you're still pumping a lot of money into the economy that's heading
rapidly back to four per cent growth. So, how are you going to get inflation down as your forecast
suggests, unless you're factoring in the prospect of more interest rate rises?

WAYNE SWAN: Well I think you're ignoring what is the most significant fiscal consolidation in this
country since the 1960s, which is a product of us applying those fiscal rules that I talked about
before. There is a very significant fiscal consolidation going on right now.

KERRY O'BRIEN: But despite the fact you're gonna have a deficit next year of $40 billion.

WAYNE SWAN: Well, it is quite - and as we - it comes down ...

KERRY O'BRIEN: You're gonna have inflation of 2.5 per cent.

WAYNE SWAN: There is a very strong fiscal consolidation going on right now, strong by any
standards. I think even your panel here would agree this is a very significant fiscal
consolidation, which is precisely what you ought to be doing at this stage of the cycle. Now you're
right: there is a tail of stimulus flowing through, but stimulus detracts from GDP one per cent or
so this year and 0.75 per cent next year. And I'll just make one point about that stimulus, because
there is still a tale of two economies here: we've got the leading edge of a mining boom over here
and we've got the tail of the impact of the global recession over there. And just take
non-residential construction. If it wasn't for what was going on with the Building the Education
Revolution projects, there would be chaos and mass unemployment in parts of the construction
industry right now. It is possible to have a bit of that going on while simultaneously having this
very big fiscal consolidation, which is what the Reserve Bank looks at when it takes its decision.
And it's a very big fiscal consolidation.

KERRY O'BRIEN: Well let's now have a look at the growth forecasts, and Budget forecasts can be
notoriously unreliable; in fact they very often are. Last year when the crisis was at its height
you forecast a recession this year, 2.25 per cent growth next year, then 3.25, then 4.5 into the
foreseeable future. Now you're saying it'll get to four per cent the year after next, but then it
drops back to three per cent. So why ...

WAYNE SWAN: Kerry, we had this conversation last year; you wanna have it again.

KERRY O'BRIEN: Not this one. Not this one.

WAYNE SWAN: Yes, we did.

KERRY O'BRIEN: Why in the middle of a boom is the economy going to shrink?

WAYNE SWAN: Well, it's not going to shrink. But because we were so successful during the global
recession of keeping the economy growing and because we've only got unemployment now at 5.3 per
cent, there is less spare capacity in the economy. If we hadn't stimulated the economy,
unemployment'd be a lot higher, our deficits'd be a lot higher, our revenue'd be down. The fact is
that because we stimulated the economy, unemployment is lower and our outlook is better. What that
means is: there's less spare capacity. So when the Treasury makes the forecast and tones down its
growth forecasts in the out-years, it's recognising that essential macroeconomic fact.

KERRY O'BRIEN: OK. Just briefly, if we can look at a couple of particular policy areas with the
little time that we've got left, because it's one thing to write a fact into a Budget document - in
this instance, an extra 355, I think, over the next three years to build another 23 GP super
clinics. That's on top of the 36 you promised at the last election and to be delivered starting
with your first Budget. You've actually only built three so far ...

WAYNE SWAN: That is just not true. No, not true.

KERRY O'BRIEN: You've got 11 - well, I've spoken to your minister. You've got 11 in the pipeline.

WAYNE SWAN: It's not true. There are 14 that are very well-advanced and there are more coming on.
Can I just make a point about health ...

KERRY O'BRIEN: Sorry, I want to finish my point. There are three finished, I'm told, by your
minister; another 11 in the pipeline. You've thrown in another 23. Now quite separately to that,
and I'll let you answer that, but quite separately to that in Aboriginal affairs you promised as
part of the closing the gap that there were gonna be all these new houses built. Now under the
program so far after nearly two years the Budget papers tell me you've got seven houses built in
the Territory.

WAYNE SWAN: Can we deal with GP super clinics first?

KERRY O'BRIEN: Yes, very briefly with each.

WAYNE SWAN: Well, 14 well-advanced. But can I just make this point about long-term reform. When you
do long-term reform it takes a while to put it in place and the GP super clinics are a classic
example. They are coming along and they are coming along in a way which is responsible and in a way
which I think is quite realistic. But over and above that, there are plans to renovate private GP
clinics and so on in some hundreds. All of that is happening. But health is a long-term project.
It's got to a pretty terrible state over a long period of time.

KERRY O'BRIEN: But you put timeframes of three years and five years on these things and question
mark (inaudible) you didn't do it.

WAYNE SWAN: Sure. That's right, and if you're gonna reform the system for the long term then it
does take a little while.

KERRY O'BRIEN: OK. And Aboriginal housing: seven houses in nearly two years?

WAYNE SWAN: No, I don't necessarily accept that characterisation ...

KERRY O'BRIEN: It's in your Budget papers.

WAYNE SWAN: But I'll make this point: this government is very serious about closing the gap and we
have put an enormous amount of effort and resources across a very broad range of areas and I think
we have got a record in this area which is very good.

KERRY O'BRIEN: OK. Wayne Swan, we're out of time, but thanks for talking with us.

WAYNE SWAN: Good to be with you.