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Swan promises a return to surplus -

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KERRY O'BRIEN, PRESENTER: The rise and rise of the Australian dollar is the latest conundrum to
frustrate the Government's budget management, as it continues to struggle to convince Australians
that the economy is fundamentally a good news story.

Today's updated Treasury report on the state of the economy shows growth running higher than
expected, unemployment headed down towards 4.5 per cent, and as Wayne Swan puts it 'a big pipeline
of business investment gathering momentum'.

And despite the projected loss of nearly $10 billion in revenue because the higher dollar is
hitting exports and company profits, the budget will still be in surplus as promised in 2012-13.

Yet the Opposition says the Government's failure to inflict deeper spending cuts will push interest
rates higher.

I spoke with the Treasurer just a short time ago. He was in our Parliament House studio.

Wayne Swan your message today seemed to have a sense of deja vu about it, I dare suggest. The
budget's in great nick, the economy's the envy of the rest of the world, and by implication your
economic management is just superb.

You sold it right through the election campaign. You lost your majority. If the Government's story
is such a great story, if it's so compelling, why do you think you failed so comprehensively to
sell it?

WAYNE SWAN, TREASURER: Well, what motivates me in politics and when I get up in the morning is
making sure that we have a prosperous economy and doing everything that I possibly can to assure
that outcome but the fact is that politics comes and goes, polls come and go.

The most important thing is to do the right thing, Kerry.

KERRY O'BRIEN: Yes, but that doesn't explain why the Australian public isn't buying your message.

WAYNE SWAN: Well, Kerry, I don't worry about the opinion polls on a day to day basis. What I

KERRY O'BRIEN: No, I'm not talking about opinion polls. I'm going back to the real poll in the
not-too-recent past based on a very similar message in which the Australian electorate very
substantially turned their backs on you and you're now operating in a minority government.

Is it because many Australians simply aren't experiencing the economy you're describing?

WAYNE SWAN: Well, first of all, Kerry, I believe that we are in government precisely because we
handled the global recession the way we did.

We avoided a recession in this country. And the consequence of that is that we are not walking
through the rubble of a recession. We're not dealing with the business closures. We're not dealing
with the high unemployment that comes from a recession.

If we hadn't handled the economy that way I wouldn't be siting in government right now.

But the government understands as we go forward we can't be complacent about the future. What we've
brought down today in this economic update is precisely what we said we'd do at the height of the
global recession.

So precisely at the time that we stimulated the economy we put in place a plan for the future - a
plan for growth - and what we've delivered today is on all of those commitments.

KERRY O'BRIEN: But by the same token, with all of these things in place as you describe them, you
came within a whisker of losing the election and you lost your majority. The polls still have not
shifted. In fact, they have you significantly under 50 per cent again. They have you marked down on
economic management.

I'll say again: is it because a significant number of Australians simply aren't experiencing the
economy you're describing?

WAYNE SWAN: I'm not a commentator on opinion polls. But what I can say is that it is the case that
even though growth is strong, not everybody shares in that growth.

We are in the middle of a mining boom - Mining Boom Mark 2. Not everybody is going at the same

But the most important thing that we can do for Australia - and I believe the most important thing
we can do politically - is to put in place the right policy settings. The right policy settings to
make sure our economy continues to prosper. And that's what today's all about.

And, Kerry, it doesn't matter to me whether we're going well in the opinion polls or not. And at
the end of the day, what is important to me is that Australians are in work. It's not just the jobs
we save during the global recession, it's just not the 600,000 jobs that have been created in the
last three years, it's the 380,000 jobs that are going to come in the next 18 months.

That's what's important to me. And that's what's important to the Labor Party.

Now if we win the next election or not, if we cement those credentials, that's very important for
the country and by the way also important for the Labor Party.

KERRY O'BRIEN: Joe Hockey said during the election - and after today's figures he is saying it
again - that a Labor Government will never deliver a budget surplus because you can't take tough
decisions. He says your mid-year forecast is a recipe for higher interest rates through next year.
Your response?

WAYNE SWAN: Well, either Joe Hockey hasn't read the document or he simply doesn't understand what
budgeting is all about.

There's a number of comments that he has made today that are just grossly inaccurate. For example,
he has claimed that we haven't provisioned for all of our election commitments.

We have done that.

He has made all sorts of extraordinarily stupid claims about the conservative bias allowance. The
fact is that the Liberal Party during the last election campaign got $9 out of 10 wrong in their
net saves. They're not in a position to lecture anyone about budgeting or the return to surplus.

KERRY O'BRIEN: But you've said- In your figures today, you have acknowledged that the higher dollar
is going to cost you $10 billion against your revenue over the next four years.

WAYNE SWAN: That's right.

KERRY O'BRIEN: But at the same time you're going to keep your surplus and you don't have to inflict
any more spending cuts. You're going to rely- you're going to punt on the economy being stronger.

WAYNE SWAN: That's simply not true, Kerry. What we've put in place...

KERRY O'BRIEN: Which part?

WAYNE SWAN: Well, what we have put in place is the fastest fiscal consolidation since the 1960s -
faster than what occurred in the 90s, faster than what occurred in the 80s and faster than anything
that occurred during the last boom.

The fact is that our 2 per cent spending cap combined with our commitment to bank upward revisions
of revenue is what is bringing us back to surplus in three years - three years early.

That's what's bringing us back to surplus. Yes the country is the beneficiary of high commodity
prices. And of course we have lost $10 billion over the forward estimates because of the way in
which the exchange rate has gone up.

Despite all of that, we are coming back to surplus and we're coming back to surplus because of this
government's fiscal discipline - the sort of fiscal discipline that has not been shown by any
government in this country previously.

KERRY O'BRIEN: But forecasts on the dollar suggest it could go much higher yet - certainly 5 per
cent higher and possibly even as much as 10 per cent higher.

And again, you cannot bank on commodity prices staying high. There are those who are suggesting
they're going to come off. You put those two things together...

WAYNE SWAN: (Laughs wearily)

KERRY O'BRIEN: Well, seriously, everything is about forecasting, isn't it?

WAYNE SWAN: Yes, it is. It is, but when it comes to the exchange rate the way the Treasury has done
it this time is the way that it was done under Peter Costello, and the exchange rate that they use
is the exchange rate that existed at the time that they were concluding their forecasts.

The consequence of that has been an appreciation of the dollar by something like 15 per cent
against the US dollar. That has cost us $10 billion in revenue.

Despite that, we are coming back to surplus.

Why? Because of the very strict fiscal discipline that the Government has put in place.

It's the discipline that we said we would put in place last February when we moved to the... the
February before last when we moved to stimulate the economy.

We are now growing above trend. That discipline is applying and that's why we're coming back to
surplus. That's what Joe Hockey doesn't understand.

KERRY O'BRIEN: But if the dollar continues to move higher - as economists are forecasting...


KERRY O'BRIEN: If it is, are you ...

WAYNE SWAN: Kerry...

KERRY O'BRIEN: Are you prepareed in the next budget to consider further spending cuts to protect
your surplus?

WAYNE SWAN: Kerry, what we will do is work within our fiscal rules and our objective is to come
back to surplus. So of course we would take that into consideration, because our objective is to
get back to surplus.

But you made an assertion that the dollar might go up. Well there are just swings and roundabouts,
Kerry. And we'll see whether the dollar...

KERRY O'BRIEN: Well, it just seems to be is swinging up at the moment. The roundabout is yet to

WAYNE SWAN: As I said, I don't speculate about that. But the fact is that we can't be taking
fundamental decisions about the budget based simply on one snapshot of the exchange rate, which is

KERRY O'BRIEN: But between now and 2012-13, you will do whatever it takes to keep that budget in
surplus, even if it means tougher spending cuts in future budgets between now and '12-'13?

WAYNE SWAN: Kerry, we've already been putting in place a really tough discipline and this seems to
get missed.

The 2 per cent cap is really tough. When your economy is growing at 3 to 4 per cent, that's a
really tough cap. It's a tough thing in the history of this country for any government to commit to
bank automatic upward revisions of revenue.

The government is doing that. The government is offsetting all of our expenditure. We've just been
through the first election campaign in Australian history where not one dollar was added to the
budget bottom line, and that comes on top of $83 billion worth of savings in our past three

I'd submit to you that we've got a pretty good record.

KERRY O'BRIEN: Okay. Just briefly on the banks, Mr Swan.

On your wrangle with the big banks, you foreshadowed forcing them to give up charging exit fees on
mortgages as one of a number of measures that you're saying are in the pipeline.

But the Australian Bankers Association has already suggested that if you force banks to dump their
exit fees they could just shift that charge to the front end of loans in establishment fees because
they say the exit fees reflect genuine costs incurred by the banks.

It seems their mindset is that if you hit them on one front they'll just open up on another front.

WAYNE SWAN: Kerry, Our four major banks are making record profits.

I'm absolutely determined and I've been working on this for some time to put in place another wave
of reforms to ensure we have the competition that average Australians and small business deserve
and that's what we're going to do.

I've been talking to our regulators about a range of reforms to build on what we've already put in
place - particularly when it comes to unfair mortgage exit fees and other matters - and the
Government is doing that. And if the Australian Bankers Association wants to make threatening
statements like that, well it's not going to deter the government one iota.

KERRY O'BRIEN: Wayne Swan we're out of time. Thanks for talking with us.

WAYNE SWAN: Thank you.