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4 Treasury Place, Melbourne, 23 May 1997: transcript of doorstop [Reduction in interest rates]

EEO only

TREASURER: This morning's reduction in official interest rates is the fourth reduction in interest rates since the Coalition Government was elected a little over a year ago. What that means is that interest rates have fallen by two per cent, fully two per cent. Now this is consistent with the Government strategy, which is to produce a growth, low-inflation, low-interest rate environment, and it indicates the benefits that the Australian economy will reap from the Government's measures to fix the Budget. In our Budget which we announced last week we said that by breaking the back of deficits at Commonwealth Government level, and breaking the back of Commonwealth debt, we could set Australia up for a long economic run, and now you are seeing some of the tangible evidence of just the benefits that can be brought by that.

By fixing the Commonwealth Government's debt we can break the back of household mortgages, and over the course of the last year mortgage interest rates have fallen by three per cent, and I call on the banks to pass on, in full, this reduction in official interest rates, adding this reduction in official interest rates into the three per cent that mortgage variable rates have already fallen will give a three and a half per cent benefit to home buyers, which, on the average Australian mortgage, is worth $290 a month. That's the benefit to the average Australian home buyer. Three per cent already, and if this is passed on in full three- and- a- half per cent; that would be a benefit to the average Australian home buyer of $290 a month. And it's important that the banks do pass this on. Again, the mortgage originators are leading the way. Aussie Homes Loans, out there, leading the way, taking it up to the banks. I call on the banks to follow them and I particularly call on the banks to follow in the area of business lending. We want to deliver these benefits to business, particularly small business as well, and it is important that the banks move those rates accordingly.

JOURNALIST: Treasurer, the Reserve has said it must do this because of unemployment. Is this a recognition from the Reserve that there wasn't enough stimulation in your Budget to kick- start employment?

TREASURER: Well, the Reserve Bank says that what's opened the way for this is the Budget measures reducing Australia's deficit. It makes it quite clear in its statement that the fiscal repair task of the Budget has contributed and opened the way for this. This is what we wanted to do, to open the way for these interest rate reductions to give the Australian economy the opportunity for long periods of growth, and it's a measure of the success of the Government strategy that in twelve months the enormous Budget repair job, we've been able to get two per cent reduction in interest rates.

JOURNALIST: But there's obviously not much happening in the economy.

TREASURER: Well, the economy is forecast to grow at three- and- three- quarter per cent.

JOURNALIST: So why do we need this extra boost?

TREASURER: Well, because it's not a question of needing an extra boost, it's because we've got the Budget under control we can have extra boosts. Because we've got inflation under control we can have it. Because inflation is now fully expected to be at the two per cent level in the forthcoming year, we can start delivering bigger benefits to business and to home buyers. And these are the kind of benefits you get from running a low- inflation economy, by the Government playing its part by putting our finances back into savings. These are the benefits that you can deliver to business and home buyers.

JOURNALIST: Treasurer, what will half a per cent cut mean for unemployment? How much lower can you get unemployment now? Are you revising your target...

TREASURER: Well, we're not going to revise targets that were put in the Budget a week ago, but the targets... the forecasts that were put... I should say we don't put targets in the Budget. We put forecasts in the Budget a week ago and we won't be revising our forecasts immediately, of course. But those forecasts that showed strong economic growth in the year ahead, they showed strong employment in the year ahead, and you just have to say that with benefits like this coming on stream they will add to the optimistic scenario that the Australian economy is now entering.

JOURNALIST: For self- funded retirees who are living off cash investments, doesn't this mean a reduction in their income and doesn't this cancel out the savings bonus that you just announced?

TREASURER: Well, self- funded retirees will be the biggest beneficiaries of the savings rebate that we've just announced - 15 per cent off their marginal tax rate.

JOURNALIST: But their earnings have just decreased by an interest rate rise (sic).

TREASURER: But whatever their earnings as a result of what the Government announced in the Budget last week, they're going to pay 15 per cent less tax, 15 per cent less tax. Nobody in Australia has ever reduced taxes on savings before, and self- funded retirees, young couples savings for deposits, parents saving for their children's education; all once we get that savings measure into place, pay a 15 per cent lower tax rate on their savings. Now we've got to get that measure into place, it's got to go through the Parliament. And as we know the negative Opposition will try and stop a lot of these measures coming into place, but once we get them into place self- funded retirees get a 15 per cent tax reduction.

JOURNALIST: What does the cut mean for jobs?

TREASURER: Well, reduced interest rates are good for business, particularly small business and it's small business that creates jobs, so this is good for jobs. The reason why we've put in place measures to fix the Commonwealth Budget and to get Commonwealth debt down is so we can have lower interest rates, so we can give a kick start to small business, so that that will be helpful for jobs. That's the reason why we do this. You have just seen tangible benefits from the Government's economic strategy to fix the Budget and to create the conditions for lower interest rates and job creation.

JOURNALIST: If you haven't revised job forecasts there doesn't seem that there'll be much in it, does there, for jobs?

TREASURER: You don't revise forecasts on a weekly basis.

JOURNALIST: So do you have any sort of anticipation of what this might do for jobs?

TREASURER: Well, as I've said before...as I said before, this is good for jobs.

JOURNALIST: ...how concrete...

TREASURER: As I said before, this is good for jobs.

JOURNALIST: Why specifically?

TREASURER: Lower interest rates makes it better for small business which makes job creation easier. And unquestionably the best benefit you can deliver to small business is to lower their interest rates. And it's a high- interest rate Australia that destroyed small business when Labor had interest rates at 21, 22 per cent in 1990. That's what destroyed small business in this country, they're still trying to get back, and this is a terrific benefit for small business.

JOURNALIST: (inaudible) US...mainly on th dollar?

TREASURER: No, because we are going to run our monetary policy in a way which is consistent with our inflation targets. What's created the opportunity for this is a low inflation, good Budget outcome, and we're going to set it by reference to domestic events here in Australia. The domestic events gave us a unique window of opportunity and you've seen the reduction in interest rates as a consequence. Now what are these domestic events? Low inflation, down at the bottom of the two per cent band, wages which were consistent with that and the wages figures yesterday were consistent with keeping inflation low, fiscal consolidation have all opened the way for lower interest rates. Who wins? Home buyers, big winners. Small business, big winners. The Australian economy, big winners. And job creation as a consequence. This is wonderful news, this is a, now in 12 months, two per cent reduction in official interest rates. And if you happen to be a home buyer, three per cent already. And if the banks do the right thing, three- and- a- half per cent. For a home buyer $290 a month.

JOURNALIST: What does it mean for the Government's hope of improving unemployment.

TREASURER: Well, it's good for employment, as I've said before. It's good for employment, because lower interest rates is good for small business, is good for employment. This is the kind of economic situation you would want to set up to get employment growth going, and employment growth will be going through the course of the year.

JOURNALIST: But Treasurer, it's relying on the fact that small businesses can afford to invest more, isn't it? And some of them just can't.

TREASURER: Well, one of the reasons small businesses can't invest is money costs them so much...

JOURNALIST: And so do workers...

TREASURER: And so reducing interest rates helps them to invest. That's the whole idea of reducing interest rates.

JOURNALIST:You've called for the banks to pass on the interest rates. Do you call for that cut to be passed on immediately?

TREASURER: As I said before, I call on the banks to pass this on in full and immediately, in relation to home mortgages and particularly in relation to business lending. There's no reason why the banks should sit around. There's no reason why they should pass on just a proportion. They should pass on the full amount immediately. And you see institutions like Aussie Home Loans out there already passing it on in full. Let's see if there's bank in the country that's as good as Aussie Home Loans. That's the great challenge for the banks.