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Treasurer discusses terrorist attack in Mumbai; COAG; global financial crisis; economy; and pensions.

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30 November 2008


SUBJECTS: Mumbai Terrorist Attack; COAG; Global Financial Crisis; Economy; Pensions

OAKES: Mr Swan, welcome to the program.

TREASURER: Good to be with you, Laurie.

OAKES: Before we talk about COAG and the economy, what's the Government's latest information on Australians in Mumbai?

TREASURER: Well Laurie I spoke to Foreign Minister Stephen Smith from London about an hour ago. There is one confirmed dead and one Australian whose family believes that he is dead. The better news is that there are now only a small number of Australians who are unaccounted for.

OAKES: Does the Government have any information on who is behind this, what the organisation is, where they're from?

TREASURER: Well I think it's early days, and you've seen the news reports. They themselves are somewhat disturbing, but I would prefer to leave detailed comment on that to the Foreign Minister, Mr Smith. Terrorism is obviously a threat to the stability of the world

and we do take this attack very seriously. I think it does have implications for the stability of countries which are very important economically in the world.

OAKES: Okay, the economy. The Government says yesterday's $15 billion COAG package will help create 133,000 jobs. How quickly?

TREASURER: Well, that's over five years, Laurie. This is an historic agreement. It's a five year agreement. It does stimulate the economy. It does create 133,000 jobs over five years. But as importantly, for the long term, it lays the foundations for long-term economic reform. It goes to the core of what we talked about during the campaign - the Education Revolution. There's very important initiatives in here in terms of business deregulation. So, what we've got through this agreement in only a year is a fundamental reform of Federal-State relations with incentives in there where the States will also co-invest with the Commonwealth to drive key reforms in the national economy which lift our productivity. So,

those two things should be seen together - a stimulus impact in terms of additional jobs over five years, but the fundamental reforms to the foundation of the economy. This sort of agreement was not possible for the past 11 years, but it's certainly part of our long-term reform agenda. You see, we must do these things despite the global financial crisis. We are

going to continue to put in place the long-term reforms for the future.

OAKES: But presumably you don't expect the economic crisis to last five years, do you?

TREASURER: No I don’t. Not at all.

OAKES: So, is this front end loaded at all?

TREASURER: There's certainly is a weighting of money in the first year, but it is over a five year period, because if you're going to get these lasting reforms, if you're going to lift the productivity that we need in this economy, particularly given the ageing of the population and so on, we have to invest in our people, and you have to do that over a longer period of time. There's no quick fix when it comes to the fundamental reforms that are needed. But fiscal stimulus is also an added benefit, an added benefit which comes through the Economic Security Strategy we announced a month or so ago. But also underpinning that these further initiatives, further expenditure particularly in health and education, also some in housing, which has the shorter term benefit of also lifting job creation.

OAKES: I'm told the Government's strategy to deal with this economic crisis is a series of I think it’s called medium stimulus waves. What's the next wave?

TREASURER: Well, the first wave, Laurie, was the Economic Security Strategy - the $10.4 billion strategy we announced some weeks ago. The Prime Minister has made it very clear that we intend to do more in infrastructure and we need to do that working both with the States and with the private sector. And he said there will be some announcements prior to Christmas when it comes to critical infrastructure, and of course infrastructure investment is something that can be very job- creation-intensive. But we've also said, Laurie, that we will do whatever we need to do in the next period to stimulate the economy should growth slow more than has been expected or would have been expected some months ago.

OAKES: The tax cuts scheduled for the middle of next year are worth about the same as the economic stimulus package. Any chance you'd bring them forward?

TREASURER: Oh look, I wouldn't be speculating on that, Laurie. I think it's very important that the Government continue to have on the table a range of options. You see, what's occurred in the last couple of weeks alone? We've seen the US again have to go in and bail out a big investment bank. We’ve seen action again in the financial sector in Britain overnight. We've seen a further fall in stock markets through the last month or so. It's very important that through the coordinated international action that is coming from governments around the world, which is predominantly immediate fiscal stimulus, that governments around the world act to restore confidence. And we see any action that we take as having an impact combined with what is done elsewhere in the world.

OAKES: So, bringing the tax cuts forward is an option?

TREASURER: Well, it's not one that I'd speculate about, Laurie, and we've said very clearly

OAKES: Do you rule it out?

TREASURER: I'm not going to speculate about it. You're allowed to speculate about it, Laurie, but what we will do is we will carefully examine all the options that may be required. The first stimulus package, Laurie, comes through predominantly on the 8th of

December. You’ve got the payments to pensioners: $1400 for a single, $2100 for a couple; you’ve got the $1,000 for those families who receive Family Tax Benefit Part A. So, what the Government will do is look at the impact of that on the economy through the end of this year, and through the early part of next year. In addition to that, as I've already said, we do have some plans for further infrastructure spending, which is important both for the short-term and the long-term. And we'll look at all options next year should further stimulus be required. We've always said that if further action was required, we would take it.

OAKES: Let's talk about that dreaded deficit. The Liberal Premier of Western Australia, Colin Barnett, said yesterday if the Commonwealth and the States go into deficit it's more about falling revenue caused by the global crisis than about increased spending. Did you interpret that as a slap at Malcolm Turnbull?

TREASURER: It’s certainly very accurate and it's certainly a repudiation of Malcolm Turnbull. Because we have said that if growth were to slow further than expected, then a temporary deficit would be the responsible thing to do to invest in the strength of the economy and to create jobs, and that's essentially what Colin Barnett has said yesterday. You see, every respected economist in the country has repudiated Mr Turnbull, and this comment from Mr Barnett, whether it was directed at him or not, certainly repudiates the position taken by Mr Turnbull and the Shadow Treasurer, Miss Bishop.

OAKES: Is there any chance we can avoid a deficit? Isn't it inevitable?

TREASURER: At the moment we're forecasting a modest surplus. But as...

OAKES: But you don't really believe the forecasts, do you? The markets don’t.

TREASURER: As Mr Barnett himself said yesterday, if growth slows further, that will certainly have an impact on revenues. Now, that will occur on Commonwealth revenues and it will certainly hit State Government revenues. Now, we've yet to see what has been occurring in the economy through the latter part of this year. There will be important pointers on that in the week ahead. But over and above that, there has been further fallout just in recent times in the international economy. So, if the economy is to slow much more

than we anticipated a few weeks ago, it will certainly have an impact on revenues. It could produce a temporary deficit. Our position is we don't rule it in, we don't rule it out. But if it's necessary, to stimulate the economy, to create jobs, to protect businesses, to protect households, then we will use it to invest in protecting those people.

OAKES: Mr Turnbull's one telling line in parliament was Labor deficits are never temporary. What assurances can you give that this one will be temporary, and what do you mean by temporary?

TREASURER: We are committed to responsible economic management and we’re committed to running surpluses over the economic cycle. What does that mean? What it means is that when times are good you save for the future. And in our last Budget we did put aside savings, particularly in our investment funds for investment in infrastructure: critical economic infrastructure, critical infrastructure in health, critical infrastructure in education. Now, given what's occurred in the world economy, there is a pronounced slowing of growth, and the responsible thing to do in those circumstances is to spend some of that money now to invest in growth and to protect jobs. Now, that can produce a temporary deficit. How long the cycle is will depend upon the size of the international downturn. But from our point of view a temporary deficit should last for as little time as possible, and as growth is restored of course you move back to surplus.

OAKES: The British Government has given notice of future tax rises to pay for these plans for borrowing now to reassure people that it will be able to cover this. Are you going to do anything similar? Will you explain how you will pay for the borrowing that you are going to have to go into?

TREASURER: We don't necessarily have to go into borrowing as I've just explained, Laurie. We have our investment funds ready to deploy in terms of making that critical investment in infrastructure. What we've said is that we would deploy, if necessary, a temporary deficit and that could come from drawing down on those infrastructure funds to protect our economy and invest in the future.

OAKES: So, you're going to try to avoid borrowing? Is that what you are saying?

TREASURER: At the moment I'm not saying it's necessary to borrow. What I am saying is that we do have available to us our investment funds which we will spend in a responsible way. We have the processes of Infrastructure Australia very clearly established. The priority lists are being prepared. The State Governments certainly have on the table their priorities. What we are absolutely serious about is in this environment making sure the investments we make not only stimulate the economy in the near future, but also give the economy the long-term investments that the previous government wouldn't make for a decade. So, we’re going to do the right thing in the long-term and make the investments to stimulate the economy in the medium term.

OAKES: You mentioned some indicators coming out in the coming week, referring there I think to the September quarter growth figures coming out on Wednesday.


OAKES: How certain are you that they won't show we're already experiencing negative growth?

TREASURER: I can't speculate about the outcome. But those figures look back. But they will be an indicator of the impact of the global financial crisis and the extent to which it is slowing our economy. But as I said, they look back and there have been dramatic events internationally in the last month alone. So, they won't be necessarily taken into account in those figures that we see next week.

OAKES: Now, Kevin Rudd looks more gloomy every time he returns from overseas, which is pretty often. How much worse can this global situation get? I mean, do you see an end to it?

TREASURER: Well Laurie, we've all been through this experience; I was over overseas with him at the G20 meeting, and when you talk to international leaders you do get a pretty gloomy outlook. The thing that you come away with is at least the optimism that you live in this country, and if there were any country in the world you would want to be in in these circumstances, it is of course Australia. But the thing that both Kevin and I took out of those meetings, and he from his last meeting at APEC, was the extent to which this crisis has moved on to the developing world, and that wasn't a prominent feature of the discussions only a couple of months ago. And of course that has implications for...

OAKES: (inaudible)

TREASURER: Well, potentially. I myself am more optimistic about China than some of the reports that you will read, and China is a very important part of the equation. But just take the Indian situation we were talking about earlier. I mean, the Indian economy is also a

big economy. You have a combination of a security event like that, combined with a global financial crisis, that can also produce run-on effects in the global economy. So, that's why this coordinated action is so important. That's why the G20 meeting was important, and that's why the APEC meeting was important, because the G20 and APEC bring together developed economies and developing economies and they're the two groups we really need to work together, particularly when it comes to the future of our economy.

OAKES: Well, to what extent is the global financial crisis impeding the Government's reform agenda? For example, how much harder is tax reform because of the economic situation?

TREASURER: I think we have to move on with our reform agenda for the future. The previous government put it all in the too hard basket for ten, eleven long years, Laurie, and that's why we were so determined to put this intergovernmental agreement in place yesterday.

It's the foundations for lifting our productivity which is the key to our future prosperity. The other reforms out there are dealing, of course, with climate change, and as you've just indicated, tax reform. We are going to move ahead because we're serious about our economic management for the country. Lifting the productive capacity of this economy is our number one priority. It's enshrined in what we did yesterday and it will still be in enshrined in what we do for the future right through this term.

OAKES: The final issue, if the Budget is in deficit, how are you going to afford a decent pension rise next year?

TREASURER: That will be dealt with through the budget process. There are choices that have to be made in budgets, Laurie. It is always the case when you bring down a budget. We've made our commitment to pension reform, we're serious about it and we will deliver on

it. But we will go through the normal budget process. There will be saving made, there will be choices made...

OAKES: But pensions rises is set in concrete, deficit or no deficit?

TREASURER: What we’ve said, Laurie, is that we are very serious about pension reform. We'll receive the report next year. We will act on it, and we are committed to that pension reform.

OAKES: Mr Swan, we thank you.

TREASURER: Good to be with you.