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Transcript of press conference: Brisbane: 4 February 2011: Cyclone Yasi; Statemnet of Monetary Policy; disaster recovery

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THE HON WAYNE SWAN MP Deputy Prime Minister Treasurer


4 February 2011


SUBJECTS: Cyclone Yasi; Statement of Monetary Policy; disaster recovery

TREASURER: Well I guess we’ll start on a sad note because I think the Premier has confirmed the first loss of life. Our thoughts and prayers go to the family involved and of course to those local communities.

Yesterday the Premier and I yet again got to see firsthand the stoicism and the fighting spirit of those local communities in North Queensland and Far North Queensland.

They really displayed - in the face of immense local devastation - a tremendous fighting spirit and that fighting spirit is what makes me really proud to be a Queenslander - it was on display there yesterday.

I know there has been a lot of talk about the strength of the cyclone and so on, and it is indeed fortunate that some areas missed out, but I tell you what, this was a very, very powerful force over a very large area and it had an immense impact on a number of very significant towns and communities, and of course, on the local economy as well.

You know, towns like Cardwell, towns like Tully, Mission Beach, they were hit hard, they were hit very, very hard, but my message today is that they will recover. Working together they will recover and prosper again - and that’s because Queenslanders do have that fighting spirit, and it is out there in spades in that local area.

I also got to see yesterday considerable economic damage, and of course, it will take some time to fully assess the impact. Being from a sugar area, I know what water can do to cane in the wrong circumstances, but it is just not the sugar industry that’s dramatic, but also particularly the banana industry and just listening today to some of the discussion of other smaller industries as well have also been hit pretty hard.

What we have got today is we’ve got the Reserve Bank Statement of Monetary Policy out, and of course, it confirms the sort of impact we were talking about of the economic damage that has flowed to the Australian economy from the floods.

But of course, it doesn’t take into account the impact in their numbers of what happened over the last three or four days. But what we do know is with Yasi coming on top of the floods in

South East Queensland it will make a difficult situation worse. This region produces, as I said before, something like 90 per cent of Australia’s bananas, it has about a third of our sugar cane.

But there is one other thing that I don’t want any Australian to ignore in the Reserve Bank’s statement today, because it confirms what we already know: that we approach all of these challenges from a position of strength in the Australian economy. The underlying fundamentals of the Australian economy are strong. Yes, we are facing challenges and, yes, they were made worse through Yasi, but the underlying fundamentals of the Australian economy are strong. And they will not knock the Australian economy off its medium-term course. Short-term challenges, challenges we can meet, but the underlying strength of the economy is there.

So, we will rebuild and we will recover. That is the important message that should be taken from the Reserve Bank’s statement today. And we will do that as Queenslanders always do - with that fighting spirit that I was talking about before.

If I can just talk a little bit about some of the particular impacts. There has been a lot of talk about the impact on the inflation rate of what has occurred, for example, in the banana industry. Prior to Yasi we estimated that the Queensland floods would add a quarter of a percentage point to inflation in the March quarter. Our initial estimates suggest this event could add possibly another one quarter per cent to that existing quarter of per cent. So, we will see a spike in inflation, of course, in the March quarter. People would well recall what occurred with Cyclone Larry, banana prices certainly did shoot up during that period.

I would also like to say just a few things about the response of the Australian community to all of these events - the floods and now of course this monster cyclone in North Queensland and Far North Queensland. What we have seen through the floods has been an immense support from both the public to support local communities and households, but also from the business community in terms of in-kind donations and support for affected individuals and also affected communities. So today we are having our second meeting of the floods business task-force just to talk a little bit about how we can further marshal particularly that business support for individuals and communities because we are now facing an even bigger challenge than we were facing only one week ago.

So we want to talk about how we can broaden and deepen the work that the business community is already doing in assisting communities and individuals recover and to rebuild from these floods.

Over the past two weeks over 1,100 offers of assistance and in-kind support have poured in from the reconstruction authority - that’s phenomenal, that’s no small achievement. And we’ve seen various announcements from companies about what they are prepared to do in different areas. And of course, if you just go to local communities that I have visited down here, last weekend I was out in Goodna and we saw there what a local car dealership was doing in terms of just basically providing support to that community through the provision of vehicles. What equipment hire firms were doing to assist in the provision of generators. All of these things are pretty important. They even had a temporary laundromat set up courtesy of one of the hire companies out there.

So much more is going to be required with what has now occurred in North Queensland and Far North Queensland, so this will be another important meeting of that business taskforce to

further marshal that very strong support whereby government, local communities, the corporate sector, individuals from elsewhere in Australia all come together to provide support for these communities given their most immediate needs.

Over to you.

JOURNALIST: Treasurer, obviously with the damages bill, it is going to be quite large. (inaudible) I know it is only early days but do you have any preliminary estimates (inaudible)

TREASURER: It is too early -

JOURNALIST: And obviously the $1.8 billion flood levy (inaudible) is not going to be enough (inaudible)

TREASURER: I just want to make a point: I spoke on this matter as it was last Friday at about this time and I made this point that one of the reasons why we put together the package we did - two thirds of it we we’re funding from expenditure cuts and changes in priorities, one third by the levy - so that $5.6 billion wasn’t all funded by the levy. But all of that money in that $5.6 billion just goes solely to the infrastructure of local communities. You see, rebuilding in these areas - whether it is in Goodna or whether it is in Tully - doesn’t stop at the front gate of the house that has been destroyed or badly damaged. It then goes to the roads, to the schools, to all of the other essential public infrastructure. So the levy is devoted to public infrastructure solely. All of the donations that are going in, the in-kind support, a lot of that is going directly to households or into broader community facilities, which may not necessarily come within our disaster relief arrangements. So it is not one or the other - we need all of it.

Now, the Prime Minister has made it very clear that we don’t intend to change what we said we would do a week ago and that we will find further cuts within our existing Budget. All of this underscores the need for the levy. I made this point really strongly last Friday and I’ve continued to make it strongly, that it is very important that we keep our Budget in really good shape and really good shape to give us the buffer should we be challenged by very substantial events in the future. We have got to do that, it is the right thing to do when your economy is growing as strongly as ours is going to grow over the next couple of years, to keep your public finances in good nick. Because that is what gives you the capacity to deal with an event, say, like the Global Financial Crisis, or an event like the Queensland floods crisis, or now, the cyclones.

JOURNALIST: (Inaudible) inflation (inaudible)

TREASURER: Well, I think the Reserve Bank has dealt with this very well in both their statement following their meeting earlier in the week and of course the Statement of Monetary Policy today. They recognise that when they are setting monetary policy that where there are one off events, they look through those one-off events, they see them as one off events, so it doesn’t necessarily when it comes to the setting of monetary policy have the impact that some people may assume. But of course, it hits your pocket, it hits at the checkout - there is no doubt about that, it makes life tougher for a lot of people. So, I have been listening to people on the radio today talking about what it means, you know, for their family budgets and, you know, how they are going to react if some price rises in particular areas comes through. It hurts a bit, but it hurts the farmers too, and they are going to do it tough a lot of those agricultural producers up there.

JOURNALIST: (Inaudible)

TREASURER: I think it is far too early to be drawing those sorts of conclusions about this. There has been a dramatic contraction in supply, this is -

JOURNALIST: (Inaudible)

TREASURER: Well, I’m not going to just immediately react and reach that conclusion. A lot of the corporates out there are doing really good work at the moment helping to resupply these communities, providing food directly to communities. You don’t see it all. I mean, I know what a number of our supermarket chains have done - you might find it a bit strange that I am defending them - but they have done a bloody good job in terms of supplying food and getting it out to communities, providing in-kind donations, not even blinking when people have rung them up and ask them to do all sorts of extraordinary things. So, it is a bit early to be talking about gouging. But I tell you this - if we think there is

gouging, we will be out there and we will be into it through our arrangements through the ACCC. But I just don’t think in the immediate aftermath of this we should just jump to that conclusion automatically because we’ve had difficult situations where the community has come together really well and there has been a strong supply of food to many communities by corporates without any of them even asking for any recognition or asking to be paid for it, or whatever, to be frank, in a number of these communities. Because I’ve seen it in operation. When communities have been devastated, I’ve seen local supermarket operators simply open their doors and let people in. So, you know, these things do run both ways.

JOURNALIST: (Inaudible)

TREASURER: I couldn’t give you a dollar value, but I think if you just went through and you could certainly get a list of the very big corporate in-kind donations that have been talked about - BHP has in addition to a very significant cash donation is also talking about a very significant in-kind donation in Queensland. There were statements from the Commonwealth Bank, a number of insurance companies and so on and so on. It is not my point to really single out them all. But they are going to be really important because what we have got to do is, the economy is going to be strong as we go forward, we have a lot of competing demands in here. We’ve got to rebuild communities, keep the basics of our economy ticking over at the same time. It is going to demand a lot of cooperation between various groups.

JOURNALIST: Treasurer you were talking before about keeping the Budget (inaudible) surplus (inaudible) no matter how big the damage bill is going to be (inaudible)

TREASURER: Absolutely. We’re not budging from that for a very good reason. And the good reason is this: keeping our finances in good nick when our economy is going strongly, and our economy in the medium term is going to be growing strongly. Yes, we are going to take a hit to growth as I’ve already indicated from the events that have occurred with the Queensland flood, and that will be slightly worse because of what has occurred with this

cyclone, but the medium-term outlook for the Australian economy is strong, and that’s why we talk about surplus in ’12-13. All of the forecasts show the economy going very, very strongly, and that is precisely the time you need your economy with its public finances in good nick. Thanks very much.