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Transcript of interview with Paul Bongiorno: channel ten: 26 April 2009: Budget speculation; G20 and IMF meetings.



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INTERVIEW WITH PAUL BONGIORNO

MEET THE PRESS, CHANNEL TEN

26 APRIL 2009

SUBJECTS: Budget Speculation; G20 and IMF Meetings

BONGIORNO:

Well, Mr Swan, if we can just go to that report in today's Sun-Herald. I know you don't like to comment on specifics, but cutting the pension to help the unemployed seems a little bit extraordinary, doesn't it?

TREASURER:

Well Paul, there will be hundreds of stories between now and Budget day and all sorts of people will jump to conclusions about what may be in or not in the Budget. I don't intend to add to that speculation. But can I just say this about pensions. We recognised that there is a problem with the base rate of pension - something that was put in the too-hard-basket by our predecessors for 12 years. We have said that we will deal with it in this Budget, and deal with it we will, and we'll do it in a financially responsible way. But over and above that, I can't respond to this sort of speculation on a daily basis.

BONGIORNO:

So, you're promising to look after pensioners there. And of course you're going to have a much bigger bill with increasing unemployment, with unemployment benefits, aren't you?

TREASURER:

Well, there's no doubt that as a result of the global recession that growth will slow dramatically. That will certainly impact upon employment. Unemployment will certainly go up, sadly, and that will also have a dramatic impact on government revenues. I mean, government revenues since the Budget in May last year right through to February this year have already been revised down by $115 billion. So, that certainly means that we are going to be in the most difficult environment in many years as we go through and prepare this Budget.

BONGIORNO:

Just picking up on that, you've now had two days of meetings in Washington - the G20 meeting yesterday and today, your time, the IMF meeting - has your perspective in any way been modified or changed as a result of those meetings?

TREASURER:

Well, I think as a result of these meetings it has made me and the Government more determined to cushion the Australian economy from the savagery of this global recession. You see, we've just had the fifth IMF downgrade in growth forecasts in barely six months, and really what we are seeing is a very sharp global contraction and what that requires - and this does have the support of bodies like the IMF and the OECD - is for governments domestically to put in place economic stimulus, to keep in place measures to stabilise the financial system, and to put in place rules and regulations for the future so that we can ensure a crisis such as this does not occur again.

BONGIORNO:

Well Treasurer, when the International Monetary Fund released its latest World Economic Outlook this is what one of its senior researchers said:

There's also been some improvement in business confidence, some signs of bottoming out in housing markets. But these are very early days. We should not expect a return to growth any time soon.

BONGIORNO:

No return to growth any time soon. The G7, yesterday it was reported, think that we'll see recovery towards the end of this calendar year. Do you agree with that? Is that your sense of it?

TREASURER:

There are some glimmers of light in terms of the economic data. But as I sat around the table with my fellow G20 Finance Ministers, many felt that this episode had some way to go, and that underscored the importance of coordinated international action and also underscored the importance of domestic governments putting in place economic stimulus to cushion their economies from this very, very sharp global contraction.

BONGIORNO:

Just going to an overview, if you like, of your approach to the Budget; the Rudd Government has been scrupulous, really, in wanting to keep faith

with the electorate by delivering on its election promises. Is that going to be a guiding principle for you in shaping the Budget?

TREASURER:

Well, of course it has been and remains a guiding principle for the Government. We have implemented a range of measures that we took to the people at the last election and when you look at it, the list is impressive. It's what we've done in terms of education, what we're doing in terms of infrastructure. All of those things were contained, and had been contained, in our forward agenda. And part of this Budget will be to continue economic stimulus whilst at the same time putting in place those essential investments for the future which will enable us to maximise the opportunities that will come once global growth returns.

BONGIORNO:

There's been a lot of discussion about the Medicare Safety Net. On this very program in September '07, the now Health Minister said that the Medicare Safety Net will stay. That was an election promise. Is that taken as read then that it will?

TREASURER:

Well Paul, as I said earlier, people shouldn't be jumping to conclusions about what may or may not be in the Budget. And I simply can't be in a position of responding to every proposition which is put in the paper about what may be in it or not in it. I simply don't intend to fuel any of that speculation.

(ad break)

HEWITT:

Treasurer, the political argument continues but even the IMF's chief economist says that tax cuts and cash handouts are not particularly effective in battling this crisis. Is it time to reconsider your approach, including the tax cuts to come?

TREASURER:

Not at all. Mr Hockey knows full well that he would have to go into temporary deficit because of the revenue downgrades, and he knows full well that he would have to borrow to cover those revenue downgrades. Where Mr Hockey is completely wrong is that his approach is to simply sit and wait and see. But the approach of international organisations - like the International Monetary Fund, the OECD, the World Bank - and the Rudd Government is that we must put in place economic stimulus to

support domestic growth and to support jobs. The alternative from Mr Hockey, if he is to be taken seriously, is that he would either savagely cut spending or dramatically increase taxation if he were to simply do something, as he says, about levels of debt. The fact is levels of debt are a consequence of revenue downgrades and the responsible thing to do in these circumstances is to run a temporary deficit to support jobs and to return growth to trend levels over time. That's the responsible thing to do. The irresponsible thing to do is the course of action advocated by Mr Hockey and Mr Turnbull.

HEWITT:

But Treasurer, you've got $900 cheques going out at the same time you're talking about fiscal discipline and being responsible. It's a bit like having one foot on the brake and one foot on the accelerator at the same time, isn't it? How can you credibly do both?

TREASURER:

No, it most certainly is not. The tax bonuses are out there to support demand until the investment that we've put in place through the Nation Building and Jobs Plan kicks in - that direct investment in schools, the direct investment in social housing, the direct investment in roads. Over two-thirds of that investment, Jenny, is going to flow through the rest of this year and through next year - supporting demand in the economy - and that is the approach that is recommended by organisations like the IMF, the OECD and the World Bank.

WRIGHT:

Treasurer, you and the Prime Minister and Reserve Bank boss, Glenn Stevens, have taken an unprecedented move and effectively said we're in recession before we've got there. So, the question is, if we're in it, when are we going to get out of it?

TREASURER:

Well, that will depend to some extent upon the progress of this global recession, because you see, Shane - talking to Finance Ministers here this weekend it's pretty clear that this recession is deep and it will probably go for longer than many had anticipated only a short time ago. And what that reinforced in the minds of Finance Ministers here was two things. One is the need for further urgent coordinated international action as we go through to the Leaders' Summit in September. And secondly, for governments domestically, like the Australian Government, to continue with economic stimulus, to continue the measures that have supported stability in the financial system. That's the responsible way to go.

WRIGHT:

But even the suggestion it's going to be longer and deeper, does that mean that this year's Budget, we know how bad it's looking, but next year and the year after you're looking at a very big run-up in possible stimulus?

TREASURER:

Well, what we have to do is make our calls and make our forecasts, and they will be there on Budget night. I can't speculate about those on this program this morning. But what I do know is this, Shane: this Government has room to move when it comes to fiscal policy. It was through our decisive action already to put in place economic stimulus that means we are much better placed in this global recession than many other developed countries. Just look at the IMF forecasts. They're forecasting contraction of 3.8 per cent in developed economies - much, much more than the contraction they're forecasting for the Australian economy. That is partly a result of the fact that the Australian Government moved early with stimulus last October and of course again this February.

HEWITT:

The Prime Minister's talked a lot about fairness, Treasurer. Do you think that it's inevitable that there will be tax rises over the next few years, particularly for the wealthy to pay for all of this largesse and stimulus?

TREASURER:

Well, I'm not going to speculate once again, Jenny. But what I can repeat is our commitment to keep tax levels below the levels we inherited for 07/08 on average. That's the commitment that we took to the Australian people at the last election.

HEWITT:

But how credible is that, given what's happening to the ballooning Budget deficit?

TREASURER:

Well, it's very credible because we are committed to responsible economic management. We're committed to a medium term fiscal strategy. We absolutely want to see the Budget return to surplus as soon as possible when growth returns to trend. We can then certainly bank upward revisions in revenue and also we've put in place a pretty tight fiscal rule of a cap of two per cent real on expenditure.

BONGIORNO:

Treasurer, you said on average, in answering Jenny's question there. Does that mean that some taxes may, in fact, income taxes may in fact rise for a brief period?

TREASURER:

No what I said was it would be below the levels we had inherited in 07/08 on average.

WRIGHT:

But you've got to find some revenue avenues somewhere, and Mr Rudd this week has talked about, say, the fairness of people earning under $150,000. Alistair Darling last week was lifting the top income tax rate in Britain. Should people earning over $150,000 be prepared to pay for the economic stimulus of the country?

TREASURER:

Well, nice try but I'm not going to speculate about the Budget. What we will do is put in place a set of measures, I think, which will be responsible, which will do the right thing in terms of our medium term fiscal strategy and which will be fair to all Australians.

HEWITT:

Treasurer, you seem to be emphasising again the need to further cushion the Australian economy. Can you just afford to keep on playing Santa Claus or Santa Stimulus indefinitely?

TREASURER:

No nobody's playing Santa Claus or Santa Stimulus. What we're actually doing is something that is absolutely fundamental to the economic security of all Australians and absolutely necessary given this unique global event, the likes of which has not been seen in over 75 years. What we are doing is putting in place economic stimulus. It's affordable. And when it comes to levels of debt, our levels of debt are but a fraction of the levels of debt of the rest of the OECD. That does give us a bit more room to move, but it also means, as I said before, that we will pay serious attention to that medium term fiscal strategy that I was talking about before.

BONGIORNO:

Treasurer, just briefly, picking up on that report this morning that it's going to take at least 19 years to pay down the debt, that's fairly credible speculation, isn't it?

TREASURER:

No, I don't think it's credible at all. I actually wonder where people get these sorts of stories from sometimes. That speculation is nothing more than wild speculation. What we've got in place is a very serious set of policies to cope with a very serious global recession, and we're doing that and we're doing it because we believe in the country. We are much better off than just about any other developed country in the world. That also means we've got the capacity to do more than many other developed countries in the world to protect all of our citizens.

BONGIORNO:

Thank you very much for being with us this morning Wayne Swan, from Washington, and a safe trip home.

TREASURER:

Good to be with you.