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Transcript of interview with Peter van Onselen and Judith Sloan: Sky Australian Agenda: 21 October 2012: Global economy; Mid-Year Economic and Fiscal Outlook



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Senator Penny Wong

Minister for Finance and Deregulation

Transcript

TRANSCRIPTION: PROOF COPY E & OE

DATE: 21/10/12

TITLE: Transcript of Interview - Sky Australian Agenda with Peter Van Onselen and Judith Sloan

TOPIC: Global Economy; Mid-Year Economic and Fiscal Outlook

VAN ONSELEN: Is the budget position deteriorating? Is that what we’re likely to see when the numbers come out?

WONG: There’s no doubt that the global economy is more subdued than anyone anticipated at the time we handed down our Budget. Since that time, for example, we’ve seen the IMF downgrade the forecast for local growth and, most importantly for Australia, particularly in our region; they’ve downgraded both China, and India as well. Obviously that has an effect on Australia’s budget.

We’ve also seen commodity prices - you, as a Western Australian would know this - commodity prices have come off quite substantially since the Budget. So, obviously all of those things affect the revenues and that’s the circumstance in which Australia and the Government currently finds itself.

Bearing in mind, of course, we still remain in a much stronger position than any other advanced economy; the IMF projecting that we will grow faster than any other advanced economy in the year to come.

VAN ONSELEN: But Senator, if the global economy is in the sort of position that you talk about and if revenue is coming off because of commodity prices, why is it so important that we still try to find a way to get to what is, at the end of the day, a wafer-thin surplus? Why not just let it trickle a little bit into deficit? That’s purely a political thing, surely?

WONG: The commitment to a surplus is very much grounded in the economy. And whilst it is true that the global circumstances have changed, the reality is that the most recent National Accounts still show Australia growing at around trend growth. And in those circumstances what you want to do is bring the budget back to surplus. So it’s also -

VAN ONSELEN: Can I just interrupt? Sorry. I guess the essence of my question is this: put politics to one side, what is the economic difference between Australia having a $1 billion deficit versus Australia having a $1 billion surplus? What’s the economic difference between those two figures?

WONG: I’ve never focused only on 2012-13, Peter. I’m focused on the forward estimates, and bringing the budget back to surplus and growing surpluses over the forward estimates. And the economic rationale for that is what you’ve seen in terms of what the Reserve Bank’s done.

You want the Government, at a time when the economy is growing, to be putting fiscal policy back on a more normal setting, after the very loose settings that had to be put in place because of the global financial crisis. And you want monetary policy to do more work.

Or, to put it very simply, you want the Government to give the Reserve Bank room to move when it comes to interest rates, and that’s what we’ve seen. We think they are sensible economic settings for the economy at this time.

SLOAN: Hi Senator, it’s Judith here.

WONG: Morning Judith.

SLOAN: Hello. The rumour seems to be that MYEFO will be released next week. I’ve just had a look through when MYEFO is normally released and it looks like, I would say, the modal date is at the very end of November, and indeed we have had one MYEFO in January which is allowed under the legislation. I just think, in view of your discussion about the deteriorating global economy and the deteriorating Asian section of that global economy, why you’d be rushing the MYEFO? Surely there’s a case for there being more information needed and there being, I think, a more informed and more measured response in perhaps four weeks to at least six weeks time?

WONG: We always try to take a measured approach to these things, Judith.

I was in Senate Estimates this week, and Dr David Gruen, who’d be known to both of you - one of the Deputy Secretaries in Treasury - made the point that when it comes to information a previous Treasury Secretary had said to him: “there’s always more information ... there’s always one more piece of data”.

As you know, MYEFO is released at any point, generally, in the last three months of the year - it’s very unusual to be in January, for example. I’ve seen some commentary about this and I just want to make the point that Joe Hockey last year was accusing the Government of hiding things because we hadn’t released MYEFO. So I suspect there’s a little bit of political positioning, certainly from the Opposition, on this issue.

SLOAN: It’s pretty clear, though, that the, I think, very ambitious revenue forecasts in the Budget - you were having revenue growing by 14 per cent, which to most economists never looked a plausible number in part, actually, because we’ve got very low inflation ... I mean, you must be, kind of, thinking about ‘Plan B’ here. Are you thinking about additional tax imposts? Are you thinking about cuts? We hear on the grapevine that there are further defence cuts. I mean, if you’re going to make that wafer-thin surplus, there doesn’t seem any way, other than actually adjusting those parameters you set last May.

WONG: I think you’ve seen the approach in the last couple of Budgets. We’ve offset all new spending, I think, since late 2009, and in the last Budget and the last MYEFO we took savings not only to offset new spending but also to take into account the revenue downgrades. So -

SLOAN: Well, you wouldn’t be running deficits if you were offsetting it, dare I say, Senator. I think that’s gilding the lily. You’ve run huge deficits.

WONG: I think if you look at new spending since that time, we have actually offset new spending in accordance with our budget rules. We are, as you know, engaging in a pretty big fiscal consolidation, as per Peter’s question.

What I would say about savings, though, is that we’ll take the same approach that we have always taken, which is to take savings that focus on our priorities; what are fair savings? What are savings which impact the least on the most vulnerable in the community? This is the approach we’ve taken to date, as we’ve found room for our spending priorities.

VAN ONSELEN: Senator, you say you will avoid savings which impact too heavily on the most vulnerable - what about single parents? There’s been a lot of discussion about angst within the Labor caucus on this particular issue. Does that mean that you guys will back away from some of that?

WONG: That’s been a very difficult issue for the Labor Party. I think everybody approaches that particular policy from the same place, which is how do you best support people from welfare into work, because we know that the best way to deal with intergenerational disadvantage is to break that cycle by getting people into work. And, at a time when you’ve got unemployment levels at the level we see, which are very low, particularly by international standards, you’ve got to try and get people into the workforce.

Remember, the group that we’re talking about is a group that was, I suppose ‘grandfathered’ is the term used, for some time. All other people who have entered the payment since those changes are on these new arrangements. Having said that, I think that this is a discussion about the level of Newstart, and there’s obviously some understandable concern, not only in the Labor caucus but in many parts of the community, about the level of Newstart given the different indexation arrangements that apply.

SLOAN: But, Senator, there does seem to be an inconsistency in that approach. For example, a family on Family Tax Benefit B with a single income, they’re entitled to that tax benefit until the youngest child is 16 years of age, and yet you’re having this, what many people would see as a pretty harsh policy of cutting the income support for single parents, who are by-and-large single mothers, at the age of eight. Is there any discussion in the Government of trying to bring greater equity into those arrangements?

WONG: As you probably know Judith, we have, in a couple of Budgets now, made some changes to the Family Tax system to not index thresholds, sso we’ve essentially tried to make the base of those more equitable. And certainly in terms of sole parents, the focus is very much on how do you support these people into work, these families into work.

A couple of changes that we’ve made, which I think are important: we’ve changed the taper rates, which means that people will keep more of every dollar they earn; we’ve increased funding, as you know, to training and education; and we’ve also increased, very substantially, funding to childcare.

So, these are the sorts of supports which are necessary to try and make sure we get as many people participating as possible because I think that’s the best thing for families across the country.

VAN ONSELEN: Senator Wong, can you rule out further cuts to defence spending? And I ask you that because, as Judith Sloan mentioned before, there’s a lot of talk that there’s going to be more slicing into the defence budget. Is that something that you’ll rule out, or is that something that we can expect to see?

WONG: Peter, the rule in rule out, you know we don’t do that -

VAN ONSELEN: But you know how it works, if you don’t rule it out then the story is: ‘Minister won’t rule out further defence spending cuts’. So in light of knowing that that’s tomorrow’s headline, are you prepared to rule it out?

WONG: Well, thank you for telling me the approach that ‘The Australian’ will take to this.

VAN ONSELEN: All newspapers (laughs).

WONG: Can you see it’s a bit like ‘heads you lose, tails I win’, that kind of approach? (laughs)

I’m not going to get into rule in rule out. What I would say is we’re very conscious that defence has made, as have a number of portfolios, a very substantial contribution to the fiscal strategy. And the fiscal strategy is, we think, the right thing for the economy and a lot of Australians have obviously benefited from the interest rate cuts.

VAN ONSELEN: Just on a completely separate issue, I assume that you agree with the Prime Minister when she said that she’s concerned about the dividend gouging of state governments in relation to electricity prices. You know, she’s made this point a number of times that she’s concerned

about dividend gouging by state governments contributing to upward pressure on electricity prices. What about upward pressure on private health insurance given the dividend gouging by the Federal Government to the tune of about $400 million in relation to Medibank Private?

WONG: I don’t think it’s gouging and I’d refer you to the evidence of Medibank Private in Senate Estimates consistently under questioning from the Opposition, where they have very clearly said that dividends is not what drives premium decisions and premium increases. Premium increases are driven by the anticipated costs of health care for members, so -

VAN ONSELEN: But let me ask this though -

WONG: It’s very important because Mr Savvides from Medibank Private made it very clear under questioning from Senator Cormann that the proposition you’re putting to me is not correct. He did say that there is a capital restructure that Medibank is engaging in.

I would make the point that this is one of the reasons - and I know both of you probably don’t agree with this - but this is one of the reasons I think it’s sensible for Medibank to be in public hands, because it does mean taxpayers get that dividend; taxpayers get the benefit of owning the business.

VAN ONSELEN: I guess … help me understand this: why is it ‘dividend gouging’ when a State Government decides to take revenue from electricity, but it’s not dividend gouging when a Federal Government decides to take revenue from Medibank Private?

WONG: Because Medibank Private itself has said that the dividends paid to the Government do not drive increases in premiums. I don’t think the same thing can be said about the way in which some of the states have handled ownership of electricity assets.

But I think the issue of electricity is broader and so does the Prime Minister. The Prime Minister has made very clear that we have to look at how the National Electricity Market is working - how do we benefit and protect consumers? How do we ensure that the cost to consumers is minimized? And certainly the priority in terms of how those rules have been run to date probably haven’t reflected that, and that’s why we’re doing work through the Council of Australian Governments.

SLOAN: But isn’t the irony, Senator, that those rules are actually rules of the Commonwealth Government? And indeed the policy implication of this discussion about poles and wires and over-investment driving electricity prices is that you need to privatise the asset? So another headline for tomorrow’s newspaper will be ‘Senator advocates privatisation of electricity assets in the states’?

WONG: That would be an incorrect headline if that were written. But thank you for flagging it with me (laughs).

Privatisation is entirely a matter for state governments. The Prime Minister has taken a much broader view and Minister Ferguson is doing a lot of good work in this area to try and work out how it is we can have rules in the market which do recognise the impact on consumers. I think that probably most commentators will look at what we’ve seen over the last few years and say that has been lacking and we need to have a greater focus on consumers.

VAN ONSELEN: Alright, Senator Wong, Finance Minister, we appreciate you joining us on this episode of Australia Agenda. Just one final chance - do you want to rule out defence spending cuts for MYEFO?

WONG: (laughs) We will always take a sensible approach to savings, an approach which reflects Labor values, but we don’t get into rule in rule out. But nice to be on your show again, Peter.

VAN ONSELEN: (laughs) Alright, appreciate you joining us. Thanks very much.

SLOAN: Thanks Senator.

WONG: Cheers.

ENDS