The Oakes Interview: Wayne Swan

Nine political editor Laurie Oakes presents his weekly political interview on TODAY on Sunday every Sunday from 7am -10am on the Nine Network.

LAURIE OAKES INTERVIEW: WAYNE SWAN, FEDERAL TREASURER

LAURIE OAKES: Good morning Cam thank you. Mr Swan. Welcome to the program.

WAYNE SWAN: Good morning Laurie.

LAURIE OAKES: Now, Parliament returns from its Christmas break this week, how alarmed should MPs be about the economy?

WAYNE SWAN: Well, I think it's going to be a very important parliamentary session. We've seen a range of data. We've seen the US GDP figures, which have a contraction in the US economy of 3.8 percent for an annualised basis in the December quarter. We've seen the projection from the IMF of a contraction in advanced economies of minus 2 percent.

LAURIE OAKES: They're saying the Australian economy will contract by 2 percent. Do you dispute that?

WAYNE SWAN: Certainly they're saying that it will be flat and there have been various estimates out there - I don't intend to comment on individual estimates, except to make the point that there is a global recession. It's going to be deeper and it's going to be longer, I think, than many people envisaged only a few short months ago.

So, that certainly does have implications for the Australian economy. It has implications for our growth. It has implications for our employment. And it certainly has implications for our budget bottom line. So we're not going to be immune from the fallout of what's occurring in the global economy. And I do think it's going to be difficult times ahead.

LO; So how serious are the implications for the budget bottom line? Have you got any figures?

WAYNE SWAN: I think they're quite serious because what you've seen now is this slowing global growth. You've seen a marked slowing in China, and, of course, we've seen the unwinding of the mining boom. In the past four or five years, that's produced a surge of revenue to the Australian nation, and of course to our budget bottom line.

But if you look at the carnage on the stock market, what's happened with commodity prices, generally slowing growth - what's happening with company profitability - I think you'll see a very big hit to our budget bottom line. For example, I think company taxation could be down as much as $50 billion over four years as a consequence of the global recession. Of course, what that means is, because of the unwinding of China, the global recession, it will be inevitable that Australia has a temporary budget deficit.

LAURIE OAKES: So that $50 billion is enough to push us into deficit on its own?

WAYNE SWAN: Oh, most certainly. Over four years, Laurie - $50 billion there. But there will be other impacts upon the budget. You might recall, Laurie, back last November when we put out the midyear economic outlook, we wrote down Government revenues then by $40 billion across the forward estimates.. but since that time...

LAURIE OAKES: That was all taxes?

WAYNE SWAN: That's right, that was all taxes. Since that time, there has been a marked deterioration in the global outlook, and of course we're not immune from that. So, as we've said on many occasions, and as we said last October, we thought all of the risk was on the downside then. The IMF, with its forecasts this week, has made that point again. So, what we are doing is looking at all options, responding to these grave global circumstances.

LAURIE OAKES: But we're definitely going to have a deficit now. How worried should we be about that?

WAYNE SWAN: Well, certainly the global recession will give Australia a temporary deficit. But of course, that is happening right around the world, and of course we are much better positioned that many other countries. I think the IMF said this week that the average deficit in advanced countries was going to be something like minus 7percent.

We're in a far better position than many other developed countries to respond to these global circumstances, and to cope with the fallout from the global recession. But we're just simply not immune. So one consequence of the global recession - the unwinding of the mining boom - will be a temporary budget deficit.

But what we have to do in those circumstances - what we have to do in those circumstances - is to respond. To respond, we must support domestic growth, because that supports domestic jobs and domestic business. LAURIE OAKES: Well, if the IMF is right and we are going to have a contraction of 2percent - ...

WAYNE SWAN: Well, I'm, not saying the IMF is right.

LAURIE OAKES: But, if they're right, does it mean that the Government's left it too late to bring in this new stimulus package?

WAYNE SWAN: No, not at all. In fact, we've been ahead of the game and there's one thing that Kevin Rudd and I pride ourselves on - which is being ahead of the game, and getting in front of these events. Last October, when we brought down the economic security strategy, many people questioned the wisdom of the size of that. Many people questioned the wisdom of the timing of that.

But if you look at events since that time, that economic security strategy was put in place at precisely the right time, because what we now know was occurring in the global economy, through that quarter, was a marked contraction. A marked contraction in global demand the likes of which the country, or the global, has never seen since the Great Depression.

So that economic security strategy was put in place at the right time. Its benefits are flowing through the economy right now. And what we are doing, right now, is looking at all options given the substantial deterioration that's occurred during that period, and the grim outlook that now comes out of bodies like the IMF.

LAURIE OAKES: Cabinet's meeting tomorrow, obviously we'll discuss the new stimulus package - it's an open secret that it's coming down this week. If we can get down to the nitty-gritty, some newspapers are running excited headlines about tax cuts for low-income earners - figures of $3 billion. Is that right?

WAYNE SWAN: Well, Laurie, I stand by - I absolutely stand by - what I said last Friday. And that was that generalised tax cuts don't provide the sort of immediate stimulus that is required in an economy which is suffering a sharp shock, if you like, and fall in demand. Generalised tax cuts don't do that. It's very important, in this environment, that you have a mix of initiatives - short-term, medium-term and long-term. And in any case, the Government has legislated for tax cuts that commence on the 1st of July this year, and tax cuts that commence on the 1st of July next year.

LAURIE OAKES: But you rule out generalised tax cuts. What about targeted tax cuts, such as bringing forward the low-income tax offset changes you've already got in the pipeline? Wouldn't they do the job of stimulating the economy?

WAYNE SWAN: Laurie, it's not my job, this morning, to speculate about particular measures -

LAURIE OAKES: You don't rule it out, though?

WAYNE SWAN: Well, I don't rule anything in or out. What I certainly ruled out last Friday was bringing forward of generalised tax cuts - the type of which Mr Turnbull had suggested.

Because he's in the anti-stimulus brigade. He's not actually out there with constructive suggestions about what must be done to stimulate the economy in the face of this global recession. His suggestions don't provide that sort of stimulus because he's not in favour of it. What we will do is responsibly and methodically look at all of the options, all of the options, that are required given these dramatic new circumstances that have evolve over the last couple of months.

LAURIE OAKES: You talk about a mix of measures. It's pretty clear that your own preference is to stimulate the economy through bringing forward infrastructure works that could be started quickly. That's a fair summary of your view, isn't it?

WAYNE SWAN: It's certainly a strong view that I hold that we ought to be directly investing in nation-building.

LAURIE OAKES: Aren't enough projects available that, if you got off the ground quickly, that, to use the jargon, "a shovel-ready".

WAYNE SWAN: Well, certainly I don't intend to canvas options this morning. But it's very important for the nation, both in the medium-term and ins the long-term, that we build our economic capacity, which does means investing in infrastructure and because of the collapse in global demand, it's also important that the Government fills part of that gap through to direct investment in the purchase of goods and services. And of course, infrastructure is one way that we can do that - just one of the options on the table.

LAURIE OAKES: What about incentives to get business to invest?

WAYNE SWAN: Well, I think incentives to get business to invest are always important. But we must never forget that in this environment, where there has been a collapse in global demand, the most important thing for the Government to do to stimulate the economy is to stimulate demand so that business actually has some customers. That's critical in this environment so you do need a mix of short-term, medium-term and long-term, and incentives for business to invest are a critical part of that.

LAURIE OAKES: You and the Prime Minister keep talking about how these measures must be temporary...

WAYNE SWAN: That's right...

LAURIE OAKES: What do you mean by that? Will you, for example, be putting time limits on the kind of thing that's in the stimulus package?

WAYNE SWAN: Well, it is very important that if if you have a temporary deficit as a result of the global recession, then you have a plan to take the economy forward, and that means making sure that your spending is sustainable over the long term, and consistent with international and national economic circumstances, you return to surplus over time. That's very important. That's very important to have a medium-term fiscal framework in place to take the budget back to surplus as international economic conditions permit.

LAURIE OAKES: So, you have a plan to do that?

WAYNE SWAN: Well, most certainly. Any prudent economic manager would put in place such a plan. But in these circumstances, a temporary deficit is required. It is actually the medicine the country needs to deal with the impact of this global recession, which is impacting upon growth and jobs. What we need to do is to put in place a range of measures over time, as we did last October, to support Australian jobs and to support business.

LAURIE OAKES: Now, to get infrastructure projects off the ground, you need the co-operation of the states, which means handing money over to the states. Are you comfortable with that, given the incompetence of some State Governments? I mean for example, if you think the NSW Government can be trusted, you're probably Robinson Crusoe, aren't you?

WAYNE SWAN: The most important thing in this global recession and the challenges that it poses for this country is that we all work together. Government - State, Federal and local - but also Government and the business community and the wider community. There are very big challenges ahead of us...

WAYNE SWAN: There are very big challenges ahead of us and part and parcel of that is nation-building. Part and parcel of nation-building is putting in place the critical economic infrastructure projects that build our productive capacity. That does mean working as closely as possible with State governments and local governments...

LAURIE OAKES: Do you trust the Rees Government?

WAYNE SWAN: Well what we will do is make sure that there are appropriate accountability mechanisms in place where Commonwealth money is involved, that the taxpayer gets value for money, and gets the outcome and that applies to all State governments, as well as to local governments, including the Government of NSW.

LAURIE OAKES: The Australian Workers' Union has commissioned a survey which shows that not only are Australians going to cut back on discretionary spending, luxuries, big spending items, holidays, that sort of thing but 57percent of workers, particularly working families, are going to cut back on the basics, ordinary everyday household spending, does that surprise you?

WAYNE SWAN: Well, there's no doubt there's been a huge shock to confidence from the global recession and you see the fallout when it comes to our stock market, down almost by half.

LAURIE OAKES: So, if that's the mood, how do you get these people - the workers - to spend their money?

WAYNE SWAN: Well, you see, the last economic security package, which was directed particularly at those people most likely to spend - I think did have a beneficial impact as we went through Christmas. And some of the evidence I'm seeing from retailers that moment indicates that is the case. So if you are going to be providing, for example, direct support or direct payments to particular individuals, you do need to target them at those people most likely to spend. Even if those individuals are likely to save an amount of that, it brings forward the time that they increase their consumption into the future.

LAURIE OAKES: Mr Swan, we thank you.

WAYNE SWAN: Good to be with you.

LAURIE OAKES: Back to you, Cam.