Swan And Hockey Argue Over Interest Rates

Following the 0.25% reduction in interest rates by the Reserve Bank, Treasurer Wayne Swan and his Liberal shadow Joe Hockey have taken different stances on the cut.

Swan said the economy was running close to trend. He said the interest rate cut was “an early Christmas present that hardworking Aussies deserve”.

Hockey said interest rates were now at emergency levels and the government and Reserve Bank were at odds with each other over economic policy.

Wayne Swan
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Joe Hockey
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Transcript of Treasurer Wayne Swan’s press conference on interest rates.

TREASURER:

Today’s rate cut from the Reserve Bank is the early Christmas present that hard working Aussies deserve. We’ve now had the equivalent of seven rate cuts over the past year and of course that’s been made possible by the Government’s economic management, strong budget management and, of course, contained inflation. But it’s also good news because it comes at a time when unemployment is low and economic growth is in much better shape than many other developed economies. We understand that not everybody out there in business or out there at work is on easy street, but having much lower interest rates than we’ve had particularly under the Liberal Party is a big win for Aussie families, particularly around Christmas time.

Today’s cut means a family with a $300,000 mortgage will be paying around $5,000 a year less than the Liberals saddled them with when they were last in Government. In other words, Australian families are saving $100 every week compared to the high interest rates that we saw when the Liberals were last in office. Now, $5,000 is a lot of money, and of course it makes a pretty big difference when you’re trying to put food on the table and a few presents under the Christmas tree.

A family with a $300,000 mortgage which kept their payments at the same level is now able to pay off that mortgage around eight years faster than they could when the Liberals left office. I think today is a very big test for the negativity of Mr Abbott and the Liberal Opposition. If Mr Hockey and Mr Abbott can’t come out and be positive about this rate cut, what can they be possibly positive about?

Now we do have global economic head winds, we have a high dollar and they are clearly impacting on our economy but our economy remains resilient. It’s more than 11 per cent bigger than it was at the end of 2007 and something like an additional 800,000 Australians are in work. Now, you can only cut interest rates when inflation is contained and inflation is contained right now. So I do say today that this rate cut is a consequence of prudent budget management and contained inflation – giving the Reserve Bank the flexibility it needs to respond to events in the economy, as it does.

Now the future is not necessarily assured. What we have to do is continue with strong economic management and to put in place the investments for the future and we’ve been doing that and we’ve been doing that at a time when interest rates have been lower. Low interest rates, low unemployment and much stronger growth than just about any other developed economy. It’s given us the capacity to put in place the investments for the future, investments like the NBN, carbon pricing, the historic pension increase, aged care reform, mental health reform and of course now, reform of disabilities and education reform. These are the outcomes along with lower interest rates that I think all Australians are very, very interested in. Over to you

JOURNALIST:

Didn’t you once refer to the level of three per cent as an emergency level, so how can today be all good news?

TREASURER:

Well, I’ve noticed today that there has been some characterisation about the level of rates now and a comparison with the level of rates back at the height of the Global Financial Crisis. Anybody who thinks that rates are at their levels now for the same reason they were at lows during the Global Financial Crisis simply can’t be taken seriously when it comes to economic policy. Could I just refer you to the statement from the Reserve Bank Governor, he says this:

“In Australia most indicators available for this meeting suggest that growth has been running close to trend over the past year.”

Let’s go back to the Global Financial Crisis: the global economy fell off a cliff, global growth was minus 0.6 per cent back then. Global growth is just below trend right now. Anybody who is making a comparison between rates then, at the height of the Global Financial Crisis, and rates now and saying that they are at the same level for the same reason, is simply unqualified to run a modern economy.

Let’s compare say the level of the dollar to what it was back at the height of the Global Financial Crisis – it was about 60 cents. The dollar is $1.04 right now. Anybody who would go out there and describe rates now in the same context that they were at the height of the Global Financial Crisis is simply unqualified for high office. But we are having an attempt to sensationalise this rate cut, not just by the Liberal opposition, but elements of the media. I say to people, don’t be fooled by this scare campaign, don’t get drawn in to this sort of scare campaign. What it is, is a repeat of the negativity that we’ve seen from Mr Abbott over two years and it’s not becoming of somebody who aspires to high office.

JOURNALIST:

(inaudible)

TREASURER:

Let’s go through the statement. They say growth is running close to trend over the past year. It does say they expect unemployment to tick up a little – the Government said that in MYEFO, the Government said that in the Budget. The Reserve Bank has said that already in its Statement of Monetary Policy. But that’s a world of difference when you’ve got, in this country, an unemployment rate with a five in front of it and most other developed economies with rates near to, or with, double digit rates. There is just no comparison between the two.

JOURNALIST:

Treasurer, aren’t you cherry-picking some of the good news in this statement though. Glenn Stevens also goes on to say global growth is forecast to be below average for a time, key commodity prices for Australia remain significantly lower, so does this mean that you’re going to have to look elsewhere to make that budget surplus?

TREASURER:

Let’s just take a step back and just talk about where the economy is. We’ve had above-trend growth in our economy through the first half of the year. Now we’ve got the National Accounts out tomorrow and I wouldn’t be surprised if we saw a slight moderation in growth. But when you’ve got low unemployment, when you’ve got contained inflation, when you’ve got a strong investment pipeline and when you’ve got strong public finances, the glass is more than half full.

The problem that we’ve got with Mr Abbott and the Liberals is they’re running around saying that in the economy the glass is half empty and then going on to make even more extreme statements by smashing the glass on the floor. The fact is that for the first part of the year, growth above trend. The Reserve Bank Governor in this statement makes the point “growth running close to trend over the past year.” We’ll see what the figures say tomorrow, but when you look at Australia, unlike other countries, low unemployment, strong investment pipeline, contained inflation, strong public finances, low public debt, those are all strengths of our economy which make it quite resilient in an environment where there is a high degree of volatility in the global economy.

JOURNALIST:

Whereabouts is the next economic driver going to come from? I know that housing is… dwelling investment is meant to be one of the strengths coming on. Is it developing as well as the Government had hoped or is there something elsewhere?

TREASURER:

I’ve seen the data out today and what I would say is it’s monthly data and that it tends to be a bit volatile. I think if you look at the year-on-year figures there, you’ll see that for private dwellings it’s up over the year and for multi-unit dwellings it’s up quite substantially over the year. So, we do need to keep a bit of perspective when we get monthly data, the fact is that we’ll get the National Accounts tomorrow, we’ll get a picture of what’s gone on in the quarter and we’ll deal with that then.

But I guess the message I would like to leave you with is a very simple one – whichever which way you cut it, when there’s an interest rate cut, that’s good news for families and it’s good news for business. Anyone who can’t welcome a cut as such good news for families and business is somebody who is just being negative about everything.

JOURNALIST:

What do you expect the banks to do?

TREASURER:

I don’t want to put the cart before the horse. We’ve just got this decision, we’ll see what their response is. I’m on the record very clearly in terms of my attitude to what the banks ought to do.

Thanks very much.

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