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Treasurer Wayne Swan Comments On Inflation Figures

The Treasurer, Wayne Swan, has held his first press conference for the year, discussing a range of issues, including the inflation figures published today.

Swan also took questions on the report from the International Monetary Fund, the proposed emissions trading scheme, the Henry Tax Review, and mortgage interest rates.

  • Listen to Wayne Swan’s press conference (13m)

Transcript of Treasurer Wayne Swan’s press conference.

SWAN: Well, it’s good to be back. I just wanted to talk a little about today’s inflation numbers and a little bit about the report from the IMF.

I don’t think there are any surprises about today’s CPI. Today’s CPI shows that inflation in Australia remains low and, of course, that reflects the fact that the economy is operating below its capacity.

The CPI inflation for the year was 2.1 per cent in the year through to December – at the lower end of the RBA’s 2 to 3 per cent target band. This increase from 1.3 per cent to September was largely a result of the sharp falls in global fuel prices in the December quarter 2008 dropping out of today’s annual CPI.

Now encouragingly growth in the CPI in the December quarter was 0.5 per cent, down significantly from the 1 per cent registered in the previous quarter. So, as I said before, CPI inflation was 2.1 per cent through the year to the December quarter at the lower end of the RBA’s 2 to 3 per cent target band.

Underlying inflation continues to ease gradually and was 3.4 per cent over the year to the December quarter, down from 3.5 per cent. These figures show that inflation in Australia has moderated significantly since 2008 as the effects of the global recession have washed through the economy.

Today’s figures are consistent with the Reserve Bank and Treasury forecasts, with both expecting inflation to remain subdued in the near-term and, as always, the best way to ensure strong growth with continuing low inflation in the future is to build our capacity and to lift our productivity. And of course that’s why the Government’s nation building investments are so important – in our major highways, rail upgrades and ports and, of course, that’s why our investment in skills and education is also so central to sustainable growth.

Now, I’d just like to say a few things as well about the IMF report, the IMF economic update which has been released overnight. It’s upgraded its forecasts for the global economy it’s cautioned that the recovery remains fragile in many parts of the world, and that policy efforts are still needed to sustain recovery. The IMF’s economic outlook provides more evidence that Australia has outperformed the developed world during the global recession. This report shows again why Australians can be confident, though not complacent about our economic prospects.

The IMF report shows that Australia outperformed other advanced economies through the last year, growing by just under 1 per cent, compared with an unprecedented contraction for advanced economies of 3.2 per cent. And the IMF is forecasting that Australia will continue to perform better than the advanced economies collectively through this year. Given the still fragile nature of the global recovery, the IMF has repeated its warning that ripping out stimulus in advanced economies will jeopardize economic recovery.

Now, as the Government has said repeatedly, our stimulus measures have been carefully designed to phase down throughout this year as private demand recovers. The cash stimulus payments are now largely out of the system, our First Home Owners Boost has already ended, as has our Small and General Business Tax Break, but the pipeline of activity created by our infrastructure investments is providing businesses with the confidence they need to keep staff on. That’s how the Government has kept our economy strong and supported Australian jobs, tradies, and small businesses during the global recession. We certainly do welcome endorsements like that from the IMF today, but we do know there are still substantial challenges ahead. Over to you.

JOURNALIST: Treasurer, if I could just ask about a slightly related subject. There seems to be a lot of uncertainty in the business community about what’s going to happen to the Resource Rent Tax Regime. [Inaudible] in the share market. Minister Ferguson has been fielding questions about it in New York. Is it possible that the Government will be able to give the market an early indication of what its plans are for [inaudible]?

SWAN: Well, the Government has committed to an independent inquiry which was conducted by the Treasury Secretary. It has produced a very broad report. It’s a large report. It covers all aspects of our taxation system. Every single aspect of our taxation system is covered, so there is a complexity of material and a complexity of recommendations. The Government has said that we will take our time to consider these recommendations, to analyse them and then to put them before the Australian people with an initial response. But because this is such a substantial report which goes to the core of many areas of government policy across the scope of federal government, across the scope of state government and, indeed even local government, we are going to take our time to get our response in place. There will be plenty of time for the Australian people to discuss all of those issues, but we have absolutely no intention of rushing this very important area of reform.

JOURNALIST: Nobody’s asking you to rush your responses …

SWAN: Well, there’s been a suggestion…

JOURNALIST: Why don’t you just release it so people can read it?

SWAN: Well, because the Government is still assessing the report in full. It was conducted by an independent committee. It has made a wide range of recommendations. There’s a lot of complexity involved in those recommendations, and we think that it’s important that the Government takes its time to evaluate all of that, and do as we said we would do all of last year which is to present that report to the Australian people with an initial response from the Australian Government in the early part of this year. And that’s what we intend to do, but we have not completed that process as yet and we’re not going to be rushed to do it.

JOURNALIST: Treasurer, if the IMF is right, the pressure on inflation will increase this year rather than decrease as the economy picks up, and that in turn will put pressure on interest rates. Is that the way you see it?

SWAN: Well, I’m not sure that’s quite the right interpretation of what the IMF is saying. Inflation does remain subdued and I think the figure today is encouraging. What we’ve seen is the spare capacity in the economy reflected in these figures. So I think this figure today is quite compatible with the forecast that we have from both the Treasury and the RBA.

JOURNALIST: Treasurer, just in relation, back to tax. The push out of Britain for a bank transaction tax – as a sort of a way to recoup and even control the banking sector – what’s your view of it? This is an issue that is going to come at the G20 later.

SWAN: Well, this was a matter which was raised I think by Gordon Brown at the last G20 Finance Ministers’ Meeting in St Andrews in Scotland, and we decided at that meeting that it be referred to the International Monetary Fund for a subsequent report back to Finance Ministers and then to Leaders, and that is where it remains. I think there is work being done on this by the International Monetary Fund.

But let me make this point, whether it is the work that the International Monetary Fund is doing or whether it is the work which has been commissioned and is taking place through the Financial Stability Board on a whole host of other matters to deal with international financial regulation, our regulators are certainly representing the Australian view in all of those discussions. We are deeply involved in them. We have not been impacted here by the type of activity that has occurred in other economies where their banking systems have ended up in the hands of governments. We have not had those problems, and we will do everything in the meetings we are in – whether it is the G20 process or whether it is the contribution of our regulators – in all of those discussions to ensure that the Australian interest is represented in those discussions.

JOURNALIST: But what’s the view that Australia is putting …

SWAN: Well, Australia is not putting any public view one way or the other on this matter. We’ll wait until we see what the IMF has had to say.

JOURNALIST: But do you agree with what the banks say, the Australian banks say, which is that it would be unfair to impose some kind of levy on them given that they weren’t required to be bailed out?

SWAN: Well, there is no doubt that there is an Australian national interest to ensure that our economic interest, our national economic interest is not in any way impeded, if you like, by a set of recommendations which are designed to solve problems which we didn’t have. But having said all that, there is a broad agenda out there for international financial system reform, which is being discussed at a variety of levels. We are inputting into those discussions, and while they are taking place I don’t intend to tip our hand as to our possible response depending on the recommendations that come from those bodies.

JOURNALIST: And what about the Obama approach to stopping banks, minor banks from trading on their own account and operating hedge funds…

SWAN: Well, once again we didn’t experience in our banking system the very substantial problems that they experienced in the banking system in the United States, and I think part of the reason for that was the very good job that our regulators have done here. This is just not a question of regulation; I think it’s also a question of supervision of regulation. And one of the very good things that I think we’ve seen in the Australian banking system has been that our regulators have been very effective and on the job.

JOURNALIST: Just on the issue of productivity in inflation. Business has expressed some concerns about the new operation of the Fair Work Commission. Is there any justification for fears of a wages break out, or wages not being kept to within enterprises?

SWAN: Well, we have been for a long time – in the Australian Labor Party – strong advocates of enterprise bargaining, where productivity gains are recognised at the work place level, and that is the centrepiece of the system that we have established – the new system which has gotten rid of Workchoices which was simply an attack on basic wages and working conditions, rather than a framework where people could work together productively and cooperatively to produce the productivity we require as we go forward. And I see these debates day by day in front pages of various newspapers, but I think it would be very early to come to the conclusion that you’ve suggested. I don’t accept that at all.

JOURNALIST: Treasurer, do you believe that conditions are right or almost right for banks not to pass on the full RBA interest rate rises and, in fact to begin discounting?

SWAN: Well, I think I made it very clear at the end of last year when three of our major banks moved their rates over and above the movement from the Reserve Bank, in terms of the cash rate. I said then that that was entirely unjustified, that there would be a backlash by their customers and I think that has been the case since that time. It is the case in my view that the margins the banks are taking are ones that are broadly equivalent to what they had prior to the onset of the global financial crisis, and therefore there is no justification for these additional rises imposed by them on their customers.

As they move forward we’ll just have to judge their actions in light of what they do. But I don’t believe there is any justification for them in the next little while, in any way, moving over and above decisions taken by the independent Reserve Bank.

JOURNALIST: Treasurer, you’ve emphasised the Emissions Trading system as a fundamental economic reform for this country. It’s about to come back again. Firstly if it’s defeated this time around as everyone expects, will you put it a second time so it becomes another revised ‘DD’ trigger? And also what is your fallback position if you can’t get progress on emissions trading? What will the Government be doing with the fallback on climate change?

SWAN: Well, I’m not going to speculate about any of those matters today Michelle. We will be bringing that important legislation back to the Parliament, and we will be doing that next week. But I’m not going to speculate about what might happen beyond that, here today.

JOURNALIST: Will you be meeting the deadline for the Copenhagen December 31 deadline for the Copenhagen declaration on what mitigation actions you will be taking?

SWAN: We will certainly act in accordance with everything that we said at the end of last year.

JOURNALIST: Treasurer, Access Economics this morning suggested that interest rates could rise by as much as half a per cent next Tuesday. Would such a spike in rates be irresponsible?

SWAN: Well, as you know I don’t speculate about Reserve Bank Board decisions, so I don’t intend to speculate about what they may do next week. But I’ll just make this point: that interest rates in this country in recent times have been at emergency lows, 50-year emergency lows. The Reserve Bank takes its decisions on these matters independently, but the Governor of the Reserve Bank has made it very clear that as the economy recovers then there will be adjustments to the rate. But they are judgements that they take independently on a monthly basis.

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Malcolm Farnsworth
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