Treasurer Wayne Swan held a doorstop press conference today to comment on the release of the latest Consumer Price Index figures.
Swan also talked about the impact on the federal budget of the floods.
- Listen to Wayne Swan’s media doorstop.
Text of media release from Treasurer Wayne Swan.
Consumer Price Index – December Quarter 2010
Today’s inflation figures showed that both CPI inflation and underlying inflation in the Australian economy continued to moderate in the December quarter, with underlying inflation easing to its lowest level in a decade.
The Consumer Price Index (CPI) grew by 0.4 per cent in the December quarter, down from 0.7 per cent in the previous three months. Headline inflation was 2.7 per cent through the year, down from 2.8 per cent in the September quarter.
Underlying inflation also softened to 0.4 per cent in the quarter, down from 0.5 per cent in the September quarter, and in through-the-year terms moderated to 2.2 per cent from 2.4 per cent.
The main contributors to headline inflation in the quarter were food, housing, and alcohol and tobacco prices. Growth in other CPI components was subdued with health, clothing and footwear, and transport prices declining in the quarter.
Flooding in Queensland and Victoria wasn’t reflected in the December results, but will likely contribute to inflation in coming quarters, particularly through higher fruit and vegetable prices.
Although the inflationary impact of the floods will be temporary, we understand that this will put further pressures on household budgets.
It will take a long time to recover from these floods, but we mustn’t forget the fundamentals of our economy remain strong.
We have resilient people, a huge pipeline of private investment, solid public finances and job creation that are the envy of the developed world.
The Government will continue the important task of building the economy’s capacity so we can have sustainable growth with low inflation into the future.
This is the transcript of Wayne Swan’s doorstop press conference.
Okay I just wanted to talk about a couple of things today. I certainly want to deal with a very significant donation that has been made to flood victims in Queensland today by RACQ Insurance. I think it’s a package worth around $20 million. I think it reflects the fact that that company and many other companies absolutely understand the scale of the flood disaster in Queensland. It’s unprecedented in economic terms in terms of its impact on the Queensland economy. It’s been very good to see the response of corporates over the past couple of weeks but the Government is particularly asking corporate Australia to go the extra mile and I think RACQ Insurance has done that today, just as BHP did two days ago. A very significant donation to the Premier’s Appeal Fund, plus from BHP a commitment as well to very substantial in-kind assistance, which they will also provide to communities.
When we met with our business advisory council yesterday they were of the view that we should all be encouraging corporate Australia to donate to the Premier’s Fund but also to work with the reconstruction authority to provide in-kind assistance to so many communities that have been so damaged by this flood event. So I’d like to certainly welcome the donation today from RACQ, pay tribute to some of the very significant donations that have already been made by so many Australian corporates who really do recognise their responsibilities here, but encourage others to go further because governments can’t do this on their own, communities can’t do it on their own. It’s going to take a whole of community effort to resolve the issues in Queensland – state, Federal, and local government working together with the business community and of course really, people in Queensland have led the way. The spirit that we’ve seen on the ground is unprecedented and we’re now starting to see that reflected in terms of the scale of the commitment of corporate Australia and that’s a really good thing.
I’d just like to talk very briefly today also about the December CPI figures because underlying inflation today has moderated in the December quarter and it’s at its lowest level in a decade. Today’s figures show that underlying inflation has fallen to 2.2 percent through the year to December down from the 2.4 per cent through the year to the September quarter. The figures also show that headline inflation moderated to 0.4 per cent in the December quarter, down slightly from the 2.7 per cent over the year.
Now, of course, despite the fact that these figures are lower than anticipated, we do know that the next quarter figure, the March quarter will see a spike particularly in vegetable and fruit prices and that will have an impact on the March quarter. So the impact of these disastrous floods in Queensland through January will be felt by Australian families at the checkout because of the impact particularly on fruit and vegetable prices.
Now, if you look at these figures for the December quarter you will see there has been also an increase in fruit and vegetable prices in the December quarter and that reflects some of the bad weather that had occurred in December but of course these figures for December do not reflect the recent flooding at all. So there certainly will be a price spike in the March quarter which will flow from the impact of these disastrous floods in Queensland.
Jus to give you an example here, this report from ABARE of a couple of days ago tells you the share of national value of key fruit and vegetables produced in flood-affected Queensland. So if you just go through some basic fruit and vegetables – beetroot, almost 80 per cent of the beetroot is produced in flood affected areas in Queensland, or sweet potatoes, well in excess of 60 per cent, or zucchini and button squash, mandarins, chillies, spring onions and so on. So there certainly will be an impact yet to be felt from these floods when we see the March quarter CPI. So I understand that many families will be doing it tough at the checkout when these price hikes flow through in the weeks and months ahead.
Now, of course we also see volatility in data as we go forward. We shouldn’t lose sight of the fact that the Australian economy is strong. We should also not lose sight of the fact that many people will find some of these price increases as we go forward, pretty tough on the family budget. But the Australian people and our economy are resilient. There is a strong pipeline of investment and of course there is reason to be very optimistic about the future but in the meantime many Australians, many Queenslanders are still doing it tough and the full effects of this flood will flow through as we will see in future quarters of inflation as reported.
Mr Swan, that being the case, is it a wise thing to bring in a one-off levy?
Well, I think we have to be really mature about our response to this crisis in Queensland. The size of it in economic terms is most probably the biggest in our history, but we haven’t seen all of the data as yet. But the damage to public infrastructure alone is significant. And when you’re dealing with public infrastructure you’re dealing with tens of thousands of kilometres of roads. You’re dealing with rail, you’re dealing with schools, you’re dealing with all of the public infrastructure that you associate, particularly with regional communities.
And just when it comes to infrastructure, under our natural disaster relief arrangements with the states, the Commonwealth is responsible for 75 per cent of that bill. We will do our best to total that up and give you more accurate figures as we go forward. When it comes to monies that are provided from the Commonwealth alone – this is before you get to the State Government, and they will have a very substantial bill – Commonwealth emergency relief in terms of emergency payments that are made to parents and to children is already in the order of $230 plus million, in a relatively short period of time, and on top of that other payments are being made. And that’s before you get to the size of the damage that is done to the private assets and belongings of so many people. Some who may be insured, some who may be not insured, some where there is a grey area. That’s why when I spoke before about the donation from RACQ I made this really important point that we need monies in that fund because there will be so many people who are still going to be experiencing problems after all of our formal commitments are met under our natural disaster relief payments. That’s the size of what we’re doing. So that’s the intro, Phil.
So in that environment the only responsible thing to do is to have all options on the table. The fact is the money has to come from somewhere and could I make this point, that we as a government have been responsible economic managers and over three budgets we have put in place very substantial savings of the order of $83 billion. And we understand in responding to this crisis that we will have to make further savings but I don’t think the Australian people would want us to respond by hacking into essential expenditure in health or education, sacking teachers or nurses. We are a country that has a strong economy but we also have to be responsible and balanced in our approach to budgeting. The Commonwealth made it very clear when we acted to protect our economy from the global recession that when growth returned above trend we would move our budget quickly back to surplus and that’s what we’re determined to do. Not because it is some vague objective – the responsible thing to do, to keep an economy strong is to have a budget in surplus when the economy is strong, giving you the capacity if things are to change to do otherwise like we did during the global recession.
So I won’t be speculating, I won’t be playing politics with the fact that we will sit down and evaluate all of the options before us and respond because our number one priority as a Government and as a nation has to be to rebuild Queensland. It is a very important part of our economy, a very important part of our economy, and we have to take that responsibility as seriously as we can. You see, I’ve spent a lot of time on the ground talking to people. I’ve been up the Valley, I’ve been to Grantham, I’ve been around the suburbs of Brisbane. There’s a lot of people and a huge need and much of that is yet to be met. So we can’t afford as a nation to be playing the sort of politics we’re starting to see for example, from the Opposition at the moment. I don’t intend to comment about them beyond saying that. What this Government will do will be to meet its responsibilities to the people of Queensland and do it in a way which is good for our national economy, reflecting the balanced approach that I spoke about before.
Treasurer, given the cost of living pressures that are obviously in today’s figures, can you assure Australians that the levy won’t be a first option for you, but a last resort, something that you would only do if you really feel there’s no other way?
There are no first options, the point I was trying to make Paul, is this – we are dealing with a natural disaster which in economic terms is the largest in our history. There isn’t just one response, there has to be a variety of responses, and in terms of our budget we will have a lot of options on the table. That’s why I made the point earlier; government can’t do it on its own either. The notion that the Premier’s Appeal fund cannot do it on its own is not right either. We’ve got to build that fund up because there’s a lot of need out there and when we’ve rebuilt the infrastructure and when we’ve done everything we possibly can to support those people who’ve been left behind then we can say we’ve finished the job, but we’re only just getting into the assessment of the size, and that won’t be final. We’ll do our best in the period ahead to quantify it, but it will change over time and we will do our best to respond.
So we are going to respond in a rational way, we’re not going t o be driven by the politics that some people may want to play. Our responsibility to the people of Queensland is bigger than that.
The funds you’re raising, either through budget cuts or through a levy, will they be for reconstruction just solely in Queensland or also in New South Wales, Victoria and WA where the floods were?
I think everybody has to be aware that it’s not just in Queensland where we have significant need. I haven’t had the opportunity of going to Victoria as yet, but I certainly will take that opportunity when I can, but the Prime Minister has been there, and there is no doubt that there will be a substantial bill from Victoria as well but it is not possible at this stage to really get a handle on the size of that as the event is still unfolding. So of course this all looms large in our response. As a nation we do have the resources, I certainly know we have the optimism, I certainly know we’ve got the will to deal with this but what we’ve got to do is be practical and realistic about how we respond.
Treasurer, are you confident that you can keep to your two per cent spending growth cap?
Well, the medium term fiscal strategy that we’ve outlined goes to the very core of our approach to economic management. We outlined, when we moved to stimulate our economy in the face of the global recession which was such a threat to employment in this country that when growth returned to above trend we would bring the Budget back to surplus by imposing a number of very important rules. Banking upward revisions to revenue and putting a two per cent cap on spending were very important rules that we outlined then and they are rules that we are determined to apply as we go forward. And they are the bulwark, if you like, of our approach to economic management.
We understand that if growth remains very strong then we need our public finances to be strong. Yes we need to also rebuild Queensland, deal with those that are affected elsewhere in the country, including in Victoria and other areas where there may be, God help us, other natural disasters. We’ve got to do all of those things, but we’ve got a framework in place which is the responsible framework for the future. We have created record number of jobs in Australia in recent times, we have a really strong pipeline of investment coming, particularly in resources in the years ahead, all of those things mean that we’ve got to get the balance right by applying those rules, and in our medium terms fiscal strategy and we’re determined to do it.
Mr Swan, do you think your flood relief package will require legislation and have you held any initial talks with the Independents and Greens on this?
Well, we haven’t concluded our deliberations about these matters, I don’t speculate about internal government processes –
Do you foresee any legislation changes?
We haven’t concluded our deliberation. So what I’ve said so far is what I’ll say for you today again: all options are on the table. I think I’ve gone to some lengths to explain to you why all options are on the table and we will work our way through in a responsible and serious way all of the issues that arise in Queensland and from natural disasters elsewhere in the country and make sure we get the balance right, make sure that our economy remains strong, and make sure we do it in a way that the economy continues to be strong as we go forward.
How did Bob Brown’s comments this morning on the flood levy and saying, him particularly saying that it would only support a progressive levy, shape your thoughts moving forward?
Well, look I don’t propose to respond to all of those issues. When the Government takes its decisions we will naturally consult with all of the parties in the Parliament, we’ll put it forward and we’ll have hopefully a very productive and intelligent discussion about what the options before us are. That’s what we’ll do. That’s how we’ve approached these issues through last year and in the years ahead. And you might well recall when this country was threatened by the global recession we put up a stimulus package which saved this country from massively high unemployment, and we had to negotiate with the parties in the Senate to get that through. And of course, at the first pass it was threatened by the Liberal and National Parties who eventually continued to oppose it and the minor parties supported it. So look, we’ll work at that as we always do, if and when it’s required.
Well, as I just said to you I’m not going to pre-empt any decisions that the Government may take. I’m not foreshadowing what we’re going to do. I’ve explained how we’re going about it and that’s all I can do today.
When will you decide whether a flood levy is needed?
I’m not going into the timing of Government processes.
Treasurer, would it be fair if someone who has had water through their house and doesn’t qualify for assistance from the state because of the means test was then hit by a special levy on their income?
Well, could I just make a couple of points because I’m not pre-empting any Government decision. I think everyone affected by the floods should go through the full array of support that is available because some of the support is means tested, some is not and further support will be coming for those people who have been flood affected by the Premier’s fund. But those are matters for the Premier’s fund to deal with.
So there are some existing rules which provide some means tests, some which don’t provide any means test. A significant part of Commonwealth assistance is not means tested in terms of income support. Some of the joint arrangements are means tested, that is true, but that’s not the end of the matter. So I’d urge anyone who was affected to look at the range of support and also to follow very closely the announcements which will eventually come depending upon the size of the Premier’s Appeal Fund.
Any news about Australians in Moscow at this stage?
No we don’t have any news, but could I just say this; that we absolutely condemn this terrorist attack. It is the act of cowards that they should perpetrate these sorts of crimes. We are doing our very best through all of the normal channels to establish whether any Australians are affected by this barbarous act. Thank you.