Interview with Paul Bongiorno

Channel 10

Wednesday, 8 August 2007

SUBJECTS: RBA decision on interest rates

BONGIORNO:

Treasurer, thanks for joining us.  Well, the cash rate now is at its highest level in 10 years, won’t that more impact on today’s borrowers than what happened say, 17 or 18 years ago?

TREASURER:

Well the cash rate now is lower than it was when the Government was elected.  And when you take into account, that is after 11 years of continuous growth and 2.1 million jobs, it shows you how far we have come.  Now of course, the economy according to the bank is picking up.  It cited that as a reason for taking the decision that it did.  I acknowledge of course for homebuyers, that will be additional costs, I acknowledge that.

BONGIORNO:

Do you acknowledge that there are people out there who say they are under more mortgage stress now than they have ever been?

TREASURER:

I think there are some people who have borrowed a lot of money and they will feel those repayments as a consequence.  But I would say it is always important to build a buffer into a mortgage.  Rates can change, you can get sick, you can lose your job.  But the important thing about the current economic climate – the chances of losing your job are less than they have been for 33 years.  That is the flipside to this – that the economy is strong.

BONGIORNO:

The Liberal Party ads at the last election promised to keep interest rates at record lows.  Five rises later, is that a broken promise?

TREASURER:

Well bear in mind that I think over the period I have been Treasurer, we have had 19 cuts and 15 rises.  So interest rates are lower than when the Government was elected and this mortgage rate of 8.3 per cent is lower than it was at any period…

BONGIORNO:

It is lower than 11 years ago, but it is higher than 10 years ago.

TREASURER:

Well it is lower than I inherited.  And this mortgage rate is lower than at any time during Labor.  But the point is the economy is much stronger.  You would normally have interest rate rises on a strong economy but when you look at how far the economy has strengthened, then this is still a rate which was below what it was when the economy was in recession.

BONGIORNO:

A Reuters survey of 24 economists found 16 believed that interest rates will rise again probably by the end of the year.  Is that a warning sign to keep a fairly tight rein on election spending?

TREASURER:

I think it is important that we keep the Budget in surplus.  This year we will have another surplus.  It is our 10th surplus Budget.  People say to me, why do you keep the Budget in surplus?  One of the reasons we keep the Budget in surplus is to keep pressure off interest rates.  If we hadn’t have been doing that…

BONGIORNO:

Do you accept today’s rise as necessary?

TREASURER:

…if we hadn’t have been doing that then what you would have seen in relation to interest rates is a lot more volatility than this.

BONGIORNO:

Yes but do you accept today’s rise as necessary?

TREASURER:

Look, I gave the role to the independent Reserve Bank to assess these things.  Its assessment is the economy is strengthening.  I respect the decision, I note the evidence.  But the decision is made by the independent Reserve Bank.

BONGIORNO:

Thank you very much.

TREASURER:

Thanks Paul.