Interview with Karl Stefanovic

7.13 am

SUBJECTS: Tsunami, interest rates, petrol, Intergenerational Report

STEFANOVIC:

Good morning to you, Treasurer.

TREASURER:

Good morning Karl.

STEFANOVIC:

Just quickly, on that situation with the tsunami, Premier Peter Beattie yesterday said that we are all flying a little bit blind and he is probably fairly accurate in saying that.  He was saying also that the Federal Government needs to expedite the process of installing these emergency beacons in the sea.  Is that something, he is right, isn’t he, in regards to that?

TREASURER:

Well the Federal Government has announced quite extensive plans for early warning.  We are investing in that quite significantly.  You would have also noticed of course that the RAMSI, the Regional Assistance Mission which has Australian Defence Personnel and Federal Police in the Solomon Islands was very much in the first line of the response.  So I think it is time really just to congratulate those people who have worked so hard on it.  We know it is a stress.  Nobody is quite sure what is going to happen when a tsunami is anticipated and let’s just support them in getting on with the rescue effort.

STEFANOVIC:

You don’t think that there is any need to expedite that process of getting these beacons that can be more accurate in recognising if something is heading our way?

TREASURER:

Well we are investing in an early warning system.  It will be state of the art.  These things always take time and experience when you have these warnings to perfect the response, but I think in the circumstances the response has been pretty good and we ought to be supporting all of those people who were engaged in that response.

STEFANOVIC:

Okay, well the markets are all preparing, moving onto interest rates now, they are all preparing, they seem to indicate that there is a 60 per cent chance of an interest rate rise tomorrow, what are your thoughts, is it going to go up?

TREASURER:

Well, of course Karl, we have an independent board that looks at these things.  It will be meeting today.  It will assess a whole range of factors but the most important, of course, is inflation.  If we keep inflation low we keep interest rates low and the importance of keeping inflation low is to make sure that economic growth continues.  We have had a very, very strong run of economic growth, the longest ever, ever recorded by Australia and the task is to make sure that we keep growing and we stay out of recession because that is how we save people’s jobs.

STEFANOVIC:

But do people need to prepare themselves for an interest rate rise tomorrow in your opinion?

TREASURER:

Oh Karl, I never comment on future movements of interest rates, that has been the practice that the Government and I in particular implemented 10 years ago.  We have an independent board that deals with that but I am just explaining why we move interest rates.  We move them in relation to inflation.  Inflation has to be kept between 2 and 3 per cent, the reason we do that is so the economy can grow and it has been a pretty successful policy over the last decade or so.

STEFANOVIC:

Okay, so you think the lifting of the interest rates might stop inflation, it doesn’t seem to have worked the last couple of times.

TREASURER:

Well Karl, I am not forecasting any movement in interest rates one way or the other.  You misunderstand me.  This is an independent matter done by a bank board which I have appointed which is independent.  I don’t comment on future movements, I don’t even speculate about them.

STEFANOVIC:

Alright, perhaps you could comment on the Budget that is going to be handed down in a month’s time, although perhaps not, are you predicting any tax cuts for people out there?

TREASURER:

Well again Karl, we will be announcing the Budget in May.  It is five or six weeks away and all will be revealed then.  But the key point is to keep expenses controlled.  We have got to be disciplined with our financial management to keep our Budget in surplus.  That is very important, and to make sure that we cope with the greatest economic problem Australia is going to face which is the ageing of the population.  This big demographic change that is coming down the track at us, which is going to put a great deal of pressure on us in the decades to come, we have got to have a Budget which throws forward and deals with that problem as well.  So you are balancing a number of things: expenditures; you are balancing the Budget bottom line; you are balancing the long-term challenges; and you have got to do what is right for the economy. 

STEFANOVIC:

If you are calling for discipline would it be irresponsible to cut taxes?

TREASURER:

Well we cut taxes very significantly in last year’s Budget you will recall.  We cut tax rates.  We increased thresholds.  We abolished tax on superannuation payouts and that will take effect on the 1st of July.  So the Government over recent years has been cutting tax quite aggressively.  That is because we want to make sure that people have incentive in the workforce.  Where we can cut tax we do so, but it is a question of balancing a whole lot of things as you come into a Budget.

STEFANOVIC:

Alright, people seem to need a bit of a break at the moment with petrol prices, you have said that retailers should not collude and this is obviously adding to inflation but they do collude and nothing ever seems to get done about it.

TREASURER:

Well, we have prosecuted people in the past and I think millions of dollars of fines have been imposed, millions, and in fact these have been imposed on companies that have been found in markets to be working with competitors.  And I believe that the ACCC should take further action against anybody else that it can prove a case against.  And I have asked them particularly in the lead up to Easter, to continue to monitor sites.  They are monitoring about 50 per cent of the sites throughout Australia at the moment and let me make it clear, if any service station proprietor wants to collude with anybody else they are at risk of prosecution and conviction and heavy penalty.

STEFANOVIC:

Okay, moving onto your Intergenerational Report yesterday, I noted that it didn’t include anything about the fiscal or economic impact of climate change, was that deliberate?

TREASURER:

Oh no, we make some general observations about how climate change could effect economic prospects over the longer term.  But in relation to modelling it depends so much on the assumptions that it is very hard to get any precise modelling.  And of course you would have to model not just the effect of climate change, you would have to model responses because responses could affect the economy and if they were the wrong responses or if they were responses which were too extreme, they could effect the economy as much as global warming, if not more.  So, we make some general observations about that, the precise and underlying modelling is not up to a stage where it can be usefully added to the very precise modelling or the much more precise modelling that we do in relation to demographics.

STEFANOVIC:

Alright, you have been recognised for starting somewhat of a baby boom with the Baby Bonus.  Can I ask you now, according to your ledger have we have had enough babies yet?

TREASURER:

There is still room for more Karl.  We have done better than we were for the last 30 years or so where the fertility rate was just in constant decline.  We have done better in the sense that it is no longer declining and it has even improved.  But Karl, there is still room for improvement.  We are not yet back at the magical figure of 2.1 children per woman, which is what we need to replace the population.  We have headed back towards it but there is still room for improvement, so don’t give up yet.

STEFANOVIC:

No, I have had enough.  I am retiring.  Thanks very much for that, Treasurer, appreciate your time.  Have you had enough?

TREASURER:

Thank Karl.  Well I will leave the good work to you in the future, I think Karl.

STEFANOVIC:

Alright, good to talk to you Treasurer, thanks for your time.

TREASURER:

Thank you.