Unemployment; Interest Rates; Drought; International Economy

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Interest Rates – Interview with Steve Liebmann, Today Show, Channel 9
November 5, 2003
Address to 138th Victorian State Council, Shepparton
November 8, 2003
Interest Rates – Interview with Steve Liebmann, Today Show, Channel 9
November 5, 2003
Address to 138th Victorian State Council, Shepparton
November 8, 2003

Unemployment; Interest Rates; Drought; International Economy




Ministerial Entrance

Parliament House

Thursday, 6 November 2003
12.15 pm

SUBJECTS: Unemployment; Interest Rates; Drought; International Economy


Well I think all Australians will welcome the fact that unemployment has

fallen again in this last month and is now at 5.6 per cent, which is as low

as it has been in the last 22 years. And the Australian Bureau of Statistics

recorded an increase of about 19,000 jobs for the month. And since the Government

was elected nearly 1.3 million new jobs have been created in Australia.

Now, in all of the work that the Government does, and economic policymakers,

aim at producing an economy which can create jobs, jobs for young people and

older people too, and to see unemployment now with a five in front of it,

and it seems to have just edged down below that 6 per cent level, really indicates

that job opportunities in Australia are there for young people and older people

and that economic policy is creating opportunities for them.

This is the end result of planning and working and policy to keep our economy

growing so that people can enjoy the opportunity of work, and the income and

stability that it brings to their families.

Now, we haven’t been in this water for 20 years or so, but there is

no reason we should be afraid of it, no reason that we should be afraid of

an unemployment rate which is below 6 per cent, this is what all of our work

is directed at producing. And if we can keep unemployment below 6 per cent,

if we could get some of our legislation through the Senate and take it even

lower, then that would be an objective which Australia should aim for.


Does it increase the chance of an interest rate rise next month?


What it tells you is, as I have been saying yesterday and today, that the

Australian economy is growing solidly. It has been held back in the last year

by a weak global environment and by the effects of drought. The drought is

not yet over but it looks like the weak global environment is picking up and

we shouldn’t be afraid of that either. That is actually a good thing.

That will be good for our exporters. So, we will want to try and keep the

economy growing and get the jobs that are there with it.


Treasurer do you think these figures are sustainable?


When unemployment a couple of months ago went below 6, I warned at that time

that the figure jumps around a bit. And some people were saying it might jump

back to 6, and we would have expected that, but now having the rate below

6 for the last three months indicates that maybe unemployment has moved down

a notch. It will still bounce around, but it does seem to have moved down

a notch, we do seem to be in territory which we haven’t seen since the

recession. Gee, it has taken a long time but it looks as if we have now recovered

the damage of the recession of 1990.


Treasurer, last night the Prime Minister said there is no significant case

in my view for a significant lift in interest rates over the near term. Do

you agree with him?


I have done, I think already, four interviews this morning on this subject

and I set out in the course of those interviews my assessment of the economy,

which is, that global recovery is occurring, the drought is not yet over,

that our prospects are a little stronger than we thought in May, but inflation

is not a concern. Now, when you are looking at monetary policy, interest rates,

your principle focus is inflation and you also take into account general economic

conditions. I never talk about future prospects for interest rate rises, I

have been studious about doing that and I am not going to do it today. But

I will give you my assessment of the economy and its prospects any day you



Treasurer is your message about not being afraid of these figures really

code to the Reserve Bank that they shouldn’t go slamming on the brakes

any harder?


Not to the Reserve Bank, more to the economic commentariat. You know, the

people that appear from various banks and economic think tanks that make comments

to try and get publicity for their firms, which you carry on a regular basis.

They will look at figures like this and they will say, oh unemployment is

low, oh, we haven’t been there for 22 years, oh boy, what does it all

mean, perhaps this is a worry. And my message to them is that far from this

being a worry this is actually the object of economic policy, to try and get

unemployment down. Okay, we haven’t been here for 22 years but having

got here, why don’t we try and stay here and more importantly why don’t

we try and improve things by getting our legislation through the Senate. And

my message to the commentariat, not to people who understand economics like

you Paul, is don’t be afraid of this situation.


Treasurer do you think, do you and the Treasury then think that non inflation

acceleration rate of unemployment has dropped significantly?


Look, this is an interesting question. The OECD did a report on Australia

in I think it was the mid 1990s and it said that it thought, that technical

term you used, NAIRU, in Australia could be 6 or 7 per cent. That is, the

OECD thought that the bottom level for unemployment in Australia would be

6 or 7 per cent okay, we are now at 5.6 so, we know that was wrong…


Where do you think it is?


And some people will say oh well that is a worry. That is not a worry. This

is the object of economic policy and we ought to try and lock this in. You

can remember, I can remember, very, very well debates in this country about

having as goals, an unemployment level of 5 per cent. People thought it was

madness, couldn’t be done. Well, we are at 5.6. This will bounce around,

but to try and lock it in below 6 per cent is in my view a goal worth seeking.


You talk about the damage of the recession largely being repaired. Do you

now see your work as Treasurer pretty much complete?


Well, look I think we can pause now and we can look back on Labor’s

recession of 1990 and we can say we’ve now got unemployment back to

where it was before that recession. We have now repaid most of the debt, we

have now got our Budget back in surplus and the only lesson I would draw from

that is that it has taken us 13 years and a lot of hard work. So, no one would

want to have to go through that again.


Treasurer, you said that the RBA may have misread the drought, you thought

that they may have misread the drought not coming to an end. Given that, is

there a problem looming for some Australian farmers, given that they, in terms

of paying higher interest rates…


Look the NFF…


…and overdrafts?


The NFF yesterday put out a press release putting their view and they made

the point that not all of Australia is out of drought. They’re right.

Not all of Australia is out of drought. Agricultural production will be up

this year but there are some farmers that are still in drought. And I think

it is a mistake to say that the drought is over. It is not as bad as it was,

but gee, that was the worst in a 100 years. So, we’re now no longer

in a 100 year drought, sure, but we are not back at boom time conditions in

the agricultural sector. The second thing is that you now have farmers selling

on world markets at a high value of the Australian dollar compared to two

or three years ago. That’s difficult for them and I understand that.

My message earlier today, my message again today is I understand the situation

for Australian farmers. The one good thing, I make this point again is, if

the global economy is picking up then you should get more buyers for your

products. If the world is weak, regardless of the price and regardless of

the supply, your buyers are not taking as much product. So that is one thing

that is going to be working for Australia’s farmers. We shouldn’t

be worried about the global recovery. This again was suggested to me this

morning, somebody said to me “oh very difficult situation – global

recovery”. Well, okay it brings its own problems, but let me tell you

a global recovery is much better than a global recession. We’ve been

through one of them.


Treasurer, yesterday ACCI suggested that by, that the Governor, by referring

to the unsustainability of the housing bubble rather than containment of inflation

as its primary reason for raising interest rates, it stepped outside the Governor’s

agreement with the Government on the course of monetary policy. Doesn’t

ACCI have a point?


Under the agreement that I have with Governor, we target inflation. And we

also have regard to the general economic conditions of Australia, because

they’re going to affect inflation. But, I think that many people have

wrongly characterised the statement of the Bank yesterday. Have a look it.

What is the first point that the Bank raised? Global economic recovery, strengthening

Australian economy. That’s the factors that were on the mind of the

Bank. Now, it is proper for it to have regard to those factors because they

will affect Australia’s general economy. But monetary policy does not

target house prices. It’s a point that I’ve made, it’s a

point that the IMF made recently. I think it is a point that the Bank well

understands and so I think some people have wrongly characterised yesterday’s

discussion. I think properly understood, looking at the strength of the economy,

you make your decisions in relation to interest rates. There is one last point

on housing prices. Housing is one part of an economy. And that is why you

don’t set economy-wide measures just for one part of an economy. Economy-wide

measures are directed to economy-wide influences and the IMF says that.


Does the Reserve Bank understand that?


I think they do.


Treasurer you said that the Bank’s being too optimistic about the international

recovery. Can you tell us, is that Treasury’s view?


I don’t know that I said “too optimistic”. What I have

said is this: there was an American recession and the US economy is coming

out of recession. Will it be a sustained, strong recovery? I can’t tell

you. It’s no longer in recession, but they have one strong GDP figure,

but you would have to wait for a few more quarters.


Is that the advice you get from Treasury?


The Japanese economy has had some positive quarters, but we’ve seen

false dawns in Japan. Now, that is my view. My view is based on discussions

with the G-20 Finance Ministers and central bankers in Morelia, Mexico ten

days ago. That is the most up to date material we had. The US presented its

report on the US economy, the Japanese presented their report, the Europeans

presented their report. That is my assessment.


Is it Ken Henry’s assessment as well?


Don’t know, I don’t know but Ken wasn’t at the meeting…


Ian Macfarlane was though, wasn’t he?


…so, I suspect that mine is more up to date.


Not taking advice from the Secretary to the Treasury any more?


Well I, Jim, I do tend to take my own decisions after listening to advice

from lots of people including the media…




…I always listen to their advice but I always make my own decisions,

I can assure you of that. I will never actually blame any of you for unduly

influencing me. Thank you