JON FAINE: Lindsay Tanner is the Federal Finance Minister. It's his job, together with Treasurer Wayne Swan, to shape the budget that Kevin Rudd's Government will bring down for the first time in its term in office. Lindsay Tanner joins us this morning as we focus on the future of the Australian economy.
Lindsay Tanner, good morning.
LINDSAY TANNER: Good morning, Jon. Good morning Alan.
ALAN KOHLER: Good morning Lindsay.
JON FAINE: How many billions of dollars in savings do you think you need to find before you can shape the budget.
LINDSAY TANNER: Well, on top of the savings we identified from opposition, Jon, we expect to be looking for somewhere around $3 billion or $4 billion in the forthcoming financial year. That is certainly the ballpark that we're pursuing.
ALAN KOHLER: And what surplus are you pursuing?
LINDSAY TANNER: The objective we have set ourselves is one and a half per cent of GDP, which translates to about $18 billion, thereabouts. Obviously, you don't have to be absolutely precise to the last dollar in these things. But that is the bar that we have set. That requires some pretty tough decisions, but it is extremely important that we put more downward pressure on inflation and interest rates.
We have inherited Government spending that is running way too fast. It could be as high as six per cent, real, in the current financial year, which is much too far. So we've really got to get it back under control.
ALAN KOHLER: Yes, but you and the Government, the previous Government, were in accord about the need for a one per cent of GDP surplus. And it was a - virtually a political consensus for years over that. It wasn't just the Howard Government's spending, it was the Labor Party's support for a one per cent surplus of GDP.
LINDSAY TANNER: Well Alan, we have actually been pretty seriously critical in Opposition of the spending of the previous Government. That's why Kevin Rudd announced we'd have a razor gang before the election. That's fairly unusual. Normally, that kind of thing is pulled out of the hat after you win the election.
Well, we actually announced that before the election.
It's also important to keep in mind that the evidence of a serious inflation problem has really only begun to mount over the past six months or so. And so clearly, when you see that occurring, you have got to adjust your settings. And so, one per cent of GDP surplus is good. But it's clearly not good enough.
JON FAINE: When does the Government accept responsibility for the economy? Malcolm Turnbull, last Friday, I think, was saying, look, they keep on - for how long are they going to keep blaming everything on Peter Costello and John Howard? I know it's early days yet. But how long do you do that for?
LINDSAY TANNER: Well Jon, Malcolm Turnbull's comments were simply ludicrous. We've got an inflation figure that's from the December quarter - in other words, most of that three months actually occurred when the Howard Government was in office. And by definition, the factor that influenced the inflation position that are in the control of a Government tend to be things that take a little while to take effect. They don't have an effect on a day by day basis. They have a time lag built in to them. So over time, inevitably, the events in the economy will be more and more due to the action that this Government takes.
There's no specific point. But clearly, at the moment, we're in a position where, right or wrong, the bulk of the situation the Australian economy reflects Government decisions of the past, to the extent that they have an influence - not today's Government decision.
That will change.
But it doesn't - it's not like clicking a switch.
ALAN KOHLER: Do you think that we'd be talking about a interest rate increase tomorrow if it wasn't for the tax cuts that were announced last year, both in the budget and during the election campaign.
LINDSAY TANNER: Look, Alan, I can't see into the mind of the Reserve Bank governor. But I think there's a couple of important things to be said about the tax cuts. First, they do, to a significant extent, hand back bracket creep. If we didn't have those tax cuts, the tax share of the total economy would be creeping significantly upwards.
Second, they will be positive for participation. And third, to some degree, they will dampen expectations or demands for higher incomes, because they will relieve a bit of the pressure on the budgets of ordinary families. And one would hope...
ALAN KOHLER: Yes, but you've got to take them back now in spending cuts, don't you?
LINDSAY TANNER: Well, the two things are not directly comparable. Spending without taking into account the tax cuts, spending on the previous Government's figures was running at four and a half per cent increase in this financial year after inflation. And when you actually take into account the impact of the mineral prices in that calculation, there were some indicators suggest that it could be as high as six per cent. With or without the tax cuts, Government spending is increasing much too quickly. That's clearly having an inflationary effect, and that's what we've got to get under control.
JON FAINE: Twelve minutes to nine. Professor Glyn Davis joining us shortly: the man who has been told to design the ideas summit that Kevin Rudd has announced over the weekend. He will be joining us soon. But we're with Lindsay Tanner. Alan Kohler, my co-host. Lindsay Tanner, Federal Finance Minister, our guest. Where will the axe fall, minister? You've got a drought, you've got floods in some areas, you've got people saying that welfare needs and demand are as great as ever.
You've got mortgage and housing stress, and sacking public servants costs money. It doesn't save money. So where does the axe fall, given you've said you'll quarantine bu... defence spending as well.
It's hard to see where any savings can be made.
LINDSAY TANNER: Jon, these things are always difficult. And I think our objective will be to try and spread the pain as evenly and as broadly as possible. We've got to go through the budget line by line. Obviously, I'm not going to be publicly targeting specific areas. We've just got to work through all of the things that are presented to us, and make the best decisions we can. But I think the important thing is that we do spread that as evenly and as broadly as possible. People, I think, understand that it's critical that we have got to cop this pain in order to avoid the wider, longer-term pain of getting inflation out of - back out of the bottle.
We have had an extended period, since Paul Keating broke the back of inflation in the early '90s, of low inflation in this country. And if we lose that, we have got really serious economic problems. We cannot afford to allow that to happen. So we have got to have pain, and we have got to spread that as widely, and as evenly, and as fairly as we can.
ALAN KOHLER: It sounds like you think that interest rates should go up tomorrow Lindsay Tanner.
LINDSAY TANNER: Look, I'm obviously not going to comment on what should happen with interest rates one way or the other, Alan. And no Government does - rightly - does that. That's the independent Reserve Bank's decision. We have got to do our job. And our job is to ensure that Government spending is not putting upward pressure on inflation and interest rates.
It has been, clearly. And we have got to rein that in. So we will be doing our bit. And the question of what the Reserve Bank does is a matter for it.
JON FAINE: And how will Essendon go this year, Lindsay Tanner?
LINDSAY TANNER: I noticed that we were last in the bookies' assessments, Jon. So they appear to be at this stage suggesting that people should back Essendon for the wooden spoon. I'm slightly more optimistic than that, but - and I've got a lot of faith in Matthew Knight - so I think he was a good choice as coach. But three years of disappointment mean that I - and Alan's in the same boat, of course - I don't think we'll be booking finals tickets just yet. But I think we will do better than people expect.
JON FAINE: It's good to see that the weight of office has not dampened your enthusiasm or your ability to keep up with football news.
LINDSAY TANNER: No. There are certain things that are sacred in life, Jon.
JON FAINE: [Laughs] Thank you for your time.
LINDSAY TANNER: Thanks very much.
JON FAINE: Lindsay Tanner, who is the new Finance Minister in the Rudd Government.
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