MEET THE PRESS PRESENTER PAUL BONGIORNO: Hello and welcome to Meet the Press. The economy is set to roar back onto centre stage this week as the Reserve Bank is widely expected to raise interest rates at its meeting on Tuesday. And that is sure to inflame the blame game.
OPPOSITION LEADER BRENDAN NELSON (Monday): The last Government, the Howard Government, delivered tax cuts in six of the last eight budgets. It also delivered surplus budgets to Australia, gave Mr Rudd and Mr Swan an economy that was in absolutely first-rate condition.
FINANCE MINISTER LINDSAY TANNER (Wednesday): Commonwealth Government spending has been accelerating at an unsustainable rate. Fiscal policy has actually been contributing to inflationary pressures when it should have been constraining them. This is really the Liberals' economic legacy.
PAUL BONGIORNO: Finance Minister Lindsay Tanner is our guest. And later - the crusade against binge drinking gathers momentum - we speak with the Chief Executive of Odyssey House. But first - what the nation's press is reporting this Sunday March 2. The 'Sun-Herald' leads with "Hick's secret life in Sydney." Convicted terrorism supporter David Hicks has been living in Sydney for two weeks with a female friend and is being mentored by millionaire philanthropist Dick Smith. The Sunday 'Herald Sun' reports "Dental aid for teens." Families will receive up to $150 a year for each teenager's dental care under a $360 million Rudd Government plan to be announced today. The 'Sunday Mail' has "Weekend getaway for frazzled tycoon." Childcare mogul 'Fast' Eddy Groves flew into Los Angeles yesterday amid speculation he is preparing to sell off the American arm of his teetering ABC childcare centre empire. The 'Sunday Times' reports "Charles, William, meet Harry at airport." After being outed in Afghanistan Prince Harry has returned home a military hero to be greeted by his proud father and brother. The Rudd Government, like its predecessor, is expected to be awash with cash this year but with inflation showing signs of stirring from a 2-decade slumber it's under pressure to slash spending. Wielding the axe - the Finance Minister. Welcome back to the program, Lindsay Tanner.
LINDSAY TANNER: Good morning, Paul.
PAUL BONGIORNO: Well, do you look forward to being the abominable 'No' man?
LINDSAY TANNER: It's a very important job, Paul, and somebody has to do it, and instilling discipline into a team that has got a lot of passion, a lot of commitment to make Australia a better country is a very important role, and I'm committed to pursuing it. We've got to get inflation under control. We've been left with a serious problem by the former Liberal Government. Inflation at it's highest level for 16 years, that's putting upward pressure on interest rates. We've got to get that under control, that means cutting Government spending.
PAUL BONGIORNO: The $360 million dental program to be announced today by the Government, how did that get by you?
LINDSAY TANNER: That's essentially the fulfilment of an election commitment. Going to the dentist is pretty expensive, as many people know, Paul. And there's a lot of teenagers out there who need to go to the dentist more often than they do. This is about taking financial pressure off those working families who do take their kids to the dentist for the annual check-up, and it's about making it easier for those who don't to actually get there and do it. It's also important in the longer term as a preventative measure so it ensures that problems get tackled early on, and that we don't see people develop the kind of serious dental problems in later life that many Australians do have.
PAUL BONGIORNO: Talking about working families and battlers, the Reserve Bank is widely expected to raise rates another 0.25% on Tuesday. There's a report in one of the papers today that banks will actually go a bit higher. How do you expect battling families to cope with this?
LINDSAY TANNER: We are concerned to ensure that interest rates are as low as possible. That's why it's important that the Government puts downward pressure on inflation and interest rates through cutting government spending, that's why the former Government failed to fulfil its responsibilities, and as a result we've had 11 interest rate increases in a row, and people are as you say, concerned about the prospect of another rate increase. It is absolutely critical that the government plays its role in putting downward pressure on inflation and interest rates, because there are lots of people out there whose financial circumstances are hurting as a result of these upward pressures.
PAUL BONGIORNO: Does it concern you that whatever fix the Government brings in, it won't be a quick fix?
LINDSAY TANNER: We've already made some significant savings that were announced a few weeks ago. They are only a small first instalment, but they are significant, and we'll be putting further savings into the budget, of course, in a couple of months time. It's not easy to turn these things on and off like a tap, Paul, so it's important to keep that in mind. It's also important to keep in mind that expectations are central here, so people don't modify their spending behaviour or their decisions on big spending items overnight, so we don't necessarily have to turn the tap to a lower level instantaneously, but it's really important to get the message out there. We are serious about cutting spending, we are going to substantially increase the budget surplus, we are going to push it higher, so that it puts downward pressure on inflation and interest rates.
PAUL BONGIORNO: Well, the US Federal Reserve Chairman Ben Bernanke painted a grim economic picture on Thursday. He signalled the need to keep stimulating the sagging American economy, but now sees inflations stirring as well.
US FEDERAL RESERVE CHAIRMAN BEN BERNANKE (Wednesday): The further increases in prices of energy and other commodities, in recent weeks, together with the latest date on consumer prices suggests slightly greater upside risks to the projections of both overall and core inflation than we saw last month.
PAUL BONGIORNO: It's a worrying picture, we are going to have low growth and high inflation, stagflation like in the '70s. How will that impact on Australia as far as you can see?
LINDSAY TANNER: We are not immune from pressures from the United States, but we are nowhere near as influenced by them as we once were, Paul. The story for our economy has been that for the past four or five years we've had huge amounts of additional income flowing in, mostly from China because of the mining boom, and the former Liberal Government, rather than investing, or exploiting the proceeds from that huge increase in income by putting it into infrastructure and skills, and building our economic capacity for the longer-term future of this country, chose to spend that money on trying to get re-elected, on all kinds of things that were about bribing the electorate. And as a result, we've now got a serious inflation problem, so we have got to reduce government spending overall, and redirect spending into things like better skills, more infrastructure, so our economic capacity grows, and we can absorb the huge increase in income that's coming from the mineral boom.
PAUL BONGIORNO: Well, jut on that increase from the mineral boom, there is absolutely no doubt that the revenue will keep pouring through the doors. I see some commentators say that your promise to have a budget surplus of about 1.5% of GDP will actually be reached without you having to do very much. Have you got a ballpark figure of the savings you are after, on top of the revenue you get?
LINDSAY TANNER: We've estimated that we need to find $3 to $4 billion worth of savings, and that's certainly what we are going to pursue. It's important to bear in mind that the forthcoming budget is a projection for July 1 this year, through to June 30th next year, so although it's reasonably likely that we will still have very healthy revenue over the next few months, and there's a pretty good chance that that will be the case into next year, the further out you get, of course, the harder it becomes to predict, so we can't necessarily assume the kind of things those commentators are projecting. It may well be that revenue ends up being stronger than was previously projected. We can't assume it, we are going to ensure that we do cut into Government spending, get rid of wasteful and inefficient programs and put serious downward pressure on inflation.
PAUL BONGIORNO: When we return with the panel - the tax cuts, are they good politics, but bad economics? New Zealand's Helen Clark thinks of Aussies as kissing cousins. She had lunch with Kevin Rudd on Wednesday, and both prime ministers were keen not to spoil their appetite by raising the issue of our ban on Kiwi apple imports
KEVIN RUDD: What we resolved is we are either going to have apple strudel, apple crumble or apple pie for dessert.
PAUL BONGIORNO: You are on 'Meet The Press' with Finance Minister Lindsay Tanner. And welcome to our panel, Michelle Grattan, 'The Age'. Good morning Michelle.
MICHELLE GRATTAN, THE ‘AGE’: Good morning, Paul. And Philip Clark, Radio 2GB. Good morning, Phil.
PHILIP CLARK, RADIO 2GB: Good morning, Paul.
PAUL BONGIORNO: The Business Council at the beginning of the week released its budget submission. It documented the Howard Government as the biggest spending administration in two decades, and called on the Rudd Government to institute a three-year spending freeze.
BUSINESS COUNCIL SPOKESPERSON MELINDA CILENTO (Tuesday): The Business Council thinks that over the last five or six years revenue growth has been exceptionally strong. That revenue has been used largely to fuel consumption through tax cuts and Government spending.
PHILIP CLARK: Mr Tanner, by continuing to proceed with the promised tax cuts this year, and possibly into next as well, given the growth figures, aren't you just fuelling the fires of inflation at one end and asking home buyers at the other, a minority of the Australian population, to put the fire out at the other?
LINDSAY TANNER: No, I don't believe so, Philip. It's important to remember that the tax cuts don't hit the economy all in one hit, they are progressively spread out over the year, so the initial impact is relatively modest. We also need to keep in mind that they will take pressure off the working families' budgets of this nation, and, in particular, if we didn't proceed with the tax cuts the risk of fuelling excessive wage demands would be considerable, particularly in the tight labour market. That means there is a serious risk of wage inflation taking off, so they'll be an important safety valve. They also increase work force participation, which is an important capacity goal to improve our overall economic capacity, and I think the Government's moral authority here is really crucial too. If we were to abandon those tax cuts at the same time as we are calling for people to exercise restraint, right across the board, unions, employers, business executives, small businesses, I don't think people would take much notice of us, so it's very important that we proceed with those tax cuts, and I don't agree with the commentary that suggests they will boost inflation or that they are in some way economically irresponsible, and they are already in the budget bottom line too, which is important to bear in mind.
PHILIP CLARK: All right, but you are still asking one-third of Australians - and that's all there are with mortgages - to bear the brunt of this. Wouldn't it be fairer and more equitable to go for another economic instrument, say, for example, to raise the level of the GST? You'd have the same effect of dampening demand, but it would be shared across the population, not just by home buyers.
LINDSAY TANNER: I certainly agree it would be wrong to allow all the burden to fall on home buyers, and that's effectively what the previous government did by refusing to tackle government spending. The choice we are making, Philip, is to tackle Government spending, is to reduce overall demand, or to take the pressure off inflation and interest rates as much as we can through Government spending. That's a difficult task, but we regard that as the most important way, the most effective way that we in Government can contribute to the overall task of cutting inflation, getting inflation back into the Reserve Bank's target zone, and, therefore, reducing that pressure on interest rates.
MICHELLE GRATTAN: Mr Tanner, another thing that the Government has said is very important is to increase national savings. To what extent will superannuation, enhanced superannuation arrangements play a part in that, and is that an early priority?
LINDSAY TANNER: We are the architects of Australia's superannuation system, Michelle, put in place essentially by Paul Keating and Bill Kelty back in the 1980s, and that served the nation very well. and we are committed to maintaining and strengthening that system.
MICHELLE GRATTAN: But, of course, it never reached its goal, did it, so are you interested in making it reach that goal ?
LINDSAY TANNER: It didn't reach its goal, and I think there's a healthy debate about whether or not that goal was necessary, whether the 15% was appropriate or necessary. But certainly we are interested in strengthening Australia's superannuation arrangements, but no decisions have been made. We are keen to ensure that we deal with some of the problems in the system. Nick Sherry has said, the Minister who is responsible for it, has said many times that the former government's arrangements left substantial sections of the population out, left them with significant problems, so we do have a challenge there to improve our superannuation arrangements, it is an important priority for the Government. We have identified increasing private savings as one of the five points of Kevin Rudd's anti-inflation plans, so, yes, we do intend to act in that area.
MICHELLE GRATTAN: Early?
LINDSAY TANNER: No specific - I think you can reasonably assume it's not going to be in five year's time, but no specific decisions have as yet have been made.
PHILIP CLARK: Can we just turn to spending cuts? And that's going to be your key priority. Are we talking here about whole programs being cut, or are we simply talking about trimming the sails? In other words should people be prepared for promises to be unmade, for whole programs to finish?
LINDSAY TANNER: The honest answer, Philip, is both, that there will be instances of whole programs being cut. We've already done that in a few instances in the modest round of initial cuts that I announced a few weeks ago. We also expect to give a fairly wide range of things a bit of a hair haircut on the way through to try and spread the pain as widely as possible, but it's important to bear in mind that we are constrained by two critical things, our election commitments and existing contracts. And we intend to honour our election commitments and we intend to honour existing contracts.
MICHELLE GRATTAN: What about middle-class welfare? Do you feel that there's too much of that, and will you be looking at that in your haircutting exercise?
LINDSAY TANNER: Well, certainly there's been a fair bit of speculation about this, Michelle, and it's important to bear in mind that your middle-class welfare could be my essential services and vice versa, so there is no absolutely accurate definition of what constitutes middle-class welfare, but we are not regarding anything as immune, so we are not setting anything aside that hasn't in some way been the subject of an election commitment, and saying, "Well, that's off limits." We are looking right across the field at all the possibilities, and as I said our constraints are election commitments and contracts. Anything that is not governed by either an election commitment or a contract in theory, at least, will be considered, and we'll be looking for every opportunity we can find to both get serious savings, and also to ensure that the burden of getting Government spending back under control is spread as widely and as thinly as possible.
PHILIP CLARK: Does that include defence spending, In the past it's been quarantined from Federal Government budget cuts. There are huge ticket items there, we are buying billions of dollars of worth of amphibious vessels. We've got this aircraft purchase. Are any of these issues on your table with your pen marked?
LINDSAY TANNER: We certainly are considering defence spending. It's important to bear in mind that one of our election commitments was to honour the Howard Government's commitment to keep Defence spending growing at 3% real, so 3% in real terms over the course of the next few years, we intend to honour that. However, the pressures in defence spending with the very widespread commitments we've got overseas, whether it's Afghanistan in our region or wherever else, are considerable, so even getting savings to ensure we don't go beyond that 3% real is a very important exercise. So, yes, defence is very much on the table. We are scrutinising both the capability aspects of defence spending, but also the more mundane organisational bureaucratic aspects which are substantial as well.
MICHELLE GRATTAN: Hasn't that commitment, though, even though we have a lot of obligations now in defence, allowed defence to perhaps be rather lax in its scrutiny of itself than might have been the case? 3% real is a big, big growth area, big growth figure year after year.
LINDSAY TANNER: It's a reasonably healthy growth figure, Michelle, but it's important to bear in mind that the total government spending at the moment is growing at 4.5% real.
MICHELLE GRATTAN: But you say that's profligate.
LINDSAY TANNER: That's right. That's way too big, so I think we need to get it at least back to where the defence level is, and preferably lower than that. It's important to bear in mind that the former government did actually put in place some reforms for the procurement process, for buying those big capital items, and although we need to go further, I think those reforms have had an effect. We are currently dealing with what you might call legacy issues, that go back to contracts entered into in the late '90s, where there have been enormous, problems, huge cost blow-outs, time delays, and things like that, but the reforms that were put in place in 2003 appear to have had a significant impact. But of course, these things are very long lead-time projects, they take years to fulfil. We are struggling with the legacy of pre-2003 at the moment.
PAUL BONGIORNO: Well, a lot of people will be very interested to see what you come up with. Thank you very much for being with us today, Lindsay Tanner.
LINDSAY TANNER: Thanks very much. Paul.
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