FRAN KELLY: As we mentioned, another month, another interest rate rise, and another blow to household finances. It's also a blow to the Federal Government, which has to convince the electorate that it is up to the task of managing this tough economic environment. Federal Finance Minister Lindsay Tanner is at the front line of that task, and he joins us this morning from Melbourne. Minister, good morning.
LINDSAY TANNER: Good morning Fran.
FRAN KELLY: Well, the Prime Minister described yesterday's interest rate rise as bad news, and a difficult day for working families, no doubt about that. But it's tough for the Government, too, isn't it? Two rate rises in your first hundred days. And as Michelle was just suggesting, you can't keep blaming the other lot forever. You've got to get on with it.
So how do you do that?
LINDSAY TANNER: There's no question it's tough for the Government. We are taking office just at a time when all the chickens are coming home to roost. And we have got a serious challenge on our hands, Fran. But we are taking responsibility for tackling the problem, looking to the future, and making sure that we are getting the settings right to keep downward pressure on interest rates and inflation. So we...
FRAN KELLY: You have to be careful...
LINDSAY TANNER: ... our number one priority.
FRAN KELLY: You have to be careful what you promise, don't you? Because the reality is that inflation is rising, largely due to pressures beyond your control.
LINDSAY TANNER: Look, the - certainly, there are external factors involved in that. But there is no doubt that the settings we have taken over have contributed to that. Government spending is growing at four and a half per cent per annum in real terms at the moment. That is way too high. So we have got to get Government spending down. At the moment, Government spending is contributing to the inflation problem. It should actually be contributing to getting it under control. That is the big thing that is within our control.
That is what we are really focused on getting into the right position.
FRAN KELLY: But Minister, the job was made more complex by the fact that we have got a two speed economy in the country right now, don't we? Australia's economy is strong, but not everywhere. People are warning you about not cutting too deeply into Government programs because you could run the risk of crunching the non-boom states too hard. In other words, we could go from a boom to a bust.
LINDSAY TANNER: Fran, I think the position across Australia is much more complex than the claim that there is a two-speed economy. You will see a considerable variation, of course, around the country. But Canberra, for example, has got only two and a half per cent unemployment. That's - there's not much mining in Canberra. You will see around the country that many parts of Australia that aren't directly involved in mining are doing pretty well.
For example, only a year ago, you had employment growth in Victoria for 2006 was actually higher than it was in Western Australia. So there are variations around the country, but I don't accept the simplistic version that there are two separate Australias. There's inevitably some areas that are doing better than others. But it's much more mixed than the idea that there is a two-speed economy.
FRAN KELLY: Do you accept the scenario that, basically, trying to cut Government spending and - as you just talked about - and trying to take some of the heat out of the economy will mean slower growth, and therefore, ultimately, higher unemployment.
LINDSAY TANNER: No. I don't accept that scenario. What we are on about is making growth sustainable. The projections amongst all the expert bodies, including the Reserve Bank, all project over three per cent growth, continuing over the course of this year and into next year. That is clearly a desirable thing. But what we are on about is making growth sustainable. At the moment...
FRAN KELLY: In that process, though, won't growth slow - as you have already acknowledged, you need to wind back Government spending. The Reserve Bank wants to take some of the money out of the economy, it wants to slow things down. It says that.
LINDSAY TANNER: Not necessarily, Fran, because we are talking about growth in real terms here. Not in nominal terms. We're talking about growth in real terms. What we want to do is get the inflation genie back in the bottle. Make sure that we have got sustainable growth into the longer term. That's the challenge that we have set ourselves. That's the thing that's critical for working people in this country is to keep economic growth sustainable.
We had a previous situation where that growth has been fuelled, not by investment in skilled infrastructure, in the things that increase our economic capacity and enable us to absorb all the money that is coming in from the mining boom and to use it for productive purposes, but it's been fuelled by reckless Government spending.
Now that is not sustainable.
So we have got to switch to sustainable growth.
FRAN KELLY: Okay. Your job is to cut down the Government spending. You have already identified, through the razor gang process, a total of $643 million in savings over the next four years. But if you look at that - and some of - it's not crucial spending, a lot of it. Things like a program for the Rugby League Hall of Fame.
Now, you can cut that, perhaps without many people noticing it. But mind you, it's not going to have much of an impact on rising prices, is it?
LINDSAY TANNER: Well, Fran, it's important to bear in mind that that modest first instalment was not something that we just chose to do . We had to make a call on the former Government's announcements of spending initiatives post the 2007 budget, because you reach a point where the beginning of the year, they either have to be put into legislation, and the parliament has to appropriate money for them, or you abandon them. So we have to make a call on that list. We ended up either cutting or getting rid of about 45 initiatives, saving that 640 odd million dollars, as you indicated. But that was not us saying look, here is the first big attempt.
It was simply a process that we in Government had to do in order to complete an arrangement that there's always there, so, not much should be read into that, other than it was just a modest first instalment. And yeah. Some of the things that we cut were relatively, shall we say, unusual, or not particularly central to the nations long-term economic future, like the Fishing Hall of Fame, and so forth.
But that is a part of the process. We have got to get rid of the spending that might be nice, might be a bit helpful in a few places, but is not essential to improving our economic capacity. So it's a modest first instalment. We claim nothing further than that.
FRAN KELLY: It's 14 to eight on Breakfast. Our guest this morning is Finance Minister Lindsay Tanner. Minister, we're almost out of time, but as you try and cut spending in the budget, you also need to boost savings. And yesterday's current account numbers were a reminder of that. Are there plans in the budget to boost savings, national savings through superannuation, to improve superannuation?
LINDSAY TANNER: Oh, the detail of these issues has yet to be considered, Fran. But when Kevin Rudd announced his five point plan to tackle inflation back in late January, one of the items on that plan, of course, was encouraging private savings. One of the things we have already done is announced our First Home Savers Account, which is designed to make it easier for people to save for a deposit, tax preference for saving for a deposit for a house.
That, of course, will improve national saving. But there are various other possibilities that obviously, we will be considering in due course. That is one of the key things, though, is we have to, as a nation, save more, invest more, and ensure that we are building for the long term. And private saving is obviously central to that.
FRAN KELLY: Minister, just finally, the banks are getting a bit of a whack around the ears by - from the Treasurer, Wayne Swan, who is suggesting consumers - that if the banks lift their rates by more than the Reserve Bank rate height, then people should shop around. But do you have any sympathy for the banks?
I mean, the cost of borrowing has risen because of the credit crunch, there is no doubt about that. Why shouldn't they pass that on?
LINDSAY TANNER: Look, we haven't criticised the banks for any shift in their interest rates. We have accepted that...
FRAN KELLY: I don't think that's true, is it? I think...
LINDSAY TANNER: No. We - no, if you look back over the period, then - that we have indicated, we accept that there is some need for them to adjust their settings because of that. The argument...
FRAN KELLY: Well, why is the Treasurer suggesting people should change banks and shop around if the rates are going up higher?
LINDSAY TANNER: No, that's not what Wayne Swan has said. If you look back on the record, you will see that we have particular complaints about specific situations in particular circumstances, not the mere fact that some of the banks were raising their rates, because we accept - we certainly accept that there is a case for some change.
What we were arguing about is the magnitude of the change, and in some cases, the timing. And the key thing that the Government has done is to improve the ability of people to shop around to change banks. That's very important. It's not easy for many people at the moment, because of things like exit fees and so forth, for customers to switch banks, and therefore, to put competitive pressure on the banks.
That has been the focus of our efforts.
FRAN KELLY: Lindsay Tanner, thank you very much for joining us.
LINDSAY TANNER: Thanks very much, Fran.
FRAN KELLY: Lindsay Tanner is Finance Minister.
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