NICK MCCALLUM: Of course, 2.30 yesterday afternoon, some good news came through for those of us who have large mortgages. Finally, finally, there is an interest rate cut. How does it affect you? Now on the average mortgage, we're told, it will mean about a $50 saving per month. Now does that mean a lot to you? What does that now mean you can buy? Are you hanging out for the next proposed, or predicted interest rate cut, which is expected by the end of the year? 969 000 693, outside Melbourne, 13 13 32. Quick snap poll, do you think it makes a big impact on your life?
We're joined now by Finance Minister, Lindsay Tanner, thanks indeed for your time, Minister.
LINDSAY TANNER: Good morning, Nick.
NICK MCCALLUM: This is a double-edge sword, isn't it? It's good news that the interest rates have come down, but the bad news is, it shows the economy is slowing pretty dramatically.
LINDSAY TANNER: I don't agree that it shows the economy's slowing dramatically, but it certainly does indicate that there has been some slowing. It's welcome news for home buyers, it's a decision that working people will applaud, because there are a lot of people out there who are pretty stretched, and struggling to get by, Nick, and $500 or $600 a year off their backs will matter to a lot of people.
NICK MCCALLUM: But the question that Dr Nelson asked in Parliament yesterday is a viable one, and that is, are people paying for these interest cut rates with lost jobs, because so many jobs, particularly here in Victoria, are going, as a result of the slowing down of the economy?
LINDSAY TANNER: Well actually, I don't believe that's an accurate assessment, Nick, because you're seeing specific job losses that reflect particular circumstances in certain industries, so for example, in newspapers you've seen significant job losses because of the shift of classified advertising to the internet, there are particular problems in the car industry which we all know about, and of course we've just received a report from former Victorian Premier, Steve Bracks, with some very substantial proposals to address those problems.
And we shouldn't forget that there's also good news stories as well, we've seen IBM open a new facility at Ballarat with 300-odd jobs, you've just seen Virgin announce a new facility in Sydney, with about 1000 jobs, so yes, there are some tough things happening there, but there's also some good things on the jobs front too.
NICK MCCALLUM: But there is no doubt that the global economic situation is contributing to a slow down, and we're going to feel that effect.
LINDSAY TANNER: I think we're already feeling the effect of the global circumstances, Nick, that's certainly true, the sub-prime financial crisis coming out of the United States, and the higher petrol prices have clearly had an effect on the Australian economy, and no doubt the Reserve Bank has taken those factors into account.
But we're very well placed as a country to ride through these circumstances, provided we get the settings right, we're in much better shape than most of the world's major, developed countries, we've got a very substantial budget surplus, and of course the mining boom, and the money coming in from China, together with the tax cuts that have been put in place in the budget that we've just had, will act as a pressure coming the other way, which we believe will keep things in reasonable balance.
NICK MCCALLUM: National accounts figures coming out today, all economic commentators anticipate they will show a fair slowing down of our growth, how concerned are you about that?
LINDSAY TANNER: Look, I've learned over the years not to make bets on national account figures, because they can surprise you in either direction, and...
NICK MCCALLUM: But you're a realistic man, I mean you've listened to the commentators, it would be fair to say that you would expect a fair slowing down.
LINDSAY TANNER: I think it's fair to say that the odds are there'll be some slowing reflected in those figures, but we've had other figures in recent times, for example, figures on business investment that have surprised people in how strong they are, so in some respects, what's been occurring in recent months is a bit of a rebalancing where we're spending less, and investing more, which is good for the economy in the long term, so I don't necessarily agree that the national accounts figures will be as you suggest.
We'll just have to wait and see, because last time they surprised a bit the other way round, they ended up being a bit stronger than was expected, a few months ago. We just don't know until we've seen the figures.
NICK MCCALLUM: Minister, early on, early this year, the emphasis was on curtailing inflation, it was a real sort of break on inflation. Do you now regret that, given the job losses?
LINDSAY TANNER: Certainly we don't regret it, Nick, and the inflation battle is far from over, there is still a really serious issue here, that we have to address as a nation, and the Reserve Bank in its statement, made it abundantly clear what the problem has been, that over the past year, we have had capacity constraints, insufficient capacity in the economy, which means that that tends to generate inflationary pressures, and we have had spending running too fast, particularly Government spending.
Those were the two issues we've had to deal with since taking office, to actually get things back into balance, and we have done a great deal towards, that, but there's still more to be done, there are a lot more challenges to be met.
But if we allow inflation to become entrenched, then inevitably that ends in tears, big time. We have got a major battle on our hands to keep inflation under control, to get it back within the Reserve Bank's target zone, it's still significantly outside it.
NICK MCCALLUM: Now the major banks say they will cut their interest rates, obviously you'll be monitoring that, but on the other hand, they've in fact - many of them we are told, have increased interest rates on credit cards, so what they lose in one hand, they gain on the other.
LINDSAY TANNER: I'm not aware of any of the banks taking that step, but clearly, we'll be paying very close attention to those questions.
NICK MCCALLUM: Is there anything you can do about that, or not?
LINDSAY TANNER: Look, there are indirect things that are always available to Governments to do, we certainly don't intend to intervene to directly control interest rates, that's something that was given up many, many years ago, and correctly. But there are indirect options, but I'm not going to speculate on what response, if any, might occur in particular circumstances. The key thing is to make sure that this interest rate is passed on to home buyers, that is absolutely crucial, and the message we're getting is that that's precisely what's going to occur.
NICK MCCALLUM: The message I got out of watching a bit of Parliament yesterday, question time, and all the theatre of the message coming through to the Prime Minister and Mr Swan, the message I got out of that is the Government thinks mortgagees all around the outer suburbs of Melbourne and Sydney, will be jumping up and down, and saying this is fantastic, thank you very much.
You're realistic enough to realise that that won't be happening, (a) because it's not that great deal of money, but also people realise that it's a sign that things are going pretty crook.
LINDSAY TANNER: Look, I don't agree with your assessment of the message that the Prime Minister and the Treasurer are putting out, but I certainly accept that this is a - it's welcome news, and for the average person, the average mortgagee, it's probably $500 to $600 a year relief. That will matter more to some than to others, inevitably for some it will be fantastic news, for others it will be helpful, but not dramatic. It depends on peoples' circumstances, but it's important that we are getting the balance right in our economic settings, Nick.
But the problem has been that they've been out of whack, we had Government spending running way too fast, we've had insufficient investment in the long term drivers of sustainable economic growth, like our infrastructure, we've got congested cities, people in Melbourne, people listening to your show, know only too well how much congestion has become a problem in Melbourne, that's a result of long term issues that we, as a nation, have got to tackle, not just the State Government, the National Government's got to step in and help too.
NICK MCCALLUM: OK, then, Finance Minister, Lindsay Tanner, thank you very much for your time.
LINDSAY TANNER: Thanks very much.
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