DAVID BEVAN: Lindsay Tanner is the federal Minister for Finance and Deregulation and he joins us at the very start of The Soapbox.
Good morning Minister.
LINDSAY TANNER: Good morning folks, how are you?
DAVID BEVAN: We are very well. We've had one interest rate cut. Do you think we'll have another?
LINDSAY TANNER: I'd never speculate on interest rates. Obviously it's something we're not supposed to do and I think you'll get all kinds of predictions about where things are heading. We're seeing some economists saying, yes, there will be another one, some saying no there won't, so who knows.
DAVID BEVAN: Does your government take credit for the interest rate cut?
LINDSAY TANNER: No, we don't take credit. We take responsibility for the total circumstance in the economy and for our decisions. The Reserve Bank's got its job to do and of course there are a lot of wider international factors that are influencing the Reserve Bank's decision, not just things going on in Australia.
So we hope that people will judge us by the decisions we make and the initiatives we've taken, for example very large Budget surplus, substantial tax cuts that have been flowing through over the last month or so, and they can draw their conclusions from those.
DAVID BEVAN: So that portion of the equation that you are responsible for, which is the national economy, do you think that will continue to be favourable to low interest rates?
LINDSAY TANNER: It's certainly our objective and it's important that we pursue that objective in the longer term as well, not just by having [coughs] excuse me, by having a strong Budget surplus but also by investing in the future infrastructure needs of the country. That's the key message out of the Reserve Bank's statement yesterday was that over the past year the pressures on interest rates have arisen from two things: demand, particularly public spending, government spending rising too quickly; and on the other hand not enough investment in economic capacity particularly infrastructure, which means that there's inflationary pressures emerging.
So we have been very focused on those two things from day one, and tackling those two problems.
DAVID BEVAN: But they can contradictory, can't they, because if you're investing big money into infrastructure, that can have an inflationary impact.
LINDSAY TANNER: That's true, it does mean that you have to be careful to sequence what you're doing, you have to be careful to manage that over an extended period of time. And so that's why we haven't projected any of the additional $40-odd billion worth of funding that we set aside in the new funds to be spent in this financial year because there's quite a lot of state government spending happening at the moment. And, as you correctly point out, if you spend it too quickly, if you invest too quickly then you will add to short-term inflation pressures.
DAVID BEVAN: But if you don't spend it then you're going to see inflation brought about because of bottlenecks in the economy. So how are you going to handle this...
LINDSAY TANNER: Well, the challenge of course is that these things are long time lag phenomena. You can't turn them around quickly but it is important that we get started.
And also we have a process of assessment of the options. One of the things that we're really committed to doing is getting an independent arm's length assessment of the merits of big infrastructure projects so that we're not just splashing money around without taking account of the relative costs and benefits of all the options.
That's to ensure that it doesn't become a politically driven pork-barrelling exercise, and Infrastructure Australia has been established to do that and it's commenced that work.
DAVID BEVAN: What's the most recent advice you've been given regarding that $40 billion of infrastructure money? Have you been told don't spend it this financial year, in fact don't even think about touching it next financial year?
LINDSAY TANNER: Oh look, I don't comment on advice but I'll tell you what the Government's position is, and that is that we don't intend to draw on it in this financial year. What is occurring this financial year is the processes are being established and getting underway for the advice that we have to get about specific options for investing this money, whether it's in the university sector, whether it's in the hospital sector, or whether it's in hard infrastructure like road, rail, ports and so on. And of course we've also got the national broadband network tender process up and running. That's still got some time to go.
So these things are underway but inevitably big projects, big infrastructure investments take time. And you want to take time to get them right.
MATTHEW ABRAHAM: Mmm. You're sitting on $40 billion when there are people losing their houses, there are people struggling to pay grocery bills. Forty billion dollars. I mean, you're rolling in dough.
LINDSAY TANNER: Well the - it's not $40 billion yet because the money is to come from last year's surplus and the projected surplus. And so...
MATTHEW ABRAHAM: Okay. So last year's was $26 billion, is that right?
LINDSAY TANNER: So the money - no, it's not quite that. But the money is not quite yet in the bank.
But the point here is that we have...
MATTHEW ABRAHAM: Lindsay Tanner, how much money is in the bank? I thought it was in the order of $26 billion.
LINDSAY TANNER: We have to invest for the future so you don't - it is... whether it's a family or a company or a government, it is wrong to spend all your money now. You have to invest for the future because that's what creates the prosperity for the longer term.
Our nation has been built on infrastructure investment. Infrastructure investment has been crucial to Australia's economic development and to maintaining sustainable growth. So it is really, really important that we do invest for the long-term, not only through these funds; we've also got very major...
MATTHEW ABRAHAM: Well, stop taxing people so much. I mean, you know, put the money back in the people's hands. If you're sitting on a nest egg of up to $40 billion and now it's around - you won't tell me but I've made several attempts to ask you - around $26 billion. You'll correct me if I'm wrong.
LINDSAY TANNER: It's - well, to begin with, some of the money from last year's surplus had to go into the Future Fund to complete the process of the Future Fund fully funding long-term public service superannuation liabilities.
But the point is that if we don't invest for the long-term we end up with things like major inflation problems. The key reason, and this is very clear from the Reserve Bank's statement, the key reason that we've had these inflation problems emerge and in turn interest rates being pushed up is before - because the former government spent too much and invested too little. We have to invest; we have to invest for the long-term and make sure that that infrastructure will create the economic opportunities for future generations.
DAVID BEVAN: And Lindsay Tanner, before you leave us, the national accounts have just been released showing the Australian economy grew by point three of one per cent in the June quarter. That takes the annual rate of economic growth to 2.7 per cent. Is that going to - is that conducive to more interest rate cuts or keeping interest rates where they are? How does that figure? Because you'd have a better idea that most people, how does that figure and factor into the equation regarding interest rates?
LINDSAY TANNER: Well, once again, I'm not going to commentate or speculate on what may happen with interest rates. That does indicate, as previous statements by leading figures in the Government and many commentators have suggested, that the economy has slowed significantly. There's a range of factors that have brought that about, particularly the US sub-prime crisis and the credit crunch internationally, higher prices for food and for petrol of course have put a squeeze on many family budgets, and of course the interest - 10 interest rate increases in a row. The legacy of the former Government have all had a significant impact there.
But it's important to emphasise that the growth is still positive. Most of the big developed nations in the world in the last quarter went backwards. Australia is still very well positioned; we've got a lot of money still coming in from China, we've got tax cuts flowing since the start of July.
DAVID BEVAN: Point three of a per cent is not much off zero.
LINDSAY TANNER: It's still a lot better than being negative. Still - it's very important that we keep economic growth going and we get to sustainable growth. That's the objective. We had government spending running at five per cent plus in real terms when we took office. That is unsustainable and that was putting significant pressure on inflation.
We have got that down to a growth rate of one per cent, and we've got very substantial additional money coming in from China. People keep forgetting this, that the - not only China but oth... they're the major customer. The prices of iron ore and coal and other minerals have increased so dramatically that that means a lot more money is coming into Australia. It doesn't run through the economy uniformly but it ultimately has a very wide effect across most of the economy.
With the tax cuts, those additional amounts of money will have a significant effect in helping to keep growth ticking over while we get the fundamentals in better balance.
MATTHEW ABRAHAM: Lindsay Tanner, thank you.
LINDSAY TANNER: Thank you very much.
MATTHEW ABRAHAM: Lindsay Tanner, Minister for Finance and Deregulation.
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