LAURIE OAKES: Mr Tanner, welcome.
LINDSAY TANNER: Morning Laurie.
LAURIE OAKES: I guess you were vastly relieved when the Prime Minister managed to get back in the nick of time from New York to attend the Grand Final yesterday.
LINDSAY TANNER: Well, as an Essendon supporter Laurie, it's a while since I've been that interested in what goes on in the Grand Final unfortunately but - no - I suppose it was a close run thing. It was a great game and congratulations to the Hawks and hopefully Essendon will be a bit closer to the action next year.
LAURIE OAKES: The criticism of the Prime Minister's travel is certainly starting to bite, is there now a sense in the Government that he'd better rein it in?
LINDSAY TANNER: I don't think so Laurie, we've produced comparisons with John Howard in the last five years or so where Kevin Rudd's travel arrangements look pretty similar frankly to what the Prime Minister previously had when Mr. Howard was in the office and the action that was involved in New York was obviously crucial .. He's had the opportunity to talk directly to people who are at the very heart of the US financial crisis; he's been able to talk to world leaders, he's been able to put the Australian Government's case on climate change, and indeed on stabilising the global financial markets, so, I think most people accept these days that it's really important for the Australian Prime Minister to travel and we didn't complain that much about John Howard travelling.
LAURIE OAKES: Well he didn't see the Secretary of the Treasury, he didn't see the head of the US Reserve, who did he see that was crucial?
LINDSAY TANNER: Look I can't recite his itinerary Laurie, but when these things are happening it's very important that people like the Prime Minister have very direct contact with the people who are at the centre of the action, of course, he saw heads of government, he saw people representing countries from all around the world, and was able to make a speech at the General Assembly of the United Nations, these are all important parts of the role of Prime Minister. I think most Australians think...
LAURIE OAKES: Not many people saw that speech. The hall was pretty well empty and even his own Chief of Staff, David Epstein, went to sleep.
LINDSAY TANNER: Sadly, Laurie, politicians now are used to speaking some times in half-full chambers in our own Parliament, so it's not just the question of who is actually in the room, it's who is listening more widely that counts and it's putting on the record, before the world, Australia's position on crucial issues like climate change and the international financial crisis. So I believe that the Prime Minister's trip was entirely justified. He's still well below the total number of days that John Howard racked up on a number of occasions for a full year. I don't believe he's got too many further days scheduled for the balance of this year for overseas travel, so I think by the time the end of the year comes, you'll see that he's well within the normal range that's been established in recent times by the former Prime Minister.
LAURIE OAKES: Now, I know our financial system is well regulated, I know we're a lot better off in that respect than America and other countries, but how will this international financial crisis impact on Australia?
LINDSAY TANNER: Well, the international financial crisis is already having an effect and it's difficult to predict where that will go because clearly we don't yet know whether the bail-out package that President Bush has put to Congress will be adopted and if so in what form. So it is very hard to predict. But it's really important to emphasise, Laurie, the Australian people can have confidence in the strength of our economy.
We've got a very strong budget surplus. We've got, as you say, strong banks that are well regulated. We've got tax cuts flowing. Economic growth is still reasonable. Unemployment is very low. So we are in quite good shape, notwithstanding the buffeting that we, along with all other developed nations are taking as a result of the financial crisis, we're better positioned than almost anybody else to deal with these things. I'm confident we'll be able to continue to do that.
LAURIE OAKES: The Government's got pretty ambitious infrastructure plans and a lot of those involve private sector involvement, private sector borrowing, presumably, that will now be cut back. Does that mean you'll have to rein in your plans or will the Government will borrow more?
LINDSAY TANNER: It doesn't mean that, Laurie, because these plans are not anticipated to hit the deck tomorrow, or next week, or next month. There is a period of preparation that is involved sifting through alternative project suggestions. These things take a while to roll out, so the time when the availability of private finance, for example, is going to be crucial, is probably a couple of years away and nobody can predict whether the current squeeze on credit markets will still be going at that point.
Clearly, the world is different now, but whether we return to the availability of capital that we've seen in the past 5-10 years for private investment in big infrastructure projects is yet to be seen, but obviously we'll monitor those things. We're committed to ensuring that we invest for the long term, that we pursue long-term sustainable growth for the Australian economy and building and rebuilding our infrastructures central to that.
LAURIE OAKES: Paul Kelly in "The Australian" yesterday made the point that because of this crisis Australians should have lower expectations of what they can expect from Government, business should have lower expectations about hand-outs, so should people on welfare. Is that true and is it time that the Government told people if that is the case?
LINDSAY TANNER: You are talking to a Finance Minister, Laurie, so it's my job to say that's true, no matter what the issue, of course. (Laughs). Look, I think we have had a period under John Howard where the Government became very profligate, spending was growing at 5% per annum in real terms when we took Office, not-withstanding that we were in the middle of a mining boom with economic growth running quite strongly and huge amounts of money being splashed around on politically driven projects. Government grants consisted of $450- million in 2002.
2007, the Howard Government spent $4.5-billion, so ten times the amount of money that they'd spent five years previously, so there has been a pattern of enormous generosity on the part of the former government trying to buy votes and clearly I'm committed to reining that back in. It is not easy. Because once something's committed, once you've got an entitlement in place, it's very hard to take away, but I'm committed to reining that back in. I'd remind you that we had nearly $7.5 billion of savings in our first budget, a significant proportion of which was reigning those sort of things back in.
LAURIE OAKES: I suppose in defence of the former Treasurer I should say that figures release the other day show that the surplus came out at 1.7% of GDP when Treasury had only urged them to aim at 1%, so I think it's pretty hard to justify the attack on Costello, isn't it?
LINDSAY TANNER: No, I don't agree with that, Laurie. In fact, you'll see that part of that variation was simply an accounting error and it's just spread through under-spends in routine spending across many different departments. The truth is that it would be very difficult over the past few years for any government to have a deficit because the mining boom has been pumping up revenue spectacularly.
We've had company tax and to a lesser extent income tax growing amazingly. Income tax receipts have grown something like 24% over the past 3 years or so, so we have seen a surge of revenue and we believe the previous government should have been more disciplined, not only in how much it was spending, but also the quality of spending. They wasted a lot of money on short-term vote buying and didn't invest in the infrastructure and the skills that we need for long-term sustainable growth.
LAURIE OAKES: Well, let's talk about the Government's latest big spending plan, the $4 billion investment to improve competition in the home lending market. How big an impact do you expect that will have, given that, I think, the market in these mortgage securities has dropped from $18 billion to $2.5 billion a quarter?
LINDSAY TANNER: I think it'll have a significant impact and it's very important to strengthen competition. One of the unfortunate side effects of the US financial crisis has been that sources of money for lending by mortgage brokers, by people who aren't banks and who've put a lot of competitive pressure on banks in recent years, have pretty much dried up. That, of course, means that you strengthen the bank's market share, you strengthen their bargaining power and also you reduce the pressure on them to pass through interest-rate reductions. So it's really important to put more competitive pressure on the banks and ensure these alternative forms of finance are available --
LAURIE OAKES: But $4 billion is not 18 billion are you going to have to pump more in?
LINDSAY TANNER: We don't have any plans to increase the amount that's involved, Laurie, and it is an investment, by the way, it's not spending. It's an investment that the Government will ultimately recoup. It will get a return on. But we don't have any specific plans to do that, but clearly, we'll monitor the situation. As I said earlier on, we can't predict the medium-term impacts of the US financial crisis. They're still trying to sort out how they deal with it. We are unfortunately collateral damage as a result of that in some respects and particularly the mortgage brokers, the non-bank mortgage lenders have been in the middle of all of that because their sources of finance, even though they've been stable, they've been financially secure, they haven't been involved in dodgy lending practices, they're unfortunate victims of what's happened in the United States.
LAURIE OAKES: There's one headline today that suggests that this plan could knock up to $80 a month off mortgages. Is that the case and how would that happen?
LINDSAY TANNER: I haven't seen that headline, Laurie, and I think that's probably a bit speculative because you don't know how players in the market will behave, of course. But, recent history shows that these providers of mortgage lending have played a really important role in making the market more competitive, putting pressure on the banks to reduce their margins. If you look, for example, 20 years ago, the gap between what the banks were paying in deposits and what they were charging people for lending was about 4%.
That was enormous. That's gone down to well below 2% and, of course, if we see that competition that's been the key driver of that shift drying up, then inevitably there will be a drift back out again. So it is really important that we keep put competitive pressure on the banks because that does mean cheaper mortgages for people. How much that will end up being, I think is very difficult to quantify.
LAURIE OAKES: The Government's been squealing about the Coalition voting against measures in the Senate. That's pretty hypocritical, isn't it, given that you did exactly the same when you were in Opposition and were in a position to influence the Senate?
LINDSAY TANNER: Look, I don't think it is hypocritical, Laurie, I think you've got to look at the circumstances from time to time and there were, as far as I can see, no claims of broken promises involved here and no big issues of principle for the Liberal Party, I think they're just being opportunistic and cherry picking particular things that they want to --
LAURIE OAKES: But the Labor Party voted against tax cuts in the Senate, income tax cuts.
LINDSAY TANNER: There was a big issue of principle involved there. We got caned politically as a result of that result of course but there was a big issue of principle there and that was that we felt those tax cuts were exceedingly generous to people who were well off and very unfair to people at that lower end, at the bottom end and that's a position we've been putting consistently for some time. In this case, I can't see, for example, where's the big issue of principle in ensuring that teenage girls can buy cheaper alcohol?
Where's the big issue of principle in ensuring that Porsche drivers and Ferrari drivers pay lower taxes? I really don't understand why the Liberal Party's taking the position it is taking.
LAURIE OAKES: Well, let's look at a big issue of principle - the question of pensioners. We've had the Prime Minister, the Deputy Prime Minister, the Treasurer saying it is impossible to live on the pension and yet the Government's saying, to these people, you're going to have to live on it anyway for another 10 months. Now, where's the principle there?
LINDSAY TANNER: Laurie, when we came to Office we had two key focuses for our first budget. One of course was to deliver on our election commitments, which included some significant improvements for pensioners such as increasing a utility allowance ---
LAURIE OAKES: I know about all those - the Government's been rehashing those all week, we know about that, but pensioners can't live on what they've got. It is true. Why can't the Government do something, an interim measure, while it waits for the Harmer Report?
LINDSAY TANNER: This is an extremely complex question because you've got a range of other entitlements, other pensions, like the disability pension, you've got the question of whether you have the single pension only improved or married pension as well...
LAURIE OAKES: But there are other ways, it's been suggested that you could provide an interim allowance to tide people over until you take action, presumably in next year's budget, why can't you do that?
LINDSAY TANNER: There's a variety of suggestions that have been made, Laurie. Clearly anything that's done on an interim basis, as you suggest, almost inevitably is going to become permanent. You can't give people something and then take it away, so that, in a sense, would become the permanent decision and also you've got very complex questions about eligibility entitlements for other things like the age care subsidy system is built around the pension rate, for example. All of these things have got to be worked through in a considered proper way, and today's...
LAURIE OAKES: So no help for pensioners? No hope for pensioners before the budget?
LINDSAY TANNER: I'm not saying there's no hope for pensioners, Laurie. We'll deal with these issues in a considered and proper way. We've also got the US financial crisis impacting on the economy, on our budget. The budget was framed in probably the most difficult economic circumstances this country's seen for many years. These are other things we've got to bear in mind. Malcolm Turnbull was in Government a year ago and he opposed increasing the pension then; he opposed increasing the pension in May this year and now we find out this morning, courtesy the Glenn Milne article in the Daily Telegraph that he opposed Brendan Nelson's proposal to increase the pension only a few weeks ago...
LAURIE OAKES: Nick Minchin has denied that.
LINDSAY TANNER: Can Australian pensioners trust him or believe anything he says?
LAURIE OAKES: Mr Tanner, we are out of time, but we thank you.
LAURIE OAKES: Thanks very much, Laurie.
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