LINDSAY TANNER: Australia's very well positioned to deal with the highly unusual circumstances we now face in the international economy. We're seeing reverberations through global markets, through financial markets and stock markets that are influencing events in Australia.
But we have a very strong budget surplus. We've got banks with very substantial balance sheets that are amongst the world's most secure banks. We've got very strong financial regulators, and of course, we've still got very reasonable economic growth that the IMF has projected only a couple of days ago will continue to be above two per cent over the forthcoming year or two.
These are very difficult circumstances for the Australian economy. They are posing significant threats. But we are far better positioned than almost all other developed nations to cope with this turbulence and to continue to grow and to see economic opportunity continue to be available for people and to see unemployment remain at low levels.
I note that the Opposition has been putting forward some claims about what the Government should be doing in the immediate future to deal with the impact of the international turbulence. I'd point out that in one of these instances, the Government is part way through a process of introducing a financial claim scheme - effectively a deposit insurance scheme - that the Opposition's now claiming should be much larger.
The Opposition, when in Government, rejected the recommendations of the Council of Financial Regulators to introduce such a scheme, so Malcolm Turnbull and his colleagues had the opportunity to do what the Government's now doing several years ago.
They didn't take up that opportunity. They now suggest that the Government should be doing it in a different way. We'll proceed with the consultation process that is now underway, and about the detail of that scheme. We've had that in train now for several months.
It's clearly an important thing to put therefore protection for depositors, but I'd emphasise again that the Australian financial system is sound, it is secure, and we have the world's best regulators. We have very very strong regulatory arrangements, and the economy is still growing. Unemployment remains very low.
So we are in a good position, we are in good shape as an economy to weather what is a very serious financial storm internationally, and ensure that we can continue to grow and that people can continue to have economic opportunity into the future.
Thank you.
QUESTION: Lindsay, [indistinct] going so well, do you think the markets are seeing it that way, given the stock exchange has dropped again today?
LINDSAY TANNER: Stock markets tend to fluctuate in periods of heightened speculation, and we've seen quite extreme gyrations in many parts of the world over the past few weeks. People obviously will be understandably very nervous about some of these events, but it is important to recall that share prices go up as well as down in the same way that we had an extended period where share prices did go up in leaps and bounds over the past few years.
So I'm confident that these will be short-term phenomena. I can't predict share market movements any more than anybody else can, but it's important that we keep our eye on the wider economy as well, and the fundamentals in the Australian economy remain sound.
And the companies that are seeing their share prices drop - if you actually look at some of those major companies, you'll see that their fundamentals are pretty sound as well.
I have confidence in the strength of the Australian economy and our financial system and our major companies, and I'm sure that that will be reflected in the stock market in due course.
QUESTION: Have Mr Swan and Rudd been talking up the economy too much, given the severity of the crisis? Given… talking up the banks too much, I should say.
LINDSAY TANNER: It's our responsibility as a Government to ensure that people take a balanced view of these circumstances.
People do look to the Government for guidance and leadership when we're dealing with such extraordinary international events and clearly, the problems in international financial markets and the reaction, the responses from the governments of countries like the US and the UK and indeed the central banks are decisive actions that we have every hope will solve the problems that have been bedevilling the international financial markets, and gumming up credit markets over the recent weeks.
Time will tell exactly how these things play out. But it is important for the Australian Government to reassure people that our fundamentals remain sound. We do not have the toxic mortgages problem that the United States has.
We do not have banks in the conditions that some of the banks such as Lehman Brothers, that has gone bankrupt in the United States, have been.
We have a strong set of economic fundamentals. Our economic growth is projected to remain reasonable, unlike the other major developed countries in the world where the IMF expects them to either have zero growth, or head into recession.
It's important that people are reminded of these fundamentals at a time when understandably, people will be nervous, and may choose to in effect reduce their economic activity, or reduce their investments.
And that in itself, if it's an overreaction, is not good for the Australian economy.
We think that people should take a balanced view of these circumstances, and yes, be cautious about decisions that they make, whether buying or investing.
But it's important that the economy and the economic activity that keeps people employed continues and it's important the Government gives a balanced view of the circumstances we face.
QUESTION: So it's guarantee the banks…
LINDSAY TANNER: Sorry.
QUESTION: Can you guarantee the banks? And if so, why do we need deposit guarantees?
LINDSAY TANNER: We introduced the deposit protection legislation, or the consultation process for the legislation some months ago, in order to ensure that transactional banking is not placed at risk as a result of any financial institution getting into difficulty. It is true that depositors are first in the queue, effectively, for the proceeds, if there were to be any financial institution in trouble, but of course, that can take some time.
The purpose of this legislation was always to ensure that the ordinary bank accounts of people that people depend on for their day to day activities, for their salaries to go through, for them to pay the rent, for them to pay the mortgage, are not in any way disrupted if there were to be the highly unlikely prospect of a financial institution getting into trouble.
This action was initiated by the Government some months ago. It's not something that's been initiated today or yesterday or last week. Australia up until now has been one of only two countries in the developed world - New Zealand being the other - that has no protection for depositors of this kind.
We felt that this protection was an important thing to put in place to avoid a risk of disruption to people's ordinary financial activities.
QUESTION: What's going to stop - what's it going to take to stop people jumping at shadows?
LINDSAY TANNER: It's vital that we maintain confidence in the fundamentals of the Australian economy when we have such extraordinary international circumstances.
We're not immune from these events, we're not immune from the influences that they are casting on our financial system and on economic activity generally. That's why growth forecasts have been factored down a bit. That's why we're expecting economic growth to be in the two per cent zone rather than higher.
But it is important that we don't allow the extraordinary news from overseas to suggest that similar occurrences are going to occur in Australia. We don't know precisely how the problem in the United States in particular and the knock-on consequences in other markets will play out. We don't know how effective the responses from the regulators and governments will be in those markets. But we can take heart from the fact that those responses have been big and they've been decisive. And we can also take heart from the fact that the things that have caused the problems in those markets are essentially not present in Australia.
We're suffering indirect consequences from those events overseas but we don't have the same direct problems, and of course we have very strong fundamentals that give us a good position in which to resist the effects of these very unfortunate problems in markets like the United States.
QUESTION: So why can't the markets see that though? If things are good here, if things are solid and sound here, why can't they see that?
LINDSAY TANNER: Look, I can't second guess the decisions of investors in share markets. Clearly there's a long established pattern that when there is turbulence, when there is uncertainty, people tend to retreat, people tend to become very conservative in their decision-making. That's understandable, that's ultimately a choice for individual investors and institutions that have the responsibility of managing people's money, which is a very serious responsibility. That is a natural consequence of international turbulence and uncertainty.
But it's important to take a medium term view here, that the question of what happens in the share markets is not only important today but it's also important tomorrow, next week, next month, next year. And that of course is yet to be seen.
So we have seen these kind of fluctuations in the past, for example in 1987, and the extent to which they impact on the overall economy can vary considerably.
QUESTION: Economists today have suggested that the Government could actually buy shares to restore confidence. Is - will the Government consider buying shares?
LINDSAY TANNER: In the circumstances we face we're not ruling out or ruling in any potential possibility. We've got no plans of that kind but clearly in the circumstances in the international financial markets that prevail we have to keep all options available. We certainly have no intention nor any plans to engage in things of that kind. But I'm not in a position to rule out options of that nature. It is important that we keep all of our possibilities open, however remote they may be, because the circumstances internationally are very unusual and extremely challenging for our country.
QUESTION: The Opposition is also calling for postponement of the emissions trading scheme and increase in the AAA residential mortgage backed securities. What's your line of view on that please?
LINDSAY TANNER: The Government has put in place a scheme to allow $4 billion to finance new residential mortgages in the non-bank sector, which has been a source of critical competition for the banks and the way of driving interest rates down in the longer-term, and much of the finance for that sector has dried up because of the international circumstances. So the Government made a decision to make available $4 billion of new mortgage money for top quality mortgages to help keep that sector putting competitive pressure on the banks. We don't have any plans to increase the amount of money involved but we certainly don't rule anything in or out.
As I said before, it's important in the circumstances we face that we keep the options that are available to us open but we have no plans to change the amount that is involved there. We believe that $4 billion is $4 billion that is well invested. Of course the - it will become an asset that the Government owns so it's not a giveaway of $4 billion, it's not spending $4 billion, it's investing $4 billion in high quality assets that will deliver a return.
Equally, on the question of climate change and emissions trading, we have no intention of deviating from our commitments to tackle that issue. We are part way through a consultation process with respect to the Government's green paper and the proposals that are contained in that green paper with the intention of establishing our final position with respect to this issue towards the end of this year, with the objective of introducing an emissions trading scheme by 2010. That objective remains unchanged.
Clearly the current circumstances will in many respects underscore the seriousness of the debate about climate change. But we do not have a choice as a nation. We have to deal with both of these issues. We have to deal with the economic challenges that we confront in the immediate future as a result of the international financial crisis, but we also have to deal with the longer term challenges that climate change presents to this nation.
We've had, under the Liberals, 11 years of doing nothing about climate change, 11 years of delay. We cannot afford extended further delay. We have to keep moving on this issue.
QUESTION: You mentioned '87 before, that was comparatively short and sharp. What do you do if the markets are even worse this time next Friday?
LINDSAY TANNER: I'm not going to speculate on what the Government may do in response to any further deterioration in the international conditions or indeed the Australian stock market because these things are not easy to predict. And, as I've said before, we've got options that are available to us; some of them very - more remote possibilities than others…
QUESTION: For example?
LINDSAY TANNER: … and we're not. And I'm not going to speculate on what - well, I've actually mentioned in response to questions a couple of those examples. We're not going to speculate on what may or may not be put into use.
But clearly what you're seeing around the world is governments and central banks acting decisively in order to deal with extraordinary circumstances.
The circumstances we face in Australia at present are not in the same league as situations such as in the United States. But we can't predict exactly where the United States flow-on consequences will lead. We have no plans to take some of the steps that were floated before but the options that are open to us we're not arbitrarily ruling out either.
QUESTION: What do you want to see coming out of Washington this weekend?
LINDSAY TANNER: Wayne Swan is meeting with a number of the key players globally; of course the G-20 and the key international financial institutions, as well as American institutions. And clearly the main aim that Australia has is to ensure that there is well coordinated global action to deal with these issues. We've seen of course global central banks, key central banks acting pretty much in concert on interest rates.
So I think that the key message that we'll be seeking to get is that individual major nations need to be acting together to tackle these problems and not, in a sense, doing their own thing without any concern for the implications for other countries.
We are dealing with a systemic crisis internationally which has its heart in the United States but which is affecting many other major countries. It's very important that the world coordinates its action to ensure that the knock-on consequences are minimised, and it's particularly important for Australia because we are a trading nation, we are connected very strongly to the rest of the world. And it's important that economic activity continues to be strong, and that will be our main message, that will be Wayne Swan's main message, and it has been his main message already.
QUESTION: What would you say to Australians thinking of taking their money out of the banks?
LINDSAY TANNER: I would say to people that they should make their decisions about their financial circumstances on the basis of the needs that they have and make the decisions with a cool, clear head about the circumstances that they face.
People take money out of banks and put money in banks all the time every day for all kinds of different reasons. I would suggest to people that they should simply continue to do precisely what people have been doing for time immemorial which is getting about their business.
Thanks very much folks.
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