Helen Dalley: As we’ve just seen, President Bush promised a global response to the crisis but no specific action, while Treasurer Wayne Swan is attending a summit of the G20 nations in Washington. And in about 90 minutes time the Deputy Prime Minister, Julia Gillard, will be launching National Anti-Poverty Week in Melbourne. We respectfully suggest that there may be many more Australians in poverty this time next year if governments can’t find a way to calm the world’s financial markets. The $700 billion Bush rescue package hasn’t worked so far, nor the interest rate cuts by the world’s central banks started by our Reserve Bank, nor did a British package of more than a trillion dollars aimed at heading off a banking collapse. Well, here to talk about these issues is the Acting Treasurer and Finance Minister, Lindsay Tanner, who joins us now from Melbourne. Lindsay Tanner, welcome to Sunday Agenda.
Lindsay Tanner: Good morning Helen.
Helen Dalley: Now you, the PM, and other senior government ministers and bureaucrats met in Canberra for most of yesterday and you’re meeting again today for crisis talks. What measures have you come up with to try and calm the panic and stop us having another week as bad as last week?
Lindsay Tanner: I can’t announce anything at present, but we’ve been giving . . .
Helen Dalley: Why not?
Lindsay Tanner: . . . serious consideration to the US financial crisis and the global circumstances that are flowing from that, and things like the question of guarantee levels for deposits in the Australian banking and financial system. But obviously as we are going to be meeting further on today then I would expect that some announcements are likely to flow from that. But it’s very important that people take a balanced view of all these circumstances. It’s a very positive thing that the world’s major economies have agreed to work in concert, have agreed to work with together to tackle these problems. And so you’re seeing a coming together around key things like recapitalising the banks and also guaranteeing deposits and ensuring that credit risk is viewed reasonably. All of those things will I think flow from the decision that’s just occurred by the G7.
Helen Dalley: All right. Now will you increase the amount of bank deposits that will be guaranteed by the government in the legislation to be introduced into Parliament this week?
Lindsay Tanner: We’ve been in a process of consultation about the proposals that were put forward some months ago now to effectively ensure bank deposits up to $20,000 for all depositors. And one of the issues, of course being considered, was whether that was an appropriate limit. We’re finalising those considerations. We did give some examination of that yesterday in our Strategic Budget and Priorities committee meeting and we expect to be further considering that today. But I can’t indicate to you at this point what the outcome will be. But clearly as the circumstances have worsened and there is considerable fear abroad in international markets which is spilling over into the Australian stock market, in particular, we do have a different situation to consider here.
Helen Dalley: But Minister, why can’t you give us some indication, I mean it’s these sorts of interviews that will help allay people’s fears? I mean, will you increase the amount of deposit that will be guaranteed?
Lindsay Tanner: Helen, I can’t give you an indication because the decision has not yet been made and I’m not unilaterally deciding the outcome here. We are further considering these issues during the course of today and we’ll be making an announcement I’d expect in the very near future about those matters, probably today.
Helen Dalley: All right. Well $100,000, let’s assume that you are considering that. $100,000 is the figure you’re considering?
Lindsay Tanner: I can’t indicate any specific figures, Helen. All I can say is that I would expect an announcement will be made very soon about the shape of that legislation, about the nature of the guarantee to depositors. And I would emphasise that there is no reason for concern about Australian financial institutions; they are in good shape, they are strongly capitalised and very well regulated. The problem we have, of course, is that when fear of this kind spreads from the United States, through Europe and across the world, a relatively small economy like Australia inevitably is influenced by that. That’s a key factor in what’s happening in our stock market, for example. It’s impossible to insulate Australia completely from these sentiments.
Helen Dalley: But you can see why your talk and the government’s talk isn’t enough to allay people’s fears. You actually have to do some concrete things. So what are you proposing to do?
Lindsay Tanner: I’d expect there will be announcements made probably later today about this specific question about the deposits guarantee question, but that’s not the only issue, of course, in play here, but that’s a major concern for people. But I would stress again that if you look at the balance sheets of our major financial institutions, you look at the strength of our regulators, whether it be under Liberal or Labor Governments, you’ll see that we are in very good shape. We don’t have the same problems in our financial institutions balance sheets that major institutions in the United States and Europe do have. What we are feeling is the indirect consequences of the loss of confidence in those major economies, which inevitably has an impact in smaller developed economies like Australia.
Helen Dalley: Okay. Well, the Opposition is already taking credit for increase to $100,000 in deposits having a government guarantee.
Lindsay Tanner: The Opposition has been deliberately fuelling fear for weeks, Helen, and they’ve been playing with fire. We’re talking about people’s life savings here. We’re talking about people’s businesses. We’re talking about people’s jobs. These are very serious circumstances internationally, and for weeks Malcolm Turnbull has deliberately been stirring up fear, for example about whether Medibank Private is still in good shape; about whether private health insurance funds are going to be okay. Julie Bishop was out there totally misrepresenting comments by the Prime Minister only a day or so ago. And they are acting grossly irresponsibly, in my view. There’ll be a time for political point-scoring; there’ll be a time for the usual political games to take hold, but in the current international circumstances it’s extremely unwise for them to behave like they’ve been behaving.
Helen Dalley: All right. Minister, you are saying that this about people’s livelihoods; it’s about often their life savings, so why is there any hesitation about this particular bank deposit guarantee when the US already has $100,000 guarantee and they’re thinking of increasing theirs to $250,000 per depositor? Why the hesitation, why does it take you all weekend to decide this?
Lindsay Tanner: Helen, it’s important that decisions about matters as serious as this are made properly with all the relevant information in a considered way, not just in some kind of instant knee-jerk reaction. They are being dealt with in a considered way. The Strategic Budget and Priorities Committee, of which I’m a member, met for much of yesterday. We’ve met a number of times over the course of the last week or so and we’ll be meeting again today. It is very important that these choices are made in a deliberate and sensible way because there are all kinds of other issues associated with these things. It’s not a simple thing even to guarantee bank deposits up to $20,000. These are not straightforward issues, they have to be considered properly and that’s exactly what we’re doing.
Helen Dalley: But even by guaranteeing them you’re not really expecting them to ever be needed are you, because the banks are properly capitalised? That’s what you’ve been telling us.
Lindsay Tanner: That’s correct, but putting in place guarantees of this kind changes behaviour. Now in the current circumstances, that is what’s occurring in other major economies and it’s occurring for very good reasons. But the change in behaviour, the change in what people make decisions about and how they decide where their money is going is something that has to be considered very seriously, as do the boundaries and the detail of any proposition that’s put in place. We’re doing this in a proper, sensible way.
Helen Dalley: Okay. Let’s have a look at some other issues that have been done around the world. Are you considering injecting money into banks through equity stakes like the British Government did during the week?
Lindsay Tanner: We’re not in any consideration of propositions of that kind, although in the circumstances we face, however remote any possibilities, we’re neither ruling it in or ruling it out arbitrarily. But that kind of proposition is not on the table. As I’ve indicated to you we do not have the kinds of problems that some of the financial institutions in places like the US and UK have had. But we’re not ruling out any kind of action in the circumstances that we face and that’s really all I can say about that kind of proposition.
Helen Dalley: All right. What about extending debt guarantees to banks, giving them that government support to help restore trust between banks? Are you thinking of doing that?
Lindsay Tanner: Well, that’s really one of the questions that’s connected with the deposits guarantee issue. There is a broad set of issues here under consideration that is ultimately about banks’ liabilities, whether it to be small depositors or to other banks, all of which has to be taken into account and which as I said I expect there’ll be an announcement about our position, if not within the next few hours, certainly very, very soon.
Helen Dalley: All right. If our banks don’t get those government guarantees and other countries’ banks do, our major banks have indicated that their cost of funding could go up again. Is that something that you’re really taking into account?
Lindsay Tanner: Yes, absolutely. That’s one of the key questions that we’ve been thinking carefully about. It’s one of the key issues in play here. And of course you’ll recall that we are part-way through a complete ban on short-selling in stock markets. Well, the key thing that drove that was the fact that similar bans were put in place in the major stock markets around the world, which means that if you don’t act in concert with other stock markets it can have very significant consequences. Well, similar considerations apply here. Because we are a relatively small economy compared with the US and Europe and Japan and so forth that means that when they make certain decisions that does impact on where we’re heading whether we like it or not.
Helen Dalley: So you are considering guaranteeing bank debts?
Lindsay Tanner: All I can say is that the whole question of bank liabilities, whether it’s the small or large depositors, whoever they have liabilities with, all of those things are part of a wider consideration of exactly how to deal with the circumstances that we face.
Helen Dalley: Okay. A number of people in the market and the public think that the G7 plan for instance, announced by Henry Paulson yesterday morning, won’t do much, that it’s just talk and that therefore the G20 meeting also can’t achieve much. Is Wayne Swan’s trip to the G20 meeting a waste of time?
Lindsay Tanner: Absolutely not. In fact, the key thing that Australia has been pushing is now happening, which is global coordination. The great thing about the G7 decision is that it sets out the key broad things that need to occur internationally, that includes things like equity stakes in banks. And you’ll see now a more coordinated effort being taken by the major economies. Until recently you hadn’t seen that with Europe. You’d seen for example the German Finance Minister indicate that basically these were American problems and that everything was fine in much of Europe. Well that, of course, has very much changed. So putting in place that framework that says we’re all acting together, which is influencing the Americans. They previously weren’t going to take equity stakes in banks and they were constricting themselves to basically buying up dodgy mortgages, buying up assets that were toxic. They’ve now moved to a different position. I think that’s a very positive thing. So certainly the action that has emerged is not the end of the story.
But bear in mind in these circumstances you will always get a spectrum of opinion, and the ones that will get the greatest reflection in the media, the ones that will get the most coverage will be the people speaking doom and gloom. There is a variety of opinion out there, we shouldn’t be misled into thinking that everybody’s about to jump off a cliff here. It’s very difficult circumstances, but I believe that the G7 move is a really positive development.
Helen Dalley: Okay. Minister, can anything really happen to resolve this crisis with a lame duck President in the White House?
Lindsay Tanner: That’s obviously been one of the elements that’s made life a bit difficult for the United States, just the nature of the electoral cycle and the fact that he’s unable to stand for re-election, and indeed that you’ve got two candidates who don’t really have a very close direct connection with existing administration. So, often, you’d have the sitting Vice-President as the candidate for the incumbent party. But I think that’s a real positive. I think you’ll see that whatever the outcome of the election in the United States the sense of change, the sense of a new administration will have a very powerful, positive effect on confidence. It won’t solve this problem by itself but I think that will actually be a very beneficial factor. Now that’s a few weeks away, of course. But you shouldn’t underestimate the power of the United States to reinvent itself, to recover, and that’s why I’d caution people not to get too excessively concerned about the current circumstances. There are other factors in play here that I think will have a positive impact and it’ll be a positive impact pretty soon.
Helen Dalley: All right. Just a couple of questions in our remaining few minutes. You’re going to guarantee bank deposits but can the government do anything to help Australians who’ve lost a lot of money in compulsory super funds? Both Coalition and Labor Governments have encouraged workers to put their money into super funds.
Lindsay Tanner: I think you need to be careful how you describe this proposition, because in effect what’s happened thus far is that the level of Australian stock market prices has gone back to somewhere where it was approximately three, or three a bit years ago. So we have come off a period of very, very rapid growth and we have seen a major correction to that, a very substantial drop as we all know. What we don’t know is what is going to happen ensuing weeks and ensuing months. So you can’t form judgment . . .
Helen Dalley: Can you do anything to help those super funds?
Lindsay Tanner: What we can do is manage the economy responsibly, ensure that confidence is strong and ensure that confidence returns both to equity markets, but also to the wider economy. So that’s the key focus for the government. And we’ve got a very strong set of fundamentals in Australia, a very strong budget surplus. We’ve got good regulators. The banks and financial institutions do not have the problems that the international institutions have got, so there is no reason why we won’t see confidence return to equity markets in the near future. But we can’t guarantee that. The important point here is markets go up and they go down. Yes, some people will be adversely affected, particularly in the short term, by these things. But superannuation is a long term investment and we believe over the long term it will be shown that notwithstanding the problems we’ve just encountered, it will be a good investment for people.
Helen Dalley: Minister, really briefly, a one word answer, is Australia facing a recession, not just a slowdown?
Lindsay Tanner: The data that we’ve got thus far indicates growth is likely to continue at above two per cent. Now clearly the international situation worsening is potentially going to knock that down a fraction. But we are still in good shape and we have no reason to believe that we’ll see anything beyond a slowdown. But the international circumstances, of course, will influence that. We’ll have estimates, new estimates of, and projections for, growth and employment published within a few weeks in the mid-year fiscal outlook papers that typically come out November-December.
Helen Dalley: Minister, thanks so much for joining us, we’ll leave it there.
Lindsay Tanner: Thanks very much Helen.
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