STEVE PRICE: Now, as the world wakes up from that euphoria of yesterday's Obama victory, they have the hangover of a world economic crisis to deal with.
As we heard yesterday on this program, we heard just how hard Australia's going to be hit. A projected surplus of over $21 billion is now down to just over five. Growth of 2 and 2.25 per cent in the next two years; unemployment expected to jump from its current 4.3 per cent to nearly 6 by 2010, with some predictions yesterday of 150,000 Australians out of work by the middle of next year.
Real estate prices are crashing around our ears. And as we heard from small business yesterday calling me, the phones have simply stopped ringing.
The Federal Government's warned its post-election spending promises will have to be severely curtailed.
Now, the Treasurer, Wayne Swan, who I've got to say embarrassed himself yesterday by not knowing what the Treasury inflation predictions were, and I'll play that for you later, he's on his way to a meeting of the G20 in South America.
Finance Minister Lindsay Tanner is the Acting Treasurer, he's on the line. Thanks for your time again.
LINDSAY TANNER: Good morning, Steve.
STEVE PRICE: What is the Government's expected inflation figure for this financial year?
LINDSAY TANNER: To conclude, three and a half per cent for the '08-09 year is the projection, Steve.
STEVE PRICE: And next year, back down to three?
LINDSAY TANNER: That's correct.
STEVE PRICE: So everyone, were they wrong to target inflation as the main enemy earlier this year?
LINDSAY TANNER: No, they weren't, and, of course, it's easy to be wise in hindsight about any of these things, but they certainly weren't. We had a serious problem at that point, and if inflation becomes entrenched, then, as we know from Australia's modern history, it takes a long time to get rid of. And it's a productivity killer, it's a savings killer, so the Reserve Bank and the Government, I think, were right to tackle it.
STEVE PRICE: You're confident of Treasury predictions?
LINDSAY TANNER: I'm confident of the predictions. These, of course, are very, very difficult things, and there are so many factors involved that they are rarely precisely accurate, but they generally get them pretty good, pretty accurate, and we're dealing in very uncertain things, particularly with the international crisis. But I'm confident the predictions are about as clear and as accurate as you could reasonably get.
STEVE PRICE: I'm sure, knowing you as I do, the last thing you want to do is to be in a government that sits in Canberra and watches the unemployment rate grow. Job figures are really going wild today with the predictions. We have some economists saying unemployment could get as high as nine per cent. Is that way out of the park?
LINDSAY TANNER: Look, I think it is, Steve. I - you're right that it does worry me, it does worry Kevin Rudd, Wayne Swan and the rest of the Government about the prospect of rising unemployment. That's the thing that is the most serious concern on the horizon without question.
Fortunately, it's from a pretty low base and I - nobody can know where the international circumstances are going to take us. The Australian economy, by itself, is in very robust shape, it's very sound. The fundamentals are strong and we've got good business investment, we've got good balance sheets, we've got good banks, and still, a significant Budget surplus.
So it's not what's happening here that's the problem, it's just these downward pressures internationally. If they get seriously worse, then we're in very much uncharted territory.
STEVE PRICE: Is there anything government can do to save people's jobs? Did I hear you say earlier today 10,000 jobs have gone in October?
LINDSAY TANNER: I haven't said a comment of that kind today, so I'm not sure where that's come from. But the - look, monthly figures fluctuate. The monthly figures are very unreliable, so whether they go up or down significantly, people of both sides of politics always express great caution about emphasising monthly figures.
There are things we can do. There are things we are already doing. The $10 billion package of stimulus of payments to pensioners, carers and families, that's due to come very shortly, is, to a large degree, about keeping money ticking over and keeping jobs ticking over, ensuring that…
STEVE PRICE: But how would that save a job? I mean, I know your - the housing part of that package, you could argue, would have a trickle down effect from everything from building to building supplies, to retailers providing things for people to put into their new houses. But how does the pension injection, which I agree with, or the $1000 child bonus, how does that save people's jobs?
LINDSAY TANNER: It just means that more money is being spent in the economy than otherwise would be. That means, for example, that a particular shop might - instead of putting off a couple of people because trade has dropped away, might still keep those people on.
If those people are still on, they've got wages still coming in. They're still spending money rather than pulling their spending back. So it's all about just keeping the overall flow going.
Now, there's other issues involved, of course. It's not as simple as that. But that's a very important initiative to help keep the activity levels up, because that's what decides how many people have got jobs.
STEVE PRICE: The economic review yesterday says, planned tax cuts for 2011, 2012 are off. Is that right?
LINDSAY TANNER: These are what are called aspirational tax cuts. Both sides prior to the last election set this out as an aspiration, but very clearly said we're not promising these at this point because it's too far away into the future to be absolutely clear what the position will be.
We factored those in. We factored an allowance into the Budget this year in the final year of the four years, we factored in the room to do those cuts. But what we've effectively done here is said, look, where things are heading, we just have to leave that aside for the time being.
STEVE PRICE: So there was no promise in the election campaign of a tax cut for 2011-2012?
LINDSAY TANNER: That's correct. There was a…
STEVE PRICE: What language was used?
LINDSAY TANNER: The language was, this is our aspiration. And it was both sides. Both sides, effectively, made tax cut promises for, you know, this financial year, next year. Those are being honoured. And both sides said - and here is our longer term goal, we want to make these changes. But we're very clearly not making this a promise because it's too far away. It would be irresponsible to make promises about Budgets four or five years away when we've got no idea what the economic circumstances will be.
In the Budget this year, we made a provision to enable us to do this. But, of course, the changed circumstances have stripped away the capacity to do it, at least for the time being.
STEVE PRICE: We're talking to Lindsay Tanner. The broad qu… the broad suggestion yesterday from your government was that all post-election promises are now - spending promises are now on the table; is that right?
LINDSAY TANNER: In effect…
STEVE PRICE: Except pensions.
LINDSAY TANNER: Yeah. In effect, what's happened is that all of the promises we made prior to the election are under way, funded, locked in, and there is no suggestion…
STEVE PRICE: All of them.
LINDSAY TANNER: That's right. There is no suggestion of breaching those promises.
Since the election, of course, there's been a whole variety of things kicked off. Mostly reviews about things like innovation, for example, and paid maternity leave, where there have been no explicit government promises made, but there have been general statements of, yes, we want to do something about this issue and we intend to move on it.
It's all of those things that now clearly we have to work through very carefully. And the ultimate issue is time. It's a question of how quickly we're going to be able to move on these things. That's the thing that's in play.
STEVE PRICE: How much of the infrastructure program you wanted to do is now going to be cancelled?
LINDSAY TANNER: I think the answer to that is none, Steve. I think people are getting a misleading picture of this, because, clearly, the amount of money coming from this year's surplus and next year's surplus into those funds has - is going to be reduced. But the $41 billion that we were projecting was always a long term figure. There was never a suggestion that all of that was going to be tipped into the economy over the period of two or three years. That would be severely irresponsible.
We've got about 26 billion that's either in those funds or on the way in, so we have more than enough to finance the immediate term infrastructure proposals, even a little bit more than perhaps was originally intended.
STEVE PRICE: And that's the best way to keep jobs ticking over isn't it?
LINDSAY TANNER: It's a very important element. It's not quite as effective as, perhaps, it once might have been, because there are often significant time lags between a decision to build something and, you know, people on the ground actually building things, because you've got planning and all the detailed technical stuff that has to happen. And also, it's a bit more capital intensive these days. You don't have, you know, vast armies of blokes with shovels and so on, like you might have had 50 years ago.
But nonetheless, it's still very important in generating economic activity. And, of course, it generates greater productivity and capacity for the future. So there's no question it's a key part of the picture.
STEVE PRICE: Would you like the banks to pass on the full interest rate cut?
LINDSAY TANNER: Yes, we would, and we're disappointed that they haven't. It's mixed, of course, so I think the best of them has indicated passing on 65 out of the 75. So that's not far off it. But I suspect the Reserve Bank, in making the decision, did so on the assumption that not all of what they were doing would be passed on and factored that into their decision.
We've seen this international connection really throw this stuff haywire, of course, and it's difficult to analyse precisely. So yeah, we're disappointed more hasn't been - come on, and we'll be keeping the pressure on the banks to deliver every last cent they can.
STEVE PRICE: I know you're flat out. A couple of quick other ones. Your ambitious targets on carbon trading, are they now put on the back burner?
LINDSAY TANNER: No. Look, we're proceeding with that, Steve. It's one of those things that we've got to tackle. Business is saying, look, we don't want the uncertainty, so, you know, business obviously has got its view about what the outcome should be. But it's saying, broadly, we don't want further delay, further mucking around.
We've got to be able to chew gum and walk at the same time in this country, Steve, and this is a big problem for our country and for the world.
We've seen it with the drought and all of the issues that are now starting to hit us. We've got to deal with it.
STEVE PRICE: ABC Learning Centres, if they go into receivership, will the Federal Government be forced to step in and run them?
LINDSAY TANNER: Look, I wouldn't imagine we would be directly running them, but clearly one of the things we've been working through in recent weeks is the prospect of what might happen if this eventuality does emerge. And, clearly, one of the key things we've got to do is make sure that we minimise the disruption to people's arrangements. That's obviously a key focus.
I wouldn't imagine that would extend to us directly running centres, but…
STEVE PRICE: You won't let them close?
LINDSAY TANNER: I think we've got to make sure that people have got their child care arrangements looked after. Whether it's in the existing centre or shifting to other centres will always be a matter of consideration.
But, clearly, that's something we expect - accept responsibility for. We can't allow a situation to emerge where there's thousands of families around the country who depend on their child care having it suddenly taken away and no alternative.
STEVE PRICE: And you have a plan, do you?
LINDSAY TANNER: Yes, we've been working on some contingencies for a number of weeks now, and I can't, obviously, discuss the prospect of where we're likely to head, but yeah, we've had our eye on this one very closely.
STEVE PRICE: Just finally, was it embarrassing for the Government yesterday, Wayne Swan's performance in not being able to put his hand on that inflation figure?
LINDSAY TANNER: Oh look, I don't think so, Steve. I didn't see it, because we were at community Cabinet in Launceston and, you know, we had various functions. So I didn't see it. But I think these things are grossly exaggerated. Brendan Nelson used to do this kind of gotcha routine in question time when he was leader of the Liberal Party and asked Kevin or Wayne, you know, can you name the - you know, what the projected figure for productivity is in two years time, or something, and act as if this was some giant killer blow if there wasn't a precise immediate response with the exact figure.
There are dozens and dozens of different figures people like Wayne and myself deal with all the time, and, you know, we're not parrots. You know, we're people that are dealing with a huge amount of information.
STEVE PRICE: Appreciate your time, as usual. Thanks a lot.
LINDSAY TANNER: Good on you, thanks very much.
STEVE PRICE: Lindsay Tanner there, the Finance Minister and Acting Treasurer.
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