TONY JONES: A short time age, I spoke to Finance Minister Lindsay Tanner, who was in our Parliament House studio.
Lindsay Tanner, thanks for joining us.
LINDSAY TANNER, FINANCE MINISTER: Good evening, Tony.
TONY JONES: Now, did you speak too soon last week when you said that the worst of the global financial crisis had passed?
LINDSAY TANNER: No, I didn't speak too soon and I did qualify that statement, of course, by suggesting that there's no guarantee that that's the case. But what we're now in the early stages of course, is the knock-on effects in the real economy and clearly the projections that have come out both from Treasury, the Reserve Bank and the IMF all factor into their estimates of what's going to occur that the crisis is now having its impact on the real economy.
TONY JONES: Isn't it important, nonetheless, to talk the economy up so that market and popular sentiment doesn't sort of go into a kind of psychological recession before a real recession?
LINDSAY TANNER: Oh, it is extremely important that I and the Government have been doing everything we can to do that, Tony. And I've just said today that the innate imagination, creativity and strength that's in Australian business, that's in our work force and the solid economic management and positioning of the Government will see us through. We will get through these difficulties and we'll get through in far better shape than most other countries.
We've got to be realistic about the problems we face, but there is enormous pent up energy; there's enormous momentum still in the Australian economy. And although we're facing very powerful downward pressures, there's now a lot of stimulus pushing back against those pressures from the fall of the dollar, interest rate reductions and the Government stimulus package - the economic security strategy. So, we've got every reason to be optimistic, but we shouldn't underestimate the strength of what we're fighting against, either.
TONY JONES: As Malcolm Turnbull of course says, for most of the year, the Government talked to economy down, worried about inflation, worried unnecessarily about inflation, he says; and now you have to talk the economy up.
LINDSAY TANNER: Well, Malcolm Turnbull's the last person who can criticise anybody for being inconsistent or contradictory. I notice he was claiming that consistency's a great political virtue in a newspaper article a few days ago. Yet he has a different position every day, almost every hour. We see completely contradictory positions: one minute he's accusing us of over-hyping the global financial crisis, then he's saying we're not doing enough. It really is quite bemusing to watch because there is no clear, consistent position. On the ABC Learning crisis for example, the Opposition appear to have about four or five different positions, everything from yes, the Government should act, no, it shouldn't, to maybe it should in the middle.
TONY JONES: What is the Government's position on ABC Learning, by the way, and are we getting to the point where the Government simply will have to take over this industry, or that section of the industry?
LINDSAY TANNER: Oh, no, I don't believe we are. There clearly is a major problem and the degree of dominance of one player's an issue that we're going to have to think through into the future. But the Government's position is that the first thing that has to be done is to ensure that centres remain open in the short term, that parents are seriously inconvenienced and of course, people's participation in the work force and companies aren't seriously disrupted.
So, we've committed to up to $22 million in order to cover off operations for those centres that are looking like they're less than profitable for the next couple of months. That's a very important initial measure, but clearly there are ordinary market operations that will step into play, but they'll vary from place to place. There are some longer term questions here that clearly will be considered, but in the immediate term, the objective is just to keep the centres operating.
TONY JONES: The longer term question obviously must be whether the Government steps in and takes over, makes these places public in the same way that schools are public?
LINDSAY TANNER: Oh, not necessarily. Like, in theory, that's one possibility, but I think that's a pretty unlikely scenario. I don't see us as ending up in the business of directly running childcare centres. But certainly questions about market structure, the structure of government assistance, how all that works, government regulation.
There's things that are already happening there. The Government's already working on regulatory issues. Maxine McKew's already got some work underway there. So, there are bigger questions that have got to be dealt with, but I don't think we'd need to rush into them. The primary thing we've got to do at the moment, Tony, is just make sure that those centres keep operating and that the receivers can start to do their work.
TONY JONES: OK. Let's have a look at these new Reserve Bank figures out today; considerably more downbeat about prospects for the Australian economy than the Treasury. So, who's right here?
LINDSAY TANNER: There's a simple explanation for the difference between the Treasury's 2 per cent and the Reserve Bank's 1.5 per cent, and that is the Treasury as part of its assumptions, factors in the prospect of further reductions in interest rates which, of course, the market is also widely anticipating. The Reserve Bank, for entirely obvious reasons, can't predict its own behaviour, it can't factor into its calculations what it might do on interest rates. So, therefore, its calculations assume no change in interest rates until middle of 2011. So, that's the key factor that explains that difference. Both of these projections of course are...
TONY JONES: But that makes a huge hole in their predictions, though. It means you wouldn't be able to take them seriously if you really thought interest rates were coming down?
LINDSAY TANNER: Look, this is an inexact science, Tony. Nobody can be absolutely precise about predictions for economic growth and particularly once you get beyond the next six to 12 months, it really is very difficult to be accurate. And, of course, there are many, many examples, whether it's government bodies or private market economists getting these things wrong in the past.
These are the predictions based on modelling, based on all of the assessments, all the information available, but the simple explanation here that is important to explain why the Reserve Bank's is more pessimistic is that it hasn't factored in that reduction in interest rates prediction that Treasury has. Now, the reduction in interest rates prediction is just one of many variables that have to be put into a projection about where the economy is heading. The Treasury's perfectly entitled to do that. It should do that.
TONY JONES: All right. That's a good point for me to jump in, because neither of those forecasts factored in the huge Chinese stimulus package which we've just learnt about today: $800 billion, I mean, a massive stimulus. Is that going to affect Australian growth figures?
LINDSAY TANNER: You would expect it certainly would have a positive effect. But what, of course, we can't fully know is how much that is simply going to be counteracting negative pressures, counteracting otherwise very powerful contractionary pressures in the Chinese economy.
We've seen some information coming out from China of course about factories closing, a slowdown occurring. But it's not easy from Australia to be able to be fully across all of these pieces of information. So, I think it is very good news that China is acting to stimulate its economy to ensure that growth keeps ticking over at a pretty rapid rate. That's very important for keeping up demand for Australian products, particularly our mineral products, but it's against the backdrop of other factors pushing downwards. So, we shouldn't assume it dramatically changes the picture, but certainly by itself it's a very positive development for the world economy and for Australia, too.
TONY JONES: And, of course, the Australian Government would like to be able to create an even bigger stimulus package in the same way to stimulate the Australian economy, make sure the Australian economy doesn't go into recession. You're going to be somewhat stymied because of falling surpluses. Now, Paul Keating on Friday said the Government should not be afraid to go into deficit next year if that's what it takes. Do you agree with that?
LINDSAY TANNER: I won't speculate on where we might end up for the 2009 Budget overall outcome for this point Tony, because obviously it's still some time away. Our objective is to keep the budget in healthy surplus. With the growth projections that we've currently got we believe that that's entirely reasonable. Nobody can be certain what those massive external forces are going to do to our economy and how powerful those negative pressures are going to be. So clearly, we can't be precise about those things. But I'm very confident that the strength in the Australian economy, the innovativeness, the creativity and the imagination of our business people, the strength and the dedication of our workforce and good Government policy is going to see us through and that we will be able to keep the budget in surplus.
We can't guarantee just how powerful these negative pressures from overseas are going to end up being, but I believe there's every reason to be optimistic about the future of the Australian economy and optimistic about the strength of the budget.
TONY JONES: Very briefly, though, you're obviously keeping your options open. If it meant going into deficit in order to save the economy from going into recession, you certainly wouldn't rule that out by the sound of it?
LINDSAY TANNER: One thing I've been very clear in recent weeks on, Tony, is avoiding using the term "rule out" on pretty well anything. We wouldn't have anticipated a few months ago on being in the position of giving blanket guarantees of bank deposits, for example. So, some very, very remote and unusual possibilities have been put to me and to the Government over the past few weeks and even some of the stranger ones we have not ruled out, even though they remain very remote. So, I'm not in the business of guaranteeing things or ruling things in, ruling things out. But I do believe that we will keep the budget in surplus and I do believe there is enormous strength and vibrancy in the Australian economy; considerable pent up momentum that's still there; a lot of business investment still in the pipeline that is going to help us get through in pretty good shape.
TONY JONES: All right. Here is a guarantee you have made today: its $6.2 billion assistance for the car industry up till 2020, but nothing for car dealerships, many of whom have actually lost their major creditors because of the financial crisis. Are you considering some sort of package to help out the sales end of the car industry?
LINDSAY TANNER: Treasury and other parts of the Government are working with a task force to deal with the specific problems that have emerged in this sector because of overseas factors again, because parent companies with GE, GMAC, have effectively pulled the plug on their operations and left a bit of a hole in the Australian market. Of course, other players can be expected to fill the gap at least to some degree, but there are some tricky issues there that have got to be dealt with and yes, the Treasury and other parts of the Government are working on these issues as we speak. But partly, this is ordinary market forces in play and there are other parts of the economy, too, that are feeling difficulties that we can't ignore either.
So, we need to be careful not to be racing around just leaping in at every sign of difficulty. There is every prospect that the market will play a substantial role in dealing with this problem, but our package to deal with the motor vehicle industry is absolutely crucial because you're seeing an industry at the early stages, globally, of a massive transformation, a transformation that's probably going to take five to ten years, and the question is whether the Australian industry is going to be part of that transformation, or whether it's going to effectively disappear. We're resolved to ensure it is able to be part of that transformation; that's why this funding package has been put in place.
TONY JONES: You mean a transformation to green vehicles or greener vehicles or hybrid vehicles?
LINDSAY TANNER: That's right. That's right. A transformation to much lower petrol consuming or other fuel consuming vehicles and much lower emission vehicles. That's been long overdue and whether we like it or not, that is now upon us. And that challenge is something that the Australian industry's committed to taking up, but it's relatively small in global terms. It's been buffeted by a whole range of pressures, particularly the high value of the dollar until recently and now the global financial crisis is causing other problems. There are a lot of component manufacturers, a lot of jobs that hang off this. We are committed, we were committed before the election, but we are doubly committed now to ensuring that our industry, like the American industry, like the European industries, will be able to make that transformation and Australia will still be a place that manufactures cars and exports cars and components into the future.
TONY JONES: Okay. The NSW Government bringing down a mini-Budget tomorrow. Some thought the economy in NSW in that state may already be in recession. How much is the economic basket case that is NSW weighing down the nation?
LINDSAY TANNER: Look, I think it's a bit inaccurate to describe it in those terms, Tony. We've seen data over the past six months that have moved around a bit. There've been periods where NSW has had fairly significant improvements. There are other periods where it's been a bit of a laggard.
You'll see a bit of readjustment going on between the various states as a result of the steam coming out of the mining boom in recent times. So, I wouldn't be that pessimistic about NSW. It's had a relatively flat period, but the Government of NSW is clearly committed to addressing some of the lingering problems that they have to deal with. And again, it's 40 per cent of the Australian economy, it's got innate strengths that we shouldn't overlook.
So a lot will depend on the strategy the NSW Government pursues. A lot will depend on what we do and particularly things like our infrastructure investment strategy and the value that is distributed into the economy through our stimulus package through the economic security strategy.
TONY JONES: Well, that's the fundamental question, isn't it, because the Opposition is saying that the Government - the Federal Government - is preparing to bail out a failed NSW Labor Government?
LINDSAY TANNER: Look, I think that's completely wrong, completely inaccurate and, again, is just typical of throwaway line Malcolm Turnbull.
Very clever politician, but he'll say anything to get a headline. He'll say one thing today and the opposite tomorrow. And keep in mind that one of the key problems that NSW has had for a number of years in the latter Howard Government period was high interest rates, was interest rates going up. That put more pressure on NSW home buyers and NSW credit card holders than any other part of the country. So, we're now seeing those interest rates come down. That will have a significantly beneficial effect for people in NSW, proportionately greater I suspect than it would for other people in different parts of Australia.
TONY JONES: Lindsay Tanner, we're out of time. We thank you very much for taking the time again to talk to us on Lateline.
LINDSAY TANNER: My pleasure. Thanks very much, Tony.
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