ALI MOORE: Well, do you feel comforted by the efforts of the G20 over the weekend, the leaders of the world's 20 biggest economies? They've met, and they've agreed to do more to give their economies a kick along. The real question is, what does it mean? No Government is putting a number on just how much they're being - or they're prepared to spend, at least though it's a collective call for action. They've also agreed to fundamental reform of financial regulation, but again, there's no detail. That should come before another leaders' meeting in April. Well, the Acting Treasurer, until a little later today, here's Lindsay Tanner. Lindsay Tanner, good morning.
LINDSAY TANNER: Good morning, Ali.
ALI MOORE: How significant is the agreement, plural, I should say, that came out of the G20?
LINDSAY TANNER: Oh, very significant, the fact that you've got the major economies in the world all agreeing to tackle the problem of financial regulation, which has been at the heart of the global financial crisis, and to stimulate their economies, and particularly to not increase trade barriers, to not go protectionist, all of those things are really important and significant in the battle to get us out of the problems that we've got internationally.
ALI MOORE: At the same time, I raised the question earlier of whether they are just platitudes, comforting platitudes, and significant in the sense that they perhaps will engender some confidence, but still, platitudes, because if you look at the specific agreements, despite, or putting aside I guess, the agreement to spend more money to kick-start economies, the idea that regulators will ensure that their actions support market discipline, well I mean, you'd be hard pressed to find a Government that didn't say that was the current situation. Another one, ensure that all financial markets and products and participants are regulated or subject to oversight, again, wouldn't most Governments say that is already the current situation?
LINDSAY TANNER: Look, time will tell whether these turn out to be platitudes Ali, but I don't think that's what will happen, and that last clause you mentioned, for example, I think is a pretty clear reference to credit the fault swaps, which have been shown to be effectively falling through the cracks in the existing regulatory regimes around the world, so we'll see exactly how much action follows through from these commitments. But given that there is another summit scheduled at the end of March next year, that gives you a pretty good reference point for the extent to which people have committed themselves, and bear in mind that individual Governments can't just unilaterally off the top of their heads, announce these things. You might recall our fiscal package, and indeed our bank guarantee package, came off the back of a solid weekend of meetings with Kevin Rudd and advisers, I was involved. And it's the same around the world, you can't have just a single person come to one of these summits and unilaterally pronounce a change in regulation, there's a lot of work that has to be done.
ALI MOORE: Indeed, I accept that, but also in terms of the spending packages and the focus, the path focus of this, which is to keep economies moving, is the time line too slow?
LINDSAY TANNER: I think again, we'll see, it's very important that we see action in the major world economies to stimulate economic activity, to do the kind of thing that the Rudd Government's already done, that money is flowing from, within the next couple of weeks, to do what China has recently done, for example, with a very big stimulus package, so we'll see exactly how much they'll flow. But it's in the interests of these countries to do these things, so had you seen major problems with these proposals, and individual countries concerned about them, then you would have seen them being watered down, or thwarted, that hasn't happened, so I believe that you will see assertive action emerge over the next few months.
ALI MOORE: You're listening to the Acting Treasurer, Lindsay Tanner. Lindsay Tanner, here's just a little snippet of Kevin Rudd, and what he had to say after the meeting in Washington.
[Replay, excerpt]
KEVIN RUDD: If Governments fail, and if we don't restore health to credit markets, then that recession becomes deeper. That's logical, that's why concerted international action across those measures, is necessary. That's why I'm in this business, that's why I'm in Washington, I'm not here for fun and a frolic.
[Replay ends]
ALI MOORE: Well, that was Kevin Rudd. Lindsay Tanner, why is the Government so collectively scared to use the word depression, or recession even, indeed, I mean if you look at what the President in the US has said, he's been very upfront about how severe things could get in the US, why won't you use even the R word?
LINDSAY TANNER: Ali, one of the critical elements in this situation is confidence, business confidence in particular. Virtually every business person I talk to says, stay optimistic, talk the economy up, don't spread doom and gloom, because that in itself becomes a major factor. We get invited on a daily basis by the media to make the most gloomy possible comments and predictions and speculations, because that makes a good headline. The trouble is, that will become part of the problem, if we allow ourselves as a Government to shift into that gloomy space, where people are scared even more, then that means people spend less, people employ less, people invest less, and the end result is the problem becomes worse. So it is very important that we focus on the facts at hand, the official forecasts, which show Australia staying as a growing economy, and ensure that we strengthen confidence, not undermine it.
ALI MOORE: You've made it clear that you are prepared to spend more, you've spent just over - well you will be on 8 December, spending over $10 billion as part of a stimulus package, the surplus is something like $5.4 billion, how much of that are you prepared to spend? Are you comfortable with, if necessary, going into deficit, given that you can't forecast what lies ahead?
LINDSAY TANNER: Well, given what I've just said, I am certainly not going to speculate about those things, Ali. We stand ready to deliver more stimulus to the economy if that's required, if the international situation gets worse than is currently projected. We've got existing forecasts about recessions in the major economies about the level of growth in Australia. We stand by those forecasts and we're acting in accordance with them. It is possible that the world outlook will worsen compared with where it currently is. I don't think it's that likely to be honest, I am optimistic about it, but it's possible. And if that happens then we stand ready to take further action. But I am not going to speculate about how big that action [indistinct] be, about what it might consist of because we're dealing with complete hypotheticals here and they're hypotheticals I don't believe will eventuate but in the current unprecedented circumstances we have to be prepared for that possibility.
ALI MOORE: At the same time though, don't we have a right to know how our - those that are running our federal finances feel in terms of, I guess you could almost call it a philosophical approach to deficits. I mean, are you dead against them under all circumstances?
LINDSAY TANNER: We've had a longstanding position both in Opposition and Government which broadly is the same as our Liberal opponents which is to keep the budget in surplus over the course of the economic cycle. And we're not academic common room debaters, Ali; we're the Government of the nation. Our job is to govern and part of that involves dealing with the problem of confidence which is a significant issue in the current circumstances. We're there to do a job, not to go into arcane(*) academic debates about theory about fiscal policy…
ALI MOORE: Oh, I know a few economists who'd hate to think of it as arcane. Look, let me ask you another question, a broader question and one that is, I suppose, a debate that will come over the months ahead as this con… this crisis continues to unwind, but I wonder what you think as someone who's watched markets for a long time, what do you think got us into this mess? Is this the death of a free market system, was it greed? Was it just that the regulatory system wasn't working?
LINDSAY TANNER: I think that your last observation is the one that's close to the truth, that is that there were failures of regulation on a range of fronts and they all come together in a perfect storm. We had a bubble emerge because of fixed currencies or currencies that are artificially held low and that's created a bubble in the United States. That's been used to finance a huge mortgage boom that's pumped up housing prices to unrealistic levels and led to lots of people who never should have got housing loans getting very big housing loans. That has now all collapsed like a giant house of cards and it's been reflected through evermore complex financial products…
ALI MOORE: But does it spell the death of the free market or is it simply that the system is sick, it's not dead, it's just sick?
LINDSAY TANNER: Oh, it certainly doesn't spell the death of the free market. There's been all kinds of very, very strange speculation about these things. What is says is that we no longer have internationally a regulatory regime in financial services that is fit for purpose. That's why the key focus for the G20, the key focus for reform internationally has been and will have to be reform of regulatory structures. A bubble was allowed to be created and the weaknesses in regulatory structure, both in the United States and internationally allowed that to be reflected into a whole range of exotic products where risk was lost sight of, where transparency disappeared and where complexity went completely off the planet. All of these things have got to be tackled but that's the issue, the notion that somehow the free market economy is going to disappear as a result of these things, I think frankly is fanciful and I think as time unfolds, people will see that a lot of very strange commentary and speculation emerged at a time of great international stress, that's understandable.
ALI MOORE: Lindsay Tanner, just another issue. I studied the pictures, I wasn't quite sure how to read the body language but plenty of people have read that body language between the - between Kevin Rudd and George Bush, the initial handshake, that handshake as it's now been called as one of significant coolness. How are George Bush and Kevin Rudd getting on?
LINDSAY TANNER: [Laughs] Ali, I'd have to say I am frightened out of my wits about the prospect that as well as my public words being scrutinised by body language is now going to be under serious scrutiny I'll have to be very careful and get some coaching. I - look, I've only seen little snippets of footage from both Kevin Rudd's encounter with George Bush and also various other world leaders, it strikes me as there's absolutely nothing in it frankly. So I think the issue has moved on and the, you know, the fact that people are counting backslaps of whether [indistinct] slapped Silvio Berlusconi on the back and not Kevin Rudd or something, suggests that some of our commentators really should get a new job, I think, or go and find something else to look at, really is a bit wacky frankly.
ALI MOORE: Lindsay Tanner, thank you very much for joining us.
LINDSAY TANNER: Good to talk to you, thank you.
ALI MOORE: Lindsay Tanner there, the acting Treasurer until a little later in the day.
- ENDS -
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