VIRGINIA TRIOLI: Well, the Government has promised to implement its $42 billion nation-building and jobs plan as soon as possible. Economists, however, say that the magnitude of yesterday's interest cut and the Government's big spending package are a worrying sign of the level of concern that there is over the economy. Finance Minister Lindsay Tanner joins us now from Canberra. Lindsay Tanner, good morning.
LINDSAY TANNER: Good morning, Virginia.
VIRGINIA TRIOLI: You might have just caught the end there of Joshua Williamson from TD Securities talking to Joe O'Brien and saying that he doesn't really think this package, large though it is, is going to turn things around in Australia. And also that unemployment is going to go well beyond seven per cent. There's goodwill there for what the Government is doing, but just no sense that it's actually going to work.
LINDSAY TANNER: Well, I don't necessarily agree with Joshua's comments, and I don't equally agree with your assessment of them, particularly the last bit. I think that it's clear that we can't cushion the entire impact of this huge global slowdown on Australia. We're seeking to cushion it as much as possible. And it's very difficult to make an assessment of where the world economy's going to be in six, 12 or 18 months time because we're dealing with really unprecedented events. But we're committed to doing everything we possibly can to sustain jobs, to sustain growth and to keep pushing back really hard against these very powerful negative forces. There's a lot of different opinions amongst economists, a lot of different points of view about what's the right way to tackle it, that's always going to be the case. Joshua's right that there'll be debates and their could be economics courses written about all of these things in due course.
VIRGINIA TRIOLI: I guess that's stimulating in itself, isn't it, Minister? [Laughs] You might end up with some new graduates out of that package.
LINDSAY TANNER: In - and I'll be a footnote in some obscure textbook somewhere. [Laughs]
VIRGINIA TRIOLI: Ah, look. Let me quote to you then, because it is interesting, I mean, this is a debate that the nation has to have, about what is the right way to get through this. And the Financial Review's editorial today says that another large package so soon after the $10.4 billion one late last year, makes it clear that the first one largely missed the mark so - despite some returns of course for retailers. So, then how can you be so sure this one won't miss the mark as well?
LINDSAY TANNER: Well, I think the Financial Review's wrong, and there's been a lot of misinformed comment about the package in December, Virginia. People have assumed that if money isn't spent immediately then therefore it somehow disappears in a puff of smoke...
VIRGINIA TRIOLI: But you need it to be spent immediately...
LINDSAY TANNER: N...
VIRGINIA TRIOLI: You say it's a fast moving issue.
LINDSAY TANNER: No, you don't need it to be spent absolutely on the same day it's received, as long as it's spent relatively soon. And the key point that people miss is that money is interchangeable; so that even if you use payments that you get from the Government to pay down your credit card, by definition that's a reduction in your debt you don't have to do again. And that therefore means that th... it's likely you will spend more from your ordinary income the next week, the following week, the week after. So a fair proportion of the payments in December wouldn't have been spent within the week that they were received, but in effect what will be happening now is that people who used them, for example, to pay down their credit card a bit, will now be spending a little bit more than they otherwise would have been. Sure, there'll be some people who would've put it on the mortgage, but even that is beneficial to a degree, because that liberates bank lending that can go to somebody else; because by definition that amount of debt is paid down. It's too early to be absolutely conclusive about these things, but we believe that the initial evidence shows those payments worked. And we've indicated all along that this is a process that's unfolding, it's evolving. We can't simply take a snap decision one-off and say, this is the all-encompassing solution for all time to the unfolding economic crisis that the world is imposing on us. We have to keep adapting as these things evolve.
VIRGINIA TRIOLI: Well, Lindsay Tanner, on that score of it not being all shot off at once, why isn't there any money for large, and sustained, and long-term infrastructure projects?
LINDSAY TANNER: Well, that's not actually the case because you've got very substantial amounts right across the board for ordinary infrastructure work, low-level maintenance - in some cases as little $50,000 for maintenance in smaller schools - through to middling size projects, building buildings in schools, building new level crossings, substantial roadworks being brought forward, all the way through to the Infrastructure Australia and Building Australia fund process which will fund big works - will fund really major projects. We got to get a balance, Virginia, here. Because we've got an urgency, we want to get money moving we want to get people working on these things as quickly as possible. But equally the larger projects require processes that can't be done overnight. They require planning, architectural work, engineering work, design work, and of course environmental assessment - all of those things. And we've also got to make sure that we're investing in the productivity of the nation for the future. So, we believe we've got the mix right; that all ends of that process, all ends of that spectrum are covered.
VIRGINIA TRIOLI: How crucial is it do you think that the budget be returned to balance, that there be a surplus there some time soon?
LINDSAY TANNER: Look, you'll note that in the four years that we have budget projections for, that the budget remains in deficit over that period of time. So clearly that indicates that we don't expect it to happen in a huge hurry. Because the downward impact of the loss of revenue is enormous. In fact, the magnitude of those deficits is roughly similar to the magnitude of the loss of revenue that the Prime Minister announced on Monday - the $115-odd billion in lost tax revenue. But, we have got some rules in place that will govern getting back into surplus once normalish growth returns. They are that we'll keep spending at - increasing at no greater than two per cent in real terms; and that new policy proposals will have to be offset or matched by savings; and of course that we'll allow tax revenues to grow without going above the proportion of the total economy that we inherited, which was our election commitment. So, we'll be committed to getting the budget back into surplus as quickly as we can, but the first thing we've got to do is fight our way through this huge global slowdown and get growth going.
VIRGINIA TRIOLI: Because that of course was the one main criticism that's ever been flung at FDR during the Great Depression, was that the one time that he was persuaded to try and balance the budget again was when the economy slipped back into depression. So are you mindful of that note from history?
LINDSAY TANNER: I think that was 1937 or thereabouts…
VIRGINIA TRIOLI: It was.
LINDSAY TANNER: …and, I don't claim to be an expert on the Great Depression, and I would emphasise that there are huge differences between then and now - the economy, our society is just dramatically different in so many ways, and the world is hugely different. But, it is a valid point. But there are fine judgement calls involved here, and it's not easy. I've sat around the table in our decision-making process where various views and analyses get put, we get advice, and of course there's a variety of opinion from people that I respect out in the public domain - major economic commentators and economists. So, these things do involve very challenging budget calls, and judgement that has to be made. But I am committed, the government's committed to getting the budget back into surplus as quickly as possible. That's going to be a very hard job, but we are committed to making sure that occurs. But the first thing, the pre-condition for that of course is getting growth back to trend, back in the three per cent plus zone, and getting jobs growing.
VIRGINIA TRIOLI: Now, the world's most successful investor - Warren Buffett - and someone on whom Barack Obama has called for a bit of advice in recent times, he pretty much agrees with the Prime Minister Kevin Rudd; he says at a time like this you throw everything that you possibly can at the problem. But, he also says that it logically follows when you do that that you create some problems. What are the potential problems that you're concerned with in an action like this?
LINDSAY TANNER: One of the issues that we've been grappling with that is always going to be a problem in these situations is implementation. We've undertaken a huge program of building new facilities at schools - every school in the nation. Now that's, I think, a huge shot in the arm for education in this country. There are lot of pretty dilapidated schools around the country where they really do need new buildings, new facilities. And that to me is something that will be a lasting benefit. But, it's a huge exercise, Virginia. It involves vast amounts of money, huge numbers of people, and inevitably that's a big challenge. So we've got to make sure that the implementation is up to the task and we are getting the structures in place within our own ranks - within the government ranks - to make sure that that's all clear and that we get things moving. Relationships with the states have to be managed well. So, the Prime Minister has made it plain that if there's any sign of the states using this as an excuse to reduce their own effort and to cut back on their own spending, that we'll come down on them like a ton of bricks. So, they're the kind of risks that we have to deal with. So there's a lot of implementation risks, and of course, as you pointed out, the assessments of the overall economic situation, you know, are literally varying day by day. We believe we've got the mix right. We believe we've got the size right. But, this is not a science we're dealing with here, so there will always be risks with this, and there'll be debate into the future as to exactly how effective the package was. But I think the main challenge for me that we'll be focusing on is the implementation challenge; getting the payments out through the Tax Office, through Centrelink; that all seems routine when nothing goes wrong, but it's an incredibly complex and challenging process for them.
VIRGINIA TRIOLI: Finance Minister Lindsay Tanner, thanks for joining us today.
LINDSAY TANNER: Thank you very much, Virginia.
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