GLEN BARTHOLOMEW: The OECD as issued an immediate warning, saying that this year the developed economies will go into sharp reverse, contracting by more than four per cent.
While the Prime Minister debates those issues in London, back home, Government ministers are working on a budget to suit the hard times. One of the key people in those preparations of course, is the Finance Minister, Lindsay Tanner, he joins us now, and here to speak with him, is Marius Benson.
MARIUS BENSON: Lindsay Tanner, the Reserve Bank says things will be bad, that effectively a recession is already here, and a sharp rise in unemployment, a further rise is in prospect, can you give an idea of how severe you think the outlook is now?
LINDSAY TANNER: We'll be reviving the estimates for growth and unemployment and inflation, all of the usual indicators, in the budget in May, and until then, we've got estimates that were set out in February, which we obviously stand by, but clearly the risk of those estimates deteriorating is pretty serious.
We're currently projecting unemployment to hit about seven per cent in the middle of next year, there's obviously a risk that that will end up being higher, but until we've actually made the full calculations, and all of the work has been done, I wouldn't want to accolade about whether or not that's going to happen, and if so, by how much.
MARIUS BENSON: But if you look at the numbers coming in around the world, and the assessments around Australia, it's not really a risk of things being worse, it's a certainty, isn't it?
LINDSAY TANNER: I wouldn't say it's a certainty, because we have got a huge amount of stimulus now flowing through the economy, both additional government spending and of course interest rate reductions, so in overall terms, there's a big arm wrestle going on here, very negative influences from overseas, and very powerful stimulus in Australia that's pushing back against that.
And I note the OECD in its report on the world economy released yesterday, does say that Australia's response has effectively been the right response, it points out that spending is far more effective than the tax cut option that the Liberal Party are advocating, as a way of getting economic activity going.
So it's difficult to know exactly how this will play out, Marius, but we do need to keep at least a reasonably optimistic perspective on this, that although those negative forces from overseas are very powerful, there's a lot of stimulus in the system, there's a lot of money flowing, and we can't be certain what the outcome will be.
MARIUS BENSON: You obviously welcomed that OECD praise for Australia's stimulus activity, but isn't it fair to say the OECD nations themselves are doing very badly, if anyone really knew what to do, things wouldn't be in this powerless state now?
LINDSAY TANNER: Different nations started this whole process in different positions, and of course Australia with a strong corporate sector, strong banks, and very strong budget surpluses, was in a much better position to deal with these problems and challenges than most countries.
One of the problems that you've got in the United States and Britain, and some other countries, is that even though their economies were growing strongly before the crisis hit, they had big budget deficits, they had significant current account deficits, and of course they had major problems in their regulatory systems, and in the balance sheets of their banks.
So what you're really seeing now is a recognition that Australia started in much better shape, and therefore, we're not suffering anywhere near as badly as these other countries. We're still suffering though, and the government's pushing back as hard as it can, with every weapon at its disposal, to sustain jobs, and to sustain growth.
MARIUS BENSON: Now the Reserve Bank deputy governor, Rick Battellino, yesterday said most households and businesses feel the downturn is severe enough they would think it's a recession now. Do you agree?
LINDSAY TANNER: Look, obviously I can't assess how most households and businesses feel, I suspect there's probably some merit in his comment, and clearly, in many parts of Australia people are seriously feeling the downturn, but I believe in calling these things once the data demonstrates it. There's no question that we are in for further bouts of negative growth over the course of this year, the OECD report really does make that pretty inevitable, but I don't want to speculate on what the technical definition will be, and when it'll arrive.
It's important to maintain optimism and confidence in the face of these things, and I have a lot of faith in the stimulus that is in the economy now, I think it's having an effect, it's really being put under pressure by huge forces from overseas, but I think ultimately Australia will end up in good shape, notwithstanding we're going to go through some very tough times over the course of this year.
MARIUS BENSON: But just from what you say there, if negative growth is in your word inevitable, you're saying recession is inevitable, a technical recession?
LINDSAY TANNER: I'm saying that there is pretty much an inevitability about further bouts of negative growth during the course of this year, but I wouldn't want to predict when, and by how much, and for how long. It's just that when you look at this OECD assessment, it shows the developed world economies going backwards by almost 4.5 per cent over the course of 2009, and the entire world going backwards by a bit over 2.5 per cent. That's a huge pressure on any economy that's a trading economy like Australia, and it's very, very difficult to resist.
MARIUS BENSON: Lindsay Tanner, thank you very much.
LINDSAY TANNER: Thank you very much, Marius.
GLEN BARTHOLOMEW: The Finance Minister, Lindsay Tanner, telling Marius Benson how he's trying to frame a budget, while the world is going backwards.
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