HOWARD SATTLER: Is the threat of a recession over? The government certainly is trumpeting its economic policies today on two fronts. One, the jobless rate which unexpectedly has plummeted and I think you can say that the percentages don't show that but when you talk about the numbers of people who have managed to get back into the workforce, in fact 49,100 new full-time jobs in March. Unbelievable stuff that, 49,100. Well you'd have to say things are really turning around. And also retail figures out in the last 24 hours show a 2.2 per cent growth in retail turnover, people going back to the shops. So everything looking pretty rosy I've got to say, but will it continue? We've been lulled into a sense of false security here or is it just an aberration? I'm joined now by Lindsay Tanner, Federal Finance Minister. Hello, Lindsay.
LINDSAY TANNER: Good afternoon, Howard.
HOWARD SATTLER: Is it all over?
LINDSAY TANNER: Certainly not all over, and although it's always welcome to get good news of this kind in the circumstances we're in, monthly figures are always things you treat with caution because they tend to move around quite a bit and so although they're certainly welcome and you'd rather things improve rather than go backwards, we're still expecting unemployment to get worse over the course of this year.
HOWARD SATTLER: I was going to say, now forget, take your political hat off, you're a pragmatist, so you're saying this is an aberration are you?
LINDSAY TANNER: Not necessarily an aberration, and we certainly shouldn't completely discount it, it may ultimately indicate that things may not get as much worse as people are expecting so it's certainly good news, but the old saying of one swallow doesn't make a summer I think comes to mind. But we need to be pretty sanguine about this and understand that there's no question that unemployment will trend in the wrong direction over the balance of this year.
HOWARD SATTLER: But how do you read the fact that employers, and we're not talking part-time, they're taking on 49,100 new full-time workers, now that's a bit of a vote for long-term stability isn't it?
LINDSAY TANNER: It is if that is absolutely precise. The problem with monthly figures, Howard, is of course these are a statistical sample and they're never going to be absolutely bang on correct. They'll give you a pretty good idea over a course of a few months as to where things are heading but there's always scope for fuzziness at the edges with a single set of figures for one month. So you just have to be a bit careful about interpreting them. But I think the main thing we can take out of this, and the retail trade figures yesterday, is that for all of the debates about the Government's stimulus payments, they're clearly working, they're clearly having an effect. The money is circulating and jobs are being protected and businesses are being protected.
HOWARD SATTLER: Yeah, but all for just one month.
LINDSAY TANNER: Well, the month suggests that yes that is happening, but obviously what goes on in the ensuing months will also give us a guide as to the effectiveness of those payments.
HOWARD SATTLER: Yeah, but $900 is going to run out pretty quickly isn't it?
LINDSAY TANNER: Well not necessarily, because some people, as you know, spend it straight away, other people might have paid down their credit card. But that, of course, means that they'll spend a bit more this month, next month and in a few months time than they otherwise might have. So the effect of those payments will spread out over a number of months and, of course, nobody can be precise as to exactly how much will be spent in a given month.
HOWARD SATTLER: But if you have tax decreases, they spread out over a much longer period don't they?
LINDSAY TANNER: That's right, although the general expert commentary, particularly from the International Monetary Fund and elsewhere, has been to suggest that spending advances will actually have a greater and more direct impact than tax cuts. You can achieve similar things but generally the view has been that putting money in people's pockets through one-off payments like this will have a greater impact than the kind of things that the opposition has proposed like tax cuts, and typically the tax cuts will tend to favour well off people who will tend to save more than people on ordinary incomes.
HOWARD SATTLER: Okay, but now you've got to follow it up. If you start the ball rolling, okay you still think unemployment's going to go up, but you want to try and keep a lid on that. What are you going to do next?
LINDSAY TANNER: Well keeping in mind that a lot of the things that were announced in February are only just starting to get underway, particularly all that work on schools. We've got school maintenance projects, small scale school maintenance projects now underway all around the country, but the bigger things of actually building the new buildings in primary schools and in many secondary schools, all of that stuff is really only just starting. Insulating homes, so a lot of the announcements that were made in February of course are only just starting to get underway and this is one of the reasons why we have to put in those payments is because the payments go out the door quickly. The trouble with projects of course is that you don't just do them overnight, you actually have to do a few things beforehand and so money will only start flowing after a few months.
HOWARD SATTLER: So the $900 was just to shore things up was it?
LINDSAY TANNER: It was basically the first instalment and the crucial thing from just economic management perspective is that you actually get a flow of money going into the economy, going into all the ordinary parts of the economy like the shops, like the tradies, the people who are working on building sites. All those ordinary parts of the economy were facing a very severe threat of money drying up and ...
HOWARD SATTLER: But what you're saying is you're plugging the gap until the infrastructure projects got going.
LINDSAY TANNER: Well it's not so much plugging the gap as getting things moving quickly and changing gear so that you in a sense shift from one part of your strategy to another as things unfold. And, of course, you'll have the bigger infrastructure projects that are really in the hundreds of millions, they take a while to come on-stream. You would expect that down the track a bit you'll start to see money flow to them, so it's all about staging things so that you don't have just one big hit of money, it's actually spread out over the course of a year or 18 months.
HOWARD SATTLER: Okay, you're not going to tell me what's in the Budget. You never do.
LINDSAY TANNER: Sorry about that.
HOWARD SATTLER: Things will leak out, we know that. I don't know whether you leak them, or who leaks them, somebody does. But anyway, it's been described already as a tough Budget we're going to have delivered next week. So how, if that's the case, will it maintain the recovery?
LINDSAY TANNER: Look, this is a really difficult balancing act for us Howard and I can understand why people will ...
HOWARD SATTLER: Don't you want the job?
LINDSAY TANNER: No, I'm not complaining about that. I had a long time in Opposition so I don't want to go back. But look, the trouble is we do have to do two things here. In the short-term we've got to pump money into the economy, the gap that this loss of income, loss of revenue that the overseas recession is causing, but of course a big hole in the Budget is opening up. We've had a huge drop in revenue and although we can afford it, we can live with it for a few years, we can live with the debt that flows from that, we can't allow that to become indefinite. We can't allow it to become long-term, and so we can't afford to put off the restructuring process to get us back into surplus. And so that means we have to start in this Budget so yes, there are going to be some tough decisions. There'll be some unpopular decisions. We'll cop some flak about it. We're doing everything we can to minimise the impact on the ordinary people at the lower end of the income spectrum.
HOWARD SATTLER: But it can't be too tough on consumers can it because you've just given them the stimulus, you've said go out and spend that. You've tried to maintain jobs by using infrastructure projects so you can't smash people around the head too hard can you?
LINDSAY TANNER: That's absolutely right and you'll see that quite a lot of the tough initiatives have a very limited or negligible impact over the course of the next year or so, but really start to kick in maybe 12 or 18 months time. So what you say is quite right; there's a very difficult balancing act there, but we've got to actually get the tough decisions made. We don't have to do it all in one hit but the nation has, in effect, taken a pay cut. We had a huge pay increase gradually accumulate five, six years ago and it reached a peak a couple of years ago and, of course, a range of decisions were made that in effect has turned out to have overstretched the budget and now we've got to adapt to that. But of course in the middle of the circumstances that we're in, we can't start slashing and burning in those circumstances straightaway, but we've got to start the work of restructuring the Budget otherwise we will have a long-term problem.
HOWARD SATTLER: Well we are going to be in the red for about five or six years aren't we?
LINDSAY TANNER: Look that's roughly what I would expect. We'll obviously be publishing more precise details of that on Tuesday night but clearly once you get a situation of this kind happening you don't get back into surplus overnight. You don't do it easily and that's one of the reasons why it's really important to start the hard yakka now, is that if we sit back and say; oh look, wait for a few years and when things are better we'll do the hard work, well that would mean it will be a long time before we get back into surplus. So even though it looks strange, we've got to start that spadework now.
HOWARD SATTLER: All right. The unemployment figures do look good today. We're back into the fives and that's not so bad. In Western Australia we're back into the, well into the fours, 4.5 per cent's fantastic. But what do you reckon? Is it going to get to around eight per cent before it starts to turn back into the good old days again?
LINDSAY TANNER: I don't think that prediction's wildly inaccurate frankly Howard. We were predicting in February, or Treasury was predicting seven per cent by the middle of next year. We've indicated we think that's probably on the optimistic side and it's probably going to end up being a bit worse than that. We'll have more precise predictions on Tuesday and clearly today's figure does, on the face of it, look like maybe we can be slightly more optimistic than we were. But I don't think there's any doubt that things are going to deteriorate, and you'll see unemployment mount over the balance of this year and into next year. We're obviously doing everything we can to moderate that, to push back against it, but the impact of this global recession is enormous. You're seeing incredible drops in economic activity, incredible increases in unemployment and in Budget deficits, in virtually all the major countries in the world and that is, of course, having a negative impact on Australia.
HOWARD SATTLER: So you're celebrating with a glass of water today are you?
LINDSAY TANNER: I think that's probably about the right thing to do. It's one of those, you like it when the figures turn out okay in the monthly figures but, you know, when you've been in the game you know you don't assume too much from one month's figures because sometimes they can be a false dawn.
HOWARD SATTLER: Catch up with you again soon. Thank you.
LINDSAY TANNER: Good to talk to you. Thanks very much.
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