DAVID SPEERS: Lindsay Tanner, thanks for your time, the annual inflation rate has fallen to a 10 year low but over the quarter, the last three months, it did tick up a bit. What is your take on these figures?
LINDSAY TANNER: I think the figures are broadly in line with market expectations and they do show of course there has been a huge international contraction bearing down on the Australian economy. The economy has slowed very significantly we all know that, it’s showing up in the figures. But of course the figures still show there is inflation there, roughly within the sort of target zone that the reserve bank targets and the figures really are broadly are in line with expectations.
DAVID SPEERS: So they wouldn’t indicate that the Reserve Bank should change its course at the moment on interest rates.
LINDSAY TANNER: As you know, we don’t comment on interest rate settings. I think the key thing about these figures is that there are no great surprises. There are some unusual movements, big drops in food prices, we all know about recent increases to petrol prices compared to six months or so ago but there are no great surprises in the figures.
DAVID SPEERS: How would you describe the Australian economy at the moment.
LINDSAY TANNER: We are clearly in a period of downturn, there is no question about that, and it is a very significant downturn. Fortunately there has been a lot of momentum in the economy from the previous year or two, and of course the government’s stimulus packages, lowered interest rates, have all contributed to the economy holding up very well in spite of the enormous pressures than its under from international recessionary forces. Also China has been doing a little better than expected, that is clearly helpful. We are in very tough times, unemployment is still continuing to rise and we expect it to rise further, but the earlier signs this year have been perhaps better than some people expected, but there is no clear trend that we can say that we need to in anyway modify our forecast, we are standing by our forecast.
DAVID SPEERS: Can you say whether we have turned the corner on this recession, have we hit the bottom?
LINDSAY TANNER: I certainly can’t say that. Its one of the things if you look through history, typically, you can only identify the turning of the corner of hitting of the bottom in recessions, some time after that point. You can’t really know that it’s occurred until well after that because often these things don’t follow the standard pattern, you will get a (inaudible) kind of exercise. We don’t know what that is going to look like in advance, so you might see, as we have seen in the last couple of months some positive signs, that doesn’t mean that we are out of the woods by any means and of course we still see very negative projections for the global economy. The IMF has forecast growth to be nearly negative four per cent across the developed world this year. That is almost unprecedented, that is a huge negative pressure that is still lurking there and we don’t know what will come to bare
DAVID SPEERS: But there are positive signs that you refer to, China’s growth rate has come in at about eight per cent, the US, Ben Baneake has made some positive comments about consumer spending retail and housing as well. Are the figures that we are seeing around the world, better than when you put together those stimulus packages.
LINDSAY TANNER: I think if you look back to that period of time in October when the first stimulus was put forward, the world was in a state of panic, there were a huge jolt to confidence and there were genuine fears that the financial system would melt down internationally. Now we have got beyond that point, we have seen a degree of stability return to the global economy and that is a hugely positive thing but we are now living through the washup from those events and what we don’t know is how long or deep that global recession will be and we cant be exactly certain of its impact on Australia. All we can do is make the decisions to fight back against those forces to strengthen the economy, to support jobs, we believe the evidence so far, supports the decisions we made. We believe the impact of lower interest rates by the reserve bank of course and in particular the government’s stimulus efforts have been borne out in the comparison between what has happened in Australia and what has happened internationally. But we are only part way through this and we are very cautious about making predictions about things improving or turning the corner because there are a lot of threats still out there.
DAVID SPEERS: But do you still think this has been, is, or will be the worst recession since the great depression, because that is what we were told at the outset.
LINDSAY TANNER: Internationally, yes, certainly, in Australia it is still too early to say. Thus far because we have started with an unemployment level significant lower than the starting point that has been the case in earlier recessions, we are in a much better position going into that phenomenon.
DAVID SPEERS: But we haven’t even gone into a recession, are you saying we still could?
LINDSAY TANNER: We are in a global recession and we are being affected by that. I am not going to speculate about the technical dimensions of will we have two quarters of negative growth and so forth. We accept that there still is every possibility . . .
DAVID SPEERS: But the government did speculate before we avoided a recession saying we would go into a recession. The Prime Minister said we would go into a recession. Are you still saying we can go into recession?
LINDSAY TANNER: Things are now more complex and I am not going to speculate on that possibility. There is no question we are in period of downturn and that’s having an impact. Things like unemployment levels are lagging indicators so we can’t be absolutely certain, even if things are improving, and I wouldn’t necessarily assume that, but even they are we cant be absolutely certain about what will be the outcomes for unemployment in six months, 12 months, 18 months time.
DAVID SPEERS: Could we still hit 8.5 per cent?
LINDSAY TANNER: We are standing by our projections. They get revised towards the end of the year in the mid-year economic and fiscal outlook paper. They revise all the projections, the budget, inflation, unemployment.
DAVID SPEERS: It’s a long way off, could we get something earlier from Treasury.
LINDSAY TANNER: Its not as long away as you think. But there are good reasons for being cautious about these things, because we have seen over the past 12 months, and this is a lesson I think we have learnt the hard way in government, is that things are completely unprecedented and have been over the past 12 to 18 months. Where as normally you would normally see a few signs of something, you could fairly confidently predict that you were identifying a trend, it has been so turbulent over the last 12 or 18 months that it makes it very hard, so we are very cautious.
DAVID SPEERS: The opposition is saying because things are looking a bit better, reign in some of the spending, and don’t put us into as much debt as you were going to. What do you say about that?
LINDSAY TANNER: Well the Oppositions was only saying a little while ago that the government was to optimistic in its assumptions in the budget and now they are effectively saying the opposite. Its about time they cleaned up their act and got a degree of coherence into the position.
DAVID SPEERS: But the signs have changed and the Opposition is responding to the changed economic data that is coming from around the world.
LINDSAY TANNER: We believe the judgement they are suggesting would be a premature judgement. We believe that we have to cautious about making these calls because here is so much going on out there, and although there have some positive signs, we still expect a lot of negative pressures on the Australian economy. We are not dealing here with things that a mathematically predictable, you have got a whole lot of variables in there you have to make your best judgement, the experts have to make their best judgement, people in Treasury and so forth and therefore its wise not to leap to conclusions prematurely and that’s exactly the position the government is taking.
DAVID SPEERS: The unions are still worried about the potential for this downturn to continue and they are pushing, ahead of next weeks ALP National Conference, for a buy Australian campaign, to give preferential treatment of government spending on locally made goods and services. You are not a fan of that, why is it not a good idea?
LINDSAY TANNER: We don’t support preferential treatment for Australian companies a number of reasons. In particular, we are trading nation, and we are relatively small trading nation, compared with the US or Europe or China. Its crucial for Australia that we don’t invite retaliation that we don’t trigger a protectionist back lash against us taking protectionist measures because that would lead to job losses. Also, if you actually look at what we buy, and I am doing further research into this, you will see that a) the bulk of what the government buys is Australian sourced and b) that which is imported is typically stuff that isn’t made here. The most obvious thing is lots of defence equipment like helicopters and fighter jets; they are not really manufactured here we don’t really have an alternative here. What is left is a relatively small range of things. We do accept that we have got a responsibility to make it easier for Australian companies to compete for government business in these areas so we are part the way through a reform process that’s trying to get a more coordinated approach and part of that is looking at ways to make it easier for Australian companies, particularly smaller companies, to compete. So we are happy to talk to unions about those issues, and to others, as we have been doing, but we are certainly not in favour of discrimination, it would be bad for Australia, it would cost more for taxpayers, we would have to take money away from somewhere else.
-ends-
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