ROSS GREENWOOD: Right now, as I say, Lindsay Tanner the Finance Minister joins us. Good evening to you, Lindsay.
LINDSAY TANNER: Good evening, Ross.
ROSS GREENWOOD: Just one thing, we just have heard in the last hour or so that Westpac from next Tuesday is raising its fixed rate loans yet again, and so we suddenly find a situation where five-year fixed rate loans for example going up to 7.65 per cent, which is the best part of 2.5 per cent above where most people have got their variable rate loans at the moment. I know that the banks' funding books are rising all the time but still it'll be fascinating I'm sure for you, as well as it will be for us, to have a look at the profit reports of the banks when they're due out in the next month or so and to just see what the margins look like for many of those banks as well, the profit margins.
LINDSAY TANNER: I'm sure that's the case, Ross though of course, as you know, the fixed rate loan is of course a projection based on the bank's expectations about where interest rates will grow into the medium-term future, and there's international pressures that do prevail on that, and of course most people don't have fixed rate loans. And I get people asking me, as I'm sure you do, should I switch over? Should I take the plunge? And I just say look, get expert advice about that matter. So most people, like me, have got variable rate mortgages.
ROSS GREENWOOD: And the other side of it also with that variable rate mortgage, of course we have heard from the Prime Minister and others this week, including the Reserve Bank Governor, that it is likely that interest rates will rise down the track. Now you as the Finance Minister already saying well hang on, don't imagine that we're necessarily out of the woods yet economically, because of course if interest rates do rise that is effectively like throwing the anchor overboard after the ship's had some fairly clear sailing for the last little while.
LINDSAY TANNER: Look clearly we need to keep in mind exactly what we're talking about here, and that is that in the short term we've still got big challenges, we shouldn't assume that the worst of the global recession is over. It's conceivable that we've hit bottom internationally but you never know that until you're well past that point because sometimes you can get a false dawn, things can go wrong again, and certainly things are still pretty scary in major economies like Japan and the US and Europe and the UK. But what the Prime Minster simply has been pointing to is that virtually all serious economists point out that we've had interest rates at absolute record lows because of the dire global economic circumstances, and at some point they will return to more normal historical positions as normal international economic circumstances return. When that will be and how it will occur, we certainly can't speculate on.
ROSS GREENWOOD: You as a Finance Minister, if I take you back to the last recession Australia suffered which was characterised by - after the stock market crash - initially lower interest rates, a fuelling of the housing industry, and ultimately I think the mistake of Government at that time, if you look back, was really that it did not cut its own expenditure quickly enough, and that led not only to the blowout in the housing market but then secondarily to the Reserve Bank having to effectively take it on itself and raise interest rates at that time to 17 per cent. I wonder does the Government study that and do you believe the Government will learn from those lessons of the last recession that Australia suffered?
LINDSAY TANNER: Absolutely, in fact I think there's a number of lessons we can learn from that era. Obviously there's many differences but I think there's probably some merit in your critique, and certainly one thing we are really committed to is getting the Budget back into surplus as quickly as possible. We do understand that there is an indirect connection. It's complex but there's an indirect connection between what's happening on monetary policy and what's happening on fiscal policy. So if we have unduly loose fiscal policy in a year or two's time that will tend to put upward pressure on interest rates. So its' really crucial that we have budget discipline. That's why we've been preparing people for some of the tough decisions, some of which have been taken, more to come.
ROSS GREENWOOD: And it's true because those tough decisions do effectively mean that programs must be cut, that the spending of the Government that has, if you like, stimulated the economy to try and keep people in jobs, to try and keep people going, businesses going as well. That really ultimately when some of those programs do get cut back it is the balancing act for Government to try and make sure that the economy doesn't stall and therefore fall back into recession, as compared with also trying to make certain that it doesn't race ahead which therefore causes the Reserve Bank to jack the interest rates up, which ultimately is the thing that will kill off the economy like a stone.
LINDSAY TANNER: That's right and you can never achieve perfect equilibrium with these things, perfect balance for any great length of time, Ross because governments don't control the economy, as you know, they just exert influence over it. The Reserve Bank doesn't control the economy, it exerts influence over it. We're internationally exposed, there's a huge array of different factors going on, even things like natural disasters can have an impact, so you never get perfect balance for any great length of time, there's always pressures and challenges, and sort of calibrating those things is very difficult. But we're very conscious of the fact that we've got to get the Budget back into surplus as quickly as possible then start paying down the debt that is inevitably having to accumulate because of the global financial crisis. And one of the key reasons for that is not to put upward pressure on interest rates at a time when the economy, we expect, will be significantly stronger than it has been over the past year or so.
ROSS GREENWOOD: Can I put one point to you, and that is for an ordinary person who has maintained their job and their living standards throughout this economic downturn, that frankly they've had Government handouts, they've had lower - effectively lower taxes, they've also had lower fuel prices and lower interest rates. Frankly people who are living through the recession right now have probably never had it so good.
LINDSAY TANNER: Look this situation will vary enormously from family to family and individual to individual, Ross. And so there may well be some people who for reasons of good fortune are in reasonable shape. But ultimately we've got to look at the big picture, and that is the total state of the economy, and to protect and enhance jobs and businesses across the board. And to focus on ensuring that we keep activity going. And I believe that the confidence that you've seen starting to return in the surveys, business confidence and consumer confidence, is very substantially connected with people's understanding that the Government is prepared to do whatever it takes to keep activity ticking over, to keep sectors like construction and retail and all the things that spin off actually alive at a time when private activity has been retreating dramatically. Now there is no absolute precision or science to these things, it is just a case of putting our shoulders to the wheel. We've done that, we are continuing to do that and yeah you'll get different outcomes for different families and people, but we've got to look at the big picture.
ROSS GREENWOOD: Oh I recognise that as well. Just one final thing. Is the next budget which may be before an election, as distinct from the budget that is likely to be after the election. In other words which is going to be do you think the really tough budget that Australia has to bear because clearly as you try to cut back many of these programs you've spoken about, as you try to maintain, if you like, that fiscal discipline that you talk about as well. In other words trying to make certain that the budget is balanced, that you're back into surplus. Where do you think we're going to see the toughest of those budgets come out?
LINDSAY TANNER: Look I can't really say, Ross because that's still some time away and one of the lessons we've learned over the past 18 months is that we're in very unpredictable territory. On the face of it things have been improving in recent months. Things have been stabilising a bit internationally, but there's no guarantee that things will continue to be like that. I hope they will, but we can't be absolutely certain about what the landscape will look like in May next year. It's conceivable it might be a fair bit better than we're anticipating. It could be worse, and that makes it very difficult. We just know we've got a big task in front of us and that means tough decisions, it's going to mean significant spending restraint, and the State Governments all face the same challenges, and we can't do it all in one hit, it's just got to be a gradual process, we made the first big instalment in this year's budget, but there's got to be more to come. It's not going to be just a once off thing, it's just a gradual adjustment that's got to occur across our budget and across the states as well.
ROSS GREENWOOD: Alright. Lindsay Tanner, Finance Minister, Federal Finance Minister joins us on Money News. Thank you very much for your time tonight.
LINDSAY TANNER: My pleasure. Thanks.
ROSS GREENWOOD: There you go. Lindsay Tanner, a man who I've got high regard for I've got to say because I think he's one of the hard men in the Government who really does recognise that they've got to make those hard decisions. And that line about the previous recession, and bearing in mind that the Government did not cut its budget hard enough, quickly enough. Now you and I all suffer as a result of Governments cutting back their spending, but if this Government is going to be judged by anything it's going to be judged by not only the amount of money it threw at the economy to get the debt out there, it's going to be judged on how much it can grab back quickly enough to try and make certain those debts are kept under control. And of course Lindsay Tanner is going to be absolutely integral to doing that as well.| Media Contact: | Website: |
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| Tim Naughtin - 0438 265 065 | www.financeminister.gov.au |
