ROSS GREENWOOD: Now just on interest rates, I should also just play you something. We told you last week that we understood from very well placed sources that the banks really were contemplating raising their variable rate home loans, regardless of what the Reserve Bank did yesterday, and regardless of what politicians say. I can tell you that again, last night, I spoke with a very senior banking source, who said it is inevitable that the banks will do this; inevitable, it is going to happen. Now, of course, that means that there will be political pressure on the banks as well. Let's just take a small grab from Wayne Swan, the Treasurer today, in his press conference about exactly that.
[Start of excerpt]
WAYNE SWAN: There may come a time where events in international markets increase - increases in the cost of global funding impact to the point that rates may be pushed up by the banks. But they want to have a very, very good justification for that and they want to be able to prove their funding costs were certainly on the move.
[End of excerpt]
ROSS GREENWOOD: Yeah, well, some of those funding costs are on the move, of course. Should I say though, in that light of that exceptional economic news today - as I say, Australia's economy the very best performing in the world - we're now joined by the Finance Minister Lindsay Tanner. Good evening to you Lindsay.
LINDSAY TANNER: Good evening Ross.
ROSS GREENWOOD: Thanks for joining me. First of, I will go back and just start with that grab from Wayne Swan. Does that give the message to the banks, that if they can prove that their internal costings or funding is going up, that they are free to actually raise interest rates outside of the Reserve Bank's movements?
LINDSAY TANNER: We're clearly not giving the banks a green light Ross, but we acknowledge that a big proportion of their funding base, of course, is international borrowing and that's zig-zagged around over the past 12 or 18 months in cost terms, independently from what the Reserve Bank does. So really, it's just going to be a case of them justifying - not just to the Government, but to the wider community - as to why those pressures have put an upward impetus into interest rates. So we've got to look at the wider picture here, of course, and that is over time the difference between movements in Reserve Bank rates and movements in the actual rates the banks are charging.
ROSS GREENWOOD: Yeah, the great fear, of course, is that there's no competition in banking these days, that the big four banks have basically got it wrapped up, and therefore, the ability to compete with the big banks and actually force those rates down through competition, is less than what it has been in the past.
LINDSAY TANNER: Oh, we've got a very close eye on this issue Ross. Clearly, it's a bit early to be taking any action on this front, because we are still fighting our way through the biggest global economic challenge in living memory. But it's one thing the Government does have a very close eye on for the medium term and that is the question of where competition ends up as a result of these events. It's too early to say whether there will be a natural bounce back of those competitive pressures from the organisations that were the drivers of reform and competitive pressures, you know, over the past 10 or 15 years. I believe there'll be certainly some of that. But it's an issue that clearly the Government's got very much uppermost in its mind for the future.
ROSS GREENWOOD: Yeah, can I just say one point about these numbers that came out today, the economic growth figures, the Government clearly is delighted by those numbers. It does vindicate the spending that you have done into the economy. It does certainly suggest that Australia is one of the great destinations in the western world to live in right now. I kind of guess, still, anybody driving home right now, in the back of their mind, would be sort of saying yes, but what next? I guess that's the difficulty isn't it, for even the Government, to try and figure out what is the next bouncer, what is the next move in the economy?
LINDSAY TANNER: It is, because we've been through an incredibly turbulent period and it's too early to claim victory. We can certainly take great heart from the fact that Australia's economy has proved far more resilient than other economies and that's partly been because of the Government's stimulus measures, partly because the Reserve Bank dropping interest rates very substantially and very quickly. But also just the innate strength and robustness of our economy that's been really important here Ross. But the outlook for the medium term is mixed. We've got some big challenges. We've got to improve our productivity. We've got to improve our export performance. We've got to invest more in infrastructure and skills. We've got to reform our regulatory arrangements. So we had a period of eight or 10 years that has been called the great complacency, where we surfed on the mining boom. Well that boom's gone and we've got some hard yakka in front of us now.
ROSS GREENWOOD: When I look at the numbers today, the economic growth numbers, what I see are the growth drivers are household consumption, which is obviously the economic stimulus package going to households and being spent. We also see that there was very - a good deal of strength coming out of the housing area as well, in other words housing construction, which is understandable with the first homebuyers. What concerns me in some ways, is that they are all, if you like, stimulus initiatives that, at some stage in the future, are going to disappear or at least be brought down. Is that a concern, therefore, for the Government, as to the future of the economy because you, the Reserve Bank, Treasury, don't really know exactly what the implications of taking away the stimulus measures will be?
LINDSAY TANNER: Look, I - that's a reasonable assessment Ross. The trouble is that's always going to be the case. Economic forecasting is a very inexact science, as you know and, of course, we've had some commentators arguing - including the Liberal Party - that we should be withdrawing stimulus measures now, because recent data has been more positive than was expected. It's very difficult to know and we believe you need to err on the side of caution here, because ultimately this is about people's jobs. It's about businesses staying afloat and it's about keeping the economy in reasonable shape. The critical element has been confidence. I think this is the lesson I've learned over the past 12 months, is that the most important dimension of the Government's actions and the Reserve Bank's actions, in the latter part of last year and the early part of this year, was making people understand that we were going to throw the kitchen sink at this if required and I think that meant that a lot of consumers kept consuming and a lot of businesses avoided sacking people as a result. And that's been the key factor, why things have been significantly better than expected. But the outlook into the medium term is always going to be hard to read. But I think it is important that we get the budget back into surplus as quickly as we can. So I certainly would be wary of wanting to pump even more into the economy, particularly with these figures today.
ROSS GREENWOOD: Yeah, well see, that's the interesting thing, because of course, that ability to keep pumping more money in; having something up your sleeve in case there is another aftershock, as it were, to the global economy, is clearly something that you've got to have at least in the back of your mind as well?
LINDSAY TANNER: That's right. And we've always made it plain that we're prepared to do whatever's required and that stands that if we do get, in a sense, a second round of global economic problems that impacts on Australia, for example, some people argue that the recovery in China is more fragile than it looks and it's possible that could diminish, so if there is a second shock, well obviously we then have to treat that on its merits and act accordingly. But you'd have to say there's no sign of that occurring at this point. The possibility's there and we hope it doesn't occur. But we have learned one big thing over the past 12 to 18 months and that is expect any possibility and be prepared for it.
ROSS GREENWOOD: Yes, exactly. Lindsay Tanner is the Finance Minister joining me on Money News tonight. Many thanks for your time Lindsay.
LINDSAY TANNER: My pleasure. Thanks very much Ross.
ROSS GREENWOOD: That's great. Lindsay Tanner there.
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