FRAN KELLY: Finance Minister, Lindsay Tanner, is also in our Parliament House studio, Minister, good morning.
LINDSAY TANNER: Good morning, Fran.
FRAN KELLY: Minister, is inflation now a problem for the Australian economy?
LINDSAY TANNER: The level of inflation has come down considerably since the commencement of the global financial crisis, Fran, but obviously we always have to be vigilant about the threat of inflation taking off again, that's one of the reasons we're really committed to investing in economic capacity, to rebuilding our infrastructure, to improving our skills, because they're ultimately the best insurance against the threat of inflation. It is worth noting that it's dropped now to - the headline rate for the previous year's now dropped to 1.3 per cent, of course that's well below where it was a year, 18 months ago, but nonetheless, we always have to be vigilant about that prospect.
FRAN KELLY: Sure, and not surprising it's dropped, given the global financial crisis...
LINDSAY TANNER: That's right.
FRAN KELLY: ...but the RBA's preferred measure is underlying inflation, and that remains, even though we're barely out of the woods, that remains outside the RBA's target band, of two to three per cent.
LINDSAY TANNER: Well, it does underline that point about the economic capacity that Australia has, and this has been one of the problems over recent years, and one of the big differences of view between the Rudd Government and the former Government, and that is that you've got to have enough capacity to enable particularly the impact of more and more money coming in from China, and from increased prices for our minerals, over an extended period of time, to actually be absorbed into the economy, and for us to have both the workers and the capital, the infrastructure, to enable us to productively make use of that. And that was the problem that really confronted us when we first took office, and it hasn't gone away, that's why we're continuing with that commitment to investment in skills and infrastructure.
FRAN KELLY: Do you accept though that the underlying rate being 3.5, means that more interest rate rises are not just warranted, they're needed, for the economy?
LINDSAY TANNER: As you know, Fran, we don't comment on where movements of interest rates will head, but I think everybody understands that the Reserve Bank Governor has explained that the settings that we've had over recent times, have been at emergency levels. They're 50-year lows, they have been put at very low levels, they were down to three per cent, the official Reserve Bank cash rate, because of the global financial crisis, and the huge threat to Australia's economy, and the Reserve Bank Governor, and the Government as well, have indicated that clearly it's unrealistic to expect interest rates to stay at those emergency lows forever, or for lengthy periods of time. But ultimately that's a decision for the Reserve Bank, and we don't interfere in those decisions, and we don't surround them with speculation that might put pressure on the Reserve Bank.
FRAN KELLY: No, but sometimes the Government does give a bit of a view on it, and I'm wondering whether you think the talk of a half a per cent interest rate rise is warranted, or a little over the top?
LINDSAY TANNER: Fran, there's always speculation of this kind, you're just as likely to find in tomorrow's newspapers, there'll be speculation in the opposite direction, because there's been a bad set of numbers from the United States, or there's queries over China, or something like that, so you have to be very careful not to respond to these things, because they just move around all the time, and sometimes speculation proves accurate, sometimes it doesn't.
FRAN KELLY: How do you - you've got a problem though, how do you curb inflation, and keep stimulating the economy at the same time, or will you now switch priorities?
LINDSAY TANNER: Well Fran, people have been missing the point big time here, and the Opposition in particular have been completely bereft of any commonsense, or serious understanding of economic management. First, the strategy is actually calibrated, so that the level of stimulus is actually going to unwind by itself, and that's going to commence at the end of this year, and so the stimulus will actually be subtracting from economic growth, during the course of 2010. Secondly, it's only a very small percentage of total Government spending, so why you would focus on one element, and it's going to be two or three per cent of Government spending over the course of the balance of this year, next year, so it's one very small per cent of total spending, why you'd focus on that, and ignore other things, is beyond me. What you've got is the Opposition on the one hand saying we should reduce spending on construction activities and putting insulation in homes, that employs ordinary, working people, but on the other hand, we should keep padding the wallets of wealthy, medical specialists, for cataract operations that cost a lot less than they used to, and we should keep paying subsidies to millionaires for private health insurance.
FRAN KELLY: Okay, now sure, you make the point that the stimulus is slated to wind down, that's true, but is there - are you going to speed up that wind down, that unwinding of the stimulus? Because that's what really, people want to know, lots of economists, people from Ross Garnaut down, saying it needs to be sped up a little, now do you acknowledge that?
LINDSAY TANNER: Well no, I don't, Fran, and I think again, people are missing the point here, that the macro economic impact, the total impact on the economy of Government spending is actually spread across the entirety of that spending, it's not one relatively small part of it. What we've done is added to that total spending for a period of time, that is set to start to diminish, we believe those settings remain correct, and we have got a longer term challenge that's superimposed on top of this, and that is of course, to get the budget back into surplus. So there is a wider picture here that we're very focused on, which is the overall budget settings, and of course we're already working on that, we've brought forward consideration of savings options, for the budget next year, that usually commences towards the end of the year, well we're already working on those options, and it's the wider settings that we're always going to be looking at.
FRAN KELLY: And Lindsay Tanner, can I ask you on another issue, as a senior member of Cabinet, and a senior Left minister within the Labor Party, the whole issue of the asylum seekers, the asylum seeker debate at the moment, union leader, Paul Howes described it as sickening yesterday, and he says some in the Labor Party will look back at this, and the policies being put in place at the moment, with regret. Do you have any regrets about the way this issue is being handled by the Government at the moment?
LINDSAY TANNER: Look, no, I don't, and I think a lot of people, understandably are getting into some commentary about this, Fran, but let's just look at some basic core elements here. First, we didn't have many Sri Lankan asylum seekers trying to get to Australia a number of years ago. Why? Because the circumstances in Sri Lanka were different. The issues that are influencing all of these situations are basically about what's happening internationally, we've had ups and downs of levels coming to Australia, which in part have reflected the willingness of Indonesia to either prevent people from moving on, or assisting them moving towards Australia, all of these things are of course essentially beyond Australia's control, we can influence how Indonesia deals with these matters to a degree, but we've got a specific situation here, that understandably people are disturbed about, with the Oceanic Viking. What you've got here is Australia responding to a request, to help a vessel in distress, in Indonesian waters, complying with our obligations under international law, and also complying with our obligation to land those people at the nearest, safe port, which just of course happens to be in Indonesia.
FRAN KELLY: That's true, but I think people are - while you might acknowledge that fact, the point is, there's 78 people stuck aboard a boat hardly equipped to carry them, for nearly 12 days now, is it - should we just cut our losses and take a humane approach, bring them to Christmas Island to process them, or, as Finance Minister, I wonder would you support cash payments to the people aboard, to try and coax them off the boat?
LINDSAY TANNER: Look, obviously I'm not going to speculate about those kind of things, Fran, we've got to deal with these things in a considered way, there are very difficult operational issues involved here, because they involve both Australian authorities and Indonesian authorities, and we've got to work closely with them, that's what's occurring. I'm not involved with the operational decisions, of course, and I believe that ultimately there'll be a resolution to this, but I don't think it helps to have the kind of inflated kind of commentary that we've had around this in recent times, but that's understandable, that's going to occur. The Government's got an issue here it has to deal with, it's been complying with its obligations under international law, and we will continue to do that.
FRAN KELLY: Would you be disappointed, as a senior member of the Labor Left, if these people were brought back to Christmas Island, for processing?
LINDSAY TANNER: Well obviously I'm not going to speculate on hypotheticals, Fran, what we want to ensure is that they are dealt with in accordance with Australia's international obligations, and that they are dealt with in ways that accord with how we believe the world should be, to the best that we can. But they are essentially an Indonesian question, because we responded to a request, to help a vessel in distress, in Indonesian waters, on behalf of the Indonesian authorities, and our obligation then is to land them at a port in Indonesia. Now of course this is a problem for Indonesia, as well as for Australia, we are just working through these issues as best we can, trying to ensure that we get an appropriate resolution.
FRAN KELLY: Minister, an economic issue again, now, the Federal Government's obviously negotiating the emissions trading legislation, costings provided by Frontier Economics to the Coalition show the Government could raise $50 billion through the sale of permits in the years ahead, in the years beyond the costings we currently have. Is there money to be made under emissions trading? Is this a cost cow - a cash cow?
LINDSAY TANNER: Look, I don't believe so, Fran, and I've got no idea what the base of those numbers is, they're certainly not a reflection of anything - numbers that the Government's put together, I think they're extremely speculative, and I think they're very convenient for the Opposition, in being able to put forward propositions that obviously may be costly to the budget. We...
FRAN KELLY: Well, you must know the figures, you're the Finance Minister, what sort of money is there in the out years, beyond the costings we already have?
LINDSAY TANNER: Well, we put out figuring on these things and on Government programs generally, for a four-year period, and of course going beyond that, particularly when you've got a situation where it's uncertain what the final detail of the scheme will be, because we do somehow have to get it through the Senate, it's entirely speculative as to what the actual ins and outs might be, but the scheme that we've designed, over the forward estimate period, over four years, is roughly neutral in its impact on the budget, so it moves around a little bit from year to year...
FRAN KELLY: Beyond that four years, does it remain neutral?
LINDSAY TANNER: Well, we haven't published figures on where things head beyond the four years...
FRAN KELLY: No, I know you haven't, but I wonder, have you done the figures?
LINDSAY TANNER: Well, I'm not going to speculate on what internal considerations might occur with respect to these things, Fran, but again, we do not know, we do not know what is going to emerge from the Senate, if anything, and we are battling to ensure that we can address climate change. This Frontier Economics report, and the proposals that the Opposition have sought and endorsed from it, would clearly hurt the budget in the medium term, there is a huge black hole in terms of funding, because of the different proposals they've got. We don't want to see that happen, we don't believe that there's any firm basis for their speculations about large sums of money they say that the Government will be in the black on in this scheme, at some indeterminate point in the future.
FRAN KELLY: Lindsay Tanner, thank you very much for joining us on Breakfast.
LINDSAY TANNER: Thanks very much, Fran.
FRAN KELLY: Lindsay Tanner is the Finance Minister.
-ends-
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