ROSS GREENWOOD: I said to you earlier on that our special guest on money news tonight Lindsay Tanner, the Finance Minister. And the reason why I wanted to talk to Lindsay tonight was really about the state of the Australian economy over this Christmas period where we've been off the last five weeks or so. It's been a situation where really there has been some incredibly ongoing very strong economic news out but against that it's also been tempered by some warnings from overseas. In particular from The World Bank and even today from the International Monetary Fund, the chief economist there has come out and basically warned about what may take place, just to give you an example this is Dominique Strauss-Kahn who has basically said some countries may suffer double-dip recessions if [indistinct] exit strategies taken to battle the global financial crisis too early. So in other words, got to keep the stimulus going. But of course Australia is in a slightly different cycle. Talking to friends from overseas during the Christmas period you would imagine that we are living on the island that we are. We're in a totally different world. A totally different mindset in many ways in terms of where we are. The Finance Minister Lindsay Tanner joins me now. Good evening to you Lindsay, how are you?
LINDSAY TANNER: Good evening Ross, very well thanks.
ROSS GREENWOOD: Happy new year to you. I trust it's a prosperous one for the country as well, will it be?
LINDSAY TANNER: Oh, I would hope so Ross. We got a long hard grind in front of us now. We're obviously beyond the real crunch of the crisis from late '08 through to much of '09, but as you correctly point out there's a lot of fragility and problems in the global economy that can at any time really disrupt Australia's circumstances. We saw the impact of problems in the global economy on Australia over the past 18 months so at any time that can certainly put a big spoke in our wheel.
ROSS GREENWOOD: But can I say that when you went originally after the global financial crisis and set the budgets, the emergency budgets, and put out the stimulus and you know, convinced if you like your party and then the nation that it needed to borrow to keep itself going. At the point in time your forecast for unemployment were eight and half per cent. Whereas we see it now falling to five and half per cent, so the amount of income tax you're receiving is significantly greater. The amount you're paying out in unemployment benefits is significantly less. The other thing also, company taxes significantly higher. All this would add up, in my mind at least, to the debt that the country is going to incur and that the Government will incur will be significantly less than the $314 billion that Kevin Rudd at one stage indicated it may peak at.
LINDSAY TANNER: Well that's correct, in fact we've already had one revision of that estimate where the figures that were produced of course towards the end of last year indicated that the debt outlook was not as substantial as we initially expected in the budget last year, when of course we suffered a huge drop in the projected tax revenue. So there's already been a revision to that. It's still substantial, it's still something that's going to require a lot of hard work to get the budget back into surplus and then to pay off that debt. That's why we're really focused on the tough decision that that's going to require. But yes, the mountain we have to climb is not quite as big as we thought it would be in April, May last year.
ROSS GREENWOOD: And also, when you consider that you see the export numbers that come out today which are nothing short of spectacular in terms of the performance of iron ore, of coal, even beef for that matter. And so as a result you see Queensland and Western Australia really benefiting as a result of that. And New South Wales quite clearly benefiting less because it doesn't have the natural resources. But all of that is feeding tax revenue back into the Federal Government's coffers.
LINDSAY TANNER: Those export figures are certainly good news, but we need to be cautious not to assume that one burst of good news is going to be translated into continuous good news.
ROSS GREENWOOD: [Interrupts] I guess is - it's my point though too that this is now been sustained for at least the last six months, these good pieces of information just keep on coming out. We can see it in property prices are stronger, we can see it in the unemployment numbers, we can see it in these export numbers. It really is growing into a picture that maybe you're getting back to normalised trend growth. Is it still that you are being overly conservative I'm wondering, in continuing to worry and be concerned about what's taking place or what may take place overseas.
LINDSAY TANNER: Oh l… I don't believe so Ross, and obviously we're now in the stages - the early stages of preparing the budget for this year and that's going to be a key focus of course and Treasury does a lot of number crunching and a lot of analysis of all of these circumstances both in the Australian economy and internationally and you'll see in the budget in May a clear statement of where we think things are heading. But I think you'd need to take into account that we've been in unprecedented circumstances and governments all around the world are finding it very difficult to chart a course over the next 12, 24 months because of the fact that we've had such instability. And we shouldn't forget the fact that you had small shocks, like the Dubai threat of default.
ROSS GREENWOOD: Yes.
LINDSAY TANNER: …like concerns about the Greek debt, for example, that have the potential to really become something much more serious, given the fragility of the wider global economy. Now, so far that hasn't happened. It doesn't mean it won't happen. So, it's a very tricky world to forecast in at the moment.
ROSS GREENWOOD: And given, also, I guess, some of those World Bank forecasts in the last little while, talking about the debt inside the United Kingdom, at 80 per cent of GDP, and really this is unprecedented stuff, I mean, economies with debt of 15 per cent of their GDP are generally seen to be somewhat fragile, but 80 per cent is really, sort of, you know, getting out there in terms of where many countries would prefer to be.
LINDSAY TANNER: Well it’s certainly something that I know a number of those governments will be very concerned about and, of course, you - it varies from country to country significantly. Japanese Government debt is well beyond that, it's well beyond 100 per cent of GDP, but it's based very much on established patterns of consumer behaviour, of ordinary citizen behaviour in Japan that you don't see in other countries, so it's less of a concern than, perhaps, it might be. But still, there are many countries around the world that have got very, very large debts, and very large budget deficits, with not a huge amount of sign of them being reigned in, so that remains a very, very big negative for the global economy, and that's what the IMF, of course, has been recently pointing to.
ROSS GREENWOOD: And just a final thing, I mean, given your ongoing concerns about what may take place, in other words a prospect of a double dip economic downturn, based on one of these countries maybe having its own economic difficulties in the future, and as a result it may need a whole new round of stimulus packages around the world, if that were to transpire, and I think the forecast last week was a 25 per cent chance that that could take place. My wonder about that is whether it is really the right time to make significant changes to Australia's tax system and, certainly, with the Henry Review coming through, whether the Government is going to really be as aggressive as what it might otherwise have been, had you been in good economic times, it might have been seen to be a more, shall I say, fortuitous times to be able to change the tax system.
LINDSAY TANNER: Oh, I think your observation's correct, Ross, that it's, certainly, not an easy time to be tackling some of those entrenched tax problems. But there is a wider issue here that we can't duck and that is, in a sense, a separate but very significant threat to the Australian economy, and that is the ageing of our population. We're just about to get to the point where the percentage of our total population that's of workforce age is going to start dropping, because of the baby boom generation starting to reach retirement age and that, of course, will just steadily increase the burden on the federal Budget because the percentage of people who are contributing tax revenue will start to shrink, and the percentage of people who are net recipients of Government money and benefits is going to start to increase. So, that is something that the Government's very conscious of, the Prime Minister's making a speech, probably literally as we speak, for an Australia Day function on this very subject, and that's something we're really focused on. So, it's a very complex picture, no doubt about that, but that is a key consideration that we've got to deal with, because over time it will erode the Federal Government finances unless we take action.
ROSS GREENWOOD: Very good. Lindsay Tanner, there, the Finance Minister joins us on Money News, as he does on a regular basis. And we appreciate your time, many thanks for your time tonight, Lindsay.
LINDSAY TANNER: Happy to be with you again, Ross.
ROSS GREENWOOD: Very good. So, you know, look, there's an - there is a good point, because he's quite right, that situation of the ageing economy cannot be held up. And the second thing, as well, is it's just going to be the concerns about what's taking place overseas that may, shall I say, … create the framework around the Ken Henry Report when it's handed down to Government in the next little while.
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