Interview with Fran Kelly
ABC radio National Breakfast
5 March 2009
SUBJECTS: National Accounts; Economic Security Strategy; Bank Lending
KELLY:
Treasurer, good morning.
TREASURER:
Good morning, Fran. It's good to be with you.
KELLY:
Treasurer, are you proud of this result - negative 0.5 per cent?
TREASURER:
Well, I think it just demonstrates the huge challenge that the nation faces, the huge challenge that is being imposed on us by the rest of the world. And if you look at the figures yesterday you can see that the domestic stimulus that we have put in the system has certainly strengthened growth in the face of that international challenge. You can see it in the consumption figure. That positive consumption figure is not something that many other countries in the developed world could contemplate. In fact, their figures are far worse.
KELLY:
So, compared to the rest of the world this is a beautiful set of numbers?
TREASURER:
Compared to the rest of the world we are doing better.
KELLY:
Technically we're not in a recession. There's been a lot of talk about that. Most economists say we are already. Does this feel like a recession to you?
TREASURER:
Well, certainly it feels like a huge challenge. You see, what we've got here is a contracting global economy and that is imposing challenges. We're seeing the unwinding of the mining boom. That means that growth goes down, unemployment goes up, big challenges for the Budget.
KELLY:
Sure. Does it feel like a recession?
TREASURER:
Well Fran, what it feels like is a very big economic challenge for the country - one the Government is determined to deal with to cushion the economy from the full effects of a global recession - and that's what we're doing, using every tool of fiscal policy, the Reserve Bank using every tool in monetary policy to make sure we cushion this economy from the full effects of the global recession.
KELLY:
Now, the National Accounts tell us we are on the brink of recession at least, if we're not already there. The Government is being, as it says repeatedly, open and frank with the Australian people. The worst is still ahead of us, this is what these figures tell us, and do you have any sense, is it possible to give any sense of how bad it's going to get?
TREASURER:
Well Fran, I don't think anybody can say what will occur as we go down the road with this global recession. The one thing that is certain is that we can act, and act domestically. This Government has more room to move when it comes to fiscal policy than many other governments elsewhere in the world. And we have acted, and we've acted early. The consequence of that is that it has strengthened our economy precisely at the time that the global economy was contracting sharply. You see, in the quarter of December we had the sharpest synchronised contraction in the global economy in our lifetimes. So, I think it was important that the Government moved last October and put in place that fiscal stimulus that flowed through in December which is still flowing through into our economy. I think particularly important that we did put in place our Nation Building and Jobs Plan which will flow through this month, next month, and of course the direct investment that comes through the investment in schools and in energy efficient housing and social housing and so on. All of that is being put in place to deal with this sharp contraction in growth imposed on this country.
KELLY:
Now, you say the stimulus package from December strengthened our economy. It's hard to see the proof of that yet isn't it, because consumer spending is incredibly weak, we've gone into negative territory generally and manufacturing figures are way down. People have banked, we can see clearly now people have saved the stimulus cheques they received, they haven't gone out and spent them, and the jobless numbers are going up. Where is the proof?
TREASURER:
First of all, Fran, it is very clear that if the Government had not acted with its Economic Security Strategy last October the figures that we saw yesterday would have been far worse. And in fact, if you look at the retail trade figures for December and indeed again for January, you can see that they are far stronger as a result of the Government's action last year. So, I simply reject the notion that there has been no significant impact flowing through from the Government's efforts to stimulate the economy. It most certainly has.
KELLY:
It's a lot of money to be giving out, though, when you can't quantify it. If you accept there has been some, it's hard to quantify. Now, does it make sense to keep throwing money at people to convince them to spend when they're clearly in no mood to do so? Because you're about to post out another $12 billion in cheques from next week.
TREASURER:
Fran, the alternative is to sit and wait and do nothing, and what that will produce is far higher unemployment, far higher lost output and enduring damage to our economy for the long term. Most economists, all of the business groups in the country agree that the Government has been correct in the action it has taken and the evidence is there. If we were receiving yesterday some of the results other developed countries are receiving in terms of their National Accounts, then the figures would be far worse. So, you can see the difference. You can see the difference between what's happening here and what has happened elsewhere in the world. The Government has been on the front foot.
KELLY:
Sure. It's a lot of dollars, though, and it's important to make sure it is working. We do know clearly now that people have been saving this money. You can argue about whether that's a good thing or a bad thing, but what is your pitch for people to spend and not save?
TREASURER:
Fran, some of the money has been saved, and that is a good thing. We said that when the Economic Security Strategy was announced last year - that some of it would be saved. But some of it has been spent to a very positive benefit. You see, when you're looking at that increase in the savings ratio that's in the figures yesterday, I think what people are failing to take into account is that some people have been saving the benefit that they have received in terms of the 300 basis point interest rate cuts that have come through from the Reserve Bank.
KELLY:
Sure, but that $9 billion represents more than just that.
TREASURER:
Well, you're taking an aggregate figure. It's not correct for you to argue that all of the Economic Security Strategy has been saved. Some of it has been spent, some of it has been saved. But if you look at that jump in the savings ratio - which is a good thing for the country because it brings forward the time [at] which people will move to spend, some of that flows directly from the fact that people who have had a big cut in their mortgage rate have chosen to save it, and that is certainly reflected in the figures and it is a good thing. But it should not be used to denigrate the effectiveness of the Economic Security Strategy which has clearly strengthened employment, which has clearly strengthened business in this community over the last couple of months, and it should not be used to denigrate the Nation Building and Jobs Plan, payments of which will flow through in March and April and will strengthen our economy again precisely at the time they are needed, because there has been a further contraction in world growth as we've gone through the beginning of this year. And those payments will arrive in time to further cushion our economy from this dramatic contraction in the global economy, and indeed the direct investment that we're putting in place through schools, housing energy efficient homes and so on will be just going in place in time to further strengthen our economy when the world is very weak as we get towards the middle of the year.
KELLY:
Treasurer, in terms of the jobs plan, you met with the banks, the big banks this week. The Prime Minister has made the point very clearly that the Government has backed the banks all the way through this crisis and they should be prepared to give back. What demands did you make from the banks to try and get them to increase their business lending, because this is a job killer, isn't it?
TREASURER:
Well, certainly in terms of aggregate business lending, credit is flowing in our economy unlike most other economies. But I certainly accept that there are problems particularly in regional areas with the availability of credit, and certainly problems in some areas of the economy in terms of the pricing of credit. And the Government has said to the banks that we would like to see them do better, particularly when it comes to business loans and most particularly small business.
KELLY:
And because the small business sector is screaming about this. Did you get any reassurance from the banks that they will, because on the one hand the banks say they're lending and small business says they can't get a hold of the funds?
TREASURER:
Well, the banks are clearly lending in aggregate, there's no doubt about that, and all the credit data that comes through from our regulators shows that they are. But certainly in some areas of the country there appears to be a problem, and I've certainly spoken to the banks about looking again at the amount of credit that they're supplying to small business and also at its pricing.
KELLY:
And are you going to hold them to anything, to any results?
TREASURER:
Well, we're pretty determined to see that credit flows in this economy. It's important in terms of jobs, it's important in terms of the security of business and we give this a very high priority.
KELLY:
Treasurer, thank you very much for joining us on Breakfast.
TREASURER:
Good to be with you.
