Interview with Fran Kelly
ABC Radio National Breakfast
13 May 2009
SUBJECT: 2009 Budget
KELLY:
Treasurer, thanks very much for joining us.
TREASURER:
Good morning Fran.
KELLY:
Treasurer, you said this was going to be a tough Budget. Well last night one economist called it a cream puff Budget and others said it inflicts about as much pain as a Chinese burn. Did you squib it?
TREASURER:
Not at all. I would recommend that they actually read the Budget. I don't know what they were really looking at when they made those points because there is a really tough approach in this Budget to making long-term structural savings. Now it would be silly to impose very savage cuts right now in the middle of a global recession when we need to stimulate the economy to support jobs. That's why we've got the infrastructure investment in here, as the third phase, infrastructure investment for recovery but what we have put in place are very substantial savings in the long-term. Savings in the family payments system. Savings in the health system when it comes to the Private Health Insurance Rebate. Savings across the board in a number of other areas that are structural and go on and deliver bigger savings over time and pay for that age pension increase which is such a substantial cost to the Budget because of the ageing of the population.
So in the middle of a global recession, when the economy is at its weakest, we have to do two things. One is to stimulate the economy in the short-term and the second one is to make room for the critical nation building investments for recovery and thirdly, chart the course back to surplus by putting in place, over time, structural saves in those areas of the Budget where spending has been growing unsustainably, or will grow unsustainably. That's why we've made the cutbacks when it comes to top end super. That's why we've made some changes in family payments which have been growing much faster, much faster even than the age pension, in recent years. Those sorts of long-term savings are absolutely critical. Everybody for years has been saying when are they are going to do something about the obscenity of people on average wages paying for health insurance subsidies for people on high wages. Well we've done it. They're all tough decisions but they're for the long-term and that's why the credit rating agencies, Fran, have given this Budget a tick this morning, because they recognise the importance of what we've done and they recognise the strength of our balance sheet as we go forward.
KELLY:
The credit agencies have given it a tick and we've been talking about that this morning on breakfast, but they have said they want to see that the deficit exit strategy does actually happen as planned…
TREASURER:
Too right.
KELLY:
With respect, you did warn us all that we'd all have to share the pain though. In terms of all of us sharing the pain well the changes to the family payment are there but they're pretty mild. The top end super changes are there for the top end, the private health changes for the top end. Where's the big structural changes?
TREASURER:
Well they are the structural changes, Fran. They deliver big…
KELLY:
At the top end. That's not all of us sharing this pain.
TREASURER:
Well Fran I don't know who you want to pick on in our society but everybody's doing their bit and some people at the top have been doing very well and they have been asked in this Budget to do a bit more but I made the point, as we've been through the last couple of weeks, that everybody would have to do their bit and everybody is doing their bit but what that doesn't mean right now, over this year and through early next year, that what we should do is impose very savage cuts right now in the middle of a global recession. What we're seeking to do is a couple of things, it's a complex situation - stimulate the economy now to provide maximum support for employment, create some room so we can do those good things for the pensioners that we've done. Get the nation building investment in place for the long-term and chart the course to the future with the big structural saves across the areas of biggest pressure in the Budget and that's what we've done.
KELLY:
Let's talk about charting the course for the future in terms of your deficit exit strategy. There is a lot of wishing and a'hoping going on here resting on these forecasts. The forecasts are pretty rosy for growth just three years out.
TREASURER:
That is not true and there's been a lot of silly comment about the growth.
KELLY:
4.5 per cent is pretty strong. That's the sort of growth we had in the mining boom.
TREASURER:
Fran, 4.5 per cent is less than this country achieved when it came out of the 80s and 90s recessions and look what it's coming on the back of. We're forecasting for 2010/11, 2.25 [per cent], that's less than trend growth. We're forecasting for 2009/10 -0.5 [per cent]. We had zero growth the year before. These are very conservative forecasts. I can't, for the life of me, understand some of the commentary that is claiming that they are excessively optimistic but let me also make this point and I think it's very important and it's one that Glen Stevens made a week or so ago. He did make the point that recessions do end and, of course, when they end there's a lot of spare capacity in an economy and that gives the economy the capacity to grow above trend.
KELLY:
In a sense we're all, I mean, guessing is perhaps not quite the word for it, but yes recessions do end and we're trying to pick when it's going to end and that's…
TREASURER:
No, what we're trying to do is to prepare the country for recovery and what we're doing in this Budget is the nation building for recovery.
KELLY:
And let's talk about that now because that's the third plank of your stimulus package.
TREASURER:
Too right.
KELLY:
The nation building, the big spend on infrastructure, big project. Isn't the problem a lot of those big projects, no doubt the nation needs them, it is nation building but is it stimulatory at a time when we need it? When will the first, you know, when will the first shovel-load of dirt be turned on those big rail and road and ports projects?
TREASURER:
Fran, Fran, by definition, big economic projects do take time.
KELLY:
Absolutely.
TREASURER:
And that's why they've been through the whole process we've been through, through Infrastructure Australia and all of those processes. Through the Investment Fund, through the Health Investment Fund, through the Education Investment Fund…
KELLY:
But will they be in stream fast enough to be stimulatory now when we need it?
TREASURER:
Many of these projects will come on stream very quickly, not all of them, some of them are feasibility studies and so on. That is the case.
KELLY:
How quick (inaudible)?
TREASURER:
Well additional stimulus in this Budget is about three quarters of one per cent on top of what we've already been doing. So certainly some of them will be coming on but don't forget that the second phase of our stimulus is happening now as well - 35,000 shovel ready projects going on in schools, energy efficiency, social housing. So what we've got, what we've got is we've had the payments, they're in the system. What we've then had is the second stimulus package – they're going out and now we're bringing on sequentially a number of these projects over the next year and beyond.
KELLY:
Treasurer, I'm conscious that your time is tight this morning. One unexpected change, and a pretty tough change that won't be popular, is the idea of lifting the pension age by two years to 67. Shadow Treasurer Joe Hockey was laughing at that. He said even that's 14 years away.
TREASURER:
Well, I don't know what he'd like us to do. Would he like us to do it from this year? I mean you have to be fair to people. You have to give them plenty of notice. This is a long-term structural change that is vital given the ageing of the population. Right now we have five workers for every person aged 65 and over. In 2049 it's going to be two and a half. These are precisely the reforms the country needs, precisely the reforms the country needs and these are the sort of reforms that the rating agencies actually look at because what you need to have when you've put an increase in there for the base rate of pension, is you need to make your pension system sustainable and this will make our pension system sustainable along with the other structural changes we've made in the Budget to make room for pensions. This is precisely what the Budget is about. It's about the long-term, it's about putting the structural changes in to make the pension system sustainable. It's about putting in place the economic infrastructure that will bring benefits to this country for years and years and years.
KELLY:
Again Treasurer, with respect, talk about mixed messages, if you're warning of the demographic time bomb lurking at the same time you're discouraging people from saving for their own retirement.
TREASURER:
Now we are not. We are not doing that at all.
KELLY:
What about those cuts to the super tax cuts?
TREASURER:
What we have done, what we have done is, particularly when it comes to those additional amounts that people could tip in $50,000 or something, that's been obscene and everybody in the industry has acknowledged that it's not sustainable. We are strong supporters of superannuation. We put the system in place and we will continue to support it because it's a vital peg of our retirement income system. What we've done is strengthen the base rate of pension and what we have done at the top is take some of those obscenities out of the superannuation system where people on very high incomes were getting very high public subsidies. They weren't going to a lot of other people.
KELLY:
And Treasurer, you didn't say the deficit number in the speech last night. Are you scared of saving it out loud?
TREASURER:
No, I'm not scared of saying the deficit number and…
KELLY:
Do you want to say it now? What is the deficit?
TREASURER:
…and we outlined it in great detail last night and it's 57.
KELLY:
Treasurer Wayne Swan, thank you very much for your time.
TREASURER:
Thank you.
