Interview with Kerry O'Brien
ABC TV 7.30 Report
3 June 2009
SUBJECTS: National Accounts
O'BRIEN:
Wayne Swan, not exactly a beautiful set of numbers, but I would hazard a guess that there might've been a bit of discreet fist pumping behind your office door this morning when you got the figures, yes?
TREASURER:
I think the figures are welcome news, Kerry, but as you know, we're not out of the woods yet; there's still a rocky road ahead. What is very encouraging, I think, is it shows that economic stimulus has really impacted on these figures. Those cash payments to basically families and pensioners and carers and veterans have certainly had a marked impact on consumption and have certainly been a very significant influence on this positive figure.
O'BRIEN:
I'll come back to that in a moment, because of course the Opposition are still questioning that very strongly. But, both you – and this is one of the puzzling bits of the whole thing – both you and the Prime Minister have clearly been preparing the country for recession since April. The Prime Minister said on April 20, "The worst global recession in 75 years means it's inevitable that Australia, too, will be dragged into recession." And now these figures suggest that a technical recession at least is not inevitable. So, you've been taken by surprise.
TREASURER:
Not at all. I mean, we still are facing the most significant global recession in 75 years. And the very big challenges that that global recession poses for this country are there in the figures today for all to see. Because what we can see in those figures is what we did forecast in the Budget: the beginnings of very significant falls in private business investment, the significant falls in the terms of trade. Now, those two things combined over the next couple of years are going to continue to have a dramatic impact on our economy, in particular a dramatic impact on unemployment in this economy, which is why we've put in place phase two and phase three of our economic stimulus, to chime in, for that period to support employment.
O'BRIEN:
Okay, but the Prime Minister said a technical recession – or that it's inevitable that Australia will be dragged into recession. You went further on April 24 and you said that, "The sharp contraction in global growth has dragged Australia into recession." Are you now arguing that a recession is still inevitable, as the Prime Minister said in April?
TREASURER:
We are still being impacted by the same forces that I was talking about back in April, and you can define recession in a variety of ways. A recession is a very significant contraction in activity over a period of time. It's true, as you've just said, that the definition of a technical recession is two quarters of negative growth. We face very big challenges in this country over the next couple of years, and what we've done to counter those challenges is to put in place economic stimulus. And what is welcome about the figures today is that it shows that decisive and prompt government action can have an impact to support employment and to support business. And what we should be welcoming today is the commitment of all those employees and all those employers who've been out there working with the Government and working with the impact of our economic stimulus to support employment and business in this economy.
O'BRIEN:
Okay. But without getting bogged down in it, just so that I'm clear, you're saying, I mean, you agree, technically we're not in recession by one definition. But the Prime Minister has said it's inevitable that we will be dragged into it, and you said in late April we have been dragged into it. So, by other measures, are you saying we really are in recession?
TREASURER:
Well, of course we have been dragged into this global recession, and you can see it.
O'BRIEN:
No, no, but are we in recession in Australia, by your measure?
TREASURER:
Well, we're not in a technical recession, but I'll leave that discussion to others. Because what we've been absolutely determined to do is to protect the Australian people and to cushion this economy from the impact of this global recession.
O'BRIEN:
Malcolm Turnbull has welcomed the good news aspects of today's figures, but he says the Government's spending and borrowing binge has contributed very little to the outcome. Now, that's in stark contrast to what you've said. He says that the trade figures have been much more significant in keeping Australia out of that technical recession.
TREASURER:
Well, I think Malcolm Turnbull is a very disappointed man tonight, because his whole political strategy is completely in tatters because he has denied that the economic stimulus – the cash payments that we've made to families and pensioners and veterans and carers – have created a single job in the Australian economy. He has denied that they haven't played an important part in producing this positive figure today. Just consider this one fact: without the stimulus, the figure today would've been -0.2 per cent, not plus 0.4 per cent. That's a lot more Australian households that wouldn't have had a breadwinner in work. That's a lot more – and many more communities who would've been dramatically impacted on by this global recession.
O'BRIEN:
I want to look at what this means for your Budget growth forecasts. It was quite clear in late April that you and the Prime Minister were anticipating recession, and presumably, these growth forecasts were factored, to some degree, on that pessimistic outlook. So, are you still expecting negative growth for financial year next year, '09-'10?
TREASURER:
Kerry, I remember talking to you, I think, on Budget night and making the point that our forecasts were realistic. They were probably a bit conservative, and many people were criticising us at that stage for being too optimistic. The fact remains that those big challenges to the economy that flow from the global recession are still with us, and they will still continue to impact on growth as we go through next year and the year after; that is, the collapse of private business investment and the collapse of the terms of trade, the fact that we're getting less national income from our trade and goods sector. All of those things are still going to flow through the next period ahead. Of course, the figure today indicates that the figure for '08-'09 is on the upside, but we've still got these very big challenges ahead of us, which is why we've got stage two and stage three of our economic stimulus kicking in through this year, next year and a bit of the year after.
O'BRIEN:
But do you acknowledge now, in light of these figures, that there is some reasonable chance that the growth next year for the Australian economy will be better than you have forecast in the Budget, and that unemployment may turn out to be significantly lower than you forecast in the Budget?
TREASURER:
Kerry, I have to be realistic about this. I hope we're surprised. But the fact is that we are in the biggest global recession in 75 years. We can see in the data published today the fact that private business investment has fallen dramatically, our terms of trade are falling dramatically. That's why we've taken the very significant steps to put in place the powerful economic stimulus that we have. And just because ...
O'BRIEN:
There's an odd little paradox here again, Mr Swan, that I'm offering you the opportunity to be optimistic here and you're sounding relentlessly pessimistic.
TREASURER:
No, not at all. I'm realistic. You see, when we moved last October, to announce our economic stimulus, which was to flow through in the first three weeks of December last year, many people didn't understand why. That quarter turned out to be the sharpest contraction in the global economy since the Great Depression. And when we announced again last February our $42 billion nation building plan to respond to what we saw as a very severe contraction in the global economy, many people criticised us then for acting as we did. And as it turned out, that six month period was the sharpest contraction we've seen in the global economy since the Great Depression. So, at each stage of this event we have been realistic and we've put in place, I believe, appropriate policies.
I always want to be surprised on the upside, but I have to look and the Government has to look realistically at this data. And what we can see in the data is a very substantial reduction in private business investment and a very substantial reduction in the terms of trade. If they flow through to our economy, Kerry, the price will be paid by tens of thousands of people who will be unemployed. That's why we have to move to put in place an increase in domestic demand to compensate for the reduction in private business investment and the reduction in demand from the rest of the world.
O'BRIEN:
Very briefly, I heard the Prime Minister in Parliament today accusing the Opposition Leader of constantly running down the economy. Now, when Mr Turnbull sees the economy in negative terms, he's talking it down, but when I hear you, tonight, talking down and expressing all these grave concerns about the state of the economy, why is that different to what you're accusing Mr Turnbull of?
TREASURER:
Well, I've been and the Government has realistic, upfront and frank about this global recession. And sadly ...
O'BRIEN:
Yeah, but, sorry, you're being realistic when you're negative about the economy, but Mr Turnbull is somehow doing something wrong and you're not.
TREASURER:
Well, at various stages Mr Turnbull has denied the magnitude of the recession. He's denied the need for substantial government action. He's just been playing a political game. We've had the responsibility of running the country, and the very big responsibility to put in place a set of policies to deal with it. They've all been very big calls. Our first stimulus package was a very big call. Our second stimulus package was a big call. We take our responsibilities very seriously.
O'BRIEN:
We're out of time. Wayne Swan, thanks for talking with us.
TREASURER:
Good to be with you.
