Interview with Sabra Lane
ABC Radio AM Program
17 December 2009
SUBJECTS: National Accounts; Westpac's interest rate rise; tax ruling on foreign investors
EASTLEY:
The Federal Government received some Christmas cheer yesterday when the National Accounts figures showed the Australian economy grew by point 0.2 of 1 per cent. The Treasurer Wayne Swan says while some will claim it's a very low number, it is a sign the Government's stimulus spending has propped up the economy for four quarters.
On another front, Mr Swan says the Government will consult with industry groups following a Tax Office ruling yesterday which found foreign investors who snap up and sell Australian investments for a hasty profit should pay tax on their gains.
The Treasurer is speaking here with Sabra Lane.
TREASURER:
Well, I think yesterday's figures are cause for confidence but there is certainly no cause for complacency. This figure for this month was always going to be on the lower side. It is the case that the global recession continues to wash through our economy. It's also the case that fiscal stimulus has filled the hole left by the withdrawal of private investment. And if it hadn't been for fiscal stimulus, we could have seen four quarters of negative growth, and I think that demonstrates the folly of those who argue for the withdrawal of stimulus. And in that sense I think these figures are the final nail in the coffin of the Liberal Party's economic credibility.
LANE:
But are you considering now further stimulus measures in case this pattern continues?
TREASURER:
Well, there is still substantial stimulus to flow. Stimulus peaked in the June quarter, but we deliberately designed the fiscal stimulus to support the economy through next year and to be gradually withdrawn through next year and the year after, and that's what we're doing. And we're doing that in recognition of the fact that the global recession has had a dramatic impact on global demand, and that still continues to impact on private investment in Australia. And that's why we need investment, fiscal stimulus in infrastructure - in the school modernisation program, in energy efficiency, in social housing.
LANE:
Are you worried that three successive Reserve Bank interest rate hikes may have taken too much wind out of the economy given this result?
TREASURER:
Well, the Reserve Bank takes its decisions on future rates independently of the Government, but monetary policy has been expansionary. The cash rate at the moment is still at 1967 levels and monetary policy is expansionary. Both monetary policy and fiscal policy are being gradually withdrawn, and the Reserve Bank takes its decisions on those matters independently and reviews them each month.
LANE:
You've been critical of Westpac Bank for lifting its home loan rates way above the Reserve Bank's increases. Westpac's delivered its actions saying it had to increase rates because it was willing to keep lending to other businesses when other competitors weren't; that they'd effectively closed their books. Have you been a bit too tough on the bank?
TREASURER:
I most certainly haven't been too tough. The decision by Westpac had no justification at all in my view, and I think we've seen in some reportage in the last 24 hours the fact that the margins for banks like Westpac have in fact increased in recent times. In my view there was no justification for Westpac to move so aggressively above the Reserve Bank decision.
LANE:
Ted Evans, the chairman at the bank and a former Treasury Secretary, says that you should know that correct decisions are sometimes unpopular.
TREASURER:
Well, the correct decisions are sometimes unpopular, but this wasn't a correct decision. It is very unpopular because it was a wrong decision.
LANE:
Are you worried about the implications of the tax ruling yesterday which found that foreign investors who buy Australian companies and sell them quickly for a profit could be liable to pay tax on that gain?
TREASURER:
Well, this is a draft ruling from the Tax Office. We will consult with industry as we normally do. But, of course, in all of these things there is a balance between encouraging investment on the one hand and maintaining the integrity of our tax system on the other. But the Assistant Treasurer and I will receive representations on this matter, as we normally do, and take them into account as we move forward.
LANE:
Some industry observers say though that this will scare foreign investors away at a time when Australia really needs their money.
TREASURER:
Well, Australia is open for foreign investment. We do encourage foreign investment but, of course, it also means that we have to protect the integrity of our tax system. There's a balance to be struck there and we will receive representations from the industry.
