Wed, 7th May 2008
Turnbull interview with Philip Clark (2GB Sydney) - Budget, Inflation...
The Hon Malcolm Turnbull MP
Shadow Treasurer
E&OE
SHADOW TREASURER:
Good afternoon Philip.
JOURNALIST:
You’re keen to fight inflation aren’t you?
SHADOW TREASURER:
Very much so. I recognise inflation as a big problem, a challenge, an issue.
JOURNALIST:
Hurts working families a lot?
SHADOW TREASURER:
Hurts everybody, everybody because whether you are highly geared or not, it obviously undermines living standards.
JOURNALIST:
So what is Dr Nelson saying? What is he on about when he says that the government is exaggerating the problem?
SHADOW TREASURER:
What he is pointing to, and the point that he is making is the same point I’ve made in a somewhat different way. He has got to make his own points in his own language. But the point that I have made about Wayne Swan is that right from the moment that he became Treasurer he claimed that inflation was out of control - now there is a very big difference between saying we have got an inflation problem. Look inflation is a global problem at the moment. Petrol and oil prices are going through the roof, food prices are going up. It is a global problem and of course here in Australia we have had a very strong economy for a very long time, low unemployment. All of those things inevitably make inflation a problem. We recognise that. We have got a very independent, very skilled Reserve Bank. We have been running big surpluses for many years and we have – over a long period of time – kept inflation on average between two and three per cent. I have no doubt that we will be able to do that in the future and it is very important that we don’t have reckless people like the Treasurer going around, undermining public confidence in the Reserve Bank.
JOURNALIST:
…I don’t think he is doing that though is he actually backing the Reserve Bank and saying the Reserve Bank has got a charter to keep it between two and three per cent and interest rate policy is the blunt instrument they are using.
SHADOW TREASURER:
If I could just say this to you Philip we all know that.
JOURNALIST:
They are not being critical of the Reserve Bank though.
SHADOW TREASURER:
Well if you say “inflation is out of control” you are saying that the Reserve Bank is not doing its job because the Reserve Bank’s job is to keep inflation under control.
JOURNALIST:
Ok well let me ask you this…
SHADOW TREASURER:
…Glenn Stevens was very resentful at the House of Representatives economics committee recently and rejected, very robustly, the suggestion that inflation was out of control.
JOURNALIST:
Ok, can I put this to you. Do you think that Australia does have a problem with inflation?
SHADOW TREASURER:
Of course we do, absolutely it's higher than we would like it to be.
JOURNALIST:
Correct. I think everyone admits that. On that basis though don’t you acknowledge though, don’t you acknowledge that the previous government does have some responsibility for creating that climate over the last few years when perhaps a better and more heavy handed hand on spending might have been applied when it wasn’t.
SHADOW TREASURER:
Well Philip the government ran very big surpluses. Over the period of the Howard years we repaid all of Labor’s $96 billion of debt. We put aside an enormous amount of money in the Future Fund, saved that to cover future liabilities to public servants pensions. We ran in the last three years alone budgets equal to or in excessive of one and a half per cent of GDP. These are huge surpluses historically, so the Howard Government was a saving government. Now if it had run surpluses that were somewhat larger, would inflation be less, you can argue that pro and con, but to be honest Philip to make a difference with fiscal policy in terms of inflation, you have got to make a saving in net spending that is very big, equal to at least half a per cent of GDP. This really is the point that I have made about Mr Swan. If he was serious, serious about using the budget to fight inflation, then what he would be doing is cutting spending in the coming financial year by $6 billion or more. The only fight he is serious about is the fight he has with the Liberal Party.
JOURNALIST:
But you can’t… the Rudd Government hasn’t caused inflation. You can’t blame them for it, they have only been there for four months and they haven’t produced a budget yet. I am just surprised at the fact that you are so determinately nailing your colours to the previous government’s mast because it seems to me as simply a matter of cause and effect. Clearly the previous government’s policies had something to do with creating the climate of inflation we have got. I would have thought that it would be easy for you say “yes and this is what we are going to do about it in the future.”
SHADOW TREASURER:
Philip it is really not very productive to get into a blame game and have all of these hypotheticals. If you go back to the middle of last year the Reserve Bank thought inflation was trending downwards. Now with the benefit of hindsight they were clearly too optimistic. People’s forecasts of inflation have gone back and forward. Look the real issue is what do we do now. My point of distinct with Wayne Swan is a pretty simple one. Yes I agree that inflation is a problem. I certainly don’t believe it is out of control and I think it is very dangerous of him to say so. I do believe we have to deal with it; however I recognise that there have been enormous ructions in international financial markets. We have seen very significant increases in the cost of the money that banks have to borrow to lend to us and that is why our interest rates have gone up, not just because of the Reserve Bank’s rate rises, but because of the events in international financial markets. We have got the United States, the world’s largest economy in recession. We have got the United States in a situation where house prices on average have declined by more than 15 per cent from their height and they are expected to go down another 20 per cent. All of that tells me as a fairly cautious person when it comes to looking after people’s financial affairs that this is not a time to take financial risks. That is why I don’t believe that this is a time to make enormous cuts to the budget, purely for the purpose of reducing demand.
JOURNALIST:
…It has been…
SHADOW TREASURER:
… If I could just finish Philip – if there is inefficient or wasteful spending or programs that aren’t working, or things that can be saved, do it. If I was the Treasurer I would be looking through every line item in the budget, trying to save taxpayers’ money. But I would do that whether we were in good times or difficult times, it’s other people’s money.
JOURNALIST:
Is interest rate policy the blunt instrument used by the Reserve Bank which places a big burden on mortgage owners – in my view unfairly – is that the only instrument we should be relying on, should the government be using tax policy. Should we be saying, for example “well do something about the GST” or should we be fighting it in other ways?
SHADOW TREASURER:
Well Philip, both fiscal policy, tax policy, government spending and revenue policy. That is a blunt instrument too and it is actually quite a bit blunter than monetary policy. The primary burden of fighting inflation as Glenn Stevens said himself only the other day lies with monetary policy, partly, or largely because the Reserve Bank can change interest rates every month. They meet every month, they can put them up, put them down, leave them where they are. Fiscal policy is by and large determined once a year at the budget and it takes a long time to take effect. So you have got two blunt instruments, one of which is quite a bit blunter than the other. Now I think the best thing for fiscal policy to do is to be consistently conservative, run consistent surpluses, as long as the economy….
JOURNALIST:
…Which is what will happen, which is what Wayne Swan is going to do…
SHADOW TREASURER:
But it is exactly what Peter Costello did. Wayne Swan has said that he will run a surplus of 1 ½ per cent of GDP to which we say, “well done but that is exactly what was done.”
JOURNALIST:
Yeah I know, but Dr Nelson though and I wonder whether you are in this curious position of opposing budget cuts.
SHADOW TREASURER:
No, I am not opposing. Neither I nor Dr Nelson are opposing budget cuts. If there is savings that can be made to promote a more efficient use of tax payers money, then of course they should be made. We are always, always in favour of that. What we are saying is that an across the board, massive cut, five, six billion dollars – which is what you would need to do to have an impact on inflation is not prudent to do given the hardship that a lot of Australian families are already facing and the risks in the international financial climate that are already ahead. It is a question of judgement. But you know Philip, Swan isn’t going to cut $6 billion out of the budget. They are talking about a bit here and a bit there, which whether it is a good cut or a bad cut depends on what it is, we will have to look at it.
JOURNALIST:
Well what is your figure, what do you think should be cut out of it?
SHADOW TREASURER:
Well I am in favour of cutting any dollar that is not delivering the best value for the taxpayer.
JOURNALIST:
But is the $1.3 billion being suggested, is that enough?
SHADOW TREASURER:
Well over four years that is $1.3 billion over four years that is not going to make any impact.
JOURNALIST:
So you would want bigger cuts?
SHADOW TREASURER:
Well it depends. You see what they have said is they have demanded that every government department cuts spending by 2 per cent. That is the so-called efficiency dividend. In some cases that may be less than a department can cut out of efficiency. In other cases it may be more. Now the across the board cuts are easy to make. Now you see this in businesses sometime when (inaudible) sometimes you cut the wrong element, you cut the more productive elements because they are easier to cut. You are really asking me a qualitative question. I have been involved in plenty of businesses over the years that have had to cut their overheads.
JOURNALIST:
…Let’s ask some specific questions. Should the baby bonus be means tested? A lot of people think it ought to be. Why should rich people simply get a $5000 free gift from the government?
SHADOW TREASURER:
I think the baby bonus is different to most social welfare payments. Almost all social welfare payments are means tested as you know and that makes perfect sense. The argument for the baby bonus when it was established was that it was going to be a universal statement and recognition of the value of children as a social good and send a powerful social message.
JOURNALIST:
Should it be means tested, that is my question?
SHADOW TREASURER:
If it is going to be universal then it shouldn’t be means tested. Now let’s assume Philip that you disagree with me and you don’t think it needs to be universal, you discount that social message that is so important.
JOURNALIST:
I think it should be means tested. What is your view?
SHADOW TREASURER:
I don’t, but even if you thought it should be means tested as a matter of principle then you have got to ask yourself this question. How much money will we save by means testing it? People say we shouldn’t give the baby bonus to millionaires. There aren’t a lot of young women having babies who are millionaires. How much are you going to save and what is it going to cost you to administer it? These means tests are enormously expensive to administer and they impose real costs on compliance from people who are applying for the benefit. So you have got to weigh all of that up and if the cost of administration and compliance is more than you are going to save then it is obviously not a good idea to means test it. That is one of the reasons, the practical reason if you like, so I am told, I wasn’t in the Cabinet at the time, that they decided not to means test it when it was introduced. It was that practical reason that when all was said and done, even if you did means test it the savings would be very small relative to the cost,
JOURNALIST:
The Coalition has bounced back in the polls and they may be on the road to being competitive and the Government’s margin as we already know is hardly impregnable. The Coalition has bounced back in the polls, Dr Nelson hasn’t, why not?
SHADOW TREASURER:
Dr Nelson is doing a good job as Opposition Leader, he has been taking the fight up to Kevin Rudd, it is a very tough job, and we all understand that. But look at the pressure he was able to bring on Kevin Rudd over the carer’s bonus, now that was something that Labor was planning to cut. That was going to be a part of their cut and we took that issue up and Brendan led the charge naturally as our leader and they backed off. So I think they have had some wins, but these are tough times for a new opposition leader against a new Prime Minister.
JOURNALIST:
Good to talk to you.
SHADOW TREASURER:
Thanks so much Philip.