UHLMANN: Penny Wong, good morning.
WONG: Good morning.
UHLMANN: Is Government spending putting more pressure on the Reserve Bank to lift interest rates today?
WONG: Interest rates are a matter for the Reserve Bank. Theyre independent, as you know, under successive governments. But what we are delivering for our part is the fastest fiscal consolidation that we have seen since the 1960s. That is, the fastest, largest return to surplus. We are also doing the right thing by investing in capacity-building policies so that we increase the capacity of our economy investments in infrastructure, investments in skills, investments in the NBN.
UHLMANN: But there is still $5 billion to be spent on skills. Would it be a good idea now not to spend that money given that Government fiscal policy is expansionary, monetary policy is expansionary and unemployment is at just 5.1 per cent. Those things dont add up, do they?
WONG: I dont agree that we are looking at expansionary fiscal policy when youve got a Government that has said very clearly that we will deliver the fastest, largest return to surplus at least since the 1960s. A plan that has been backed by the IMF, that has been described by many as a very aggressive fiscal consolidation. Thats what were going to deliver and well do it by offsetting new spending and by putting in place a cap on real growth in expenditure. Thats almost half of what was actually achieved under Peter Costello and John Howard in their last five budgets.
UHLMANN: Will you be announcing any specific cuts when the Mid-Year Economic Review comes out?
WONG: Obviously Im not going to announce what is in MYEFO. But I would say that weve laid out very clearly our fiscal rules. Well be methodically working through those and applying those to the budget; and also as relevant to the MYEFO.
UHLMANN: But the finance Red Book said that there were $2.4 billion worth of spending that came with your election promises and it would be better to deal with that sooner rather than later. So without telling us what the cuts might be, do you think that you will be announcing anything specific?
WONG: We are very focused on delivering our fiscal rules and whenever the MYEFO is, that will reflect the approach that were taking. And of course weve been very clear about the approach we will take in Budget. These are far stricter rules than the Coalition applied to themselves in government. Far stricter both in terms of the real growth in expenditure as well as tax as a proportion of GDP. So we are very, very clear about this. We want to deliver the largest, fastest return to surplus.
UHLMANN: Now part of your rules of course is an efficiency dividend which applies to all departments. Arent you concerned that that punishes the efficient and inefficient alike?
WONG: The efficiency dividend is part of our policy, and it is a policy that enables departments or agencies to find efficiencies as they think best. Were confident it can deliver the appropriate savings and the appropriate efficiencies. I do think its pretty remarkable though, Chris, weve seen some criticism from the Opposition on this. An opposition that was going to impose a far greater efficiency dividend and a hiring freeze in the public service. Theres a bit of crocodile tears sort of post facto from the opposition when it comes to the Australian public service.
UHLMANN: Certainly but just looking at it, the Department of Defence spends $27 billion a year. The Australian War Memorial spends in the order of millions and those smaller agencies are suffering under this dividend arent they?
WONG: In relation to the Australian War Memorial, I think the Prime Minister has made clear we are looking at the issues that are being raised within certain parameters and we will do that. But as I said, we think this is a prudent policy, a policy that does help us bring the Budget back into surplus which is in everybodys interests.
UHLMANN: But arent tailored cuts better? As Finance Minister you have to make those sorts of decisions which are what things the Government should be doing and what things the Government shouldnt be doing. And surely, making those decisions about programs is more important than applying something across the board in the public service?
WONG: Well, hang on Chris, were not walking away from the need to restrain spending. This is a Government thats delivered some $80 billion of cuts in expenditure over our last three budgets. Were very clear about the importance of delivering the surplus, as we said to the Australian people we would. And well go through the disciplined process of looking at expenditure, working out how we get the best value for money for taxpayers and make sure we bring the Budget back to surplus.
UHLMANN: Is continuing to ensure that the Department of Defence gets 3 per cent real increase every year in its Budget, is that a good way of spending money?
WONG: Chris, lets remember there was a very substantial review done in relation to defence that preceded me, that looked at the ways in which Defence could find savings, could look at applying those savings to the increasing funding pressures that they have. That was put out last year and what the Treasurer has made clear, and Ive made clear, is well be working across government, and Defence will be working to deliver those savings and efficiencies.
UHLMANN: Just on a few things that are in the news at the moment. If you do apply a mining tax to mining companies should their carbon costs be tax deductible?
WONG: Obviously this is one of the things that some of the mining companies have put into the public arena. Its not dissimilar to some of the requests that were made when I was Climate Change Minister. Im sure Greg Combet, as Minister for Climate Change, will deal with these suggestions and talk to business about the way forward. Whatever the detail I think everybody understands we do need a carbon price in the Australian economy and we do need to get business negotiating and discussing this issue with the Government. We are very pleased that that is underway.
UHLMANN: On the bank deposit guarantee which was put in place during the financial crisis, where the Australian Government is now carrying a contingent liability because of that of nearly $1 trillion. Now do you have any concerns about that and should you move swiftly to try and remove that guarantee or make it a lot smaller?
WONG: In relation to the guarantee we have already said at the outset that this will be reviewed in October of next year. So that is already in place that review. Lets remember this was a very important measure in a very difficult time in terms of the global economy and also in the Australian economy. It was an important measure to instil confidence in our financial system. And its one of the ways in which we ensure that we came through the global recession with the sort of strong economic fundamentals that we have.
UHLMANN: The banks obviously though have reaped a great benefit out of this. Its killed off their competitors to a certain extent so isnt it well timed that the Government started to look hard at its guarantee?
WONG: Well as I said, we already have said we are going to review it in October 2011. But remember, this is a guarantee that applies not just to the big four but to a range of other deposit takers. This has been a very important policy in terms of ensuring confidence in our financial system, and confidence in our financial system is one of the pillars of a strong economy. Its one of the reasons we came through the global economic crisis far better than most of our competitors, far better than most other advanced economies.
UHLMANN: One final thing, Minister from left field just a little bit but what is your view on having Sharia-compliant financial products in Australia? Its a very small market at the moment but there seems to be some concern from the Coalition that it might be expanded.
WONG: It is potentially a big market internationally. This is one of the areas that was looked at in the review of financial services which was undertaken and the Government is obviously looking at the recommendations of that review. But I do think its a pity when there are knee jerk responses to these policy options. We are an open and tolerant society. We have made our way and done well in the world by being open and competitive and tolerant and I would hope that our attitude on this issue could reflect that history.
UHLMANN: So you have no reflexive feeling one way or the other about it?
WONG: I think there are a range of recommendations and there is potential market there. We need to look at it carefully and we will. But I dont think in this area we should have a knee jerk response. We have seen a lot of knee jerk responses from the Opposition, Mr Hockey in terms of regulating interest rates. We now see another knee jerk response. And I think the policy debate in this country would be better if we could have a considered discussion about the benefits for Australia of these sorts of opportunities.
UHLMANN: Penny Wong, thank you.
WONG: Good to speak with you.
ENDS