JOURNALIST: Joining us now from our Melbourne bureau the acting Treasurer and Finance Minister Penny Wong. Senator, good morning to you
WONG: Good morning David.
JOURNALIST: Well the budget update paints a picture of an economy heating up, with falling unemployment, stronger growth and rising inflation. Now of course there are worse problems for a Government to be facing but with interest rates expected to rise substantially next year, why continue to pump prime the economy with stimulus measures that will flow on until the end of next year? It seems like one foot is on the accelerator and one foot is on the break, doesnt it?
WONG: I dont accept that. I know thats what Joe Hockey says and its a good line. But it actually doesnt reflect what is happening. Look David the story of the MYEFO is this. Its a story of a Government that has offset all new spending. Its a story of a Government that is reflecting the discipline that we showed during the campaign to make sure that we balanced the budget. Its the story of a government that has taken a $10 billion hit to its revenues but is still going to bring the budget back to surplus as we said we would in 2012-13.
Its also the story of a government that recognises the challenge of this term is to manage growth. The challenge of last term was to avoid a recession. The challenge of this term is to manage growth. And thats why we are winding back the stimulus. The wind back of stimulus is already subtracting about 1 per cent off the GDP growth this year. So we are very conscious of the need, as we go forward, to manage growth sensibly and this budget update delivers on that.
JOURNALIST: We also heard yesterday from the Victorian Treasurer John Lenders, who said that the Federal Governments stimulus funds have for some time in that state been used to accelerate Victorias own rebuilding program. Is this an indication that the need for stimulus has or had disappeared by the early stages of this BER? Do you think that that is an indication of that?
WONG: Lets get some facts on the table when it comes to the Building the Education Revolution. First, about 99 per cent of the funds are already spent or committed, 99 per cent of the projects. So that gives you an indication of how much is already being rolled out.
Lets also remember building construction was one of the areas that was hardest hit by the Global Financial Crisis and is still soft compared to where it was prior to the GFC hitting the globe and hitting the Australian economy. That gives you some sense of the logic of why the Government chose to invest in that sector, supporting an important part of our economy that was very hard hit, but also building facilities for the next generation of Australians.
JOURNALIST: John Lenders has described this sector as buoyant, hasnt he? Is he wrong in that description?
WONG: All I can say to you is that the figures that the industry themselves have put forward show that building construction sector is softer now than it was prior to the GFC. And as I said 99 per cent of BER projects are either committed or completed. So we have got a very small amount remaining in the context where the Government is winding back spending.
We are delivering the fastest largest return to surplus since the 1960s. Its the biggest and fastest budget turnaround in almost half a century.
JOURNALIST: Just on winding back spending. There hasnt really been any significant announcements made in this budget update. In terms of savings and budget cuts and the like, most of the savings were already announced during the election and soon after it. Do you accept the assessment from Access Economics that the Government is going to have to dig deeper at some point. And if so, why not now?
WONG: First lets remember what a MYEFO is, or what the Mid-Year Economic and Fiscal Outlook is. It is, as you have described it, a budget update. What this budget update does, unlike most other budget updates, is actually returns money to the budget. So we are actually returning money to the bottom line. It has about $3.4 billion worth of spending. It does reflect the discipline, the heavy lifting that we did during the campaign in contrast to Mr Hockey and Mr Robb. It reflects offsetting all new spending since the election from our agreements with the independents and other decisions which have been made.
But look the Government knows, I know as Finance Minister, that fiscal discipline is not about one decision or one release. It is about a series of decisions that meet the fiscal rules that we have set ourselves very strict fiscal rules because we are determined to bring the budget back to surplus.
JOURNALIST: So the Australian dollar also, the rise and rise of the Aussie dollar, has basically wiped out $10 billion from revenue. This is something obviously that as a Finance Minister or Wayne Swan as Treasurer, you cant speculate on where exactly the dollar is going to go, but all indications seem to be pointing to it continuing to rise. Is that something that should have been taken into account in this report yesterday?
WONG: The $10 billion hit on government revenue that is outlined in the budget update we released, is as a result of the high dollar. That is what is driving that reduction in revenue. Notwithstanding that we are still going to bring the budget back to surplus and we are on track to do that. So thats an important fact. But it is the case the dollar is very high, certainly higher than it was when the budget was first delivered.
Obviously, I cant speculate on what happens to the dollar but the Government is very conscious of the different impact a higher dollar has on different parts of our economy. Its one of the reasons we are so intent and determined to proceed with the minerals tax because one of the things that delivers is a reduction in the company tax rate for all companies in Australia, which includes those who find a higher dollar much more difficult to deal with.
JOURNALIST: Well we have talked about a potential rise in interest rates next year and just on that, the Commonwealth Bank has over the past week or so copped a lot of flack for raising interest rates by 0.45 per cent. The other three banks, the big banks, Westpac, NAB and ANZ, are still holding off and today we see a report that its said to be costing them $3.3 million a day to be holding off in this high stakes game of bluff if you like. Money that surely will have to be recouped through other fees and charges. Is this an appropriate course of action? Should they be holding off, waiting for the others to go first? Whats going on here?
WONG: I think the Reserve Bank in one of its more recent reports really demonstrated that the banks justification for going above the official interest rate increase doesnt hold water. We see that costs of funding have come down, net interest margins are around back to pre-GFC levels. So we think that the Reserve Bank has demonstrated clearly that the sorts of rate increases that the Commonwealth Bank put in place arent justified.
What Ive said for some time is two things. First, that there is very deep-seated anger in the community towards the banks around some of whats happened and whats been said. Banks do operate within the Australian community, they do service Australian customers. I think they should take heed of the very clear view that Australians have put to them publicly, thats been reflected in the debate over the last week about this issue.
Also on the banks David, can I just say, the second thing I said is what we need to do is what Wayne Swan has outlined. We need to improve competition. This has been something the Government has been very focused on. Weve already delivered a range of reforms to improve competition because that is the way you try and ensure the banks offer services and products at the best price possible. If they know people can walk down the road to another bank or another financial institution thats a good way to keep pressure on them to offer the best products and services at the best prices.
JOURNALIST: Senator Penny Wong, Finance Minister and acting Treasurer, we do thank you very much for your time on AM Agenda this morning.
ENDS