SENATOR THE HON PENNY WONG

MINISTER FOR FINANCE AND DEREGULATION

TRANSCRIPT

7 December 2011

ABC 891 DRIVE WITH SONYA FELDHOFF

TOPICS: INTEREST RATES, NATIONAL ACCOUNTS

E&OE - PROOF ONLY

FELDHOFF: Senator Penny Wong is the Minister for Finance and Deregulation, and she joins us now. Thank you for your time, Minister.

WONG: Good to be with you again.

FELDHOFF: Minister, these figures seem to be fairly optimistic.

WONG: These are exceptionally good figures. What they show in the latest national accounts today is this, that the economy grew by about 1 per cent over the quarter, about 2.5 per cent through the year. That’s a very, very good result.

But probably as pleasing is that we saw both solids consumption figures, so people are consuming goods and services, but most impressively, we saw a very significant increase in new business investment, an increase of 12.7 per cent. Now that is a very large increase, and what it shows us is that business is continuing to invest. We know that there is some $455 billion worth of investment in the pipeline, and this sort of growth figure in the investment figure shows that we’ve got a lot of good investment out there.

FELDHOFF: This is very specific to certain sectors, though, isn’t it? Some are doing extremely well, others not so good.

WONG: That’s true, we know that for example engineering construction has grown significantly. And it’s true that not every part of the economy is growing as fast. But when you look at what’s happening globally, when you look at the sort of dent in confidence you’d anticipate from the problems in Europe which continue to be played out, this is a very strong set of results.

FELDHOFF: Minister, obviously the national figures are looking quite bright, but here in South Australia those figures don’t seem to be reflected in the same way, a contraction of 1.6 per cent. What does that mean for South Australia? Are we just not making it on the national scale in these areas?

WONG: What we know is that growth is not even, and that’s why you have to put in place policies like the minerals tax to ensure that you can spread some of the benefits of growth across the country. We know that we have to continue to ensure we put in place things like skills and training to strengthen other parts of the economy. We know we want to reduce the tax rate for small business, funded by the minerals tax. And we’ve got to keep doing what the Government is doing, which is investing in infrastructure.

But I would say this, if you look at where most of the rest of the world is at, we’ve got low unemployment, we’ve got strong growth, we’ve got low public debt, we’re in a very good position compared with most other advanced economies.

FELDHOFF: Given that the minerals sector seems to be driving a lot of this growth, with South Australia’s announcement about Olympic Dam and all of that, are you expecting that we will see a change in where South Australia’s growth is headed in the coming years?

WONG: I think Olympic Dam is an extraordinary opportunity for our state. It really is. And it’s a great opportunity not just in terms of the direct jobs, which are significant, because it’s such a big project over such a long period of time. But I think what’s also important is to make sure that we see the benefit from this project flowing to other sectors of the economy, and that a range of industries which are there to support mining can also benefit as well. And I think the Premier is doing a lot of good work on that front.

FELDHOFF: I guess on the back of the resources sector, WA would have to be leading the way on this growth. Is WA carrying the rest of the country in this area?

WONG: You see, at different times, different states grow, and there’s no doubt that WA at the moment has a lot of big projects. There are a lot of big projects on foot there, and there are also a number of big projects planned, as you know, for Queensland, and of course we have Olympic Dam in South Australia, which is a very, very large project. So it’s true that at the moment we see a lot of resource projects in Western Australia, but the sort of investment we’re looking at is not only in one state.

FELDHOFF: Minister, while we’ve got you, obviously in the last 24 hours we’ve seen an interest rate cut, but yet very few of the banks, in fact none of the major banks as far as my last look on this, had passed that on. The Federal Government has been very significant about pushing for that to be passed on. How definite can you get on that level, can you make the banks do it?

WONG: The banks are private businesses, and they have to make their decisions. What we’ve said is in making their decisions they should show the sort of regard for their customers that businesses of that size would be expected to. What I’ve said today and what the Treasurer has said is banks need to think about the people who are their customers, who do ensure that they have the sorts of profitable businesses that they have. They need to think about the families who are their customers, and also small business and others who are their customers. And I think people would be pretty angry if the banks failed to pass on the rate cut.

I think it’s disappointing that I haven’t seen any further announcements recently, it’s certainly disappointing we haven’t seen anybody being prepared to be upfront. When I last looked, and I’ve been in a couple of meetings, we have seen the Bank of Queensland and ME indicate that they would pass on the rate cut in full, and that should be acknowledged.

What I would say to people, if you don’t like what your bank’s giving you, there’s competition out there and people should be aware there are a range of financial institutions and they should make sure they’re getting the deal that they think is the best for them.

FELDHOFF: If the banks don’t pass it on, though, I guess that lever on the economy isn’t working in the way that the Reserve Bank is hoping it will, so I guess John’s question can flow on from this, he’s given us a ring, he says only a third of Australians have mortgages. I’m not sure if that’s correct, but certainly significant don’t. Is raising or lowering interest rates really a good tool to moderate the economy?

WONG: Monetary policy is a tool across the economy, it’s one of the key tools of macroeconomic policy, and you’re right, it’s reasonably blunt, isn’t it? Because an interest rate cut or an interest rate rise flows across the economy in various ways, but it doesn’t take account as to what people’s different circumstances are, or what different businesses are. But the Reserve Bank is an independent body, and it runs monetary policy in an independent way, and that’s as it should be. One of the strengths of the Australian financial system has been the independence of the Reserve Bank.

FELDHOFF: One of our texters highlights this, and Minister I wondered your views on it. Do you think that the banks have any obligation to pass that on, given that taxpayers backed them with the guarantee during the GFC?

WONG: I think they have an obligation to the community to operate as businesses that recognise the importance of their customers. I think they have an obligation to their customers. I think they have an obligation to the people who do make their businesses work, and they wouldn’t have a business if people didn’t sign up and take loans out and bank with them, and that’s what lots of small businesses across the country and lots of customers do.

So yes, it is true that we did back in the banks, we needed to do that for the benefit, not just for the banks but for all Australians, because your financial system, your banking system, is critical to the functioning of the economy. But I think it’s a broader issue than that, I think they’re businesses that operate and exist because they have customers, and they should be thinking about their customers.

FELDHOFF: Thank you for your time tonight.

WONG: Good to be with you again.

ENDS