E&OE - PROOF ONLY
ALY: Finance Minister, Penny Wong, joins us now on RN Drive. Welcome to the show.
WONG: Good to be with you.
ALY: Now you’re probably not surprised to know the Opposition’s had some things to say about this today. Here’s a bit of what your shadow, Joe Hockey, said.
HOCKEY: Well the Reserve Bank makes absolutely no mention of the Budget position. In fact, it recognises that business and consumer confidence is fragile. Secondly, they recognise modest domestic growth. Clearly they are concerned about the performance of the Australian economy.
ALY: I think we can take it as read there’s some partisan bluster in there, but the central point that when we have cuts like this – now 0.75 of a per cent in the last two months – that that shows that there is a fundamental weakness in the economy, doesn’t it?
WONG: I don’t agree. And if you want to know what Joe really thinks have a look at his Bloomberg interview, I think from yesterday or the day before, where he spoke about the strength in the Australian economy and acknowledged that surpluses ensure that central banks like the RBA have room to move.
The reality is the RBA in the announcement today has lowered interest rates, as you’ve said, to a rate of 3.5 per cent, which is in fact lower than at any point when Joe Hockey was in Government in terms of the cash rate.
In terms of why they’ve done that, it’s quite clear to anybody who’s watching the news that we’ve seen a lot of volatility in global markets. There’s certainly a lot of concern about Europe. And unsurprisingly, that means the global outlook is seen as being less robust than people would hope.
ALY: Sure –
WONG: But the reality is, a rate cut before the Budget, a rate cut after the Budget, really demonstrates what the Government’s said, which is that a surplus gives the Reserve Bank the flexibility to move should it believes it needs to. And it has.
ALY: I’ll perhaps come back to the issue of the surplus. But the last time we saw rates this low, we had a Western world that was in deep recession, and we, as a country, only barely escaped. Now, if this is a reflection of the economic forecast at the moment, doesn’t that mean that we’re in some deep trouble?
WONG: Not at all, and I think it’s very important that we just take a step back and remember the sort of strength we see in the Australian economy. We see an economy where the world is wanting to invest. With $500 billion worth of investment in the pipeline, that’s a massive vote of confidence in our economy. We’ve got an economy with unemployment at a very low rate compared to the rest of the developed world. We’ve got inflation contained. We have very strong public finances …
ALY: Sure, but –
WONG: … and all of those things have led to a position where there is scope also in terms of monetary policy for the Reserve Bank to move. And it’s chosen to do so.
ALY: Sure, but at the same time, we have an economy that is significantly reliant on demand from China. And we have had consistent data now over several months showing that manufacturing is not growing very quickly now in China; demand for our resources from China is starting to shrink. You’ve got Europe in a state of crisis, which must then flow onto Chinese and Asian demand more broadly. Are we looking at a situation where the cheques that have been coming our way are going to start to shrink?
WONG: Waleed, can I start by saying I’m not one who thinks it’s either accurate, nor sensible for us to talk down the economy. And I think whilst Joe Hockey and Tony Abbott wish to do that, I don’t think that’s fair, nor accurate. That’s the first point I’d make.
The second point I’d make, in terms of Europe, our budget certainly forecast very conservatively for Europe. So we forecast in the Budget we’ve just handed down a contraction in Europe of around three quarters of a percent. That was significantly more conservative than the equivalent sorts of forecasts by the IMF and other international institutions.
So you’ve got to recognise, as the RBA has said, there’s obviously a lot of concern about Europe. But I think it’s wrong to suggest that all is ruined, as some wish to –
ALY: I’m not suggesting –
WONG: No, and I’m not suggesting you were one of those (laughs).
ALY: No, no. I’m just making –
WONG: We still see growth in China –
ALY: I’m just making the point though that the mining boom might be more fragile than we think. I mean we’ve today got figures as well that show that we’ve got our first quarterly trade deficit for a couple of years and that’s mainly because commodity prices are falling –
WONG: That’s not the only reason –
ALY: – falling by as much as 10 percent. So we’re talking about a turnaround of about $5 billion in the space of a quarter. So, I mean, what’s the upside on the economy? This mining boom that’s been carrying us, is that withering away?
WONG: I don’t think a record level of investment – as I said, $500 billion of investment in the pipeline – is a ‘withering away’. Australia has not seen in our history that level of investment in our economy.
Obviously, there will be different phases as the economy changes and there’s a lot of investment going on, and you’d anticipate that you will see greater levels of production after that investment has materialised and people have done all the things they want to do. But the fact is we’ve got a big vote of confidence in terms of the world investing here in our projects.
ALY: So just before I let you go, the other story that’s been kicking around today has of course to do with the issue of people smugglers and a ‘Four Corners’ documentary that aired last night arguing or apparently demonstrating that a people smuggler was admitted into Australia without the Immigration Department being prepared for that. Both the Opposition and indeed Kerry O’Brien, the host of that show, made the point that it’s odd that a television program can figure this out but government with all its resources can’t. I’ve been listening today for an answer to that specific question from the Government as to why that’s so and I haven’t been able to hear one. Have you got one?
WONG: The point that should be made here is that the investigation of these sorts of matters is in significant part by the Federal Police. But they have actually put a statement out today which talks about their current investigations. They obviously can’t comment on the nature of those investigations so that obviously means that I can’t either. But I would make the point that the Federal Police have engaged a number of investigations, a number of people have been arrested, a number of alleged people smuggler organisers are currently before the courts. So I think it’s important to recall that enforcement activity continues.
ALY: And others seem to have got through the Immigration Department’s net.
WONG: I can’t comment on that, I don’t have any personal knowledge of that, Waleed. But what I can say is I understand the Immigration Minister has asked for an investigation into these issues. We have the Australian Federal Police put out their statement today. Obviously there is no perfect system, there was no perfect system under the Howard Government either. But our law enforcement agencies certainly do a very good job and work very hard at putting in place proper enforcement measures.
ALY: Penny Wong, thank you very much for your time.
WONG: Good to speak with you, Waleed