E&OE - PROOF ONLY
LI: Minister, great to have you back. So what a quarter it was. GDP growing faster than estimated on consumer spending, mining driven investments. In some respects this is all in hopes of optimism, and confidence. Does this surprise you considering we even have the central bank in Australia worried about the future with all the market volatility?
WONG: First, it’s good to be with you again Susan. And yes, these are very, very good results for Australia today. The national accounts showing the quarter growth of 1 per cent, and 2.5 per cent through the year, so that’s a very strong result.
We do see much of that, the strongest driver being private business investment, with a 12.7 per cent increase. But we’re also seeing solid consumption and rising incomes, and this is of course in the context of a low unemployment rate and inflation that’s contained. So it’s a very good economic story for Australia in the national accounts released today.
LI: That’s right Minister – a broad, good story for Australia. But what about the Australians? Because we did have a consecutive interest rate cut yesterday from the RBA. But you know Penny, a lot of Australians don’t feel that they’re getting the benefits of it. The banks are still not cutting their interest rates and mortgage rates.
WONG: A couple of points about that. The first issue on the Reserve Bank’s decisions and obviously the Reserve is independent. But if you look at what the RBA has said it is consistent with what the Government has said, which is we’ve got very strong fundamentals here in Australia, we’ve got a very big pipeline of investment, about $450 billion, and you see the evidence of that in these figures today.
But we’re part of the global economy and as you know, and I’m sure as you’ve been discussing on this program today and on many other days, it’s a turbulent time in the global economy and there’s a lot of risk that people perceive, quite rightly, particularly out of Europe. So obviously that has an effect and that is something we’re very conscious of.
In terms of what the banks here in Australia do, the Government has said very clearly we believe that the banks are very profitable. We believe the banks should think very clearly about who their market is, their consumers and the sort of business environment many small businesses and other customers are in. And we believe they should be passing this rate cut on in full.
LI: That’s right, Wayne Swan the Treasurer himself was saying this morning that if the banks don’t pass on these RBA rate cuts, they will suffer the wrath of customers, but the big four banks still remain silent. Have you been disappointed in how the banks have been operating in Australia?
WONG: We’ve got a very strong banking system. It’s one of our economic strengths. We certainly came through the global financial crisis very well, in signifcant part due to the strength of our banking sector.
However, the Treasurer is absolutely right and it’s consistent with what I’ve just said, we have banks which are profitable with very significant returns on equity. We have banks who operate in an economy where people do expect them to behave appropriately, and we think that customers will be rightly angry if the banks fail to pass this interest rate cut on.
LI: Minister, also let me talk to you about what happened this week with the S&P recently downgrading the rating on the big four banks and the Macquarie group, by two notches in fact. You know we were talking to Wayne Swan earlier in the year, and he was pretty proud of the fact that Australia itself is AAA rated. What about the banks? Did you agree with this move coming from S&P and the ratings company?
WONG: We believe our banks are in a very strong position, and they came through, as I said, the global financial crisis very well, and are even in a stronger position now than they were then, so that is a good story.
Obviously ratings agencies have their own decisions to make and I think S&P has been clear about the approach they’ve taken in terms of methodology across the board, across the world. But certainly, we’re confident that our banks are in a very good condition.
LI: A very good condition. Now, Penny, over and over again, I understand that you and Wayne Swan want to bring the budget into surplus, but people are saying with the riskiness, especially the downside risk right now in the global economy, don’t you want to reel back that timeline? Instead of next year, maybe bring the budget to surplus in the future, when we have the risks in Europe, elsewhere, off the table?
WONG: Susan, we handed down a mid-year budget review which I think struck absolutely the right balance. The balance between ensuring you continue your fiscal discipline, but at the same time you continue to support jobs and growth.
And in terms of making sure you continue to hold to fiscal discipline, I think we’re seeing played out very much in the global economy what happens when governments don’t do that, how financial markets punish those nations who don’t demonstrate a willingness to do what they’ve said they were going to do.
We think we’ve struck the right balance, and the figures today confirm that the economy is probably just slightly stronger than what we anticipated in the mid-year review, which means we’re probably just about right on track, and we certainly are – as we did during the GFC – wanting to make sure we make the right economic judgments.
LI: Finance Minister, let’s talk about the global headwinds that you have to face right now. Obviously you have to take into account what happens in Europe, what’s happening in China. What is the Australian Government’s view on how it’s all going to play out?
WONG: You’d have to say, Europe is very worrying, and I’m sure many politicians have been on this program saying the same thing. And we’ve consistently said this, that Europe has to resolve this, Europe has to get on with putting their house in order. The markets expect it, and I think Europeans are seeing that this has an effect not only on Europe but on the global economy, which also is not in Europe’s interests.
So there are a number of meetings in the next few days, including of leaders, and what we would be saying consistently is that they need to resolve this, they need to be clear with the markets how they will be implementing it, so people can have confidence that there is a way forward.
LI: There is a way forward. Now Finance Minister, let me ask you about expectations. What would make you more confident that European leaders have this crisis under control? Because right now in the markets people are saying this is a lack of confidence in what Europe can do to come together at this point to solve this ongoing debt crisis.
WONG: I think a clear plan, and a clear implementation path. I think part of the difficulty, as you know, and the markets have responded accordingly, is that while some things might have sounded good, people, markets didn’t trust that things would actually be implemented. And so I think there’s both what is the way forward, and how will governments ensure that implementation in fact occurs.
So we in Australia, like I’m sure many other nations around the world, would be saying the same thing, which is this has to be resolved. They have the capacity to do so, and we need to ensure that this focus of risk, which is creating significant issues for confidence globally, is resolved.
Obviously, we in Australia are in a very good position to weather whatever might occur ahead. We’ve got, as I said, very low public debt, we’ve got strong public finances, low unemployment, inflation is contained, and a very strong pipeline of investment. So we’re in a good position to handle the current uncertainties in the global economy. But all of us across the world I’m sure would be wanting Europe to resolve this.
LI: Finance Minister, you’re right, Australia is in a very strong position. Would you say Australia is in a strong enough position that if European leaders say we need some help, some more money into this rescue fund, do you think Australia would be willing to lend a helping hand?
WONG: I think the first thing that Europe needs to do is to sort its problems out. And that is a matter for Europe, first, to seek to resolve.
And there are a whole range of issues there, some of which the Chancellor and the French President have spoken about this week, in terms of the way forward on fiscal policy. They are matters that are for Europe to resolve. In terms, more broadly, of Australia’s position for example in continuing to support the International Monetary Fund as one of the bulwarks of the global economy, we’ve always said that Australia plays its share in supporting the IMF.
LI: Finance Minister, thank you so much for your time, it’s always a pleasure to have you on with us.