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Sunday Agenda program
Helen Dalley: But first that $700 billion rescue package that the world hopes will help end the financial crisis. Kevin Rudd said yesterday the passage of the bill was a positive step in restoring stability to the global banking system, but there was still much, much more work to be done. And he added that stability in the banks was of fundamental importance to all working families. Well, families -- working or not -- and businesses -- small or large -- are all holding their breath hoping that this package will stimulate the economy and prevent a global recession, if not depression.
And joining us from our Canberra studio to discuss this issue is the Small Business Minister, Craig Emerson. Dr Emerson, welcome to Sunday Agenda.
Craig Emerson: Thank you Helen.
Helen Dalley: Now what do you think of this revised package that the House of Representatives finally passed yesterday?
Craig Emerson: It’s certainly welcome and it will go some way to stabilising the global financial system but there is a lot more work to be done. The Europeans are obviously pretty skittish. So we’ll just have to see how it pans out internationally. Australia, of course, is by no means immune from all of these developments but we’re pretty well placed, and I’d argue close to one of the best positions of any country in the world given our strong budget surplus, and also the strength of our banks. The AAA rating of our banks is very important at this particular time.
Helen Dalley: All right. Now you said last week that if this financial injection went ahead in the US that we’d be looking at a reasonably strong economy this time next year. Do you still think that?
Craig Emerson: I think we are better placed than most countries. We’re still . . .
Helen Dalley: No, do you think we will have a reasonably strong economy this time next year?
Craig Emerson: I think we’ll be reasonably strong, yes. Yes, I do. And I say that because the Chinese authorities have indicated that they will step in, and although global commodity prices are falling and they will have to decelerate their growth rate a little bit, there will still be strong growth in China. And that is actually quite good news for Australia because we are now very much linked in with the fortunes of the Chinese economy. And the Chinese authorities have actually indicated that they will step in and ensure that there’s reasonable growth in China. So that should help underpin economic growth here in Australia. But there will be a slowdown. Let’s not pretend otherwise. The budget forecasts already indicate that. So I’m not saying that the economy will be trundling along at full speed. There will be a slowdown but we are better placed than most countries to handle it.
Helen Dalley: All right. But you did say a reasonably strong position this time next year. Now neither the Reserve Bank nor the Prime Minister or your Treasurer are predicting that we will be out of this mess and that our economic slowdown will be finished within a year. And the IMF is predicting a sharp decline now in the US economy. In fact Treasurer Swan said this morning that there’s no doubt we’re heading down a rocky road for some time to come. What makes you confident?
Craig Emerson: Well, my position is the same as Kevin Rudd’s and Wayne Swan’s and that is we do know that we have economic difficulties.
Helen Dalley: It wasn’t just a few days ago
Craig Emerson: I’m saying that we do have economic difficulties but the fact that China will continue to grow, albeit at a slower rate, means that we are better placed than just about any other country in the world, not only as a result of that linking with China, but also the strength of our banking system and the strength of our budget surplus. You see, just late last week Kevin Rudd and the Premiers agreed to accelerate the infrastructure investment programme. Wise investment in infrastructure will not only stimulate the economy but it will lift productivity, and that’s a very important capacity that we have built on the strong surplus that the Labor Government has put in place, which is the second biggest surplus, I might add, in 37 years. So we foresaw some of this turbulence and we have created a very strong surplus in order to deal with it. And now we’ll be in a position, through the acceleration of some of that infrastructure spending, not only to stimulate the economy but to invest in the productive capacity of this economy.
Helen Dalley: I think it was the previous government, wasn’t it, who would lay claim to creating the surplus, but I need to move on.
Craig Emerson: Well, I am indicating that our surplus is the second biggest in 37 years and we cut government spending from 5% real growth to one per cent real growth and that helped build the strong surplus that we had. Yes, it is true that the previous government built surpluses. We are now indicating that we’re going to invest in infrastructure and we all very concerned about the Coalition’s statements about its attitude to that infrastructure investment in terms of its attitudes in the Senate. And it’d be very interesting to get a clarification as to whether they’re going to allow this wise investment in infrastructure to occur or whether they’re just going to be deliberately and politically obstructionist.
Helen Dalley: Minister, you’re also responsible for the services sector. Now, according to the latest Performance of Services Index, activity in Australia’s services sector has declined for a sixth straight month. Now, as the turbulence in financial markets have continued to cool our economy, isn’t that another worrying sign that things are contracting here?
Craig Emerson: Well, it is obviously of concern and the service economy, for which I have overall coordinating responsibility, the service economy constitutes about 75% of Australian industry. So it’s a big slab of our economic activity. Yes, there is a slowdown. The budget said that there would be, forecast there would be a slowdown. These new developments internationally indicate that there will be a slowdown. So these figures are simply confirming that. And I’m simply saying that we are pretty well positioned in terms of the strength of our surplus, the strength of our banks, the strength of the regulatory regime, which I will add is not only the responsibility and to the credit of the current government. The previous government put in place a lot of important reforms to ensure that we don’t have the sort of fragility in our banking system that is obviously affecting the United States and also Europe.
Helen Dalley: All right. Well, let’s talk a bit about that regulation. You’re the Minister Assisting the Finance Minister on Deregulation, perhaps it should be re-regulation now. The PM said yesterday we face a challenge of bringing about global financial regulations on transparency, on better prudential standards and on corporate governance. Now, is this really possible given all the entrenched greed and corruption on Wall Street as the two Vice-Presidential candidates put it in the debate?
Craig Emerson: Well, as you’ve seen Helen on the television, there’s enormous anger within the public in the United States about this meltdown, and so I think there will be not only a political desire but an imperative to have efficient regulation. Yes, I am the Minister Assisting on Deregulation but we’ve never said we want no regulation. We want efficient regulation. We want to know, and the public needs to know, and the stock markets need to know exactly what banks and other financial institutions are doing. And our regulatory regime here, Helen, is one of which we should all be proud and it affects all Australians. The fact that our four banks, our biggest four banks, are AAA rated banks and people do know what’s going on in those banks because it is transparent, because we have a good efficient regulatory regime here in Australia. And thank goodness for that. And if that sort of regime had been in place in the United States and in Europe we may be in a much stronger position than we are today.
Helen Dalley: Okay. So do you want more regulation here and also how do you insist on better regulation in countries like United States?
Craig Emerson: Well, we just add our voice to the situation in the United States, our voice to the hundreds of millions of Americans who want better and more efficient regulation in the United States. People were telling me just the other day the regulation is State-based in so many areas in the United States. So in some States it’s stronger; in some States it’s weaker. What we’re doing here in Australia, Helen, is making sure that our regulation is across a seamless national economy rather than being State based. And again this is an area in terms of consumer credit. It didn’t get a huge coverage out of the Council of Australian Governments meeting on Thursday. But in consumer credit we’re moving that all to a national regulation, getting rid of what we call ‘rail gauge’ economics where all of the States were responsible for doing their own regulations. So we are improving our regulation from a very good base. We already have a solid base of efficient regulation of our financial institutions and we’re making it better.
Helen Dalley: All right. Well let’s move on. Small business owners and operators, you know some of them have been badly hit, not only by the drop in the share market, but by the credit crunch. Now, some American businesses were telling their congressmen this week that they were having trouble getting bank money to pay their payrolls and that’s partly what caused the House to vote for the package. Now is Australia experiencing anything like that?
Craig Emerson: Nothing like that, fortunately. And I’ll go back to the point about the AAA rating of our banks and the importance of our banks being liquid and viable as they are. The most important thing for small business, as you’re alluding to Helen, is that they do have access to credit. So many small businesses rely on it. Now, it may not be flowing as freely as it was, say six months ago, but at this stage there is general access to credit. There will be problems in some areas. But again it’s a tribute to the regulatory regime, the transparency put in place by previous Labor Governments, previous Coalition Governments, and built upon by the Rudd Labor Government.
Helen Dalley: All right. Minister, I think you’re referring to the big four banks. They’re AA rated aren’t they, not AAA rated?
Craig Emerson: I think they’re AAA rated, but whatever they are, they are very highly rated and those four banks are four of the top 20 banks in the world in terms of their rating. So it is a tribute, as I say, to the regulatory regime. And I have to say to the management of those banks that they didn’t get into this sub-prime mess that so many banks, not only in the United States, did, but in other countries, did.
Helen Dalley: All right. Let’s just talk about small business, they are feeling the stress of the credit crunch and also interest rates. Now, on the one hand your government is now telling the public and those small business people that it’s okay for the banks to not pass on the expected Reserve Bank rate cut this week, which if it was passed on, it would help ease some financial stress faced by small business.
Craig Emerson: We’re saying in relation to the banks that we want them to pass on the maximum proportion of any cut in the Reserve Bank cash rate. That’s what we’re saying. We want the banks to be liquid, we want them to be strong, we want the credit to continue to flow.
Helen Dalley: But do you accept that if interest rates . . .
Craig Emerson: It’s not much benefit for small business to have a lower interest rate if they can’t access the money. So we want the interest rate to fall.
Helen Dalley: All right. But Minister, on the other hand do you also accept that if interest rates stay high couldn’t that push us into recession? If business is really hurting, and that’s precisely what you say you’re trying to avoid.
Craig Emerson: Well, we’ve got a suite of policies to do whatever we can to keep the economy growing reasonably strongly and we’ve already discussed the infrastructure programme there. And also $55 billion worth of tax cuts that were announced, or came through in the May budget for which we received a lot of criticism in terms of that being too stimulatory. Well, I wonder where those critics are now.
Helen Dalley: All right. I just want to ask you one point. Opposition Leader, Malcolm Turnbull claims that the banks are profitable enough to pass on all the Reserve Bank rate cut, and he says that your PM has run up the white flag and that he is the banks’ buddy. Doesn’t he have a point?
Craig Emerson: Malcolm Turnbull is just a cheapjack populist, that’s what he is, a cheapjack populist in running that line.
Helen Dalley: But that could help a lot of small business people.
Craig Emerson: Well, it’s always a little bit more complicated than cheap populism would suggest. We will take the advice of the authorities, of the regulators, of the people who know best in this area. We won’t be taking the advice of Malcolm Turnbull. What he is saying may possibly be in his short-term political interest but we will govern for the national interest and the long-term interest of small business and all businesses and all households in Australia.
Helen Dalley: Minister, we’ll leave it there, thanks so much for joining us.
Craig Emerson: Thanks very much, Helen.