27 January 2009
Interview with Neil Mitchell on Radio 3AW
Subjects: Impact of the global financial crisis, options for a second stimulus package, China downturn, new US Administration, buying Australian, wage levels, Australian Business Investment Partnership
NEIL MITCHELL: We hear reports of more job losses in the United States. We regularly here reports of job losses in this country. We hear reports that China is turning down and this will affect Australia greatly. We say - we're told this is going to be the toughest year, perhaps, since the depression in Australia. In the studio is one of the men in charge of the job of getting us through it.
The Trade Minister Simon Crean, good morning.
SIMON CREAN: Morning, Neil.
NEIL MITCHELL: Is it going to be that tough, do you think this will be the toughest year since the depression?
SIMON CREAN: It's going to be tough because not only are we seeing global recession and you've already Europe, the US, Japan, three huge economies and important to us in recession but you've got the problems with the financial markets.
Now, these days economies function not just by what happens within them but how they trade with each other. Finance is fundamental to those trade flows, finance in terms of generating the activity. What we've seen with this problem is not just the downturn in demand but the implications of the global financial excesses. And that's why policy makers are finding it very difficult to give clear definition to when we're really going to get out of it because we don't know the full impact of what's there and hidden.
Now, you've probably had discussions on this program many, many times about that. What do we need to do about it, Neil? I think we've got to do this. We've got to understand that fundamentally the Australian economy is in sound shape, better shape than practically any other.
Its financial sector isn't as vulnerable as the financial sectors of other countries, but it has to draw on funding, financing from that sector. The role of the Government is seems to us, is that we've got to find the best combination of what the private sector can still do on its own, let market principles function, but where there is market failure, where there are problems, where there are gaps in the market for the government to step in.
So far as the trade connection is concerned, Neil, it's important to get trade flows going and barriers down for this simple reason. World output grows much faster than domestic output. In other words, trade is a faster multiplier of what you do at home.
So, there's no point all of these countries looking at fiscal stimulus packages, spending billions and trillions of dollars unless they're prepared to do something about the multiplier as well.
That's why we've got to try and conclude the Doha round of trade talks, it's why we've got to try and underpin the fundamentals of economic growth, not just at home but in terms of the global economy as well.
NEIL MITCHELL: Okay. So what do we do? We have a stimulus package, perhaps tax cuts?
SIMON CREAN: Well, obviously we're looking at all options, Neil, in terms of this. Just think about a domestic economy, there are four things that drive it, one's consumption, so if you give tax cuts, you help consumption.
The other is business investment, so in looking at taxation, you can't just look at consumption you've got to look at business investment as well and at the end of last year, we announced some initiatives that were designed to encourage investment and keep jobs. Third area is government expenditure, infrastructure and we've got to try and make sure that that which we're supporting is two things, one, is that it can be done quickly, turned around quickly but secondly that it enhances our long-term competitiveness.
There's not just any point building any road, you've got to have it connected to ports, you've got to have efficiency.
The fourth area is what's referred to as net exports, the difference between what we export and what we import, that's the area that I've got responsibility for. So we're trying to address this global financial crisis, and the problems associated with it from all four. You saw the consumption package before the end of last year, you've seen announcements on infrastructure, you've seen announcements on business and now we're trying to again, get this Doha round of trade talks concluded.
NEIL MITCHELL: There's debate about whether Australia goes into recession or whether we're even there already. In the end, does it matter if the rest of the world's in recession, aren't we really in the same boat?
SIMON CREAN: No, I think that it is important for us to understand that fundamental strength of our position and that is we're one of the few developed countries still to be forecast to be growing positively. The second thing that's important, Neil, is that back in the '80s, again, the Labor government that I was ultimately part of, understood the fundamental importance of engaging trade with Asia.
It's the fastest growing region in the world and has been for the last two decades. Importantly, even though it's forecast to take a hit it's going to be growing positively.
So, the challenge for Australia, it seems to us, is that here we are positioned better because of our engagement with Asia to still have growth happening, us still growing positively. We're in a position in which we're better placed to grab market share.
NEIL MITCHELL: What does that say to me if I am running a small business, two or three people, and I am battling, I am struggling, because people aren't buying whatever I am producing.
SIMON CREAN: Well, it depends on the small business that you're running here. Is it a business that simply produces for a domestic market or is it exporting. What we're trying to do is to stimulate the basis for both exports as well as domestic consumption.
NEIL MITCHELL: Who's buying?
SIMON CREAN: Well, I think that we saw in December, January, you'd look at the retailers and they were saying that their sales, their retail sales were better than they were expecting.
NEIL MITCHELL: No, I am sorry but I mean, who's buying overseas, where can we trade? Where can we sell?
SIMON CREAN: Well, Chi... look...
NEIL MITCHELL: China, still?
SIMON CREAN: China. Even with the dramatic downturn and there are figures coming out later this week, we'll see where it goes. But where we were looking at China growing and factored in it growing around eight per cent, that's now been revised down to 6.8. It's still positive territory.
It's still our largest trading partner. So where are we positioned in terms of China? The reality is that most of its activity has come from domestic activity.
SIMON CREAN: The Chinese leadership have consistently said that they don't want the economy slipping much below eight. One can expect that they will be looking at their fiscal stimulus. They already came out with one before the end of last year, because that was designed to keep them at eight. If it hasn't achieved it, don't underestimate their determination to do something more.
As well as the fact that they've got the financial reserves to do it, they've got huge surpluses, quite apart from any borrowing that they might undertake.
NEIL MITCHELL: What about the United States. Horrible job losses there overnight. And where's that headed?
SIMON CREAN: Well, that's the big problem for us all, because it's countries like the US that determine the extent of export growth for countries like China. Even though most of China's economy is domestically driven, there's been an important component that's been export oriented.
You've already seen a stimulus package by the previous administration. The current administration, almost from day one, announced its stimulus package, which has still got to go through the Congress. So, these are economies that, quite frankly, not only understand the gravity of the circumstance, also understand the importance of the fiscal pump prime. Doing something to drive consumption.
But, again, the point that we've got to try and engage the new Administration with, Neil, is getting them on board to develop the multiplier, the trade impact. Get them to sign off, or commit to signing off, on Doha, because it's in their interests that they trade, just as it's, more importantly, it's in our interests that we trade.
NEIL MITCHELL: Would you agree, just in historic terms, this is the deepest crisis since the 30s?
SIMON CREAN: I don't know. It could be. I think it's too early to, quite frankly, call that. But you'd have to say that, given how dramatically this has happened since - well, beginning of last year there were the signs, but when you really look at it it's been September onwards where the real crunch has come. We thought that we were seeing not so much the end of it, but steps being taken to stabilise it. Whereas if you look at the last couple of weeks, and the revised forecasts are all in the down direction.
So, I think we do have to be very concerned about it. Australia isn't immune. Australia is better placed, but Australia is a minnow in a global economy. What we've got to do is to drive an agenda that not only reinforces the fundamental strengths of our economy, but encourages other countries to also develop the confidence to go forward.
NEIL MITCHELL: Do you mind putting the headphones on just for a moment. We've got a few callers who would like to speak to you and I've got another question or two.
Hello, Rachel. Go ahead, Rachel.
CALLER RACHEL: Hi, Neil. Look, I've got a bit of positive news, I suppose. We run a small business, my husband and I, and we only employ one other person, but we import as well as manufacture products. And we - we've just made serious changes to make sure that we're going in a positive direction. We, well…
NEIL MITCHELL: What have you done?
CALLER RACHEL: Well, we wholesale lawn seed. So, given the current climate it's been a little bit difficult. [Laughter] And we've just changed and we've moved on and we manufacture drought tolerant seeds. And we've actually found that….has been fantastic.
NEIL MITCHELL: Well, that's part of the message, isn't it? Adapt.
SIMON CREAN: Well, it is. But understand this too, Rachel, that who else is looking for drought resistant seed, it's other countries trying to develop, whether it's their agricultural, their pastoral industries, that also deal with climate change, so that there is the opportunity to perhaps export this product. So, I'd encourage you to get into Austrade if you…
NEIL MITCHELL: So this is your message, is it? You've got trouble where you think you're headed into tough times, get out there and sell overseas? Trade.
SIMON CREAN: I think the message, fundamentally, Neil, is that we as a country of 21 million people can't expect to continue to develop the lifestyle that we've been used to if we're simply going to sell to ourselves. Our opportunity, because it's also our strength, is that we can take on the rest of the world in so many different fields and we have equality, in terms of our manufacturing, our skills, our innovation, but we're also a very open market. It's forced us to be competitive.
We've also got an exchange rate now, quite frankly, which is, you know, better positioned for that. So, yes, the argument is look for where there might be export opportunities, even though the market situation globally is difficult. But, there is still opportunities.
NEIL MITCHELL: Isn't it also, though, more important now than ever, that we buy Australian? That we try and - and work positively towards supporting our own industries?
SIMON CREAN: Well, it's got to be the sensible mixture of both. You listen to Rachel's business. Basically, she imports to manufacture. Why would you buy the components - produce the components here if they can be imported cheaper, if you can value add them better here and produce a better product? So, that's the fundamentals of market economies. But my argument simply is we have huge potential in this country and people have got to look to the future, as difficult as the present is.
NEIL MITCHELL: Two quick things. As a former ACTU president, where do you stand? Do we have a wage freeze or not?
SIMON CREAN: I think that wages are an important part of the cost structure, as well as the living standards of people. You've got to find the sensible balance. We found that in the 80s. The basis upon which we developed a wages policy with a government prepared to listen and work constructively with the trade union movement, not only locked in the low inflation, it gave us superannuation, it gave us the Medicare system and the low inflation that it locked in was the basis for the low interest rates and the economic prosperity.
NEIL MITCHELL: So, what does that mean? They need to temper their claims?
SIMON CREAN: No. I think that what has to happen is I think there's got to be the proper engagement with all the key players. Governments can only do so much. They have to get the policy settings right. They have to encourage a climate of cooperation between business and the unions.
NEIL MITCHELL: And the - the other thing, the last thing, I read about the possibility the Government being - becoming a lender of last resort for businesses that are in trouble. Now, that really worries me on the basis that if I'm a business in trouble and I go to government, the way bureaucracy works they'll come back to me when I've been broke for six months, or else they'll be - money will be thrown at businesses that shouldn't have money thrown at them. Some businesses do deserve to go broke.
SIMON CREAN: …..Well, I don't fundamentally disagree with that point, Neil, but let's get this right. It's not lender of last resort. What we're dealing with here, this package that was announced with the construction sector, it's not because our construction companies are failing, it's not because our banks don't have a solid base, it's that the banks can't necessarily access the financial capital overseas because those banks are in trouble.
What we're talking about here is a partnership between government and business to plug that market failure. It's not a failure of our making, it's a failure elsewhere and I think it is a sensible response. Of course it can't prop up further failures. And this package will only be agreed, not just if the Government says so, but if the four banks in question give it the tick.
They won't be doing that to companies that are fundamental failures, but we shouldn't let the good ones go under.
NEIL MITCHELL: Thank you very much for coming in. Cricket season's almost over: North Melbourne.
SIMON CREAN: Yeah, I'm looking forward to North, they are a gutsy team. Yeah, well, I think they've got a terrific chance this year. But they don't - they don't disappoint you, North, in terms of their commitment and effort. They might disappoint round about the time of the finals, ultimately, when they don't go as far as you'd like them. But, no, they've got a lot of character, North.
NEIL MITCHELL: Thanks for you time.
SIMON CREAN: Thanks, Neil.
NEIL MITCHELL: Trade Minister Simon Crean.
[ENDS]
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