Please read the transcript of my interview.
Subjects: World Bank warning, car subsidies
JONATHAN GREEN: Now, the World Bank has issued a dire warning that the world faces the risk of significant recession and one greater than the GFC and any recovery from that position is expected to take much, much longer. Now, the crisis in Europe could trigger a credit freeze, worse than the 2008 crash that saw Lehman Brothers go to the wall and crucially for Australia, World Bank is also tipping that commodity prices are expected to slump.
Now to discuss how all this could affect us, we’re joined by Acting Treasurer, Bill Shorten. Welcome to Summer Breakfast.
BILL SHORTEN: Good morning.
JONATHAN GREEN: Now, none of this is good news on the global economic stage and with all that's going on in Europe. Was this warning from the World Bank unexpected?
BILL SHORTEN: Maybe some of the language is unexpected, but I think the fundamentals have been expected by the Government for a while.
We’ve been watching what happens in Europe, in particular, and their difficulties in terms of getting on top of their Government debt and stimulating their economies inEurope.
JONATHAN GREEN: Now, the World Bank says that no country or region will escape the consequences of a serious down turn. I mean, how well
prepared is Australia to withstand something of that serious nature?
BILL SHORTEN: The times we face in 2012 are going to be challenging times. 2011 was disappointing globally and 2012, in some parts of the world, is going to prove explicitly very challenging. The report itself contains little express reference to Australia. I do believe that it does serve to highlight the relative strengths of the Australian economy.
So the answer to your initial observation is, I think it will be harder for Australia, but I don’t think we’re in the same boat as European or other developed nations, because we have some strengths and some numbers, which I think contrast favourably, but not a reason to be complacent and the numbers I’m referring to are we have contained inflation, we have relatively low unemployment, our Commonwealth Government debt is just much lower than a lot of other nations around the world.
JONATHAN GREEN: Another critical number there, though, is the budgetary position. Now, when last time round, when he had the GFC, now you went into that with a substantial surplus. Twenty-one-point-seven billion in 2008/2009. We’re not in that position now, so do we have enough room to move, in terms of stimulus, if things could get really grim?
BILL SHORTEN: Well, first of all, it’s all comparative. We’ve come out of the global financial crisis stronger than other nations. It is worth noting that the
United States, the size of their economy is only just returning to what they were in 2008. We’ve grown by seven per cent, so there’s no doubt that we’re better placed, but it will still be difficult, coming to your point. One of the big things, which it’s not a short term issue, but it is, perhaps, the most significant event of our lifetime and our children’s lifetime is the change in economic gravity from Europe, North America to Asia and Australia is well placed to deepen our economic engagement with Asia, so I think in the short term times are difficult.
In the medium term, our prospects, courtesy of the resilience of our economy, some of the timely decisions the Government’s made and our proximity to Asia
mean that we are in a relatively better position than some of our traditional comparatives around the Western world.
JONATHAN GREEN: We can expect interest rate cuts, do you think, in the next twelve months? RBA has a bit of wriggle room, but perhaps, more so than the Government in budgetary policy.
BILL SHORTEN: Yes. Well, apart from fiscal stimulus, there is monetary policy and the RBA has four-hundred-and-twenty-five basis point of monetary policy range, which are just not present in some other countries. Now, I’m not saying what the RBA will do. They’re independent, but it is a fact that we do have some range through our independent bank and monetary policy, which is not present in other countries.
Some countries - were going to have a lot more domestic stress on their banks. That’s not the same problem that we experienced in Australia. Our banks are experiencing, perhaps, some difficulty raising money internationally, but the strength of our local banks and the stability of them, I don’t think anyone’s questioning.
JONATHAN GREEN: Now before you go, Bill Shorten, Opposition Leader, Tony Abbott has confirmed that the Coalition policy of cutting subsidies to the local car industry. Now, their view of this is that the money to the car industry should phase out in 2015. Your response to that?
BILL SHORTEN: I don’t agree with that. I agree with your summary of the Opposition policy, I just don't agree with the Opposition policy. First of all, we know the Opposition’s divided. They've had numerous Liberals from Nick Minchin to Andrew Southcott to some of their spokespeople, Barnaby Joyce, who clearly, by their public comments, don’t agree with this policy, so they are a house divided on manufacturing.
But the even more important point about the manufacturing, some people say, well, why the car industry? Well, the car industry isn’t just any old industry. It generates a lot of second tier and third tier jobs in small business, through automotive components. You go to the outer suburbs of South Australia of Adelaide, of Melbourne, of Sydney, there are car component manufacturers.
They employ apprentices. We do need to have apprentices inAustralia.
JONATHAN GREEN: But in tough economic times, Bill Shorten, aren’t we just propping up an industry that’s already had millions pumped into it.
BILL SHORTEN: Yeah, but the problem is - economies are cyclical and if you let go certain skills and trades and small businesses in tough times, they don’t come back and the other point, which I think is relevant is that if you look at a profile of companies who spend money on R&D and that’s innovation, that’s how nations stay ahead of the curve, the car industry sustains a greater dollar proportion of R&D than many other sectors in the Australian economy.
Manufacturing is going through long term structural change. In 1960, there were thirty Australians in every hundred working in manufacturing. Now it’s eight and a half or nine. I don’t want to be part of a country that doesn’t make anything anymore, because we’re the fourteenth largest economy in the world and if we stop making things here, well, then we become price takers to the rest of the world and that can’t help the development of an independent Australian economy.
JONATHAN GREEN: Bill Shorten, thanks for your time.
BILL SHORTEN: Thank you.
JONATHAN GREEN: Acting Treasurer, Bill Shorten.
Transcript: Interview with ABC Radio National, Jonathan Green, 19/1/12
19 January 2012