Interest rate cut would be bad for economy: Hockey

Updated August 06, 2013 08:36:00

Many economists are tipping the Reserve Bank board will cut official interest rates today. The shadow treasurer Joe Hockey tried to defuse a possible cut, by saying a decision to do so wouldn't be a good sign for the economy.

Source: AM | Duration: 9min 15sec



TONY EASTLEY: Most economists are tipping the Reserve Bank board will cut official interest rates today. If it does it will take the rate to 2.5 per cent.

As we heard earlier the shadow treasurer Joe Hockey has said a rate cut would indicate a slowing economy and he's painted it as evidence of Labor's lack of economic management.

The Prime Minister criticised Mr Hockey's comment and said the Opposition was implying higher interest rates were better than lower interest rates.

Mr Hockey is speaking here with our chief political correspondent, Sabra Lane.

SABRA LANE: Mr Hockey good morning and welcome to AM.

JOE HOCKEY: Good morning Sabra.

SABRA LANE: Mr Hockey, most mortgage holders would argue that lower interest rates are a good thing for them.

JOE HOCKEY: Well of course they would, but they also want a strong economy and job certainty, they want stability and predictability. And lower interest rates are always good when you have a trend or above trend growth, not falling growth as occurs under Labor. You would want to have rising employment, falling unemployment - not the reverse, which is rising unemployment as is now the case under Labor.

And you'd want to have a budget in surplus, and now we see the deficit is deteriorating, at $3 billion week and we're seeing the debt rise to nearly $400 billion. So of course, interest rates on average should be lower but if interest rates come down today, it is because the economy is struggling, not because it's doing well.

SABRA LANE: Isn't it that the Coalition is haunted by words from the past? Back in 2004 John Howard said this election, more than anything, is an opportunity for people to make a judgement about whether they want to have higher interest rates under Labor or re-elect a government that will always deliver lower interest rates than the Labor Party.

JOE HOCKEY: Well on average the interest rates have been lower under the Coalition, if you look at the Coalition electoral cycle, it was, the average standard variable mortgage rate was 7.26 per cent. Under Labor it's been 7.29 per cent. Small business, unsecured overdraft rate under us was 8.89 per cent, under Labor it's been 10.08 per cent. But I-

SABRA LANE: But Reserve, but -

JOE HOCKEY: I say this but, what we've had understandably is a global financial crisis, which has seen interest rates come down. But now we are in an environment where the Labor Party said anything below 3 per cent cash rate was an emergency level.

We're now at 2.75, today it might go to 2.5. The simple fact is Labor has lost control of the economy, Kevin Rudd does not understand economics and he has a treasurer with an L plate on that doesn't understand the challenges of the future.

SABRA LANE: You say that Labor's lost control of the economy, but it's not - China's appetite for our resources has certainly fallen away, and the Reserve Bank, when it fixes interest rate decisions, it certainly keeps an eye on inflation targets. Inflation's running low, surely for that is a good thing for businesses owners, isn't it?

JOE HOCKEY: Well if all of that is the case then America and Europe and the United Kingdom should be celebrating outstanding economies because their interest rates are 0. The simple fact is that interest rates coming down in this environment reflects, reflects the fact the Government has lost control of the economy. And part of it is a lack of stability, a lack of stability in the Government, therefore a lack of consumer confidence.

I'll give you an example Sabra. Last night the Treasurer refused to rule out negotiating with the Greens to form a minority government. A month ago he said he should not form minority government at all under any circumstances with the Greens.

Now Kevin Rudd must come clean with the Australian people. Is he prepared to do ugly deals with the Greens to form a minority government again, which provides instability, which delivers an uncertain economy. Or is he prepared to rule that out and say no, no more shonky deals with minority parties, we either win or we lose. Is Kevin Rudd going to come clean today on that or not?

SABRA LANE: Getting back to the economy, both parties say that this election is about, one of the main features is about the cost of living. Aren't lower interest rates a big chunk of that cost of living equation for a large portion of the population?

JOE HOCKEY: Well it's hugely important to have lower interest rates, but you can't pay your interest rates if you haven't got a job. And under Labor unemployment is rising to 800, nearly 800,000 Australians unemployed.

They said that unemployment would be around 5.5/5.75. They've kept increasing the unemployment rate forecasts, now they're saying it's going to be over 6 per cent. They inherited an unemployment rate with a 4 in front of it, and now you've got rising unemployment, you've got the lowest retail growth expenditure in more than a decade, you've got a Government that has lost control of the budget, that is splashing out money as if there is no tomorrow and Kevin Rudd's trying to tell you everything's fine and it's going to get better - it won't under Labor.

It is as simple as that. Kevin Rudd doesn't get it. He doesn't understand how the economy works, he thinks there's unlimited supplies of other people's money and it is going to end in tears under Kevin Rudd.

SABRA LANE: What will you get the unemployment figure to, under a Coalition government?

JOE HOCKEY: Well we've created, we've committed to creating jobs. But it's the business community that creates jobs, we've set the target - a million jobs. But we can, we can only do that if we lift the tide for all, so that each individual boat rises but they have the confidence to create jobs in the private sector for others. Now you're only going to get that-

SABRA LANE: How can you create more jobs?

JOE HOCKEY: If you have a plan, and we have a plan. The focus is on getting rid of the carbon tax, getting rid of the mining tax, delivering stronger productivity growth with welfare to work initiatives, investment and infrastructure, a sensible change to industrial relations, focusing on real engagement with Asia. But most importantly, we are focused on living within our means and Labor will never do that.

SABRA LANE: You've been coy about saying when a Coalition would deliver a tax, a cut in the corporate tax rate for business. Why are you being coy now, you can't deliver it, is that what you're saying?

JOE HOCKEY: No we can deliver it and you'll see it in the not too distant future, our commitment-

SABRA LANE: Will it be 1.5 percentage points as you've previously said?

JOE HOCKEY: Well, well let me say it, we will do it when it's affordable and we will do it when it is going to be the kick-start to confidence the business and the community so desperately needs.

SABRA LANE: Would that be within a first term of a Coalition government?

JOE HOCKEY: You'll, I'm not going to ask you to hold onto your breath, but I will encourage you to be patient.

SABRA LANE: So, why is the Opposition walking away from the charter of budget honesty put in place by Peter Costello and John Howard?

JOE HOCKEY: Well because the Labor Party have corrupted it. And what we've done is, we've been using the independent parliamentary budget office to assist us, as well as other sources to assist us in helping to make sure that our numbers are far more robust than anything Labor has had.

And I'll say this to you Sabra, I'm not going to cop a lecture from the Labor Party about accuracy in numbers. I mean their hypocrisy knows no bounds. And they've had every number wrong for six years, we're not going to cop a lecture from them about honesty and integrity, not from the Labor Party and not from Kevin Rudd.

SABRA LANE: Aren't you impugning the reputations of Martin Parkinson and David Chune, the head of finance, by saying the systems become corrupted here?

JOE HOCKEY: No, I'm saying the Government is corrupted when it comes to honesty and integrity and numbers. And I heard an earlier report here on AM, about the $70 billion figure that Kevin Rudd keeps repeating.

And I'd say to you, an independent left leaning fact checking service came out yesterday and said the $70 billion claim by Kevin Rudd is complete bunkum, false, wrong. Now I hope that is being properly reported, because it is a falsified figure from Kevin Rudd and he needs to be called out on his lack of honesty. Because he is not a person who is honest and he is a person that does not understand the economics of budget propriety.

SABRA LANE: Well you could be clear with our listeners right now, if the Coalition accepts the tobacco tax hike and the bank levy that were announced on Friday, certainly the savings task for you in funding Coalition policies will be large. Let us know now, is it $70 billion? You've said it's not, what is it?

JOE HOCKEY: Well you will see our numbers, as I've said, we're waiting for the pre-election fiscal outlook, we will release all of our policies with all of their costings and we will release all of our savings, that will more than match our costs of policies before the election and you will see it in good time before the election.

But I say to you, our numbers will be honest, they'll have integrity, and the difference between us and Labor is honesty and integrity, and that's something Kevin Rudd hasn't got.

SABRA LANE: Joe Hockey, we're out of time, thanks for talking to AM.

JOE HOCKEY: Thanks very much.

TONY EASTLEY: The shadow treasurer Joe Hockey, speaking there with our chief political correspondent Sabra Lane in Canberra.