LEIGH SALES, PRESENTER: Well, a short time ago the Shadow Treasurer Joe Hockey joined me from Canberra.

(To Joe Hockey): Joe Hockey, John Howard and Peter Costello told us for years that low interest rates were a good thing, a sign of their great economic management. You today have turned that on its head. Are you really telling Australians now that they shouldn't celebrate when interest rates are low?

JOE HOCKEY, SHADOW TREASURER: Well, we should celebrate when interest rates are sustainably low. It was Kevin Rudd on four November 2009 that said three per cent cash rate was an emergency level. Today they've gone to 2.5 per cent. And Leigh, they're not cutting interest rates because the economy is doing well. Interest rates are being cut to 50 year lows because the economy is struggling.

LEIGH SALES: So let's just clearly establish your views as someone who could be Treasurer in a month about interest rates and their use. So when a country has a strengthening economy in what direction should interest rates go?

JOE HOCKEY: That's up to the Reserve Bank and it depends on a whole range of things.

LEIGH SALES: Wouldn't that be the same though if they're going low?

JOE HOCKEY: Most importantly depends on inflation. In October 2004 when John Howard and Peter Costello were talking about interest rates being lower under the Coalition than they are under Labor, that's absolutely right and that was absolutely right then. But we also had five per cent, 5.1 per cent unemployment, now we've got it going to 6.25 per cent under Labor. We also have four per cent economic growth and it's just falling to 2.5 per cent under Labor. And we had inflation under control. So they're all the factors that go into a decision by the Reserve Bank.

LEIGH SALES: But to be clear if you're broadly making the point that interest rates are lowered to respond to a weakening economy, then it stands to logic that when you have a strengthening economy interest rates will have to go up?

JOE HOCKEY: Well they may go up in a strengthening economy but that is for the Reserve Bank. The fact is...

LEIGH SALES: OK, and you're promising as treasurer you will strengthen the Australian economy so Australians have to be prepared for the possibility that interest rates will go up?

JOE HOCKEY: Well Leigh, you know what? You can't pay your mortgage if you haven't got a job. And the fact is we now have rising unemployment in Australia going up to 800,000 Australians unemployed. So if your argument is that the lower the interest rates the better the economy, go and ask the British or the Americans or the Europeans that have interest rates at zero how their economies are going because I tell you what, we are now beyond emergency levels. That's the definition provided by the Labor Party, not by us, and if anyone thinks that the Reserve Bank acted today because the economy is doing really well, and Labor's doing a terrific job running the economy, they'd be deluding themselves.

LEIGH SALES: Will the Coalition use the numbers in Treasury's pre-election fiscal outlook or PEFO as the basis for your election costings?

JOE HOCKEY: Well it depends on those numbers. Every number the Government has produced for the last six years has been dead wrong.

LEIGH SALES: But Treasury produces those numbers. They are independent numbers under a process that was set up by John Howard and Peter Costello?

JOE HOCKEY: Well I look forward to seeing those numbers when they're released.

So are you saying basically you reserve the right to use the numbers or not if they happen to suit you?

JOE HOCKEY: No, I want them to be honest and there are a number of areas they're not honest. For example, the suggestion in one year you're going to have a drop in the unemployment rate from 6.25 to five per cent as the Government claimed only last Friday. And somehow they're going to manufacture, the Government's going to manufacture a surplus in that year is unbelievable and I think any credible economist would tell you that. So I would say to you, for example, the Government says it's going to reduce the impact of the carbon tax by going to an emissions trading scheme. The Government's forward estimates take the carbon price to $38 a tonne. So the carbon price keeps going up and up and up in their Budget, in their Budget. Now if that's believable then you and I are at odds.

LEIGH SALES: But you talk all the time about the Government's numbers. They're Treasury's numbers in the forward estimates and PEFO, they are Treasury's numbers.

JOE HOCKEY: Well no, they've actually got the Treasurer's name and the Minister for Finance's name on the front of the document.

LEIGH SALES: But you know as well as I do that they are produced by the Treasury and in particular the PEFO numbers that we're waiting on are meant to be Treasury's best independent assessment of where things are at in the Budget?

JOE HOCKEY: I accept that and I look forward to that document.

LEIGH SALES: So then will you work with those numbers?

JOE HOCKEY: We will always try and work with those numbers but we also get our information from a range of different sources. Now I will give you an example. The FBT changes that were announced only two weeks ago by Kevin Rudd, he got all that number wrong, $1.8 billion. And how do we know that? Because the Treasury rang up key people in the car industry after the announcement and asked them to explain how the industry works.

LEIGH SALES: But surely Treasury's numbers are always going to be more credible than anybody else's?

JOE HOCKEY: Well you'd hope so and I would want that to be the case.

LEIGH SALES: I'm just wondering then why do you question Treasury's credibility?

JOE HOCKEY: Well why do you question anything? It's because you want to make sure it's right.

LEIGH SALES: What evidence do you have that Treasury lacks credibility or that they're being pressured by the Government?

JOE HOCKEY: Well It's not about Treasury, I'm sorry, we can spend the whole of the '7:30 Report' talking about Treasury, we are in an election campaign. These numbers are produced by the Government, Leigh.

LEIGH SALES: PEFO is not produced by the Government, that is produced by the Treasury and I'm asking why are you casting aspersions over the reliability of numbers Treasury produces, particularly when you're going to be the Treasurer in possibly a month's time and this is the department you will be working with and relying on?

JOE HOCKEY: Because I have an inquisitive mind and I also make a point of speaking to people in the community, having a dialogue with business, speaking to the decision makers out there who actually make decisions about job creation, about investment, who make decisions about how to pay the household bills. We speak to those people on a regular basis. We hear what's happening in the economy. Every number produced by the Government over the last six years has been wrong, dead wrong. We have been right to question them and we've been right about the outcome, by the way.

LEIGH SALES: In 2010 Treasury looked at your policies and it found an $11 billion hole. The firm you used to cost and audit your figures was reprimanded and fined for professional misconduct. Shouldn't voters not be wary about Treasury's numbers but about the numbers that you produce?

JOE HOCKEY: Well since 2010 the Parliament has established the Parliamentary Budget Office. We have been using that Parliamentary Budget Office as an independent agency to help us to get the very best numbers and I'm not going to cop a lecture from the Labor Party about accuracy of numbers, by the way. Under no circumstances are they qualified to give us or the Australian people a lecture about accuracy.

LEIGH SALES: Let me just ask you a broad economic question. At what point is in the electoral - sorry, at what point in the economic cycle is running a deficit sound economic policy?

JOE HOCKEY: Well, it's obviously sound if you have a dramatic drop in growth and you need to stimulate the economy with fiscal stimulus. Now whether that is appropriate or not depends on a whole range of factors. Firstly, one of the factors you've got to have is you've got to have the capacity to stimulate. And one of the reasons I'm most concerned about debt and deficit and Kevin Rudd has no regard for it is because there is little capacity now for fiscal stimulus because the Government has borrowed now up to $400 billion and it's leaving us with ever going deficits.

LEIGH SALES: So you make the point that there are times when it is proper to run a deficit. Why then over the past three and six years have we seen deficits completely demonised as if they are inherently a bad thing?

JOE HOCKEY: Because Kevin Rudd has wasted people's money and Kevin Rudd said in 2008, the first deficit would be a temporary deficit.

LEIGH SALES: But you said in time of severe downturn a deficit's a responsible thing to do and we saw with the global financial crisis one of the most severe downturns in history.

JOE HOCKEY: Yes and Labor predicted and forecast they would be in surplus now and they did it on hundreds of occasions Leigh, and the reason why they're not in surplus, when you actually look at the details of the figures, is they don't know how to reduce their spending. And if you don't reduce your spending when you've got record terms of trade, when you've still got five per cent unemployment or 5.5 per cent unemployment as the case has been, if you don't run surpluses in those sorts of environments, when are you going to run a surplus and start to pay down $400 billion of debt?

JOE HOCKEY: Joe Hockey, thanks for joining us, hope to see you again in the campaign.

LEIGH SALES: I look forward to, Leigh. Thank you.