The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

10 June 2008

Interview with Tony Jones

ABC TV Lateline

10 June 2008

SUBJECT: Global Economy, G8 Finance Ministers' Meeting, Climate Change, Chinese Investment in Australia, Global Oil Prices, Toyota Hybrid Car Announcement/Green Car Innovation Fund

JONES:

Joining us now from Beijing is the Australian Treasurer, Wayne Swan.  Thanks for being there.

TREASURER:

Good evening, Tony.  It's a balmy evening in Beijing and, of course, there's a lot of noise in the background.  So, please bear with me as we go through the interview.

JONES:

Alright.  Were you relieved to hear Ben Bernanke's assessment that the risk of a substantial downturn in the US economy has diminished over the past month or so?

TREASURER:

I was certainly pleased to hear it.  We have countervailing forces, of course, in the world economy.  On the one hand we've had a slowing US economy, but it appears to have now stabilised somewhat.  But we still have tight liquidity internationally as a result of the fallout from US sub-prime crisis on the one hand, and on the other, rising global inflation, and in particular, the price of oil and the price of food.  So, it's a very difficult overall macroeconomic environment at the moment, Tony. I was at the OECD earlier in the week.  There are forecasts for that area – we’re  we're a bit more optimistic – but most of the leaders and Treasurers that I spoke to were wary about the march of global inflation and the potential impact it could have on economic growth into the future.

JONES:

Now presumably part of your mission in Beijing is to help shield the Australian economy from the consequences of a global economic downturn.

TREASURER:

Tony, many of the national challenges we face are also global challenges.  First of all there is the fallout from international financial market turbulence, and the need on a global level to put in place much better supervision and regulation.  So, I was talking about that at the OECD and in Britain, but also the challenge of climate change, which can only really be achieved at a national and an international level and I'm certainly talking about that in Beijing.  I'm talking about both of those issues at the G8 Finance Ministers’ meeting.  But in addition to that, Tony, we've also got the ongoing increases in the price of oil and the price of food, and those matters are certainly exercising the minds of both treasurers and world leaders gathering in Osaka later in the week.

JONES:

You mentioned climate change.  The Japanese have just announced they're going to go for an 80 per cent cut in emissions by 2050.  What are the Chinese prepared to do?

TREASURER:

The Chinese have not said, as yet, but I'm involved in discussions here and I'll have more of them tomorrow.  We have set our target for Australia, 60 per cent by 2050, but we know we also have to have an international partnership and we have to get as many developed and developing countries on board as we possibly can.  That's why we ratified Kyoto and that's why we are such an enthusiastic participant in all of the international forums where these matters really count.

JONES:

Do you think it's important that the Chinese set a target that they can actually aim for?

TREASURER:

Well, I'm not going to give the Chinese advice as someone who is just visiting the country.  I've yet to have my final discussions, I'm seeing a Vice Premier tomorrow where I'm sure we'll canvas a wide range of issues, but I think they understand the importance of global action on climate change.  But as a developing country, they have a slightly different view from any developed countries about this issue.

JONES:

You've just announced a new deal in Beijing that could open up the floodgates to Chinese investment into Australia.  What's the potential inflow of capital?

TREASURER:

Well Tony, we don't know the size of it.  The announcement that I made with the local Finance Minister today was simply this, that banking institutions in this country have now been given permission to invest in Australia.  That's the sixth time this has occurred.  What that means is that funds can now flow from the Chinese banking system into capital markets in Australia and into funds management.

We don't know what the total amount of money will be but I know that it’s a measure which has been welcomed by the financial services industry quite strongly at home.

JONES:

Indeed the financial services industry is saying by the end of this year there will be US $720 billion under management in Chinese funds like this.  So, are you sort of canvassing for a large slice of that to come to Australia?

TREASURER:

Well Tony, I certainly hope our financial services industry can get a fair share of that.  We have a world class financial services industry and this is a very important break through because as you know, Tony, China is now our largest trading partner.  It's very, very important to our continuing strong economic growth, and what I'm here doing is building on the strength of that relationship through a variety of discussions through today and tomorrow.

JONES:

Okay, but could these massive Chinese funds actually buy Australian private equity funds or funds management companies, and if so, what would the implications be for Australia's national interest?

TREASURER:

Well, insofar as they may be invested in equities, Tony, then our normal foreign investment rules will apply and we would look at those investments as to whether they were in the national interest.  And in February this year I published a set of guidelines which particularly applied to investments by government-owned enterprises or their entities and those guidelines stipulate that for the investment to be in the national interest, it must be competitive in nature and it must be market orientated and those are the guidelines that apply whether the investment is from government entities in China or any other country in the world.  But on the whole, Tony, we welcome foreign investment.  It's got an important part to play in all of our industries, but particularly our resources sector, but finally it must pass through those guidelines and be assessed as being in the national interest.

JONES:

This is part of the process of moving towards a free trade agreement with China. So, let me ask you this, what protection for Australian jobs will be built into such an agreement?

TREASURER:

Well Tony, free trade agreements only make sense if they deliver substantial economic benefits to both countries.  We are in the early stages of the negotiation of this agreement. It was on the backburner for the past few years and negotiations are about to start again.  I think they will take some time.  But the matters I'm talking about in terms of Chinese investment in Australia and Australian investment in China can proceed prior to the finalisation of any such agreement.

JONES:

When are we likely to see an agreement, and I'll ask again, are you seeking protection for Australian jobs in such an agreement?

TREASURER:

Tony, the only way an agreement would be reached, and I think it is a long way off, is that if it was in the national interest and to the net economic benefit of this country and that includes job creation.  But it's a long way off yet.  It's on the table.  We're negotiating with the Chinese but I don't anticipate any outcome of that process for some time.  But what you saw today, Tony, was we got a practical outcome in terms of inward Chinese investment into our funds management industry, and that's a very good thing for funds management in Australia and a very good thing for the Australian economy.

JONES:

Let's go back to what the US fed chairman, Ben Bernanke, just said a few hours ago.  He said the last oil price rises risk pushing up inflation.  So, if the main inflation risk to Australia is in fact imported along with the petrol we put into our cars, are you rethinking the whole process of the Reserve Bank simply having that one lever of interest rates to deal with this foreign exported problem?

TREASURER:

No, I'm not, Tony.  To start with, domestic inflationary pressures have produced eight interest rate rises in the last three years and those interest rate rises and the inflation rate that has pushed them have been mainly domestically induced and that's why we talked about during the campaign, lifting the productive capacity of the economy, doing something about those infrastructure bottlenecks.

JONES:

But it's not domestic, the main influence now is not domestic though, is it?  The main influence is rising petrol prices.

TREASURER:

If I could just finish.  Secondly, that's why in our Budget we pulled back on public demand because the previous government had been on a reckless spending spree.  So, our approach to building capacity, our approach to building a strong surplus are all designed to put downward pressure on inflation.  But on top of that, Tony, we now do have this new level of oil prices and elevated prices for food globally.  We're not immune from that and that will also have an impact on our overall rate of inflation.  And what that means is to the extent that they are externally induced, then we do need to work in international forums, collectively, to take some concrete action, and that's why the Prime Minister has made the comments he's made this week.  And when I'm at the G8 Finance Ministers’ meeting in Osaka later this week I'll be talking to all of my contemporaries about the factors which are pushing up the price of oil and whether there is anything that can be practically done.  It's both a supply factor, on the one hand, and a demand factor on the other.  But to understand a problem, it needs to be correctly diagnosed.

There's no doubt there's a problem with supply and there's no doubt that there are factors on the demand side as well.  Well, I think that's an appropriate thing for the Finance Ministers to do in Osaka later this week and it will be certainly something that leaders will be focusing on when we have the G8 leader’s conference in a few weeks time.

JONES:

How fast do you think Australians need to adapt to the fact that petrol prices are going to keep rising?

TREASURER:

Well Tony, we don't know the answer to that.  Nobody, a year ago, would have predicted the price level we have now but it's interesting to note that I think in about the middle of last year petrol in Australia spiked at about $1.35 and of course, at that stage the then government said that petrol prices weren't a problem, that there was nothing that could be done domestically and there was nothing that could be done internationally.  Well, this Government believes we need to act at both levels.  We do need to act domestically, and that's why we have been such an advocate of our FuelWatch program and why we will continue to push for that to give motorists a fair go at the bowser.  But it's also why we will be active internationally on the question, unlike the previous government who didn't think the level of petrol prices was a problem at all.

JONES:

You think you can seriously convince OPEC to start raising supply, and do you really think that will make any difference?

TREASURER:

Well, I think what the G8 Finance Ministers can do and the G8 leaders can do is to put these matters squarely on the agenda, and there's no doubt there's a supply side issue here, but they will have to act collectively if there is to be any impact.  But the most important thing is to get it on to the agenda, to correctly analyse the problems in the oil market – both supply and demand – and then in a level-headed way, look at the action that can be taken collectively.

JONES:

Now, the other action that's been taken is on hybrid cars.  Could you imagine us getting to the point in Australia where all cars manufactured here are hybrid cars?

TREASURER:

Well, certainly over time we are going to need all of our cars to be more fuel efficient.  I mean, what a coup for the Australian industry.  This is a fantastic coup for the Australian industry.  It's one of the reasons why we took to the last election our proposal for a green car innovation fund because when we're dealing with climate change we have to deal with it on the overall level which is why we are so committed to our emissions trading scheme – and we'll publish a Green Paper on that in July – but over time it will also require approaches on behalf of the individual where all the things they use in life are much more efficient in the use of carbon.  A hybrid car was just one of those.

JONES:

The Toyota plan is to build cars by 2010.  In fact, the money for the Green Car Fund isn't even available until 2010, according to the policy.  That's an election year, isn't it?

TREASURER:

Well, most importantly we put our Green Car Innovation Fund in place and we put it in place well before any consideration of Toyota coming to the table in the way in which they have.  We will fund that initiative out of our $500 million Fund, but it's not an election ploy.  It represents a deep commitment that we gave to the Australian people at the last election that we would pursue the goal of a green car industry in this country, and it's just so good that we've actually passed one key milestone in that objective today.

JONES:

I don't mean to be cynical here but why is 2010 the time when the $500 million becomes available?

TREASURER:

Well Tony, they could well have said they couldn't do it for another two years and you would then be asking me the question, why is it happening after the election.

JONES:

It's your policy I'm talking about. It's your policy which existed before this agreement with Toyota, said the money's available from 2010.

TREASURER:

Well, I'll tell you why, it's got nothing to do with the election, it's because these sorts of activities, this sort of innovation and this sort of investment has practically very long lead times, Tony.  It's got nothing to do with an election.

JONES:

Has the Government considered lowering import tariffs on imported hybrids in the mean time so that people can buy them cheaper right now?

TREASURER:

Well Tony, we've got all the matters to do with the auto industry with Steve Bracks, who's conducting a comprehensive review of the industry, and we await his report which, I think, is due at the end of July.  When we see that report we will be working our way through the issues that are raised as they affect the car industry…

JONES:

But you won't rule out changing the tariff arrangements for green cars?

TREASURER:

Tony, I'm not going to rule in or anything out on the program tonight.  This has been a major coup today for the Australian industry.  There's a long way to go.  The car industry does face very, very substantial challenges in Australia.  This is a government that's serious about dealing with those and dealing with them in the long-term, not the short-term.

JONES:

Okay, Wayne Swan, we'll have to leave it there.  Thank you very much for taking the time out of your fairly busy schedule in Beijing to talk to us tonight.

TREASURER:

Good to be with you.