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

Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

20 April 2011

Question-and-Answer Session
After Address to Queensland Media Club

Brisbane

20 April 2011

SUBJECTS: Carbon Price; Budget; Infrastructure; Medical Research; ASX

COMPERE:

It seems there's been a long line of people lining up to kick the Government over the proposed carbon tax, the latest member of that conga line is the Business Council of Australia. They seem to be looking like they're backtracking on their support for what was the CPRS in 2009. Are you concerned about that and do you think this represents a weakening of the will for reform in business?

TREASURER:

Well, certainly putting a price on carbon is a very tough fundamental reform and it is certainly in the great tradition of the big reforms that occurred in Australia in the late ‘80s and ‘90s: the tearing down of the tariff walls, the floating of the dollar, national competition policy, enterprise bargaining, national superannuation.

You know, when I go overseas and particularly to the IMF and G20 meetings, like I did at the weekend, they are all the standout features of the Australian economy that give such a very high reputation for this nation and every single one of them - particularly superannuation, particularly what we've done in health - but all of the others that I mentioned before are really difficult, were difficult, were hard fought, were contested by business, were contested in the electorate.

I was around for the early stages of a number of those reforms, in fact I was the Chair of the Caucus Economics Committee in the period 1993 to 1996. So they're hard fought, we didn't expect it to be otherwise. Yes, slightly surprising that the Business Council doesn't quite seem to be the in same cart they were in for pricing carbon last time. But I tell you what, there's a lot of companies sitting here in this room with very big investments that have already factored in a price on carbon in their investment plans, because it's a reality.

The whole idea of getting a price on carbon is so we can make that gradual transition to a carbon cleaner future. We need to do that, not to get ahead of the rest of the world, but not to fall behind the rest of the world and we desperately need the incentive for investment in particularly our power sector, but more widely to drive investment in renewable energy.

Now, for a state like this which is such a major beneficiary of coal, that can seem sometimes a bit daunting, but the coal industry will exist and coexist alongside all of these developments. Stern in his seminal report in 2006 made the point that even if we were substantially reducing global emissions, coal would still be supplying a very substantial part of the power needs of the globe.

We are in a position where we can both continue to supply relatively clean coal compared to other sources, plus get the price on carbon to drive the investment in renewable energy and for a state like this the prospects there are fantastic. Anyone who's familiar with the proposal for the transmission line, for example, from Mount Isa to Townsville and what that could bring in terms of development of renewable energy and further afield knows that we can do both.

So we've got to get a price on carbon to begin to make that transition, so we maintain our competitiveness against the rest of the world in the years ahead, when the rest of the world will be making very substantial progress in reducing their carbon emissions. And it's particularly important for us, given that we are the highest emitters per capita on earth, even more important for us to deal with because of that, because it goes to the core of our trade relationships with other countries and particularly in the region.

But I didn't think it would be any different, I didn't think it wouldn't difficult. I'm a little surprised by some of the comments that I've seen. It's a tough battle, but it is one that we've got to do because it's a key reform that goes to the core of not only our productivity, but the extent to which we can be competitive in the 21st Century.

COMPERE:

Look, I'm sure there's some more questions on carbon tax from my colleagues, but I just wanted to get one more quick one in about infrastructure. Infrastructure Australia was obviously set up by the Federal Government a couple of years ago. A big initial injection of cash was in there. The kitty is slowly dwindling. Can you enlighten us about whether there will be any further cash injections in the May budget and if not how are you going to try to entice the private sector and superannuation firms to try and invest in infrastructure?

TREASURER:

Well I don't think it's any secret that we have largely used the public funds that are available to invest in a wide range of productivity enhancing infrastructure projects, particularly across transport and other areas. Take Gold Coast Rail, which is an interesting model, where you've basically got a three-way process going on. The big challenge, is to get the private investment, to marshal it, and I've spent a lot of time talking with the investment community about this challenge, particularly superannuation funds and I think there's a few things that we can do, particularly in the Government's area where Infrastructure Australia is absolutely critical. When I sit down and talk to our super funds, they say it's not that they necessarily need some particular government incentive. It's the governance arrangements, it's the cost of preparing bids, it's a whole range of factors, it's the mindset of many of the people that advise them, it's all these sorts of things. But if we are going to maximise all of the opportunities coming from this investment pipeline, we are going to need a lot private investment in infrastructure of all types and the Government is very much focussed on that in the context of dealing with boom and the forthcoming budget.

COMPERE:

So that's no new money for IA in the budget?

TREASURER:

As you know, I don't speculate about what's in the budget.

COMPERE:

Okay, nice try by me. We might throw to my colleagues, I think the first question is from Dennis Atkins from the Courier Mail.

JOURNALIST:

Dennis Atkins from the Courier Mail, Treasurer. I was interested in what you were saying about the pricing of carbon, in the election campaign the Prime Minister was almost famously saying that there would be no carbon tax under a government in which she lead, she also said that the government would only move to price carbon if there was a community consensus. Is that still the case and do you accept that there is no community consensus at the moment?

TREASURER:

No, I believe there's a strong community consensus for us to deal with dangerous climate change. What we're having is a debate about how we best do that and that a debate which is pretty vigorously contested. The Prime Minister and I have argued, including during the last election campaign, that we should move to an emissions trading system and that's what we're doing, but through our deliberations with the Multi-Party Committee, which is the principle vehicle that we have put in place to consult with the parties in the parliament, and also through a couple of very important roundtables, one with business, one with the community sector. We are consulting more widely about the design of that emissions trading scheme. The early indications from both those sectors was that they were interested in having a fixed price initially, which is called frequently in most of the debate a carbon tax, but the fact is we're moving to an emissions trading scheme and as we go through our consultations with business, with the community sector, we're going to finalise the details of that.

Now I do believe, that there is a community will to deal with climate change, but it's a difficult debate and it's one that requires a lot of discussion. When we get all the detail out there for people see, it will be far easier to engage in that discussion in a way which is free of so much of the hysterical scaremongering that is coming from vested interests in our community who don't really care about meeting this long term challenge.

JOURNALIST:

Jessica Marszalek from AAP. Opposition Finance spokesman Andrew Robb says your talking down of mining revenue is absurd and that you're simply making up excuses for the government's economic management, what would your response be to that claim?

TREASURER:

I'm not talking down and I think anyone who's listened to what I have to say can see that this boom is huge. What I'm talking about is the context it's happening in and what we as a nation need to do to get our policy setting right to maximise the opportunities that will flow from that for all Australians and I see Senator Joyce has been out there as well. Senator Joyce was the previous Finance spokesman in the Coalition before Mr Robb. Neither of them have a fundamental grasp of economics or any of the dilemmas and policy challenges that I've been talking about today.

What I'm trying to do, very seriously, is talk to the Australian people about a scene which is very complex and I make no apologies for that. In the short term the outlook for the Australian economy in the first four months of this year changed quite dramatically and it's very important that we talk to people about that. And it's also very important that we talk to them about the fact that the medium term is strong, quite strong, and how we actually respond to both of those challenges in this budget goes to the core of the community understanding about why the government is acting the way it will act in the budget.

Once again it's the fourth Budget that I've delivered, but we're doing it in circumstances where there isn't just one clear trend happening. There's multiple trends happening in different ways, moving in different directions, in quite complex ways. And what people expect of their elected Government is to be upfront with people about what that means, to take it into account as they are developing new policy directions and get it in to place so we can maximise the opportunities that flow from that.

I'd love to have an intelligent discussion about those matters with the Opposition but they're not interested. All they've got is a few slogans. They don't have any analysis or any coherent view about what we need to do in the face of these challenges. I mean, they want to pretend, for example, that the floods and Cyclone Yasi didn't happen, just like they wanted to pretend that there was no such thing as a global recession, so they opposed all of our stimulus. I hate to think where Australia would be today – we wouldn't be having the discussion we're having now – if the Liberal's view of what we should have done during the global recession had prevailed because Australia would have been in recession and we wouldn't be in the position of strength with 300,000 jobs created in the past year if the Government hadn't moved the way we did. If they'd been in power we would have been starting this discussion from higher levels of unemployment, massive amounts of skill destruction and capital destruction in our economy.

JOURNALIST:

Mr Swan, what signal do you think Australia is sending foreign investors given the blocking of the ASX-SGX merger which has also now resulted in Singapore Exchange's profits decreasing by 10 per cent?

TREASURER:

I think the signal we're sending to national investors is that we've made a very intelligent decision in Australia's national interest. It's a decision which I think has not only very broad support right across the community, but very broad support in the financial community as well.

I tell you what, I moved around with global decision makers at both the G20 and IMF meetings. I spent a day on Wall Street talking to investors and other people and I never once had anyone strongly express a view that we got it wrong. I think there is a justifiable view amongst many of those that are closely associated with these issues as well as the wider community that we actually got it right and I don't think it's been damaging for us at all.

JOURNALIST:

Treasurer, is the Government mismanaging the boom if we can't get any revenue from it?

TREASURER:

I didn't say that we wouldn't get any revenue from it. What I actually said was that we shouldn't necessarily expect the revenue will flow as fast from Mining Boom Mark II as it did in Mining Boom Mark I. There were two elements of that that I hopefully clearly outlined. The first one is the softness in the non-resource sector of the economy. That is vastly different from what occurred in Mining Boom Mark I. The second one that I pointed to very specifically is that resource companies, whilst they were 20 per cent of company profits running 10 per cent of tax (inaudible) and because our resource sector is in a massive resource investment phase, let me give you these three figures, let me give you an example.

Last year in resources, last financial year in resources we had investment of $35 billion. This financial year we're going to have investment of $55 billion and next financial year it's going to be $75 billion. Now what that says to you is there's a massive amount of capital being invested right now and what I was pointing to is that in the early years of those projects, even though the prices are going to be relatively high and they are going to be quite profitable, they'll be writing off a lot of that capital expenditure and I'm not saying that's a bad thing. All I'm just saying is that the expectations that some have about the volumes of revenue that are going to flow from that are inflated for the reasons that I've just outlined and that those two factors combined mean that we don't have quite the revenue outlook that some people would assume that we have, particularly when you're thrown in to the middle of that the legacy of the global financial crisis. There are many companies that are still carrying pretty significant losses which is weighing things like capital gains tax revenue, individuals as well.

So all of these things, it's a complex picture. I'm simply pointing to the fact that it's not going to be like many people expect, but yes the resource companies are an important and powerful part of this because at the same time whilst those features are different, we've got a really strong job creation, really strong job creation. We've also got reasonable wages growth. The fact is people are saving more than they did in Mining Boom Mark I. So all of those things add up to just a different picture and it's one that you've got to thoroughly understand as you go about making your policy and if you just behave and react as if you might have (inaudible).

JOURNALIST:

As the full page ad in today's Australian reminds us, mental health is a second-term priority for the Gillard Government. Will that promise be a victim of your tougher Budget?

TREASURER:

Well, we've said that mental health, responding to the enormous unmet need in this area is a very significant priority for the Government and we've been going through a pretty detailed process of consultation with the sector about possible responses, and naturally whatever the response is made it has to be made within the context of the financial circumstances that I've outlined today, but I'm not in a position to say yay or nay in terms of what we're doing in the Budget.

What I am in position to say is what the Prime Minister has said, what I've said, what the Health Minister has said, that we will build on the very significant initiatives we put in place in our last term on mental health in this term of Government, and we are very serious about it. And whatever could be done will be done by a Government that's got a fiscal plan for the future. Our Opposition, given the commitments that they've already made, would not see a surplus in any years of our current forward estimates. So they're not really in a position to commit to anything that's got dollars attached to it.

JOURNALIST:

You've mentioned strong job creation, won't higher rates in employment deliver a budget boost through higher income tax receipts?

TREASURER:

Yes, but there are swings and roundabouts and part of the loss in personal income tax receipts that we're seeing relates to personal capital gains tax. A lot of people in the room and some may be here who are close to retirement like Dave down there would be keeping an eye on his super. Many of those people, for the reasons I outlined in my speech, are dealing with the legacy of the global financial crisis in terms of their invested funds. That in turn is reflected. So yes, if there weren't other things happening that would be right, but there are swings and roundabouts. And yes there is a benefit in terms of tax paid for more people being employed but it's not the only story, and it's simply part of a more complex story that I've been telling today.

JOURNALIST:

Spencer Jolly, Treasurer, at Nine News.

TREASURER:

You're not getting too close to that are you Spencer?

JOURNALIST:

Hopefully not, coming over the top as per usual (inaudible). Treasurer, are you worried about the bloated nature of the public service? Can they expect to feel pain in this budget? And also, very briefly, would you now (inaudible) cutting $400 million for medical research seeing as how even Wally Lewis marched in the street here yesterday?

TREASURER:

How can I take on Wally? Okay, everybody will have to share in restraint in this budget and that's the reply to the first part of your question. The second part of the question, I had a very long meeting with a lot of the people involved in medical research actually last night, some of whom I've known for a long time and this Government has been a huge supporter of medical research and delivered quantum increases each year in every budget I've delivered. So –

JOURNALIST:

(Inaudible)

TREASURER:

I'm not finished. I'm pretty serious about medical research because it saves lives. It makes the quality of life of our population so much better. As a cancer survivor, I understand that personally. As someone who does a lot of work with people in this area and has done for years I understand all of that. It's not a fair characterisation of where the Government is on medical research to say that this Government hasn't had a very big commitment to medical research. I think some of the statements that have been made by some people on this matter are just plain wrong and shouldn't be taken in the way in which people like Wally have probably taken it.

I can't rule things in or out of this budget, but I can tell you what, we have a proud record on medical research and it's evident as much in this city or perhaps more in this city than it is in just about any other city in the country and I'm sure that that will remain the case.

JOURNALIST:

(Inaudible Treasurer, I'm just wondering if you could shed some light on whether you think the Australian dollar's strength , and you've spoken about it today, is that a reflection of our strong economy or more that the major exchanges – the US and the European exchanges – have been suffering because of their economic issues?

TREASURER:

I don't at any stage, ever, ever speculate about the Australian dollar. What I can talk about is the strength of our economy and I've been doing it all and the strength of our economy relative to just about any other developed economy and my view is that the strength of the dollar is first and foremost a function of the strength of our domestic economy vis-a-vis other developed economies. We didn't go into recession. We were the strongest growing advanced economy in calendar year 2009 and only one other advanced economy grew in that year. I think the world noticed that. I think the investment community noticed that and that was very important.

Secondly, as you know, commodity prices are at record highs. I think that is also reflected in the strength of our economy and the ongoing strength of the dollar and the rest of it's a function of what markets think and it's a whole amalgamation of things to do with the US and other things that are going on in the world and because of that I don't speculate about it.