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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

20 May 2011

Interview with Fran Kelly

ABC Radio National

20 May 2011

SUBJECTS: WA Budget; own goal on royalty increases; exchange rate assumptions; IMF presidency.

KELLY:

Treasurer, welcome to breakfast.

TREASURER:

Good morning Fran, it's good to be with you and I've just come back from Western Australia actually.

KELLY:

Well, I wonder if this comes as a surprise to you. You did promise the miners under the mining tax agreement that all state royalties will be refunded - no caps, no caveats. It was always going to come to this wasn't it?

TREASURER:

Well, it is somewhat of a surprise and certainly our agreement with the mining companies stands, but Mr Barnett I think has just basically kicked an own goal because under the Grants Commission rules and approaches he's likely to end up with less revenue as a result of this. We recognise the special case of Western Australia in terms of the distribution of GST revenue which is why we've got this review going on at the moment - a review that Mr Barnett is happy with, and a review which recognises the fact that we've got to have a look at the formula. But at the moment under their approach Mr Barnett will end up with less revenue. That's the Treasury advice that I've got. So Western Australia is a loser from this.

KELLY:

Well, that's not what the WA Treasury says. The WA Budget papers forecasts the GST adjustment by the Commonwealth Grants Commission in response to the $2 billion boost in revenue from resources will amount to only $100 million. They win on that.

TREASURER:

There's some really strange figures published in the West Australian Budget, particularly the revenue that they estimate that will flow from this decision. The exchange rate assumptions, for example, that they are using are completely unrealistic. So I think there's a real doubt to the extent to which their claims of revenue at $2 billion are matched by the facts.

KELLY:

What do you think it would be?

TREASURER:

Well, it's somewhat less than that, but I'm going to get the Treasury to do the work over the weekend, but my advice so far is that it's highly unlikely that they will raise that sort of revenue. That's why this is such a strange approach from the Western Australians.

You see, the MRRT revenue is being put in place so we can invest in infrastructure in places like Western Australia, give a company tax cut to small business and a cut in the corporate rate of tax. These are really important initiatives for a state like Western Australia which is crying out for additional Commonwealth investment in infrastructure. So what Mr Barnett has done is increase his own revenues but through the GST formula most of that increase, or all of it, will go to other states. It's a real own goal.

KELLY:

Well, they don't see it like that and this decision by WA just reinforces all those people who said your mining tax last year was a bad deal because you can't control what the states do with their mining royalties.

TREASURER:

No, look it's a very good deal...

KELLY:

Well, you can't, can you?

TREASURER:

This move by Mr Barnett will punish many small miners. Royalties are inefficient and they are paid irrespective of whether the companies are profitable or not.

KELLY:

But the miners don't care about it now because they're going to get reimbursed by you.

TREASURER:

Well, I think the miners will care about this and I think this will come like a bolt out of the blue for many miners in Western Australia. What Mr Barnett has done here is more political than good policy. He's playing a political game. What the Commonwealth is interested in doing is getting a fairer formula for all the states, including Western Australia. We're interested in investing in infrastructure in Western Australia because we recognise how important it is to our national economy. I think what we're getting here is just Mr Barnett playing politics.

KELLY:

What can you do about it? I mean, the bottom line is you are committed to reimbursing mining companies for state royalties. On the WA Budget figures that amounts to $2 billion, you argue with that, but the bottom line is there will be an impact. How will you maintain your forecast surplus now?

TREASURER:

Well, first of all there's a big doubt about the revenue. Secondly, I think there's a real doubt as to whether Mr Barnett can sustain this position. I think there's a real doubt about that.

KELLY:

Why? What would stop him sustaining it?

TREASURER:

I don't know that he's got agreement in the industry to make this move. The figures that he has published are not realistic, but I'm going to have more work done on that. So I just think there's a real doubt or cloud over what he said yesterday and over these Budget figures.

KELLY:

Wayne Swan, before I go can I ask you on another issue - before you go rather - is Australia planning to nominate someone for the IMF Presidency in the wake of the resignation of Dominique Strauss Kahn?

TREASURER:

I've been talking to my fellow Finance Ministers from other countries through the last 24 hours. Having a chat about the direction in which we're going and how we might proceed. It's a bit early for me to make any further comment than that Fran but I think it's really important that we get in place a replacement...

KELLY:

Would Ken Henry be a suitable replacement?

TREASURER:

... a top quality candidate and I'll talk to all of my international colleagues about that.

KELLY:

Do you think Ken Henry the former head of Treasury would be a top quality candidate?

TREASURER:

Well, he's a top quality guy. He has an enormous amount of experience but I don't know that he's got any interest in this position.

KELLY:

Treasurer, thank you very much for joining us.

TREASURER:

Thank you.