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

30 June 2011

Question and Answer Session

After Addressing the Economic and Social Outlook Conference

30 June 2011

SUBJECTS: Global Economic Outlook; National Savings; Resources Taxation; National Broadband Network; GST; Foreign Investment

QUESTION:

Treasurer, if I could just ask you to give us perhaps a read-out on all the events that are happening in Europe and it has been happening, and it doesn't seem that there's any real clear resolution to the Greek sovereign debt crisis. It could develop into a banking crisis in Europe. Some suggest it could develop into another global financial crisis. I wonder if you could give us your read-out of what's going on there and what are our vulnerabilities?

TREASURER:

Thanks very much for that Michael [Stutchbury]. Can I just start off by saying that I do welcome the vote in the Greek Parliament overnight. That is certainly welcome because I think there's been a great deal of concern internationally about where things are going in Europe, and I certainly do feel that my fellow finance ministers in Europe are doing everything they possibly can to resolve these issues, and the sooner they are resolved the better for the global economy. Because if you go back to the World Economic Outlook released by the IMF some months ago, they pointed then to the fact that the risk in the international economy was to the downside. So it is really important that we do see a solution which is supported by markets in terms of some of these sovereign debt challenges that we're seeing in Europe. It's also important that we see that markets have faith that the banking system in that country is supportive of these outcomes as well.

On top of that we've got a continuing softness in the United States economy which further erodes confidence more generally. I myself am an optimist about the United States economy. I'm an optimist about that country, about its society and about its capacity to grow, but certainly the outcomes have not been ideal there in the last quarter. And on top of all of that we've also had the tragic events in Japan, which is also administered a real shock to the global economy and of course that was happening simultaneously with our natural disasters here much earlier in the year led to a detraction from GDP of 1.7 per cent. Having said all of those things, I'm certainly an optimist about where we are in this country. We do have short-term softness but we have a very strong medium-term outlook. We have an investment pipeline which is the envy of the world and one which is going to drive our economy back into relatively strong growth in a relatively short period of time despite the softness we're seeing.

We can be confident about our country because we are in the right place in the world at the right time in our history, and despite the weakness in the United States, and despite the challenges in European growth, our economy continues to grow strongly on the back of the shift of global growth from West to East.

And irrespective of the cycles that will come and go, and irrespective of whether China is growing at 10 or 8 or even 7 [per cent] we are going to see relatively strong growth in our region, not just powered by those larger countries, but by strong population growth for a long time to come. That's why I'm such a strong optimist about our future, but on top of that our domestic fundamentals are also strong:  a low rate of unemployment, the very strong investment pipeline, first-class banking institutions and financial institutions. All of those things mean that we are in a very good spot when it comes to, if you like, dealing with the consequences of global weakness.

As for some of the more dire predictions about where Europe could end, I don't share those views. We're not immune to what is going on elsewhere in the world but we're in the right place at the right time with the right institutions and the right economic outcomes and the outlook for us is strong.

QUESTION:

(inaudible) sovereign wealth fund. Could you give us your thoughts about this? (inaudible)

TREASURER:

Okay I think that's a really important question and I'll come at it from a variety of angles. I addressed this first of all when we gave our response in May last year to the Henry Review when we announced that we were moving towards a resource rent tax structure. And the reason we were moving towards that structure was to deal with the consequences of a prolonged and high terms of trade, which would bring with it a higher Australian dollar for a longer period of time. When I announced that we were moving the resource rent tax I said that then it was going to be very important that as we as a country came to live with the structural impacts of a higher terms of trade and a higher dollar that we need to recognise that we would need to support other sectors of our economy that weren't in the fast lane and that's why I outlined the use of the revenue from such a resource rent tax to go in three ways.

First of all, to lift our national savings because we are a capital hungry country always have been, always will be. Given the size of the developments that are before us we're going to be even hungrier for foreign capital than we've ever been. And it is therefore very important that we lift our national savings, not just in response to the ageing of our population, but as a means of further financing industrial development in our country. And of course everybody is aware of just how effective our pool of superannuation savings were at the height of the global financial crisis, and the global recession in assisting to recapitalise many of our domestic corporates at a time when borrowings internationally were very difficult. So we accepted the central thrust of Henry which was the Asian Century, strong terms of trade, strong investment pipeline of resources that we would need to lift our national savings. So part of the revenue from what is now the MRRT is going as contributions to our lowest paid workers into their superannuation accounts. I think each and every one of those superannuation accounts is for those individuals a sovereign wealth fund. Although it doesn't help to form a more, the smoothing function that some people are looking at when they talk about dealing with the consequences of these big bursts and increases in national income. That's the first purpose of using the revenue from the MRRT.

And of course the second one was to cut corporate rates more generally, recognising that many of our resources companies were going to become super profitable, that there was a rolled gold case for them to pay a greater amount of money for the resources that the Australian people own 100 per cent. In those circumstances we would use some of that revenue from super profits to assist those corporate that weren't in the fast lane, which is why we are committed to a lower corporate rate. And we're bringing down the corporate rate down to 29 cents in 2013-14.

And thirdly, to invest in the infrastructure, the infrastructure particularly required in those regions which are expanding rapidly – the great regions in the northwest of Western Australia, and in Gladstone, and in regional central Queensland, the Mackay region, the Bowen Basin – all crying out for critical infrastructure without which they simply cannot be efficient economically or work socially. So we said three sources or three parts of that revenue to deal with the challenges which come from surging national income that comes from a resources boom.

One of the lessons that I learnt from watching mining boom mark I under the previous government was they didn't attend to the capacity constraints that we needed to attend to given the rapid development that was going on. The Government has put a high priority in the last three or four years on investing in both skills, education and training, and infrastructure so it can avoid some of those capacity constraints that so bedevilled mining boom mark I.

So I don't think it makes sense at this stage of our development given how capital hungry we are, given the great need we have to invest in education and infrastructure, given the need to lift our superannuation savings also for the individuals involved as well, that it makes sense to squirrel away at this stage a lot of that money and starve the production base of our economy from the use of that money. So I don't think it makes sense for us now, but it may make sense at some time in the future. But I don't think at the moment it does make any sense. Our priority has to be to make sure we can grow sustainably. That means skills, education and infrastructure and I think the money is far better spent, if you like, deepening the productive base of our economy and avoiding some of the inflationary pressures that are around that flow from capacity constraints.

QUESTION:

(inaudible)

TREASURER:

Well, let's say I don't agree with any of that. Well, first of all I accept the first part of what you said is that the infrastructure needs of this country will be largely met by the private sector and they should be. So I'm not arguing a case for massive Government investment in commercial infrastructure, far from it. I'm not arguing that at all in fact if you go to the rest of the Budget you'll see further reforms in the infrastructure governance framework and the financing thereof designed to actually encourage, as much as we possibly can, private sector investment in the key infrastructure if this country. So I don't dispute that point. I'll come to what you're really on about which is trashing the NBN. The fact is that the NBN has been put in place because of a massive market failure, an absolutely massive market failure where we were not going to get, given what had occurred with Telstra and its privatisation and all of the opportunities lost through all of that. We are not going to get a wholesale platform that could ensure competition amongst retailers when it comes to broadband. We had this looked at in depth by some of the most talented minds in the country in the first instance and they came back and said there is no way in the current framework that this problem can be solved, that we can get a 21st Century broadband network in place unless we take some drastic action and unless we get to the point where we can have the structural separation of Telstra. We have got to that point. This is the holy grail of micro economic reform and we have got there, and there is nothing I'm prouder of than the fact that we have got there. But we have got there because we had to, in the first instance, take the step because of the massive market failure. If we hadn't intervened what would have happened is that broadband would have continued to be provided in those areas of the country that could afford it and the rest of the country could go to hell.

And if you go around to regional Australia in particular they understand this issue very well. They understand the importance of putting in place a universal wholesale network so we can have genuine competition amongst the retail providers. That's what we're doing. There's no project I'm prouder of. There's a rolled gold economic case for it and I reject what you've got to say about it.

QUESTION:

(inaudible) review of GST relativities with the states (inaudible)

TREASURER:

Well, there's a couple of things there. We've had COAG processes working through a number of very important streams but you're calling for something far broader than that. Certainly when it comes to revenue raising capacities which goes to the nub of the Federation, I expect a lot of discussion at the Tax Forum about the balance between Federal and State, and the type of taxation arrangements we've got in place at the state level. What conclusions come out of that I don't intend to predict but certainly it's an important question but I don't intend to pre-empt the forum and I welcome participation of the Business Council in the Forum. I remain optimistic that there's a lot more that can be done. There's a pretty big agenda that's out there in the review that we've received. We've already done a lot of it contrary to what is said by some, and we've picked up its number one recommendation and the country has been debating it for the past 18 months. That says something about the nature and difficulty of the reform process in Australia.

But in other recommendations – some I agree with, some you would agree with, some you would disagree with, some that I do – the most important thing will be that we all work our way through them all in a systematic way.

What is not frequently recognised by many who talk about the review and its outcomes is that it was really a review which had very broad scope. It was never envisaged by anyone who contributed to that review that there was a full legislative package across every area of taxation which would be there to be implemented tomorrow. This is something that can only be done over a period of time in a sequential way, and that's what we intend to do.

QUESTION:

(inaudible) guarantee on bank deposits (inaudible)

TREASURER:

Sure, it was arguably one of the most important measures we took at that critical time which ensured the stability of the Australian economy. It was absolutely critical that that bank guarantee and the term funding guarantee went in place precisely when they did, and if they didn't then we could be having today an entirely different conversation about the Australian economy, that was very important. As you know, the funding guarantees came off but the deposit guarantee is still there. That's subject to review. The Council of Financial Regulators is looking at that question. The period is up I think from memory in November. I think you'll see a discussion paper in the not too distant future about this issue. The Government working with the Council of Financial Regulators will come to a decision and then we'll announce it.

QUESTION:

(inaudible) Greens campaign against foreign investment in the mining industry (inaudible).

TREASURER:

My remarks earlier in the speech that we are a capital hungry country that has always relied upon a significant amount of foreign investment. Always have and always will. It doesn't mean to say it's not desirable for us to fund more investment domestically if we possibly can. Given our size and given the nature of development that lies before us, it's going to be always desirable to us to be a good place to invest and it will require foreign capital to further develop our nation. So my position on that is very clear which is why I've had such a commitment to ensuring that we've got a transparent Foreign Investment Review Board process because that is the process which gives Australians faith that the foreign investment coming our way delivers our national objectives as well as providing a decent return to foreign investors. It was very important I think that the Government moved early in 2008 for example to put in place our guidelines for state-owned enterprise investment. Now of course those guidelines in the early months of their announcement were contested and there was a lot of political and economic debate about those guidelines. I think all involved now would agree that that was a very farsighted move that we took at that time given the volume of Chinese state-owned enterprise investment that has come to this country in the three years since we announced those guidelines. One of the reasons it has come is because people can have some faith that there is an open transparent assessment of that investment and its benefit to our country. So that's why I think it's very important that when you are a capital hungry country, seeking to be as attractive as you can to foreign investment and vital developments that there is an open and transparent process in place that means the public can say 'well people have had a look at that and they've given it the tick'. It not only delivers for the investors but it delivers for our country.

So my view is that we'll always need to be an attractive place for foreign capital to further develop our country, to lift our living standards, to lift our prosperity, and that will be the case for many years to come. But as a nation we also have to face up to the challenges that come with that. We've got to make sure that we've got decent taxation systems in place where the public has confidence that they're receiving a fair return for the resources that they own 100 per cent. And that's why the Government went down the road of a resource rent tax and is determined to put in place the MRRT – so all Australians can see that they've got a stake in these vital developments, which deliver for us as a nation but also ensure that investors get a fair return for their capital which we need.