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

23 August 2011

Interview with Fran Kelly

ABC Radio National

23 August 2011

SUBJECTS: Australian economy; BlueScope Steel; manufacturing sector; Australian dollar; domestic suppliers; House Economics Committee

KELLY:

The Treasurer is in our Parliament House studio. Wayne Swan, welcome back to breakfast.

TREASURER:

Good morning, Fran.

KELLY: Treasurer, now all this talk of an economy in transition, what are we transiting to?

TREASURER:

Well, we've got a patchwork economy. We've got a very significant investment pipeline in resources. We've got low unemployment. We've created something like 750,000 jobs [since coming to government]. But the global economy is changing and along with that our economy is changing as well. Strong demand for our resources produces a higher Australian dollar. That puts a lot of pressure, particularly on our export-exposed industries, and one such industry is steel and that's what the announcement yesterday was about from BlueScope. They're no longer going to export steel from Australia. They have mothballed their plant. If conditions improve in the future there is the capacity to resume exports. What they have said is that they have a lot of faith in the domestic market. What has occurred yesterday is very, very painful for the workers involved but for those that remain they have job security in the knowledge that the company is absolutely committed to domestic production.

KELLY:

It sounds as though these job losses yesterday are exactly the pain you've been expecting.

TREASURER:

Well, we've been talking about the challenges of what you could either call a two-speed economy or a patchwork economy for the last couple of years, and indeed putting in place some very substantial policy reforms to strengthen and to broaden our economy. That's the reason we've moved to put in place a resource rent tax so that we could provide some tax relief to other businesses that are not in the fast lane.

KELLY:

But wasn't that all to try and avert these kind of job losses? Are you saying these job losses are basically a sign of the economy going to plan?

TREASURER:

Well, no what I'm saying is that there are structural changes in our economy. We have identified those changes and we have moved to put in place a range of policy responses, but these policy responses can't be put in place overnight. For example, the MRRT legislation goes to Parliament later this year. That will be the basis on which we can give a very substantial tax cut to small businesses, 2.7 million small businesses in Australia will receive the instant asset write-off and to gradually bring down the corporate rate of tax over time. These are gradual changes caused by structural adjustment in our economy.

But we shouldn't lose sight of the fact that there are great opportunities for the Australian economy. There is a very strong investment pipeline, but with that higher Australian dollar and the higher terms of trade comes adjustments to a number of sectors. And it's not just the manufacturing sector but other sectors that are doing it tough. And that's why we have been saying for some time we do need a broad policy response to strengthen the economy. That's what the changes in tax are all about.

The skills package, for example, at the centre of the Budget was very much to respond to the challenges in the labour market. For example, many of the mining companies are taking labour away from many small businesses and other businesses in the country. We've moved to revamp our training arrangements to increase workforce participation so that many of those companies have an adequate supply of labour. But at the end of the day we have an unemployment rate at 5.1 per cent. When the global financial crisis started unemployment in Australia was at the same level as unemployment in the United States. Today in the United States it is almost double that of Australia. So we strengthened our economy. We've got challenges and there are painful adjustments ahead.

KELLY:

And those painful adjustments include more job losses?

TREASURER:

Well, certainly there will be changes in employment. There are changes in employment across sectors all of the time. Our economy has evolved over years and there are always changes in employment between sectors.

KELLY:

Okay.

TREASURER:

We've also seen this week, for example, an announcement from OneSteel, an announcement in South Australia where they're going to increase their iron ore production and expand what they're doing there. These sorts of announcements are happening all the time but I've been talking, along with Minister Carr, with the manufacturing sector about what we can do further to refine our policy settings, what we can do to work together to make sure we do our very best to strengthen manufacturing. We do see a very strong future for manufacturing in this country and what we do want to do is work with manufacturing to ensure that that is the case.

KELLY:

I'll come to those policy settings in a moment but demand for Australian resources, as you mentioned, is pushing up the dollar putting pressure on our trade-exposed industries like steel. For months now industry has been calling for a long-term strategy to deal with the impact of the dollar. Are we going to see something from our Government on this front?

TREASURER:

Well, in terms of the dollar it reflects the strength of our economy vis-a-vis other developed economies. It reflects the terms of trade. It also reflects other changes within currency markets in the global economy.

KELLY:

Are you going to intervene in some way? Japan, for example, intervened earlier this month to push down the value of the yen.

TREASURER:

Fran, we are committed to a floating Australian dollar, to a market-based exchange rate, and that is what the world wants to see for all other currencies as well and that goes to the very core of the agenda we've been talking about at the G20. The Framework for Strong, [Sustainable] and Balanced Growth has at its core the need for there to be structural reforms in both developed and developing economies and one of those significant structural reforms that is required is a move to market-based exchange rates by other countries. That's what we're pushing for.

KELLY:

Groups as disparate as the Australian Industry Group and the Greens are calling for the Government to think about, again, a sovereign wealth fund to try and rebalance the economy. Would that take the heat out of resources and redistribute the benefits of the mining boom more effectively and over the long term?

TREASURER:

No, it wouldn't do anything in our current situation and wouldn't do anything for some time to come, Fran.

KELLY:

This problem might be with us for some time to come...

TREASURER:

Yes that's true.

KELLY:

... as big as the mining resources boom?

TREASURER:

Well, can I just make this point: Commonwealth revenues are down $130 billion on what they were prior to the onset of the global financial crisis and the global recession. So it is going to take some time for those revenues to return. It's important to understand that in terms of this current phase of mining investment it is very capital intensive and for people to think that the revenue boom from the mining boom is going to be similar to what it was in mining boom mark I are just wrong. The fact is that there will be substantial revenues flowing to our country over time but not significant enough to build up the sort of sovereign wealth fund that those people are talking about. The reason that we have moved...

KELLY:

What about to recalibrate the Future Fund to be some kind of - to have that kind of stabilising...

TREASURER:

No, the Future Fund is there and dedicated to the public service superannuation liabilities and it's dedicated against that liability for the future. But what we need to do is what we've been doing, Fran. As I said, we've been talking about putting in place the Minerals Resource Rent Tax so we have a revenue stream to give a company tax cut to other corporates not in the fast lane, to give a significant tax cut to the 2.7 million small businesses in Australia that are not necessarily all benefiting from the resources boom. It takes time to get all of those things in place and in addition to that what we've got to do is to lift our productivity. We've got a very substantial productivity agenda across skills. Our investment in the NBN is a very significant productivity enhancing agenda. A whole range of things we need to do in innovation and we are working with industry to put those in place. But a productivity agenda...

KELLY:

Treasurer...

TREASURER:

Can I just make this point Fran, it's very important. There's been a long-term structural decline in Australian productivity. It's been going on for a very long period of time and it takes some time do deal with and that's why we are putting in place so many of these significant investments across a range of policy areas.

KELLY:

In terms of productivity, what about making the most of the manufacturing we do do? You did suggest yesterday the Government would announce more this week to follow up on union calls for a more effective local content policy. What are you talking about? Are you talking about direct incentives or tax incentives to encourage resource companies to buy Australian?

TREASURER:

No, what we're talking about is that Australian firms should have the chance to pitch for business on a commercial basis. Now what I've heard from several businesses and from several sources is that some Australian businesses are not even getting the opportunity to pitch for the business on a commercial basis. I'm a bit disturbed by that so I'm going to examine those claims closely with the industry because I do think it is important that Australian business gets the opportunity to maximise the business that flows from these investments.

KELLY:

Some of those claims - let me go to one of those claims because I've heard it too around places that some of the big miners signing contracts with China for instance over gas and other resources, within that contract it's mandated they buy Chinese equipment, not Australian.

TREASURER:

Well, I'm a bit disturbed by that.

KELLY:

Is there something you governments can do about that?

TREASURER:

Well, I certainly intend to follow up that claim and ascertain whether it is true or not, and I would be very disturbed if that was the way it was going in some of the big projects. There are many people who are getting work out of these big projects. They are absolutely massive and there are lots of Australian businesses that are getting work and I'm aware of many of them. I've seen them in operation but if we are getting those sorts of practices creeping in that's not good and it's not good for the country. So I intend to look at those quite closely.

KELLY:

And the report that suggests only 10 per cent of steel being used - massive amounts of steel - in projects like Gorgon and Olympic Dam, only 10 per cent of it is local. Are you critical of Australian resource companies for not buying locally made steel?

TREASURER:

Well, certainly some of the steel will be imported and I don't think anyone would be surprised about that but if Australian manufacturers who are offering good product aren't getting the chance to get their head through the door then that's worth looking at very, very closely.

KELLY:

And just finally Treasurer, the Government is resisting Opposition calls to remove Craig Thomson as Chairman of the House Economics Committee. The Reserve Bank Governor Glenn Stevens appears before the Committee on Friday. Are you comfortable with Craig Thomson being in charge of the questioning of the Reserve Bank?

TREASURER:

Well, I think we ought to be very careful about how all this is handled. Allegations have been made. Allegations have been denied. And I think Mr Thomson is entitled to have those processes which are in place go through their normal process. Nothing more, nothing less. I know we've got a lot of mud throwing going on out there from the Liberal Party and others because they're seeking political advantage. Mr Thomson is at least entitled to have those processes come to their conclusion.

KELLY:

Treasurer, thank you very much.

TREASURER:

Thank you.