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

17 July 2012

Interview with Fran Kelly

ABC Radio National

SUBJECTS: World Economic Outlook and the strength of the Australian economy, instability in Europe, growth in China, direct convertibility with the Yuan, the productivity debate, tax reform, Joel Fitzgibbon

KELLY:

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

TREASURER:

Good morning Fran. It's good to be with you

KELLY:

Treasurer are we seeing signs of the global slowdown impacting on the Australian economy already?

TREASURER:

I don't believe so. I think what we see when we look at this data and the IMF figures is it reminds us of the strength of the Australian economy. We've got the best combination of very solid growth, we've got low unemployment, we've got a strong investment pipeline, we've got contained inflation and we've got lower interest rates. Now if you look at the data from the IMF you also see that growth in our region remains strong. There's been a slight variation for China but growth in developing Asia is still strong.

But the challenges do come from growth in Europe and the need for serious reform there in terms of the move towards a fiscal union and repair of their banking system. There are challenges in the US as well, but here in our region the economic prospects are bright, but we're not immune from the fall-out of what is happening in Europe.

KELLY:

In this report the IMF points out the obvious, that the situation in Europe remains precarious. Do you agree?

TREASURER:

Look, it is certainly challenging and it has been challenging for the last couple of years. Some of the announcements a couple of weeks ago were encouraging, but once again the pace of implementation has not been quick enough. Of course that has an impact on global markets, that then flows through here to our stock market, and it flows through to confidence more generally in markets globally but also here in Australia.

So I think what we want to see in Europe is a faster pace of change, we want to see them pay attention to initiatives which will promote growth, but also reform long-term their finances and particularly their banking system.

KELLY:

China reported last week that its economy grew by 7.6 per cent in the June quarter. In our terms that's a huge number but for the Chinese that is weak growth. Indeed it's the sixth quarterly decline for China in a row. You're just back from a visit to China. How confident are you that the Chinese Government has the situation under control given it has largely engineered this downturn?

TREASURER:

Exactly. I'm confident that they have the situation under control. There were inflationary pressures in China and also challenges in the property sector; they deliberately slowed their economy to deal with those challenges, but also to fundamentally reform their economy and to move to more domestic consumption and away from their export-led model which is what the rest of the world has been urging them to do.

So we do need to keep this figure in perspective. The fact is a figure of 7.6 per cent is strong in anyone's terms, but here in the IMF forecast for 2012-13, they're still forecasting growth in China of over 8 per cent in both years.

If you look at Australian growth figures, we're going to grow faster than every other major developed economy this year and next. So when you look at our region and you look at the figures from the IMF for developing Asia, yes there is a slowing in India, but if you look around the rest of the region there are some challenges but the outlook is far brighter in our region than it is anywhere else in the world.

KELLY:

Economists seem quite evenly divided between optimists and pessimists when it comes to China. Did you get the sense that the Chinese Government is ready to act to stimulate growth and boost infrastructure investment even more than it's already done this year?

TREASURER:

I had a number of very good meetings in China. My sense is that the Chinese authorities would act if that was required. They are already acting to deal with structural challenges in their economy. As I said before, moving their model to a much more domestic consumption- focused economic model, that is what the G20 has been urging countries like China to do. They appreciate the challenges.

They are growing so fast that in our 40 year relationship since the establishment of diplomatic relations, trade in that 40 years has gone from $113 million a year to $114 billion a year between China and Australia. So the relationships in our region are developing in a substantial way, the rest of the countries in Asia are developing in a substantial way, and developing Asia and the region more broadly is going to increasingly supply more global growth as we go through what will be known as the Asian Century.

The challenge here is for us, like it is for Asia, to keep putting in place the important reforms that drive the resilience of our economies. We've been doing that here in Australia and this Government is absolutely focussed on those reforms, like pricing carbon and putting in place the mining tax, those sorts of structural reforms. Well that's what the Chinese authorities are doing in their economy as well. And that is why this region is in much better nick than the rest of the world.

KELLY:

I want to come to the Australian economy and your policy settings. But just staying on China for a moment, you were discussing this idea of Australia being granted direct currency trading rights with the Chinese Yuan. Only the US and Japan can directly convert their currencies into Yuan at the moment. If Australia does become the third country to gain those rights, what would it mean? Is that important?

TREASURER:

It would bring down business costs; where we've got a trade relationship which ;is growing so strongly that is pretty important. And it would be a reflection of the strength of the trading relationship.

So we've come a long way on this question in a short period of time. The Reserve Bank announced a swap with the People's Bank of China in March this year. Indirect convertibility onshore came online at the end of last year. So they've been two very important steps. And we resolved in a meeting with the People's Bank of China that the Australian Treasury would continue discussions with them about how we can move to direct onshore convertibility.

We already have direct convertibility offshore, we're looking to get it onshore – it makes sense given the strength and size of our trade relationship. It would be another indicator of just how close our economic and trading relationships are in this Asian Century.

KELLY:

Treasurer, to domestic matters now. Business continues to call for more IR reform and flexibility. In Perth yesterday, business leaders told the Prime Minister IR reform should be at the top of the list. Yet members of the Labor Left and union leaders, including Dave Oliver want more union power and more rights of access at greenfields sites. Do you agree more IR reform is needed or do you think you've got the balance right?

TREASURER:

We're awaiting the report from the committee which was established by the Government. But I do want to make this point: I don't see a productivity agenda as being one which just slashes workers' wages and working conditions. A productivity agenda is far wider than pure industrial relations. We're not interested in IR reform which results in the slashing of wages or working conditions. I believe many..

KELLY:

Yes, but is some IR reform needed do you think?

TREASURER:

Well we will await the report that will be published in the next few weeks and we can have a debate about the implications there.

The Fair Work Act is fairly and squarely in the system of enterprise bargaining which I believe has served this country well over a long period of time. That goes to the core of the Fair Work Act.

There are some in the business community who don't necessarily accept that workers have bargaining rights. But the fact is that we've got an inquiry and we'll look at the results of that. But if we want to have a fair dinkum debate about productivity in this country, it is something far broader than a narrow industrial relations agenda that some in the business community are talking about.

I believe many in the business community do want to have a broader, sophisticated discussion about what we do to lift productivity growth in this country so we can maximise the opportunities which will flow from the Asian Century.

KELLY:

And part of that is, according to some leading economists, is tax reform. Former Treasury Secretary, Ken Henry making the point yesterday that tax reform does not just mean tax cuts. In fact he says Australia needs to raise the GST to broaden the base of our consumption tax. More and more economists are coming out now and telling you to bite the bullet here.

TREASURER:

This Government will not be broadening the base or raising the rate of the GST.

KELLY:

Why not?

TREASURER:

Because it hits those on lowest and fixed incomes hardest. The Government does have in place a very substantial tax reform agenda which draws on that tax review. For example, in the context of the price on carbon, we are putting in place a tripling of the tax-free threshold. That is a fundamental tax reform to encourage labour force participation and to provide incentive to those on lower incomes to enter the labour force. We're doing that in combination with a price on carbon that was something that went to the core, both those objectives were contained in the Tax Review. So many people want to, if you like, be pretty selective when they're pulling stuff out of that review.

KELLY:

Well then you're selective by not regarding GST to be part of the review?

TREASURER:

Well the Government made it very clear when we went into the review that we weren't interested in raising the rate of the GST or broadening the base because it hits those on lowest incomes hardest and it hurts those on fixed incomes.

That remains our view. We've been getting stuck into some pretty fundamental tax reforms of which the mining tax is one. That was a number one recommendation in that tax review and that has been opposed trenchantly by some sections of the mining sector.

KELLY:

Treasurer, the Chief Government Whip, Joel Fitzgibbon was on Q & A, on ABC 1 last night. He said Julia Gillard's future as leader basically hangs on her poll numbers improving. Let's have a listen.

FITZGIBBON:

It might come as a shock to everyone here that populism matters in politics. No matter what political party you're talking about if leaders remain unpopular long enough, they'll inevitably stop leading the party. But Julia Gillard is doing good work, she's got a long way to go.

JONES:

On the basis of what you just said, it rather suggests that her time might be limited, or at least dependent on poll numbers.

FITZGIBBON:

Well I believe Julia Gillard's poll numbers will improve.

KELLY:

That was the Chief Government Whip, Joel Fitzgibbon on TV last night. Treasurer populism matters according to Joel Fitzgibbon. If the polls don't lift for the Prime Minister do you agree that inevitably her time will be up as leader?

TREASURER:

No I don't. Keeping your eye on opinion polls is not what leadership is all about. Our Prime Minister has got stuck into some of the biggest and most important reforms in generations: pricing of carbon, putting in place a mining tax, fundamental reform of the aged care system, paid parental leave. All of those things are fundamental reforms and at the end of the day those are the matters which will matter, which will count, if you like, at the next federal election.

KELLY:

There's a state by-election before then. Next Saturday in fact, in a seat that Labor has held for 104 years. It's in Julia Gillard's home state. Do you think a loss there for Labor will have implications for the PM's leadership?

TREASURER:

No I don't. I think that suggestion is ridiculous.

KELLY:

Treasurer thank you very much for joining us.

TREASURER:

Thank you.