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

14 January 2013

Interview with CNBC

Hong Kong

SUBJECTS: Australian Bushfires, Australian Economy, MRRT, Investment Pipeline, Asian Century White Paper, Chinese Economy

PRESENTER:

He's the number cruncher without peer, he's the Treasurer and Deputy Prime Minister and good friend, Wayne Swan, who came all the way here to the Asian Financial Forum. Good to see you Wayne. Nice tan, is that from the heat there?

TREASURER:

It's from the surf on the Sunshine Coast up in Queensland, that's where I grew up and it's where I holiday generally around Christmas time. It's been hot, but there's been a few waves out there as well.

PRESENTER:

Good to see you here. I've just been chatting with some of my relatives in New South Wales, Victoria and around that area. The pictures are disturbing, I've seen pictures of people jumping in the river to escape the flames. In terms of crunching the numbers and the economic impact, do you have any initial early assessments?

TREASURER:

It was only  two years ago that we had the biggest natural disaster in our history which had an economic cost of around $10 billion, floods right across Queensland, for example. Now two years on, we've got dangerous fires again. No doubt there is going to be a substantial impact on livestock. Thankfully so far lives have not been lost, but certainly significant parts of Australia that are threatened by this very strong heat wave and huge winds that are coming with it.

PRESENTER:

In the last year or two I have talked to you many times, and pressed you and grilled you on what is this obsession with balancing the budget. It was a campaign vow, it was basically a promise by your Government. Finally at the end of the last year you had to kind of pull back a little. What has happened this year, iron ore prices, the Chinese have skyrocketed, they have catapulted the stuff by 40 per cent. What is going on?

TREASURER:

Well there is a lot happening there, so I'll take some time to explain. The fact is that the underlying fundamentals of our economy are strong. We do have solid growth, we also have strong public finances and we have low public debt and we have a huge investment pipeline. We moved to support our economy during the Global Financial Crisis, we said that we would bring our budget back to surplus when growth returned to trend. We've been putting in place and we still have in place a very significant fiscal consolidation. But what's occurred in the last 6 months has been a very big hit to revenues, that has been caused by global volatility hitting our confidence and has had a very big impact on company profitability, and of course we've seen commodity prices absolutely crash, at the same that the dollar is elevated. In terms of revenue that has put a very big hole in our revenue and we would be simply irresponsible to respond to that by cutting harder and endangering growth and jobs. So what we said we would do was, using the economic jargon, is let the automatic stabilisers work. That's the responsible thing to do in these circumstances. But we still have in place a strict fiscal policy, a tight fiscal ship. The most important thing is to make sure that you are always supporting jobs and growth. That's the point I have been making today at this conference. We need to see more talk about jobs and growth in the global economy and more action, particularly across the developed economy to support growth and jobs.

PRESENTER:

Do you believe now a budget surplus is now back in reach given what we are seeing in some of these commodity prices the picture as Bernie mentioned that are seeing in the iron ore prices? Or is that just a little bit ahead of ourselves, you know we've had a number of people on the program over the last week or so say yes, iron ore prices have you know, they really have been killing it, they've been rising at a very, very rapid rate, but a correction is just around the corner.

TREASURER:

Well for the reasons I just outlined to Bernie, the fact is that that big hit to revenue is going to make it unlikely that we will return to surplus in 2012-13. But that doesn't alter the fact that we have a very big fiscal consolidation going on, we shouldn't judge our revenues by the fact that the spot price on any one day has hits reaches certain levels, that's not the way you can make these judgments. What happened to us at the end of last year is that we saw the revenue write-down that we had forecast in our mid-year budget update of around $4 billion actually happen just over four months of the current financial year. That's why we say we say that it is unlikely we will return to surplus in 2012-13 . But that doesn't alter the fact that we have got solid growth, lower interest rates, a strong investment pipeline, contained inflation, good public finances and low debt.

PRESENTER:

Do you think we're going to see  more political debate coming on the mining tax given you look at some of the figures that have come out from  our top miners here in Australia , we see from the second quarter mining tax at this point is still not raising a cent for the Government?

TREASURER:

Well the revenue hole that opened up that I was talking about before they are real figures. And what they come from is all the profit based taxes. It is company tax, it is resource rent tax, and it is superannuation tax. It's across the board and it reflects the global volatility that we have seen in the economy, affecting confidence, lower commodity prices affecting incomes, and what you see what also comes with that is a prudent consumer. All of those things combined have meant that a big hole opened up in the revenues and it just would have been deeply irresponsible to cut jobs and growth at the time when that hole was opening up.

PRESENTER:

Given what you said, and Australia being one the few countries with a triple AAA rating and low interest rates, what's the feeling you get from bankers there in Asia if Australia were to become a reserve currency? Would there be an impact in capital flows into the country, would the Government be ok with that?

TREASURER:

I think we might be getting ahead of ourselves there. The fact is there is a strong flow of capital into Australia at the moment. It's not just going into mining. Mining investment is still very strong in Australia. The pipeline of committed resource projects is something like $270 billion and that is happening now. It's also the investment that is going in more broadly across our economy - it's going into agriculture, going into a whole range of areas, going into property. Because essentially companies around the world are looking for basically markets where there is strong growth. So it's Asia more broadly, and the judgement that people have made has been that if you are investing in Asia than you have got to have part of that in Australia, and that is what's going on right now, and that's why increasingly Australia is seen as a safe haven

PRESENTER:

Mr Swan, for some time you have been trumpeting the virtues of Australia. The internationalisation of the RMB, and Australia actually being a hub for that, being a magnate for RMB-related investments. There's still a bit of an itchy relationship in some ways I could argue between Australia and China – it's been seven years since talk of bilateral FTA, still no Free Trade Agreement. The Chinese are looking elsewhere ; they are doing deals in Africa, energy deals in Canada. Is Australia at some kind of risk of becoming less relevant than it might have been in years past?

TREASURER:

I don't believe so in fact around this conference there are very significant Chinese investors that I talk to all the time. They are looking for a balanced portfolio, part of that balanced portfolio is investing in Australia. Yes they are investing in the rest of the world, that's a prudent investment strategy, but Chinese investment is still very strong in Australia. But it is much broader than Chinese investment. What international investors are looking for is countries with a first class economy, that have got their spending in terms of health and retirement incomes under control, that have got a good medium term fiscal policy, have got good governance, have got good rule of law, good predictability when it comes to government decisions. That's what investors are looking for and that is why there is a flood of capital into Australia right now, including and continuing with Chinese capital, which is not just coming in resources, but is welcome and coming in other areas.

PRESENTER:

As a matter of fact one of the perennial interests in Australia is the sense that there has been an over reliance for a very long time on mining, on getting resources out of the ground. Do you feel your country and your administration has done all it can to diversify…

TREASURER:

Too right we have. That's why we published the Asian Century White Paper. Because we don't see our relationship in the region just as defined by what is happening with resources. We see it defined more broadly; it's the business to business relationship, the people to people relationships and you see, as the Asian middle-class grows, a deeper involvement and engagement in education, aged care, environmental services – the list goes on and on and on. So Australia in terms of our relationship and our deeper economic relationship with the region is going to be much broader than resources, although resources are a very important part of that.

PRESENTER:

Treasurer, of course, you've been talking about the importance of China through the relationship with Australia, which we all know quite a lot about. We had some outstanding export data coming through and in fact the input numbers weren't too bad either, that came out from China last week. Interesting to see some of the media that's coming out at the moment about just how much you can trust this data, you know it was well out of range so it probably isn't real. How much does that sort of thing concern you and how much do you trust the numbers that come out of China?

TREASURER:

I don't think we can make a judgment about any set of numbers from any country if you just view them in isolation from your overall view about what's happening in the economy. The Chinese economy slowed last year, that was a matter of deliberate policy intent from the Chinese authorities. First of all to deal with the inflationary pressures in the economy, and secondly, part and parcel of this (inaudible) economy towards more domestic consumption. Those are responsible moves that the Chinese are making to rebalance their economy. We think that's a good thing because it will make their economy more sustainable in the long-term, but our view is that it really should not be dependent on any one country or any one commodity. We are certain with a deal that the Chinese have about their relations in the world. But we have been and continue to be, a good place to invest and not just for one particular country but for a broad range of countries in our region. In fact, a broad range of countries in our region are investing more in Australia in the last little while.

PRESENTER:

Mr Swan, it's great to have you here in Hong Kong, we appreciate it very much.

TREASURER:

Good to see you.