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

1 May 2013

Q&A

CEDA
Melbourne

SUBJECTS: Australian Dollar; Budget; Rural Australia; Superannuation; GST

QUESTIONER:

Essential Poll put out a number of potential budget savings they put to people and the only one that was popular, it seems, was increased taxes to big corporations. Given that your revenue shortfall has been in corporate tax, to a large extent company tax and mining tax, and you had a report last year from the Business Tax Working Group which quoted a number of ways in which you could increase taxes on business, is there a certain logic in your mind to looking to that sector to provide revenue to make up the shortfall that you had expected to get from company tax and mining tax?

TREASURER:

Well I don't want to pre-empt the Budget today, but I would make the point that the Prime Minister made I think really clearly on Monday. That is that the burden sharing will have to be right across our Budget and it will be. In a sense that we have made one announcement - which is quite broad as a savings measure to support an enduring-long term investment for the future of the country in our decision to lift the Medicare levy by 0.5 per cent. That is an important structural save which will support an important structural spend in our Budget, not just over the forward estimates but for some time to come.

So we have articulated a very clear view that as we have done over the past five years when we make structural changes in our Budget, particularly when it comes to the expenditure side that are to be matched by structural saves and I mentioned that number in my speech and we will be doing more as well. As Keynesian person, you and I understand that the measures we take should be ones that make the savings but are also supportive of our shorter-term growth agenda as well. So we have to be very careful with the mixture of measures we put in place to ensure that we do everything we can to maximise growth given the sustained pressure that the dollar is putting on prices right across the economy, including the profitability of business not just in the mining sector but more broadly across a whole range of sectors. So we will be approaching our savings task first and foremost with the objective of finding savings which have a minimal impact on the growth that we aspire to as we move forward. We are anticipating, as you know, an economy which will be growing around trend and either side of the Budget we don't necessarily want to take any action which may impact on growth levels around trend.

QUESTIONER:

Treasurer, Stephen Martin from CEDA. If I may, Treasurer, one of the issues you did touch on in your presentation and it is an issue which is constantly raised by the business community at CEDA forums, and that is the value of the Australian dollar - the high nature of the Australian dollar. Do you have an attitude that you could share with us about perhaps a view that there should be an intervention by the Reserve Bank of Australia or by the Government with perhaps a Swiss-style outcome to try and bring the value of that Australian dollar down so that those sectors of the economy that apparently are hurting by its current high nature? Or is there a view that perhaps Australia in terms of adjusting at the moment for its future needs to take into account that that value of the Australian dollar is likely to remain where it is for some time?

TREASURER:

Well the outstanding feature of what occurred at end of last year and through this year has been this gap between real GDP growth and nominal GDP growth and the doggedly high dollar which defied the downturn in commodity prices, which is an indicator that it's obviously with us for some time to come. Its strength - and I have to be very careful about what I say about the dollar and I always am, so I will speak very much in the broad - in the first instance, the strength of our dollar is a function of the relative strength of our economy vis-a-vis other developed economies around the world. I went through any number of measures which indicated how strong we were against other developed economies. It's a reflection of low unemployment, solid growth, it is reflection of a high investment pipeline, it is a reflection of strong public finance and the fact we are a developed economy in very good nick in the one region in the world which is growing. So investors look around the world and say 'where the growth opportunities?', they look to Asia. Whereas when I first became Treasurer investing in Australia was sort of optional thing you may or may not do. What happens now in the investment world is they look to Asia-Pacific for growth opportunities. They say: 'got to be there, no growth in Europe, US has been relatively sluggish, if you're going to invest in Asia it's a must do thing to invest in Australia.'

That's the big change that's come to our country as a consequence of the resilience that our economy demonstrated during the Global Financial Crisis. The Australian economy went on show to the investment world and the performance that people have seen externally of this economy relative to other developed economies has produced an interest in investment of a long-term nature, the likes of which we'd never seen probably in our history. So that's number one.

Number two, the strength of our dollar is a reflection of the relative weakness of a number of other developed economies most notably the United States and Japan. Those two things combined have meant that the Australian dollar has been a relatively high and my view is that a change in the growth outlook in those two major developed economies would be something that might ease the pressure on the high levels of the Australian dollar. But there is no fundamental decision about the medium or long term, or action that a Government can take to change all that. A Swiss-style intervention would be folly in the extreme, ineffective and dangerous.

QUESTIONER:

A lot of what I see in terms of your revenue squeeze is coming at the cost of two things, head count and connected to productivity and also investment and innovation. So interested in your thoughts, you talked about non-mining investment as Australians offshore a lot of their manufacturing capabilities, etcetera. What does that mean around the innovation pipeline for Australia to generate new solutions?

TREASURER:

Sure. We produced a fairly comprehensive statement in this area early this year and I won't take you through the laundry list of matters we put on the agenda and funded. But I am acutely aware of the point you are making, that the challenges of a higher dollar pose problems in terms of competitiveness, and the only way through those sort of challenges is to lift our productivity overall which brings you back to a productivity agenda which is innovation and infrastructure, regulatory reform, tax reform, skills, education, and those sorts of issues, most of which we're working on in one form or another. But there is no big-bang reform like you had in the 80s that you could suddenly float the currency, introduce enterprise bargaining, bring in national superannuation. A lot of those are done; the hard graft of that productivity lift is at that firm and industry level identifying what particular sectors aren't performing as well as others and what we'll do about lifting our productivity across those areas. So I absolutely agree that's the focus.

I'm a bit more optimistic about where we are relatively but we do have this short-term challenge in terms of the transition from the peak in resource investment to trying to see a sustained uplift in investment in the non-mining sector. Of course when people sit down and look at the dollar that tends to be somewhat discouraging. I make the point that if you look at what's going on in the region and particularly in China they are already rapidly moving up the value-added chain. When they say they are moving from their export model to a consumption model that is good for us on a variety of levels. It's good news for us because essentially it helps us narrow the competitiveness gap with that country as their wage rates go up, as they seek to have western social-safety nets built and to fund them, it means that we are relatively more competitive in those markets over time. So I do see a bright future for a whole range of industries that we've got here, including in manufacturing, if we get the innovation equation right, and if they are able to achieve this transition that is going on not only in our own economy via the dollar, but also in our own region via the change in economic model that is floating through a country like China. We are potentially in a very good position in the region even given the high dollar, in a whole variety of areas, if we get the mixture of all those things right. Who would believe, for example, that given the dollar that there's a surge of Chinese tourism into Australia despite the dollar.

There are all those things happening that are little surprising. Yes, there's an enormous amount of pain in parts of manufacturing and our heart goes out to people who built business models who suddenly found they have been flattened by a prolonged and high dollar. But there are still very bright lights in parts of those sectors so the question is can we get through to a point where the competitiveness equation starts to narrow again and have we got the policies right to ensure that people are in a position to maximise the opportunities that will flow, not just from China, but also from a number of other countries in the region.

QUESTIONER:

What's in the Budget for rural Australia? You say you spoke about education, skills development, infrastructure - it's tough going in rural Australia.

TREASURER:

It is. That's why I made an announcement about something that's in the Budget up in Townsville last Saturday.

Rural Australia is being hit by two factors, particularly the cattle industry for example in northern Australia, the dairy industry down here in Victoria, and a number of other sectors have been hit by first of all the fallout from the Global Financial Crisis which has hit their land values. So many of them are highly indebted and been challenged in terms of their relationship with their banks on the one hand. And then secondly, hit by a higher dollar when they're into the export of primary produce. So harder to get finance, many who have got finance expanded at a time when things were relatively good. The whole world changed, Global Financial Crisis, values come down; loan to valuation ratios triggered all sorts of concerns. For what I think are in many cases, very viable farm operations in the longer term but just caught in this squeeze at the moment. So we've beefed up concessional loan package for viable farmers to try and see if we can give a bit of breathing space to a number of those very big producers to make sure they make it through because one of the areas that I'm so optimistic about for Australia is basically rural Australia coming out of growth in the region.

But we've got to make sure that some of our viable producers actually get to reap the benefits of that but they are currently facing some challenging circumstances. That was a bit more commitment, Rural Financial Counsellors as well, the concessional loan package. On Farm Management accounts, some changes there, so that was a package which unusually was welcomed in a particular group who have not always seen the Labor Party as necessarily their friend. It's a good package. It's needed in WA, it is needed in Queensland, it is needed in parts of Victoria and it does require the State Governments to get on board in what is a very substantial initiative put on the table by the Federal Government to try and give some breathing space to a lot of rural producers who got good businesses but are under enormous pressure at the moment.

QUESTIONER:

Treasurer, superannuation. One of the issues that again that you touched on because of falling Government revenues and so on that there will always be a call on Governments to look at investing in infrastructure projects to stimulate the Australian economy further and as time goes on to underpin strong economic growth. Are there any plans at the Government is giving consideration to that might make it even perhaps more attractive for superannuation funds that have currently got locked up considerable billions of dollars to actually invest in those infrastructure projects so they're going to stimulate Australia's economic growth?

TREASURER:

Well I spent a lot of time on this question. Superannuation is a very proud Labor innovation, we've built on the reforms of the Hawke-Keating era and taking the super guarantee up and that is going to be another substantial addition to our superannuation savings pool, which is already at $1.5 trillion. It was a huge advantage to us during the Global Financial Crisis and helped recapitalise a large section of corporate Australia in what was then very difficult circumstances. That's why the Government spent a lot of time building it up and improving it at a whole variety of levels. I won't take you through each and every one of those. I spent a lot of time with the industry because a lot of people say it would be good if we saw more of our super money directed here in long-term infrastructure projects in Australia and you'd be surprised. A lot of it is actually going into the infrastructure here. In fact one of the very big firms here just picked up a major investment in ports in New South Wales whereas when the similar thing happened in Queensland a couple of years ago, largely went to foreign interests and I for the life of me couldn't understand why domestic Australian super funds weren't on that boat because I thought the port of Brisbane was a fantastic brownfields investment. I spent a lot of time talking to the sector about how and why they don't invest more in infrastructure and I've reached the conclusion that it's there is not- much of Government policy that can change which would change the way they actually approach this challenge. It's largely a cultural issue to do with their view about how they invest, there's certainly a bias to equities over longer-term infrastructure investments, which I am not saying all of that is wrong. But some would argue strongly that there's an imbalance in the two. To the extent that there is an imbalance in the two this is largely a question of the views and beliefs of the trustee of the funds. I don't believe it's the job of the Federal Government having created a compulsory system of superannuation to then turn around and dictate investment processes of the trustees which after all belongs to is superannuants themselves.

But what they do say, and this is what we have actually done, one of the impediments in this area of investment which not only applies to superfunds, but also apply to foreign money which is looking to invest here, is that it's always been hard to find a pipeline of viable projects which have been through substantial cost benefit analysis and so on and that for individual funds to do that on their own is always difficult. So what we have done through Infrastructure Australia the we've (inaudible) the whole project pipeline and make that more readily available for perspective investors to examine and use and that's coming along all the time and I think there some benefit to it.

The Government is also looking at what more can be done in conjunction with State Governments as well as private sector partners because there's some very big infrastructure projects that this country needs which go to the core of our future productivity and prosperity. We have this weird difference in politics now where I thought it would have been a matter of settled public policy that the Federal Government should always partner with State Governments and Local Governments about doing urban public transport considering the extent to which we are such a city-locked and land-locked nation and our political opponents are saying they don't see a role at all for the Commonwealth Government particularly in rail projects in major cities. There's going to be to an interesting debate as we go forward because we are nation builders in the Labor Party. That's why we put the NBN and for all the good reasons a very substantial microeconomic reform but we also know given the way we live that good urban transport is one of the most significant contributions you can make to lifting prosperity by lifting productivity.

QUESTIONER:

I am an industry fellow at Monash University and I'm on a couple of boards. My question is about GST. Is there a possibility you might extend GST either by increasing it up to 12 or 13 per cent or by putting GST on now GST-exempt things like education and food?

TREASURER:

No possibility whatsoever. I believe on the other side of politics, there is an inbuilt hunger to do that. I believe that is bad policy, bad economic policy, as well as bad social policy. It's not the case on the Liberal side of politics, however, and it's certainly not the case with the Business Council of Australia who are aggressively pushing the case for lifting the GST. This Government will never do that. Never do that. I could go through a while host of reasons why not but I won't do that today. But absolutely and emphatically no.

QUESTIONER:

Speaking of infrastructure, one of the big complaints on the other side of the park here at the State Government's offices is that a large proportion of the money granted to Victoria for regional rail link has been clawed back through the Grants Commission process. While with roads there's a 50 per cent discount applied which means that the State keeps roads grants, a higher share of its roads grants. But grants for rail projects are counted as being parts of State revenue and therefore the State doesn't need to be compensated for them. Would you sharpen the divide between yourselves and the Opposition by looking at putting road and rail on a level footing?

TREASURER:

We haven't gone down that road. It's a proposition that has been put to me but it depends very much on the mix on what's going on in our financial system overall. I know Victoria argues that case but they aren't the only one receiving those grants. So they're not the only one in that position and there's a real question of equity and how we treat a whole range of grants. Victoria isn't the only one that has had significant payments equalised as there are other States that have had the same. So I mean really would like to get to a point where we could achieve some agreement in this area across the States and we haven't got there.

QUESTIONER:

Given the importance as you say of non-mining investment picking up the torch from mining investment and given that infrastructure is a very large part of non-mining investment, will the Budget be looking at any ways to stimulate infrastructure investment to pick up the torch?

TREASURER:

The Government is pretty keen on ensuring that we see a good pipeline of projects across the country particularly as that peak in mining investment is reached and starts to plateau and gently goes the other way. But as you're also aware, there is a challenge in terms of private-sector investment and a challenge in a number of States as to whether State Governments can get their project house in order for us to play a constructive role working with State Governments and the business sector. That is still an open question.

QUESTIONER:

You mentioned how international conditions have created a major shortfall in Government revenue. You've ruled out the GST as a form of buttressing that but have you given any thought to how we could reform the tax system to ensure stable Government revenues in the future while maintaining international competitiveness for our factors of production like capital and labour in particular?

TREASURER:

We put a number of reforms in recent years, I mean the tripling of the tax-free threshold in term of the personal tax system is one of the most fundamental reforms that has been put into the personal income taxation system in a long, long time and it's all about labour force participation, part of the three Ps.

On the business side of things we put in place as a consequence of our tax forum a year or two ago loss carryback recognising that there are firms who can be hit by sudden changes in conditions and loss carryback is one way to respond to that for a firm that's got a view further out that they're going to do a lot better. They can do a bit of loss carryback then that is a help. That's been introduced. But we're always willing to work with the business community on issues of tax reform. Sadly, the Business Council's view of tax reform is simply that that the GST should go up and I think that's one that's shared by significant sections of the Liberal Party as well as Nick Minchin pointed out in one of our financial newspapers last weekend. Our view is that we do need an internationally-competitive tax system and we'll continue to work towards that, very big fundamental reform we've put in for small business was the instant asset write off.