ROSS GREENWOOD:
Arthur how are you? Are you well?
ARTHUR SINODINOS:
Yeah good Ross, good to talk to you.
ROSS GREENWOOD:
Yeah now tell me this, I mean the first thing I want to go to is this financial inquiry.
ARTHUR SINODINOS:
Yep.
ROSS GREENWOOD:
If really you could have a dream and get anything out of this that this country really needs right now, what would it be?
ARTHUR SINODINOS:
Look I think what we want to be able to say out of the inquiry is that we've strengthened the system to the point where not only is it very stable in domestic terms, but we're building on the great advantages that this system has given us and export more financial services overseas as well, right? Because we have a lot to offer. That whole period that you alluded to of financial deregulation has actually made us a very sophisticated, deep capital market with a lot of very experienced people, who understand the financial services industry. And Ross, as you know, they're spread across the world, including in our own region here. And there's a lot of expertise we can draw on, a lot of ways we can help promote financial services exports, on top of what we do to maintain a really dynamic system domestically that meets our emerging funding needs, takes advantage of the big increase in superannuation that's been coming through, takes advantage of the ways in which our regulatory system can adapt to changing technology, which is going to disrupt some of the existing business models. So we're not looking to re-invent the wheel on financial regulation, we like to cut red tape, rather than increase regulation, but we want to maintain the stability of the system while it adapts to this very changing world we're in.
ROSS GREENWOOD:
Is it fair to say Arthur that there is not really the big bang sort of changes that could take place, that we're there in the eighties and the nineties, such as for example the deregulation of the dollar, the deregulation of the banks? These types of things were really, I guess, fundamental changes to our economy.
ARTHUR SINODINOS:
They were.
ROSS GREENWOOD:
Those types of things are not there are they right now? These things are now about the challenges that confront Australia, the aging of our population, the need for capital, for offshore capital here in Australia for our infrastructure and even for our banking system and the fact that that makes us more vulnerable to shocks internationally. They're the types of issues that Australia confronts in the future.
ARTHUR SINODINOS:
You're absolutely right. We're not looking for the sake of it just to have a big bang, just wholesale change the system yet again. We want to build on the strengths that are there already, as I mentioned, including a very sound regulatory system, but you're right that things are changing. The big role that superannuation now plays in our economy. The ways in which that can help insulate us against some of the overseas shock. What we saw during the global financial crisis is the extent to which our banks had become dependent on overseas funding and that very quickly transmitted some of the shocks from overseas to our domestic economy. Now in a globalised world you can't insulate yourself from all of that, but we've got these great capabilities, including in the superannuation sector. And how do we encourage, not to cut off foreign investment, but increased reliance on our own sources of capital to supplement foreign capital, so that we have that greater strength to withstand external shocks. By the way, it also links into what we're trying to do with the Budget, because we've got to make sure the Budget is headed back towards surplus so that we're not in the capital markets crowding others out.
ROSS GREENWOOD:
That's the issue of also the debt ceiling that's being argued about right now. $300 billion rising to $500 billion, the Labor Party and the Greens say: well why not just make it $400 billion. Martin Parkinson, the Treasury Secretary, said: no we think that gross debt is going to get itself out to something like $430 billion during the peak year and we think that Australia needs more head room. But the fact about this is that, why just don't do away with the debt ceiling all together? Do we need one?
ARTHUR SINODINOS:
Well it's interesting that you say that, because that was one of the issues that the Secretary, Martin Parkinson, canvassed yesterday, because we didn't have one before 2008. It was something that was introduced under Labor. But the point is we are where we are, we are not proposing to do away with the debt ceiling, but what we've said is: look all the best advice that's come to us from the Treasury, from the Office of Financial Management is that gross debt, the amount of debt we have to issue, government securities, was going to peak at 370 billion and then when you add in the injection of capital into the Reserve Bank of about 10 billion, or almost 10 billion, you're at 380, another 30 billion for peaks within the year and you're already at 410 and then another 40-60 billion as a buffer, in case we have external shocks. And what the Treasurer Joe Hockey is saying: let's do this once, so we're not creating continued uncertainty in financial markets, coming back to Parliament every so often to have an argy bargy over the ceiling, let's do it once. If 500 is enough to give everybody headroom, let's do it.
And by the way Ross, it's not a target, we're not saying that we want to grow the debt to 500 billion. Everything we're going to be doing over the next few months to deliver in the budget, is ways to restrain the growth in government spending, restrain the growth in debt, so we don't hit the ceiling. But the point is we want to give the markets and everybody certainty that whatever happens, we've got sufficient headroom to withstand potential shocks. It's just…it's like someone having a potential overdraft available in an emergency and rather than limit yourself and keep running to the bank you say: look give me that particular overdraft and I am working hard not to have to use the overdraft, but we've got it there in case we need it. It's about giving certainty. This Government is always about giving certainty. How do you do things in a way, which conveys a message that we're calm, we're measured in what we're doing, but we're prepared, like we did with the Reserve Bank, invest a bit upfront, to give them certainty and stability so they can do their job and then we go from there.
ROSS GREENWOOD:
Senator Arthur Sinodinos, the Federal Assistant Treasurer, as always we appreciate your time here on the program.
ARTHUR SINODINOS:
Thanks Ross.