PRESENTER:
Federal Treasurer Joe Hockey, welcome to our studio.
TREASURER:
Great to be with you.
PRESENTER:
It’s good to have you in South Australia, because some people get the impression you don’t like us very much.
TREASURER:
Well that’s completely wrong, I like South Australia, have spent a lot of time here over the years. My daughter’s named Adelaide.
PRESENTER:
Oh really, okay.
TREASURER:
Not because of South Australia [laughter]
PRESENTER:
Oh, that’s a happy coincidence.
TREASURER:
But it’s a great coincidence.
PRESENTER:
But what do you like about South Australia?
TREASURER:
What do I like about South Australia? Well, much similar to what I love about Australia, it is the spirit of the people, the energy of the community. I’ve been to a little town called Mungerannie, I don’t know if you guys have been there? It’s got a population of three and it’s most of the way between here and the Northern Territory border. It’s a population of three in Mungerannie and they’ve got a set of traffic lights outside on the Birdsville track and I mean, that’s you know, the spirit of it. I’ve been to Kangaroo Island on numerous occasions, people like Craig Wickham who’s down there is a great tourist operator. There’s lots of part of South Australia that I love and over the years I’ve been a great advocate for.
PRESENTER:
In a few minutes time we’ll come to why the State Government is trying to portray you as the enemy of South Australia and some of the decisions you’ve made that have impacted and will impact on South Australia. But front page news in the Financial Review today is that Financial System Inquiry Chairman David Murray has warned you, your Federal Government, could lose its prized AAA credit rating because of the deteriorating Budget and the downgrade would hit the large banks, how real a threat is that?
TREASURER:
Well, if we don’t get back to surplus, if we don’t get back to the point where Australian Government is living within its means, then there is a risk to our credit rating and it does flow through to the banks in the form of higher costs and inevitably higher interest rates for everyday Australians. That’s why we want to get back to the point where the Government is living within its means and we are a long way off. At the moment we have to borrow $100 million every day just to pay our daily bills. $100 million every day just to pay our daily bills as a government. Now that is certainly unsustainable over the medium and long term. I mean $100 million is 30, 40 kilometres of new road, over a week it would be a brand new teaching hospital, it’s a couple of schools every day. So $100 million is a lot to borrow just to pay your daily bills.
PRESENTER:
Deutsche Bank is tipping 15 years of deficits, is it right?
TREASURER:
Well, you’ll see in two weeks time what the state of the Budget is. We are constrained this year in that we’ve had a significant drop in iron ore prices, our income has dropped. Also, we’ve had some spending pressures associated with defence of the country, we’ve seen that play out particularly in the Middle East at the moment. So, there have been pressures. The Reserve Bank is cutting interest rates, which is good for families. It’s a bit harder, particularly for people who have their savings in the bank.
PRESENTER:
But 15 years?
TREASURER:
Well I wouldn’t go so far as to say 15 years. I’m not putting a timeline on it, but I want to get back as soon as possible, I’m not speculating…
PRESENTER:
But 15, you can say it, 15 years is out of the ballpark?
TREASURER:
I’m not going to speculate on the Budget numbers.
PRESENTER:
But you wouldn’t go as far as 15?
TREASURER:
I don’t want to go as far as 15.
PRESENTER:
You don’t want to, but you wanted to be there in a lot less than that.
TREASURER:
Well, that’s right and the best way to do that is to reduce government spending from the record levels that were left to us. We’ve got to get government spending down. The challenge in the Budget over the medium term is not revenue and tax, the challenge is getting expenditure down. The only way we can get expenditure down is if we get help from the Labor Party, because 86 per cent of all government spending is tied up in legislation. So if we’re going to change those laws, we need the approval of the Senate, and the Labor Party and the Greens effectively control the Senate. So, the only way…
PRESENTER:
The independents, the independents control the Senate.
TREASURER:
Well, the independents, they’re all over the shop the independents…
PRESENTER:
Well sure, but if you didn’t have them all over the shop, if you managed to negotiate with them, if you managed to get them into one group you wouldn’t need the Labor Party and the Greens would you?
TREASURER:
No, you wouldn’t. But come and join me on the negotiating team. Because, it has been incredibly difficult trying to get six different people on board. The Labor Party is the alternate government right, so they’re the ones that should be saying okay we created the mess, we’ll help you fix it. But the Labor Party are now even opposing their own spending cuts from the last Budget so you know, it is frustrating but we’re going to keep at it.
PRESENTER:
You say 86 per cent is tied up in legislation, 86 per cent of your Budget, which leaves 14 per cent of, for want of a better word, it’s like discretionary spending. You’re able to do it without the Parliament. That is health, a lot of health…
TREASURER:
Some health.
PRESENTER:
A lot of health spending and defence.
TREASURER:
And foreign aid.
PRESENTER:
And foreign aid. Okay so you’ve got Julie Bishop to worry about on that front.
TREASURER:
Well, we have made all of our savings in foreign aid, there are no further we have gone a very long way.
PRESENTER:
Okay, which leaves you with defence, which brings us to South Australia, which is a state that relies heavily on defence. There’s good reason why Tom Koutsantonis and Jay Weatherill and a whole bunch of workers down at [inaudible] be worried? If you’re left with a very difficult budgetary situation, you can’t rely on the Parliament to get your agenda through and what you’re left with, is defence. That makes up a big part of that 14 per cent.
TREASURER:
Well, we’re spending nearly $5 billion on defence in South Australia over the next four years. Nearly $5 billion.
PRESENTER:
Is that extra, is that…
TREASURER:
Now that’s a lot of money. It’s $4.6 billion to be exact and obviously, we’ve made a commitment that the future of whatever submarine program Australia has, will be here in South Australia. We’ve also…
PRESENTER:
Back to Labor’s commitment is it? Are you back to the commitment that was made by the then Defence Minister for the election?
TREASURER:
We are standing by the process we have, but what I’m saying is, what I’m saying is, we are going to have defence jobs and more defence jobs in South Australia into the future.
PRESENTER:
But you’re not recommitting to that pre-election pledge that a lot of people believed, and that is, that the next batch of submarines would be built, built, in South Australia.
TREASURER:
We have a process at the moment, we’ve got to follow through that process. But there’ll be more jobs associated with submarines in South Australia in the future, then there are now. Certainly more jobs, significantly more jobs.
PRESENTER:
Can you understand why your Party is so low in the polls here in South Australia? You say you love South Australia, South Australia is a fantastic place. It’s quite clear that there are people in South Australia waiting with baseball bats for the next election and the polls indicate that, and your own state Liberal colleagues confirm it. Jay Weatherill is onto something here, he has campaigned vigorously on federal issues in state by-elections…
TREASURER:
There you go. As Premier shouldn’t he be campaigning on state issues in state elections? Shouldn’t he be running the State?
PRESENTER:
Well maybe he should, maybe he shouldn’t…
TREASURER:
No, no, no. He actually should. He should be running South Australia.
PRESENTER:
He has found a rich political vein to mine here and it shows that your Government is on the nose, why do you think so? In this State.
TREASURER:
I think we can do more to communicate what we’re doing for South Australia and that’s one of the reasons the last outside of Canberra trip that I’ve got in the two weeks in the lead-up to the Budget is right here in South Australia. I had discussions last night with business people, I’m obviously in discussions today with people trying to find out how we can create more jobs. Now, there are some terrific stories. I heard about a Murray cod exporter out of South Australia. You think, well you know, what does that mean? Well he is exporting at the moment about 350 kilos overseas to China. Because of the Free Trade Agreement with China, we are removing the tax on Murray cod, he thinks he is going to get up to 3,000 kilos a week by the end of this year in exports [inaudible].
PRESENTER:
What was the tax on Murray cod?
TREASURER:
It was about 12 or 14 per cent in China. China put a tax on Murray cod and had one, a tariff, and we’ve got it removed. Now you’re going to see a massive surge in the exports, that’s just agriculture…
PRESENTER:
How many jobs do you think we’ll see in that?
TREASURER:
Well, I…
PRESENTER:
You’re using it as an example.
TREASURER:
Or wine. I mean 60 per cent of Australia’s wine exports come out of South Australia. We’ve removed tariffs imposed by China, Japan, Korea, which means you’ve got a great chance to surge exports of wine, there’s great opportunities.
PRESENTER:
So all those car workers out in the northern suburbs they’re going to go out and catch Murray cod? Seriously…
TREASURER:
No, no, no, there will be reskilling. I am much more optimistic about manufacturing in Australia at the moment, particularly with the fall in the Australian dollar.
PRESENTER:
But where’s the joy in South Australia?
TREASURER:
Well, South Australian Treasurer, Tom Koutsantonis, said at the Treasurer’s meeting in Canberra just a few weeks ago, that he’s seen good growth in manufacturing jobs here in South Australia…
PRESENTER:
But according to your flatmate, Jamie Briggs, he thinks he’s a lunatic. He thinks the Treasurer is a lunatic, so why would you trust…
TREASURER:
He might’ve got the wrong Treasurer [laughter]
PRESENTER:
He was quite specific, he was a bit worked up. He said you’ve got a lunatic as a Treasurer in South Australia, so why would you believe anything he says?
TREASURER:
Well, look, I don’t want to get caught in the battles that are more domestic, but I’d just say to you, retail sales in South Australia, second highest in Australia at the moment. Second highest in Australia, retail sales increase, great story.
PRESENTER:
So the Weatherill Government’s doing a good job running the economy here?
TREASURER:
Hang on, hang on, you were just saying that it’s all our fault?
PRESENTER:
They’re saying that, they are saying that, you’re saying they’re doing a good job?
TREASURER:
Okay, so hang on, you just said it’s all my fault and the Abbott Government’s fault. So now, anything good in South Australia is the Weatherill Government and anything bad is the Coalition, I mean that’s a bit unfair…
PRESENTER:
So what we’ve demonstrated here is the fine line that federal and state politicians try to walk around what is really a very troubling story.
TREASURER:
I think retail sales are a national figure, indicator. That’s linked to confidence in the economy, it’s linked to greater prosperity, greater job growth. We want to see more job growth, I think we’ve all got a collective responsibility Dave to lift, to lift the tides so that all boats rise, whether they be in South Australia, Tasmania, Queensland, wherever they are in the country. I am an Australian Treasurer, I serve every Australian equally. Whether they be in South Australia or any other part of Australia, my job is to do my very best for every Australian.
PRESENTER:
But, I think it’s fair to say that the things that the State Labor Government for the last thirteen years has been banking on, Roxby Downs, the car industry, defence. All of those things have turned out to either not happen or been very very problematic. When we look to the Federal Government, when we read our papers, when we watch the news, we see a Federal Government that is fixated, perhaps justifiably, but fixated on cutting spending. So my question to you is that, look, we’ve ended up in a difficult position here. Nobody likes the fact that South Australia takes more GST than it gives. Nobody likes the level of welfare dependence that we have here, nobody wants that. So, what are you going to do that’s positive that’s actually going to give us a transition to a healthier economy rather than just cutting defence and cutting health and cutting the education spending that we’re seeing in our Budget.
TREASURER:
Well for a start, we’re not cutting those things. That is just dead wrong. As the Budget figures show and they’ll confirm again in two weeks time, the Treasury Budget figures. Funding for South Australia is increasing from its current level of around $7.6 billion last year to $9.3 billion by 2018. Hospitals are up by 30 per cent over that period of time, funding for South Australian hospitals. Funding for South Australian schools is up 27 per cent, so…
PRESENTER:
Your own Budget papers say that you are cutting funding. You’re adopting what you call sensible indexation arrangement for schools from 2018 and hospitals from 2017/18?
TREASURER:
I’m showing you the figures that are actually in our Budget papers, right. Not the ones that are concocted by the South Australian Government, which indicate that we are going…
PRESENTER:
Don’t your Budget papers say you’re removing funding guarantees for public hospitals and they will achieve cumulative savings of over $80 billion by 2024/25?
TREASURER:
What we are doing, what we are doing, is increasing funding for hospitals all the way and beyond, but it’s not enough to satisfy every state government.
PRESENTER:
But you have cut what was a commitment, correct?
TREASURER:
Well, no, because it was unfunded, that’s the thing Matt. The previous Government made all these promises right, that were never funded, never funded. When you see the trajectory of spending in the Budget in two weeks time, you’ll understand why we’ve made the decisions we’ve made. Because it is simply, ultimately, the more you spend the more you have to tax, and you can never tax your way to prosperity.
PRESENTER:
You’re listening to Federal Treasurer Joe Hockey in our 891 ABC Adelaide breakfast studio and we are streaming this live on Periscope on Twitter. Don’t know how that happened, but that’s what we’re doing. That’s the little screen there if you’ve been embarrassed by it. Can we just bring you back to the warning that we could lose our AAA credit rating, does that worry you?
TREASURER:
Well, the AAA credit rating is safe for so long as we have a credible trajectory back to the point where we live within our means. That’s what we’re focussed on.
PRESENTER:
But if it is downgraded, then banks will have to set aside larger contingency funds, correct?
TREASURER:
Well, they have to increase the interest rates. They need to have more capital and it becomes more expensive. More expensive for the banks to borrow money.
PRESENTER:
That means it’s more expensive for consumers, which will be inflationary?
TREASURER:
Yeah, well that’s right. But on average, big banks borrow 30 per cent of the money they get and then they lend it to us. So whenever we get a credit card or a home loan, around 30 per cent of the money that we get usually comes from banks borrowing money and usually from overseas.
PRESENTER:
Alright. But, it would be, it would have a big impact on ordinary Australians and would also have an impact on government borrowings?
TREASURER:
Absolutely.
PRESENTER:
Alright, so it’s not something that you want to lose?
TREASURER:
No way.
PRESENTER:
Are we in danger of losing it? That’s according to David Murray who’s Chair of…
TREASURER:
[inaudible] I have a great deal of respect for David, but we are doing everything we can to prevent that from happening.
PRESENTER:
Alright, onto…
TREASURER:
We’re not on Credit Watch. I met with the rating agencies, or one of the rating agencies in New York two weeks ago and talked the various matters through with them.
PRESENTER:
We’re also told by the Fin Review today, that the Obama administration is not too keen on your plans to tax multinational corporations. There’s quite a lot of questions have been asked about how much tax they pay in South Australia. How keen are you still on the UK model of what is effectively a diverted profits tax?
TREASURER:
Well, the UK, we can’t mention the company. The UK has what’s known as a sort of Google Tax and they impose a penalty tax for what are called diverted profits. That is, where the money is made in the UK but it’s diverted to another jurisdiction which has a low tax rate where they pay virtually no tax on the profits. What we want to do is ensure that people pay tax where they earn the income and companies pay tax where they earn the income. So, if any company is engaging in reappropriation of money they’ve made in Australia to another jurisdiction, for the purposes of avoiding paying their fair share of tax in Australia, we are going to have integrity measures that ensure…
PRESENTER:
Well it sounds like a great idea, but is there any pressure from the United States Government over your proposed tax?
TREASURER:
The United States taxes on worldwide activity, so the US is trying to reach into a whole lot of other countries to get some of that tax.
PRESENTER:
But they also don’t want to be, you reaching into their tax dollars, do they?
TREASURER:
Well it’s not their tax dollars, we would dispute that.
PRESENTER:
If it’s an American company they will say it is.
TREASURER:
They would say it is, but we would argue whether it is an American company or Australian company, if you earn money in Australia you should pay tax in Australia.
PRESENTER:
Well, so the US’s top international tax official at Treasury, Robert Stack…
TREASURER:
I saw the comments.
PRESENTER:
Okay, he’s worried about you forming an alliance with the UK?
TREASURER:
Well, we have formed an alliance with the United Kingdom…
PRESENTER:
But is that just going to be a discussion now, you’ve backed away from…
TREASURER:
No, no, no, no, no, I’m very determined to follow through on integrity measures, making sure again, there’s different ways of doing it at the moment. There is no international agreement at this level, at this moment.
PRESENTER:
Do you say there would have to be though? Australia can’t act alone.
TREASURER:
We can work in partnership with the United Kingdom, which we are, to put pressure on the rest of the world to work with us to ensure these companies pay tax. It’s absolutely right, you need to have global action, but you also need to have local action and we’re going to do both…
PRESENTER:
But there’s not a lot of money involved though is there, really?
TREASURER:
Well, what we’re doing is, we are not going to put a figure on that particular item in the Budget because we do not want to compromise investigations by the Australian Taxation Office. So, when you come up with, if you put a number into the Budget papers and say we’re going to attain this amount of money from these companies because it’s such a limited number of companies, it sends alarm bells to those companies. So we’ve got to make sure the integrity measures are in place and that we can look the Australian people in the eye and say we are doing everything we can to make sure that companies that earn money here pay tax here.
PRESENTER:
Mr Stack is concerned, should he be concerned?
TREASURER:
No he shouldn’t, because integrity in relation to taxation is something that every government should be concerned about and we should all work together. I announced this on the floor of the G20 in Washington. What was it, a week ago, two weeks ago? I announced it on the floor, with the Chancellor of the Exchequer, my UK equivalent, and we announced it in the presence of Jack Lew who is the Secretary of the US Treasury.
PRESENTER:
So the Americans are happy with what you’re doing?
TREASURER:
They understand where we’re coming from…
PRESENTER:
But they’re not happy?
TREASURER:
Well, they can speak for themselves.
PRESENTER:
What’s your Treasury modelling on this? Have they done modelling on how much tax you can get from this? You’d hope it’s a different department from the Treasury modelling on the mining tax, wouldn’t you?
TREASURER:
Well, exactly right. I totally understand where you’re coming from on the mining tax, that was a complete disaster. But the problem with the mining tax was Labor banked on getting the revenue and then spent it. Then when we wanted to…
PRESENTER:
They banked on Treasury figures, estimates of revenue?
TREASURER:
Well that’s right and then they spent it all. We don’t spend it, we’re not putting money, a specific identifiable sum into the Budget on this. We’re not going to spend against anything that we might have claimed. We’re going to make sure we have the integrity measure in place first.
PRESENTER:
So you don’t know how much money you’re going after? Because why piss off the US, pardon the French, because, for what? Who know? $400 million? $100 million?
TREASURER:
You know, Matt, these are very complicated transactions. We are working through them. We’ve had taxation office people embedded in these companies, we’ve had them actually sitting in the offices of these companies, trying to work out how they structure their affairs so that when they earn a lot of income in Australia they pay very little tax. Now, we are working through that. I am giving the Australian Taxation Office all the power, all the resources they need to make sure these companies pay their fair share.
PRESENTER:
Treasurer, you must leave us but before you go can we give the last word to Ian from Ridgehaven, he sends us a text saying I still have a copy of the six key priorities of the next Liberal Government. Point six, two million jobs, where are they?
TREASURER:
Well, we’ve had a phenomenal job outcome in the first 18-months of government. It’s been around three times the amount of jobs created per day than were created under the previous Government…
PRESENTER:
But unemployment rates are nudging a twelve year high isn’t it? 6.1?
TREASURER:
Well, I mean, it’s a lag indicator, it’s a lag indicator. It was heading up to 6.5, it’s been dropping in the last few months. Over 30,000 jobs were created last month, most of them full-time. So we’ve actually got some good job momentum and as I said in two weeks time, the Budget will be focused on jobs, on small business and on families.