PRESENTER:
First of all Treasurer, how would a United States default affect Australia?
TREASURER:
It would affect the world. It is almost inconceivable that the United States would default on its debt repayments. I think members of Congress know that. The question is – how are they going to ensure that this extraordinary period of uncertainty does not become the norm for the rest of the Obama administration term in office? That is the big issue.
PRESENTER:
Has the US lost any standing or credibility in Australia’s eyes?
TREASURER:
In Australia’s eyes? No. But, unquestionably, the failure of the President to be able to attend the APEC summit in Bali and the East-Asia Summit had a negative impact on the United States in the Asia region because ultimately they have been key drivers of both initiatives. The fact that they were unable to attend because of domestic problems sends a wrong message.
PRESENTER:
In terms of the unthinkable – you say it’s almost inconceivable that the US would default – but if they did would you change your stance towards America? For example, would you trim treasuries or would you do anything with regards to your investment strategy?
TREASURER:
Certainly we have back pocket plans to deal with whatever arises over the next few weeks as a result of negotiations. If the United States suffers a heart attack, without doubt, it will affect the rest of the global economy. Ultimately it comes down to a lesson for us in Australia - you cannot allow your domestic economy to get to this position. There is a salient lesson here for the rest of the world with what is happening in the United States. The world must live within its means and you cannot wait until five minutes to midnight to deal with fiscal pressures; you cannot wait until five minutes to midnight to deal with the massive debt burden left by previous generations.
PRESENTER:
Let me change topics and talk about the Australian economy with regards to what is happening in China. To what degree do you feel that China’s demand for not just Australian resources but resources in general is moderating? Because obviously this is a question that affects commodity prices around the world.
TREASURER:
Unquestionably China is more focused now on stimulating domestic demand. It is not going to have the same massive commitment to infrastructure and therefore the same demand for resources and commodities that it has previously. Obviously energy resources will still be in demand out of China. But people are disregarding the growth potential in the rest of Asia which is enormous - particularly in Indonesia. What we are doing in Australia is working with Governments outside of China to try and stimulate their growth so there is greater demand for our commodity resources. We are confident that other jurisdictions that don’t need our help are undertaking reform like Japan and the good story out of Korea at the moment and also potential growth of Vietnam. But, unquestionably, the massive potential out of Indonesia represents long term benefits to our economy.
PRESENTER:
China is obviously poking the bear a little bit here. But they are calling for a de-Americanised world. They are saying essentially pax-Americana has been a failure because of the dysfunction that is going on in Washington right now. What do you think about that call?
TREASURER:
The world needs America and America needs the world. I think it is that second part that has been lost to some in Congress. America does need the world economy to function. Decisions made in Congress over the next few weeks will have an impact - not just on rest of the world - but they will have a medium to long term impact on America’s ability to grow with what is inevitable growth coming out of Asia and the rest of the world.
PRESENTER:
Let’s talk about G20 and the meetings that you had in Washington last week. How successful were you in getting agreement among members to band together to create laws to crackdown on global giants like Apple, Google and many others who minimise their tax?
TREASURER:
Progress has been made but Australia chairs the G20 next year – I chair the G20 Finance Ministers next year. We have resolved that next year we will finalise the arrangements in relation to financial services regulation – the main components. I think we need to bring all of the negotiations to an end and finalise the new Financial Services Framework. We also need to develop and finalise a framework in relation to tax minimisation by multinationals that are engaging in behaviour that actually robs many jurisdictions of the tax earned legitimately in those jurisdictions. The third area we are going to focus on is a program for economic growth which is how to have greater private sector involvement in the funding of the massive infrastructure demands of not just the emerging economies in the developing world but also the developed world as well.
PRESENTER:
These are fantastic objectives – great goals. But at the same time some say the G20 in a post-crisis world maybe isn’t so focused or able to obtain those objectives, perhaps?
TREASURER:
That is why we need to have three to four objectives and we need to have deliverables next year in Australia. We are not going to let the G20 drift under our watch. We are absolutely determined to have real deliverables in the key areas of financial services, global tax arrangements and infrastructure financing in particular.
PRESENTER:
Let’s talk about the Australian housing market, a favourite topic of my own and close to my heart - I have got a house in Sydney, and I don’t want to see it go under. We have got record high prices in Australia, record low interest rates. Some worry about a bubble. Do you think it is a bubble that is about to burst and cause a housing crash like America has experienced?
TREASURER:
Not at all. A lot of commentators, particularly over here, don’t understand the Australian housing market. The fact is we have a very generous immigration program and we have very slow supply coming in the market. Rising house prices in Australia help to make some of the more marginal new housing developments affordable, realistic and deliverable. In turn that increase in supply helps to manage the market. Australia is a long way from a housing bubble. The second thing is many Australians are now heading towards personal superannuation that - in value - exceeds the equity they have in their homes. That is part of the balance to the equation. The third fact is a lot of Australians put a lot of new capital into their homes, renovate their homes and upgrade their homes. We have the largest homes, on average, perhaps in the western world and the world more generally in size. It is a very different asset class in Australia to that in other jurisdictions.
PRESENTER:
Certainly hope so. Thank you very much for joining me today.