DAVID SPEERS:
Treasurer, thanks for joining us.
TREASURER:
Great to be with you.
DAVID SPEERS:
You’re delivering your Budget update on Monday; will it show that the deficit has deepened?
TREASURER:
Well, yes it will. We have faced some significant headwinds this year. Obviously the global economy has come off a bit, iron ore prices have dropped dramatically and we have had some opposition in the Senate that has made it harder but wherever we have control of the situation, we have more than offset expenditure with new savings.
DAVID SPEERS:
Will it mean also that the return to surplus in 2018 has to be pushed back?
TREASURER:
Because fundamentally it does. We want to keep the economy going; we want to keep it strong. There have been good signs this year that the economy is strengthening. We want to keep that momentum going.
DAVID SPEERS:
You did say during the election campaign that, ‘we will own the economy from day one, whether it is Labor’s fault or not. I am not afraid to accept responsibility; I am not afraid to be accountable’. So, do you accept that this is your doing as well?
TREASURER:
Well, we are accountable for the economy. I think there is no argument about that and we are accountable for that fact, for example, this year we have been creating jobs in the Australian economy at three times the speed of last year. Now, despite that great effort, you are still seeing the headline unemployment rate nudge up, but if we hadn’t of had that speed of job growth during the course of the year, unemployment would be 110,000 higher today. You would have an unemployment rate with a seven in front of it, instead of a six. So, we have made some headway but there is more to be done.
DAVID SPEERS:
I want to ask you how you see the economy – how you characterise the economy, because we are coming out of or have come out of a mining boom and yet unemployment as you say has crept up to a 12 year high of 6.3 per cent, the Budget is clearly still in deep deficit – whether it is $30 or $40 billion, interest have been, for nearly 18 months, at emergency levels – 2.5 per cent; what is going on?
TREASURER:
The challenge has been that we have seen our export prices come off dramatically. The Terms of Trade, which reached a peak under Labor, have been coming off dramatically and the best evidence of that is the fact that iron ore has dropped from $93 a tonne around the time I gave the Budget, to around $60 a tonne now. Now, we rely more on iron ore export income than Australia ever has before. It is about a fifth of our exports. So, when you see a dramatic price fall in commodities, it now hits our bottom line harder than previously. We have got to deal with that.
DAVID SPEERS:
But do you acknowledge that you used to bag the other side when they blamed the dollar, for example, which was a big problem during their time.
TREASURER:
Yeah look, understandably but they actually had a lot more revenue than we have now and certainly they were projecting – forecasting, a lot more revenue. Now, if you look carefully at the challenges, the mistake Labor made was they kept blowing out expenditure against what they thought would be rising revenue levels. When the revenue didn’t continue on that path, they didn’t adjust expenditure. So, what we have had to do is lower expenditure and try and get that closer to the revenue line. That has proven tough but we have made some headway.
DAVID SPEERS:
You haven’t been able to reduce expenditure as much as you want; you have had to make compromises this year. Things like even the Schoolkids Bonus in place for a little longer, the Income Support Bonus, you have had to delay a bunch of changes to Newstart and family payments. How much has all of that cost?
TREASURER:
You will see on Monday what the cost to the bottom line is. Those are things we don’t control. The Opposition – the Labor Party, has had a big impact on the Budget, there is no doubt about that. What surprised me most is that they are opposing things that they themselves promised as savings measures. So, when you are dealing with people that are completely hypocritical in relation to their own savings – and they have the power to block it, and block your initiatives, it becomes difficult. But, having said all of that, we have a better than expected result on Monday because we have faced significant headwinds in the Senate and we have faced significant headwinds with commodity prices.
DAVID SPEERS:
I mean you have got to deal with the Senate you’ve got, haven’t you?
TREASURER:
Yeah you do and that is exactly right. Look, people were doubtful that we could get through the repeal of the Mining Tax Package and we did. They were doubtful that we could get through, at various points, the repeal of the Carbon Tax Package and we did. There is a number of things we have done this year that really have made a significant difference to the Australian economy. For example, just getting rid of 11,000 pieces of legislation, which is 57,000 pages of regulation and red tape – that has had a big, positive impact on business.
DAVID SPEERS:
So, why is business and consumer confidence so low?
TREASURER:
Business confidence isn’t low. They take hits from week to week, obviously, and when there is commentary associated with National Accounts and various other things, it does have an impact. But overall, I get a sense that business is confident about 2015…
DAVID SPEERS:
[Inaudible]
TREASURER:
… well, but this week. A week ago it was a long-term average. It varies from week to week but what I am seeing is that job ads are strong. You are starting to see the flow of a massive infrastructure program, which we have announced, come into play. Next year you are going to see cranes all over the country and that is a positive sign of growth. You are also seeing very good demand for exports, even though prices aren’t as strong as they should be. Demand for exports is very strong; volumes are very strong. You are also going to see very strong housing construction next year, as well.
DAVID SPEERS:
What about some of the measures you haven’t been able to get through at all this year? I am thinking higher education reform, in particular – it was voted down by the Senate. Will you still include the $5 billion save from that in the Budget update?
TREASURER:
We are determined to get through our changes, David. It is absolutely essential. Our strategy is clear and that includes changes to higher education. If we don’t reform higher education, we won’t be able to compete with the rest of the world over the next 10, 20 years.
DAVID SPEERS:
But should you include that as a saving if it has been knocked off by the Senate?
TREASURER:
Labor included changes to private health insurance that were knocked off twice by the Senate before they were approved for the third time. A Budget is a plan and we are determined to stick with our plan to strengthen the Australian economy.
DAVID SPEERS:
Now, just getting back to the economy, Glenn Stevens is quoted today as saying that the economy, jobs, inflation, are about where he expected them to be. Eric Abetz yesterday said, ‘the economy needs a reboot’. So, which is it?
TREASURER:
The fact is the Australian economy is fundamentally strong and what we need to do is work with all the interested parties – all those that care, to further strengthen the economy.
DAVID SPEERS:
Does it need a reboot?
TREASURER:
Well, it is not a term I would have used. The fact is that it is fundamentally strong. There is no doubt in my mind that the Australian economy has a good trajectory and we are saying that on Monday [inaudible] there is a good trajectory there. We want – I think what Eric is saying is, we have got to do more and yes we do need to do more.
DAVID SPEERS:
So, it is fundamentally strong with a good trajectory – the economy; can it afford more spending cuts right now?
TREASURER:
Whatever spending cuts we announce on Monday, they will have no negative impact on the Australian economy.
DAVID SPEERS:
So, there will be additional spending cuts?
TREASURER:
There will be savings, there will be savings.
DAVID SPEERS:
New ones that we haven’t heard about?
TREASURER:
There will be savings, there has to be savings, but they will have no negative impact on the Australian economy.
DAVID SPEERS:
These are ones not announced [inaudible].
TREASURER:
They are modest savings overall because our expenditure is very modest. So, new spending we are offsetting with new savings, and the savings we are announcing are not going to have a negative impact on the Australian economy.
DAVID SPEERS:
Does that mean you will hit the foreign aid Budget again?
TREASURER:
I am not going to speculate on those sorts of things, but we are also not going to be chasing down the impact of lower iron ore prices on the Budget because that would mean you would have to have new taxation measures or a massive new round of cuts in expenditure. We don’t think the Australian economy could cope with that.
DAVID SPEERS:
Let me ask you one specific: will you still go ahead with the 1.5 per cent company tax cut due in July?
TREASURER:
That is our plan and we believe that will actually help to strengthen the Australian economy.
DAVID SPEERS:
Talking about tax, are we going to get the issues paper on tax reform by the end of the year?
TREASURER:
We are certainly working on it. I think we have got to begin the discussion on taxation reform but I think it is important, David, that in 2015 we have a deeper discussion with the Australian people – a conversation if you like, about how we are going to meet head on the challenges of the next 30, 40 years. That is going to be a part of our community engagement that is essential in the course of the next 12 months and that is part of our plan for the Intergenerational Report.
DAVID SPEERS:
This will be a big debate next year – tax reform with the White Paper process. Will the Government take to the next election – a tax reform plan?
TREASURER:
We will take a plan to the next election that strengthens the Australian economy. Part of it will be tax, but there will be number of other initiatives as well. One of the areas that deserves a good deal of focus is the shape of the Federation; how can we all be more efficient in delivering better outcomes for the Australian people and Commonwealth-State relations is an essential part of that.
DAVID SPEERS:
And how open are you to the whole GST debate as part of this?
TREASURER:
I don’t see broadening the GST or increasing the rate of the GST as a silver bullet for the Australian economy at all. I don’t have any desire to increase the cost of living for everyday Australians without being able to properly compensate for it and the Budget has limited capacity to do that.
DAVID SPEERS:
What about this so-called Google tax of measures to tackle multinationals who don’t pay what they should in Australia? You announced earlier this week that some Tax Office personnel are in about 10 big companies having a look at the books there. Are you getting closer to announcing exactly what you will do to tackle this issue?
TREASURER:
It has got to be coordinated global response and this is why the previous Government failed. They had announcements that they never legislated and they never had any coordinated global action. We are determined to work with other countries. We have used the leadership of the G20 this year to get that coordinated global action. We have got a number of fronts that we are dealing with. Firstly, we are working with the OECD on what is known as the Base Erosion and Profit Shifting Plan. We are half way through that, which means there are common rules around the world, particularly in tax havens that ensure that people do start to pay their fair share of tax. Secondly, we have got Common Reporting Standards, which means that when you open a bank account anywhere in the world, it has the same information requirements and that information is on a common platform so that the Australian Taxation Office can see if you are opening accounts in other jurisdictions. That is hugely important. Thirdly, we have got ‘Tax Inspectors Without Borders’, which is a novel term but important term illustrating that we are all going to work to send tax inspectors right around the world going after these companies that are not paying their fair share of tax. Finally, we are going to toughen up – further toughen up domestic rules, so that we ensure that companies that make a profit in Australia, pay tax in Australia and make sure that they don’t try and shift those profits overseas, which is what they have been doing. So, what we have got to do is engage other countries, including those to where they are shifting the profit, in the discussion. Ultimately, the big movement this year has come about because a number of very large countries have worked out that these companies are not paying tax in their country either.
DAVID SPEERS:
A lot of them aren’t necessarily breaking laws…
TREASURER:
No.
DAVID SPEERS:
That is the issue, isn’t it?
TREASURER:
But they are certainly pushing the envelope.
DAVID SPEERS:
You take Apple for example – it will pay a lot of money to a foreign partnered company for [inaudible] but, that is not against the law.
TREASURER:
I don’t want to deal with any specific company but there is a moral obligation here for good citizens and good corporate citizens to pay tax in the countries where they earn the profits.
DAVID SPEERS:
Can you put morality in the law?
TREASURER:
You can give it a damn good shot and I think you will see a lot more action during the course of 2015 as we work in partnership with other countries. I think that is hugely, hugely important. It is no use Australia acting unilaterally. We have got to work with other countries and in the interim, we have sent a lot of people into these companies in Australia.
DAVID SPEERS:
Can I ask you: as this year comes to an end, Tony Abbott recently described some of the Government’s performance as ragged; how would you characterize it?
TREASURER:
I will leave that to commentators, but I would just say to you David: it was always going to be tough this year, always going to be tough, but we have a plan and we are rolling out the plan. If we hadn’t have done what we have done this year, Australia would be in a far worse position today than it is. Unemployment would be over seven per cent. You would still have higher electricity prices. You would have a Mining Tax. You would have no free trade agreements, which are huge opportunities for Australia to grow their exports into Asia, in particular. You would still have an additional 57,000 pages of regulation and red-tape. You would have nearly a hundred tax initiatives that were not legislated and ultimately, as Labor always did, you would have higher taxes, you would have higher taxes. So, we have actually come a long way this year. It hasn’t been easy; it hasn’t been easy for Australians. We accept that. We appreciate it – we deeply appreciate the contribution Australians have made and their understanding during the course of the year. We can always do better. We will work harder in 2015.
DAVID SPEERS:
So, what will you do different in 2015?
TREASURER:
I think there will be more of a conversation with the Australian people about the challenges that lie ahead and how we all need to work together to address those challenges. This year we were focused on outcomes rather than process. We made a mistake. I mean, I fully accept that we could have done more marketing. We could have spent more time explaining what we were doing to the Australian people and we should have, but we were so focused on getting the outcomes that strengthen the economy that build more jobs that we neglected the conversation. In 2015, you are going to see more of a conversation, more community engagement. We are going to work harder with the Australian people to lay down the plans for our future growth.
DAVID SPEERS:
What about internally- is everything okay? I mean, I saw the Prime Minister today has suggested that criticism of his Chief of Staff, Peta Credlin is based on gender; do you agree with that?
TREASURER:
Well look, I’ll leave that to others. I have been – I have had my head down in the Budget papers focusing on the challenges that lie ahead. I am not going to participate in the commentary, David. Tempting though it is, I am not going to join.
DAVID SPEERS:
Final one then: Martin Parkinson, your – the Treasury Secretary finishes up today, it’s his last day. Are you sorry to see him go and is there a concern that we are getting into a more American situation where administration changes and so do all the department chiefs?
TREASURER:
No, I think – look, I want to say first up, Martin Parkinson is a very honourable man. He has got a formidable intellect. He has made an enormous contribution to Australia over a number of years. He has shown great leadership and fortitude in the face of some difficult moments. I like him as a guy and I really enjoy discussing the world with him but we are moving on. John Fraser – his replacement – brings, not only an enormous amount of previous experience in the Treasury as Deputy Secretary with Paul Keating and a number of others, but he went out to the private sector, did incredibly well at a global level and now wants to come back and serve his country towards the end of his career. That is terrific and that is what we are looking for – more of an engagement with the private sector.
DAVID SPEERS:
Well, Joe Hockey, I know you have got to get back into the books for that Budget update on Monday. We hope you get a break at the end of next week. Thanks for joining us.
TREASURER:
Thanks very much, David, and to all of your audience, Merry Christmas, Happy New Year, and let’s look forward to a very prosperous 2015.
DAVID SPEERS:
Indeed, thank you.
TREASURER:
Thanks very much.