PRESENTER:
Treasurer, good morning, welcome to Breakfast.
TREASURER:
Great to be with you, Fran.
PRESENTER:
We’ll come to the G20 in a moment, Treasurer, but first to this US China deal on carbon emissions. President Obama said and I quote: ‘we hope to encourage all major economies to be ambitious, all countries to work across some old divides so we can conclude a strong global agreement next year in Paris’. Will Australia match the ambition of the US and China when it comes to a post-2020 target?
TREASURER:
There is a number of things there. Firstly, I think it is greatly encouraging that there has been an historic agreement between the United States and China, for the sake of the agreement. The fact that they have come together, the biggest economy in the world, the second biggest economy in the world and it just confirms the fact that we all need to work hard to help facilitate China’s entry in an unfettered way into the global economy. That’s part of the story. In relation to the specific issue on climate change, again, we welcome that initiative. We think it is good that they are working together, particularly in new technologies, to address climate change. We and the United States are pretty much on the same page. Over a 30 year period from 1990 to 2020 we have roughly the same reduction.
PRESENTER:
Hang on, ours is five per cent theirs is 17 and they’re shooting for 28.
TREASURER:
Off different starting bases, and in the case of the United States at the moment, a different finishing time, but over a 30 year period it is roughly the same reduction in emissions. Now, we will obviously be announcing a policy position in the lead up to the Paris summit, at this time next year.
PRESENTER:
When? When will you announce that.
TREASURER:
Before the summit obviously, it’s Paris next year, this time next year. And you know, there is also a UN Summit on climate change in three weeks’ time in Lima which Julie Bishop’s going to.
PRESENTER:
Well, if we’re talking same same with the US, what we have from the US now is this pledge of carbon emissions cut by 26 to 28 per cent of their 2005 levels by 2025. Those who have crunched the numbers say for Australia, that will equate to a 30 per cent cut to emissions. We are currently promising a five per cent cut to emissions. Are you saying, given Australia’s position has always been we’ll take account of what other countries are doing when we announce our post-2020 targets, that that is the sort of thing we are going to agree to, equivalent of the US?
TREASURER:
No, what I’m saying is that if you compare apples with apples, the American position and our position on reductions are effectively the same.
PRESENTER:
[inaudible]
TREASURER:
You’re right, we will need to have a position after 2020 and the Government obviously will carefully consider what is going on around the world over the next 12 months in the lead up to the Paris Summit, which is the successor to Copenhagen.
PRESENTER:
I [inaudible] the US a fair sort of place for us [inaudible]?
TREASURER:
I’m not going to speculate, Fran.
PRESENTER:
I know you do understand the economics and politics of what happened yesterday. By our own account, in Direct Action, the Government’s Direct Action policy is going to cost $2.5 billion to deliver the five per cent cut in emissions, that’s what the Government is working on at the moment. Under that policy, how much would it cost to deliver cuts in the realm of what the US is pledging? Because the Climate Institute says it would cost the Budget between $9 billion and $30 billion every year. How can Direct Action help?
TREASURER:
Fran, I’ll leave that sort of analysis to the (inaudible) Environment Minister who is also in charge of climate policy.
PRESENTER:
But you’re in charge of the Budget.
TREASURER:
Well, I am in charge of the Budget. We have laid down our Budget allocation for Direct Action. We were told that we weren’t going to get that through the Parliament, we did get it through the Parliament. We are on track. This weekend, the world is going to focus on how to create tens of millions of jobs and how to build the infrastructure that is going to alleviate poverty right around the world. That’s the main focus of the G20 this weekend.
PRESENTER:
And I’m going to come to that in just a moment. But just also, one of the announcements yesterday was China saying it will cap its total emissions by 2030 and it will do that with a big switch to renewable energy. That switch to renewables is likely to mean, isn’t it, lower demand for Australian coal? Again, that’s going to affect your Budget too, isn’t it?
TREASURER:
Australia has the cleanest coal in the world and the Chinese recognise that. I was in Beijing two or three weeks ago and in discussions with Lou Jiwei, the Finance Minister, he recognised that our coal is good quality and it has the lowest emissions.
PRESENTER:
Yes but it still has carbon emissions and they’re switching to 20 per cent (inaudible).
TREASURER:
This provides massive opportunity for Australia’s gas exports and also uranium exports because we are not just a monodimentional energy supplier, we supply across a broad range of resources and look, this represents huge opportunity for Australia’s gas industry. We have enormous reserves of gas and we have the capacity to power the growth of the middle class in Asia, which is the most exciting economic opportunity Australia has ever seen. I mean, I am more positive about Australia’s future than any time in my life because of the emergence of this massive middle class in Asia. They will have demand for clean energy, that’s terrific, but we can supply that clean energy. They will have demand for our health and education services, our financial services, and at the moment, 70 per cent of Australia’s economy is services, but it’s only 17 per cent of our exports. So, what we’ve got to do is lift our export in services and then we can supplement the massive export growth that we have in resources.
PRESENTER:
Treasurer, does this announcement from the two largest polluters and the two superpowers, in a sense, ensure that climate change will be on the agenda now at G20?
TREASURER:
Climate change was always going to be discussed as part of the energy security discussion.
PRESENTER:
Is it going to be front and centre now do you think?
TREASURER:
Look, I’m not sure, that’s up to the leaders. Fran, what we do, is over the course of this year, the Finance Ministers of the G20 have laid down a plan for growth and jobs in the world economy. We cannot allow ourselves to go off the focus, to walk away from the focus on delivering outcomes that help to create jobs and economic growth. Now…
PRESENTER:
The biggest outcome you’ve got there is this plan for a two per cent growth target at the G20.
TREASURER:
Which was set in Sydney and it was very difficult to get everyone to agree to have an identifiable target of an additional two per cent growth – $2 trillion for the global economy, but we did it in Sydney, we took a risk, we had a go, as is the Australian way, convinced the rest of the world to do it. In the interim, since the Sydney meeting in February, until now, countries have submitted over 1,000 policies to the IMF and the OECD who have assessed those policies and they will deliver an outcome, they will indicate what the outcome is for world economic growth if those policies are implemented in full. Now, the challenge will be to make sure the world follows up on delivering.
PRESENTER:
And that is the challenge. How do you do that, especially in an environment where the World Bank, for instance, has lowered the global growth forecast, two per cent over five years on top of that, if countries can’t even get to their pre-G20 baseline growth figures? How hard is that to make sure they do what they promised?
TREASURER:
It is, Fran, because what’s happened is governments right around the world have effectively run out of financial capacity to grow the global economy. They can’t keep stimulating. They’ve got too much debt. Of course, loose monetary policy, that is, very low interest rates set by central banks is unsustainable. It certainly made the richest people in the world richer, because they hold the assets, it’s massively inflated the value of assets in those classes, in certain classes. So the only way we are going to get economic growth, to get jobs, to get prosperity in the future, is to earn it through reform, and that is as much a lesson for Australia as it is what the world is going to consider this weekend.
PRESENTER:
And as much a struggle for Australia because member countries, as you say, require to submit their action plans. Australia’s formal pledges include Budget measures such as the Medicare co-payment and university deregulation. They haven’t been legislated, they appear to be still stuck in the Senate with not much chance. How can you expect to bank the savings and achieve that growth that you’re promising?
TREASURER:
These are the policies that are going to help to grow the Australian economy. These are the policies that help to deliver jobs in the future. Fran, there is no silver bullet for growth in the Australian economy or in the global economy. We have to earn it, and if we make a contribution now, through a co-payment on Medicare or through a range of other initiatives including higher education deregulation, if we make that contribution now, we will get the benefit in the future as a nation. But if we don’t make that change now, then the change that will occur in the future will be more disruptive and more difficult for the next generation of Australians.
PRESENTER:
There is a story around this morning around the GP co-payment, sorry to move from the G20 for a moment – but the Labor Shadow Minister Catherine King saying the Government is planning to subvert, get around, the Parliament to introduce a $7 co-payment. Are you planning to do that? To introduce it without legislation?
TREASURER:
I am not speculating on what the outcome is.
PRESENTER:
That’s not a no.
TREASURER:
I would say to the Labor Party, I would say to the Labor Party this: you created the mess, why not have a shot at giving us a hand to fix it because the Labor Party is walking away from everything. They are blocking everything, they are walking away from everything, they are even walking away from the savings and the reductions in expenditure that they took to the last election because they are determined to be wreckers and I would urge them in the nation’s interest, not just their own, but in the nation’s interest, to come on board with fixing the Australian economy, strengthening the Australian economy and fixing the Budget.
PRESENTER:
Joe Hockey, in opposition you were very fond of saying that the Government did not have a revenue problem, it had a spending problem; now you clearly do have a revenue problem which you have been discussing in the last couple of days led by the fall in the iron ore price since the May Budget. That’s going to blow out the Budget forecasts and now we read today too, that wages are rising at their lowest level on record at just 2.6 per cent. What impact is that going to have on the Budget?
TREASURER:
Well, Fran, iron ore represents one in five of our export dollars. That’s the income coming into Australia. Iron ore prices have fallen around 30 per cent since the Budget. Now, there are some things we control in the Budget, such as reducing government expenditure, which we have been trying to do and we are doing, but there are some things we don’t control, which is income. So, what we’ve got to do is diversify our income base as a nation away from resources, which we still want to be strong, but into other areas like services exports, which is why free trade agreements with Korea, Japan and hopefully with China are so important because the best way, I learned from a family of small business people, the best way to grow your business is actually to expand your market. If you can do that, you can have more customers come in the door, you’ve got a chance of earning more income, and that’s exactly what we’re trying to do.
PRESENTER:
But even as you diversify, to give you that figure again, wages are rising at their lowest level on record. (inaudible)
TREASURER:
(Inaudible) Because national income is not what was expected and of course, what we’ve got to do is improve the income of the nation. If we improve the income of the nation, then that helps to lift the wages of the nation.
PRESENTER:
Sure, but let’s go back to your Budget, Treasury had been counting on wages growth to deliver an extra $50 billion in revenue over the next four years, does this suggest you’re not going to get to that figure?
TREASURER:
No, no, no. I’m not going to speculate on numbers, because you’ll see that in the Mid-Year Economic Update in December but the fact is, we have got to do everything we can to drive economic growth. Because the best way to help to get the economy going, to get greater prosperity, the best way to do that is to have the sort of reforms that we’re talking about this weekend, but also, to recognise that we’ve got to pull back spending, which is exactly what we did in the May Budget, and we’ve got to prepare for potential volatility in our revenue. Now, I was conservative, I was even criticised for being conservative about what the income would be for the Federal Government at the last Budget and before that. The problem Labor had was it was always optimistic, it was always the other way.
PRESENTER:
Well you may have been conservative, but not conservative enough, you are – in MYEFO, there’s going to be a write down, there is going to be a bigger budget deficit.
TREASURER:
Fran, you’re right, I wasn’t conservative enough. The iron ore price that we had in the May Budget was below the consensus of the market. Previously Labor always overestimated and then pretended to have a surplus. We were sceptical about market consensus so we took a lower price, and you know what’s happened, it’s absolutely even lower than that.
PRESENTER:
So how big is the hole going to be?
TREASURER:
It’s not so much a hole as it is a case of we have had falling revenue…
PRESENTER:
Deficits [inaudible].
TREASURER:
It’s not about panic, it’s not about responding with a whole range of further cuts, it is about ensuring that we recognise what the problem is and in our next Budget help to craft a solution to that problem but we are not going to do anything in the Mid-Year Economic Update that harms the Australian economy. We are not going to do that.
PRESENTER:
Joe Hockey, thank you very much for joining us on Breakfast.
TREASURER:
Thank you Fran.