PRESENTER:
Treasurer Joe Hockey is in Washington on his first overseas trip as the Australian Treasurer. He spent the day on Capitol Hill speaking with Congressional leaders. Joe Hockey, welcome to RN Breakfast.
JOE HOCKEY:
Good morning Fran.
PRESENTER:
It is a pretty interesting time to find yourself on Capitol Hill. Who have you been meeting with today?
JOE HOCKEY:
I have spent the day with Ambassador Kim Beazley visiting a number of leaders in the Republican and Democratic ranks, particularly Senators who are very involved in some of the discussions. It has been a very interesting day and rather than trying to forecast what is going to happen - because even as we speak President Obama is meeting with Congressional Democrats at the White House - I can say it is pretty clear things are moving. It is clear that 'Obamacare' is not the major issue it was a few days ago. Essentially all parties are looking for the solution that ensures the United States does not default. In fact, I believe the United States will not default on its debt but there will be a reprioritisation of the Budget to meet some of the ongoing obligations they have.
PRESENTER:
Let's just break that down a little. So the mood you are picking up is there is a mood to negotiate and come up with a deal?
JOE HOCKEY:
There is a mood for a negotiated position but there is dispute about whether that means they are going to kick the can down the road and simply agree to provide three to six weeks of funding or go further and provide 12 months of additional funding in terms of increasing the debt limit by around a trillion dollars. That seems to be the two major options being discussed. Ultimately it comes to whether a deal is going to be negotiated on the US budget. I think they are all very aware that this is starting to cause increasing concern right around the global economy. I think there is a high degree of determination to get it resolved in the next few days before the first deadline of October 17th.
PRESENTER:
So that is important - you are picking up that there is a growing appreciation of the global interest in this. The OECD, in recent hours, has said the failure to raise the US borrowing ceiling could force most of the leading industrial democracies into recession. That is what the OECD has said in the last 24 hours. Are you worried about this dragging on and impacting on the Australian economy?
JOE HOCKEY:
No - not at this stage because I think the matter will be resolved. There are a number of issues at play here. Firstly, there is the funding again and the continuing resolution to fund the Budget. In Australia we call that supply. That has become a secondary issue to the debt limit. They may not increase the debt limit. The Secretary of the Treasury has said the 17th of October is the crucial date but it is quite obvious that if they do not increase the debt limit by the 17th of October then it means the US Government will have to reprioritise spending. That might mean it will cut pension payments or it will cut spending in other areas. But I am assuming – as Moodys did today in a statement – that the US will not refuse to pay interest on its debt. It will cut back in other areas of expenditure before it refuses to honour its debt commitment. Therefore the suggestion that the US is going to default on its debt is highly unlikely because no matter what, they will still have enough revenue coming in to be able to reprioritise their debt repayments – that being the number one challenge. It is important not to be hysterical about this to allow Congress and the White House to sort through the issues. That is why I say to the Australian people that it is obviously something to closely monitor but we should focus on improving and strengthening our own economy as a priority and allow the Americans to sort through their political issues.
PRESENTER:
I imagine you have a view on the position that the Republicans are taking here. They are insisting that lifting the borrowing limit – or the debt limit – must come with debt reduction measures. You have had concerns about debt levels here in Australia when you were Shadow Treasurer. Do you support the Republicans' position in this debate?
JOE HOCKEY:
At some point someone needs to place a realistic limit on the debt. This is one of the things that makes me most angry. During the course of today I was continually reflecting on the fact that Wayne Swan did not have the courage to increase the debt limit in Australia to what he was expecting the debt to reach. The Government has forecast gross debt to be around $370 billion but the debt limit in Australia is at $300 billion – and it is going to be touched on by Christmas. One of the first challenges we have in Australia is to actually increase the debt limit in Australia because the Labor Party refused to deal with it. I am angry about that because it is just another problem they have left us with which we have to fix.
PRESENTER:
What would your position be? In Opposition, would you have refused to raise that debt limit as the Republicans have?
JOE HOCKEY:
No. In fact in Australia I have been saying it has to be raised and I challenged Wayne Swan to have the courage to admit that it would be raised - he refused to. It was the Secretary of the Treasury in Senate Estimates that confirmed the debt limit would have to be raised by Christmas. Now Wayne Swan said "that is someone else's problem. That will be up to them after the election." He didn't want to deal with it, but the Coalition will deal with it because we have to. We have no choice. We are not going to allow ourselves to be caught in the trap. I said this before the election and I say it after the election - we are not going to allow ourselves to be caught in the trap that Wayne Swan has tried to create in relation to the debt limit. We have to deal with that. The fact is, here in the United States, the Government – of whatever political persuasion – has been reluctant to address the significant increases in expenditure of entitlements. Of course, in Australia we are going to have a Commission of Audit which is going to help to address some of the significant increases in expenditure by the Federal Government so that we do not have to get ourselves into a position anything like what has happened here in the United States.
PRESENTER:
The other big news in Washington today is the President nominating Janet Yellen to succeed Ben Bernanke as head of the Federal Reserve. I know you have got a meeting with Ben Bernanke planned. Janet Yellen is a big supporter of the Fed's massive stimulus program. Would you expect a steady as she goes approach to quantitative easing?
JOE HOCKEY:
That will be a matter for the Fed. I expect Janet Yellen will be approved by the Congress to replace the Chairman Ben Bernanke. Quantitative easing is an issue for the American economy but obviously it has quite a profound impact on the rest of the globe. Ultimately, it has to taper off – that is stating the obvious. The question is how quickly it can taper off and that is a moving feast. It depends on how just quickly the recovery happens in the US economy. Unquestionably, if there is continuing instability here in Washington in relation to the shutdown of the Government and the failure to increase the debt limit then that will have a negative impact on the US economy, that in turn will have some influence on the decision of the incoming chairman of the US Fed.
PRESENTER:
Treasurer, just a couple of questions on the home front. The Abbott Government is considering extra financial assistance for Holden. Holden has rejected the Government's demand that it lift export sales before it gets any more Government subsidies because it says Australian produced cars are too expensive to sell overseas. If there is no lift in exports from Holden does that mean no more taxpayer cash for Holden?
JOE HOCKEY:
I haven't seen that latest statement from Holden but what I will say is that it is hugely important that if the Government is putting money into an industry then that industry should be sustainable for the medium and long term. There are commercial decisions to be made by Holden and there are policy decisions that have to be made by the Government. We have a process in place and the process involves a Productivity Commission review of the car industry, with an interim report back from the Productivity Commission early next year. We will have our position in relation to the motor vehicle industry when we see the advice from the Productivity Commission. There is no use engaging in speculation at all until we see that. We just cannot have policy on the run in response to company announcements.
PRESENTER:
As the man in charge of balancing the nation's books, would it help if we had tighter guidelines around Parliamentarians' travel entitlements? Would you be a supporter of some changes there to the guidelines or the mechanism of dealing with this?
JOE HOCKEY:
It comes down to common sense. Ultimately people expect common sense judgement to be used - whether it is with company entitlements, with ABC entitlements or with using entitlements provided by the Parliament.
PRESENTER:
Did your colleagues exhibit common sense when they claimed for going to another colleague's wedding?
JOE HOCKEY:
I suspect they used common sense where it was inappropriate to make a claim associated with that wedding if that was the sole purpose of their trip - therefore they repaid the money. That is the right way to do it – to repay the money where there was an inappropriate action.
PRESENTER:
Joe Hockey, thank you so much for joining us.