PETER VAN ONSELEN:
Welcome back, you're watching Australian Agenda. Well, less than an hour ago the new treasurer Joe Hockey over in Washington DC found time to have a chat with us in between his busy schedule. We started off by asking him what he thinks is going to happen next in relation to the stand-off over debt in the US Congress.
TREASURER:
Well, it appears that the negotiations between the Republicans in the House and the White House have abruptly ended, and negotiations are now being held between Senate Democrats, Senate Republicans and the White House. I see that as a positive step forward because it looks as though the only way they are going to get a resolution is to have an initiative come out of the Senate then go to the House, then the pressure will be on Speaker Boehner to allow the matter to be debated in the House. If that's the case then I would expect there would be support for an initiative that comes out of the Senate.
PAUL KELLY:
So presumably, Mr Hockey, from what you've just said you are pretty confident there won't be a real crisis, that won't be any American default?
TREASURER:
Well, America cannot default. It's as simple as that. The impact of a default by the United States government is catastrophic for the global economy. The impact of it would be felt immediately and I am absolutely confident that having spoken to a number of Congressmen and Senators from both sides of the House I'm confident there will be a resolution. It might not be pretty, but it will be a resolution and America will not default.
PAUL KELLY:
In relation to the Republicans and in particular the Tea Party Republicans from your talks do you think that they understand the catastrophic implications involved in this? And what is your own view of their tactics, of this whole approach?
TREASURER:
Well, they are engaging in extreme tactics and the lesson for us is to understand that it should never get to this point. America can no longer afford its lifestyle. That's been the case for some period of time. The frustration of a number of members of parliament and being enable to get the Government to live within its means is palpable and that's reflected in the behaviour of a number of members of the Republican party, and some Democrats, by the way. So the message for us is you have to live within your means. The message is you need to undertake budgetary reform before it is too late, before you get to this point and you should not make promises on debt limits that you cannot keep and that's one of the most frustrating aspects of coming into government where Wayne Swan left us with a time bomb, in effect leaving the debt limit at $300 billion whilst he knew that the Government would reach $300 billion before Christmas. So he's left the hard work on the debt limit in Australia to the Coalition. That just illustrates that you can't leave these hard decisions to someone else to fix.
PETER VAN ONSELEN:
You raised the domestic sphere, Mr Hockey, is there any parallel that you have any concerns about the make-up of the incoming Senate in July next year, that you're going to have people like the Liberal Democrats who says he will vote against any increases in taxes, for example or the amalgam of Senators amongst the Clive Palmer Party. Do you see any stand-off that is obviously not parallel to what we are seeing in the US, but nevertheless there are parallels in terms of difficulties of certainty for your government that could be created?
TREASURER:
No, I don't see any parallels in the behaviour of the Australian parliament with the behaviour of the US Congress in relation to debt limit or supply. We went through our supply issues back in 1975. I'm certain they won't be repeated, and there's no need for them to be repeated, because in the next budget we will present a responsible set of numbers that illustrate the fact that we are going to bring the budget back to surplus, an honest surplus, and we are going to start paying down Labor's debt.
PAUL KELLY:
You've had a lot of meetings since you've been in the United States. What is the main takeout that you've got to this point about the outlook for the global economy and the consequences for Australian policy?
TREASURER:
Well, we are in for a continuing volatile period. There is a slow recovery around the world, but obviously the markets, I think, have misread the comments by the Federal Reserve in relation to tapering, and the fact is the United States will start its tapering of quantitative easing when it is in the interests of the United States, as will other countries, and therefore I think we have got to look carefully at the words of the Federal Reserve, the words of the Governor of the Bank of England Mark Carney and others, to understand exactly where we are going in the next 12 months in relation to quantitative easing.
Now, there hasn't been this sort of withdrawal from the printing of money before, and therefore no-one is quite sure where it's going to go. So what I can say is there will be volatility in the global economy over the months and maybe the near future in terms of years. So that's why we have to focus on medium-term structural reform, focus on the longer-term issues that helped to build a more resilient economy, rather than focus on the day-to-day volatility that's reflected in equity markets or even political commentary in relation to what is happening on the Hill up here in Washington.
PAUL KELLY:
Well, that's quite a tricky and complicated policy framework for Australia. Just teasing this out a little bit, am I correct in concluding from what you've just said you don't want to put the budget through the ringer in the short-term, but in the medium to longer term you do want significant structural change in the budget and a move back to surplus over time. I mean is that the best way to characterise it?
TREASURER:
Well, we are going to take a responsible approach to the budget. The budget has deteriorated. It's deteriorated since the last budget was delivered by Labor, it's deteriorated since the election. We first of all have to stop the haemorrhaging in the budget and we will make the decisions to stop the haemorrhaging in the budget. Secondly we need to make sure that the numbers have great integrity about them, and that they truly reflect the state of the books, and thirdly we will lay down a credible path back to surplus and a credible path to dealing with the debt. Now, that means that we will have a new set of fiscal rules which we will announce in due course.
It means that we will have to increase the debt limit to prevent Australia breaching the debt limit before Christmas. It means that we will announce soon a commission of audit to go through every area of expenditure across the Commonwealth, to get best value for taxpayers, and it means that we need to have put in place structural reforms that grow the economy, not just over the next two years, but over the next decade.
We need to lay down a medium-term path that lifts the growth rate of Australia and inoculates us against what will be a fairly volatile period over the next few months and perhaps the next three to four years.
PETER VAN ONSELEN:
Mr Hockey, where does that leave the budget coming next year, because the rhetoric coming out of yourself and Tony Abbott in opposition we are in a budget emergency. Does that mean you're going to deliver a deficit next year but it will be a lesser deficit than was otherwise forecast under Labor and what about infrastructure spending as well, what's this difference between good and bad debt? Because when you were in opposition it seemed that debt was bad period, now you are trying to nuance a difference between good and bad debt.
TREASURER:
Well, I've never talked about good or bad debt, we have debt. The bottom line is I think there should be greater transparency for Australian taxpayers in understanding where the debt has gone and where the debt is going. That's one of the reasons why I've said that we are going to send every Australian taxpayer the equivalent of a receipt that explains where their taxes are going, how it's being spent, each year.
In doing so the use of their money will be entirely transparent.
Secondly, in relation to the budget it is hugely important that we have a stocktake now of the cost to the budget, of the risks to the budget and that's precisely what we have been doing over the last few weeks and we will do over the next few weeks.
PETER VAN ONSELEN:
What does that mean, Mr Hockey, in terms of the issue of the next deficit? Is it going to be smaller under your side of politics than it was projected to be under Labor, and if not are you doing therefore to stem this so-called budget emergency?
TREASURER:
Well, when Tony Abbott and I declared a budget emergency we were right, because the budget deteriorated by $3 billion a week after it was delivered, so that was a budget emergency. There is still a challenge, as I said that the budget is still haemorrhaging, there is still a challenge that the debt is still rising.
Now, we are going to lay down a sensible framework for a return to surplus and a sensible framework for the repayment of debt. But the only way to pay back the debt is to grow the economy, and I am obviously very focused on economic growth, and building economic growth, and if you build economic growth then you will see that that will eventually lead to better revenue for the Commonwealth, and in turn will lead to surpluses that start to pay down Labor's debt.
PETER VAN ONSELEN:
Tony Abbott has said that he wants to be an infrastructure Prime Minister, do you want to be an infrastructure Treasurer? Can you give us some idea about your current thinking about how we proceed with infrastructure? There have been a lot of ideas thrown about. What's your current thinking on that?
TREASURER:
Well, yes, we want to be an infrastructure government, and given that we are chairing the G20 next year both the APEC meetings I attended in Bali and also the meetings here in Washington, not just at the G20 but the World Bank and the IMF there has been a focus on infrastructure, and I have advised the G20 finance ministers and the World Bank that infrastructure will be one of the three key initiatives we are going to drive at the G20 finance ministers next year.
Now, that is entirely in keeping with our domestic agenda of identifying infrastructure projects, properly financing them, and helping to deliver a growth package that in turn underpins the Australian economy over the next few years.
One of the problems is that you cannot stop and start infrastructure. It needs to have short, medium and long-term framework and what we are going to be announcing is a package that focuses on the short, medium and long-term infrastructure needs of Australia, that help to drive productivity growth and in turn help to drive economic growth.
If we rely on the current trajectory we are going to see economic growth at below trend. Now, that is unacceptable to me. We want to drive economic growth and we are going to do it by focusing on the best use of government and I emphasise private sector investment in infrastructure.
PAUL KELLY:
Okay, just on that point how do you get the private sector finance? Do you want the nod from the rating agencies on? Are you prepared to extend a government guarantee in relation to private infrastructure financing? What's the technique you use?
TREASURER:
Well, I'm loath to actually sit down with Treasury and design an infrastructure model. Rather, I think it is hugely important that we lay down some rules and then encourage the private sector to develop the model that helps to facilitate their investment in projects.
Now, that may mean that we are more aggressive in the use of our government guarantee. It may mean that we take equity in projects. It may mean that we found outright individual projects. But I do not want to be prescriptive.
There are many smart people who have been involved with private infrastructure projects over many years who will identify the model that works best for all the stakeholders. And this is going to be a focus of our leadership in the G20. It is already something that I have engaged in detailed discussion with the President of the World Bank, but it is also something that has, I'd say, dominated the discussions I've had with finance ministers from most of the G20 countries.
How do we finance infrastructure growth? Paul, the bottom line is whether it be the Australian Government or any other government we haven't got the money to meet the infrastructure demand of the next decade. Therefore we need to use what is a vast pool of private sector money, to deliver the infrastructure that helps to grow our economies. And Australia can lead the world in this regard.
PETER VAN ONSELEN:
You'd have to concede wouldn't you, Mr Hockey, raising private funds for infrastructure spending a lot harder now than it was, say, 10 or 15 years ago. How are you going to overcome that?
TREASURER:
Well, I don't accept that, Peter at all. There is far more money around today than there was 10 years ago, and the private pension system in Australia is still heading towards $3 trillion by the early part of the 2020's. $3 trillion of private pensions. On a world scale that is hugely significant.
PETER VAN ONSELEN:
Can I ask you on that do you take a carrot or stick approach to that? Would you look to potentially just provide, what, incentives for superannuation to go into infrastructure investment or would you perhaps take a stick approach and look to make it a requirement of super investments maybe?
TREASURER:
Well, you don't need a stick approach, because ultimately if the project is viable and has had a proper cost benefit analysis, then you form a partnership with a private sector, and there are certain rules of the game. The first is when you lay down the model for the infrastructure project you have to make sure that the rules of the model do not change and those rules are often in the hands of governments.
Secondly, you've got to look for patient investment, and patient investment means that the investors are taking a 10, 20 or 30-year approach to the project, rather than a short-term approach and the third area is you need to have a revenue stream associated with a lot of those projects. I have no doubt that there are a vast number of projects in Australia, that will help in that regard that are very attractive to the private sector.
The main thing that is coming through in all the discussions I'm having in Australia and over here, is that we need to work hard to find the product. There's no shortage of money for infrastructure in Australia or around the world, but what you need to do is to have good product that is attractive to those investors. If you can marry the two then certainly it will help to deliver stronger productivity growth and stronger economic growth for the economy.
PETER VAN ONSELEN:
Can I go back to an earlier question that came from Paul Kelly about the rating agencies. What concerns do you have about getting them on board? Because if they're not on board with debt to finance infrastructure spending which would involve tens, if not hundreds of billions of dollars potentially then the ratings for Australia are AAA rating across the three agencies could take a fall then the repaying of debt becomes far for expensive. Where are they at with your meetings over there in Washington?
TREASURER:
Well, I haven't started meeting with the rating agencies yet because I head to New York tonight. The fact of the matter is that the ratings agencies have got to become partners in this. Because often they provide ratings assessments and risk assessments on individual projects, so sensible rating agencies take a sensible approach, but ultimately the best way to keep a AAA rating is to have a strong economic growth, low unemployment, and budget in surplus and lower government debt. That's a salient lesson that Australians know all too well, sometimes we need to invest as a nation in order to deliver that economic growth and that economic growth helps to deliver a stronger government budget.
It's where you have waste in government expenditure, where you waste the debt that you borrow, that you put at risk a AAA credit rating and we are absolutely determined to do everything we can to stop the waste of public sector money
PETER VAN ONSELEN:
Mr Hockey, I have to jump in. You talk about waste. But we have got AAA ratings across all three rating agencies for the first time for a long time in our history as a nation. Now, that being the case does that mean that well haven't just seen the removal of a wasteful Labor Government which was able to install and maintain AAA ratings across all three agencies.
TREASURER:
Well, firstly are the Labor Party didn't restore the AAA rating. That's just not true. In fact the Fitch rating wasn't available to Australia at AAA level until they actually gave it for that purpose. So, it wasn't Labor that originally lost the AAA rating. It was the Howard/Costello government that got it back. Despite Kevin Rudd and Julia Gillard's best efforts, we have managed to hold on to it. But the world has changed, and the fact is that you can lose a AAA rating. The best way to prevent yourself from being in that position is to invest in a growth strategy, and I just want to emphasise again we are focused on lifting economic growth. That needs to be our focus over the next two to three years. The previous budget strategies have focused on getting back to surplus and just assuming that economic growth would be 3% or better. Well, the fact is we have inherited an economy that has economic growth below 3%, so it is going to be a focus of the Coalition to get economic growth up, to take some of the upward pressure off unemployment, and start doing something about people dropping out of the potential workforce, and focus on the drivers of growth, so in turn that will deliver higher revenues and get us back to budget surplus.
PAUL KELLY:
Mr Hockey, is it your view that in order to get up the free trade agreement with China to which Tony Abbott is now very firmly committed, the Government will have to be flexible in terms of the reduction of the threshold to $15 million for FIRB review for investment in agricultural land?
TREASURER:
Well, the free trade agreement with China that could be negotiated, it is being negotiated has lots of different components. Obviously a state-owned enterprise out of China is assessed by the Foreign Investment Review Board. No matter what the investment is. It's an immediate trigger for the foreign investment review by any state-owned enterprise from any jurisdiction.
As for our initiatives, well, we will wait and see where the negotiations take us, Paul, but certainly there is a new-found goodwill towards Australia since the change of government by our neighbours in the Asian region, and I had a further chat again with Chatib Basri, who is the Indonesian Finance Minister today, and the last two days and that follows on from discussions I had with him in Indonesia a few weeks ago, they are all very keen to have a new engagement with Australia on a more substantive basis.
PAUL KELLY:
Okay, can I go back to the question, are you prepared to be flexible on the proposed $15 million threshold?
TREASURER:
Well, the $15 million threshold applies to those countries that have not signed the free trade agreement with Australia, and therefore we deal with those cases on a case by case basis. We will see where the negotiations take us, Paul. I'm not going to preempt the outcome of any of the negotiations, but I do want to emphasise that Australia is open for investment and we had need foreign investment. We need foreign investment because Australia cannot fund its own needs. It hasn't been able to fund its own needs since 1788, and we have relied on foreign investment since that time to grow our nation. We are going to continue to rely on that investment, but obviously we need to deal with what is in the national interest. We will leave that to the negotiators at this stage.
PAUL KELLY:
Okay, well following up on that flexibility that you've just demonstrated, can I ask you about the Chinese, the long-standing Chinese request to be given the same concession we grant to the Americans in terms of investments up to the $1 billion threshold before we get FIRB review. Given China is our major trading partner don't we have to offer some sort of concession to the Chinese on that front?
TREASURER:
Paul, you can ask me the question in all sorts of different ways and I admire you for doing that, but I'm not going to preempt the outcome of negotiations. Again, I want to emphasise we need to have foreign investment in Australia, we need to ensure at the same time that we protect our national interest. It's a balancing act and I'm very confident that we will get it right if we are to conclude a free trade negotiation with China.
PAUL KELLY:
Can I just ask you, as a matter of general strategic principle in relation to the FTA with China, is the general approach required from the Australian Government one in which we accept foreign investment from China on the one hand for getting greater access to the Chinese market and greater Australian exports to China on the other hand? Is that essentially the heart of the matter?
TREASURER:
Well, it's a key point, and in my discussions with the Finance Minister of China we were both very frank with each other about the fact that it is important that it had a two-way negotiation and a two-way investment flow. Now, the Secretary of the Treasury here in the United States told me that the United States and China are negotiating an agreement which does presume that foreign investment is good for China, which is quite a significant turn around in the attitude of Beijing. That would be similarly attractive to Australia, and it would provide massive opportunities for Australian businesses in China.
So there are a lot of moving pieces in this machine at the moment and some of them involve looking carefully at the negotiations that other countries are undertaking with China as well.
PETER VAN ONSELEN:
Mr Hockey, before we let you go, I want to ask you about the ongoing entitlements scandal. That is probably too strong a word, but the ongoing issue here in Australia we have got more ministers who have had to pay back entitlements for having attended weddings off the back of various entitlements debates. This has of course captured both sides, but the focus is now on your side of politics now that Tony Abbott is Prime Minister and it's up to him whether a change is made or not.
I want to ask about it in the context of your ending the age of entitlement speech that you gave in the UK, probably the speech you are best known for. If you are to bring the budget under control domestically, you are going to have to tackle things like welfare, overpayments and so forth. This is going to be part of your agenda, no doubt, in the years to come. How can you expect Australians to embrace that kind of serious entitlements reform in the budget that costs millions, when the politicians aren't even prepared, it would seem, to look at adjusting the culture of entitlements that exist in the parliament?
TREASURER:
Well, the starting point is if someone is rorting a system, be it a welfare system or any other system, then they should be held to account. But if someone is being reimbursed for appropriate activity, whether it be as a member of parliament or as an employee of News Limited then that is part of their work, that is part of their responsibility.
Now, I would expect that if I'm doing my job I would have to travel around Australia and overseas. And Peter, if you said to me "Treasurer, you don't have to travel anywhere any more, we just want you to stay in the office." I'd say that's pretty attractive at this moment, but it's not real.
Now journalists expect politicians to travel across the country to go on their shows, where the journalist gets a commercial return. Journalists expect politicians to travel across the country to have lunch or to talk about what is happening.
Politicians have a responsibility as national representatives to travel across the nation. If they are acting inappropriately they should be held to account, but let's not get carried away. There is a responsibility for people to be held to account, but we have also got a responsibility to properly do our job.
PETER VAN ONSELEN:
I don't disagree with any of that. Isn't the point here, though, Mr Hockey that the only way that you are held to account is when journalists go digging and find that there have been what most people in the public would consider inappropriate claims, things to go to weddings, for example, not just weddings of journalists, but weddings of parliamentary colleagues?
TREASURER:
Well, look, if things are in the ordinary course of business, so they are undertaking work for a particular purpose, and as part of being in that town at that time, they attend a wedding, well, you know, or attend any event, that's fine, provided
PETER VAN ONSELEN:
Why are they paying it back, though?
TREASURER:
it isn't charged to the taxpayer. Well, look, I'm not familiar with the individual details of every claim, but what I do say to you, is that if the primary purpose of a trip is to do parliamentary business and it should be properly reimbursed, because that's part of the job. It's not an entitlement. It is actually part of the job. It's for entitlements in another sense, which is the remuneration that goes into people's back pockets, well, that is an entirely different issue.
But if you are being properly reimbursed for the job you do, so be it, whether you be a journalist or you be a member of parliament.
PETER VAN ONSELEN:
All right, Mr Hockey, thanks very much for finding the time to have a detailed chat with us live out of the USA. I appreciate your company on Australian Agenda, thanks very much.
TREASURER:
Thanks very much, thank you.