QUESTION:
So, as you prepare to meet – as you said in your speech – you prepare to meet with your G20 counterparts this weekend, the world is looking quite different from February when you set that two per cent goal. You know, you have economic headwinds in Europe and China, the Ukraine crisis, the conflict in Iraq, the threat from the so-called Islamic State which has prompted Australia not just to raise its own terror alert but to commit military personnel, you said it has made your job harder, do you expect the G20 will stick to the two per cent additional GDP target or do you envisage any softening of language around the growth commitment in the Communique?
TREASURER:
Well, we set a number in Sydney – two per cent. It is the first time I think that there has been a number put on the goal. I wasn’t satisfied that words were going to do the job so you have to be ambitious and we were. In the interim there has been a very large number of policy initiatives delivered to us by countries. We are not too far away from the two per cent; there is still work to be done. We will have a very full discussion about the policy initiatives at the meeting this weekend and then when we go to Brisbane, all will be revealed.
QUESTION:
So, you don’t envisage any softening of…
TREASURER:
No way. You never qualify your ambition, Stephanie. I mean, you would love to run Bloomberg one day, wouldn’t you?
QUESTION:
My boss is here in the audience. So, what in your view is the biggest risk to achieving that growth target though?
TREASURER:
Complacency; that countries default to traditional levers of more fiscal stimulus and you know, more accommodating monetary policy. You know, the impact of those two levers is actually much weaker than it has been previously. So, if fiscal policy isn’t going to deliver and monetary policy is not going to deliver what we need over the medium-term, then it is only through reform, and it has to be hard reform and when you undertake reform as we know in Australia, it is not easy. You get good air cover if you have other countries undertaking the same reform, it makes it a little bit easier to communicate with your own community on the need for reform but complacency is the enemy of economies around the world and none the least Australia. I mean, complacency is our enemy here. If we are complacent, if we just think that iron ore price will just bounce back up, where it presents around a fifth of our national income, if people think that coal will jump back up and it’s automatic that employment will drop back towards four per cent, it won’t happen. If it does, it is a blessing but it won’t happen, you have to earn growth.
QUESTION:
Is there much of a debate around what you have made out in terms of reform? I mean, there are obviously countries that have different priorities; how much of a debate is there behind the scenes at the G20?
TREASURER:
Well, we have regular discussions; Finance Ministers ring each other, Central Bank Governors ring Finance Ministers and we have discussions. I must say, I think everyone is engaged, everyone is engaged. You know, I had a bilateral visit to China recently and the highest levels of the Chinese Government, they are very engaged in the reform program. Right around the world where some structural reform may not be possible, perhaps labour markets or perhaps in competition policy, there is no doubt that our infrastructure initiative is getting some momentum; both the United States and Germany have announced initiatives that facilitate greater involvement of the private sector in the delivery of essential infrastructure. I think over the next decade you are going to see a massive increase in demand for private sector funding of traditional government funded infrastructure and Australia is prepared to take a lead in this area; it is something we have done for a while. I mean, it is probably 200 years since we had our first tollway in Australia actually. Governor Macquarie set up a tollway to Parramatta around 200 years ago so we are no strangers, it is been a part of the development of modern Australia. So, we are very experienced in that regard and we would love the opportunity to share that experience with the rest of the world.
QUESTION:
So, you have obviously spoken of the need for policy makers to put in place the right environment for businesses, basically to drive investment, to drive trade and competition; what is the one key measure that the G20 will come up with to achieve that?
TREASURER:
Well, it has got to be a combination of measures. Ultimately, economic reform doesn’t come down to a single bullet; it covers a whole range of different initiatives and we have also got to be mindful that there are political pressures. I know that will come as a shock to some people in the audience but we still have to carry the communities with us on that reform agenda and in part, in Australia’s case, we thought some of the multilateral trade negotiations were taking a bit too long, we wanted to get on with the job of delivering on our own policy commitment of Australia being open for business so we have fast-tracked the signing of new Free Trade Agreements with Japan and Korea. We are pretty close in relation to China, certainly by the end of the year. We have abolished some of the taxes such as the Carbon and Mining Taxes, we’ve engaged in a credible fiscal consolidation program, we have significantly reduced industry assistance – we can’t keep writing out cheques to business because the end of the age of entitlement starts with business, not just community, and obviously we have got a range of other reforms underway such as competition policy, Financial System Inquiry and we will soon be releasing an innovation paper that will set a new direction in a range of areas. So, that is an example of how you have got to have a multifaceted approach and by the way, we have the biggest infrastructure program in Australian history. In Australia, we talk about the Snowy Mountain Scheme as an iconic project; the Federal Government announced in the Budget - on Budget night, I announced the equivalent of eight new Snowy Mountains Schemes in the next six years. It took two decades to build the original one and we are building, in additional national infrastructure, eight of them over the next six years. So, people have underestimated how big the change is in Australia that is going to drive part of the shift in the economy.
QUESTION:
You mentioned the trade deals that Australia is trying to pursue, how important is breaking down trade barriers to boosting global growth? Will this be an important area of discussion this weekend?
TREASURER:
Well, trade – essentially the T20 – the Trade Ministers equivalent of the G20 has met and I spoke with them the other day in Sydney and they have made some recommendations that go forward to the Leaders but look, trade liberalisation has been the greatest poverty alleviation tool in the history of humanity. It is a great story; it has been an incredible liberator. It has empowered individuals on a scale we have never seen before, particularly empowered women and micro-businesses. Together with new technologies such as obviously the internet, mobile telephony and a range of other things, we now have the tools to be able to compete on a global basis, no matter where the business is located, no matter how large or small it may be. Innovation has never been more empowered than it is today and as a result of all of that, I believe the faster we break down trade barriers the better, particularly for emerging economies and particularly for the most impoverished people in the world.
QUESTION:
One more question on the G20 before we move to questions from the audience: Europe obviously is very important to G20 and global growth outlook, yet some of the main policy makers from the region aren’t going to be here, you know people like George Osborne and Draghi, does that make your job more difficult in Cairns?
TREASURER:
QUESTION:
Why not?
TREASURER:
(Inaudible) Look, I think Mario Draghi’s positions are well known but I think George Osborne obviously has work to do in relation on the Referendum in Scotland. Having said that, Janet Yellen’s – they have got a meeting of the FOMC in the next couple of days and then Janet Yellen’s coming out. I think Jack Lew is here from tomorrow right through to Sunday. I mean, it is a fantastic attendance given that we are meeting again in Washington in three weeks’ time and then meeting again Brisbane in a months’ time – just over a month. This will be the fourth – I mean, the third meeting this year and the third of five and the fact that we have a real and deliverable agenda means people are prepared to make the journey but for relatively unforseen events, it’s almost total attendance which is great.
QUESTION:
I have a question. This first one is reflective of a variety that have come in. Mr Treasurer, there is a concern about the two per cent growth target; there is a belief based on some of the questions that have come in that Australia itself, is facing some fiscal austerity. You said that monetary policy can do what it can, is there an argument to be made that we need a bit more looseness on the fiscal side to meet the two per cent target?
TREASURER:
No, I would reject the suggestion of ‘austerity’, that is a term that does not belong to Australia and we have a reasonable and manageable fiscal consolidation here in Australia. What was most important to us in the Budget was that we have medium and long-term change in the direction of the Budget and over the short to medium-term, the fiscal consolidation is actually probably half the size of that of Paul Keating in the 80s and Peter Costello in the mid-90s and one of the reasons that we didn’t go harder earlier is because frankly, the economy is starting to rebuild some momentum and we want it to maintain that momentum. Now, the best evidence of that working – and I know it has been rather volatile of late – the unemployment numbers of Australia or the employment numbers of Australia have been overall very encouraging. This year we have been creating jobs in the Australian economy at three times the speed of last year and that excludes last months’ 125,000 new jobs which was a rather extraordinary figure. So, you know, we are building momentum in jobs and if you build momentum in job creation, you build confidence and if you build consumer confidence, household consumption starts to improve, particularly in the wake of some geopolitical challenges and then we start to get the transition to occur in the Australian economy, that needs to happen, when you move away from mining production and investment, sorry, mining investment and construction to mining production and don’t forget, mining and resources is just 10 per cent of our economy. So, we need to fire up the other 90 per cent of the Australian economy to deliver the jobs growth and to deliver greater productivity.
QUESTION:
Another common question: to what extent is Australia experiencing a credit-fuelled property bubble?
TREASURER:
Well, I’m not so sure it is credit fuelled; there is a lot of cash going into property at the moment and in some parts of Australia – in Sydney, Melbourne to a lesser degree and Brisbane, you are seeing quite a bit of new foreign investment into new dwellings. That well may continue for some period of time, certainly if the Aussie dollar comes off a bit, it may well increase. Australia fundamentally, doesn’t produce enough housing to meet demand. I mean, it is just an easy mantra for international commentators and for analysts based overseas to say, ‘well there is a bit of a housing bubble emerging in Australia’; that is a rather lazy analysis because fundamentally, we don’t have enough supply to meet demand. That doesn’t suggest that there is a bubble, there might be a price increase of some substance but you would expect the market to react by producing more housing. Now, state governments have got to do some of the heavy lifting here and they vary in their ability to do so but I don’t see at the moment, any substantial risk.
QUESTION:
On reflection, if you had a chance to see things differently, would you have still made the, ‘I find wind farms utterly offensive,’ comments again?
TREASURER:
Yes I would. That was a bit out of left field but you know, I mean, wind farms – renewable energy, is hugely important and it is part of the fabric of the development of diverse energy supply right around the world but we have some beautiful landscapes in Australia and frankly, putting up those towers is just to me, quite appalling in those places. I drive from Sydney to Canberra on Sundays to go to Parliament and I just look at those wind farms around Lake George and I am just appalled at the beautiful landscape that has been ruined and just for the Greenies in the audience, if they built those huge coal fired power stations there, I would be equally appalled. So, it is just an aesthetic view.
QUESTION:
(Inaudible) So, I wanted to ask you about animal spirits. So, the RBA Governor, Glenn Stevens has said that business needs to (inaudible) and basically spend more on investment rather than dividends; do you share his concerns?
TREASURER:
Well yes, ultimately. Look, yields are overall quite low around the world. So, if people aren’t having a go when you’ve got yields at very low levels, when do you have a go? I mean, putting your money in the bank is not going to deliver you necessarily the long-term benefit that you would hope for; now is the time to have a go. We have got a trajectory that involves improving economic growth over the medium-term. You know, I believe the world economy is going to continue to improve growth, with some hiccups along the way. Now is the time to have a go, and particularly given that you have never seen disruptive technologies be so empowered as they are today – in perhaps the history of humanity, I mean, arguably industrial revolution, but I would go beyond that, disruptive technology is more powerful today than ever before. There are so many great stories – particularly in Australia – of innovation simply needing capital in order to become incredibly successful and I think you know, it is not just about businesses unleashing their balance sheets, it is about individuals having a go. That is very much at the forefront of our minds as we develop our innovation policies over the next few weeks.
QUESTION:
So, the strength of the Aussie dollar has been sighted as a reason for why companies are holding back. Obviously it fell below 90 cents – 90 US cents for the first time since March, yesterday, do you think the currency needs to be weaker still to help the economy?
TREASURER:
Stephanie, I get asked this question all the time. It is a mug’s game speculating on currency, seriously, I will leave it to the mugs. I mean, you know, it is what it is, the market is the market is the market and we have just got to manage and there was warnings of deep armageddon if the Aussie dollar remained comparatively, extraordinarily high for a long period of time but we cope, we cope because we are a pretty flexible economy and we are an innovative nation made up of creative people and we cope. It was meant to be the death of manufacturing if it stayed above 85 for an extended period of time; I have been to a number of great manufacturing stories based here in Australia where we are exporting to China like Rode Microphones in Silverwater or Cobram Virgin Oil near Geelong. I mean, these are great stories employing hundreds of people that are now taking great advantage of new market opportunities overseas and they are doing it with an Aussie dollar above 90. So, there are plenty of stories and manufacturing is still a great story in Australia. Now we have got to ramp up the services side of the economy and start exporting more services into our time zone and I think that is something that we need a renewed focus on. So, that is a good way of avoiding the question.
QUESTION:
Very nicely done.
TREASURER:
Thank you Stephanie.
QUESTION:
So, at last year’s Summit – Bloomberg Summit, when you were here as Shadow Treasurer, you said that Australia should extend its yield curve longer-term – 40 year, 50 year bonds and you just said borrowing costs are so low, is this something you are moving to implement now?
TREASURER:
Well, it is something that I haven’t forgotten and yes, it – there is an attractive time to do it. The AOFM has obviously been pushing out its yield curve for a period of time but it hasn’t been at the forefront of my mind in recent times but now you remind me, I will have another think about it.
QUESTION:
So, no immediate plans?
TREASURER:
Well, it is something – as I said – that the AOFM has been doing but quite obviously, now, or in recent times it has been a good opportunity to do so.
QUESTION:
Okay. So, China: obviously an important economy in relation to Australia, we’ve just got more bad news of the state of the economy over the weekend. So, China’s manufacturing has slowed more than anticipated, the property market is slumping, there are signs of credit constraint; what kind of impact will a weaker than expected China economy have on your Budget?
TREASURER:
Well, I don’t share your pessimism to be honest, I don’t. If Beijing says that China will have 7.25 per cent growth, it will have 7.25 per cent growth and if it says that it will have 7 per cent, it will have 7 per cent. Whatever the case may be, I still remain very bullish on China because it has such an enormous capacity to grow because it must. I mean, they have to create 13 million jobs every year. It took Australia 200 years to create 13 million jobs, they have got to do it every year and they have the capacity to do it. Now, obviously the weakened consumer market in Europe is having an impact, America is still growing relatively strongly, even though there was some, you know, contrary news overnight out of the US. Having said that, I remain quite bullish on China, certainly bullish on India and political stability in Indonesia is very important for us and potential growth for us out of Indonesia, and the Asian region more generally, I remain relatively positive about. China is still going through tremendous reform but I think the determination of Beijing to continue that reform and the fact that China has one of the most ambitious plans to be put before us in relation to G20 for policy reform is very encouraging, t is very encouraging. There are some parts of the Chinese bureaucracy that will resist change but I think there is a steely determination at the most senior levels to deliver than change necessary to strengthen the Chinese economy for the medium and long-term.
QUESTION:
Well, yes it is 7 plus per cent growth which is fantastic but you know, it is surely a lower trajectory than what you were anticipating when you laid out the Budget. What kind of adjustments will you have to make? (Inaudible)
TREASURER:
Well, we expected iron ore prices to be higher and coal prices to be higher in our Budget; they have obviously come off a bit but you know, that is the risk of putting together a Budget and you’ve just got to accommodate those sorts of challenges. It is all the more reason why we need to transition the Australian economy and to speed up that transition from mining-construction and investment to the services side of the economy and manufacturing and agriculture. You know, it has been the diversity of the Australian economy that has got us through adversity in the past. I mean, I well remember in the late 90s when seven out of our top 10 trading partners where in recession or depression during the Asian Financial Crisis, Australia had just about the fastest growing economy in the developed world and how did we do it? Well, because we had a diverse economy. You don’t go picking winners as such, because inevitably it is the losers that pick governments when governments pick winners. So, what we have got to do is focus on lifting the tide so all boats rise and in that regard, move away from the stereotypes about the Australian economy but at the same time, focus on strengthening the diversity of the economy. I am quite bullish about the Australian economy. As the world speeds up, we will speed up provided that we continue with our reform program. If we give up on reform in the Australian economy, in areas from competition law to tax reform through to welfare reform and a range of other things, if we give up on that reform, we will ultimately have a lesser quality of life.
QUESTION:
When you look at the world that we live in at the moment, the last couple of years – I think we can all agree has been very uncertain for the global economy; the global financial system. When you look at ahead to 2015, what keeps you awake at night?
TREASURER:
Apart from three kids under nine at home? What keeps me... this is a bit indulgent but I have been giving a lot of thought to the fact that a lot of laws in Australia and a lot of laws governing economies are designed for economies that are effectively closed or partially open. When for example, the competition laws of Australia were passed by the Parliament in their original form – the Trades Practices Act – essentially the market was defined as the borders of Australia, so it was easy to judge competition within those borders. Today, you know, you can buy goods and services all around the world over the internet; the market is no longer defined by our borders – our geopolitical borders, the market is defined by anything you can get over the net or by over the phone. So, if you cannot define the market, how do you define competition policy? Now, I will give you another example: it’s not about changing laws to meet the challenges today, it is about designing laws that accommodate disruptive behaviours and disruptive technologies, not just of today but of tomorrow. Another classic example: a mate of mine came out from the US the other day and he ordered – through Uber – he ordered a car from North Sydney to the City and he told me how it worked, he used his US credit card and he went through Uber in the US and this unsigned car came and picked him up and drove off and as he was driving off I thought well, I am never going to see the GST out of that. I also thought to myself, Uber is not paying company tax in Australia but their disruptive behaviour essentially, is linked to the fact that taxis and hire cars pay license fees to a state government and that license fee is much diminished in value when someone can come and pick up someone. So, government misses out in three different areas: license fees for existing participants in the market, company tax and probably GST. So, where is this taking us? Where is this taking us? How do you design laws where money is more mobile, goods are able to be delivered by drone from Google apparently, and you know, there are disruptive technologies developed every day? So, that is the challenge. That keeps me awake at night because I constantly think what - I can’t imagine, what the world is going to look like in a decade but somehow we have to develop tax laws, competition laws, economic policy around what it could look like and ensure that Australians are more empowered than anyone else in the world to deal with the change that is going to occur.
QUESTION:
Thank you, and on that note, Mr Hockey, thank you for your time. Best of luck at the G20 this weekend. Ladies and gentleman, Mr Joe Hockey.