RAY HADLEY:
Treasurer, good morning.
TREASURER:
Good morning, Ray.
HADLEY:
Now, the GST carve-up. I had a say about this during the introduction. The Prime Minister has indicated in Western Australia that maybe there needs to be a change – and you can correct me if I am wrong – I mean I know it is federal legislation but the whole idea of the GST was no changes could be made unless it came with the consent of all the participants, state and federal.
TREASURER:
Ultimately, that would have to be worked through with all the states and territories. The simple point that the Prime Minister is making is this, no one envisaged that the current way things are done would lead to a situation where Western Australia would just get 30 per cent of the GST that their people paid. So, the system has got to be fair to everyone. That was a pretty egregious result and the simple point he is making is that down the track once the system gets to the point where Western Australia's share gets back to a more normal level than we will have a good yarn about how we can rebalance the system so that no state is ever put in that situation again where they are penalised so heavily. So, it is after those sort of thresholds have been reached which means that no one's share of the GST or what they are currently getting at that point in time would be affected. So, it is a prospective thing. It is down the track. We shouldn't get ahead of ourselves. I think he is making a pretty fair dinkum and obvious point, that the system is not really working the way it should.
HADLEY:
But hasn't your home state been greatly disadvantaged over time?
TREASURER:
Yeah, New South Wales has and in the past I believe Queensland has, Victoria certainly is currently as well. So, it is a matter of putting a floor which says that you can't get the absurd result where a state like Western Australia is basically, you are getting only to keep 30 per cent of the GST its paid. In the last two years in this most recent Budget and the one before we tipped in an extra billion dollars over those two years to ensure that Western Australia didn't fall below what was an effective rate, I think it was around about 37 per cent. That is still pretty crook. So, we are trying to be fair to everyone but also do it over time so you don't get the situation where you have got the robbing Peter to pay Paul type result. So, listeners in other states, particularly in Queensland, or those who might here these comments today down in South Australia or Tasmania, the Prime Minister is saying down the track, once the system gets back to a sort of a normal transmission phase, it is an opportune time to have a look at it so we don't get those sort of perverse results again.
HADLEY:
But you are never going to get the states who are at that particular point in time advantaged, voting for a change, even if they have been disadvantaged in the past if you know what I mean.
TREASURER:
I think that is why, Ray...
HADLEY:
It's a short term view because those premiers might not be there the next time.
TREASURER:
Well, you have got to wait until you get the system back in a position where it is more balanced and so therefore you are not engaging those sorts of discussions where you are not changing anything to what people are then currently getting and you wait for the system to correct itself and then you have what is then an overdue conversation about how you can make sure it is fair to everyone and you don't get these sorts of perverse result.
HADLEY:
This Ausgrid non-event now in New South Wales over electricity assets – the 99-year lease. I am looking for some guidance here. State Grid, the company involved, that you said we had some security concerns – I am paraphrasing what you said – they actually control assets in two other states – South Australia and Victoria. So, if they can't control assets in New South Wales, what checks and balances do we have in place to make sure that your concerns aren't baring fruit in the southern States?
TREASURER:
Well, just before you have bought an apple, doesn't mean you can buy an orange and that is what this is really about…
HADLEY:
But if there is a worm in the apple and there might be a worm in the orange, don't we have a problem?
TREASURER:
Well, I wouldn't say that that is the case and our metaphors are going to get pretty mixed pretty quick…
HADLEY:
Well, I was seizing on yours.
TREASURER:
Yeah, sure, but my point is this, the Ausgrid asset and the way it operates and the sensitivities around it are different to what has been with other assets and so you have to look at these decisions one at a time.
HADLEY:
How are they different?
TREASURER:
Well, Ray, as I said the other day at the press conference the national security issues that arise in relation to the Ausgrid asset are different to the other ones and I am not at liberty to disclose what they are for obvious reasons.
HADLEY:
But you didn't get a chance to knock the other two on the head did you, really? I am not talking about you personally but the Government didn't get a chance…
TREASURER:
Well, they went through their processes at an earlier phase and…
HADLEY:
Yeah the state determined and not the Federal…
TREASURER:
But there would have been requests made at that time from defence and ASIO and other important national security agencies to look at these issues. So, I think that is important. But when there are state owned enterprises that are involved for a state piece of infrastructure, well, FIRB does get involved and I changed the rules after the Port of Darwin decision that meant that even when there are private investors looking to invest in state owned assets in Australia that that also, if it is above the thresholds, should also come before FIRB. So, that was one of the first things I did when I became Treasurer.
HADLEY:
So, I mentioned the other day that Darwin decision was taken basically by the Northern Territory Government.
TREASURER:
Correct.
HADLEY:
It is right to say that the Federal Government played no role and couldn't play any role?
TREASURER:
Well, we had no right of veto or FIRB approval or Treasurer's decision…
HADLEY:
And now you would have?
TREASURER:
Well, it depends on the value of the asset but in that case I understood that would have come forward given the value of the asset. So, there are different thresholds for private investors and state owned enterprise investors. The point about foreign investors is this Ray - it all depends on the transaction and it depends on the asset and you can't just draw linear lines between one asset and another and say because you have done this it means you can do that. The other really important issue we look at every single time is that there is an aggregation issue. So, it may be ok to own some, one or two, but not three and you have got to weigh that up as well.
HADLEY:
So, the fact they already own State Grid, assets or control assets – not own, control assets in Victoria and South Australia you would rather them not have the whole East Coast covered?
TREASURER:
Well it wasn't a case in this circumstance but that doesn't mean it couldn't be a case in future circumstances. So, my point is Ray and what I want to reassure Australians about is we look at these things to the nth degree on every occasion. When we are saying it is a national security concern we mean it. That for me is paramount. I don't trade in national security whether it be with other advocates or as part of any deal – never, ever. If it is against the national security interests of the country, in the way a transaction is also structured, I mean the New South Wales Government and other bidders are at liberty to go away and come back to us with different forms of transactions or ownership or things like that and then we will look at it again. What they put to us, for that particular asset, my preliminary decision was that was a national security concern that couldn't be addressed any other way.
HADLEY:
You say preliminary, can you change that decision?
TREASURER:
Well, that is the process. It is the natural justice process where you have to give them a decision and then you give them a period of time to respond. That is the way the rules work and so the ball is very much in their court. What I want to stress is, it was about the specific proposal put to us for that asset and we formed the view that we did based on the best national security advice I have available to me and whether it is the Australian Signals Directorate or any other national security agency I would not be doing my job if I didn't act in accordance with what their advice was.
HADLEY:
Do we already have measures in place, such as restriction on citizenship for directors along with security clearances for technical people within these power assets when foreign buyers come in?
TREASURER:
Yes.
HADLEY:
So, even allowing for that?
TREASURER:
Yes, that wasn't enough. On the TransGrid sale Ray, I applied the toughest restrictions around board control. I mean this went down to guaranteeing the Australian citizenship of directors appearing at a quorum for a meeting. So, not just the overall board but a quorum for a meeting. So, these were the toughest sanctions ever put in place for TransGrid and other like transactions and even that was not enough in our view to mitigate the real risk we had on this sale.
HADLEY:
But State Grid was allowed to big for the sale of TransGrid. They didn't win but they were allowed to participate, had they won they would have been obviously in a position of controlling TransGrid as opposed to not controlling Ausgrid.
TREASURER:
Well, they are different assets, Ray.
HADLEY:
Ok, but the same company?
TREASURER:
Well, this decision was about, not so much the companies as it was about the transaction. I said also it was not country specific, either. So, you know, we made the call based on the actual transaction and the national security risk that was present. Unless that can be mitigated, which it certainly couldn't by what was put to us, well the answer was a no subject to going through the process where they come back to us within seven days.
HADLEY:
Have you spoken to Mike Baird in light of your decision?
TREASURER:
The Prime Minister has and I have obviously had ongoing discussions with Gladys Berejiklian, yeah.
HADLEY:
Ah, the Treasurer. They seem fairly upbeat about it saying look, it doesn't put any of our infrastructure at risk despite needing $10 billion to complete that infrastructure.
TREASURER:
Well, the New South Wales Treasurer, Gladys Berejiklian did not put that asset sale in her Budget this year. So, that is not part of her figures.
HADLEY:
It's pretty smart of her not to do that.
TREASURER:
Well, she does a great job Gladys. She's pretty cluey.
HADLEY:
Did she have a bit of mail did she?
TREASURER:
No, that was some weeks ago. So, look, Gladys was very prudent in the way she has accounted for this. They are continuing to work the issue and their sales program proceeds and they are working on the issues that are before them.
HADLEY:
I need a short answer to this one. It is a long question but I need a short answer.
TREASURER:
Ok.
HADLEY:
So, I discussed this and I have no knowledge of the valid reason why this happened – and it is not your decision – but in the 1990s we owned the Commonwealth Bank. We decided to sell it. So, in '91, '92 Labor Government starts to move but every Government is the same, there is bipartisan support for selling assets and getting government out of business so to speak. So, it has a capitalisation of $5.3 billion back then. Last week, under private ownership, they announced a profit of $9.45 billion and it is capitalised at $134 billion. Now, wouldn't that money be handy? I am not suggesting you could run the bank, as a Government, as well as private enterprise people.
TREASURER:
That's a good call.
HADLEY:
I am not suggesting, you probably put a lot of pens out there that they put chains on. You know because you are very generous, governments. But just as a layman I don't understand why every government wants to sell an asset that eventually could be worth a lot more money than what they sold it for 25 years ago.
TREASURER:
Well, there are a range of issues there. One is what are governments there to do? Are they there to run private businesses or are they there to provide services to the Australian public. That is always a threshold issue on these sorts of things. Then the question is who is better to run these things. If we think a bunch of public servants would be best running a bank, well, it's not a view I share. Or running an airline for that matter – not a view I share. I think they tend to do these things better and I suppose the performance you have just outlined underscores that fact. They have run a very successful operation.
HADLEY:
Not even the Rudd Government could have buggered it up to the extent that it couldn't be worth $50 billion or $75 billion. The other point is, you talk about, public servants running it, a bloke I have had pot shots recently at Dominic Perrottet because of his lackey like devotion to Mike Baird, to give him credit, he was put in charge of this new Services New South Wales. Where you now don't go to the RTA you go to this services place for your birth certificate – a one stop shop. And he has actually got a board of really in tune businessmen and women running that and it is up there in terms of what we need to do in government I would think.
TREASURER:
Well, look, New South Wales, and Western Australia for that matter, have some really innovative ways of delivering public services. All states and territories and the Commonwealth have to continue to do all of that better. One of the things I did when I first became Treasurer was picked up the Harper Report. What that was saying, Professor Harper who is now on the Reserve Bank Board, he was saying we have got to look at new and better and more innovative ways of delivering public services all around the country because a, that will be really good for the economy more broadly and b, it will mean that people will get better services and the consumer wins. So, we are all for that but when it comes to these large institutions, I mean, our banking and financial system is central to how the economy operates and if that isn't performing at maximum efficiency well peoples jobs are at risk.
HADLEY:
They are performing at maximum efficiency based on their obscene profits. I know their shareholders are entitled to a break. Many of those, of course, are self-funded retirees who are entitled to all of that.
TREASURER:
That is right, who receive the dividends from the very outcomes that Ian Narev announced the other day. So, banks have shareholders, who are Australians, who benefit from their work but they also have borrowers and they also have depositors and you have to balance all those things up.
HADLEY:
But as a Treasurer you would love to have a $9.45 billion guaranteed every year, wouldn't you?
TREASURER:
Well, they pay tax on their earnings as well, on their profits. So, on their profits they are one of the biggest taxpayers in the country – all of them are. So, there are swings and roundabouts in all of this. But foreign investment more broadly, Ray, there is $180 billion of foreign investment into the country a year. Now, that is important to support jobs in the country. I know there have been some concerns around foreign investment lately and particularly in relation to Chinese ownership. Only half of one per cent of all agricultural land is currently held as we understand, I am advised, by Chinese interests. Of our total foreign investment in Australia, that is the total stock of it of which there is over $3 trillion 2.5 per cent of that is Chinse. So, that is 1/10th of what the United States holds in Australia.
HADLEY:
So, the Americans are the biggest?
TREASURER:
The Americans and the Brits remain our overwhelmingly biggest holders of investments in Australia. So, I know there are some sensitivities to all of this, Ray. There is and I understand them…
HADLEY:
Just give me that again 2.5 per cent of $3 trillion you said – didn't you?
TREASURER:
That's right.
HADLEY:
Ok, so the other 97.5 per cent is held by?
TREASURER:
Well, by others but the biggest group of that are the Americans and the Brits.
HADLEY:
Ok.
TREASURER:
There was the Carlton Hill Station which I knew had got quite a bit of attention in the previous program last week. I mean the Carlton Hill group of properties which was put to sale, was actually ultimately owned by a UK based company when it was sold. And the other point I would make about foreign investment, Ray, is the process. The way that foreign investment decisions are made is that they are, under the legislation, they have never gone to Cabinet under any Treasurer. That is not the Treasurer's decision, that is what the legislation states. Just like the Immigration Minister has particular powers to make decisions, or the Environment Minister has particular powers, the Treasurer has to make ultimately those decisions, or the Assistant Minister to the Treasurer. Now, FIRB, the Foreign Investment Review Board, take the application, they assess it, they get advice from all the relevant agencies and they make a recommendation to Ministers about whether an application should be approved or not approved. Now, on highly sensitive ones like Ausgrid and things like that, Kidman and so on, I will obviously consult with colleagues and do so. But that is the process. That has always been the process under every Treasurer under the Act as it currently stands and that process is designed to ensure that the Treasurer takes that advice particularly on national security. That is why I put David Irvine, the former head of ASIS and ASIO, on FIRB to deal with these emerging national security issues.
HADLEY:
But even allowing for the Foreign Investment Review Board, at the end of the day it is a captain's call, or a Treasurer's call.
TREASURER:
I am ultimately accountable for all of those decisions. But you know, I am used to making difficult decisions.
HADLEY:
Well, I am sure Alan will look forward to talking to you when he comes back from Rio on those and other decisions.
TREASURER:
Sure.
HADLEY:
Ok, thanks very much I will talk to you next week.
TREASURER:
Thanks Ray.