TREASURER:
Morning everyone. The most significant challenge facing the Australian economy today is our transition from the investment phase of the mining boom to a new economy with strong growth, a more diversified economy that's tapped into the opportunities of the future. This is the single-mined focus of the Turnbull Government's economic plan and strategy. Today, what I'm announcing is that responses to a report from the council of financial regulators review of competition in clearing Australian cash equities.
Investing in these changes follows on from the Murray Review [Financial System Inquiry] recommendations which we responded to last October and you will remember that at that time we made responses in relation to credit card surcharges and interchange fees, choices in superannuation and a range of other issues. One of the recommendations that related to that was these issues in regarding the clearing of Australian cash equities and competition in the sector. Effective competition is fundamental to our new economy and that is why we are absolutely committed to effective competition law reform.
Today, I announce a reform package that opens the door for competition and the clearing of cash equities. At the moment the ASX is the sole provider of clearing and settlement services for shares. The reform package I announce today will mean that should a competitor to the ASX emerge, there will be arrangements in place for safe and effective competition, allowing for a transition to competition over a period of around 18 months. The reform package acts on the recommendations of the Council of Financial Regulators and I am also releasing today their report.
Adopting a stance that's open to competition will bring the benefits of competitive discipline to the clearing and settlement market. This stance is also consistent with the existing legislative footing in the Corporations Act which we will supplement with new measures for safe and effective competition. Given the nature of the clearing and settlement market, a competitor in this market may never emerge or at least not for some time so we need to ensure that there are also appropriate measures in place to deal with a market serviced by a sole provider. For this reason the Government will work with the Council of Financial Regulators on a set of regulatory expectations for standards for the ASX until a competitor emerges. Another measure from the package will give the ACCC power to arbitrate disputes about the terms of access to ASX's monopoly cash equity clearing and settlement services.
I am also announcing today the Government's response to recommendation 44 of the Financial System Inquiry, the Murray Review, which deals with ownership restrictions on the ASX. The Financial System Inquiry made a recommendation on relaxing ownership restrictions on the ASX, in response to that recommendation the Government will amend the ASX ownership restrictions in the Corporations Act to make them consistent with other financial sector companies like banks and insurance companies. This is appropriate. This amendment ensures an appropriate limit on ownership concentration remains in place at 15 per cent but the Treasurer may approve a higher shareholding if it is in the national interest. This will make capital raising more flexible for the ASX which is a fair outcome in light of the advent of a more competitive environment.
I want to express the Government's strong support also for the ASX's engagement with new technologies, in particular their work on a distributor ledger and blockchain more broadly. This is exactly the kind of innovation the Government wants to foster by backing Australian FinTech and I made some announcements about that recently. We'll work with the ASX to promote innovation and clearing and settlement of cash equities and at the same time identifying any regulatory barriers and making sure advances in technology don't preclude competition. We need to be at the leading edge of this, we don't need to be a follower, we need to be a leader in this area and I commend the ASX on the work that they're doing in this area to make sure that our markets are the most competitive and the most forward looking in the world.
The ASX's willingness to invest in and trial new technologies is strongly supported by the Government and is entirely consistent with our FinTech agenda. We want to ensure that the Australian financial markets are world leading when it comes to technology and innovation and we want to ensure that the Government is getting out of the way by reducing red tape to ensure this occurs. We look forward to a more innovative and competitive future for Australia's financial markets and economic infrastructure.
Also, I note today that I will be meeting with the Indian Finance Minister Arun Jaitley and we'll be engaging in further discussions around our bilateral relationship and it will be a good opportunity to compare notes on our two transforming and transitioning economies and I look forward to those discussions later today.
Happy to take questions.
QUESTION:
Mr Morrison, can I ask about the proposal that is on the table not about allowing States…
TREASURER:
I'm happy to go over other issues of the day but given today I'm announcing some pretty significant and substantial changes in the area of the ASX, we might deal with those matters first. I'm happy to come back to the other issues.
QUESTION:
These changes you've announced today, will they change the potential [inaudible] between the ASX and Singapore stock exchange as it was promoted a few years ago do you think? Would you be more open – would the Government be more open for a tie up between the ASX and a foreign exchange given what you've just said?
TREASURER:
What still is required under these arrangements is an ultimate approval authority that sits with the Treasurer and tests of the national interest. So, there's no change to that. What this does is two things. Firstly, it does provide the opportunity for this area to be opened up to competition and that is very important but secondly, it's practical. It realises that a likely competitor in this space is not expected to emerge, certainly in the near term, and that means that we will be working and continue to work, potentially for a long time, with a monopoly operator. So we, at the same time, are putting in place, as was recommended by the CFR, a set of minimum standards and conditions that will better emulate a more competitive market in this area. The other thing it does is, as I said in my concluding remarks, the ASX is working on its blockchain technology and investing in it. It is not a theory that they're going to investigate this, they are actually putting in some serious sweat to this task and this, we think is a good development and the next 18 months I think gives them a lot of room to be able to go and explore this and try and make it a reality. It's important that they get that time and space to do that and the announcements we've made today I think give them that opportunity while at the same time we've set the clock running on this as well. It's not open ended and there is an opportunity for them to move forward and get this done.
QUESTION:
Technically, say for example a bank or another financial institution [inaudible] were to turn up and if it was deemed to be in the national interest you're saying they could take their shareholders beyond 15 per cent. Could it be conceivable for the ASX to be taken over by say another local company if it was deemed to be in the national interest?
TREASURER:
The national interest test is the obvious critical point here so I don't think you can make assumptions about what the outcome would be in these circumstances. You've got to look at every case on its merits and its impact more broadly. We're also saying here that there's an 18-month period where we wouldn't be contemplating anything of that nature. At least, I should stress.
QUESTION:
What would you say to investors who are nervous about the competitors to the stock exchange?
TREASURER:
I think you've just got to look at what the realities of the markets are. I think people understand what the reality is at the moment and the likelihood of that emerging. It is not likely at this point in time. What's important right now is that we ensure that our arrangements here are as tight as they can be, that I think provide the potential for competition and keep the tension in the cord with the ASX in operating in a light competitive environment. So, I think these reforms actually tick all of those boxes. I want to thank the CFR for the work they've done on this. There's obviously been a passage of time in getting to this point and I think that has enabled the ASX and others to fully brief the CFR and others on the work they're really doing on the distributive ledger.
QUESTION:
Can I ask now about States raising taxes?
TREASURER:
Sure. You were busting.
QUESTION:
Is it a proposal that's being actively considered? Mr Shepherd was out yesterday spruiking it. So, is this something you guys are considering, essentially allowing states to raise their own taxes for funding shortfalls in education and hospitals?
TREASURER:
There are two certainties – at least two certainties in politics. One is the feverish speculation that precedes a Budget, the other one is the feverish speculation that precedes a COAG meeting and the traditional goings-on that you see and this time is no different. I should stress that late last year, in fact in this very building, the State Treasurers met and at that meeting a communique was released and it says, "the Treasurers agree to continue discussions around a more sustainable and growth enhancing tax mix and tax base. The Commonwealth will continue to engage on the basis that these reforms" - and this is the key part – "do not increase the overall tax burden." Now, last year, particularly in response to what was raised by South Australia when they raised issues around income tax, GST, there was lot of issues being discussed at that time and so states were raising issues about the sustainability of their revenue base and what opportunities there were to explore access to other revenue bases from the Commonwealth. So, this has been an ongoing dialogue. I don't think there's anything terribly surprising about that. You would expect the Commonwealth and the States to work together to try and solve problems and the problems we need to fix are these: you've got in what's called the vertical fiscal imbalance, you have a situation where you have one level of government which is running programs and controlling or not controlling costs and you've got another level of government which is increasingly having to foot the bill. It is a very good business practice that those who fund something are also the same people who control the cost of how it's being delivered. Ask any health insurance provider and they'll tell you about the wisdom of that. The problem we need to fix is the answer every time population grows or there are developments in medical technology and things like this, the answer is not always, 'here's some more cash,' the answer is to sit down and work out how can we better control and manage the increasing cost burden in this area? That has to be a partnership and so that's the problem that we're trying to address. Others will get terribly interested in this tax or that tax or this level of funding or that level of funding or this model or that model but let's think about what the problem is. The problem is that you've got to try and fund what you can control and you've got to have a better understanding and a better set of cooperative arrangements that ensures that those who are controlling what something costs have some accountability for how you pay for it.
QUESTION:
So, you are giving power to the states. Is that what you want to do? Is that the ultimate game here?
TREASURER:
That is quite a leap from what I just said. I think what I said is quite plain – there has to be greater accountability for how we all spend public money.
QUESTION:
Do you believe this is gaining momentum with the state treasurers since the GST increase was taken off the table which therefore limited their ability to raise additional revenue?
TREASURER:
Well, Ross, I think it was happening concurrently because there were two issues being raised there. Much had been made of my comments about funding the states in this area. What was put to me last year was that we should increase the GST to give the states a bag of cash to spend more money and I said no, as did the Prime Minister. That was the context of my comments in that area. That was not what I call tax reform, that was just a tax increase which seems to be very popular amongst some commentators and other report writers at the moment that apparently you walk into the supermarket of taxes and you just take everything off the shelf and that's how you balance a Budget. That's not how this Government plans to deal with the issues in the Budget. You've got to deal with expenditure which I've said consistently since coming to this role and certainly as my predecessors Mr Hockey and indeed Mr Abbott as Prime Minister were seeking to address as well. I think that's the great consistency of this Coalition Government, we have always believed, and continue to believe, that the way with you address the Budget challenge going forward is to get expenditure under control.
QUESTION:
When this proposal came up in 2014, Tony Abbott said, "I don't think anyone wants to see double taxation. Speaking for myself, I want to see lower, fairer, simpler taxes over time." He ruled it out in 2014. Are you bringing it back?
TREASURER:
All we're doing is trying to solve a problem with the states and territories about how you best sustainably and affordably fund important services. That's what the Australian people are interested in. They want to know how the states, and the territories and the Commonwealth are going to work together to deal with these problems. So, we are focused on fixing the problem. Now, we said very clearly at the end of last year that this is not a government that has any interest in lifting the tax burden on Australians. States have expressed great interest in trying to have greater autonomy about how they spend their own budgets so these are all the issues that have to be worked through. It is an adult conversation, it's one we've been engaged with for some period of time but we've got to remember what it's about. It is about trying to fix the problem and the problem is that you've got to be able to manage your increase in costs and how you're going to pay for them. You can't pay for something with nothing. The fact that people want more spending on a particular area is not an argument for it. You've got to be able to fund how you meet those needs and you have got to be able to control better the future costs that fall on the taxpayer at the end of the day, whether it's the state taxpayer or the Federal taxpayer. The money doesn't fall from the sky. States understand that I believe, the Commonwealth certainly understands that and I think they're the very genuine issues we'll discuss on Friday as we focus on trying to fix the problem.
QUESTION:
Treasurer, going to the core of your belief about taxation though, Tony Shepherd is pushing the idea of competitive federalism, the idea that the states should compete, including on taxes, to try to attract investment and try to get the most competitive mix. Do you agree with that as a concept that the states are the best equipped to be competing amongst themselves, having different taxation rates for income tax in say New South Wales versus Queensland, in order to attract people for example?
TREASURER:
I'm a pragmatist on all of these issues and a pragmatist always focuses on solving the problems and if those sorts of remedies lead to a solving of the problem then of course you're going to consider them earnestly. We have states and territories. That's a fact of the Constitution. There is, as my colleague Christian Porter says, there is as certain as the mountains in Switzerland. They will always be there so we need to ensure that we have a system that best delivers services at an affordable and sustainable cost which the taxpayer can bear without swamping the Budget. So, you look practically at these issues. Now, that's what we'll continue to do on Friday, that's what we were doing last year, that's what we've done as a Cabinet every single time we've met, is to try and focus on addressing the problems that need to be fixed to ensure that we continue our successful transition as an economy to a stronger new economy, one that's more diversified. We are sitting in one of the highest-growth regions, if not the highest growth region in the world. That is our advantage, that is our opportunity – we intend to seize it.
QUESTION:
It is fair to say that you are considering state raised income taxes as a serious consideration?
TREASURER:
It is fair to say we're meeting with the states and territories on Friday. That's what it's fair to say and we will continue to sit down and work through how we fix these big problems.
QUESTION:
How would you feel about being the first Treasurer in 75 years to cede income taxing powers to the states?
TREASURER:
Well again, everyone is leaping ahead in a fit to fill copy. That's not my job. My job and the Prime Minister's job is to work with the states and territories to solve important problems and that's what we're doing.
QUESTION:
Can I get your response to Tuesday's CEDA report? Can the Budget be balanced faster than 2019 and do you think a balanced Budget has fallen off, been downgraded by politics as CEDA says?
TREASURER:
The CEDA report wants to raise taxes on Australian by $15 billion a year and you don't tax your way to a surplus. That's certainly not the Government's view. We don't tax our way to a surplus. You get to a position of balance in the Budget I think by the responsible way and that is by getting expenditure under control and ensuring you're doing the things that help grow the economy which in turn produces revenues. That is what we have said consistently. It remains our view, it will be our view that that is the way you restore the Budget to balance. You don't go down to the tax supermarket and take every tax off the shelf and put it up as a way of managing the economy. That may be the way that the Labor Party plan to do it and I continue to see that their tax and spend model is what they think is the plan for going forward but I tell you tax and spend is not a plan for growth. It's not a plan for a transitioning economy. We are at a very critical and sensitive time in the transitioning of our economy and we are doing extremely well. Real growth at 3 per cent last year, around 300,000 jobs. Youth unemployment today lower than it was at the last election. We are in a part of the world that gives us great opportunity and you don't go and squash that opportunity and the jobs that come from it by thinking that you can just tax your way out of this situation. That will retard growth. That will slow growth, it will cost jobs. So, we are taking, I think, the patient, determined approach of ensuring that we restore the Budget to balance by getting expenditure under control and growing the economy by supporting innovation, by supporting efficient infrastructure investment with better cities, stronger regions. These are the sorts of changes and reforms that we're focused on and we'll obviously have a lot more to say about that in the Budget. But I look forward to catching up with my state and territory treasurer colleagues over the next few days and on Thursday night and Friday and then joining with the Prime Minister on Friday to again sit down and focus on fixing problems. That's what the Australian people expect us to do – not to engage in a running commentary.
Thanks very much.