QUESTION:
Thank you Chris and thank you Treasurer for your kind words about CCI and the state, and welcome back to WA. A year ago, we sat here on the stage, CCI event, talking about the GST and how it was broken and needed to change. Now we’re sitting here, and you propose a pretty radical overhaul. We were hoping the Governor, Kim Beazley, would be here but I think he’s busy, you know, getting your certificate as an honorary Western Australian ready. So let’s talk a little bit more about that, how will your, your change is quite a big overhaul as you’ve highlighted, there’ll be 4.7 billion more into the [inaudible] through the GST. How do you think that will change politics here in the state?
TREASURER:
Well look I hope that it keeps the focus now on making Western Australia bigger in terms of its economy, and making the national economy bigger. We’re coming up to an election next year, and it’s actually going to be an election about one of the oldest arguments there is in economics, and I’d argue in politics too which is what you do about making the pie bigger or about how you carve it up. And in my experience, the more time you spend of your energy and effort about how you carve it up, the pie just gets smaller and smaller and smaller. And we’re about a bigger pie. And I would hope that what this does is removes what has been a genuine and legitimate distributional issue, being resolved, and we can get back to doing what I think Australians do best, and I have no doubt Western Australians do best, and that is going out and being entrepreneurial, seeking opportunities, seeing them realised, creating jobs, building wealth for a stronger Western Australian and a stronger Australia. That’s what I hope, that we can just tick this box, because it needed to be ticked, it needed to be done, it has been done. I don’t particularly want to have an argument with other states and territories about this or with Bill Shorten about this. I don’t know what Bill’s position is on this by the way, but I hope he just supports it and we just move on.
QUESTION:
So Bill Shorten suggested on the weekend, and as you say his position is not entirely clear just yet, but he did suggest that some parts of it might need to be legislated, or that they propose that it should be legislated. I mean, what impact would that have and why would you go down that path or why not?
TREASURER:
Well look, I don’t know why Bill wants to pick a fight over everything. We don’t have to fight about this. I mean, we have intergovernmental agreements with all states and territories all the time with everything from hospitals to schools to infrastructure and they work well. This is the same thing. There is nothing particular that suggested this as opposed to those other arrangements that require legislation, I mean that’s a matter that states and territories are welcome to discuss with me together. I’m open to doing that, but equally, it’s more important to get it done. And it can be done. I mean, this can just be done. We don’t have to put in the endless debates in the Senate and I have no doubt Mathias would steward it very adroitly through it, but whether we want that whole environment to be then overlaid against what is a very practical solution. I think step one is let’s just get the states and territories all on board. As you know, technically that’s not even required but I think it’s the better way to go to give this some permanency through an intergovernmental agreement and woe betide any treasurer in the future that doesn’t stand by that.
QUESTION:
Is it right to say that whether the states agree or not, and hopefully they do agree, you’re able to write to the Commonwealth Grants Commission and change the system yourself?
TREASURER:
Well that has always been the case but I think this is the better way to do it, and that’s the course I’m [inaudible].
QUESTION:
Ok, and so, let’s assume the system is changed…
TREASURER:
It leaves it totally then arbitrarily at the whim of any future Treasurer, not that I’m looking for there to be a future Treasurer, but it’s important I think for certainty and I’ve got to say that’s as important for Tasmania as it is for Western Australia, and I think an intergovernmental agreement achieves that. There’s no need for someone to try to pick an arbitrary difference on this just to go and have a political fight over it. We’ve had enough political fights about the GST. I’m sure Western Australians are over it, and there’s no need, I think, to inflict that agony on the rest of the country. Let’s just agree it and let’s just get on with it.
QUESTION:
Very good. So, we talked a bit about how the benchmark will now be New South Wales or Victoria, whichever is higher, and that is to avoid fluctuations, or wide fluctuations in the system should we go through another boom. What will happen in the future if those states, like WA, go through another resources boom?
TREASURER:
Well it won’t go to the fiscally highest state and it won’t overturn the formula. I mean, what happened during the mining boom is that the amount of churn in the GST redistribution went to historically high levels. Look, I promise you I’m not going to bore you with how it works because it is incredibly tedious but effectively about ten to fifteen per cent of the GST revenue collected when things were running along on their normal course would be redistributed around the other states and territories, to balance it out on the formula. At the peak of the mining investment boom that went to 70 per cent, so the churn factor had just gone off the chart. And that won’t happen again because it all leads off what the benchmark state is, and when Western Australia was the benchmark, not New South Wales or Victoria, the whole thing went haywire. So that was the key thing that had to be protected against, when you looked at it from a technical design point of view, you had to insulate it from the vulnerability of any state that was not at, what I’d call a critical mass, to basically overturn how the whole system worked, you had to inoculate the system against that. So Western Australia if that were to occur again, well they’d be able to go on their merry way. I suspect their relativity would start heading back towards about 75 again, but I’d be surprised if it actually threatened the pool.
QUESTION:
So the number one question I have here on ‘slido’, and to the audience, please continue to put your questions in as they come through. The number one question in here is gambling is a huge impost on social services, why isn’t the revenue from this included in the calculation of GST?
TREASURER:
Well, the gambling issue was dealt with I think back in 2012. And there was a problem with how it was dealt with back then, and the formula or rather the metrics would change to ensure a consistent pattern across the whole country. So Western Australia is not advantaged or disadvantaged. Now one of the things in the Productivity Commission’s report that didn’t get a lot of attention because it was more focused on the ultimate recommendation was their very, I think, very useful suggestions that we’ve agreed in principle, that we should be moving towards more broad based indicators. There is a false level of precision in how the GST works. And, you know, people going down to sort of six, seven decimal places and the world just doesn’t work like that with this sort of data. And it is important to simplify how it’s done, to move it back to some more broad based indicators and I think what you’ll see from that is these sorts of concerns being largely addressed through that process.
QUESTION:
There are other things to talk about than the world of GST, surprisingly in WA though. So let’s move on to the national economy and how that’s looking. So, maybe if we start with interest rates they’ve been at historic lows for a couple of years. How do you see them playing out? And not to ask you to play any guessing games but what impact would that have on the national economy if they did start to pick up?
TREASURER:
Well, I can only refer you to what Dr Lowe has said himself, and he’s been saying for some time that obviously the next movement, like everywhere else in the world, will be up not down. But, they’re in no great hurry on that front and not feeling from their own public statements under any pressure on that front. So I’m not saying anything there that’s not something that Dr Lowe himself hasn’t said, and I’m only quoting him, not offering my own view of that, that wouldn’t be appropriate.
When it comes to rates though, I think it’s important, one of the most important things that has happened, it’s been less so relevant here in Western Australia but very relevant on the east coast, the heat in the housing markets in Sydney and Melbourne were causing some real difficulty. We had double digit dwelling price growth there. We had interest-only loans as a percentage of new loans well up over 40 per cent, at one stage they ticked close to 50. 80 per cent of household debt is mortgage debt and the level of household debt in Australia is, you know, is at high levels. So the Government through APRA took some action and that was to restrict access to interest-only loans, there was also credit spread limit put on new investor credit. And that has had the desired effect of bringing both of those, Sydney and Melbourne, house markets back to more normal transmission. Now, why do I mention that? Well, because not that it’s the RBA’s charter to manage house price growth, and it’s not their charter, but there was enormous amount of pressure being built up in the system about where rates were set and how that was perceived to be fuelling that investor credit and that investor purchasing in those markets, that was driving those prices up. We’re able to achieve that through macro-prudential measures through APRA, which mean that pressure came out of the system. So where there was arguably a pressure on the cash rate as a result of those developments, I think those pressures have now been largely extinguished and those markets have moved back to more, sort of, modest growth levels and not being driven so much by investor sentiment but the fundamentals of supply and demand.
The other thing to bear in mind I think on credit, is that on mortgages there’s about two and half years of buffer on household mortgages through offset accounts and things of that nature, so what people largely did was as rates fell they just kept paying at the same rate and they built up buffers on their mortgages. So the system currently is quite resilient to any potential move in that space and other members of the bank have made the same point. So I’d say that, look it all seems pretty normal transmission at the moment and no one moving anywhere any time soon. But have confidence that if they were making that choice the reason they’d be doing it is because we’d be seeing inflation back in the target range, we’d be seeing employment down at around, you know, heading towards the natural, the full employment rate around 5 and we’d be seeing wage growth well up above where it is today. So there would be other factors in the economy which I think would more, more than overwhelm the impact of any rate rise.
QUESTION:
You’ve, the Government’s, made the case that making the company tax rate more competitive will drive investment and therefore lead to job creation, further job creation and then help wages. Do you expect to take the company tax legislation to the Senate next sitting?
TREASURER:
Yes, and I expect us to pass it.
QUESTION:
Very good. You don’t see any hurdles?
TREASURER:
I see plenty of hurdles. We’ve got a pretty good hurdle jumper over here! It’s the right thing. And I think as the argument has gone on, and Mathias has been an absolute mainstay of our effort on this. Australia needs more competitive tax rates. To not do so would be a massive own goal on our economy. The reason we’re doing better than most economies, in fact at 3.1 per cent that takes us up above every G7 economy today, every advanced economy, the reason for this occurring has been the resurgence in investment. I mean, consumption has remained at modest growth levels but it’s been the resurgence in investment, particularly non-mining investment, that has really been supporting what’s been happening in the economy. That’s been backed up by what’s been happening in public investment around infrastructure and those sorts of programs as well. But Australia needs competitive tax rates to drive investment. And that is happening all around the world today, whether it’s in France, whether it’s in the UK, whether it’s in our own region, whether it’s, of course, in the United States. If we are to stay at the second highest corporate tax rate in the world then what does Bill Shorten think’s going to happen? I mean it costs jobs, it costs wages growth, it costs the economy, as I mentioned before it’ll cost GST distributions to the states as well because a slower growing economy means less GST revenue, which means less money for hospitals and schools regardless of what it costs. So having more competitive tax rates is what will keep our businesses in the game. And, you know, it’s an incredibly brutal, competitive global economy that is highly integrated, I mean, you may want to ask me about trade as well, I might leave my response to trade till then, but having competitive tax rates is what unleashes the investment. And it’s long overdue that they come down.
QUESTION:
Well, let’s turn to trade then if that’s where we’d like to go. So we’ve seen Donald Trump over the weekend in the UK, and we’ve seen the interactions between Donald Trump and China and how that’s playing out. What risk do you think is anti-global trade, sort of, movement is gathering and what impact will it have on Australia if it continues to gather steam?
TREASURER:
Well, obviously no one wins from a global trade war and that statement is more true today than at any other time in global economic history. I was pulling together some figures a few weeks ago and let me just share them with you. In 1990, 32 per cent of Australia’s economy was in trade, two-way trade. That figure today is 42.5. You’d expect that from a trading nation like Australia. Canada similarly 50 up to 64 per cent. China, 22.2 per cent up to 37.9. UK, 43.3 per cent up to 62.5. The United States, 19.8 up to 27.1, and what’s more interesting out of the United States is actually the share of inputs. When you’ve got global supply chains now that are completely immersed in global trade, the risks of moving in the other direction are obvious, and they’re serious. And if these issue aren’t managed with cool heads, and a clear focus on what the end outcome everyone, I assume, wants and that is stronger growth, high levels of employment around the world, taking people out of poverty, all of the above, then the world is at great risk of scoring a massive own goal if it doesn’t manage these issues carefully.
Now at this stage I think it’s, you know, we’re seeing the early exchanges in, sort of, reciprocal tariff actions, with both China and the United States but also the same issues occurring between Europe and the United States and then you have issues with Europe itself, the United Kingdom and so on. So I think at this stage, while things are quite serious, at this stage, there is no reason to think this cannot be kept under reasonable management. Now I’m heading off to the G20 this weekend in Buenos Aires and I’m sure this will be a key topic of conversation. I mean, Australia has led the way together with countries like New Zealand and, particularly under John Key and Bill English, and with Japan particularly on the TPP-11 where others were wanting to say no we want to go in a different direction. Australia has been the most active and the most successful proponent of free trade in the world today, and no one has contributed more to that than the Prime Minister, Malcolm Turnbull. It was Malcolm who singlehandedly said no, we’re not going to let the TPP-11 die, the TPP die. And he got together with John Key and he got together with Prime Minister Abe and they came up with the answer, and they’ve kept their doors open to global trade. Now that’s our job in these forums. Our job in these forums is to continue to be that passionate advocate that global trade is in everybody’s interests and always has been. And it increasingly is so with the interconnectedness of the world’s economies today. So it should be and will be a very important topic of discussion for the G20 finance ministers this weekend, and it’ll be one where I’ll continue to be arguing the case that there are legitimate issues and grievances that clearly exist between these countries, I don’t think we can forget that either. There are precursors to what we’re seeing happen here, and they must also be addressed in the process of these engagements. We must bear in mind that with the global economy having turned the corner in the last 18 months, we cannot allow it to now inflict some sort of economic self-harm by allowing these sorts of exchanges to run away.
QUESTION:
Very good. I’ve got one final question and it comes back to GST. Premier Mark McGowan said he’d be open to negotiating on the east coast buying WA’s gas if the GST problem was fixed. Now that you’ve proposed a solution to the GST, are you opening discussions around the east-west pipeline?
TREASURER:
Well, as you know we’ve put some money into [inaudible] around that in the budget for the last [inaudible] years. WA I think has some lessons to teach the rest of the country about how it approaches these resource issues particularly in relation to gas. Last week the ACCC released what was an outstanding report on the energy issue, which substantially dealt with east coast issues as I’m sure you know, but we’re committed to having lower electricity prices, that’s what it’s about, for the same reason we want competitive tax rates, because with lower electricity prices and competitive tax rates, business will invest more, do more, grow more, employ more people and we’ll have a stronger nation and better services as a result. So, electricity prices and getting them down and having a real plan for doing that, one that can bring the rest of the country along with you, we need an energy plan, which we’re delivering through the national energy guarantee, which I know is effecting mostly the east coast, the east coast states, but one that doesn’t seek to pick a fight but solve a problem. The Turnbull Government, we’re not out trying to pick fights with people. It’s like with the GST, we just wanted to fix the problem, solve the problem. That’s what people want from their governments. They don’t want us fighting with each other all the time, they just want us to fix really difficult problems. Now, in Western Australia we applied ourselves to the issue of the GST. On the issue of energy and electricity prices, we’ve applied ourselves to that. The ACCC and the work that has come before that has informed the policies that we are putting into place. I’m very hopeful that we’ll be able to land the National Energy Guarantee, which will be important for the whole country, including Western Australia, because a strong east coast also leads to a stronger west coast and vice versa. And so we look at this from a very national perspective. And, so, look, we’re always up for discussions that make electricity prices cheaper for business and importantly for households as well.
PRESENTER:
Right, well, Treasurer that’s all we have time for. Congratulations on your proposal on the GST. We hope it gets through. Thanks very much to taking the time to sit down with us today.
TREASURER:
Thank you.