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Transcript of interview: AFR Sunday: 27 October 2013: Reserve Bank; Commission of Audit



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Treasurer Joe Hockey 27 October 2013

Interview on AFR Sunday SUBJECTS: Reserve Bank, Commission of Audit

PRESENTER:

Fifty days since winning power, the Abbott government is beginning to lay out its economic agenda - and Treasurer Joe Hockey has been especially busy off the back of his recent visit to the US while in the grip of its debt crisis. Among his announcements this week - lifting the government debt ceiling to half a trillion dollars; bolstering the Reserve Bank's cash reserves by nearly $9 billion, blowing out the budget deficit to almost 40 billion dollars; and a new Commission of Audit - laying the groundwork for major economic reform. Well, Treasurer Joe Hockey joins us this morning. Welcome to the program.

TREASURER:

Great to be with you.

PRESENTER:

And also on our panel, editor-in-chief of The Australian Financial Review Michael Stutchbury. Good morning to you. Now, Treasurer, you've led from the blocks this week; it's been a very busy week of announcements for you. You've said you're loading both barrels to shore up the Australian economy - very defensive moves this week. Off the back of your visit to the US, what crisis is it that we're facing, and how will raising the debt ceiling and injecting billions into the Reserve Bank Capital Fund actually ward off that crisis?

TREASURER:

We are not facing a crisis, but it is important that our institutions be as strong and robust as they can be. Frankly, I first flagged a concern that the Reserve Bank didn't have all the ammunition it needed, in February of this year, in reported comments, when Wayne Swan had previously taken out a dividend from the Reserve Bank clearly against the wishes of the Governor of the Reserve Bank. And the Reserve Bank Reserve Fund has fallen to 3.8 per cent; at no time under the Coalition did it get below 10 per cent. Clearly the Reserve Bank board had indicated it needed at least 10 per cent, more recently they've indicated 15 per cent. I wanted to make sure they were at their best to deal with any challenges that came before us over the days, months, years ahead.

PRESENTER:

One of the challenges that we're facing immediately is the surging Australian dollar; it's hurting a lot of industries and there are fears that it could go as high as $1.20 against the greenback if that US debt crisis re-emerges. Do you share the Reserve Bank governor's frustration that he can't get the dollar to come down?

TREASURER:

I think it's quite dangerous for the Treasurer to speculate about a currency, but what you've got to do is make sure you can deal with whatever challenge is there. And the more domestic reform you undertake, and the greater capacity your economy has to cope with volatility in the exchange rates. So, from my perspective, we've got to continue to focus on the medium term, focus on driving economic reform, which ensures that whatever happens with the day-to-day movement of the currency, or happens in the United States, we're ready for it, as best we can.

PRESENTER:

Treasurer, 50 years … 50 days ago you were elected and there was an immediate …

TREASURER:

Feels like 50 years!

PRESENTER:

… Fifty days ago, and there was an immediate boost in consumer confidence. Then, just in the past week, we've had the heads of Wesfarmers, which of course runs Coles, and the brand, Pac Brands - a big brand in Australia - saying that this boost of confidence had come back and that trading conditions in retail at least, were the same as they were before the elections - that's quite tough. Are you worried that the economy might be losing a bit of momentum going into the Christmas period?

TREASURER:

I hope it doesn't lose momentum. I think you can see in property transactions and property prices that there's confidence coming back. Now there's data series, but there's also the anecdotes. When people come up to me in the streets and say look, it has turned, for the positive, I get great encouragement from that. But I'm realistic as well and I recognise that you can have improvements in confidence but you've got to have improvements in outcomes to continue that wave of confidence. I am confident we will have a good Christmas, from a retail perspective and from an employment perspective. And what we're going to do is lay down a growth agenda over the next few months that will sustain momentum in the Australian economy, despite whatever happens overseas.

PRESENTER:

And of course a big part of that is getting the budget back under control. Your Commission of Audit that you announced this week - I wonder if I can get the sort of politics of this right: We've reported that you have a Commission of Audit that you announced this week, that reports internally a preliminary report in January, then by March that goes into your own internal budget deliberations, and then in May you release the audit and you also announce some decisions to make. But you - to avoid breaking your promise of no surprises and no nasty spending cuts -

you've got to put them off until after the next election in 2016 so that you can go to the people on that. Is that basically the politics of the Audit Commission to getting down the size of government?

TREASURER:

Well, no, that's basically the process, but the fact is we will keep to our promises. As for seeking a further mandate, Labor doesn't even respect the mandate we have! We have a clear mandate to repeal the carbon tax and Labor is ignoring the views of the Australian people. We have a clear mandate to abolish the mining tax and associated expenditure. Labor is running away from that and…

PRESENTER:

… But if the commission does come up with hard policies, that will effectively mean you'll have to break some of the promises you've made, will you put it to the people first?

TREASURER:

We're not going to break any promises. Let me be very clear about that. We went into the election with our eyes wide open about how bad the fiscal position was that we were going to inherit; we've been up front about having a commission of audit; we will do what we have to do to repair the budget. But we will honour all of our election commitments, full stop. They're not clashing with each other. We've been very up front; we've said we're going to have to fix up the budget and we will fix up the budget.

PRESENTER:

Yes, Treasurer, for all the talk of the budget emergency, if you compare what seems to be that you're looking at, and compare it with the first Howard and Costello budget and budgets - and they very quickly turned around Labor's deficit into a sizable surplus within a few years. And you've got a more gradualist approach and it's not until a decade's time that we end up with a sizable sort of surplus. Aren't you really being a bit too timid with all of this? Don't you need to be a bit more aggressive on how you approach getting the budget fixed?

TREASURER:

Well, we are in a different economic environment; we're in a different economic environment to that which we were in in 1996. I was there. We were going into a period of pretty good growth. Sure, we had the Asian financial crisis, but it was a period of pretty strong growth. What I'm inheriting is rising unemployment, not falling unemployment. What I'm inheriting is falling economic growth, not rising economic growth. And I'm inheriting very low interest rates on a historical basis. So it's a very different environment to that of 1996. But having said that, having said that, we will get the budget under control and we will prove that when the budget is delivered in May.

PRESENTER:

Now you've launched a scoping study for the sell off of Medibank Private and there are suggestions that it could actually, a privatised Medibank Private would help administer the NDIS

[National Disability Insurance Scheme]. How would that work? Is that part of scaling back the size of the NDIS?

TREASURER:

No, we are absolutely committed to the National Disability Insurance Scheme. Medibank Private provides already a range of different services and there are contractors as everyone else to provide the services as the scheme unfolds. We will wait and see what happens, but we've been absolutely committed to the privatisation of Medibank Private - we're not moving away from that - we're actually delivering on our promises. Our political opponents are trying to stop us from fixing the problems that we inherited, despite the fact that we have a mandate.

PRESENTER:

Just quickly, on another issue: Will the government be ordering Kevin Rudd to appear before a judicial inquiry into the home insulation scheme?

TREASURER:

We promised a judicial inquiry into the home insulation scheme. We're not backing away from it. If there is evidence to be given, by anyone, then it should be given, and under oath. No apologies.

PRESENTER:

And Kevin Rudd will be ordered to do that?

TREASURER:

If that is the view of the judicial commission, then that's up to them. But I don't think anyone should be excluded from providing full and frank and honest evidence before a judicial inquiry.

PRESENTER:

OK, Treasurer.

[NBN Video Package Omitted]

PRESENTER:

Well, Treasurer, will you take up Telstra's offer of letting it do more to roll out the NBN? It's been argued that the NBN would have been rolled out more efficiently and perhaps faster if Telstra had been the one to deliver the entire project from the outset.

TREASURER:

I think the NBN would have been delivered more efficiently and faster if Daffy Duck had been delivering it from the beginning. Quite frankly, it's been an extraordinary period. And the waste and mismanagement in the NBN has been extraordinary. And my colleague Malcolm Turnbull is right on top of it. You've seen board changes, you've seen executive changes… But, frankly, the relationship with Telstra has been built on an agreement; we intend to honour the terms of the agreement. But we also recognise that we have a major repair job and if Telstra is prepared to participate in that, fantastic.

PRESENTER:

And do you think the NBN targets will change? Because as you say there have been problems with the timing of the rollout of the NBN. Will we see some changes there?

TREASURER:

I'll leave that to my colleague Malcolm Turnbull to focus on. What I do know is that the total contribution of the taxpayer will be capped at $29.5 billion. And we are now going through an extensive process to identify what the liability could be. I believe it could be as high as $90 billion if the existing NBN continues. And that is just unacceptable for taxpayers.

PRESENTER:

Stock shareholders will obviously be very happy with the news from Thodey today that there could be the prospect of higher dividends from Telstra.

PRESENTER:

Telstra's had this juicy 28 cents per share for the past six years and I think it is bound up in the renegotiation of the NBN. Malcolm Turnbull and Treasurer Hockey probably need to get Telstra more involved in building it and that's fuelling talk of increased work for Telstra and increased money coming into Telstra and potentially an increased dividend from Telstra.

PRESENTER:

Well, the families and mum and dad investors will be very happy with that.

[Bluescope Steel Video Package Omitted]

PRESENTER:

Treasurer, BlueScope is about Australian companies going overseas, but what about foreign investment here? You've got some big foreign investment decisions to make, in the not too distant future: the GrainCorp sale and Saputo's bid for Warrnambool Cheese. Pretty much every chairman in the country is saying you have to approve that ADM bid for GrainCorp to prove that we're open for business. Are we?

TREASURER:

Of course we're open for business…

PRESENTER:

So will we be approving…

TREASURER:

And Australia has been embracing foreign investment. But the laws are very clear - I have a responsibility to act and ensure that any decision is not contrary to the national interest and I'll look at the individual proposals on a case-by-case basis.

PRESENTER:

Are you leaning any way?

TREASURER:

I'm not going to indicate even with a smile, Deborah. I'm not going to indicate it.

PRESENTER:

Well, foreign investment is very divisive for the Coalition. It's interesting that you've managed to keep the Nationals so quiet on it, for a subject matter that they are so passionately opposed to.

TREASURER:

Everyone wants to see foreign investment. We need foreign investment in Australia. We've had foreign investment. We've needed to import money to Australia since 1788. So nothing's changed. Therefore we need foreign investment to develop our massive resources. But if a proposal is contrary to the national interest and it comes under review, then we make the right decision in the national interest.

PRESENTER:

And Treasurer, to get more BlueScope-type activity in China, to get Australian companies operating and selling to China, you also need to work on this free trade agreement with China that's been stalled for a long time. I think from the government there's been quite ambitious signals that you'd get it done within a year and so forth - but is bound up by how open we are to Chinese investment in this country. How confident are you that we can actually get an FTA [free trade agreement] with China within a year?

TREASURER:

It's certainly a lot of hard work, but Andrew Robb and the Prime Minister have done a great job in putting this on the agenda, getting on with the job of free trade agreements, not just with China, but Japan and Korea, which I suspect will be easier to land than China. But also there's a range of multilateral agreements, if you like, such as the TPP [Trans-Pacific Partnership Agreement] and others. They are very important. These help to create demand and that's what we've got to do - we have to have demand for Australian services. And just as the Chinese want to come here, they're going to want to open the doors for us, so that we can be more active in China as well.

PRESENTER:

We'll keep an eye on how that deal goes.