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Economics Legislation Committee
Department of the Treasury

Department of the Treasury


CHAIR: Minister, or Mr Fraser, if you have an opening statement, I would welcome it.

Senator Cormann: I do not, but I believe that the Secretary of the Treasury does.

Mr J Fraser : I have an opening statement, which has been circulated. I apologise—it is a little on the long side, so I will go through it rather quickly. As you may have noticed, life is rather complex at the moment, internationally and also with the Australian economy.

Since I last appeared before the committee there have been significant developments both globally and here at home. As we have known for some time, the Australian economy is in the midst of a challenging period. Global weakness and uncertainty continue to have an impact domestically and the economy is adjusting slowly to the end of an unprecedented boom in the resources sector.

Given the magnitude of these challenges, the Australian economy has performed relatively well. This good performance in large part reflects the dividends of past reforms, together with movements in the exchange rate, interest rates and wages all supporting the transition. That said, growth remains below trend and the unemployment rate remains too high. Our key economic obstacle in the near term is a lack of demand. The global economy continues to struggle to regain sustained momentum. Growth remains uneven and well short of the average rates seen prior to the global financial crisis.

Yet again, the IMF has revised down its forecast of global economic growth in its October 2015 World economic outlook. The fund's forecast for global growth in 2015 was cut to 3.1 per cent from 3.3 per cent, reflecting lower growth forecasts across a wide range of advanced and developing economies. The IMF now also expects a more tepid pick-up in economic activity over the coming year, with the forecast for 2016 reduced to 3.6 per cent from 3.8 per cent. This was the IMF's 15th downgrade of the global growth forecast in the course of only four years.

Even relative to these lower forecasts, the view at the recent IMF World Bank Annual Meeting in Lima, Peru, was that downside risks to the global economy have increased. There are particular concerns about slowing growth in emerging market economies. Advanced economies are recovering, but progress has been patchy. The US is a bright spot and is providing some impetus to world growth. Though, even here, there are some concerns about the impact of a predicted stronger US dollar and a difficult global environment on their outlook. Expectations for the euro area and Japan have improved, although questions remain about how robust and sustainable these recoveries will be.

The global economy is being affected by some significant and fundamental transitions. Foremost is the fundamental shift from a Chinese economy that has, in short, overinvested and underconsumed to an economy that now must spur consumption to drive growth. By contrast, the developed countries have, in the broad, overconsumed but underinvested. Rectifying this imbalance will not be easy and will take some time and we should continue to expect a lot of volatility in financial and other markets along the way. Second, there is the prospect of normalisation in US monetary policy from near zero interest rates but, at the same time, accommodative monetary policy settings are still prevalent elsewhere. A third transition relates to the very soft commodity prices. At this stage, it is very difficult to see when this softness will be reversed and to what extent. Chinese authorities continue to pursue a more balanced and sustainable growth pattern with greater reliance, as I said, on consumption and services. This is likely to affect other countries, particularly through the impact on commodity prices. The IMF indicated that, while its forecast for China's growth was unchanged, it now appears that the Chinese slowdown is having a greater impact on the rest of the world than previously thought. Weaker growth in Chinese demand for raw materials is compounding the impact of abundant supply on commodity prices, as seen in recent renewed weakness in a range of energy and industrial prices.

The budget forecast of Chinese GDP growth is 6.75 per cent in 2015 and 6½ per cent in 2016. This is broadly in line with the IMF's forecasts for growth. The Chinese government announced its 2015 growth target of around seven per cent in March and has emphasised that this takes into consideration what is needed to ensure ample employment. The official target for 2015 is to generate 10 million new jobs. There has been continuing weakness in traditional drivers of Chinese growth, with recent major data releases pointing to continued softening conditions in investment, exports and industrial production, while retail sales and employment growth remain stable. The value of Chinese imports fell by around 20 per cent through the year to September—one of the steepest falls since the global financial crisis. This partly reflects lower commodity prices. The rate at which exports are falling slowed by more than the market had expected.

Uncertainty about the timing of the US Federal Reserve's normalisation of monetary policy continues to drive financial market volatility, particularly affecting emerging market and developing economies. There are concerns that this normalisation, once it begins, could lead to capital outflows from these economies. Emerging market economies, in particular, have accumulated large amounts of debt in recent years and are most vulnerable to sudden shifts in market sentiment. When the US does begin raising interest rates, investors are likely to shift their funds back to the US. First order impacts may include currency and financial asset depreciation, as well as additional scrutiny on the capacity of emerging economies to repay US-dollar denominated government and corporate debt.

Governments and business in emerging economies may find it more difficult to raise capital. Among the ASEAN 5 economies, growth is increasingly uneven. Growth in Malaysia and Indonesia is expected to slow this year, affected by the fall in commodity prices. Prospects for Thailand remain clouded due to political uncertainty. On the other hand, strong growth is forecast for the Philippines and Vietnam, which are benefiting from the oil price windfall.

The recent downturn in commodity prices has been a drag on the economies of commodity exporters, particularly emerging market exporters. However, in the broad, lower oil prices are likely to be a net positive for global growth. The fall in oil prices over the past year is also continuing to suppress inflation globally. But the weakness in inflation pressures generally across a wide range of economies points to significant spare capacity as a consequence of the lacklustre world recovery since the global financial crisis. Measures of the financial market longer term inflation expectations in a number of major economies have fallen to relatively low levels, suggesting doubts about the prospects of sustained recovery.

More generally, I also see the build-up of debt globally as a major risk to the global outlook. Seven years after the global financial crisis, debt continues to grow. Global debt has grown by US$57 trillion, raising the ratio of debt to GDP by 17 percentage points. Debt in China has roughly quadrupled since the start of 2007. Government debt is unsustainably high in some countries. Since 2007 global government debt has grown by US$25 trillion. I suggest these high levels of global debt are an important reminder of why it is a priority for Australia to repair the fiscal position. We need to address Australia's structural budget problem through greater expenditure restraint in particular.

As I noted earlier, against this background, the Australian economy has performed well given it is adjusting to the end of an unprecedented boom in the resources sector at a time when the global economy struggles. The construction phase of the resources boom peaked in 2012-13. Investment in the sector is estimated to have fallen by around 15 per cent last financial year and is expected to fall by more than 25 per cent in each of the next two years. Most of this decline in resources investment reflects the successful completion of large construction projects. Low commodity prices are also playing a role, weighing on investment in machinery and equipment as miners pursue efficiency gains to lower costs. As projects are completed rising export volumes will help to cushion the impact of the decline in investment. Resource export volumes rose 8.2 per cent over the past year, with growth expected to continue in coming years and be led by LNG.

The economy is also transitioning to broader based drivers of growth. Many elements of the transition are unfolding as expected, supported by the adjustments we have seen in the exchange rate, interest rate and wages. The lower dollar has underpinned a 7.3 per cent increase in services exports over the past year. Tourism has responded particularly well; China has now become our second largest source of tourists after New Zealand, with a record 951,300 Chinese short-term arrivals in the past year. Another area of strong growth is the export of financial service, which experienced its fourth consecutive year of double-digit growth in 2014.

Low interest rates continue to support the economy and in particular the housing market. Growth in dwelling prices remains elevated. Price growth remains particularly strong in Sydney and Melbourne, up 16.7 per cent and 14.2 per cent respectively through the year to September 2015. On the other hand, supply has been responding positively, with dwelling investment rising by 7.4 per cent over the year to the June quarter 2015. In response to concerns about investor lending growth, APRA has put in place macroprudential measures. While it will likely take more time for the impact of these measures to become fully apparent, there are signs that banks have been responding to APRA's measures, and reported investor lending growth has recently slowed a little.

With interest rates at historic lows and approvals and financing remaining strong, dwelling investment is still expected to continue to grow solidly over the next few years. Developments in household consumption will have an important bearing on the strength of the economy overall. Consistent with the outlook of the budget, household consumption rose by 2.5 per cent over the past year. To support consumption at a time of modest income growth, households have been saving at a slower rate. The savings rate fell to 8.8 per cent in the June quarter, compared with a peak of 11.7 per cent in 2012. More recent data suggests that household consumption has continued to grow in the September quarter.

While many elements of the transition to a broader based economy are unfolding as expected, surveys of business investment plans released since the budget have remained very soft. This is consistent with Treasury's discussions with business; but, if anything, I personally have detected a little more optimism on investment intentions in some areas in the past couple months or so. The key message we are hearing is that businesses want to see a sustained uptick in demand before they invest in new capacity and equipment.

There remain very significant differences in economic conditions and outlook amongst the states and territories In recent meetings with my state and territory counterparts there seem to be somewhat stronger conditions in New South Wales and Tassie while South Australia remains relatively subdued and Western Australia and Queensland continue to bear the effects of the exit from the mining investment boom.

While weak investment plans are a risk to the outlook, there are some positive signs for the economy as a whole. The NAB monthly business survey points to positive conditions and confidence in the non-mining economy. In particular, non-mining conditions strengthened notably following the release of the budget in May. This has been sustained. Conditions are currently at some of the highest levels since the GFC. Profitability has been strengthening and capacity utilisation has been rising to around its long-run average levels. Investment in the services sector grew by 12 per cent in 2014-15, the fastest growth in almost a decade.

The labour market has held up remarkably well considering the extended period of below-trend growth. Employment fell in the month of September but grew 2.0 per cent over the past year, close to the highest annual rate in over four years. Forward-looking indicators of job creation suggest this positive momentum could continue, with the ANZ job ad series up 12.8 per cent over the past year.

The unemployment rate remained steady in September at 6.2 per cent as falling employment was offset by a fall in the participation rate. Notwithstanding the fall in September, the participation rate remains elevated as people have re-entered the labour force, encouraged, we think, by the strengthening labour market.

For the budget it is nominal GDP that matters. Volatility in commodity prices and slower growth in wages present further risk to the outlook. Despite global volatility, commodity prices are tracking broadly in line with budget assumptions. Iron ore prices fell sharply in early July following extreme volatility in Chinese equity markets but bounced back relatively quickly. Since then iron ore prices have been relatively steady and in line with the budget assumption of US$48 per tonne. However, metallurgical and thermal core are both down by more than 10 per cent. However, as we have seen earlier this year, slowing growth in China and broader global uncertainties have the potential to result in sharp falls in commodity prices.

Wage growth in Australia is around historic lows in both public and private sectors as governments across the country focus on expenditure restraint and businesses look to contain costs. While this provides welcome support for the labour market at a time when GDP growth is below trend, continued low growth in wages will weigh on the outlook for incomes. We are closely monitoring these risks and developments as we prepare for the Mid-Year Economic and Fiscal Outlook, scheduled for release in December.

While the key challenge in the near term is a shortfall in demand, the challenge over the medium term is to maintain growth in living standards. As I have been saying for some time now, in the context of lower commodity prices and, importantly, an ageing population, this will require an improvement in our productivity growth performance. The primary determinant of Australia's future productivity performance will be the decisions made by businesses to pursue productivity gains. The role of government is to establish the economic enablers to support private enterprise making productivity improvements and removing impediments to market flexibility. This is the responsibility that is shared between the Commonwealth, the states and the territories and is a major message of the Harper review.

I am sorry I went on for so long.

CHAIR: No, it is very important. I am sure we will have questions on that. So there are stormy international waters, although green shoots appear with free trade agreements and emerging currency motivated services growth, exports through currency advantages and new markets. What then is the first order of priority at Treasury?

Mr J Fraser : The first order of priority at Treasury is to do everything possible to grow the economy, to get unemployment down and to make sure that we are solidly positioned not only for the immediate years ahead but for the longer term. That encompasses the whole waterfront of policies: structural policies, fiscal policies, international policies. It is a very broad waterfront we seek to cover.

CHAIR: You close with a reference to the Harper review. Can you briefly point out to the committee the significance of that review and how that is going to be implemented in the government's agenda?

Mr J Fraser : The Harper review we really see as flowing from Hilmer in the nineties. Australia benefited greatly with productivity performance as a result of that and other measures taken by the governments, and I think Harper is the second stage. It is very squarely back on the table. One of the key messages—and it is a key message which has been discussed between the heads of the state and territory treasuries, me and, of course, the Treasurer when chairing the meeting of the Council on Federal Financial Relations—CFFR—last Friday. The Harper review was put squarely on the table.

One of the key messages from Harper is to explore at all levels of government the delivery of health and education services. There have been major advances by a number of the states in the delivery of these services, but I think many would recognise, as we have recognised also within the Commonwealth, that there is always room for improvement in these very major areas of spending. Education in particular is a very major part of longer term productivity growth. There are other parts of the Harper review, but, to my mind, that is a very key message at this time.

Senator CANAVAN: I want to follow up on the issue of productivity growth. We obviously have had quite stagnant productivity growth in the last decade, though some put that down to non-policy issues relating to the mining investment boom and the drought affecting electricity, water and gas sectors. Do you believe that we can get a recovery in our productivity growth just from those non-policy factors unwinding, or we need to concentrate on some policy changes to lift our productivity growth rate back up to close to the levels it was at in the 1990s?

Mr J Fraser : That is a good question. It is a hard one. There is a tendency in life to take the present or the recent past and extrapolate it into the future. I am inherently optimistic. I am optimistic that the world—it is not just an issue for Australia; productivity is an issue for the world—can address this challenge. At the policy level I think there was a real recognition at the CFFR meeting last Friday that Harper needs to be brought back onto the table and we need to move forward on it. It is very encouraging that that is something the state and territories did not need to be pushed on—far from it.

I think the message in this world is that we also lived off the productivity gains in the emerging markets for many years. We all saw it in the costs of a lot of products coming out of the emerging markets—China in particular and more recently India. To me it is about flexibility. It is interesting that the US is without doubt recovering the best since the global financial crisis. I think the flexibility they have in their product markets and perhaps also their labour markets is a factor in that. Everybody in Australia should be interested in looking at how we live and how we conduct ourselves in terms of flexibility to make sure that we are as productive as possible. That is how I feel, but I could ask Mr Ray.

Senator CANAVAN: I don't think he's jumping to contribute there!

Mr J Fraser : Yes.

Senator CANAVAN: I would like to ask one quick additional follow-up to my follow-up. I take your point about the need to go to the new frontiers in health and education—not necessarily new frontiers, but I suppose sequels to Hilmer in those spaces in health and education. I wonder if you or Treasury had any thoughts on whether there has been backsliding on the Hilmer reforms themselves? I know in a speech you gave recently, you mentioned the Productivity Commission estimates that National Competition Policy boosted GDP by 2.5 per cent. My understanding is a big factor or a big element of that increased growth from NCP was actually from the reduction in electricity prices that occurred associated with the Hilmer reforms and the improved efficiency in the electricity sector. Of course in the last eight years or so, much of those reductions have been unwound. Do we need to return to those Hilmer spaces in electricity, gas, water et cetera and improve our regulation of infrastructure so that we can achieve a greater productivity gain?

Mr J Fraser : I have been out of the country 13 years, so it is hard to make judgements when I was not here for the bulk of the time. I am not sure whether it is backsliding. Our lives have been highly-coloured by the mining boom. In the early nineties when we had a real recession, nobody expected the mining boom. It came along and I think it influenced us in a number of ways. I am not sure so much as it is backsliding as the case that we had a terrific run out of the mining boom, and perhaps some of the urgency was taken out of the task. I do not get a sense from meeting with the states and territories and from meeting with business that there is not a recognition that we need to do better. I remain hopeful going forward that we can do this. I think the Harper report being back on the table is terrific.

CHAIR: Talking about the states and territories, how much of a concern are that their debt levels and then how that interrelates to what you are trying to achieve, in an overall sense, of budget reductions given that they are increasingly becoming more and more dependent on Treasury to provide solutions for their budget problems? You mentioned the different fortunes of the various states in part of your commentary. I come from a state which I think you have described as 'subdued', which is interesting language, whereas the others have got a little more optimism. How do you balance that as a federated nation? If you see it is a problem, how do you manage it?

Mr J Fraser : The precise number eludes me but, roughly, of government debt, the Commonwealth is around about 87 or 88 eight per cent of total government debt. The levels of state debt are not in themselves at a crisis level or a huge worry at the moment. I think, by and large, the states have good people. Certainly, I can only speak for the treasuries and the ministries of finance—very impressive.

The issue for the states and the issue for the Commonwealth on debt is more longer term. The Intergenerational report showed the challenges we will be facing, and also that the states and territories will be facing coming from ageing of the population. Clearly with ageing of the population, a big factor is health. That is not a sleeper issue because, I think, people do understand it, but that is where the states and Commonwealth also will see very real pressures for services, and how we fund those is a critical issue. If we do not start planning for that now then we are doing a great disservice to our children and grandchildren.

It is one of the reasons, of course, why there is so much focus on looking at the structure of our tax system. It is about a tax system which is fair, equitable, encourages growth but also makes sure that we have a sustainable base to address these challenges over the next 40 to 50 years—I will not be here and I suspect most of us will not. That is the difficulty, but it is encouraging to see the recognition of these problems and these issues, and certainly I am very encouraged by the dialogue with the states and territories.

CHAIR: You are not concerned that as your revenues diminish, and their state revenues diminish accordingly, they will increasingly come here for a greater slice of whatever action you have going on?

Mr J Fraser : It would be a very optimistic person who thought the states and territories would diminish their requests for assistance from the Commonwealth. We are trying to put everything on a more solid, logical basis. That is encouraging, and we are working with the states and territories in preparation for the tax reform in a very intelligent way. It is about getting growth in these revenue areas. They have taxes which have growth in them, but they also have taxes where there is not growth in them. That also applies to us. But this is why you do tax reform: to get a tax system that was built for earlier decades and make sure it can be resilient and work for the decades ahead.

CHAIR: I will move on to Senator Dastyari, but you seem to get blamed for a lot of the states' budgetary woes, so I thought I would give you an opportunity to put your thoughts on the record.

Mr J Fraser : We are all brothers and sisters in arms now. It would be wrong to criticise you.

CHAIR: Bless you for your kind comments.

Senator DASTYARI: Thank you for that, comrade. Mr Fraser, I have a point of clarification to put to you. I note it is 9.30 now. That was a fantastic, very long opening statement. There is the enormity of the Murray review and what was said yesterday for us to discuss. I note that there is a unanimous will in this committee that we have a longer morning tea break to allow people to attend the valedictory speech by the former Treasurer. I know the opposition had asked you to stay for two hours, but is it possible that we can get you for a little bit longer?

Mr J Fraser : Fine.

CHAIR: You do not have to catch a plane?

Mr J Fraser : No, I am in Canberra for a dinner tonight.

Senator DASTYARI: That was a dangerous thing to tell someone. Just before we get to our questions, which Senator Ketter is going to ask, on your opening statement, on the bottom of page 3, you say—and I am going to re-read the paragraph back to you:

These high levels of global debt are an important reminder of why it is an immediate priority for Australia to repair the fiscal position. We need to address Australia's structural budget problem through greater expenditure restraint.

This is one of the many dangers of giving us a written copy of what you are going to say. In your rhetorical flourish as you read it out, you said, 'We need to address Australia's structural budget problem through greater expenditure restraint in particular.' Can you just expand on that point. It seems like what you have written and what you said were slight variations. You are obviously advocating a level of expenditure restraint, and you have consistently advocated a level of expenditure restraint. But surely they are two sides to the same coin: you are going to either increase revenue or decrease spending. Surely there are two paths available.

Mr J Fraser : On the first point, on debt, we borrow at the moment. The average cost of servicing our debt is 2.6 per cent, levels that have not been seen, if ever—I am not sure; I was not around in 1900. It is a bit like the drought: I do not know when, but those low rates will increase. We have seen speculation about what is happening in the United States. That has been expected for some time, but 2.6 per cent as the cost of servicing our debt is not going to be sustained. We have already seen, in the wake of the Greek crisis, with the debt raising by a range of the emerging markets, particularly some of the southern littoral countries in Europe, their long-term bond rates go out significantly. The worry I have—and it is shared by others—is that we are in a situation with debt levels still increasing around the world, and we are perhaps succumbing a little bit to a sense of comfort that we can continue to borrow at remarkably low rates. That applies to Australia too. We are in great shape.

Senator DASTYARI: That was not the question.

Mr J Fraser : No, you asked me about the debt question. That is the worry I have. If it is 2.6 per cent from here to eternity, I would have a different attitude. Sorry, I have interrupted you.

Senator Cormann: If I can add to this: spending as a share of GDP at 26 per cent or thereabouts—and there will be a further update of course in the Mid-Year Economic and Fiscal Outlook later this year—is unquestionably high by historical standards. The trajectory that we inherited on the policy settings of the previous government was taking us to spending as a share of GDP at 26.5 per cent by 2023-2024, according to the advice to the government from the National Commission of Audit. If you look at the Intergenerational report, on the previous government's policy settings, government spending as a share of GDP was tracking in excess of 30 per cent. If you look at tax revenue as a share of GDP historically, when you make a judgement on what the economy can sensibly afford in terms of the revenue that a government can draw out of it in order to fund the important services and benefits that it provides, there was clearly a structural deficit that was widening into the future.

We do have to get spending growth under control. We inherited an unsustainable spending growth trajectory from the previous government. We have made some effort to get that under control. There is more work to be done. But, in the end, what we have to achieve is, in a structural way, to ensure expenditure is less than revenue. I know that some people in the Labor Party argue that we should increase the overall tax burden in the economy, whereas our focus is on how we can improve the tax system to ensure that the revenue raised by the government through the tax system is raised in the most efficient, least distorting way in the economy.

Senator DASTYARI: I do not think it is appropriate for you to be putting your own words on what our position is—

Senator Cormann: This is an important point.

Senator DASTYARI: or what the position of others is; if you want to do that, we could be here all day.

Senator Cormann: This is a very important part of the public conversation. In the end, we cannot possibly chase government expenditure heading to in excess of 30 per cent as a share of GDP by increasing the tax burden in the economy to an equivalent level. If we did, it would hurt our international competitiveness, it would hurt our economic growth prospects and it would hurt jobs. Of course, that is why we have to ensure how we can calibrate federal government expenditure such that that level of expenditure is affordable and sustainable in the economy in a way that is responsible.

Senator DASTYARI: That was not even remotely the question I asked. I will ask the question again. Senator Cormann, we can do the straw man thing, where you create straw man arguments and then you knock them down, which you do repeatedly. We can do that all day.

Senator Cormann: You should make an effort—

CHAIR: Order!

Senator DASTYARI: In his opening statement, Mr Fraser said:

We need to address Australia's structural budget problem through greater expenditure restraint.

That was his written copy. Verbally, he said:

We need to address Australia's structural budget problem through greater expenditure restraint in particular.

Mr Fraser, the difference between the two—and I want to be clear—is that, when you talk about reducing Australia's structural budget problem, by saying 'in particular' you are saying it is a key component. Is it a key component or the only component?

Senator Cormann: What the Treasurer has said and what the Treasury Secretary has said in his own words, very eloquently, is that—

Senator DASTYARI: He is there, and he can put it in his own words.

Senator Cormann: Sure.

CHAIR: That minister has the right.

Senator Cormann: In Australia, we have a spending problem rather than a revenue problem. Yes, there are issues on the revenue side related to the economic parameters, but the solution to getting the budget on a sustainable foundation for the future and the solution to getting ourselves back into structural balance have to be found by making sure that the level of expenditure is affordable in the economy. Any suggestion by people that we can somehow chase increased levels of expenditure as a share of GDP by ratcheting up the level of tax as a share of GDP to a level in excess of 30 per cent is wrong and irresponsible. The way to address it is to—

Senator DASTYARI: You are creating straw man arguments that no-one is making. This is ridiculous. Senator Cormann, you are better than this.

Senator Cormann: strengthen growth and reduce the level of expenditure.

Senator DASTYARI: You are better than creating straw man arguments that you try to knock down. No-one is—

Senator Cormann: It is not a straw man argument.

CHAIR: Senator Dastyari, do you have any more questions in relation to the opening statement?

Senator DASTYARI: I thought I had questions for Mr Fraser, but apparently he is not allowed to answer them.

CHAIR: The minister does have the right to answer. He is the senior officer at the table. You cannot get a more senior respondent to a question than the minister.

Senator KETTER: Mr Fraser, thank you so much for your opening statement and the detailed assessment of the global and international economic circumstances. I note that you made comments about the fact that domestic growth remains below trend, the unemployment rate is too high and the key obstacle is a lack of demand. Throughout the course of your opening statement, you left it right to the end to talk about the role of government in all of this to address the issues. I want to take you back to a speech that you made in February this year to CEDA. You spoke of the need for structural reform, particularly in the three areas of tax, industrial relations and competition—again, through the Harper and the FSI. Your speech was eight months ago, and it has been 10 months since the final Harper report was released. We had the government's response to the FSI yesterday. It has been almost a year since the last tax discussion paper was released. Are you happy with the pace of reform?

Mr J Fraser : I hesitate to make a comment, but it is good that there has been progress. Clearly, on Murray, it is self-evident—the government's response yesterday. We can discuss that later, I think. My colleague Meghan Quinn is the expert on all that. But that is good. I am delighted, as I think most people are, that Harper is very much back on the table. I think it is fair to say that the tax reform discussion, or whatever you want to call it, has been moving in a very intelligent direction, with all parties airing views and options. As the Treasurer announced last Friday after the CIFR meeting, there is a real program for progressing that. I think there is progress.

Senator BERNARDI: Chair, I am loath to interrupt Senator Ketter but I am going to. I would just like to remind you that it is wrong to ask officers for an opinion on matters of policy. Whilst we may not have crossed that divide yet, I think what was asked of Mr Fraser was very close to that.

Senator KETTER: Have you provided any advice about the issue of the GST being broadened?

Mr J Fraser : Yes. It is a matter of the public record that, coming out of the CFFR meeting, and through the meetings of the heads of Treasury that I chair, we have been looking at all options. Those options included options relating to the GST and options relating to other tax measures. They are all being developed in terms of getting information on them. It is an information-gathering exercise at the moment.

Senator KETTER: So no advice has been provided at this stage?

Mr J Fraser : Treasury provides advice on everything, to be honest.

Senator DASTYARI: Mr Fraser, have you provided advice on broadening the base and increasing the rate?

Mr J Fraser : We have provided advice on virtually every option you could have. If you are going to have a thorough taxation review, I think it would be remiss of us if we did not provide advice on every option.

Senator Cormann: Let us just be clear here: there is nothing remarkable in this. At the recent meeting with the state and territory governments, they asked for help us to help them flesh out various options. As the Treasurer said in his press conferences after that meeting, we are currently in a discovery phase. We are working to ensure that we have all of the necessary information in order to be able to make informed judgements. That is what you would expect a good government to do. That is, indeed, what we are doing.

Senator KETTER: Just coming back to my question about reform, and the pace of reform—if I could use that term.

CHAIR: It is a broad term.

Senator KETTER: We have had a number of significant reports released. There is some concern expressed generally about the pace of response to those significant reports. Are you able to provide reasons behind the delay in response to those significant reports—Harper, FSI?

Senator Cormann: I do not agree with your characterisation of delays. Obviously what we have done, unlike the previous government, is engage in some very serious long-term strategic reviews: the first strategic and comprehensive review of the financial system for a very long time, the first comprehensive review of our competition framework for a very long time and, of course, a very serious attempt at reforming our tax system, which is an important conversation that is currently underway. These are big strategic considerations and the government, responsibly and sensibly, is taking the necessary time to engage with the public and to make judgements at a time when all of the issues have been properly fleshed out and properly considered. In the end, to make structural reform in a way that is sustainable, you have to take people with you, and the way to take people with you is to engage in comprehensive processes like we are doing in the context of tax reform in particular. Dare I say that is where the high-quality work that was done by the Henry tax review sadly fell down, because there was insufficient engagement with people across Australia and that meant that there was not sufficient public consensus as a foundation to ensure that that reform could ultimately successfully pass through our democratic system.

Senator KETTER: Mr Fraser, in answer to an earlier question you mentioned that Harper needs to be brought back onto the table. That suggested to me that it has been off the table and you want it back on the table, so what do you mean by that comment?

Mr J Fraser : I seem to recall I said it is back on the table very much foursquare. I do not think it was off the table, but there are a range of priorities for government that they have to pick, and people in the government, and within Treasury, do not have unlimited resources. Ian Harper has been very active in talking with groups—indeed I have as well—so it has never really been off the table. I think certainly in the CFFR meeting last week there was a real opportunity to put it on the agenda for the CFFR meetings in 2016. So it was not a case of being neglected; it was just a case that it is very much part of it now, and that makes sense because we have been very much focused on the Murray inquiry—and there are, I think, 44 recommendations in Murray. There was a lot of work, as the minister said, in getting proper briefings and proper consultation on Murray.

Senator KETTER: I also wanted to take you to some of the comments that you have made previously about the need to tackle superannuation tax concessions, and it relates to that speech I mentioned just before. You have said:

An important criterion for a well-functioning tax system is fairness, where there are some contentious and important issues that need to be explored … For example, substantial tax assistance is provided to superannuation savings. We need to consider whether the level and distribution of these concessions remains appropriate.

Do you agree that having no tax on earnings in super accounts at the retirement phase is an example of revenue leakage—

Senator Cormann: You are asking for an opinion. You cannot ask him for an opinion. That is a direct and straight question of an opinion on policy.

Senator DASTYARI: How is that asking an opinion?

Senator Cormann: You are asking for his policy opinion on how taxes or superannuation—

CHAIR: Senator Ketter, would you would like to reframe your question? I will give you an opportunity to reframe.

Senator Cormann: Do you agree with a particular policy proposition—

Senator DASTYARI: You have said that before. What he asked was 'do you agree that having no tax on earnings in super accounts at retirement phase'. It is a question about leakage—

CHAIR: Excuse me. Senator Ketter has a perfectly good brain. He can reframe his question to suit the secretary.

Senator DASTYARI: I am not sure why he would need to reframe that. That is not asking—

Senator Cormann: It was a question for an opinion. It was a straightforward—

CHAIR: Let's not have a fight. Let's just reframe the question.

Senator DASTYARI: You do not have to run a protection racket. He is the secretary of—

CHAIR: I will protect you too from the evil minister, if you want me to or whatever, but let's just—

Senator KETTER: How would you describe a situation where we have no tax on earnings in superannuation accounts? It is pretty much a black and white question. Is that an example of revenue leakage?

Mr J Fraser : What I said, as I recall in February—I stand by it—is that with superannuation, 15 to 16 years after the scheme was basically implemented, there are many areas that are worthwhile looking at again, and particularly in the context of our review of the taxation system it makes sense. The Prime Minister has indicated and the Treasurer has indicated that it is back on the table in the taxation review. A detailed review of the superannuation system is a remarkably complex thing to do. What we have all learnt is that with superannuation there were a lot of unintended consequences. There were a lot of things that we did not think of back in 1990, and I think that it is very good that the community have recognised that there are areas that need to be looked at.

Senator KETTER: I am interested in your comment on the fact that we believe that there are about 475 superannuation balances where there are tax concessions which deliver $1.5 million in annual tax-free income to people with superannuation balances of more than $10 million. Is this one of the areas where you talked about the existing system being contentious and where fairness is an issue?

Mr J Fraser : I am sorry. Where did I make that comment? I am not trying to be smart, I just cannot recall.

Senator KETTER: No, you did not make that comment.

Senator Cormann: That is what you just suggested.

CHAIR: That is what you asserted.

Senator KETTER: You have made the comment in your speech in February that we need to consider whether the level and distribution of these concessions remains appropriate.

Mr J Fraser : With all due respect, that is consistent with what I just said. I think there are a lot of things. The whole totality could bear examination—very careful consideration, and, frankly, I think it would be lengthy consideration, because it is so complex.

Senator KETTER: I am providing you with an example where there are 475 superannuation account balances which deliver $1.5 million in annual tax-free income to people with balances of more than $10 million.

CHAIR: You are asking the secretary to pre-empt any workings of government in the future.

Senator DASTYARI: No, he is asking if that is one of the examples we were just talking about.

CHAIR: No, you are asking him for an opinion on that.

Senator KETTER: You formed a view that it is an area of priority.

Senator Cormann: I think the secretary has actually answered your question. You are trying to get him into the space of expressing an opinion, and that is not permitted.

CHAIR: We all know that there are 475 accounts with more than $10 million in it, but how the government was going to deal with that—

Senator KETTER: My question is: is that part of the reason why you formed the view about the need for reform here?

Mr J Fraser : The key reason for forming a view is what I said earlier: that it is 15 years after. You see issues which, on the face of it, may look a little bit strange, but, equally, I hesitate to make any comment on particular figures, because you have to look at the complexity of the individuals. You have to look at what other savings they have and how they have been developed. That is why I say, whenever I am asked this, that a comprehensive review of superannuation is required.

Senator KETTER: But, with respect, it is not just the period of time since a review has occurred. You did say that we need to consider whether the level and distribution of these concessions remain appropriate.

Mr J Fraser : And I do not step away from that.

Senator DASTYARI: Following on from that, and I suspect Senator Cormann is going to want to answer some of this as well—

CHAIR: Just for that, I did describe him earlier—and Hansard does not get irony—

Senator DASTYARI: No, I was being serious. I have questions on a specific government policy.

CHAIR: I described him wrongly, but Hansard does not get the irony of 'evil minister.' That is not meant in any way.

Senator DASTYARI: Mr Fraser, the Treasurer said, last week, that he was advised that only a 10 or 15 basis point increase in mortgage variable interest rates could be justified in relation to the banks complying with the new APRA capital requirements, following the Murray review. You are obviously aware of those statements. I understand the evidence given came from evidence given to a parliamentary inquiry by APRA when they were talking about the 10 to 15 basis points. Senator Cormann, perhaps you might want to answer this. How would you describe Westpac's actions?

Senator Cormann: As the Treasurer said, that was very much a commercial decision by Westpac. All of the advice available to government is that the increase that Westpac imposed on relevant mortgage holders with them went beyond what was required to cover the cost for them of increased capital requirements imposed by APRA. What we say to customers of Westpac, or of any other bank that chooses to go down this path, is that it is a competitive market, so shop around and see whether you can get a better deal elsewhere.

Senator DASTYARI: Are you disappointed in Westpac's actions?

Senator Cormann: Again, I am obviously focused on my job as the Minister for Finance in the government; I am not a commentator on—

Senator DASTYARI: But you are a cabinet minister as well as having the finance portfolio.

Senator Cormann: But I am not running a bank; I am running a department of the Commonwealth. What I say is that it is a commercial—

Senator DASTYARI: So you are not disappointed.

Senator Cormann: Well, you can try to run a political sort of a—

Senator DASTYARI: I am not running anything; I am asking a question.

Senator Cormann: It is very simple. This is a decision for Westpac; it is not my decision. It is a commercial decision for them. It goes beyond what is justified based on the advice available to the government, but it goes beyond what was justified as a result of the additional capital requirements imposed on them by APRA. We would say to bank customers across Australia: shop around to get a better deal.

Senator DASTYARI: We have APRA here tomorrow. Mr Fraser, you have no information or no reason to dispute or disagree with the view they presented that a 10- to 15-basis-point increase was sufficient?

Mr J Fraser : I have not basis to disagree with it.

Senator DASTYARI: Has the Treasurer sought options or advice on policy actions the government can take in light of Westpac's actions?

Mr J Fraser : No.

Senator DASTYARI: So, no information has been sought about what policy options are available, including things like measures to make bank switching easier?

Mr J Fraser : No.

Senator DASTYARI: We have a fair bit here, but before we jump into something too new I might do one more question on this, and then I will be happy to pass the ball around a bit. Has there been scope, or is there scope—or perhaps have you been asked for any scope—and are you aware of the last time there was actually a view towards creating more competition in the banking space as it comes to home loan mortgages? I am just astounded that here is Senator Cormann talking about the competitors of the market—but are you aware of any actual measures that you have been asked to look at in any way, shape or form since the time you have been there as secretary, and not just since the Westpac announcement, looking at creating a more competitive home loan mortgage space?

Mr J Fraser : Well, the Murray inquiry, of course, came out, and David and his colleagues indicated that there was scope for some more competition, and they had some measures for doing it. That would be my answer to that. In earlier times—but this is decades ago, in the deregulation of the financial sector in the eighties—it was an issue.

Senator Cormann: And the reality is that the changes in capital requirements for the bigger banks actually help with competition, because the four bigger banks did have an advantage in the market in terms of their capacity to provide services in the mortgage market. And of course now, with the changes in capital requirements, a number of the smaller banks and the smaller providers have to be able to more effectively compete. That is a direct result of the government's response and the decisions that were made in the context of the Murray inquiry.

Senator DASTYARI: I note that since last estimates the Senate is now conducting an inquiry into the gap between credit card interest rates and a whole series of other measures relating to interest rates for credit cards. I want to note the fantastic assistance that the committee has been given by Treasury officials and the work that Treasury has done in that space. I also note, Minister, that the announcement yesterday about surcharges was very welcomed, and that is a matter we have certainly been looking at. We are looking at other matters in addition to that, but I think that is a fantastic consumer measure. I understand that the matter has been taken to two separate meetings of the Council of Financial Regulators. Is that correct?

Mr J Fraser : I was not at the last one, but my understanding is that it was, and it certainly was at the previous one.

Senator Cormann: I have to say: I know it is the custom to have wide-ranging questions to the secretary of Treasury, but very much the answers to the questions you are asking are part of the markets group of Treasury. We are a long way from microeconomic—

Senator DASTYARI: I assure you I have plenty for markets group.

Senator Cormann: I just thought I would put that reminder out there.

Senator DASTYARI: Mr Fraser, is Treasury itself—and, again, if you are not sure of the answer to this I can ask markets group—working on—the last meeting of the Council of Financial Regulators, which I think was on 16 September—

Mr J Fraser : It was 15 September.

Senator DASTYARI: You yourself were not at that meeting, so if I have questions about what the outcome of that in relation to credit card policy is going to be I will perhaps save them for markets group later today. Was there anyone from Treasury?

Mr Fraser : No. I was detained—

Senator DASTYARI: But was anyone who was there here today?

Mr J Fraser : From the markets group, yes.

Senator DASTYARI: Fine; I will ask them.

Senator WHISH-WILSON: I have two questions, one on housing-related investment and one on non-housing-related investment. In relation to housing investment, is Treasury monitoring the level of investment in housing by superannuation funds—in particular, self-managed superannuation funds?

Mr J Fraser : I think 'monitoring' would be too strong a word, but Treasury is certainly aware of it. And of course it was an issue in determining the response to the Murray inquiry for the self-managed super funds. We are aware of it, but I think 'monitoring' would be too strong a word.

Senator WHISH-WILSON: Do you have any thoughts on the level of investment in housing by self-managed super funds and whether it is posing any systemic risk or contributing to potential overheating of housing? I will not call it a bubble this time, but—

Mr J Fraser : We have considered it, and the government has made its response to the Murray inquiry recommendation in that regard. No, I do not think it is a systemic issue.

Senator WHISH-WILSON: In relation to the comments you made earlier about debt and expenditure—and Senator Cormann said very similar things—there does seem to be a school of thought that we have underinvestment in infrastructure across the country in non-housing investment. You talked about the very low levels of interest rates that we currently have. What are your thoughts on increasing infrastructure spending and financing of infrastructure at historically low interest rates?

Mr J Fraser : Well, I have said before I took this job—to declare my interest, I used to run an infrastructure fund; it was one of my funds—that we have underinvested in infrastructure for decades. That is something that many other countries share. It certainly was an issue in the United Kingdom. They invested heavily in infrastructure—in roads and rail—in the fifties and sixties, and they fell off after that. But they have seen the benefits of that expansion. And there was the investment in the road network in the United States, in the Eisenhower years and through the sixties. Anybody who has driven down I-95 realises that that has been a fantastic investment. We have underinvested in infrastructure. I think I have also said before I took this position, but I will say it again, that it was unfortunate that the proceeds of the mining boom were not put more into infrastructure. But I think the issue with infrastructure is not a shortage of money. I used to chair Victoria Funds Management Corporation for the Victorian government. The issue we had there was projects. The money is there. The money is seen to be there throughout the superannuation industry. And certainly when I had an infrastructure fund reporting to me we trawled the world looking for projects. It was not a shortage of money. So, the issue is about getting projects. We have, as a legacy, given the—

Senator WHISH-WILSON: Perhaps I could just ask you to clarify: are you talking predominantly about brownfield projects, or greenfields as well?

Mr J Fraser : The whole lot. It resulted in an industry around the world that was set up as infrastructure funds going close to getting things that did not look like infrastructure. But we have tried to address it. The government has certainly addressed it in the last budget—one of the legacies, given the former Treasurer's valedictory speech today. The former Treasurer was instrumental in G20 and setting up the Global Infrastructure Hub in Sydney, which I am chair of. We are having the function to launch it next Monday evening in Sydney. One of the key objectives of the Global Infrastructure Hub is to bring together a regimen for putting projects together so that, if a country or a state or indeed a local government, or even people from the private sector, want to design an infrastructure project, they will get the benefit of international experience—things on literally how to set up a contract; dispute resolution procedures; how to market it—and that is very much a supply-side effort. You also see it with the Asian Infrastructure Investment Bank doing the same thing. So I think there is a global recognition that we have underinvested in infrastructure and we need to get more decent projects off. This is clearly something we are working closely on with the states and territories. We have also had the asset recycling fund, which has already been accessed by the Australian Capital Territory and the New South Wales government.

Senator Cormann: The government is very focused on the need for increased infrastructure investment and the former Treasurer, the current Treasurer and, of course, the Turnbull government is very focussed on that. There is no doubt that there is an appropriate place for debt financing of infrastructure. The problem that we are facing in Australia is that we are accumulating debt as a result of recurrent deficits and, if we do not get our recurrent expenditure growth under control, if we do not get our recurrent expenditure below the level of recurrent revenue, then that obviously reduces our capacity to make important investments, including and in particular in infrastructure. As well as getting the level of recurrent expenditure growth under control, what we have been seeking to do is to improve the quality of the spend by shifting a level of the expenditure that, in the past, would have gone on recurrent expenditure into infrastructure investment. But we are quite open to any suggestions out of the marketplace on how we can leverage additional private sector investment or how we can appropriately leverage increased investments from the states and territories into infrastructure, and of course the asset recycling initiative was an important part of that.

Senator WHISH-WILSON: On that subject, perhaps I could ask Mr Fraser: do you have any thoughts on discussions around the role of value-capture methods in financing infrastructure and, in particular, the idea of having a national discussion around land taxes? Do you feel there is any connection there with potential value-capture in infrastructure financing?

Mr J Fraser : It is a very interesting and worthwhile concept to pursue. The devil is in the execution.

Senator WHISH-WILSON: Have you seen examples internationally where it has worked?

Mr J Fraser : I think they are trying to do it with the high-speed rail in the United Kingdom, but it ran into terrific opposition. Sorry that I am going back to last year, but the debate over there was on the basis that, if they put the high-speed rail through Birmingham and down to London—it was going through the Cotswolds—there would be value increases around the stations. There were a lot of people then who argued that there would be value reductions, because the Cotswolds is a rather nice place to live in the United Kingdom, so it got into a very political debate on that. That was the one area where I thought it was pretty clear cut if people wanted access to London or Birmingham airports and there were housing developments, greenfield developments, around the stations. I have been back to London twice, but I am afraid I am out of date on that. Elsewhere, no, I am not aware, sorry.

Senator WHISH-WILSON: Do you have any idea about a quantum or any metrics around underinvestment in the country at the moment?

Mr Fraser : No.

Senator WHISH-WILSON: I have heard different numbers.

Mr Fraser : I am sure there are a lot of consultants. There will be a lot of investment banks out there delighted to make estimates of what the gap is. I find it very hard to know where to start. I just work on the basis of casual observation.

Senator WHISH-WILSON: It is this balance in the argument around debt—debt being bad or being good and whether it can be put into productive infrastructure and raise productivity.

Mr J Fraser : As the minister said and I tried to say, a lot of people want to invest in infrastructure. At Victorian Funds Management Corporation, we reduced our allocation to infrastructure because we could not find the projects. Indeed, VFMC had gone overseas looking for infrastructure projects and took a very large position in Birmingham Airport, which under my chairmanship we reversed for a number of reasons. They had invested in the pipeline in the north, but we reduced the allocation purely and simply because we could not find enough projects. In consultations with other super funds since I have taken this job—I may not have spoken to the right ones—they have had a similar experience, and there has also been some concern about investing in infrastructure through some of the global funds. I know some of the super funds have decided, as we did at VFMC, to go in as a partner in the project rather than doing it as a member of a fund.

On the debt point, I made my point—there is a lot of money out there. I think we can look at innovative ways of funding infrastructure, but the minister made the point about the budget. We have to be careful about it. I see it as an area where the private sector should take the lead. It does not mean the government cannot be partner in that or do things to help it.

Senator WHISH-WILSON: Would you see the concept of a government owned infrastructure bank that looks for private sector investment and issues specific securities on the back of securitising infrastructure projects as being a viable proposition?

CHAIR: We are ranging broadly here this morning.

Mr J Fraser : It is a big step.

Senator WHISH-WILSON: It is a big national conversation.

CHAIR: It is a big national conversation. I am not sure if that is what estimates is for, but—

Senator WHISH-WILSON: We are trying to bring private sector and government together.

Mr J Fraser : It is a big step. I have worked in it. These things are complex and high risk. Not all infrastructure projects pay off.

CHAIR: Like the Cross City Tunnel in Sydney.

Mr J Fraser : There are a few in Australia that are profitable. The general rule overseas in our fund was that it was best to be the third-time buyer.

Senator WHISH-WILSON: My understanding is that, when you speak to the private sector—and the Senate has some inquiries into this at the moment—the politicisation of infrastructure is what they see as a key risk, and the lack of transparency around the way we currently fund infrastructure. Do you think there are new ways of de-risking it for the private sector?

Mr J Fraser : The private sector get paid for the risks they take—they get paid extremely well for the risks they take. My inclination, other things being equal, is that, as I said, they should be the leaders in this area. I am not just talking about Australia; there are some massive infrastructure projects in Europe that went pear-shaped.

Senator WHISH-WILSON: But their expected returns on these kinds of projects are still fairly high compared to government bond rates.

Mr J Fraser : If they work, you should, as a rule of thumb going into infrastructure, be getting about eight per cent real.

Senator WHISH-WILSON: The Reserve Bank said seven to eight per cent.

Mr J Fraser : They have a lot of staff, so they can do research into this.

Senator WHISH-WILSON: Based on current bond yields, that suggests a very big risk premium in their expected returns.

Mr J Fraser : That is if they work. It is a bit like private equity. I do not know what the numbers are, but one in ten pays off. It depends. If you are looking at a project, you would certainly have a hurdle rate of around eight per cent. The other issue with infrastructure is the liquidity. Normally you are not able to liquidate your holding for roughly 12 to 15 years out. That means a lot of investors shy away from that, because 12 to 15 years is a long way off. They may not have thought about that in the early part of this century, but, after the global financial crisis, people realised that liquidity—being able to liquidate your investment—is very important. That means it is a natural home for the superannuation funds and pension funds overseas. It has also been a natural home for some of the big family offices around Europe and the United States, who are investing for future generations. All I am saying is that it is very complex, but I do not step away from what I said at the start. It is unfortunate that we have not invested more in infrastructure over the past few decades, particularly with the proceeds of the mining boom.

Senator WHISH-WILSON: It will be great to have your expertise in your current position.

Senator DI NATALE: I want to talk about the superannuation changes. I think you indicated your concerns around some of the problems in the super system. Have you done any work on trying to establish the relationship between any changes within our superannuation system, particularly around high-income earners, and the housing market, and whether you will see movement of capital into the housing market, potentially causing further information of an already overheated housing market?

Mr J Fraser : People do things, but the broad answer is no.

Senator DI NATALE: I might move to something discretely within housing. I know that it was reported quite recently, I think, that Treasury was looking into some broad-based land taxes and stamp duty as part of the mix of state government revenue. Is the starting point for Treasury the ACT reform, and do you think that is the right way to go, where you are gradually replacing stamp duty with land taxes? Or are you looking at other measures?

Mr J Fraser : No, we are not. In the CFFR process, as the minister indicated, there is a discovery process where we are working with the states and territories. We are looking at all the options. Land taxes and stamp duties are the province of the states and territories. I know that they, in this process, are looking at whether there are growth opportunities in it or whether there are opportunities for more consistency. It is on a canvas of looking at everything in this discovery process for the CFFR meeting. I think the next one will be early in the new year.

Senator DI NATALE: If you are talking about that transition from stamp duty to broad-based land taxes, what are some of the big obstacles stopping us from getting there?

Mr J Fraser : That is one for the states, really. The states worry about the implementation issues. One of the issues with land tax is that it is on land—I am not trying to be smart—not on the square metres of your apartment. So you might have a well-to-do apartment where you have 50 units which are far more valuable than a house, yet the house is paying more land tax than the apartment, because they are paying one fiftieth of the land. That is probably a particular issue for Sydney, and it is an issue for Melbourne and the other states as well. Far be it from me to comment on the political palatability of land taxes. It is something that I keep hearing in conversation, but it is a matter that the states are looking at.

Senator CANAVAN: I would like to go back to your opening statement, Mr Fraser, or at least use that as a platform. You mentioned conditions in the labour market. You mentioned the slight fall in employment in September, but over the year employment has grown by two per cent. I am wondering how the growth in the labour market and conditions in the labour market at the moment compare to expectations in the budget and generally from Treasury?

Mr J Fraser : It is dangerous to look at it month-to-month. As the statistician readily concedes, it is a labour force survey. We would say it is broadly in line with the expectation in the budget. As I indicated in the statement, we will be doing the Mid-year Economic and Fiscal Outlook in December and we will have the benefit of the September quarter national accounts towards the end of November, then we will look at it again. But it is fair to say that they are broadly in line with the budget.

Senator CANAVAN: I do not have a direct quote in front of me, but I believe I remember hearing you or somebody from Treasury mentioning that employment growth has been higher than what you would expect given the underlying economic growth. You are looking quizzical—am I misinterpreting it?

Mr J Fraser : I may have said it. I think I said that when we had some very strong data in June, or something like that. We had a very good presentation by the deputy statistician at the heads of Treasuries meeting in Brisbane a couple of weeks ago underlining how difficult it is to do the labour force survey. By the way, I was recently at a meeting of the heads of Treasuries from the United Kingdom, Canada, New Zealand, Australia and Ireland, and all of us, to man and woman, had the same issue about labour force data that seemed a little bit strange. Ours, if anything, was the best, but all of us have a concern about trying to measure labour force data in a world where labour, particularly younger workers, is far more mobile. I think I said that back in June.

Senator CANAVAN: You might not be able to help me here, but I was going to explore why you think there is that employment growth—because obviously there is a strong relationship, historically, between employment growth and the GDP.

Mr J Fraser : Forecasting has not developed that much since the 70s.

Senator CANAVAN: I am not asking about forecasts.

Mr J Fraser : What I am saying is that just looking at the labour force data at that time, it looked a little bit stronger than what the GDP data and the other indicators were. It was not massive. We celebrate when the unemployment rate comes down. We celebrate when employment goes up. That is why we are here—we want people in work. Everything comes back to having people working and working productively. It was a comment of joy, not of—

Senator CANAVAN: I am certainly not questioning that. I am just interested to know why the underlying conditions in the labour market appear stronger.

Mr J Fraser : I could ask my learned colleagues.

Senator CANAVAN: And perhaps others from macroeconomic group.

Mr Goldsworthy : It is certainly true that we have been going through a period of below-trend GDP growth. Certainly over the past year the unemployment rate has been quite stable in the low sixes. It is currently 6.2 per cent. In terms of why employment growth and the labour market more generally have been quite resilient to below-trend GDP growth, I think we can point to a few factors. One is the composition of GDP growth. A lot of GDP growth recently has been in the services sector, which is quite labour intensive, so that has supported employment growth.

More broadly, I think we can point to a few facets of the labour market that suggest that it has been quite flexible over this recent cycle. A couple of those elements are the decline we have seen in average hours worked. In past cycles, going back to past decades, when there has been a downturn in GDP a lot of the response has come through the number of people employed; whereas this time around that has taken less of a hit but average hours have declined somewhat. The other element of flexibility that I would point to is wages. Wage growth has fallen to 2.3 per cent, which is a historic low according to the series we pay most attention to. That, too, has helped encourage firms both to maintain existing employees and also to hire new people as they have experienced below-trend conditions in the economy.

Senator CANAVAN: Thank you for that. I want to ask about the underlying economic growth. I believe there is some commentary that there is a little scope for optimism with the September results, that some early indicators seem to suggest that September may be stronger than June, which is affected by a range of issues. Do you have any update for us on what expectations are? I am not asking you for a figure, Mr Fraser, just the underlying conditions.

Mr J Fraser : In the NAB surveys, for some time there has been a bit of a mismatch where the 'Are you confident?' type questions have not translated into the investment intentions. I try to meet with business groups or individuals each week regularly. We have enlarged our Sydney office, so the consultation with business is widespread. My own feeling, and it is a feeling, is that probably for the last couple of months or so it has been picking up somewhat. I cannot put a figure on it, but it is just that you do not get beaten up as you may have been when I first came into this job. I cannot put a time on it, but it is the last two to three months or so. That is not just the big end of town. I am talking about the tradies, shop owners, people like that.

It is interesting. You can go to places around the world and you feel it. London feels as though it is booming. You do not need data to tell you that London is booming. You go to New York or Chicago and you do not need data. I am not saying you get a massive impression but certainly, if I put my own impressions together with those of the state undertreasurers, certain parts of the country are doing better than others. Tasmania clearly has got a terrific boost from tourism. Anybody trying to book a hotel room in Hobart or elsewhere has seen that. That is terrific. That is wonderful, but clearly other parts of Australia are somewhat subdued.

Senator BUSHBY: I noted your comment about Tasmania, which is my home state, and the comments you made in your opening statement. I think tourism is part of the reason for what is happening in Tasmania. I am not going to ask for your thoughts on other reasons at this point. I am more interested in one of the potential drivers for increasing tourism, which is the exchange rate. We have seen over 30 per cent fall in the exchange rate compared with the US dollar in the last two or three years. That has obviously had a massive impact on tourism. Potentially it is having a key impact in manufacturing and also other areas of the economy. Could you go into a bit more depth on the impact that the exchange rate change has had on the economy and how that is helping the resilience of the economy, given the other factors that you were talking about?

Mr J Fraser : I would add education to your list. Some universities have said to me that there is an uptick in applications for enrolment each year. I mentioned tourism, which is right across the board.

Senator BUSHBY: Even in Tassie we have seen a huge increase in international tourists, particularly from China.

Mr J Fraser : The challenge is to build a resilient and—I am sorry to keep banging away at this—very productive economy, because one day the exchange rate might go north, so you have to have businesses which can still be competitive when the exchange rate goes north. We forget that in the 1980s the lower exchange rate was accompanied by some very fundamental economic reforms which flowed through into the nineties. If we look to the exchange rate as the saviour in the longer term, we can be sorely disappointed.

Senator BUSHBY: By its nature it is floating.

Mr J Fraser : Yes. The exchange rate touched 49c against the US dollar for a month. The issue is more to make sure that we take advantage of the lower exchange rate to become more productive and open up new markets, being very mindful that it might not always be there to support us at those levels. If you look at some of the European economies, the better ones there became more productive, so when the euro went up and down they were still productive.

Education, tourism—in the early nineties it was precision manufacturing. We never knew where the recovery was going to come from. People went out and some departments went out and picked winners. The success rate was pretty skinny. And then suddenly we found we had a precision medical manufacturing business. We had small-run heavy manufacturing businesses. That is both the conundrum of markets and also the beauty of them. People at a very diversified level make their own decisions. Who knows where the exchange rate is going to go?

Senator BUSHBY: Exactly, you would make a lot of money if you knew. The nature of it is that it responds to varying factors and it is very hard to predict. Other sectors may well include agriculture, which is also important to my home state. What about retail? There is obviously a significant trend in people buying retail items on the internet from overseas. A drop in the power of Australians to purchase things overseas must have an impact on Australian retail as well.

Mr J Fraser : You would expect so. It is like everything in the market; it is a case of price, quality and range. I do not pretend to be an expert, but the younger people tell me the range and quality is another issue as well. But you would expect it to have an impact on retail as well.

Senator McALLISTER: I have a follow-up on some of the discussion that we have been having about the labour market. In your opening statement you said that the continued low growth in wages will weigh on the outlook for incomes. I assume that is just a self-evident statement; that lower wages, in general, translate into lower incomes?

Mr J Fraser : I think it was a broader statement. It obviously has an impact on our budget receipts. Lower wages probably have an impact for the better on employment, and I would suggest that it is part of the reason the US economy has come back. We all want growing per capital real incomes, and they come about sustainably from productivity. It is not nominal wages, it is real wages going up.

Senator McALLISTER: Are you concerned about any relationship between the low growth in wages and the shortfall in demand that you also spoke about in your opening statement?

Mr J Fraser : Not particularly. I think the bigger issue is employment. The biggest thing that we have to do is get people back into employment. We have to get young people back into employment and we have to get overall employment levels up. Employment, to me, is the greater factor in terms of confidence and demand.

Senator DASTYARI: You said that you believed that part of the growth in the US was because of their lower wage structure. Is that correct?

Mr J Fraser : I said 'lower and flexible wage structure'.

Senator DASTYARI: But you have a view that lower wages result in—

Mr J Fraser : No, I said 'flexible wages'.

Senator Cormann: You are putting words into his mouth.

CHAIR: Yes. It was productivity gains. It was something to do with their energy costs.

Senator DASTYARI: I am asking Mr Fraser. The chair does not need to do that.

Senator Cormann: Mr Fraser very clearly said that the way to sustainably improve income is through productivity gains. Real income growth is what matters.

Senator DASTYARI: You are saying that part of the US growth and recovery is based on lower wages and more flexibility. Is that correct?

Mr J Fraser : Yes.

Senator Cormann: There is lower wages growth—that was the beginning of the line of questioning. Observing lower wages—

Senator DASTYARI: I just wanted to clarify. Do you think we need lower wages and greater flexibility here in Australia?

Senator Cormann: The opening question by Senator McAllister observed that that is what is happening in the economy right now.

Senator DASTYARI: I am asking a question.

Senator Cormann: You are asking for an opinion: do you think that is what we—

Senator DASTYARI: I am happy to move on. It is asking for an opinion. Senator Cormann for once is correct.

CHAIR: He is often correct. He is a giant of intellect, and you would do well to not prod him.

Senator McALLISTER: Can we turn to housing. We spoke at the last estimates about your concerns about a housing bubble developing in Sydney and in parts of Melbourne. The RBA stability review remarked that the risks surrounding housing and mortgage markets seem higher than average at present and they also made some remarks about new information from regulators revealing that lending standards were somewhat weaker than had originally been thought. Could you update the committee on your views about these developments and on any risks in the Sydney and Melbourne housing markets.

Mr J Fraser : I think you have covered it. As I said at the time, the comments about the housing market were very much targeted at Sydney and at parts of Melbourne. Housing prices in the rest of Australia have not shared in that boom and comments around that time by both APRA and the RBA I think covered it. We will see what happens with housing.

Senator McALLISTER: What pathways do you think there are out of this for us? What scenarios are you anticipating?

Mr J Fraser : I think I also indicated in the opening statement that there has been a supply response, which is good—the pipeline of housing construction. We have discussed with the states and territories—the states in particular—about possible ways of increasing land release, possible areas to get regulations simplified or whatever for housing development and also it comes back to the senator's question about infrastructure—public transport, railways and roads as well. I think that is a sensible approach. It is a supply issue. Individuals will make their own judgments on housing prices and they will be coloured by a range of matters including the cost of finance. For a government—and this is essentially a state and territory issue—it is about increasing supply. There have been a number of responses. I seem to remember Premier Baird announcing a major land and housing release to the north-west of Sydney and then another one in two years time.

Senator McALLISTER: It was in the south west. In terms of people making decisions, as you say, about prices, should they be worried about a bubble bursting?

Mr J Fraser : They have to make up their own minds. People are individuals.

Senator McALLISTER: From a financial stability perspective, should we be worried about a bubble bursting?

Mr J Fraser : Financial stability, no, I am not particularly worried. I think the measures that have been taken by APRA and the bank's own measures have been sensible.

Senator McALLISTER: The ABS data showed that Sydney house prices spiked 8.9 per cent in the June quarter, which is the strongest price rise since 2003. Does that worry you?

Mr J Fraser : It is a big increase. It is for everybody to make up their own mind. That is a big annual rate of increase, 8.9 per cent. It means Sydney house prices are going to double in three years, if it were sustained. I do not think it is being sustained but I will leave it to others. People make their judgments on housing.

Senator Cormann: The key here is that the price of anything, including the price of property, is a function of supply and demand. If demand exceeds supply, prices go up. If supply exceeds demand, prices go down.

Senator McALLISTER: Those parts of economics I am on top of.

Senator Cormann: Obviously there has been a supply response, as the Treasury secretary has indicated. In the end, there are obviously some issues when it comes to the supply of housing that involve, in particular, state and territory governments, but in the end it is the market at work.

Senator McALLISTER: Concerning supply, last time we were here, Mr Fraser, we talked about the fact that housing reflects upon financial stability but also is a significant public policy issue in its own right and you spoke about your concerns about housing affordability and its impact. At that time it was not clear to me that housing affordability was within Treasury's remit. Is this something that you see now as a core part of Treasury's work?

Mr J Fraser : As I said earlier, we cover the waterfront and we do it with very good people, although with not many people. I am not asking for any more but we cover the waterfront.

Senator McALLISTER: The waterfront? This is a turn of phrase I am unfamiliar with.

Mr J Fraser : We do housing affordability, iron ore prices—everything!

Senator Cormann: Australia has 37,000 kilometres of coastline—

Senator McALLISTER: Can I be more specific then. It was not clear to me last time we met that Treasury was really doing anything at all about housing affordability in terms of a specific policy focus. The new Treasurer has made a number of public statements about this being an area of priority for him. Is this now on Treasury's work plan?

Mr J Fraser : I take your point about irony in humour. We have always done that. Housing affordability is always one of the measures you do. Housing affordability, rent—whatever—they are all indicators and they are all part of this great patchwork we call the Australian economy. The worry I particularly had and we have always had is in the social housing area and the low-income earners access to housing. We have had a working group on housing within the heads of Treasury and the CFR framework since early 2015—I think that was the first meeting I went to. Victoria has been leading that and they had a number of cross-departmental and cross-ministerial meetings here in Canberra on the question of housing. It is a big issue for me, personally. I find it, for the charities I work with, distressing to see young people not being able to have the good ride I had and others had in my generation.

Senator McALLISTER: Mr Fraser, are you the lead agency for housing for the government?

Mr J Fraser : No, we are not the lead agency.

Senator McALLISTER: Who is the lead agency?

Mr J Fraser : Social Services. We all work together—

Senator McALLISTER: Very good. Can I move on to a different subject area, the 2011 Progressing Women initiative. It is described on the website as a strategic priority. I am just hoping you could update me on the current status of that initiative.

Mr J Fraser : Women account for 52 per cent of our total workforce. That is up one per cent since September 2014 and they currently account for 31 per cent of our SES. That is after Luise left to take a band 3 position in ABS in the last month or so.

Senator McALLISTER: At the time it was released, the document contains the phrase:

each and every member of the Executive Board is personally committed to addressing barriers to the recruitment, retention and progression of women.

Is that still the case?

Mr J Fraser : Yes.

Senator McALLISTER: There was an aim for 35 per cent female SES by 2016.

Mr J Fraser : Correct.

Senator McALLISTER: Is that still the goal?

Mr J Fraser : Yes.

Senator McALLISTER: Do you expect to meet it?

Mr J Fraser : I really do not know. We have got a number of positions we are advertising, so it would be wrong for me to give a judgement at this point.

Senator McALLISTER: Is it no longer the aim to—

Mr J Fraser : No, it is the aim. You asked me whether we could meet it; I do not know. We are trying.

Senator McALLISTER: You would like to meet it?

Mr J Fraser : Yes.

Senator McALLISTER: There was a significant rate of growth in the first years of that strategy. You managed to raise it from 24 per cent to 33 per cent in just 2½ years. You said it is now at 31 per cent. Do you feel that the rate of progress is satisfactory in relation to the Progressing Women initiative?

Mr J Fraser : Yes, I think it is good. It is not just the numbers; it is the people in the key positions. We have had key women taking charge of key projects. The response to the Murray inquiry was masterminded, coordinated and driven by Megan Quinn.

Senator McALLISTER: Have you finalised your restructure? You were still restructuring the last time we met.

Mr J Fraser : No, we have not. I have hired a consultant who came in in July. He is actually in the department, and he will report to me towards the end of November. That is as much on work practices as anything—to try to get a far more agile, fluid arrangement that is less rooted in divisional structures that were there when I was there in the 70s. We are also looking at what is coming out of the Murray inquiry, because that is going to be a bigger. The implementation of Murray will take a lot more time, and we want to put far more effort into Commonwealth-state relations and also into structural reform. I am not rushing it. You have to get it right—it is the people you have, and it is the areas of responsibility you have. We are putting a lot more effort—rightly so—into infrastructure, as we have discussed. Also, some areas have gone from Treasury. The Northern Australia Infrastructure Facility has gone to Industry, and we have to sort out some other things with the change of Prime Minister to reflect his priority.

Senator McALLISTER: Right. So the acting arrangements, or the structure that you have at the moment, has no women at deputy secretary level.

Mr J Fraser : We still have a vacancy that we are pursuing.

Senator McALLISTER: You have one vacancy. Do you think that it will be satisfactory to have an executive team entirely comprised of men?

Mr J Fraser : I am not going to comment on employment. We are actively in negotiation at the moment. I am not going to comment about what may or may not come out of that.

Senator McALLISTER: My concern is that there was clearly real momentum in previous years around this question of women in the Treasury and women in economic decision making. My instincts are that this is stalling as a priority.

Mr J Fraser : I think that you are wrong. We have appointed Danielle Press to chair the inquiry into payday lending. We have appointed Karen Chester to the ASIC capability review. Both of those inquiries report directly to me, and they are the only two inquiries I have put together.

Senator McALLISTER: In terms of the executive leadership—

Mr J Fraser : These are part of what we do. These are very important issues. Danielle is chairing a group with Cathy Walter—I put her on it—and there is one male, so two out of the three members on that are female. Karen is chairing the three person ASIC capability review. I reject that.

Senator McALLISTER: Perhaps then it may simply be a different interpretation about what kinds of progress we are all aiming for. If I can talk, perhaps, more procedurally—the policy said that there would be an Inclusive Workplace Committee that would develop further indicators to measure performance. How is that going?

Mr J Fraser : Nigel Ray is actively involved in that. He is in a better position to comment.

Mr Ray : It is going very well. We have been working on a wide range of activities through the Inclusive Workplace Committee. In terms of the indicators of progress, one of the things we have done is that we have had a second cultural audit of the department and looked at the results of that. Those results have been rolled out across the department. It showed in aggregate that we were making progress, but we had a way to go. I think that is a deeper way of looking at it than looking at raw numbers. I am not saying that numbers do not matter by the way, but it is a deeper way of looking at it than just looking at the numbers. On the numbers, I might comment that we recently had an SES band 1 round, which I chair, and in that we appointed or promoted 11 people, six of whom were women and five were men. That is the group that is coming into the SES.

Senator McALLISTER: Yes. So if it is not just the raw numbers—that is a fair point—what other numbers do you think are important?

Mr Ray : I think that numbers matter—so I am not getting away from that—and as the secretary has said, we remain committed to a target of 35 per cent by the end of next year, and then a minimum of 40 per cent thereafter.

Senator McALLISTER: Is there an end point for that 40 per cent?

Mr Ray : Yes, there is—I knew you were going to ask me. I think it is 2018. It is either 2017 or 2018.

Senator McALLISTER: I am happy for you to get back to me on that later.

Mr Ray : When we say 40, it is really 40 per cent women, 40 per cent men and 20 per cent of either. That is really the way we are thinking about it. I think that the cultural audit provides us with a much richer tapestry of how progress is being made in terms of how women perceive their career options in the department, how behaviours in the department are supporting both men and women, and how we are making progress to be what we set out to be from the very beginning—an employer of choice for all people, not a subset of people.

Senator McALLISTER: In terms of developing indicators that encompass some of the things you have mentioned, is that close to being finalised?

Mr Ray : Regarding the indicators we have looked at, we have spent a lot of time looking at data on our performance management system, as a result of which we changed our performance management system. We are in the first year of the new system, which is actually the system the rest of the public service has. The history is that we had a detailed performance management system below the SES before others, and we have moved now to the integrated leadership system, which focuses on leadership behaviours a little more than the system that we had. We look at the numbers of women in senior positions; we look at the gender split of all recruitment processes—at all stages of those processes; we look at the gender split of performance ratings and of pay; and we look at the gender split of movements in performance ratings and of movements in pay. They are some of the indicators we look at.

Senator McALLISTER: Do you compile those into some sort of report?

Mr Ray : There are reports to the inclusive workplace committee, yes.

Senator McALLISTER: Regularly?

Mr Ray : Yes, regularly.

Senator McALLISTER: Are they reports that could be made available to the committee?

Mr Ray : I will take it on notice and have a look.

Senator McALLISTER: Does the inclusive workplace committee still meet quarterly?

Mr Ray : Yes.

Senator McALLISTER: Very good. Did the education program to combat unconscious bias finish in 2013?

Mr Ray : Yes, we have run additional unconscious bias training for people who are new and who are new to the levels that we have run it to. We have run it down to the executive levels in the department—the senior executive and executive levels 1 and 2. In Macroeconomic Group there is an exercise being run in one of the divisions this week around unconscious bias, so it is an ongoing practice.

Senator McALLISTER: So it is a continuing practice?

Mr Ray : Yes, it is a continuing practice.

Senator McALLISTER: Can I ask about flexible work and the 'if not why not' approach. Is that still the approach in the organisation?

Mr Ray : It is, and we have shifted the onus so that within the department the onus is not on an individual to make the case to work flexibly; the onus is on a manager to explain why it cannot be done. This is still a very difficult area and it is one where the progress that we have made is less than we would have liked, but one of the things we are doing is—

Senator McALLISTER: What do you mean by it is less than you would have liked?

Mr Ray : A way to think about it is that back in the past we put in place policies, but we did not think about how we might design jobs. The step that we have made in the last few years has been to move away from saying yes, you can work part-time; yes, you can work remotely; yes, you can job-share to: how are we going to design jobs around that. In the department now we have a division head who works flexibly. She—it happens to be a woman—works full-time hours but in compressed hours. We have a senior executive in Macroeconomic Group who works part-time and in compressed hours. We have job-share arrangements in a number of parts of the department that are working well and we are sharing those stories. We have people who are working more flexibly by working partly remotely and partly in the office. I think the trick is to share those stories and keep progressing.

CHAIR: Hold that thought. We will have a break now.

Proceedings suspended from 10:55 to 11 : 31

CHAIR: We welcome everyone back, and thank you for your forbearance for what was a milestone for a great character and personality of this parliament.

Senator Cormann: I also thank the opposition for their forbearance in allowing us to attend the former Treasurer's valedictory speech. Thank you.

CHAIR: We will continue on.

Senator DASTYARI: And we do not have too much, either.

Mr Ray : Before the break, Senator McAllister was asking me about the Progressing Women initiative, and I wanted to refresh my memory about how we worded the commitment on the SES target back in 2011. The target is to achieve a minimum of 40 per cent, with no particular timeline on it. In recognising that at the time 23 per cent of the SES were women, 40 per cent in five years was going to be quite a stretch. Therefore we had an interim aim of the 35 per cent. That is the way it was framed.

Senator McALLISTER: Very good. In the time since the publication of the policy, have you developed a date for the 40 per cent goal?

Mr Ray : No.

Senator McALLISTER: Any plans to develop such a date?

Mr Ray : Let us get to 35 first. When we get to 35, then we will look at the next step.

Senator McALLISTER: I have some experience in this in another organisation. You have to think big. Mr Fraser, your predecessor was a really prominent participant in the Male Champions of Change program. Is that something you are involved in?

Mr J Fraser : No, I am not.

Senator McALLISTER: Do you intend to become involved?

Mr J Fraser : I have not been asked. I have mentored 11 women: five in the UK, six in Melbourne and Sydney. I am involved in a number of other charities. I think I am pretty committed.

CHAIR: That is a very good effort.

Senator McALLISTER: A final question for you: have you had any discussions with the new Treasurer concerning your future as the Secretary of Treasury?

Mr J Fraser : No.

Senator Cormann: That is, there is no line of questioning. I do not know why that would be—

Senator McALLISTER: It is of interest, because the last time we had a new Treasurer, they took the unprecedented step of ending—

Senator Cormann: That is your interpretation. The previous Secretary of Treasury resigned his position and the government appointed Mr Fraser to be the secretary, I believe, on a five-year contract. This is obviously not a line for questioning for the government.

Senator DASTYARI: Can you answer the question?

Senator McALLISTER: You have answered the question. Thank you so much.

Senator CANAVAN: Going to the US rates decision, which I think you also might have mentioned in your speech, I particularly wanted to ask about the market reaction to the decision not to raise rates. My understanding has been that there has been some change in the market's expectations about any future potential rate rise, but I would not mind getting your views on what that reaction has been and any implications for Australia.

Mr J Fraser : The market reaction is always interesting. The markets were initially very worried about the rate increase, then when they did not increase they were very worried that they did not increase. So go figure!

Senator CANAVAN: They are just very worried, Mr Fraser.

Mr J Fraser : What I have learnt in the past couple of decades doing this for a living is that it is very hard to pick market expectations and even harder to rationalise them, so I do not try. I think there is an expectation at the moment that there will be an interest rate increase; there is a bit of conjecture as to whether it would be prior to Christmas or after Christmas. The key point, and I think we touched on it the last time we met, is that this is a palpable sign of the unwinding of a period of QE—quantitative easing—and it is difficult to know what that is going to mean for many countries. It is a little like a tiger having been caught by the tail. When I was at the G20 meeting in Washington DC in April, it was clear from the discussions there that a number of countries were concerned about how to move from this QE period to a non-QE period. It is not straightforward, because we are in new territory; this is seven years of a different monetary policy environment. For Australia, our cash rates have got down to two per cent—they are not at zero or just above zero—so we are in a much stronger position.

Senator CANAVAN: What are the particular challenges for Australia though, in terms of that unwinding process? As QE is unwound are there any particularly specific challenges to Australia that are different from the rest of the world?

Mr J Fraser : No, I really do not think so. It is something we ponder at the Reserve Bank Board meetings. It is so widely expected, but you have got a market now which is far more complex than even 10 years ago, let alone 20 to 30 years ago. You have non-traditional financial institutions—particularly hedge funds, you have high-frequency traders, and it is a brave person who predicts things. Some people say it will have a major impact on currencies, but the paths of Zurich and London and New York are littered with the bodies of people who have made predictions about currencies. For us, I think what should be welcome is that, over time—over many years, I suspect—we might be going back to a more normal, whatever that means, monetary policy environment around the world. I think I have said elsewhere that it is worrying, not so much for Australia but for the rest of the world, that people have got used to these remarkably low and negative real interest rates. It will be very interesting. Somebody will write a book about it in 20 years time.

Senator CANAVAN: One of the things you foreshadowed earlier is in terms of returning to that normality; a return to potentially higher government bond yields. Are those two issues connected? Is the moving away from QE potentially a first step, or a necessary requirement before governed bond yields would also start to—

Mr J Fraser : If fewer cash rates go up and cash rates around the world at some unspecified time follow suit in varying measures, it would be counterintuitive not to think that there will be an impact right along the curve, and that will have an impact. I think I mentioned earlier that one of the consequences of the Greek crisis, which is still unfolding, has been that a lot of Eastern European and Southern European countries have found that it is more expensive to borrow. We have already seen with the ASEAN their economic circumstances. Indonesia and Malaysia are not as good as we thought a year ago. That will show up. We will move over time, and I would not dare to say what time frame, to a more normal environment where cash in the longer term generally is around about one per cent real. That will be the fulcrum on which most of the other interest rates—

Senator CANAVAN: In terms of what that normal environment looks for in the public finance sector, you said earlier that at the moment 10-year rates are at 2.6 or so.

Mr J Fraser : No, that is the average of which we are servicing our debt.

Senator CANAVAN: On the existing debt, so not the spot rate in the market. Sorry, Mr Ray, did you want to clarify?

Mr Ray : That is the average cost of new debt.

Senator CANAVAN: Okay. What would be the more historical average rate for 10-year government bonds? I am not trying to pin you down. I mentioned historical and that is all I really need.

Mr J Fraser : I understand. I just do not know. The general rule of thumb in financial markets is that over the longer term in a normal environment cash is one per cent real, government bonds would around about three per cent real and equity should earn something like four-plus per cent real.

Senator CANAVAN: Just to clarify for everybody, the 2.6 per cent rate was a nominal rate, presumably, that you were referring to earlier. At the moment we are paying, effectively, zero real on government bonds or thereabouts.

Mr J Fraser : A bit of both.

Senator CANAVAN: We could expect to have quite a substantial increase over a period of time and that goes to the concerns you have.

Mr J Fraser : It could be a long period of time. I keep saying that nobody expected this sort of environment. We have had a period of seven years since the global financial crisis where people would not expect this sort of cycle. Trough to peak is certainly far less than seven years historically. So I just hesitate to make any longer term predictions.

Senator CANAVAN: In terms of the budget impact, for us to understand, at the moment we pay around $14 billion or so a year on interest, gross, is that right?

Mr J Fraser : No, it is more than that. Mr Ray is going through the budget paper.

Senator CANAVAN: I wanted a ballpark for the figure really. I am not sure if this is net or gross but for 2015-16 I have a figure of $14.953 billion.

Mr J Fraser : It is far lower than what is used to be.

Senator CANAVAN: That is my point, I suppose, in terms of the magnitude of any particular change and return to normality on bond yields the impact could be at least in the billions if not in the tens of billions on our balance sheet.

Mr J Fraser : I lived through an age when the 10-year bond rate was 16 per cent. Public debt interest was over 10 per cent of total outlays. It hurts.

Senator CANAVAN: I have one final question, and I am sorry, I indulge the committee on matters of opinion. Given it is back-to-the-future day, Mr Fraser, if you did have a time machine and you could go back, what economic policy setting would you change over the last 30 years? It does not need to be an Australian policy setting. Is there any particular one you would like to see changed if you had a time machine like Marty McFly?

Mr J Fraser : I think Australia has basically been blessed with pretty decent economic policies. I think, if I could get in the time machine, I wish we had recognised what a bonanza it was to have the mining boom and I wish we had been a little bit more studious in how we spent the proceeds. But everybody is a Monday morning quarterback—it is easy.

CHAIR: Yes. Thank you.

Senator DASTYARI: Mr Fraser, thank you for your time. Is the timetable for MYEFO still on track?

Senator Cormann: It is the same as it was all the way through—the middle of December or around then.

Senator DASTYARI: Before Christmas.

Senator Cormann: That is the time that we did it in 2013-14. That is when it will be in 2015. The reason for that is that the third-quarter national accounts will be released on 2 December, and we want to feed that information into our forecasts.

Senator DASTYARI: I just wanted clarification that that timetable has not changed because of the leadership and the new Treasurer and that.

Senator Cormann: No. You obviously do not watch our press conferences as intently as you should, because we have been asked that question on a number of occasions.

Senator DASTYARI: I trust you giving evidence under oath more than I trust a Liberal Party press conference.

Senator Cormann: The proof will be in the pudding. If we provide too many misleading statements in our press conferences—

Senator DASTYARI: You have to replace the Prime Minister!

Senator Cormann: then I do not think it will be a good recipe for future success.

Senator DASTYARI: Secretary, can you explain the tax white paper process to me. In my understanding of the process, there is a green paper process and then there is a white paper process, or how is that—

Senator Cormann: I might take those questions. Some time ago the government released a discussion paper to facilitate discussion on important tax reform opportunities.

Senator DASTYARI: We have all seen it.

Senator Cormann: So some time, probably early next year, the government intends to release a green paper, which essentially is a draft set of proposals for policy reform put forward by the government. There will be a round of consultation in relation to all of that. The intention of the government is, before the next election, to have a tax reform white paper issued, which follows from the consultation on the green paper, which will effectively be the tax reform policy agenda that we would take to the next election for implementation as part of a second term of the coalition government.

Senator DASTYARI: So you are saying you had a consultation paper which is out—which we have all seen—

Senator Cormann: We had a discussion paper.

Senator DASTYARI: Discussion paper, sorry. That obviously turns into a green paper, and the green paper turns into a white paper.

Senator Cormann: The discussion paper does not have any specific proposals on it.

Senator DASTYARI: I have seen the discussion paper.

Senator Cormann: It just identifies issues, whereas the green paper will be the first time when the government actually puts a draft set of proposals on the table for discussion.

Senator DASTYARI: Was the green paper produced by Treasury or was that produced by the unit within the Treasurer's office?

Senator Cormann: The green paper has not been finalised yet.

Senator DASTYARI: Is it being produced by Treasury or is it being produced by the unit within the minister's office? Does that unit still exist?

Senator Cormann: Yes, that still exists.

Senator DASTYARI: So that still exists. It still has—

Senator Cormann: It provides the same support to the Treasurer.

Senator DASTYARI: Same people still?

Senator Cormann: I believe so, but I can take that on notice to see whether there has been any adjustment.

Senator DASTYARI: I assume the green paper is still being produced by that unit within the Treasurer's office in consultation with Treasury?

Mr J Fraser : Treasury is producing it in consultation with that unit. It is left and right hand working together.

Senator Cormann: It is a team effort.

Senator DASTYARI: Has Treasury provided its recommendations to government about the content of the green paper?

Mr J Fraser : At the moment, the content of the green paper is essentially what the Treasurer said last week and what the minister re-emphasised today—a discovery process, looking at all the options.

Senator Cormann: Where we are at is that we put out a discussion paper and there is a level of public conversation about where the opportunities for reform are to improve the tax system, to, as the Treasurer says, ensure it is geared to help people work harder, save more and invest more, because we are conscious of the fact that a better tax system can help improve productivity, help us grow the economy more strongly. That is what we are focused on. But right now, in terms of where we are at in the process, there is a discussion paper. At some point, probably early in the New Year, we will be releasing a draft set of proposals in the context of a green paper. There will be consultation on those proposals. No doubt there will be a public reaction; there will be a view that some things need to be further refined. There probably will be a view from some that certain proposals are, on reflection, not as good an idea as might have been initially thought. That is the usual process with these things. And then the government will make a final judgement, this side of the election, about the best possible tax reform policy agenda for Australia moving forward, which will be reflected in a white paper before the next election.

Senator DASTYARI: You are saying—and I note that these things can change—that, at present, you would expect a timetable of early next year for the green paper to be released?

Senator Cormann: Our intention is to be in a position to release that green paper early next year. We will release the white paper before the next election.

Senator DASTYARI: I have not been in government, so explain to me the process from the government side. Does that green paper go to cabinet before it gets released?

Senator Cormann: Of course. Something as significant, strategic and fundamental as a set of tax reform proposals that will be put into the public domain in a green paper will of course go to cabinet for approval.

Senator DASTYARI: At this point where does the green paper sit in the process? The process is that it gets prepared and then goes to cabinet and gets discussed and then it is released. If you are saying the end point will be around January or February next year—

Senator Cormann: I have tried to explain to you where we are in the process. There is a discussion paper out there. The discussion is well and truly underway. The discovery process, as the Treasurer again indicated last Friday, is well underway. We have not finalised a green paper yet. There has not been a green paper go through a formal approval process yet, if that is your question. At this point in time, we are still working to ensure that we have all of the information that we need to make informed decisions about the best possible green paper when it comes to tax reform.

Senator DASTYARI: I have some specific questions regarding—

Senator Cormann: This is probably now getting into the revenue group.

Senator DASTYARI: No. I just want to say this. I have a few specific questions regarding the advertising campaign around this. I know we have grouped the corporate group as part of this, but previously we have dealt with the corporate group separately so as not to use up everyone's time. I would suggest that that is probably the best way—

Senator Cormann: I think you will find that in the budget estimates we had two weeks and we spent much more time with Treasury. This estimates round is just a week, so we obviously have only—

Senator DASTYARI: Thank you for explaining to me the role of a senator, Minister Cormann! I am making the point that the specific questions we have relating to this may be best asked of the corporate group. If you want to go through it all now, we can. But I am not sure if that is the best use of time. I have one or two very quick questions. Mr Phil Gaetjens rejoined Treasury at a band 2; is that correct?

Senator Cormann: He is the Treasurer's chief of staff.

Mr J Fraser : Phil Gaetjens was on leave without pay to fulfil his role as Secretary of the New South Wales Treasury. He has rejoined Treasury and moved to the Treasurer's office as chief of staff.

Senator DASTYARI: So he was never in Treasury?

Senator Cormann: He was always in Treasury.

CHAIR: So he was on leave without pay?

Senator Cormann: Yes, leave without pay.

Senator McALLISTER: Has he been promoted?

Mr J Fraser : He was promoted to band 3 as part of the process of being appointed to the Treasurer's office.

Senator McALLISTER: He was promoted to band 3 from his previous position?

Mr J Fraser : Correct.

Senator McALLISTER: What was his previous position?

Mr J Fraser : Band 2.

Senator McALLISTER: So he has been promoted to band 3. Does that involve a substantive position in the executive structure of your organisation?

Mr J Fraser : No.

Mr Lonsdale : Mr Gaetjens is working as chief of staff in the Treasurer's office, so he is not part of the executive committee in the Treasury.

Senator McALLISTER: Is it usual for a staff member who is appointed to a ministerial office to be promoted simultaneously?

Mr Lonsdale : We would have to go back and check that.

Mr J Fraser : I believe it happened quite a bit in the 1980s and early 1990s, but I cannot remember precisely.

Senator DASTYARI: So he got promoted while he was on leave?

Mr J Fraser : No.

Senator Cormann: He did not get promoted while he was on leave. He has for a long time been a Treasury officer who was away on leave without pay while fulfilling other responsibilities, including working as the secretary of the department in New South Wales. He has come back to take on the role of chief of staff in the Treasurer's office. In that context, he has received a promotion. I do not think there is anything unusual in this. I am sure that in more recent history there are other examples of that. But if you want us to take that on notice we are happy to do so.

Senator DASTYARI: Yes, take it on notice. He was a federal Treasury official. He left federal Treasury—

Mr J Fraser : No, he went on leave.

Senator DASTYARI: He physically left. He went on leave without pay to be seconded to the New South Wales Treasury. Obviously during that period of time he was paid by the New South Wales Treasury. That is a matter for them. That is a matter for their budget estimates, not ours. He then went from the New South Wales Treasury to become chief of staff—

Senator Cormann: He resumed his position with Treasury and—

Senator DASTYARI: How long did he resume his position—

Senator Cormann: It is not a matter of how long. He resumed it. He officially came back and was seconded to the Treasurer's office, which is where he is working—

Senator DASTYARI: When you say that he came back, did he ever physically come back? Did he start working at—

Senator Cormann: No.

Senator DASTYARI: He has never been in the office—

Senator Cormann: He never left the Treasury books. He was always on the Treasury books. He rejoined the Treasury—

Senator DASTYARI: We are in a surreal world now. I am just trying to get my head around this. Phil Gaetjens, who is a well-respected Treasury official—

Senator Cormann: Thank you for that.

Senator DASTYARI: got a position in the New South Wales Treasury. He went to help them. He got seconded to that—

CHAIR: This is the third time you have gone through this, Senator Dastyari.

Senator DASTYARI: He went there.

Mr Lonsdale : Just to be clear. It was not a secondment. Mr Gaetjens took leave without pay—

Senator Cormann: Which is what we have said a number of times now.

Mr Lonsdale : to take up a position in the New South Wales Treasury.

Senator DASTYARI: Was that for about a year? How long?

Senator Cormann: I would have to you take that on notice. I am not across all of the forensic detail of Mr Gaetjens's—

Senator DASTYARI: That is fine. Then he resumed his position at Treasury and went straight over to—

Senator Cormann: He was already—

Senator DASTYARI: He came back from leave without pay—

Senator Cormann: That is right. His leave without pay finished.

Senator DASTYARI: His leave without pay finished and now he has been seconded to the Treasurer's office.

Mr J Fraser : That is right.

Senator DASTYARI: Has he in the past since he first left to go on leave without pay ever physically worked in the office at Treasury?

Mr J Fraser : No, not that I am aware of.

Senator DASTYARI: So he has gone from leave without pay straight the to secondment?

Mr J Fraser : To clarify, he put his hand up for the band 3 positions. The interview committee of Kathryn Campbell, John Lloyd and I deemed him suitable for promotion but he did not fill any of those particular positions.

Senator DASTYARI: So he interviewed for the band 3 position which he has now been given?

Mr J Fraser : There were a number of positions to be filled. One I talked about earlier. Another is still vacant. He was deemed suitable for promotion to band 3. Then upon Mr Morrison becoming Treasurer he moved into the Treasurer's office.

Senator DASTYARI: So, while he was on leave without pay, he interviewed for a band 3 position?

Mr J Fraser : I think it was on the cusp of him coming back. He undertook a project for the Australian Taxation Office—

Senator Cormann: He did a functional efficiency review at the tax office.

Mr J Fraser : That is correct.

Senator DASTYARI: Did he do that while he was at New South Wales Treasury?

Mr J Fraser : He left the New South Wales Treasury. He did this project with Jennifer Westacott with the commissioner. He put his hand up and went through the interview process, like many others. He was deemed suitable for promotion but not for the particular positions we had. Then he was appointed as chief of staff to the Treasurer.

Senator DASTYARI: When was he moved from band 2 to band 3? Do you have those details, Mr Lonsdale?

Mr Lonsdale : I do not have them with me. The actual point in time is gazetted, so it is a matter of public record.

Senator McALLISTER: Is everyone who is deemed suitable for promotion actually promoted?

Mr Fraser : No.

Senator McALLISTER: What was the basis of the decision to promote him on this occasion despite there not being a substantive position—

Mr J Fraser : To the particular position—

Senator McALLISTER: To which position?

Mr J Fraser : Moving into the Treasurer's office as his chief of staff.

Senator McALLISTER: Your view is that the chief of staff position for the Treasurer is a Band 3 position.

Mr J Fraser : It is commensurate with the huge range of duties and the seniority of the portfolio.

Senator McALLISTER: Has there been the case for previous secondees into a role of this kind?

Mr J Fraser : I am going back into the time machine, it certainly was the case in the early nineties. Martin Parkinson was in John Dawkins's office, Don Russell was in Paul Keating's office and they were certainly at similar levels.

Senator McALLISTER: But he does not have a defined role in Treasury as a band 3.

Mr J Fraser : That is correct.

Senator McALLISTER: What is the salary difference between a Band 2 and a band 3?

Mr Lonsdale : I do not have that in front of me. I can come back to you. Let me check if we have it here.

Senator DASTYARI: Who is paying? Is he not getting paid under the MOP(S) Act?

Senator McALLISTER: I assume he is being paid under MOP(S) Act—is that correct?

Senator DASTYARI: He would be getting paid under the MOP(S) Act.

Mr Lonsdale : That is correct.

Senator DASTYARI: You are not paying him out of Treasury?

Mr Lonsdale : That is correct.

Senator DASTYARI: He is band 3, but that means when he returns he will return at a higher position. Is he a permanent band 3?

Mr Lonsdale : He is a band 3 on the Treasury books, that is right.

Senator McALLISTER: What will you do with him when he returns?

Mr J Fraser : If there were a position that was suitable for him, we would consider it.

Senator McALLISTER: So there is not a position at the moment—

Senator Cormann: This is a usual—

Senator DASTYARI: There is nothing usual about this.

Senator Cormann: It is not unusual for people to leave a position on leave without pay and then come back. It is not unusual for people on secondment.

Senator McALLISTER: That is true.

Senator DASTYARI: But being promoted while you are not there is—

Senator Cormann: And it is not unusual for people to be promoted after an extensive period of service at a very high level. As the secretary indicated, there was a proper process conducted quite separate from the consideration of Mr Gaetjens as a potential future chief of staff to the Treasurer. Now, of course, he is confirmed as chief of staff to the Treasurer. However, this is the sort of process that happens in government every day.

Senator DASTYARI: Mr Fraser, we are talking about Back to the Future Day—is that what you said?

Senator CANAVAN: Today is Back to the Future Day. We just do not have a hover board yet.

Senator DASTYARI: I get a lot of the emails from different Treasury officials who tell me things from time to time. It struck me as a bit odd—

CHAIR: Whistleblowers?

Senator DASTYARI: It depends on what they are blowing the whistle on, some people are just giving information, some people are whistleblowers. Can you explain to me if there is an official policy or was there an official policy at Treasury about casual Friday? Was that a thing?

Mr J Fraser : I do not know. Was it?

Mr Lonsdale : We do not have an official policy. It is not unusual—

CHAIR: I think you are taking the bait here.

Mr Lonsdale : It is not unusual—

Senator Cormann: You should not be taking him seriously on this.

Senator DASTYARI: I am asking a question.

Senator Cormann: Are we really going to be spending time on this?

Senator DASTYARI: One minute, I am asking Mr Lonsdale a question. I just want to know if there is a policy.

CHAIR: Did you end casual Friday, Mr Lonsdale?

Mr Lonsdale : No.

Senator DASTYARI: And there never was a policy for it?

Mr Lonsdale : That is correct.

Senator DASTYARI: And there has been no change to the occupational health about the workplace dress policy? Have there been changes to that?

Mr Lonsdale : That is correct.

CHAIR: We have fun here.

Senator Cormann: It is good that we have been dealing with the big macro-economic issues—

Senator DASTYARI: We cover a lot of things in this place. Senator Cormann, workplace issues are important issues, you may not think so. You may not agree but the rest of the think workplace issues are important.

CHAIR: Thank you very much. We will now move to the Revenue Group.

Senator DASTYARI: We had one or two things for Mr Lonsdale, remember how we said that. Some of these you can take on notice, Mr Lonsdale. Since last estimates, has there been any additional allocations made for market research and advertising spending associated with any aspects of the white paper process?

Mr Lonsdale : With the white paper process?

Senator DASTYARI: The tax white paper.

Mr Lonsdale : The only paid advertising campaigns that the Treasury has worked on to date this year are the two IGR campaigns—phase 1, the Dr Karl campaign, and phase 2, the small business campaign. There are no other paid campaigns that the Treasury are working on at this point.

Senator DASTYARI: Just close the loop on this—we went through all of them extensively at the last estimates and the estimates before—you are saying that since last estimates there is no update to provide on any type of advertising or marketing campaign, and there have been no additional allocations or contracts since the last estimates.

Mr Lonsdale : As I understood it your first question was directly on the white paper. If you are asking me whether there have been other levels of expenditure on the two campaigns that we talked about before, there is an update. I am happy to provide those figures to you.

Senator DASTYARI: If you could provide an update. Thank you.

Mr Lonsdale : As at the end of the September 2015, the consultant 303Lowe, which is creative agency, the spend in 2014-15 was $6,428,684.82.

Senator DASTYARI: That becomes $6 million.

Mr Lonsdale : That is $6.4 million.

Senator DASTYARI: Is that the ad buy?

Mr Lonsdale : That is the creative part.

Senator DASTYARI: Just to create the ads?

Mr Lonsdale : Just the creative parts.

Senator DASTYARI: For which campaign?

Mr Lonsdale : This is for both parts together, phase 1 and phase 2 of the IGR, the spend for 2014-15, which I think post-dates the last time that we spoke.

Senator DASTYARI: There was $6.4 million spent on creative. What is the AusTender tracking number? You seem to have the sheet in front of you.

Mr Lonsdale : These would be from AusTender, I do not have the tracking number in front of me. If I can get the tracking number, I am happy to provide it to you.

Senator DASTYARI: So $6.4 million, which is the creative—this is the two parts of the IGR campaign.

Mr Lonsdale : That is the total spend for 2014-15.

Senator DASTYARI: The total spend for 2014-15. You obviously have the ad buy figure as well.

Mr Lonsdale : Yes. Are you happy if I work my way down the list?

Senator DASTYARI: Please do.

Mr Lonsdale : Hall and Partners Open Mind, which is market research, it was $1,043,929.80. GRA Cosway, which is a public relations firm, it was $345,838.68—

Senator DASTYARI: Is that $345,000?

Mr Lonsdale : Yes, correct. ORIMA Research, which is a market research evaluation, it was a no-spend. Dentsu Mitchell, which is a master media buyer, it was $24,056,683.62 or $24.1 million.

Senator DASTYARI: That is the entire IGR campaign. There was obviously a fair bit of media and comment around the role of Dr Karl, I am sure you were aware of it at the time. I believe there was some media report around that he was going to return the fee that he was paid for participation in the campaign. Did that come back to Treasury and not the agency?

Mr Lonsdale : I would have to check that.

Senator DASTYARI: If you were able to take that on notice. The media at the time was comments from Dr Karl disassociating himself from the campaign. As I read the media, that he was going to repay the monies that he was paid for participation in the campaign. I would like to check that money somehow came back to Treasury coffers and was not somehow, because of contractual arrangements, retained by 303Lowe. Do you have any more details on the creative, they obviously prepared both parts of it, did they do the online content as well as the TV ads? What did they do? As someone who has a little bit to do with advertising in the past, a $6.4 million advertising creative buy, when you have a $24 million actual ad buy, is very, very high. I am not quite sure what they did for that 20 per cent of the budget being spent on creative. Is there a breakdown of what they have actually done?

Mr Lonsdale : I do not have a breakdown. As I understand it, to create the campaigns a lot of work is done up-front on different creative concepts, if you like, and different options that are then presented to government.

Senator DASTYARI: If I was to add all this up, and you may have done this already, what is the total spend for the campaign, the IGR parts 1 and 2? Do you have the figures?

Mr Lonsdale : I do not have the aggregate in front of me. If you would like me to add it up—

Senator DASTYARI: We can add them. I thought you have them there. That is the entire campaign now? There is no more money to spend, no more contracts to come in? This is the final figure for the IGR?

Mr Lonsdale : If I can put it this way, the government announced and agreed to do two phases of their campaign. This is spend that we have made in 2014-15. They are the latest figures I have.

Senator DASTYARI: Is there a 2015-16 spend underway?

Mr Lonsdale : For another campaign?

Senator DASTYARI: For this campaign?

Mr Lonsdale : For this campaign, not to my knowledge.

Senator DASTYARI: Governments can decide to do more campaigns or other campaigns, there are guidelines and processes that they have to go through. As far as you are concerned, this is the totality of the campaign?

Mr Lonsdale : If you are asking me to be categorical, are there more dollars that slipped into the financial year related to phase 2, I cannot be. I would have to go and check that. If you are asking me is there is an extension of phase 2, I am not aware of one.

Senator KETTER: You did indicate that the first figure you gave us was as at the end of September 2015.

Mr Lonsdale : Just to be clear, the figures that I have are at the end of September but they relate to the 2014-15 spend. So I have asked for whatever we had at the end of September, so that is the 2014-15 spend.

Senator KETTER: So we will have to come back again and ask about 2015-16?

Mr Lonsdale : I am very happy next time I arrive if you would like to ask me more questions on that.

Senator DASTYARI: That is the IGR campaign. Do you have similar figures for the tax white paper campaign as well?

Mr Lonsdale : I think I answered this in your first question. We are not working in the Treasury on any other paid campaign apart from the two IGR campaigns that I have talked about.

Senator KETTER: Were KPIs set for the campaign and can you tell us whether they were met?

Mr Lonsdale : I will have to come back on notice. We do evaluate the campaigns, particularly when there is another stage—like there was phase 1 and phase 2. So we do evaluate, but I do not have that material.

Senator KETTER: Could I request that on notice?

Mr Lonsdale : Sure.

Senator KETTER: Could I check that all phases of the campaign went through the Department of Finance's ad committee?

Mr Lonsdale : Just to be clear, which committee are you talking about? Is this the ICC?

Senator KETTER: I refer to it as the ad committee. There must be a committee that authorises expenditure on advertising.

Mr Lonsdale : I will talk through the broad process, if you are comfortable with me doing that. There is an independent committee, the ICC committee, and that committee looks at the Department of Finance guidelines and determines whether the ad can conform with the first four parts of that guideline. That happened with IGR phase 2 campaign. That committee was not in existence for phase 1 campaign.

Senator KETTER: What does ICC stand for?

Mr Lonsdale : The independent communications committee.

Senator KETTER: When was that set up?

Mr Lonsdale : My understanding is that that was set up in around February or March. But, just to be clear, these are questions, I think, that you should direct to the Department of Finance, who are the secretariat for the committee.

Senator KETTER: So you will come back to us on notice with information about what the KPIs were and whether or not they were met?

Mr Lonsdale : I am happy to take that on notice.

Senator DASTYARI: Mr Lonsdale, question on notice No. 2444 was provided by Senator Wong to the Minister representing the Treasurer. So I assume that it was Senator Cormann. It made reference to a report in the Financial Review regarding—I have not heard this term before—a functional window installed in the office of the Treasury secretary, Mr Fraser. Would you have paid for that out of corporate group, or how would that have been accounted for?

Mr Lonsdale : If you are able to read that question, that would be good. I do not have the question in front of me. Do you have the answer? Did we provide the answer to you?

Senator DASTYARI: For the answer, we have been given a run-around. The answer is:

Please direct to the Department.

We have asked the department, who have kind run us around saying, 'That is a matter for you.'

Senator Cormann: I cannot hear you.

Senator DASTYARI: It is question No. 2444 and I am happy to provide you a copy of this:

Senator Wong, asked the Minister representing the Treasurer, upon notice, on 5 June 2015

With reference to a report published in the Australian Financial Review on 4 June 2015, that Secretary to the Treasury, Mr John Fraser, has 'had a functional window installed in his office':

(1) What is a functional window.

(2) At whose request was the functional window installed.

(3) What was the stated reason for installation of a functional window in the office of the Secretary to the Treasury.

And there were questions about costs. The response was:

Please direct to the Department.

Senator Cormann: To which department?

Senator DASTYARI: It just says:

Please direct to the Department.

I assume that this is the department. Minister Cormann, I read your things that you say and I follow you like gospel, so when you say:

Please direct to the Department.

I direct to the department.

Senator Cormann: You have waited for—

CHAIR: Do not bite.

Mr Lonsdale : What I am able to—

Senator Cormann: the secretary to leave to ask that question.

Senator DASTYARI: I thought it was an appropriate question.

Senator Cormann: In the middle of all the big macroeconomic questions as well!

Senator DASTYARI: I thought that it was an appropriate question to ask the head of corporate. If you want, we can recall the secretary; we have the power. You asked me to ask the department. I am following your advice. I am just trying to do your bidding.

Mr Lonsdale : I can disclose to you that the windows in the secretary's office open.

Senator DASTYARI: Okay, and was that—

Mr Lonsdale : And that constitutes a functioning window.

Senator DASTYARI: That is a new development?

Mr Lonsdale : It is a new development that his window would open—correct.

Senator DASTYARI: So here is what we will do: the exact questions that were put to Senator Cormann, which Senator Cormann asked us to direct to the department—as part of taking the advice from Senator Cormann—why don't I put on notice these six questions relating to the cost and measures relating to the functional window installation. I will put them on notice to you. I assume that you do not have any information about the costs with you here? You do? Come to the table, thank you.

CHAIR: Is there a handyman invoice somewhere for unsticking the window or whatever?

Mr Lonsdale : We will come back to you.

Senator DASTYARI: If you have the information, is there something you can come back to us today on?

Senator Cormann: We will check.

Senator DASTYARI: Would you like to me to read them into the Hansard record or do you want me to hand them to you?

Senator Cormann: Just table it.

Senator DASTYARI: I will table these six questions on notice, but do you have the figure? Do you have the amount of cost? It seems like that that is really all that we are after.

Mr Lonsdale : Let me come back to you. I can see that you really want the cost.

Senator DASTYARI: I am dying to know.

Mr Lonsdale : I really want to be able to give you the right cost, so if you just give me the question, I will go away and I will come back with the cost.

Senator DASTYARI: Thank you, Mr Lonsdale.

CHAIR: If there are no other questions for Mr Lonsdale I will call the Department of Treasury Revenue Group and the Australian Taxation Office.