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Transcript of interview with Chris Kenny: The Chris Kenny Show Sky News: 29 August 2019: energy reliability; US China relationship; productivity; trade; Tim Fischer



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29 August 2019

Interview with Chris Kenny, The Chris Kenny Show, Sky News

Subjects: Energy reliability; US China relationship; productivity; trade; Tim Fischer

CHRIS KENNY:

Thanks for joining us, Treasurer. I want to get in to some issues that you’re directly responsible for now in just a moment. But we’ve just heard that story from South Australia about how those emergency generators have now been privatised and they’re going to pump extra energy into the system more regularly. This just proves you were right, doesn’t it? It proves South Australia left itself incredibly vulnerable on electricity generation through its big push to 50 per cent renewable energy.

JOSH FRYDENBERG:

Well, there’s no doubt about the vulnerabilities that South Australia have had in the energy space, particularly because the former Labor Government ignored the warnings and pursued unrealistic and reckless energy targets where they were forcing renewables into the sector without understanding what the impact would be on the stability of the energy system. And now in Victoria, real dangers of blackouts going into the end of the year and the Victorian Government is on notice that they need to put the stability and the cost effectiveness of their energy system first and foremost as opposed to some of these recklessly high, unfunded, un-costed targets.

CHRIS KENNY:

Now that Daniel Andrews’ government is talking about a 50 per cent renewable energy target in Victoria, obviously a much bigger state, much more crucial to the National Electricity Market. It’s not your responsibility anymore as a Minister, but surely as Treasurer, you must be gravely concerned about what that’s going to do to the reliability of electricity right across the National Electricity Market and the cost?

JOSH FRYDENBERG:

Well, absolutely energy is critical to the success of the Australian economy, not just for households. But in fact, two thirds of energy demand is industrial and commercial use and we know what an important input, for example, gas is for manufacturing. In Victoria, they’re sitting on forty years worth of gas supplies that, unfortunately, they’ve locked up rather than developing in a scientifically proven and environmentally sustainable way. And that is what the challenge is for the Victorian Government - is to lift their game in that regard to ensure that people in the state of Victoria get their energy cheaper than they currently do and that the system is more stable than it is.

CHRIS KENNY:

But doesn’t this show that the whole National Electricity Market model is broken because you need to look at reliable supplies and affordable supplies right across the country but yet you have individual state governments can take decisions like this which are, perhaps, a federal government might not agree with or other state governments might end up paying a price for?

JOSH FRYDENBERG:

Well, there’s no doubt that it’s a complicated system with divided responsibilities between federal and state governments. But what our concern has been at the federal level is some of the states have pursued these very high renewable energy targets without actually explaining what the impact would be on price, and indeed, on the stability of the system. As you know, gas is also a major challenge and a number of the states have locked up their resources rather than developing them to the benefit of households and businesses in their own state.

CHRIS KENNY:

There’s been talk about Queensland, perhaps, dropping off the National Electricity Market. Is there any potential at all for the Market to be either broken up or reformed so that states are more self-reliant when it comes to energy?

JOSH FRYDENBERG:

I still think that the National Electricity Market is a sound model but there is no doubt that the system has to work better for Australian consumers and this is the important work that Angus Taylor and his state colleagues are undertaking and, ultimately, we need to have an energy system that’s working for consumers and working for businesses and creating jobs. That’s got to be the bottom line and it requires the states to be more realistic and more responsible when it comes to some of the targets they’re pursuing.

CHRIS KENNY:

It’s almost too stupid to believe. When you think about what happened in South Australia, they had the 50 per cent renewable energy target, a lot of investment in wind. That forced out the coal fired generators and some other generators, so they forced them out. Then they have a state-wide blackout. Now the state government had to invest in these emergency generators and now they’re going to be used all the time, so they’ve just recycled the taxpayers money and they’ve ended up with more hydrocarbon produced, fossil fuel produced energy anyway.

JOSH FRYDENBERG:

And then in the case of Victoria, as well, you’ve seen that state going from being an exporter of energy to other states to actually importing energy at times of peak demand and as well, diesel generators being brought in to help stabilise the system in the event of high stress. I mean, they’re some of the things those state politicians need to explain to their public as a result of some of the policies that they’ve been pursuing. Look, the reality is about the energy system is that it is changing. There is new technology and renewables are becoming cheaper. But what you need to do is to ensure that the system is changing in a way that is being effectively managed; managed to the point that energy costs are realistic and affordable but also that the system is stable and reliable particularly at those times of peak demand over Australia’s hot summer.

CHRIS KENNY:

Given you’ve got your income tax plan through Parliament already, that’s legislated. Does getting this energy setting, energy policies right, improving reliability, driving down prices. Is that your number one economic challenge, really, in this term of government?

JOSH FRYDENBERG:

Look, energy is one of a number of challenges that the economy faces, but also that we have policies in place to produce stronger outcomes for the Australian people. I mean, in the case of energy we’ve supported the ACCC’s recommendations to get more baseload generation in for industrial customers where we’re getting more transparency around the retail offerings so that consumers have more competition so that they can get the best possible prices. And as you know, we put in place a gas security mechanism which is helped avoid some of the projected shortfalls on the east coast and in order to get prices down. So, we have taken lots of steps to secure a more affordable and reliable energy system.

CHRIS KENNY:

Let’s get back to what you’ve been doing more recently as Treasurer. Your speech calling on public companies to invest more in their businesses rather than pay capital out in increased dividends to shareholders has got a lot of endorsements, a lot of people in business are supporting that approach saying it’s necessary. But when are you going to see some action? Are there any indications that the companies will actually look to do this? Actually respond to that and invest more, making companies and industries in this country more productive.

JOSH FRYDENBERG:

Well, for example we saw today an important company, namely Seek, which is the online job services and employment model. They have talked about investing more and more in R&D and I welcome the comments from Macquarie Bank, from UBS, from CSL, from Wesfarmers and from others, supporting having this debate about the priorities for business and the need for them to invest in their growth plan as opposed to engaging more and more in share buybacks. And as I pointed out in the speech, over the last twelve months there’s been $29 billion worth of share buybacks and special dividends; that’s 140 per cent increase on the average that we’ve seen on the four years prior. At the same time, in the speech, Chris, I also talked about what the Commonwealth is doing to create a better investment climate and to create more jobs. Particularly, the industrial relations reforms, tax reforms, the work we’re doing in dereregulation and in competition, adopting new technologies like the Consumer Data Right which has just passed the Parliament open banking. As well as in areas like education and in health where we can get a more efficient and effective service delivery which can boost productivity because we’ve had twenty eight consecutive years of economic growth in Australia and more than half of that growth has been due to productivity gains. But over the last five years, our average productivity growth has been just 1.1 per cent which has been below that long-term average. It’s up to business, it’s up to governments - federal and state governments - and obviously it’s up to employees too to help drive those productivity gains as a means to getting higher household incomes and higher wages.

CHRIS KENNY:

There are a lot of global concerns about the global economic outlook and there has been a lot of volatility on global share markets, including in Australia. A lot of it has been attributed to the ongoing US China trade war. Now, it’s very unusual, we’ve never dealt with the Twitter diplomacy of a US President before. Donald Trump’s methods are absolutely unorthodox. But surely Australia would agree with most of his aims when it comes to this trade war, and that is that we need to make sure China is a fairer global trading partner.

JOSH FRYDENBERG:

Well, we have pointed out that a number of the concerns the Americans have raised are legitimate ones about intellectual property, about subsidies from government and forced technology transfer; they’re all things the Prime Minister has referred to as legitimate concerns raised by the Americans. At the same time, we would like all parties, be it China, the United States or other countries to adhere to a rules-based international trading system. That’s in Australia’s interest; one in five Australian jobs are in trade and as you know, when we came to Government, Chris, we had free trade agreements which were just covering 26 per cent of our two-way trading relationships, now it’s well over 70 per cent as a result of the free trade agreement with, for example, China that we signed up to in 2015, we’ve seen a more than 40 per cent boost in our two-way trading relationship. So Australia’s interests are firmly in having these differences between the US and China resolved, resolved amicably, resolved at the negotiating table and then we can get on with creating more jobs for Australians through trade.

CHRIS KENNY:

But when we’re talking about things like the theft of intellectual property or showing disregard for intellectual property rights, subsidies of exports, manipulation of currency, not allowing reciprocal rights for trade or investment. China is a deleterious force on global trade, isn’t it?

JOSH FRYDENBERG:

Look, we would just make the point that there are some legitimate issues that the Americans have raised. But having trade conflicts and trade wars doesn’t benefit anyone; it doesn’t benefit the parties who are involved and it doesn’t benefit the bystanders who get hurt as well. So, we are very much in favour…

CHRIS KENNY:

Josh Frydenberg, everyone wants the trade war settled. But what I’m saying when it comes to the disputes here, one side is right and the other is wrong. Forget about how the battle is being fought out but Australia firmly believes that the US criticisms on China trade are legitimate.

JOSH FRYDENBERG:

Well, we have said there are absolutely legitimate concerns that the Americans have raised. At the same time, Chris, we’ve said that there are international dispute settling mechanisms for trade, namely the WTO. We’ve talked about how the WTO can be strengthened and improved, particularly in this growing world of e-commerce and digital transformation. But what we want to see is the parties come to the table, for cool heads to prevail and for global growth to continue. And there is no doubt that these trade tensions have weighed heavily on global sentiment and the global economic outlook with both the IMF and the OECD are downgrading their economic forecasts for growth. And we’ve seen a reduction in capital flows, a reduction in the growth volumes for trade as well in the deferral of investment decisions. None of that is good news for countries like Australia who benefit from having a stable world trading system.

CHRIS KENNY:

So far, has the Trump Presidency helped or hindered the global economy?

JOSH FRYDENBERG:

Well, he certainly has overseen domestic strength in his own economy with his tax cuts, his package of investment initiatives. But at the same time, we want these differences with China to be resolved because I think that will be good news for the Australian economy. Let’s bear in mind that the United States is Australia’s number one investor and China is Australia’s number one trading partner. So effectively, we’re caught in the middle when those two major countries are in a dispute. So, the global economy and the Australian economy will benefit from a resolution of these differences.

CHRIS KENNY:

Just very briefly, Josh Frydenberg. I wonder if you want to share any thoughts on the passing of Tim Fischer.

JOSH FRYDENBERG:

Oh, absolutely. It’s very sad that Tim Fischer, a man who has contributed much to Australia, who is a distinguished statesman and leader of the National Party and Deputy Prime Minister. Tim, I knew personally and considered him a good friend, we shared a love of Sir John Monash and he was pushing hard for the posthumous recognition and promotion of Sir John Monash to Field Marshall. He will be remembered fondly. He was an always decent person and he showed real strength and courage under fire, so to speak, during the gun reform debate where he stood alongside John Howard and oversaw really important changes to our gun laws which has no doubt saved many Australian lives. So he will be remembered with a great deal of respect and fondness and he will also be greatly missed.

CHRIS KENNY:

Josh Frydenberg, thanks for joining us.

JOSH FRYDENBERG:

Good to be with you.