Interview with Scott Murdoch

Sky Business Sunday

Sunday, 1 July 2007

9.35 am

SUBJECTS: Superannuation; Private Equity; China; Gordon Brown

TREASURER:

There is no doubt there has been a huge flood of money into superannuation – and the greatest flood of money into superannuation ever.  That is actually a good thing.  We wanted to encourage people to invest more in superannuation, we expected that they would but we didn’t quite expect that they would put as much in as they have, but we would say to people don’t think the time for investment is over once the 1st of July comes, people can invest $150,000 a year or $450,000 over three years and keep on going.  Let’s see the investment continue to roll after the 1st of July.

MURDOCH:

So the $80 billion that has been put into super that hasn’t taken you by surprise at all?

TREASURER:

We knew that there would be an amount that would go in and we wanted to encourage it.  I don’t think we thought it would be as much as that.

MURDOCH:

So you don’t think super has made our market reach this bubble that we are seeing at the moment?

TREASURER:

I think it’s kept it strong and I think that’s a welcome thing.  But this is what happens when you have got a big pool of savings, the savings has to find a home somewhere and Australia actually has a huge pool of savings now under management particularly through superannuation.

MURDOCH:

So you don’t think our market is overvalued or even expensive now at these levels?

TREASURER:

Well look I am not in the business of giving stockmarket advice.  The only thing I would say is that the important thing is to keep your eye on the fundamentals.  Companies are extremely profitable in Australia at the moment.  The profit share to GDP is the highest it has ever been, we have the lowest unemployment in 32 years that is backing strong consumer sentiment and frankly you would expect business to be doing well in a climate like this.

MURDOCH:

Why don’t you like private equity?

TREASURER:

Well I love private equity.  Private equity is something that millions of Australians engage in by investing in the sharemarket…

MURDOCH:

But in terms of private equity buy-outs you have been….

TREASURER:

…I have got nothing against private equity – I have presided over the greatest growth in private equity of individual Australians that we have ever had. And that is a good thing.  I make a couple of points about high leverage – if by private equity you mean buying a company and running up leverage…

MURDOCH:

That’s what I mean.

TREASURER:

…which is what many people mean when they use the short term, I am concerned about high leverage in companies, yes I am, I don’t have any concern about private equity, most of our companies are owned by private individuals.  And when we are talking about private equity funds you are talking about a new phenomena where they leverage these companies very, very highly and that can be risky.  And I have sounded  a warning in relation to that if you have very high leverage, very large borrowings, a downturn in the company could put the company at risk.  I am also concerned that high leverage and high borrowing is not used as a tax minimisation device.

MURDOCH:

But what’s the process like that we’ve got our Treasury Inquiry underway here – you ordered that after Britain’s then Chancellor Gordon Brown did a similar thing in the UK, we have got a Senate Inquiry underway at the moment as well, that’s been put back, where are these processes at now?

TREASURER:

Well, our financial regulators are looking at private equity funds from the point of view of leverage, from the point of view of corporate stability, stability in the financial system from the tax angle and they will be advising the Government in relation to that.  Now, so far, I think we can say well we haven’t had any bad experience so far in Australia.  In fact the most highly publicised offer which in fact went to the market was rejected by the market in relation to Qantas.

MURDOCH:

Were you happy when the Qantas bid flopped?

TREASURER:

Well it wasn’t really up to me to be happy or not.  It was cleared to go to the market – the market rejected it.

MURDOCH:

In terms of China, the Australian economy has done so well off the back of it but we have seen a little bit of intervention from the authorities overthere.  Do you think that is warranted?

TREASURER:

Well look, I think China is moving towards a more market economy.  I think as it does that it will have to liberalise many of its markets including its financial markets.  I think this is best handled in an orderly way.  I think the progress that they are making is good.  Of course when you are moving from socialism to market capitalism you have got a long journey and the chances of making an error along the way are quite great and you would be foolish if you think there won’t be temporary setbacks or misjudgements.  Of course that always happens but the important thing is the direction that they’re going and the sequencing of the reforms.

MURDOCH:

What about finally, have you spoken to Gordon Brown?

TREASURER:

Well I have spoken to him a lot over the years, I haven’t spoken to him in the last couple of days.

MURDOCH:

Things between you and him they are quite similar aren’t they?

TREASURER:

Well, he and I have served together over the course of a decade.  We have exchanged notes, we have worked together in international fora, it’s from my point of view been a very warm and good relationship and I wish him every success as he now becomes Prime Minister of Great Britain.

MURDOCH:

I think the figure is he has delivered 11 Budgets and you have delivered 12?

TREASURER:

I have been around a little longer than Gordon.

MURDOCH:

But I have got to ask, how many more Budgets Treasurer have you got left in you?

TREASURER:

Well, we will see what the future holds.

PRESENTER:

And as we mentioned that interview was recorded late last week.  On the weekend the Treasurer’s Chief of Staff was critically injured.  Our thoughts are with his family.