Interview with Chris Uhlmann

ABC AM Programme

Thursday, 22 March 2007

8 am

SUBJECTS: Broadband, Labor’s economically irresponsible proposal to raid Future Fund

UHLMANN:

Peter Costello, good morning. 

TREASURER:

Good morning Chris. 

UHLMANN:

What is wrong with building a national high speed internet system?

TREASURER:

There is nothing wrong with a national high speed internet system and as you know both Telstra and Optus have plans to do that at the moment and the Government has set aside money to ensure that rural and regional Australia gets a fair go.  What Labor is proposing to do is to take that money away from rural and regional Australia – that is $2 billion – and then it is planning to raid Australia’s Future Fund in order to put money out there into something which really is being attended to by the private sector, really which can be funded by the private sector, but worst of all, will take money away from future generations just at a time when we are facing the ageing of the population and that is what is irresponsible. 

UHLMANN:

Yes but you agree that this idea is a good one, now it is an argument about how it is funded, how it is put together. 

TREASURER:

It should never be funded by taking away the savings of future generations.  Let me tell you, if you take the money out of the Future Fund now, you spend it, you are still going to have $140 billion of liability in 2020 except you won’t have the money to pay them.  And just at a time when the population is ageing, when we have got fewer people in the workforce, when the demands are greater, you are going to have no provision or less provision to actually meet those liabilities. 

UHLMANN:

But we are talking about money that was locked up in Telstra shares.  Why didn’t you just sell those shares and apply it to a national broadband system?  Why isn’t the community today benefiting from that money which is a public asset?

TREASURER:

See this has always been the Labor way – sell off an asset and flog the proceeds. 

UHLMANN:

But you have sold off assets…

TREASURER:

No, no, but you see we haven’t.  What we have done is the proceeds have been locked away…

UHLMANN:

Only part of the proceeds from one part of one sale. 

TREASURER:

No, no, no, the proceeds have been locked away to fund future liabilities to 2020.  Now what Labor wants to do is take the proceeds and spend them.  It is what Labor did when they were in office.  I warned Australia that Labor couldn’t be trusted with money.  They are like a bear with a honey pot.  They see this fund, which has been set aside to set Australia up for future challenges, and they are breaking into it, trying to consume that honey for their own electoral purposes. 

UHLMANN:

They are talking about part of it, they are talking about the Telstra shares and your own Act allows to make directions on those shares, your own Act in fact locks up those shares for longer than perhaps the Guardians of that system would like. 

TREASURER:

Well can I make this point…

UHLMANN:

So you can make directions on those shares. 

TREASURER:

No, no, no, no, the direction that has been made is Telstra shares will not be sold for two years and the reason for that is that a whole lot of people bought Telstra instalments and they had to have some assurance that the market wouldn’t be flooded.  But that direction doesn’t allow…

UHLMANN:

(inaudible).

TREASURER:

…it does not allow anybody to come along and say we direct the Future Fund Guardians to put their money here, here, here and fund my election promises.  That is not what it allows, and in fact here is the critical question for the Labor Party:– what are they going to do in order to instruct the Future Fund Guardians to pay for their election promises?  They will have to legislate.  They will have to legislate because they are taking away something that has been locked for future generations. 

UHLMANN:

Well your own legislation says the Government’s intention is these directions will be issued only in light of material changes in the investment environment faced by the Fund or in the national interest.  The Labor Party would argue that they are doing something in the national interest and they are making an investment in the future.

TREASURER:

No, there is provision which has been exercised to say that Telstra shares can’t be sold for two years.  That is because the market was concerned they would be swamped.  There is no provision to say what the Future Fund will invest in and there is no provision to direct the Future Fund to fund a political party’s election promises.  None whatsoever.  The only way this can be done is with legislation. 

UHLMANN:

But the Fund has a bucket of money, it will make investments, why shouldn’t it make some investments in the national interests and this, as we agreed at the outset is in the national interest, Australia does need a high speed internet system?

TREASURER:

Because this is taking money out of the Fund.  It is taking money out of the Fund.  If you take capital out of the Fund and you take earnings out of the Fund, by the time you get to 2020 you are going to have $140 billion to pay, of liability, without the money to pay it.  You are going to be in a situation where you have got an aged population, where your health bill is skyrocketing, where your pharmaceutical bills are skyrocketing and you are going to have $140 billion which we could have coped with but we won’t cope with because Kevin Rudd, back in 2007 said, ‘I have got an election problem, I can’t pay for my policies, I am raiding the future to do that.’ 

UHLMANN:

Well you can’t know what is going to happen in the market, you can’t be sure what will be in the Fund in 2020 exactly, can you?

TREASURER:

We have an actuarial report and…

UHLMANN:

And it changes every year.

TREASURER:

Sure.  It grows year after year, but I can tell you this, Chris…

UHLMANN:

And if the market goes back, it may well go backwards for a while.

TREASURER:

Sure, if the market goes backwards it won’t grow, but let me tell you this, if it has got $2.7 billion less in it, if it is going backwards, it will go backwards by a lot more.  Chris, it stands to reason, let me tell you, if you have a bank account and you are earning interest on it, the interest rate might be higher or it might be lower, but if you take $200,000 out of that bank account you are going to earn less in interest and if you take $2.7 billion out of a Future Fund you are going to earn less in dividends or interest. 

UHLMANN:

And if you just sit on money in the bank you may not go anywhere and your own broadband advisory group says that a broadband access could produce economic benefits of $12 billion to $30 billion a year, so making a sound investment with that money could in fact reap great dividends. 

TREASURER:

Both Telstra and Optus have plans to build high speed networks.

UHLMANN:

And they have been arguing over it for ages. 

TREASURER:

And the only argument they have got is whether they should let each other use it and the terms and conditions.  Along comes somebody who doesn’t understand economics – Kevin Rudd – and Kevin Rudd says, here is this big honey pot, I want to get elected.  Let me raid this honey pot and let me put this out there as a way of getting votes.  Well, he can raid the honey pot today, but let me tell you, in 10 and 15 and 20 years’ time when Australia faces its greatest economic challenge – the ageing of the population – because this bear has raided the honey pot, Australia will not be in a position to meet that great challenge.  It is economic irresponsibility of the first order.

UHLMANN:

Peter Costello, thank you.