Doorstop Interview

Ironmongers’ Hall, London

Tuesday, 10 April 2007

(London Time)

SUBJECTS: COAG, water, business taxes

JOURNALIST:

The meeting on Friday of the Premiers. Peter Beattie says that this has all really been sorted out, the way you’re going to improve productivity has been sorted out… it’s just a question about how much money – is that how you see it?

TREASURER:

The important thing I think, is to concentrate on ways to boost the Australian economy. Improved industrial relations is a big way to do it:  better infrastructure; improved national regulation of the national economic assets – these are all important things. If the meeting just degenerates into demands for money by state governments it’s going to miss the point. The important thing here is policy – the policy improvements which will get Australia to where it wants to be in forty years time.

JOURNALIST:

But do you agree with the way that Peter Beattie sees it that, ‘you’ve agreed on the way, it’s (inaudible) just how much the Federal government’s going to contribute?’ 

TREASURER:

Well I don’t know – what’s he agreed to? Has he agreed to improved industrial relations? Has he agreed to Work Choices? Has he agreed to better national regulation in relation to national economic infrastructure? Have we got full agreement yet on Commonwealth jurisdiction in relation to the Murray Darling Basin? If we can get the big issues agreed, that’s great, but there are still a lot of big issues that have not been settled. For example, the Murray Darling Basin as far as I’m aware has not yet been settled, it should be – it’s Australia’s most important national water asset so these are the important things and let’s get on with the policy.

JOURNALIST:

So does the water issue have to be sorted out before you’ll talk about the other things the Premiers want?

TREASURER:

Oh no we’ll always talk, and I’m sure we will talk but it should be sorted out. What possible basis could there be not to agree to national jurisdiction over the Murray Darling Basin? I’m surprised it’s taken so long and we would certainly hope that Victoria, on Friday, the last state required to come in on that agreement, will do so.

JOURNALIST:

There was a line in the written text of your speech (inaudible) cooperating with the States (inaudible). Is there any particular reason for that, this week?

TREASURER:

Yes, I probably didn’t have time. But let me say it now lest there be any doubt. It’s important that we work on the national reform agenda. The national reform agenda will involve national regulation for important infrastructure; it will involve improvements in relation to human capital; it will involve better regulation in relation to energy markets. All of these things are very important and should be done, and people shouldn’t have to be given financial incentives to do it – that’s not the point. The point is to do it because it’s in the interests of the Australian public – that’s the reason why it should be done. 

JOURNALIST:

Are the States that are looking for greater reform in the area that is broadly titled human capital, greater reform in child care – are they likely to get any satisfaction this week or in the budget?

TREASURER:

Well the Government offers very extensive assistance in relation to childcare. We have more childcare places than ever before in Australian history. The numbers are not capped. Whilst there’s demand, more places will be subsidised to meet the demand, subsidised through the childcare benefit and through the tax rebate.  And the proof is there, we have more places than ever before. It’s an extensive system of assistance. Now you always keep these things under review and we would like to encourage more places, but we have improved very significantly over the past ten years.

JOURNALIST:

Are the states trying to turn this COAG into something that can be turned to the political advantage of the federal Labor leader?

TREASURER:

Well if you’ve got eight State Premiers and Chief Ministers of course they will come in with a political agenda and what would worry me is a situation where eight State Premiers and Chief Ministers have an inexperienced Federal Labor Prime Minister who was beholden to them for finance and for influence. I think you’d see a situation then where uniform Labor governments would mean no checks or balances. The good thing is, at least in that in that room, there will be somebody keeping all the Premiers and Chief Ministers honest.

JOURNALIST:

You mentioned in your question and answer about the exchange rate, the difficulties presented by an 82 cent exchange rate with exporters for instance. Is it going to be a problem for the Australian economy?

TREASURER:

Look the fact that the Australian dollar is so high at the moment is a problem for exporters, I acknowledge that. It is much harder for them to export competitively with the Australian dollar at 82 cents than it was when it was at 47 cents. That’s a fact of life. But having said that, the government doesn’t intervene on the exchange rate. We acknowledge the difficulty.  It means that it’s important for us to do economic reform to help exporters in other areas. We acknowledge the difficulty but we don’t try and intervene in order to second guess the market or in some way to influence the market.

JOURNALIST:

If it keeps import prices down, keeps a check on inflation will that lower the pressure on an interest rate rise?

TREASURER:

Well a high Australian dollar makes it harder for exporters but conversely it means that our imports are cheaper.  So that does mean, in that respect, at least, that it’s helpful in relation to inflation. But there are some products that are going up even with a strong Australian dollar – oil is one, petrol is another, and the consequence of oil and petrol moving through the economy is something that we have to adjust to. It’s something that will prove difficult; it means that economic policy has got to be very finely tuned to stop that moving into general inflation.

JOURNALIST:

Should Australian’s expect petrol prices to stay where they are now after the Easter weekend with what’s been happening in Iran (inaudible).

TREASURER:

Well, world oil prices are high.  This is partly a result of Iraq, partly a result of Iran, partly a result of the big increase in demand coming out of China. As a consequence of that petrol prices are high.  The important thing is we don’t let those petrol price increases get into the general economy and set off inflation. We’ve had very steady sustained growth for over a decade with low inflation.  We don’t want inflation to escape again into the Australian economy.

JOURNALIST:

You talked about manufacturing and agricultural exports in your speech but you didn’t make any mention of services exports. Can we expect anything in the Budget that may look to encourage services exports?

TREASURER:

Well we want to encourage all exports from Australia. The important service exports from Australia are education, it’s a big market for us; tourism is a big market for us. Of course all of these things are in fact affected by the exchange rate but believe me in a twenty minute speech you can’t cover every topic in the world and just because we can’t cover it today doesn’t mean we’re not interested in it.

JOURNALIST:

What can we expect in the Budget for business? There’s a lot of emphasis on individual tax cuts but what can business expect in the Budget?

TREASURER:

Well I think the report by the BCA is actually a very good report. What it shows is that there’s a whole lot of taxes on business, some of which collect very low amounts but have high compliance costs.  And the first thing we want to ensure happens in Australia is that all of the taxes that were slated for abolition under the GST agreement are abolished. That’s the first step we ought to make and after that we ought to move onto others as well, because some of these small taxes cost so much money to collect, bring in little amounts of revenue, they have high compliance costs, they impede transactions and an improvement in this area would be very welcome.

JOURNALIST:

They just dropped corporate tax here by two percent, could the Business Council expect something like that?

TREASURER:

Well we cut corporate tax by six percent in Australia, and capital gains tax by fifty percent and then introduced full dividend imputation, so that you get full credit for company tax and a refund where your tax rate is lower than that. I think there are a lot of people in Britain that would like to follow the Australian example.

JOURNALIST:

COAG on Friday, you’ve just mentioned again those taxes the states are continuing to impose, is that another block to reform?

TREASURER:

Well it would be much better wouldn’t it, if all of the texes that were agreed to be abolished as part of the GST deal were abolished. It would be better for business, it would be better for the economy. The public was promised that the GST would replace federal tax – wholesale sales tax – and ten state taxes – and it ought to replace all of those state taxes. This would be good for business and good for the economy and it would keep faith with the Australian public.

JOURNALIST:

But you have on previous occasions played a game of brinkmanship with the States on giving them what they want if they drop some or all of those taxes – are you likely to go down that path again?

TREASURER:

Well I just think it’s a question of honouring the deal, and honouring the promise that was made to Australians that the GST would replace all of those taxes, and it should.

Thank you.