Interview with Charles Wooley

Across Australia

Thursday 15 February 2007

9:15 am

 

SUBJECTS: Private equity, Qantas

JOURNALIST:

Peter Costello the Treasurer, g’day Peter.

TREASURER:

G’day Charles how are you? 

JOURNALIST:

Not often that you are brought in as a piece of Novocain, eh?

TREASURER:

Yes I will try and anaesthetise the listeners.

JOURNALIST:

Yes, no don’t do that, I need to keep my listeners.

TREASURER:

Oh, ok.

JOURNALIST:

 

Peter Costello, these private equity deals are a great mystery to the average Australian and they seem to have only suddenly appeared, until the sale go through at Channel Nine and a similar deal at Channel Seven we had scarcely heard of private equity deals.

TREASURER:

I think that is right. It is something that has taken off in America and particularly the UK, and as with most of these things after a while it comes to Australia.  There was one done in relation to Myer and you have seen some deals in relation to both Channel Seven and Channel Nine, and of course the one that has got a lot of attention and a lot of interest is the offer in relation to Qantas. 

JOURNALIST:

Now the whole things sounds a bit like the Bonfire of the Vanities, Tom Wolfe, you know, these guys are masters of the universe aren’t they?

TREASURER:

Yes, well what happens is these firms will either represent very big private investors or they will manage money for pension and superannuation funds. And what they look for is they look for a very big deal and they generally hold their position for several years.  They’re not actually short term investors like many of the Australian superannuation funds, which are buying and selling shares on a daily basis.  They generally tend to be in a company for a longer period of time. 

JOURNALIST:

They are not going to take Qantas and this $11 billion takeover and turn it over in a couple of years…

TREASURER:

No.

JOURNALIST:

… before we see an advantage?

TREASURER:

 

No, no quite different.  They will buy a company, and it is called private equity because it then goes off the stockmarket, it is privately owned.  They will generally hold it for several years, up to five years, and then they will look to re-sell it back into the market.

JOURNALIST:

If I can quote back to you what The Australian has said that you have said, declaring that the lust for debt will look pretty irresponsible if there is a 1980s-style downturn.  These people actually turn huge debt, massive debt, the kind of debt  that the average person can’t even contemplate, into an advantage financially don’t they? 

TREASURER:   

Yes, quite often what happens is that they will, once they have brought a company, they will borrow very heavily and the profits of the company are used to service the borrowing.  You can think about it a bit like negative gearing some people do on houses, where you borrow a lot of money against the house price, they borrow a lot of money against the company.

JOURNALIST:

And then you get a warm inner glow from knowing that you are not giving Peter Costello as much tax as you would otherwise,  but it is not you they are robbing it is also the average punter isn’t it?

TREASURER:

That is exactly right Charles. The tax doesn’t come to me, the tax goes to other Australians in providing health services and educational services and all the rest of it. And the point that I was trying to make in the papers today is you can borrow a lot of money when interest rates are low and profits are strong, but if there is an international shock, and bear in mind with many of these deals they are actually not borrowing Australian money, they are generally borrowing from overseas, there could be an international shock, there could be a shock in the United States, or as I saw in the later part of the 1990s there was a shock in Russia which pushed up the cost of borrowing right around the world.  If there is an external shock, then these people that have figured all of their sums on low interest rates at the moment can get caught, or alternatively if there is a downturn. Now many Australians would be scratching their heads to think of the last recession, which was in the early 90s in Australia, because we had such and continuous period of growth, but…    

JOURNALIST:

A lot of people still remember it.

TREASURER:

Well I remember it and you remember it…

JOURNALIST:

I remember it.

TREASURER:

…and the point I am making, is if you were to go into another downturn, again, all of your sums which look good on rising profits and low interest rates can turn around.  This is the warning that I have made to these people and of course if you remember the recession of the early 1990s, you do remember that there were a lot of companies that actually got caught in this precise situation back then.

WOOLEY:

Exactly.  And now I imagine that the private equity boys, I mean it is us, it is the average person, the taxpayer who is going to pick up the pieces if something goes wrong.  I mean, the smart bankers and the economists and accountants that do this stuff they parachute out of the plunging plane don’t they, and land comfortably beside another trough but it will be up to the rest of us to pay the debt.

TREASURER:

Well…

WOOLEY:

As we do for Ansett to this very day.

TREASURER:

…well, this is the point, I don’t think the taxpayer should have to pick up the problems of these people and a very clear warning I am sending to them – you are on your own.  If you get yourself in a situation, don’t come round knocking to the taxpayer and ask to be bailed out, you have done this, you have done it in the expectation of a profit.  With Ansett, the taxpayer didn’t actually bail Ansett out…

WOOLEY:

Well the customers did I suppose and I am still paying in every airline aren’t I, I am still paying…

TREASURER:

…no, no you are not Charles, no.

WOOLEY:

Good.  Well that is a bit of good news.

TREASURER:

…yes, you can afford to fly again.  What happened was that we put in place a scheme to guarantee some of the employees’ entitlements but we did nothing to help the shareholders, the shareholders were at their own risk and what I am saying to these people and we may as well say it to them all now, if you get into trouble don’t expect the taxpayers of Australia to come round and pick you up, you did this for a profit, if you made a loss that is your problem. 

WOOLEY:

Yes, what is it, socialise the losses and privatise the profits.

TREASURER:

Absolutely.  There are so many people that you know, are great devotees of private enterprise when they are making profits but change their view when the losses come around. 

WOOLEY:

I am glad you talk like that because I think we get too blinded by ideology and I am not sure that Mark Vaile is, Mark Vaile says he doesn’t believe it is a Government job to tell the private sector and financial institutions what level of debt they should hold.  I think that is exactly that your job and I am glad that you are doing it. 

TREASURER:

Well…

WOOLEY:

At least warning them.

TREASURER:

Well I am warning them, and I am putting them all on notice, and also I am trying to put the public on notice that when a company gets itself into trouble and it invariably does ask for help and I am saying to the public you know, let’s just remember how they got themselves into trouble, let’s remember that you know, they were on notice and they were warned and don’t have any great sympathy for them.  But Mark’s statement is right, that the Government doesn’t actually pass laws telling them how much they can borrow any more than we pass laws telling people who but houses how much they can borrow.  But I do think it is part of the information for the electorate and informed consent to make these points. 

WOOLEY:

The general view is, I know it is the Foreign Investment Review Board, but the general view is that you could kill this deal if you wanted, now we are romantic about our national airline, especially now that we know how fantastically friendly the hosties really are, you could…

TREASURER:

Have you got any experience in this regard?

WOOLEY:

No I have not, I have not, nor was I expecting it and I unfortunately don’t have the kind of profile of an academy award winning actor, neither do you, Peter Costello so dream on.

TREASURER:

I don’t think I will be put in that embarrassing situation. 

WOOLEY:

Peter, nevertheless, I mean it would be possible to stop this, wouldn’t it, it would be popular with the mob out there?

TREASURER:

Look, we have got a board that looks at these things from the point of view of foreign ownership, and we have a foreign ownership policy which says that Qantas must always be majority Australian owned.  And that policy will be enforced.  Whatever happens here let me say to the people of Australia, Qantas will be majority Australian owned, it will be headquartered in Australia and it will have majority Australian directors.  And that is the process we are going through at the moment.  You have got to bear in mind that Qantas currently has I think 46 per cent foreign ownership already, and you can probably remember that British Airways for a while had a very large stake in Qantas and it is obviously a foreign corporation, British Airways.  But I can say this, that Qantas will not be allowed to pass out of majority of Australian ownership.

WOOLEY:

I have done an interview with you, I haven’t asked you about leadership.

TREASURER:

Good, that is a good interview. 

WOOLEY:

Although I do suspect that one way or another you will be the next Prime Minister of Australia but you will have a, it is going to be a fairly tough fight, isn’t it, Rudd is getting good figures and things are happening for them. 

TREASURER:

The polls tell you that it is a real political contest at the moment, and…

WOOLEY:

Do you know what I don’t hear though, and I have covered just about every election since Gough got turfed out and just getting around the electorates as I still do, and I am not hearing people coming to me and saying, I voted Liberal at the last election and the one before but this time I am not going to.  I am not hearing that. 

TREASURER:

No, I think, we are at the beginning of an election year Charles, and it has got a year to play out, it is going to be a very tough contest, it will be very, very tight.  I acknowledge that.  Obviously I will be doing my best to persuade the Australian people to re-elect the Government but I acknowledge that with the polls the way they are this is going to be a tight outcome and you could get either outcome in the course of this election year. 

WOOLEY:

The other thing is that in the age of middle-of-the-road politics, I mean there is not really that much difference between you blokes, you won’t have a big argument on Qantas for instance, the debate was anodyne in the Senate because the Labor Party couldn’t say anything because they flogged it off in the first place. 

TREASURER:

Well I think, I don’t think there is any great disagreement on Qantas, you are quite right.  Qantas was actually government owned until the Labor Party privatised it so you won’t get that.  But there are big disagreements on other areas.  I think there are big disagreements on economic policy and I have been putting the economic policy together now for the last decade or so and just about everything we have tried to do was opposed by Labor so I think there are still some big differences on the economic area. 

WOOLEY:

Peter Costello, thank you very much for talking, we should do it more often. 

TREASURER:

Great to speak to you Charles, and all the best with the radio programme. 

WOOLEY:

Thanks mate, this goes to regional Australia, as you know, we have a special in regional and rural Australia, we have a special set of circumstances and needs that need your urgent attention. 

TREASURER:

Absolutely. 

WOOLEY:

We will talk again. 

TREASURER:

Thanks Charles. 

WOOLEY:

Thank you very much.