10 October 2014
Speech - #2014021, 2014

Treasurer’s closing statement, G20 Finance Ministers and Central Bank Governors meeting, Washington DC

Check against delivery

We've concluded the final working session of the G-20 finance ministers and central bank governors under Australia's presidency. It is a great pleasure and has been a privilege to have held the presidency this year, and I'm indebted to my colleagues around the table for their spirit of cooperation and their support.

We have heard a lot about the economic challenges, which were discussed at length last night. While some key economies are recovering, others face renewed weakness. But there is a general sense of optimism. Today is better than yesterday, and tomorrow will be better than today.

We want to achieve outcomes that will secure the global economic recovery as we head to the leaders meeting in Brisbane in November. I have no doubt that the G-20 has been the right forum to respond to these difficult challenges. And this year we have shown that the G-20 has a plan of action and has the capacity to execute that plan. In Sydney in February, we set ourselves an ambitious program and we have delivered. Our growth strategies have put more than 900 policy measures on the table that will deliver an increase in global growth over the next five years of 1.8 percent. This would mean around 2 trillion dollars to the world economy and millions of new jobs. But, we are not stopping there, and we will continue to work hard to deliver the extra 10 percent of effort that will get us to 2 percent growth by the leaders summit in November.

Infrastructure investment is critical in our plan. We have agreed to a global infrastructure initiative comprising a multi-year set of actions to increase the quality and quantity of infrastructure across the G-20 and beyond. We made very good progress today in developing an implementation mechanism. We will establish a global infrastructure hub to be announced in detail at the leaders summit. This mechanism will support our initiative that increases the flow in particular of private investment into global infrastructure, a demand that is estimated to be around 80 trillion dollars over the next decade.

We have also agreed on measures to stabilize the global financial system. The work of the FSB has been profound. The priorities identified, the initiatives finalized, and again the leaders in November will sign off on those matters. As the chairman of the FSB has said, Brisbane represents a line in the sand when instead of looking at financial regulation affecting events from yesterday, we are going to only look forward to the challenges in the financial system, and get on with the job of implementing the priorities of the FSB.

Of course, there have been major initiatives that we have delivered on in relation to the base erosion, profit shifting, and international tax. And the work of the OECD is continuing.

These commitments will be meaningless if they don't translate into real outcomes. We will hold each other to account through peer review, but most importantly the IMF, the OECD, and other international organizations will be very involved in monitoring the implementation of these initiatives.

And this accountability framework will be central to deliver our global growth agenda.

Our work does not stop in Washington nor does it stop in Brisbane in November. This is a multi-year agenda that will carry through to the Turkish presidency and beyond. We heard today from Deputy Prime Minister Ali Babacan about Turkey's plans and we're all very heartened to hear their determination to continue to implement existing commitments from the G-20. In fact, to use the words seamless continuity, next year in delivering on our goals, in relation to the FSB priorities, in relation to the growth target of 2 percent, in relation to taxation initiatives, and in relation to infrastructure and closer partnerships with the private sector

I want to assure my Turkish colleagues that Australia is going to do everything it can to support their efforts in delivering on the agenda. In fact, I'm sure the whole G-20 will as well.

So, ladies and gentlemen, I've been impressed and heartened by the progress we have made this year. I believe we are well equipped to take on whatever economic challenges the global economy will face in the future. Unquestionably the G-20 is growing in strength because it is growing in purpose. So today we leave the meeting with a sense of optimism. It is realistic optimism, but it is optimism, that with our plans and with our effort we can strengthen the global economy.

Questions?

SPEAKER:

My question is this. Your Prime Minister has made international headlines by wanting to eliminate the carbon tax in Australia. Canada has been gradually rolling back taxes under Prime Minister Harper and the late finance minister Flaherty, and Turkey has rolled back taxes and fees to a degree to attract business. Is there a discussion of lower taxes at the meetings and encouragement of other countries to follow this policy and generate policy.

TREASURER:

The decision Australia made in relation to rolling back the carbon tax was one that we took to a recent election, and as a major energy exporting nation, we were right out there on a limb when few other nations had the same sort of price on carbon we had. In fact, no other nation had such a large carbon tax right across its economy. It was clearly penalizing the Australian economy. However, that does not diminish our commitment to deliver on a bipartisan goal to reduce carbon emissions by 2020.

SPEAKER:

The International Monetary Fund recently slashed its projection for economic growth of Japan as well as Europe. I am wondering if among G-20 member countries there is any concern that Japan may suffer another long economic setback and drag down their global economy.

TREASURER:

There is recognition across the G-20 membership that there are challenges in individual countries. What matters m ost is whether those countries are determined to meet those challenges head on.

There is virtually no country in the world that can manufacture a number that they can exactly deliver on as a forecast and an outcome in terms of economic growth. Having said that, what gives every one encouragement is that the countries that are facing challenges, or the economies that are facing challenges in the case of Europe, actually have action plans or action plans are being developed to respond to the challenges. So, the first issue is, you have to recognize that there is a challenge, and that the strength of the G-20 and the cooperative and engaging relationships that are built in the G-20, both in the formal and informal sense, give us all encouragement that there is recognition of what the problem is.

The second issue is, is there action to address the problem? In the case of Japan we are confident that there is real action from the Japanese government to address the challenges that the Japanese economy faces. The rest of the world stands ready to assist in that regard.

And then the third key component, as you all know, is actually delivering on those commitments. And, in some cases that is difficult. The beauty of the G-20, and particularly for those of us who are finance ministers that are elected by our communities, as opposed to some of the technocrats, is we have to focus on what is deliverable. And therefore, it is one thing to make a progress, another thing to deliver.

There is a steely determination to ensure that we use all levers available to deliver stronger global growth.

SPEAKER:

Initiatives are coming in fast and furious on infrastructure apart from yours.  The World Bank, ADB, the BRICs bank. Can you expand on those infrastructure issues. To some extent these are competitive.

TREASURER:

That is exactly just what we spent an hour-and-a-half talking about, how to coordinate our effort to address. This is something under our presidency we have been incredibly focused on. That is why we have had a coordinated approach to the global infrastructure initiative. There are a number of things. There is demand for infrastructure, and there is no doubt there is about 80 trillion dollars of demand for infrastructure over the next decade.

The second key feature is governments just have not got the money to deliver on that demand. That is a fundamental change from five, ten years ago. There is recognition we do not have the fiscal capacity. So, we need the private sector to step in. The private sector is capital rich.

Now, it is not just the private sector. There are as you identified, sir, a number of multilateral banks, such as the World Bank, the ADB, and also potentially new banks, like the BRICs bank and the AAIB in Asia.

They are funders, and they also have some capacity to facilitate. But in some cases their focus as funders is on poverty alleviation, so there is a social component to what they fund. Ultimately we're going to have to have PPPs, three Ps as it is called, and what we are endeavoring to do is by establishing the global infrastructure initiative and a working hub that we are expecting the leaders to announce in November, is that you have someone to bring it all together with common information, common documentation, best practice models, a training regime for public servants, wherever they may be located. Basically, a cloud that is available to all. It has information uploaded, best practice uploaded, training programs uploaded, and case examples uploaded. That is then available to the whole world, and particularly to multilateral organizations to then go back to the community and identify that work. And this is why we're bringing it up, and then dissipating it again, afterwards.

Wait and see.

SPEAKER:

Minister, aren't you out on a limb. You're projecting, hoping for 1.8, 2 percent additional growth at the very time the IMF is scaling back the forecast for growth. This raises all kinds of questions about where the 2 percent comes from. Where about the 900 measures? Are they going to be available and are they going through them and how are they divided among countries? How can you make sure implementation occurs?

TREASURER:

The 900 initiative is, the starting point is the IMF is providing an assessment on what the state is of the economy today, what they forecast it to be over the next two to three years. In our case, we are saying through new policy initiatives we can deliver structural reform. So the IMF is looking at fiscal policy initiatives, monetary policy initiatives, potentially, and structural. We are focused on structural policy initiatives. They have to be new. Now, not all of them are new. Some countries try to put up some reheated policy initiatives, and they were rejected by the IMF and OECD that did the independent assessment. So these initiatives will be released to the public at the summit in Brisbane. There are 900 initiatives. 900 initiatives that the IMF and OECD has gone through, and collectively they assess that it would increase global growth by an additional 1.8 percent over the next five years.

Now, how they're going to be implemented? Well, it is up to individual countries to implement them. But, as I have said to my colleagues, Australia and everyone else stands ready to have an independent, public assessment of how we actually go about implementing them, and whether we're delivering on our promises.

SPEAKER:

As we all know Madame Lagarde yesterday told us that Ukraine will definitely need additional financial help. So, are there 80 members of the G-20 who are ready to help or even the will to help?

TREASURER:

The answer is yes. Through the IMF -- it wasn't a source of specific discussion, although I did have a discussion with the finance minister of Russia about events in the Ukraine. What I can say to you is that the IMF and a number of member countries stand ready to do whatever is necessary to help the Ukraine through some of the economic challenges. Ukraine has to help itself as well. That is part of the equation. But, already a number of countries have already made significant contributions.

SPEAKER:

You seem very optimistic about the future, but we have seen just in the past few days, not just from here but from the market a great deal of volatility. We have seen in just the past few days a market that is increasing fearing a recession. Europe is not growing, now even Germany is not doing well.

So, No. 1, what do you see that Europe should do? And No. 2, where is this optimism that these will work.

TREASURER:

I'm optimistic because I come from the fastest growing in the world, which is Asia. That is why I'm optimistic. And we're about to see the emergence of the biggest middle class in the history of humanity. And whilst there may be a shift from investment into consumption, the fact is that consumption is being driven by middle class demand, whether they want better health care, better education, better environment, better quality food. And that in turn stimulates demand for new resources, new commodities, new services. Because overwhelmingly in a number of developed economies, services exports are profoundly important. So, when I look ahead at the next decade and the next 30 to 40 years, I see that if we can identify the top 10 or the top 6 economies in the world, probably four of them are in Asia. So that is why I'm optimistic.

And, I'm also very optimistic about the fact that governments must make action happen in Asia, because the social consequences of not delivering growth in Asia are far greater than they are in Europe or even in the Americas.

Now, coming from Europe, sir, I'm sure you have a different perspective. I confess, I did say to Mr. Draghi I think he has one of the most challenging jobs in the world at the moment, and he recognizes that. But, having said that, he and his colleagues fully understand the challenges, and I think they are very aware of the necessity to have structural reform in Europe. Structural reform in Europe. Because fiscal policy has limited capacity, monetary policy has limited capacity. You have got to have the structural reform, in labor markets, in infrastructure provision, in competition policy. And a range of other things. I think there is a recognition that Europe can get better, but it does need to make the decisions if you are going to deliver that structural reform.

SPEAKER:

As you said, every individual country has to recognize the challenge and they need to propose an action plan. I have a question regarding China. The Chinese government is still carrying on reforms. What action plan did they propose at the G-20 meeting to commit their continuing contribution to the world?

TREASURER:

China has been one of the more committed reformers, and their proposals are deeper and broader than those of a number of other countries. And that is one of the things that gives me greater encouragement. Whilst there is a lot of commentary on the Chinese economy, the structural policies put forward, not only in the discussions with Lou Jiwei and also Governor Zhou, not here but previously, and certainly in my discussions at the bilateral level I have no doubt that China is determined to continue to grow, and it is growing off a bigger base. I think there is a lack of understanding in parts of the world about the Chinese economy. The Chinese economy keeps growing. The growth today is the equivalent of twice the growth ten years ago. So, 7 to 7.5 percent growth today in China is the equivalent of 14 percent growth ten years ago. And there is lack of understanding about that. On a PPP basis, China is now the biggest economy in the world, according to the IMF.

I'm encouraged by the fact that the policy proposals for reform that I have seen out of China which will be revealed in the Brisbane Summit illustrate the fact that China has a good story to tell, and is getting about the job of implementation. The speed of implementation, again, these are some of the questions that need to be answered.

SPEAKER:

We all know that it is easier to invest when the interest rates are low, and we are having a rise in interest rates in the near future, in the next months and years, so how can your initiatives survive the expected exit of very accommodative monetary policy in the U.S.? And what would be the role of the governments in this initiative? Would it have to guarantee private investment? What is the trick?

TREASURER:

A very good question. Over time there will be a normalization of monetary policy. There is no doubt about that. But, now is the time to move on infrastructure, and all the finance ministers know that. Now is the time to move on those PPPs, when there is a tremendous amount of private money that is looking for investable products, looking for investments.

Now, one of the initiatives that we're focused on, going back to an earlier question in relation to infrastructure is, how do we have things like common documentation for a water project in one country, and a water project in the other, so that investors are able to appropriately compare the projects, compare the return on investment, compare the risk, and at the moment investors have been saying to us that they find it difficult to price the risk of particular projects, given there are so many other sovereign risks involved.

So, what we have resolved in the G-20 this year is to, as far as we can, have a hub that develops best practice with best documentation, best risk assessment protocol, so on, in order to help facilitate private investment.

You know, how long interest rates will be at the levels they are, and of course some economies are continuing to even ease monetary policy, we don't know. But what we do know is that there is massive demand for infrastructure over the next 30 years. We have to meet it. Governments haven't got the money to meet it. Therefore, we have to innovative or we have to, most importantly, facilitate innovation.

SPEAKER:

I was wondering if you could elaborate a bit more on the discussion around the action plans in the eurozone? Today, Chairman Dijsselbloem proposed a plan that seems to find a tentative middle ground between countries that are calling for fiscal stimulus and those calling for structural reforms by offering stimulus for countries that are more loosening budget targets for countries that pursue structural reforms. I was wondering if this was something discussed in the G-20 and what your perspective is.

TREASURER:

It wasn't specifically discussed in the G-20. Last night we had a dinner where there was considerable one-on-one discussion and group discussions about economic challenges today. Today we were more focused on infrastructure and developing proposals for a global infrastructure hub. So, I'll leave the commentary about various fiscal plans in Europe to those that have to implement them.

SPEAKER:

Just on a domestic matter. Bill Shorten says you have made the Iraq intervention a source of political point scoring. What is your response?

TREASURER:

Rubbish.

SPEAKER:

Could you talk about shadow banking?

TREASURER:

Shadow banking has been a very important part of our discussions in relation to the plans of the FSB. The shadow banking is a challenge in many jurisdictions, and the FSB under Mark Carney has been working toward some final plans. We're hopeful those recommendations will come to the Brisbane leaders summit, but there has been a more detailed discussion with individual jurisdictions where shadow banking is in fact a bigger issue than some other banks.

Why shadow banking?

Why is shadow banking difficult to regulate? Well, it's a very good question. Because it is shadow banking. It is not in the main financial system. There are many definitions of shadow banking, and it happens everywhere including in Australia, which is a very regulated financial system. So, I think there are many definitions of shadow backing and they vary from country to country. It is about basically working out where the risks lie and ensuring that the risks doesn't at the end of the day end up with taxpayers.

SPEAKER:

On quota and governance reforms, during today's meeting were there discussions about if the United States did not have the reform by the end of this year, would be rest of the G-20 members push this reform without the United States?

TREASURER:

This is the IMF reform you are talking about. Yes, yes. Look, it is something that I and the presidency have been very actively engaged with. The U.S. congress has proven very difficult on this matter. And, it does affect the United States, and it affects their reputation. When there is global agreement, and in fact agreement from The White House to undertake IMF reform and yet the only obstacle to that IMF reform is the U.S. congress.

Now, for domestic reasons, the U.S. congress may not be moving on this issue. But, for global reasons the U.S. congress should move on this issue. And, I would say to congressmen and senators, it is in the best interest of the United States to support the reforms of the IMF. I say to you directly, it is in the best interest of the United States to support the reform of the IMF. Because, everyone needs to have a proper voice at the table. It weakens the position of the United States if it is the sole parliament, sole congress that remains an obstacle to reform of the very important safety net, as exemplified by the question from the lady from Ukraine. The fact is, we need the IMF to be well resourced, well respected, and well prepared, and the best way to do that is help it with its own reforms. Thank you.