28 March 2014
Transcript - #201418, 2014

Press Conference, Canberra

SUBJECTS: Council on Federal Financial Relations, infrastructure

TREASURER:

I met with the Treasurers of the States and Territories this morning and the only person unable to attend was the Treasurer-elect in Tasmania. Having said that, it was an incredibly productive meeting. We discussed, at length, the state of the national and global economy. I also gave them an insight into the Budget challenge that the Commonwealth faces and alluded them to the fact that everyone will need to help to undertake the fiscal repair necessary in the Commonwealth Budget.

I was also - it was also the case that there was clear recognition that we have all got to do more to grow the Australian economy and to create more jobs. There was historic agreement to support the proposal that I laid before the Treasurers for an asset recycling pool that is going to help to build the infrastructure necessary to improve productivity growth across the Australian economy. It is of course subject to final agreement by the leaders. None of us could see any reason why the leaders would not agree to it.

But the Commonwealth has agreed to provide a pool which we will announce in sum in the Budget, closer to the Budget. We will provide a pool that will be available upon agreement and it will only be open for two years until the 30th of June 2016. We will provide 15 per cent, an additional 15 per cent of the asset sale value from the States to the States, if they agree to use the proceeds for new productive infrastructure investments above and beyond what they have already committed to. This pool will be paid out over a 5 year period because obviously the scale of the asset sales will be potentially very substantial and it takes time to sell and recycle the assets.

We need to fill an infrastructure hole in the economy and we need to do it fast. This is a way of freeing up capital that already exists in brownfields infrastructure and in brownfields assets and recycling it into the new, economically productive infrastructure that is going to build a 21st century economy. The net outcome will be tens of billions of dollars of new additional infrastructure in Australia and we need to get on with the job.

So this is time-limited. This is a one-off pool. It will come down to bilateral agreement between individual States and myself as to the projects and also the asset sales. If asset sales are used to retire debt, they will not have access to the pool. The money must be recycled for productivity purposes, in productivity enhancing infrastructure. We did not place any limit on the types of assets to be sold. That is up to the States. Obviously, the only criteria in relation to new productive assets will be that they be economic, represent economic infrastructure – new economic infrastructure. This is a significant development and it is something that all the States have agreed to.

REPORTER:

A couple of questions, the two year deadline, do the States have to have the assets sold by then?

TREASURER:

No, no.

REPORTER:

And the proceeds allocated to something…

TREASURER:

That is right, there needs to be an agreement between the States and the Commonwealth. They might choose to sell only 49% of an asset and reallocate that; recycle that into new assets. They might say we are going to sell 100%. We are not setting ridiculous rules about this because the end game is that we need to build this infrastructure fast and we need to show the Australian people that by recycling capital from existing brownfields assets into new productive assets, we are delivering on a plan to grow the economy and grow jobs.

Now there is one other key point; 20 years ago when privatisation effectively started, in the 80s and 90s here in Australia, there was no massive pool of superannuation. Today, Australia has a massive pool of superannuation and it is growing and Australian mums and dads are looking for assets that they know and trust, to be able to invest their superannuation into, either directly or indirectly through their superannuation funds.

It is frustrating for me as an Australian to hear superannuation funds say that there is nothing they can buy in Australia and therefore in order to meet their infrastructure investment priorities, they send it to Europe or other place to invest in infrastructure over there. So what we are doing is we are taking brownfields Australian infrastructure and saying to the Australian people; ‘Here is your chance to buy it either directly or through your superannuation funds and in the meantime, the proceeds we get will go towards building a stronger nation.’ And building the infrastructure that is going drive the economy over the next few years and importantly, building the infrastructure that is going to also help us to address the investment hole associated with the fall off in new capital expenditure in the mining industry. This is all part of dealing with the transition in the economy.

REPORTER:

Is there a dollar limit on the size of the pool because you may set aside some money in May this year to find that States are really eager and you find that your 15% is a little bit more than you expected?

TREASURER:

We are prepared to be flexible but we have to set a number aside based on reasonable expectations but I am passing this to the States. I am saying here is our pool. This is what we're prepared to do. You come to us with the project. You come to us with the asset recycling program and we're prepared to get on with the job of building the infrastructure.

REPORTER:

Victoria has already done a lot of heavy lifting on this. Where does this leave them when they don't have as much to sell?

TREASURER:

Well, I can't deal with history in this regard. I have to deal with the challenge that lies before us. This is an additional pool to what we have already committed and this is an additional pool to anything more that we may commit in the Budget.

So just to be very clear, I am not going to be prescriptive about what they are able to recycle but there are other areas, and South Australia and Victoria have undertaken a relatively high degree of privatisation over the years, for different reasons. Those two States in particular received some benefit from the Commonwealth Government when they sold their State Banks, and other States thankfully didn't have to receive that, so it swings and roundabouts.

I am not interested in history. This will not be part of the GST relativities. So this is an additional bonus pool and it’s not going affect the distribution of the GST. I have separated it out because we want outcomes.

REPORTER:

What did South Australia say? I thought that there was a grab from South Australia earlier today saying they didn't want to sell anything else?

TREASURER:

I will let Tom speak for himself but it is an additional pool. It is not going to be a replacement for anything that they would have received.

REPORTER:

Are they part of…

TREASURER:

Yes, they are, there was unanimous agreement.

REPORTER:

And they are going to sell some stuff?

TREASURER:

Well you will need to ask them, that’s up to them. They have agreed to the program. Now I want to emphasise, I don’t want to pre-empt the leaders, but the leaders meet in May where they will finalise and sign the agreement.

REPORTER:

Is the pool going to come off the Budget bottom line? What happened to the original proposal to give the tax equivalent payments; is that too expensive?

TREASURER:

No, no the tax equivalent payments, it varies according to the structure of the asset and, for example, how much debt it sold with and so on. The principle remains, the States currently, with the GBEs and with assets, they don’t pay, they pay company tax to the Commonwealth and the Commonwealth reimburses them for all the company tax. So when an asset is sold, at the end of the day, over time the Commonwealth is a beneficiary of that asset becoming a net payer of tax to the Commonwealth and that was part of my thinking when we started to develop the scheme last year.

REPORTER:

In terms of lowering the GST threshold, where did the meeting finish on that point in terms of whether or not - what is going to that in terms of reducing the $1,000 threshold?

TREASURER:

Again it is up to the States. It needs to be unanimous agreement amongst the states. I also note Joe de Bruyn has also sent a letter to my colleague Bruce Billson, saying that the union supports a lowering of the threshold. I want it to be bipartisan if it is going to happen. The States have expressed an interest in doing further work in this area. I want to bring it to a head this year.

REPORTER:

Isn't the work going back to State Treasurers?

TREASURER:

Yes, well the State Treasuries are coming to Canberra to look at the business case, to fully analyse the proposal and then to make a final decision and this is up to the States.

REPORTER:

Just on the scale of the infrastructure spending, there are now (inaudible) there is talk of more money in the Budget for infrastructure separate to today’s announcement. There is also talk of Medibank proceeds being put into infrastructure. Is that all separate from this pool or is the Medibank money going to go into this pool.

TREASURER:

You will see our allocation of how we allocate the funds on Budget night, or hopefully Budget afternoon if you are in the lock up. The fundamental point is that we are not going to ask the States to do things that we are not prepared to do ourselves in relation to asset recycling.

There is going to be a reduction in recurrent expenditure by the Commonwealth Government, there has to be and I revealed to the States what the fifth year deficit would look like if there was no action were taken and I think it is fair to say that they were pretty shocked by it and as a result, I think there was common ground in understanding that we need to get our Budget in order. We need to make a difficult but hugely important decisions about structural spending that is currently undertaken as a legacy of Labor and everyone needs to help with the fiscal repair task.

In relation to where specific funds are going; as I said you will see that in the Budget.

REPORTER:

Treasurer what is wrong with States selling off assets and using some of that money to pay down debt?

TREASURER:

There is nothing wrong with that and some States will do that and should do that. But I am focused on the economic challenge we have, is that we need every Australian with a dollar in their wallet, to help us do the heavy lifting on building the infrastructure necessary for a 21st  century economy.

Infrastructure lags, it is slow to roll out, we haven’t got time, we haven’t got time. We have a very significant capital expenditure gap in the economy in 2015-16, 16-17 and potentially after that, as a result of capital expenditure coming off out of mining and resources. We need to get the non-mining and resources part of the economy energised and this is a significant way of doing it but there is other work we all need to do.

REPORTER:

Is there any restriction though, for some of those asset sales, the proceeds of those asset sales, partially being used.

TREASURER:

No, no not at all. If they choose to recycle 20% of the proceeds of an asset sale for new productive infrastructure, we’ll give them 15% of the 20%. But, we are all hands on deck here.

REPORTER:

If a State wants to sell an asset and build, say, this, an infrastructure (inaudible) who decides whether that infrastructure asset is productivity boosting?

TREASURER:

We will, through the Treasury, and we will form an opinion on it.

REPORTER:

Will there be…

TREASURER:

We are not setting criteria, we’re responding to the proposal.

REPORTER:

Each on its merits, will there be, say it’s a road project, will there be conditions, like user chargers or tolls or anything?

TREASURER:

Again, it comes back to what is proposed, I mean, this is a blank sheet of paper for a project proposal, but obviously, there needs to be a net benefit to the economy, it needs to result in more jobs and it needs to be a good use of money.

REPORTER:

For another example, the Victorian plan to sell the port, would that qualify?

TREASURER:

Well it depends what the proceeds will be used for and what projects they are. Again, we are not being prescriptive about the projects that the proceeds are used for.

REPORTER:

Was Tasmania on board, in their absence? (inaudible) discussion on the GST?

TREASURER:

No, I refer to obviously to our Tax White Paper more generally of GST. There is a methodology review in relation to the allocation of the GST, a five year methodology review is about to start. There was no dissent. There was agreement. It was unanimous.

REPORTER:

No grizzling over the new distributions?

TREASURER:

Well, there was a bit of grizzling. It wouldn’t be a Treasurers meeting without a bit of grizzling would it? But it was an incredibly productive meeting.

REPORTER:

Can you give us this figure that shocked the Treasurers.

TREASURER:

No.

REPORTER:

What was the figure, a spending boost in the fourth year of the…

TREASURER:

It was the fifth year that I have been talking about in Parliament. If no action was taken on the Budget, what the fifth year deficit would look like, contrary to what both Labor promised was a surplus, if no action was taken, based on the approximately 6% increase in expenditure between the fourth year and the fifth year, which Labor locked in on NDIS, on Gonski, on overseas aid, on hospitals, on defence. So Labor locked in those big increases in expenditure and they didn’t have the money to do it. Obviously that has left us with a very, very significant bottom line that we have to deal with as we will in the lead up to the budget. Thank you very much.