16 April 2015
Transcript - #2015080, 2015

TV Interview, CNBC Squawk Box Asia, Washington D.C.

JOURNALIST:

Let’s bring in Joe Hockey right now, we’re honoured to have him with us. The Treasurer of Australia he joins us live out of Washington D.C., Mr Treasurer, Mr Hockey, great to have you on the show and appreciate your time. Now you’re a man right now who is facing a fair number of problems. [inaudible] talking about the unemployment rate at 6 per cent, you’ve got iron ore prices collapsing, you’ve got your currency under pressure, your credit rating under pressure as well. You’re in a bit of a tough spot. If you had to narrow it down to one thing, the greatest challenge your country faces right now, what would it be?

TREASURER:

Well the greatest challenge at the moment is to embrace the opportunities that lie before us. I’m not as pessimistic as you, our credit rating is certainly not under any pressure and the Aussie dollar has come down. But that is giving our exporters a better opportunity because they’ve had to carry quite a load over recent years with a comparatively high Australian dollar. In turn, the weaker Australian dollar is helping states of Australian like Victoria and South Australia, that have significant manufacturing bases but have felt some pressure in recent times with a higher Australian dollar. So there are a lot of positive elements around, I’d much rather be in Australia’s position than that of many other countries, even with unemployment at around 6.3 per cent, and we’ll wait to see what the number is today. Even with our figure at that level, we are seeing very strong job advertisements and we importantly, haven’t seen a dramatic fall in our participation rate which is something that the United States is having to deal with at the moment even though it has a lower unemployment rate.

JOURNALIST:

Ok well we’ll wait and see what those unemployment numbers look like when they finally come out. You said you were pretty comfortable with the Australian dollar being under pressure as it gives you a competitive edge, I can understand that, but at these levels are you comfortable? This is not a fair question for a Treasurer, but I’m obliged to ask it.

TREASURER:

Well, the Australian dollar is a very liquid currency in many ways. It reflects commodity values according to key investors as you know. But overwhelmingly, it has acted as a proper shock absorber for some of the pressures the Australian economy is under from time-to-time. Now, what we do is we make sure that we have good structural policy to back it up. If we have good structural policy and a diverse economy as we do, then we can take great advantage of the massive growth that is going to continue in Asia. Now, you began this interview talking about the Asian Infrastructure and Investment Bank, there will be $8 trillion of unmet, unmet infrastructure demand in Asia over the next ten years. Australia currently sells enough iron ore to China every year to build the Golden Gate Bridge from San Francisco to New York and back to San Francisco in a year. So we have massive supply lines and they will only grow into the future as Asia grows itself.

JOURNALIST:

Alright so even though the slowing economy we have those numbers out. Q1 from China yesterday, 7 per cent, you’re still selling a heck of a lot of the stuff. But the thing is, it’s at a lower price and I know that you’ve been looking at $35 a ton. What is that going to mean for budget assumptions, especially May 12 you’ve got your new Budget coming out?

TREASURER:

Well we haven’t settled on $35 a ton and obviously the falling Australian dollar actually cushions the blow to both the Budget and to the general economy. So, let’s wait and see. I’m going to have discussions with a number of Ministers over the next few days. In particular I’ll be speaking with Lou Jiwei, the Finance Minister of China. I’m sure we’ll be discussing current iron ore prices, as well as the state of the Chinese economy. I am more bullish about the Chinese economy than a number of others and don’t forget, a 7 per cent growth figure in China off a much larger base than what existed a few years ago, means that it is still by global comparisons a very strong number and importantly, China is second only now to India in terms of growth. So I see a lot of positive signs for countries that are going to continue to demand not only our resources, but our agricultural produce and importantly over the next few years as the middle class emerges, they’re going to want our services. Health, education, financial services and the like.

JOURNALIST:

Hi Treasurer, it’s Matt here in Sydney. I just want to continue on that commodities theme, of course ahead of the Budget next month. Of course you’re basing the current projections on a $60 per ton iron ore price, we’re of course below that now. Yesterday the Prime Minister said that the collapse in iron ore since you came to power has eroded about $30 billion out of the Budget. The Prime Minister also saying yesterday that the Budget is going to be responsible, measured and fair when you hand that down. So, what are we going to see in the Budget with this collapse in revenue that we’ve seen as a result of the falling iron ore price?

TREASURER:

Well what you’ll see is a package of measures that are fully funded, that are focused on growing the Australian economy. We are going to deliver a small business and jobs package that is focused on growing innovation amongst small business and importantly, it is going to provide an incentive for small business to have a go. Because as you know, small business is the engine room of disruptive technology at the moment and Australia has a lot of innovation in small business that can help us to grow our global reach. Secondly, you’re going to see a package that focuses on families. That is entirely focused on increasing female workforce participation, which is essential if we want to continue to lift our productivity over the years ahead. So they’re the two focuses, they’re backed up by again a very strong infrastructure package, and it will all be part of a Budget that continues to improve the Budget bottom line. Even in the face of revenue challenges we will continue to get the deficit down and we will have a credible trajectory back to surplus.

JOURNALIST:

So is a surplus now in the very very very distant future, in wake of everything that we’ve been talking about?

TREASURER:

Well I’m not going to put a timetable on it, I never have. But we are determined to get the Budget back to surplus as soon as possible. But bear this in mind, we’ve had comparatively high interest rates in Australia. When I say comparatively, obviously in comparison with comparable countries around the world. Those rates have been coming down, and as the Reserve Bank has been cutting interest rates, it would be absurd for us to have a very significant and dramatic fiscal consolidation working in the opposite direction. We are working with all the levers we have available, to grow the Australian economy, bearing in mind that we are in our 24th consecutive year of economic growth. So no recession for 24 years. And, we are forecasting that that growth will continue well into the future, especially on the back of massive and dramatic increases in demand, not just for our goods but our services out of Asia. What stuns me about Washington every time I come here and New York to a lesser degree, is the lack of understanding of how prosperous Asia is and how much of an opportunity it is to be a major driver of global growth well into the future. There is a general lack of proper understanding of how Asia works here in Washington and certainly over the next few days I’m going to be working hard with others to raise the awareness levels.

JOURNALIST:

[inaudible] gotcha, Mr Hockey, Mr Treasurer, a pleasure talking to you, thank you for your time, save travels there.