22 April 2015
Transcript - #2015083, 2015

Australia-Israel Chamber of Commerce lunch Q&A, Melbourne

QUESTION:

Thank you Mr Treasurer for an informative and interesting talk. Certainly a very upbeat outlook on the economy, one that I didn’t agree with before you spoke. Now I read an article recently saying that in America nine out of ten people identify themselves as middle-class and they’re feeling increasingly economically insecure and vulnerable [inaudible]. My question is to do with record low interest rates in Australia. Interest rates are at record lows, it’s cheaper for the Government to borrow money than it is for individuals, or even lower for the Government. Do you see an opportunity for the Government to take advantage of the record low interest rates, to invest in a massive infrastructure project that will benefit Australia for generations to come? An idea I have from [inaudible] is for the Government to invest in rail instead of roads and I read recently, seven hours ago, that in Japan they’ve just invented a train that runs at 603 kilometres an hour. It will take you from Melbourne to Sydney in about an hour, Melbourne to Brisbane in a couple of hours. It sort of takes me that long to get to Melbourne city [inaudible]. But my question is, low interest rates, infrastructure project, your thoughts?

TREASURER:

You know I love travelling by plane from Melbourne to Sydney. Fifty years ago, or forty years ago I think, it was the case that the scheduled flight took an hour, now it takes an hour and a half. But I must say coming back from that great World Cup victory at the MCG, I had the honour of sitting next to Vivan Richards, so I was happy for the plane to take two hours to go from Melbourne to Sydney. In relation to low interest rates, money is very much available at the moment, the world is incredibly [inaudible]. It’s not about the money, it’s about the projects. Nothing illustrates, nothing illustrates part of the challenge we have better than the fact that you had an East-West project here in Melbourne with plenty of private money and the State Government has just spent what? $800 million? Paying for a road that is not being built? Go figure? How does that work? So I don’t think there’s an issue about the money, the projects need to be advanced. We will back metropolitan rail through our asset-recycling program and the asset-recycling program I announced in the last Budget, $5 billion. I will reward State Governments that sell their assets and redeploy the capital into new, productive infrastructure. The first government to sign up was the Labor Government in the ACT, selling its TAB, selling public housing, and redeploying the money with Commonwealth Government support into a new light rail project in the middle of Canberra. I want the Victorian Government to do the same. We will back it if they sell the assets, they’ve got a fantastic port down the road, I’m backing them on selling that. They sell that asset, redeploy the money into new productive infrastructure including into public transport. If it’s productive infrastructure we will back it and we’ll help to fund it.

QUESTION:

[inaudible] Treasurer, we’re delighted to see you wishing to liberate the value inherent in Australian assets. I once asked you, I think it was last year at the Australian Conference, what about doing [inaudible], what Kennett and Stockdale and Howard did for the energy sector in Victoria and Australia? What about allowing the best universities in Jerusalem, America and others, to form real businesses. Real universities, not-for-profit universities, putting money in. I’d guess $100 billion would be an easy task. Joint ventures in Australia with the current university structure. We’re not selling them, we’re forming partnerships. These things have been thought through. It just seems to me that you need in a budgetary context, to view the intellectual assets of Australia in a different way, in a positive way.

TREASURER:

Well, I agree. I agree. You’re speaking to the converted in that regard. You should speak to anyone that has the title Senator in front of their name, located in Australia. Anyone who has Senator, not ours, but all the others. Because they’re the ones that are opposing and blocking higher education reforms that deregulate the sector. They’re [universities] the ones that are crying out for the opportunity to engage with the rest of the world and they’re the ones being held back. We are absolutely committed to higher education reform and that will help to change the culture of some of the campuses, so that they work closer with the engines of growth rather than seeing anyone that owns a business as a neo-capitalist.

QUESTION:

Treasurer thank you very much, [inaudible] from CBRE. A little bit of a bias question, there’s a lot of property people in the audience today and I’d like to get a bit of understanding in relation to your policy around FIRB and property. A lot of people keep asking us the question of will Asian investment continue in Melbourne? Will it continue in Sydney? It’s underpinning a lot of new projects and a lot of jobs that are being created. The Point Piper issue obviously made front page of the Australian Financial Review. I got a great understanding yesterday from Kelly O’Dwyer into her thoughts. I thought it would be beneficial if you give us some of your thoughts?

TREASURER:

Well my thoughts are Kelly O’Dwyer’s thoughts. I’m not sure if Kelly’s are mine. We are open for business and there is absolutely no shortage of investment in real estate in Australia, foreign investment in real estate in Australia. We’ve put out a discussion paper, the discussion paper gives you a good [inaudible]. We’re not changing the rules about investment, we are enforcing the rules and importantly, we are bringing an air of integrity to the rules that’s been missing. That’s it. But I would say to you, there is no shortage, no shortage of money that wants to come into Australia and invest in real estate or in many other things. I mean the world is not short of money, the world is not short of money. What we’ve got to do is make sure the rules around the investment of that money not only have integrity, but are seen to have integrity. As for the property at Point Piper, if someone breaks the law I will enforce the law, wherever they’re located.

QUESTION:

Thank you very much for your presentation today Joe, my name is Helen [inaudible], I chair the board of Alfred Health. Public hospitals in Australia have some assurance of funding to 2017, but not really beyond that time. We have to plan for the future, our populations are aging. Medicine is becoming more complex and the demands are greater. We would like your thoughts as to where we should be, what we should be thinking in terms of our planning beyond 2017 in terms of government funding?

TREASURER:

Well Helen, our funding continues to increase, but we couldn’t continue with a bonus pool of hospital funding that the Labor Party built-in after 2017 but couldn’t afford. They didn’t pay for it. They didn’t have the revenue to pay for it. Because over 40 years, over 40 years, the trajectory of government spending was going from around 26 per cent of GDP to 37 per cent of GDP as a result of what the previous government did. The highest ever level of taxes was around a quarter of GDP, a quarter of the national GDP, around 26 per cent. So if you’ve got your highest ever level of tax at 26 per cent, but you’ve got spending locked in by legislation to 37 per cent, what happens? Well either you have to increase taxes to levels that Australians have never seen before, particularly off a smaller base given that the population of traditional working age is narrowing. Or else you have to dramatically reduce expenditure. We’re trying to get the balance right. We don’t run a hospital. Well, we run one hospital, in Northern Tasmania, which you’re welcome to have if you want. We have one hospital, we don’t run the hospital system, the States do. As you’ve seen over the last couple of weeks, the States want us to do all the unpopular things to raise more money so they can spend it. Well States now need to accept responsibility for the things they run. If we do that, if we’re all accountable for the things we are actually responsible for, we’ll have a more efficient system.

QUESTION:

Treasurer, thanks for a well-articulated case, full support. One comment, one question. The comment, I’m delighted that you mention Rode Microphones, they are part of a coalition of the willing that we’ve pulled together with $40 million cash from such willing partners. And $40 million I would hope to get out of your mate Minister Macfarlane. Plus 120…

TREASURER:

Well, he gets his money out of me.

QUESTION:

Plus 120 out of genuine in-kind to help transform innovative manufacturing in this country. The Rode’s of this world have got what it takes, they also need a bit of a helping hand to get platforms that they connect to the next generation. That’s just a comment on the side. The question that I have for you is, you rehearsed, as did [inaudible] some of the quite extraordinary things that Israel has done. I’ve looked through this as well and if I look at the biggest thing that changed that country, it was in 1970 when they turned around and said any commercial entity doing R & D gets 50 per cent of it one way or another. I look at that as being transformative. This is not about more R & D, this is about businesses be they a spin-off, be they large corporations or whatever doing R & D. You only do R & D when you think you are going to make money out of it in the marketplace if you come from [inaudible]. My question is what sort of [inaudible]. My guess is it’s somewhere between $5 and $10 billion. You’d have to take it on to the balance sheet in terms of bond issue, but that’s a drop in the ocean overall.

TREASURER:

A drop in which ocean? We already have what the guys at Atlassian told me is a very good R & D regime, particularly for start-ups, and that helps to address some of the cash flow needs they need. We are always looking at ideas, we have limited capacity at the moment. Everyone has a good idea on how to spend money, very few people have good ideas about how to raise money. Normally they want to increase taxes for someone other than themselves. I’m not saying that’s always the case, but certainly sometimes the case. From my perspective, there are a number of things we can do to help start-ups and we’ll be saying more about that in the upcoming Budget.

QUESTION:

Ruth [inaudible], Director, AICC. I was wondering if you could comment on the progress of a tax treaty with Israel?

TREASURER:

We have, Cabinet has decided to lift up the batting order the priority of a negotiation of a new tax treaty with Israel. That will be at the forefront of our activity in the not-too-distant future.

MODERATOR:

That is a very significant comment and it represents a tremendous accolade to the Government, which we endorse totally as the Australia-Israel Chamber of Commerce, it’s something we’ve aspired to and desired.

QUESTION:

Thank you very much Treasurer, that was a very eloquent speech that you made earlier on. I suppose I’ve got a couple of questions. First one is much has been discussed about profit-shifting and diversion and whilst it is appropriate to go after these companies, sometimes the recipient country, in this case Singapore. They should have a moral responsibility in dealing with such companies. I do know having worked in Singapore that if such things did happen in Singapore [inaudible], can you comment please?

TREASURER:

Well I did raise the issue about diverted profits with the Deputy Prime Minister of Singapore in Washington last week. Let me just make two things clear. Mark was absolutely right that we do have a very strong integrity regime, but it doesn’t mean that we can’t be ever vigilant. The Base Erosion and Profit Shifting program of the OECD, which I helped to drive hard as Chair of the G20 last year, is carrying out its work. But action items number seven to ten are basically about setting up the rules and definitions around profit-shifting, they’re not a responsive action. So in discussions with the Chancellor of the Exchequer, George Osborne, in Washington, we decided to raise on the floor of the G20 earlier in the week the discussion around a particular diverted profits tax that Britain has already implemented from the 1st April, and the fact that we need to all work together. We need to all work together to understand what the impact is of that diverted profits tax and importantly, help to ensure that companies who earn their profits in a country pay their profits, pay their appropriate tax on those profits in that country. That’s why I’ve setup a working group with George Osborne. That’s why the Australian Taxation Office has been embedded in the offices of a number of different companies over the last few months, that’s why I’ll have more to say as we get closer to the Budget.

QUESTION:

My name is [inaudible]. Treasurer it’s clear that falling commodity prices means that our future prosperity lies in the positioning of our services capability in Asia, but positioning services in Asia requires a far more complex and nuanced approach to business engagement. Which requires again a long-term view of deep pockets and very deep relationships. My question is, are Australian SME’s ready for this shift from a skills and workforce capability perspective.

TREASURER:

Yes, I have great faith in Australian SMEs in that regard. You’re absolutely right, 70 per cent of the Australian economy is services, yet it represents only 17 per cent of our exports. So, mining and resources are around 10 per cent of our economy, but represent over 50 per cent of our exports. So if you want for a moment to think what our growth opportunity is, think about the fact that 70 per cent of our economy is only 17 per cent of exports. That includes tourism. That includes education. So think about the opportunities in healthcare, in aged care. China has the biggest demographic bubble in the history of humanity as a result of the one-child policy. They are going to want better aged care services, they are going to want better healthcare services. We have that capacity to export. They’re going to want better financial services. The second biggest sector in our economy is financial services. Financial services, [inaudible]. Financial services represent more than 50 per cent of the value of the ASX200, more than 50 per cent, you’d think it was resources. What we’ve got to do is lift our activity in Asia, forming partnerships, taking advantage of new business networks. Austrade has the capacity to do that, Chambers of Commerce have the capacity to do that. But ultimately, it’s about taking advantage of the export market development grants and importantly, using industry associations to forge those opportunities.