5 September 2014
Transcript - #2014091, 2014

ANZ Economic Leadership Lunch – Q&A, Melbourne

PRESENTER:

I might just pick up something you started your speech with Treasurer: you said you expected to be in the job a shorter period of time, is there something you need to share with us today?

TREASURER:

Well, I’m prepared to stay in the job for 11 years if I end up looking as good as Peter Costello, but I don’t know whether the pace of politics a little bit later that you could last quite 11 years. The main thing is it’s a task that needs to be done and Peter has in many ways contributed to the direction that we like to take, which is to focus on all the things I’ve talked about in the speech.

PRESENTER:

Peter had an easier run than you though didn’t he? Treasurer if I could just move on…

TREASURER:

Did you notice I didn’t bite to that?

PRESENTER:

Treasurer, you spoke about the G20 ambition and the B20 input into that 2 per cent ambition. It is tough ambition; Mike’s mentioned that, Richard’s mentioned that. We have seen some deterioration geopolitically, there is a lot of global anxiety, nevertheless a few weeks ago we had a similar gathering and there was considerable optimism that that 2 per cent was achievable and indeed it could be more than 2 per cent. Are you still confident today with what you’ve seen and what you mentioned about last night, that 2 per cent is achievable?

TREASURER:

There is still work to be done, we are not there yet. There is still a fair amount of work to be done. You know, the fact that we are having a very significant senior extensive engagement by Finance Ministers and Central Bank Governors in Cairns illustrates to me the depth of current concern about where the world is at and the importance of us having a structured commitment to growth. Just to simplify it, to say again, Budgets across the globe in most cases, apart from Victoria, are running deficits – they are running deficits. So, governments have very little Budget capacity to stimulate their economy. Central banks are at, you would have thought it was low points a little while back but the Europeans are going even lower in terms of trying to, using all the levers they can, to try and stimulate growth. But really, the traditionally powerful policy tools that stimulate economic growth, such as Budget policy and monetary policy are if you like, almost exhausted or certainly at their lowest point in terms of capacity to make a difference. So therefore, the only thing that can drive it is the private sector, which is cashed up. What we’ve got to do, is facilitate the private sector getting more involved in job creation and enterprise and innovation and give them hope that if they do take risks with a massive amount of cash out there that they are going to get the benefit out of it in the long run.

PRESENTER:

I think that message has come through clearly with the B20 process in Australia. There was obviously a lot of [inaudible] in the private sector. You know, confidence being there, if corporates are more confident, are you seeing that with your peers around the world though? Is the private sector just as invested?

TREASURER:

Yeah, I think they are. You know, in discussions, for example, the Chinese have a very bold plan for growth. I am confident they can deliver that. That involves a lot of private sector participation. I think the Europeans, you know, obviously they’ve got challenges, significant challenges at the moment but they know that, that’s a starting point, and I am more confident about America. Given all of that, we are going to get there but it is going to rely on a closer partnership between every government and the private sector over the next few years and it will be a partnership that needs to be at a level that we’ve never had before. Now, politicians, political or economic leaders as in politics, need to move away from the blame game of the GFC. That’s hard in a number of countries. The blame game on the GFC means you end up with more regulation and higher taxes because that’s the way politicians tend to handle some things. It is easy to increase taxes or increase regulations – show the community you are doing something about those evil people in the private sector, right? So, that’s got to be cast aside and what we’ve got to do is focus on how we can facilitate private sector investment and that is what everyone is determined to do. I haven’t had a dissenting voice, well, a couple of dissenting voices, but they are some of the more predictable ones.

PRESENTER:

You don’t want to name names?

TREASURER:

PRESENTER:

Richard, I wondered then if I could ask you as the leader of the B20 taskforce in Australia: again, at this session about a month ago now there was a lot of optimism about infrastructure and trade. At that particular time, we saw India pull out of the Bali Agreement which was a setback. How are you feeling about that B20 agenda that you set and how you’ve seen it play out?

RICHARD GOYDER:

[inaudible]One of the things we implored business leaders to do post-July was really advocate to politicians and businesses around the world the policies and today’s an important part of that and Mike, thanks for your leadership. I also want to congratulate the Treasurer and the Prime Minister and the Trade Minster on their leadership because I think Australia has set the G20 up to achieve something and the only question mark I’ve got over the Treasurer’s leadership frankly, and none of you reacted when he talked about Cairns in two weeks’ time. I mean, anyone with any sense knows that it is preliminary final weekend and we should either be in Melbourne or Sydney or Perth where the preliminary finals will be that weekend. But maybe it means we will be more focussed, Treasurer, at the time.

TREASURER:

Maybe we can get the Tigers to play on the Monday.

RICHARD GOYDER:

Maybe. Anyway, I am optimistic because of, firstly, the work – I think the B20 has worked really closely with the government as the Treasurer has said. I think the commitment from the Australian Government, the Treasurer’s own fingerprints are all over this in terms of the 2 per cent growth target and therefore the necessity for Finance Ministers to put up in a couple of weeks’ time their strategies. I think the recommendations from the B20 are really compelling and absolutely fit with [inaudible] and government. So, yes India pulling back from Bali is not helpful, hopefully the Prime Minister’s visit over the last couple of days and other things can help get that back on track but the recommendations on Trade and Infrastructure and financing for growth and human capital if all implemented, it would give us better than 2 per cent. Again, as the Treasurer said, every country has its own culture has its own political timetable and framework but there are some really compelling policy recommendations that we think can improve economic growth and the creation of jobs and I am confident that we will get there. Too many of us have got too much invested not to make sure that we give it a really good push.

PRESENTER:

Thanks Richard, Mike, if I could pass to you. You’re one of the big four bank chief executives. You’re seeing right across the Australian economy and in ANZ’s case a lot of Asia as well, are you starting to see these animal spirits that are necessary to get that 2 per cent? Some of the economic data in Australia has improved, obviously, over the last couple of weeks. But what’s your feeling out there with investment cycles with business?

MIKE SMITH:

I think from an economic perspective I am much more confident than I was this time last year. I think that’s not only domestically but internationally within the region. We had a change of government in Indonesia, in India, which is pretty significant and they seem to be okay at the moment. It is probably too soon to tell in Indonesia. China is just moving along. It’s got its issues, it always has. But again, I think that the momentum that is building has got to be positive. I mean, I think the issue right now is not so much economic as geopolitical. That’s where the concerns are and the problems and of course we’ve been talking about the Middle East and obviously Ukraine a lot, and that has somewhat deflected attention from the South China Sea, which is actually probably more relevant to us here in Australia as to how that one plays out. So, overall though, I am still pretty positive.  I think the economy in Australia actually from a big picture perspective, is going pretty well.

PRESENTER:

Thanks Mike, you touch on geopolitical issues there. Treasurer, you have some geopolitical issues – Tasmania, Queensland, for example…

TREASURER:

They actually don’t come up at National Security.

PRESENTER:

Nevertheless, the Budget was a difficult sell. You’ve been out on the road a lot selling that Budget. There was a hit to confidence at that point. That seems to have worked through. The Senate then became an issue for the public attention. I got the sense from your speech that you thought you’d sort of cracked the back of those sorts of issues and things at that level might be better now?

TREASURER:

First of all there was an expectation that the Senate would be a rubber stamp and that was never going to be the case, particularly given the nature of the individuals involved and given that no single individual controls the majority in the Senate or a majority voting bloc. You know, our critics thought we’d have grave trouble getting the Carbon Tax through, it went through. Then they said there’s no way we’re going to get the FoFA reforms through, and we got them through. Then they said you’re never going to get the Mining Tax in any reasonable shape through, and we got it through. So, we are methodically and carefully working through the issues and we will continue to do so. The challenge is that you have a Senate where, in addition to our own, we need at least four other parties. The Palmer United Party, Ricky Muir – the Motorist Action Party, then we need two other parties, be it Family First or an independent like Bob Day or Nick Xenophon or John Madigan who was in the DLP. You know, it is a bit like a sausage factory as Bismark said, ‘might not be pretty to watch being made but it’s the result that matters’ and we are getting the results and we will get the results.

PRESENTER:

Thanks very much, I am aware that we have got a room here with a lot of questions and opinions so I might throw to the floor now. If I could ask you to stand up and tell us who you are before asking a question.

QUESTION:

Hi, Treasurer thanks for your presentation. Richard, you mentioned human capital and investing in growth in human capital and Treasurer you mentioned facilitation – the role of government in facilitation. Richard, I was just wondering, do you think that this Government is doing enough to invest in and facilitate the growth of human capital?

RICHARD GOYDER:

Thanks for the question. I don’t think it’s an issue just for government I think it is an issue for enterprises as well. I have always said at Wesfarmers the biggest ongoing challenge we’ve got is the retention, development of great people in any organisation because that will make us a really good company over time. The same applies to Australia through education policy and policy around employment of different sectors and the like; I think we are all in this together. (Inaudible) human capital and the need so just as we talk about trade barriers there are really significant barriers to the flow of human capital (inaudible) One of my hopes from the G20 is that this human capital thing becomes an agenda item for the G20 (inaudible) In West Australia this year, the numbers will be slightly wrong, there will be 700 or 900 from the universities in West Australia – legal graduates for 200 jobs and that is a disgrace because the vast majority of those young people that went in to do law, did it under the expectation they would come out and get a job and I think that it’s 900. So, 700 won’t and think about the misallocation of resources and what that means to those people and that is just a really small example of what is happening. So, I think we have got to look at it at an enterprise level, I think we have to look at it at a government level, policy level but I think it is a conversation that is more cross border as well and we want to get human resources really working at their peak and (inaudible).

TREASURER:

Well, no – a couple of things – firstly, we are determined to get reform in the higher education sector and the fact that we haven’t got a university in the top 20 in the world is frustrating.  I mean, we are good at so many things as Australians; we are the best in the world in so many different things. We haven’t got a campus in the top 20 in the world and we are facing the challenge of campuses with 200,000 – 250,000 students out of Asia; these new emerging behemoths that have balance sheets that can bring the best academics in the world to their campus rather than ours. So, we have to lift and if we don’t lift, we will be left behind. And in relation to trades, we have introduced Restart, which is a payment to business to take on people that are on a Disability Pension over the age of 50 and give them a go and if you give them a go, we will pay you to do it, and in the case of apprentices – and that is $10,000, we will pay a business to do that for people over the age of 50 – and in the case of apprentices, we have introduced trade support loans. The problem is apprentices start but then they drop out and that is terrible so what we have got to do is give them financial incentive to finish an apprenticeship; we have done that. The third thing is, people that go and study at TAFEs, they don’t get the same HECS loan scheme, or HELP Scheme that people who go to university get. So, now under our higher education reforms – for the first time – if you are going and studying various trades or associated diploma courses, you are going to have the very same discounted loan scheme that university students have. So, they are the three things in the Budget that help to build our human capital.

PRESENTER:

Mike, did you want to add to that because human capital is obviously something that you have spoken about.

MIKE SMITH:

Yeah, look I think it is probably – maybe been said but I think it is the co-ordination between the government, business and education which is key and quite clearly, they are not co-ordinating  right now and Australia is no different to many other countries. I mean, I think the classic example of where this works really well is Silicon Valley you know, where you have the capital – the financial capital from the business, you’ve got the education system that is producing the results and the Government which has the tax incentives. You know, so the whole thing goes well. I think that is what needs to happen.

PRESENTER:

Other questions from the floor.

RICHARD GOYDER:

Andrew, while you are waiting, something the Treasurer said earlier and I think is really important, a lot of business people in the room; I think the business is a key part – it is more important now that business is engaged with government and is a part of this whole economic growth – job creation thing. So, one of the things I would want to say is the B20 hasn’t said to the Government, ‘here, just give us all this stuff’, what the B20 is saying (inaudible) 400 business leaders from around the world, we have had wonderful engagement; B20 is saying to Government, ‘put in place these things that will facilitate us to invest, take risks, generate economic growth and generate jobs’. So, the importance of a lunch like this is, people shouldn’t just sit back and say the G20 is some sort of funny thing or the B20 is some sort of thing that will come and go, it is actually all about economic growth and jobs and creating an agenda and an environment that will let that happen. That is why this is so important.

QUESTION:

Joe, great speech and we don’t hear enough about going for growth and it is not just a question of doing it internationally but then doing it domestically and seeing those two gentlemen on the stage put a thought in my mind, each of these gentlemen is currently the subject of a major inquiry going on at the moment – the Financial Systems Inquiry which concerns Mike, the Competitions Inquiry which concerns Richard…

TREASURER:

How do you know that is not the Competition Inquiry for Mike and the Financial Systems Inquiry for Richard?

QUESTION:

Because I know how competitive Australian banks are. Will you assess the recommendations that come out of those Inquires with your growth glasses on and say we are interested in recommendations if they promote growth? And can I ask each of these gentlemen, are you expecting things to come out of these inquiries which will promote growth or do you see some risks?

TREASURER:

You should have been a fulltime journalist Peter. The Financial System Inquiry – the results of that come out in – I am expecting the report in November and I will release the Report immediately – or relatively immediately and put it to consultation again to report back by around March-April next year. Now, I think this is an area, both areas, I think it is hugely important we have bipartisan agreement.  I think with the Wallace Inquiry there was an element of bipartisan agreement to that made it much easier to implement those reforms and yes growth is a huge part of the story but also, building – continuing to build, the infrastructure in Australia that allows us to cope with change, I think that is hugely important. We don’t know what the world is going to look like in five or ten years’ time, so we need to have a robust set of rules, particularly in financial services, that recognises the changing nature of the financial services. Ten to fifteen years ago, you probably wouldn’t have seen PayPal, or the emergence of PayPal or Bitcoin or various other things. So, these are the sorts of things that you can never define but you know that there is going to be change so you have got to have a robust set of rules to cover that. In relation to competition policy, competition laws were designed on the basis that the market – the entire market of Australia was effectively, you know there is a rim of water surrounds us so, we were setting laws for a market that occurred in Australia and the internet, as you know, has changed all that. We can’t control the behaviour of vendors, nor should we arguably, but vendor’s products in other parts of the world go directly to Australian consumers. So, in a sense, the Harper Inquiry needs to look at re-defining what a market is and if you re-define what the market is, then by nature you have to redefine competition laws and how far they go, and in a sense, both inquiries are focused on ensuring that regulation doesn’t become a handbrake on growth. So, it is not only about looking for growth because I am not sure that regulation facilitates growth, it is about ensuring that the excising regulation does not become a handbrake on growth. I think you know the vaulting ambition of individuals is never going to be held back but only will be if it is to be done so by government and regulation and higher taxes so that’s what the ambition (inaudible).

PRESENTER:

Richard do you feel better about things now?

RICHARD GOYDER:

If the Treasurer had said existing regulation and any new regulation (inaudible)

TREASURER:

Well, if we can search out the areas that hold back growth, absolutely but I mean, I think that’s self-evident.

RICHARD GOYDER:

My fear on these things is you get unintended consequences from regulations that earlier on make people (inaudible) would be a good thing or not in an outcome through the competition policy is that I can see the implication of that in a group like ours and we are expanding our businesses, we are investing the businesses, we are subject to competition policy in this country and there are a whole bunch of things we are dealing with at the moment on that front. In fact, if you could invest in legal firms, that would not be a bad investment but I don’t ever want to see a situation where we end up with a (inaudible) or incremental expansion of businesses that is actually in the interest of real competition and we are happy to deal with competition domestically and internationally as long as it is on the same basis that everyone else has to deal with it. So, hopefully, we will get the right outcomes and the Harper committee will lay a groundwork that enables businesses to grow and expand and competition is enhanced.

PRESENTER:

Mike, that is one of your concerns (inaudible), is actually going to throttle growth to an extent?

MIKE SMITH:

I think that’s the concern. It is not just the consequences – the unintended consequence of action. I think the Financial Services Inquiry is a chance to really position the financial services infrastructure – environment, to enable Australia’s growth in the next 20 years; what is the ideal structure to have because that is really where it should be looking (inaudible) but, off the back of that you have to say the real concerns of the crisis - I understand that worry. I think the thing that hasn’t really been appreciated is how much has been done since the crisis in terms of strengthening financial systems globally but particularly here in Australia and we are actually in an extremely robust and strong system and I guess that’s the issue David (inaudible) but really it is to be looking forward and to go back to the Treasurer’s point, it is really to position ourselves so we can take the opportunities that we see happening, be they in Asia and the rest of the world, but we have got to position Australia to be able to grow and it has to have a financial services industry to support that growth.

PRESENTER:

Thanks very much and thanks to my panel for your contributions today.