14 October 2014
Transcript - #2014107, 2014

Interview with Stephen Sackur, HARDtalk, BBC World News

STEPHEN SACKUR:

Joe Hockey, welcome to HARDtalk.

TREASURER:

Great to be with you, Stephen.

STEPHEN SACKUR:

You made some very big promises about how you were going to manage the Australian economy when you were in Opposition. It is proving pretty hard to keep those promises, isn’t it?

TREASURER:

Well, it’s always challenging but we’re determined to do it. We’re determined to deliver continuing prosperity and Australia is now in its 24th year – consecutive year – of economic growth. We haven’t had a recession for 24 years. We are the custodians of that legacy; we’ve got to keep it going.

STEPHEN SACKUR:

Everything is relative though, your growth is slowing from the highs of three, four, five years ago, but not only that, you’ve got real problems. You’ve got a Budget deficit which is far higher than you said it was going to be when you took office and it is also proving to be impossible for you to keep the promise of balancing the books within a year or two – you said.

TREASURER:

Well no, that’s not right, we didn’t say that. We said we would have a credible path back to surplus, we’re delivering on that. We said we would get rid of the Carbon Tax, we delivered that. We said we’d get rid of the Mining Tax, we delivered that. We said we were going to have a big infrastructure program, we’re rolling that out. We’ve got unemployment stabilised at around six per cent with a higher participation rate.

STEPHEN SACKUR:

Six per cent, which is, I believe, the highest in the Asia Pacific region except for the Philippines.  That’s not a great record for Australia is it?

TREASURER:

Well, no, it isn’t, and that’s what we inherited from our predecessors twelve months ago. Now, we’re starting to see some good employment growth and I’m not as pessimistic as you might be about where the Australian economy is heading at all. We are certainly at close to trend growth but there is enormous opportunity in Asia we are going to capitalise on.

STEPHEN SACKUR:

We’ll talk plenty about Asia but before we get there, let’s just look at the state of the economy in a bit more detail: you say, ‘Look, there is no cause for pessimism,’ but if you’re one of the 17 per cent of Australians who live below the poverty line and you see the priority that your Government has put on austerity measures which appear to many people to hit the poorest hardest, it is hard to be optimistic isn’t it?

TREASURER:

Well, no, because the best way to give people on lower-incomes the chance to get ahead is to give them a job, and well paid jobs, create an environment where employment can prosper and one of the ways we’ve done that in just 12 months, apart from abolishing the taxes and a range of other things, we’ve signed two new Free-Trade Agreements with Korea and Japan and we are certainly in advanced stages with China before the end of the year.

STEPHEN SACKUR:

Well, I promise you, I do want to talk a lot about your relationship with China in particular and Asia generally, but I just want to pick away a little bit more about what is happening to the livelihoods of ordinary Australians. For example, this austerity Budget, I guess I could call it, that you presented…

TREASURER:

…No, it’s not austerity. I mean, that’s a ridiculous term in the context of Australia.

STEPHEN SACKUR:

It’s a focus on cuts.

TREASURER:

Well, that doesn’t make it austerity.

STEPHEN SACKUR:

You’re making major cuts across the public services, you’re also trying to find new ways to raise revenues and if you could just bear with me for a second, let’s just take a few of them: first, the excise duty that you’re raising on fuel, you said, ‘Listen, poor people don’t need to worry about that because they don’t have cars and they don’t drive far’. That produced howls of anguish from ordinary Australians – low-paid workers, who travel every single day in their cars to low-paid jobs.

TREASURER:

We are asking Australians to pay an extra 40 cents a week in fuel excise to help pay for the biggest roll out of road infrastructure in Australia’s history. We have the equivalent of six snowy mountain schemes being rolled out in the near term.

STEPHEN SACKUR:

My question is about who is being hit hardest; do you retract that statement you made about poor people not having cars and they don’t drive far because the Australian Bureau of Statistics actually drilled into that and they found that as a proportion of income, poor and low-paid people actually paid more on fuel than rich people?

TREASURER:

Well, as is widely identified, wealthier people tend to pay more in fuel taxes because they have (inaudible).

STEPHEN SACKUR:

Proportionate to income, poor people are hit harder. (Inaudible)

TREASURER:

That may be the case.

STEPHEN SACKUR:

So, you got that wrong.

TREASURER:

The fundamental point is this: that we are asking Australians to pay an extra 40 cents a week in fuel taxes on average, in order to deliver the biggest road building program in Australian history. Now, it is essential as a nation that we pay our way, that we don’t make the mistakes of Europe and a number of other economies and borrow from the future to pay for today’s expenditure.

STEPHEN SACKUR:

Alright, that’s just another specific policy that, again, raises questions about who you are really hitting with your Budget program. The decision to ask Australians to pay, I believe it’s an upfront $7 fee, when they go to visit their doctor, something they haven’t had to do in the past. Again, that is going to hit ordinary and lower-paid Australians hardest, isn’t it?

TREASURER:

Well, we actually have very significant exemptions for people who are on pensions and children under a certain age.

STEPHEN SACKUR:

Sure but my point is that people on average wages and below average wages are now going to have to pay to go to the doctor.

TREASURER:

But everyone has to pay to go to the doctor, they either pay for it through the taxation system or a large number of Australians…

STEPHEN SACKUR:

(Inaudible) pay a flat rate fee which is regressive, as opposed to paying through income tax which is progressive. So, again, you’re switching the focus in the way that you’re handling the tax policies of your country to hit the lower-paid and the less fortunate harder than the rich.

TREASURER:

Stephen, I don’t accept what you’re suggesting because I also introduced a deficit reduction levy which increased the top marginal tax rate in Australia. Now, the fundamental point is this, everyone has to contribute in order to fix the mess that we have inherited. We cannot expose ourselves to global volatility, we need to pay our way and if that means that everyone has to make a modest contribution to the best health system in the world, then so be it.

STEPHEN SACKUR:

Well, you know, it’s a mantra we hear in many different governments in the western world, ‘we’re all in this together’, but the figures suggest that inequality is rising across western democracies and I dare say, you are concerned about that too, and if you are, does it make sense, as was reported by a recent index study of corporate taxes, does it make sense to continue to allow corporate Australia to avoid paying the 30 per cent corporate tax rate to the point where this report suggested one third of Australia’s top 200 companies only pay, in effect, 10 cents in the dollar of corporate tax?

TREASURER:

Well, as a proportion of total income to the Australian Government, company taxes actually represent more of a proportion than most countries in the OECD.

STEPHEN SACKUR:

Of the top 200, 30 per cent are effectively only paying 10 cents in the dollar.

TREASURER:

The data was wrong in that report. That was an independent report. There was actually (inaudible) on the basis of incorrect data. The fundamental point is (inaudible)…

STEPHEN SACKUR:

Tell me what the real figure is then, if it’s not 10 cents in the dollar what is it? Because it sure isn’t 30 per cent which is what the corporate tax rate is supposed to be.

TREASURER:

Well, the largest companies in Australia are paying the most tax. That’s the fundamental point. Now, what our taxation…

STEPHEN SACKUR:

(Inaudible)

TREASURER:

No, I am answering your question.

STEPHEN SACKUR:

Well, (inaudible) 10 cents in the dollar that so many of these companies are actually paying, with all of their off-shore tax havens and their complicated tax structures, what is the effective rate of corporate tax (inaudible)?

TREASURER:

We have a 30 per cent company rate.

STEPHEN SACKUR:

Yes I know, they’re not paying it.

TREASURER:

The starting point is, one company that they cited as not paying 30 per cent company tax rate actually doesn’t make a profit. So, that is one of the reasons why the report you’re relying on is flawed. Now, to come back to what is actually the case, the fact is, we get more of our income as a percentage than almost any other OECD country. So, we rely heavily on company taxes. Having said that, we want to make sure that wherever companies are in the world, that they pay tax on the profits they earn in that country.

STEPHEN SACKUR:

Are you going to go after corporate tax avoidance?

TREASURER:

Absolutely, absolutely.

STEPHEN SACKUR:

In a new way?

TREASURER:

Absolutely.

STEPHEN SACKUR:

How are you going to do it?

TREASURER:

Well, there are a number of steps. Firstly, through our leadership of the G20, we are prosecuting the case for the new OECD rules in relation to BEPS. Secondly, we are one of the first nations outside Europe to sign up to a Common Reporting Standard. So, wherever you open a bank account in the world, the data will come to our tax office. The third thing is: our tax office is sharing information with other tax offices around the world. Fourthly, we are signed up to support tax inspectors without borders, so that companies that go to jurisdictions that have poor tax regulation will help those regimes to collect taxation, and finally, our tax office has taken a far more aggressive approach to ensuring that people comply with existing or new Australian law.

STEPHEN SACKUR:

Every independent analyst says you are really going to struggle to deliver on your promises to reduce, and then pretty much eliminate the deficit in your term in office. You again, just to look at priorities, have decided that one way you could do it is by imposing really quite severe cuts on higher education. Given what you’ve told me about your commitment to investment and infrastructure, does it make sense to be cutting the investment in Australia’s people, in their higher education?

TREASURER:

Well, direct government investment is going to be reduced but the total funding for universities will increase because we are de-regulating our university sector so it is better able to compete with the rest of the world.

STEPHEN SACKUR:

And you’re raising university fees and you’re making the students pay them back quicker. So, you’re putting an awful lot of pressure on Australia’s students at a time when you’re actually saying the Government is going to fund their courses to the tune of 20 per cent less.

TREASURER:

Actually, what we do is, instead of funding 60 per cent of the university degree, it’ll reduce to around 50 per cent of the university degree. Bear in mind that most Australians don’t go to university and they are helping to pay for those fees. Second point is, we give every student in Australia a very generous loan scheme, where they borrow the money for the university degree and they only start to repay it when they earn more than $50,000 a year; it comes out of the tax system. Thirdly, we are introducing the most generous scholarship scheme Australia has ever had for those most disadvantaged as a result of it. Fourthly, we are increasing the number of students that are actually going to attend university and making that loan scheme available to people that might not be able to go to university but want to undertake sub-prime degrees, and finally, we are facing the challenge of universities emerging in Asia with a quarter of a million students. Now, those universities can buy the best academics in the world. We haven’t got a campus in the top 20 in the world. We need to compete.

STEPHEN SACKUR:

And it helps, does it, to cut what you’ve said, is the Federal Government university funding? It helps you compete to get yourself into the top 20 universities in the world? I am just struggling to see the logic.

TREASURER:

Because the growth in funding is going to come from students and the growth in funding from students is sustainable. The growth in funding from governments is not. So, the predecessor Government to us cut the university (inaudible) but didn’t allow universities to charge what they need to, to be able to compete with the rest of the world.

STEPHEN SACKUR:

Interesting, already in this interview you have referred several times to the challenge coming from Asia and the opportunities represented by Asia. The difference between Australia and many other developed economies – one of the fundamental differences, is your massive reliance and dependence on China as a marketplace for your goods, your exports. You’re going to have to change that now, aren’t you? Because China is slowing down pretty dramatically.

TREASURER:

No, I think there is a fundamental misunderstanding of Asia, here in Europe, fundamental misunderstanding, complete misread, and the point is, we have seen the emergence of the biggest middle class in the history of humanity. They want to have what we have in western democracies. They want good education, good healthcare, quality environments; they want the very best for their children and they have got the money to pay for it. And the fundamental point is, that we can export it to them. So, it is not just about the commodities that Australia has been so good at selling into Asia but now we are going to sell the quality of life initiatives that help to improve the living standards of that middle class.

STEPHEN SACKUR:

I understand that as an ambition but you have got to deal with the here and now. The here and now is that commodity prices are on the slide, your mining industry is in a slump because of what is happening in the Chinese economy and you have to accept that is going to have an extraordinarily damaging short to medium term effect on your economy.

TREASURER:

Only short term and that is what we have got to see through. For example, our volumes of coal have increased rather dramatically despite the fact that coal prices have come down; why? Because we have reduced our costs of production so much so that it is cheaper for us to sell coal into China than it is for China to buy from Chinese coal producers.

STEPHEN SACKUR:

Well, you know, that may have been true for the past few years but you now know much better than I that the Chinese have imposed new tariffs on your coal. Your own Government has said that is going to be very damaging to your industry. It comes back to this question of over dependence on China. You don’t know what is going to happen in China. The seven per cent growth rate they are maintaining right now might slip to six, might slip to five. You don’t know what the politics of China is going to be but you are extraordinarily dependent on them.

TREASURER:

Well you see, this is where there is a fundamental misunderstanding because a growth rate of seven per cent in China today, is the equivalent of roughly a 14 per cent growth rate ten years ago in China. China will continue to grow because it must. There is no choice. They need to create the 13 million new jobs a year for their population.

STEPHEN SACKUR:

(Inaudible) upset your Government by imposing the tariff on coal, they appear unwilling to sign a free-trade deal with Australia on the basis that you want it, your own Prime Minister Tony Abbott is saying that those talks may come to an end by the end of the year if the Beijing Government doesn’t give ground. There is a real problem – political problem, between Australia and Beijing right now.

TREASURER:

Well, I don’t detect that at all.

STEPHEN SACKUR:

Are you not reading the newspapers like me?

TREASURER:

No, because I set the news that goes in the newspapers. I can give you a better response and the response is that our relationship with Beijing is deep and broad and we will see how the free-trade Agreement goes but I obviously have been involved in discussions. I would say this to you…

STEPHEN SACKUR:

(Inaudible) This is really important, I am sure many Australians want to know the answer to this: if there is no free trade deal by the end of this year, will the negotiations end?

TREASURER:

Well, I am not going to speculate on that. What I will say to you is that we are in deep negotiations with China. It has been accelerated under the Abbott Government. They are also very keen for us to join the Asian Infrastructure Investment Bank that they are setting up with 20 other countries. Not only that, we have recently approved a large number of Chinese investments in Australia, and China has given us access in other areas as well, including financial services.

STEPHEN SACKUR:

How unhelpful is it to you when one of Australia’s most prominent and richest businessmen, Clive Palmer rails against a particular Chinese company that he is locked in a dispute with but goes further and talks about, and this is a quote from him, it is unpleasant words but it is a quote from him, ‘Chinese mongrels who shoot their own people… they haven’t got a justice system and they want to take over this country’, i.e. Australia. Now this is a man that sits in a political position in the Australian Parliament, he commands what, four seats I think, in the Parliament? He is one of your most prominent public figures and he says things like that. What do you think that does to your relationship with Beijing?

TREASURER:

Well, it sends a message to Beijing that we can’t control our press and we can’t control what people say but Mr Palmer did say that. He then apologised for it. The fact is, he is involved in a very deep and very acrimonious dispute with a Chinese business partner and obviously (inaudible).

STEPHEN SACKUR:

This is what the Global Times in Beijing said afterwards, it said, ‘these remarks are a symbol that Australian society has an unfriendly attitude towards China’.

TREASURER:

Well, that is just dead wrong.

STEPHEN SACKUR:

You have got a problem though, haven’t you?

TREASURER:

No.

STEPHEN SACKUR:

Well it is not me saying it; it is the Global Times in Beijing (inaudible).

TREASURER:

Well, that is wrong. (Inaudible) there are you know, probably more than half a million Australians that speak a Chinese language every night at home. There has been a significant increase in direct Chinese investment into Australia in the last two years. There is a deepening of ties with China but it is not only China. The story of Asia is not just China, it is…

STEPHEN SACKUR:

(Inaudible) the world’s dominant economy. If you are so sure that Australia’s economic relationship with China is the future for your country, is that why many people noticed your Government really didn’t get involved at all with the pro-democracy protests in Hong Kong, didn’t express any support for them, didn’t condemn the Chinese Government and the Hong Kong authorities for, essentially saying that there couldn’t be genuine democracy in Hong Kong by 2017? Is that why you just avoided that issue altogether?

TREASURER:

No, we didn’t avoid it. We obviously called for calm like many other countries around the world called for calm, but fundamentally, it is an issue for the Chinese Government.

STEPHEN SACKUR:

(Inaudible)

TREASURER:

Well, ultimately is a matter for the Chinese Government.

STEPHEN SACKUR:

I am asking you what you think.

TREASURER:

I would love to see democracy and freedom everywhere, everywhere across…

STEPHEN SACKUR:

I am asking you about Hong Kong. As a senior Minister in the Australian Government (inaudible) the Chinese must let genuine democracy reign in Hong Kong.

TREASURER:

Well, it is fair comment but I want to talk to you…

 STEPHEN SACKUR:

(Inaudible)

TREASURER:

It is fair comment but I want to say to you, the story of Asia is not just about China. It is about India, it is about Indonesia, it is about Vietnam, it is about opportunity for the whole world. Not just Australia, not just the United States, Europe in particular, and the first country in Europe that starts focusing on the broader opportunities in Asia will get a massive advantage over others that is so internally focused.

STEPHEN SACKUR:

Right, you sell an awful lot of coal in Asia and that raises questions about Australia’s commitment to cleaning up its act. You are one of the dirtiest, most greenhouse emitting countries in the OECD group of developed countries. Is your Government prepared to do anything to clean up its act?

TREASURER:

Well firstly, the comment you just made is absolutely ridiculous.

STEPHEN SACKUR:

Why?

TREASURER:

Well, Australia is a significant exporter of energy and in fact, when it comes to coal, we produce some of the cleanest coal, if that term can be used – the cleanest coal.

STEPHEN SACKUR:

(Inaudible) Highest per capita emitter of greenhouse gases of any nation in the OECD. So, what is wrong with what I am telling you? You are a very polluting nation and you have got a decision to make as a Government about whether you are prepared to do anything serious to change that.

TREASURER:

Stephen, I don’t accept the basis of your question, and why? Because we’ve got a small population and very large land mass and we are an exporter of energy, so that measurement is a falsehood in a sense because it does not properly reflect exactly what our economy is. We are on the threshold of becoming the biggest exporter of gas in the world. We are a major producer and exporter of coal. We are now selling uranium to India. We are an exporter – a trustworthy, reliable, predictable exporter of energy that is helping to drive the emergence of the middle-class in Asia. Now, that should be welcomed.

STEPHEN SACKUR:

The Australian Labor Party Leader Bill Shorten says that just as the G20 meets in your country, Australia is being seen around the world as the climate change sceptic capital of the world. Are you happy with that?

TREASURER:

Well, that is Bill Shorten’s rhetoric. I mean, he is in Opposition…

STEPHEN SACKUR:

…You know what he is basing it on? He is basing it on things like, for example, your own Climate Change Authority in Australia saying that your target of cutting emissions by five per cent is inadequate, it should be at least 15 per cent.

TREASURER:

Well, there is irony there because that five per cent target is what Bill Shorten has as well.

STEPHEN SACKUR:

Yeah, he now says it needs to go further. (Inaudible) Climate Change Authority which ironically enough, your Government is threatening to abolish.

TREASURER:

And there you go; Bill Shorten is threatening to re-introduce a Carbon Tax. He wants to re-introduce a Carbon Tax into Australia. We won’t re-introduce a Carbon Tax into Australia. Australia introduced one, went further than the rest of the world expecting that everyone was going to be right behind us, looked around and there was no one there. And why would we do that when we are a major energy exporter. So, the best way you can ultimately deliver on anything to address climate change is to make sure that governments all around the world have the money to spend on addressing the issue. So, if you lift the living standards, help countries around the world to lift their quality of life by giving them energy opportunities…

STEPHEN SACKUR:

(Inaudible) But just a final question: when your own Prime Minister, Tony Abbott opened a coal mine, I think just yesterday in Queensland, he said, ‘Coal is the future. It is good for humanity and you can bet it is good for Australia’. Is that the kind of Prime Minister that you think is going to deliver a better, cleaner future for not just Australia, but for the world?

TREASURER:

Well, because we are exporting coal so that nations can lift their people out of poverty, and that is a fundamental point, we are exporting gas, we are exporting coal, we are exporting uranium. I mean, it is easy to sit in a nice studio here in Britain and reflect on you know, what climate change is and what energy is but fundamentally, when people haven’t got electricity, they haven’t got clean water, they want what Australia has and we stand prepared to get it to them.

STEPHEN SACKUR:

We have to end there. Joe Hockey, thanks for being on HARDtalk.

 TREASURER:

Thanks very much.

STEPHEN SACKUR:

Thank you very much.