30 June 2015
Transcript - #2015153, 2015

Interview on Bloomberg TV, Hong Kong

PRESENTER:

The Asian Infrastructure Investment Bank’s taken another step forward with the official signing ceremony for founding members. Australian Treasurer Joe Hockey was in Beijing to make Australia the Bank’s sixth largest shareholder and he’s with us exclusively in the studio this morning. Treasurer thanks for coming in. Tell us about it. Now what does Australia get out of this?

TREASURER:

Well, we’re part of a region that has an $8 trillion infrastructure shortfall over the next ten years. Australia has the capacity to be a major beneficiary of new infrastructure. Not just through our iron ore exports but also through our energy exports, through our services exports in construction, engineering and a range of other things. And of course if the infrastructure is in Asia then the ports, the new ports, the new railways, can carry our goods to market. Be it everything from natural gas to agricultural produce. It’s terrific.

PRESENTER:

Okay, I think the US has criticised this whole agreement of the AIIB for a lack of transparency and also its regulatory, the way it’s been set up. How do you respond to that?

TREASURER:

Well the United States did raise concerns about the structure of the Bank. We went into negotiations in good faith hoping to ensure that the Bank had the best corporate governance principles of any major multilateral bank and they’ve actually got that. We’re satisfied that when it comes to issues like ensuring that minority shareholders are not oppressed, there are protections now in place ensuring the directors make the decisions about where the money goes. Those arrangements are in place. And importantly, it’s not dominated by any single shareholder...

PRESENTER:

Not even China, surely it is…

TREASURER:

No it’s actually not because China has around a quarter of the votes. Should the United States and Japan come in at a later stage, and I’ve been given reassurances that they’d be welcome into the AIIB. If that were to happen, then their shareholding would be obviously further….

PRESENTER:

It would be diluted, but isn’t that just lip service because it has been seen as a political bulwark against, let’s say the TPP, which you’re lining up to sign as well? 

TREASURER:

Well, no, I see it as a different situation. The President of China was very keen to do this and as he said in discussions yesterday, the World Bank, the Asian Development Bank, they all had a prominent role to play in the development of China’s modern economy. And now China wants to contribute through the AIIB and other ways. And of course, don’t forget China’s got other banks that it’s involved with where it has a much more significant presence and greater influence, and if they’re going to be used as tools of China’s foreign interests then so be it, but…

PRESENTER:

Treasurer, okay, when are you going to sign the TPP? That’s one part of my question, and what does it bring to the party for Australia? Because you already have the free trade deal with the States?

TREASURER:

Well we’re the beneficiary of free trade, there’s no doubt about that. Australia produces much more than it consumes, and we haven’t even touched the sides of our capacity to export. For example, mining and resources represent 10 per cent of our economy but 55 per cent of our exports. Whereas services, such as education services, health services, tourism, financial services, represent 70 per cent of our economy, but just 17 per cent of exports. All these trade agreements, particularly if they open up new access for the provision of services into these markets, they’re very good for Australia.

PRESENTER:

You didn’t answer when you’re going to sign it?

TREASURER:

Well, when it’s ready.

PRESENTER:

It’s not ready?

TREASURER:

No.

PRESENTER:

Japan’s signed it.

TREASURER:

Well, it’s not ready for us yet.

PRESENTER:

Alright, what does this give you on top of this free trade agreement though, that you already have with the US?

TREASURER:

Well, let’s just wait and see. It’s not for me to disclose how it directly affects Australia at this point in time. I think there are further discussions to go, certainly domestically…

PRESENTER:

Because I think in the previous one ten years ago, that free trade deal, people pointed to that to say that some of the costs of health care etcetera, medicines have gone up exponentially because of that. Are you trying to also shield yourself from that sort of criticism?

TREASURER:

No, Australia was a major beneficiary of the free trade agreement with the United States. For a start, the United States is the biggest foreign investor in Australia by quite a considerable margin. Secondly, we are one of the largest trade markets for US small businesses in the world, directly as a result of that free trade agreement. And Australia has opened up massive new opportunities in the United States. Not just obviously in the traditional areas of agriculture, but importantly, we’ve got more business to business relationships at a small business level. And the start-ups are obviously the great beneficiaries of that, particularly going into the major capital markets of the United States.

[COMMERCIAL BREAK]

PRESENTER:

Hi, you’re on Bloomberg Business as we continue our conversation with the Australian Treasurer, Joe Hockey. Treasurer thanks for sticking around with us. IMF last week said that unless you have an ambitious reform program growth is going to fall back to about 2.5 per cent a year, and that would compare to what, 3.3 per cent on average over the last thirty years. Tell me something, what is this ambitious reform plan that you have in mind?

TREASURER:                         

Well we do have a number of reforms actually in play at the moment. One of the biggest challenges we face, which a number of Western countries face, is an ageing demographic. So we’ve got a number of processes in place to try and keep people in work. Importantly, a big childcare program to try and encourage more mums to come back into work, so workforce participation is hugely important. We’ve got our biggest ever federal government infrastructure program, which is rolling out new infrastructure right around the country and it is balancing out the drop in mining and resource construction.

PRESENTER:

But what it’s not doing is balancing the Budget. When is that going to happen?

TREASURER:

Well, we’re on track with a fiscal consolidation of around half per cent of GDP every year until we get back to surplus, but we have the capacity to do what is necessary to keep the Australian economy going through a record run. 

PRESENTER:

You mentioned it there. Many economists have accused you of being overly aggressive when it comes to fiscal policy, being tighter than necessary and that’s dragging down growth. How do you respond to that?

TREASURER:

Well some say we’re moving too fast, others say we’re moving too slowly. I’d say we’re moving at about the right speed.

PRESENTER:

You would say that, wouldn’t you?

TREASURER:

Well I think that’s the consensus view. It’s in line with where monetary policy is at. We have significant capacity.

PRESENTER:

Well if you say you’re going at the right speed, I mean, Citibank for one thing says that if you were more neutral on this, your fiscal stance was neutral, growth would be up to about 3 per cent.

TREASURER:

Well look, people can look at the tea leaves, every bank seems to have six different opinions on these things but from our perspective, it’s right. We’ve got good job creation, we still want to get the unemployment rate down and that’s defying expectations. And the Australian economy is going through a massive transition. Because fall in terms of trade…

PRESENTER:

A transition to what though?

TREASURER:

Well to a broader based economy with greater exports as I’ve said a little bit earlier...

PRESENTER:

Exactly, well some people have accused you of being essentially China’s dining room and farm.

TREASURER:

Well that’s dead wrong. Because we’re seeing in the last quarter of economic growth which was one of the fastest rates of economic growth in the developed world, we actually saw a broadening out of exports particularly in services, and this comes back to where I was at before. Because the world is divided into three time zones, the more services we can export to the middle classes of Asia, the greater the prosperity for Australia. And they’ll still want all of our iron ore. Every year we send 550 million tonnes of iron ore just to China which will build the Sydney Harbour Bridge from Sydney to Perth, back to Sydney every year. It’s a massive amount.

PRESENTER:

Absolutely.

TREASURER:

And we haven’t even touched the sides with gas.

PRESENTER:

Alright, alright, Treasurer, what about the RBA? Record low interest rates now at the moment. Glenn Stevens, Governor, said, well there are limits to monetary policy. Some people say that you’re not doing enough on the fiscal side. How do you respond?

TREASURER:

Well we’ve got the balance right in relation to fiscal policy. We are trying to reduce the overall taxation burden, but at the same time we’re trying to reduce [inaudible] government expenditures that were unsustainable.

PRESENTER:

You can understand his headache though can’t you. Because on the one hand you’ve got soaring house prices in Sydney making it unaffordable for your average [inaudible] there and on the other hand you’ve got a mining sector which really needs to have liquidity and cheap borrowing.

TREASURER:

Well a lot of the mining industry’s growth has not been funded on borrowings, it’s been funded on capital. And obviously we’re moving from the mining construction phase into a mining production phase. So Australia is now exporting record levels of resources and we’ll continue to grow. I mean in the next five years we’ll be the biggest exporter of LNG in the world on top of iron ore and all the other exports. We actually are going through a growth phase, but it’s a transitional growth phase and I am very very confident about Australia’s future.

PRESENTER:

Treasurer, last question here, very quickly, are you going to go the full term? You’ve got more momentum in polls now. Or is it better to go early?

TREASURER:

You know, you work really hard in opposition to get into government and you don’t hand away the keys of government too early. You’ve got to make sure you hang onto them and do what is right. And we’ve still got a lot of work to do.

PRESENTER:

So you’re going for the full term?

TREASURER:

Well I expect we will.

PRESENTER:

Joe Hockey, thank you very much indeed for that. That’s the Treasurer of the Australian economy, Australian Treasurer, Joe Hockey.