25 August 2015
Transcript - #2015181, 2015

Interview with Neil Mitchell, 3AW

NEIL MITCHELL:

On the line Federal Treasurer, Joe Hockey, good morning.

TREASURER:

Good morning Neil.

NEIL MITCHELL:

I’m sure you’re getting a lot of reports from around the world overnight and analysis. Do they tell you the sky’s falling?

TREASURER:

No. No. We’ve got to have some perspective about this. Let me begin with China and focus on the fact that the Chinese stock market is 40 per cent, more than 40 per cent higher than it was a year ago, despite the fact that the Chinese economy has slowed down a little bit. And the fundamental point is it’s still growing, the Chinese economy. People are speculating that it won’t grow at seven per cent. Now that’s ridiculous. If it grows at six and a half per cent, or six per cent, anywhere in that range indicates that the Chinese economy is still growing quite strongly. What they’re doing is they’re seeing a change in their domestic economy from one where it was heavily export oriented, to one where they’re trying to stimulate domestic consumption. Now, the information I have is that the Chinese property market is starting to come back in the big cities. It is also the case that they’ve taken a number of decisions in China which has strengthened their economy including cutting interest rates, and that takes six to nine months to flow through and that’s working. So, the Chinese stock market is quite irrational. It’s not the same as our stock market on Wall Street or other places. It has a comparatively low number of Chinese investors and there’s a lot speculative money and, as I said, it’s 40 per cent above where it was last year.

NEIL MITCHELL:

You talk about Wall Street - they’re down three and a half per cent, nearly 3.6 per cent. I mean, Wall Street’s reacting badly. You’ve got to agree, the world’s very nervous?

TREASURER:

There’s a lot of flighty money around at the moment and that’s because interest rates have been very low for a long period of time. So there’s a lot of money floating around in the world. Not in government hands, but in private sector hands. And it’s been desperate to look for investments, and a lot of money has gone into the stock market. So, for example, now there is speculation and there has been for a while that the United States would increase their interest rates. And all eyes are on the US Federal Reserve in that regard. The bond market’s barely moved overnight because money is moving into those markets on the expectation that interest rates will eventually rise and it’s moving out of stock markets. So, there are going to be gyrations, there is going to be volatility, so you’ve got to come back Neil to the core business of the economy. In Australia, last month, 38,000 new jobs were created. That’s 10 times the number of jobs in one month than were created in the last month under the Labor Government. So you’ve seen a massive increase in job creation in Australia. Retail sales are up. They’re actually comparatively strong. They’ve been up throughout the course of the year. There are good fundamentals in Australia that indicate that we’re going to see these things through, and the same in the United States.

NEIL MITCHELL:

So, is there a financial crisis or not?

TREASURER:

No. No.

NEIL MITCHELL:

Is there one threatening?

TREASURER:

No. No. There isn’t. There are going to be these gyrations and they need to be carefully managed. So, for example, if the United States starts to increase interest rates, it’s a sign that the United States economy is getting better. And in fact, the United States economy which is the biggest economy in the world now has full employment. It has full employment. So you’ll start to see some wage growth in the United States, one of the biggest consumer classes in the world will start to consume the goods that we produce, that China produces, that others produce. This time last year Neil, there was an expectation amongst Finance Ministers that Europe had a 40 per cent chance of going into recession. Europe’s seen through the Greek crisis, the worst of it I think, and now Europe’s starting to grow. Japan is starting to grow, at long last, it’s taken years for Japan to grow. So China, which is our biggest trading partner, is still buying our iron ore in record volumes. It still has pretty high levels of importation of Australian coal. Japan…

NEIL MITCHELL:

Sorry, but if I’m relying on the market for my superannuation and I see that yesterday, in one day, $60 billion goes, since March $300 billion goes, it has to worry me. It has to unsettle me. I have to say, hang on, what about my superannuation…

TREASURER:

I would urge people to look at the underlying return on investment. That’s the key about how those companies are performing. Share prices go up and down. But what matters is the fundamentals of what sort of return people are getting on their investments. And you know, if you look at for example, the Australian banks, some of which have seen their share prices come off recently, the fundamentals of the Australian banks are very sound. We’ve just had yet another full inquiry into the banking system. The Australian banking system is in very good shape and it’s robust enough to withstand events that occur once every thousand years. And, so the fundamentals are strong. But companies like BHP and Rio have cut a lot of costs out of their businesses. So their costs of production, of iron ore and coal, are comparatively low. In fact, in many cases it’s much cheaper to produce coal in Australia than it is in China, which works to our favour.

NEIL MITCHELL:

Okay, can we look at some specifics and bring it down to grassroots. What it means to me. Oil is down at a new low. What will it do to petrol prices in Australia?

TREASURER:

Well, petrol prices should be coming down, but for the fact that we trade oil in US dollars, and against the United States dollar the Australian dollar has come down which makes imports more expensive. So…

NEIL MITCHELL:

So, they won’t come down?

TREASURER:

Well, they’re probably around the level but I don’t want to speculate on individual pump prices other than to say we’re not upset about oil prices coming down. And even though that hurts our gas sector, which exports, and increasingly is going to export more and more it is, for Australian consumers, pretty good news.

NEIL MITCHELL:

We’d have to expect a little bit of a drop?

TREASURER:

Yep - I would hope so.

NEIL MITCHELL:

Superannuation - what does it say to my superannuation if I’m about to retire?

TREASURER:

Well, look the fundamentals are still very strong. If you’ve got superannuation…

NEIL MITCHELL:

[Inaudible] wiped off it though. I’d assume…

TREASURER:

Hang on, hang on. There’s a lot of people that have, for example, superannuation invested in real estate. Real estate and a number of areas have done very well recently in capital gains…

NEIL MITCHELL:

There’s a limit on that though isn’t there?

TREASURER:

Well, it depends on the nature of the superannuation investment. But for people with money invested in shares, again, if you’re in shares that are based on return on investment it’s been a pretty good profit season for Australian companies. Again, you stick with the fundamentals. You have a balanced portfolio. That’s the best advice I can give.

NEIL MITCHELL:

But if I’m about to retire, I’m going to feel it.

TREASURER:

Well, no. The Australian market, even though as of yesterday it was down about five per cent on a year ago, the fundamentals of the Australian market are still strong.

NEIL MITCHELL:

Jobs - what does it mean for jobs?

TREASURER:

Well, we’re seeing good job growth in Australia at the moment, and that’s very encouraging…

NEIL MITCHELL:

Will that continue in this environment?

TREASURER:

Yes, I believe it will. I think we’re going to continue to see pretty strong job growth in Australia, and why? The Australian economy - we went through a massive mining construction phase, mining and resources, the construction of the big mines in Western Australia and Queensland, the big gas plants. Mining only represents two per cent of employment in Australia, direct employment, even though it’s a big chunk of our exports. What we’re seeing is, with the Australian dollar coming down - and this is particularly the case for Victoria -you’re going to see a pick-up in manufacturing and manufacturing exports. You’re going to see a significant pick-up in education, and exports of education and tourism as well. And that’s good news, particularly for Victoria and South Australia, which suffered a lot with the high Australian dollar. The low Australian dollar I think will deliver good growth in Victoria.

NEIL MITCHELL:

Commodity prices? Things like, what I pay for things, that going to affect it?

TREASURER:

Well, if you look at commodities, soft commodities like beef, the prices are literally through the roof, and why? You’ve got this massive emerging middle class in Asia and increasingly they want quality food. So they’re looking at better quality beef, better quality chicken, better quality milk products, better quality grains, and the volume as they become wealthier, the demand for the volume for our produce – from citrus right through to agriculture – is going to increase. So, that puts a bit of pressure on our domestic prices, but I’m very confident that Australian farmers can respond and meet the domestic market and growing demand offshore.

NEIL MITCHELL:

Implications for your Budget?

TREASURER:

Well, we are still absolutely committed to the Budget forecast we have. The iron ore price is about exactly the same point as it was when we delivered the Budget in May. So, the Australian dollar’s come off a bit more against the United States currency, but quite clearly everyone’s been feeling the pain associated with a very high Australian dollar. So a lower Australian dollar is going to be good for jobs as I said in manufacturing, in tourism, in education and so on. So, that’s where I see, if we have lower unemployment, if we have greater jobs growth, that means that people are paying tax and that’s good for me.

NEIL MITCHELL:

Treasurer, the media around the world - Europe, America - the media are saying crisis, they’re saying this could be as bad as the Global Financial Crisis, and you’re like the policeman saying nothing to see here. Are you convinced of that?

TREASURER:

No, I’m not saying nothing to see here - I look at the fundamentals. And I have a great deal of respect for the media and particularly for you, Neil [laughter]. Well, this is the butter up phase, mate. I do have a great deal of respect for you. A lot of the media’s looking for extremes at the moment, it’s extreme high, extreme low. Everything’s either a calamity or it’s euphoric. That’s the nature of modern media. It seems to take extreme positions on everything. Someone should be hired, someone should be sacked. It is the nature of modern media. So, I think, if people look through the media and look at the fundamentals. I mean I keep saying that, but that’s what drives everything, you look at the core of what needs to be assessed. And I’d say to you, the global economy is in better shape today than it was 12 months ago and it was in much better shape 12 months ago than it was a year before that.

NEIL MITCHELL:

So, is there anything the Government can do, today, does it need to do?

TREASURER:

Well, I’d encourage people to focus on the medium term…

NEIL MITCHELL:

What chill out, chill out?

TREASURER:

No, not chill out. But, you know, you’ve always got to be vigilant and never take your eye off it. The things we’re doing, that I’m doing, that the Abbott Government is doing - such as doing everything we can to get the Adani mine up in Queensland – which is 10,000 jobs – getting on with infrastructure right around Australia. They’re the things that matter mate, getting rid of the Carbon Tax, the Mining Tax. I know what you’re saying, but you’re asking me what have I got to do, and these are the things that actually make a difference to people’s lives.

NEIL MITCHELL:

Okay, one last thing. Polls are shocking. They say it’s almost impossible to recover from for Tony Abbott. What are you going to do about that?

TREASURER:

Well, you know, back in 2004, not long before we won the 2004 election, the two party preferred was exactly the same as it is today. It was about two months or three months before the election and we went on to win the election. And you know why? Because ultimately, the Australian people will judge you on the basis of not only what you’re doing, but whether you have a plan for the future and we do. We have a plan, we’re implementing it. And that’s why we’re going to see through all the challenges, all the difficulties that come our way in the economy, or national security, or anywhere else. As long as you have a plan Neil, and you stick to it, then the Australian people at the end of the day will reward you for delivering the things they want.

NEIL MITCHELL:

Thank you for your time.

TREASURER:

Anytime Neil, thank you.