4 September 2015
Transcript - #2015193, 2015

Interview with Ryan Chilcote, Bloomberg, Ankara, Turkey

RYAN CHILCOTE:

You could argue that Australia and the Australian economy is more dependent on China than any other economy in the world. To discuss that we’re joined by Joe Hockey, he is Australia’s Treasurer. He is the man in charge of the country’s finances. Look, your GDP numbers came out earlier in the week. Quarter-on-quarter the economy grew by one fifth of one per cent. A lot of economists say that’s much worse than they were expecting. You said it’s growing well. What are the economists missing?

TREASURER:

Well, they’re missing the full year data and they’re also missing more recent data, which indicates that the 70 per cent of our economy which covers services, has actually grown by nearly seven and a half per cent in the last 12 months. Mining and resources represent only ten per cent of the Australian economy, agriculture is less than five per cent of our economy but they are obviously, a big part of our exports. We’re now seeing the emergence of a middle class in Asia that has massive demand for our exports in education, tourism, advanced manufacturing and a range of other things that represent 70 per cent of our economy and just 17 per cent of our exports.

RYAN CHILCOTE:

You formulated your Budget forecasts about four months ago. Given what we’ve seen in China over the last few months, are you concerned you might be a bit too optimistic? That you might need to revisit those forecasts?

TREASURER:

No, because we think our forecasts are about right at the moment. What we’re seeing is pretty strong employment growth even in the wake of us not getting our economic growth back to what is our trend growth rate of around three and a quarter per cent. Now this is a new phenomena in a number of different economies. The fact that you can have pretty strong employment growth despite not having your normal level of growth, that’s quite encouraging.

RYAN CHILCOTE:

What would it take to force you to change your Budget forecasts? What would have to happen?

TREASURER:

Well, it depends. There’s many factors at play. China is our biggest trading partner, but the United States is our third biggest trading partner. And we’re seeing strong growth in the United States. Low energy prices help us on the one hand because we import a lot of oil. On the other hand we export a lot of gas, so that’s not necessarily helpful to our domestic gas prices. Australia has a diversified economy, much more diversified than people appreciate and therefore we will be able to cope with whatever happens in China, or particularly, in other parts of the world. So long as it’s not a global wide phenomena.

RYAN CHILCOTE:

Persistent lower energy prices; it would be reasonable to assume could force you to revisit the Budget forecast if you see that to continue on over the next few months…

TREASURER:

No, no, I don’t see that as the issue. Look, again, we’re seeing volumes of some of our exports continue to increase. For example, our iron ore exports to China continue to increase and Rio Tinto yesterday made an announcement in relation to forecast increase in Chinese demand. That’s encouraging. Our coal exports, whilst there has been some volatility because of domestic pressures in China, our coal exports volumes will, over time, hold up, because we’re a low cost producer of high quality coal. But also you’re seeing other areas and soft commodities, like beef, where prices have increased massively and will continue to increase as demand grows out of the Asian region but also out of the United States.

RYAN CHILCOTE:

The Aussie dollar against the US dollar is down about four per cent since China devalued its currency. It’s at a six year low today against the US dollar, what’s fair value for your currency?

TREASURER:

Well I’ll leave that to the markets. I mean, a lot of our exporters have struggled when the Australian dollar was near parody with the United States dollar…

RYAN CHILCOTE:

Are you considering it’s too weak?

TREASURER:

No, I think as our head of our central bank identified the other day, he’s not upset about the current level. I’m always very anxious not to comment on particular levels, even though I’m sure your audience would love me to. The fact is we can cope with a currency that continues to fall, because it’s going to empower our exporters, and in the [inaudible] Australia is always the beneficiary of better export prices.

RYAN CHILCOTE:

Let me ask you about the migration crisis, it’s getting a lot of attention in Europe. One thing that maybe not everyone in our audience knows is that your father came from Palestine as a refugee, left in 1948. What’s your take on the issue that’s getting so much attention right now, in at least, the European Union?

TREASURER:

Well it’s a difficult issue in Europe, because you’ve got two types of refugees. You’ve got the ones who are coming across the border because there’s a war next door. Here in Turkey two and a half million Syrians have come across the border, that is a direct result of the conflict in Syria, and you have that conflict in North Africa as well. You also have some economic refugees that are trying to come across into Europe as well. Australia had that economic refugee challenge. Before we came to government, tens of thousands of refugees - attempting refugees came on boats, we stopped the boats. We lost 1,200 people including children at sea. And when we were elected into government we said you have to stop the boats. You have to close down the business model of the people smugglers. And we did.

RYAN CHILCOTE:

And the lesson for Europe is what? That you should be tough, as Australia has stopped would-be-migrants at sea or keep them in camps outside of Australia before they get to your country…

TREASURER:

Your community will always be more generous to organised resettlement of refugees than it will be to people who jump on boats, come over. Having said that, there is no single solution in the case of Europe, because there are many different factors driving the refugees into Europe, there are many factors at play. Most particularly what’s happening in Syria and Iraq.

RYAN CHILCOTE:

Joe Hockey, thank you very much for your time.