25 January 2017
Transcript - #2017001, 2017

Interview with David Gura, Bloomberg

SUBJECTS: Trans-Pacific Partnership; UK – Australia relationship; Brexit; housing affordability.

DAVID GURA:

This is a trade deal that some have described as ‘being on life support’ here. How confident are you that the TPP will continue to live on?

TREASURER:

Well, a lot of work has been put in not just by Australia but the other parties to this arrangement. The decision by the President was not unexpected but that doesn't mean that you simply walk away from these things. There’s still a lot that can be gained and we intend to continue to pursue that where those opportunities persist, where there’s opportunities, potential for other partners to step into this. Australia’s a trading nation and Australia’s first policy does embrace trade and foreign investment and all of these things and so our economic interests are very much aligned with that approach. We’ve had excellent arrangements finalised with China, South Korea and Japan and the TPP was an important part of this and we respect the decision made by the President – as I said, not unexpected – and we just get on with it.

GURA:

I know that during the course of the US Trade Representative pitching this bill to the American people, he mentioned China quite a bit and said there was a national security reason for doing this. That if this agreement weren’t agreed to by the US, China would fill that void. Does this make the free trade agreement that China has been pushing more attractive to you and the Australian Government?

TREASURER:

We already have a free trade agreement with China and the other nations that I’ve just mentioned so we’ll pursue our interests, the United States will define theirs in their own way under the new President and I’ll leave it to them to make their judgements on those issues. Our agenda is one that we’ll continue to pursue with enthusiasm and with optimism. That’s how we’ve always seen these and particularly in areas like services exports where Australia has seen some really strong growth in our service exports and largely into Asia which is our big market and so we’ll continue to focus there.

GURA:

No doubt you’ve heard the rhetoric from our new President here in the US about trade, raising the spectre of a trade war between the US and China – China of course Australia’s biggest trading partner. What would that mean if that rhetoric came to pass?

TREASURER:

Well, nobody wins from that, nobody – whether it’s Australia or anyone else – and we expect cooler heads to prevail on these sorts of things. That ultimately, people will take a very pragmatic approach, whether it’s to that issue or issues we’re seeing where I am today here in London and the UK. And Brexit, our view is that this is the decision made by the British people and now there are the practical issues to be addressed and we’re very much proponents of strategic patience while these arrangements get finalised. They’re incredibly detailed and complex and issues around transition, issues around settlements in the Euro, and issues around passporting for the financial institutions here in the UK, it’s in everybody’s interests that all of these things get sorted out in a very pragmatic and patient way. Whether it’s that or cooler heads prevailing when it comes to China and the US on trade, everybody is going to win from that sort of an approach.

GURA:

Prime Minister Theresa May’s vision for trade appears to be some kind of constellation of bilateral deals. I wonder Sir, what you’re pushing for, what Australia is pushing for in a trade deal with the UK? What issues are most important and if you could give us some sense of what the timeline for that happening might be?

TREASURER:

These things can’t formally commence until the issues with the EU have reached their trigger points. They’re the rules that sit. But, clearly, we have made very clear intentions to the UK of our willingness to engage in a free trade agreement with them. In many respects it would mirror what has already been in place as a starting point with what we’ve been seeking to do with the European Union. We already have very strong ties in the services and other areas, but we’ll look to build on that. One area, in particular, the UK will be moving forward with a housing statement in the very near future, I understand. There are very good operators and service providers in Australia who can feed into that, particularly in the area of prefabricated housing and things of that nature. So really, we’re up for it all.

GURA:

I noticed in the last quarter, the Australian economy shrunk by half a percent. What assurance can you give here that going into the next quarter that that’s not going to be the same?

TREASURER:

Well, already the data which is coming out for a range of indices that we’ve seen in the December quarter so far would indicate that there’s not a lot of concern on that front. And frankly, there wasn’t at the time that the surprise result came out for the September quarter. I mean, our real growth rate bests all of the G7 with the absence of the UK and when you look at our forecasts over the short to medium term, we expect to see our growth performance pick up where it left off. We can’t be complacent about that and obviously issues around trade and foreign investment; the US is our biggest foreign investor, the UK’s our second, these things remain critical to our future growth. Australia’s now in our 26th year of consecutive annual economic growth. A whole generation of Australians have now grown up without ever having known a recession and it’s certainly our intention to ensure that a new generation won’t either.

GURA:

Just a last question here, Mr Morrison, you mentioned affordable housing a few moments ago. I wonder if you could shed some light on what your plan is, there have been some reports that you might be considering a government backed bond vehicle. Can you confirm that and what’s the strategy going forward to get housing prices under control?

TREASURER:

The key issue is supply and that’s also the same message I’m receiving here in the UK where they have similar problems and challenges when it comes to housing affordability. It’s the old market principle where supply needs to meet that demand. In Australia in particular, while we’ve had strong growth in house prices, particularly in Sydney and Melbourne, that has been driven by classic economic fundamentals, not as a result of speculative bubbles or financing issues. While that may have had some impact at the margins, the fundamentals are about supply. So it is about how you can increase land releases, planning and systems, approvals and getting construction happening right across the board – whether it’s in middle-ring brownfield sites, on greenfield sites. It’s about infrastructure connecting to new suburbs in new areas. It’s about where the jobs are and there’s no silver bullet issue on any of them. On the issue that you mentioned, the housing bond aggregator for affordable housing is what’s been recommended through a process we’ve been working on. They have a very similar model which has been successful here in the United Kingdom and I’m taking a look at that while I’m here. So, whether it’s affordable housing, meeting the needs in the private rental market or the private purchase market, at the end of the day, it’s about how you can build more houses, more units, more dwellings to meet the rising demand of a growing economy.