19 March 2018
Transcript - #2018031, 2018

Interview with Michael McKee, Bloomberg

Subjects: Trade, economy, crypto-currencies, corporate tax reform.

MICHAEL MCKEE:

The elephant in the room, obviously, the US steel and aluminium tariffs – Australia has got an exemption but how concerned are you that this could lead to wider trade disruptions if not a trade war?

TREASURER:

I'd certainly be hoping that cooler heads prevail. Australia has a win arrangement with the United States in this area. We have a free trade arrangement with the United States, there aren't tariffs on these products coming into Australia so not surprisingly, we've got a reciprocal arrangement – that's really what we have and we welcome that with no strings attached. So that's a good outcome obviously for Australia, but it's a product of how we do business. We're an open trade nation and that's been reflected. More broadly though, I think it's a matter of keeping one's head on this to ensure there aren't spill over effects that are damaging more broadly – obviously, that is concerning more to the wider community but we just need to make sure that we just keep cool heads in the room.

MCKEE:

The US is preparing to launch tariffs against China for intellectual property theft, we understand, China's your most important trading partner so where does that leave Australia?

TREASURER:

Again, just maintaining dialogue with all the players on this and ensuring that we just remain focused on what Australia's interests are, ultimately. There are clearly some issues between some of these major players and making sure that Australia doesn't become collateral damage in any of these things and that we can continue to navigate a very good path for the Australian economy and our population.

MCKEE:

Would you be sympathetic to the US argument that China does cheat on trade?

TREASURER:

Largely, we enjoy good relations with both countries. We have a long-standing alliance with the United States which goes well beyond our economic relationship but equally, we've got an outstanding economic relationship with China and we'll continue to pursue both of those relationships enthusiastically.

MCKEE:

Couple of other big issues here for the Ministers, even if they're not solved at this meeting, digital taxation – you've argued that companies should pay their fair share wherever but how does that happen? Are we still a long way from any kind of consensus?

TREASURER:

I think this is one of the key issues at this meeting and largely, we've got a new economy which tax systems were not built for and the new economy shouldn't be some sort of a tax-free environment. That cannot be the sustainable position of advantage for the new economy and I think it's important that we work together with industry, with other countries to ensure that our tax bases can move with the new economy and it's important that we do this together – otherwise it will be clunky, it will be clumsy, it won't be well-targeted and it will steal from the potential growth that can be achieved by the new economy – but the idea that the new economy should be a tax-free environment is a nonsense and it's very important that we set out some clear principles and rules about how we can migrate our tax systems to cope with the new economy – which is exciting, which is great, which is tremendous for jobs and growth and innovation – but it can't be a tax-free club.

MCKEE:

Are we still a few years away from some kind of tax regime though?

TREASURER:

Australia has already moved to have one of the most extensive multinational tax avoidance regimes anywhere in the world and we've taken advice in the lead from countries like the United Kingdom and we have similar measures, but the whole issue of source-based taxation and when you see those issues actually explored in the recent US tax package and some of the issues that have been identified there beyond just the company tax rate cuts, but what is a former destination-based tax in the US arrangement so these are difficult questions and they are just a function of the translation of our economy into a completely new phase and to think that regulation and tax won't have to make similar changes would be against history.

MCKEE:

Cryptocurrencies are also on the agenda, the Central Bankers' meeting this week suggested they're not a systemic threat yet but somewhere down the road they need to be addressed. Where's Australia on that?

TREASURER:

We're a little less anxious about this. Blockchain technologies we see as a very positive thing, we're working now – the Australian Stock Exchange – is working on becoming the first real-time settlement exchange in the world using Blockchain and we think that's an exciting innovation, but at the same time, cryptocurrencies – I'd agree with the comments of Mark Carney and others that this is not a systemic risk issue at the moment, there are consumer protection issues here that I think we have to be across, but what's more important is real-time payment and the New Payments Platform that has only been launched in Australia in the last month leapfrogs so many others, 24/7 real settlement through the banking system, that's what the economy needs, it needs that real-time capacity within payment systems and the payment rails and I think that would lead to a lot of innovation and a lot of new applications in the FinTech sector. Australia is positioning itself to be a world leader in FinTech. We're already up there in the top five in terms of the cities around the world with Sydney now and we're looking to expand upon that so cryptocurrencies are very fashionable to talk about at the moment, at the end of the day though, what matters is that you can have real-time payment systems.

MCKEE:

Couple of quick questions on the Australian economy, the Fed meets this week in Washington, likely to raise interest rates, how does that affect interest rates for you?

TREASURER:

I don't think these two are related. I think we're on different tracks here. What's happening with the Fed is sort of well-telecast and well-forecast as well, and I think a lot of that has already been factored in, but Australia's monetary settings have been far more stable in terms of what the outlook is. They've been that way now for some period of time and the factors that are keeping them in that frame, there's no real view that that's about to change any time soon so that flows through to the volatility you might see on exchange rates being more modest in Australia which is also a positive for us.

MCKEE:

Last question, you and Prime Minister Turnbull have campaigned to cut the corporate income tax to match what's going on in the United States and yet you've got RBA Governor Lowe suggesting that could cause a big Budget deficit, you don't want that either, so where does that leave you?

TREASURER:

That's not what Phil Lowe said, Phil Lowe says you have to be able to fund it within your Budget and acknowledged that what we have put forward is funded in our Budget so, of course, in the Australian setting, we have ensured that lowering our corporate tax rates is done at the same time as bringing our Budget back to balance in 2020-21. Now, that has been consistent for five successive statements now of our Budget updates and that is our plan and we will return to surplus in 2020-21, that is the reason why we're only one of ten countries with the AAA credit rating from the three major agencies and we've stuck to that track while at the same time, being able to absorb having lower tax rates for business – why are we doing that? To drive investment which will lift earnings and lift jobs, it's that straight forward, and we've already legislated half the package for businesses up to $50 million and we're seeking to extend that to the broader economy and we actually commenced that process actually back in 2016 so I'm glad the Americans decided to follow us.