20 March 2017
Transcript - #2017040, 2017

Interview with Peter Switzer, Sky News

SUBJECTS: G20 Finance Ministers and Central Bank Governors meeting; Senate; Federal Budget; Housing affordability.

PETER SWITZER:

Thanks for joining us, Mr Morrison.

TREASURER:

Very good to be with you.

SWITZER:

I’ve got to say, I’m not use to calling you Mr Morrison so it probably won’t last very long. To me, the most important question is, you’ve been to the G20, was the tone different because of Donald Trump, and his new Secretary of Treasury was in town?

TREASURER:

The major change in tone was actually about the fact that things were a lot better this time around than they were 12 months ago, and the outlook is a lot better. I mean, the IMF is forecasting 3.1 per cent – well, that was for the 2016 year – but moving forward over the next two years, that’s a growth rate of up to 3.6 per cent in 2018. So, there was a much more optimistic mood about where the global economy now is. They appreciate the fragilities around that and there still remains downside risks, but this was a meeting where I thought there was a much greater sense of both appreciation of where the global economy now was and what the upside is now looking like. In some economies like Spain, for example, in Europe there was a much better mood about where the economy was heading, not just about growth but also about stability, and so that’s why we’re so keen on the issue of trade because that’s going to be and will continue to be an important source of growth in the future.

SWITZER:

Scott, was there talk [inaudible] around the possibility that President Trump’s trade policies may well end up creating a trade wall?

TREASURER:

I think there was a lot of pragmatism about this and there was a lot of debate about the language that ultimately went into the communique from the meeting, but that’s for bureaucrats and officials. What there was no doubt about was there was a clear commitment around the room that trade was essential for the continued growth and prosperity of the global economy and for individual economies. There was debate about multilateral forms, or bilateral or other ways that this would be achieved and fair trade and free trade and so on. But from our point of view, I thought it was very important that we acknowledge the role that trade will play in the growth of the global economy and it’s absolutely critical for economies like Australia – and that’s what we stood up for.

SWITZER:

Do you think also, because it’s effectively the first meeting for the US Secretary of Treasury at the G20 Meeting, that there was a sense of: “Well, let’s give them the benefit of the doubt and we’ll fire bigger bullets if we need to in the future”?

TREASURER:

I think there was a lot of understanding around that. I had a very productive meeting with the Treasury Secretary, Steven Mnuchin, just on the last day of the meetings. I found him to be very engaging; particularly on their agenda of lowering corporate taxes and the plans they have around infrastructure spending. They’re dead serious about that, particularly on the infrastructure side, that’s going to be very good for the global economy, including for Australia. On the corporate tax side, they’re very committed to reducing that corporate tax rate in the US and that only underscores why it’s so important that here in Australia that we need to move, at the very least, what we’ve currently got before the Parliament to bring our corporate rate down to 25 per cent. Now, there are big differences between the American corporate tax code and the Australian corporate tax code. I mean, our base is far broader for a start and it is a far bigger part of the overall revenue pie that we take here in Australia. In the United States, it’s a very different situation but I think they’re very serious about that and I think that means we’re going to have to be on our game to make sure we’re as competitive as can be. So, I thought he was doing a lot of listening and engaging at the meeting. I think people were getting to know him and I thought we came to a commendation on the communique which recognised the importance of trade. The language was different to the previous meeting but, ultimately, what’s most important is that we agree that trade is a big part of our prosperity into the future.

SWITZER:

Has Donald Trump made your life easier in the sense that now you can talk corporate tax, you can talk about increasing infrastructure spending that might jeopardise the reduction of the Budget deficit over the next few years? But at least people are saying: “This is something the whole world is now starting to embrace?”

TREASURER:

Well, as you know, we were already on this page before the Budget and particularly on infrastructure expenditure, we’ve had a $50 billion rolling infrastructure program for several years now and that will be rolled out in the future ongoing. But on the issue of corporate tax, we put that in our Budget last May and that was well before the presidential election. But I think what these developments – whether it’s on corporate tax or infrastructure in the United States – are doing is really injecting some optimism into that economy and that’s much needed. And the Secretary and I had a good discussion about the need to focus on the positives that are happening in the global economy and in our respective economies. Sometimes in these meetings, everyone wants to get bogged down in who said this and who said what, but at the end of the day, this was a meeting where the G20 came together and said for the first time in a long time: “Things are actually a lot better than they were and they’re going to be getting better.” And I think that’s a really positive message to be sending out there and I’m pleased to be relaying it.

SWITZER:

When Joe Hockey was Treasurer, Peter Costello said to me that one of the mistakes Joe made was he didn’t get the Senate on side. He should have gone down to Ricky Muir’s office and said: “Come on, Ricky. Let’s go for a drive.” Clearly you’ve got a troublesome Senate, so who are you taking for a drive to make sure you get your Budget passed?

TREASURER:

[laughs] Well, it’s a much bigger bus and we work this as a team and Senator Mathias Cormann, my partner in Budgets, worked closely with the crossbenchers and others in the Senate. We work together on those issues and we’ve had a lot of success since the election last year, we had $22 billion of Budget improvement measures which were passed and implemented. We still have just over $13 billion we’re still working on now. That will come to a head over the next couple of weeks of this sitting. I think we’ve made a lot of progress on that, far more than anyone thought we would, after the last election and this Senate has proved to be a bit more engaging on these issues than the last one. They’ll be facing a pretty important test in this sitting fortnight. The reason they have to engage on getting expenditure under control with the savings measures we’re still pursuing, particularly in the welfare area, or on doing the right thing on making sure businesses have some corporate tax relief so they can earn better, which means they can grow and invest and employ people. The Labor Party have just failed on that test, which means the discussion shifts to the crossbench. These commitments should have been bipartisan. We had a reasonable expectation they might be given Chris Bowen wrote a book about why you should be cutting corporate taxes. But he’s completely reneged on that, as has Bill Shorten. We’ll work with the Parliament, we respect the fact that they’ve all been elected. We changed the Senate voting system to make sure that people didn’t get there through these weird arrangements of preferences that used to exist. They’ve all got there on their own bat, by getting enough votes. So, we have been according in that respect so we’ve been getting some real outcomes.

SWITZER:

I know you won’t give me any specifics about the upcoming Budget, but this is a double barrel question; do you want to have some impact on the property sector, particularly house prices, and secondly, what do you think of this suggestion that maybe stamp duty could be eradicated and be replaced by some kind of land tax?

TREASURER:

Let’s start by talking about housing affordability and what its scope is. When I talk about it I’m just not talking about first home buyers trying to get into the market. That’s very important and it’s very difficult for them to do that. The issue of housing affordability spans a much bigger spectrum than that. We’ve got over 30 per cent of people in this country who live in rented accommodation, and then you’ve got a proportion of those who rely on social housing, and another proportion of those who are homeless. The issue of housing goes right across that spectrum, I think it’s wrong for the debate to be characterised by the Labor Party, who are saying, “if you just put up people’s taxes then everyone will be able to buy a house”. I just don’t think that’s a housing policy - that’s an increase in tax policy. So, we’re looking across all of those things Peter. You’ve got to address the supply issues, principally, that’s the main reason why we have the runaway prices we’ve seen particularly in Sydney in recent times and also in Melbourne. Now, on the issue of finance, and investor finance in particular, over the past few months we have seen that spike up again, and that is after over a year or so of those macro-prudential measures, those regulatory measures which were introduced to restrict the growth in borrowings for residential property investors. Now, that was having quite a significant effect for quite a period of time. Over the last few months, we’ve seen that come under a lot of pressure. I met with the Council of Financial Regulators a few weeks ago and I meet with them individually on a regular basis, but we were looking at this more recent data, and they obviously have other levers that they can pull and it’s appropriate for them to focus on that. One area which sets Australia out from many other counties is we have a very high proportion of interest only loans. It’s about 39 per cent of the stock of the loans, and I think it’s about 37.5 per cent of the flow of new loans. That compares to the UK which is around about 20 per cent. I think in New Zealand it’s around about 30 per cent. Every market has its differences, it’s important for those regulators to look at what they can do. On the issue of stamp duty and land tax, this is fundamentally an issue for the states. They levy stamp duty. They levy land tax. They are decisions they can take wholly within their state Government, without any involvement from the Federal Government, and I’ve noted the suggestion that somehow the Federal Government should be bank rolling this through our debt. Well, their debt position is actually a lot less than the Commonwealth’s. They’re in a position to take action on that front in the first instance on their own bat. That is a very legitimate issue for the states to look at, and they’ve each got to make their own call about how they might pursue it. Now, we have a meeting with the state treasurers and territory treasurers this Friday and I’m sure that will be one of many topics of discussion. There are things the states can do, and you want to encourage them to do that, and in fact the biggest levers they’ve got their hands on are the supply levers, planning and zoning regulation, and how that works on the ground. We know the terrible burden that can be, in getting new projects away.

SWITZER:

Alright mate we’re out of time. But remember this Budget coming up, you have to have a good one, because as your old teacher I do cop it when you don’t perform well.

TREASURER:

You gave me a credit for my last one, mate. We’ll hope to improve on that score this year. It’s just over a couple of months away and our focus doesn’t change. You’ve got to grow the economy because that’s what delivers the jobs, that’s what drives the investment, that’s what supports people’s wages, and lifts living standards. At the end of the day, we’ve got a great opportunity with the improving global economy, and we want to make sure Australia takes the best opportunity from that.

SWITZER:

Good luck on Budget night, thanks for joining us.

TREASURER:

Thanks Peter, always good to be with you.