27 April 2017
Transcript - #2017066, 2017

Doorstop interview, Sydney

SUBJECTS: Address to the Australian Business Economists; Budget 2017; delivering affordable gas for all Australians.

QUESTION:

How will people know what is good debt and what is bad debt when you publish your net operating balance more prominently in the Budget?

TREASURER:

The difference between the net operating balance and the other measures actually is the difference between what is being put into capital. Now, one of the issues around the net operating balance from the Commonwealth perspective is that it won’t take account, for example, of grants made to state governments for their infrastructure projects so that’s why it’s important also to provide an allocation of debt across the various spending functions of government like infrastructure which would include grants to states for those sorts of purposes. But I think the principle’s pretty clear. If you’re investing in things that boost productive capacity like infrastructure, like energy infrastructure in particular, then obviously they are assets which return and pay for themselves over time. But, if you are borrowing money to spend on everyday expenditure, then in your own household experience, you know that doesn't end well.

QUESTION:

What about education?

TREASURER:

Go on.

QUESTION:

Well, is that a good debt? If debt is run up for something which will increase the capacity of the country…

TREASURER:

Everyday expenditure is everyday expenditure. Food is everyday expenditure. If you are borrowing money to buy food every week, that is not sustainable either…

QUESTION:

I suppose some investment…

TREASURER:

It is important. It is very important to eat every day. I probably do a bit too much of it. It is very important. What we are talking about here, Peter, is it’s not saying that particular areas of expenditure are not important. Of course they are very important. Medicare expenditure is important. Education expenditure is important. That is why you need to ensure that your current expenditure can be met by your current earnings as a Government and that you ensure the dollars that you bring in, each year from the taxpayer, can cover the expenses that you are meeting every day and, importantly, on education and health and things like that. For capital investments and things of that nature, just like in your own private, personal experience or in businesses’ experience. Then you can leverage your balance sheet to make investments in those areas. In the past, people have said: “All debt's bad.” There are some debt that you can acquire that can actually pay for itself over time when you invest it in things that boost productivity, that grow the economy in particular, that have an income stream that come back on them. Education and health expenditure is incredibly important and that is what our taxes should pay for.

QUESTION:

What if some of those capital investments are a flop? Don't you risk blocking out the private sector from making similar investments?

TREASURER:

No, I think I covered that inside.

QUESTION:

You spoke quite passionately about the importance of having to move over to good debt. [Inaudible] and today you touched on how hard it is for the most vulnerable Australians, is there going to be relief for them in the foreseeable future?

TREASURER:

Announcements will be in the Budget when it comes to all of these issues, but I just restate what I said inside. I mean, the debate that has been held around housing has often forgotten and neglected the people that you are referring to – people who rent on low incomes. They are always very close to my mind when I think about these issues and have been over a very long period of time. I am no stranger to those issues. There are incredible organisations. Anglicare is one. There’s Shelter, Foyer Oxford, Common Ground. These organisations do phenomenal work, particularly in the area of homelessness. When I was in the United Kingdom earlier this year, one of the key differences between their affordable housing sector and ours is that their housing mutuals, their housing associations are very large organisations with big balance sheets that can play a significant role in meeting the demands for low-cost accommodation. We don't have that same institutional capacity here. We don't have the same flow of institutional capital going into those types of investments, or foreign investments for that matter. I mean, US and Canadian pension funds are investing, Australian superannuation funds are investing in UK affordable housing. So, these issues are very close to my mind and attention as we prepare for the Budget. What that demonstrates is I am interested in trying to relieve the pressure across the spectrum of housing. Now, the Commonwealth Government can't do all of that on its own. So much of it has to do with working with the state and territory governments and local governments on planning issues and councils and infrastructure. No one level of government can address this issue in isolation, but we all must work together to try and address it.

QUESTION:

There were specific examples in that report, though, like more social housing, raising rent assistance. Are they things we might see in the Budget?

TREASURER:

The Budget is on May 9th.

QUESTION:

On the Prime Minister’s gas announcement today, Mr Morrison, the likes of the Australian company Santos, it might be dire consequences for them if government intervention in the market takes place. What if this policy runs an Australian company like Santos out of business?

TREASURER:

What this policy is about is a fail-safe for Australian electricity consumers. That is what it is. This is Australian gas and it is needed for Australian users. What this does is provide a fail-safe in the system to deliver that gas where it is needed domestically. I think this is an important announcement by the Prime Minister. I obviously have been part of its workings through the energy subcommittee with Cabinet. We have a Prime Minister who understands how to deal with the machinations of how our energy markets work and he's very conscious of the issues that need to be carefully addressed here and this is a fail-safe measure, one that I think will greatly assist, combined with all of the other measures. I mean, we have got inquiries with the ACCC and to gas prices, we have got other work being done by the Productivity Commission, we have got work being done across the board on trying to improve competition across all of these sectors and get the regulations right. There is, again – it is like housing – there is no one solution. Whether it is the pump hydro initiatives that the Prime Minister has clearly articulated at Snowy or [inaudible] or other projects like this, all these regulatory measures are fail-safes where they are required, you need a well thought-through comprehensive response which is exactly what the Prime Minister is articulating because he wants to take the increasing pressure off these prices for Australian families and businesses.

QUESTION:

With good and bad debt, is this a sign that the Government will be bankrolling big projects like Badgerys Creek?

TREASURER:

No, I don’t think people should lead to any conclusions about what I’m announcing in the Budget. What I’m simply saying is that the Government’s budget process needs to understand debt better, that when policy proposals and expenditure submissions are framed, we need to understand the debt consequences of those. We need to ensure that when we think through where we spend taxpayers' money that the consequences of that are thought out and you can't do that if you ignore the public debt interest and debt consequences of how you spend money in the various areas of government. You can't disconnect those things. What I am simply doing is ensuring a budget discipline that keeps the Budget on the right track, that ensures that our focus of the money that the government brings in from taxpayers first goes to ensure essential services – like hospitals, like schools, like Medicare – is getting that support. And that we don't allow our expenditure to grow out of control and then we have to borrow on the nation's credit card to pay for everyday expenditure. That is a bad principle. It is one that we have to get out of the habit of doing and that is why we need to bring the Budget back to balance and then put the country on a much stronger medium-term position where we are paying down debt and ensure we can bring things back to where they were when the Coalition last saw a positive position on a balance and a positive position when it came to debt and that was under Peter Costello. Thank you very much.