1 September 2017
Transcript - #2017168, 2017

Australia’s Asian Future Summit Q&A, Sydney

SUBJECTS: Pick-up in non-mining investment; commodity prices; productivity; the Turnbull Government’s comprehensive plan to put downward pressure on electricity prices for households and businesses; retirement incomes; increasing market competition.

TREASURER:

[AUDIO BEGINS] Yesterday we had CAPEX figures that are the sort of CAPEX figures I have been waiting about two years to see in Australia. New business investment, non-mining business investment, up over 5 per cent projected for the next few years. 2.6 per cent in the June quarter. We had a 1.5 per cent sales volume increase in the June quarter. We had 240,000 people get a job in this country last year and we had the single largest six-monthly increase in full time employment in the last six months we have had since the survey started almost 40 years ago.

Commodity prices – we are used to the volatility of that. In our own Budget projections we have been very conservative about that and our estimates and forecast and projections have proved to be pretty fortuitous in terms of ensuring that it doesn’t overstate or indeed understate our Budget position. Look, I am a lot more optimistic about all of this. We will have our National Accounts next week. We will see what they will say. But for the June quarter, but a lot of the building blocks for that National Accounts data so far certainly gives me less cause for concern going into this set of numbers then I had maybe on previous ones. But you know they always have a habit of surprising.

QUESTION:

Let me put it a different way. Australia is a reasonably strong economy. It came through the crisis very well. It’s well regulated. It is widely regarded as being a reasonably robust and strong economy. But the question we have [inaudible] around the discussion today is how we change productivity growth in Australia. That is in decline. How do you…

TREASURER:

Well, labour productivity has been increasing. That is [inaudible] of the fact that you have had very large capital investments in the mining sector and now we are moving into the production phase and you are going to see some change in labour productivity as a result of that. A while back I commissioned the first of what will be a five yearly review of Australia’s national productivity by the Productivity Commission and we have received the first of those reports and it has been quite voluminous and we are working through that at the moment.

What the productivity agenda in Australia has to change to is it can’t be a retrospective one. We had a massive shift in the 80s and 90s and early 2000s. We basically got rid of the old regulated economy, moved to a different platform and our GDP per capita costs, living standards lifted significantly because of that. That’s all welcome. But that was before the smart phone. It was before the technological advances that have impacted the economy since then. It was before the GFC. Our productivity agenda now is a lot more tuned towards knowledge, services, health and education. These are the building blocks around productivity in Australia today.

After having going through what I call the hardware of productivity changes several decades ago there is a productivity software upgrade that we now need to engage in because so much more of our economy is in that space. The health industry for example will be a major generator of jobs. Human services is a major generator of jobs and productivity in this country and we need to continue to gear up for that.

QUESTION:

In the context of innovation, just coming back to the point that you made that the old regulated economy is disappearing, in many ways that is not the case and I think one of the reasons why large Australian companies, particularly, are not innovating it seems to me, you may disagree, is that there is a lot of regulation around those sectors that is quite inhibiting. In fact there isn’t really a lot of incentive to reach out and be innovative [inaudible].

TREASURER:

I think that is a reasonable point. I mean energy, financial services, two classic examples of what are very regulated sectors and they need to be well regulated. You, yourself said, that we came through the GFC, and we came through the GFC because we had one of the best regulated financial sectors anywhere in the world. In the North Atlantic they refer, and particularly in the United States, the GFC as the Great Recession. Well, we don’t refer to it as that in this country. We refer to it as the financial crisis that occurred which Australia’s financial service weathered. Banks continued to lend throughout the GFC. As a result we have had our 26 years of consecutive economic growth. Economists will be bickering at their annual barbecues as to whether that is the longest run in history or not but we’ll take it. It is a pretty good record and it is one of Australia’s greatest national achievements. The sectors you talk about, you rightly reflect on them as being heavily regulated. They are not free market nirvanas – the banking industry or the energy sector. A key issue we are wrestling with at the moment is to make sure we get energy regulation right so it does not drive up prices which we have seen with the old limited merits review process for the energy generators and others to gold plate their infrastructure and then whack all those prices on to customers. On top of that you have got providing the investment certainty around our energy emissions targets and all of these sorts of issues that are related to giving them certainty of where they will invest in new sources of generation. Because, what does Australia’s energy market need? More power.

QUESTION:

[inaudible] that say Australia’s government is not acting firmly enough in some of these areas. The clean energy target is not there yet and that is raised by many investors in that sector as being an impediment to future investment and future…

TREASURER:

And they do and they are right to talk about the need to get certainty on these questions and that is why the Government is moving to provide that. And we will provide that. We are seeking to land that at the moment but we are going to do that exercising the sort of strategic patience which is necessary to get a landing that will stick. Anyone can write a report, make a recommendation and say – this is the answer. But it is the hard job of Governments and politics to actually land on a solution that sticks. If it doesn’t stick, you don’t get your certainty, you don’t get your investment.

QUESTION:

It’s kind of ironic in a way though, isn’t it, that energy prices have risen so much in the absence of a carbon price?

TREASURER:

Well, hang on a tick. Electricity prices actually dropped when we got rid of the carbon tax. That is a fact. You can see the records and you can see what happened. In more recent times what we have seen is the loading that has largely come from changes in the wholesale price and that was particularly revved up when Hazelwood closed and our stack bidding system means that the gas price, and we have got so much of our gas locked up in going off into offshore contracts, that we have had a restriction in supply of gas in this country that has driven up the wholesale price. So, look the energy market is wheels within wheels, within wheels. It is a very complex and it is quite a heavily regulated system. Then you have got the retail side of it. In any highly regulated market where businesses have been operating they get pretty good at working the regulation. The customer often doesn’t end up on the good end of that equation and we are pretty determined to ensure that we have stronger markets because we have stronger customers.

QUESTION:

So, in relation to that in one of the observations a lot of foreigners make is that it should really be pushing forward more quickly around clean energy, around renewable energy, abundant resources are here. Why isn’t Australia a global leader in renewable energy?

TREASURER:

We make our own decisions about our own sovereign interests.

QUESTION:

That’s not an answer.

TREASURER:

It is actually. We welcome the well-intended advice from all of those who live outside of Australia but at the end of the day the Government will make decisions that look at our economic future and balance our interests, our advantages and will work at the pace that we deem appropriate.

QUESTION:

Do you think certain targets around renewable energy would be helpful?

TREASURER:

Well, we have our commitments in Paris and unlike many other countries that make commitments, we meet ours.

QUESTION:

It recalls a conversation I had with [inaudible] to criticise, several years ago, criticise Australian businesses for not taking the opportunity that was sitting in front of them, prevented by climate change, do you think that is a fair observation?

TREASURER:

I think I have already reflected [inaudible]. We have our commitments. We will meet them. We don’t go off to these conferences and big note ourselves and say we are going to meet this target and that target and then do a lap of honour. What we do is we carefully consider what we are going to do, we commit to that and then we achieve it. Australians can be taken at their word on the commitments that we make internationally. We will meet those. At the same time we will continue to ensure that we have reliable, secure, base-load energy to drive our industries and to support affordable prices for households right across the country. At a time when we have had flat wages growth, not just Australia, but most developed economies have been in that situation, we have been able to protect against rising income equality because of our progressive tax system and our very well targeted welfare system, that has protected against rising inequality but still the Hilda data shows that household incomes after adjusting for tax and transfer payments still has been very, very flat. Now, in that environment Australians don’t welcome the fact that the bills they can’t avoid, their electricity bills, are rising. So, we want a better deal out of the retailers for them. We want to access our gas for domestic use which we are doing. We are streamlining regulations so they are not pressing prices up. We are investing in the biggest pumped hydro storage in the Southern Hemisphere, 10,000 megawatt hour capacity. This is another massive investment in our capacity and in a renewables environment where frankly everybody has got terribly excited about renewables but where is the investment in storage? Where is the great leadership in storage investment overseas? Australia is saying where is the leadership – it’s Snowy 2.0.

QUESTION:

Let’s just change tact a little bit and pick up on something from earlier and that is the sense of flat-lining wages [inaudible]. Is innovation in that sense unsettling for Australians?

TREASURER:

It can be. Some of the words that most frighten Australians, I think anyone in any developed economy these days, are productivity and reform. They are terrifying ideas. Often they mean for Australians, as they accept them, you want me to do more and get paid less. How does that work for me? It seems to be working for you but it is not working terribly well for me and that provides a real inhibitor to getting support for important economic changes the country needs. I was talking before about what was happening in the 80s and 90s in this country. Big changes that lifted Australia’s productivity, improved the strength of our economy. But a lot of people got hurt at the same time. A lot of people got caught in the transition. We have been going through one of our biggest economic transitions as a country as we have gone out of a once in a lifetime, maybe several lifetimes, mining investment boom. A 30 per cent fall in the terms of trade. The GFC, and we still manage to grow. That is quite an extraordinary achievement for a country. I make this point because there are a lot of people still caught in that transition and in that transition where people are hurting and wages are flat the door opens to the politics of envy. That is why, as a government, we have remained so focussed on the economics of opportunity and ensuring that we continue to focus on growing our economy. If we give up on that and we give in to the politics of envy then we will go down the road of so many other developed economies who have fallen for that three card trick.

QUESTION:

Treasurer, one word we haven’t heard today in this innovation forum is something where Australia can legitimately claim to be a global leader and that is superannuation and retirement savings. You travel around the world [inaudible] and yet within Australia we still have an expectation that 80 per cent of people by 2040 will still be on some form of aged pension and something like 90 per cent of people don’t put any extra money into superannuation beyond the superannuation guarantee. So, the first part of my question is, is the Government concerned that notwithstanding what has been achieved that with this lack of engagement with superannuation people don’t realise what their future outcomes are likely to be? That is the first part. The second part is even those people who are engaged, when you have [inaudible] change as the Government has brought in on 1 July, which you would strongly argue and I would likely support were it driven by the desire to have a more equitable system, that was roundly criticised by many people in large parts of the industry. So, the first part of the question – are you concerned about the general disengagement? Secondly, are people, I am not prepared to [inaudible] changes.

TREASURER:

Well, first of all on that [inaudible] figure, that is true at a gross level but it is componentry changes over the integrational report period. It basically inverts where you have the proportion of people you expect to be on a full pension after that period of time and on part pension completely flip. So, you have proportionally the same amount of people relying on welfare payments but the degree that they rely upon it dramatically changes. So, you have more people on part pensions than you do on full pensions. That is the product and the outcome, I think of the scheme that was put in place 25 years ago and more. Now, there is nothing wrong with making sure your scheme is remaining on track. The changes that I introduced in July of this year were all about making the system the system, yes definitely fairer, but sustainable. Australia has an ageing population and an ageing population that is going to get, for those of what is now known as retirement age, get larger and larger as a proportion. We all know that the tax paid by those, they have paid it all their lives I acknowledge that but those over 65, the proportion of tax they paid versus the working age population is a lot, lot, lot less. And so you have got more and more people going into a lower taxed environment and going into receiving payments on welfare, then the retirement income changes we made over two budgets was about getting that on a more sustainable footing [inaudible] the changes to the assets test for the pension or changing the upper limits of how superannuation was taxed. So, that is why we did it and I think those changes were sensible. I realise that for those who were impacted it wasn’t something they liked. But in the fiscal environment we have and faced with the demographic changes we are faced with then I am not sure what other choice we had but to address that front-on. So, that was a significant and difficult reform.

In terms of engaging with superannuation more generally, I think this will go in waves in terms of people’s ability to provide additional contributions to super. When we went through the super changes what was quite clear is that the caps that we had and the potential balances that people achieved and the limits we put on those no one gets within a bull’s roar mostly. Most ordinary income earners in Australia, these caps are stratospheric for them. They are not going to go close. It becomes an issue later in people’s working life, usually post about 50-55 where these things become a bit more focussed and that why we made some changes post the Budget which I think better reflected the need for more flexibility particularly in those last ten years before people go into retirement. So, it does remain an important pillar within our economic system in Australia. I want there to be more choice for people in that environment. I want there to be more accountability. I want to see better governance in these areas and my colleague Kelly O’Dwyer has been doing a lot of work in that area as well. I keep coming back to this point, the strongest markets are the markets where the customer is the strongest and that doesn’t matter whether it is in superannuation, in telecommunications, utilities, electricity, gas, banking – in all of those markets we want to see the customer liberated. Now, one of the biggest changes you can make which links in to the broader point about technology in this space is consumer data rights and that is one of the big rocks in the jar for really lifting Australia’s productivity over the next 20 years and that is giving customers control of their information. That is the building block that every FinTech, that every technology, that every company needs to be able to provide a better deal and deliver a better service. That will change our economy and it is going to change the global economy.

QUESTION:

Scott Morrison, Treasurer, thank you very much indeed.

TREASURER:

Thank you very much.