9 October 2017
Transcript - #2017193, 2017

Interview with David Speers, Sky News

SUBJECTS: Productivity Commission Draft Report on Horizontal Fiscal Equalisation; energy policy

DAVID SPEERS:

Treasurer, thanks very much for your time this afternoon. Now, when it comes to the carve-up of the GST, as the Productivity Commission itself notes, this is a zero sum game. So, if one state is going to receive more another state inevitably has to receive less. So, do you agree that if WA is going to get a bigger slice of the pie someone else is going to get less?

TREASURER:

I agree that we need to have a system that works. What the Productivity Commission has found in their draft report is that the system we currently have, while it does well in terms of horizontal fiscal equity which is not a medical condition but is actually a ‘fair go’ principle about how we actually carve up the GST in a fair way, that is a good principle and the report endorses that and so does the Government. The way it is being done, it has also been found, is holding our national economy back. So, it isn’t just a problem for Western Australia. It is a genuinely national economic problem and we need a better way of achieving this goal, this objective of a fair go and how the money is distributed.

SPEERS:

And the Productivity Commission looks at a number of different options. You know there is no perfect solution, it points out, but just getting back to this central point, whatever you do, if you are giving more to one state you are inevitably giving less to another, right?

TREASURER:

Well, it has got to be a fair way you do it though and that is why the Productivity Commission is still tasked to ensure that any recommendations they finally come up with they also need to work to deliver a transition plan that deals with the sorts of disruptions that I think you are referring to. That is why I am going to work closely with the states and territories and when we have a meeting in a few weeks’ time with the Treasurers that will be an early opportunity to discuss this. I think what the Productivity Commission report has done is change the conversation. I have been to lots of Treasurer’s meetings and they all sit there and they will argue with each other about how much each gets on the GST. That is a fairly predictable argument. What this does is it says the way we have been doing this has not been working as well as it should and it is costing our economy so we all as Treasurers and state and territory governments, with the Commonwealth, have an obligation to have a system that does it the best way it can efficiently but also fairly and in a way that is durable.

SPEERS:

Indeed, the Productivity Commission does shed some new light on a few of the arguments here. Now, the Prime Minister for more than a year now has been talking about moving towards some sort of floor below which states can’t receive less in terms of their GST distribution. But the Productivity Commission does warn against this over the longer term. It says a floor is targeting a symptom, and ultimately prevention is better than a cure. It warns it might have, a floor, unintended consequences and increased uncertainty. Is a floor still the Government’s policy?

TREASURER:

The Government’s position on this up until the Productivity Commission was tasked was always going to be subject to what the Productivity Commission may recommend. That is why we got them to do it. We were not so fixed in our view that we thought the Productivity Commission’s tasking was some sort of superficial exercise, quite the contrary.

SPEERS:

So, have you now dropped the idea of having a floor?

TREASURER:

Well, what we are doing is going to await the final recommendations of the Productivity Commission report and then give a full and total response at that time. You are correct, Bill Shorten went to Western Australia and said he just wanted top-ups. Well, Bill’s proposal was binned by the Productivity Commission. The Government has always been open to what the Productivity Commission would recommend – that is why we tasked them. I think we are on a good track, I think we have started a very good process which has been a circuit breaker to what has been a very circular debate and I think we are heading in a much better direction now. We invite the states and territories to engage in the national interest to fix this. It needs a proper solution. It does not need a bolt-on or a Band-Aid which is what the Labor party have proposed and when they were in Government well they didn’t even propose that. They did nothing.

SPEERS:

Well, indeed top ups, the Productivity Commission, again, points out long term they are not the answer either. The Government, your Government, has been…

TREASURER: 

I never thought they were.

SPEERS:

…spending what, about $1.2 billion in compensation, or top-ups to WA over recent years…

TREASURER:

That was always interim [inaudible]…

SPEERS:

Interim measures, ok. Well, either way saying these aren’t the way to go long term. Just to be clear on your policy right now because the PM has been, every time he goes to WA talking about moving to this floor in GST distribution, right now the policy is in transition, you’re awaiting the final report from the Productivity Commission?

TREASURER:

I think that’s a fair way to describe it, it was always going to be subject to what the final report of the Productivity Commission was, and us considering that and how to go forward. But remember it’s not just about working out what it should be, it’s also about working together to work out how we should get there and to minimise the impact on the smaller states which are recipient states, but other larger states whether they be Queensland or Victoria or New South Wales, their relativities change from time to time. In Queensland right at this particular moment they have a higher than normal distribution because of some recent natural disasters. A state like Queensland would very much benefit from the type of arrangements put forward by the Productivity Commission for the same reasons that Western Australia would.

SPEERS:

Well indeed. The Productivity Commission talks about exploiting mineral resources and so on that, at the moment, the current arrangements really do discourage, it says, desirable mineral and energy resource development. Also it discourages major tax reform in the states. Do you agree with that?

TREASURER:

Productivity reforms too, it mentions those as well and I think that’s right. That’s why as the Treasurer I am fully engaged on this. It’s one issue if it’s a number of states waring with each other about their share, it’s a completely different issue when we’ve now found this problem is actually costing the national economy. That’s not something we can allow to continue. We’ve been pretty focused on this. Yes we had the top-ups initially, which stopped the drop in WA at 37 cents. It actually fell from there well below 29. But they were propped-up to 37. And then we’ve commissioned this very comprehensive process with the Productivity Commission to get a real answer. That’s what Western Australians particularly want, but I think the whole country needs, a real answer that will stick.

SPEERS:

Let me ask you one of the suggestions from the Productivity Commission is to move away from benchmarking at the strongest performing state, in terms of this horizontal fiscal equalisation, as you point out, a rather clumsy term, but instead going to the second strongest performing state or an average of all states, would that be a better way?

TREASURER:

I think what the Commission have argued is that it would be, and for this reason, what they’ve found, is that over time how this has actually been done and practised has been calibrated upwards. It’s been bid up over time. It means that once we got to the post mining boom period that the rubber band was just stretched too far. It didn’t have any built in flex to how it would respond to these sorts of shocks. If you like, the perfect was becoming, very much, the enemy of the good, to use one of Kevin Rudd’s old phrases actually. But that’s what they’ve found to be actually happening. To illustrate it David, the churn that goes on, which prior to the end of the mining boom was running at about 17 per cent maximum of the entire GST pool that went into all the various interconnecting swings and roundabouts, that’s gone up to 70 per cent of churn. So the system was not only quite clumsy, and producing some rather bizarre outcomes, but it was also proving very inefficient. So they’re saying the HFE, the fair go principle as I call it, that’s a very worthy goal, and we’re doing it better than any other federation in the world but it’s working a little over enthusiastically and creating what the Commission referred to as unfair equality. If you’re living in Western Australia you’ll know exactly what I’m talking about.

SPEERS:

Unfair equality is an interesting term…

TREASURER:

It is.

SPEERS:

You share that view, there is such a thing as unfair equality?

TREASURER:

I share, certainly, the Western Australians’ view where they’ve got down to 29 cents, now I don’t think anyone, and John Howard I understand has made this point himself, when they were doing this no one envisaged a scenario to emerge like we’ve seen over the last few years. I think, no doubt, when the previous Labor governments saw the GST relatively of WA falling like a stone, they could have done something about it and frankly if they had done something about it back then, this would be a much easier problem to address now.

SPEERS:

One more on this use, as you know the poorer states are saying they want a guarantee from you they’re not going to be worse off. Can you give them any sort of a guarantee as you work through this policy, your government’s position and approach on this, that you are not going to leave any state worse off?

TREASURER:

I give them the guarantee that they come to the table in good faith and we’ll work through the problem together. If they want to play politics with it and go through the usual old games of just having the same old debates about this, well, then I don’t think that’s a particularly enlightened or constructive approach…

SPEERS:

They’re just after a guarantee that they’re not going to be worse off.

TREASURER:

The Productivity Commission has blown the whistle on how the old system was working and they’re saying it needs a real fix and I’m very determined to ensure that we get a fix. That’s why I commissioned the report, our Western Australian members in particular have been very active – people like Christian Porter and Steve Irons and, of course, other Cabinet Ministers like Mathias and Julie have been very keen on this issue and rightly so. Their suspicions and concerns have been borne out by this work…

SPEERS:

But what about Christopher Pyne, Simon Birmingham, Eric Abetz?

TREASURER:

They’re all part of the Government and they’ll all have an opportunity to work through this but at the end of the day, the Productivity Commission is the channel through which we are pursuing solutions here and I’ll be taking advice from them about how much longer they will need and I suspect that that may take longer to work through, not just what should the answer potentially be for the Government to consider but even more importantly, how do we get there and take into account the very legitimate concerns that some of the smaller states might have and you’ve mentioned states like South Australia and Tasmania – we’ll be very mindful of their positions. But let’s think about South Australia for example, no longer under what the Productivity Commission has been suggesting, would a South Australian state government be able to hide behind the GST formula for not getting on with important reforms. If you want to be a go-ahead, lean-forward, pro-growth state, well, under what the Productivity Commission is suggesting, the GST formula won’t hold you back.

SPEERS:

Let’s turn to the energy debate, finally. Do you think, Treasurer, that renewable energies are becoming cheap enough or prices are falling fast enough that they’re not going to need subsidies for much longer?

TREASURER:

The evidence certainly points to that on the price and one of the things we’ve got to be very honest about is that renewable energy policy in Australia over the last many years has been an industry policy, it hasn’t been an energy policy. It’s actually been about subsidising the development of a renewable energy industry in Australia. It hasn’t been about lowering power prices, in fact, quite the contrary and it’s important to demarcate those issues fairly clearly. The other thing to bear in mind is the great ideological exuberance that the Labor party showed for this – particularly in states like South Australia or Victoria or other places – is a misread of the difference between what’s happening in the Northern Hemisphere where a lot of these policies were introduced because of very different climatic conditions, weather conditions, whereas Australia is quite advantaged when it comes to some of these sources of renewable energy and so carbon copying what’s been done – pardon the pun – from the Northern Hemisphere into the Southern Hemisphere hasn’t always been a great approach. So, I think there’s a lot of issues here, David, and I think a lot of the articles we’ve seen lately does point to exactly what you’re saying is that these types of energy alternatives are starting to stand on their own two feet and may well be beyond that. But we’ve got to distinguish between the intermittent and the non-intermittent and what is also necessary is that there’s a fair dinkum way of pricing this. Someone telling you tomorrow that they can turn up with ‘x’ number of megawatt of energy from a wind farm – well, that’s going to depend on whether the wind’s blowing tomorrow. But if someone says it’s going to be coal-fired power turning up tomorrow, well, it would be far more reliable and we haven’t done a great job over the last ten years in pricing reliability as well as volume.

SPEERS:

So any sort of Government mechanism really needs to encourage that, the reliability, the dispatchability of power, not so much…

TREASURER:

Absolutely.

SPEERS:

…whether it’s renewable, clean?

TREASURER:

Well, I think renewables increasingly are becoming very competitive on their own terms and they’d have to justify the subsidies that many are seeking. What we want is a very defined and certain investment framework which will see investment go into all of the above energy sources to ensure that there’s greater supply to meet our needs which puts downward pressure on prices. What I often hear when I hear people calling for greater investment certainty is certainty over the subsidies they will receive. Well, I think that’s a very different question.

SPEERS:

Alright, Treasurer, we will have to leave it there but obviously, we look forward to an outcome from the government on that front as well. Appreciate your time this afternoon.

TREASURER:

Thanks a lot, David, always good to be with you.