22 September 2014
Transcript - #2014030, 2014

Interview with Carson Scott, Sky News Business

SCOTT:

Steven Ciobo, warm welcome to you.

CIOBO:

Thanks Carson.

SCOTT:

To paraphrase Tim Costello from C20 over the weekend, very much a sense that the G20 is in the last chance saloon now, that effectively you've got to deliver. The happy talk is no longer good enough. Do you kind of see this is almost a catch 22. We're not in the GFC and because of that the will of members is not exactly pedal to the metal. Yes or no?

CIOBO:

No, I don't agree with that. I think that there's recognition over the weekend at the G20 that more needs to be done. Clearly we continue to see effectively economic stagnation in Europe with very low levels of growth. The United States of course is getting stronger and we've got a strong economic action plan in Australia that under the Treasurer Joe Hockey we've been rolling out. I do think that that's probably a bit harsh. There's a strong level of commitment to try to achieve that two per-cent growth target that was set back in February in the Sydney G20 meeting and there's been real progress that's been made in relation to that. Not only over the past several months but also of course over the weekend.

SCOTT:

Let's zone in on what Australia is going to do moving forward because in essence already the criticism is your infrastructure package does not amount to increased spending. It assumes basically private and State government spending or substitute for Federal government spending. Is that a fair kind of distillation?

CIOBO:

Well I'm not sure who is pushing for there to be more and more borrowing and spending by the Federal Government. What the Coalition intended to do of course with their infrastructure project, which by the way amounts to about $125 billion over the next eight or so years, is to start to shift Federal Government spending so that's it going into productive infrastructure.

If you look at the challenge that Australia faces, both in terms of aging population, in terms of course our fiscal position, the fact that we're carrying a heavy debt burden, the fact that we've got built in expenditure, real payments that have been continuing to grow under Labor's policy settings, which of course we're trying to trim back. We're trying to trim that back and refocus spending so that we actually boost productivity because we must get that productivity boost if we're going to ensure that we more readily can pay down debt and return back to a surplus condition.

SCOTT:

Let's address the heavy debt burden as you've said. As a percentage of GDP public debt is minuscule. Let's be quite honest about that.

CIOBO:

But this is ... I'm sorry but I find this argument that's run by Labor and others to be absurd. The reason why Australia has a low debt to GDP... Let me rephrase that, has a relatively low debt to GDP ratio is because of the good work of the previous Coalition Government when we got it down to zero. In fact, we had a national savings in six years. But I want to address this point. In six years the Labor party ramped it up and the thing is it would continue to grow. Labor was not on track to get us back to being in a surplus until 2023 and that's assuming the best case scenario of continued economic growth. So you can very quickly see that had there been another, at some point in the future, some additional economic headwinds, Australia might not return back to a surplus for decades.

SCOTT:

Alright, putting aside the ideological argument on that, let's talk about your commitments to higher education, your cuts. There are cuts to CSIRO and indeed to the NBN. How is that consistent with building jobs which is also part of the G20 mantra? How is that consistent with technological advances that were put into the G20 communiques if you're cutting higher education, CSIRO, and NBN.

CIOBO:

Well we're looking to deregulating and reshaping the tertiary education sector in Australia. We want to make sure that Australia's tertiary institutions are world class. We've got good tertiary institutions but we don't have tertiary institutions that are among the best in the world and that's what we hope to be able to achieve by deregulating the tertiary education sector.

In relation to NBN for example, well you know I'm sorry but I'm happy to stand by our decision to reduce the amount of money that taxpayers are borrowing so that we change from a fibre-to-the-home approach to a fibre-to-the-node approach, but it's still going to deliver a world class broadband speeds. But it's not going to cost the literally 10 or 15 billion dollars of additional borrowings that it would have had Labor gotten their way. Plus, let's not lose sight of the fact that under our policy we're actually going to roll out NBN much more quickly to a lot more households than Labor ever did.

SCOTT:

Let's again go bigger picture than just the left v right here. You talked about the United States earlier, they have an explicit policy on supporting raising minimum wages. They base that on economic studies. We are not, as the current government at least would have it, of the same mind. We're talking about unity of this grouping. Something as basic as that we don't agree on. How concerned are you about?

CIOBO:

Look, again, we're not homogenous. The fact is that the challenges before the United States are different than the challenges before Australia and of course the challenges that we face are different to the challenges that China faces and in turn are all different to the challenges that face a lot of the European countries.

I don't really think you can compare labour force costs in the United States with labour force costs in Australia. When you talk about the minimum wage, you're comparing, look I don’t know what the minimum wage is in the United States it’s eight or nine dollars from memory versus a much higher minimum wage right in Australia. I really don't think you can compare the two.

The fact is that the Australian labour force is less flexible than the American one, but we have a safeguard to a higher level workers’ wages. Whereas in the United States they've got more flexibility around their labour force, but not the same level of minimum safeguards that are in place.

SCOTT:

Can we talk specifically on infrastructure because it is one of your focus areas.

CIOBO:

Sure.

SCOTT:

Let's kind of tick it off. Transport and logistics, communication, energy, water, waste disposal, justice and health systems. This is kind of the spectrum of potential areas that the whole infrastructure topic touches.

CIOBO:

Absolutely.

SCOTT:

They are not readily those things provided by the market because they're subject to market failure. On that basis, private provision is not really sufficient is it? Spill over effects that you see gamed by those who do not have to pay directly for them.

CIOBO:

Look, the thing about infrastructure is it's a dynamic space. There's a couple of forces at play. First a lot of infrastructure projects are of course natural monopolies, both in terms of current infrastructure as well as anticipated infrastructure. There will always be a need around a natural monopoly for policy settings to recognise that and take it into account. By the same token, there will be a lot of positive spill overs, to use your words, that will apply from the provision of infrastructure.

I think the key message here, this is a challenge for Australia, a challenge for other advanced economies like the United States as well as in emerging markets like India and China and others, is what we can do on a global basis to really drive more provision of infrastructure through some starting points.

Say for example common documentation. This is an area focus for us because we want to look at establishing the global infrastructure centre that will assist with for example provision of common documentation. So that you actually don't have a situation where each country is trying to reinvent the wheel in each particular sector when they try and provide new infrastructure in the future.

What is actually taking place is that there's almost this sweet spot now around the globe where there's a lot of liquidity, there's a lot of capital, there's a lot demand both in terms of emerging markets and advanced economies like Australia and the United States. So you sort of have this sweet spot, a lot of conversation but not enough action. In fact, that's one of the phrases that was used and referenced back to Elvis.

We do want to make sure that we can help to drive infrastructure provisioning across the globe. Australia can be at the forefront of that. We've got some great track records in this space. If we do that successfully through for example the global infrastructure centre, I think that would be a great earner for Australia.

SCOTT:

It is a big if because ultimately it asks sovereign states to kind of break the mould on past practice. Now, you can imagine empires that have been formed not easily giving up, correct? How do you go into an economy like India, absolutely swamped with bureaucracy and tell them our model is the preferred one?

CIOBO:

I don't think it's about us sort of demanding or riding in on high and announcing to the masses that we'll be doing this, that or the other. What we want to do is provide opportunities for international collaboration.

The fact is there are a lot of nations that look at Australia and see some of the success that Australia has had and incidentally some of the failures that we've had which are equally as important. We can say to them look this is what we found, this is the vehicle that works best, this was the approach that provided [inaudible] risk and a whole range of different policy measures.

We want to put in place ideally again through this global infrastructure centre more around metrics. Want to make sure that we can get a better read on what's successful, what's actually going to work, what are some of the metrics around the provision of that infrastructure.

If we do that successfully, then I think people will look to Australia and through such a centre, not as us dictating how it should be done, not in terms of our saying this is the model that you must use, but rather saying this has been our experience and it's not just Australia, it’s other G20 member states as well. This has been our collective experience. This is what we've found has worked. This is what's not so good.

Then ultimately people can make a determination and of course they can almost with a bespoke approach say well this is going to work best in our own country.

SCOTT:

Final thought, it began with Tim Costello and kind of became the whole process here. The idea that ultimately everything you say is aspirational. There is no stick to deploy in this whole contest. Come November, it'll be very much a kind of 50/50 call as to what's taken up and what's discarded. Does that in any way concern you, that we could be sleepwalking towards failure?

CIOBO:

Well there is a stick and that stick is the fact that nation states around the world have left themselves with very little fiscal position. Monetary policy is about as loose as it can get. There aren't a lot of shots left in the locker. The fact is that there is a stick because we've got, especially in Europe, very high levels of unemployment, very low levels of growth, very loose monetary policy.

SCOTT:

They don't like being told what to do. Look at Wolfgang Schauble over the weekend. Hold up en-route down under, lashed out at Mr Lew frankly and said, to paraphrase: “get stuffed.”

CIOBO:

There will be some conversations around those member states that are doing quite well, like Germany versus others that are facing a lot of significant challenges such as for example Italy and that's to be expected. On an international context you're going to get that sort of discussion and friction.

But by the same token, as I said, there still does remain a very clear need for this to work. There still does remain a very clear understanding the benefits that will float the bulk of the world’s population should we succeed in this endeavour. I think that's ultimately why we're saying in a slow methodical steady pace, changes being made.

Let's be frank, Joe Hockey hooked the big one when he was able to, in Sydney in February get a global commitment to an additional two per-cent growth and what we've been really pressing countries to do now is say how are you actually going to achieve that.

SCOTT:

Just as soon as you hook the big one, does it actually jump off your line because next year the whole agenda gets shaken up. Turkey's going to be pushing for gender equality and other totally separate issues.

CIOBO:

Sure.

SCOTT:

On that basis, where is continuity? Where is the certainty that this drives, that this again is driven to continue?

CIOBO:

There's several things in relation to that. Take for example base erosion and profit shifting, first announced under the Russian presidency, continued under ours, some real success there so halfway through.

SCOTT:

I think 7 out of what 15 ...

CIOBO:

But importantly what you see though is continuation from one presidency to the next. We'll still be part of the [inaudible ] next year of course as the past president. We'll still have some influence over the process and opportunity to continue pursuing some of the agendas that we've set about trying to initiate now in this year of our presidency.

SCOTT:

Is one year enough? Let's be realistic about it. It's like government. What on earth do you do in a year? Why not extend that out?

CIOBO:

I'm not even going to attempt to get into ...

SCOTT:

Oh please ...

CIOBO:

Renegotiating how the G20 governance model might work...

SCOTT:

Well you’re at the top table now…

CIOBO:

It is what it is. We are exceptionally fortunate the G20 has as much clout as it does, and understandably as it should have. The fact that Australia can be there as part of that I think is a real credit to us as a nation. What we want to make sure that we do is maximize opportunities from it, a two per-cent growth target. We have not lost sight of that at all this year. We've put a lot of focus on it. Of course it is at the very core of what we will be attempting to do and effectively what culminates with the leaders’ summit in November.

SCOTT:

Appreciate your insights. Many thanks.

CIOBO:

Pleasure. Thanks.