ABC News Radio

Subjects: Deloitte Access report, Australian-American Leadership Dialogue, leadership, Melbourne by-election.

Transcript, E&OE

23 July 2012

MARIUS BENSON: Craig Emerson, good morning.

CRAIG EMERSON: Good morning Marius, and welcome back.

BENSON: Thank you very much. Does the Government agree with Deloitte that the good days are coming to a close?

EMERSON: No, but we have factored in a reduction in the terms of trade - that is, in export prices - in bringing down a budget surplus for 2012-13 and the years thereafter. So that's our commitment: we're returning the budget to surplus. We do know that there are large amounts of investment now and, indeed, the Business Council of Australia has suggested that from its analysis that there's a decade of investment potentially at 30 per cent of GDP compared with 20 per cent of GDP now. So we're going to make sure all the economic conditions, the policy settings, are right for that.

But I would contrast this with the position of the Coalition, which has finally worked out that they've got a $70 billion budget crater and that's why Joe Hockey is now talking about lifting the GST rate. And this would be based on starving the states of funding and having them come begging to the Commonwealth under an Abbott Government, if ever one were to be formed, and begging for an increase in the GST rate. So, here's a very clear contrast between the Gillard Government and the Abbott Opposition: we will not increase the GST rate, and now that is actively being considered by the Coalition.

BENSON: Well, the Coalition says its official policy is not to change the GST - but I don't want to get bogged down in that. I want to stay with this Access report, because it says the eclipse of the peak prices in mining, it is going to be a real problem for you in terms of maintaining a surplus. If you want to maintain a surplus, you're going to have to cut some of the services, some of the government policies that you are promising.

EMERSON: Well, as I indicated, we'd already factored in a reduction in export prices …

BENSON: So this is no surprise to you? There's nothing surprising in Deloitte's?

EMERSON: There is no surprise in what Access Economics is saying. They do a job on behalf of their clients in estimating what budget surpluses are. They don't always get it right. What I'm saying is this has all been considered by this Government in its decision to bring down the budget surpluses in 2012-13 and in the years beyond. And we'll continue the diversification of the Australian economy, because we know that mining booms do not last forever. And that's why we're engaged in this Asian Century White Paper exercise: to ensure that our businesses can take advantage, for example, of the 3 billion middle class people in Asia who will be there by 2030. It's a rapidly growing part of the world; the middle class is demanding high-quality food and high-quality services and we're very well placed to provide those as we diversify the economy - which is the right thing to do. But as the BCA has indicated, investment is likely to lift from 20 to 30 per cent of GDP over the coming 10 years, and we will continue that diversification. But as I said, there is a contrast with the Coalition.

I know you don't want to dwell on it, but Mr Hockey did float an increase in the GST rate. We did not put those words in his mouth, and the strategy is clear: starve the states of funding and have the states - under the agreement with the Commonwealth; that is with the Howard Government - come begging to increase the GST rate to plug the hole in their budgets, which is transferred from the Coalition to the states. Because the Coalition has not got a clue how to plug its $70 billion funding gap, which has just gone up with Mr Abbott saying that Defence spending has to go back up. He went to the United States, criticised that, and said that this is unacceptable and that Defence spending has to go up - so it's $70 billion-plus.

BENSON: Okay. In the United States, you actually were with Tony Abbott around the Australian American Leadership Dialogue table. The Vice-President Joe Biden was there. Kevin Rudd was also there. One point observers made was that there was clearly no love lost between you and Kevin Rudd. Are they right?

EMERSON: Well Kevin and I maintain a professional relationship. It's well-known that I backed Kevin back in 2010. But I support the Prime Minister Julia Gillard and I supported Julia very strongly in the challenge that occurred, which has resolved the leadership issue.

BENSON: Okay. Can I also ask you about the by-election at the weekend in the seat of Melbourne, the state seat of Melbourne? Are you taking any encouragement from what was a very narrow win in that seat in terms of the Federal Labor standing?

EMERSON: I'd just point out this: before the by-election was actually held, critics of the Government were saying that there are federal factors in here and this was what would account for a loss in the by-election. We didn't accept that there were federal factors. However, Labor retained the seat in the by-election, which I remind you and you reminded me actually, is a state by-election. We don't assert that there were federal factors, but those critics who say that it was replete with federal factors would then, logically - if we were to live in a logical world - acknowledge that in fact we did very well in that by-election. So I'm saying they can't have it both ways: say before a by-election that there were very many federal factors, including the Prime Minister's standing, and then after the by-election revert to type and say there were no federal factors. We believe there were no federal factors before or after the by-election.

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