Sky Australian Agenda

Subjects: Tea Party, Budget surplus, Australian economy, mining boom, public sector jobs, Whyalla wipe-out.

Transcript, E&OE

23 September 2012

PETER VAN ONSELEN: We're joined now out of Canberra by the Trade Minister Dr Craig Emerson. Dr Emerson, thanks very much for your company.

CRAIG EMERSON: That's a pleasure Peter.

VAN ONSELEN: As Trade Minister you would, no doubt, obviously travel a lot to the United States. Do you agree with the Treasurer and Deputy Prime Minister that the Republicans are a bunch of cranks and crazies?

EMERSON: No, he said that elements of the Tea Party within the Republican Party are a bunch of crazies, and the reason that Wayne said that is there is this real issue of a fiscal cliff; that is, that taxes are set to go up and spending is set to go down around December, which could have a contractionary effect of around 5 per cent of GDP. That's a recession in anyone's terms. And unless the Congress, no matter what its composition, is able to come to an accommodation, then that's the prospect.

Wayne was warning about that prospect, as had many commentators — economic commentators — and other leaders. And that's what we're talking about here: that we need to ensure that this sort of fiscal cliff doesn't occur. The United States goes over it, other countries go over it — and therefore everyone is affected.

VAN ONSELEN: But let me put it another way, then. I guess the real question here is what about the other people that a comment like that envelopes in the analysis of calling them cranks and crazies? So, for example, Paul Ryan, the vice-presidential Republican candidate, is qualified as one of those cranks and crazies, based on what he said on the public record.

That really, in a sense, puts Wayne Swan in similar territory, doesn't it, to where Barack Obama and John Howard found themselves when Barack Obama was challenging, you know, the idea of having … sorry, when John Howard was challenging the idea of having Barack Obama as a possible presidential candidate. And the other quick thing I'd say, Dr Emerson, is 82 Democrats voted not to raise the debt ceiling in the first round. Are they cranks and crazies too?

EMERSON: No, they're not and the … I think there's a world of difference between John Howard saying that Al Qaeda in Iraq would be celebrating if Barack Obama became the President of the United States and what Wayne was saying, which was about the flow-on effects, the inevitable flow-on effects, of a continuation of gridlock in Washington to the rest of the world. That would affect Australia; it would affect every economy in the world. Therefore, we have a stake in that, and Wayne …

VAN ONSELEN: But the Deputy Prime Minister has called the vice-presidential Republican candidate a crank and a crazy, effectively.

EMERSON: Well that's your construction on it, Peter. He didn't use the deputy … the vice-president … the alternative vice-president's name at all. What he was saying is that the philosophy of the Tea Party — and I'd be astonished if you disagreed with this — which is to basically drive the joint into a recession, is a very problematic philosophy.

What has been witnessed in Washington for a considerable period of time, notwithstanding the efforts of Barack Obama, has been an impasse, or gridlock as it's called in the United States. If there were a continuation of that gridlock, then that would have a very damaging effect on the global economy.

We've already got an economic contraction going on in Europe; we've got the United States growing but fairly moderately to say the best about it; we've got China growing quite strongly; but what the world doesn't need is continued gridlock in the United States. I think it's a very important and fair point to make.

PAUL KELLY: Minister, you've missed the point. You haven't answered the question so far. Do you agree with the Treasurer that these elements in the Republican Party are cranks and crazies?

EMERSON: I reckon I have answered the question and I …

KELLY: But do you agree, Minister?

EMERSON: … absolutely do. Yes. You got that, Paul? Yes, I agree.

KELLY: Thank you.

EMERSON: Yeah, okay, and I'll tell you why I agree, Paul: because surely The Australian newspaper, surely Sunday Agenda, would not think it was a matter to be dismissed lightly to have an economic recession in the United States, a potential contraction of 5 per cent of GDP. Do I think that's crazy? Yes, I do.

KELLY: Okay. Okay. Now, if we can just move to the Australian economy, Minister. Is the committed Budget surplus this year achievable?

EMERSON: It is, and it will be achieved. And we will achieve surpluses over the period of the forward estimates. The reason for that is the surplus is the sign of a strong economy. The Reserve Bank has cut the Reserve Bank cash rate all the way from 6.75 per cent to 3.5 per cent, saving people on an average mortgage about $4,000 a year.

It would be a good thing if the Government gave the Reserve Bank, if it so desired, room for further interest rate reductions — good for small business, good for homebuyers, ultimately good for house prices. And that's what we're doing: we are creating the room for the Reserve Bank to make such a decision if, as an independent authority, it decided to do so.

KELLY: And how will the surplus …

EMERSON: But one of the considerations it will take is looking at the Budget situation, and it will be a surplus.

KELLY: And how will the surplus be achieved? Will it be through a combination of taxation increases plus more spending cuts?

EMERSON: Well, it will be a combination of savings measures, which obviously involves spending cuts. I can't say to you the nature or extent of any increases in taxes, beyond pointing out that of course taxes are indexed to the inflation rate. So when the Coalition says 'will you promise that no taxes will go up?', they haven’t suspended or discontinued the indexation of general excises other than on petrol. And of course — and I'm not going to spend a lot of time on the Coalition — their policy position is to increase taxes through this 1.5 percentage point levy, as they call it, for paid parental leave.

What we will do is continue to have tax as a share of GDP below the level of the Howard Government. And I can point this out to you, Paul, and to your viewers: and that is, if tax as a share of GDP were the same as under the Howard Government, the surplus today would be $25 billion – a $25 billion surplus. So let's not have lectures from the Coalition about the tax burden. If the tax burden today were the same as under the Coalition, we would have a surplus of $25 billion.

VAN ONSELEN: Minister, can I ask you: does that mean that you essentially reject the position of the IMF, which is that Australia may well have to give up its surplus if the global economy doesn't stay on track?

EMERSON: Well, I've read that report several times now, and that is not the position of the IMF. The position of the IMF is that the economic policy settings of this Government are very good; that investment as a share of the economy is set to reach record levels next year and the year after; that fiscal policy settings are very sound; that our debt position is sound. We've got unemployment at 5.1 per cent; we've got GDP growth of 3.7 per cent; a Reserve Bank cash rate of 3.5 per cent; we've got inflation at 13-year lows and investment at record highs.

VAN ONSELEN: But despite that, the IMF is saying that we may have to give up the surplus if the global economy takes a downturn.

EMERSON: Well, what it says is that if there were a hard landing in China, then that would have consequences around the world. Well, that's not rocket science. But we do talk to the Chinese regularly, and they are expecting growth of around 7.5 per cent. This is the second-largest economy in the world, growing at 7.5 per cent.

And it's not good luck that Australia is plugged into China; it's good management over 25 years of sound policy-making, mostly by Labor governments. We're going to continue that process of integrating with China and the rest of the region, not only in minerals and energy but in services and back into agriculture, to make that new economy again. And we're doing that through the Asian Century White Paper. That, too, that too is pointed to in the IMF report; they give a very big thumbs-up to the Asian Century White Paper exercise to diversify the economy.

KELLY: Minister, what's your response to the very high-profile warnings we had this week from two of our most distinguished economists — Professor Ross Garnaut, one of your mentors, …

EMERSON: Yes.

KELLY: … and Professor Bob Gregory — that down the track -not long down the track, though — national income will be under pressure and living standards will erode because of changes in the nature of the resources boom? What's your response to that? Do you agree with those warnings?

EMERSON: Well I … obviously what Ross and Bob Gregory are saying is that we've got various phases in the mining boom. The first phase was a price phase, and prices have come down. But, you know, anyone 10 years ago to look at the current prices and the prospective prices would dream about those prices. They've come down from record peaks to a shoulder, which is still very high.

Then the investment phase, and we're not even halfway through the investment phase. Again, the IMF has confirmed that, and there was debate about the investment phase. The IMF report confirms that investment is set to achieve record levels next year and the year after. And then, of course, there's the production phase. And that's why we invest, Paul: to get the production. So there'll be vast quantities of minerals and energy, including LNG — again pointed to by the IMF…

VAN ONSELEN: But, Minister, despite all of that …

EMERSON: But …

VAN ONSELEN: … living standards are going to go down.

EMERSON: Yeah, and then we will need to diversify and that's what we're doing. We can't just be reliant, purely or primarily, on minerals and energy. This Government recognises that; that's why we have the Asian Century White Paper; that's why I take — and Wayne Swan takes — business missions to China, working to integrate our service economies and our agricultural economies …

KELLY: Minister, we appreciate …

EMERSON: Well, I'm just saying that this is what we are doing to achieve the diversification so that we can continue to grow, and we will continue to grow.

KELLY: We know that, Minister, but do you agree with the propositions put about falling living standards by Garnaut and Gregory?

EMERSON: No, I don't agree that living standards in this country will be lower in 10 years' time than they are now. What we need to do is manage the transition so that we are more diversified — into services, into agriculture, and let's not forget manufacturing. In our own region, regional value chains are a new phenomenon of the last few years, where we have an opportunity through our manufacturers to plug into those, to produce components, to use our innovation and skills, to add services to the value of final products. These are all fantastic opportunities and what we need to do is make sure we make the most of them.

And you talk about Ross Garnaut. Ross Garnaut has two really important policy prescriptions: a Minerals Resource Rent Tax, implemented by this Government. You say he was my mentor. Yeah — I introduced the Petroleum Resource Rent Tax, which the Coalition opposed. They opposed the Minerals Resource Rent Tax. They say they're going to take it away. Garnaut says it should stay. I agree with Garnaut. And putting a price on carbon — they want to get rid of that too. Garnaut says it should stay. I agree with Garnaut.

VAN ONSELEN: So where did Ross Garnaut go wrong in his analysis that living standards are going to decline in the next decade or so?

EMERSON: Well, living standards aren't going to decline. That's the truth of the matter.

VAN ONSELEN: But where did he go wrong?

EMERSON: Well, I'm just saying that we will … if we don't … if we just sat and we were a one-trick country and said that all we needed to do was to continue to mine and to sell liquefied natural gas …

VAN ONSELEN: But, Minister, Ross Garnaut's not suggesting that. He's not suggesting we're a one-trick country. He's been innovative, like you say, but he still thinks that living standards are going to go down.

EMERSON: He does not believe that living standards as such will fall. Let me explain this: national income is increased by a boost in the terms of trade, and what Ross is saying is that the boost in the terms of trade has occurred; that mineral prices have peaked. They've come down to a shoulder. We will have a continuation of the investment phase; we will have a continuation of the production phase, which will expand over time, because that's the very reason that you invest. And we will diversify the economy.

Ross is not saying … he's saying that national income can be affected if we do not diversify, but he's not saying that living standards will be lower in 10 years' time than they are now — unless, of course, we adopt really stupid policies like getting rid of the carbon price; getting rid of the Minerals Resource Rent Tax; take a hostile attitude, which the Coalition has, towards foreign investment, in particular foreign investment by state-owned enterprises from China.

If you want a policy recipe for reduced living standards, look no further than the Coalition's policy options and the position that they will implement if they become a government — including inflicting on this country every prospect of a recession as they slash and burn, when we've got in fact a fiscal strategy that is endorsed strongly by the International Monetary Fund. They do that through the device of an audit commission, because they don't have the guts to front up to the Australian people and subject their policies to the Charter of Budget Honesty, that is Treasury and Finance, or to the Parliamentary Budget Office. They want an audit commission so they can slash the place after the election. That would cause a recession.

KELLY: Okay, if we can just move now from Ross Garnaut to Martin Ferguson.

EMERSON: Sure.

KELLY: This week we saw yet another warning from the Resources Minister, saying that costs in the resources sector were too high, appealing to both management and unions to do something about this. Do you agree with Martin Ferguson?

EMERSON: Well, costs are high. And the reason fundamentally that costs are high in Australia is that we are a high-wage country and there is acute demand for people with expertise in mining. That's the truth of the matter. There is “excess demand”, if you want to use an economic term.

And, by the way, Paul, it doesn't matter what industrial relations system you have — if there is excess demand, there is excess demand. That means that prices of labour will bid up. And what we need to do is make sure, where we can, that there aren't unnecessary delays, because time is money and one of the big costs of any project is to ensure that it's brought on-stream on time.

Now, that does mean working with the workforce to ensure that there aren't delays. And, by and large, most of our minerals resource projects have been brought on-stream on time. But, of course, if there are improvements that can be made, of course we're going to make those improvements. And I think what Martin was saying is that it's also a responsibility of management not just to say ‘well, whatever happens, happens’, but to negotiate hard with the workforce to get a good result for everyone. There's nothing wrong with that; I completely agree with it.

KELLY: Now, Bill Shorten has indicated that he intends to introduce legislation, particularly relating to events in Queensland, to ensure that private companies employing outsourced or retrenched public servants have got to provide the same conditions that they enjoyed in the public sector. You're the Minister for Competition — what's your response to this sort of anti-competitive provision?

EMERSON: Well, people are … workers are human beings, and what's going on in Queensland, Paul, is just unprecedented. Campbell Newman never told the people of Queensland …

VAN ONSELEN: That's not the question, Minister, in fairness…

EMERSON: I'm coming to it. But he never told that they were going to be retrenched on such a massive scale. And they still say there's no forced redundancies; it's just someone comes with a box and sends you home.

The reason I used that as an introduction is you can't then expect people who have lost their jobs to then go around and suffer a big reduction in their living standards. When there's a possibility of seeking to retain some dignity for these people, of course we will seek to do that. Ultimately, people will want work and ultimately they will take jobs …

VAN ONSELEN: But why is the Federal Industrial Relations Minister jumping in and using federal provisions, which are so anti-competitive, to try to be the white knight riding in to help these people in terms of jobs conditions in the private sector?

EMERSON: If you think competition is the be all and end all of our society from the ground up — that everything revolves around competition, and if there's someone who can do a job, you know, at a lower wage — then, okay, that's a philosophy I guess. It actually happens to be the Liberal philosophy; the dog-eat-dog philosophy…

VAN ONSELEN: But that's not what I'm suggesting here, Dr Emerson. What I'm suggesting is …

EMERSON: Well you're saying, ‘well, why not…’

VAN ONSELEN: No, no. What I'm saying is that it's not the job of government to turn around and institute some sort of a rule that anyone sacked or losing their job in the public sector gets similar working conditions if they're to be hired by the private sector. That is beyond anti-competitive, isn't it?

EMERSON: Well, let's just see how that pans out. What I'm simply saying is that people have families. And for competition to be the god in all cases, Labor rejects that. Of course, we created the open competitive economy. I mean we were the ones who de-centralised the labour market, and we make sure that there is competition in supermarkets and everywhere else.

But if people get up in the morning and say, ‘well, what am I going to do today: I'm going to compete hard in a dog-eat-dog world’, sorry, that's not the world that the Labor Party believes in. We actually believe in the dignity of work and we actually believe in people having some sort of sense that their job will be there tomorrow, instead of the Liberal approach which is just to slash and burn, to make sure that people are on edge all the time that they could lose their jobs at any time. That is not a decent way to run a society, and it's certainly not an effective way to run an economy.

And I'll point this out: people say ‘oh look, WorkChoices was great for productivity’. Productivity growth went negative in 2004 and stayed there for years under WorkChoices — under WorkChoices. So those ideologues who say that the industrial relations system is central to productivity growth in this country have destroyed their own argument — because productivity growth has actually resumed. It was more than 3 per cent in the last 12 months under the Fair Work Act, and it went negative — it went negative — under WorkChoices.

So I think if you want to look at the statistics, you want to have a philosophical argument, let's do that. And what it'll show is that the Fair Work Act, if anything, leads to more harmonious workplaces than that dog-eat-dog world of WorkChoices, the worst elements of which the Coalition will bring back if it becomes a government.

VAN ONSELEN: Dr Emerson, we've run out of time, but I wanted to ask one final question — a serious question now. Agree or disagree with …

EMERSON: They're all serious.

VAN ONSELEN: Agree or disagree, as anyone might, with your economic analysis, you are a serious player in that space. You've got a doctorate in economics; you were a senior economic adviser to Bob Hawke; you've got a lot of ideas in that space. Why, then — and I ask this seriously — why then do you engage in the sort of tomfoolery, if you like, of singing the Collingwood song, of going to Whyalla about the sky falling in — all these kind of antics? If you didn't do that, you would be in line for a promotion beyond where you already are, surely.

EMERSON: Is that right?

VAN ONSELEN: I think it's right.

EMERSON: Well, I don't know the Collingwood song; I don't know the Collingwood song. And the point about Whyalla is this: there was no Whyalla wipe-out. This week …

VAN ONSELEN: But that's not my question, Dr Emerson. I understand that. I just don't know why you choose to do that, because you are such a serious…

EMERSON: You can have your own opinion about it. You can have your own opinion about this, but this is … you talked in the introduction about how the politics of the nation has changed from the first of July. What happened on the first of July? Whyalla was still there. Gladstone is booming.

That's what happened, and what you're left with is a one-trick Tony; Tony Abbott still running around saying ‘well, the economy is decimated. It's destroyed’. He's lost all credibility. And talking about wiping out Whyalla and me singing about it made the point that Mr Abbott's claims of an industrial wasteland — that Whyalla would be wiped off the face of the earth; Barnaby Joyce's claims that legs of lamb, roast legs of lamb, would be $100 — have just been proven to be absurd.

He is a one-trick Tony; he can't make the transition to a positive policy agenda. He can't have an economic policy debate because he is economically illiterate: not my words; they're the words of people like Peter Costello and John Hewson.

VAN ONSELEN: All right. Well you didn't answer my question, but we're out of time. I'll badger you about it next time we get to talk …

EMERSON: Well, I don't know the Collingwood song.

VAN ONSELEN: Maybe that's a benefit to all of us. Dr Craig Emerson, we appreciate you joining us on Australian Agenda. Thanks very much for your company.

EMERSON: Thanks Peter.

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