Sky Australian Agenda

Subjects: Mining Resource Rent Tax; MYEFO; Asian Century White Paper.

Transcript, E&OE

28 October 2012

PETER VAN ONSELEN: We are joined now by the Trade Minister Dr Craig Emerson. Dr Emerson, thanks for your company.

CRAIG EMERSON: No worries, Peter.

VAN ONSELEN: We'll be getting into the weighty issues of Australia in the Asian Century …

EMERSON: Good.

VAN ONSELEN: … a little bit later in the program. That's going to be the focus of today's show … but news of the week, news of the day, the mining tax – you saw Joe Hockey having a crack at you guys about it. At the end of the day, you can argue, as you will, that it is a profits-based tax; that it will ebb and flow. It is still, is it not, embarrassing that part of that ebb and flow is that the first quarter of returns have given no tax returns.

EMERSON: Well I don't accept that. And the reason I don't is that I was heavily involved in the design of the Petroleum Resource Rent Tax which is a first cousin of the Minerals Resource Rent Tax. The designs are very similar.

VAN ONSELEN: But this is definitely the poor cousin; you'd have to agree.

EMERSON: It's not.

VAN ONSELEN: Most commentators think that … and to credit you …

EMERSON: Well, I reckon I'd know a little bit about it. I swotted for three years, studying the theory and application of mineral rent and mineral rent taxes. And that's a privilege that I took, in 1984, into the Hawke Government, working for Senator Peter Walsh to put in place a petroleum resource rent tax.

It didn't collect revenue in its early years either. It wasn't declared a disaster or a fiasco. And I think it is ironic that we're about to talk about the Asian Century, about the next 25 years, and here we are obsessing about three months of revenue. Let's see what the Minerals Resource Rent Tax does collect. But, by its nature, if profits are high, it gets a good share for the community; if profits are low, then of course being a profits-based tax, it's not going to collect as much. That's how it's designed.

VAN ONSELEN: But let me ask you this, then. I mean, you say it's a close cousin of the petroleum tax that you were involved in in Bob Hawke's office. If this is such a well-designed tax, and if it is such a close cousin of that tax, why were you then part of a government that tried to implement a very different type of mining tax in relation to the RSPT before you scrambled this version, the MRRT, together shortly after Kevin Rudd was removed?

EMERSON: I did prefer this design, and that was known at the time. I preferred the Minerals Resource Rent Tax design to the Resource Super Profits Tax. I won't tire your audience with the theory of it, but in fact the Resource Super Profits Tax is based on a tax first advocated by E Cary-Brown in 1948 – theoretically elegant, in practice really problematic. That was the kind of argument that I considered back in 1984 to '86 when we introduced the Petroleum Resource Rent Tax. And the MRRT is very closely related to the PRRT.

PAUL KELLY: You must know, Minister, that in private the resource majors – BHP and Rio Tinto – have been saying that they won't be paying much tax. Have they got it wrong?

EMERSON: Well I think the revenue projections for 2012-13 are $2 billion. I suppose in the …

KELLY: That's pretty modest. That's pretty modest, isn't it?

EMERSON: Well, I was about to say in the scheme of things that probably from BHP, Xstrata and Rio's point of view it is not a lot of money. I think the Australian people would consider it to be a fair bit of money, and it's a hell of a lot more money than no tax. And that's what the Coalition is proposing: to remove this; to remove the small business tax breaks; to remove from the Australian people an increase in their superannuation from 9 to 12 per cent and to remove very substantial investments in infrastructure. They're the choices.

VAN ONSELEN: In fairness, they're keeping the super in place. They've said …

EMERSON: Well, they say they are, but then they also say they don't have a $70 billion black hole. You can't have it both ways. If you keep the superannuation increases in place, superannuation is a major tax concession for tax expenditure – by far the biggest tax expenditure. The Coalition has to accept that as a reality that means in keeping it in place they will have less revenue than if it was just a tax on wages.

VAN ONSELEN: Sure.

EMERSON: They have to find the money.

VAN ONSELEN: And equally, though, isn't it economically risky to base so many ongoing, enduring expenses like the superannuation reforms that you're talking about, like the small business tax concession – these have annual set amounts effectively, that they're going to cost the Government coffers – yet at the same time you've got this mining tax which is just clearly, from the first quarter of returns, so uncertain in the kind of revenue it brings in.

EMERSON: This is exactly the argument that was used way back in 1984 when, then, a sceptical Treasury said 'what's wrong with the crude oil levy that applies to every barrel of production?'. 'A major deterrent to extra exploration and development in Bass Strait,' was the answer; a major deterrent to petroleum exploration and development off Western Australia. That's the answer. Royalties are a major deterrent …

VAN ONSELEN: But you've still got royalties in place. That's the problem.

EMERSON: … if they are of any substantial rate of royalty, they can be a major deterrent. And what we've said about royalties: it's the wrong way to go, yet …

VAN ONSELEN: But you've still got royalties.

EMERSON: Yes, it's true. Coalition governments are increasing royalties. You've got Joe Hockey saying this MRRT profits-based tax is going to devastate the mining industry and collect no revenue at the same time. Joe, get it right. You can't have it both ways. It can't devastate the Australian mining sector and collect no revenue. It will collect valuable revenue and, to go back to your point, Peter, of course in a budget of, what, $350 billion, there will be fluctuations in revenue from different sources.

There will be, obviously. So what does that mean? That we only collect revenue from absolutely reliable sources? Well, you'd halve the revenue base of this country and halve the expenditure. There are swings and roundabouts.

KELLY: Well, you've just said it will collect valuable revenue.

EMERSON: Yes.

KELLY: It collected no revenue in the first quarter of the current financial year. Are you certain that it will collect revenue during the first full financial year?

EMERSON: What I'm certain is that these are the best estimates that are available to Treasury. And that is the same level of certainty that I apply for PAYE – pay as you go – income tax, for company tax, for excise. Of course, you can't be absolutely certain about the future of every …

KELLY: You can't be certain. You can't be certain about these...

EMERSON: About anything …

KELLY: You can't be certain about these estimates, in other words?

CRAIG EMERSON: No, I'm saying you can't be certain about the flow of revenue and the flow of expenditure out into the indefinite future.

What I think is remarkable is that we've now spent, what, five minutes talking about how much the Minerals Resource Rent Tax will collect in three months of a financial year. I think that's amazing. And you know what? We get told, as politicians, all the time that we are always thinking short term, always thinking … We've got an Asian Century White Paper that's going to take us out to 2025 and beyond, and we're spending all this time talking about how much revenue it's going to collect in three months.

KELLY: Well, let's talk longer term. Well, in that case, let's talk longer term.

EMERSON: Sure.

KELLY: If in fact – if in fact – the tax is not raising significant revenue, given that the Government has said that this is a major tool of redistribution, will you consider in the next term revising the tax to ensure that it performs the function it's designed to perform?

EMERSON: No, we have no plans for doing that. This is a good design for this tax.

KELLY: So, you're completely happy with the tax design?

EMERSON: I am happy with the tax. I am happy with the tax design. And the answer is 'no, we should not then keep modifying the tax design'. This is one of the key features, Paul, in theory and practice of profits-based taxes. They are stable over time because when profits are high, they collect a good share of the revenue for the people. When profits are low, they reflect that reality as well. So you don't need to keep tinkering with them.

The Petroleum Resource Rent Tax has been in place for more than 25 years, and has barely been touched by any government, including the Howard Government …

KELLY: It was negotiated, Minister, a very different way.

EMERSON: The process was different. I accept that.

KELLY: Of course it was very, very different.

EMERSON: I accept that.

KELLY: The proper consultation with the industry …

EMERSON: I accept that, but does that mean that the design at the end is faulty? No, it doesn't mean that. I accept the process was different, but the design is a good, solid design. It's a profits-based tax.

John Howard said that this was going to devastate the petroleum exploration industry in Australia. He got elected. He said that in opposition; got elected; kept it; didn't change it, or barely changed it; picked up $15 billion. He didn't say, Peter, 'oh, we better not take that $15 billion because it could be variable in the revenue'. They took the money. And that's what Tony Abbott would do, by the way, if he got elected. If he got elected, he'd be going, 'gee, that mining … that profits-based mining tax is a pretty handy source of revenue'.

So don't believe this rubbish that they're going to get rid of the carbon price and they're going to get rid of the mining tax. If they do, then there goes the small business tax breaks. We know they're going to abolish the Schoolkids Bonus. There goes the superannuation increase. There goes infrastructure investment and the pension. Age pension gets cut and the income tax rates rise: that's Tony Abbott's prescription. That's his policy prescription for Australia.

BENSON: All right, Dr Emerson can I take you to the …

EMERSON: Of course you can.

BENSON: … other argument that's going on at the moment – and it seems to be an argument within your Party and Cabinet – and that is who knew what when before Kevin Rudd was moved in 2010. Can you tell me what you knew, and when you knew it?

EMERSON: Well, I'll put it in context and seek to deal with your question. We just spent five to 10 minutes talking about the next three months of revenue; now we're going to talk about 2010. The fact is we have in Julia Gillard a very strong leader, someone who is going to be releasing a visionary document today. She's got the guts to implement an emissions trading scheme, a carbon pricing arrangement, National Disability Insurance Scheme, fundamental reforms to the education system. My interest is not only in the next three months, it's in the next 10 years; it's certainly not in the period of 2010.

BENSON: The argument that you're having at the moment within Government, within the Labor Party, actually does go to the next 12 months of government. You continue to have this argument. It's now blown up again. You've got Simon Crean courageous enough to at least admit he thinks it was a mistake to do what you did in 2010. I want to know what your views are.

EMERSON: And my view is this: let's move on. My view is we are …

BENSON: With respect, you've been saying that for two years.

EMERSON: Well, indeed, and a book has been …

VAN ONSELEN: It's hard to move on when Kevin Rudd's still in parliament.

EMERSON: A book has been produced – that's a reality. My interest in that book is zero. That's the truth of it. It is zero. We are busy people, and we should be busy people. The Australian people expect us to be busy people getting on with making the economy stronger and sharing the benefits of that strength through mining taxes, school kids' bonuses…

BENSON: But most people look in …

EMERSON: Here we go: 'no, but I really want to stay in the past!' Well, I don't want to stay in the past. I do not want to spin …

VAN ONSELEN: But Dr Emerson, let me ask you this …

EMERSON: I do not want this government spinning its wheels. I do not want to entertain questions about spinning its wheels, about what happened or didn't happen …

BENSON: But you have to admit that when people look in at this Government, they see a government that is still fighting within itself. That might be a problem.

EMERSON: They see a book. That's what they see: a book.

VAN ONSELEN: Well, they see plenty written by a Labor Member of Parliament who was coerced into Parliament by Kevin Rudd.

EMERSON: Coerced or enticed?

VAN ONSELEN: Well I don't mean that negatively.

EMERSON: I don't think she was coerced.

VAN ONSELEN: Well, she was brought into Parliament by Kevin Rudd. Is Maxine McKew bitter and twisted? Is that what this book's all about?

EMERSON: No, I'm not interested in going there. I really am not. And you know what? I don't think the Australian people are either. I don't think the Australian people are fascinated by internal debates within political parties. What they expect of governments is to make the hard decisions and the right decisions for a strong economy, which we've got. By any standard, we're expected to get, in the next two years, to grow stronger than any major advanced country on earth.

VAN ONSELEN: Do you think it's a mistake, then, that your senior colleagues weigh into this: like Simon Crean weighed in; Anthony Albanese weighed in over his disgust at Penny Wong not being number one on the ticket in South Australia? Is that an error by senior ministers to be weighing in on these internal debates?

EMERSON: What Simon said is: 'let's move on'. Hear! Hear! I agree with Simon.

KELLY: Well, is there a leadership issue today inside the Labor Party or not?

EMERSON: Of course there's not, and the reason …

KELLY: There's no leadership issue?

EMERSON: Of course there's not, and the reason is that we have in Julia Gillard someone who I think is a genuine Labor reformer in the Labor tradition, in the tradition of Hawke and Keating. And you'll see a reconnection today with the reforms of the Hawke-Keating era, which actually created for Australia the open, competitive economy. It led to us being in the right place at the right time in the Asian region, in the Asian Century.

This is the next big economic transformation that we're confronting for Australia, and Julia Gillard's leading it. And I'm proud of her. I'm proud of Julia Gillard. I'm proud of her reform credentials, and I'm proud of the fact that all the stuff that gets thrown at her, particularly from Tony Abbott, who gets all precious if anyone says anything negative about him …

VAN ONSELEN: [Indistinct] negative doing the throwing at the moment …

EMERSON: Just let me finish. I'm proud of the fact that she stands up and she gets up every day and she keeps doing the right thing by this country, even it at the time it doesn't seem all that popular, such as putting a price on carbon. We're now past the 1st of July and many people are saying, 'well, what was that?' What was this: Whyalla being wiped out, the end of the world, unimaginable price increases? We've just seen the Consumer Price Index. It's very modest indeed.

KELLY: Well, let's talk about reform in the context of the budget mid-year review.

EMERSON: Sure.

KELLY: Now, as an economist can I ask you: to what extent are you concerned about the structural problems in the budget? Because when you look at the document, what's very clear is there are very thin surpluses across the forward estimates?

EMERSON: [Indistinct].

KELLY: Now it seems to me, it seems to me, if the right policies are in place, the surpluses should be increasing across the forward estimates; they shouldn't remain that thin. Doesn't that indicate that there are structural problems with the Budget?

EMERSON: It's a very good question, if I might say, and I'll give you a very good answer. All the way through the decisions that have been made over the last few years, including for the Mid-year Fiscal and Economic Outlook, the Government has been looking out to the, you know, for 10 years – for 10 years.

As a consequence of the means-testing of various payments, tightening the means-testing, the means-testing of the private health insurance rebate, the adjustments to the Baby Bonus, to so-called middle class welfare, the savings on that Paul, 10 years hence, are equivalent to 2 per cent of GDP – 2 per cent of GDP, which is $50 billion. So all the way, when we've been making decisions for the year, the next year and the year after, we've been making decisions to ensure that the budget is in good structural shape. Now that doesn't get the headlines. I understand that.

KELLY: How can you possibly say that …

EMERSON: They are the decisions that have been made. I say it because that's what the Treasury [indistinct]…

KELLY: How can you possibly say that, because the Government is committed, the Government is committed to the National Disability Insurance Scheme; it's committed to major reforms in terms of Gonski, and there is no announced framework to fund these?

EMERSON: Well, what I'm saying is look at our track record. When we make decisions, we should …

KELLY: So we should accept you on faith?

EMERSON: When, we make decisions … no, on the basis of what we've done; on the basis of what we've done. If we'd done it …

VAN ONSELEN: What you've done is deliver a series of the largest deficits ever.

EMERSON: Please don't airbrush the deepest global recession since the Great Depression out of history.

VAN ONSELEN: I accept that, but that is …

EMERSON: That's what the Coalition does, Peter.

VAN ONSELEN: But that is still the record though, in fairness.

EMERSON: All right. Let's … we'll go there again. Every dollar that was taken out of the tax system of revenue because of the global financial crisis – I think it was about $160 billion – the Coalition's prescription is to remain in surplus, so they would have cut spending by the same amount. That would have plunged Australia into a very deep recession. We did not do that. We saved about 250,000 jobs. And in the period of this Government, 800,000 new jobs have been created; interest rates are at less than half of what they were at the end of the Howard government …

VAN ONSELEN: Sure.

EMERSON: … and we've got investment, and it's confirmed in there, about to hit half-century highs. This is a strong economy.

KELLY: Well, let me just ask you: given the argument you're making, can you promise that before the election, in relation to these big new spending commitments – the National Disability Insurance Scheme and the Gonski school funding – that these will be funded across the forward estimates?

EMERSON: What I can promise is that we will keep the budget in good structural shape, in good structural shape, and fund …

KELLY: But surely they're going to be funded in terms of the forward estimates.

EMERSON: I was about to answer that question – and over the forward estimates.

KELLY: So you are promising that?

EMERSON: That we'll keep the budget in good shape over the forward estimates. We'll keep the budget in surplus, and we'll do …

KELLY: And the funding for these will be in the forward estimates?

EMERSON: Well, to the extent that these themselves are in the forward estimates.

KELLY: Sure.

EMERSON: You don't put funding in the forward estimates for commitments that are beyond the forward estimates.

KELLY: Of course. Of course.

BENSON: But one of the more troubling figures in the MYEFO, this goes directly to your portfolio and something you would be well aware of – and it goes directly to the Government's ability down the track in terms of its revenue-raising abilities to fund these things – is the terms of trade. Within six months from the May budget to the MYEFO the trade imbalance was written down 8 per cent, from 5 per cent. How do you address that problem as part of a structural element of budgets in the future?

EMERSON: Well, again, a good question. I think this is a good discussion. We do it by making sure, through the Asian Century White Paper and the roadmap that is set up, that we continue to diversify the economy.

It's great that we've been able to benefit from a mining boom, and that will continue for many decades – because we've only just begun with the big production increases. That's why all the investment has taken place and, by the way, that would be one of the reasons why the revenue from the Minerals Resource Rent Tax early on is quite low: because those investments are immediately deductible – not over a period of time – immediately deductible. That is a good feature of the tax; same with the Petroleum Resource Rent Tax.

Nevertheless, we need to diversify the economy. We've got marvellous opportunities in the Asian Century for our young people to get involved in all the services. Whether it's tourism, whether it's education, whether it's architectural design, our tradespeople can get fantastic jobs out of this.

VAN ONSELEN: All right. Hold that thought. Stay with us. We're going to take a commercial break. When we come back we are going to focus in on the Asian Century White Paper, and we'll be joined as well by former Howard government foreign minister, Alexander Downer. Back in a moment.

COMMERCIAL BREAK

VAN ONSELEN: Welcome back. You're watching Australian Agenda where Simon Benson, Paul Kelly and I have been talking to the Trade Minister Dr Craig Emerson. And we're now joined as well by former foreign minister during the Howard years, Alexander Downer. Thanks for your company.

ALEXANDER DOWNER: It's a pleasure.

VAN ONSELEN: Now we're going to be talking about China and the Asian Century and so forth. Mr Downer, don't think we're going to let you get away without talking about the South Australian Liberal Party as well. But we'll get to that, we'll get to that a little bit later.

DOWNER: My hands are clean.

VAN ONSELEN: Well we'll see about that.

EMERSON: And I'll do an exit stage left.

VAN ONSELEN: First question: The Australian reported on the front page, pre-emptively I suppose, about some of the information, about what's coming out, in relation to this Asian Century White Paper. Paul Kelly talked about it in his editorial. Dr Emerson, let me just start with you here: is the Government's aim to really make this a central focus of between now and the next election, in terms of strategy for the nation going forward?

EMERSON: Yes it is. And it's a good thing that we are, because the region is growing at phenomenal rates and we want to alert the Australian people to the basic facts that by the end of this decade the economy of Asia will be bigger than that of North America and Europe combined.

So, as a result of visionary decisions, made particularly by the Hawke and Keating governments, we did fashion an open competitive economy in anticipation of what's called the Asian Century. Here we now have an opportunity to sell into what's going to be 3 billion middle-class customers by 2035. What they will want, beyond our traditional resources and energy, is high-quality food sources – so a chance for the revival of country towns and the bush more generally – and they will want sophisticated services.

So, here are fantastic job opportunities for our young people. And we think it's very exciting, and that's why we're setting out a road map. It's not so much a series of sexy announcements, but a road map for the future. Ross Garnaut in 1993 produced a report, Australia and the North-East Asian Ascendancy. This is actually a government report. It's a White Paper and it sets out the road map and policies.

KELLY: Well let me just ask you: are the current policy settings adequate, or does Australia have to do more and better in terms of innovation, in terms of more tax reform, in terms of a better performance from the educational institutions? I mean, is Labor going to live up to the spirit and benchmarks of this paper?

EMERSON: Yes and the …

KELLY: So there will be policy changes, then?

EMERSON: Well, what we'll do is continue with what is already a well-articulated reform agenda, which includes the very items that you've suggested. The reason is the reason that you're inferring, and that is we do need to continue to lift productivity growth in this country. In the last 12 months it was 3.7 per cent. One 12 month period doesn't make a summer, but that is actually stronger than at the peak period of the mid- to late-1990s productivity growth. So there's something positive going on there.

The reform agenda is education; it's innovation, infrastructure; it's tax reform and it's regulatory reform. And what the paper shows, and these are Treasury projections, is that if we can lift productivity growth on average by half a percentage point a year, we can lift Australians' incomes per person from $62,000 to $73,000.

VAN ONSELEN: Alexander Downer, let me ask you – let me bring you in on this, because when I hear Dr Emerson talking it sounds like there was this hole of eleven and a half years where Australia didn't engage with Asia. He harks back to the Hawke-Keating years and now the Gillard Government. I mean, you were the foreign minister during that time. What's your response?

DOWNER: That's the way they play the game. That's the way they play the game in politics. But I think the serious issue here is a little different. I mean listening to Craig, and from what I read in the Weekend Australian yesterday, it doesn't sound as though this is anything more than a statement of the obvious. I mean, you know everybody knows that Asian economies are growing. We don't need to be told that. We know about the burgeoning middle class; we know about the huge growth in Australia's trade in Asia. China was our fifth-largest trading partner when I became the foreign minister. It was our largest when I finished. So none of these things …

EMERSON: What a guy!

DOWNER: Well, it's nothing to do with me, I'm sure. It's do with the private sector. But it's … the point is, we all know this. The question is a completely different question that I think Australia needs to address, and it's: how are we going to engage with Asia?

Now, one of the issues – I know Craig Emerson and I are pretty much on the same page here – that Australia needs to address is the question of investment. Most of our offshore investment goes to the Anglo-sphere. It goes to Britain; it goes to the US, New Zealand and Canada. I'm not against that of course – wonderful countries.

But what is interesting about Australia is we don't invest in Asia much at all. Number two …

VAN ONSELEN: So what are we going to do to change that?

DOWNER: And number two: what is our approach to inward investment? There is huge resistance in this country, not necessarily from the Government and the Opposition, but huge resistance in this country to a lot of foreign investment to Asia.

VAN ONSELEN: The National Party's a real issue there, aren't they, for the Coalition?

DOWNER: Two point six per cent of all foreign investment in Australia comes from China. There was a 50 per cent decline in Chinese investment into Australia last year. Now this is …

KELLY: Why did that occur?

DOWNER: Well, I think there are two reasons. I think the strength of the Australian dollar has been a bit of an issue, although that's not a new issue; it's just in the last year.

I have to say this: I've been in China recently, and I talked to a lot of senior officials in China and businesspeople. My sense is that there is a message coming out of this country, and I'm not blaming anybody particularly for it, but there is a message coming out of this country that it's equivocal about Chinese investment.

KELLY: Do you think that's right, Minister?

EMERSON: I agree and …

DOWNER: Compared by the way, compared by the way, to the message that comes out of the UK, France and Germany.

KELLY: How concerned is the Government about this?

EMERSON: Very concerned. And I'll, I will personalise it to Barnaby Joyce. And I know that Alex can't name anyone. I can, and he's a guy who has wanted to be the Deputy Prime Minister of Australia …

DOWNER: Michael Danby …

EMERSON: Well I'm not sure that Michael's statements reverberate through China, but Barnaby Joyce's do. Barnaby Joyce wants to be the Deputy Prime Minister of Australia. He's the Leader of the Nationals in the Senate; he's a shadow cabinet minister, and he's ranting and raving is definitely having an impact on Chinese perceptions of the desirability of investing …

KELLY: Do you know that?

EMERSON: I do know that.

KELLY: You do know that.

EMERSON: I do know that.

BENSON: Well, this is a good point …

KELLY: How do you know that?

EMERSON: Well I can't tell you. I'm sorry, I can't. I can't. I'll give you some …

DOWNER: Surely it's not an [indistinct] report that you got the other day.

EMERSON: I'll give you some insight.

BENSON: Dr Emerson, it's not a secret, though: the Chinese press have been banging on about this over the last couple of weeks. And with respect to your comments about Barnaby Joyce, he is in Opposition, and they are talking about the Government. Now, even in the China Daily last week they were talking about the problem with Australia is the Chinese know that the Australians need Chinese investment, but they don't believe we want it. That is a clear message in China. You would know this.

EMERSON: Okay, you asked me…

DOWNER: I think that is a [indistinct] message. I do.

EMERSON: You asked me about what information I have. The information is this: my counterpart is Commerce Minister Chen Deming. He actually says to me that 'we think that the Australian Government is not playing politics, but the Australian Government does welcome foreign investment'. There have been a couple of issues, that is true, but the fact is that they think this is a really good place to invest.

The debate about foreign investment – that is, the desirability or otherwise – has intensified in the last 12 months, led by Barnaby Joyce. Some sensible people in the Coalition such as Julie Bishop trying to restrain him, but he is not being restrained. And even when we announced during the week – the Prime Minister announced that there would be a land register, just for a bit of transparency – Barnaby Joyce welcomed it but then took the opportunity again to condemn the Government for allowing Cubbie Station to be acquired by a consortium that included Chinese interests.

DOWNER: I have to say, knowing China as I do – and I know it very well – there are a whole series of decisions that Australia has made which have not been well received, some of them may be justified and some of them not. But this goes back – Barnaby Joyce is not the Prime Minister of Australia …

EMERSON: No, it's not …

DOWNER: Let's not build him up into something … some great titan of a political figure. He's just one guy and he's not …

EMERSON: Oh, come on.

DOWNER: … and he's in opposition. He's an Opposition member. I know you think he's a huge figure, but I personally don't think he's that big a figure. That's where we do differ.

Look, the decision that the Government made, for right or for wrong – or the non-decision that it made – in relation to Chinese investment in Rio – this goes back a little way – was very important. And they took a message from that. Now, I have a vested interest in what I'm going to say next; I'm on the Australian board with John Brumby of Huawei …

EMERSON: Huawei.

DOWNER: … and the decision that the Government made – and they're certainly going to defend it; I'm not attacking them over this – but the decision they made in relation to Huawei's involvement in the NBN, it resonated through China. So there are a lot of different messages that we're sending out, and I think this White Paper – I'm hoping the White Paper; and all I know is that it's just a statement of the obvious at the moment – but there'll be something …

EMERSON: Premature.

DOWNER: It is a bit premature, but you've leaked some of it to the newspapers and you've been talking about it at huge length this morning so I'm able to absorb a certain amount of information myself. But there might be something special and new in it, but I don't think so. But we have to think about how we're falling behind here: a 50 per cent decline in Chinese investment in Australia, and China is the world's second-biggest economy, with huge savings to invest.

KELLY: Well, let's just get onto this issue…

CRAIG EMERSON: Well, let's just disagree on that.

DOWNER: No, I mean we're not disagreeing. I'm just trying to get you away from your very well-scripted party political points.

EMERSON: I don't follow a script, Alex.

KELLY: If we look at the White Paper: is one of the real messages, is one of the real take-outs from the White Paper, that we have to be searching for and accept a much higher degree of foreign investment from China? Presumably that's what we want. Do you think that this can be acceptable for Australians in political terms?

EMERSON: We have to win the political debate, and the answer is yes. And this is a debate that must be won because the history of Australia since European settlement is that we are a country that doesn't save enough to develop a vast continent. It's as simple as that. And we need the savings of other countries. Now, if we're going to turn our backs on some forms of Chinese investment – and again I will be political here, because when Tony Abbott was in China he said forms of Chinese investment by state-owned enterprises, where they are acquiring Australian enterprises, will 'rarely be approved – rarely be approved'. Now you say, 'oh who's Barnaby Joyce? He's just obscure'. The alternative Prime Minister of Australia – not a backbencher from the Coalition – went to China and actually said, 'you know, all those investable surpluses in your state-owned enterprises – they will rarely be approved if they involve acquiring an interest in an Australian business'.

DOWNER: I don't know how far we're going to get with just a party political debate.

EMERSON: I'm just stating the facts.

DOWNER: You can take the statements that Government Ministers have made …

EMERSON: No, you can't.

DOWNER: … you can take decisions, decisions that the Government has made. You can do all sorts of things. But the real issue … let's think about it not in terms of sort of puerile politics, but let's think about it in terms of the country. I think we have a bigger problem than we realise in terms of attracting Asian investment into Australia. And the White Paper should be, more than anything else, an opportunity to send a hugely strong message about how welcome this investment is.

Now, Paul says 'do we need more Chinese investment in Australia?'. You know what the answer to that question is? It's not Tony Abbott or Barnaby Joyce; the answer to that question is a three-letter word: yes. That's what we need.

BENSON: Could I ask as a simple question, then: is this White Paper simply the government sector catching up with what people in the private sector already know and have known for a long time because they are dealing with China on a daily basis?

EMERSON: I think the private sector itself can become more Asia-savvy. I'll give you another word that I think summarises the White Paper: people. This is about people. In Asia, in particular, it is personal relationships that are really important. And I think our business community would accept that there's more to be done in travelling to Asia, spending time in Asia, getting to know people on the basis …

KELLY: How do you get business to do that, though, Minister?

EMERSON: Well, we've got a couple of initiatives – they're modest – but this white paper is really designed not just for government policy, it's a policy for Australia at large; corporate policy, a policy of the public service to become more Asia-literate, Asia-savvy; a policy for business board members to do the same thing. So it's not just, 'what's the Government going to do about it?'.

DOWNER: But see, already there are … there is a very good program which has been going for many years, of public servants travelling to Asia …

EMERSON: Okay.

DOWNER: … for six weeks or something.

EMERSON: We have to sweeten that up.

DOWNER: I was in the Huawei research headquarters in Shanghai recently, and who should be there but about 20 senior Australian public servants – interestingly enough, in Huawei – as part of their tour of Asia that they do once a year.

EMERSON: Yes.

DOWNER: So these things we've been doing for a long time.

VAN ONSELEN: Mr Downer, can I ask you about … is there a need for finessing, given the diplomatic realities of Australia's close relationship with the US, with our emerging strong relationship with China, including through investment. Is there diplomatic difficulties that are on the horizon there?

DOWNER: We always found it pretty easy to deal with this question, which is often run in the media. There's this terrible line …

EMERSON: That's right.

DOWNER: … that is run in Australia …

EMERSON: I'm about to agree with you, Alex.

DOWNER: … that we have to choose between America and China. This is because, again, there's an element, isn't there, in the Australian community, which is taking its lead from parts of America – I always say, from sort of Boise, Idaho – where we're sort of on the crest of a war with China. I mean, we're not about to go to war with China; and nor is America.

EMERSON: And nor is any choice needed.

DOWNER: And nor is an… and so choice is not needed. We used to say – and Howard and I always said – to the Chinese leadership: 'you know our position in relation to the Americans. You know our cultural and historic links with America. That's just how we are. They're our great friends, and that's just how we are'.

BENSON: But there are …

DOWNER: '… but we really need to deal with you'. And they always accepted that and we had a pretty easy relationship.

BENSON: There are political components, presumably, to this paper. And one of them, I'm assuming, would be Australia's role in terms of being a midway point, or a broker, if you like, between some of those issues.

EMERSON: Well, again, I think …

BENSON: Well, no, let me finish …

EMERSON: Yeah, go on. Sorry. I apologise.

BENSON: … but not so much between the US and China, but between China and its neighbours: China and the Philippines, China and Vietnam, China and Japan. Does this address where Australia's role in Asia lies politically in helping being a friend to all those people and trying to broker peace agreements?

EMERSON: Well, it does.

BENSON: With those … within those.

EMERSON: It does, but, you know …

DOWNER: [Laughs] No.

EMERSON: … it's not. We don't … let's not overestimate …

DOWNER: Don't go around telling the Philippines that we're going to broker their relationship with China.

EMERSON: Yeah, exactly. Exactly. Let's not overestimate …

DOWNER: They would think that's pretty presumptuous. They can deal with that.

EMERSON: Let's not overestimate the role of Australia in dealing with, you know, with bilateral or regional tensions. If we can play a part, of course we'll play a part for peace and stability. But we're not the big shots, you know, the hotshots.

BENSON: So you don't want … you're not overstating Australia's importance in being, well I mean ASEAN and …

EMERSON: Well I think that if there is a dispute between two countries, you know, we don't have to amble in there and say, 'boys, how can we settle this dispute?'.

BENSON: I wasn't suggesting that; I was suggesting, well, what is Australia's role?

EMERSON: But of course we … and the Security Council will …

BENSON: And it's not just investment and economic; it's political and …

EMERSON: Of course. But the successful Security Council bid helps in that regard. And if I could say, while we're – you know – falling over ourselves in a wonderful spirit of bipartisanship, John Howard has made some very sensible statements about the region just recently, of course, as have Bob Hawke and Paul Keating. But Howard on the issue of investment from China is very strong and very clear.

VAN ONSELEN: Let me do what I can to break any spirit of bipartisanship and ask you, Alexander Downer, about one of the things that's apparently in the white paper – according to The Australian's reporting on it yesterday – is this idea that Australia needs to embrace growing population. Now, the Government walked away from the Big Australia notion because of political concerns. What's your view on this issue?

DOWNER: Well I'm not an MP, so I am a …

EMERSON: You could be.

DOWNER: [Laughs]

VAN ONSELEN: We're going to get to that. We're going to get to that.

DOWNER: No, no, we're just going to keep talking. Look, I am a – my father was the immigration minister in the Menzies government – I am a huge supporter of immigration. And I think there's a different issue here. I think as you get into the Asian Century, you get into the middle of this century, with the demographics of most of the world changing and population growth declining, there will be increasing competition for skilled and talented people from growing economies. And we will be up against it competing with the Europeans, the Americans, the Canadians, maybe Latin Americans, and so on. And, again, we have to be an open country.

We should be out there building our immigration program, focusing on skilled migrants. Because if you … if it's just family reunions and you're bringing in unskilled people, you'll lose the public and actually you'll lose the social control. But if you have skilled migrants, you can really make it work for the economy and you can make it work for a culturally diverse society. So I am a huge supporter. I mean, and Kevin Rudd talked about – what was it – about 35 million …

VAN ONSELEN: The Big Australia.

DOWNER: … people or something.

EMERSON: No, the projections in the Intergenerational Report.

DOWNER: Yeah, right, so …

VAN ONSELEN: But can … Minist…

DOWNER: … you know, and he was criti… I just want to say this: he was criticised for that. And I thought 'what a pity', because I thought …

KELLY: By Julia Gillard at the last election.

DOWNER: … I thought that Kevin Rudd … I thought that Kevin Rudd was dead right.

KELLY: Well let's just ask this question, then: we saw at the last election campaign Julia Gillard make it absolutely clear that she opposed any idea of a Big Australia. And what we saw the government do was to scale back the rate of increase in the immigration program. So how committed is the Government to a strong immigration program?

EMERSON: Very keen.

KELLY: And the idea of a Big Australia?

EMERSON: Very committed. But it's a more sophisticated debate than simply whether it is big or small or medium. Here we have a once-in-a-lifetime opportunity to boost our country towns and our regional centres by supplying all of those 3 billion customers – middle-class customers – in Asia with premium quality foods. States like South Australia, Tasmania, the north of Australia, you know, … again, is this a threat? That's one proposition. I say it's an opportunity.

I come from the bush. We had to leave in 1970 when my dad got sacked because there was a drought. Now, those country towns can be revived. We can have an expansion in those towns. They want it. They don't want to lose their doctor; they don't want to lose their bank; they don't want to lose the hospital. And those country towns can benefit from the Asian Century.

VAN ONSELEN: So we can afford to be a Big Australia?

EMERSON: We can afford to have more people in those areas where they want more people.

DOWNER: You can't …

EMERSON: Now that doesn't necessarily mean in already congested …

DOWNER: You can't tell people …

EMERSON: … in the industries …

DOWNER: You can't tell people …

EMERSON: … they won't let you …

DOWNER: … to go and live in Wagga or Port Augusta.

EMERSON: Alex.

DOWNER: … because you'd get them in there, but what are you going to say after six months: they're not allowed to leave?

EMERSON: Yeah, there won't be too many people in Penrith …

DOWNER: Because they'll just get in the car and drive somewhere else.

EMERSON: There won't be too many people in Penrith working on dairy farms, I can promise you.

VAN ONSELEN: Let me ask you this then, Alexander Downer: so you, from what you see here, you see this as platitudes more than substance? One of the things that I'm interested in are the reports …

DOWNER: Well I haven't read it.

VAN ONSELEN: Well sure, but …

EMERSON: The Financial Review hadn't and they panned it yesterday.

DOWNER: Well, I just, I mean, I think … you know, just to talk about the growth of Asia, blah, blah, blah. Look, everybody knows that.

VAN ONSELEN: They're talking about university links as well …

DOWNER: Every parrot in the pet shop can tell you that, as it were.

VAN ONSELEN: There's discussion about the need for greater university links between Asian institutions and Australian institutions.

DOWNER: Well there are huge links between Australian universities and Asian universities; and Australian universities have focused very much on Asia. I mean, I think, personally, Australia as the regional, or a regional, education centre is an important part of the vision. And I think that's going to be in the white paper. That's what the Australian education sector has argued for a very long time. We've had … I mean, you could go back to the 1950s, to the Colombo Plan, and the students that came then. There has been a decline, of course, in the number of Asian students in Australia in the last, what, two or three years.

EMERSON: Yes.

DOWNER: Perhaps there was some muddling over visas – that's been rectified, though, now …

EMERSON: It has.

DOWNER: … and that caused a problem, and …

EMERSON: … the dollar …

DOWNER: … but it did cause a problem. And then there's the dollar; and then there's the Indian … the allegations about Indian students being beaten up.

EMERSON: Yeah, which is now settled. It was a big problem for a few years there.

DOWNER: So Gillard's visit to India might help to calm that down. So Indian numbers have not been continuing to rise. I'm hoping they will rise again. So, yeah … but this isn't new; this is just a continuation.

EMERSON: You'll see more of this a little later in the day.

VAN ONSELEN: In the paper itself? Okay, well on that note, Dr Emerson, we're going to have to let you go.

EMERSON: Yep.

VAN ONSELEN: Because I know you'll want us to talk to Alexander Downer – don't you try and leave -

DOWNER: I …

VAN ONSELEN: … after the break about the South Australian Liberal Party. We're going to be doing that; don't you run …

DOWNER: I've got to rearrange my sock drawer.

EMERSON: What was that movie: Get a Life?

VAN ONSELEN: Live television – you can't leave. We will hold him to the desk. Craig Emerson …

EMERSON: The Great Escape?

VAN ONSELEN: Craig Emerson, thanks very much for your company.

EMERSON: Okay, thanks.

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