6 March 2014
Transcript - #2014004, 2014

Interview with David Lipson, PM Agenda, Sky News

SUBJECTS: Qantas, GDP growth figures, Budget 2014, profit shifting, G20

DAVID LIPSON:

Joining me now on PM Agenda is the Assistant Treasurer Senator Arthur Sinodinos, thank you very much for your time today.

ARTHUR SINODINOS:

Thanks David.

DAVID LIPSON:

Qantas again, the big story today and it has the Sales Act changes passed the lower House. There’s a giant brick wall in the Senate though. You are all too aware of that being a Senator yourself.

ARTHUR SINODINOS:

Sadly yes.

DAVID LIPSON:

So what’s the point?

ARTHUR SINODINOS:

Look I think the point is this… we are saying that the first best option is to remove the restrictions in the Qantas Sale Act; create a more level playing field between them and Virgin and others; and given them the capacity therefore to do their best, unshackled from the Act; remove some of the inflexibilities the Act has forced on them; make it easier for them to raise capital including foreign capital; potentially lowers their cost of capital; and I think all round gives them a better opportunity to compete in what is a very difficult market. And the fact of the matter is, as a government, we don’t have endless streams of money and the challenge is that in the eighties and nineties, we got out of the airline business as a country and the reason we did that was we didn’t want scare public capital going into airlines as opposed to health, education and social infrastructure.

DAVID LIPSON:

So that’s the first best option. What’s the next best option?

ARTHUR SINODINOS:

Look, I think the first best option in these circumstances is the only option, because the idea that we can just give one airline a debt guarantee, which will further tilt the playing field in that market – it’s not about somehow that they’re disadvantaged by their current arrangements in other ways except for the Sale Act. The fact of the matter is they’ve got a big presence here in Australia. There are a lot of competitive advantages. They’ve got to use them. And so for us the first best option is to get them focused on doing what they can to put their house in order.

DAVID LIPSON:

So would there be any consideration of some sort of amendment to this legislation in order to get a compromise and actually get something done?

ARTHUR SINODINOS:

Well at the moment, the Labor Party are not even talking amendments or compromise. They’re saying no. But the thing is at some stage…

DAVID LIPSON:

…but they’ve said that they would allow changes to the 25 per cent restriction on single shareholders and the 35 per cent restriction on foreign airlines. Is that something that you would consider?

ARTHUR SINODINOS:

I understand that, but fundamentally if you don’t deal with all the aspects of the Sale Act which are impinging on their flexibility, you don’t get the first best result that we’re talking about. It would be great if they could come to the table with something more constructive than what they’ve offered already and what would be more constructive is that first best option.

DAVID LIPSON:

So then is the perfect becoming the enemy of the good?

ARTHUR SINODINOS:

No, I don’t think so because this is the opportunity to grasp the nettle and do this. Because Labor’s first best approach to this seems to be to keep spending other peoples’ money to prop up one airline.

DAVID LIPSON:

So, you keep sort of referring to the first best option. I just want to ask, hammer this down, it’s not going to pass! It’s not going to happen, you know that and you basically admitted that at the start of the interview…

ARTHUR SINODINOS:

…well not on current indications from Labor and the Greens.

DAVID LIPSON:

So, there’s got to be another way. I mean government is not just about winning debates, it’s also about compromise.

ARTHUR SINODINOS:

Well David, if we can win the debate in the community, then we hope that would put pressure on Labor and the Greens to take up the first best option.

DAVID LIPSON:

But you know they’re not going to.

ARTHUR SINODINOS:

Well look, if they want to close their ears to the first best arguments and to possibly the change in public sentiment on all this, which I think is out there in the electorate. I think the electorate these days are very cognisant that it’s not the role of governments to be propping industries or firms up.

DAVID LIPSON:

So as a result of this deadlock, will Qantas be the loser?

ARTHUR SINODINOS:

Well what this deadlock may do is actually force Qantas and Virgin and others to think very carefully about throwing further capacity at each other in this capacity war that they’ve been undertaking domestically. The understanding that we’ve drawn a line in the sand, there’s no more assistance I think should focus everybody’s mind.

DAVID LIPSON:

Ok. Well look moving on, Joe Hockey this morning said on the economy and this was off the back of the GDP figures yesterday that were stronger than many had expected. He said that we are turning the corner. Has anything the government done since it took government contributed to that?

ARTHUR SINODINOS:

Well I think first and foremost, sending out a signal that we are going to credibly fix the Budget. I think that’s important for confidence. We’ve seen business confidence and consumer confidence go up as a result. The latest national accounts suggest that there’s some increase in consumption starting to come through – people starting to reduce their savings levels a bit and spend more. That is good. I think what the latest numbers also suggest is that the housing or the dwelling investment revival is picking up. So, I think what we did was to instil some more confidence into the economy by saying there will be a plan around the Budget and also by drawing a line in the sand as I mentioned earlier around industry assistance. We’re essentially saying we’re not going to be throwing peoples’ money after areas that are declining and I think that’s important.

DAVID LIPSON:

Because the big ticket items: repealing the carbon tax, the mining tax, red tape and infrastructure – they haven’t gone through yet, so can the government claim any credit for this?

ARTHUR SINODINOS:

David, in relation to infrastructure it’s going to be in the Budget and we already ramped up some infrastructure spending in the Mid-Year Economic and Fiscal Outlook. But you’re right, most of that spending will actually be in the Budget – a bigger infrastructure package in due course. In relation to red tape, 19th of March we’ve got repeal day, the first repeal day of the year. There’ll be two this year. That will be an opportunity to reduce red tape and deregulation. We’ve already announced the one-stop shops for environmental approvals with particular states which was also part of the red and green tape reduction. So, things are happening, but it’s important, I think there is a change in the public mood. People want their money used responsibly and that includes in relation to industry policy and the focus of industry policy today has to be on creativity and innovation, whether you’re talking about firms in manufacturing, in services, in agriculture. I think there are good things happening, but we have to make sure the structural reform that we’re undertaking is sustained and it’s across the board.

DAVID LIPSON:

So how delicate is the economy right now and how quickly should the government impose those structural reforms, particularly to health, education and welfare? Should they happen for example in this term of government?

ARTHUR SINODINOS:

The point Joe Hockey is making about the state of the economy is that when we bring down the Budget, we’re going to make sure we’ve got a credible path back to surplus, that the way we build up to that takes into account the state of the economy. At the moment, we’ve had some encouraging signs in the latest GDP figures. We don’t want the public sector to be a drag on growth. On the other hand, we have a plan where savings build up over the medium term. They are announced now so everybody knows with certainty what’s going on and those savings feed through and don’t forget Labor added a lot of spending into the period just after our forward estimates. So we’re talking about spending ramping up in 17/18 around national disability insurance scheme, around defence, around other areas. We’ve got to be able to have a plan which helps us to generate savings over time that will help with that.

DAVID LIPSON:

Just moving onto another issue of profit shifting. The Australian Financial Review reckons Apple has shifted $9 billion in untaxed profits and paid less than 50 cents on every thousand dollars of income. Now, currently this is legal, we would believe anyway, but do companies have a responsibility beyond that?

ARTHUR SINODINOS:

Well, abstracting from the tax circumstances of individual companies, I think the important point is yes. Particularly corporate taxpayers have a responsibility. They have a social contract and as part of the social contract, they have to be fair taxpayers. But for us tackling issues which really amount to what’s called base erosion profit shifting, they have to be done in a multilateral context rather than unilaterally because otherwise it often invites companies just to get out of a particular tax jurisdiction i.e. Australia. So what we’re doing is we’re working methodically through the G20 on about a 15, 16 point action plan which was discussed at the G20 meeting here in Sydney under Joe Hockey’s chairmanship. The first part of it deals with matters like transfer pricing for example. So by the Brisbane summit in November, there’ll be I think concrete progress among members of the G20 around what needs to be done. There’s a lot actually happening. We agreed to the common reporting system for tax purposes, automatic exchange of information of tax information. That was also agreed in Sydney at the G20 meeting. So, things are happening but they’re happening in unison with other countries.

DAVID LIPSON:

There was a hope that more would be done out of the G20 finance ministers meeting. Is the US holding this up?

ARTHUR SINODINOS:

Look, when you say more could have been done, Joe Hockey persuaded the G20 finance ministers to adopt a growth target, to increase growth over the next four or five years by about two per cent. And as part of that, we’re putting together as a country, as other countries are, a suite of further reforms which will explain by the time we get to Brisbane, to the leaders’ summit, how we will achieve that target.

DAVID LIPSON:

Assistant Treasurer, Senator Arthur Sinodinos, we’ll have to leave it there, but thank you very much for that.

ARTHUR SINODINOS:

Thanks David.