MICHAEL SMITH: Look, we owe the rest of the world several hundred Kev. The debts are increasing. I'm very interested to know what the plan is to produce the money in the future to pay for it. I would feel much more confident about the Government handing out the cash if I was convinced that there was a plan to pay it off. If you had asked that question a few years ago - where's the money coming from - I would have thought the answer would be fairly clear. The mineral wealth in this nation, combined with China's demand, was delivering rivers of cash to the feds and to Queensland in particular. We took advantage of that. We jacked up mining royalties. Now that income's drying up. Government income is drying up. So what's the plan? I think it's not manufacturing. Without protection from low wage countries we can't compete with Chinese manufacturers who get paid a pittance, so it's not wheat, it's not wool and it's laughable to say that it's green jobs weeding the paths in national parks is going to deliver us wealth to free us from debt. The national fibre network I think will be nice to have. We get to see high definition videos and it will save medical people the bother of transporting x-rays on films and that sort of thing. But I do not see it producing the sort of income that will deliver tax revenue to pay down this spiralling debt. Likewise, service industries which were often pointed to - hospitality, medicine, education - marvellous, but they deliver incremental government revenue in the form of GST receipts and, you know, company profits. The hole in our budget is much bigger than can be filled by taxing service industries. So what's the plan? Where will the jobs be? Keep in mind as well we are demonising some things that create wealth with the tax on everything, the Emissions Trading Scheme. Another reason why sensible investors may look more favourably at China, India, Indonesia; countries that do not share our zeal to tax the traditional creators of wealth. I would be very interested to have a sensible discussion with a reasoned and sensible person about what are the plans for a couple of years down the track. Such a person is Lindsay Tanner, the Finance Minister who has been listening. G'day, Minister.
LINDSAY TANNER: G'day, Mike.
MICHAEL SMITH: What do you reckon? Where's the money coming from?
LINDSAY TANNER: It is a complicated question but I wouldn't agree with you about manufacturing. What you've said about manufacturing is true for parts of manufacturing but not all of it. And we have made over the past 20 years some big gains in some areas. We've got a long way to go but I wouldn't discount the role of manufacturing in the more high tech end. For example, medical and scientific instruments and pharmaceuticals are areas where Australia has been doing pretty well, exporting billions. So there are areas where we have got some good potential, but yeah, there's no doubt we've got some work to do.
MICHAEL SMITH: Like car industry, you're putting a lot of money, $6 billion into - well protecting - I don't know what you would call it, but cash that's going into the car industry. Is that money well spent?
LINDSAY TANNER: Look, I think it is and it's only going to flow and this has not been well understood in the commentary. That money only flows off the back of actual investments by the company and it's designed to enable our industry to transition into much more fuel efficient, lower emission vehicles which of course it's been stuck a bit with the old gas guzzling six cylinder end of the market which of course consumers, and indeed the wider need for good environmental outcomes is kind of left behind a bit. And we have actually been doing pretty well on exports from both whole cars and also car parts in recent times. So we have got a pretty strong sector there that's under great challenge as are the equivalents in other countries. But the important thing to emphasise is that $6 billion-odd is spread out over about 15 or 20 years. And it only flows bit by bit in response to actual investments.
MICHAEL SMITH: Lindsay, Keating used to talk at length about the elaborately transformed manufactures, that high end manufacturing thing that you were just referring to. I have heard that story in the past. Do you believe that it is a significant creator of wealth for us in the future genuinely?
LINDSAY TANNER: It is, but it is only part of the picture and I think this is the tricky thing with these things Mike, is that there's no silver bullet here. There's no one big magic thing that we are going to latch onto and say this is Australia's future. It's going to be a mixture of things. Professional services is an area we're doing pretty well in. The mining industry will always be a major player and we are developing a lot of areas where we are significant exporters that spin off from the mining industry, like technologies that Australia is leading the world in. Even things like underground communication in mines and all kinds of specialised things. So there's a mixed picture here. You're right to identify this is a legitimate question, because I think we get complacent when we have mining booms.
MICHAEL SMITH: Yeah, clearly we did, because where's the money gone?
LINDSAY TANNER: Yeah, well, there's no doubt that is true. I think investment in research and science is very important because we've got some good possibilities there. But the truth is the answer to your question is a mix of different things, that - no single get out of gaol card.
MICHAEL SMITH: Yeah, Lindsay, I know you're a member of the cabinet and cabinet solidarity applies. Personally, are you concerned about - I mean, are you losing sleep about the level of debt and how to pay it back?
LINDSAY TANNER: I do lose sleep about the longer term because we do have a very tricky challenge here for us Mike, and something that I think will be hard to explain to people that although we've got to stimulate the economy in the short term because we had the guts kicked out of our revenue and, of course, trade and that flows through into pressure on jobs and businesses. In the medium term we've got to have a strategy to get back into surplus as quickly as possible.
MICHAEL SMITH: That's the essence of my question Lindsay, so what is it?
LINDSAY TANNER: Well, we set out a couple of things in the statement in February which included things like not increasing spending - once growth resumes, not increasing government spending by any more than two per cent in real terms each year until we get back into surplus. But you'll see some building blocks for this in the Budget in a few weeks' time where we do have to make some tough decisions for the future. We're a bit like a family that's had a sudden drop in its income. The first thing you do is maybe borrow a bit more on the mortgage so you do not lose your house. The next thing you do is say okay, we've got to trim our sails on our spending a bit to fit within our new income. And the third thing you do is invest for the future maybe in mum or dad's skills so you can get back to higher incomes. So the end result is a pretty complex picture that we've got to pull those things together and that's what we are trying to do.
MICHAEL SMITH: Well, the leaks today or the well placed sources today are giving the suggestion that you will be looking at some of the tax advantages available to high income earners. I presume that is absolutely on the table?
LINDSAY TANNER: Mike, one thing I've learned over the past six or nine months in the extraordinary circumstances we have been in, is you don't give guarantees. You don't rule things in or out.
MICHAEL SMITH: Righto. Well, one that you probably do need to rule in or out then is the pension increase.
LINDSAY TANNER: Look, I think it's pretty common knowledge that we've committed that we are going to do something serious about the level of the pension. That's become tougher obviously than it was when we first started making those kinds of indications but we intend to honour that. We accept that irrespective of circumstances, Australia's pensioners, particularly those on the full pension, have had it tough in recent times while most other parts of the community have done quite well. And we're going to honour that.
MICHAEL SMITH: And just to save me asking the questions, Lindsay, you're not going to answer any questions about the Budget - what's specifically in the Budget - are you?
LINDSAY TANNER: Clearly I can't Mike.
MICHAEL SMITH: Sure, I understand that.
LINDSAY TANNER: I'm sure you understand that.
MICHAEL SMITH: Okay, can you answer this? Have you calculated the extent, the dollar value of (1), your own debt, but (2), the contingent liabilities - the guarantees you have given to state debt, to associated entities, bank guarantees, that sort of thing? Have you done the sums?
LINDSAY TANNER: Look, there's assessments made of these things.
MICHAEL SMITH: So what's the money? How much?
LINDSAY TANNER: I cannot reveal the kind...
MICHAEL SMITH: [Interrupts] Why Lindsay? Why can you not tell us?
LINDSAY TANNER: No, because I'm not typically involved in those kind of things.
MICHAEL SMITH: You're the Finance Minister though.
LINDSAY TANNER: The Finance Minister is essentially about spending. These guarantees are, strictly speaking, Treasury territory. So certainly those kind of technical assessments are made, but the key thing...
MICHAEL SMITH: [Interrupts] Do you know what it is?
LINDSAY TANNER: Look, I've got some idea of these things but the key thing Mike is that...
MICHAEL SMITH: [Interrupts] You're not going to share it with us though, Lindsay?
LINDSAY TANNER: No, well, the important thing here is that if you look at those guarantees and then say, okay, what's the price tag if they all get called upon? The price tag Mike, is that you've no longer got an Australian economy if that hypothetical and almost impossible scenario actually were to unfold. Because by definition that means that every bank in Australia has just gone broke which clearly is not going to happen. So in a sense, we don't - we're not going to spend large amounts of time trying to kind of war game what are simply fanciful possibilities. And nonetheless, I do not disparage your point that this is a serious issue.
MICHAEL SMITH: Yeah, it is, too right.
LINDSAY TANNER: But there's no question that taking on board those contingent liabilities does involve risk because it is a very big step for Australia to take. In normal circumstances you wouldn't do it but we haven't been in normal circumstances.
MICHAEL SMITH: Well, it's pretty abnormal for you to say - the corollary of what you have just said is that you've written a cheque you can't honour.
LINDSAY TANNER: No, we have not written a cheque.
MICHAEL SMITH: You know what I mean though, Lindsay.
LINDSAY TANNER: No, we haven't written a cheque. We have made an assessment based on - that assumes correctly that although there is a possibility of a default occurring perhaps with one financial institution, perhaps with two - even that's extremely unlikely because our financial system is strong and robust. But we certainly can very safely assume you are not going to have holus bolus defaults leading to huge hits on the taxpayer. That is just a fanciful possibility and simply is not going to occur. So yes, we have to make these decisions with great care and look at all of the possibilities but we've also got to be realistic about the chances of things actually eventuating.
MICHAEL SMITH: Okay, one very quick question. Take the banks, take the guarantees out of it, you've guaranteed state debt and of course your own sovereign debt. What will the number be at the end of this financial year?
LINDSAY TANNER: Look, I can't give you a precise number on the level of state debt. It's relatively modest. You know, it's certainly significant but it's in overall - the overall scheme of things relatively modest. And one of the things, the disciplines that's hanging over us Mike, that none of us can do anything to manipulate, is the ratings agencies are scrutinising all these things very closely. And if they feel that these guarantees are putting too much pressure and creating too much risk on the Commonwealth Government's balance sheet then they will start to get toey. So we have got, in a sense, an independent umpire there which we are very conscious of. Because we've got a very strong balance sheet, we can afford to make these guarantees and the ratings agencies have not been disturbed by them.
MICHAEL SMITH: Okay, so you're committed to retaining our credit rating?
LINDSAY TANNER: Absolutely, that's a very important thing for us. None of us can foresee the global economic future and so the circumstances that could unfold I am not going to predict.
MICHAEL SMITH: Okay.
LINDSAY TANNER: But clearly, we regard the - maintaining our rating as very important.
MICHAEL SMITH: Okay. Well, no doubt you'll be judged by that. Queensland's dropped its, Lindsay, in - we've just got to go. I'm sorry about the time constraints.
LINDSAY TANNER: That's quite alright.
MICHAEL SMITH: It's always good of you to be available. Thanks very much, Lindsay.
LINDSAY TANNER: My pleasure. Thanks very much.
MICHAEL SMITH: All the best. Lindsay Tanner, Federal Finance Minister.
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