SPEAKER: Thank you, Minister, as usual we have a period of questions, starting today with David Uren.
DAVID UREN: David Uren, from The Australian. The Reserve Bank, which is currently excluded from the public sector guidelines, and I assume that's the kind of model you're thinking around for the Future Fund, is almost unique amongst Australian major organisations, in not publishing any kind of breakdown of the salaries to its leading executives, whereas in any ordinary company, you can get a sense of what the top 20 positions are by salary band, the Reserve Bank alone does not provide that information, but just provides a sort of a global number for the top dozen or so positions.
Last year that number went up by about 20 per cent, with no explanation. Would you envisage that under the Future Fund and the exclusion from any kind of public sector control, that the salaries of senior executives would also, similar to the RBA, be concealed from public view, and would your exclusion from FOI, mean that the media had no opportunity to find that information by other means?
LINDSAY TANNER: Certainly I have no intention of changing the existing disclosure arrangements, you'll probably be aware that the most recent explanation of Future Fund salaries did indicate that the highest earner, and of course we're talking about highly specialised, and very much in demand people, were still earning less than $1 million a year, which is frankly, given the size of the fund and the nature of the people in competitive markets, a good outcome.
The question with respect to the FOI change is very definitely no, that would not change the FOI arrangements with respect to organisational matters of the fund, they would continue in their current form.
The purpose of the FOI changes is very narrowly specific to the individual investment proposals or decisions, so matters that are about the Future Fund as an organisation would be unaffected, they would simply be dealt with in accordance with the existing FOI arrangements, that doesn't automatically mean they get disclosed, because of course there are rules governing freedom of information that apply generally, which mandate disclosure in some cases, and non-disclosure in others, so with respect to those matters, there would be no change.
SPEAKER: Thank you. The next question's from Peter Martin.
PETER MARTIN: G'day, Peter Martin, the Sydney Morning Herald, and Age. You've ruled out setting up a macro stabilisation fund for now, you want to pay off debt first, return to surplus first, what are your views about that idea though, down the track?
LINDSAY TANNER: It is possible to paint a picture of the future perhaps in 10 years time, where that kind of proposal might be appropriate, but I think the variables that are involved are such that I wouldn't care to speculate on the merits of it, Peter.
There's been quite a lot of academic debate about this, and I think probably the main thing I'd say is that were we to get to a point where Australia would have a genuine choice of this kind, we would be celebrating, because not only would we have both returned the budget to surplus, not only would we have paid off all Commonwealth Government debt, but we would have such strong inflows of money arising from a renewed mining boom, that we would then be in the very happy position of having to ask, what are we going to do with this money, in a way that doesn't generate an inflationary boom, within our domestic economy.
None of those circumstances appears likely to eventuate in the foreseeable future, I can understand the academic debate about these issues, but I wouldn't speculate about when or if any of these things should occur. Given the events of the last two years, I think it is a very sober lesson to all of us, that we shouldn't count our chickens before they're hatched.
SPEAKER: Sophie Morris?
SOPHIE MORRIS: Sophie Morris, from the Australian Financial Review. You've said recently minister, that tough decisions will need to be made in the lead-up to the next budget, how do you reconcile that with the fact that your Government announced yesterday it was prepared to throw billions of dollars more at big polluters, and do you think what was outlined yesterday is in fact a better ETS, or were you more - or is it just what was needed to try and get the Coalition over the line?
LINDSAY TANNER: The first point in response to your question, Sophie, is that the net impact on the budget as a result of the revised arrangements to the carbon pollution reduction scheme that we negotiated with the Opposition, is about $770 million over a 10 year period, so the negative impact on the budget, spread over 10 years, and it's not $77 million a year, it moves up and down, that is a very modest impact in the context of a scheme that involves literally billions and billions of dollars.
I made the commitment some time ago that our intention was to ensure that any changes were as close to revenue-neutral as humanly possibly, you can form your own opinion as to what your definition of humanly possible is. When you're dealing with the Senate, I can tell you that there are some constraints on the meaning of the words humanly possible, that was a reality we had to deal with, but in my view that is a price worth paying to fulfil our commitment to the Australian people, and indeed our international obligations to tackle the challenge of climate change.
I'd also just caution people about too liberally and freely using the term, big polluters. Yes, they are, but who's actually doing the polluting? The answer is all of us, we are the ones buying the electricity, for example, we are the ones driving the cars, so although the pointy end of the carbon pollution process of emissions process, is sometimes concentrated in particular companies and particular sectors, the truth is that they are all creatures of us, they only exist because we consume electricity, for example.
And although it's a kind of cute, glib line for certain political parties to play up, and some newspapers significantly less responsible than yours, of course, to make use of, the truth is that by pretending that there are these other people who we call big polluters, and it's all their fault, and if we just beat them up, it'll solve the problem, is facile.
The truth is, we are all the problem, and that's why you need an all-encompassing structure and a scheme, to gradually modify how we, as a nation, deal with energy, deal with various other things, that are the key sources of carbon emissions.
Now that's a very challenging thing, and of course these negotiations, as I'm sure you'd appreciate, have been very, very challenging, but the circumstances are, that to have any prospect of getting a scheme, an arrangement, a proposal through the Senate, that will enable us to tackle the challenges of climate change in this country, and to contribute to what we expect and hope will be a genuine international effort to do that, then we had to make these calls.
The fact that there has been such turmoil on the other side, and such bitter division about what we feel are very worthwhile changes that we have been prepared to accept, that they have put to us, just indicates how tough that process has been for the Government.
SPEAKER: Minister, I'd like to ask you a couple of questions, the first one's this, Sovereign Wealth Funds around the world have often attracted some controversy because of their investments in private sector assets, which bring with them voting power in companies, and some of that controversy's been seen in Australia, indeed. What will be the policy on the exercise of voting power such as that, will it be influenced by Australia's international relations, and possibly the Department of Foreign Affairs' view of its effect on relations with other countries, or is it purely a matter for the guardians of the fund?
LINDSAY TANNER: With respect to decisions by the Future Fund, particularly given that David Murray, representing the Future Fund, has played such a key role in developing the San Diego principles, then we would expect that having signed up to those principles, the Future Fund would adhere to them, but the Government would not seek to interfere in any decisions the Future Fund makes with respect to international investments.
There is of course a cap on investments, the Future Fund is prohibited from acquiring anything more than 20 per cent of any given company or organisation, so there is by definition, no prospect of the Future Fund actually taking control of an international company, for example.
So, there is, by definition, no prospect of the Future Fund actually taking control of an international company, for example.
Not all Sovereign Wealth Funds are in that same position. There are some who wholly own or ver… or majority own companies in other jurisdictions.
But the nature of the limitation on the Future Fund's investments both here and internationally means that it's precluded from being in that position.
And that's, I think, very important. Because the intention is for the Future Fund to be an investor in what is typically seen as the passive sense, just seeking returns, not to become a dominator of companies, not to become a controller of companies and therefore potentially to introduce distortions into the Australian market, but also possibly in the international market.
QUESTION: The other quick thing I was going to ask you, were - which is quite separate and away from that sort of policy, is; is them(*) likely to consider broadening the application of the returns and the funds from the Future Fund? For example, the comparable organisation in Denmark which is based on its returns from North Sea oil, spends quite a lot of money developing its skills base by funding students at the - some of its best students at some of the best universities around the world. The - since we've got schools' problems, is that a prospect?
LINDSAY TANNER: In short, no, it's not.
The key reason that - apart from the fact that we've, of course, made no decision nor would I expect we would make any decision to vary the focus of the Future Fund - that decision is not in prospect given the fact that those prospective liabilities for - hinting(*) at 20/20, that's been the reference point that the previous Government used and we continue to use - are so large that just meeting that target will be a big enough challenge in itself.
It is theoretically possible that a long way into the future, well beyond any prospect of me being still a minister in any government, it is theoretically possible that those kind of choices you referred to may confront a future government.
But as you can imagine, the impact of the global financial crisis on the Future Fund's performance at a very early stage in its development has managed to put it back a little bit in terms of that pursuit of that target.
Now, I have every expectation that we will recover that lost ground. Over what period of time, I'm not in a position to predict. But clearly, there's no base on which we could predict pursuing a target for financing some other purpose beyond the financing of public sector superannuation in the current circumstances.
It would be nice if, at some point in the future, a future government is able to ask that question, but in the world that we currently inhabit and I expect we will for some time, it's going to be tough enough for the fund to actually manage to achieve its explicit purpose that the previous Government gave it and which we continue to be committed to, without asking; what else could it do?
SPEAKER: Thankyou. Next question's from Laurie Wilson.
QUESTION: Laurie Wilson. I've got a couple of questions from APEC. I've got a couple of questions as well.
My first one relates to the capacity to review and [indistinct] a decision. I'm just wondering if you'd tell us a bit more about that review process.
And will there be any oversight testing, checking process in relation to that, an audit process? I mean, for instance, in terms of government agencies subject to the FMA Act at the moment you have the so-called Murray Motion which means you're subject to audit by the Auditor-General. Will there be some sort of checking process or do we just have to wait until someone says; well, I'd like to review that decision?
LINDSAY TANNER: Well, treating the question the wrong way around, the Future Fund will continue to be an organisation under the FMA Act. For those who don't know the FMA Act, it's the Financial Management and Accountability Act.
In fact, some of these changes are really driven by the fact that it's[sic] doesn't fit neatly within either side of the divide that we currently operate under, where you have bodies that are, in a sense, direct creatures of government where you typically don't have boards and you have direct ministerial control under the Financial Management Accountability Act and therefore much more directly connected to decision making powers of government.
And on the other hand, the Commonwealth Authorities and Companies Act, known colloquially to its friends as the CAC Act - so, we have the FMA Act and the CAC Act - which applies to government business enterprises like Australia Post, for example, where clearly you don't want ministers and the Government basically dealing with day to day decisions; you have an arms length board and you have the Government as a shareholder, and a very different arrangement.
The thing that's unusual about the Future Fund is that it kind of sits between those two situations, that you do want it operating independently and at arms length, but because it is managing vast amounts of Federal Government money, of taxpayers' money, there are other elements which mean that you do want it very close to the decision making structure. That's one of the reasons why these refinements are being pursued.
You may be aware that my Cabinet colleague, the Cabinet Secretary and Special Minister of State, Senator Joseph Ludwig, has just announced a range of general reforms to the FOI Act, and part of that is the creation of an information commissioner with an explicit internal review and Ombudsman kind of role with respect to the FOI legislation.
So the answer is yes, there is an internal review process that is now being substantially enhanced by those reforms, that is independent of the specific change that we're pursuing with respect to the Future Fund, but would obviously cover those changes. So yes, there are and there will be strengthened internal review processes.
He's also made some very significant changes with respect to fees for the FOI legislation. So, you no longer have to pay a fee for applying. Currently that fee, I think, is $30. And the arrangements, with respect to fees for the FOI process have been made, shall we say, somewhat more reasonable. So, they are less onerous or less automatically onerous than, in some cases, they have been.
So, these are quite significant reforms that are across the board reforms with respect to FOI. The change that I've indicated today is very - just one very specific and quite small reform that applies only to the Future Fund.
SPEAKER: Laurie?
QUESTION: My second question goes to the point you mentioned before about salaries.
Now, a salary of nearly a million dollars sound very appealing, I have to say. But [laughs] I would make the point, as you did, that, of course, it's a very competitive industry out there and many of the salaries are significant multiples of that.
Does it - I'm - and I'm assuming that the decision around salaries is a board decision, but does it concern you that the ability of the fund to attract the best and brightest might be constrained by those levels of salary?
LINDSAY TANNER: I'd have to say that there is no evidence of that occurring as yet, and it is a very tricky area.
As you say, even something that is a bit below a million dollars, in most people terms, an awful lot of money. It's quite a lot more than I get paid. In fact, it's quite a lot more than the Prime Minister gets paid.
The unfortunate thing, though, of course, is that the expertise and the experience that's involved with these processes; handling and making decisions about billions of dollars of money in investments where significant risk is involved, is very specialised and where the people who are conducting the same kinds of things, both in Australia and overseas, are paying salaries for their top operators that are well beyond, you know, that $900,000 or whatever.
And therefore it is very important for taxpayers that we get people who know what they're doing and are top class in making those decisions. Otherwise, the risk is that money could be lost or investment outcomes could be substantially inferior, involving not millions of dollars but billions of dollars.
So, there is a dilemma here, but in my view the board has handled this problem with great finesse and thus far I have all - every confidence in the way the board has managed those dilemmas.
And I would not anticipate that the changes that we're proposing to create a customised structure for the Future Fund for employing its staff and removing it from the Public Service Act would have any implications for the way it deals with these issues in either direction.
So, it's not intended that this would, any such change - and I stress that we have got to go through the process of examining all of the detail and make sure that before we move from what we've got, that we have got a clear agreement and understanding about where we're heading to. It is not intended or anticipated that that would change any decisions with respect to its remuneration.
SPEAKER: Thank you. Malcolm Collis(*).
QUESTION: Malcolm Collis, freelance journalist.
Minister, my question also relates to next year's Budget. The Government has started to condition the electorate to be prepared for an austerity budget next year. My question is directed to you and your capacity as a Minister for cutting spending.
Bearing in mind the fact that, by then, home loan mortgage rates may well have gone up by at least - gone up at least four times, and the fact that the Budget next year will be the last one before the next election, the first election for this Government, is that a proposition that we should be taking seriously at this time?
LINDSAY TANNER: Well, yes it is, Malcolm, and I don't back away from the fact that this is a very challenging set of circumstances for the Government. It's hardly a great secret that governments tend to like to go to elections off the back of generous Budgets and, of course, over the past decade there's been numerous examples of that, which I'm sure you're all aware of.
The thing that we can't ignore, however, is that the economic circumstances and the budget circumstances that we have been presented with as a result of the global financial crisis, simply make that kind of situation untenable. That the, kind of, loosen the purse strings, lots of giveaways, kind of Budget that in popular mythology tends to be associated with election years is just simply not feasible and, frankly, I think were we to head down that path we would suffer politically, because I think most Australians understand the reality of those circumstances too.
That means we do face some very difficult choices and some very great challenges because we have got to get the Budget back into surplus as quickly as possible. The figures that were published in the Mid-Year Economic and Fiscal Outlook papers only a matter of weeks ago have indicated that the task is looking somewhat less daunting than it did in May, with the Budget. And the revisions mean that we are expecting debt to peak at significantly lower level than was previously the case, but nonetheless, the task is still huge. And we do not have the luxury of saying manana. We do not have the luxury of saying, well, we'll be tough on spending maybe next year or the year after and we're going to have a big splash now. That simply is not feasible.
Now, you're quite right that that is going to generate some challenging political circumstances for the Government, but I would point out that it is going to generate even more challenging circumstances for the Opposition.
Now, of course - in fact somebody may be able to tell me, but we don't know whether Malcolm Turnbull is going to continue to be leader of the Opposition, but he certainly has made very strong statements that the Liberal Opposition would have smaller Budget deficits and a lower of level of debt than is currently projected by the Government. What that means is, that however tough we are, they're promising to be tougher.
Now, you can rest assured that when we get close to the election, I'll be casting a very close eye on whether he's living up to that rhetoric and whether the Liberal Party and the National Party are living up to that rhetoric, because they should be held to account for all of the inflammatory statements that they have made over the course of the last twelve months, which may well be reflected in their election commitments next year, but frankly I'll be a little surprised.
SPEAKER: David Uren.
QUESTION: Minister, following on from that question, you have - the Government has placed on itself a discipline of only funding new spending to the extent that offsetting savings are made elsewhere. Do you think that that discipline will be enough to enable you to meet your two per cent cap on real growth once the economy returns to trend, given the things like rising pension costs and health costs and defence costs all going at much faster rates.
LINDSAY TANNER: The commitment we've made is to essentially have two mechanisms to ensure that we return the budget to surplus. The current prediction in the budget papers is for that return to surplus to occur in 2015 / 16, and those two mechanisms are the ones you've mentioned, David, which are of course, offsetting any new spending with savings, so that you get a neutral outcome as a result of any new spending. And, secondly, ensuring that once normal levels of growth have resumed, and at this stage that looks like that's about a year or so away, but that of course cannot be absolutely specified, that we will ensure that Government spending does not increase by any more than two per cent in real terms until the budget returns to surplus.
The answer is that, almost by definition, the off-setting of new spending with savings will not do the job by itself, that's why we need the two per cent target. It is theoretically possible that circumstances might intervene in a way that means that we don't need to make spending cuts in order to ensure that the two per cent target is honoured. I think in practice, that's very unlikely and that we will need more discipline over the course of that period of time, either us or whoever is in government, assuming they honour these commitments, than just offsetting new spending.
The ageing of the population is a key element in that, because within the next year or two you start to see the very early signs of the Budget numbers being just gradually eroded by the impact of the ageing of the population. Of course, as the years unfold that effect intensifies.
And the other factor that complicates all of this is that we can't assume, even if we get a resumption of economic growth of the kind we had a couple of years ago, and of a mining boom and all of those kind of things, we can't assume that will lead to a resumption, in full, of the torrent of tax revenues that the previous Government had at its disposal in that, kind of, 2004, 5, 6 and into 2007 period. And in particular, of course, with the dramatic drop in asset values, that complicates patterns of capital gains tax and all kinds of technical, complicated things that I won't bore you with.
So, the answer is almost certainly, in my view, yes we will have to do more than just offset new commitments. But to what extent, and in what financial years, and over what period? All of that of course, we will only know as we're approaching those choices, because, although we've got projections for anticipated growth, anticipated spending, anticipated tax revenue, of course, as you know, they get revised every six months and global circumstances push them up, push them down, push them sideways and so, they're only projections.
SPEAKER: Thank you.
The final question from Peter Martin.
QUESTION: You've spoken about the politics of austerity for political parties, and indeed, you think this is going to put the Opposition in a very difficult situation.
What about the politics of austerity for voters? That is to say, what do you think the Australian public - or do you think the Australian public is ready for an election where neither side makes big promises? What's your, sort of, reading of - your electorate in Melbourne's probably not typical - but what's you reading of the Australian public and whether they could take a situation like that? What do you think ordinary Australians think about such a series of elections?
LINDSAY TANNER: I think, as with most things, Peter, the answer is mixed and that there are some people who would like to reduce Government spending no matter what the circumstances, there are some who'd like to increase it no matter what the circumstances, so you've got obviously a wide variety of views.
But I would say this. In the 2007 election campaign, I believe - well, my own response to the dynamics of that campaign was that when Kevin Rudd stood up at his campaign launch and said the spending spree has got to stop and the commitments I make tonight will only - will be less than 25 per cent of the commitments that, in dollar terms, that Mr Howard made at his launch a couple of days ago. I felt then, and I still feel it, that was the time when we won that election, because that amounted to a statement to the Australian people that in circumstances where the pressure was really on us and the temptation to come out with even more big spending promises and commitments than had been the case from the other side, that that's really when you find out whether people have got wherewithal to withstand those pressures and say, no we can't afford it.
So, people will debate these things. I'm sure that some of my caucus colleagues when they're confronted with the prospect of whether or not a particular project or program should be financed in their electorate, will give you slightly different views, varying of course from individual to individual. But I believe that in a general sense, the bulk of the Australian community understand that this is not free money and, although there are circumstances and there are projects and programs where spending is entirely justified, in particular to sustain jobs in the wake of a global downturn, I think there's been clear public support for that strategy, but the idea of electoral bribes, I think, is something that if not past it's used-by date is at least to a point where it is nowhere near as potent as some in the past have argued it is. And I think, provided that we approach our task in an intelligent and compassionate way, we will get more credit for making tough decisions and ensuring that the economy and employment and business activity are sustained rather than falling for the temptation of cheap, easy giveaways to win short-term applause and short-term political support.
Time will tell. That's obviously a biased perspective given that it's my job to think like that in the first place, but it's also a view that I have happened to have held for sometime.
I think, basically, when it all boils down to it, the people of this country want good government. They want a government that's in charge, that's competent and they understand that you can't just endlessly hand out money. That there is a call to account, underneath all of this, and although there things that governments have to finance and there are important projects and programs that have to be supported, I think people are well and truly tired of the kind of auctions and giveaways and naked pandering for votes that we've seen in elections in recent decades.
SPEAKER: Thank you very much.
[Applause]
* * END * *
Related link: Speech - The Future Fund: Delivering for Australia
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