Senator the Hon Mathias Cormann
Minister for Finance
Deputy Leader of the Government in the Senate
Senator for Western Australia
HAIDI LUN: Well it has been the story when it comes to commodities, iron ore prices jumping to a two year high and that could mean further strength for the Aussie Dollar, setting up the price of shipments from the country’s all important export sector. We are going to talk more about this, what it means for the Australian economy and more with our next guest who is Australia’s Finance Minister Mathias Cormann. Minister great to have you. We have been talking about this 80 per cent plus gain when it comes to iron ore prices. That has really been the tail wind when it comes to the growth we have seen in Australia. Do you think prices are going to hold up? Are we in a second phase of a mining boom and what kind of boost do you anticipate getting when it comes to the Government Budget?
MATHIAS CORMANN: Nobody can really predict with any certainty what prices will be in the future. It is true that prices have recovered somewhat from their recent lows and combined with the significant expansion in production volumes and export volumes, higher prices are very good for our trade balance, are very good in terms of the profits that can be generated by businesses here in Australia. We have had record investment into our mining industry over the decade to 2012-2013 in particular on the back of very, very high prices at that time. Those have led to significant increases in capacity. That is delivering dividends for the Australian economy now.
HAIDI LUN: Minister, if this becomes another driver that pushes the Aussie Dollar even stronger, I mean it is up five per cent in one month alone so far this year. It is up notably against key trading partners like China. We have heard from the RBA Governor Phillip Lowe saying it is hard to argue that the Aussie is too strong at the moment given that we are looking at this three per cent growth trajectory. But at what point do you say enough is enough and you are going want to currency to come down?
MATHIAS CORMANN: The value of the Australian Dollar is set by the market and not by the Government. That is a very important feature of our system. As an open trading economy it helps the economy adjust to the changes in the state of the Australia economy vis-a-vis the world economy. In the end the value of the Australian Dollar is what it is. It is true that as terms of trade rise as they have been, as other factors come into play, people’s perception of the strength of the Australian economy, the official cash rate and the like, all of these things feed into the markets valuation of the Australian Dollar. But it is what it is. The floating exchange rate is something that as a Government we support as a very important feature of our economic framework.
BETTY LIU: Minister Cormann, you sound kind of resigned to market forces here, but just to reiterate on what Haidi had mentioned though, is there a level though at which you just cannot tolerate the strength of that Dollar and you will have to do something about that?
MATHIAS CORMANN: It is not a matter of being resigned. We recognise that it is very good for Australia to have a floating exchange rate. If you look at where the Australian Dollar has been in the recent past, it was above one US Dollar not that long ago. It has come down quite a bit from those heights of that time as a function of market forces. We believe it is very important for the Australian economy. Let’s remember the Australian economy is into its twenty-sixth year of continuous economic growth and features like our floating exchange rate, independent monetary policy set by our Reserve Bank as well as Government policy across a range of areas has been an important driver of that economic success over an extended period of time now.
BETTY LIU: Minister Cormann, just on that note, Haidi had also mentioned the Budget and I know that we are watching very closely in Australia, vis-a-vis the credit rating of the country, how concerned are you that Australia could lose the AAA credit rating and what would that mean?
MATHIAS CORMANN: In the end the decisions on credit ratings are a matter for the credit ratings agencies. After we delivered our half yearly Budget update just before Christmas, all three major credit ratings agencies came out very quickly to confirm Australia’s AAA credit rating. We value our AAA credit rating. We certainly work very hard to ensure that our Budget is in the best possible position, that we bring the Budget back into balance as quickly as possible and that we have a sensible and credible forward trajectory when it comes to spending growth in particular. We continue to work, we have put a lot of effort into reducing spending growth to the tune of about A$250 billion over the medium term so far, in net terms. That work will continue. But in the end, it is a matter for the credit ratings agencies to make these judgements. The next time will be after the Budget.
BETTY LIU: Right, alright, Minister Cormann, just stay with us we are going to have much more with you. We are just going to take a very brief break. We will be back with the Australian Finance Minister, Mathias Cormann in just a few moments.
BETTY LIU: We are back with our interview with Australian Finance Minister Mathias Cormann. Getting his take on the prospects now, thinking more about international trade. Minister, earlier we had spoken with the former US Trade Representative Mike Froman who said that the world is getting on with business following President Trump’s withdrawal from TPP. I know that in Australia we had spoken with your Trade Minister, Mister Ciobo who said you are still going to pursue TPP minus the United States. Why? Why do this?
MATHIAS CORMANN: A lot of work was put into that deal. There are twelve countries involved. The United States is the biggest, but there are still eleven countries who are keen to do more business with each other. Over time, we believe that the United States will want to have a bigger piece of the action in the fastest growing part of the world, which is the Asia Pacific. We think that the Trans-Pacific Partnership agreement provides a very good framework to further boost trade. While the United States might have made a decision at this point, these things are put in place for the medium to long term and things change.
BETTY LIU: But you could have made this argument though when the US was involved in it, but now that it is not, perhaps it does not have teeth as it did before, so why not abandon it and move onto more regional trade pacts that either exist or can be created?
MATHIAS CORMANN: The thing is, we can do both. Of course it would be preferable for the United States to be part of the Trans-Pacific Partnership agreement from the word go. But President Trump has made his views very clear. We do understand that there is quite a bit of support among senior Republicans otherwise. So this might well evolve in the years ahead. The Trans-Pacific Partnership does provide an important framework. But by the same token we will continue to pursue bilateral agreements with countries in our region. We will continue to pursue regional multilateral agreements. But in the end, so much effort has been put into the Trans-Pacific Partnership agreement as a means of boosting trade, boosting the capacity of businesses in our region to do business with each other and remove trade barriers, better integrate our economies, it would be a shame to just throw all of that work overboard.
HAIDI LUN: Yeah Minister, the problem is though you are getting increasing populist sentiment globally but also with your electorate here in Australia. So how do you sell the idea of open markets, of free trade, where you are getting that grass roots sentiment that is rising.
MATHIAS CORMANN: We have to continue to make the case that open trade provides tangible benefits for families across Australia and indeed across the world. When it comes to Australia in particular, as an open trading economy, significant parts of our growth have come from selling more and more Australian products and services to markets around the world. By the same token, Australian consumers have benefited from competitively priced, high quality products that we have imported into Australia from other parts of the world. So there has been a tangible lift in living standards in Australia and elsewhere. There has been a tangible lift in economic opportunities for people in Australia and elsewhere. We understand that right now, with slower economic growth, with generally additional anxiety on the back of technological disruption and the like and sections of the community perhaps being impacted more heavily there is more work to be done.
HAIDI LUN: Minister, we are going to have to leave it there. Thank you for coming on for us. That is the Finance Minister, Mathias Cormann there for us.