Interview with Chloe Cho
CNBC Asia Pacific
5 June 2010
SUBJECTS: G20 Finance Ministers' Meeting; Resource Super Profits Tax
CHO:
Thank you so much for joining us on CNBC. What do you think were the most notable points of progress as you sat down with your counterparts at the G20 table?
TREASURER:
Well first of all it was good to catch up with colleagues from both developed and developing countries to get an update on how they see the global economy, but also an update on the important reforms that the G20 has been putting in place for some time. Important reforms when it comes to the framework for sustainable and balanced growth, and certainly very important reforms when it comes to the international financial system, and in particular our banking system. So in those two areas there was quite a long and involved discussion as we progress those issues to take forward to the Leaders' Summit in Toronto.
CHO:
Right and you know the global bank levy was something that was very contentious. You were vocally against, whereas the US and UK were for. Where do we stand on this issue now?
TREASURER:
Well I think what we have to do in this critical area is recognise that there are different conditions in different countries. Australia has a really strong banking system. Our financial system is strong, and of course our fiscal position in Australia is very strong. So what will necessarily suit Australia won't necessarily suit other countries in different circumstances. What we need to do is get some common principles to develop a response which spans a variety of circumstances across a number of economies.
CHO:
Of course Christine Lagarde has talked about striking a fine balance; learning how to strike the fine fiscal prudence, at the same time knowing how to get the kind of growth levels we need to spur the world economy a notch higher. How do you do that? Can there be a one-size fits all policy really?
TREASURER:
Well we do need to strike the right balance because there is really a two-speed or a three-speed global economy. What will suit Europe won't necessarily suit the Asia-Pacific. Here in the Asia-Pacific, my country and many other countries in the region are growing strongly. That underscores the need for us to have strong fiscal discipline on the one hand, and also to put in place fundamental reforms to lift our productivity and to lift our growth. So there was a lot of discussion about the need for structural reforms in developed and developing economies to lift our growth potential, particularly given the fact that some parts of the global economy are not going to grow that strongly for some time to come.
CHO:
Right, global imbalance was something that was also talked about in this latest round of G20 events. When the Leaders sit down in Toronto later this month, what will be the key issues that they need to talk about and will there be action, actionable agreement?
TREASURER:
Well when it comes to fiscal consolidation and fiscal discipline, when it comes to structural reform, what we will do will be to supply those Leaders at the Toronto meeting with a basket of issues, a basket of options that they can choose from as we go forward, because the G20 has been very important for the last few years. If it wasn't for the actions of the G20 to intervene at that critical time at the end of 2008, early 2009, we could have well seen a global depression. There are new challenges now which we have to respond to. We are responding to those challenges through the framework and through fundamental financial reform.
CHO:
Ultimately when it comes to the bank levy, I did get a quick sneak peak at the communiqué. It says that perhaps the Leaders will have something in hand by the end of December. Does that mean implementation when it comes around to that, maybe in two years' time in line with Basel?
TREASURER:
Well it's not just the bank levy; there are fundamental reforms being progressed right now through the Financial Stability Board and other international organisations. Reforms to do with the quantity of capital, and the quality of capital and liquidity. Those reforms are quite advanced. An enormous amount of work has been done. We will see some of that when the Leaders meet in Toronto and the rest of it will be progressed by year's end.
CHO:
At home of course you've been talking about how Australia is seeing certainly higher levels of growth compared to what is happening in the Eurozone. This super mining tax has been getting quite a bit of flack from Marius Kloppers and David Murray saying that it is flawed. Do you think that could actually compromise Australia's growth going forward?
TREASURER:
No I don't. I think Australia must modernise its tax system. We have to modernise the taxation of mineral resources. We are doing that - we are replacing an old royalties system which punishes investment with a modern taxation system which encourages investment. Royalties will be replaced with this tax; it will encourage investment. But we're also cutting corporate tax across the board as part of that modernisation, because Australia understands how important it is to be internationally competitive.
CHO:
Right, and of course the idea is to return some of the value to folks back at home as well, and also Xstrata canning some of its projects. Ultimately when you have a very steep tax like that, some companies end up having to go to the debt market. Does that worry you at all?
TREASURER:
Well it was disappointing to see some of those comments. This tax will not commence for two years. There is a consultation going on with industry. Australia is a very good place to invest particularly in resources, but also elsewhere. What we have to do is keep the reform process going. That's what has made the Australian economy so strong – one of the strongest developed economies in the world – and our Government is determined to continue that reform process to modernise our economy, to make it more efficient and to make it more competitive.
CHO:
Thankyou so much for your time and have a safe trip to Beijing as well.
TREASURER:
Thankyou.
