Peter van Onselen: We are joined by our colleague at The Australian newspaper, the economics correspondent Adam Creighton, for our discussion with Labor's leader in the Senate, as well as the Shadow Trade spokesperson Senator Penny Wong. Appreciate your time.
Penny Wong: Good to be with you.
Peter van Onselen: We will get to portfolio in a moment, including obviously the free trade agreement that may be pending with China, but can I start by getting a reaction to some of the subs discussion that I just had with Christopher Pyne. He's a South Australian like yourself. He says Labor are scare mongering on this issue. Is that true?
Penny Wong: No, it's not. And what was most notable about what Chris said is he didn't repeat the election commitment. The election commitment which was made to South Australians by the Coalition that the submarines would be built in South Australia. Full stop. No caveats. And the problem is we have got the Prime Minister singing a very different tune to the one Christopher is singing and certainly to the one -
Peter van Onselen: In what way is that?
Penny Wong: I don't think the Prime Minister has made it clear that there would be submarines being built at Osborne or jobs being guaranteed at the ASC.
Peter van Onselen: But there would have to be, wouldn't there, for the whole maintenance structure of the submarines even if they are taken off the shelf from overseas?
Penny Wong: There are a number of reasons why it is so important that the right decision is made and that the submarines are built here in Australia. And the Senate Select Committee, which has heard evidence from expert after expert, all have said it's better for the nation in terms of our capability requirements and in terms of the Through Life Support costs for us to do the build here in Australia. That is also what the Government told Australians and South Australians before the election.
Post the election, they have run away from that commitment to the extent to which, even as you said, we have seen Liberal backbenchers backing away from the government's position and backing in what the experts are saying.
Paul Kelly: Isn't the reality here that Labor sees this not as a Defence decision but as an industry policy decision?
Penny Wong: I don't think that's the right binary actually. I think it is a Defence decision. You have to look at capability, and you do also have to look at what skills you want on shore. You also have to look at cost and the point I'd make, and one of the learnings, I think, from the Collins Submarines is that when you're looking at acquisition, you also have to look at how you best manage your sustainment costs. So the costs of the Through Life Support which, in fact, is a much larger cost than acquisition itself, and all of the experts are saying the more you build on shore, frankly, the more efficient your sustainment will be.
Adam Creighton: But surely, just as a matter of principle in relation to cost, there does come a point where the cost of building them at home, which I think there's a figure circulating out there about $40 billion -
Penny Wong: I'm going to stop you there. Whose figure is that? Exactly. The Government is refusing to go to an open tender process, which is what the experts have called for, a competitive process. They simply want to put figures out and then have a debate on figures which are not tested by the market. I mean, it is not a sensible way to run this process.
Adam Creighton: If there were such an open tender process, and all of the costs were out there, Labor would obviously be led or presumably would be swayed by the actual final cost of the purchase?
Penny Wong: We would look at the evidence but what we think, and in government we did look at this very closely, including funding a whole range of analysis which led to the narrowing of the choices to be made as well as the decision to make the US Combat System a key part of the project. We would look at it.
But the reality is I think expert after expert, to the Senate committee has made it clear, there is no such thing as an off the shelf option which provides the capability we need.
Paul Kelly: If we just switch to the proposed FTA with China. Is Labor prepared to accept more generous rules for Chinese investment into this country, China being put on a par with other countries such as the United States, and for much more generous provision in terms of investment into this country by Chinese State Owned Enterprises?
Penny Wong: First, we recognise how important inbound investment is. Foreign investment is, as you know - we are a capital hungry economy. We would not have achieved what we have achieved over decades without foreign investment and so we have taken a position that is, in fact, more liberal than the Government when it comes to foreign investment. We have said you should give the FTA threshold the high billion dollar figure that we have for the United States. You should also remove the National Party pay off which is the lower thresholds for agribusiness and prime agricultural land.
There is no logical basis on why you would say "We want to create more red tape and more barriers for investment in our agricultural sector" when we all know to upscale our agricultural industries, we are going to need foreign investment.
On state owned enterprises, what we have said is, both Treasurer Swan and Joe Hockey have laid out policy issues associated with state owned enterprise investment.
So if the Government wants to change the current arrangements, they are going to have to address those issues and we would want to look at that because there are some legitimate policy concerns which both parties of government have laid out.
Peter van Onselen: What are they?
Paul Kelly: I understand that point. But I just want to come back to the core issue here. Are you prepared, at the end of the day, to accept more generous rules in relation to investment from state owned enterprises?
Penny Wong: We would consider what the Government puts forward against the policy concerns which have been raised by both Treasurers from both political parties. And they primarily centre around whether or not an investment is made for a commercial reasons or strategic reasons and, of course, there have previously been concerned about whether or not an investment would lead to too much of the supply chain and, therefore, price being too heavily influenced by that investment.
Paul Kelly: But just being realistic about this. Surely, if we are going to have an FTA with China, one of the provisions is going to be a change of attitude towards investment from state owned enterprises. Do you accept that core reality?
Penny Wong: I accept that this is an issue for negotiation but it is for the Government to address the policy issues which both Joe Hockey and Wayne Swan laid out. And if they have a system that they believe does that, we will look at it. But we are not going to hypothetically in Opposition respond to something the Government is not being up-front about.
Peter van Onselen: How can a democracy like Australia even contemplate allowing for large scale state owned enterprise investment from China, a non-democracy, particularly off the back of some of what we have seen in Hong Kong lately?
Penny Wong: I think there are a couple of different issues there, aren't there? China is our largest trading partner. They have a different political system. We know that.
Peter van Onselen: Non-democratic.
Penny Wong: We know that. We trade with China, recognising that they have a different political system to ours. I think the issue of SOEs, as I said, both parties in government have laid out the policy considerations. If the Government wants to change the current arrangement, they need to show what they are proposing addresses those.
Adam Creighton: Just on the same issue: would you not want to see any changes to Australia's fairly stringent rules on foreign purchase of residential property? I presume the Chinese would like to see a relaxation of those. There's a lot of pent up demand there.
Penny Wong: We are not in the FTA negotiations. We are obviously the Opposition. In fact, it has been members of the Liberal Party who have been pressing, as I have seen, for tighter regulation of investment.
Paul Kelly: Do you agree with that or not? We are talking now about Kelly O'Dwyer and her claim that FIRB is not doing its job. What is your response to that?
Penny Wong: I was surprised by those comments and certainly by the strength of those comments and I think it might have been good for the Treasurer to defend his organisation a little more than he did. If there are implementation issues, they ought to be dealt with. But I think it is very important in this debate to make sure we deal with facts and not with people's fears.
As you would know, the foreign investment rules in relation to property are complex but fundamentally are about trying to add to the domestic stock, domestic housing stock. That is what we try to encourage. And I think there is some overblown anecdotes about the effect of Chinese or foreign investment on property prices. As you would know, there are a number of things driving property prices.
Paul Kelly: Do you think there's a problem with Chinese investment in property?
Penny Wong: I haven't seen evidence which would lead me to that view. I have not seen evidence to that view. I think there has certainly been a lot of anecdotal evidence but it doesn't seem to me, from the numbers, that that is the primary issue driving housing affordability.
There are issues of housing affordability, particularly in Sydney and Melbourne and some parts of the country. We know that. But I don't think it is fair to say that this is the only policy issue or the primary policy issue driving that.
Peter van Onselen: How close did Labor in government get to the free trade agreement with China? There's been a lot of claims that I've heard when the Coalition sealed the deal with Korea as well as Japan that Labor was on the cusp of it anyway and they are taking undue credit, if you like, for completing the progress. What about with China?
Penny Wong: Certainly on Korea and Japan a lot of work was done, particularly by Craig Emerson, and a lot of the agreement with Korea, a significant amount of it, had already been negotiated.
I think China, I mean, both parties - remember these negotiations began under the Howard Government. So this has been a long lived process. I've set out what I think are the tests for a good China FTA. I think it's been very problematic that the Prime Minister chose to issue a timeline, a deadline in terms of time, and it had to be this year and frankly officials are working for a G20 announcement. I don't think it's a sensible negotiation to tell your other party "I've got to get a deal by this date". It really demonstrates that you are giving away your negotiating power.
Paul Kelly: What about this question of labour market testing? This is one of the tests that you raised in your statement this week. What are your concerns here exactly?
Penny Wong: In the Korean Free Trade Agreement, like what we negotiated in the Malaysian Free Trade Agreement. The Government didn't reserve policy space in the agreement itself for labour market testing for people movement. And interestingly Korea did. So we have an asymmetry in the Korean FTA.
What we have said in relation to China is we would expect the Government to ensure we reserve the policy space in the Chinese Free Trade Agreement for appropriate labour market testing. You have to get -
Paul Kelly: What does that mean? If you decode that, what are you actually saying?
Penny Wong: I'm about to explain it to you. I think there is a balance in free trade agreements between enabling employees to have the skills that are needed and people movement associated with that policy objective and ensuring you generate local jobs. There is a balance.
And I think to simply say under an FTA we are going to take our hands off the levers, as it were, we are not going to have any form of labour market testing in relation to people movement pursuant to the agreement would be problematic, not just for the Labor Party, but I think it would be problematic for the community.
So I would encourage the Government on this. I would encourage the Government on this. As a party that is pro trade, I would encourage them to consider this and to engage in discussions about this rather than simply negotiate a provision which will subsequently be a difficulty.
Paul Kelly: If we cut to the chase here. In terms of your concerns, you've got a lot of tests you put on the table. Is your real concern that the Government will negotiate a second order or three order deal? I mean, is that what you are worried about?
Penny Wong: Yes, I am. I think I'm not the only person who is concerned about that. I think that that's been reflected to me from members of the business community.
Paul Kelly: What will Labor do if it's not satisfied with the deal?
Penny Wong: We will look at the deal. We always assess any trade agreement from the national interest. Our predisposition, as you will see from our position on the Korean Free Trade Agreement, as we recognise the benefits trade brings. We are a party that has a very proud history of trade liberalisation, as you would know. But we do think this government is potentially gearing up for a deal that is not the best deal Australia could get. We should get equivalent market access to that which New Zealand got for agricultural goods. Then on top of that, we will need market access for our goods and services. And we do need to look at what's happening in terms of people movement.
Peter van Onselen: Stay with us here on Australian Agenda. We are speaking to the Shadow Trade spokesperson, Senator Penny Wong. We will stick with portfolio issues when we come back and we will also discuss the upcoming estimates hearings in the Senate. Back in a moment.
Welcome back. You're watching Australian Agenda where Adam Creighton, Paul Kelly and I are speaking to Labor's Shadow Trade spokesperson, Senator Penny Wong.
Paul Kelly: Still on China. What is your response to China's decision to slap some higher tariffs on Australian coal exports?
Penny Wong: It's extremely disappointing. Obviously, I think my counterpart described it as a "bump in the road". That's what Mr Robb described it as. It's a pretty big bump when you are talking about the quantum of our exports to China that are affected or potentially affected. It's also very bad timing for Australia in terms of the FTA negotiations.
We were talking before the break about who's got the sort of negotiating upper hand and my view and, frankly, Barnaby Joyce's view as well from what he said publicly, is that setting out an artificial timeline gave away some of our negotiating position. I think this certainly gives China the upper hand in FTA negotiations because it will have to be a priority for Australia to deal with the tariff.
Paul Kelly: Presumably, as far as Labor is concerned, any FTA would have to remove this tariff to be acceptable. Is that the case?
Penny Wong: I think the market wants that, yes. I think that would be an outcome that we would want. I think the market wants that outcome too.
Peter van Onselen: Not much Australia could have done about it though, was there? At the end of the day, if China decides to impose the tariff, what can we possibly do? We just have to live with it.
Penny Wong: It does say something about how well the negotiations are going.
Peter van Onselen: I think it suggests that the Australians may well be pushing hard, doesn't it, and China have tried to, in a sense, push back on this?
Penny Wong: That could be an optimistic way of looking at it. The other is that we are just going to make sure that you get a substandard deal and we will put something else on the table so you have to focus on that rather than on other important issues.
Adam Creighton: Still on the subject of trade. The Government is in the final few months, at least it hopes the final few months, of negotiating the other TTP with 11 other countries - that is the Trans-Pacific Partnership. It is very likely that the US will push for a significant strengthening of intellectual property rules which, in turn, could push up the cost of drug prices both here and also in New Zealand. What is your attitude to that proposal from the US which I think is fairly public now? I mean, is that something that we should sign up with or refuse to sign?
Penny Wong: We are very concerned about radical changes to the intellectual property regime and what I've said is we don't believe in a radical change to IP.
I think what's important to remember here is that changes to, for example, copyright or patent law which might affect the price of drugs through delaying the access to generics - these are long lived reforms that have significant social and economic consequences.
So if the Government is proposing to agree to significant changes to our intellectual property regime, my very clear position is you need to be upfront with Australians about it. You need to have the domestic debate, both in the Parliament and in the community, so that the appropriate position for Australia can be determined and if you believe there should be changes, then you should be upfront about them, put them on the table and tell Australians what they mean and why you would support them.
It's not good enough for the Government simply to negotiate the substantial changes which have real economic impact in the negotiation privately and not be up front with Australians about it.
Adam Creighton: Just more broadly, of course, the TTP's a regional deal, the Productivity Commission said I think in 2010 that Australia was basically putting too much effort into bilateral deals. There has been a huge explosion of these deals in the past few years. They are in the process of signing more. I think we had five or something in 1990 and now I think in the region as a whole, there are 160 bilateral deals in the Asia-Pacific region and each of those creates a lot of compliance costs for business. Are you disappointed that more of Australia's efforts aren't focused into a multilateral trade negotiation form?
Penny Wong: You're right. The compliance costs are significant. We had, I think, important evidence from the business community when we did the Senate inquiry into the Korean Free Trade Agreement on rules of origin and the fact that rules of origin, and the administrative process to establish origin, they differ vastly from bilateral agreement to bilateral agreement. That obviously creates real barriers for firms seeking to access those markets.
Unfortunately, multilateral negotiations have not been as successful as we would all like. We have to keep pressing on those. We need to get the trade facilitation agreement implemented, which Craig Emerson worked very hard on and that was finalised in Bali last year. The way I think about it is bilateral and regional agreements, we should try and see as stepping stones towards multilateral progress. We should always be trying to ensure multilateral progress but in the meantime, I think we are in a second best policy world where you have to look at bilateral agreements.
Peter van Onselen: The Lower House will be sitting this week. The Senate will be doing Estimates. Where is Labor going to be looking to press the Government?
Penny Wong: I think the overriding message is this: before the election, Tony Abbott said no cuts to health, no cuts to education, no -
Peter van Onselen: There aren't any cuts. There is just reductions in the increase.
Penny Wong: Come on. That is their line. What I find extraordinary about this is they break their promises before the election and then they pretend they haven't broken their promises after by saying "Oh, it is just this technical little thing".
Peter van Onselen: Both sides did this. Labor did it, in fairness, on Higher Education when you weren't cutting but you were reducing the increase.
Penny Wong: Which Christopher Pyne called a cut.
Peter van Onselen: Absolutely. There is hypocrisy on both sides.
Penny Wong: Before the election, we said this Prime Minister, if he is elected, will cut. So he came out, Abbott came out and made a very clear unequivocal statement, unequivocal and it is absolutely clear the message to the Australian people. No cuts to health. No cuts to education. No changes to the pension. No cuts to the ABC or the SBS and no changes to the GST.
Peter van Onselen: You left off the submarine building.
Penny Wong: There was that too. And all of those have either been breached or are in the process of being breached. So I think a year after the election, our focus in Senate Estimates will be to continue to uncover the extent of that broken promise.
Peter van Onselen: Something that I'm interested in in the tax reform space - if I just step into it for a moment - why is Labor ideologically opposed to adjusting the GST?
Penny Wong: It is because he is from WA!
Peter van Onselen: It just fascinates me that it is excluded from the Henry Review. It's turned into an ideological divide between the major parties, even though it was your own side of politics through Paul Keating in the tax summit in the 1980s that first put up the notion of a GST or a consumption tax.
Penny Wong: It's a longer discussion but we made clear we think it's a regressive tax and this is not the way to -
Paul Kelly: That is phony completely, isn't it, because if you have tax reform -
Penny Wong: I don't know if that's right -
Paul Kelly: If you have tax reform, nobody has ever suggested the brainless idea of just reforming the GST. So, clearly, any tax reform is going to address the question of equity by including a whole range of other issues. That's what Howard and Costello did. That's what Keating talked about in the 1980s. So isn't this just a fraudulent argument?
Penny Wong: Paul, it would be different if Tony Abbott actually had said that before the election -
Paul Kelly: We are talking about Labor's position.
Penny Wong: No, you have, I think, written recently about the need for a more sensible economic debate and taking the community with you. If the Government can't take the community with them on this issue or on their budget, who is to blame for that? The Government made promises -
Paul Kelly: I agree the Government is to blame.
Penny Wong: And then they put in place -
Paul Kelly: You've changed the subject though.
Penny Wong: No, I'm making a point about reform. Our position is clear on this. I appreciate you don't agree with it, but it is clear. But I'm making a point about reform. If the position you articulate is, in fact, Tony Abbott's position, then he should have said that to people before the election and he should be saying that now but he's not. He's not.
Paul Kelly: Just on this particular issue. If we are going to be fair and honest with the Australian public, isn't it correct to think that if there is no change to the GST, the consequence is, over a period of time, people will have to pay more personal income tax? That is the logic of the situation as Treasury Secretary Martin Parkinson has said on many occasions. Does Labor accept that?
Penny Wong: I think if you want a detailed discussion about -
Paul Kelly: That is just a fundamental principle. Does Labor accept that?
Penny Wong: If you want a detailed discussion on tax, then I suggest you ask Chris Bowen on to the program. We have made clear on the GST our position. If you are asking what will our position be in terms of the Budget before the next election, you will see Labor's position on both sides of the balance sheet about tax and expenditure at the election and I suspect you will see far more from us than you ever saw from Tony Abbott.
Peter van Onselen: But it is just such a shame because it would be such a stimulating ideological debate over what you do with the GST revenue. Labor could argue its social agenda. The coalition would argue its smaller government agenda and we would have an ideological debate.
Penny Wong: The ideological debate that is actually occurring but it is sort of sotto voce at the moment in the Federation White Paper, I think it is, which really pushes back against HFE, so making sure we manage the federation as a federation. I know as a Western Australian you have a particular view on that, Peter. But it's a pretty big shift to be saying that we would be accepting of differential standards of access to health and education in different states.
Peter van Onselen: We are right out of time. We would love to continue. Very quickly though, one very quick final question so that we can have the grab to run through the day: what is your reaction to Christopher Pyne's comments in relation to Senator Cormann's comments about Bill Shorten being an economic girlie man? He was just making a Schwarzenegger joke, wasn't he?
Penny Wong: Christopher didn't defend Mathias which was telling of itself. I don't think using "girlie" as an insult is the sort of thing a Cabinet Minister or any serious political leader should be saying.
Peter van Onselen: But it's not a hanging offence. It was just a fun -
Penny Wong: I just think if we use "girl" as an insult, what are we telling our sons and our daughters about being a girl? You are saying it is somehow less competent, weak, whatever the imputation. I just don't think that is sensible. Imagine if we used any racial term in the way it was used? I think we would all be outraged for the same reasons.
Peter van Onselen: Senator Penny Wong, appreciate your company on the program. Thanks very much.
Penny Wong: Good to speak with you.
ENDS