Topics: Australia’s economic recovery from COVID-19; Australia-China trade relationship; Regional Comprehensive Economic Partnership; China and Taiwan bid to join CPTPP
Mariko Oi: Well, I’m joined by Australia’s Finance Minister, Simon Birmingham, thank you so much for joining us. Minister, firstly, you’ve been in charge of the country’s finances and the economy throughout the pandemic. Australia seems to have done better than others. So firstly, talk us through what you think was the reason behind its success.
Simon Birmingham: Thanks, Mariko and thanks for the chance to join the Milken Institute again for this type of chat. Look, it has been an extraordinary and remarkable couple of years for everybody right around the world. But in Australia, we are very proud of the way in which we’ve withstood the pandemic. Done so from a health perspective where we have managed to successfully suppress the virus for much of the last couple of years and give us time to reach some of the highest vaccination rates in the world now. And with that, we estimate we’ve saved more than 30,000 Australian lives through that successful suppression strategy. But economically, we’ve also managed to ensure that we avoid business failures, minimise the extent of economic downturn and maintain very high employment numbers across the economy. And that’s a function of a few different aspects. We entered the pandemic with a strong economy, with high levels of employment, as well as quite low levels of debt relative to many other nations and a balanced budget at the time of hitting the crisis.
That gave us the capacity to be able to respond quite effectively in terms of economic assistance to businesses and to households, to ensure liquidity was available through our financial institutions and to make sure that we kept employers and employees as connected as possible, even during the periods of lockdown and shutdown that our businesses faced. That really has enabled such strong points of recovery to occur when lockdowns have been eased. We haven’t had extensive business failures, we didn’t have mass unemployment and therefore businesses were able to restart with their employee base intact and able to really give us that quick comeback, which again, we’re seeing as we come out of these final stages of restrictions.
Mariko Oi: You mentioned the lockdowns and restrictions there. I guess it’s fair to say that the Delta variant caught many of us off guard, which resulted in, I guess, prolonged lockdowns in two of your biggest cities, Sydney and Melbourne, as well as border restrictions, which can be quite frustrating for many people in your country. Are you at all concerned that your economy could suffer a double dip recession just like the EU?
Simon Birmingham: I think we look like we are going to avoid that and that we have managed to ensure that we get the reopening and the strength of that reopening in place in time to ensure that we will actually grow quite quickly for the remainder of this financial year. And only in recent times we’ve seen upgrading to the growth forecasts and the outlooks for Australia in terms of 2022 and the expectation that we will now get even stronger growth than had previously been forecast. And yes, Delta was certainly a shock, it wasn’t what we or any other nation really had forecast in the first part of this year, and it has had a cost and an impact. A cost to our budget bottom line in terms of having to provide additional assistance to businesses and to households and individuals impacted. As well as a cost in terms of lost economic activity and recovery.
Which pre-Delta Australia had been the first developed country in the world to get back to a point where our economy was larger than it had been pre-COVID, where our workforce was larger than it had been pre-COVID, and that we really were well on that path to recovery. We’ve had this disruption, but it certainly now feels that we are seeing the back of that disruption and that there should be high levels of confidence, as evidenced by all consumer confidence surveys, business confidence surveys and increasing numbers of job vacancies showing across the Australian economy.
Mariko Oi: And I guess it’s not just Australia’s economy, but economies around the world are reopening from the pandemic. And at this summit, investors, business leaders will be looking for opportunities to invest their money in. What’s your appeal to those investors and business leaders? Why should they invest in Australia?
Simon Birmingham: Australia has shown through this crisis just how strong the fundamentals of our economy are, and they don’t need to take my word for it. Take a look at the assessments of the international ratings agencies who have maintained Australia’s position as a country with an AAA credit rating, one of only a handful in the world to have that AAA rating from all three major international ratings agencies. Indeed, they’ve taken us off of the negative watch list. And in doing so have highlighted where they see the economic strength of Australia. We remain a very stable and predictable place for foreign investment, very open and welcome to investment and also with exciting new growth possibilities as we’ve seen renewed investment in biotechnology and medicine sectors during the pandemic. But also increasing levels of investment in innovation, particularly in the areas of lower emissions technologies and clean energy opportunities. We are seeing strong growth in this area underpinned by significant government policies and incentive to make sure that our economy can be as world-leading as possible in making the transition from being an energy supplier in traditional energy sources to being an energy and resources supplier in the new economy areas that are emerging so quickly too.
Mariko Oi: Indeed, you mentioned clean energy and I want to ask you about the COP26 Summit in Glasgow, which has obviously been dominating news headlines for the last few weeks. Australia came under a bit of pressure from your international allies. It took until the eve of the climate summit for Australia to sign up to that net zero target by 2050. Any specifics as to how you will achieve this climate target?
Simon Birmingham: Absolutely, we have released a technology investment roadmap that charts the way for us to be able to reach and come within the realms of getting to net zero by 2050. And this was a significant commitment for Australia to make. Our economy has long relied upon being, as I said, a traditional supplier of energy and resources into our part of the world in particular. And we want to make sure we maintain that, which is why we are investing so significantly in terms of creating new opportunities, particularly in areas like hydrogen, leveraging off of the clean energy capacity of the Australian economy. We already have one of the largest levels of penetration of solar rooftop in the world here in Australia. Australians have shown a willingness to adapt in terms of our own economy.
What our focus and priority now needs to be is ensuring we adapt our export base and that we attract the investment and the partnerships to ensure that clean hydrogen does grow as a fuel source and that we position ourselves as a leading supplier of that fuel source. Just as we have been of traditional fuel sources and making sure in attracting that investment that we do it with the type of partnerships we’re already seeing emerging in countries like South Korea, like Japan, like Singapore.
We have been a proud resources and energy superpower to the region. We want to maintain that and it’s not just in hydrogen, but also in the increasingly important critical minerals and rare earths sector that are so important to battery technologies and other new technologies that will enable the more efficient production and storage of energy in the years to come.
Mariko Oi: Indeed, Australia has indeed been, I guess, the exporter of every energy source that the Asia region has been asking for. But as you said that you’ve been investing in other energy sources like hydrogen and renewables as well, but also coal still plays a major role. So with this climate target, do you expect some changes for not just the Australian economy, but expectations for the region, the rest of Asia Pacific region as well?
Simon Birmingham: A fundamental consideration in those who had concerns and understandable concerns about making the commitment to net zero by 2050 from an Australian perspective were the commitments that were being made elsewhere around the world. That if we are seeing other nations, particularly those who are major users of Australian resources and energy at present, fulfil their commitments to achieve net zero by 2050, then that means that our export mix will change, has to change and it will see a decline in relation to some of those traditional fuel sources. Which is why we want to make sure that we are a world leader in terms of the new fuel sources, because otherwise Australia faces a scenario where we have lost export market share without investing in the replacement. That’s why we’re investing as a government. But those considering Australia as an investment location for new low emissions technologies and clean energy sources should know that there’s a world of private sector investment increasingly eager to partner with them in relation to those opportunities in Australia.
We are identifying across the nation some seven different hydrogen hubs that we want to turbocharge. In terms of the potential for some of them to come into the marketplace as leading points of production and export of these new fuels.
Mariko Oi: And do you expect Australia to welcome and possibly even rely on overseas investments in those new projects in order to reach net zero?
Simon Birmingham: Australia is a country that has relied throughout our modern history in terms of foreign investment, helping us to be able to achieve the type of economic scale that we have. We are about the 13th largest economy in the world, but with around the 53rd largest population. So it is indeed from a foreign investment, as well as our natural endowments in the human capital here that has enabled us to be able to achieve that economic strength. We’re determined to invest continuously in the new opportunities to maintain that type of economic strength and to build that role within our region as a leader. We see our place firmly within this region, working with our partners, the centrality of the 10 ASEAN nations, the traditional relations with the other, more developed economies. These are all crucial partnerships and the investment opportunities are in a two way sense, Australian superannuation funds increasingly looking to invest more elsewhere in the region and the world to ensure that they diversify their holdings and seize those opportunities. But indeed, inbound investment into Australia is so crucial if we are to realise the potential business growth in these sectors.
Mariko Oi: I also want to ask you about Australia’s trade relations because your previous portfolio was a trade minister and of course, your relations with your biggest trading partner, China have been somewhat frosty. So what’s next? I mean, Australian exports have been affected quite significantly by what Beijing has done ever since you’ve asked for that independent investigation into the origin of COVID-19.
Simon Birmingham: Well, it has been disappointing to see China undertake punitive actions that have not been justified in their targeting of certain Australian exporters. Now, many exporters have shown an incredible resilience to that and an ability to diversify, utilising other trade agreements that Australia has struck. For example we have been able to send our first ever shipments of barley to Mexico under the Trans-Pacific Partnership agreement. And that’s why the network of trade deals that we have built is so important in terms of Australian businesses having that choice of opportunity and that preferential market access into not just one or two major economies, but so many major economies as a result of all of those different free trade agreements we’ve negotiated as an outward looking country.
Of course, in relation to China, we welcome the fact that we have both chosen to finalise and to ratify the new Regional Comprehensive Economic Partnership agreement. RCEP will now come into force on the first of January next year. And as the trade minister who oversaw the finalisation of those negotiations from an Australian perspective, I’ll be thrilled to see it come into force. It is so important, as I said before, because it works with the ASEAN nations central to it. They led RCEP and they are to be congratulated for this achievement. But in establishing a more common set of trading rules across our region, I hope that it can provide a platform for increased cooperation and the fact that both China and Australia share a mutual ambition in relation to the success of RCEP and the cooperation with ASEAN that perhaps it can provide at least a small step towards us seeing some of these tensions of the past ease. Australia is always going to put our national interests first. We’re always going to stand up for international rules, laws and norms across our region and for the sovereignty of our nation and of others in our region. But we do that without any hostility towards China.
We do that with a desire for China to show the same respect to those international rules and norms, the same respect to sovereignty of others. And on that type of platform, then we can positively engage in terms of getting on with the very constructive relations that so many Australian and Chinese people at a people to people level, at a business to business level and that we ought to be able to pursue also at a government to government level.
Mariko Oi: Well, as you said, some of your exports have found alternative markets. It is almost impossible, I assume, to replace China because of its sheer size of it. So what’s next? I mean, being part of the RCEP is great, but at the same time, what are you going to do in terms of trying to resolve this? Trade tensions ease at least trade tensions?
Simon Birmingham: Look, it is so crucial that we maintain our resolve and our consistency. We are very clear that we will pursue as a government everything that is in Australia’s national interest. We will stay focussed and resolute in that regard. But we do so with the door always open to dialogue with Beijing, and that perhaps has been one of the more disappointing aspects of the stance China has taken over the last couple of years. The unwillingness to engage in dialogue and that, of course, makes it so much harder to be able to move forward in terms of resolving these types of issues. It would very clearly be in China’s interests, as in Australia’s interest, as in the region and the world’s interests, for us to be able to more effectively resume dialogue and more effectively deliver and resume the type of productive trading relationship that we have had before. Our trading relationship has helped China to be able to grow so strongly as an economy. It has helped in the economic miracle that has been China’s growth, lifting hundreds of millions of people out of poverty. And we can see in terms of China’s own energy mix and production and the challenges that they have faced in their energy markets in recent months, that there is a degree of pain and disruption being caused in China because of these decisions, which is unnecessarily disruptive to their businesses.
Mariko Oi: You talked about the RCEP, but which obviously kicks in on the 1st of January, but also both China and Taiwan are wanting to join the CPTPP. Australia appears to continue to oppose Beijing’s entry, while the APEC host in New Zealand, it seems to be leaving the door open to both of them to join. What’s your position on that before we end this discussion?
Simon Birmingham: That it is a matter of meeting the standards. The Trans-Pacific Partnership is a very high standard trade agreement. Very high standard, not just in terms of liberalisation of traditional areas such as tariffs and quotas, but a high standard trade agreement in modern areas of technology such as data access and storage rules. A high standard agreement in terms of market based principles in terms of the expectations around transparency in regards to state owned enterprises, for example.
Now, ultimately, any nation who is willing to meet those very high standards and to engage in the dialogue with other TPP partners to get agreement to ascension to the TPP, will be welcome at the table of the TPP. But that is quite a challenge in relation to China to be able to both firstly, ensure that dialogue occurs with all of the TPP partners, which includes Australia and means a resumption of the type of talks that China has been unwilling to have in recent times. But then also the genuine commitments towards the detail and standards in the TPP. It’s a negotiated agreement already, it’s an existing agreement already, so new entrants to it have to come in being able to clear that hurdle and threshold, particularly in those areas that would require certain reforms in China to be able to make that threshold.
Mariko Oi: And with that, we end this discussion, Minister Simon Birmingham, thank you so much for your time today.
Simon Birmingham: Thank you so much. It’s my pleasure.