Bill's Transcripts

Roundtable discussion at Delhi Economic Conclave, Friday 16 December, 2011

Please read the transcript of my rountable discussion in India.

Subjects: Australian economy, investment in India, tax agreements, banking



Journalist:

You have been here for the last few days. Why don’t you tell us what your meetings have been all about and we can just go forward with that?

Bill Shorten:

Australia is incredibly enthusiastic about our relationships with India.  Whilst obviously we will discuss economic and business matters, let’s just put some markers in the ground.

There are 308,000 Australians of Indian descent that live in Australia, so there are strong cultural ties. For visitors from the rest of the world, India has now
moved into 9th place with over 100,000 visas being issued. Admittedly, tiny compared to the numbers of this population, but the level of interchange is growing and Australians are very much aware of the Indian success story. Still a long way to go, but you know, from even the development of your culture, your art, your music, your films, through to entrepreneurialism, the expansion of Indian investment overseas…

Whilst in Australia we talk about the Asia Pacific Century, clearly there is the Indian Ocean Century and many of our ministers have been visiting. We think that there are great prospects, so we start from that point - not the least of which, and I made these remarks to a Minister earlier today - Rahul Dravid gave an address on Wednesday night, the ‘Bradman Oration’, and apart from making the obvious remark that both he and Sir Don Bradman were number three batsmen in the team line-ups, he said that cricket was a metaphor for the special relationship between our country and he gave this address in the context of our war memorial.

Gallipoli was a very famous battle. It’s the first time Australian soldiers had really engaged in foreign fields since becoming a nation in 1901 and we had 8500 men killed. But of course, there were 1300 to 1400 Indian young men who were killed in the same conflict. Rahul Dravid reminded us that the battle of El Alamein, which was the first land invasion by the Germans in World War II, the Australian divisions fought alongside the Indian divisions. So, there is plenty of common history and I know that’s not a business analysis for you to begin with but I want to set the tone at that level of respect.

Most recently, India has been in our newspapers in Australia. I am from the Government obviously, it’s a party of the centre-left, we have overcome a traditional reluctance to export uranium and we do that in part because we recognise - we’ve still got to negotiate an appropriate treaty-level set of arrangements - but we recognise that for India to continue growing there is a prerequisite to have energy security. Without power for millions of households it’s hard to do some of the other things such as health care and education. So we recognise that if we can assist in that process through the supply of our raw materials that’s a good basis for development.

We are going through a minerals boom in Australia. Our general economic situation in Australia is reasonable for a developed nation. Our unemployment is 5.3 per cent. Commonwealth public sector net debt (of the Commonwealth Government – we have three levels of government) is around 9 per cent of GDP. So I am sure some of the North Americans and Europeans would love those sorts of numbers.

Journalist:

This is overall public debt of the central government?

Bill Shorten:

This is federal, but even if you add on the other two levels it is only a few more percentage points – around 11 per cent. The OECD nations have shed about 30
million jobs since 2008. With a GFC we have added 760,000 – 774,000 roughly but don’t hold me to the exact number - which is a good story. Again, we are small compared to India, but we are now the 13th largest economy in the world, which is positive. Our private savings are nowhere near the remarkable numbers of India at around 36 per cent but we are at something like 11 to 12 per cent, which is good for us.

Journalist:

This is 11 to12 per cent of GDP…

Bill Shorten:

They’re household savings, I should make clear. Our interest rates are falling at the moment. The cash rate is 4.25 per cent; it’s come down 50 basis points. We have a floating dollar. We opened up our economy in the 1980s – an earlier social democratic government did that. We have an independent central bank in the RBA. We have two more regulatory arms – we have APRA who are the prudential regulators of our banking, insurance, superannuation, our pension fund sector; and we have ASIC, the Australian Securities and Investments Commission and they regulate market integrity.

Mining has led a massive expansion – the resources boom. We have order books for AU$400 billion-plus worth of infrastructure investment and energy development projects in Australia in the next four to five years.

We have a relatively modern economy. 2.5 per cent of our economy is agriculture; we could probably afford to increase that as a proportion of GDP. Manufacturing is about 8.5 to 9 per cent. Mining is about the equivalent number. But our services are 70 per cent plus.

Our life expectancy is going well, it’s going up, it’s in its 80s. We have pockets of disadvantage though and social injustice, and if we are going to keep adjusting in the 21st century, our priority is to build infrastructure. We are rolling-out a multi-billion dollar national broadband network. We are expanding more on school infrastructure than has ever happened before. We have half a million of our Australians in formal training and learning. We are pushing our social justice policies with a national disability insurance scheme.

Perhaps if I can get to more economic matters, our foreign investment laws have seen only two foreign investment proposals rejected in the last ten years and that was Woodside and Shell, and the Singapore Stock Exchange merger with the Australian Stock Exchange. We have been open for business for literally thousands of foreign investment propositions. Most recently, and I will be saying this at the Conclave, GVK and coal mining operations – our major exports at the moment which are contributing to the growth in exports to India.

Our trade from approximately 2005-06 to now has increased 20 per cent per year. It was about AU$10 billion in the mid-part of the last decade, now its heading north of AU$21 billion dollars. Some of this is fuelled by gold and our coking coal.

Journalist:

This AU$21 billion is trade or exports from Australia?

Bill Shorten:

No its trade, total trade. It’s also you sending things to us. So that’s a bit of an economic overview. I am sure there’s much more to describe what we are doing in Australia but that gives you a little bit of the context for my visit here.

It has been a continuation of the commitment of the Government to send Cabinet-level ministers and senior public servants [to India]. We have met with your Minister for Steel, your Minister for Finance, your Minister for Taxation. We have met, and I think importantly, with the Secretaries of some of your departments; they seem to be some of the people who get things done. And I’ve met with some of the members of the Indian Parliament. We’ve met with some Indian students who have done postgraduate studies in Australia; we think that’s important. We see our economic relationship with India as being financial services, agribusiness, logistics, mining, infrastructure.

Journalist:

Financial services. What are you looking at? Banks?

Bill Shorten:

Three of our four banks have already got licenses here. This is not my opinion, but I do receive reports from private sector business people that getting licenses can be a bit labyrinthine, a little slow, but I’m not sure that’s any different to what you already know. We’re patient. We think the Indian market is good for our banks.

ANZ, NAB and Commonwealth Bank are already here. They have partnerships and joint ventures. Westpac’s currently pursuing a licence. IAG and QBE are our largest insurers. They are working here. Linfox is one of Australia’s two largest logistics and transport companies and they have 5000 employees already in India. Leightons is a very large construction company with AU$2 billion worth of work going on here. Rio Tinto I know and our miners have aspirations to help develop under the ground here.

Today we’ve just signed an amendment to our 1991 tax treaty with India. What we’ve done today – your Minister and I – we’ve signed a protocol amending it to allow the transparent reporting of taxation between India and Australia. So it will be easier for Indian tax authorities to identify information about Indian tax income in Australia, and vice-versa.

Journalist:

You said three banks are already here.

Bill Shorten:

Yes. ANZ, NAB and Commonwealth Bank.

Journalist:

The general impression one gets speaking to investors that are looking into the Indian market is that it’s way too slow and it’s lethargy that’s actually
holding it back. So they look at markets other than India. How do you perceive the Indian market?

Bill Shorten:

I haven’t been here very long, so it would be precocious to make observations. Secondly, I think that all jurisdictions can appear opaque to people from other
jurisdictions. I don’t know if you gentlemen have ever been fishing? One of the things when you’re on a boat and you’re going fishing is you might look over the side and the water’s cloudy. And you know the fish are there but you can’t quite see where they are.

So I think there’s always a challenge in any regulatory system to try and eliminate the ‘opaqueness’. It would be inappropriate for me to be at all negative about
delays. I would say that India’s got a trillion dollar exercise in infrastructure ahead of it in the next few years. There is interest in Australia in terms of good solid investments, which have good return on equity. The challenge is to increase the level of familiarity.

Journalist:

Have you talked to the Planning Commission?

Bill Shorten:

We didn’t get to see the Planning Commission this trip. We had a good discussion with the Financial Sector Legislative Reforms Commission and eminent former justice of the Supreme Court BN Srikrishna. He was very impressive. They are coming out [to Australia] in March to meet regulators and will be my guests at our Parliament.

Certainty is important, isn’t it? You have a federal government. Australians are used to different levels of government. It’s clear though that – and rather than talk about the Indian experience I’d rather talk about the Australian experience – when you have new developments, the challenge is to build consensus. You can talk about a new project, and a certain number of jobs, and a certain amount of money. But thereafter, everyone else, all the vested interests emerge.

What about the environment, which is a legitimate issue? What about small businesses, what happens to them? What about the change of amenity or lifestyle? And sometimes new projects can suffer the death of a thousand cuts. For reformers to win the argument of change, we have to demonstrate the consumer benefit of the change.

I think people are watching with great interest the view about foreign direct investment in retail. But we also understand in a democracy – and India’s the
world’s largest democracy – that you have to bring the people with you. So I think there’s a communication exercise – and I’m now talking about Australia, I’m not judging India – but when I look at some of the parallels of what I’ve seen in India, there are lessons for us in Australia too.

Journalist:

Such as?

Bill Shorten:

Well, if we have to change things, we’ve got to bring the people with us.

Journalist:

By increasing the level of familiarity in Australia, which sectors do you feel there is a need to try and…

Bill Shorten:

Well these are personal observations now. India is a marvelous society for its veneration of authority and age. We’re keen to see the Prime Minister of India in Australia at the right time; he’s a very terribly busy bloke. We think India’s got a lot to teach Australia and to show Australia, so we think high-level visits are always worthwhile.

We also think of bringing Australian business people to India – and there are lots of delegations, but it’s about finding the right people who can make decisions and familiarising people. There are opportunities in Australia for energy security. We tend to let the private sector in Australia make deals. There seems to be a perception that everything has to be government-to-government from the Indian viewpoint. We have a vibrant private sector, so we’re keen to demystify any aspects of our foreign investment review process. I also think it’s useful to bring Australian fund managers and investors to India to gain the best possible insight.

Journalist:

What kind of complications do you see in regulatory approvals for the banking sector and are there any other players [other than the three banks you’ve named] looking to come to India?

Bill Shorten:

We think other banks are interested. Macquarie’s here too. I can’t comment on individual deals, I’m just not close enough to the detail. But we’re keen to get licenses. We want to operate in this market.

Journalist:

What kind of problems do you see?

Bill Shorten:

I’d have to take on notice what have been the specific hurdles. I’ll ask my colleague here to supplement that answer.

Minister-Counsellor (Economic):

It’s simply a question of the length of licensing processes and some uncertainties around the timeframes and processes involved, as well as future directions that the banking sector might take in India. Once that’s all clarified, I think we’ll see entry at a greater pace.

Journalist:

In terms of FDI in retail, what is the scene in Australia? Is it 100 per cent open?

Bill Shorten:

Retail’s an issue in every country. There are a few things that people can do in every country. We all get to vote, so everyone’s
an expert on politics. Most people get to drive, so we’re all expert at driving. And we all shop, so we’ve all got a view on shopping. So it’s one of those hot-button issues.

We have challenges around zoning. We have large brand retail companies and it’s sometimes difficult for new entrants to get land in the same area. So we’ve got challenges with retail. The other thing is with the rise of the internet, more people are shopping online, so that’s a challenge to your old-fashioned shop. If people can find a greater range online, they mightn’t go to the local shop.

But having said that, we also see advantages in the logistics and supply chain, and benefits for consumers. If you have the opportunity for the farmers to sell
their wares on a good logistics chain to a brand retail company, that benefits consumers with cheaper products. Logistics allow farmers to enjoy, and perhaps some of the wholesale margins in between the rent-taking gets diminished. But I’m not an expert on Indian retail.

Journalist:

I was asking in terms of FDI policy, what is the policy in Australia? Is it 100 per cent open to retail trade?

Bill Shorten:

Yes.

Journalist:

Both multi-brand, single brand?

Bill Shorten:
Yes.

Minister-Counsellor (Economic):

There are no sectoral limits for retail foreign direct investment.

Bill Shorten:
I mean there’s always a difficulty. If you’ve got a retail brand, you need distribution outlets. If you can’t get distribution outlets, you have a higher
cost structure. But, there’s no legal impediments. There may be market barriers, but they’re practical market barriers. We have a competition and consumer commission, which has been set-up to make sure there’s no undue market power exercised by some people.

Journalist:

The tax treaty that you signed today, is it double taxation avoidance…?

Bill Shorten:
It was, yes.

Journalist:

DTA? It’s about information exchange?

Bill Shorten:
Yes.

Journalist:
Meaning between India and Australia? The issue is also about secrecy in banks...

Bill Shorten:
That’s part of what the purpose of today’s treaty was. Tax law as you would appreciate is complex, but you have the taxes in your own country and you have international taxes. Again this is a generalisation but what concerns Australian tax authorities is when we can’t look over the side of the boat and see what’s happening. And when money goes through third-party jurisdictions and we can’t follow the tax treatment.

The beauty of having double taxation and tax treaties is we can see what’s happening in each other’s jurisdictions. So long as someone’s paying tax somewhere, that’s how tax should function. Within your own borders and, if you’re dealing with other nations, within theirs. It’s when we go to third party nations and we can’t track it that I think the first nation and the other nation miss out. So it’s part of greater transparency.

We’ve signed 32 tax information agreement exchanges and a range of double taxation arrangements with nations. I think this is the seventh one…

Journalist:
For clarification, when you talk about you understand the problems the Indian Government is facing with FDI in retail, are you sending out a message to Australian investors that they should still keep a watch on the manner in which FDI in retail is opening up India?

Bill Shorten:
They will anyway. Australians are hungry for investment opportunities. India: 1.2 billion people. Your middle class is growing rapidly. Your success is not inevitable, but I have to say, your domestic consumption gives you a special buffer, which most other nations don’t have. Whilst no doubt you want to make improvements in a range of social indicators for people…Indian immigrants that come to Australia are superb citizens. I have no doubt that our people in Australia are hungry for opportunities in India. It’s just making sure that it’s possible and not to get caught up in too much red tape.

Journalist:
What about the local sourcing requirement? Do you think investors would have a problem with that?

Bill Shorten:
Could you un-pack the question?

Journalist:

There is a provision that in case a single brand (inaudible) they want to replace it from 51 to 100 per cent. Once it happens, 30 per cent of sourcing has to be necessarily from small and medium enterprises in the country. Similarly with multi-brand retail. So, do you think that could pose a problem?

Bill Shorten:
I don’t have a specific view on what the Indian requirements are or what the Indian answer should be. But procurement is an issue in every country. Local content versus imported. And obviously we want to create jobs, and clearly with your population growth, and the youth of your population, you will need to build your manufacturing sector. Manufacturing jobs are good jobs. They pay well, you can get a house, you can raise your kids. So, it would be no surprise to me if India had a policy to promote its manufacturing of local content.

What the specific numbers should be, it would be just inappropriate for me to…we want to still try and win the test against you, I’m not about to start giving you numbers on matters as important as you say.

Every country has to deal with these issues, but the world has benefited from globalisation. That doesn’t mean that everything that is globalised has worked well, but globalisation of ideas, the globaliastion of practice, the globalisation of trade, it does work. To quote Professor Sen who was speaking [at the Conclave] before ‘growth is important, but growth needs to occur for people’ and you don’t just look at it through the eyes of banks or vested interests. Growth has to spread its benefits throughout the country.

So, in terms of procurement, the Indian parliament and the Indian community will work out what they think is in their best interests, but foreign investment surely is in all nations’ interests.

Journalist:
So will the Australian Government pursue the issue with India?

Bill Shorten:
I think part of the timetable, and again I’ve been here such a short time, I think part of the debate is once you’ve got through some of your domestic state-based elections. Someone famous once said ‘timing is not the most important thing, it is the only thing’. So I would just rather leave Indian domestic politics to those qualified to judge, which is about 815 million voters.

Journalist:
Totalisation agreement – are the two countries working on that as well? Because India is signing a lot of social security agreements with other countries.

Bill Shorten:
I’ll take that on notice. We have been doing a lot of social security agreements, but I don’t know where we’re at with India.

Journalist:
But has the Indian Government taken it up with Australia?

Bill Shorten:
I’d have to find out. Social security is not my portfolio.

Minister-Counsellor
(Economic)
:

We can give you a background briefing on that.

Journalist:
Indian mining output has contracted for three months in a row. So, in this connection, India and Indian companies are looking for coal reserves in Australia. How do you see the prospects for Indian firms in the Australian mining sector?

Journalist:
Also the mining tax that is being proposed?

Bill Shorten:
There have been a number of recent deals – Adani, GVK. It’s a matter of pursuing the process. Exploratory licenses are granted by our state governments. It would be a matter of talking to Austrade, our Trade Commission here in Delhi and Mumbai.

There’s been 5000 foreign investments ticked-off under our regulation in the last ten years. Two have been knocked back. Occasionally we put conditions if it’s to do with national security, but they haven’t learnt how to put coal into missiles yet, so it’s ok. You know, I’m sure there are no great obstacles, although familiarity becomes an issue. I think greater familiarity with our foreign investment review process might make investors feel more comfortable with the process.

There are no commercial obstacles to foreign investment. Foreign investment is welcome in Australia, so long as it’s commercial. There’s the occasional concern that a sovereign wealth fund might take a 50-year position pay (inaudible) just to take control over an entire market. Obviously we watch out for that because that has ramifications beyond the immediate deal, but in my experience of Indian business they’re looking for commercial deals.

Minister-Counsellor (Economic):

That’s the private and public sector alike.

Bill Shorten:
The issue of the mining tax; this is a resources rent profit tax. Sometimes you can tax mining on royalties. In other words, you dig out a certain volume of dirt and you can put a tax on that. But the challenge for that approach is you haven’t necessarily started to make all your profits yet and you’ve got a lot of sunk capital in exploration, development. So we are moving our hydrocarbons and our coal and our iron ore to (in part) a profit tax, so when you’re making more than 100 million or when you’re past the threshold, that’s when the tax kicks in.

Mining companies in Australia in the last 12 months, both global and national, have made AU$92 billion in profits. It’s estimated that the mining tax will collect AU$3 billion. I’ve heard of worse deals.

Journalist:
The mining tax rate is how much?

Bill Shorten:
There are deductions that you set-off against. It’s a 30 per cent headline rate, which kicks-in at a certain threshold between AU$75 million to AU$125 million. So we’ve been negotiating this in the parliament. That legislation’s not through the Senate yet. But you’ve got to be making a profit. We can send you the final numbers when it passes the Senate. There’ll be deductions. It’s not easy to say. There’s a headline rate then there’s the real rate after you’ve had deductions. In each case it will vary. We estimate that it will raise the Commonwealth Government somewhere around AU$3.5 billion per annum. But when you look at the mining profits, you can draw your own conclusions.

Journalist:
During your visit has anyone raised the issue of racial discrimination? Does it come in the way of regulations?

Bill Shorten:
Do you mean Australia’s racially discriminating? No. Please understand that in Australia, 25 in every 100 Australians are born overseas. In my own constituency, 34 in every 100 Australians are born overseas. In my own constituency, 51 in every hundred Australians has a language other than English at home. In my own constituency, at citizenship ceremonies, there is at least a third of every new group of citizens that are Indian.

Thank you.