KGB: Kim Wells

Victorian Treasurer Kim Wells tells Business Spectator's Alan Kohler, Robert Gottliebsen and Stephen Bartholomeusz:

• The government is determined to run surpluses to pay for infrastructure, and protect Victoria's triple-A credit rating
• Negotiations with nurses are now settled, with a "fair" and "good deal", and there are productivity gains in the final details
• Gillard and Swan should focus more attention on public service efficiency
• He has grave reservations about the carbon tax, and the impact it will have on manufacturers through power costs
• The four economic pillars of the government are strong finances, boosting productivity, growing business in Asia and supporting industry and manufacturing

Kim Wells: No, no. The comment that she made was unfair. Originally they were talking about previous times. The issue for us is that when we came into government we needed to deal with the number of cost overruns, the cost blowouts. Melbourne markets, and Myki, and these things ran into almost billions of dollars. We had to sort out those sorts of issues. The other thing is that we had to rebuild the budget to get into a situation where we were generating surpluses. And by building those surpluses means that where we are building infrastructure over the forward estimate period we're not relying on debt; we're actually using our cash surpluses to be able to build infrastructure. The other point we're making is that we are building the regional rail which is the largest transport project I think in the country, which is a multibillion dollar project; building the Bendigo Hospital; building the cancer centre – so we have lots and lots of infrastructure activity going on at the moment and we're spending in this year a record amount of about $6.2, $6.3 billion of infrastructure spend which in tough economic times is incredible.

AK: Implicit in Elizabeth Proust's criticism is that the business community isn't that interested in you guys running $100 million surpluses every year, that actually there was a case sometimes to run a deficit and maybe this is one of those times.

KW: No, no. But that's my point. We believe that one of the strong pillars that we run is that we must have strong finances and we must live within our own means. And by protecting the triple-A credit rating and by building up those surpluses mean that we're not going to continually go into debt and we must have that situation over forward estimates periods. I mean we have some sections of the business community that are saying we should cut tax, but in the same breath, increase spending – it just doesn't make any sense. We believe that we have to live within our means and that's what we're doing. And if we were to run close to putting our triple-A credit rating into some sort of concern, then I'm sure the business community would be up there saying ‘what are you doing?' Victoria relies on strong economies and that's what the Baillieu government needs to aim for.

Robert Gottliebsen: Do you think that a large amount of infrastructure from now on, particularly roads and even rail, would have to be financed in some form of toll arrangement where the user actually pays for the facility?

KW: I believe in the user pays principle as best we can. We are strong supporters of the public-private partnerships. We have a world reputation. When you go to Europe and speak to the French and the English, they understand that we do have a good, transparent record on PPPs. So, when we are building those future infrastructures we are looking to the PPPs because we believe that they are the most efficient model, and when it comes to other infrastructure we obviously need to look at the issue of tolls.

Stephen Bartholomeusz: Kim, there's been a lot of talk about the two-speed economy, and I suppose Victoria is a manufacturing state. It's on the slower speed. How do characterise the Victorian economy today and how's it shaping the fiscal strategy?

KW: That's a good question. I guess the interesting point is that when Western Australia and Queensland do well in the mines, so does Victoria. And we have the situation where Newcrest, BHP Billiton and Rio Tinto actually have their head offices here in Melbourne and that means a lot of back office support – the accounting, the legal, the superannuation, the insurance work is being done here. And when you look at professional services, it's actually overtaken manufacturing in the state and we've obviously had a strong manufacturing base. But professional services, particularly for those head offices and in the mining sector, are doing extremely well for us. Yes, we acknowledge the two-speed economy. We do not have the natural wealth, but by having efficiencies and providing that skilled labour into those mining companies and into Western Australia and Queensland are very, very important parts of our economy.

AK: You posted a deficit in the first half of $341 million. How much will you have to find for the budget in May to make a surplus in the budget of $100 million?

KW: In that mid-year report that you're referring to it did say that we're on track to deliver a surplus at the end of this year of $147 million. We have a target of, as you mentioned earlier, the $100 million dollar surplus. We are driving greater efficiencies, greater savings, to be able to achieve those targets, but when we're talking about productivity, it is about providing an efficient public service. When businesses are doing business with the Victorian government we want it to be at a lower cost and it needs to be efficient. And when you are looking at attracting companies in from India or China, we need to give them the assurance that when they are doing business with the government that it's at an efficient cost. We don't want to be bogging these companies down with red tape and bureaucracy. We want to be able to get on with the job.

RG: In health, there is the most magnificent opportunity to substantially reduce the costs of hospital care and to increase patient services by using instruments like the iPad to cut paperwork. My reading of your agreement with the nurses is that we've absolutely obliterated that opportunity, which is a tragedy for Australia.

KW: Well, with the nurses' agreement, and the details will be released when the time is appropriate, but we have a wages policy of 2.5 per cent plus productivity trade-off which we have stuck to with the police and the nurses and the auxiliary workers in the health sector. We believe that we have a good deal with the nurses and we are attempting all of those wage negotiations to continue to drive efficiencies, and to get those productivity offsets which are important. At the end of the day we need to be in a position where we are going to settle and we believe that we have settled with the nurses and we got the best efficiency gains that we possibly can as part of those negotiations.

RG: It's not what the nurses are saying. They're saying they've got fixed ratios of patients and nurses which is a disastrous concession because you can slash the paperwork and you don't need as many nurses to improve care. I think you've absolutely stuffed it.

KW: When the details come out of the nurses' negotiations, I think that people will see that as fair. We've said all along we wanted to be fair to the nurses, fair to the Victorian taxpayer and I believe that we have come to a good negotiated point. And when it comes to using technology as you suggest, the government will be driving that because, for example, my wife is a nurse and the amount of paperwork that they are dealing with on a daily, weekly basis is unfair. And you're right; we can drive greater efficiencies in that by using a better computerised technology.

RG: If you have locked yourself into patient ratios, you're absolutely down the mine; you've killed it, and we'll have to send our patients offshore.

KW: Bob, when the details of the wage negotiation come out for nurses, we can have a further conversation.

RG: Okay.

KW: We're not in a position to release the details yet because there are another couple of hurdles that need to go through, so we're pre-empting what the finer details are, but when you read those finer details, there have been productivity gains.

AK: Apart from that, the talk about if greater efficiency in the public service is basically code for sacking more public servants, isn't it?

KW: We said at the budget update, which I brought down on December 15, that we would reduce the public service on a voluntary basis by 3,600. But that was a figure given to us by Treasury and that means that no frontline services would be affected. What we're trying to do is to rid the public service duplication and I think it's one area where Wayne Swan and Julia Gillard need to focus their attention more. That is, to be able to get greater efficiencies in the public service, there is no point the Victorian state government performing a role and the Commonwealth government public service performing the same role. And there would be a significant saving to the taxpayers if there was greater focus on ridding the place of duplication and mismanagement.

RG: Will Victoria join with Western Australia and Queensland and introduce a uniform three-state occupation health and safety set of rules and regulations to overcome the botched Commonwealth system?

KW: Well, the OH&S system that the Commonwealth was trying to be force on us meant that we were going to burden Victorian business with more regulations and more bureaucracy – and we're aiming to do the exact opposite. That's why we haven't signed up to the OH&S. Next week we meet in Canberra, so I'll be meeting with Queensland, New South Wales, Western Australia, obviously and we as Victorians will be able to work through a number of those issues. But at the end of the day we want a system that is fair when it comes to OH&S, but something that is going to work – and work properly.

SB: Kim, you've pulled back from the Victoria-specific 20 per cent carbon reduction target and have been accused of being in climate change denial. Can you explain the government's attitude towards climate change and what Victoria should or shouldn't be doing?

KW: The issue for us is that we have 500 years of brown coal. We have the second largest deposit of brown coal in the world apart from Russia, so it is a competitive advantage for us to use brown coal for power and by having that cheaper power we're able to be more competitive against other states and other parts of the world when it comes to manufacturing. So, we are committed to continuing to use that brown coal. The reason why we ditched the target is that the Gillard government is bringing in this carbon tax as of July 1, plus we had this 20 per cent, so we were actually spending $2.2 billion on duplicating the programs that were being implemented, or supposedly being implemented, by the carbon tax. We did an independent report and that's why the target has been ditched. And we have said all along that we have grave reservations about the carbon tax and the impact it will have on the power supply here in Victoria and, in turn, the manufacturers. I mean, they rely so heavily on cheap, competitive power.

RG: What are you going to do with the brown coal? Can you make it a clean brown coal or are you just going to keep mining it as it is?

KW: Well, we would love to. We have a fund that is set up to look at those sorts of new technologies and surely I have great faith in science and research that we're going to be able to find a system that will work. But at the end of the day we can utilise that massive resource because, as I said, we have 500 years of brown coal available to us. We know where it is, and to be able to spend the money in that area to help technology will be a great boost to the state and to other parts of the country.

RG: Can you keep Point Henry going?

KW: Look, we're in negotiations with Alcoa, so we're waiting on discussions both ways. They are a very large user of power, so obviously that's going to play a big part in the negotiations, but let's just see how they weigh out. They're doing their own review. I think that it has to be completed by June 30, so we'll see how that goes, but we are working in good faith with them.

SB: Kim, the government contributed towards the $270 million package for General Motors. Does that say anything about the Baillieu government's broader view on the manufacturing industry?

KW: Well, we have said all along there are four pillars to growing the economy and to creating jobs. The first one is strong finances, second is boosting productivity, third is growing businesses – and that is by travelling into India and China – and fourth, of course, is supporting industry and manufacturing. And it is an important part, the car industry here in Melbourne – Ford, Toyota and Holden – and we believe that we have achieved with the federal government a fair deal for the taxpayer and for underpinning those jobs. But the path for us, which Premier Baillieu was pushing very hard of course, was the issue of the supply chains – because you have to keep those supply chains going. One job there means many, many other jobs in the economy, and that's so important. The supply chain and making sure that is underpinned to keep those jobs going at Holden were crucial for the state.

AK: Thanks Kim.

KW: Thanks very much.

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