Andrew Leigh

TRANSCRIPT – RN DRIVE WITH WALEED ALY
Andrew Leigh MP
Parliamentary Secretary to the Prime Minister
Member for Fraser
20 May 2013

Topics: Federal budget, paid parental leave, GST.

Waleed Aly:        Both sides this week are assessing the impact to last week’s Budget, and the Budget Reply, as they shape their campaigns for the election that’s coming in September. Just seventeen weeks away, incidentally. We know it wasn’t a traditional pre-election budget, it wasn’t full of vote-winning spending initiatives. In fact the big surprise was that the Government is axing stuff, moving to axe the baby bonus for example. And you might be surprised to learn that that has gone down very well with voters. What will the politicians make of that, will it influence their campaigns on other issues perhaps? To discuss the politics and the policies we can expect, I’m joined now by our political panel: Senator Arthur Sinodinos, Parliamentary Secretary to the Opposition Leader and Coalition Deregulation Taskforce chairman, he was previously chief of staff to then Prime Minister John Howard; and Dr Andrew Leigh, who is now Parliamentary Secretary to the Prime Minister. Thank you gentlemen for joining us. I think I should congratulate you, Andrew Leigh – you’ve been promoted since the last time we spoke.

Andrew Leigh: Thanks Waleed. It just occurred to me that it’s almost as though we’ve got the seconds for the Prime Minister and the Leader of the Opposition. It made me think of the old way lords would resolve disputes by each choosing a knight to go forth and fight their battles for them.

Waleed Aly:        That’s a very flattering way of describing both of you, I appreciate that, the imagery is wonderful. Let’s start with this Nielsen poll, and I don’t really want to talk about the headline issue. The support for the baby bonus, or the scrapping of it, was really interesting. 68% of respondents backed the move of scrapping it, only 27% opposed. Arthur Sinodinos, does this suggest that it wasn’t really great policy to begin with?

Arthur

Sinodinos:           Firstly congratulations to Andrew on the Parliamentary Secretaryship, he richly deserves it. Look, it’s easy for us after the event to rationalise this result about the baby bonus because you think on the face of it people would favour more spending on anything. But I think the political environment has changed pretty significantly in the last few weeks, if not the last few months. And in a sense, the politicians are catching up to where the public have been for a while, where the public have raised their own savings post-GFC. Household savings are now about 10% of household income, so if we’re going out there and saying as a political class that some things are no longer affordable, or that we should borrow to have X or Y, I think it actually resonates with the public. Now some people will say that sounds a bit self-interested, but I’m willing to bet that people are saying ‘well, if the politicians are axing something because they don’t think it’s affordable, they’re telling the truth’ and it will resonate with them.

Waleed Aly:        Yeah, I just got a text though on this: ‘Baby bonus gone-ski, but why did we ever have it?’ That’s from Shane. There seems to be a feeling, not just that its time has come, but that it was always just a middle class welfare handout, that was of dubious use and benefit to the economy, that it was always just more political than policy.

Arthur

Sinodinos:           Can I just say – and I think my recollection of this will be slightly hazy – but I think that this was an alternative to having a paid parental leave scheme, from memory. It was an alternative that was put up and it was meant to be available to whoever was having a baby, whether you were in the workforce or a stay-at-home mum. But that, I think, was the context in which it originally arose. So it makes some sense that, now both sides of politics have embraced paid parental leave schemes, to review the efficacy or the need for this particular benefit.

Waleed Aly:        Sure, but that didn’t stop your side of politics opposing it when the Government tried to reduce it in previous budgets, even though a paid parental leave scheme was both parties’ policy.

Arthur

Sinodinos:           Well I think we came to the right decision on that in this context.

Waleed Aly:        Ok. Andrew Leigh, first home buyers’ grant stays though. Wouldn’t that be something that would be ripe for the chopping block, if you’re going to go down this path?

Andrew Leigh: Well I think that certainly both sides of politics have come around on the baby bonus, and it’s really interesting for me to see that greater focusing on targeting. First home buyers’ grant deals with a different challenge. But I certainly think that on this one, it was a policy that was not particularly well targeted, we means tested it down to $150 000 but that only took out the most affluent 3% of parents. So really you had a policy that wasn’t in the spirit of the highly targeted Australian social safety net. A typical developed country gives twice as much to the bottom fifth as it does to the top fifth. We give twelve times as much to the bottom fifth as the top fifth, and I think that’s the genius of the Australian income support system, that it is so powerfully targeted, through the assets and means tests on the pension, for example, in the early ‘80s, and a whole lot of means tests that surround other programs. That’s how you make a system that’s sustainable in the long run.

Waleed Aly:        And I suppose that you could say the first home buyers’ grant is in a way means tested, because it’s for first home buyers. But the effect of it hasn’t really been that helpful for first home buyers, it’s really just pushed up the prices in that sector of the market. So it makes it even harder to enter the market.

Andrew Leigh: Well, the effect of the price is going to depend – I’m just trying to do the models in my head – you want to think about the share of all buyers who are first home buyers, say that’s one in five, or one in ten. And then you want to think about what economists call the incidents, or basically the split between the buyer and the seller – say that’s half – you’re going to get something like a tenth or a twentieth of the money goes to push up house prices. So I think the effect of pushing up house prices tends to be over played on this. But yeah you’re right, it’s a benefit that’s going to all, and given that the least affluent are less likely to buy homes, then they’re less likely to claim the first home buyers’ claim.

Waleed Aly:        So why not get rid of it?

Andrew Leigh: Well, all of these things need to be considered in their time. I think that, at the moment, our decision has been that the baby bonus isn’t sustainable and that comes off the back of looking at a whole range of other programs: means testing the family tax benefits, getting rid of the dependant spouse tax offset. So we’ve got a strong record of things in this area.

Waleed Aly:        Are we seeing a philosophical shift here? Is it just about the baby bonus, and parental leave, and the timing of it? Or is there something here where both parties are recognising that the era of middle class welfare should be over?

Andrew Leigh: Well I thought Arthur’s comment about the savings rate was fascinating, because Australia does – now that 10% savings rate is now higher than Japan’s, and it’s against our standard psyche, we don’t think of Australians as being more frugal than the Japanese, we think of ourselves as being as spend-thrift as the typical Anglo country. I thought it was really interesting the way Arthur characterised that, and the way it plays into political debate, but I suppose the extra thing I would add to that is that Australians also want to see income support go to the neediest, unlike say Europeans, who have this idea that when the Government spends, it ought to spend across the income spectrum. And I think that defines the difference in the two parties’ parental leave programs. I would characterise ours as being much more in the Australian spirit, because it’s the minimum wage for everyone. The Coalition’s is a much more European-style one, where it’s replacement wage, therefore it gives more to those than earn more.

Waleed Aly:        Would you like to respond to that, Arthur Sinodinos?

Arthur

Sinodinos:           A couple of comments, Waleed. On the paid parental leave plan, Tony Abbott has been pretty clear I think in that he sees it as a workforce entitlement, rather than just income support, and that’s what it’s got the payment levels we’re talking about. He wouldn’t characterise it necessarily as a European style payment, but as more of a workforce entitlement and its rationale is to keep women more in touch with the labour market during that period, so they’ve got an incentive to return. So they’ve got paid leave, they go back to their place of employment. We’re trying to find ways of encouraging labour workforce participation. We don’t want a situation where women just drop out of the workforce completely after having kids, or if they have an aspiration to have a full time job, they feel that they can only put up with a part time job, and helping women who want to move from part time to full time.

Waleed Aly:        But it’s not a workplace entitlement though. Because a workplace entitlement comes from your employer, like leave is a workplace entitlement. Your boss, or your employer, grants you leave, that isn’t a handout from the Government. So you can call it a workplace entitlement, but doesn’t that really mask what it is?

Arthur

Sinodinos:           Yes, but I mean, yep. You can go into semantics but it will be funded by companies at the big end of town, so in that sense we are matching the accountability with the responsibility for the money. Now it’s separate whether we have a modest company tax cut, and we can come back to that. But the point is, that’s the mentality that Tony is trying to emulate, the idea of a workforce or a workplace entitlement.

Waleed Aly:        But it’s more than a semantics difference isn’t it? Because the top end of town is funding this with its levy, but all employers will be passing it on. So there will be a whole lot of employers, a majority of employers, across Australia, who will not be contributing money to this –

Arthur

Sinodinos:           But recognising, Waleed, that smaller employers don’t have the same capacity to pass it on –

Waleed Aly:        Right, which is why it’s not a workplace entitlement, it’s a government handout.

Arthur

Sinodinos:           Yes, but we’re trying to entrench a certain approach to the treatment of women in the labour force, promoting that attachment to the labor force. And the second part is of course what you do to improve the affordability and access to childcare as well.

Waleed Aly:        Ok, Andrew, I want to pick up on some more points on this in a moment, but Andrew Leigh I might throw that to you. You’ve spoken a lot, and your government has spoken a lot, about wanting to keep people in work, and get people working, this sounds like the kind of thing that would lead to that. Why would you not adopt something that is as generous as this?

Andrew Leigh: Well I guess you have to look at the total government spend in order to achieve this outcome, Waleed. And we’re looking at a government spend that might well be as large as $3 billion a year, $12 billion over the forward estimates period. And then you’d have to say well, could you more effectively to boost workforce participation. And I’d say, for example, if you’re sitting down from the Coalition’s perspective, they could keep the reductions in superannuation taxes that we’ve put in place. Two thirds of those go to women, because women are disproportionately low income earners. They could, for example, support the continuation increase of the superannuation increase from 9% to 12%, because disproportionately those who are on lower superannuation contribution rates are going to be at the bottom of the income spectrum, and are therefore more likely to be women. Those retirement savings incentives are important, as is the big agenda we’ve driven through childcare – and not only improving access and quality, but increasing the rebate there. I think childcare costs are more likely to be a larger disincentive. This kind of very regressive paid parental leave scheme is, I think, unlikely to have much impact on workforce participation, and as Arthur well knows, the company tax from which is raised is ultimately a tax that is being paid by workers. We know that the company tax doesn’t get paid by the other two sources of income: land and capital. It gets paid by labour.

Waleed Aly:        Arthur Sinodinos, just to pick up on the politics of this, I mean whatever the benefits or otherwise of the parental leave scheme proposed by your side, can you stand here now, hand on heart, and tell me that this is actually going to get through the party room given that there is so much opposition within the Coalition?

Arthur

Sinodinos:           Comrade Tony Abbott is potentially taking us to an election victory. If he gets us there, this policy will stand, it will be a signature policy of his, and there would not be a reason for people to oppose it.

Waleed Aly:        But there’s such deep opposition within the party. I mean you can’t deny that.

Arthur

Sinodinos:           There’s an even deeper opposition to staying in opposition, let me put it that way.

Waleed Aly:        Well once you’re in government, you won’t be staying in opposition, so that’s the point at which you can talk about it.

Arthur

Sinodinos:           Look no, I don’t, I seriously don’t believe that a majority of people in the party room would oppose this scheme, if we get into government. If we don’t get into government, all policies get reviewed, clearly. But if we get into government and he’s promised this policy at the election, it’s a promise he’s going to have to keep. We made such a meal of Julia Gillard breaking her promise on the carbon tax eight days out from the last election, Abbott’s made it pretty clear he’s going to be judged on keeping his commitments. He’s got to keep it.

Waleed Aly:        He’s snookered the party room, I love it. That’s very good.

Arthur

Sinodinos:           No hang on Waleed, I want to say one thing on that. I know why you say that, but by the same token, it’s part of a series of measures that if we’re serious about gender diversity particularly in the workplace, we’ve got to tackle. I’ve mentioned childcare, there’s the white paper on tax reform, which is coming in the first term if we get elected. These are all areas where the tax transfer system can play its role, these are all issues that can work together when it comes to promoting workforce participation.

Waleed Aly:        Ok, fair enough, I was just being cheeky. Before I let both of you go, I do want to talk about GST. Should we increase the rate of GST, and thereby fix this structural problem in our current tax base which puts the burden overwhelmingly on the corporate sector rather than on individuals, and we end up with this structural problem in the budget whenever the profits decline. Andrew Leigh, you first?

Andrew Leigh: Waleed, I think that we’ve got the tax mix there right. I certainly don’t support increasing GST, against a tax that ends up basically falling on labour. It worries me when I hear Tony Abbott say that he’s absolutely committed to getting rid of a carbon price, and moving the profits-based mining tax back to the much less efficient royalties mining tax. Neither of those are reforms that could be supported by consensus of economists. Most economists think pricing carbon is efficient, most economist think that you ought to have a profits-based mining tax rather than a royalties-based mining tax. So Mr Abbott’s problem is that once he has made those decisions is that he has a big revenue gap, and he has to plug it by using things like the GST.

Waleed Aly:        But it’s not just Tony Abbott saying this is something he might look at, and that’s all he said, he didn’t say he’d adopt this. He just said that if you’re going to do a tax review you may as well do a review of everything and the GST is clearly part of that. And there’s a lot of the Government for leaving the GST off the table when the Henry tax review happened, and its various attempts to reform taxation policy. And the main problem, or one of the big structural problems is that we don’t tax individuals enough, and that we tax companies heaps, and then when prices go down in the mining sector, there’s a huge hole in the budget. Isn’t this in fact a really good way to fix it?

Andrew Leigh: Saying you’re going to review something is sort of a standard trick for pushing it off but just keeping it at arm’s length. I guess what troubles me is that Mr Abbott is not saying that he’d like to get expert opinion on the carbon price, on that he seems to be listening to the folks who, I sort of characterise, as soil magic, you know the Direct Action. On the mining tax, he doesn’t seem to be wanting to see what the experts have to say there. But on a tax that will fall heavily on Australians, and of course of all Australians it will fall disproportionately on those with lower incomes who tend to spend their entire pay check rather than saving anything, there Mr Abbott is suddenly saying he’s open to considering it. So when you say you’re open to considering the tax that has one of the most regressive impacts in the system, I begin to worry a bit. I’d be fascinated to hear Arthur’s views on this, I mean he was right next to John Howard when he introduced the GST, he’s seen this all the way through.

Waleed Aly:        Well Arthur, final word to you. It does suggest that the Coalition certainly doesn’t have a problem with regressive taxation, when you look at the GST and the parent leave scheme.

Arthur

Sinodinos:           Two comments, the first is proceeds of the tax go to the states, and what Tony has said is obviously we’re prepared to consider it but we’re not proposing anything, certainly not for this election. But we’re happy, and in a constructive spirit, to have the debate if we win the first term. So he’s really inviting people to put their views on this and other matters on the table, and as you’ve seen from some of the reports from state premiers and others, they’re willing to put stuff on the table. The other point I’d make about things like the GST is that they never happen in isolation as you would’ve seen from the new tax system in 2000. So nothing ever happens in isolation and it’s always a mistake when people try and focus on just one tax and say ‘well this tax, is this changes it is a bad thing’, you’ve got to look at the totality of what you’re doing and that was certainly the case with 2000. And Tony’s made it clear that anything that comes out of the white paper process would go to an election, so you’d be looking at systemic change rather than change focused on one or two things. I think, with respect to Wayne Swan, one of the downsides to what he did with the Henry tax review, was that he was very quick to pick and choose, rule out a whole variety of items, we never got to have a genuine dialogue on tax reform. And this goes to the process by which you make some of these reforms stick.

Waleed Aly:        Alright, well it’s a long way down the track no matter which way it goes, but we have to leave it there. Gentleman, it’s been wonderful to speak to both of you shining knights of Australian politics, I hope we can do it again sometime soon.

Arthur

Sinodinos:           I’ll get my lance.

Andrew Leigh: I’m looking forward to it, Waleed.