SKY PM AGENDA
WEDNESDAY, 13 MAY 2015
SUBJECT/S: Budget 2015
LAURA JAYES: Now on the Agenda panel is Parliamentary Secretary to the Prime Minister Christian Porter, and also the Shadow Assistant Treasurer Andrew Leigh, both joining me in the studio. Christian, you heard those comments from John Howard, is he right? Is this going to be harder down the track for Joe Hockey?
PARLIAMENTARY SECRETARY TO THE PRIME MINISTER, CHRISTIAN PORTER: It's very hard for Liberals to disagree with John Howard but I think what he says is very broad and it's the evergreen truth that you have to find the right balance here and the balance here that we must strike is between two things. Obviously expenditure restraint is necessary, but of course there's needs in the economy which is going for a range of structural adjustments to keep things moving which is what the small business package is about. So my view obviously is that we've struck that balance fairly well. There was probably too much ying and not enough yang in Budget number one but I think we've got that balance much better in Budget number two.
JAYES: Structural reform was such a big priority last year, does this budget reflect that it's the wrong time for this kind of structural reform so that's an admission that yes, last year did go do hard?
PORTER: Well I think the proof of this pudding is in looking at the way in which forward estimates project the decrease in the deficit. I think that the consolidation back towards surplus is probably somewhat less than spectacular but nevertheless I think it's impressive and it's surprised a lot of observers including those in markets and in banks who were projecting next year’s deficit to be a lot larger than what it is. So going from 48 to 41 to 35 and 14 and 7 is, I think, less than spectacular but nevertheless very impressive. And I think that demonstrates that the side of the Budget that engages in expenditure restraint, where we've got real spending at 1.1 per cent out to 2017-18, that's a very good result.
JAYES: I'll get to spending in a moment, but to you Andrew Leigh: these are the Treasurer's figures – I thought you might use that point in your answer here – many economists have said that yes, they think the growth in the outer years, even though some have said it looks a little ambitious at 3.5 per cent, is probably about right. Would you agree with that?
SHADOW ASSISTANT TREASURER, ANDREW LEIGH: Well certainly Laura, I think this budget struggles to pass the test that John Howard would put on it which is getting debt and deficits under control. We've got the deficit coming in a whisker under market expectations but still twice what Joe Hockey said it was going to be last year. We've got spending as a share of the economy and tax as a share of the economy higher under this Government than it was under the last Government.
JAYES: I do want to pick that up with you Christian Porter. Spending is now at 26 per cent of GDP. I know you just used a different figure but this is Labor GFC levels, is the economy in that much trouble? Is spending therefore under control?
PORTER: Well I think the reason I used that 1.1 per cent figure is that it is the figure above inflation of real growth, it's the better figure. It's not surprising that the figure as a percentage of GDP is where it is because we've had $52 billion worth of revenue written down since the last Budget. A lot of that is attributable to the fact that the super-cycle on commodities has come off and the price of iron ore has halved. So I think the better comparison is this: Labor promised 2 per cent real growth in expenditure, delivered an average 3.6. We're delivering 1.1 and that is the reason why we're able to provide this consolidation and this credible path back towards to surplus.
JAYES: Economic growth is tied to China. Andrew Leigh, there is no evidence that Labor could do any better on this trajectory to surplus. It was Wayne Swan that promised a surplus and never delivered, so you can't sit here and criticise the Government, can you?
LEIGH: I'm criticising the Government based on their own numbers, Laura. And if we look at the real spending growth figure that Christian wants to focus on, the Coalition has spending growth higher than Labor did after the Global Financial Crisis. The only way that he gets getting a lower spending growth rate than Labor is if you include the GFC stimulus spending. That would require you to basically say that the economy is as bad now as it was in the GFC. But Laura, we can't the defer questions here around the long term challenges for Australia. Boosting productivity, innovation, tackling inequality, climate change, all these things are largely lacking from the document.
JAYES: Productivity is probably an unfair point that you make though, this is a Budget that really builds on productivity, isn't it?
LEIGH: It rips $80 billion out of schools and hospitals and we've still got $100,000 degrees which deter young Australians from perhaps being the first in their family from going to university. That's a great productivity-boosting measure which is deterred if we don't have kids going to uni. Then there’s science and research cuts as well.
JAYES: I was going to get to this later in the program, but now that Andrew Leigh has brought it up: if you were still the Treasurer of Western Australia, what would you say about that $80 billion, Christian Porter? I can't imagine you'd be too happy about it?
PORTER: Well you know I was sitting around the table when your predecessors went and put that deal to us, and I remember the conversation I had with the Treasurer at the time which was: does anyone think that this funding is going to last outside of the out years? Because it was completely un-funded. If you look at what the IGR said, you add up NDIS, schools and hospital funding that went beyond the out years which was promised by Labor, the tax take would have had to have been increased by 50 per cent to cover the cost.
JAYES: Is the Commonwealth just heaping this problem, this revenue problem, onto the states?
PORTER: I don't think that's a particularly fair analysis and again, I was in the states at the time and when you look at the real increases in funding into the state, the total payment increases every year, on average, to the states is about 4.5 per cent. So just take, for example, in New South Wales, hospital funding increases by 12 per cent in 2014-15, and then by an average of 25 per cent over the next four years. They are generous and fair increases in funding.
JAYES: What are the State Premiers and Treasurers banging on about then?
PORTER: Look, again, I've been a State Treasurer, they complain they don't get more than what they get and they always want more than what they are provided with, that's how these things work. I mean, also State Treasurers, and I was one, had a dose of realism and when you see funding that promises funding that is completely unrelated to any revenue source, you know that that's not going to happen.
JAYES: I'm glad that you've come across from the dark side, Christian Porter. But Andrew Leigh, let me move onto what is an important aspect of this Budget and that is bracket creep. This bracket creep, I can be corrected here, makes up I think a fair share of getting back to surplus, perhaps 90 per cent. Now, Labor has blocked the Government's many savings put in the last Budget, and really you've only put up measures that are a fraction of what is needed to get back to that surplus. Haven't you put the Government in this position, that they can't do anything about bracket creep?
LEIGH: Well Laura, we've put forward some substantial measures if you put together -
JAYES: Substantial, but which are a drop in the ocean when it comes to really tackling the deficit though?
LEIGH: Our multinational tax package poses -
JAYES: Can we go to bracket creep first then go back to the policies?
LEIGH: Well, you've asked about half a dozen issues. In terms of the quantum, our multinational tax package raises $2 billion dollars over the forward estimates, 60 times what Joe Hockey's multinational tax package raises. He only has it budgeted for a mere $30 million. But then on top of that, we've got the superannuation reforms. We do think it's really important to make sure we are getting savings that are equitable.
JAYES: Do you agree that the Government was hamstrung in this Budget? It couldn't do anything about bracket creep?
LEIGH: It just wasn't willing to make tough decisions, Laura. We've got unemployment in the Budget at the highest level in fourteen years -
JAYES: We saw that's what got them in the last Budget though, making tough decisions, there's a political reality here.
LEIGH: There's nothing tough about taking money away from pensioners and the young and jobless. What is tough is to actually look at the big end of town, to look at people with multimillion dollar superannuation accounts getting huge tax breaks, sometimes as big as half a million dollars a year for an individual, and to say to them that you think you might make a contribution. What's tough is to say to multinationals that we think that the debt shifting rules you're using aren't fair, and we need to tighten them up. That's the proposal that Labor has put on the table. They're hard decisions but we're willing to put them forward in the interests of fair Budget repair.
JAYES: Christian Porter, it is about priorities here? The Government has decided to not prioritise bracket creep but it is, as Joe Hockey admitted in the lock up yesterday, it's going to be a drag on the economy. We just heard in that speech that we looked at it in the White Paper, what was the point?
PORTER: I don't think you can solve all problems at once. In terms of providing a stimulus for the economy, giving tax relief to small business was absolutely and unashamedly the focus of this budget and you can't solve all problems at once. But I would say, there are really difficult decisions that we've made and with respect, Andrew saying it's not difficult changing rules which restrain the growth and expenditure on pensions, that doesn't seem to me to be very true. That is a very difficult decision to make and the decision to change the assets test to change the taper rate is a difficult decision but it's not easy. It's fair from easy, you have to explain to a small group of people why it is they should be providing for themselves rather than rely on the pension so that overwhelmingly, a greater number of pensioners can benefit. That is a difficult thing to do, but they're the type of responsible restraints that we've built into the Budget.
JAYES: We'll get into policy so just hold your fire for a moment but I quickly want to show you some comments from the Prime Minister today he was in Canberra visiting a small business and address that issue of inconsistent message of last year’s Budget and this year's budget. This was the Prime Minister a little earlier today in Fyshwick.
- CLIP PLAYS -
JAYES: That was the Prime Minister Tony Abbott a little earlier today, talking about Budget repair but also spruiking what is the centrepiece of this package, and that is the $5.5 billion jobs package. Stay with us on lunchtime Agenda, we’ll take a quick break and then we'll be back to discuss that particular policy.
- BREAK -
LAURA JAYES: This afternoon I have Christian Porter and Andrew Leigh joining me here in the studio. I want to look now at what the Treasurer has described as the centrepiece of this budget: a 1.5 per cent tax cut for small business, temporary concessions as well. There's some dispute over how many jobs this might actually create. Can you guarantee, Christian Porter, as an economist, that this huge budget outlay will actually translate into a boost for the economy, and how should we measure it? In the jobs figures, or the unemployment rate?
PORTER: I think you'll measure it in time and at points in time. I can't guarantee a number because it is behavioural.
JAYES: But when we will see dividends from such a big policy?
PORTER: I think you'll see dividends in retail figures shortly, and I think you'll see dividends in the jobs figures down the track. I mean, a $20,000 write-off for assets applies to just one asset – you could use that for 10 assets. So it's a very, very substantial package for small business and there is absolutely no doubt in my mind that it will stimulate economic growth, investment, growth in small business and, in the long-term, employment. There's no doubt in my mind that will happen. Now, the precise nature of that is going to be very difficult to estimate but it's a fantastic thing for businesses. And I guess ultimately the reason that it's hard to estimate is that as a Government we're not trying to stipulate how the money should be spent and how businesses should grow. It is a matter for businesses to take decisions in their own, and their employees’, best interests.
JAYES: Ok, just hold fire for a moment because we're just going to hear from the Greens leader Richard Di Natale who is giving a post-budget press conference.
- CROSS TO PRESS CONFERENCE -
JAYES: Ok, Bill Shorten and Shadow Treasurer Chris Bowen have been fairly receptive to this jobs package. This was Bill Shorten speaking to Kieran Gilbert a little earlier this morning.
BILL SHORTEN: In terms of small business, we will certainly keep a very open mind. Of course, the problem for small business is that for the best part of the last two years, the Abbott Government has done its best to deliver a demolition derby on business confidence. Belatedly they realised that the Government has got a role not to destroy confidence, as they did in the 2014 Budget.
JAYES: Andrew Leigh: 'we'll look at this' usually translates into eventual support – can you confirm that's the way Labor is going?
LEIGH: Laura, we're certainly well-disposed to it, as you'd expect. I mean, the instant asset write-off measure is one that Labor put in place during the Global Financial Crisis. Joe Hockey, ironically, voted to end it and now he's voting to bring it back.
JAYES: Chris Bowen, I must say, was far more enthusiastic about this package. I mean, he basically told David Speers outright last night that this package was going to be supported. There seems to be a reluctance this morning. Or is this just a mixed message that we're reading into?
LEIGH: We'll certainly take our time to work through things methodically – that's what you'd expect from a sensible opposition.
JAYES: But you see no problem with it?
LEIGH: I certainly see this as a good measure but for the fact that it ends too suddenly, Laura. It does concern me because we've just seen Japan cut their consumption tax rate and then raise it again, and that threw their economy into recession.
JAYES: Wouldn't it be irresponsible though to implement the instant asset write-off permanently? It'd be far too generous in the circumstances we're seeing.
LEIGH: Certainly at this level it's a very expensive measure. But you've got to be careful not to put in place stimulus-style measures of the scale you have when you have a financial crisis.
JAYES: But this is a far better stimulus measure than pink batts and handing out cheques though, wouldn't you agree?
LEIGH: We had, as well as the Home Insulation Program, we had an instant asset write-off program. Joe Hockey has, in the past, argued against a program of this kind.
JAYES: But perhaps this is a better lesson in how to put together a stimulus package. I mean, I know it's easy to look at in hindsight and the Global Financial Crisis was a different set of circumstances. But this seems to me to be a much better way to distribute money than just handing out cheques.
LEIGH: Laura, when you're talking about stimulus you've got to be careful here. The role of government in counter-cyclical fiscal policy is –
JAYES: Ok, you're going to have to explain that one to me later.
LEIGH: Where you see the economic cycle turning down, government has a role to fill in that gap. But if you're talking about ongoing policy where you've got growth that's a bit sluggish, you don't really want policies that encourage investment brought forward because then you might fall off the edge of the cliff. So you need these deep productivity measures, and that's why I was talking before about productivity measures. We've got unemployment forecast in this budget to be at its highest in 14 years – 6.5 per cent. So you've got to make sure that you're investing in the skills of the next generation through universities, TAFE, schools, and of course science and research as well.
JAYES: Christian Porter, there do need to be safeguards here, don't there? This scheme could be open to rorting - can anyone just go and get an ABN and decide to invest in a big coffee machine; make a few bucks from it and then write it off down the track? I mean, what are the safeguards.
PORTER: The lawyer in me would recommend very strongly against that!
JAYES: Of course, and I'm not recommending it either.
PORTER: But I think the central questions are about scale and timing, and that's what you've been addressing with Andrew. The scale of this is about right; it's certainly more significant than the asset write-off that Labor promoted. This is $20,000 per asset with any number of assets in the right criteria if you're meeting the criteria as a business. So that's very substantial. But the timing is critical. We've just seen iron ore prices halve since the last budget; the biggest downturn in our terms of trade since records were kept. This is the time for this sort of package because it targets precisely the same small businesses who are benefiting from the multiplier effects of the super-cycle in commodities. That super-cycle has come off in a kind of spectacular way so exactly the same sort of businesses that are being benefited by this measure and being given another avenue for growth are finding that this measure will come on just as the previous stimulus for growth that was being produced is disappearing. So the timing is exactly right, I would argue.
JAYES: Are you disappointed that this budget didn't look at GST and superannuation?
PORTER: Well, um, we've said we're not going to tax super. I think that if you approach the problem of pensions, and if you agree that there is a major problem with the explosive growth in pension liabilities and payments going forward, you can do three things. You can go further into debt; you can tax super effectively which is Labor's plan, or you can do what we've done, which I think goes to the root of the problem. That is to try and restrain that explosive growth by ensuring that the people who get pensions and part-pensioners are the right people. Not individuals who've done the right thing and are able to look after their own interests. Even those people, in this budget, may find that they go off the part-pension for a period of time and have to draw down on their super – which we would not advocate taxing for precisely this reason, that they should be using these funds to keep them at the same level. They'll only have to draw down at 1.8 per cent of their capital to keep them at the same level, but that goes to the heart of the problem which is restraining the explosive growth in pensions.
JAYES: I know you want to jump in here, Andrew?
LEIGH: Laura, I enjoy chatting with Christian and I like the way he has laid out the problem. But I disagree with something he said about the explosive growth. Superannuation tax expenditures are accelerating very fast, whereas pensions – according to the Intergenerational Report – are going to represent about the same share of national income now as in 50 years' time. The reason that super tax expenditures are going up so rapidly is the uncapping that was done in some of Peter Costello's latter budgets. That's really what the Labor package does. It looks at focusing on those with many millions in their super accounts, rather than those at the bottom. Allianz says that Australia's pension is the most sustainable in the world. So we want to be careful at beating up on the pension too much and saying that superannuation doesn't need to be touched.
JAYES: Ok, I want to look at the timing now of the political cycle we're in. There's been a lot of talk about whether this budget sets us up for an early election. The Prime Minister was asked this question today and he didn't exactly rule it out:
ABBOTT: I can guarantee the public that we will well and truly and faithfully do what we told them we were going to do at the last election. We said at the last election that we were going to stop the boats, scrap the carbon tax, build the roads and get the budget under control. And to the best of our ability, in the circumstances where we've found ourselves, that's exactly what we have sought to do.
JAYES: Christian Porter – if this wasn't a live option, why won't the Prime Minister just rule it out?
PORTER: Well I mean the previous Prime Minister made a decision to nominate an election date when she didn't have to, but I think what the Prime Minister has said is quite sensible and reasonable.
JAYES: Are you using this as, perhaps, some leverage? Putting pressure on Labor, putting pressure on the crossbench by dangling the idea or the chance of an election any time over them?
PORTER: I think the pressure will come on the crossbench by virtue of the fact that – particularly on pensions, the small business package and the families package – what we're promoting is sensible. I would estimate that in due course it will get support from Labor, and that's what will put pressure on the crossbench, that they are sensible initiatives.
JAYES: Well, Andrew Leigh: is Labor ready for an election?
JAYES: Well we should see some more of those policies coming forward then, in the next couple of months.
LEIGH: You absolutely will.
JAYES: Will we see one on Thursday?
LEIGH: We're well ahead of the policy curve already. We've had the multinational tax package, the –
JAYES: But in the Budget Reply? Will we see announcements from Bill Shorten?
LEIGH: You'll certainly see positive ideas from Bill on Thursday night. That's always been the role of Labor. We see ourselves very much as the policy generators of Australian politics. Not merely holding the Government to account on fairness and their own tests on debt and deficit, but also coming up with those positive ideas.
JAYES: Just on that test that was set, does this Budget broadly pass that vague test that we got from Bill Shorten: is it fair, is it honest and is it forward looking. This would tick most of those boxes, wouldn't it?
LEIGH: Well on the fairness question, you've got a child care package funded by holding families to ransom, by taking $6,000 away from families. That doesn't seem terribly fair to me. You've got a Government that came to office saying it would reduce debt, reduce taxes and reduce spending but all of those are increasing. And it's not reasonable to be ruling out measures that affect the top end of town. To be doing so little on multinational tax while demanding so much from those at the bottom.
JAYES: Just quickly, on the measure of fairness when it comes to family tax benefits linked to the childcare package, Christian Porter: the Government seems to have opened the door to come back on this a bit. Has it realised that it can't go ahead with that?
PORTER: Well the child care package is linked to the FTB-B savings, that's clear. Negotiations will no doubt be ongoing. But I'd make this point: to have new spending initiatives, you've got to find saves in the Budget. That's why we've been able to show this credible path back to surplus. We've identified our saves. If Labor thinks there are other saves out there, that's fine but we've linked our saves to our spends and if you don't do it internally then you just go further into debt and deficit, which we're not prepared to do.
JAYES: On that note, gentlemen, thank you both for your time this afternoon.
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