Andrew Leigh

E&OE TRANSCRIPT
TV INTERVIEW
CNBC
TUESDAY, 6 OCTOBER 2020

SUBJECTS: JobKeeper and the risks of increasing inequality; Labor’s plan for an Australian Centre for Disease Control; the need to invest in education; proposed tax cuts; competition in Australia.

WILL KOULOURIS, HOST: Firstly, in terms of what we've seen from the government in terms of the COVID-19 response - and I suppose from a bipartisan perspective - what do you think that they've gotten right so far?

ANDREW LEIGH, SHADOW ASSISTANT MINISTER FOR TREASURY AND CHARITIES: Australia’s put in place a wage subsidy scheme, which we call JobKeeper, in common with many other countries. It was something the Australian Government was initially hesitant to do. The Labor Party, the business community and the union movement pushed strongly for that to be in place and that's generally regarded as being the most effective measure to reduce the job losses. But we're still in our first recession in a generation, and we came into this off the backs of fairly stagnant economic performance over recent years. Productivity going down, wage growth very slow, problems in retail. So Australia approaches this from a macroeconomic position of weakness rather than strength.

KOULOURIS: In terms of the wage subsidies, it's being touted that we are going to see them cessate from March. There have been a number of proposals that have been put forward, in terms of perhaps wage incentives for young people was released today. But in your mind, what do you think needs to be done? Do we need to extend them even longer, or does there need to be some kind of comprehensive reform in terms of industrial relations to really ensure that, you know, those most vulnerable aren't being left out to dry?

LEIGH: You're absolutely right to focus on the most vulnerable. They're the workers who've been unable to telework. Teleworking is easy for lawyers, not so easy for people who clean the offices of lawyers. And that's the most vulnerable Australians who have been hurt. So we need to make sure their interests are looked after. We also need to make sure as well as prioritising jobs, that we're prioritising education. Now this has been a human capital catastrophe in terms of both the health and the education impacts, and so investing in health measures would be vital. Labor has today proposed an Australian Centre for Disease Control. We’re the only OECD country not to have one. And we've been calling on the government to do more to open up university places. So there's an awful lot that needs to be done to ensure that Australians earning or learning, rather than simply languishing on the unemployment line.

KOULOURIS: Another thing being proposed is bringing forward those tax cuts. I just wanted to get your take on whether this will be necessary, or whether you are in support of bringing forward not just only the stage two, but potentially stage three in some respect? Do you think that it has merit as a behavioural trigger, I suppose, in order to encourage people to spend? We've got this savings ratio right now sitting at just a shade under 20 per cent.

LEIGH: It's hard to see how giving tax cuts to people on $200,000 plus does anything for participation. I don’t imagine there’s many people who are choosing between welfare and work who’d otherwise be earning wages that high. It's also hard to see how that could be the best thing to do to stimulate the economy. Stimulus only works when it's actually spent, and we know that high income earners save that a quarter of what they earn. So that doesn't seem to Labor to be the best use of scarce resources at the moment, given that this is a massive borrowing spread. Yes, interest rates are low, but debt is also higher in dollar terms than it's ever been in Australian history.

KOULOURIS: So speaking of plans, I want to get your thoughts on the business investment allowances that also have been touted. Now I know that the corporate side would very much like to see 20 per cent write offs. But where do you sit? We've had the corporate tax debate here in Australia basically come up and go back out into the ether. But does there need to be further investment allowances given to businesses in this environment to encourage them to perhaps invest? Or does there need to be some other measure that's introduced?

LEIGH: That's a great question. Research out of Victoria University has shown that investment deductions have many times the impact on growth in the economy than a headline corporate tax cut has. And indeed, with the Trump tax cuts, one of the things that economists agree on is that the changes to investment allowances did have the effect of spurring the economy, unlike the cuts to the headline rate. So we're certainly open to that debate from the Labor Party standpoint. We took some of those policies to the election last year. But we want to make sure again that this is a well targeted measure from a government which has, unfortunately, had a number of poorly targeted measures. The Auditor General has pointed to the rorting of sports grants. Recently we had the revelation of a payment of some $30 million for a parcel of land near the airport that was worth $3 million: the beneficiary being a donor to the Liberal Party. So we do need to make sure right now when we're borrowing so much that the spending is of the highest quality.

KOULOURIS: Speaking of borrowing, we got from the government just a few short weeks ago, they've changed RLOs - the responsible lending obligations - putting the onus on the borrower as opposed to the lender. We just had the royal commission that concluded and the determinations from the Royal Commission back in 2019. Obviously, this is to shore up credit supply. It was a big problem pre COVID. But do you think that because of all the issues, that the liar loans even that we saw during the Royal Commission, that this is the wrong move, the wrong way in which to encourage more credit?

LEIGH: The Royal Commission didn't recommend getting rid of Australia's responsible lending laws, which require banks to check the creditworthiness of applicants. It's difficult for me to see that an explosion of irresponsible lending is really what the Australian economy needs right now. We're an economy which has one of the highest household debt levels in the world, and the real problems in the new business startup have to do with productivity constraints such as competition, such as the willingness to innovate, such as having the right infrastructure and skills available. I think it would be much better if the government focused on those drivers of productivity, rather than thinking that just encouraging irresponsible lending would somehow lead to a long term surge in economy.

KOULOURIS: And we're seeing a lot of borrowing from the government as well. We're looking at, you know, incredibly large deficits. But at the same time, all of this stimulus is perhaps getting injected in. But are you worried that - obviously now, a lot of that is flowing through to the vulnerable people, but perhaps maybe in long term that there could be the risk that we're just creating a situation where it leads to incredibly inequitable outcomes? Because those that have are going to be able to borrow more, are going to be able to take advantage, while those that don't are just going to be left by the wayside?

LEIGH: Yes, we've already seen warnings that inequality could rise, one report suggesting that inequality would go up in the order of one and a half Gini points as a result of the pandemic. And if we're seeing a situation in which large firms are purchasing more small firms, then that market consolidation could worsen inequality still further. So I think we need a human capital focussed budget, given that the hit has been on the human capital side. And we also need to ensure that our competition laws aren't simply allowing the whales to snap up the minnows, taking advantage of the current economic circumstances, taking advantage of the fact that larger firms have the cash on their books to be able to further consolidate what are already pretty concentrated markets in Australia.

KOULOURIS: Thank you so much for your time. I really do appreciate the chat as always.

LEIGH: Pleasure.

ENDS

Authorised by Paul Erickson, ALP, Canberra.