A budget that punishes the unemployed and low income - Discussion on Radio National Drive

Yesterday I spoke about the federal budget with ABC Radio National Drive host Waleed Aly and the Liberal's Josh Frydenberg. Here's the full transcript:

RADIO INTERVIEW

ABC RADIO NATIONAL DRIVE WITH WALEED ALY 
WEDNESDAY, 15 MAY 2014

SUBJECT/S:  Tony Abbott’s Budget of broken promises; manufactured debt crisis and debt levy; fuel excise indexation; budget impact of losing mining tax and carbon price; premiers angry about cuts to schools and hospitals funding

HOST WALEED ALY: What do you make of the Budget? The Prime Minister said it’s tough and fair. The Opposition leader Bill Shorten says it is full of broken promises and bad news. Joining me now to thrash this out is Josh Frydenberg, Parliamentary Secretary to the Prime Minister, and Shadow Assistant Treasurer, Andrew Leigh. To both of you, thank you very much for joining us.

SHADOW ASSISTANT TREASURER, ANDREW LEIGH: Pleasure.

JOSH FRYDENBERG: Good to be with you.

ALY: I might start with Josh, with this whole idea, the overarching aim of this, the overarching promise was to get the Budget back into shape. We had a fiscal crisis, a budget crisis, yet at the end of all this, the deficit has been reduced by $4.1 billion for the next year, which is not really crisis proportions. What happened to the crisis? 

FRYDENBERG: Well it’s true that we have a debt problem. On Treasury’s own numbers, debt is expected to reach $667 billion within ten years and the problem with having such a large amount of debt is that you have to service it with the interest bill, and the current interest bill to the Australian taxpayer is about $12 billion a year, that’s $1 billion every month. So as a result of the announced measures last night, we’ll cut about $300 billion out of Labor’s debt over the next 10 years.

ALY: But you said crisis. Crisis is about a short term, urgent response and in December you forecasted a particular deficit and this deficit that’s now been forecast is only $4 billion less. Now that is not an emergency response.

FRYDENBERG: Well actually we are forecasting a substantial reduction in the deficit as a result of the announcements last night. $49.9 billion is the deficit currently. We are going down to $29.8 billion next year and by 2017-18 just down to $2.8 billion -

ALY: You estimated $33.9 billion in the MYEFO in December. It’s now $29.8 billion. It’s a difference of $4.1 billion. As I say again, that’s not an emergency response.

FRYDENBERG: It’s a massive reduction on the $49.9 billion and as I said, looking in the out years, 2017-18 you’re down to $2.8 billion. But it’s not just about what we’ve done to reduce debt, that’s part of our message, the other important part of our message last night was why we want to boost productivity and growth and we’re doing that through a record investment in infrastructure, the $50 billion particularly in transport infrastructure, the investment in education and innovation, deregulating the university sector, putting $20 billion into the Medical Research Future Fund, giving people who are going to TAFE or who are on apprenticeships support from the Commonwealth for the first time. Then the third leg of this growth strategy is about boosting participation in the economy. That’s about getting senior Australians who are over 50 years of age who have been on unemployment benefits or the disability support pension back into the workforce by giving an up-to $10,000 payment to employers to help take them on as well as getting younger people, under 30s who may otherwise be on the dole, try to get them into work, try to get them into training so that they don’t have to spend a lifetime on welfare, as well as what we’ve said about the Paid Parental Leave Scheme, which is particularly for keeping women in the workforce after they’ve had children. So it’s a comprehensive strategy.

ALY: There’s a lot that we can try to get into. We’ll be looking at infrastructure in more detail in the next hour of the program so perhaps put that to one side for the moment. Andrew Leigh I might come to you though on one particular measure and that is the fuel excise, the idea that the Government is now going to index it basically, so we’ll be paying a little bit more for fuel over time and that that will help deal with the budget situation that we have. Why is it that Labor insists on opposing this when it was initially a political measure opted by John Howard to deal with the pressure he was facing over the GST?

LEIGH: Waleed, the position we’ve taken on fuel excise is driven by two things. The first is cost of living pressures which the Government spoke about an awful lot in Opposition but seems much less concerned about it now they’re in Government. And, the second is that we believe that the Government having made a very clear promise that there wouldn’t be any new taxes, it’s appropriate for Labor to hold them to that.

ALY: So does that mean you’ll be opposing the debt levy then?

LEIGH: We’ll make our position clear on that in the coming days. We were against it when it had a much lower threshold. Now that the threshold’s gone up we’re less concerned about it than we were and pleased to have seen that increase.

ALY: Sure but you just finished telling me that it’s important for you to hold the Government to its own promises. That would be one of those promises. Why would the position change simply because the details of the levy have changed?

LEIGH: Well we’ll work this through in the coming days. The Budget has only come down last night and you’d expect a serious political party to go through proper processes in working out what we’re going to focus on.

ALY: Alright, in the case of the fuel excise then, the fact that it’s a broken promise shouldn’t really factor into it, should it? It should really just be about whether or not it makes good policy?

LEIGH: Well each of these tests are brought to bear and your listeners will have heard Chris Bowen talking about the tests of fairness, and promise breaking, that we apply to each of these questions. But I can’t let slide some of the comments that Josh is making about the broader fiscal situation. When Tony Abbott came into office, in his first budget update, he doubled the deficit. It’s an extraordinary thing to do just a couple of months into the job to actually manage to double the deficit over four years. But that’s what he did. Things like saying no to billions of dollars of mining tax and carbon price revenue, and now in this budget he has not managed to halve the deficit, not to managed to get it back to where it was, but simply to shave about a fifth off the four-year deficit.

So this a Budget that is in worse shape than the state of the books when the Government took over. And it’s appropriate that we look at the point at which the Government took over. Under the Charter of Budget Honesty, the books were set out very clearly by the secretaries of Treasury and Finance and indeed had a return to surplus in 2016-17 which is now 2017-18 under this budget. And so, once you say no to revenue from the mining tax, once you say no to revenue from the carbon price, once you cancel a bunch of measures that fairly tax multinationals, a billion here a billion there, soon you’re talking real money. And while the hits on low income earners in this budget are substantial, they still don’t make up for the huge loss of revenue in the decision that the Government made last year. 

FRYDENBERG: Waleed can I just say, when it comes to the fuel excise, the point you raised, Bob Hawke introduced an indexation of fuel excise. When it comes to co-payments on PBS, Bob Hawke introduced that. In fact, Andrew Leigh has written publicly how he supports co-payments when it comes to Medicare. When it comes to the deregulation of university fees, Andrew has also written publicly about the need to support those types of mechanisms. When it comes to lifting the pension age, you know Kevin Rudd lifted the pension age to 67 and we are going to take it a step further to 70. When it comes to an efficiency dividend for the ABC, Bob Hawke initiated an equivalent type of efficiency dividend.

The measures we introduced last night are not new to the political lexicon or to the political debate. What concerns me is we do have a budgetary situation where we do need to rein in spending. The Labor Party, when they were in government, didn’t oppose such measures, but now that they are in opposition they are being very opportunistic in their approach to these issues.

ALY: We will get Andrew Leigh to respond, but Josh Frydenberg do you really want me to go down the path of comparing what was said before the last election to what said after it? We can do that, but it would take the next half hour and we would be talking about broken promises for the rest of the program. It is your call if you want to do that.

FRYDENBERG: I am happy debate what our priorities are -

ALY: That’s not what I said. I spoke about promises not priorities -

FRYDENBERG: We have an opportunity now to govern. We have seen the state of the books and we do think we need to institute some changes. We have tried to ensure that the burden falls across the entire Australian population. That is why we have introduced a three year levy for people earning over $180,000. If the Labor Party was to oppose that I would be very surprised.

ALY: We will see what they oppose. I have tried to get an answer -

FRYDENBERG: We have been criticised by our own base for going there, but we have tried to ensure that the burden falls across all Australians.

ALY: I will come to the question of burdens soon, but Andrew Leigh you have been quoted by Josh Frydenberg there a couple of times. Are there any points you want to make or qualify?

LEIGH: I am flattered that the Coalition is so interested in my work. I would say that if they are interested in the back catalogue they might enjoy the new stuff as well.

FRYDENBERG: Send me a signed copy.

LEIGH: On the issue of Medicare co-payments, yes, when I was in university I wrote an op-ed for the Sydney Morning Herald arguing this is a good thing. In the ensuing decade and a bit, I have spoken to a range of experts, including the sort of experts we have seen come out today – the AMA, the Doctors Reform Society, the Royal College of GPs – all of whom have said this is bad policy. I have done what I think your listeners would hope any good member of Parliament would do, which is that I have changed my mind as new evidence has come in. I’m very comfortable doing that and that is how I will continue to behave while I am in public life. I do think though this is a budget that is coming at a time when we have seen a huge rise in inequality in Australia. And after that period of rising inequality, where billionaires have made-out much better than battlers, we ought not to be putting in place a set of measures which hit battlers much harder, in which we are putting in place Medicare co-payments, cuts to the pension and disability supports and cuts to foreign aid, just so we can pay for a parental leave scheme, which give three times as much to affluent families as to middle-income family, just so we can give a tax cut to mining billionaires – some of the richest people on the planet – and just so we can give money back to high-income superannuants. It is the wrong set of values and priorities.

ALY: I want to come to that question, who exactly is sharing the burden here. Josh Frydenberg, let’s pick up that point. You say that this is about sharing the pain fairly, but apart from the debt levy, which is aimed at people earning over $180,000 and actually doesn’t raise that much money – something in the order of $3.1 billion over 4 years – and is temporary, apart from that I can’t really see how anyone earning over $180,000 is being punished at all or certainly not in any way that is like a young person who finds themselves unemployed after university or someone on a disability pension or someone who struggles to find the money to go to the GP if they have to pay the $7 per visit.

FRYDENBERG: When you raised universities it was interesting that Andrew skated over that issue. I would be interested to know if he still believes in what he said previously about the deregulation of the university sector.

LEIGH: You can talk about my writings all night, Josh.

FRYDENBERG: These Medicare co-payments and these Pharmaceutical Benefit Scheme co-payments that will fall upon a large number of Australians, even those in the higher income brackets. People talk about big business – 3,000 of the largest businesses will see this 1.5 per cent levy in order to fund the Paid Parental Leave scheme. There are a number of measures that are going to fall upon the higher income earners. The point about some of the other changes we have announced is we are trying to get efficiencies in the system -

ALY: That is not the question I asked. The question I asked is what is falling on the highest income earners. Apart from the debt levy and, perhaps, indirect things – taxes on the biggest business, which doesn’t necessarily hurt people on $180,000 more than it would hurt people at the lower end of the income scale – apart from that I can’t see anything. You didn’t target superannuation, for example, and the income derived from that for the highest earning people – the people with the most in super, which would have given you much more money and probably would have made a bigger budgetary difference. Where is the argument? How can you make this argument that it is actually a fair burden that is being carried by the highest earning Australians?

FRYDENBERG: A 2 per cent increase to pay for the debt in a person’s income is very significant. They already pay, as you know, on our progressive tax scales, a higher amount as a result of their higher earnings. I don’t think you want to underestimate the significance of that particular initiative that we have introduced. There are a number of ways that they will be paying through the system, for the belt tightening.

It is in everybody’s interest, even those on lower incomes, to see the government become a bit smaller and a bit more efficient in services.

ALY: Sure, but not at their expense. There’s about $36 billion in spending cuts that are grabbing headlines in this budget. About $20 billion of them will be borne by low and middle income earners, and then the rest are largely regressive measures, I mean, the increase in the fuel excise is a regressive measure as it will impact lower income earners disproportionately to high income earners. The only one left is the debt levy.

FRYDENBERG: But the fuel excise changes, all that money is going to go into road transport. When it comes to the co-payments on Medicare, all that money is going to go into the Medical Research Future Fund -

ALY: Right. But my point is about who is paying for that, and it’s disproportionately low and middle income earners.

FRYDENBERG: And if you looked at the percentage of the Commonwealth’s tax revenue that is paid by the top 3 per cent of income earners, it’s over 20 per cent. So you see a disproportionate amount of tax revenue in this country actually taken from the smallest number of Australians. And that’s how we like it, because we want to have a progressive tax system. So when you talk about where the burden is falling, it is falling across all sectors of the economy, and it is falling across all income earners in the economy. But when we looked at, for example, the pension age, we said you cannot go on as business-as-usual when you’ve got people living much longer. And Australia does have a demographic challenge, and already the pensions are a $40 billion expense to the Commonwealth every year – 10 per cent of the budget – the single largest item. Unless we keep older Australians in the workforce for longer we will have a huge problem in the sustainability of our budget.

ALY: Andrew Leigh, can I just ask you critically, what would you have liked to have seen that would have been more equitable. Do you have any suggestions as to how higher income earners of Australia might have contributed more?

LEIGH: Let’s just take one example, picking up from when you and Josh were speaking before. Next year the tax concessions to superannuation will exceed total spending on the pension, and will continue to rise more rapidly thereafter. We put in place a modest measure in government that said that if you’ve got more than $2 million in your super balance then you’re getting an annual tax concession bigger than the size of the full rate pension. At that point we thought it was reasonable we might ask you to pay a little more tax. The Coalition didn’t think that was a reasonable measure, and you’ve got people now with say $20 million in their super balances who are getting annual government assistance in the form of a tax concession of half a million dollars a year. I don’t think that’s a fair way of sharing the burden across the community, and I think, as you rightly pointed out, the high income earner levy is not only a broken promise, but it’s a broken promise that raises less money than the Mining Tax. I’m frankly surprised that the Prime Minister in Question Time wanted to focus on things that I wrote more than a decade ago when I was a university student rather than talking about things that he said last year while he was campaigning to be Prime Minister. I really do feel as though we’re playing a ‘pick the kept promise’ rather than a ‘pick the broken promise’ game. Those promises about no cuts to the ABC or SBS, well they’ve been broken, the promises about a unity ticket on education have been broken, the promise not to cut health, well that’s gone, and the promise not to put in place new taxes has gone by the wayside as well. It’s a bull in a china shop approach, and extraordinary from a Prime Minister who criss-crossed the country for the last three years saying that he would keep his word, and that promise-keeping is paramount to him.

ALY: I understand the point. I do, however, look forward to how many of those broken promises you will support, but we’ll see what happens. I know they’re not your promises.

LEIGH: Well I’ve told you a couple, and we’ll make those decisions, as you’d expect us to do, seriously sitting down and taking our time with the Budget. We just got the Budget last night.

ALY: Yeah, I understand that. Before we go though I do have to raise the issue of $80 billion being taken out of health and education, I mean, scandalous that we can only devote a minute or two to it here. But, Josh Frydenberg, that is money on that is being taken away from the states on the theory that they run these hospitals and they run these schools, and so they should fund it. Where exactly is that money meant to come from to make up the shortfall? Can you pinpoint that for me?

FRYDENBERG: No I can’t, and let’s just see where the states go in terms of trying to fund health and education -

ALY: Alright, so just to cut to the chase as we’re running short on time. Do they have anywhere to go except to raise the GST?

FRYDENBERG: Well they certainly have options in front of them and as the Treasurer has said, he is happy to engage in further discussions with the states in order to try to get efficiencies and overcome the duplication in order to get better service delivery?

ALY: Could you name me three sources of revenue that could cover $80 billion?

FRYDENBERG: I’m not going to do that favour for you.

ALY: It’s about the vertical fiscal imbalance, that states can’t raise this sort of revenue.

FRYDENBERG: But as the Treasurer pointed out, every cent of the GST goes to the states, and we were asked by Kevin Rudd to keep to these deals that he signed with the states which we didn’t think were appropriate, where the Commonwealth picked up the tab for the service delivery that it’s not responsible for. We don’t run schools, we don’t run hospitals. We tax for the GST and all that money goes down to the states. That’s where the discussion will go -

ALY: Alright, I’m going to give the last word, unusually, to Campbell Newman on this, he had this to say today:

[EXTRACT]

CAMPBELL NEWMAN: I was particularly annoyed by the Treasurer’s interview on the 7:30 Report last night. This is not about the GST. Okay? This should not be about some political wedge. This is about a fair share of the income tax that mums and dads in Queensland pay coming back to fund their hospitals and their schools. They deserve that. They deserve nothing less.

ALY: I want to go to COAG, Josh and Andrew, I want to be there. I want you to sell some tickets for the next round!

LEIGH: A kick in the guts for the people of this state with Mike Baird’s comment as well, so they’re on a unity ticket there.

ALY: Lots of colourful comments there. Good to see the federal state tensions and rivalries are well alive. Josh Frydenberg, Andrew Leigh, I’d love to keep going but sadly I must move on. Thanks for your time.

FRYDENBERG: Thanks, Waleed. Thanks, Andrew.

LEIGH: Thanks, Waleed. Thanks, Josh.

ENDS

 

 


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