Education at the heart of Labor’s positive plans for the economy - AM Agenda

MONDAY, 30 MAY 2016

SUBJECT/S: Company tax cuts; Labor’s positive plans for the economy.

KIERAN GILBERT: With me now on the program we've got Shadow Assistant Treasurer, Andrew Leigh, coming up the Finance Minister Mathias Cormann, but first the Labor perspective on last night's debate. It's good to have you in this morning, Andrew Leigh. I want to ask you about this core message from Labor. You're obviously strong on the education funding, that's one thing, but what about on the economic growth message? What's the core of Labor's plan to manage a transitioning economy?

ANDREW LEIGH, SHADOW ASSISTANT TREASURER: The first place to start is to recognise that as technology advances, worker skills have to improve. We know that Australia is being hit with a range of different technologies. If you're looking at the transport sector you've got big changes from Uber and driverless cars. If you're looking at the retail sector you've got the huge rise of apps for ordering. Any office job is already being hit with different changes in technology. In the face of all of that you've got to have a better-skilled workforce. We know that each individual year of education raises earnings by about 10 per cent, so it's not surprising to know that increasing the total pool of education in the economy has a big payoff. 

GILBERT: It's a much longer-term message in terms of the growth prospects of education. No one argues against more education money. In fact, last night Mr Turnbull said over four years the Government is putting in an additional $74 billion, Labor an additional $78 billion. It's not a huge discrepancy over 4 years and I'm asking you about the growth plan now as the mining boom ends. What's Labor's plan?

LEIGH: Well, Kieran, if you're talking about investment in early childhood, you're right that takes decades to pay off. If you're talking about investment in trades training or in universities, actually that payoff comes pretty quickly. It comes back immediately in the form of lower youth unemployment rates and better paid jobs. More productive workers help their co-workers as well. So I was astounded last night to have the Prime Minister bragging about the fact that he's going to be spending less on education. That's not the way to deal with a technological wave that's coming, nor with the growth of China and the economies to our north. We need to be plugged into the supply chains of Asia and the way in which we do that is through a better-skilled workforce.

GILBERT: So is it only education, is that your plan? Because, obviously, in this campaign the end of the mining boom, the transition to modern economy is pivotal, and reassuring Australians you've got an economic agenda has got to be key to that. Didn't look like Bill Shorten was fully across that last night, beyond the education message?

LEIGH: Kieran, education is the heart of it. So it's no surprise that in a strong performance last night, Bill Shorten went straight to that. But of course, we've got to be engaged in renewables. We're falling behind the rest of the world in renewables. We've got to make sure we have a tax system that's fit for purpose. Not one that's trying to attract investment to Australia by saying, ‘Here, look at our loopholes’, but one which is saying we need to invest in infrastructure. We have a 4 per cent fall in living standards since the Coalition came to office. GDP is up, but that's because GDP is the total pie. If you look at real net national disposable income per person, that's down 4 per cent. Part of that is that infrastructure has fallen under this Government by a fifth. So we'd invest more in infrastructure, we'd use cost benefit studies to make sure that we had thos e urban public transport projects as well as regional roads. We'd make sure that we had better funded schools, universities where every kid has an opportunity to get a place and a tax system which rewards the productive and the innovative rather than simply saying we should keep open loopholes for multinationals.

GILBERT: Well the Government is not doing that because it's obviously got its own crackdown on multinational tax avoidance. But in term of company tax, do you agree that company tax falls hardest on workers?

LEIGH: This is a very long-run assumption, Kieran. The way in which the company tax flow-through is supposed to work is that the immediate beneficiaries are foreign shareholders. Foreign shareholders are supposed to benefit in 2023 - I think it is - when the Government big business tax cut comes through. Then the idea is that some 7 to 10 years after that there is a flow through to workers’ wages. 

GILBERT: The tax cuts for small and medium sized business is immediately. So there are immediate returns. 

LEIGH: If you look at the Government's modelling of growth then most of their growth modelling is based on the big business tax cut, not the small business tax cut. And the channel in which they hope it works is ‘Let's give a big tax cut to foreign shareholders, let's hope that a decade later they increase their investment in Australia and perhaps by 2033 there will be an increase in wages’.

GILBERT: Do you accept that the company tax falls hardest on workers, that key question?

LEIGH: This is a very long-run analysis, Kieran. 

GILBERT: I'm asking you that simple question; company tax falls hardest on workers?

LEIGH: Over the short term, no I don't think that's true. Over the short term company tax is paid by foreign shareholders. So if your question is ‘How are we going to create the jobs that we need in this transition phase?’ then Malcolm Turnbull's plan is absolutely the wrong one.

GILBERT: The reason I ask you that is that Martin Parkinson said that company tax falls hardest on workers. He said that at an AFR summit last September and Chris Bowen was asked about that. He said that it's a statement of fact that I agree with.

LEIGH: It's really critical here Kieran to distinguish the short term from the long term. If your question is ‘What happens in the 2030s?’, we can have a conversation about that. But by then, Malcolm Turnbull would have exceeded Robert Menzies as our longest-serving Prime Minister. Australians don't need promises of economic growth in the 2030s, they need a plan which will start making a difference immediately. Labor's infrastructure investments will be creating jobs straight away, our willingness to make sure we've got a strong manufacturing sector has an immediate pay off and education is going to trump a company tax cut every time in terms of boosting long-run economic growth.

GILBERT: I guess the question is why has Labor changed its position on company tax when it has been an aspiration for Labor. Chris Bowen again last year has said that he wants to see a 25 per cent corporate tax rate, he has written that. We saw Mr Turnbull last night referring to Paul Keating also cutting company tax when in office. Why is Labor going cold on this issue now, given your own Shadow Treasurer has argued the case for it very recently?

LEIGH: There's a simple answer to that and that's the budget deterioration. Over the last 3 years we've seen an increase in debt per Australian by $5000. For you, for me, for each of your viewers, debt has gone up by $5000. This Government has tripled the deficit and they've been unable to make the hard decisions that would see the budget brought back under control. Because of that, Labor isn't able to support an unfunded company tax cut, which in the final few years is costing the budget a bomb. We'd love to see taxes as low as possible. My view as an economist is that taxes should always be as low as they can in order to fund the necessary services. But this isn’t the right call.

GILBERT: If it's unfunded, how can you then use the $50 billion or thereabouts to then fund your own promises because that's what you've been doing?

LEIGH: It is funded through cuts to schools and hospitals, that's the other way of thinking about it. What Malcolm Turnbull is doing is saying to Australians ‘I'm going to give a tax cut to foreign shareholders’ … 

GILBERT: So it is funded then? Because how are you then coming up with your own promises based on the company tax cut savings?

LEIGH: Kieran, funded by ripping money out of your local schools. If you call that funding then we can say this is a funded plan. That's a pretty brutal way to fund a company tax cut. Sure, if we had the rivers of gold of Peter Costello we could well have a debate about lowering the company tax rate. But in the current environment it's just not the right economic call for Australia. Living standards down … 

GILBERT: But for at least for small business you think it should be, but not medium business? So there is a justification for small business?

LEIGH: Well, Malcolm Turnbull would like to have you believe that a billion-dollar business is a small business. And that's frankly ludicrous. We don't believe that in the current environment it makes sense to rip money out of schools and hand it to foreign shareholders. 

GILBERT: Economically, why does it make sense, can you explain to our viewers why does it makes sense to have a tax cut for small business under $2 million but not the business on $2.5 million or $3 million turnover, why does that make sense?

LEIGH: We've had a well-established definition of small business, Kieran. We believe that such a tax cut is a prudent, affordable tax cut at this time. But we don't believe that these giveaways to the big end of town are right at the moment.

GILBERT: Explain the merits to it, to give that tax cut to for smaller business but the merits aren't there for bigger business? You're saying it's going to take forever to see the outcome. 

LEIGH: One way of thinking about this is to put it within the context of the innovation conversation Bill Shorten's been having. Labor has put forward an entrepreneurs’ year, we've talked about different ways to make sure start-ups have more opportunities to grow. Small businesses are invariably start-ups, every business starts small. And so a small business tax cut is an innovators’ tax cut. It's going to firms that are starting up, not to firms that have been going for many decades, that are multinational enterprises, and which already perhaps enjoy a significant degree of market power.

GILBERT: Just to wrap up where we kicked off in terms of the broader economic message, has Labor dealt with the savings necessary to fund your commitment to education? Because the Government argues – and I know it was criticised for over-egging it in terms of the black hole claim – but still if you take Labor at the best case scenario right now, you're still $18 billion behind where the Government starts off because of the measures that you have opposed in terms of savings in the Senate. So you're already $18 billion behind the starting point, can you explain how you're going to deal with those measures?

LEIGH: Kieran, I know people would love to have our budget bottom line before our policies are announced. But, frankly, that's not the way it works. We haven't yet announced our budget bottom line; the Coalition hasn't announced their final budget bottom line. You wouldn't expect that until policies have been announced. But you'll get our bottom line, you'll get it well in advance of when you got the Coalition's at the last election, which was after the media blackout had begun, just a couple of days before polling day. We've been out there with 100 Positive Policies; people can find them at, a website that lays out Labor's plan to build a stronger, fairer and more productive Australian society. You saw that on display last night from Bill Shorten. That sense of optimism about the nation's future and the notion that we need to invest in our kids, not have big giveaways to multinationals.

GILBERT: Andrew Leigh, thanks very much for your time as always.

LEIGH: Thank you, Kieran. 


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