THURSDAY, 3 SEPTEMBER 2015
SUBJECT/S: State of the Australian economy; Superannuation; Government backflip on Bank Deposits Levy
STUART BOCKING: Labor's Shadow Assistant Treasurer is Andrew Leigh and he's on the line now, good morning.
ANDREW LEIGH, SHADOW ASSISTANT TREASURER: Good morning Stuart.
BOCKING: What's your take from the figures yesterday, those GDP figures, what we've seen with the value of the dollar and of course, the market volatility over the past week or so?
LEIGH: Stuart, we're in an economic transition with the investment phase of the mining boom phasing down and subtracting from growth. What we need is a Government with a clear plan for what comes after the mining boom. For mine, that would involve heavy investment in technology and engineering jobs, making sure that we're creating jobs in renewables rather than attacking the solar and wind sectors, and making sure that we've got significant investment in long-term growth. What I worry is that Joe Hockey is much keener on finding excuses than finding solutions. Last time the growth figures came out he was all focused on the quarterly numbers because that's what made him look good in the international comparison. Now he wants us to look at the annual numbers because that's what makes him look good.
BOCKING: In fairness, governments are always at that – you'd be doing exactly the same thing and have in the past when you were in government. You're always going to look for the numbers that do seem most appealing. I think one of the difficulties many people have is accepting that countries like the US, countries like Greece have a better rate of economic growth than we do.
LEIGH: That's absolutely a concern for me, Stuart. And you can take simple numbers that we know should be going in one direction and see that they're going the other. The unemployment rate should be going down, instead it is now at a 13-year high. Consumer sentiment should be getting better, but instead it's 11 per cent down from where it was at the election. Growth ought to be getting better but instead growth is waning. The deficit ought to be falling – Mr Abbott said that would be his number one test of economic credibility – but the deficit has doubled in just the last 12 months. So the numbers that should be going up are going down, and the numbers that should be going down are going up.
BOCKING: I notice today that the Prime Minister has been mounting an efficiency argument for a higher GST. Is there any way that you can see – given Labor spoke previously about rolling back the GST and then happily collected that when you were in government – are there any set of circumstances which you can see where other Labor states fall into line and so you'd back an increase in the GST?
LEIGH: Stuart, tax reform should be based on equity and efficiency. Everyone knows the GST is not an equitable tax –
BOCKING: It is ruthlessly efficient though.
LEIGH: Let's look at efficiency. The Government's own tax discussion paper says that the GST is just as efficient as income taxes. It doesn't say, as the Prime Minister sometimes likes to claim, that the GST is a fabulously efficient tax and income tax an inefficient one. It says they have exactly the same efficiency impact. But at a time when growth is fragile we can look to Japan, for example, which whacked up its consumption tax and saw two quarters of negative growth. So that doesn't seem to be a good recipe for confidence in the Australian economy right now.
BOCKING: Often we'll point to other examples – Canada being one of those, it has now slipped into recession as well. We are still performing better than them so do we just have to accept, given what's going on in China and the volatility of the markets, that this is a time where we are entitled to be running deficits and we do have to rely on a level of government spending because that's the time where governments are entitled to run deficits?
LEIGH: Stuart, we certainly know that if it weren't for the 40 per cent jump in defence spending, the economy would have had negative growth yesterday. What's important is that we have a government which has a long-term plan for moving us back into surplus. Joe Hockey has dumped a $1.5 billion budget repair measure because he got rolled in Cabinet, and sluggish growth figures suggest that he's going to struggle to get back into surplus even without that decision. The Reserve Bank Governor is already warning that the Government's growth forecasts are too optimistic and I don't get the sense that the Government is planning for the two big events in the global economy that really concern me. That's the Chinese stock market shakedown and interest rates going up in the United States, either at the end of this year or the beginning of next.
BOCKING: When you look at those growth forecasts, obviously they are forecasting about 2.5 per cent, that would put them about half a per cent higher than where they are now. That is going to have an impact on all of those budget projections. But the difficulty we've got is that when Labor was last in office we kept hearing about a return to surplus, it never happened. What guarantee can you give us that if, at some point, Labor does return to office, that it will be a different story next time around and that there will be a concerted path to surplus? We were told before there would be but it never happened.
LEIGH: Stuart, fiscal credibility is absolutely fundamental for an alternative government. That's why we laid down a multinational tax plan during the first half of this term, and a plan to tackle high-end super concessions, which aren't fair and aren't sustainable. We've said we're open to the conversation around negative gearing, and open to a sensible, thoughtful approach to tax reform. We really need to make sure that we're paring back spending that isn't necessary, and making sure we've got the tax mix absolutely right. Because as you say, you can't run deficits forever.
BOCKING: This actuaries report which was out yesterday highlighted that for many low income earners, they'll still have to rely on the pension no matter how long they're in the superannuation system for. Is there an argument where you look at lower income earners and perhaps exempt them from compulsory superannuation because they're never going to have enough in retirement to be able to fund themselves anyway? They're going to be relying on government handouts, so would it not be better to allow them to have that money, as we did many years ago, to spend that money to drive the economy today and then retire on government benefits as many people did years ago anyway?
LEIGH: I don't like an Australia in which we have a two-tier retirement system: a $20,000 pension for many and superannuation for the few.
BOCKING: Well but it wouldn't be 'the few' – we're talking about people maybe below $37,000 or thereabouts. To a degree we do have a many-tiered system now because it is based on your capacity to put money in throughout your working life. So clearly higher income earners are going to do better out of it in the long term.
LEIGH: They'll certainly end up with higher balances. But it doesn't mean that everybody shouldn't benefit from universal superannuation. We put in place a thing called the Low Income Superannuation Contribution which said that if you're earning less than $37,000 a year then the Government will make a modest contribution to top up your superannuation. That reflects the fact that the super tax breaks are worth more for those at the top, but also the need to make sure everyone has a decent super balance. We see a big gender gap in superannuation, and two-thirds of those who benefited from the Low Income Super Contribution were women. Sadly, when that was scrapped three million low paid Australians saw smaller super balances than they would have otherwise.
BOCKING: Will the bank deposit levy come back under Labor if you are re-elected?
LEIGH: We'll certainly be asking the Reserve Bank Governor about his views on it. He's appearing before the House of Representatives Economics Committee in a couple of weeks. This was a recommendation that came out of the Reserve Bank and we'll take a serious and considered approach to policy.
BOCKING: Because since then APRA has altered some of its capital requirement rules, which has had the banks going back to shareholders asking for capital injections. Does that not reduce the risk of them collapsing and thereby mitigate the concerns around the reason for a bank deposit tax in the first place?
LEIGH: We'll have a sensible conversation with the experts on this. Let's not forget that as recently as 12 April Joe Hockey was out spruiking his bank deposit levy –
BOCKING: I know, but the fact is they've now got rid of it. We can argue about when they were last talking about it but they got rid of it this week.
LEIGH: Indeed, and keeping up with the backflips from the Abbott Government is a full-time job at the moment.
BOCKING: Well, they haven't got a mortgage on that, Andrew, I can assure you.
LEIGH: I think they're setting some new records on it, Stuart.
BOCKING: You had a couple of changes of leader, different Treasurers and other things but anyway, good to chat with you this morning. All the best.
LEIGH: Thanks Stuart.
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