It's not the size that counts, it's how government delivers - Sky PM Agenda

E&OE TRANSCRIPT

SKY PM AGENDA

PARLIAMENT HOUSE, CANBERRA

WEDNESDAY, 3 FEBRUARY 2016

SUBJECT/S: GST, tobacco excise 

DAVID SPEERS: With me now is the Shadow Assistant Treasurer, Andrew Leigh. Thank you for joining us.

ANDREW LEIGH, SHADOW ASSISTANT TREASURER: Pleasure, David.

SPEERS: On this spending point that Paul Keating has made today: “we need to trim our spending and not accommodate more of it by ever more taxation”. Labor is promising more taxation, more spending. 

LEIGH: There is no magic level of government spending. If you look across the advanced world, Australia sits towards the bottom of the pack. The size of government is similar to Mexico, Korea and the United States; well away from countries in Europe with 40 or 50 per cent of the economy being government.

SPEERS: If you're looking at what's happening here in Australia, Paul Keating’s point is we can't keep putting up spending and pay for it through higher taxes.

LEIGH: You always have to make sure that taxes are as low as possible in order to fund the services Australians demand. One decision that Australians collectively made over recent years was that we needed to do a better job in supporting people with disabilities. The National Disability Insurance Scheme does cost more, and one of the ways in which Labor funded it - along with other savings  - was to put in place a 0.5 per cent increase to the Medicare levy. 

 

SPEERS: Also with Gonski, you're saying we should increase a few different taxes, but it is primarily built on the tobacco excise which you want to raise $47 billion over the next decade on. Again, is this exactly what Paul Keating is arguing against? Is he right or wrong?

 

LEIGH: Paul Keating is right on the money when he says the GST is a bang-you-on-the-head tax which amounts penury.

 

SPEERS: He says we cannot keep accommodating more spending by ever more taxation.

 

LEIGH: We have got to get the mix of spending right. The Labor plan - the $70 billion the Parliamentary Budget Office costs our policies at - includes some savings measures. For example, we don’t believe it makes sense to go on paying polluters.

 

SPEERS: With respect, yes, there are some savings measures there - you won't go ahead with the emissions reduction fund, and the baby bonus element - but the lion's share, the bulk of what you're talking about here, is higher taxation.

 

LEIGH: We've got a mix of taxes and spending cuts. That's as it should be. 

 

SPEERS: What's the mix? 80/20? The bulk of it is higher taxes.

 

LEIGH: You're right to say the majority comes from tax.

 

SPEERS: Isn't that exactly what Paul Keating is arguing against?

 

LEIGH: What Paul Keating is arguing against is a higher GST, and I think he is doing that on very sensible economic grounds.

 

SPEERS: He's also saying we can't accommodate more spending by ever more taxation. Is that right or wrong?

 

LEIGH: David, it's a question of getting the mix right. If there is a social program that makes a difference in the lives of Australians, Australians have shown themselves willing to pay for it. Go back to Federation; government was far smaller than it is today. Look around the world, government is far bigger than it is in Australia and I wouldn't want our government to get to the size it is in many European countries. There’s no magic about this. The question for every government program should be: is it doing the job right? Have we properly evaluated it? Is the taxpayer getting value for money? And then on the tax side: are we raising it as efficiently as possible? That's one of the lies that the government keeps saying around the GST; suggesting that the GST is more pro-growth than income tax. That's completely at odds with their Re:think discussion paper.

 

SPEERS: What about Paul Keating’s suggestion that it might be alright to put up the GST by 1 or 2 per cent if that money goes to health?

 

LEIGH: Mr Keating, I think, was pretty clear about the impact of the GST on growth. You only have to look around for examples.

 

SPEERS: He advocated for it. He was one of the first.

 

LEIGH: If we want to back 31 years, David. We’d certainly have to delve back in the annals of Australian political history.

 

SPEERS: That's the thing, I'm imaging that you are like me somewhat and grew up listening to Paul Keating, and given you've landed where you have you obviously are fairly persuaded by the arguments he made over his time in politics. Am I right?

 

LEIGH: Paul Keating is the great political communicator. 

 

SPEERS: And a great Labor Treasurer?

LEIGH: Absolutely. It is also important for each generation to learn, to look around at the examples around the world.

SPEERS: So, he's wrong on this?

LEIGH: We looked at the lived experience of Japan which raised its consumption tax from 5 to 8 per cent and it drove that economy back into recession. One of the things you do when you raise a consumption tax is you hurt consumption. That's going to be the inevitable result. And you do it while worsening inequality. So at a time when Australians’ real disposable income per head is two per cent down from where it was when the government took office, it is really important that we have taxes and spending programs that boost growth and make a more egalitarian Australia, not ones which worsen both of those things.

SPEERS: Let me ask you about your tobacco tax, which is the biggest measure in this $70 billion mix as I was saying. It was $47 billion of that $70 billion. There are real doubts being expressed by economists about that number and about whether you really can achieve $47 billion by putting up tobacco tax because of its dwindling revenue base. More people will stop smoking if the price goes up, therefore there will be fewer people paying the tax. How confident are you that you can raise what you say you'll raise, and will you release the modelling?

LEIGH: One of the things about the way politics used to be done back in Paul Keating’s day is that Oppositions had to rely on privately commissioned  modelling as to the costs of their policies. That changed with the development of the Parliamentary Budget Office, an independent costing organisation where Oppositions can go to model their policies. Parliamentary Budget Office advice is what we based our costings on and they are not assuming that the smoking rate will continue as it is today, they are assuming it is going  to decline at double the rate that has it has been declining in recent years. That strikes me as pretty reasonable. More people quit, but not everybody would quit. So that allows us to have a measure which is good for health, but also adds to the budget bottom line and allows us to fund schools.

SPEERS: Will you release the modelling?

LEIGH: The Parliamentary Budget Office process is rock solid. We've gone through that process, as indeed the Coalition did when they were in Opposition. 

SPEERS: Would you release the modelling?

LEIGH: We rely firmly on the Parliamentary Budget Office. People should trust this is an independent costing, just as they would trust costings that are in the Budget.

SPEERS:  The thing is we have a lot of different economists saying "we don't trust this", "we don't believe this, we don't think you're going to be able to raise the money and therefore pay for all these things you are committing the money to”.

LEIGH: When the Budget is handed down, do you have the Treasurer sitting in this seat asking him: will you release the modelling for every line item in the Budget? Of course you don’t. You trust that the Treasury has carefully done the costings for each item that appears in the budget. The same people who do those Treasury costing are often seconded into the Parliamentary Budget Office. It makes sense, as we want to make sure the two organisations are getting similar numbers. People should have a confidence in the Labor costings because they are based in the independent Parliamentary Budget Office, the same Parliamentary Budget Office that costed the Coalition's policies when they were in opposition.

SPEERS: So it won't be released?

LEIGH: We stand behind our costings and the Parliamentary Budget Office stands behind out costings.

SPEERS: Closer to the election would you consider this or not?

LEIGH: If you can persuade the Coalition to release every bit of modelling behind every number in the Budget, then let's come back and have that conversation. Until then, let's not have a double standard for oppositions than governments.

SPEERS: Sure, and I appreciate that but you must acknowledge this particular measure you have announced on tobacco tax does have a lot of economists out there now saying we don't believe it.

LEIGH: I think they simply need to take into account the fact that we are not modelling a continued level of smoking as it is today. We are assuming that there will be a decline in the smoking rate, a more rapid decline than we've seen in recent years. That strikes me as pretty sensible. I'd be surprised if sensible economists wouldn't look at that figure and say: well this can be a measure that cuts smoking and raises revenue over the decade.

SPEERS: Andrew Leigh, Shadow Assistant Treasurer, thank you joining us this afternoon.

LEIGH: Thank you, David

ENDS

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