ABC RN DRIVE
MONDAY, 30 SEPTEMBER 2019
Subjects: Australian economy floundering under the Liberals; Interest Rate Decision; Retirement Income Review.
TOM TILLEY: The Reserve Bank is widely expected to cut its official cash rate to the new historic low of 0.75 per cent. So is that actually going to solve our economic problems, or is it just going to push up house prices? We'll get to interest rates in just a moment. First, let's go to the Government's review of the retirement income system. This hasn't been done since superannuation was first made compulsory back in 1992. Andrew Leigh is the Shadow Assistant Minister for Treasury. Andrew, welcome to the show. The government started out by-
ANDREW LEIGH, SHADOW ASSISTANT MINISTER FOR TREASURY AND CHARITIES: Thanks, Tom. Great to be with you.
TILLEY: Great to have you on the show. They started out by ruling out lifting the pension age to 70. They also ruled out including the family home in the pension asses test. Is that a good place to start a review, by ruling things out?
LEIGH: Well, the Government’s got form on trying to cut superannuation. You may recall when the Abbott Government came to office they'd promised to continue with the legislated superannuation increases, and then they squibbed on that, just as the Howard government had done before. The big story of superannuation in Australia is that it's a Labor creation. Labor has always looked to expand it and make it better, and the Coalition has looked to reduce its benefits. So we've got a number of Coalition members arguing that superannuation ought to be voluntary, a position which one of the members of the review panel has held. And we've got a number of Coalition members who say that they shouldn't go ahead with the legislated increases to superannuation. So our concern is that this is about reducing the benefits of superannuation rather than improving them.
TILLEY: But Josh Frydenberg’s been out saying that they are going to go ahead with the legislated increase, of increasing voluntary super contributions from 9.5 per cent to 12 per cent. That doesn't kind of appease your concerns in any way?
LEIGH: The problem is we've seen this movie before, Tom. I mean, that's what John Howard said, what Tony Abbott said, and neither of them managed to follow through with it. The track record of the Coalition on following through on legislated increases and universal superannuation isn't a strong one. You know if they wanted to go after high fees, then they'd have Labor's strong support. Australians spend twice as much on superannuation fees as we do in electricity. $30 billion a year-
TILLEY: So you acknowledge that the super system does have some massive problems that need to be looked at?
LEIGH: I think there's certainly things you could look at, but you would look for bipartisan support, not by appointing a panel which includes somebody who's been a strong critic of the Labor Party, and who has called for superannuation to be voluntary.
TILLEY: So what do you think are the biggest problems with superannuation as it stands?
LEIGH: I think superannuation has been a huge benefit to the Australian economy. It's headed to $3 trillion now, and it's taken a lot of pressure off the pension. Plenty of countries around the world, particularly in Europe, would love to have Australia's superannuation system. But sure, we can make it better. We need to get those fees down. We need to make sure that more people are in accounts which yield higher returns with low fees. That ought to be a strong bipartisan agenda, but the Coalition as always seems to grab for the partisan option rather than looking to improve the system.
TILLEY: So the government's, as I mentioned before, ruled out lifting the pension age to 70. Does Labor support that?
LEIGH: Absolutely. We don't think the pension age should be increased, and we were the ones who when Tony Abbott proposed it fought tooth and nail against it. If it wasn’t for Labor, that pension age would have already been increased to 70 by the Coalition.
TILLEY: And do you stand shoulder to shoulder with the Government on not including the family home in the pension asset test?
LEIGH: Look, absolutely. It's been a consistent Labor position. But again, you just don't know what the Coalition is going to do in order to weaken the position of retirees. Already now they have a bill in the parliament which cuts the pension supplement. You've had a record of the Abbott-Turnbull-Morrison Government using every opportunity to have a go at retirees, to cut the pension, to reduce the benefits of superannuation. So with this kind of thing, don't listen to what they say - look at what they've done.
TILLEY: And has Labor worked out its position on franking credits yet?
LEIGH: We will announce our policies as we come to the next election, Tom. We’re just a couple of months after the last election. We're reviewing all of those policies and we'll work through those. Of course, you wouldn't want us to be announcing all of our policies for 2022 in 2019. Policies need to be right for the times, and we need to take our time to reflect on the election results.
TILLEY: I'm interested to see what happens with this review, particularly on franking credits. What if it comes back and basically says we should abolish franking credit refunds? Would Labor use that as, I guess, a reason to stick by your policy that you took to the last election?
LEIGH: Let's see the review comes back with. My concern at the moment is that it doesn't appear to be a review which is focused on the big picture, which is aimed at getting bipartisan consensus for the system. Superannuation is too important to be a political plaything, for the Coalition to sit there having playing their little games at attacking the high performing industry fund sector. My fear is that that's where we are going with this review.
TILLEY: You're listening to Andrew Leigh. He's the Shadow Assistant Minister for Treasury. This is RN Drive, I'm Tom Tilley. Andrew, tomorrow all eyes will be on the Reserve Bank to see if they lower rates. Most economists say they will. It'll be a record low of 0.75 per cent. Is this actually going to improve the Australian economy, or could it actually just risk pushing up house prices, particularly in Sydney which saw a really strong auction clearance result over the weekend?
LEIGH: Tom, I think cutting rates continues to have a beneficial effect on growth, but that effect diminishes the closer you get towards zero. It's generally acknowledged that you're hitting what economists call the lower bound, and therefore fiscal policy needs to do more work. The trouble is now as Su-Lin Ong from RBC Capital noted, the government's driven by poor politics more than by good economics. We've got a situation now where fiscal policy is running in the wrong direction, in which the government isn't willing to bring forward infrastructure spending at a time of which we had no growth in GDP per person over the past year. We've got one index of uncertainty three times as high as it was a decade ago. Investment intentions are down. Gold prices are high. Bond yields are down. Discretionary spending is down. New car sales are down. So a lot of reasons to worry about the Australian economy, and yet the federal government isn’t doing the hard work that it needs to do. It's leaving everything to a Reserve Bank that's rapidly running out of firepower.
TILLEY: Well, yeah. I mean, changing interest rates as the main I guess, the crux of your monetary policy seems like such a blunt instrument and I guess there's a lot of people concerned about some of the negative side effects it could have. That, you know, heading into potentially a period of negative interest rates or record low interest rates, it actually sparks more inequality because for the people that can access the finance at those low rates, they can they can jack up all the asset prices.
LEIGH: Look, you do hear that argument from time to time. The counter argument is that when we hit a recession, it’s the most vulnerable who lose their jobs. I left school in 1990 in the teeth of the last big Australian recession, and that was a brutal time for somebody with low education in Australia. So we have countercyclical monetary policy in order to protect the most vulnerable.
It's certainly true though that the interest rates are at historic lows. We've got in German 10 year bonds now with negative yields. The Austrians have just put out a 100 year bond that only yields 1 per cent, and that's got economists around the world scratching their heads at not only low interest rates now, but a forecast of low interest rates into the far future. So then it calls for more unconventional monetary policy. When we had the Reserve Bank governor before the House Economics Committee, I quizzed him about some of the options, including explicit forward guidance, and the particular asset classes that they might consider purchasing. He said they've learned a lot about this over the course of the last decade, so there's greater confidence that they would be able to execute unconventional monetary policy if requirements demanded it. But then you've got to say: why isn't the federal government singing from the same hymn sheet?. Why are they basically pulling in the opposite direction from the Reserve Bank?
TILLEY: It will be very interesting to see some other solutions rather than just putting down interest rates. Andrew Leigh, thanks so much for joining us.
LEIGH: Pleasure, Tom. Thanks again.
TILLEY: Andrew Leigh is the Shadow Assistant Minister for Treasury.
Authorised by Paul Erickson, ALP, Canberra.