MONDAY, 31 JULY 2017
SUBJECTS: Labor’s plan for a fairer tax system for all Australians.
RAFAEL EPSTEIN: Andrew Leigh is the Shadow Assistant Treasurer, he is part of Bill Shorten's team. Good morning.
ANDREW LEIGH, SHADOW ASSISTANT TREASURER: Good morning Raf, how are you?
EPSTEIN: How many trusts will pay more tax because of this?
LEIGH: Something in the order of around 300,000 trusts, affecting only around 2 per cent of taxpayers. This is dealing with the issue of income-splitting, which is a trick by which high income professionals have been able to use multiple tax-free thresholds. Where a regular wage earner gets to have their one tax-free threshold, there has been increasingly this practice of income-splitting which has meant that people have been able to use adult children and sometimes the tax-free thresholds of their parents to pay less tax than regular PAYG taxpayers.
EPSTEIN: I guess the obvious question is how do you know you're hitting income splitters and not genuine small businesses?
LEIGH: Because that's exactly the way the policy is designed, Raf. There has been some speculation around taxing trusts as companies. We looked at that, but we thought that that would have exactly the sort of unintended results that you're talking about there. What we've done is build on work that John Howard put in place in 1980 as Treasurer. He changed the rules at that stage and so that for people trying to distribute money to children, those children would then pay the top marginal tax rate. We haven't said that people will pay the top marginal tax rates for distributions to mature age beneficiaries, we've said instead it would be a 30 per cent tax rate. But it does go to exactly that same issue of income-splitting.
EPSTEIN: How do you know you're not going to hit people? There might be someone distributing to people in the trust and they’re not at that 30 per cent, they're a genuine part of a small business you might hit them?
LEIGH: Well Raf, if you're an employee of a small business then the regular arrangements continue, you're unaffected by this. But if passive income is being distributed through a discretionary trust, then you pay a 30 per cent tax rate on that. If you look at who is getting the benefit of trusts, they're heavily skewed to the top end, the richest fifth of Australians have almost all of the wealth that is held in discretionary trusts. This is about making sure that our system is fair, that you don't have what Bill Shorten has correctly called a two class tax system in which one set of taxpayers simply have a single tax-free threshold while another set of taxpayers get to make use of the tax-free thresholds of their family members.
EPSTEIN: I wonder if you're going to release, I think you've got Parliamentary Budget Office costings, I know you put out some factsheets over the weekend - but will you release all of the work that the PBO did for you?
LEIGH: We've released a considerable amount of detail. If you go onto my website, you can see a media release, you can see a 10 page factsheet setting out a range of detail there. The policy itself is very simple.
EPSTEIN: I understand the principle and you've given a good explanation, I just don't understand why you wouldn't release the PBO costings. Then people can see the numbers you've put in, the black box workings, all those sorts of things. Why wouldn't you release them?
LEIGH: Raf that's something we can look at in the coming days but certainly what I can tell you now is that the policy has been costed by the Parliamentary Budget Office, it raises $17 billion over the course of the decade and it is a policy that has been very carefully thought through. We've made a decision to exempt a range of trust categories – deceased estates, testamentary trusts, charitable trusts, farming trusts - they'll all be unaffected by these changes.
EPSTEIN: Why are farmers exempt and not other small businesses?
LEIGH: Farmers face unique volatility in terms of the way in which their earnings are affected and the trust structure is one which has a much longer history in farming. So we felt that that was appropriate-
EPSTEIN: So it’s not just a political decision because you’re a bit more afraid of upsetting that sector? I can think of lots of small businesses who would be listening and they’re probably saying ‘listen, my business is just as wildly fluctuating as agriculture’.
LEIGH: Raf, if people want to criticise us for not going far enough, I’m happy for the Government to come out and make that argument-
EPSTEIN: It’s more about why you make the decisions on who you target?
LEIGH: As I’ve just explained to you, it’s got to do with volatility in the farming sector.
EPSTEIN: If you do run a small business and you’ve got a revenue between $2 million and $10 million – and they’re the people doing a lot of the heavy lifting in the economy, the revenue $2 million to $10 million – Labor’s opposed to a tax cut for those sorts of businesses. You want to restore penalty rates, which is great for the workers but not so much for the small businesses. Do you have much to attract a small business vote if you’re opposed to tax cuts and putting up their labour costs?
LEIGH: Well, Raf, what small businesses need is greater demand. If you look at people who are on penalty rates, they’re spending their entire pay cheque – they’re some of the best customers for small businesses. Right now we’ve got real wages going backwards for many Australians, which means they’re not opening their wallets to the local small business.
EPSTEIN: Well, isn’t that Labor’s version of trickledown economics?
LEIGH: This is about making sure there’s a strong economy. There’s nothing that’s good for a small business about having a sluggish economy, the economic circumstances we’ve got right now. There’s nothing good for a small business about having a two-class tax system in which there’s a range of tax dodges that multinationals are able to use but small business can’t. That’s why we suggested to the government that they need to crack down on debt deduction loopholes and the use of tax havens. That’s again about making sure we don’t have a two class tax system – one for regular Aussie small businesses and one for multinationals that are able to stash money in the Caymans or Bermuda or take advantage of internal company loans. All of these sorts of things are about Labor making sure that we get a fair tax system – not just fair between the affluent and middle income Australians, but also fair between multinationals and small businesses.
EPSTEIN: Andrew Leigh is with us, he is the Shadow Assistant Treasurer and part of the Opposition’s economic team. Bill Shorten announced a few ideas over the weekend. I will ask about the republic, but just one question to you, Andrew Leigh – why shouldn’t families get a tax break? That’s a text from Bruce, why shouldn’t families get a tax break, keep the tax break if they’ve already got one?
LEIGH: Middle-income Australians will be better off in income tax terms under a Shorten Government than they will under a Turnbull Government. Malcolm Turnbull wants to raise the taxes on average earning Australians through an increase in the Medicare levy. Bill Shorten said he doesn’t believe that we ought to be increasing taxes on middle income Australians. So again, that’s how Labor will work to ensure that middle-income Australians are better off under a Labor Government than a Coalition Government.
EPSTEIN: The Opposition Leader announced that if Labor were to win, there’d be one simple referendum question on whether or not we should be a republic and then another later question on what that republic would look like. We could end up in a big mess, couldn’t we? We’ll all have said yes and have no idea on how to agree on where we’re going.
LEIGH: Raf, I think this goes to the problems of the republican referendum two decades back. I represent the ACT, the only jurisdiction in Australia to step up in favour of a republic and I think that reflected the fact that you had that three way split in the last vote.
EPSTEIN: But none of that’s a solution.
LEIGH: Well, it is a solution because what we need to do is establish the support for a republic rather than having the direct electionists and the monarchists working together against the parliamentary republicans, as happened last time around. We do need to recognise this as an important platform in Australia’s modernisation process. We wouldn’t sit down today and write a constitution that said Australia’s head of state couldn’t be an Indigenous Australian, at a time when which we’re talking about Reconciliation. We’d never say that they couldn’t be Catholic, that they had to be part of one specific Germano-British family. We wouldn’t pick a head of state that spent most of their time on the other side of the world.
EPSTEIN: We’ll have a lot of referendums though, won’t we? Because you’re very keen, as party, on Indigenous Recognition as well, four year terms – if Labor wins, who many different constitutional questions will voters face?
LEIGH: Well, Raf, we need to continue the process of modernising the constitution. I’m a fan of Thomas Jefferson’s notion that we should go through the regular process of thinking about updating the constitution every once a generation or so. But we don’t have a great track record of getting referendums through in Australia and so it is important to think about ways in which we can engage in that vital modernisation process of our nation’s founding text and make sure we bring people along with us. The way in which Indigenous Australians are just left out of the constitution is a serious blight. We need to tackle that one. We also need to make sure we move on with becoming a republic and making sure somebody that supports the Wallabies and the baggy greens is actually able to stand for Australia’s head of state. We can do all of that while making sure we’ve got a fairer society and a stronger economy.
EPSTEIN: Thanks for your time this morning.
LEIGH: Thank you, Raf.