TUESDAY, 24 MARCH 2015
SUBJECT/S: budget; Abbott Government’s broken surplus promise
EMMA ALBERICI: Joining me now from Canberra are the Assistant Treasurer Josh Frydenberg and Shadow Assistant Treasurer Andrew Leigh. Gentlemen, welcome.
SHADOW ASSISTANT TREASURER ANDREW LEIGH: Good to be here.
ASSISTANT TREASURER JOSH FRYDENBERG: Hi, Emma.
ALBERICI: Josh Frydenberg, when did the budget crisis end?
FRYDENBERG: Look, we were left a fiscal nightmare by our opponents and we've spent the last 18 months trying to repair it. There's still a long way to go. The key point here is that we were bequeathed spending growth at 3.7 per cent by Labor, and we've reduced that to 1 per cent. We are starting to see green shoots across the economy. Housing starts are up significantly, job advertisements are the highest they've been in 28 months. We're also seeing a good result following the lower Australian dollar – it's a boost for our export industries. Interest rate cuts as well as lower fuel prices are putting more money in the hands of families. So there are some very good signs across the economy but we are still very much focused on fiscal consolidation.
ALBERICI: Andrew Leigh, the PM is promising a dull and routine budget, is that the kind of budget the country needs right now?
LEIGH: What I'm concerned about is that we have a PM who not only brought down a first budget which has done immense damage to confidence, but in the process blown out our deficit by, as you said in your introduction, $80 billion. Australia certainly needs to be moving back on a path to surplus but we don’t need to do that by halving the real value of the pension by mid-century. Australia is a great egalitarian nation. One of the things I worry about with this Government is we've got consumer confidence down 10 per cent, business confidence now at zero, unemployment rising and yet they seem to be unwilling, for example, to look at the $2 billion multinational tax package which the Opposition has prepared based on OECD work and costed by the independent Parliamentary Budget Office.
ALBERICI: Let's not veer off the question. Josh Frydenberg, Joe Hockey today promised to deliver a budget that will be responsible and fair. Just picking up on something Dr Leigh just said: will pensioners think the budget is fair and responsible?
FRYDENBERG: Absolutely. Look, pensions are going up twice a year under this Government. In fact they've gone up $51 a fortnight for individuals and $78 a fortnight for couples. We also kept the compensation package despite abolishing the carbon tax and if you were to take the male total average weekly earnings as opposed to CPI where we want to move the pension to, in fact pensioners will be $20 a fortnight worse off right now. So, you know, I think we have got the balance right on pensions. They are going up under us and Labor is running a scare campaign on this.
ALBERICI: But can you understand, Josh Frydenberg, how people might be scratching their heads over the PM's about-face on debt. If at 13 per cent of GDP it was a debt disaster and a budget emergency, how can Mr Abbott now tell us debt of 50 per cent or 60 per cent would be "pretty good"?
FRYDENBERG: No, the PM actually said 50 to 60 per cent is too high. What he was pointing to was the corrected trajectory of debt and deficit under us. You see Emma, Labor had, as a result of their legislated measures, sent Australia on a path to Greek-like debt levels of 122 per cent of GDP in 40 years’ time.
ALBERICI: If you don't mind, I'll just correct you on that because what the PM actually said was that debt of 50 or 60 per cent of GDP would be pretty good in the world context where the average in the rest of the world is about 100 per cent. What I'm asking you is whether 50 or 60 per cent is a place we want to be?
FRYDENBERG: Well to correct you, actually Emma, because I was standing next to the PM in that same press conference and he also said it was too high. What he was saying is we'll actually reach 50 to 6 per cent as a result of our legislated measures that we have got through the Parliament just in the last 18 months. Now, we have got a whole lot of measures that are stuck in the Senate, around $30 billion worth of savings that Labor is refusing to pass including $5 billion worth of savings that they took to the last election that they're now refusing to pass. I mean Labor is getting off very lightly here. In 18 months they've produced one policy proposal. The Shadow Finance Minister calls it a small measure in his own words and they haven't released the costings. It's worth $500 million a year and they gave us a trajectory of $667 billion of debt. So it's just a drop in the ocean.
ALBERICI: Andrew Leigh?
LEIGH: If Josh would like me to sit down with Treasury officials and work out how they can implement our multinational tax policy, I'll be happy to do so. I think your viewers want their parliamentarians to be acting in the national interest. Not to be sitting here playing petty blame games but to do as Joe Hockey said in 2013, and ‘own it from day one’. The Abbott Government set themselves the number one economic test of addressing what they called the debt and deficit disaster. Now they're saying that a 50 per cent debt to income ratio is reasonable and that's got David Murray saying it leaves our AAA rating vulnerable. But it also sets to one side some of those other big questions that any national government ought to be asking. The Intergenerational Report squibs the questions of climate change, of inequality, of innovation, of engagement with Asia. These are huge economic questions that we need to be tackling. I worry that the Intergenerational Report poses big questions but now we're told that the budget won't answer any of those. We’re sitting at the bottom of the league table for leadership on climate change; we really lack ideas on innovation. That is why I spoke at the Press Club today on the sharing economy, trying to kick start that conversation because there's huge challenges and huge opportunities for a country that I know Josh and I are immensely proud to represent.
ALBERICI: Josh Frydenberg, just something Andrew Leigh mentioned there. David Murray, who was the head of the Financial Systems Inquiry, did indeed today say the outlook for the deficit was so unclear and poorly communicated by the Government that it threatens Australia's AAA credit rating. What's your response?
FRYDENBERG: Well, we're absolutely committed to keeping our AAA credit rating, that's why we have halved the deficit and debt trajectory. David Murray speaks a lot of sense; he's given us a Financial Systems Inquiry which we will be formally responding to. But Emma, we can't do it all in one budget as we tried to last year and we ran into a lot of trouble in the Senate. This is going to be an incremental process. But to Andrew Leigh's point, if he wants to talk about the future of Asia, we have set up generations of Australians now with our three Free Trade Agreements with three of the fastest growing countries in the region: China, Korea and Japan. Hopefully we'll secure one with India, that was unfinished business that the Labor party couldn't conclude. The key measures out of the Intergenerational Report were twofold: they were workforce participation and productivity. These are the key to Australia's standard of living in the future. That's why we're putting out a child care and families package because we've got to get more women into the workforce, we've got programs like Restart which are providing $10,000 incentives to companies to employ people who are over the age of 50. We've got to get more seniors into the work force and our deregulation agenda and what we're doing around workplace relations are the key to productivity dividends. So the message of the IGR was very clear. Australians are living longer, their incomes are rising but there is no room for complacency and we have halved the debt and deficit trajectory that Labor left us.
ALBERICI: How can you have halved the debt and deficit trajectory when we so clearly showed that the deficit from the pre-election position to now is $86 billion worse off? How can you say you've halved it?
FRYDENBERG: Because these are 40 year projection.
ALBERICI: 40 years?
FRYDENBERG: That's what the IGR is, it is a document produced every five years. It's produced with the assistance of the best economists in Treasury. It has been produced by both Labor and Liberal governments, it's very important. But we are facing a lot of pressure on the revenue side. You're right about that. We had to write down our revenue by $32 billion at the end of last year and the Mid-Year Economic and Fiscal Outlook. To put it in perspective for your listeners, when Joe Hockey delivered last year's budget, iron ore was $120. When we produced the MYEFO at the end of last year, it was $60. Now today it's $50 a tonne. One-third of our exports – of all of Australia's exports – are iron ore. So you have a $10 fall in the price of iron ore per tonne. That's worth $10 billion worth of revenue to our budget. There's no escaping the real pressures we're facing on the revenue side.
ALBERICI: Let's talk about the revenue, Andrew Leigh. Don't you both have to come clean with voters and tell them that they can't have things like the Gonski education reforms, the National Disability Insurance Scheme, great healthcare, child care, roads, homemade submarines without paying more tax?
LEIGH: Emma, it's absolutely vital to continue to look at responsible savings measures. Some of those that the last Labor Government put in place – over the opposition of the Coalition, I'm sad to say – were means testing the Private Health Insurance Rebate, phasing out the Baby Bonus, phasing out the dependent spouse tax offset. Those are responsible long-term savings measures which ensured that after the Global Financial Crisis we could stick to that real 2 per cent spending cap.
ALBERICI: They weren't enough though, were they?
LEIGH: You've always got to be looking at reasonable ways of reigning in savings but what you can't do, Emma, is to undermine the productive future of the nation. I really worry when I look at the Intergenerational Report – which, by the way, contains no line about what would have happened under Labor. Because it suggests that by mid-century the value of the pension will be halved. The value of education spending will be halved. That paints a pretty bleak future for a nation where, with the advance of technology and globalisation, we need to be doing more to make sure the education system keeps up, and where I think we will be affluent enough to provide a decent safety net to retired Australians.
ALBERICI: So do you concede taxes will need to rise?
LEIGH: We've certainly talked about tax options needing to be on the table. I spoke to you about multinational taxation. Yes, it doesn't close the budget gap. But why is the Government always averse at looking at measures that might affect the top end of town and always so keen to dive in to measures that hurt the most vulnerable? This is a Government which has decided to focus on spending first and then kick off their tax white paper into the distance so that effectively it will be something which will come into play for not their first, not their second but their third budget. And that means by very definition, the Coalition is saying budget repair must come from the most vulnerable rather than the most affluent. With inequality at a 75-year high I think that's a mistake.
ALBERICI: Josh Frydenberg?
FRYDENBERG: Clearly Andrew Leigh has a very short memory because one of the measures in last year's budget was increasing the tax on those earning more than $180,000. That was a temporary budget repair levy. You can't tax your way to prosperity. We live in a world economy where capital is mobile, where business is not sentimental. If we don't have competitive company tax rates and income tax rates then we will lose the best minds to countries in our region and the best companies that can produce the jobs.
ALBERICI: What about the GST, Josh Frydenberg? Ken Henry, who did the last tax review, says raising or broadening the GST should be among government's top priorities?
FRYDENBERG: And what’s interesting about that is that the Labor Party excluded the GST from Ken Henry's report.
ALBERICI: You've excluded it too, haven't you?
FRYDENBERG: We certainly haven't excluded it from our report. In fact next Monday the Treasurer will be releasing the report which will have some very interesting information on the GST for everyone to see.
ALBERICI: But you've said you won't touch the GST, certainly not in this term.
FRYDENBERG: Well the real challenge with the GST is that you need the agreement of all the states. And we know the Labor party will just put politics ahead of policy. The point that you made before about Australia not being able to afford all the gold-plated schemes that Labor is coming up with, the reality is they said it was all going to be funded out of a mining tax which was going to produce $26.5 billion. It ended up