SKY NEWS ON THE HOUR WITH ASHLEIGH GILLON
TUESDAY, 20 DECEMBER 2016
SUBJECT/S: MYEFO 2016; economic forecasts; China’s economy
ASHLEIGH GILLON: Joining us live now is the Shadow Assistant Treasurer, Andrew Leigh. Andrew, just a few minutes ago we did hear Labor's response when it comes to the budget update. Penny Wong – who's Acting Opposition Leader today – said, 'Well, Scott Morrison is weak, he missed an opportunity to lock in Australia's AAA credit rating.' But the government did improve by its budget position by $2.5 billion, it did manage to hang onto that AAA credit rating, for now at least. You wouldn't really suggest would you, that now is the time for the government to be making too many dramatic cuts at this point with the economy as it is, would you? Isn't this a good balance that the government has managed to strike?
ANDREW LEIGH, SHADOW ASSISTANT TREASURER: Ashleigh, we've had an improvement in iron ore prices, entirely due to circumstances outside the government's control. It's got to do with what's happening with steel production and demand in China. But the opportunity right now is for the government to make decisions that not only add to the budget bottom-line but also help young Australians. So many of your viewers – whether they're young Australians, whether they've got kids, whether they're aware of the pressures in the housing market – will know that the home ownership rate in Australia is the lowest it’s been in 60 years. Increasingly we're becoming a nation that can't afford to house our children. If we make adjustments to negative gearing and the capital gains tax discount in the way Labor's proposed – grandfathered so existing investors aren't affected – then not only can we lock in the AAA, and lock in the lower mortgage rates that come with that, but also we can deal with one of the central economic challenges for Australia – that of declining home ownership.
GILLON: We know that the government's argument on that is that it would have wider implications for the economy, that it would lead to a lack of investment in that sector. That's an argument that we've had back and forth throughout the whole year. I am keen for your thoughts on exactly where we're at in terms of the economic outlook? Some of our viewers may not know that in a former life you were a professor at ANU in economics. When you look at the surplus and a forecast to return to surplus by 2021, do you think that that is actually realistic? Do you think that the assumptions we saw in the MYEFO Budget Update yesterday are perhaps overly optimistic in some quarters?
LEIGH: Just on negative gearing, I did hesitate before agreeing with your comment there, because you've got to distinguish between what Malcolm Turnbull and Scott Morrison say in public and the fact that they actually took a proposal not dissimilar to Labor's to the Cabinet earlier this year.
But to your question of the credibility of budget of forecasts. Obviously there's going to be variations, and we've seen significant variations over the course of the last 15 years. In the Howard-Costello years there were surprises on the upside, over recent years there's been a tendency for there to be surprises on the downside. This time again there's been a upside shock as a result of that iron ore change. But the issue of debt and deficits is probably not the number one hallmark of good economic management – although the Coalition made it that before the 2013 election. Economists would look to questions like whether you can sustain long-term growth, create jobs, bring down inequality, and ensure that you've got an Australia where you have great opportunities. But I worry that so many of those opportunities are falling by the wayside, through the government's inability to focus on long-term economic reforms. Climate Change for example; a huge economic challenge. One that poses significant long-term growth risks to Australia, but one where even the modest prospect of an emissions intensity scheme has been put on the backburner by Malcolm Turnbull – a guy who is now a prisoner to the far right.
GILLON: Do you think that we are, overall, a bit too obsessed with this idea of a return to surplus and the timeline to do with that? We've seen Labor MP after Labor MP coming out in the last 24 hours saying, 'The surplus is wafer-thin, it's not going to be achieved!' But surely, Labor doesn't really have any credibility when it comes to criticising the government's plan for a surplus? We all remember Wayne Swan promising surplus after surplus that was never delivered.
LEIGH: I will happily stack up Wayne Swan's economic management through the worst global downturn since the Great Depression against anything the Coalition's done in the last three years. Don’t forget living standards continued to grow under Labor. We had real GDP per person back to its pre-crisis levels as early as 2010. There are ten OECD countries which aren't even back there now. So, Labor's economic management was textbook and was commended by the OECD, the IMF, and Joe Stiglitz – the Nobel Laureate. Instead, under the Coalition, what you've got is this tenfold increase in the deficit. Debt increased by nearly $5000 per person since 2013. We do need to make sure we balance the budget-
GILLON: Sure but Andrew Leigh, we're not in boom time now. Again, putting on your economist's hat, we are very vulnerable. Do you expect we will see a further downturn in China? The government doesn't exactly have an issue-free set of circumstances facing them right now?
LEIGH: I've been doing a lot of reading on the Chinese economy over December – as you do – and there's a range of challenges there. The structural rebalancing that needs to take place is difficult with the ‘zombie firms’ and with the challenge of actually taking some of that debt onto the books of local governments. There are significant risks in China, but we've also benefitted massively from the economic growth in China. We've got 100,000 students studying in our universities. About $8000 per household of GDP is supported by our exports to China. These big gains that Australia’s gotten through China's rise. Not to mention the hundreds of millions of Chinese who've been pulled out of poverty over our lifetimes. There are opportunities there, but we do need to make sure the economy is as diverse as possible in the event that there is a significant downturn in China.
GILLON: Andrew Leigh, I did read your opinion piece in the Financial Review at the end of last month in which you pose the question, what would modern Australia look like without China? I thought that was a really interesting question, especially as we see now the Trump-led, anti-China tirades over in the US. What did you decide our country would look like without China's rise, and what role do our political leaders need to make to put that case across, perhaps more strongly, with xenophobia arguably on the rise at the moment?
LEIGH: Thanks for taking the time to read the piece, Ash. If you go back to early 20th century Australia, ours was an economy where when Britain sneezed, Australia caught a cold. Then it was the United States with which we were most enmeshed. And now it's China, the country in the world that is the most central to our economic growth. Unlike Britain or the United States, we don't share a language, history, culture, democratic institutions with China. So we have to work harder to understand the country that most matters to our economic future, and to do what we can to ensure that China is on a route that takes it down the path of innovation, sustainable growth and engagement with the world. You can tell a really positive story around China's engagement on climate change, for example. It’s pretty hard to find a Chinese leader who thinks that climate change is a hoax. But on the other hand, some of the growing nationalism, some of the crackdown on free speech in recent years does give cause for concern where China is going over the next little while. James Fallows had an important piece on this in The Atlantic recently. So we've got to walk with eyes open.
GILLON: Just finally Andrew Leigh and we are almost out of time, in the spirit of the Christmas season, I just want to bring to our viewer’s attention, your Christmas card that you're sending out to voters in the ACT this year. You're really keeping it real. We've got some pictures done up here of your Christmas card last year, a happy snap with your family. And you can see your youngest son on the left hand side there not looking very impressed to be involved in this Christmas card photo shoot and I guess this year you've made amends. You've tried to do a grumpy Christmas card picture. What's going on there? I think every parent in the country right now feels your pain when it comes to getting kids to do what you want for these sort of important photo shoots.
LEIGH: Well Zachary's a wonderful, bright boy and I think last year as a three year old he took a pretty reasonable approach for a three year old. He said, ‘I've been staring at this strange man with a camera for minutes now and I've had enough, I want to go and do something else’. And who can blame him? So this year we paid tribute to the wonderful Zachary, and he's smiling and the rest of us are putting on our best grumpy faces. But I have to be honest; our grumpy faces are nowhere near as good as Zachary's was last year.
GILLON: No, he nailed it. I think he could take on Julie Bishop on the death stare competition and do pretty well. I don't think I could get my three year old to sit very still for that sort of thing either. Andrew Leigh, appreciate your time, thanks for joining us.
LEIGH: Thanks Ash.
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