SKY NEWS AUSTRALIAN AGENDA
SUNDAY, 2 APRIL 2017
SUBJECT/S: Company tax; Trade policy; Sugar code; Investment; Protectionism; Government debt; National Broadband Network; Renewable energy
DAVID SPEERS: Alright time to bring in our next guest this morning, Labor's Shadow Assistant Treasurer, Andrew Leigh a very good morning to you and thank you for joining us. Let me go straight to what Jennifer Westacott was suggesting earlier, what is Labor's plan for boosting business investment, productivity and economic growth given that you do support now a higher company tax rate, a higher tax on capital gains, a higher tax on high income earners personal income tax rate. Where is the plan to grow the economy?
ANDREW LEIGH, SHADOW ASSISTANT TREASURER: David, I'm happy to go to any of those particular challenges but in terms of our long-term plan it's around investment in infrastructure and skills. Labor believes that we need to invest in our schools, not rip $30 billion out as the Coalition want to do. We're in favour of a stronger vocational education system at a time when apprenticeships have fallen in half. We want to make sure that every kid who has the smarts to get a place in university can go there. On infrastructure, we want to see cost-benefit studies used more rigorously in determining what we spend on. We don't have an ideological bias against rail as the Coalition has in the past. We want to see Infrastructure Australia given more weight in choosing projects because if we make smart infrastructure investments - including broadband - we can boost prosperity in the long run.
SPEERS: OK, we can come to what growth we get out of those things, but when it comes to company taxes, you yourself said just last year on Sky News, "we know the company tax rate is a significant drag on growth largely because capital is more footloose than labour so there's potential for us to miss out on high quality investment if we have too high a company tax rate", where you right then and do you still believe that?
LEIGH: In a perfect world you would bring down the company tax rate but since the Coalition came to office in 2013 they've nearly doubled net debt. Malcolm Turnbull was talking about a 'towering mountain' of debt when he was Opposition Leader back in 2009 –
SPEERS: But Labor to be fair also wants to spend even more, if you want to talk about debt we need to be clear that Labor's plan are actually to spend even more and to sink the budget even further into deficit?
LEIGH: That's why your spending has to be smart. So last year during the election campaign, the Economic Society of Australia ran a survey of its top members and found that the majority backed spending on schools over cutting the company tax rate. The US Congressional Budget Office has recently done an analysis that looks at the rate that's actually paid by companies across G20 countries and finds we're approximately in the middle of the pack. Indeed John Fraser the Head of Treasury said when he took on the job that the corporate tax rate wasn't the main determinant of investment looking for options. Top bank economists in Australia have said recently that the hurdle rate for investment is too high, it needs to come down and that the company tax rate isn't the main priority. David Gonski says that you're to look at depreciation schedules before you look at the company tax rate. So this isn't just Labor, this is a range of esteemed economists saying that you need to look beyond this narrow debate beyond company taxes to the broad range of questions that affect a company decision to invest in Australia.
PAUL KELLY: But Andrew Leigh, on this point. Clearly if we look at the economy, the corporate sector, the private sector provides about 80 per cent of jobs. We know that investment rates at the moment are very low. While clearly there is a strong argument to invest in skills and training in skills, what do we do in the immediate term to address the problem?
LEIGH: Paul you're absolutely right that there is a lack of confidence in Australia. I think part of that does have to do with the quality of economic leadership. Frankly Scott Morrison just isn't up to the task. I get this not just from people who are on the factory floor but also when I'm talking to people in the corner office. There's a sense that he doesn't have a strong economic vision for the country and that he's flipped and flopped from a higher GST to state income taxes to capital gains changes –
SPEERS: So if you replace the Treasurer all would be OK, is that what you're saying?
LEIGH: Well certainly I think that he has been a significant impediment to the Australian economy. But beyond that there are certainly international challenges you can point towards. The rise of protectionism across Europe. The failure of the G20 to recently back in their standard language saying that protectionism is problematic, that points in a troubling direction. But also we've seen the decision of the Government to again outsource public policy to Barnaby Joyce as they did with the effects test and with the scatter gun approach to foreign investment screening. Now they've got this extraordinary scene of a sugar code which may threaten our free trade agreement with Singapore. All of these things raise questions in the minds of serious investors about whether this is the best country to do business. The quality of economic leadership does matter in Australia and it's not where it should be right now.
KELLY: Surely there's a vacuum in Labor's policy, if you look at the risk from global protectionism. Surely this just highlights the need for some pretty urgent policy action in relation to private investment in this country doesn't it?
LEIGH: We certainly do need strong private investment. We've seen the fall in mining investment and that needs to be filled in an increase in other private sector investment. Chris Bowen gave an important speech last year on 'The case for openness' where he talked of Labor's strong support for trade liberalisation - and of course Paul you're written about this as much as anyone - and committed a future Labor government to the benefits of trade liberalisation, recognising the value that foreign investment migration can play in Australia. Those open economy settings that have served us well in the past to continue to do so in the future. Bill Shorten, Chris Bowen and the rest of the economic team have been strongly committed to that.
SPEERS: Alright Andrew Leigh, you have looked at company tax as an issue probably more than most. What do you think we'll get as an economy out of a tax cut to those businesses with a turnover of up to $50 million because we haven't seen any modelling of this.
LEIGH: Let's start with the Government's modelling. With Budget 2016 they released some modelling of the benefits of a company tax cut. Their estimate from that would be that implementation of the full package would bring to households, 0.1 per cent increase in household income if it was financed by an increase in personal income taxes. That's about the equivalent of a month's personal income gain for households in the 2030s. The Senate has passed about half the package so you'd think we're now down to about two weeks household income gain somewhere off in the 2030s. In exchange, we've now got a package that –
SPEERS: OK but just on that, you're saying that we won't get any economic growth out of this business tax cut?
LEIGH: I'm saying the Government's best numbers are very small: a 1 per cent growth gain and a 0.1 per cent household income gain from the whole package. We're looking at something now which is about half the size of the total package.
SPEERS: So what will Labor do, will you roll back what's been decided by the Senate on Friday?
LEIGH: We'll have those conversations as we come into the next election. Certainly, we'll be looking at the impact this has on our AAA credit rating. That's a bigger concern to many businesses than a company tax cut.
SPEERS: So for business right now, those up to $50 million, who might be thinking whether the invest in some equipment, put on some new workers, or maybe boost wages for their current workers with this tax cut, you're saying "don't do it, because Labor might take it back in 18 months”?
LEIGH: David, you've asked me what we'll do at the next election, and I've told you we don't engage in the sort-of slapdash policy making that Australians have seen this week.
SPEERS: But that does seems to be clear, that there is uncertainty right now as to whether this will stay or will be taken back.
LEIGH: David, when Labor makes economic policy, we don't do it to get a vote from Pauline Hanson or suddenly strike a deal with Nick Xenophon in the Senate. We do it in a considered way, and you saw that with out...
SPEERS: Business needs certainty as you know we've been discussing on energy policy, but clearly when it comes to their investments and what to do with this company tax cut they need certainty. They need to know that it's not possibly going to disappear in 18 months.
LEIGH: What business needs is a sense that the alternative Government of Australia takes policy-making seriously. We've seen Scott Morrison and Malcolm Turnbull hold every position under the sun on capital gains and negative gearing. They really are the twister-team when it comes to policy. Labor, by contrast, consulted with the community, announced our capital gains and negative gearing reforms well in advance of the election, and have now stuck with them.
KELLY: But on this point, Andrew Leigh...
LEIGH: And that is the approach we'll take on company taxes too.
KELLY: But I mean surely Labor feels some obligation, given the decisions are by the Senate on Friday, surely Labor feels some obligation to fairly promptly make clear what its position is?
LEIGH: Our obligation is to get the policy settings right. Since May of last year, we've been absolutely clear that we would support a company tax cut for businesses up to $2 million. But we didn't feel that the Budget could bear a higher company tax cut. We've got debt now rising faster per day than it was under the Global Financial Crisis. Net debt is set to nearly double since 2013, despite the fact that the Government said it would have the Budget in surplus in their first year and every year after that...
KELLY: That argument you've just put is clearly an argument not to accept the tax cut.
LEIGH: A responsible alternative government takes decisions methodically. Bill Shorten is a great consultative leader, and the one thing his leadership has not been characterised by is the sort of wheeling, dealing, slapdash policy making we've seen last week. Whether it’s the sugar code, last minute decisions for inquiries or handouts; all of the last week has been characterised by hasty policy making and bad policy making. That's not Labor's approach.
SPEERS: Just to be clear on this point, before we leave this point, what would you say to businesses right now, now take Haigh's chocolates for example, they are getting this company tax cut - what's Labor's message to them right now? Should they hire someone? Or simply keep that money in the bank because it might be taken back?
LEIGH: David, I would always want Australian businesses to invest and to create jobs, but you're asking me the same question using a different form of words, and I'm being very clear here. The alternative government of Australia takes policymaking seriously. We do it methodically, we consult internally. We're about to get a sugar code imposed on Australians, not only without a regulatory impact statement, but without even being disclosed to the public. Australia has never done this before. That is how slapdash and hasty policy-making has become in this country. What Australians don't know is an alternative government that chops and changes in the same way.
SPEERS: Will you repeal that sugar code of conduct?
LEIGH: We will have to again see exactly what happens, but let's be clear: the Productivity Commission has warned against the re-regulation of the sugar industry. This potential sugar code goes against 30 years of microeconomic reform in Australia. It throws the Federal Government straight into the middle of a sensitive negotiation that's been going on for a number of years. It potentially, as I said before, jeopardises the Singapore Free Trade Agreement. The Government has done this not for good policy reasons, but because they wanted to get Pauline Hanson's vote.
SPEERS: The element of this, just to stick on this for a moment, that concerns you most is what? The compulsory arbitration required?
LEIGH: You would struggle to find an element of this that doesn't concern me to be honest, David.
LEIGH: So what will you say - we will rip this up?
LEIGH: What the industry needs is certainty, and to say we'll rip this up while most Australians haven't even seen the code, would be irresponsible. What the Government should have done with this is to work carefully and methodically. There's nothing wrong in principle with a code of conduct - Labor Senators recommended one back in 2015. But to suddenly throw one together in a few days, hurling yourself into the middle of a sensitive commercial dispute when we've got the sugar crushing month coming in June, and with sensitive international investment on the line, is a bad mistake. Sugar is important to certain parts of Australia, but in terms of the world market, we're a relatively small player. So when we make hasty decisions like this, potentially we send the signal to the rest of the world that investing in Australia is risky. Again, we've outsourced economic policy to Barnaby Joyce, and the Australian economy is the poorer for it.
KELLY: At the last election campaign the Labor macro-position was to increase the budget deficit over the forward estimates. Is that in broad terms still the Labor position?
LEIGH: Paul, we'll make responsible economic decisions and of course you'll see our full budget numbers before the next election. But you're right that our budget savings were focused towards the decade because that's where the big fiscal challenge was. Over the course of the decade, our changes to negative gearing and capital gains tax returned far more than they did over four years, because we made the responsible decision to grandfather those changes; to say to those existing investors that they wouldn't be affected. We make no apology for that. It's the right thing to do by Australians who have invested in properties based on the existing tax laws. Similarly, over the course of the decade the Government's company tax bill gets bigger and bigger and bigger. Obviously, we need to make sure that we keep taxes as low as we can, that we only have Government spending programs that can be strongly justified. That's been Labor's philosophy all the way through, and that's why we've backed a number of savings, urged the Government on areas like cigarette excise or superannuation tax concessions, to make savings. They've attacked us at the time, and then adopted our policy. That's OK, Australia's the better for it.
KELLY: But isn't the reality here that Labor's position in terms of tackling the overall budget deficit is to operate a more on the tax side, rather than the spending side?
LEIGH: We've pushed strongly for changes, for example the private health insurance rebate, getting rid of the spending on junk policies and on natural therapies. That's a change on the spending side of the budget which does make sure that we have science driving our policy. Labor's concerned about making sure that we spend well, and that our tax mix is absolutely right. That is, getting those two sides of the budget right is key to economic efficiency. All tax decisions need to be made through the lens of equity, efficiency and simplicity. I worry too much that when the Government looks at issues such as penalty rates and the minimum wage, they are ignoring the fact that wage inequality has been growing for a generation and overall inequality is at a 75-year high. It's a great time to be an Australian if you're a millionaire. The Government is about to give you a $16,400 tax cut on the 1st of July this year. But it's pretty tough if you're a Sunday worker and you're about to have $77 of weekend penalty rates taken away from you, or a pensioner who is about to lose their ongoing $365 energy supplement and get, instead, a one-off $75 payment thanks to a deal with Nick Xenophon.
SPEERS: Just returning to the company tax issue, Jennifer Westacott made a point, raised a concern, in the earlier interview about the two-tiered nature of the company tax system, pointing to what's happened in the UK and how they had to resolve that - we will now, under what the Government's passed through the Senate, have a two-tiered system - is that a concern for you?
LEIGH: We're not the only nation to have a two-tier system, but certainly this was, from Labor's point of view, about us wanting to give a company tax cut to the 83 per cent of businesses that have a turnover below $2 million, but not believing it was affordable for the rest.
SPEERS: So two-tiered is not a big problem as far as Labor is concerned?
LEIGH: We were comfortable with that - we believed it was the budget could afford.
SPEERS: And what, if I could ask you finally, what is Labor's pro-business policy? What is one business that you've got that's pro-business?
LEIGH: Getting the National Broadband Network out there. Every time I'm chatting with businesses in rural and regional Australia, they talk to me about how much more they could be if they had super-fast broadband rather than the tin cans and string approach that the Coalition has given us. We're dropping in those global broadband rankings. Getting superfast broadband isn't just an issue for equity, it's also an issue for the energy of our economy.
SPEERS: Actually I should ask you about energy because this was a big part of the agreement on Friday with Nick Xenophon. A number of measures in there but one I'm particularly interested in asking you about, a gas pipeline that the Government signalled if the private sector doesn't invest the Government may, is that something Labor would support?
LEIGH: We'll look at particular decisions as they come to hand, what I would say is that gas needs to be part of our overall energy mix. Labor went to the last election suggesting a national interests test for new gas investments. That's something the Productivity Commission has backed and we're very pleased to have that expert body support for Labor's policy.
SPEERS: But a Government owned gas pipeline from the Northern Territory is something that Labor will consider?
LEIGH: We'll look at all sensible measures but I would say in terms of the deal that Nick Xenophon did, he said that he could get an emissions intensity scheme which would bring down household power prices by $200. Instead, he's got yet another report, yet another study. Nick Xenophon has been sold a pup and every poker player in Australia is now wishing that they could have Nick Xenophon across the table from them.
KELLY: So are you suggesting that the Government conned Nick Xenophon are you Andrew Leigh? That this was a con job and that Xenophon fell for it?
LEIGH: Absolutely, Nick Xenophon could have gotten a far better deal and the deal that he managed to get was ultimately not one that'll see us bring down emissions and bring down energy prices. He's been willing to trade away an annual $365 payment for a one-off $75 payment. He hasn't got the Emissions Intensity Scheme that's backed by the Business Council of Australia, the Chief Scientist and was recommended to the Government. That's a scheme that would see pressure brought down on energy prices and Australian emissions. Nick Xenophon didn't secure it and the Government is again taking us down the road of higher emissions and higher energy prices as a result of the deal done in the Senate last week.
SPEERS: Is Labor at all reconsidering your 50 per cent renewable energy target?
LEIGH: We've committed to getting 50 per cent renewables but the mechanism that we've used in the past has been a renewable energy target, that comes to an end. We believe that an Emissions Intensity Scheme can take us to the point of having 50 per cent renewables.
SPEERS: Without a Renewable Energy Target?
LEIGH: Without the Renewable Energy Target, that's right. The Emissions Intensity Scheme -
SPEERS: When that ends in 2020, it goes, Labor won't support any further renewable energy target?
LEIGH: We believe that the Emissions Intensity Scheme does that job, David.
SPEERS: Without a RET?
LEIGH: Without a RET. It's not just us, it's experts right across the field. Jennifer Westacott's own organisation the Business Council, many of the energy regulators and if you look across the world, renewables account for the majority of new investment over the course of the last decade. We've seen massive renewables investment in places like India and China. In the United States there's huge investment in renewables. Indeed one of the Government's favourite backers Bjorn Lomborg - not someone that Labor would normally quote - says that every dollar invested in renewables research gives you a payback of $11. We need to be smarter about renewables, moving with the future to reduce power prices, reduce emissions, save the reef and also take cost of living pressure off households.
SPEERS: We've got to go. Andrew Leigh, appreciate your time thanks for joining us.
LEIGH: Thanks, David, thanks Paul.