We need to address issues in the economy now - Transcript, 2GB Money News

E&EO TRANSCRIPT
RADIO INTERVIEW
2GB MONEY NEWS
THURSDAY, 20 JUNE 2019

Subjects: Income tax cuts; the macroeconomy.

ROSS GREENWOOD: So let's now pick up a bit of where this goes to with the Shadow Assistant Minister for Treasury. Always good to have him on the program. From the Labor Party of course, Andrew Leigh is on the line. Andrew, as always, many thanks for your time.

ANDREW LEIGH, SHADOW ASSISTANT MINISTER FOR TREASURY: Pleasure, Ross. Great to be with you.

GREENWOOD: All right. Okay, let's go through some of these bits and pieces. Number one, Mathias Cormann is going to put enormous pressure on your side of politics when Parliament resumes to try and pass his tax cut bill in its entirety. Of course, he's also been through the crossbenchers, some of whom are horse trading trying to get it through. Why now is it that the Labor Party would resist this? Surely it's a case whereby the Reserve Bank says we need tax cuts, many Australians understand the need for tax cuts. Why is it that the Labor Party would even resist on the whole package of tax cuts that are to come over the next four years?

LEIGH: Ross, what we need now are immediate tax cuts that flow to low and middle income earners. Labor was willing to pass them back in April. We've urged the government to bring Parliament back in order to speedily ensure that low and middle income Australians have money they need in their pockets. But what the government has absurdly done is tied to the bipartisan tax cut large expensive tax cuts which don't take effect until 2024, which would effectively tie the fiscal hands of policymakers in dealing with the global downturn which could well be upon us. The New York Fed has a recession probability indicator for the United States. That's now at 30 per cent over the next 12 months. We've got bond prices today hitting an all time low. Gold prices hitting an all time high. Give you a clue - they are not things that ought to be happening if the economy is travelling well. The Reserve Bank has very clearly said to the government it can't do all the heavy lifting with monetary policy alone, you heard that from Philip Lowe today. What we need is a government that doesn't sit around blaming everyone else, that doesn't sit around talking about what we'll do in 2024, but actually acts now to address the real problems in the economy right now.

GREENWOOD: Okay. But, they would if you passed all of his tax cuts, those tax cuts would immediately flow for low and middle income earners. The fight that you've got with the government is all about the third phase of these tax cuts and also even the flattening of these tax scales out to 30 cents a dollar for anybody earning between $45 and $200,000 a year. My view about that has always been that that provides incentive for people to work harder, to get a second job, to earn more knowing that that money is not going to be taxed at a higher rate. Why would that not actually appeal to an aspirational Labor Party, a reinvigorated Labor Party that understands maybe the needs of middle income earning Australians who are broadly in that band of between $45 and $200,000 a year?

LEIGH: Ross, I believe the taxes should be as low as possible in order to pay for the services that Australians demand. But the challenge is you're not talking about tax cuts that come in today - you’re talking about tax cuts that come in two elections from now. There's absolutely no reason, economically or politically, why that needs to be tied to the bipartisan tax cut. What we need though is a little bit of fiscal flexibility and if the government is locked in razor thin surpluses and has guaranteed top end tax cuts of unknown magnitude - Josh Frydenberg completely failed to answer the questions put to him by Jim Chalmers over the weekend - then that's not good economic management. We have a situation now where the economy is shrinking on a per person basis. If it wasn't for population growth, Australia would be in recession. This has been the longest per person recession we've had since 1982. Stagnant wages, productivity falling for four straight quarters, the slowest economic growth in the global financial crisis, weak household spending, sluggish retail sales, declining car sales, falling consumer confidence. There's a lot of problems in the Australian economy. We need to address them now.

GREENWOOD: Okay. You know a few things and I know a few things about this. I'd trust in this you're not going as far as your colleague Anne Aly on Sky News. Here’s what she said.

ANNE ALY: But what about the fact that we are now, our economy is in a recession or it looks like it's going into a recession? How do we know what the economy is going to look like in 2024 and whether or not these are affordable? I'd want a bit more information about exactly how this is going to impact on the people that I represent before I support future tax cuts.

GREENWOOD: Okay, so you're peddling both the same line. In other words, I want to look at what the economy might be like then. But the fact of the matter is that if the economy, even as the Reserve Bank says, will improve over the next period of time it means government would be holding onto more of the taxpayers’ money than they ought to. And that's the reason why having a plan for a progressive tax cut regime is a plan for the government. And of course, you don't know what's coming around the corner in terms of the global economy. I don't know what's coming around the corner in terms of the global economy. You can only take the best estimates of Treasury, the best estimates of the Reserve Bank.

LEIGH: And the best estimates of the government are at odds with what the states forecast in their budgets. We've seen a succession of states -  Labor and Liberal - who brought down budgets in recent times with far more modest expectations for wages and for job growth than the federal government’s forecasts-

GREENWOOD: Because one of the perceptions is of course that the Labor Party, you know, lost support in the last election for a range of reasons but might have been partly also because of the class warfare, because of the fact that many people who were aspirational didn't like the idea that we were picking the big end of town, the small end of town. Surely the whole idea of having tax cuts that go across the board is to provide the incentive and the reward for people who do work hard, who do have a second job, to go to work, to work harder, to improve their productivity and their circumstances for their family without necessarily feeling as though they're being penalised for doing so.

LEIGH: Ross, if these tax cuts, the stage three tax cuts were going to people right across the board, then I'd expect that Josh Frydenberg would have actually put that in his letter to Jim Chalmers. What he did instead was to obfuscate and I think that's because many of the independent assessments - the ANU assessments or the Australia Institute assessments - suggest that a very large chunk of those benefits go to people who tend to save much of their pay packet rather than spend it, which means in a macroeconomic sense you're not getting the impact on growth, you're not seeing that that positive feedback loop that we so sorely need in the Australian economy right now-

GREENWOOD: But then let's say for example, your colleague Peter Khalil - he's broken ranks and said effectively he would prefer to see the Coalition's tax cut package to be split up, but what he's also saying at the moment is really the Labor Party has no choice but to pass it if the Coalition effectively refused to split this bill.

LEIGH: Peter’s a terrific colleague and he's absolutely entitled to his view. But the Labor position right now is we support stage one, we support it enthusiastically. In fact if we'd won government Ross, we would have gone further and provided even more generous tax cuts those earning below $48,000 - people who spend all of their pay packet and put it straight back into the economy. We're at a stage now where government debt has doubled under the Liberals to nearly $15,000 a person in net terms. We've seen a rise in inequality and our tax scales have become less progressive over the course of the last 20 years. This change again would make the tax scales less progressive still. That will exacerbate inequality, but most importantly right now, it would mean that we weren't able to respond to a global downturn - the odds of which seem to be surprisingly high right now. You know - a Boris Johnson-led Brexit, problems in the China-US trade war - there's a lot of big issues in the global economy and a sensible policymaker would be looking at what we can do now, not what we can do in five years time.

GREENWOOD: So it’s going to be interesting to watch it. Finally, the other part about this is that of course had you got into office, it wouldn't have been not only the distribution of that income, but it was again the way in which you would have collected these taxes that somehow many Australians rejected or turned away from Labor in regards to. I mean, this is again as I've said - and you and I have debated this before - is it not surely now a time to minimise the impact of the minor parties and of the of the independents especially in the Senate, who seem to be always you know horse trading and wanting something. Isn’t it now a case where Labor and the Coalition sit down, nut this out for the good of Australia because long term that would see our faith in our major political parties also improve. In other words, if you and the Coalition could nut this out and work it out, the country would be better off as a result of an agreed plan on taxes for the future.

LEIGH: I’m all for bipartisanship Ross, and I got into politics to implement good economic policies. But I don't believe Labor should be making decisions purely on the politics. I’ve been surprised to see Mathias Cormann recently telling the crossbench senators he's not for negotiating on this tax package. ‘Like it or lump it’ is his view. That's not a sensible way of building this core bipartisanship around a long term tax plan. But right now, you also need to make sure you're doing the right thing for the global economy. In some sense, this is a bit like someone with a couple of teenage kids who's worried about losing their job but promises to buy each kid a new car when they finish high school. That'd be the wrong thing to do, because they don't know what their circumstances are right now and they may need to bring forward spending. Effectively with a 2024 tax cut, you’re putting off big government spending into the future and you're tying your hands and your ability to respond to a global downturn.

GREENWOOD: I’ll tell you what, it’s always good to have in the program. Andrew Leigh is the Shadow Assistant Minister for Treasury and also the Shadow Assistant Minister for charities. As I say, we always have good debates, good conversations here on the program and Andrew I appreciate your time this evening. 

LEIGH: Likewise Ross. Thank you.

ENDS

Authorised by Noah Carroll ALP Canberra.

 

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Cnr Gungahlin Pl and Efkarpidis Street, Gungahlin ACT 2912 | 02 6247 4396 | Andrew.Leigh.MP@aph.gov.au | Authorised by A. Leigh MP, Australian Labor Party (ACT Branch), Canberra.