SKY AM AGENDA
MONDAY, 30 NOVEMBER 2015
SUBJECT/S: Blow-out in Budget deficit; Paris climate conference.
KIERAN GILBERT: Joining me on the program now is Shadow Assistant Treasurer Andrew Leigh. Andrew, the Deloitte Access Economics Budget Monitor has quite a dire forecast here. Chris Richardson, a respected economist, is saying the Budget bottom line will be $30 billion worse off given the softening in commodity prices and the shift in the Chinese economic trajectory. What do you make of this analysis? It is quite a worry.
ANDREW LEIGH, SHADOW ASSISTANT TREASURER: Kieran, it certainly is. It points to many of the things we have been pointing to in the economy over recent years. Unemployment is now at around 6 per cent; growth is 2 per cent. That’s well below the 3 per cent that you need to start getting people into work. We have consumer confidence 8 points down from where it was at the election and, Kieran, the Deloitte report was written before last week’s atrocious capital expenditure figures came out which showed a 9 per cent drop in capital expenditure. That’s the biggest drop we have seen since 1987. So it does point to the fact that we need a clear economic plan as to where we go next.
GILBERT: I will get to Labor’s alternative in a moment, but one of the things Deloitte is talking about here – it does accept revenue is a problem and that taxes do need to be dealt with – but it is talking about a ‘prosperity dividend’ and that we need to make taxes more efficient. It doesn’t seem Labor is getting to that state of affairs at the moment. You have a few tax measures but nothing that deals with the overall mix to make it more efficient.
LEIGH: We absolutely are, Kieran. The Government’s proposal to raise the GST would be a significant drag on the economy.
GILBERT: It’s not their proposal, though, is it?
LEIGH: Let’s face it, they are sending people out left, right and centre to push for an increase in the GST. This would have a drag on growth, as we have seen with Japan where an increase in their consumption tax pushed their economy into recession. Labor is going down a different path. Our approach focuses on multinational taxation and addressing superannuation tax concessions. There are savings from not going ahead with the slush-fund for polluters, scrapping the baby bonus and our announced measure on the tobacco excise – all these things are carefully calibrated to ensure they are not a drag on economic growth.
GILBERT: But it is not holistic change to make the economy more efficient, this is just picking at the edges.
LEIGH: I think these are important policy reforms. If you look at the efficiency of taxes, the most efficient and the most inefficient taxes are at the state and territory levels. If you look at the ACT and South Australia moving away from stamp duty to land taxes, this is textbook economic reform. By contrast, the GST and income taxes have basically the same efficiency drag on the economy.
GILBERT: But the efficiency drag is taken in isolation. What if you have a reduction in company and personal income taxes as well? This would generate significant growth and a significant contribution to our GDP and overwhelm any drag from a consumption tax, surely?
LEIGH: You are going away from where we started, which is to say we have bourgeoning deficits. We have had the deficit double over the past 12 months. Labor believes we need to look at the spending side and the revenue side. I’m always surprised when I see Scott Morrison out there saying Australian doesn’t have a revenue problem.
GILBERT: But on that, if you have the GST – and this goes to the whole issue of paying off the debt down the track if we have a more sustainable growth trajectory – they are saying that we have an efficient consumption tax accompanied by a cut in personal income tax and company tax. This is the argument made by Richardson and others: that this would make our growth trajectory much more positive and the drag you talk about would be overwhelmed by the positive.
LEIGH: But on the government’s own figures, Kieran, the GST is no more efficient than income tax. It would have an excess burden of about $1 for every $5 that you raise. So you don’t get this growth dividend from a GST and income tax switch. One thing I worry about is that the money has been spent so many times over: whether it is on cutting state taxes, cutting company taxes, providing household assistance, bringing down the overall tax rate – which means no household assistance to those on fixed incomes. It’s a bit of a dog’s breakfast.
GILBERT: Jay Weatherill, the South Australian Premier, likes it. You spoke about the Federal Government putting people out there, well one of the advocates is Jay Weatherill. He is saying that the states should get 17.5 per cent of income tax in return for an agreement to increase the GST to 15 per cent. So he is on board.
LEIGH: I like Jay, and I think he is one of Australia’s very serious economic reformers. But I disagree with him on this one. I believe that if you increase the GST you don’t get the efficiency gains and potentially you increase inequality in Australia.
GILBERT: He is getting some complements this morning from unlikely quarters. Dan Tehan, a Liberal MP, is giving Jay Weatherill a tick in the Financial Review. But just finally on the climate talks: Bill Shorten is on his way there, and his target has been described as ‘heroic’ by the PM. Is it really achievable? Particularly in the economic and budgetary climate that we find ourselves in?
LEIGH: Bill Shorten goes to Paris with the Climate Change Authority’s recommendation of a 45 per cent emissions cut, which Labor will consult around. Malcolm Turnbull is going to Paris with a weaker target than the US, Canada and the European Union, and the economic cost to Australia in the future from that will be significant. The White House has estimated that, if we don’t act on climate change and world temperatures go to 3 degrees, this will knock 1 per cent a year off global growth. That’s 1 per cent every year. So we can’t afford not to have serious action on climate change.
GILBERT: But should we be that far ahead of the world, as Warwick McKibbin has suggested we will be if we adopt Labor’s 45 per cent target?
LEIGH: We are simply not. If you look at Frank Jotzo’s careful analysis on what different countries are doing on climate change, it is clear that Malcolm Turnbull is putting Australia at the back of the pack, even though Australia has the highest emissions per head of any developed country. We need to act quicker, not just for our environment, Kieran, but for our economy as well. It makes sense to take action early. Your viewers will know that most problems in life don’t get smaller if you put them off, they only get bigger.
GILBERT: Ok, Shadow Assistant Treasurer Andrew Leigh, as always, we appreciate your time.
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