CNBC SQUAWK BOX
TUESDAY, 3 MAY 2016
SUBJECT/S: 2016 Budget; Company tax cuts; Labor’s plan to clamp down on multinationals; Reserve bank meeting.
MATTHEW TAYLOR: Welcome back to the show, coming to you live from Canberra. Today of course we are counting down to the Federal Budget that will be handed down at 7:30 AEST tonight. It is the first Budget for Treasurer Scott Morrison and Prime Minister Malcolm Turnbull in their respective new capacities. In terms of what's coming out in the Budget, not a lot of detail ahead of time, we do know that the Budget will be centred on small and medium size business with company tax cuts for small and medium enterprise. The definition or the classification of small business is going to change as well, those with a turnover of $5 million or less are going to be included so the net is really being widened on these tax concessions that are going to come through for small business reduced to about 27.5 per cent. We also know there are going to be tax cuts for income earners over $80,000 that is of course to stave off bracket creep, scrapping the budget repair levy, taxes on superannuation contribution for high income earners, an increase in the tobacco excise and also multinational tax avoidance.
But let's get a bit of a look ahead to what the opposition is thinking may or may not be in the budget and some reaction to those early leaks. I am joined by Andrew Leigh, the Shadow Assistant Treasurer out here on the lawn this morning. Andrew, pleasure to see you thanks very much for chatting to us. I want to kick off on the company tax side point of view, what is the Opposition's response to that? Because broadening the definition of small business so a greater number of small and medium sized organisations going to benefit from a lower tax rate has got to be positive?
ANDREW LEIGH, SHADOW ASSISTANT TREASURER: Well Matt, we'll wait and see exactly what the Government is proposing but the other dimension to this Budget is that it comes down at a time when Australian living standards have fallen and our debt position has worsened. Since the Government came to office, Australian net debt has increased by about $100 billion. Labor's concerned that a company tax cut that was purely funded by increased borrowing could well have an impact on Australia's creditworthiness. We believe it's absolutely critical to maintain Australia's three AAA credit ratings - not just for households but of course for businesses who'd see their interest bills rise under a credit downgrade scenario.
TAYLOR: We know that Moody's has of course warned on the triple A outlook and has said that spending cuts probably won't be enough to relieve the debt or deficit position that we are seeing in the budget at this current point in time and that tax hikes would be necessary. Is that something that you would be advocating for?
LEIGH: Well we believe in both. We've certainly argued from an Opposition perspective that we don't think the Government ought to be handing away money to polluters, we don't think they should be spending money on a marriage equality plebiscite which many of their members say they won't abide by, and we don't believe the Australian baby bonus should be brought back. We've also put on the table a clear set of tax policies. Labor has put on the table more ideas than any other Opposition in the last twenty years. We've done that because we believe deeply in the power of ideas and because we believe that some of those big challenges in living standards falling and inequality rising can only be met by a strong Opposition with concerted ideas.
TAYLOR: Multinational tax, that is something that you have been speaking quite widely on, what are you hoping to see out of that because it has been flagged that there will be some changes there and some further crack down on multinationals that avoid paying tax in Australia?
LEIGH: Labor put together a plan on this about a year and a half ago now around reducing debt deductions, cracking down on hybrid mismatches, and making sure the tax office is properly resourced. To the extent to which the Government wants to pick up elements of that policy, we'd of course be very pleased. To date they have been disappointing on multinational tax avoidance. Even with the release of the Panama Papers, the Coalition has been much more interested in protecting the big end of town than it has on the closing of loopholes.
TAYLOR: On that subject though, what would a significant change in the current policy then mean for foreign investment into Australia by big multinational corporations?
LEIGH: Australia is a great place to do business because we have strong institutions, a well-educated workforce and a great healthcare system. I don't believe that Australia's great pitch to the world should be “come and invest here, we've got the best boondoggles and the largest loopholes”. I believe that the debt deductions that Australia currently allows for multinational firms aren't grounded in good economic intuition. My own background is as an economics professor, I think a worldwide gearing ratio makes much more sense than an arbitrary thin capitalisation threshold. Maybe the Coalition will bring down the thin cap threshold but my view is that we ought to do away with it all together and just have the worldwide gearing ratio for debt deduction as many including the OECD have proposed.
TAYLOR: Bernie has a question for you.
LEIGH: G’day, Bernie.
BERNIE LO: INAUDIBLE
LEIGH: Well not at all, Bernie. I think the ideas that Labor has put forward are in the great open market tradition of Paul Keating, Bob Hawke, Julia Gillard and Kevin Rudd. We believe that foreign investment has on balance been a strong benefit to Australia. We believe in open markets and multilateral trade agreements, we believe that the Australian tax system needs to be a competitive one but also one that funds the services that underpin strong economic growth. Australia is a country that needs more entrepreneurs, you’re absolutely right to pinpoint that one, and part of that is making sure that every child has a great teacher and making sure we have the business environment in order for small businesses to prosper.
TAYLOR: I want to get your thoughts as your other hat is as an economics professor, on the Reserve Banks meeting today; we had those very weak inflation numbers last week that in fact showed negative inflation over at least one quarter. That has prompted many to suggest the Reserve Bank needs to go further but is the economy in need of further stimulus from the Reserve Bank via a 25 point basis reserve cut?
LEIGH: The issue of “structural stagnation” that Larry Summers has talked about is I believe more acute for the United States but not something to be ignored here. We've got not just those inflation numbers you referred to Matt but also the slowest wage growth in thirty years. In order to boost that, Labor believes it is really vital to make sure that we continue to make sure that our schools are better, our vocational education system is strong and that every Australian child with the ability to go to university is able to get there. Inequality is in some sense a race between education and technology. As technology advances we have to make sure that young Australians are keeping up with an increasingly technologically driven labour market.
TAYLOR: Alright we'll see what the budget shows later on and of course the Reserve Bank a few hours ahead of that. Andrew Leigh the Shadow Assistant Treasurer, thanks for very much for chatting to us today.
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