ABC MELBOURNE WITH RAF EPSTEIN
MONDAY, 24 APRIL 2023
SUBJECTS: RBA Review, Medicare, Stage 3 tax cuts, Home buyer grant, Monopsony, JobKeeper.
RAFAEL EPSTEIN (HOST): Andrew Leigh, thanks for joining us.
ASSISTANT MINISTER FOR COMPETITION, CHARITIES AND TREASURY ANDREW LEIGH: Real pleasure, Raf. Great to be with you and your listeners.
EPSTEIN: You're an ambitious man. You understand the economy. Are you frustrated that the government isn't as ambitious as you are?
LEIGH: This is an ambitious government moving quickly on reforms. People will see the cheaper childcare reforms taking effect in the middle of the year. Cheaper medicine is already in effect. We've got the Safeguards Mechanism as a core part of our climate policy, and we’re getting our renewable share up from a third up to four fifths of the electricity grid. We're setting big targets for electric vehicles and today we brought down the Defence Strategic Review, which is the biggest review of our Defence posture in the postwar era. There is nothing small-target about what we're doing, Raf. We're a great reforming government in the Labor tradition.
EPSTEIN: There is a fundamental disconnect, isn't there, between what we're spending as a country and the money that's coming in? And that has to change. It's called a structural deficit, but neither side of politics tackled it at the last election. We have to have the ambition to tackle that, don't we?
LEIGH: Absolutely, we do. And we need to make sure we're reigning in tax concessions where they're unwarranted. We've already announced changes around superannuation accounts, which will increase the concessional tax rate on earnings for super balances above $3 million to 30 per cent. We've announced a range of measures in the multinational tax space, closing off debt deduction loopholes and royalties loopholes, which have allowed billions of dollars to flow offshore to multinational firms that aren't paying their fair share.
EPSTEIN: They're not changing that picture of spending too much and not bringing enough tax in. Not that they're not important, but you need to do something fundamental. Stage three tax cuts is fundamental.
LEIGH: Well, we're talking about billions of dollars in the measures that I've already mentioned to you, Raf, so we're pretty serious about that. Around the world, there has in recent decades been a race to the bottom in company tax and with this OECD agreement, the world is setting a 15 per cent floor on company taxes, which is really important for a country like Australia that relies more on company taxes than do some other countries. So, shoring up the company tax base is absolutely vital. We're committed to being a global leader on multinational tax compliance and that's being recognised around the world with our important reforms.
EPSTEIN: A lot of governments talking about taxation between different countries. I will get to calls in a moment if I can just try this one more time, Andrew Leigh. And I'm not asking you tell me what's in the budget, but the Finance Minister was on television with Davis Spears yesterday, talking about the significant cost of the stage three tax cuts. There's going to basically be a budget item in two weeks time, telling everyone how expensive the stage three tax cuts are. Surely that is your government saying, look, we're not going to change the stage three tax cuts in government, but we are going to go to the next election with a significant change on those stage three tax cuts.
LEIGH: Look, our position on those stage three tax cuts hasn't changed, Raf. They're legislated. They come in and affect people earning more than $40,000. I understand that there is significant community debate over that, but the simple answer is our position hasn't changed.
EPSTEIN: The government does appear to be telegraphing, "Look, people on more than 160 or 180 grand, you're not going to get to keep that stuff after the next election". That looks like what you're softening us all up for at the next election.
LEIGH: We've put in place a tax expenditure statement which has taken Australians through some of the ways in which tax concessions are affecting the budget. We need to be honest with Australians, Raf. We do have a range of -
EPSTEIN: So that's a 'yes' to my question? Softening us up for an election commitment to change it?
LEIGH: Our position has not changed. But unlike the former government, we're not going to be hiding the truth from the Australian people. The tax expenditure statement was much more detailed than the sort of glossy doc that you saw under Josh Frydenberg. And the Budget costings are going to be clear with Australians about the budgetary challenges we're facing. We're very much aware of the need to take responsible decisions in the interests of budget repair. Unlike the other side of politics, which opposed our very modest change for super balances above $3 million, a change which affects less than 1 per cent of Australian superannuants.
EPSTEIN: Andrew Leigh is with us. He's the Assistant Minister for Competition, Charities and Treasury. He's part of Anthony Albanese's Treasury or Finance team. Chrissy's got a query on the Home Buyer Grant. What do you want to ask, Chrissy?
CHRISSY: Yeah, we've just been approved for it and I'm terrified because I just don't know if I'm going to be cut off as soon as the end of the financial year. It's the first time we've ever - literally, I'm in my fifties - first time ever we've been able to buy a house. It's under the $600,000 housing. But I'm just wondering, when will we know what they're going to do about this? I know there's another plan for after that for people under $90,000 a year.
EPSTEIN: Can I just clarify, Chrissy? You got a First Home Buyer's Grant because your house is worth - it cost less than $650,000. Are you concerned that you might not get the money? Is that your question?
CHRISSY: Well, my question is, do I have to buy in eight weeks in a market where there's no housing? And in our area, they're going in two or three days.
EPSTEIN: Andrew Leigh, if she wants to get that home buyer's grant for a house of that value, does she need to do it fast?
LEIGH: I don't have the specific details of the Home Buyer Grants at my fingertips, Raf, but I’m very happy to come back to Chrissy.
EPSTEIN: Is that stuff changing in the budget?
LEIGH: I haven't got any information on those grants changing. Certainly we're keen to boost home ownership in Australia, hence the Housing Australia Future Fund, hence the investing in the Help to Buy program, which will see the federal government operate, as many state governments have, as a co-equity owner, basically allowing people to take out a smaller mortgage than they would otherwise have done.
EPSTEIN: Yeah, I think that's a different program than what Chrissy's talking about.
LEIGH: It is. But it's actually got a bigger impact, Raf, because for somebody who might have otherwise been facing a million-dollar mortgage, they're able then to look at a $600,000 mortgage with the government going in as an equity partner. And down the track, if things improve, you can buy the government out and get that home in your own right. So, it does make a big difference to home ownership. It started, of course, with the Western Australian Key Start program. It spread across a range of states. We thought it was a great idea, so we picked it up and ran with it in the last federal election.
EPSTEIN: Chrissy that's not quite an answer to your question, but that's the answer you're going to get. Andrew Leigh is with us. Abdul has a query calling from Croydon. Abdul, what do you want to ask?
ABDUL: I just want to ask about the Medicare I thought Labor was protecting, because each time we go in the Eastern, you can't see any doctors that bulk-bill and there's four of us. Each visit is like $90. How do you justify when everything else is so expensive? And to see the doctor, it's like 90 bucks.
EPSTEIN: Andrew Leigh?
LEIGH: We’ve carried out a Strengthening Medicare Taskforce report earlier this year that was handed down on 3 February and it reported exactly what your listener is saying there. Primary care is in the worst shape it's been in 40 years. Bulk-billing rates are in decline and we've struggled to get doctors to move into general practice. So, it used to be that half of all doctors went into general practice. Now it's down to 14 per cent. So, you can certainly expect announcements in the primary healthcare space because we understand how important that is to shore up Medicare.
EPSTEIN: And when do you think he might feel some relief? I appreciate you can't spell out all of the things you're trying to do around GPs and Medicare and the interaction with hospitals, but when are people going to notice a bit of ease of pressure when it comes to the extra payment of the GP?
LEIGH: Look, I think Abdul should expect announcements through this year. We can't fix all the problems that arose in nine years of Coalition government in just one or two budgets. But Labor built Medicare. You'll remember, Raf, that every election between 1969 and 1993 was fought over Medicare, with Labor wanting it and the Coalition wanting to get rid of it. So, it's a key Labor legacy. We want to see Medicare working better.
EPSTEIN: I went to the John Howard press conference before the '96 election, where he promised to keep Medicare and everyone came.
LEIGH: That's right. There was a first moment which the Coalition for a generation said, "we're not going to try and scrap Medicare", and when they get into office -
EPSTEIN: They may disagree with your characterisation of that, but nothing wrong with pointing out a little bit of history. Let's get to another question, if we can, Andrew Leigh, before we get to some traffic. Charlie's got one of those in Carlton. Charlie, what do you want to ask?
CHARLIE: Yeah, I'm just wondering why the government doesn't take some of the burden to reduce inflation from the Reserve Bank?
EPSTEIN: You mean by lifting taxes?
CHARLIE: Yeah, I feel like they might be a bit scared.
EPSTEIN: Andrew Leigh?
LEIGH: Well, Charlie, we know people are facing cost of living pressures and so, really, what you can think of the Reserve Bank as doing is focusing on the demand side, we're focusing on the supply side. We're looking to unblock those problematic supply chains which have seen people waiting a long time to get everything from cars to essential medicines. We're putting in place targeted cost of living relief, so the energy bill relief will be a core part of -
EPSTEIN: Why not taxation? The Reserve reduces demand by raising the price of money. You could do the same with taxation. Why not taxation?
LEIGH: Australians are doing it tough right now, Raf, I don't go out on my street stalls and hear people saying, ‘what you really need to do is to raise my taxes’. Instead, we need to provide that cost of living relief. We'll be assisting through cheaper childcare, cheaper medicines and through cheaper energy bills. But we also need to be working on budget restraint, making sure that we're making savings where we can, and you will have seen with today's Defence Strategic Review, $19 billion of new spending, but offset by nearly $8 billion worth of reprioritising of programs. We made tough decisions to cut existing programs because we understand that we can't simply be paying for everything in the defence space. And that in turn means that there's less pressure on the Reserve Bank to keep on raising rates.
EPSTEIN: Andrew Leigh, hang on a tick. We'll just get some traffic details. We'll get to more of your questions as well, but Caroline Ferguson has those road details first. Hi there, Caroline.
[Excerpt on traffic]
EPSTEIN: Andrew Leigh is Assistant Minister for Competition, Charities and Treasury. He's part of the finance team inside Anthony Albanese government and he is a Labor MP in the Australian Capital Territory in Canberra.
Andrew Leigh, I don't want to get too stuck in on the detail of the view of the Reserve Bank, but some of the details are very interesting. The thing that Philip Lowe is best known for is saying interest rates wouldn't go up until 2024, so that's sort of being prosecuted uphill and downtown. But he didn't tell the board he was going to say that; he didn't give the board any written briefing, that he was going to keep interest rates on hold for three years. That's an unqualified mistake, not just in what he said, but in his dealings with the board, isn't it?
LEIGH: Well, I don't want to go to specific critiques of the Reserve Bank, Raf. I've always been pretty careful as a parliamentarian to respect their independence. But the review itself does talk about both the period 2016 to 2019, where it judges that the Reserve Bank kept interest rates higher than they needed to be and potentially that had an employment cost, and then over the forward guidance that the Governor gave, which didn't pan out. One of the points it makes is that when you look at central banks around the world, typically they have a committee of monetary policy experts who are helping to guide the board to test their judgement.
You know, in some way if you're running a biscuit company, then you'd have a board which is made up of people that really understood the manufacturing of biscuits, not just talented generalists. The people on the Reserve Bank are brilliant minds, but in general, they're not monetary policy experts. So, this two-board system, one with governance experts, one with monetary policy experts, is the norm with central banks around the world. And that's what the reviewers recommended we move towards.
EPSTEIN: Were we a bit slow getting to that?
LEIGH: Certainly the -
EPSTEIN: - as a nation I'm talking about.
LEIGH: The pressure has been building over the years and there have been reviews of central banks in many other advanced countries. I think this is a timely review. I think it's really reached out and looked globally at the way in which things are done. It's made some important recommendations, too, around transparency, more regular press conferences, publication of board minutes, again moving towards the norms in how central banks operate, and providing a greater level of transparency for Australians into the Reserve Bank's operations. You also can have, if you've got a group of monetary policy experts, a little bit more staff support for them. Again, it's about testing the views of the Reserve Bank, making sure it's making the very best decisions it can in keeping d inflation in the target band, and keeping unemployment as low as possible.
EPSTEIN: I’ll get to some calls in a moment. Andrew Leigh, I do believe that policy – sorry, that process is really important and the way decisions are made is really important. But even with a broad group of labour market economists and finance market economists and everything else, do you think Australians are going to notice a difference to the decisions around interest rates?
LEIGH: Yeah, look, I think this is one of the pushbacks that was being made. If you go a couple of years ago as to ‘why do we need a review, things are basically right?’.
EPSTEIN: Interest rates, right? Blunt tool.
LEIGH: Look, I think the best answer to that is that in good times it doesn't matter, but when a crisis strikes, you really want the institution to have the best settings and the best people advising it. You think of what happened to the United States when the global financial crisis hit and the Federal Reserve had at their helm Ben Bernanke, a guy who had studied the Great Depression. That was a huge boon to the Federal Reserve and its ability to respond constructively to a really challenging crisis, which was seeing the meltdown of the financial sector. So, in times of crisis, the institutional settings matter the most. We need to make sure the Reserve Bank isn't just a strong bank in good times, but it's a great bank in bad times.
EPSTEIN: Let's go to a question. Paul's calling from somewhere in Port Philip. What do you want to ask Paul?
PAUL: Yeah, I've got a question about monopsony. Might be a big 'inside baseball', but that competition that is in the market for the suppliers of goods like to, say, the Coles and Woolies, and there's other examples. So, what is the Labor government doing about improving the level of competition or breaking down monopsony in our market so that we, the consumer, get lower goods? What are you doing about monopsony and competition?
EPSTEIN: Monopolies, Andrew.
PAUL: Not monopoly - monopsony, not monopoly.
EPSTEIN: I'm sorry? Monopsony. Monopsony. Okay.
LEIGH: The distinction that Paul's making is that monopoly power is about how firms affect their consumers, while monopsony power is how they affect their suppliers. The idea goes back to the Cambridge economist Joan Robinson, an extraordinary twentieth century economist who really should have been the first woman to get the Nobel Prize. I gave a talk in Melbourne about monopsony power a couple of months back talking about the way in which large firms are increasingly affecting their suppliers. So you think about grocery stores and processors….
EPSTEIN: And this is Coles and Woolies to a 't'?
LEIGH: Exactly. And so if they're not only able to have pricing power in the market they sell into, but also pricing power in who they buy from. So, we've had various codes which industry specific codes like the Horticulture Code that have tried to deal with that. But one thing that the government is looking at now is whether a ban on unfair trading practices might make a difference.
We've banned unfair contract terms, which go to the way in which big firms try to throw their weight around with small firms. We're also interested in how this plays out in the employment space. You know, f you've only got a couple of firms that you can sell your labour to, then potentially you won't get paid what you're worth. And so this has seen a lot of attention from the US competition watchdog. I've been having a constructive conversation both with Treasury and the competition watchdog here and asked them to do a deep dive into monopsony power and how it might be affecting the really slow growth in wages that we've seen over the last decade. Just 1 per cent wage growth in real terms over the last decade? That's just not good enough.
EPSTEIN: Every single person who sells stuff to Coles and Woolies will tell you that they set the price, the supplier does not. What rule change could change that relationship?
LEIGH: Banning unfair contract terms made a big difference. Banning unfair trading practices might well have an impact too. Stephen Jones is leading the work on that with state and territory consumer ministers. We're also interested in whether or not these grocery codes are working well. There's a review of the disputes process through the Grocery Code coming up that I've got a keen eye on.
We do need to make sure that, particularly in really competitive industries - and farming is a pretty competitive industry, lots of different farmers competing against one another - that they're not getting squeezed because they're selling to processes, whether they're potato processors or chicken processors that have a lot of market power.
EPSTEIN: Andrew Leigh I'm glad I've learned a new word in "monopsony", but if I can ask you an old question, but an important question. I think JobKeeper [sic] is what - you'd be lucky if it's 60, 70 bucks a day. Do you think you could live on it?
LEIGH: I certainly couldn't. The JobSeeker payment is low and we recognise the recommendations the Economic Inclusion Advisory Committee to increase it. Certainly, looking after the most vulnerable in Australia is a core priority for a Labor government you've seen that in a whole suite of things.
EPSTEIN: How comfortable are you saying you couldn't live on it but you can't raise it?
LEIGH: Well, we haven't said we won't raise it. We've simply said we will take careful consideration of the Economic Inclusion Advisory Committee's report. Again, we can't solve all the problems that were left to us after a decade of Liberal government in a budget or two. This is a really important report. Makes 37 recommendations. One of them goes to JobSeeker. But there's also recommendations around closing the gap, place-based approaches, carrying out more randomised evaluations, inclusive energy transitions. It's a very sensible and thoughtful report, which is occupying a good deal of attention in the government.
EPSTEIN: And a final personal question from a text to Raf. Ask him why he is not the Treasurer, as the current bloke has no qualifications whatsoever. Andrew's got a politics degree and a PhD on Paul Keating, the ridiculous faction BS. So, a direct question off that. Andrew Leigh, are you a more junior member of the finance team because of the factions inside The Labor Party?
LEIGH: Jim Chalmers and Katy Gallagher are doing a first-rate job as Treasurer and Finance Minister. They're bringing together their second budget, engaging with counterparts across the world. Jim's just been over in the United States. I'll be heading off to Asian Development Bank meetings in Korea next week, engaging constructively with counterparts there. So, it's just a pleasure to be part of a Labor government, Raf, I spent nine years -
EPSTEIN: So are factions the reason you're more junior?
LEIGH: Well, factions are a reality in the Labor Party. I'm a bit unusual in being outside the factional system, but the real privilege is having a chance to serve in the Parliament and better yet, getting to serve as part of a government. After nine years in opposition, I felt it was a bit soul-crushing and really missed the inability to contribute to policymaking. So, being able to work with the extraordinary public servants in Treasury, being able to work with great colleagues like Jim, Katy, Julie and Stephen, that's a true privilege. If you'd told 15-year-old Andrew that I would be doing this when I was 50 years old, I would have said, "Pinch yourself and wake up, you're dreaming". I feel it's a privilege every day.
EPSTEIN: Andrew, thank you for your time.
LEIGH: Thanks so much, Raf.
EPSTEIN: Andrew Leigh, the Assistant Minister for Competition, Charities and Treasury.