Andrew Leigh

&OE TRANSCRIPT

RADIO INTERVIEW

2GB MONEY NEWS

WEDNESDAY, 9 MAY 2018

SUBJECT: Budget 2018-19.

ROSS GREENWOOD, HOST: To give you his reaction, the Shadow Assistant Treasurer Dr Andrew Leigh is always great with his time here on Money News and we appreciate it this evening Andrew.

ANDREW LEIGH, SHADOW ASSISTANT TREASURER: G'day Ross, great to be with you.

GREENWOOD: I know it's busy for you between divisions. I was just going through some of my calls there about something the government put out last night as part of its budget and that is that 40 percent of Australian households, two in five, receive more in government payments than they pay in income taxes. Effectively, what the government was trying to show was that those higher paid families in particular are increasingly paying a greater burden or share of the overall personal tax in Australia. Is this something that troubles you as the Shadow Assistant Treasurer, as you have to make decisions about how to carve up the pie as you go forward?

LEIGH: Ross, sometimes the snapshot can be misleading. You want to look at what social insurance does over the course of a lifetime. It's true that only a minority of us are using the income safety net at any given time, but at different stages of our life we use it. So a young person might tap into social insurance when they're at university getting assistance, they might be unemployed at some point and use the social safety net, and then again they might get the pension at the end of their life. In between times they would be paying into the system and that's how social insurance is supposed to work. So I’m certainly not troubled by statistics of that kind, I think it is really important that in an age where we've got inequality as high as it's been in three-quarters of a century, that we do have a progressive tax system.

GREENWOOD: Can I pick you up there - how is inequality as high as it is in as long as you say? Given the fact that Australia's minimum wage at $18.29 is now considered to be the highest minimum wage in the world? Have we not as a nation, provided a significant safety net? Have we not provided a safety net through the family tax benefit schemes? Through income support, through low income tax offsets? All these types of things are there. But starkly we can still go back to that stat and as you point out, some people do go to that safety net from time to time but you're not supposed to live on that forever I would have thought. Forty percent of Australian households receive more in government payments than they pay out in income tax. Problem is, if you're a high income tax payer in Australia, you feel as though there is no incentive for you to try that bit harder, to earn that bit of extra money because you're just going to get slugged and you effectively feel as though somebody else is not paying their share.

LEIGH: Ross, there's an awful lot in that question.

GREENWOOD: It was more of a statement as well as a question!

LEIGH: No, it's all good. You're a man of big ideas! In terms of inequality, the series we have is looking at top incomes going back right over the full century. We also see wage inequality rising over the course of the last generation. What the market has been doing is producing more inequality. Some of that is ameliorated as you say through a minimum wage and through the best targeted social safety net in the advanced world, but not all of the inequalities of the market are tackled through those government interventions. So the end result is that we've seen a widening gulf between the haves and have-nots, between the battlers and the billionaires. In that context, we need to maintain progressive taxation. I don't think there's anything wrong with the notion that I, as someone who is in the top couple of per cent of the income distribution, pay not just a higher dollar amount of tax but a higher percentage of my income. Because I can afford to pay, in a way that somebody like an apprentice on the minimum wage can't afford to pay as high a share of their income. It's right that the tax scales rise.

GREENWOOD: OK. I get that, I totally and utterly get that, I think every Australian understands that as a notion. The question is about degree. At what point do you take away incentive for a person to earn more? Because my point about this is that if you don't give people even in middle income areas and lower income areas the incentive to try and work overtime, to try and work more, if they've got a disincentive that it might actually mean that they lose some family tax benefits or they might lose a low income tax offset, all of those types of things, you don't want to take away from people the incentive to work more and to put more back into the system, surely?

LEIGH: Absolutely, it's what economists call the 'deadweight cost of taxation', you always want to minimise it. You want to make sure that you're garnering the greatest amount of revenue that you need to fund the social services and pay down debt, with the minimum drag on the economy. My read of where those disincentive effects are largest, Ross, is it's actually on people looking to re-enter the workforce, often after having kids. That's where the disincentive effects of taxation are at their most acute. Frankly, many of the studies show that for middle aged blokes like you and I, on above average earnings, the disincentive effects of tax are smaller. But we want to look scientifically and critically at the evidence of where the taxes deter work and make sure the taxes are no higher than they need to be in order to raise the available revenue.

GREENWOOD: OK, so as a broad concept however, where is Scott Morrison wrong in trying to take out that 37 cents in the dollar tax bracket, to flatten out the tax system? To mean that most people on average are paying relatively the same amount of tax regardless of their income. Now the truth is there is the safety net there for those people who earn less than $18,200, they pay no tax. For those who earn up to, say, $41,000 eventually, they'll pay zero, between zero and $18,200, then 19 per cent up until $41,000. Then it goes flat until I earn $200,000. Where is that conceptually not a bad idea?

LEIGH: It goes back to that issue of progressive taxation we were talking about earlier Ross. It is appropriate that tax rates rise as income rises, that's something that you see all around the world. We haven't announced what our position would be on those tax cuts that take effect after Malcolm Turnbull hopes he wins two more elections. We've said that there’s a set of tax cuts that the government wants to implement on 1 July this year, they will largely go to lower and middle income earners, and we're happy to support those. Then there's another set of tax cuts, much more regressive, much further down the line. For starters we would like to know how much they're going to cost the budget and we don't have that breakdown yet.

GREENWOOD: I want to go back to that concept and just try and test you with it. A lot of people would say, why don't you simply just have people up until $20,000 or $25,000 pay no tax and then from there, everybody in the country pays 15 per cent flat. So it doesn't matter whether you're paying a lot or a little, everybody's got the same tax rate, everybody is equal. You earn a million, you earn an hundred thousand, whatever you earn - you all pay the same. Why is that as a flat tax idea not at least a concept we should consider?

LEIGH: So effectively your tax terms there Ross would say that someone earning a million dollars gets a $300,000 tax cut. Where does that --

GREENWOOD: So they pay $150,000 in tax so they pay $150,000 or fifteen per cent of their wage in tax. The person who earns $100,000 pays $15,000 or, ten times less than the person who earns ten times more. Where is this not equal in the whole scheme of things?

LEIGH: I get it. It goes to the ability to pay. If you're a millionaire, then you have a greater capacity to contribute to our public services than if you're someone on the minimum wage. If we were to take that $300,000 and give it to somebody who is on a million dollar salary, then that means there's $300,000 less to be spent on our schools, for example. Now we know our schools are failing to keep up with other countries, we've seen these international test score rankings in which we're steadily slipping down on maths, reading and science. Ripping $17 billion out of our schools, as the government has said they'll do, means it's going to be harder for them to attract great teachers. That affects equity but it also affects the productive capacity of the economy because we don't have kids who are learning the critical skills in order to engage with the jobs of the future.

GREENWOOD: Well you'd really hope of course that those kids have the incentive to work here in Australia and not to take their skills overseas where they might find cheaper tax rates or they might find greater opportunities to actually use those skills that they acquire in the Australian education force.

LEIGH: Sure, but if you're to rip that much money out of schools then you may end up with a system in which you're not educating the next generation in a way that we have to do if they robots are coming. We need to make sure we're boosting the Asia literacy of the workforce, we need to make sure that schools are not just teaching kids literacy and numeracy but also engendering a love of learning. One of the things we know about the labour market is that it's constantly going to be changing. You're going to have to keep on retooling and reskilling. This idea that you get one ‘lump’ of learning at the start of your career and that's it, that's gone. Investment in education, according to Australia's top economists, is a much better way of boosting growth than company tax cuts.

GREENWOOD: Tell you what, good to have you on the program as always. We'll see the response to the budget tomorrow night. We'll see the alternative way in which these billions of dollars which have come into the budget will be spent. But again, Andrew it's always good to have you in the program. It's a good intellectual debate, I quite like it. So the Shadow Assistant Treasurer is Dr Andrew Leigh.

LEIGH: Thanks Ross. Take care.

ENDS

Authorised by Noah Carroll ALP Canberra