2SM WITH MARCUS PAUL IN THE MORNING
TUESDAY, 6 OCTOBER 2020
SUBJECTS: Budget Day; Proposed tax cuts; the need to prioritise jobs and education; Scotty from marketing earning his nickname; Reserve Bank meeting.
MARCUS PAUL, HOST: Andrew Leigh is the Shadow Assistant Minister for Treasury, was a professor of economics from the Australian National University and was a principal advisor at Australian Treasury from 2008 through to 2010. And he joins us on the program. Andrew, good morning, mate.
ANDREW LEIGH, SHADOW ASSISTANT MINISTER FOR TREASURY AND CHARITIES: Good morning, Marcus. Great to be with you.
PAUL: All right. Look, there's a lot of numbers, figures, all sorts of things being thrown into the mix. But how do you view tonight's announcement by the Treasurer?
LEIGH: I think your point before Marcus about ‘this isn't Scott Morrison's money’, this is money that is going to be paid for by future generations of Australians, is really the salient one. We've got debt going to a trillion dollars, we're going to remember that all this spending is borrowed spending and so it needs to do maximum good in getting the economy going. It's only stimulus when it’s spent, so giving tax cuts that end up being saved isn’t going to create jobs. The priorities have got to be to create jobs and to build back better through the recovery.
PAUL: Alright. When you say tax cuts not being spent, I mean, I think traditionally those at the higher levels of income tend to save their tax cuts or don’t put it back into the economy. Is that what you mean by this? So for instance, those who are earning a certain amount of money, I mean, they will receive obviously a higher tax break and that will stay within the bank system rather than being spent. Is that right?
LEIGH: Yeah, that's right. There's two aspects to that. High income earners tend to save about a quarter of their income. So about a quarter of that doesn't flow back into the economy. And the other thing is high income workers are very rarely on the margin between moving from welfare into work. So it's difficult to imagine that if you offer a tax cut to somebody on $200,000, suddenly they'll say ‘oh, well, I'll take that $200,000 job rather than staying unemployed’. I would certainly benefit from a tax cut for people on $200,000, but that doesn't mean that that's good for the economy at a time when we're borrowing every single dollar.
PAUL: Yeah, well, the government I think is aware of this. I mean, they say they will redraft this tax plan, this $158 billion tax plan in an attempt really to perhaps reach agreement with the likes of yourself and others in the Senate. Because they're aware of the fact that it might be more generous for those on higher incomes, Andrew.
LEIGH: I hope they do, Marcus. If the pandemic hadn't happened, then you'd imagine that Josh Frydenberg would be talking about tax cuts for the top end. And given that the pandemic has changed everything, you'd hope that the Liberals would actually have a different plan. But this looks all too familiar from past budgets we've seen from the Coalition, which have given the most to those who have the most. At a time when the pandemic has hurt the most vulnerable, who aren’t able to telework, who are often the ones who have lost their jobs, the short term casuals who've been shut out JobKeeper - all of those people need to be the first priority in the budget.
PAUL: Well they're talking about an economic cliff, if you like, by next March once some of the coronavirus measures do fade off. We're talking JobKeeper, JobSeeker. Obviously, JobSeeker will remain, but probably at a much reduced rate. I mean, we've spent $101.3 billion on JobKeeper alone. I mean, what can we do apart from maybe offer more incentives, which was announced over the weekend? I mean, I had to have a little laugh at some of the Murdoch press – ‘the PM to pay half of all tradies’ wages’.
PAUL: I mean, what a joke.
LEIGH: Absolutely, yeah. The priority’s got to be to create jobs and for those who can't work to provide educational opportunities. In the early 90s recession, we saw a huge uptick in the school completion rate as young people stayed at school, got more training because the jobs weren't available. Right now, we need to be opening up university places and vocational education places. We need to be making sure that disadvantaged kids who have been hurt by the closure of schools are brought up to speed. And that educational investment recognises that the big hit this year has been to human capital. The physical capital in the economy's largely unchanged, but people's health and education has been adversely affected. So that's where the investment’s needed. I think an investment budget is just what the economy needs right now, and I worry too much this is shaping up to be the same sort of budget that we would have gotten if the pandemic hadn't happened from the Liberals.
PAUL: Yeah. Well, I mean, obviously your colleague the Shadow Treasurer Jim Chalmers, he agrees. He says that for all of the extra spending that will be announced tonight, the government needs to reduce unemployment. I mean, that should be ultimately the goal, and they're saying it – they’re saying all the right things: jobs, jobs and more jobs. I mean, I don't know. Today we've got the Reserve Bank holding its monthly meeting, financial markets, maybe cutting interest rates. Look, I don’t know. I am really concerned – it sits at 0.25 per cent. How much lower can it go?
LEIGH: Other countries have gone to negative interest rates. There are changes in the term funding facility that could be made. Yield curve control could go out to longer dated maturity. So in our hearings with the Reserve Bank, I've been pointing out ways in which they could do more. But the lion's share of the action has got to be on fiscal policy, and right now we've got an economy that was lacklustre last year. We had the Morrison Stagnation that preceded the Morrison Recession. So there's a lot Australia needs to do to get dynamism going the economy. Productivity was going backwards last year. New business formation was going down, investment was going down, retail spending was in the doldrums. So some of those fundamental problems with the Australian economy really need to be addressed. An injection of competition, investment in education, making sure that we have a first rate National Broadband Network. You know, we've had a decade of the fibre wars and finally the Coalition's come around to decide that superfast broadband fibre to the home might be a good idea after all. Well, let's get going on that.
PAUL: I worry a little bit with things like $100 million for new regional recovery partnerships in areas hit by drought, bushfires and coronavirus. I mean, hadn't we set aside a massive amount of money already for bushfire affected communities? I thought that money had already filtered through and again, you know, when you announce things like you know regional recovery partnerships, also certain amounts of money set aside for other regional infrastructure spins - I mean, I worry that this money again is going to be pork barrelled and filtered into, you know, key seats of LNP MPs and the money won’t stimulate the economy. I mean, is that a real risk here?
LEIGH: He’s not called Scotty from marketing for nothing. There are so many announcements you keep on getting again and again. These promises of spending that just don't materialise, the inability to follow through and sometimes events like the sports rorts which the Auditor General has picked up. So we've got to make sure that the spending goes where it's most needed. Labor set up Infrastructure Australia when we were last in government to get around that whole political pork barrelling. Anthony Albanese set that up in order that we could focus on spending where it would do the most good to the economy, because a country like Australia just can't afford to be building roads to nowhere. We've got to be investing in the most productive infrastructure and that's got to be a priority, particularly now, as we're borrowing every single dollar. Now, this is a Liberal Party that promised that the budget would be in surplus in their first year and in every year after that. They're about to deliver the biggest deficit in dollar terms that Australia has ever seen. And debt, which is which is going over a trillion dollars.
PAUL: Alright. The figure being bandied around in the economic plan announced by the Treasurer tonight is a $210 billion deficit. Do you reckon that's pretty close to the mark?
LEIGH: That certainly seems to be what we're hearing. And just to remind people, when we had total debt of $100 billion, the Liberals commissioned a debt truck. When we've got a one year deficit of $200 billion, they're telling us it's okay. So the backflip on debt and deficit from the Coalition has been just extraordinary-
PAUL: Andrew, sorry to interrupt you mate, but we know they will blame COVID-19 for that.
LEIGH: And when Australia got into debt in 2008-2009, that was because of the global financial crisis. Every country in the world trending downwards. So they've played one game when they’re in opposition, something else when they're when they're in government. Labor’s been consistent on this. We accept the need to borrow, but we think that that money has to be spent where it's most needed. Right now that priority has to be things like disadvantaged kids falling massively behind their classmates and potentially having their whole life blighted. Now we know that unemployment has a scarring effect on young workers. According to the Australian Treasury's research. You can see the effect even a decade on. So we've got to make sure that young people are either learning or earning, rather than being left just to wither on the vine.
PAUL: Alright, Good to have you on the program, Andrew. We’ll catch up again soon. I appreciate it.
LEIGH: Sounds great. Thanks, Marcus.
Authorised by Paul Erickson, ALP, Canberra.