3AW WITH TOM ELLIOT
FRIDAY, 6 MAY 2016
SUBJECT/S: 2016 Budget.
TOM ELLIOT, PRESENTER: On the line now is the Shadow Assistant Treasurer, Andrew Leigh. Good afternoon.
ANDREW LEIGH, SHADOW ASSISTANT TREASURER: Good Afternoon Tom, how are you?
ELLIOT: Good, thank you. Now I saw Mr Shorten’s budget-reply speech and I have seen a summary of the savings measures. You claim to have found $71 billion, but of that $71 billion, $49 billion is rejecting the plan to cut the company tax rate to 25 per cent. Now that’s not going to occur for ten years. So really, is it appropriate to be claiming that is actually a saving, because that’s not going to happen for a decade?
LEIGH: Tom, our big budget challenge is over the decade. The Government recognised this themselves when they said that they thought that their tax plan was going to be one that operated over a decade. We can’t have this sort of short-sighted approach that says, “We can fix things for the next few years, but after that we’re gonna kick the problem off.” That’s why we’ve been focusing our costings on the decade to come.
ELLIOT: Fair enough and I’ll commend for looking forward a decade because I’ve often said that politicians are too short-term. But can I put something to you about this – now, just so you know I’m also the chairman of a wealth-management firm so I have some knowledge of these matters - the bulk of the big companies in Australia pay out all their profits as franked dividends these days, do you understand that?
LEIGH: Yes, that’s right.
ELLIOT: Right, OK. So if you decrease the company tax rate all that happens is that you decrease the franking credits that go to the shareholders and therefore the shareholders effectively have to pay more tax. And so by cutting the company tax rate - in my view I do not believe the Government saying it will stimulate investment or it will do all these other things – the big banks, Telstra, Woolies, Wesfarmers, these sorts of companies are already paying out the bulk of their profits. So by decreasing their tax rate, you’re simply increasing the tax rate for the recipients of the dividends and in my view their will be no net change to the tax take. Your response?
LEIGH: Certainly some of the modelling suggests that the big beneficiaries out of this would be foreign shareholders. They are the ones who don't receive the benefits of dividend imputation, don't get franking, and therefore would see the full flow-through of the company tax cut.
ELLIOT: Why would they? Because they don't get the franking credits, so what possible difference could it make to them?
LEIGH: The way the models work is if you have a lower company tax rate that allows higher dividends to be paid out, but the point that you’re making is that for the domestic shareholders that gets captured back; for overseas shareholders then they get a larger share of the profits.
ELLIOT: Okay. So does your $49 billion in savings - is that only looking at the savings from the money that would otherwise be leaked to overseas shareholders?
LEIGH: That's looking at the overall benefit to the budget of not going ahead with a tax cut to big banks and multinationals.
ELLIOT: Yeah, but remember the big banks tax cut - the bulk of the shares in big banks are owned by local shareholders. The reduction in franking credits they will get, so that means they will pay more tax back to Canberra. The net effect on tax in my view will be negligible.
LEIGH: Certainly franking credits are taken into account in all these costing that have been done. And Malcolm Turnbull has now come out with his own estimate which looks fairly similar to ours suggesting that his big tax cut would cost the budget about $50 billion over the decade.
ELLIOT: Okay. Another aspect of the Government's budget is there's a fair bit of retrospectivity in the changes to superannuation. Bill Shorten said he would do away with that retrospectivity, so does that mean he won't simply make the changes that the Government will make, or you'll make them but only from now on?
LEIGH: Bill has been absolutely clear that we are concerned about the restrospectivity that is in the Government's superannuation changes. We're working through that with stakeholders. That’s something the Government didn't do before they announced it. We are very keen to make sure that we don't have legislation with retrospective effects. That's why the superannuation changes that Labor put on the table last year didn't have a retrospective character. Mr Turnbull is literally forcing people to take money out of their super in order to comply with their policy.
ELLIOT: Yes, I must say the financial planning industry is up in arms about this, and I have a funny feeling that rule in going to be changed. Alright, the Budget Repair Levy - now that was brought in two years ago, it has a three-year life, basically payers in the top marginal rate are taxed 45 per cent, pay a Medicare Levy of another two per cent, that's 47 per cent. And for the past two years they've paid another 2 per cent; 49. Now that's got a sunset clause that's supposed to finish next year. You apparently want to keep it on?
LEIGH: Because during the time it has been in effect, the budget deficit has actually gotten worse. The Government said it was going to reduce the deficit, but when it came to office the deficit was $30 billion. For next year it is projected to be $37 billion. The debt blowout amounts to an extra $5000 of debt for every Australian under a Government that railed against a “budget emergency”.
ELLIOT: My question is will you keep the Deficit Repair Levy on people in the top income tax bracket?
LEIGH: We will. We believe it is not appropriate at the moment, with the budget deficit having blown out, to give a $17,000 tax cut to somebody with a million dollars of income.
ELLIOT: But it's not a tax cut. This was a temporary tax surcharge that was introduced, it was never a normal part of the tax system.
LEIGH: The effect of removing it Tom would make someone on a million-dollar income $17,000 better off.
ELLIOT: So if the budget ever got back to balance, would you scrap it then?
LEIGH: Certainly we’d look at it down the line, but our view is it is appropriate for the time being; that it is not appropriate to be taking money away from ordinary families. This budget takes, for example, thousands of dollars away from families on average earnings with a couple of kids in school. We don't think that's the right priority for Australia. Even if you weren't concerned with equity, Tom, you should be concerned about the growth effects of this, because the Government is ripping a billion dollars out of infrastructure which we know underpins growth; taking money out of schools which we know is vital for laying the platform for strong and growing economy, and instead giving $17,000 to people on million-dollar incomes.
ELLIOT: Can I just give you a bit of advice from the financial planning industry? Very few taxpayers are paying that income tax surcharge. I know it plays wells to politics to say "let's tax the rich and give the money to the poor". One of the reasons I know that the Government is scrapping it, is it doesn't actually work. Now, there are loopholes you can drive a truck through to avoid paying it, I know some of them. So, all I would say to you don;t think by keeping it you will get a whole lot of extra money because you actually won't, and that's something the Government has already learnt.
LEIGH: Tax enforcement is absolutely vital, but I can certainly say as someone who does pay that levy, those of us should continue to pay it. Parliamentarians would each be better off to the tune of thousands of dollars a year if that levy were scrapped. But I don't think it is right that I should get a tax cut and that somebody who is on an average earnings gets nothing.
ELLIOT: But it's not a tax cut because it was a temporary levy. It wasn't like a permanent increase in the tax rate, it was a temporary... anyway, I don't want to bang on about it too much. All I'm saying is the reason it doesn't raise money is it's very easily avoided.
Alright, now another thing that the Government wants to do is cut the company tax rate for small companies, companies with a turnover less than a couple of million dollars a year. Would you support or reject that?
LEIGH: Yes, we're in favour of tax cuts for small companies. In fact, Bill laid that idea out in last year's budget reply. What we don't support is a tax cut for the largest companies in the land secured by redefining billion-dollar businesses as small business.
ELLIOT: Okay, so small businesses tax cuts okay. I'm only get this out of the newspaper, but I'm told that you were going to scrap the Government's marriage equality plebiscite - is that because you would just do it without a plebiscite?
LEIGH: We believe that parliamentarians should do our job, Tom. We face a whole range of issues every day on which we have to make tough choices. Marriage equality is simply one of them. Malcolm Turnbull argued against the marriage equality plebiscite before he became Prime Minister. The only reason he signed onto it is in order to appease the hard right of his party. The fact is the hard right of his party say they won't even abide by the marriage equality plebiscite, so it's hard to see the point of it if people like Cory Bernardi and Kevin Andrews are going to vote no regardless of what the plebiscite comes back with.
ELLIOT: Final question, we've got an election in almost precisely two months. Why should we vote for you?
LEIGH: Because Bill Shorten would be a Prime Minister who will put regular Australians first. He is somebody who will prioritise battlers over billionaires; somebody who understands a great government needs to be investing in infrastructure. He's committed to investing in the Melbourne Metro, to making sure that Victorian schools - all of them - have the resources they need. And that Victorian kids have the chance to attend university if they have got the wherewithal to get there and have access to a vocational training system that isn't broken but actually delivers the skills a growing Australia needs.
ELLIOT: Andrew Leigh, thank you for your time.
LEIGH: Thank you, Tom.
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