Finding Budget fairness with four weeks to go - Breaking Politics





SUBJECT/S: Budget fairness; multinational taxation; GST distribution

CHRIS HAMMER: Andrew Leigh is Labor's Shadow Assistant Treasurer and he joins us now from his electorate office in Canberra. Good morning.


HAMMER: Very well. You've just run the Canberra marathon I believe, how are you feeling?

LEIGH: Feeling good. It was my first marathon, but my father and my grandfather were both marathon runners so it helps to have a little bit in the genes. I was trying to get under three and a half hours and managed to do that so I was happy with myself.

HAMMER: Well done. I see the Finance Minister Mathias Cormann today has been quoted saying the Budget is a marathon and not a sprint, so I guess we might be halfway through the Government's term. The Government's first Budget was all about spending cuts, now the debate has opened up about the revenue side of the Budget. Just in principle, is that a good thing, that Australians are now talking about revenue and not just spending cuts?

LEIGH: Chris, clearly we need to talk about the budget right across the board but what I'm worried about with this Government is that it's not a marathon or a sprint – it’s a boxing match. They seem to be getting into fights with the South Australians, with the Western Australians and with the Australian people through their sheer unwillingness to consider reasonable savings measures. Labor's got our carefully-costed $2 billion plan to see multinationals pay their fair share of tax. The Government won't touch that but at every turn they see them wanting to expand or raise the GST paid by ordinary Australians.

HAMMER: The Treasurer has mentioned Australia taking unilateral action on taxing multinationals. Is that a move in the right direction?

LEIGH: It would be if it were a carefully crafted plan, Chris. What I worry about with the Treasurer's so called 'Google tax' is that it won't raise much money and it'll potentially breach our international obligations. Britain announced a so-called 'Google tax' at the end of last year that they still haven't implemented, in part because of the concerns that if you start to tear up your international treaties you can end up going backwards on revenue.

HAMMER: So we should just let these big multinational tech companies get away sort of scot-free, paying minimal tax?

LEIGH: No, you should take the approach that Labor has suggested. The difference between Labor's plan and the Coalition's plan is that ours raises revenue, is carefully costed and is consistent with the advice coming out of the OECD. The Government's is none of those three. That is somewhat surprising, Chris, given that we've got the resources of Opposition and they've got the resources of Government. We've done very careful work on this plan and if Joe Hockey were to put it into the Parliament in the next sitting, Labor would vote for it.

HAMMER: OK, now there is a discussion around a whole lot of possible revenue measures. Issues such as taxing superannuation, raising or broadening the GST, taxes on multinational companies, so called ‘Netflix taxes’ on downloads. Just as a matter of general principle as opposed to the details of these policies, what areas does Labor thinks are worth looking at and what taxes should just be ruled out straight from the word go?

LEIGH: Chris, we're happy to have a conversation with the Government about tax integrity measures, but our principal view is that we ought to be looking to balance the budget fairly. Take the issue of superannuation. The Government's decision upon coming to office was to raise taxes for low income workers – those  earning less than $37, 000 a year – but to cut taxes for people with more than $2 million in their super accounts. That's the wrong decision for an Australia where inequality is as high as it's been in three-quarters of a century. Labor went to the last election saying we thought that when you had more than $2 million in your super account, at that stage your Government assistance in the form of superannuation tax concessions is bigger than the full rate pension. Surely Chris, at that point, it wasn't unreasonable for us to say to those people: you might look at paying a little more tax on your superannuation earnings.

HAMMER: So Labor's saying superannuation and multinationals are areas where there may be reasonable changes to taxation. What about GST, is that simply off the table altogether? 

LEIGH: We've led the conversation around multinational taxation and superannuation. On the issue of the GST, it's pretty clear that the GST is a regressive tax. And I'm frankly a little surprised to see business groups advocating that the GST be raised given the Japanese experience. Japan raised its consumption tax a year ago and its economy still seems to be suffering the consequences.

HAMMER: But Japan is not a very good comparison, it's been a rolling recession for thirty years. There are plenty of countries in Europe and states in the U.S. that have higher consumption taxes.

LEIGH: The question is what happens when you raise your consumption tax at a time when the economy is fragile, Chris. That's the Japanese experience from a year ago and their economy seems to be suffering the consequences. We know too that the GST is a regressive tax. When it was introduced, 55 per cent of the revenue went to household assistance in order to compensate people for their regressive impacts. We don't believe that that's the right change to make to the Australian tax system at the moment, but if the Government wants to do it, it needs to put a clear plan on the table. Do they want to make apples cost more? Do they want to raise school fees? Do they want to make going to the dentist cost more? These are the things which would clearly be on the table if the Government was to expand the base of the GST.

HAMMER: Now there has been a collapse in the iron ore price, do you think it would be a reasonable decision for both major political parties to step back from the rhetoric of balancing the budget anytime soon, as any effort to do so would be damaging to the economy?

LEIGH: The iron ore price clearly has an impact on the Australian budget, Chris. But if Peter Costello could deal with an Asian financial crisis, Wayne Swan could deal with a global financial crisis, I'm not sure why Joe Hockey can't deal with a fall in the iron ore price. 

HAMMER: Wayne Swan dealt with the GFC by spending money, he didn't try and contract the budget if I can put it that way. Should Joe Hockey follow suit?

LEIGH: What we did in the GFC was to spend for that period in the crisis but then to put a 2 per cent spending cap on afterwards and set the budget on a path back to balance.

HAMMER: Should Joe Hockey do something similar? Should he spend at this time when revenue is falling from iron ore, should he not be so hung up on returning the budget to surplus?

LEIGH: Chris, I think you need to think about whether this is an enduring effect or a temporary shock. The Asian Financial Crisis and the Global Financial Crisis were both sharp shocks. I suspect the fall in the iron ore price is a long-term trend. In that environment, it's appropriate for the Government to no longer be ruling out fair taxation of multinationals; to no longer to be playing this sort of infantile class warfare game every time Labor talks about sensible taxation of people with multimillions in their superannuation accounts. The Government brought down a spending review very early in the term – delayed as we now know due to politics – but has left the tax conversation very late. That's meant of course that those who are the most vulnerable in the community are those who've copped it as a result of the Government's early decisions rather than recognising that we need to look at the budget as a whole; the spending side as well as the taxation side.

HAMMER: Just finally Andrew Leigh, we've discussed the GST, possibilities of increasing it or broadening the base. There's another debate going on about the GST and that's how it is divided up amongst the states. Mathias Cormann, the Finance Minister and a Western Australian, has said that the amount that Western Australia receives is unsustainable. What's your view on the way it is being divided up and is there a special case for some sort of more lenient approach to Western Australia?

LEIGH: I was surprised to read Mathias Cormann's opinion piece yesterday. It was pretty much lacking in any principled argument; arguing instead merely the interest of his home state. You expect that the Finance Minister will stay a little above the fray and would for example, acknowledge that when the Commonwealth Grants Commission looked at the issue, they saw no reason to change the existing arrangements. The Government again just seems to be at war with so many people. Colin Barnett and Mike Nahan are now attacking the Government and they've got the people in all other states in outrage at the thought that the Government might make an ad hoc decision to change the GST. This is a Government again whose economic management is leaving so many Australians lacking confidence in the future direction of the country.

HAMMER: Do you think that there is a case to review the grants commission process because its determinations do seem to lag behind what's happening in the real world?

LEIGH: The distribution lags because the iron ore component is based on a three-year moving average. It's done that way so a state doesn't suffer an immediate hit when the iron ore price rises. If there's call for a review of that process, then Mathias Cormann could well bring forward a principles-based argument.

HAMMER: Do you think it's worth reviewing though? I'm not saying what changes should be made, but simply the first step, a review? 

LEIGH: Well the Commonwealth Grants Commission has reviewed the issue, Chris and it has come back saying the existing arrangements are reasonable. I'm not sure why the Government sets up independent bodies if the Finance Minister is going to go off and trash them in the newspaper the next day.

HAMMER: OK. Andrew Leigh, thanks for your time today.

LEIGH: Thank you Chris.



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Cnr Gungahlin Pl and Efkarpidis Street, Gungahlin ACT 2912 | 02 6247 4396 | [email protected] | Authorised by A. Leigh MP, Australian Labor Party (ACT Branch), Canberra.