Get the tax mix right - Transcript, Ticky Sky Business





SUBJECT: Budget 2018-19.

TICKY FULLERTON, HOST: Let’s get some reaction to the Budget from the other side of politics now. Shadow Assistant Treasurer Andrew Leigh joins me from Canberra. Andrew Leigh, good to see you there.


FULLERTON: Now, we’ve got these by-elections happening. Bill Shorten says he’s looking forward to the opportunity for labour to make its case, but what the government did last night in a political budget was bring it right back to these income tax breaks.

LEIGH: Ticky, there’s two parts to the income tax changes. One is a set of tax changes to apply from the first of July this year that targets low and middle income earners, maxing out at $530 a year. Labor has said we’ll support that tranche of income tax changes. And then there’s another tranche which don’t apply until you’ve re-elected Malcolm Turnbull for two terms apparently, which we don’t even know the full cost of.

FULLERTON: No, exactly, But you’re banking on the government chopping these two policies in half, are you?

LEIGH: Well, it’s the only sensible thing to do. One set of them has bipartisan support. The other the government is yet to put figures on and don’t apply for two more elections. So let’s get the bit done that we all agree on and then let’s have a discussion about the other section.

FULLERTON: What about the argument that actually this will grow the economy? You’re actually creating a simpler tax system, you are delivering some sort of stimulus into the economy? After all, that is what you in Labor hopes to do as well.

LEIGH: Ticky, as an economist, I’m well aware of the deadweight cost of taxation. You want to make sure that taxes are as low as possible to fund the services that Australians need, and pay down debt, But when you look at where the greatest disincentives are, the highest deadweight cost of taxation, my read of the literature is that it's very much around people moving on the margin from welfare into work. Women tend to be more sensitive to effective marginal tax rates, which is why it’s so important to properly fund childcare and make sure we don’t have high effective marginal tax rates on people entering the job market. But at that very top end, there’s not the same sensitivity to tax rates, at least not in the literature that I’ve seen.

FULLERTON: But aren’t these chaps in the government doing a pretty good job of getting people off welfare and into work at the moment?

LEIGH: If you look at the United States, unemployment is at four per cent. You look at Germany and it’s at three per cent. In Australia, we’ve got five and half percent, which is where it’s been basically since the end of the global financial crisis. The budget papers says that underemployment is high by historic standards, so I don’t think we should be resting on our laurels there, I don’t think we’re at the point of capacity right now. If we were, you’d be expecting to see greater growth in wages than we’ve seen. Wage growth has been very sluggish in recent years, indeed, for many people a $500 a year tax cut doesn’t go to make up for the sluggish wage growth that they’ve been experiencing. Particularly if you’ve had $77 a week taken away through cuts to penalty rates.

FULLERTON: How is higher taxing and higher spending going to create the growth that will deliver those higher wages?

LEIGH: It depends on how you get the tax mix right, Ticky. One of the things that Labor’s said is we believe you should close a particular multinational tax loophole that allows multibillion dollar firms to use debt instruments to shift their profits offshore. We suggested closing this loophole three years ago. The government still hasn’t done it. Sure, that would increase the tax to GDP ratio, but it would also make our system fairer. We need to close tax loopholes around negative gearing, around the abuse of family trusts for income splitting. And we need to close the unique situation in which we're the only country in the world that's providing cash refundability for dividend tax credits.

FULLERTON: And this will lead to growth, will it? I mean, because for example the negative gearing package if again you could get that through as a government, how would that lead to growth? Because it's got a lot of support across the board.

LEIGH: It certainly does. The Financial Stability Review, Joe Hockey, Geoff Kennett, the IMF, the OECD, the Reserve Bank of Australia, the Grattan Institute, Saul Eslake, Chris Richardson, the list goes on. Why do they support it? Because they'd like to get the home ownership rate up. It's now as low as it's been in 60 years. Young people are 10 percentage points less likely to own a home than they were a generation ago. That means that you've got that drag on the economy where investors are over-invested in housing but young people can't break into the housing market. That's not good for the economy.

FULLERTON: You mention multinationals there, I mean it's easy to jump in and say we'll get more from them and get more from the black economy, as the Government has yesterday. If you were in government, would you hike the bank levy again?

LEIGH: We haven't said that we would boost the bank levy. What we have said is that we wouldn't go ahead with a $17 billion tax cut to the big banks. Which is coincidentally the same amount of money that the government is taking away from Australian school kids. So they're taking from Australian school kids and giving to overseas shareholders, the first round beneficiaries of the company tax cut.

FULLERTON: As an economist, you would understand when you say taking $17 billion away from school kids, that's not actually what's going on is it? You in Labor put out a trajectory of what you might want to spend over the time which was questionable in its funding, and that's been lowered. That's what you're really talking about in terms of cuts isn't it?

LEIGH: Yes, the government has failed to put the money into schools that was anticipated. That means that you're ‘eating the seed corn’, you're affecting our nation’s growth potential because you're not investing in schools.

FULLERTON: Briefly, this is a very big political budget as I've mentioned before. How much more do you think will be spent by the government in this campaign?

LEIGH: I'm sure they've got a few dollars socked away in their bottom drawer, there's always budget decisions ‘made but not announced’. But you do see with this budget, is a budget which involves a range of backflips. We've gone from Joe Hockey saying that poor people don't drive cars to Scott Morrison saying they'll provide a modest tax cut for poor people who do drive cars, and I welcome that. But I also worry that this is a budget which fails to invest in prosperity. We see infrastructure spending as a share of the national economy, falling from 0.4% to 0.2% and that's a halving of the share of infrastructure investment at a time when we know that our cities need more of those congestion-busting projects. The National Broadband Network isn’t being rolled out properly. So much of the infrastructure budget is re-announcements and money that had been underspent in previous years. But you look at where we stand in the World Economic Forum's infrastructure ranking, and we're tumbling down those rankings, last I saw from 18th to 24th. Anthony Albanese has made the point that the Coalition has been living off Labor's infrastructure announcements, failing to fund things like cross-river rail in Brisbane which we know is so vital to boosting productivity in that great city.

FULLERTON: Alright, Andrew Leigh look forward to talking to you through these bi-elections, thank you very much for joining us.

LEIGH: Me too, thanks Ticky.


Authorised by Noah Carroll ALP Canberra

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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.