SKY NEWS TO THE POINT
MONDAY, 31 JULY 2017
SUBJECTS: Labor’s plan for a fairer tax system for all Australians;
KRISTINA KENEALLY: I think we've given Andrew Leigh enough time to consult his factsheets.
PETER VAN ONSELEN: Yes we saw you sort of busily studying. I would have thought that you would have already know the policy well enough that you don't need to be rereading to remind yourself 5 minutes before the interview.
ANDREW LEIGH, SHADOW ASSISTANT TREASURER: Peter, it's a mark of how much detail we've released in this ten page factsheet, significantly more substantial than anything you'll see from a Government budget night announcement that even I can't keep it all in my head at the same time. So just going through some of those finer points that I'm sure you will be wanting to delve into.
KENEALLY: We're going to get into those in just a minute but I have a burning question since the NSW state conference this weekend, Andrew Leigh. We have a photo here of the NSW Senators and MPs on stage awaiting the arrival of Bill Shorten and I thought hang on a moment, right there next to Jenny McAllister, there's someone who doesn't look like they're from NSW. Andrew Leigh what were you doing interrupting on the stage there?
LEIGH: Kristina when we're talking about inequality and tax fairness, it's frankly pretty hard to keep me away. These are topics which I think are fundamental to building a better Australia and was very pleased to have the opportunity to assist Bill Shorten and Chris Bowen in the development of the policy.
VAN ONSELEN: Well if it's hard to keep you away when talking about these issues, Andrew Leigh, I'm planning on talking about them on Sunday on Sunday Agenda, are you available?
LEIGH: [laughter] I'll have to check my kids’ sports diaries but pending that Peter, I'm all yours.
KENEALLY: You're not as important as Bill Shorten is what Andrew is saying.
VAN ONSELEN: Let's move on but sticking to the whole family trusts issue, why not release the modelling from the PBO? It does give an opportunity to the Government to have a whack at you - even if it's a slightly hypocritical one as they don't release much modelling, don't get me wrong - but why not release it?
LEIGH: Well Peter, you're one who believes in equality like most Australians. So as you correctly point out, what we've released today is an equal or better level of detail than you'll see in a Federal budget. You see the numbers that are there, you have detail there on how the policy will be implemented and just as the Treasurer doesn't on Budget night release every single memo that's come up from the Department of the Treasury, Labor hasn't put that document out today.
VAN ONSELEN: This is more than just a little memo that has come from the Department, this is the modelling that the policy and the costings is based on. It's not like you guys have had to do it, the PBO have done it so it's independent, why not release it?
LEIGH: What you've got in the PBO is an organisation which has equal status to Treasury, but they actually go one further. That is, that the PBO watches Sky News. If I say something today about PBO costing which is at odds with the work they've done, they'll let you know straight away. So, they're a rigorous monitor of the public debate as well as being a careful coster of our policies. They're playing the role that Treasury plays for the Government.
KENEALLY: First of all, thank you for confirming that PVO and I found our two viewers - in the PBO.
LEIGH: They're watching you like so many Australians, Kristina.
KENEALLY: Okay, that's a little creepy now. Anyway, moving on - Andrew, let me ask you about some of the other details of this policy. Why exclude farms? It seems to me that they are agribusinesses, they use trusts, is this just a political tactic deployed by the Labor Party to shut down an inevitable attack from the Government?
LEIGH: Farms experience a unique level of volatility, there's a historical lineage of the use of trusts in farms. If Scott Morrison wants to critique our policy now by saying that we haven't gone far enough we can certainly have that conversation.
VAN ONSELEN: He's not doing that, we're doing it. We're just wondering why you excluded farms specifically. Is it about politics I think is Kristina's questions?
LEIGH: I just answered that question, Peter. I told you it has got to do with the volatility that farms face and the historical nature of their use of trusts.
KENEALLY: So that's it, just the lumpiness of the farm industry means that they're excluded from this policy. There's no need to contemplate whether other businesses may also have lumpy cash flows?
LEIGH: Well there's a range of different exclusions from this, to start we're just looking at discretionary trusts, not fixed trusts. We're excluding charitable trusts, deceased estates, testamentary trusts and distributions made to people with a disability. We thought very carefully about the scope of this policy, we want to focus on income-splitting as that's the chief unfairness going on here. High income earners not only having their own tax-free threshold, but getting to borrow if you like the tax-free thresholds of their adult kids and even their parents. It's the same spirit as what John Howard did in 1980. John Howard dealt with the absurd situation of people rorting the tax system by putting income in their toddlers’ names, using the tax-free thresholds of one year olds. He said that that should be the top tax rate. We haven't gone that far here; we're saying a 30 per cent tax rate is what we think is reasonable.
VAN ONSELEN: On that, can I jump in, Dr Leigh. Why not go further? You're effectively giving free high income earners a tax break if it's at 30 per cent.
LEIGH: Well Peter, we think it's appropriate when you're dealing with mature age beneficiaries to apply a 30 per cent tax rate. It's not a punitive tax rate, it simply ensures that high income earners have one tax-free threshold just like a PAYG taxpayer. Because when you've got a tax loophole for one taxpayer that's paid for by other taxpayers. My public finance Professor, Martin Feldstein, used to be Ronald Reagan's Head of the Council of Economic Advisers. He's very different from me in many political things but one point he makes is absolutely critical: tax loopholes are unfair and inefficient. When Chris Bowen and Bill Shorten and I focus on closing them down, we're not only making our system more equitable but we're also pursuing pro-growth policies.
KENEALLY: Well let me put the question that I think Peter is asking in another way. Why 30 per cent? Why not just have people who are using trusts to income split taxed at their marginal tax rate? Why pick a figure like 30 per cent?
LEIGH: Well Kristina you'd end up with a system there that is more complicated where you potentially have a rate which is different from the company tax rate. So we've looked for a very simple policy design here.
KENEALLY: It is a design which is meant to in effect mirror the company tax rate.
VAN ONSELEN: And will it therefore change as the company tax rate changes?
LEIGH: No. We’ve said this very clearly, it’s a simple and straightforward policy. We’re aware that the fearmongers will come out on this, the vested interests who want to keep maintaining every single lurk and loophole that they’ve got. We want to ensure that we’ve got a policy design that is straightforward and easy to explain and that’s what this is. People oughtn’t be worried if they’re working in a small business that they’ll be affected by this policy. The only people who will be affected by this policy are those who are income-splitting. The lurk that I’ve heard about is barristers taking money out of their practise, paying it to their parents and then that money being used to pay the private school fees. So the parents pay the private school fees out of pre-tax dollars. That’s the kind of lurk that gets shut down with the policy we’ve announced.
KENEALLY: Again to play devil’s advocate here, the Coalition are arguing back that of the 318,000 affected trusts, around 200,000 are classified as industry related – in effect, this is Labor putting a tax hike on small businesses. What’s your response to that charge?
LEIGH: We’re talking here about professional service income, Kristina, things like accountants, surgeons, high income lawyers. We’re not talking about your local mum-and-dad corner store. If you’re working in an enterprise, then you’re unaffected by this. It’s only if you’re a passive recipient of income, it’s only if effectively someone else is borrowing your tax free threshold. And why should you be able to get away with that? At a time when gross debt’s crashed through half a trillion dollars, when inequality’s been rising for a generation or more, why should it be the case that we have loopholes in our tax system that are there only for the most affluent? We’ve led the debate on tax havens, multinational taxation, negative gearing, superannuation and again, Bill Shorten and Chris Bowen are leading the policy debate on trusts.
VAN ONSELEN: And they’re also leading the policy debate on becoming a republic. What is the process behind this? I understand Bill Shorten is saying we need to have a plebiscite first to ascertain do a majority of Australians want a republic, yes or no. Is the next step to have a second plebiscite presenting the models and then have the referendum with the chosen model, if you get a plus 50 per cent yes as republic in the first plebiscite and then you have whatever the support is for the particular model in the second plebiscite. Is that the process?
LEIGH: Peter, I think that would make sense. You’ll remember well the history of the 1999 referendum where the direct electionists lined up with the monarchists against the parliamentary appointment republicans. That then meant that the only place we were able to get a majority for a republic was my jurisdiction of the ACT. Every other state and territory voted no to a republic in 1999. So I think the solution now and one that the Australian Republican Movement has been talking about is to get all republicans on the same page and then to move onto the question of models. But really, would you sit down and design a constitution today that said that no Indigenous Australian could be head of state? That no Catholic could be our head of state? That in fact you had to be part of one Germano-British family that base themselves on the other side of the world? It’s an anachronism and that’s no discredit to the individual members of the Royal family. It’s that institution, which is well past its use by date. Why shouldn’t an Australian kid be able to grow up to be our head of state? So we need to look at the practical measures to bring that about.
KENEALLY: So, in essence, a plebiscite if you will. If there’s a yes, not quite clear yet, but there’ll be further perhaps votes or clarifications somehow. But really, your argument seems to be we need the threshold question answered first before we move on to anything else.
LEIGH: I think that’s how you bring the republicans onto the same page. There’s reasonable discussion about the right model to have. But republicans are united in the notion that while we have respect for the house of Windsor, we don’t think that they ought to be the people that have the top status in the country. Frankly, I think it’s pretty odd that we have the Queen’s head on our coins-
KENEALLY: So you’re not an Elizabethan, Andrew Leigh?
LEIGH: [laughter] I’m a proud Aussie, Kristina, and I don’t need anything else to qualify that.
KENEALLY: And a sole citizen?
VAN ONSELEN: Yes, we should check on your citizenship while we’ve got you here, Dr Leigh. Any lingering second citizenships?
LEIGH: It’s a great question, folks. I’m married to an Ohio-born woman, Gweneth is of course a dual citizen. Our three children are dual citizens - yes, of course, you’re from Ohio too, Kristina. I’m the only non-dual citizen in our household of five.
VAN ONSELEN: You’re sure about that though? Something hasn’t passed your gaze over the past 12 years?
KENEALLY: I’m pretty sure Ohio citizenship cannot just be transferred by marriage.
VAN ONSELEN: Before we run out of time though, I want to-
LEIGH: You’ve got an expert sitting next to you there, Peter.
VAN ONSELEN: I’ve got to ask you about fixed four year terms. You can’t possibly like the idea of eight year senate terms?
LEIGH: The Labor Party’s platform commits us to fixed four year terms both for the House and the Senate with coincident elections. It’s a debate that hopefully has picked up a bit of steam-
VAN ONSELEN: But eight year terms for the Senate?
LEIGH: Labor’s platform is for four year terms for the Senate, that’s what-
VAN ONSELEN: Ok, but as a political scientist – I know you’re an economist, but you’ve done your fair share of pol-sci on the way through – you’d have to be concerned then, wouldn’t you, about the whole senate coming up at every election? The whole point of a bicameral parliament is for the senate – as the check and balance house of review – to be able to reflect more than the life of just one parliament, hence why it goes across two separate terms.
LEIGH: Peter, there’s no way of getting around one of three situations. You either have staggered elections, six year terms like the Americans do. You have an eight year term where you lengthen it and then you have this issue as to whether Senators are being elected for too long, or else you bring down the quota and you have four year terms. They’re the three options -
VAN ONSELEN: Or separate Senate elections.
KENEALLY: That was the first option.
LEIGH: Everyone will have something to love and hate in those three.
VAN ONSELEN: Yeah, but separate senate elections would be the better option, wouldn’t it? You’ve got to preserve the essence of bicameralism and the idea that the Senate is representative across two separate electoral periods, otherwise you damage quite badly its check and balance function.
LEIGH: Well, the voting system is different. Proportional voting with 12 coming from every state and two from every territory. So that‘s going to give you a different composition-
VAN ONSELEN: One, one, one more, one more. Because the other one that’s a fair question is if you’re going to basically do it all at once every four years, you basically half the quota so it’s effectively a double dissolution election. You’ve got to see the irony, Dr Leigh, that the whole point of this is apparently to make government function better because you’ve got the stability of the fixed four years in the lower house. If you halve the quota, you get a much more eclectic group of senators controlling the balance of power which is going to make it harder to get anything legislatively done.
LEIGH: Didn’t I say that before? I raised that when I spoke about the drawbacks of the three models. There’s no perfect model in this one, Peter-
VAN ONSELEN: You’re acknowledging that you’re not going to be able to get stuff done!
KENEALLY: No, it’s acknowledging that there are drawbacks.
LEIGH: I’m acknowledging that anyway you move, you have a potential critique. You can critique the fact you’ll have to have fresh elections for the senate. You can critique the fact that you’ve brought down the quota, you can critique the fact that you’ve perhaps pushed the term too long. I think we’re looking at improvement in the system, rather than having the idea that we can move here to utopia. Kevin Kelly has this lovely phrase where he says we should focus on building protopias, not utopias. Improvements, not looking for perfection-
VAN ONSELEN: [inaudible]
LEIGH: I think that’s not a bad way of approaching politics.
VAN ONSELEN: The New Zealand model is utopia. MMP, a unicameral parliament. Bring the different electoral systems under the one banner-
KENEALLY: It’ll never happen.
VAN ONSELEN: I know.
LEIGH: Or just bring them into the Australian federation, as the Constitution allows. I think we could welcome them happily with open arms.
VAN ONSELEN: You’d like to see that as Labor policy?
LEIGH: [laughter] I’d love to see New Zealand take up the offer. It’s not Labor that extends it, it’s Australia’s founding document that extends that invitation to New Zealanders to join the federation any time they wish.
KENEALLY: We’ll take their rugby team. Thank you, Dr Leigh.
LEIGH: Thank you both.
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