Andrew Leigh

E&OE TRANSCRIPT

RADIO INTERVIEW

2GB

TUESDAY, 27 MARCH 2018

SUBJECT: Dividend imputation reform, Malcolm Turnbull’s $65 billion handout to big business.

ROSS GREENWOOD: Dr Andrew Leigh is on the line right now. Many thanks for your time, Andrew.

ANDREW LEIGH, SHADOW ASSISTANT TREASURER: My pleasure, Ross. Always great to be speaking with you.

GREENWOOD: Alright now. I said before that you've got to protect your own people, the low income earners, the pensioners, these types of people. What caused the change in heart? Because at the time there appeared to be no changing of the policy from your leadership team?

LEIGH: Ross, I think good policy making is about listening as much as it is about talking. We've heard the message from people about the concerns and the impact on pensioners. What we've said is that every pensioner will be able to benefit from cash refunds as well as allowees - people receiving parenting payment, Newstart and sickness allowance. It is a mark of the extent to which this particular tax concession goes to the wealthiest that this change takes about a quarter of the people who were originally affected out but still maintains 95 per cent of the revenue.

GREENWOOD: Okay. Does it mean you have to be a little careful also to watch the equity or fairness of this? Let's say for example, a person has worked all their life to become a self-funded retiree, they are not receiving a pension so they're just outside the threshold, the cut off around about $800,000 for a couple in assets outside their family home. That couple if you look at policy right now would probably give them an income on or around or even less than the aged pension for a couple, do you have to be a little careful to balance up the fairness of this system?

LEIGH: The advice that I've got on this is if you look at who is benefiting from the current system of cash refunds, 95 per cent of the imputation credits going to people over 65 are going to the wealthiest fifth of the population. This is a tax concession which is unique to Australia, no other country has it. And it's very heavily skewed to the most affluent.

GREENWOOD: I get that but the only problem is as I see it, the very affluent in our society - they might have been fortunate enough or worked hard, whatever it might be - those people could have technically spent their money and they could have come out and ended up below the thresholds of $800,000 and ended up with some part pension and also now the ability to keep any tax rebates back. What I'm trying to get at here is fairness and equity. It may very well be that you've got $1.2 million in your super fund but you've worked very hard to achieve that. You may be among the wealthiest one fifth in the nation but you may be also income poor. You may also find yourself paying a whole bunch more tax than somebody who is earning more than you and living on the aged pension. That's what I'm worried about in terms of fairness and equity in the system.

LEIGH: You're certainly speaking directly to my heart when you're speaking about issues of fairness and equity. There are two points to be made about the analysis you've given there. The first is that as I said before, this is a tax concession skewed towards the top. By closing it off we don't change the considerable tax advantages that are still available in superannuation - lower taxes on returns, no taxes on the money you're taking out of superannuation. No one pays more tax under our change, no one ends up having less in their super. The other thing is that superannuation is aimed to be spent down, it's not a way of passing on tax-preferred money to your kids, it is intended to be spent in order to provide for you in retirement. So the notion that retirees should draw on their capital as well as just live off their returns is a pretty reasonable one, it's what reasonable people would expect.

GREENWOOD: So in other words that's a reasonable point you make, because a person who might have let's say, this theoretical $1.2 million in their super fund living off the income which would give them the equivalent maybe a little bit more than the aged pension right now. If they actually start to dip into that super - $30,000, $40,000 a year - eventually that capital will come down. Once they get their assets below in today's terms $800,000 they start to pick up the age pension. So in other words, they start to pick up some of the benefits from the taxpayers?

LEIGH: It's intended that you will spend down your superannuation, that was always the design of the system, that's why we provide the concessions in that system. I’ve had this conversation with my own parents, Ross, where they look at the extraordinarily regressive changes put in place by John Howard and Peter Costello and they say ‘look Andrew, this is going to benefit you and your brother because we’re not going to spend all of this down – we live really modest lives, so this will be passed onto you’. So we need to make sure we’ve got a system that provides for people in their retirement – ensures that retirees are not living in poverty – but also doesn’t unfairly just benefit a class of people who are getting tax free inheritances.

GREENWOOD: Ok. Just another one on this very subject. At the very upper end, I spoke with Michael Rice, one of Australia’s leading independent actuaries last night. He said a different way you might have set this policy was to say ‘righto, you’re allowed to have $1.6 million currently in your pension phase where there is no tax on the income from that’. Then maybe he said rather than being allowed to have as much as you like  or as much as you’ve got into your super fund above that, the income of which would be taxed at 15 per cent, he said what you could do is ‘alright, you can have another $1.6 million where you’re taxed at 15 per cent’ but once you’re beyond $3.2 million – and let’s be honest, that is a reasonable wedge of money to have in there – you can’t actually leave that money in super any more. That money’s got to go outside of super and be taxed as though you’re an ordinary taxpayer on PAYG wages. Why would that not be another way to actually make certain that people with mega balances in their super pay their fair share of tax?

LEIGH: Michael’s a smart guy and he’s certainly right that there’s more than one way to skin a cat. But I think the way in which we’ve done things is more equitable. We look after pensioners and by focussing the change on pensioners, Ross, you’re using the heavy targeting that’s in place in the pension. Our pension is in fact one of the most targeted in the world with both an income and an assets test – that’s not true of most advanced countries. So when we say that every pensioner will still be able to benefit from cash refunds, that’s a much more targeted measure than some of the other ways that I’ve heard it suggested that we might have modified the policy, including the one that Michael has raised there.

GREENWOOD: I tell you, really interesting stuff. I want to take you to something else as well and that is that the Labor party – Bill Shorten and Chris Bowen – have today said that they will fight the Government’s company tax cuts, which of course are right now held up in the Senate by two votes. It is likely, potentially anyway, they might get them, though even before the Easter break. But I want to take you through as to why Labor would repeal tax cuts worth $35 billion over the decade, but that would ultimately potentially provide more jobs. Again, I go back to this point – your people are the workers, the battlers and even in this case you’re talking about the shareholders, the owners of the companies. Why would you not give them the boost that they so desperately need right now as compared with other countries around the world?

LEIGH: Ross, that’s certainly been the claim, that companies that pay less tax will create more jobs. I actually did some research on this, looking at 1000 profitable Australian firms and asking the question ‘do those that pay a lower effective rate of company tax create more jobs?’. In fact I found the opposite, that Australian firms paying an effective rate of company tax below 25 per cent were on net destroying jobs. Those paying a higher effective rate of tax were on net creating jobs. That’s in line with another published study in the United States and suggests to me that this argument that cutting company tax is the best way to create jobs is actually misguided.

GREENWOOD: But isn’t there another aspect of that and that is, if you do have an uncompetitive tax rate, that you’ve got companies which do have operations overseas and the next time that they seek to actually make a capital investment, they may choose to go to the United States or they may choose to go to Europe in preference to coming to Australia because of – amongst other things – high energy prices but also high corporate tax rates and high labour rates. These are all issues that will be deterrents in Australian companies investing in this country and creating jobs.   

LEIGH: You should always be aware of international competitiveness. I’m a strong supporter of foreign investment – that’s not always a popular position on either side of the parliament, but I think we’re a very heavy relier on foreign investment and we need to make sure we’re doing things to attract it. But it’s not obvious to me that the best way of doing that is cutting the headline company tax rate. According to analysis from the United States Congressional Budget Office, our statutory company tax rate placed us tenth in the G20. After the Trump tax cuts, that moves to the ninth highest, roughly sitting in the middle of the pack. And the average and effective rates that Australian companies pay rank us lower than that again. There are other reasons that companies invest in Australia too. You’ve talked about energy prices, I think that’s a very important one, we’ve also got the accelerated depreciation measure that Labor’s brought in, in order to encourage investment in Australia. Superfast broadband, great infrastructure – these are things that attract firms to Australia, but if we have $65 billion less of federal funds we can build $65 billion less of investment in our schools and in our roads, in those productivity boosting measures which are also part of attracting investment to Australia.

GREENWOOD: I tell you, it’s always good to have you on the program. Dr Andrew Leigh is the Shadow Assistant Treasurer.

LEIGH: Thanks, Ross.

GREENWOOD: He’s always great with his time and I appreciate your time this evening, Andrew.

LEIGH: Absolute pleasure.

ENDS

Authorised by Noah Carroll ALP Canberra