I joined Sky's Sunday Agenda today for a long-form interview with Peter Van Onselen and Paul Kelly. Here's the transcript.
ANDREW LEIGH MP
SHADOW ASSISTANT TREASURER
SHADOW MINISTER FOR COMPETITION
MEMBER FOR FRASER
SKY AUSTRALIAN AGENDA
SUNDAY, 9 NOVEMBER 2014
SUBJECT/S: Higher education; G20; Multinational Tax;
PETER VAN ONSELEN: As mentioned off the top of the program, we are joined now by Dr Andrew Leigh, the Shadow Assistant Treasurer. Welcome to the program.
ANDREW LEIGH, SHADOW ASSISTANT TREASURER: Thanks, Peter.
VAN ONSELEN: We will get to plenty of things economic and I guess that comes into this first question. But you are a former Professor of Economics, i.e. embedded within the university system once upon a time. Are you surprised by how universal the support for the changes to higher education are, albeit with some tweaking in fairness, within the sector? Not just Go8 universities but right across the university sector?
LEIGH: Peter, I'm not sure that's a fair characterisation of what Joe Hockey said is his attempt to take money out of universities. When I speak to university leaders I detect a real concern about the 20 per cent cut to the amount that the Commonwealth contributes to students.
VAN ONSELEN: As I say, plenty of tweaks probably to that 20 per cent drop, it may be to 12 or 13. Also changes to the bond rate. But nonetheless, fundamental support for the package, which is something that Labor opposes.
LEIGH: Well, certainly it is opposed by students, it is opposed by graduates who are going to cop these increased interest rates and it is opposed by people who don't go to university and won't go to university. One of the things I'm often struck by is I will hold forums with seniors and after talking about the impact of pension cuts the conversation quickly turns to ‘why is this government making it tougher for my grandchild to get to university?’. And that's because people recognise that the benefit to university isn't just an individual benefit, which is I think the principle that is underlying what the government is doing. It is a collective benefit.
VAN ONSELEN: But there is a view though within the sector, and maybe not amongst students but amongst the administrators who have to make the numbers add up, that because of the deregulation or the uncapping if you like of places, if you don't go back to caps you do need to move to deregulation. It is a natural development.
LEIGH: I don't agree with that, Peter. I think it is appropriate to take the place caps off to allow those who have the ability to go to university to go and to recognise that fundamentally education and technology are in a race. So as the labour market gets more technologically complex, we have got to increase the skill level of the workforce.
VAN ONSELEN: How have the VCs, so many of them, not just one or two - how have they gotten it so wrong in supporting the essence of what Christopher Pyne is trying to do?
LEIGH: They have got a gun to their head at the moment. You have got Joe Hockey saying that he wants to take money out of universities and the government saying to the VCs "The only way you are going to get more resources is if you support our agenda in order to put in place $100,000 degrees." That's an invidious situation for Vice Chancellors to be in and a good government would do what Labor did in office, which was to increase the student contribution paid by the government by 10 per cent but then also to massively expand the number of kids at universities. So one in four students at Australian universities now is there thanks to those Labor reforms. Gee, I'm amazingly proud of that when I go to a university graduation.
PAUL KELLY: But this just highlights the program. There has been a significant increase in the number of students but funding per student has fallen significantly. So what is Labor's solution here? I mean Labor opposes fee deregulation in principle so how are universities to be funded properly over the course of the next decade?
LEIGH: Paul, your statement there isn't correct. We increased the number of universities students by a quarter but we also increased the per student contribution by a tenth and that's because we recognise the value of university education. Governments are always making these decisions and balancing priorities but education has got to be a high priority because it is a great economic investment but it is also the best anti-poverty vaccine that can be put in place.
KELLY: So what's Labor solution to the problem? If you oppose fee deregulation, what do you propose?
LEIGH: We in government put in place significant increases in expenditure in university. How do we fund that? Well, we put in place a series of revenue measures. So the carbon price wasn't just the most effective way of dealing with climate change but it was also a significant source of revenue. We put in place a big package to tackle multinational profit-shifting and $1 billion of that has been ripped out since the government came to office.
VAN ONSELEN: So do you just reject the argument that is being put by the sector, like Universities Australia, their peak body, that the current structure is unsustainable? That's what they say.
LEIGH: I do. I think it is absolutely appropriate that students have their fees capped and that, at the same time, we try and encourage people to take on a university education. You look at the British example where now fees have tripled as a result of the deregulation that has been put in place.
VAN ONSELEN: It hasn't affected student numbers though. There was a short dip for one period and then it has gone back as expected. So this argument that was running Britain, a bit like the argument being run here, that people wouldn't go to university because of it, there was a one year, as a consequence of the scare campaign, I suppose, and then it went back to usual and now it is sustainable financially.
LEIGH: Peter, too, I think you need to look at attendance by the most vulnerable, kids who are first in family. I'm very much influenced by my former colleague, Bruce Chapman, one of the key architects of HECS and Bruce supported HECS, of course, and supported the increase in HECS bands that took place in the late 90s but he doesn't support this latest package.
KELLY: Bruce Chapman has devised a compromise here and the interesting thing about Labor's position is it won't negotiate. Why?
LEIGH: Our view is that we need to increase the numbers of students at university, Paul, and that it is vital, in doing that, to make sure that students aren't deterred by the prospect of $100,000 degrees.
KELLY: Why won't you negotiate with the Government on this package? Because you could have a tremendous influence in shaping the outcome. What is happening at the moment is Clive Palmer is going to decide the future of the university system.
LEIGH: Well, we will negotiate on policy but we are not going to compromise on basic values and the value of egalitarianism, the notion that a kid from the poorest background should have a shot at going to university, is fundamental to who we are as a Labor Party.
VAN ONSELEN: Don't they still get that because of the HECS structure?
LEIGH: Ultimately students are going to be deterred by this. Particularly if HECS sees an increase in your debt burden while you are out of the labour market. So this is particularly pernicious for women, who typically take larger career breaks and under the HECS system, as it currently exists, see those debts increase with inflation. It is lower than wage growth. But under this would see it increase at the bond rate, faster than wage growth.
VAN ONSELEN: We have got a lot more that we want to get to but just one quick one from me on this. I'm not sure if Paul wants another question. But I accept the argument on gender, I have seen that evidence, but the research actually suggests that the adjustments to HECS don't have an impact on people from different socio-economic backgrounds.
LEIGH: All we have got is those past changes, the 1989, the late 1990s studies. What we don't have is a study which looks at a change as substantial as this one.
VAN ONSELEN: Well, we have got the British example.
LEIGH: The British example, I think, certainly raises concerns about vulnerable people accessing university and people being first in the family and if you want to break the cycle of poverty education is the best way of achieving that goal.
KELLY: If we just go to the Budget, former Treasurer Wayne Swan says there is no spending problem with the Budget, the problem with the Budget is a revenue problem. Treasury Secretary Martin Parkinson says we have both a revenue problem and a spending problem. What is your view?
LEIGH: If you look at what the government has done since it came into office, Paul, it has said no to a whole range of sources of revenue. So they have said no to $1.1 billion of revenue from fairly taxing multinationals. They have said no to imposing a slightly higher tax rate on people with more than $2 million in their superannuation accounts and they have said no to the revenue that flows from the carbon price. So the consequence of that is even if parliament simply rubber stamped Tony Abbott's Budget, the deficit would be bigger, not smaller, than it was when the Coalition came into office. So ultimately the government has to make choices. I think it is making a poor choice in trying to turn our fair parental leave scheme into an unfair one, which is wage replacement rather than flat rate and isn't consistent with the rest of our social safety net.
VAN ONSELEN: It is consistent with anyone that works in your office or anyone that works in the office of any Labor Member of Parliament.
LEIGH: You are confusing there, I think, with respect Peter, the industrial arrangements that people negotiate with the amounts the government pays. The government doesn't pay sick leave, doesn't pay annual leave and I don't believe should be paying parental leave at replacement rates. It should be putting in place a common floor but it shouldn't be essentially saying to an affluent family that "Your baby is worth five times as much government support as a minimum wage family."
KELLY: I want to go to Labor's view on the Budget. Is it your view that we have got both a revenue problem and a spending problem or not?
LEIGH: I certainly think the government has made mistakes on both the revenue and the spending front, Paul. I think the government has erred in saying no to $1.1 billion from multinationals at the same time as it is saying to 20 somethings who lose their job "You have to go without anything for six months." I was talking to people recently in northern Tasmania where the unemployment rate there is pushing up towards 10 per cent and there is deep concern in those communities about the impact on vulnerable young people who aren't able to find a job and they live on the streets. It is a values choice.
KELLY: I can appreciate that you are critical obviously of the number of the Abbott government's Budget proposals. The question is: does Labor think we need spending restraint given the current Budget deficit?
LEIGH: I have always been a little frustrated by this kind of overall discussion of targeting a particular share of GDP, for example. Because I think in each case you are balancing the quality of the spend against the quality of the revenue-raising measures. I think this government is shifting the revenue-raising mix, lowering taxes on pollution and raising taxes on work and that's the wrong choice. This isn't getting to an aggregate question, this is getting to a question of how we raise that revenue.
KELLY: Well, let's put it another way. Do you think overall we need to increase taxation in order to solve the Budget problem?
LEIGH: I think we need to get the tax mix right.
KELLY: What does that mean?
LEIGH: It means, in the case of superannuation tax concessions, that for people with more than $2 million in their superannuation accounts they are now receiving assistance from the government which is larger than the full rate pension.
KELLY: OK, so that should be tightened up.
LEIGH: I believe it is appropriate, if you are receiving a bigger government tax break than the full rate pension, it is appropriate that we ask you to pay a slighter higher rate of tax. Joe Hockey doesn't believe that that's a reasonable choice. In the case of carbon pollution, I think it is appropriate that the price on carbon pollution isn't zero. Joe Hockey thinks that the right price on carbon pollution is zero. We have now become the only country in the world to scrap a carbon price.
KELLY: And what about the mining tax? Would you think that Labor should reintroduce a mining tax in some form?
LEIGH: I'm sure we will have broad conversations with the sector but Bill Shorten and Chris Bowen have been very clear here; that Labor doesn't have any immediate plans to put the mining tax back on the table.
KELLY: You have talked about multi-national corporations. How important is this problem? What would Labor do?
LEIGH: Well, I held a round table with Chris Bowen and Bill Shorten in Parliament House during the last week of sittings bringing together accounting experts and people from the university sector just to talk through some of the particular instruments that are used. In very simple terms, the problem is that multinational companies want to move revenues to low tax jurisdictions and deductions to high tax jurisdictions and when you have got vertically integrated firms it is often hard for tax authorities to find what the right market price is for a particular product within that value chain. It is a complicated problem but the simple fact is that if you look at the revenue from taxing multinationals, the government has given $1.1 billion back through not cracking down on debt shifting and off-shore banking units.
VAN ONSELEN: So what do you do about it? How do you solve that?
LEIGH: Well, the immediate measures that the Government said no to were measures around debt shifting and offshore banking units. I believe that they were appropriate measures when they were put in place by Wayne Swan and David Bradbury. Indeed, David Bradbury won an international award as being one of the 50 best tax reformers of 2013 for putting together that package.
VAN ONSELEN: Was that the same organisation that awarded Wayne Swan the award as Best International Treasurer?
LEIGH: No. But it is good of you to mention it. Both of them won international awards. I'm still seeing a bare trophy cabinet for the current Government but maybe they are just waiting for their accolades to come. But this is really important stuff because at a time when you are making cuts to the most vulnerable, when you are cutting the pension, when you are giving defence personnel a real wage cut you can't be giving $1.1 billion back to multinationals.
VAN ONSELEN: Can I ask you a question just there. You said giving defence personnel a real wage cut, and that is accurate because their increase to their wage is below inflation, but you then described it as a cut to pensions and you know full well it is not a cut to pensions. What it is a cut to the level of increase which is still above inflation?
LEIGH: But Peter, what effectively the Government has done is to say to Australian pensioners "You will no longer share in living standard improvements in this country. Your pensions will increase with prices but as we become a more productive society you won't get to share any of that." That is an extraordinary thing for this government to have said to Australia's pensioners.
VAN ONSELEN: But they are better off than the defence personnel, at least, in terms of the increase compared to their salary?
LEIGH: They will track inflation but they won't track wage growth, which captures the productivity improvements. And this is absolutely something that if Tony Abbott intended to do he should have taken to an election. It is big news for Australia's pensioners.
KELLY: If we can go to the GST, why is Labor so irrational and dogmatic about the GST?
LEIGH: Paul, we simply take the view that the GST is a regressive tax.
KELLY: Sure, but any changes to the GST could be offset by having a more progressive income tax. I mean, there are all sorts of ways you can address this, aren't there?
LEIGH: They could in principle but I think in practice it is extremely unlikely this Government will do that.
KELLY: So in other words, surely the consequence then of Labor's position is that the income tax burden, the personal income tax burden will bear more of the overall revenue-raising responsibility.
LEIGH: There is a variety of different sources of revenue, Paul. We have just been talking about -
KELLY: What else would you use if not income tax then?
LEIGH: We have just been talking about a range of other source. One was taxes on superannuation for those with more than $2 million in their super accounts. Another was revenues from multinationals and another was pollution prices.
VAN ONSELEN: But is that going to cut it for the amount that is lost with declining returns to income tax which are all projected and have been already in place as well over the last 10 to 15 years versus a consumption tax?
LEIGH: It depends on what spending choices you make. If Tony Abbott is to break a promise I would urge him to break his promise on putting in place an unfunded and extremely unfair parental leave scheme. And if you make appropriate values choices then you are able to make the spending meet the revenues. Australia is towards the bottom of the developed country tax and spend table. Our size of government is closer to the United States or Korea. Really nowhere near the sort of Scandinavian or northern European countries.
KELLY: Does that mean you think we should spend more and tax more?
LEIGH: No, it doesn't, Paul.
KELLY: So you are quite happy with us being at the bottom of the table?
LEIGH: I am, but one of the consequences of that is you have got to make sure that the spending works and this is the thing that really gets my goat about the parental leave scheme. Because it is expensive and it gives the most to those that have the most. Our social safety net is the most targeted in the OECD. We give 12 times as much to the poor as we do to the rich. A typical developed country only gives twice as much to the poor as to the rich. But this proposal doesn't target the most vulnerable, it targets the most affluent. If you are going to put in place a gold-plated, diamond-encrusted, parental leave scheme, then Tony Abbott is going to have to raise your tax.
KELLY: It just seems to me, from what you are saying today, that the focus from Labor is very much on taxation increases. You intend to reintroduce carbon pricing, you are going to reintroduce new measures in relation to multinationals, you are going to introduce new measures in relation to superannuation for high income earners and because you are freezing the GST to a certain extent you are going to raise more through personal income tax. Is that a viable package overall, do you think, electorally?
LEIGH: Paul, you have been asking me about revenue sources and I have been answering those questions as candidly as I can.
KELLY: And I appreciate the answers. I'm just now asking you an overall macro question. Because it seems to me that Labor is going to the next election with a pretty heavily-geared agenda towards taxation increases.
LEIGH: I don't think that's right. If you want the overall story as to where I see Labor going at the next election, I think we will be talking about building a better Australia. About this great Australian project that we so highlighted at Gough Whitlam's funeral.
KELLY: I'm certain you will do that.
LEIGH: And about the importance of making sure that we have the health and education investments to do that.
KELLY: You have just told us in relation to universities that you are very confident that government funding can do the job. The universities don't believe that. They look at what's happened over the last 20-30 years and they dismiss that totally as being a completely futile position. Now, if you are serious about that, funding universities properly, again, surely, you come back to the tax system.
LEIGH: Paul, if this universities package was so popular then Abbott government ministers wouldn't require such a large security detail to go on campus.
KELLY: I know it is not popular. I know it is not popular, sure.
LEIGH: And there are certainly university sector leaders who have deep concerns about this package.
VAN ONSELEN: Most of them. Like you, I'm from the university sector and I'm blown away by how universal the support for it is amongst VCs. I thought that probably the majority as opposed to on one hand, if that on two figures, may be the number that had a concern about it would be. It is remarkable, isn't it?
LEIGH: There are certainly university sector leaders who have deep concerns about this package and Labor's focus is on making sure that we are building an Australia which invests in skills for the next generation. This whole idea, it really bugged me in the late period of the Howard government when there were Ministers who would give different advice to poor Australian kids than they would give to their own kids. They would say to poor Australian kids "You will be fine. Maybe drop out of school. Maybe get a diploma qualification".
VAN ONSELEN: They are making it easier for kids to get a TAFE qualification because they are introducing a version of HECS as part of this scheme for the TAFE sector, which would be a big inhibitor to people choosing to get no qualification. If you don't go to university, where HECS does exist, but you consider a trade through TAFE but there wasn't previously to this package a HECS structure, that would have been prohibitive. Now they are taking that away. That's a good thing, isn't it?
LEIGH: Victoria has had some measure of that for a time and certainly the trades training centres that we put in place in school help expand vocational education. I think we need to be pushing at all fronts. We need to be increasing school completion; we need to improve in the quality of early childhood; we need to be increasing the number of Australians who go to university. What worries me about this package is it goes back to the bad old Howard days of saying a bit of education will be enough for Australians who grow up in disadvantaged circumstances and that just can't be good advice to young Australians.
KELLY: Now, you have been very interested in equality. Do you agree with Rupert Murdoch's speech the other day to the G20 Ministers that monetary policy, the technique of quantitative easing has really significantly increased equality across the board in western nations?
LEIGH: Paul, I'm delighted to see Rupert Murdoch being enthusiastic about inequality. I'm not sure that most of the policies that he advocates would improve the situation. I think in some cases they would make it worse.
KELLY: But I asked about this fundamental argument he made. Surely you will agree with that?
LEIGH: Well, I think he has gotten part of the story there. So there are a number of channels through which quantitative easing can affect the distribution of income. The portfolio channel means that if you buy assets you drive up the price of those assets and asset holders tend to be more affluent. But the impact of quantitative easing is ultimately to try and get the real economy going again and if you do that then those who benefit the most are those at the bottom of the distribution. It is low skill workers who tend to lose their jobs in recession. And to the extent that you are able to stir a bit of inflation into action, you have probably also got an equalising effect. So I think he has got about a third of the story there. But I'm delighted to have him sort of jumping on the Piketty-Leigh-Swan bandwagon of being concerned about the distribution of incomes, because it is a signal issue for our age.
KELLY: I would have thought you are a little cavalier there in relation to asset prices. Given what has happened to housing prices in this country, people have been priced out of the housing market. Surely this is one of the absolutely fundamental issues relating to inequality.
LEIGH: Absolutely. But you asked me about the impact of quantitative easing and we don't have quantitative easing in Australia. But the decline in home ownership rates among young Australians is really striking. It is a turnaround in a measure which has been steadily improving over generations and I think it is something that we really need to work on as a community. You can see housing supply starting to tick up but making sure that we have got the right set of regulations, for example, around approvals for infill.
KELLY: How important is it for the central bank, do you think, to get back to the norm when it comes to monetary policy and gradually start to increase interest rates so we get back to a more normal situation?
LEIGH: It would certainly be good to be back to a more normal situation.
KELLY: So you would like to see the central banking increase interest rates over the course of the next year?
LEIGH: It depends largely on the level of the dollar. So you think about - we have got these two prices in the economy. You have got the interest rate and you have got the exchange rate. One at near historic highs in the exchange rate, one at near historic lows in the interest rate, and the Reserve Bank would clearly like those two numbers to be closer to normal. But it depends on what the dollar does. Attempts by central banks to bring down their currency have not by and large been particularly successful. The Reserve Bank's latest Statement on Monetary Policy makes it quite clear that they would like to see the dollar fall further.
VAN ONSELEN: Before we run out of time, I want to go back to the GST.
VAN ONSELEN: You were saying that it is just not something that the Labor Party supports philosophically, essentially, in terms of its mix and what it means. Do you think it is a regressive tax?
LEIGH: I do indeed. As is fuel tax, the other indirect tax that Tony Abbott promised not to change before the election and is now increasing.
VAN ONSELEN: But here is the thing. I acknowledge that there is elements of regression in it. You are not just a student of economics, you are also a student of history. What was wrong with Paul Keating when he suggested - I mean, he is such a Labor icon, yet he though once upon a time - he also fought against it of course with one of our guests today, John Hewson, but once upon a time he thought that there was enough merit in a consumption tax to try to convince Bob Hawke of the need to support it after the tax summit. He didn't win that fight internally granted but what was he smoking to think that?
LEIGH: Well, I think you have got two different questions there, Peter. You have got the question as to whether it was appropriate for Australia to move towards standardising sales taxes into some form of a GST. As you would have seen, Labor hasn't gone to any elections recently saying that we would get rid of the GST and go back to the system of patchwork sales taxes. But then you have the question as to whether you want to put the GST on to private school fees, whether you want to put it on to hospital costs and whether you want to increase the rate. And Labor has very clearly said no to that. Tony Abbott, by contrast, has cut $80 billion out of health and education funding to the states. Clearly attempting to starve people like Denis Napthine into being a supporter of the GST post the election.
VAN ONSELEN: OK. But the way it is currently structured, because you don't have a universal application of the GST, tell me how it is fair that if, after this program, I decide that I want to go down and buy myself a lobster as well as pick up some French brie to have a nice lunch there is no GST on that but if I choose to go and get some tinned spaghetti there is.
LEIGH: The fresh food exemption is ultimately aimed at trying to improve consumption choices.
VAN ONSELEN: But in that example, A, it is not a good consumption choice improver but, B, it is also something you have talked a lot about. In a quality sense it is benefitting the rich and hurting potentially the less well off.
LEIGH: I don't think that's right. You can clearly take examples, like the one that you have chosen, but I talk to local community groups who are trying to encourage healthy eating and they will sometimes say that they encourage people to go into the supermarket and buy the GST-free items because they tend to be healthier consumption choices. That's not always going to be the case, as the illustration you have given points out, but I think the fresh food exemption is an appropriate one. And I do think ultimately this is a question of fairness. Tony Abbott wants to increase the most regressive tax in Australia. Labor, by contrast, would prefer to see multinationals pay their share.
KELLY: It just seems to me though that the attitude you have got - and this is the point made by Martin Parkinson on one occasion, seems to be that the government can't take any single decision if it is regressive.
LEIGH: Under this government, Paul, I think -
KELLY: No, is that Labor's view? Because it seems to be Labor's view. Because Labor opposes virtually every policy on grounds that it is regressive. Well, at the end of the day, this is surely a futile position. You can't justify this in intellectual terms. You have got to look at the broader macro picture, surely.
LEIGH: Martin is somebody who I have got a huge amount of respect for and I think his position is ultimately a kind of ‘world of the first best’ approach, which says that you can improve regressive taxes so long as you are putting in place household compensation. But I see no evidence that this government is keen to assist vulnerable households -
VAN ONSELEN: But then you fight them on that, don't you? You put in place what the tax experts say is the best mix, which most say includes the GST, and then you fight the government on how to then redistribute the wealth from the increased GST. They argue that it reduces company taxes. You argue that there is targeted spending to help disadvantaged people. It is a great debate.
LEIGH: The only impact of a position like that, Peter, would be to hurt the most vulnerable. Labor would be supporting cuts which would hurt the most vulnerable at the same time as we would, under that scenario, be supporting an increase in the most regressive tax in Australia.
KELLY: But isn't the reality here that we have the most regressive tax transfer system inside the OECD? That virtually no other developed nation redistributes as much revenue to the bottom 25%. Isn't that the reality here?
LEIGH: On the transfer system you are right.
LEIGH: Not on the tax system.
KELLY: I'm talking overall about the tax transfer system. In other words, our public policy is highly geared towards addressing inequality.
LEIGH: Our transfer system is certainly redistributive and I think that's a good thing.
KELLY: Well Labor never says this though. You never hear this from the Labor Party, do you?
LEIGH: I spoke about it earlier in this interview, Paul. I raised it myself. It is something I'm very proud of and it's why I'm concerned about Tony Abbott's regressive parental leave scheme. I think that is a great part of the Australian social project, that we take our tax dollars and we use them to assist the most vulnerable rather than handing them out to the most affluent, as Tony Abbott's parental leave would have us do.
VAN ONSELEN: Andrew Leigh, you have been generous with your time. I appreciate your company. See you later. Thanks very much.
LEIGH: Thanks to you both. Really enjoyed it.