Andrew Leigh

E&OE TRANSCRIPT
TELEVISION INTERVIEW

ABC LATELINE
FRIDAY, 2 MAY 2014

SUBJECT/S: Deficit Tax; Commission of Audit Report; Federal budget; GP Tax; Federal ICAC.

EMMA ALBERICI, PRESENTER: As we heard earlier, the Prime Minister has cancelled his trip to Bali, rejecting an invitation by the Indonesian President that many had seen as an olive branch extended after a period of strained relations between the two countries.

That news broke just after we recorded our political forum tonight which was dominated by discussion of the Government's first Budget.

We were joined from Melbourne by Coalition's Kelly O'Dwyer and in Canberra by Labor's shadow assistant Treasurer Andrew Leigh.

Welcome to you both.

ANDREW LEIGH, SHADOW ASSISTANT TREASURER: Thanks Emma.

KELLY O'DWYER, LIBERAL BACKBENCHER: Great to be with you.

EMMA ALBERICI: Kelly O'Dwyer, on the deficit tax, why is it okay for the Coalition to break an election promise but when Labor did it Tony Abbott said it brought our democracy into disrepute?

KELLY O'DWYER: Well, Emma, I think we're getting a bit ahead of ourselves here. While there's been a lot of reportage about a deficit or a debt tax or a levy, we've seen that reportage be quite different in all of it papers and the Budget yet hasn't been delivered. It will be delivered...

EMMA ALBERICI: Are you saying we're not going to get such a tax or levy?

KELLY O'DWYER: The Budget's going to be delivered on the 13th of May and I haven't seen it yet Emma, so I can't tell you exactly what's in it but the Treasurer will deliver it on the 13th of May and at that time we'll know exactly what is part of it Budget rather than the fevered speculation that we have seen to date. We also know that Labor is running a pretty strong scare campaign on all sorts of issues but I don't know that that's terribly helpful or constructive.

EMMA ALBERICI: Hold on, back to the deficit tax, the Prime Minister and Treasurer have both had ample opportunity to deny it and they haven't done so, in fact the Prime Minister has been at pains to defend the idea.

KELLY O'DWYER: All prime ministers and treasurers a couple of days out before a Budget - and I think we're something like 10 days out before the Budget now - they don't rule in or rule out anything that may or may not be in the Budget. I mean this is pretty standard practise.

EMMA ALBERICI: It is step further to defend it though, isn't it?

KELLY O'DWYER: That's your assessment of what's being done here. I think the fundamental point to note here is we have been having a discussion over the last little while about the legacy we have been left by the Labor Government and that is a pretty serious one. They trashed our Budget, they refused to fix it and they locked in spending in the future years.

EMMA ALBERICI: Let's go back to the question though because otherwise we're going to run out of time. And it was about breaking promises. Andrew Leigh?

ANDREW LEIGH: Tony Abbott had the opportunity over past years to say that he was going to increase income taxes or he could have said promises don't matter all that much because situations change.

He did neither of those two things. He criss-crossed the country talking about the importance of promise-keeping and in fact at one stage he said that there should be no new taxes without a new election which does make you wonder whether he's about to take us back to the polls.

Fundamentally, Mr Abbott needs to stand up to the test that he set for the former Government which he castigated for putting in place a temporary fixed-price period on the carbon price. I'm really concerned we're seeing the unravelling of the carbon price which increased the taxes on pollution and lowered the taxes on work. Mr Abbott's discovering that once you forego the substantial revenue from the carbon price, now he's going to have to increase taxes on work. That's the wrong recipe for an Australia in which we should be seeing more people in the workforce but less pollution.

EMMA ALBERICI: Andrew Leigh, in Government Labor spent money it didn't have in every one of its six years in power. How can you now criticise it Coalition for trying to be more responsible with taxpayers' money?

ANDREW LEIGH: Emma, you know if you look around the world that Australia's public finances are in extraordinarily good shape. When we left office debt around a 10th of GDP and we were one of just three developed countries to avoid recession through the global financial crisis.

In half a year in office Joe Hockey has managed to double the deficit, adding $68 billion to the deficit through things like going soft on multinational profit shifting, not being willing to pursue modest labour measure to more fairly tax the superannuation of people with more than $2 million in their super balances.

Collectively, those decisions have doubled the deficit and now the Government is turning around and saying, well, it's going to have to be those with chronic disease, people with disabilities, low-income Australians who bear the burden of the fact that Mr Abbott and Mr Hockey haven't been willing to fairly tax multinational companies when they try and shift profits to other jurisdictions.

EMMA ALBERICI: Kelly O'Dwyer?

KELLY O'DWYER: Well what Andrew Leigh didn't say is where Australia started on the journey when Labor was actually elected. We started in a very strong position because we'd paid back all of Labor's debt. That's the reason we went through the global financial crisis very well and that's the reason we're in a stronger position today when you compare us to a number of other economies.

What Andrew fails to appreciate is what people have been saying all along and people including organisations like the International Monetary Fund and that is that we have a huge spending problem. Labor got us into a huge spending problem. Of the 17 most advanced economies that they looked at recently, they said that Australia was increasing spending at the fastest rate.

That's ahead of Canada, that's ahead of the USA, that's ahead of France, that's ahead of Germany. I just don't think that Labor gets it. They're not accepting any responsibility for the position that they left us in. They talked about delivering surpluses. They didn't deliver one in the six years that they were in Government, in fact they delivered the highest deficits, five of the highest deficits that we have ever achieved in our nation's history and they added huge debt burdens to future generations. Looking forward, up to $667 billion that we know about if we do nothing today.

That's why the Commission of Audit was so important in being able to provide recommendations to Government. It was to actually look at how do we go about fixing this problem that we have inherited by Labor? And the fact is Labor don't want to be part of the solution. They in fact want future generations to pay for their recklessness.

EMMA ALBERICI: Kelly O'Dwyer, we wouldn't be facing this so-called Budget emergency if John Howard hadn't got the ball rolling on middle-class welfare, things like the unmeans-tested baby bonus and the Family Tax Benefit.

KELLY O'DWYER: We'd actually delivered surpluses. We could afford to pay for the money that was...

EMMA ALBERICI: So it was okay to introduce those measures just because you could afford them at the time because we were in a mining boom?

KELLY O'DWYER: The point I was about to make Emma is we were balancing the Budget and doing more than that. We were in fact putting money aside so after we'd paid off Labor's...

EMMA ALBERICI: Aren't the structural problems with our Budget on account of the fact that this middle-class welfare started under John Howard?

KELLY O'DWYER: If you'd let me finish Emma, I was just saying after we'd paid back Labor's $96 billion they left us with, we'd put $45 billion aside which forms the Future Fund today which is a net asset. We actually delivered a net asset to the Australian people. The Labor Party certainly have not done that. They have in fact left future debt for future generations and they have locked in spending. The truth is that they actually received more revenue, despite what they have said in the past, they received more revenue than the previous Coalition Government, $70 billion more. It's just that they doubled spending. That's why we are in the situation that we're in today.

ANDREW LEIGH: Emma, there's a number of points to respond to there. The first is that as you correctly identified, the proceeds of Mining Boom Mark I were largely squandered by the Howard Government because it was locking in spending that was not sustainable so in Government we made the decision to end the baby bonus. We got little help from the Coalition there. Joe Hockey at one stage comparing it to China's one-child policy to scale back the baby bonus and we means tested the private health insurance rebate.

It's still Coalition policy to take away that means test despite the fact that the private health insurance rebate's one of the fastest-growing areas of Government expenditure. Now Kelly refers the to the recent IMF report but of course that report is based on Joe Hockey's recent fiddling of the figures. While we were in office we kept a two per cent real spending cap on Government spending after the global financial crisis.

KELLY O'DWYER: But you didn't achieve it Andrew.

ANDREW LEIGH: We achieved it every year.

KELLY O'DWYER: No, no it was 3.5.

ANDREW LEIGH: When Joe Hockey became Treasurer, he took that cap off and of course when you take that cap off then you see a big blow-out in spending so the IMF is assessing Joe Hockey's Budget update which is a worrying Budget update. It's an extraordinary Treasurer who can manage to double the deficit in just six months.

KELLY O'DWYER: What Andrew's said is not correct.

ANDREW LEIGH: Now going back to trying to balance the Budget off the backs of the poor and what really worries me about this Commission of Audit is that we've had 20 years in which CEO pay has risen twice as fast as average wages and three times as fast as the minimum wage. But what does a CEO-dominated Commission of Audit say is their recommendation? They think there's a wages problem and it's the minimum wage that needs to be cut. It is this dystopian vision of Australia I think and one that hurts the poorest and most vulnerable in the area of fighting an equality.

KELLY O'DWYER: I didn't realise this was a monologue Andrew.

EMMA ALBERICI: Let me bring, let me bring... let me bring Kelly O'Dwyer in here because you have made a number of points which clearly Kelly O'Dwyer is taking offence to so let's have a listen to what she has to say.

KELLY O'DWYER: Well they talk about this cap that they put in place, this cap on growth in real spending. They say, 'wasn't it fantastic? We put this cap in place and it was two per cent.' The problem is they didn't abide by it. On average it was 3.5 per cent and when you look beyond the forward estimates, when you look in...

ANDREW LEIGH: After the global financial crisis.

KELLY O'DWYER: Andrew, let me finish. I listened to your monologue. In 2017/2018, in the fifth year beyond that forward estimates period in fact the real growth was six per cent. That's going to be encapsulated in this Budget this year which was a tripling of their supposed cap. They want to talk about Budget forecasts, they want to talk about projections. Let me tell you they, for instance, projected they were going to get a surplus almost every year. The deficits that they started with in some years were $12 billion which turned into $44 billion. They had heroic assumptions in there regarding growth. We really, coming into Government...

EMMA ALBERICI: We can't ignore the facts that there was a global financial crisis during their years-

KELLY O'DWYER: That was only part of their spending. They doubled spending ongoing. It wasn't just a one-off. It was entrenched within the Budget and this is the problem we need to address today.

EMMA ALBERICI: Let's talk about some of the issues we assume will form part of the Budget thinking. On the GP co-payment, Andrew Leigh, when you were a PhD student at Harvard you argued co-payments were sensible because it would make people think twice before going to the doctor. What or who changed your mind on that?

ANDREW LEIGH: Emma, I've changed my views since university days, as have many other people, and fundamentally on this I think it's the evidence coming forward from health professionals who weren't represented on the Commission of Audit, like the Australian Medical Association, the doctors reform society, they've said that the real challenge in Australia is that if you deter people with chronic disease from both going to the doctor, you end up having more people in hospitals.

EMMA ALBERICI: Can I just point out what you had said in a paper back then. Yes it was 10 years ago but you're a PhD student and you argued that as economists have shown "the ideal model involves a small co-payment, not enough to put a dent in your weekly budget but enough to make you think twice before you call the doctor."

ANDREW LEIGH: A co-payment might have been right when the Hawke Government proposed it in 1990 and maybe it was right in 2003, but we've seen massive increases in out of pocket costs in Australia and we know when we look across developed countries the real challenge for Australia is we have too many people in hospitals. If you curtail access to private health care you end up getting into a situation where you blow out a number of people in hospitals and a hospital is far more expensive than a GP.

I've spoken to a large number of GPs in my electorate, to friends who deal on the front line as doctors with people with chronic disease and I'm strongly persuaded that a GP tax would be a bad idea and that we ought to listen to the health experts on this.

EMMA ALBERICI: Is there anything in the Commission of Audit, Andrew Leigh, that you do support?

ANDREW LEIGH: I think the Commission of Audit suggesting that Tony Abbott shouldn't go ahead with his parental leave scheme is wise indeed.

EMMA ALBERICI: I don't think it says quite that, does it?

ANDREW LEIGH: They don't go as far as the Productivity Commission when we asked the Productivity Commission whether a wage replacement scheme would be appropriate they said no, that wouldn't boost productivity or participation and you've got independent experts like Saul Eslake saying the same thing.

The reason for saying that the flat rate scheme is better is that it fits also with Australia's social safety net which is either giving more to the most disadvantaged or having flat-rate payments across the board. This is an unusual payment that gives the most to those who have the most. It was described by the Liberal Party as being appropriate because parental leave is an ‘entitlement’. So much for the end of the age of entitlement - if you're a millionaire family having a baby then the age of entitlement's just beginning it seems.

EMMA ALBERICI: I want to move on because we are running out of the time. Let's talk about the corruption inquiry in NSW. It's claimed the scalp of the State's Police Minister today and this afternoon Kelly O'Dwyer, your fellow Federal MP Karen McNamara has been accused of electoral fraud. Given what's already happen to former assistant Treasurer Arthur Sinodinos, how unsettling is all of this for your Government?

KELLY O'DWYER: Look, my understanding is that both Karen McNamara and also Senator Arthur Sinodinos were called as witnesses to ICAC and both of them have been involved in presenting evidence to them but not been directly accused of any corruption and I think that's an important point to make. There have been other allegations made at ICAC regarding corruption. That needs to be fully investigated and those people who have been found to be corrupt need to face the full force of the law. Corruption is a terribly corrosive aspect to our democracy and our society and it's not something that any one of us can stand for.

EMMA ALBERICI: Just finally and briefly, former Federal Independent MP Tony Windsor has called on Clive Palmer and the other Federal Independents this week to call for a Federal corruption inquiry. I'm wondering from you both, would you be in support of such a move? Andrew Leigh?

ANDREW LEIGH: I think it's an idea worth exploring and people have noted that the Federal level it's the stand-out on not having a corruption panel. I do think that as Kelly has rightly said, corruption is insidious because it cuts into confidence, confidence that people can rely on those with whom they're doing deals, that contracts will be fair, that they can rely on getting a fair go from the Government. Also as a former judge's associate, I have a strong view that no-one should be above the law but that everyone's entitled to the presumption of innocence, and that certainly goes for the Coalition members that Kelly mentioned before.

EMMA ALBERICI: Kelly O'Dwyer?

KELLY O'DWYER: I certainly think that there has been no allegations of corruption Federally and if there were then obviously they need to be investigated by the appropriate bodies and my understanding is that that can be investigated currently so my view would be any criminal activity should be investigated and anybody who does the wrong thing should face the full force of the law.

EMMA ALBERICI: Kelly O'Dwyer, Andrew Leigh, thank you both very much.

ANDREW LEIGH: Thanks, Emma. Thanks, Kelly.

KELLY O'DWYER: Terrific to be with you.

MICHELLE ROWLAND MP, SHADOW MINISTER FOR CITIZENSHIP AND MULTICULTURALISM and MEMBER FOR GREENWAY

ANDREW LEIGH MP, SHADOW ASSISTANT TREASURER and MEMBER FOR FRASER

DR CHRIS BOURKE MLA, MEMBER FOR GINNINDERRA



MEDIA RELEASE

CANBERRA COMMUNITY CONCERNED BY RACIAL DISCRIMINATION ACT CHANGES

Members of Canberra’s multicultural community are concerned by the Abbott Government’s plans to weaken the Racial Discrimination Act, ACT MLA Chris Bourke said today.

Dr Bourke was speaking after attending the Canberra Multicultural Community Forum last night where a range of community leaders condemned the Government’s proposed watering-down of the Racial Discrimination Act.

“Giving a green light to racial abuse will have dire consequences for our country and people targeted including increased mental and other health issues,” Dr Bourke said.

The forum also heard from Dr Helen Watchirs, the ACT Human Rights and Discrimination Commissioner; Australian National University law professor Simon Rice; and Mr Rod Little, chair of the ACT Aboriginal and Torres Strait Islander Elected Body.

“Protection against racist hate speech is fundamental to Australia’s success as a multicultural nation,” said Dr Andrew Leigh, who was among the 50 Canberrans at last night’s forum.

“If the Government bothered to properly consult with the community, as the Opposition is doing, then it might come to appreciate the lasting damage that racism has on many individuals and why these proposed changes to the Racial Discrimination Act are so abhorrent,” said Shadow Minister for Citizenship and Multiculturalism, Michelle Rowland.

Ms Rowland encouraged people to tell  the Abbott Government what they think of the proposed changes by sending a submission to [email protected]. Submissions close today.

WEDNESDAY, 30 APRIL 2014

The remarkable persistence of power and privilege, Inside Story, 30 April 2014

IF YOU WANT to know who made up Australia’s elite in the nineteenth century, a useful place to look is the Australian Dictionary of Biography ^[2]. In its many volumes, you’ll find business leaders, scientists, media barons and politicians who have featured among the upper echelons of Australian society.

Now, suppose we take the first cohort of significant Australians – those who died before 1880 – and identify those with unusual surnames like Ebden ^[3]or Maconochie ^[4]. People with those names were overrepresented among the elite in the nineteenth century. Are they still at the top of society, or are they mixed through?

The answer to this question will depend on the level of social mobility we have in Australia. In a very mobile society, privilege dissipates quickly. Children of doctors become labourers, and children of cleaners become lawyers. “Class-jumping” is the norm. Conversely, in an immobile society, we should expect to see privilege perpetuated across generations. If wealth can easily be passed down to one’s children, if education is costly, and if jobs are based on old school ties rather than ability, then the same surnames will stay at the top across generations.

For Australia, it turns out that if we look at the register of modern-day medical practitioners, we find the privileged names of the nineteenth century overrepresented by a factor of nearly three. In other words, if your ancestor was at the top of Australian society six generations ago, you are three times more likely to be a doctor today than the average Australian.

In The Son Also Rises: Surnames and the History of Social Mobility ^[5], economist Gregory Clark uses rare surnames to learn more about the extent to which societies are fluid or static. Take the case of Samuel Pepys (1633–1703), the famous diarist who was secretary of the English Admiralty. Pepys has been a rare name since it entered the ranks of the elite in the late 1400s. And yet in the past 500 years, Pepyses have attended Oxford or Cambridge universities at a rate at least twenty times that of the general population. On average, those of them who’ve died over the past decade left wealth of at least five times the British average. Four of the eighteen living Pepyses are medical doctors. Only in a society with extremely low levels of social mobility would we expect a name to persist among the elites in this way.

Analysing mobility in medieval England, Clark finds that people with names derived from jobs (Cook, Butler, Thatcher and so on) were more likely to move upwards, while those with names that derive from towns (including Baskerville, Pakenham and Walton) tended to move downwards. And not much changed after the industrial revolution. Surnames of Oxbridge graduates in the early 1800s, for instance, are three times as common among British MPs in the late 1900s.

In the United States, tax return data for the top taxpayers was publicly reported in 1923–24. Nearly a century later, people with the same surnames as those who featured on the list are three to four times as likely to be doctors or lawyers, while those with lower-status names are underrepresented. People with the high-status surname Katz are twelve times as likely to be doctors and lawyers as those with the low-status surname Washington.

In Japan, samurai surnames date back to before the 1868 Meiji restoration. Even today, they are overrepresented at least fourfold among doctors, lawyers, professors and writers. In China, Qing surnames overrepresented among the nineteenth-century elite are overrepresented among today’s corporate board chairs and government officials. In Chile, surnames overrepresented among landowners in the 1850s are still overrepresented among high-earning occupations.

Strikingly, Clark finds persistence even in Sweden, one of the world’s most egalitarian societies. The 1600s and 1700s saw the creation of a set of “noble surnames,” which today have twice their expected share of doctors, five times their expected share of lawyers, and three times their share of members of the top 1 per cent of income earners. This degree of persistence of status across ten generations demonstrates the power of inherited privilege.

~

GREGORY CLARK’s analysis of intergenerational mobility signals a marked shift in the way economists think about social mobility. In his 1988 presidential address to the American Economic Association, Gary Becker argued that “earnings are not strongly transmitted from fathers to sons.” Four years later, Gary Solon showed that prior researchers had been overestimating the degree of social mobility because they were using just a single year of data.

To see how this happens, imagine a high-earning barrister who happens to take six months off work in the year of the survey. Now suppose his son becomes a high-earning barrister too. A study that used just one year of data might wrongly assume that this was a case of someone moving from rags to riches. But a study that used several years of data would see that both father and son were well-off.

At this point, I need to introduce a few numbers. The standard measure of mobility across generations is the “elasticity” of children’s earnings with respect to their parents’ earnings – in other words, how closely the former reflects the latter. Because women have tended to have much lower rates of paid work, researchers have focused on the father–son earnings elasticity. An elasticity of zero means there was no relationship between the earnings of fathers and sons, while an elasticity of one would mean that a 10 per cent rise in fathers’ earnings was associated with a 10 per cent rise in sons’ earnings. The closer the elasticity gets to one, the less mobile the society.

Elasticity measures aren’t confined to income. The elasticity of height, for example, is about 0.5, which means that if a father is ten centimetres taller than average then we expect his sons to be five centimetres taller than average. Sure, there are tall fathers with short sons (and vice versa), but basketball dads are generally taller than gymnast dads.

In the case of earnings, economists’ best estimate of intergenerational elasticity went from 0.2 when they used a single year of earnings (as did the studies Gary Becker was relying on) to 0.4 when they used a few years of earnings (Gary Solon’s approach). Over the next decade, US researchers threw better and better data at the problem, and each time they found less and less mobility. Using more than a decade of earnings data, Bhashkar Mazumder estimated in 2005 that the intergenerational earnings elasticity for the United States was 0.6. That would put it higher than the father–son height elasticity. Among American sons, fathers had a larger impact on their earnings than on their stature.

Using similar techniques, researchers began estimating father–son earnings elasticities for other countries. As one survey showed, Scandinavian nations tended to be extremely mobile, with elasticities below 0.2. In Latin America, there was much less class-jumping, with elasticities over 0.5. Compared with other nations, the United States is extremely immobile, a fact that Barack Obama has thankfully switched from denying (“In no other country on earth is my story even possible”) to decrying (“It is harder today for a child born here in America to improve her station in life than it is for children in most of our wealthy allies”).

In 2006, while I was working as an economist at the Australian National University, I produced the first (and so far, only) estimates ^[6]of the father–son earnings elasticity in Australia, putting the intergenerational elasticity at around 0.25. This means that a 10 per cent increase in a father’s earnings translates to a 2.5 per cent increase in his son’s earnings. My estimate implied that we are more socially mobile than the United States but not as mobile as Scandinavia. Looking back through the twentieth century, I found no evidence that we had become markedly more or less mobile.

So what does the surname approach add to our understanding of mobility? Simply put, there are two reasons for using surnames. The first is that we only have good data on earnings (from surveys or administrative records) for the relatively recent past. If we want to understand mobility in centuries gone by, surnames may be the best torch for seeing into an otherwise dark statistical corner.

The second, and more important, reason for using surnames is that they may help to take out some of the transitory fluctuations. Recall how we got more precise estimates of the intergenerational earnings elasticity when we used data that smoothed out the fluctuations in an individual’s earnings over a career? Call it the “odd year” problem. Now let’s think about a different problem: a family where the social status dips down for one generation, before reverting to the long-run average. You might call this the “black sheep” problem. By looking at surnames, we are able to look not just at single father–son pairs, but also at patterns for entire lineages.

So once we take out the odd years and black sheep, how easy is it to jump between classes? Several assumptions need to be made in order to estimate an intergenerational elasticity from surnames. But if we accept Gregory Clark’s methodology, his results imply a very static society. For Britain, the United States, India, Japan, Korea, China, Taiwan, Chile and even Sweden, he concludes that the intergenerational elasticity is between 0.7 and 0.9. This would mean that social status is at least as hereditable as height. It suggests that while the ruling class and the underclass are not permanent, they are extremely long-lasting. Erasing privilege takes not two or three generations, but ten to fifteen generations. If you cherish the notion of a society where anyone can make it, these results are disturbing.

How do we break the pattern? Part of the answer must lie in a fair tax system, a targeted social welfare system, effective early childhood programs, and getting great teachers in front of disadvantaged classrooms. We need banks willing to take a chance on funding an outsider, and it doesn’t hurt to maintain a healthy Aussie scepticism about inherited privilege.

Yet Gregory Clark’s results also remind policy-makers that this is no easy nut to crack. Part of the transmission of social status occurs through genes. On top of this, people tend to marry those with similar levels of education; and researchers have also documented significant differences in parenting approaches among different social groups. Making the system a bit fairer is within our reach – but a complete transformation may prove elusive. •

Andrew Leigh is the Federal Member for Fraser and the Shadow Assistant Treasurer. His most recent book is Battlers and Billionaires: The Story of Inequality in Australia (2013). The Australian analysis that begins this article is a preliminary result of research that the author is carrying out in collaboration with Gregory Clark and Mike Pottenger.

E&OE TRANSCRIPT

TELEVISION INTERVIEW
BREAKING POLITICS - FAIRFAX MEDIA
MONDAY, 28 APRIL 2014

SUBJECT/S:  Flagged income tax levy;  Unfair PPL Scheme; Grattan Institute Superannuation Report

CHRIS HAMMER:  Well, the budget is now just two weeks away and pre-budget speculation is running hot, not least because the Government continues to float ideas out into the public. On the weekend the Prime Minister Tony Abbott declined to rule out a special income tax levy designed to get the budget back into surplus.

To discuss this and other issues, I'm joined by Andrew Leigh, here in the studio. He's the Shadow Assistant Treasurer as well as the Labor Member for Fraser here in the ACT. And Liberal MP, the member for Bowman in Queensland, Andrew Laming, joins us by Skype...

Andrew Leigh, to you first. There's this idea of an income tax levy. Is it a good idea given that, shouldn't the Government be looking at the revenue side of the budget and not just spending cuts?

SHADOW ASSISTANT TREASURER, ANDREW LEIGH: Chris, according to reports the Prime Minister is going to tonight compare himself to John F Kennedy. To that I have one simple response: Prime Minister, you’re no JFK.

HAMMER: That's a good line but what about the subject at hand? Should the Government be addressing the revenue side of the budget.

LEIGH: Absolutely, and you can start by not getting rid of the mining tax and carbon price, the removal of which has blown a massive hole in the goverment coffers.

HAMMER: How much of a hole has getting rid of the mining tax [created]. It hasn't raised very much money.

LEIGH: Let's not look at my estimates of that. Let's look go to Joe Hockey's estimate of what it will raise in 2016-17. He says it will raise $1.8 billion. So this is significant tax - according to Joe Hockey - which he intends to remove. Add on top of that, that he is not proceeding with 55 different tax measures which Labor had announced but was yet to enact. So all together, the Government has effectively doubled the deficit since they came into office. And now, having gone weak on the strong, they're turning round and saying, we are going to get tough on the weak. We're going to hurt pensioners, we're going to charge people with chronic disease more to go to the doctor and we're going to push up income tax rates, all of which are clear breaches of promises. JFK would have never have done that.

HAMMER: What essentially is the problem with an income tax levy? Is it that it's bad economic policy or it simply that it's a broken election promise.

LEIGH: Well certainly it's a broken election promise. This is a Prime Minister who has been telling us for many years that keeping promises is vital and he would certainly not increase income taxes. Now, having manufactured a budget crisis, he's discovered his economic strategy and his political strategy are in conflict: because he has foregone such large amounts of revenue, because he has willy-nilly given $9 billion to the Reserve Bank. He's ended up with a much bigger deficit, a deficit twice as large as Labor had over the forward estimates.

HAMMER: So, the money given to the Reserve Bank, will-nilly not necessary, not desirable?

LEIGH: Certainly, we have no evidence they asked for it Chris. We've asked for the paper work on that to be produced. Joe Hockey is currently defying a Senate order to produce those papers. He says it's because Labor took large dividends out of the Reserve Bank, but when you adjust for inflation, Labor took half as much from the Reserve Bank as the Howard Government did.

HAMMER: Okay. Andrew Laming, this idea that's being floated over an income tax levy to help restore the budget, what do you think of it?

ANDREW LAMING: It's obviously just speculation, that's the first thing to say. Secondly, the principle of a levy is usually to address a specific concern over a defined period of time. That's what separates a levy from a tax. Look, ultimately, we know that if we can get the economy going, and get Australians into work, highly productive activity, then of course we increase our tax yield. And that's by far the preferable way of doing it is having a strong economy. But you can see that turning the Titanic around after six years of Rudd-Gillard government isn't going to be easy. Those large accumulated deficits over six years, in excess of $100 billion are mind-boggling figures that puts Paul Keating in the shade. So, you can understand that every option is being considered. And of course, Australians are familiar with levies including the flood levy in recent years. I can appreciate it's part of the mix but I can't say much more than that.

HAMMER: As you pointed out, levies are usually hypothecated. This is a very general hypothecation, if I can put it like that, to get the budget back into health. Do you support such a levy?

LAMING: Well, that's right. Convincing the Australian people of any strategies to reduce the debt that Australia has accumulated over the last six will be politically challenging. People will want to see that everyone is taking their share. That will be the first concern. Secondly, those that benefitted most over the last six years are also going to be facing the reality, that these are going to be a couple of lean years ahead. You're quite right, we don't know how many, but one things for sure, if you don't start your political term with a tough budget in year one, it becomes more and more difficult in subsequent years to do it. This is an important year for Joe Hockey and obviously for Tony Abbott.

HAMMER: Let me have another crack at that. Would you support such a levy?

LAMING: Well, it's in the balance, within the context of all the other decisions, I don't have a problem with a well-conceived and well-constructed levy if it's fixing a problem of national significance. But, I mean that's a very general answer. You'd have to look at what the other measures are; that there's a reasonable balance and that everyone's contributing towards solving what is a national problem. We can't simply say the Australia Labor Party pay off the deficit. It's being born on the shoulders, like a heavy cloak on every Australian and that's why we're going to need everyone's shoulder to wheel to fix it.

HAMMER: But you would agree that you can't tax your way to prosperity?

LAMING: In a general sense no, and in a Liberal philosophy, definately not. But, currently we know that the settings for income tax, the result of years of Costello and Howard economic management, tweaking down the tax rates as low as we possibly could for Australians, well, that may not always be the situation. It's a hard decision which ever government comes up against that fiscal squeeze. You could argue it's here now.

HAMMER: Did the Costello-Howard tax cuts go too far?

LAMING: No. I think they were spot on. We have one of the lowest GSTs in the world at ten per cent. And my focus at the moment, within welfare, and health and social services spending is getting that as effective as possible, well-targeted as possible. We don't have that at the moment. So, at the moment we're writing large cheques that are quite ineffective and that's government money wasted and as long as you're doing that, it's hard to justify taxing Australians more.

LEIGH: Chris, I agree with Andrew's sentiment of a common purpose. But let's be very clear. Andrew didn't support a flood levy to help rebuild his home state of Queensland. Yet he's now effectively arguing for an additional levy which will go to give a tax cut to mining billionaires, which will give $75,000 to millionaire families when they have a child, which will go to multinationals because this is a government that is going soft on multinational taxation. That seems like a very strange set of priorities and I don't see anything in that that suggests that we're sharing the burden evenly across the community or in proportion to the benefits people have gained. Because let's face it, we've had a big rise in inequality and yet all the give-aways from this government go to the top and all of the cuts hit the bottom.

HAMMER: Andrew Laming, if you going to have a hypothecated levy, why not do it for the paid parental leave which is a very defined but rather expensive area of new government spending?

LAMING: Certainly I'm one of the biggest supporters of Tony Abbott's paid parental leave [scheme] and I think it's essential that we do it and I think that people that most gain from this policy are extremely supportive of it. So, I wouldn't want to see that touched and I don't think we need to. I think the numbers of high income earners that get PPL are relatively small, we've made this argument before. No, we have to look at large nation-wide measures and Andrew makes a fair point. I'm not in any way arguing for a levy but both, having done a bit of economics, I appreciate it's one of the options available.

HAMMER: Can I ask you this, if the Prime Minister pushes ahead with his paid parental leave, would it make it no sense then to help people in the first six months of having a baby but then cut back say Family Tax Benefit B, that helps stay at home mums essentially.

LAMING: I think the point that's missed in paid parental leave is the very, very strong force of pulling working parents back into the workforce after six months. When you've got some continual income at wage replacement you set up your household in such a fashion that at the end of six months the propensity to return to work is so much higher. Australia has a very low rate of returning to work after having children. We're low with OECD comparisons and that's what's missed in this debate. It's vital we get these young parents back into the workforce. They are highly-skilled and it's what makes a productive difference to our economy and it's one of the great untold stories of the Tony Abbott scheme unlike Labor's minimum wage scheme that considers every working woman worth no more than the minimum wage.

HAMMER: Is there then a major shift in the philosophy of this government as opposed to the Howard-Costello government? That government seemed to support stay-at-parents. Is the emphasis now, not on stay-at-home parents but getting working mothers back into the workforce?

LAMING: Well, the emphasis is to get people to choose their own paths in life and try and reduce any disadvantage in choosing one area over the other. I'd simply say, that if you've been in the workforce before, it's a national priority to get you back into the workforce. If you've never worked before and you're a stay-a-home mum and you choose to work then we want to make it as easy as possible for you to make that transition. The problem at the moment is we have a nation that often goes off, has children and doesn't return to the workforce. That comes at an enormous economic cost to Australia.

HAMMER: Andrew Leigh, what's your reaction to all this speculation. Every couple of days there seems to be a new idea floated in the public... What do you think is going on here?

LEIGH: I can't work out this government's economic strategy or political strategy to be honest Chris. But certainly I think that this is a government which is quite confused about what it wants to do. You’ve got Joe Hockey talking about the importance of means-testing, but then their signature policy - as Andrew has pointed out - is a parental leave scheme that's the opposite of means testing. Means testing means you give more to those at the bottom. The Government's parental leave scheme gives more to those at the top. And if you look at an independent economist like Saul Eslake, he finds no evidence that it will boost productivity or participation. They are worthy goals, as Andrew as outlined, but there's no evidence that this government's policy, effectively a baby bonus for the rich, will do anything to boost participation.

HAMMER: Given the trouble the budget is in, there's a lot of new spending coming through in future years. There's education spending, health, disability. The government has an emphasis on infrastructure spending. Does that infrastructure spending need to be put on hold because of the budget situation?

LEIGH: I think infrastructure spending is important Chris. We took Australian from being 20^th in the developed world for infrastructure spending to being 1^st in the developed world in our last two years of office. So, I really hope that this government maintains that record. And it needs to do so while looking at decade estimates. If you look at Labor's last budget, you'll see charts there outlining how the long term spending on schools and DisabilityCare would be paid for, not just over four years, but over ten. The thing is the government has played some odd fiscal tricks. It's weirdness on foreign aid is the strangest, where the Prime Minister said during Question Time, that he wouldn't give 0.5 per cent of national income to foreign aid at the end of forward estimates, and yet that's exactly what his budget numbers say. And then, on more substantive things, the big tax breaks to mining billionaires, the give-aways to high income superannuants have, by doubling the deficit, really caused the vast bulk of the problem the Government finds itself in.

HAMMER: If I can change subjects slightly to superannuation. There's a report you're both aware of by the Grattan Institute, which shows essentially that people are being fleeced on their super contributions because of default funds; they don't shop around essentially and the suggestion is that the government should run some sort of auction for default funds. Andrew Leigh, is this a good idea?

LEIGH: We focussed a lot on superannuation fees in office. The MySuper reforms focussed on bringing down fee costs.

HAMMER: So why are the fees in Australia some of the highest in the world?

LEIGH: Well this is a big challenge in our super system. We've emphasises choice, but I think - as behavioural economics advances over the last two decades have taught us - most Australians are in the default fund and they're in the default plan within that fund, because we give too little attention to shopping around. One of the good things that might come from the Grattan Institute report, which I've read, and I think is a good report, is a greater attention by all of us to making sure that we're not losing too much of our superannuation to fees. But I also think the Grattan Institute raises some important proposals around minimising the overheads that we lose to superannuation.

HAMMER: Well given that the behavioural economics is teaching us that less than two per cent are shopping around, some market failure? People have the choice but they're not taking it. Should the Government step in? Should it tender for these default funds?

LEIGH: I'm not sure I agree with where Jim Minifie ends up in his final proposal. But I think we need something to put downward pressure on fees. The challenge in this area is that sometimes continual tinkering with the system to get the perfect outcome generates more uncertainty that it's worth, which is why we went to the last election saying we wouldn't change superannuation tax treatment for five years beyond the announcements we'd already made.

HAMMER: Andrew Laming, what do you think of this report and is there a role for government?

LAMING: Well, they're fair points by Andrew Leigh. Look Australia led the way with Chile with compulsory employer contributions into super and building superannuation up early. It was one of the shrewd moves made by the Hawke-Keating Government. Of course, to look at the fees that are being paid and that we're higher than the OECD must be a big concern because, as you've pointed out, to most Australians, superannuation is a black box. You set it up and it just ticks away and if we're paying 2-3 times more in fees. That's of enormous concern and the inefficiency potentially within default superannuation firms is something we have to look at because it amounts to billions and billions of dollars of Australians' savings that they are going to need in retirement.

HAMMER: Do you think there's a role...

LAMING: ...Those numbers will be a big surprise and let's hope it's a wake-up call.

HAMMER: So do you think there's a role for government?

LAMING: There's certainly a role for increasing competition between default firms and ensuring they compete. By simple definition, if you're a default firm and you know that only two per cent of people are shopping around, then it gives a fair bit of head room for administrative fees and we need to be pushing those down and certainly government has a role if it's not happening in the market.

HAMMER: Gentlemen, thank you for your time this morning.

LEIGH: Thanks Chris, thanks Andrew.

LAMING: That's great. Thank you.

ENDS

ANDREW LEIGH
SHADOW ASSISTANT TREASURER
SHADOW MINISTER FOR COMPETITION
MEMBER FOR FRASER





E&OE TRANSCRIPT

RADIO INTERVIEW
2SM WITH LEON DELANEY

THURSDAY, 24 APRIL, 2014



SUBJECT/S: Budget cuts; Means testing; Expenditure on Joint Strike fighter; Superannuation; Pensions.



LEON DELANEY, PRESENTER: I said at the beginning of the show today, I've never seen a scare campaign like it. It's most unusual, in fact unique, because it is a scare campaign being conducted by the Government against itself, basically. We're being told to be fearful of what might be in the Budget in a couple of Tuesdays away from now. So that's very, very strange, very unusual. We almost don’t need the Opposition to tell us to worry about it because the Government is telling us to worry about it. Nevertheless I thought we should find out what the Opposition thinks. On the line now, the Shadow Assistant Treasurer Andrew Leigh. Good morning

ANDREW LEIGH, SHADOW ASSISTANT TREASURER: Good morning.

DELANEY: How are you today?

LEIGH: I'm very well, how are you?

DELANEY: Very well thanks. There's almost nothing for you to do because Joe Hockey's doing all the scaring for you isn’t he?

LEIGH: You put it very nicely. Yes, Mr Hockey is good at one thing in the area of manufacturing, and that's manufacturing a budget crisis. I think he wants people to forget that last year he did the deal with the Greens for unlimited debt, he said 'no' to 50 tax measures that Labor had put in place, and he gave $9 billion to the reserve Bank that they hadn’t asked for. Now he's standing around saying, lo and behold, there are fiscal problems, when he's doubled the deficit.

DELANEY: Okay but when you say he's manufacturing a Budget crisis, perhaps he's gilding the lily a little bit, but it is widely recognised, there is a structural Budget challenge that must be confronted over the years and decades ahead. We cannot simply go along as we have been going can we?

LEIGH: Well government is always about making trade-offs and decisions, Leon, but when you say no to the revenue from the mining tax and from the carbon price, immediately there you blow a hole in the budget, to say nothing of what you do to the environment. And if you're not willing to go ahead with modest measures, such as Labor's measure to impose a fairer rate of tax on people with superannuation balances over $2 million, again you blow a hole in the budget. But I don’t think it's fair to then turn around and say the people who have to pay for that are pensioners on $20,000 a year, regardless of the fact that the Prime Minister made a very clear promise to pensioners that there would be no changes to pensions.

DELANEY: Yeah. Now, of course we're all speculating a little bit because we haven’t seen what's actually in the budget, but we've been given a pretty clear indication from Mr Hockey, particularly in his speech last night, that there will be some sort of changes involving the pension and welfare generally, there will be some sort of changes involving our visits to the GP, why is it wrong to ask people to pay a little bit towards the cost of their trip to the GP? What's wrong with the idea of a co-payment?

LEIGH: Certainly if you ask health experts, whether it's the Australian Medical Association or the Doctors' Reform Society, they'll tell you that the impact of a co-payment is going to deter people from chronic conditions getting the help that they need in the cheapest place, which is from a doctor, and instead going to a more expensive place, which is a hospital emergency ward. We've already got out-of-pocket costs in Australia are high and rising, we've had the biggest increase in private health premiums in a decade approved by the Health Minister at the end of last year. So in that environment, it seems pretty rough to me to then be saying we're going to put a GP tax on the top.

DELANEY: What about the idea, because the, speaking in generalities, because that's all we have, but the idea that the Treasurer is telling us that nothing is free, and that we should look at more income tests, more means tests, and perhaps more co-payments in various areas of government services. Again, isn’t that reasonable, if people have the capacity to provide for themselves, shouldn't they do so?

LEIGH: I think means testing is a very reasonable principle Leon. The trouble is I can't remember a time when we were in government when Joe Hockey supported a means test. In fact when we made some modest changes to the baby bonus for second and subsequent children, Joe Hockey compared it to China's one child policy. So you know, this is a bloke who talks means testing, but then wants to put in a parental leave scheme that not only isn’t means tested, it's actually regressive - it gives five times as much to millionaire families when they have a child as it does to minimum wage families when they have a child.

DELANEY: Now I forget, what's the projected cost of that, six billion dollars or something?

LEIGH: Somewhere around there, $5.5 billion, and you know -

DELANEY: Is that annually?

LEIGH: No that's the cost over the four -

DELANEY: Forward estimates?

LEIGH: Four years, as we understand it, I mean we don’t, we don’t have details on this scheme but if Mr Abbott has to break a promise, well let's start with the unaffordable promise to turn a fair flat rate parental leave scheme into an unfair wage replacement scheme that gives the most to those who have the most, and according to independent economists, won't boost productivity or participation.

DELANEY: OK. You've mentioned the Carbon Tax Repeal, which still hasn't gone through of course, but when we look at the question of environmental management, Direct Action is set to cost, what is it, 3.2 billion dollars over the forward estimates?

LEIGH: Well the problem with Direct Action was it was drawn on the back of a napkin in that interregnum after Tony Abbott won the Liberal leadership, and it really hasn't been updated since then. It's a policy which no serious economist backs and that's because it's really a political strategy rather than an economic or environmental one. What we did with the carbon price was to say well let's deal with the problem of climate change and let's also get the double dividend of cutting income tax rates at the same time. So it's a scheme that works on two levels. Direct Action taxes households in order to pay polluters, and won't meet those emissions reduction targets that both sides of politics say they're committed to.

DELANEY: Now if we really want to get serious about balancing the budget, shouldn’t we look at, as suggested by the Greens, fuel subsidies for big mining companies which amount to something like 13 billion dollars?

LEIGH: Well Leon I'm not the Treasurer, so I'm happy to respond to -

DELANEY: Well you're the Assistant Treasurer, let's have a look at - Assistant Shadow Treasurer, I should say, so you know let's have a look at this, isn't that a reasonable suggestion, because obviously big mining companies are pretty profitable?

LEIGH: Look I'm happy to respond to proposals the government is making on the budget, what I would say is that Joe Hockey's budget numbers have the mining tax raising nearly $2 billion in a couple of years, and foregoing that revenue is again putting more pressure on the Budget. I mean Mr Hockey's cuts all seem to be cuts that will hurt low and middle income families, whether it's getting rid of payments to kids of veterans, scrapping the School Kids bonus, or raising superannuation taxes on low wage workers. But then at the same time, he wants this unfair parental leave scheme, he doesn't want to more fairly tax people with multi-million dollar superannuation balances, and he doesn't want to rethink giving a tax cut to mining billionaires.

DELANEY: So you don’t want to comment on the Greens' suggestion that looking at the 13.7 billion dollars in fuel subsidies for mining companies might be a way of helping the budget bottom line?

LEIGH: I think sticking with the mining tax would be a sensible move, and we know that a profit based tax is the right way of taxing commodities. That was what the Minerals Council of Australia put to the Henry Tax Review a couple of years back.

DELANEY: Yes. OK let me throw you a curly one.

LEIGH: Sure.

DELANEY: I've just had a caller a few minutes ago who expressed her absolute disgust that the Federal Government could be talking about cutting pensions, or indicating that there's some threat to pensions, while at the same time announcing a $12 billion purchase of jet fighter aircraft which will probably cost a lot more than that in the long run anyway. She sees that as being the height of hypocrisy. We've got plenty of money to buy jets, but no money to help aged people. Now I know that the F35 purchase has bipartisan support, but how do you explain that to people? Say ‘well look we can buy jets but we can't help people see the doctor’?

LEIGH: Well, there's no new money going to purchase the Joint Strike Fighter, so they've been in the Budget and they go back to the 2011 Defence Capability Plan, the 2013 Defence White Paper, and so they're about making sure that our capacity to defend ourselves continues. And the only concern that I have with the Joint Strike Fighter purchase is that the government is cutting jobs from the Defence Materiel Organisation which is one of the key organisations that manages projects of this kind. We need to make sure that we make the best use possible of this capability, because as your caller notes, that it's an expensive purchase.

DELANEY: But you understand the frustration of ordinary people who can't understand why we can spend billions of dollars on that sort of thing, but can't seem to find enough money to keep our health system running as well as it should?

LEIGH: Well I think we need to make sure that we have a strong defence capacity, but at the same time I think that if you're looking at making budget savings in an Australia where the gap between the haves and the have-nots has been steadily widening for the past generation, then you don’t want to have the axe fall hardest on those who have the least. Cutting back on the income support bonus, on people with very modest means, but then for those who are the most affluent, giving them a parental leave scheme which gives them $75,000 a year. $75,000 - that's more than many of your listeners would earn in an entire year, but that's what a millionaire will get when they have a child under Mr Hockey's new proposals.

DELANEY: The other comment that constantly comes up when people ring in about you know, trying to rebalance the Budget, and how the government tells us everybody has to take their share of the heavy lifting, the comment that frequently comes back is, ‘yes but when are the politicians going to take their share of the heavy lifting and reduce their salaries, and reduce their entitlements after they retire?’ People are pretty frustrated with what they see as hypocrisy on that front too.

LEIGH: I can understand the perspective that's coming from. What we decided to do a couple of years ago was to put off politicians' pay to an independent committee, because I don’t think it's appropriate for people to be setting their own pay. I think that's a bad look and we also traded off some of the things like the study tours, which I think were mostly being well used, but in certain cases were being abused, and giving the study tours a bad name.

DELANEY: And of course the Parliamentary Superannuation Scheme was changed a couple of years ago now, so the people who are elected now don’t get the same entitlements as people who were previously elected.

LEIGH: Yeah that's right.

DELANEY: But those changes don’t seem to have been enough to, I guess, allay the concerns of many of the people that ring up and say, yeah they talk about heavy lifting but that's easy for them to say, they don’t have to worry about the next dollar, or where the next meal's coming from do they?

LEIGH: Leon, I think it's a fair point and I would certainly acknowledge that as Parliamentarians, our salary puts us in the top couple of percent of Australian income earners. I thought there was a little moment in Joe Hockey's speech last night where he talked about the pain shouldn’t fall on the few - and he talked about them as being other people. For the Treasurer not to accept that his own income places him very high in the income distribution I think is to forget his sort of moral responsibility to be making sure that the burden is shared across the community.

DELANEY: One of the other things, I didn’t actually see the speech itself, but reading the reportage this morning, he appears to have endorsed one of the broad goals of the Commission of Audit. The full report of course has not been released yet, but one of the broad goals being the capping of future government spending at an increase of 1.7 percent above inflation annually. Now that's a much tighter constraint than ever before, pretty much in the history of the country isn’t it?

LEIGH: We had a two percent spending cap coming out of the Global Financial Crisis, and we offset all of our new spending decisions with additional savings. Some of them weren’t straightforward; we got attacked by the Coalition when we means tested the Private Health Insurance rebate, for example. Or when we phased out the outdated Dependent Spouse Tax Offset. But we thought that they were reasonable savings measures to make. And in our final year of government we actually managed to cut nominal spending.

DELANEY: Yeah.

LEIGH: We spent less even after inflation, and as far as I’m aware, there's not another government in the history of Federation that's done that.

DELANEY: Yeah but to maintain a figure of 1.75 over a decade, which is I think the intention, that would be unprecedented, wouldn't it?

LEIGH: 1.75 is smaller than 2 but not by much.

DELANEY: Yeah but to maintain it over a decade is a fairly big ambition. And the effect of that if you achieve it is you quite dramatically reduce the government participation in the overall economy don't you?

LEIGH: Yes, and you need to take account of where Australia is compared to other developed countries. I mean our size of government, whether you look at taxing or spending, puts us down near the bottom, where with government in the economy in Australia is more like it is in the US or Korea, than in Sweden or Finland.

DELANEY: Oh yes.

LEIGH: So we've got a fairly modest size of government in Australia, and let's face it, when you look internationally: strong growth, those AAA credit ratings, and debt around a tenth of GDP, which is significantly lower than most developed countries.

DELANEY: If the Budget in a couple of weeks’ time, actually does unveil some sort of change to aged pensions, and does introduce the co-payment for visits to the GP, and does introduce things like cuts to funding at the ABC, these are all clear and blatant breaches of election promises aren't they. So what do you see as the political fallout of that?

LEIGH: I think it would be an unwise Prime Minister who spends three years criss-crossing the country talking about the importance of keeping promises, and attacking Julia Gillard for a promise that she made the day before the 2010 election, and then says ‘well when I made a promise the day before the 2013 election, I didn't actually mean it. And it's OK for me to break my promises because I'm a Liberal Prime Minister and Liberal Prime Ministers are allowed to break their promises’. If that's the strategy he wants to pursue, good luck to him. I'm not sure how pensioners, ABC viewers and so on will take it.

DELANEY: No. Well pensioners in particular I think are pretty cranky already and it hasn't even happened yet.

LEIGH: That's right and I think they're right to be concerned and I think it's particularly worrying to me that Mr Hockey is playing these political games and not considering the impact it has emotionally on pensioners. I had a man in my electorate office the other day who was just genuinely worried about what the government is going to do. He's living on the margins and not feeling as though he could cope with big cuts to the support that he receives.

DELANEY: Yes and that's you know something that perhaps isn't often enough considered, that that emotional impact that you're talking about is really quite substantial for a lot of people.

LEIGH: It is, and I think had Mr Hockey released the Commission of Audit early, rather than holding it back for the South Australian election and the Western Australian Senate election, we could have had a better debate over this and he would have been able to more clearly say what he was going to do and wasn’t going to do. But because he's played games with the Commission of Audit report, it's left many older Australians a little concerned about their fiscal futures.

DELANEY: Well you've brought us back to where we started. I think the government is conducting the most extraordinary scare campaign against itself and it's succeeding.

LEIGH: It's a very strange spectacle isn't it.

DELANEY: It is. Thanks very much for your time today.

LEIGH: Thank you, appreciate it.

DELANEY: The Shadow Assistant Treasurer, Andrew Leigh.

ENDS

ANDREW LEIGH
SHADOW ASSISTANT TREASURER
SHADOW MINISTER FOR COMPETITION
MEMBER FOR FRASER





E&OE TRANSCRIPT
INTERVIEW
ABC NEWSRADIO

THURSDAY, 24 APRIL, 2014



SUBJECT/S: Budget cuts; Means testing; Superannuation; Pensions

MARIUS BENSON, PRESENTER: Andrew Leigh, good morning.

ANDREW LEIGH, SHADOW ASSISTANT TREASURER: Good morning Marius.

BENSON: Can I start with some areas where there may be agreement with, between you and the Treasurer? That the broad points that he says we need to head back to surplus. To do that you need to cut government spending, it’s on track at 26 per cent, well above revenue coming in at 23 per cent and you should cap spending increases at 1.75 per cent, that increase above the inflation rate. I’m not sure how much of all of that you agree with. Andrew Leigh are you still with us there? We’re back live and I was just putting some points to you there that you might agree with in terms of the need to head back to surplus, broadly as one.

LEIGH: I can hear you now.

BENSON: Excellent. Did you hear the point I was putting to you which is the need to return to surplus is one that Joe Hockey was stressing?

LEIGH: Well it was certainly something that was in Labor’s last budget update in the Pre-election Economic and Fiscal Outlook. But what we’ve got now from Joe Hockey is really the Shadow Treasurer in drag, still trying to score political points by being unwilling to admit the impact of his own decisions on the budget bottom line. I mean, if you’re going to repeal the carbon price and the mining tax, that’s a huge hit to the budget. If you’re not going to go ahead with measures that Labor put in place to tax multinational firms fairly or to tax the superannuation of high income earners fairly, then again you blow holes in the budget. And if you relax Labor’s fiscal rule that was clearly put in place to contain spending growth, then again you manufacture a deficit. Joe Hockey has effectively doubled the deficit since coming to office by his own decisions. And he’s now playing political games and wanting the most vulnerable to bear the costs.

BENSON: Are you being fair to Joe Hockey there because you say that he is overlooking the corporate sector but there was actually an indication that the handouts welfare that is available now to the corporate sector may well be trimmed in the budget next month.

LEIGH: Well certainly that would be a different approach than we saw from Joe Hockey when Labor was in Government. You’ll remember then that he opposed almost every sensible savings measure that Labor put up, and eventually even blocked the company tax cut that we were proposing. And so you’ve got the Government playing political games which is terribly sad Marius because all of this should have been ruled out when Peter Costello brought in the Charter of Budget Honesty back in the 1990s. What Joe Hockey is doing is really the Charter of Budget Dishonesty. He is pretending that his first budget update is Labor’s last, that’s far from the truth and the difference between them is a massive doubling of the deficit. Joe Hockey, if he wants to find savings, ought to look to things like keeping the mining tax, which would add an extra $2 billion in 2016-17, he should look to things like dropping his unfair Parental Leave Scheme, giving $75,000 to the most affluent families to have a child.

BENSON: What about the point that he made that older Australians and now overwhelming relying to some extent on benefits. That only 14% of older Australians are not receiving any kind of federal government benefit, 86 per cent get a benefit, that’s just too wide. That doesn’t target need means testing; greater means testing would target need.

LEIGH: Marius, we certainly support means testing and it was a Labor Government that put an assets test on the pension in the 1980s to the cries of outrage from the conservatives at the time. But if you look at the overall public spending on pensions in Australia it’s 3.5 per cent of GDP, compared to 7.8 per cent across the typical developed country, so we spend less on pensions. And in fact if you’re looking for savings, then why not look for example to those with more than $2 million in their superannuation balances who are getting Government assistance via tax concessions that’s bigger than the full rate age pension. Joe Hockey scrapped a measure that Labor had in place to slightly raise the tax rate on that cohort – instead he seems to want to slug some of the most vulnerable Australians, people getting $20,000 a year or so.

BENSON: But in fact Joe Hockey did refer to superannuation in his speech last night saying, despite spending billions of dollars in taxation benefits for super, by 2050 the ratio of Australians receiving a full or part pension will still be around 4 out of 5. That those super tax breaks aren’t working. Would you support changing those superannuation tax concessions as they stand now?

LEIGH: I would, but it’s got to be done in a fair way and since coming to office, the Government has done it in a distinctly unfair way. They’ve refused as I said to go ahead with a modest Labor measure to slightly raise superannuation taxes at the top, but instead they’re raised superannuation taxes at the bottom. So you know, all of this has an equity implication and in Australia where inequality has grown markedly over the last generation, Joe Hockey thinks that those who have the least should bear the most when it comes to balancing the books. He wants to give parental leave to millionaires, at much higher rates than ordinary Australians, he wants to give a tax cut to mining billionaires, but at the same time he wants to take away things like the Low Income Superannuation Contribution and the School Kids Bonus: measures which are targeted at low and middle income Australian households and families.

BENSON: Andrew Leigh, thank you very much.

LEIGH: Thank you Marius.

ENDS

Launching Measuring and Promoting Wellbeing: How Important is Economic Growth? Essays in Honour of Ian Castles AO and a Selection of Castles’ Papers
Edited by Andrew Podger and Dennis Trewin, ANU Press, 2014

Andrew Leigh MP
Shadow Assistant Treasurer
Federal Member for Fraser

Australian Treasury
24 April 2014

One of the most famous music acceptance speeches was delivered at the 2003 Grammy awards by rapper Eminem, who simply stood up and reeled off the names of 15 musicians who had made him who he was.

The next time the Australian economy wins an international award, perhaps it should give a similar speech. That speech would doubtless acknowledge the post-war economists known as ‘the seven dwarfs’: Allen Brown, Nugget Coombs, John Crawford, Harry Bland, Dick Randall, Fred Wheeler and Roland Wilson, as well as other greats who have run Treasury – Bernie Fraser, Chris Higgins, Ken Henry and Martin Parkinson among them.

It would cover some of the key Reserve Bank Governors, and might even include a few Treasurers, such as the two who have been named Euromoney Finance Minister of the Year. It would include academic economists such as Trevor Swan, Fred Gruen and Noel Butlin. But crucially, it would also include our great statisticians, among whom we must surely include Timothy Coghlan, Colin Clark, George Knibbs and Ian Castles.

In economic policymaking, measurement defines our goals. The Millennium Development Goals and Closing the Gap targets shape policy because they have precise numerical objectives.

Measurement also marks our achievements. Without great economic historians, we would not know that Australia had the highest income per head in the world in the mid-nineteenth century. Statisticians tell us when the economy has slumped, and when it has narrowly avoided recession (statisticians can also revise away a recession, as Paul Keating discovered shortly after delivering his 'recession we had to have' speech). The slogan ‘we are the 99 percent’ has its origins in Thomas Piketty’s work estimating French top incomes, which inspired Tony Atkinson and me to develop similar estimates for Australia.

Indeed, it was while working on long-run inequality and social capital series for Australia, in the basement of the Widener Library at Harvard University, that I first met Ian Castles. Well, not literally him, but hundreds of dusty publications bearing his name. As I dug out the data that would eventually underpin Disconnected and Battlers and Billionaires, he popped up again and again. When I finally met him in person at a Canberra barbecue in December 2003, it was like people who meet the Reserve Bank Governor, and realise that his signature is on just about every note in their wallet. I couldn’t chat with him for long enough.

Perhaps not everyone has a rock-groupie reaction to meeting a former Australian statistician. But when I read this 800-page tribute to Ian Castles, I realised that at least 20 people shared my view of him. The authors are an impressive team, and I congratulate them – and particularly editors Andrew Podger and Dennis Trewin – on the breadth of scholarship contained in this book.

Since we all take data seriously, I note that 37 percent of Australian book-buyers judge books by their covers. So it’s worth mentioning that the book’s subtitle - How Important is Economic Growth? – somewhat undersells it. The answer to the question is of course ‘very’. As Betsey Stevenson and Justin Wolfers have shown us, GDP per capita closely tracks life satisfaction across and within countries. And without economic growth, it is hard to imagine how Australia could reduce carbon emissions, help people with disabilities or cut poverty. To see this, it helps to note that the physical weight of output hasn’t increased with its value – indeed, Alan Greenspan argued in a 1999 speech that the physical weight of US GDP hadn’t changed much over the twentieth century. (Since there are a bevy of boffins around, can I ask if anyone would like to do the same calculation for Australia?)

But the book does much more than to give two thumbs up to growth.  It includes a critique by Jonathan Pincus of Treasury’s wellbeing framework (and a counter-view from David Gruen and Duncan Spender). Pincus is right about the challenge of measuring capability, but my view on the framework is a bit like Churchill’s on democracy – that it’s the best we’ve yet found.

You will find in these pages a data-rich discussion of trends in inequality from Rob Bray, and a careful analysis of how redistribution affects inequality from Peter Whiteford. The latter concludes with the following rousing sentence: ‘However, despite the work of the Canberra Group and national and international statistical agencies in significantly improving the comprehensiveness of household income surveys, questions remain about the methodology of comparative analysis of welfare state outcomes.’ Now there’s a sentence to make a statistician shout ‘huzzah!’.

The collection also includes several of Ian Castles’ best papers, including his Colin Clark lecture, where he reminds us that Keynes described the twentysomething Australian as ‘a bit of a genius’. I greatly enjoyed his quirky approach to data. In one paper, he uses Big Mac prices to form an international league table of wellbeing. Using data from the 1980s, he shows us that a tenth of Sydneysiders were still at work at 6pm, compared with a quarter of adults in Tokyo. He quotes Stanley Jevons’ observation that Australians were so cricket obsessed in the 1850s that the city stopped for the game. And in ‘Economics and Anti-Economics’, he recounts how the poet Coleridge was so aggrieved by Malthus that he ‘referred offensively to Malthus in German and Greek’, which I’m sure you’ll agree is both empörend and κακός.

However, it would be remiss of me if I didn’t take issue with the biggest area where I disagree with Ian Castles: climate change. Michael Keating’s chapter says that Ian Castles wasn’t a climate change sceptic, but he does appear to have been agnostic. Yet as I read the evidence, the past decade has increased the certainty around anthropogenic climate change, to the point where the UN Intergovernmental Panel on Climate Change’s (IPCC) fifth assessment put it at 95 percent – about the same level of certainty as researchers attribute to the link between smoking and cancer.

Some argue that Australia – with only a couple of percent of global emissions – should free ride on global action. This argument strikes me as a bit like saying that it’s okay to litter because a single piece of garbage doesn’t make much difference to the environment. The problem is, small things eventually add up. Somewhat surprisingly, those who say that Australia shouldn’t contribute to climate change are curiously resistant to my counter-claim that Canberrans should not pay income tax. I’m always puzzled by this, because – as I remind them – we’re really only a small share of the whole.

The thing about climate change is that there are over a dozen countries with similar greenhouse gas emissions to Australia – nations such as Canada, Britain, Mexico, Korea, France, Spain, South Africa, Turkey and Saudi Arabia. Together, we account for a fifth of global emissions, which makes a significant impact on the total problem. Moreover, as economists have shown, a well-designed emissions trading scheme gives the lie to those on the extreme left who say that the only way to stop climate change is to end growth, and to those on the far right who say that the market is not ingenious enough to cope with pricing a negative externality. In fact, we can decouple pollution from economic growth at minimal cost.

What is missing? Indigenous Australians receive only a short reference (in Henry Ergas’s chapter), and there is little discussion of the wellbeing of migrants. And there is little serious analysis of issues of gender. This reflects not just the gender of the authorial team (90 percent male), but policy economists as a whole. Indeed, careful listeners will have noted that the list of economic giants that I began with was 100 percent male. Thankfully this is changing fast. In just three years, Treasury has increased the share of women at SES level from 23 to 30 percent, and at EL2 level from 38 to nearly 50 percent. A favourite Canberra dinner party game is now to guess who will be the first woman to head Treasury or Finance.

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As the saying goes, you can have your own theories, but not your own facts. In my careers as a research economist, a Treasury secondee, and a parliamentarian, I have relied on the data and analysis of Ian Castles, his contemporaries, and his successors. Australian policy is better for his contribution, and our intellectual life is richer for this terrific book. I commend it to you on the grounds that it will not only stop a door, but perhaps also a few bad arguments.