The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Wayne Swan

Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

1 May 2008

Interview with Steve Cannane

ABC Radio National Breakfast

1 May 2008

SUBJECTS: Budget, Inflation Challenge, Global Economic Conditions, Business and Consumer Confidence, Foreign Investment

CANNANE:

Wayne Swan, good morning.

TREASURER:

Good morning, Steve. Good to be with you.

CANNANE:

Thank you. This move seems to be sold as all about making high earners pay their way and sharing the burden. What have you targeted here when it comes to executive share options?

TREASURER:

Well, there's been a loophole in the system, Steve, where those with the shares who are predominately higher incomes earners and people who've accumulated shares or rights through their company, have been able to avoid paying their fair share of tax. It's been a loophole that's been there for some time and we're going to close it because they've not been paying their fair share on these options. They've been able to elect to pay the tax on a lower value, and we're going to close that option for them.

CANNANE:

This loophole, as you call it, only saves $77 million. Will you be also taking the knife to some of the non-means tested benefits like the family benefit, childcare rebates and the like?

TREASURER:

Well, Steve, I'm not going into the Budget. People can hear what we've got to say on Budget night. But the most important thing about this Budget is that we will deliver for working families who've worked hard. They pay their fair share of tax. They're entitled to a fair go in our system. And of course, we've got some very considerable economic challenges. We've got the highest underlying inflation in 16 years. In October, November, December last year inflation hit a 16-year high. That also has a very big impact on working families. So, dealing with that inflation means cutting back in the Budget on those aspects of expenditure or tax expenditures which cannot be tolerated in a system which is fair.

CANNANE:

But do you agree with the philosophy of that, that if you're going to help working families perhaps you should target non-means tested welfare?

TREASURER:

Well, certainly we will announce our total approach to all of those issues in the Budget. What I'm saying today is this individual loophole will be eliminated because it's not fair for those people who work day in day out for modest wages and working conditions for other people to avoid their fair share of taxation.

CANNANE:

When you talk about working families, who exactly are you talking about?

TREASURER:

I'm talking about those people on modest incomes. If you're talking about Sydney, you're talking about a principle income earner who might be earning $50,000 or $60,000 a year, and a secondary income earner who will be working part time and could pull in anything between $20,000 and $30,000 a year. These are people who work very hard; they're hit by rising inflation, which is why tackling inflation in this Budget is so important. They're hit by the rising cost of living and until recent times, they've been hit by a rising proportion of taxation. That's why we are so committed to delivering the tax cuts on July 1 for those working families because this will be the first time in a long time that they've had a fair share of tax relief.

CANNANE:

Are you still committed to making deep spending cuts to take pressure off inflation. All week you've downplayed the surplus. Are you still committed to these deep spending cuts?

TREASURER:

Certainly we've got to tackle inflation. As I said before, the highest underlying inflation in 16 years, that means we do have to take the axe to irresponsible spending. We do have to have some spending restraint in this Budget because if we don't that will put further pressure on inflation and further pressure on the working families that are entitled to a fair go.

CANNANE:

But part of your inflation strategy seems to bring, you know, over the last three Budgets, they haven't had any problems getting that kind of figure. Respected economists are saying that you still have plenty of revenue. Plenty of revenue has come in in the last 12 months.

TREASURER:

Well, Steve, we are framing this Budget in very challenging circumstances. On the one hand, high domestic inflation, and on the other, the fallout from the US sub-prime crisis and a sharply slowing US economy. Now, that sharply slowing US economy and turbulence in financial markets is producing very substantial impacts on the Australian economy. It's had a very big impact, for example, on the Australian share market. That will have a very significant impact on revenues received in the Australian Budget. The flow-on from the international conditions has had a substantial impact on business confidence, for example, and on consumer confidence more generally.

So, I don't think economists out there are entitled to assume that the huge revenue gains that have come in recent years from a prosperous international economy and the mining boom are going to be there in this Budget. This Budget is being framed in very difficult circumstances. There are countervailing forces occurring. Domestically we have an increase in the terms of trade, but internationally, a sharply slowing US economy and all of its impacts on our domestic economy, particularly for example, the share market. But also the cost of money paid by Australian banks who are borrowing on international markets to fund mortgages.

CANNANE:

But haven't the taxes been coming into the Treasury coffers been pretty strong up until December before the credit crunch really hit?

TREASURER:

Well, people, I think, are inaccurately reading some figures that came out from the Finance Department a couple of days ago. All the indications that I'm receiving are simply that the revenue boon that has been there in recent years is not going to be there to that extent in this Budget, and people shouldn't assume it because we are framing the Budget in very difficult international conditions.

CANNANE:

So, obviously you're looking at a large surplus. What kind of figure are you looking at?

TREASURER:

What we're looking at is what we committed to back in January when we point out our Five-Point Plan to tackle inflation. We're looking at a surplus of at least 1.5 per cent of GDP.

CANNANE:

So, around $17 billion?

TREASURER:

I'm not going to go into the figure, because as I've said, there are substantial impacts on our Budget flowing from the US sub-prime crisis, substantial impacts on the Budget flowing from the elevated inflation figure that was announced the other day. Those two things combined will have a very substantial impact on our Budget, the likes of which we've not seen in recent budgets.

CANNANE:

Some weak but positive news out of the US economy overnight. Should we be taking heart that the US is above water, could this have a positive flow-on?

TREASURER:

Well certainly I'm relieved that the figures weren't any worse that were published overnight. But those figures demonstrate that the US economy is slowing sharply and that will have an impact on the Australian economy and also world growth. The other factor that's occurring, Steve, is also at the same time as you've got a slowing US economy, you've got rising global inflation. So, now that Australia, in addition to having higher domestic inflation, is importing inflation particularly from developing countries. These sorts of countervailing forces have not been seen in our economy or in the global economy for a very long period of time.

CANNANE:

Treasurer, just moving off the issue of the Budget, the British Gas offer for Origin Energy, is the Government comfortable with this bid?

TREASURER:

Well, I don't comment on individual bids. I certainly have to take some decisions under the law so I don't comment on any individual bid by any company for another company.

CANNANE:

But I imagine you would have an opinion on whether it's in the national interest or not?

TREASURER:

Yes, I certainly will but I have legal obligations in that area and I may have to take decisions in the future. That's why I don't comment.

CANNANE:

Okay, Treasurer. Thanks for talking to us this morning.

TREASURER:

Good to talk to you.