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

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

16 July 2008

Interview with Leigh Sales

ABC TV Lateline Program

16 July 2008

SUBJECT: Carbon Pollution Reduction Scheme

SALES:

To examine the impact of the Government's green paper on the economy, I was joined earlier by the Federal Treasurer Wayne Swan in our Melbourne studio. Wayne Swan, thanks for being with us.

TREASURER:

Good to be with you.

SALES:

Why three years for the petrol compensation aspect of your scheme?

TREASURER:

Well because it will give motorists time to adjust and also because oil prices internationally have gone through the roof in the last 12 months and are unlikely to go anywhere but up in the future.

So we are already having a tremendous impact on the average motorist from the price of fuel internationally. And we think it would be economically irresponsible to add to that impact by putting a further burden on motorists.

But we do acknowledge that it is very important to include transport and petrol in the scheme overall. So we've put in this scheme a time adjustment for people to adjust, and that means motorists have around five years to adjust their behaviour.

SALES:

How did you arrive though, specifically, at this three year figure? Clearly the advice didn't come from Ross Garnaut who wanted petrol to be fully included right from the start.

Did Treasury advice you three years would be right or is it an arbitrary figure the Government came up with?

TREASURER:

Well I think it's a sound figure and it came from our Cabinet discussions and consultation with a wide range of groups and interests.

The truth is this: that it's not economically responsible in the environment we are in now with international fuel prices as they are and as they are likely to be well into the future, to be adding to that through the emissions trading scheme.

The fuel price increases have already had a dramatic impact upon demand and all we would be doing by adding to that would be hurting motorists and households.

We've made it very clear that we are going to protect households as we introduce this scheme just as we are going to provide additional assistance to business that may be adversely affected.

It's very important that we do this in an economically responsible way which protects legitimate interests of households on the one hand and business on the other.

SALES:

Okay, so Cabinet came up with the three year figure from what you say. How are you going to escape the accusation that the three year petrol buffer is all about the electoral cycle, it's about getting you past the next election?

TREASURER:

Well it's absolutely laughable, Leigh. Because we are talking about the election after next. That is what the Liberal Opposition is talking about at the moment; they're not talk about the next election. They're talking about the election after next.

We are saying that we will introduce this scheme in 2010 which is an election year. And three years on from then will be the election after that. You see, the Liberal Party and Mr Hunt and Mr Nelson simply can't make up their mind. They want to have two bob each way.

On the one hand they say they support such a scheme that we've put forward but on the other,say they won't support a scheme which may have an impact on prices. They simply can't make up their mind.

SALES:

Let's not talk about them; let's talk about your scheme. The cent for cent petrol compensation will cost $1 billion a year. Where are you going to be getting that money from? Is it coming out of schools, is coming out of hospitals? Where is it coming from?

TREASURER:

Not at all, Leigh, because the auctioning of permits raises revenue. We've made it very clear that every cent of revenue raised through the scheme will go to assisting either households on the one hand or business on the other to adjust to the impacts of this scheme.

That is very important; it is not a revenue raising exercise. What we have to do is to responsibly reduce our emissions over time. That will have impacts in terms of the price level as it affects households. It will have impacts on certain businesses, particularly energy intensive trade exposed businesses who will also need assistance. So we are going to spend every cent of the revenue raised through this scheme assisting either household, protecting households, or assisting business to adjust.

SALES:

Nonetheless though, there is an opportunity cost associated with that $1 billion. You could for example be using that $1 billion to bolster public transport which surely is the key way to get people out of their cars.

TREASURER:

Well there are many ways we could use the revenues and we will approach the use of those revenues in an economically responsible way.

We have said we will provide additional assistance, for example, to pensioners and carers. And to those on benefits we've also said we will look to assist low income households. But we also do need to assist industry and it's true, there's much, much more we need to do when it comes to energy efficiency, when it comes to public transport. That is all in the mix.

What we are going to have here is a comprehensive approach to tackling climate change and this Carbon Pollution Reduction Scheme is simply part of that: putting the price incentive into the economy to give business the incentive to reduce their emissions over time.

Never forget this Leigh: only around 1,000 businesses will be buying permits and raising the revenue, if you like, and that revenue will be spent responsibly assisting business on the one hand and households on the other.

SALES:

You raised the issue of compensation and you specifically spoke about pensioners and low income earners. I'd like to talk about middle income earners. What sort of compensation will they get?

TREASURER:

Well we will certainly look to assist middle income earners as well within our overall budget framework. As you would be aware, we have a comprehensive tax review on the go at the moment. We're looking at reform of the personal income taxation system and the business taxation system. We're looking at the intersection of transfer payments with the tax system. We want to do what we can responsibly to assist households who are affected by rising prices.

SALES:

So it's maybe going to be tax relief then for middle income earners, is it, rather than any one-off payment or handouts?

TREASURER:

Well what we've said in terms of pensioners is that in addition...

SALES:

No, middle income earners I would like to talk about.

TREASURER:

I will come to that as well. What we've said in terms of pensioners is that, in addition to their automatic indexation, we will look at providing further assistance to meet the overall costs flowing from the scheme. We've also said in terms of low income households is that we will look to provide additional assistance through tax and transfer payments. And whatever we can do through our annual budget process to assist middle income earners will do, but it will have to fit into our fiscal discipline that we've established for the budget in the years to come.

SALES:

Isn't there an inherent contradiction in your policy? You want people to reduce their carbon pollution but at the same time you are compensating them for any costs they might incur. If you're compensating people, what incentive is there for them to change their behaviour?

TREASURER:

Well I think there's plenty of incentive in this scheme where people will change their behaviour. The prices level will change in the economy and that is made very clear in the green paper. People will change their behaviour. People will have to become more energy efficient. But it does have an impact on their cost of living and it just makes common sense to compensate households for that, particularly those that are finding it hard to make ends meet.

And we make no apology for that. You can still have the behavioural impacts out there that will achieve aims of the scheme on the one hand and on the other provide compensation to people who are adversely affected.

SALES:

Your own Green Paper reveals that this scheme will drive up inflation; the only question is by how much. Should the Reserve Bank adjust its inflation target upwards given the major changes to the economy that we're about to undergo?

TREASURER:

No and I can't put words in the mouth of the Reserve Bank. But Governor Stevens has made commentary about this on the public record, and he's made it pretty clear that when it comes to the one-off price impact of the introduction of this scheme that the Reserve Bank would look through that when they were taking their decisions about the future course of interest rates.

They don't see this as being a permanent addition to the level of inflation at a point in time. They will look through it, and not necessarily be driven to take interest rates decisions based on the introduction of such a scheme.

SALES:

The Rudd Government is going to be putting a direct tax on economic activity when some of our major international competitors are not. Aren't you disadvantaging Australian industry for very little gain, given that Australia's only responsible for about 1 per cent of global emissions?

TREASURER:

Absolutely not. We are well behind the game. You've got something like 27, 28 countries in Europe who are participating in such a scheme. You've got 20-odd states in the United States and Canada that are participating.

The whole of the world will be moving to a lower emissions future. And what the name of the game should be for this country is to stay ahead of that game. To have a head start. To give our country's industries a head start in what will certainly be right around the world a lower emissions future.

And the jobs that come in the future are ones which we will need to be well positioned for. If we move now and we move in a moderate way, if we move in a sensible way, if we move in an economically responsible way, we will gain the advantages of that low emissions future which is going to surely come from the world addressing this in the longer term.

SALES:

Treasurer, a final question. You're going to need the support of the Greens to get this package through the Senate. They're not going to be happy with aspects of this, not least the petrol part of it. How confident are you of their support?

TREASURER:

Leigh, what we have to do is the right thing by Australia. What we have to do is the economically responsible thing.

SALES:

But you also have to get it through the Senate.

TREASURER:

We certainly do, but we have to get the settings right for the good of the country in the long term. We can't be affected by the likely behaviour of the Greens on the one hand or necessarily the irresponsibility of the Liberal Party on the other.

What we've got to do is fight for what's right; fight for what will build prosperity in this country and deliver the jobs and the prosperity that our children and grandchildren deserve, and that's what we will do.

SALES:

I notice you didn't directly answer the question about how confident you are of the Greens' support. Can we interpret that means you are not confident of?

TREASURER:

Well we've got a responsible proposal which we published in a Green Paper, Leigh. We're going to go right around this country consulting with households and industry.

I will particularly be out there talking to industry over the next few months. We want to get the settings right. What we put out today is our preferred course of action, but there is certainly room to move.

When we've finalised this in the White Paper we will then move on to the politics. But for the time being I will leave the politics to the Liberals on the one hand and the Greens on the other. What we want to do is get the settings right for the future of this country.

SALES:

Treasurer, Wayne Swan, thank you for joining Lateline.

TREASURER:

Good to be with you.