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

14 February 2013

Interview with Fran Kelly

Radio National Breakfast

SUBJECTS: G20 Finance Ministers Meeting, MRRT, Tax

KELLY:

Treasurer Wayne Swan joins us in our Parliament House studios before he heads off to Moscow for the G20. Treasurer, good morning welcome back to Breakfast.

TREASURER:

It's good to be with you Fran. It will be really good to talk about the fundamentals of the economy and how well Australia is going unlike the rest of the developed world.

KELLY:

And we'll get to that Treasurer, before we get to that and your mining tax dilemma, you are off to the G20 in Moscow. We understand you're planning to urge other countries to work together to close tax loopholes that allow the large multinationals to shift profits and avoid tax. Are you really talking about Google and Apple here?

TREASURER:

I'm not in the business of naming names, but global leaders are very concerned that there are some multinational firms that are not paying tax anywhere. And really what needs to happen is we need to find a way globally of acting together to ensure that they pay tax in their host country that reflects economic activity in that host country. Clearly that is not happening in some cases now. Of course, the people who suffer from that are all of the other taxpayers that are paying their tax correctly. So it's pretty important we sort this out. Assistant Treasurer Bradbury has been working in this area for some time, but we do need international agreement on a path ahead.

KELLY:

You're also going to be urging the G20 countries to be urging the G20 countries to more aggressively boost jobs and growth. This has been yours and the Prime Minister's message for a long time now. Looking at the surge in optimism this year, including the stock market rally, has the global economy turned the corner?

TREASURER:

I think there is some room for cautious optimism but the truth is that global growth with a 3 in front of it won't do a great deal to reduce high levels of unemployment across much of the developed world. I think we do need an agreement on growth and jobs. One which goes to on the one hand fiscal sustainability and on the other important structural reforms, in both the developed and developing world, which will lift growth and economic capacity and productivity growth. We've seen some speculation overnight about a trade deal between the EU and the US. It would be good for example if we could see further progress when it comes to trade. The developing world, in particular, is very keen to see some progress on infrastructure. Because putting in place first-class economic infrastructure in the developing world would certainly boost growth in those economies and that would flow through to the global economy. So we need the G20 to reaffirm its central purpose, which is to lift growth rather than to shift growth around the world, and to put in place a new reform agenda.

KELLY:

Treasurer, if I can bring it back home now. Some people listening might've raised an eyebrow there at the notion of you urging other countries to close tax loopholes when the criticism of your own mining tax and has been from the beginning was that it's full of loopholes?

TREASURER:

The MRRT, Fran, is a very important long-term reform. Now resource rent taxation in this country has always been difficult, when the PRRT came in it was fought bitterly by a whole host of vested interests. In the 25 years of its operation, I think it's now raised $28 billion. As you know, the MRRT has been opposed by many, broadly accepted by the mainstream mining industry, because they recognise that resource rent taxes are fairer and more efficient than inefficient and unfair state royalties. This is an important reform and it may be politically inconvenient that commodity prices crashed dramatically in the first two quarters of its operation. What I have to deal with is the facts of that, and get on and argue the case for this form of taxation and to sort out some of the matters associated with it which we've been working on, including the intersection of a resource rent tax with the royalty regimes that exist in the States.

KELLY:

Treasurer, I think Australians have heard and understand your argument about the volatility of commodity prices, and let's not dispute there is a lot of support for the notion of tax. But projected revenue was always going to be volatile because it is a profits-based tax, so why spend the money before you've got it?

TREASURER:

Can I deal with that on two levels, first on a forecasting level. The revenues that were forecast were prepared by our professional advisers, the same forecasters who worked for the previous government. So they have put in place their best effort. But nobody, not the companies, not many in the private sector, nobody forecast the very unique events that occurred in the second half of last, an intense bout of global volatility with a question mark over growth in China which produced a very substantial fall in commodity prices

KELLY:

That's the point, though Treasurer, isn't it? Why make so many spending promises linked to the mining tax revenue when you can't predict what the revenue will be and now you can't keep those promises?

TREASURER:

Sorry, we can keep those promises. They are fully factored in and budgeted for in our bottom line. But can I make a couple of points here. The fact that it is volatile is really no reason not to make the long-term investments which are going to drive economic capacity in our economy. This was the excuse used by our predecessors. They didn't invest in the productive base of the economy. We're investing in important projects such as the Gateway project in WA to lift economic capacity in that state. That project, for example, is absolutely vital to the future of the mining industry in Western Australia. All of our commitments are fully budgeted for in our budget bottom line. Yes, it is true that this revenue stream is volatile but it's also true that all of our profit-based taxes in the second part of last year and extending through into the early part of this year have taken a very substantial hit. That doesn't mean to say we should just shut up shop and not invest in education or not invest in long-term infrastructure which is what delivers the underpinning of sustained growth and sustained living standards.

KELLY:

In terms of being able to pay for your promises. You said again that promises that are funded, commitments from the mining tax which includes the lift of the super guarantee level and the super tax rebate for low income earners is factored into your bottom line. So was the $2 billion worth of mining tax revenue factored into your bottom line. It's now not there.

TREASURER:

No it's not.

KELLY:

So what will you do with this deficit that now looms?

TREASURER:

Fran can I just take you back. We have a very substantial fiscal consolidation in place.

KELLY:

Already to pay for NDIS and Gonski. Now you have almost $2 billion black hole from mining tax revenue.

TREASURER:

We have a very substantial fiscal consolidation in place to return over time the budget to surplus. What I said at the end of last year was that in the face of a substantial write-down to all of our profit based taxes it was unlikely we were going to make surplus in 2012-13. I said very clearly to the people of Australia that to cut further in this environment of global volatility, to cut further to make up for the revenue gap that had emerged not just from the MRRT, now the figures are in, but from what is occurring in company tax, but from what is occurring in superannuation tax would've been deeply, deeply irresponsible. It would have hit growth and caused higher unemployment. We make no apology, it's important, we make no apology for putting jobs and growth first in the context of a very strong fiscal policy that is already putting in place a significant fiscal consolidation.

KELLY:

Are you signalling there that the projected deficit which you acknowledged at the end of last year when you said you'd no longer have a surplus this year, will now be increased by around $2 billion, that the mining tax has failed to return?

TREASURER:

There are swings and roundabouts. What we will do when we get to the budget is put all of those numbers on the table. Because economic growth globally as we said before is picking up a little. But here we have some pretty serious head winds at the same time. We've still got a higher dollar. We've still got a cautious consumer. Although I would note that yesterday the consumer confidence figures were quite strong. So we have all of these forces impacting on our economy. What a responsible government has to do in those circumstances is that when the facts change you have to acknowledge it and you have to put in place policies which respond to these changes because the lives of millionsof people depend on it. You can't just say oh look it's not convenient, I'm not going to change because the facts have changed, as Keynes said, "When the facts so do I. What do you do sir?"

KELLY:

Our guest this morning is the Federal Treasurer Wayne Swan. Treasurer, the importance of this for people listening is everyone I think is getting a little worried that because you've overestimated the mining revenue, for instance, that they're going to have to pay for this, that they will have to pay for it either through increased taxes or through their superannuation. Will you increase income taxes to help pay for this shortfall?

TREASURER:

Could I just make a couple of points about the Australian economy? You said everybody is getting worried. We've got solid growth, we've got low unemployment, we've got a huge investment pipeline, we've got contained inflation, we've got low interest rates, we've got low public debt and we've got strong public finances. Now, what we will do, in the normal way, as we go through the budget, is prepare our forecasts, based on the information that we are receiving. What we will do is keep in place the very strong and strict medium-term fiscal policy we've operated on and that is one that is supporting jobs and growth hand that is why, unlike many other countries in the developed world, we've got low unemployment and solid growth. That's our major objective in the preparation of this budget. At the same time we will continue to put in place policies which lift the economic capacity of the economy, like our response to the Gonski recommendations, the school improvement program, and also putting fairness into the system through the NDIS. What we've made said is, we'll make room within our budget to make sure we can do all of those things within that responsible medium-term fiscal framework.

KELLY:

A couple of points to try to clear up here. The opposition has said on this program hand in other places that you are planning to increase income taxes to pay for your shortfall. Are you?

TREASURER:

They're out there today with a $30 billion plan for dams-

KELLY:

Are you planning to increase income taxes?

TREASURER:

Fran, in the context of already having a $70 billion crater in their budget bottom line. What I'll do is the responsible thing, put in place a strict fiscal policy. Make sure that working Australians get a fair go, that there is incentive in the tax system, that we build up their superannuation. They're the sort of things I will do. I will leave the speculation for everybody else. There will be hundreds of stories between now and budget day. And most of those stories will be wrong.

KELLY:

Can you guarantee Australians there will be no income tax increase?

TREASURER:

I don't in the lead up to any budget Fran. This year, or any of my five budgets, go into that sort of rule in, rule out routine and I'm not doing it today.

KELLY:

Just for another rule in rule out, we're about to be joined by the chief of the Commonwealth Bank, Ian Narev, he's warning the Government not to use the superannuation system to prop up the budget. Now you've ruled out changing the tax on super withdrawals but what about super contributions?

TREASURER:

We're a champion of the superannuation system. We're increasing the super guarantee from 9 to 12%, opposed by the Opposition. Mr Hockey gets himself twisted over this every day. We're making a significant contribution on superannuation savings of low income workers, which Mr Hockey and the Coalition want to take away. We're about building the system up for Australia. We understand how important it is not just for dignity and living standards, but as an economic cushion for the country at a time of global volatility.

KELLY:

Treasurer, to the mining tax operation, the design of it. Because you've been under pressure on this all week given the amount it hasn't delivered so far. The deal has disadvantaged the Commonwealth it seems on at least two fronts; we've spoken about the further royalties in particular, members of your own backbench described the current arrangements as untidy, inefficient and unsustainable – that was Joel Fitzgibbon. Stephen Jones said it gives the States a blank cheque to increase their royalties without any political pain. How and when are you going to fix this?

TREASURER:

Well we are working with the States on that right now. There's nothing new about this Fran. This has been on the table, it was part of the recommendation when it came from the Ferguson-Argus Report, it is part of the GST Distribution Panel recommendations. We've got to work our way through that with the States. There are constitutional issues involved as well, we're working our way through that. That is just one of the dilemmas of a federation and we're working our way through it.

KELLY:

I know time is tight for you, but just briefly, the Prime Minister has said in the Parliament there are no plans to change the MRRT beyond talking to the States about royalties. It was pretty clear from speaking to the New South Wales Treasurer yesterday that they're not interested in just allowing you to take their royalties

TREASURER:

I listened to that interview Fran yesterday and I thought he was up for a conversation –

KELLY:

Up for a conversation but not up for giving up their control over royalties.

TREASURER:

We will talk to the States, we have been doing that for some time. This is a topic that has been around for a little while, it's the subject of discussion between the Treasurers at our December meeting, our officials are in meetings and having these discussions; so they're ongoing.

KELLY:

What's the deadline for this, before the Budget or before the election?

TREASURER:

I'm not going to put a deadline on it, I just want to sort it out.

KELLY:

Treasurer, thank you for joining us.

TREASURER:

Thank you.