TREASURER:
Good morning, Fran.
FRAN KELLY:
Treasurer, families and small business, the clear winners last night; you spend every dollar you save in this Budget, is this the type of Budget that could win you an election?
TREASURER:
Well, it’s not about an election Fran, it is about doing what is right. And this is the next step in our economic plan. And since we were elected we’ve made some difficult decisions, that have given us a stronger foundation in the Budget, but importantly have allowed Australia to withstand some of the headwinds that we’ve faced, such as the biggest fall in the terms of trade in 50 years, a massive drop in the iron ore price, and yet, we’re still getting the Budget back to surplus, and the economy is going to go faster.
FRAN KELLY:
I’ll come to the surplus in a minute, but if this is the next step in your economic plan, it’s only twelve months since your last Budget when you talked endlessly about debt and deficit. You said, I mean, I guess I’m asking you, what happened to the notion of end of the age of entitlement, or doing nothing is not an option? There’s absolutely no sign of that language or that kind of policy response in this Budget.
TREASURER:
Well Fran, we still have a number of measures in place. We can’t continue with the bonus payments on hospitals that Labor had that were never funded, and we’re sticking to that, we can’t…
FRAN KELLY:
This is the $80 billion cuts to the states…
TREASURER:
…and the schools bonus programs, that Labor announced in relation to Gonski but never funded, we’re still increasing school funding by 6 per cent in real terms over the next four years. Hospital funding and health funding by 6 per cent in real terms over the next four years. But those bonus payments can’t go ahead because there isn’t the money there. We’re not going to…
FRAN KELLY:
Well the states are going to have a lot to say about that, you know.
TREASURER:
Well I’m sure. Then, that absolutely contradicts what you said earlier, that we’re not making difficult decisions. Where we’re making the difficult decisions, we’re endeavouring to give the dividend back to small business, back to the families, to try and get the jobs and growth we need to create greater prosperity. Now, we don’t apologise for giving small business, two million small businesses, back some of their taxes, so that they can go out and buy the tools that are going to build the jobs that are going to employ more Australians. We don’t apologise for that, small businesses can go out, today, and buy equipment, and plant up to $20,000 and write it off against their tax on the 1st of July, and they can do it as many times as they need to, or want to, because this is the way we are going to build a stronger and more prosperous Australia.
FRAN KELLY:
So just on that, and just trying to help people understand how Governments work, because that, as you’ve just highlighted, that’s the key to your growth strategy here, to your job strategy here, getting small business moving, having a go. And yet, last year you scrapped a less generous, but generous never the less, measure that Labor had introduced for small business depreciation. So you scrapped it last year, didn’t want to know about it, and this year it’s the key to your growth strategy.
TREASURER:
Well, no, they’re two different…
FRAN KELLY:
How do you make sense of that?
TREASURER:
Well, I’ll explain that. The Labor Party funded that program, out of a Mining Tax that never raised any money. And…
FRAN KELLY:
Be that as it may, it’s not how it’s funded, it’s what it does.
TREASURER:
If I can just finish, you can’t have things that you can’t pay for, and you rightly said we saved money in this year’s Budget, over $10 billion, and then we’re giving $5 billion back to small business, to go out and invest. Go out and build the tools, buy the tools, and build the jobs that we need to get more people into work. And we also are spending money, as part of that overall package, on helping families. We’re spending $3.5 billion on more flexible, affordable and accessible childcare. Now, what we’re doing, Fran, is we’re living within our means. Every new dollar of spending is offset by other savings in other areas. And at the same time we’re bringing down the deficit, at the same speed that I said we’d do it last year, despite the fact that we’ve had a massive fall in iron ore prices which has affected our revenues. So we’re getting the balance right.
FRAN KELLY:
How are you doing that if you, by your own acknowledgment, you’re spending the dollars you’re saving, and yet you’re claiming this credible pathway back to surplus. You’re sticking with an expected surplus by 2019-20, [inaudible] 2020, which is not just beyond the forward estimates, is even beyond the projections, why is that believable? Governments have been promising us a return to surplus now for more than six years, and every year that keeps getting pushed out. Why is it believable this time?
TREASURER:
Well, because Fran we’re not going ahead with Labor’s big spending, which we inherited. We’re not massively increasing the foreign aid budget. As I said to you a little bit earlier, we’re not handing over bonus payments in health and education to the states that were totally unfunded. We made decisions in last year’s Budget that reduced the size of the public service quite significantly. We have always worked, we’re not writing out cheques to big business…
FRAN KELLY:
Well you’re writing out cheques to small business…
TREASURER:
No, I’m sorry, we’re not writing out a cheque for small business. There’s no $900 grant which is going out in cheques to small businesses. We’re giving them a tax deduction, we’re giving them back their own money Fran. We’re saying to them, please go out and invest that money in new plant and equipment. And if you’re a tradie, go out and buy the tools, and you can write it off against your tax. If you run a coffee shop, you can go out and buy a new coffee machine or tables and chairs, or if you’re a small manufacturer you can buy the plant and machinery that is going to build a more productive future, and at the same time, Fran, we are opening up new trade doors throughout the Asian region that is going to give those businesses the sort of trade that we have never seen before in Australia. The opportunity to export on a scale that we’ve never seen before.
FRAN KELLY:
It’s very generous, this tax deduction for small business. In their own words, better than they could have ever dreamed of. That’s what they said last night.
TREASURER:
Well, that’s what a representative group said, and good on them for going out and having a go. And we want them to have a go. In terms of generosity, accelerated depreciation, can I just make the point – business would write off through depreciation whatever plant and equipment they buy now at any rate. What we’re doing is allowing them to bring it forward into one year, and by bringing it forward into one year, it helps immeasurably with their cash flow. So it gives them more cash to be able to go out and buy what they need to buy. It brings forward their purchasing of plant and equipment that they might have waited two or three years to buy. So, it’s not a case of just handing out cheques, it certainly is not the case. What we’re actually doing is bringing forward the deductions they would have got at any rate.
FRAN KELLY:
Yeah, but in your own words, it’s allowing them to write off the tax purchases, tax against purchases, like a modest price car they use for work? A big plasma TV, a new couch for the home office, a cash machine, a coffee machine, do you concede it’s likely that not all these purchases are going to lead to productive earning?
TREASURER:
Well, Fran, people aren’t going to spend money in their business if it’s not going to earn them a dollar. I mean…
FRAN KELLY:
Well, they will if they want a new plasma TV…
TREASURER:
Well, I’m sorry—well, they’d need to have them for business purposes otherwise it might trigger FBT liabilities depending on the structure of the business…
FRAN KELLY:
What I’m saying is it’s very hard to police on this scale, isn’t it?
TREASURER:
Well, hang on Fran. Business people, can I just make the point, for anyone who’s ever worked in a business, you actually spend money on your business, not for your personal pleasure, you actually spend it to make a dime. If you’re spending it to make a dime, if you’re spending it to earn money, that gives you the opportunity to earn more money, and then you end up paying tax. And you might even end up employing more people. And that’s good, Fran, that’s how the private sector works. We want people to go out and have a go, and buy more plant and equipment, and employ more Australians.
FRAN KELLY:
You’re listening to RN Breakfast, it’s 10 minutes to 7. Treasurer, Joe Hockey is our guest. Treasurer, back to the forecast. The Budget is factored in here, increased revenue was going to help you reduce the deficit. In 2015-16, receipts as a share of GDP will rise to 24 per cent, they’ll keep rising to 25.2 percent in 2018-19. How does that sit with your boast that the Coalition is a low taxing Government?
TREASURER:
Well, Fran, it’s still certainly lower than the last Coalition Government.
FRAN KELLY:
The last Coalition Government…
TREASURER:
Yeah, that’s right, it is certainly lower…
FRAN KELLY:
Well not from the last Labor Government, it was 22.8 percent for the last Labor Budget.
TREASURER:
Well, the last Labor Government inherited 25 per cent Fran, they inherited 25.1 per cent, and then 25 per cent at 2007-08. So, what happened, yes, revenues did go down. The problem was Labor was locking in spending against revenues they promised would come, but never did. So when Wayne Swan went out and spent $19 billion handing out things associated with the Mining Tax he thought the Mining Tax would raise that amount of money. Well, the Mining Tax did not raise a dollar. And if the Mining Tax were in place today Fran, we’d actually be writing out cheques to the iron ore companies. How ironic is that! We would be writing out cheques to the iron ore companies under the model that Wayne Swan put in place.
FRAN KELLY:
How ironic is it though that you claimed to be, the Coalition will always be a lower taxing Government, and yet $90 billion of the increased revenue in your projections will come from, largely from bracket creep? It’s fair to say middle income Australians are going to repair your Budget through bracket creep, isn’t it?
TREASURER:
Well, I’ve expressed on numerous occasions, deep concern about bracket creep. That is when people move into a higher tax bracket. I stand by that. That’s why we have to reduce expenditure. And that’s why, in this year’s Budget, expenditure of 25.9 percent of GDP, it’s still too high Fran. And we’re trying to reduce it. And, we are reducing it over the next four years but there’s still more work to be done.
FRAN KELLY:
The harsh reality for wage and salary earners is, in your Budget, in the forward estimates, there is no sign of any personal income tax relief from bracket creep for the next four years is there?
TREASURER:
No, not over the next four years, but we are doing what we can. If we can reduce spending, then we will be able to deliver the tax cuts, but unfortunately we’re facing in the Senate an opposition that is determined to not only increase taxes but they want to increase spending. And that’s…
FRAN KELLY:
And yet you’re not doing anything about superannuation, there’s a pot of gold you could do something about, when we know that the top 20 percent of earners get 60 percent of their tax concessions out of superannuation. You could target that, and you just refuse to go near it, why?
TREASURER:
Well, I’ll tell you why, because as the Governor of the Reserve Bank pointed out just a few days ago, superannuants are facing a period of low returns on their investments, and this is a period where around the world you’ve got very low interest rates, very low interest rates. Now is not the time to impose new taxes on superannuation.
FRAN KELLY:
Even on people that have superannuation accounts of $10 million?
TREASURER:
Which is extraordinary and ridiculous, but can I tell you Fran, that is a handful of people out of the millions that do have superannuation.
FRAN KELLY:
It is.
TREASURER:
And they accrued that under the previous Government’s laws, right, and previous Governments’ – plural – laws going right back to Paul Keating.
FRAN KELLY:
You’re the Government now, is it time to do something about the generous tax concessions to that, in your words, small handful of superannuants?
TREASURER:
Well, it would be retrospective. It would be retrospective. So we’d be going in there and saying, you complied with the laws for 20 years, we’re going to go and hit you back for 20 years of taxes. And we see that as grossly unfair. Even if there are extraordinary amounts of money, but once you start going down the path of retrospective legislation in some of these cases, Fran, and it just creates further uncertainty. We’ve said there will be no new taxes on superannuation; we want to give people absolute certainty in contrast to Bill Shorten, who said he’s going to have new taxes on superannuation for anyone over $75,000.
FRAN KELLY:
Treasurer, I know you’ve got to go, you’ve got a very busy morning and I thank you for your time but just very briefly, and finally we’ve had more than two decades of growth now. As we look at the economy and this Budget in that context, we’ve got record low interest rates, we’ve got some strong stimulus measures in this Budget. Are you a bit worried that we are looking at a recession around the corner?
TREASURER:
God no. No, not at all. We are forecasting an increase in economic growth, and Fran, I’m hugely encouraged about where the rest of the world is heading at the moment. The United States is approaching full employment, you’ve got the Eurozone; a year ago there was a 50/50 chance of going into recession. It’s actually growing, and growing quite well, and improving. Japan’s come out of a long period of economic downturn, and it’s actually starting to grow. China’s growth is broader, and deeper than people appreciate, and India is the fastest growing economy in the world, and we’ve got only a small trading relationship with them, and they’re going to want all of our resources. So I am very bullish about the global environment, but we have taken a conservative approach to some of our estimates, we’ve still got iron ore at $48 a tonne. When we came to Government it was around $120 a tonne, but I say to you Fran, Australia’s best days are ahead of us. Absolutely. And what we’re doing is giving every Australian the opportunity to go out and have a go.
FRAN KELLY:
Treasurer, thank you very much for joining us.
TREASURER:
Thanks very much Fran.