STUART BOCKING:
Minister, good morning.
TREASURER:
Great to be with you, Stuart.
STUART BOCKING:
Thank you very much Joe, nice to see you. How disheartening is it to hear colleagues potentially being mentioned as a possible replacement as Treasurer?
TREASURER:
Look, you have got to ignore that and just focus on what is in the best interest of the country, which is exactly what I am doing and what the Government is doing.
STUART BOCKING:
We are all humans though, we all like to be praised; we all like to feel we are doing a good job. What is it like when you figure you are giving your blood, your sweat and your tears to this job and yet suddenly there is all of this discussion – whether it be static or not, it is discussion 14 months in?
TREASURER:
Stuart, I will leave commentary to others. I am very very focused on trying to strengthen the Australian economy, to help to create more jobs, greater prosperity. I am not in any way going to be dissuaded by criticism. Look, that is life. You get criticised, I get criticised. Think of what sports players – the sort of criticism they get or people in the movies or people in any job, you do get criticism. Get over it and move on and that is exactly what am I doing. I am focused on what is important for Australia.
STUART BOCKING:
What do you think about some of the bad press you have been getting? How much of that do you put down to decisions made in the Prime Minister’s office? Even promises he made before the last election?
TREASURER:
Look, we have seen that what we inherited has been in worse shape than what was expected; we have got to deal with that. Just as in our own family budgets, if our income comes off, we don’t keep spending at the same rate – that’s unsustainable. Government is in the same position. You can’t keep spending at the same rate as would have been the case if your income was much higher. So, that means difficult decisions have to be made but those difficult decisions will make us stronger in the future. That is exactly where I think, where we are at, and next year we are going to see the rollout of WestConnex. The Federal Government, in partnership with the State Government have put a lot of money to that. You are going to see tunneling machines operating all around Sydney and that is going to deliver more jobs, and over time, greater prosperity for the people of Sydney.
STUART BOCKING:
When you say things are worse than we expected – we know under Peter Costello, he introduced that Charter of Budget Honesty; ten days into the election campaign, you, at that point, had a pretty good idea of independent Treasury figures as to what you were dealing with. They pretty well confirmed that mini-Budget delivered by Chris Bowen when Kevin Rudd returned as Prime Minister. What surprises have there been in all of that, given you had those numbers 10 days into the last campaign?
TREASURER:
Well, there are a few things. So, the first thing is, when Wayne Swan delivered his last Budget, he said the deficit would be $18 billion this year. Then Chris Bowen, just before the election – the day before, two days before the election, said, ‘no, no it is going to $30 billion’. We get in there and find it is $48.5 billion. In part because they didn’t put the money that had to go into the Reserve Bank to make sure the Reserve Bank was best able to cope with some of the volatility we have seen in recent times, such as movements in the Australian dollar and activities offshore. We also found that, for example, the mainframe computer system of Centrelink and Medicare, which many of your listeners would be engaged with, is slow. Now, it takes 17 minutes on average for Centrelink to answer a phone call, despite their best endeavours. When we were last in Government it was seven minutes. We have to spend a lot of money trying to address those sorts of things. Now, the second thing is, since I delivered the Budget in May, we have seen iron ore prices drop by nearly 40 per cent, which is extraordinary. Now, iron ore is one fifth of Australia’s exports and the price to drop nearly 40 per cent in the last few months has meant that the Government’s revenues have fallen again. Now, the fundamental question is, do you change course and just go on a [inaudible] do you actually do things and undertake change that is going to strengthen the Australian economy. We are focused on the latter; strengthening the Australian economy, which means that next year should be better than this year and the year after that even better again.
STUART BOCKING:
See now, when you explain that I think those fair minded people listening would say, ‘well look, that’s all fair enough – our own household budgets have to work exactly the same way’. So, why is it then that seemingly you have had so much trouble selling this message? That every cut is portrayed as being [inaudible] that every cut is a wind back, it is a broken promise, it’s this, and it’s that?
TREASURER:
Yeah that is the political prosecution of opponents…
STUART BOCKING:
But it is no different to the prosecution that you guys had when you were in opposition…
TREASURER:
Well, I will tell you what is different, Stuart, and it is this: ultimately we agreed to 80 per cent of the savings and Budget initiatives that the Labor Party had and where we disagreed, we offered an alternative. Those alternatives were very difficult to publicly prosecute such as getting rid of the Schoolkids Bonus but we offered an alternative and we were upfront before the election. What Labor is doing now is it is opposing not only everything that we are trying to do, they are opposing everything they said they were going to do. For example, they are arguing that the 20 biggest companies in Australia should have a big research and development tax break. They are arguing it now. When they were previously in Government, they said, ‘big business shouldn’t have that tax break’.
STUART BOCKING:
I spoke to Chris Bowen last week and he was saying that have already actually supporting billions of economic measures – that’s what he said and the $5 billion that they have held up relates to other spending programs that are no longer there and therefore those cuts are no longer justified.
TREASURER:
Well, see he is factually incorrect. He is factually incorrect. I actually laid down the exact words in the Parliament that he uttered and that Wayne Swan uttered. So, you see that is...
STUART BOCKING:
[Inaudible] facing you though, isn’t it? Because this is the difficult – because a lot of this stuff becomes the norm, the orthodoxy. It gets spoken about and this I think is where it has become a real problem for you in terms of selling that message.
TREASURER:
I think Australians are over the combat of politics and want to see some cooperation – some cooperative outcomes. So yesterday, when I released a major review into the financial system undertaken by David Murray, I stated in the press conference and I state again today, this is the sort of thing where you would hope that Labor would come on board and recognize that if we don’t undertake change, our system will not be as strong as it should be in the future. So, we will be less able to cope with a potential global financial crisis or will be less able to deliver the sort of retirement savings that Australians want and expect.
STUART BOCKING:
You think about that last election – that last Parliament. It was about as combative as you could possibly imagine. There would be plenty of people saying, ‘look you are only now reaping what you sowed back then’.
TREASURER:
Well, there is a big difference. The difference is…
STUART BOCKING:
You’re in and they’re not.
TREASURER:
That’s a cynical view but you know, the big difference is that we have had to write down, you’ll see, in a weeks’ time, a hell of a lot of revenue – a hell of a lot of money that was mean to come in. I mean, remember Labor said they were going to have surpluses, and no one, not even they’re disputing that they could never deliver it, right?
STUART BOCKING:
[Inaudible] well, that is right.
TREASURER:
[Inaudible] When you haven’t got the money, you can’t do everything you want. I can’t – you know a parent can’t give their children everything on God’s earth that they want if they haven’t got the money. Well, it is no different with a nation. A nation can’t spend money on everything that it wants to spend money on if it hasn’t got the revenue coming in and the big difference has been that there has been massive write downs in revenues over the last few months, in particular, and why? Because we are not seeing the growth and demand for iron ore and coal that we expected and the world expected just 12 months ago.
STUART BOCKING:
And look I accept all of that but in fairness, too often, that they were some of the comments used by Wayne Swan and the previous Government to justify some of their Budget returns and yet you weren’t prepared to cut them any slack. I mean, should we expect anything different this time? How much longer can we go on…
TREASURER:
That goes back to the argument, ‘an eye for an eye, and soon the whole world is blind’.
STUART BOCKING:
Well, I know but unfortunately at times that is the adversarial nature of our system. How long is it before you have to drop off blaming the previous Labor Government or harking back to that? You wanted the job, you knew what you were up against and people have entrusted you do it.
TREASURER:
And we are getting on and doing that because this year, despite opposition, we abolished the Carbon Tax, which means everyday household electricity bills have come down. We abolished the Mining Tax, which means we can actually get more investment into the mining industry. We said we would get rid of red-tape; we have abolished 57,000 pages – 57,000 pages of regulation and legislation in dedicated days in Parliament to get rid of red-tape. We said we would fast-track approvals for major projects and we have approved over 300 projects in fast time worth $1 trillion - $1 trillion of output for Australia; a massive amount of money. It is almost - it is two thirds of an Australian economy, equivalent in just new projects that we have approved. We have said that we would stop the boats, we are stopping the boats. We said we would get on with fixing the Budget; we are fixing the Budget. We said we would build the infrastructure; we are rolling out – Stuart, everyone used to say to me, ‘we need a Snowy Mountains Scheme’. Well, we are building eight additional Snow Mountains Scheme equivalents in the next decade as a result of what we did in the Budget. So, these things are getting on. The commentary and criticism is loud and you have got to see it through because what Australians judge you on ultimately is outcomes.
STUART BOCKING:
The problem is of course you’re still mired, in claims of unfairness and broken promises – all of those things. Given those difficulties, is there a part of you that almost says that a recession might be the only way to resonate with voters, almost like, ‘the second recession we had to have’?
TREASURER:
No way. No mate, I was there for the 1990 recession and it was horrific. I would never, never wish that on anyone and certainly, I would work night and day and the whole Government would, to prevent anything like that ever happening again…
STUART BOCKING:
But in your quiet times though, you must say to yourself, ‘what do we need to do to show people that we need to cut spending; that there is going to be some disappointment – there is going to be some hurt. Why won’t they just accept that given they voted for us?’– You must ponder that?
TREASURER:
I think Australians understand that if we strengthen the Budget now, and if we strengthen our overarching national balance sheet, we will be more prosperous in the future. I think Australians understand you have to earn the future, you have to earn growth. I think Australians are also quite prolific travelers and when we look around the world, there is no place on God’s earth I would rather live than here.
STUART BOCKING:
They won’t like seeing the value of the Australian dollar falling [inaudible]…
TREASURER:
No I know, but I would say to them, I am more ambitious than at any time in my life for Australia’s future. I think we have actually – we are on the threshold of our greatest ever era as a nation. I have no doubt about that, Stuart. It is going to be tough in terms of, you know, earning our way there but the demand that is going to be there, for not just for our resources, out of an emerging China and India and Indonesia. The demand for our resources of coal and iron ore and gas and so on, is going to be phenomenal as these countries actually build their middle class from poverty. Go back a step, China currently has 150 million people in its middle class. It will have a billion in its middle class within 16 years, right. That is much larger than the middle class of arguably Europe and America combined, and what do they want? They want bigger homes, they want better quality life, they want better education, health and so on and we can sell it to them, we can sell it to them and that is the exciting thing. But also, they are going to want to build more infrastructure – we can sell them the iron ore, we can sell them the energy as they do that. India is the same – we are going to see the emergence of a massive middle class. Now, we have got to protect our quality of life and we will do that. That is one of the reasons why we are taking a very firm stand on immigration and border control and so on. That is absolutely appropriate. But the interesting thing Stuart is, this is our era of opportunity on a scale we have never had before. If we are at our best, if we learn to live within our means now, if we actually do undertake the sort of the change we are talking about, then we will reap the benefits writ large in the future and that is what is exciting.
STUART BOCKING:
When did the Prime Minister tell you he was going to scale back his Paid Parental Leave Scheme?
TREASURER:
We have been talking about it for a while and the fact is that he listens; we listen. It is hugely important that we do everything we can to get more Australians into work and facilitate a more flexible work environment, particularly for women coming back into the workforce. So, childcare is part of the equation but also, a Paid Parental Leave Scheme is important as well.
STUART BOCKING:
Did you know he planned to announce it yesterday – just an hour before you were due to hold…?
TREASURER:
Yes, absolutely.
STUART BOCKING:
Because it is unusual timing – I mean, you had a big announcement with David Murray on the future of the Australian financial system…
TREASURER:
That is commentary, Stuart. That is the sort of media commentary – you can walk and chew gum at the same time. I have found that is possible.
STUART BOCKING:
So what sort of discussions have there been? Are we talking about means-testing the Paid Parental Leave Scheme? It has already been scaled back from an upper-income threshold from $150,000 to $100,000; is it going to fall from that?
TREASURER:
We are going to be consulting with key stakeholders over the next few weeks but let me just point this out: to live in a city like Sydney, you basically need two household incomes. It is almost impossible to pay a mortgage, particularly with house prices, on one income. If you have got two incomes, when a mum takes time off to have a baby, the bills still keep coming in. I mean, the mortgage doesn’t change. The bank doesn’t discount a mortgage because you are having a child and the electricity company doesn’t stop billing you at full rates because you are having a child. This has been the enormous transition in Australia over the last 20-30 years. Therefore, what Tony Abbott has properly recognised is, hang on people still have these bills coming in while they are having a child. We want Australians to be able to have children. How are we going to help them with the bills? Part of that is that we impose a levy on the biggest companies in Australia and give the money to those people who are having children to help them through that period when the bills don’t stop but the income does or the income is significantly diminished. Now, the beauty of this program is that it also contributes to superannuation for women and the current government scheme doesn’t, and of course, if women have two or three children, it is a long period at the peak period when they are out of the workforce. Their superannuation ends up less than men. The third thing is, for a small business, you can’t afford to pay [inaudible] leave in a small business. Big business pays it, the public service pays it, small business doesn’t. So, what we have said is, ‘hang on even if you are a sole trader, even if you are a farmer and your wife is involved in the farming business as most farmers’ wives are, we are going to cover you for that period’.
STUART BOCKING:
So, why is the National Party dead against it, in light of that?
TREASURER:
They are not dead against it. They are not dead against it, but I think if people better understand how important it is and better understand the proposal, then sooner or later they will realize that it is actually – Paid Parental Leave is hugely important, not only if we want the equality of opportunity for women in Australia, which I think we all do, but significantly, it helps us to allow women to come back into the workforce. From my perspective as Treasurer, I need more women in the workforce. I mean, when I was growing up at various points, my mum wasn’t in the workforce but she [inaudible] to try and get the small business to succeed. There was no support for her during that period; that is absolutely right but the big difference is, since that time, that the mortgages are much bigger as a percentage of household income than they were when I was growing up with my parents.
STUART BOCKING:
Just two points on that: David Murray, as part of this report, yesterday he was talking about capital gains tax elements around a number of different things like negative gearing. Can you envisage a time when capital gains tax could be imposed on the family home?
TREASURER:
No I can’t but what…
STUART BOCKING:
He raises it in the report…
TREASURER:
There are lots of things raised in the report and as I emphasised yesterday, it is a report to the government not of the government.
STUART BOCKING:
Not of the government, I understand that but…
TREASURER:
Well it is a very important point…
STUART BOCKING:
Of course it is an important distinction.
TREASURER:
That is how things run away.
STUART BOCKING:
Which is why you held back that Commission of Audit report back for so long.
TREASURER:
No, that is not right but it is – look there are…
STUART BOCKING:
It is there.
TREASURER:
We can all design a perfect world and…
STUART BOCKING:
But you are going to consider all of these recommendations. One of the recommendations talks about extending capitals gains tax [inaudible]
TREASURER:
No, no, hang on; let me pull you back here. Let’s go into reverse for a sec. He had 44 recommendations about the financial system and about ways we can help consumers so they are not paying, for example, 2.5 per cent when you use your credit card at a retailer. I mean, obviously there is some gouging going on. We have got to stop that to make things more affordable for consumers – I hear that. One of the recommendations – another one was to reduce the fees that superannuation companies and intermediaries and others are taking. If we do that, we will see a very significant increase in retirement savings when people retire because they are not paying so much in fees along the way. These are all good things, right? He then – the Committee went on make some observations – not recommendations – observations, about the tax system including about the GST and financial services. Now, he was at pains to say, yesterday in the press conference, ‘well, it is a good theory putting GST on financial services, but no one knows how to do it’. Well, that’s one good reason why you don’t do it, right?
STUART BOCKING:
Yes.
TREASURER:
So, I suppose the entitlement of outside observers is that they can have an opinion, but that is not government policy. If we undertake change in relation to taxation, we have a guiding principle that it is – that taxation needs to be fairer and simpler and overall lower than it would be otherwise. So, they are the key goals and we are looking at tax and how to make that fairer and simpler next year.
STUART BOCKING:
When you consider the other part of the Paid Parental Leave Scheme and that is this 1.5 per cent levy, which is offset by a 1.5 per cent cut for business right across the board; you have just talked about MYEFO, which is the Mid-Year Economic and Fiscal Outlook, you will release in a week or so time, falling commodity prices, government revenues being hit, is now the time to be offering further tax cuts already on top of the ones already legislated – another 1.5 per cent for business right across the board? Can we afford that?
TREASURER:
It was a commitment that we made…
STUART BOCKING:
I know…
TREASURER:
…particularly to small and medium sized business…
STUART BOCKING:
Which I can understand. I mean, circumstances have changed in a lot of other areas. Here we are saying to a pensioner going to the doctor you might be facing $7 each time you go for various things but we are saying to business – small, medium, across the board – 1.5 per cent cut. Can you understand how the messages are mixed to a degree because you have just told us about falling commodities…?
TREASURER:
No, because there is another flip side to this, Stuart, and it is this: a few years ago, business would operate just in Australia. The challenge we have going forward is that companies based all around the world sell directly to Australian consumers. So, Apple is a great example – Apple iTunes. People go online – Alibaba, whatever the case is, and buy goods from overseas and bring them into Australia. So, we have seen businesses overseas competing directly with businesses right here – Myer, David Jones. Businesses overseas don’t pay rent in Australia, they don’t employ Australians necessarily but Australians are getting cheaper goods and that is why they are buying them, right? So, it is the same in relation to tax. Countries around the world are racing against us with lower tax rates. Hong Kong and Singapore are around 15-16 per cent company tax rate; Australia is currently 30. New Zealand is much less than us. The United Kingdom is going to 21 per cent – United Kingdom 21 per cent company tax rate. There is only actually a handful of businesses in Australia that pay the most – the largest chunk of company tax and then everyone else is sort of paying a lesser amount. So what we have got to do is have – on the one hand, we have got to make sure we don’t diminish our revenues. But we have also got to make sure that we are not totally uncompetitive and in some areas where there is great competition with the rest of the world, we need to be competitive and one of those areas is company tax.
STUART BOCKING:
The thing about it is though that we look at your Apples, your Microsofts, your Googles, already there has been an enormous argument over the fact they’re not paying their fair share based on where the headline rate is now.
TREASURER:
And this is something I will have more to say about it in the next few days…
STUART BOCKING:
You can say it now.
TREASURER:
I can, but we have been working very hard during the course of the year to ensure that companies and individuals pay tax where they earn their profits. Now, this is something that the previous Government talked about but wasn’t able to do anything about. We took the G20 Leadership this year and we got the 20 biggest economies in the world and said, ‘listen guys, this is affecting us all. It is not something that is just affecting Australia. There are companies that are not paying tax but are earning big profits in your countries, as well. So, we all need to work together. Now, out of that event in Brisbane, we have got everyone to agree that we are all moving together and some will move a little bit faster than others. Australia and the United Kingdom are moving a bit faster than some of the others in this regard. I am going to have more to say about it in the next few days, but we are absolutely determined to ensure that companies that earn their profits in Australia, pay tax to the Australian Government.
STUART BOCKING:
Peter Costello has said, ‘be careful what you wish for; there is a lot of Australian economies generating a lot of income overseas. That the net result could actually be detrimental to us’. Do you consider that as a prospect?
TREASURER:
It is something that – that’s why you say, ‘Go on Joe, announce it here’ but you know, you have got to be very methodical about this. You have got to be careful about it, but at the same time we think we have been able to ensure that we can make sure that businesses pay their proper taxes in Australia. And yes, there are some Australian businesses that might be earning profits in other jurisdictions but paying tax in Australia. On the one hand we would like that to continue but…
STUART BOCKING:
That’s right; that’s the double-edged sword of all of this, isn’t it?
TREASURER:
…correct and that’s why we need to be very methodical about it, which we are.
STUART BOCKING:
Just quickly, I know you are busy. In closing, I look at those concessions that you have offered up now on these higher education reforms, near enough to $3.5 billion from almost $4 billion worth. Is it really worth that?
TREASURER:
Well Stuart, I say….
STUART BOCKING:
[Inaudible]
TREASURER:
No, no, I don’t accept that statistic, which comes out of Chris Bowen. He is comparing apples with oranges. The bottom line is, we need to reform higher education in Australia. We have built the most generous safety net that we have seen in relation to modern higher education for those most vulnerable or for those who have the least amount of income but want to go to university. So, that is part of the package. What we are doing is enabling universities so that they can compete with the massive growth that is coming from universities in Asia, in particular. There are campuses in Asia that are starting up or are underway that have a quarter of a million students. Now, when you have a quarter of a million students, you have got a scale that allows you to attract the best academics in the world to your campus. So, what we have got to do is have Australian universities that can compete with the best in the world. Have an Australian university in the top 20 in the world – we used to; we haven’t now. We have got to compete with what is happening overseas so that our education system is the best in the world and that is what our changes are doing.
STUART BOCKING:
A big part of it though has been about these savings. How much of those savings then, you tell me, of the so-called $4 billion have you traded off as part of these concessions, so far?
TREASURER:
Well, it hasn’t passed through the Parliament…
STUART BOCKING:
No but based on what you are offering. Christopher Pyne’s plan B – how much…?
TREASURER:
Part of that has been a change in the level of interest that is charged on the loans. That does not affect the underlying cash balance of the Budget. So, there are a few games going on – technical games going on, from some of our critics.
STUART BOCKING:
I can’t imagine accountants would play games [inaudible]…
TREASURER:
I know, it is hard to believe…
STUART BOCKING:
[Inaudible]
TREASURER:
Well, there is a great deal of honor in the accounting profession. Far be it for me to…
STUART BOCKING:
Are you going to get them audited then when you release MYEFO?
TREASURER:
[Inaudible]
STUART BOCKING:
Just in closing, I just want to play you a part of what Jacqui Lambie had to say on Channel Nine last night:
JACQUI LAMBIE:
I think those – some of those Coalition men really need to go away over Christmas to have a good look at their negotiation skills. I think next time they come back to Parliament, they need to leave their egos at home. That is there biggest problem.
She talking about you – leave your ego at home? Has she become more trouble than she is worth in terms of negotiating with?
TREASURER:
No, no, look I think Jacqui Lambie has a good heart. I don’t dispute her goodness at all.
STUART BOCKING:
But you want a vote not a heart.
TREASURER:
You know, and that is something that I would hope everyone would have a think about over the Christmas period. We want a better Australia and having the independents, or the Labor Party or the Greens play the games in the Senate is not good for Australia. I think there needs to be more bipartisanship. We are reaching out offering to work cooperatively with people. I would hope they would respond accordingly. I don’t think anyone has ill-will towards our nation but if we don’t undertake positive, measured change in Australia, then we are going to miss out on the future.
STUART BOCKING:
And Tony Abbott is not toying with a double dissolution, is he?
TREASURER:
No. We are just working our way through, Stuart. We have kicked a number of goals this year. We have had a few goals kicked against us but hopefully, Australia is winning this game.
STUART BOCKING:
[Inaudible]
TREASURER:
Look, I am not going to run [inaudible]
STUART BOCKING:
[Inaudible]
TREASURER:
[Inaudible] It is all the rain in Sydney.
STUART BOCKING:
That’s it. It has had an impact on you. Look, you have certainly got some interesting summer reading ahead. So, I wish you well with all of that. It is very important for all of us. I thank you for your time. The best of wishes to you, Melissa and your family over Christmas.
TREASURER:
Thanks, Stuart. Yeah, I look forward to seeing them and I hope Santa Claus comes to every Australian.
STUART BOCKING:
Terrific, thank you very much. The Treasurer, Joe Hockey.