ALAN JONES:
Fresh from his success in navigating a massive tax package through the Parliament, $158 billion; and I'll be saying something later in the week about the Labor Party, but they were an absolute mess and Anthony Albanese's had a dreadful introduction to the leadership. And this is going to happen. You can't have a bloke who's going to have to change 180 degrees and suddenly be credible in the middle of the road, when in fact he's been identified with a whole heap of left wing rubbish for ages. They were to-ing and fro-ing about all of this and in the end of course when in the Senate, they were able to arrange, get a range of independents to support the tax package then having said 'we won't support it', they were forced to back it. Awful week. However, they are in Opposition and will be for some time. Josh Frydenberg is on the line. Treasurer, good morning.
JOSH FRYDENBERG:
Nice to be with you, Alan.
ALAN JONES:
Oh thank you, that's a clear line because I thought you were at Melbourne Airport, I was a bit worried. Look…
JOSH FRYDENBERG:
I am.
ALAN JONES:
Oh, good, you've got a good line. Just before we start, because this bloke wasn't a bad tennis player, and I think he won the Men's Singles at the Kooyong Club Tennis Championship, and an Oxford Blue. Did you get a chance to see any of the tennis?
JOSH FRYDENBERG:
No, I was catching some shuteye before heading to Brisbane today, but I obviously did see some highlights and what a remarkable game, the longest Wimbledon final in history. And I think our hearts were with Fed and probably our head was with the Joker, because Djokovic has proven himself to be very steely in those close Wimbledon finals.
ALAN JONES:
Well Roger served for the match at 8-7, fancy serving at 40-15 and lost two match points. Let's get to the tax thing very briefly because I want to raise other issues with you.
The trouble is in many ways is that you're only giving back what has been taken away, aren't you? Because with bracket creep, this isn't really reform, you're not having tax cuts; you're giving offsets, aren't you?
JOSH FRYDENBERG:
Well, it's both short term relief and long term reform. So in the first instance, and over one million Australians, Alan, have already put in their tax return for the 18-19 year. They'll get up to $1,080 if you earn up to $126,000. So that's real money into the pockets of real Australians immediately. At the same time, we've got the long term structural reform where we're changing the thresholds as well as the rates in order to see one big tax bracket created between $45,000 and $200,000, where the bulk of Australian taxpayers are, and they'll pay a marginal rate of no more than thirty cents in the dollar. That's a very significant reform, and yes, it does deal with bracket creep but also incentivises further work and encourages aspiration.
ALAN JONES:
And look, I don't want to get into an argument with you here. It's too early in the electoral cycle shall I say, but I really would urge you not to keep saying they're only going to pay 30 cents in the dollar because the Medicare levy is a tax, it's as simple as that. Now, it goes into the system, so they're paying 30 cents in the dollar and the two per cent which is the Medicare levy and of course, if you don't have private health insurance, there's another load on top of that. So, it is higher than thirty cents in the dollar. Could I just ask you though about the offset? And I know if you're earning $37,000 or less, you'll get $255 off the tax that you pay. Will that apply next year and the year after and the year after?
JOSH FRYDENBERG:
It does. It does apply going forward and what is important though is these reforms were opposed by the Labor Party. You eluded your listeners to that at the start. This tax reform package got through without the support of the Labor Party, even though the Australian people sent them a very strong message at the election. And as I talk to you today, it's still the Labor Party's policy to have a retirees' tax, to have the housing tax, to have a superannuation tax and to have a tax on the highest income earners, it goes up.
ALAN JONES:
But if I can just criticise you here. Not criticise you, but stop you here. These people are not a factor in the people listening to the program. They are out of Government, they were thrashed on the 18th of May and they're not likely to return. So the whole focus is on you people, not on them. Why wouldn't you bring forward the tax cuts scheduled 2024?
JOSH FRYDENBERG:
Because obviously we've got a Budget that sets out the expenses and the spending, as well as the revenue. And we took that to the Australian people. It was put in place very cognisant of the headwinds that the Australian economy faces, so we wanted to be faithful to the Australian people by implementing the policies that we put to them both in the Budget and at the election. And with the greatest respect Alan, you say the Labor Party is irrelevant but they're not because they actually have votes on the floor and we only got this tax bill through with the support of the crossbenchers and who's to say with further legislation where the Labor Party will be, and we know it's still their policy to wind back, to wind back these tax cuts.
ALAN JONES:
I know that, but I mean superior negotiating skills in the Senate will mean they well be marginalised, I have to say. Can I just ask you one thing though, I mean, there hasn't been a surplus, well there's only been a couple of surpluses in the 119 years since Federation, a handful of Budget surpluses. But can I just ask you one thing? Interest rates have never been, in my memory anyway, why wouldn't you convert the entire Federal debt into a 30 year term? Why wouldn't you issue $600 billion, say, of 30 year Commonwealth bonds? So the debts all gone, you're going to pay infinitely less in interest than you would be now. I think, I was doing some figures last night, $12 billion. You're currently paying $17 billion on interest. You pay off the debt, you've got money to do other things with, you could build a coal fired power station. Does that make you belch? You couldn't build some dams. Because you're talking, you're talking about productivity. Surely the two issues that will assist productivity are cheap energy and more water. More water, we could feed Asia.
JOSH FRYDENBERG:
Well I did see that your friend and mine, Terry McCrann, did raise this very point. I have had a discussion, it's a very preliminary discussion, with Treasury officials about the profiling of our debt and they do point out that you do need liquidity in the bond market at different rates. So you can't have all the bonds being issued at 30 year rates, 30 year bonds. You actually need to have 10 year bonds and 20 year bonds…
ALAN JONES:
Okay, get ten year bonds and thirty year bonds. Ten year ones will be what? One and a bit interest? Thirty year bonds will be two and a bit interest. You're still a mile in front and you've paid off your debt and you've got money to stick into infrastructure such as a coal fired power station. Are you in favour building one of them?
JOSH FRYDENBERG:
Well, what we've said is there's a process for that to take place and as you know, we're being technology agnostic when it comes to the particular energy generation, but my argument is not to be anti-coal, in fact to understand the importance of coal to our energy mix. But as you and I have discussed many times, new coal versus upgrading existing coal is an interesting question when it comes to most cost effective platform.
ALAN JONES:
Well there's plenty of coal fired power stations around the world which are high efficiency, low emissions, but that's for another day. Let me get to this deeming rates thing. Now, I have heard what you've said about this so please, you don't need to give us all that answer, you say 'well, it's all very well because there's a suite', and there are, "a suite of investments that people have with their money in retirement". I'm talking about, because you've made one size fit all. Now, welfare must be tested, no doubt about that. But surely if someone has $51,000 as a deposits and they're deemed to be earning 3.25 per cent, they're being ripped off, aren't they? And you're going to cut the 3.25 per cent to 3 per cent. So, they're getting virtually nothing. They're getting no return on their deposit, no return on their deposit, but because they're deemed to be earning infinitely more than the interest rate, and it's with the bank, they are being denied welfare to which they are entitled. Do you understand that many retirees think this is a tax on them?
JOSH FRYDENBERG:
Well the Council of Aging yesterday came out and said that this was a positive outcome. There was a reasonable and balanced approach and your listeners do need to understand there are two different deeming rates.
ALAN JONES:
Yeah, that's right.
JOSH FRYDENBERG:
There's a lower deeming rate which applies on those financial assets that are up to $51,800. Now, for those, the deeming rate has been reduced to one per cent. Which is where the cash rate is, and if you go and seek a term deposit for six months at Westpac, you can go and get more than 1.75 per cent, or some of the other leading banks. Now, when your financial assets are above $51,800, there is a higher deeming rate there at three per cent. But that's because there is a range of assets…
ALAN JONES:
Ah that's right! But Josh, hang on. Why do we have size fits all? Now I know that, and I've made this point earlier. There are a range of investments that are earning five, six, seven, eight or nine per cent. Surely it's possible to calculate who has those investments on which they will pay the higher deeming rate. I'm concerned with people, mums and dads out there, who are terrified this company's going to go broke, so I'm not going to put shares into, money into shares, I'll put it with the bank because my mum and dad tell me, told me, safe as a bank. They put it in the bank, they're getting nothing, next to nothing, and here we are deeming, if they're over $50,000, deeming to be over three per cent. They're being ripped off.
JOSH FRYDENBERG:
But Alan, we're not saying that you have to go and invest in company x or y. If you put your money in super, as you know the fund managers adopt a portfolio approach and they've see their returns be 4.5, 5.5 per cent over recent years. So they're actually adopting quite a conservative way of investing, not necessarily going.
ALAN JONES:
But you're a Liberal Government, remember, that believes in choice, and where people exercise the choice for whatever emotion or financial reason to invest with a bank, in a bank deposit, they are being ripped off.
JOSH FRYDENBERG:
I say again, when people go and see their financial advisor, they're not going to tell them…
ALAN JONES:
They can't afford a financial advisor, Josh. They're just putting it in the bank. They can't afford a financial advisor. Why can't you separate those with bank deposits with those who have invested elsewhere?
JOSH FRYDENBERG:
Because a lot, the majority of your listeners, if they've got more than $51,800 then they will be having money in superannuation or in other approaches, not just in bank deposits, that's how people have their money.
ALAN JONES:
I'm worried about the people who are under $51,800 and I believe you've got a one size fits all here and there should be a consideration to those people who have their money with the bank and they are being taxed because the rate at which they are being deemed is far greater than the interest they are getting on their deposit.
JOSH FRYDENBERG:
Two points. The first is the deeming rate only affects one quarter of the pensioners. So it affects about 630,000 pensioners. The rest are not affected by the deeming rate because they have a different, they have lower assets. But for those who are affected and they have their money in the bank, that's why you do have a one per cent, now, deeming rate for, at the lower level, for the first $51,800.
ALAN JONES:
Right. Okay, well I'm not going to be winning this battle with you now, but I'm telling you what, those people all voted for you because they thought Shorten was going to rip off pensioners. They voted for you and they are very concerned that you haven't given a commitment to revise deeming rates every time the interest rates change. And why shouldn't these be revised every time interest rates change? Why shouldn't they be put parallel to interest rates so that the pensioner gets a fair go?
If I could just talk about the pensioner though, because we always run out of the time. The draw down rates. Now, if you're under 65 you've got to draw down four per cent of the value of your super fund. So if you've got a million dollars in your fund, you've got to draw down $40,000. You don't have to spend it, I know, you've just got to take it out of the super. But, this bloke, they're not earning, they're not earning, what is it, four per cent? Or at 65 to 74, five per cent. So is it sensible to have these people drawing on their capital? Why don't we alter the draw down rates consistent with the interest rate?
JOSH FRYDENBERG:
Okay. So the key point here is to understand what the purpose of superannuation is, and it's supposed to be either a substitute or a supplement to the aged pension. That's why you get a concessional tax arrangement in relation to your super. And when the Government Actuary looked at the current minimum draw down rules, they found that it would lead to people at death still having around 25 per cent of that initial balance in their accounts. It's not meant to be a wealth accumulation vehicle, super, it's supposed to be spent during our lives.
ALAN JONES:
I know that, but we want people to save! We want people to be independent and wealthier. I mean, these haven't, draw down rates haven't been changed since I was at boarding school. And here we have people, no seriously Josh, here we have people having to take, if they're 75 to 79, six per cent of their accumulated fund of their self-managed super fund.
JOSH FRYDENBERG:
I understand. And eleven per cent if you're over the age of 90. But this…
ALAN JONES:
Yeah, their money is not earning 11 per cent, Josh. So they've got to take capital out. Now that's not sensible because they're living on that capital.
JOSH FRYDENBERG:
But at the same time, they're aged 90, and it is linked to their life expectancy. We did, the draw down rates were looked at in 2016 when we did a proper review, they'll be looked at again in the next year or so.
ALAN JONES:
Okay. We'll come back and talk. You catch your plane. Thank you for your time, always good to talk and we'll talk again soon.