DAVID SPEERS:
Treasurer, thanks so much for your time this afternoon. So the Senate on Friday supported your tax cuts for companies but only with a turnover of up to $50 million each business. Has Treasury looked yet at what this alone will achieve for economic growth?
TREASURER:
Treasury modelled the full package as you’d expect them to. That’s what we put in the Budget last year and what that showed was the accumulative impact of these measures would be to lift the size of the economy by one per cent permanently. Now, that would start building up from day one. It would build up year after year after year as more and more businesses came into the program and that’s the whole point of this. You’re creating headroom space for these businesses through the tax system to be able to invest more in their businesses, and particularly for small and medium sized businesses. These are businesses where you don’t have large dividend distributions – whether it’s offshore or even onshore for that matter – you’re talking about people running what are effectively businesses with around 22 employees if you’re up to about $10 million in turnover. And they’re able to invest more back in their business and take people on, extend their hours and invest more. That’s what the policy achieves.
SPEERS:
Sure. But the bottom line is you may or may not be able to get the rest of the package through. Surely it’s worth looking at what has been agreed by the Senate. It’s going to cost $24 billion. What growth will we get out of it?
TREASURER:
What we’ll see is businesses investing more in their businesses, giving people more hours, having more room to be looking positively at people’s wages as their profits increase. You don’t get a wage rise in a company that’s going backwards and this actually helps businesses to go forward and the practical examples I’m giving, I’ve referred to this chocolatier business a few times but I could be talking about the Bowmaker Real Estate agency up in Brisbane. What they’re going to do, they don’t just get the cut in corporate tax to 27.5 per cent, they also get access to the instant asset write-off because as you know, we’ve increased the definition of a small business from $2 million turnover to $10 million turnover…
SPEERS:
So what are they going to do? What is that individual real estate company going to do?
TREASURER:
They can go out and actually buy a vehicle for one of the people who are managing their real estate roll, their rental roll. And that’s what they told me that they would do. With other businesses, I was with a business this morning down in Peakhurst in Southern Sydney, they’re going to take on an additional person through our Youth PaTH program because they’re committed to seeing young people come into their business and get on to apprenticeships. I know other businesses which have given their employees pay rises – that’s what this does. So, there’s that element of it but there’s also the element of it in remaining internationally competitive, because if you can’t attract the capital, it will go offshore. The jobs and the investment and the wages will go with it.
SPEERS:
The anecdotal evidence sounds good from what you’re saying, but surely your department, Treasury, can put together some numbers on what the growth impact will be?
TREASURER:
What we’re doing is delivering the package we took to the election, that we put in the Budget. We’ve modelled that impact over its life and as I said, it lifts the overall size of the economy by just over a percentage point and that is not growth I dismiss. I notice that Chris Bowen is dismissive of growth…
SPEERS:
That’s only if you [inaudible]…
TREASURER:
Answer me this then, David. If the Labor Party thinks it’s a fair thing to cut the corporate tax rates for businesses less than $2 million. If it believes that is a good thing for the economy, why would it be a bad thing to do it for companies of $10 million? Of $25 million? $50 million? They can’t have it both ways…
SPEERS:
No, no, no. [inaudible] You’ve managed to get this company tax cut through up to $50 million turnovers. I’m just wondering what we get for that. Why can’t Treasury model those numbers and tell us, “here’s what we’ll get.” Or is the number too small?
TREASURER:
No, I don’t believe it’s too small and I don’t think it’s small for small companies and medium sized companies who have a turnover of less than $10 million who get that benefit today. They get it right now, David, and that’s what matters. This is instantaneous – whether it’s the instant asset write-off or the cut to the company tax rate for those businesses up to $10 million, that happens right now. On 1 July, it applies to businesses that have a turnover of $25 million and it goes up to $50 million, and that means we have delivered every element of this package that was to fall on the ground during this term of Parliament. That, I think, is a significant change. Remember, 6.5 million employees are impacted through the companies that we’re giving these tax cuts to. That’s more than half the labour force as a result of what we were able to achieve on Friday. And so it remains critical that we support the businesses, particularly as we’re starting to see improvements in the global economy, it remains a tough grind for businesses and this just gives them that extra room to be able to invest and grow. The research shows – not just in Australia, not just from the Coalition Government, but from Labor from when they were in office – that if you cut these rates of tax then you support growth, investment and wages. I don’t think that’s in dispute, David.
SPEERS:
Now, there has been some concern expressed by the Business Council about the fact that we will now have a two-tiered company tax system for businesses up to $50 million and businesses over $50 million until you are able – if you can – to get the rest of it through. Does that worry you at all that some businesses that might just fall over the $50 million turnover mark will restructure their business to get under the threshold?
TREASURER:
This is why we’ve always pursued the full package and that’s why we haven’t stepped back from the full package. The full package means that we take it through to all businesses and the only people standing in the way of that are the Labor Party who said they once believed in these things and if they were to support the Government then we’d be able to ensure that the concerns that were raised would not be realised.
SPEERS:
So to be clear, it will – the rest of the package – it will remain in the Budget in May?
TREASURER:
The Government remains committed to the package as I said yesterday, as the Prime Minister said last Friday and we have said consistently that we remain committed to reducing that company tax rate…
SPEERS:
That means it’s still in the Budget? It will remain in the Budget?
TREASURER:
… to ensure that Australian businesses can compete. Now, that’s what I’ve just said.
SPEERS:
As part of the deal to get this through with Nick Xenophon, you’re going to spend $260 million giving pensioners a one-off payment to quote “help them cover the cost of increased electricity bills”. You’ve spent the last couple of years trying to remove the energy supplement which is also there to help pensioners with their electricity bills. So, my question is, do they need help or not?
TREASURER:
This was the proposal put forward by the Xenophon Team and was part of the agreement, David. They are the ones who proposed that arrangement, we accepted that proposal in order to ensure that we could get the passage of these measures. We’re a pragmatic Government and that’s what is on occasion necessary to secure your legislation through the Parliament. We remain committed to the measures that we have when it comes to the carbon tax compensation. We don’t have a carbon tax. The Coalition abolished the carbon tax and so we don’t see the need for ongoing carbon tax compensation for new welfare recipients, which is what our policy is.
SPEERS:
So, from what you’re saying there, this is a bit of pragmatism, this is the nature of deal-making even if it does run counter to what you’ve been arguing the last couple of years on the energy supplement?
TREASURER:
The Australian people expect us to get things done. And in the last week, we were able to address the issues around the Racial Discrimination Act. We were also able to deal with getting our Enterprise Tax Plan successfully passed to ensure all the tax cuts for this parliamentary term are realised. Last week – the week before, I should say, we were able to get further savings measures through and our child care reforms through. Now, we’re a Government that just keeps getting things done. That’s what the Australian people expect us to do. They don’t just expect us to turn up in Parliament every week for the purpose of just having ideological arguments. That’s not our interest. Our interest is to get the results. Interestingly, these events of this past week have a very real fiscal impact on what Labor is running around saying. The Labor Party were counting on $4.3 billion to fund their promises by opposing these changes to taxes for small and medium sized businesses. $4.3 billion over the current Budget and forward estimates. Now they either have to commit to reversing that, or own up to the fact that 80 per cent and more of what they were using to fund their school promises is now gone. Now we saw this before the last election, for several years they went around they said we’ll restore the school kids bonus, we won’t support the pensions asset test changes or anything like that, on the eve of the election they always knew they couldn’t afford it, they do a quiet backflip, and all of a sudden those policies are in the bin. Now, we’re not going to let them get away with that. They need to say now are they committed to reversing these cuts or not?
SPEERS:
Okay, but they want to see the Budget figures closer to the election and see, you know, what they can and can’t afford…
TREASURER:
But you can’t let them get away with that David, seriously. I’m telling you it’s $4.3 billion. That’s what it costs to reverse in the current Budget and forward estimates, what we were able to pass. They have a commitment on schools which is around $5.3 billion in the current Budget and forward estimates. So they’re a party that have no growth policy. It wouldn’t matter if you had an electron microscope, you couldn’t find Chris Bowen’s growth policies because they’re not there. Andrew Leigh was asked on the weekend, what is your growth agenda? I’ve heard you ask them the same question David.
SPEERS:
I did.
TREASURER:
They say the NBN, well we’re delivering the NBN eight years ahead of schedule than what would have happened under Labor. So they don’t have a growth plan, and they want to dismiss policies which actually drive growth.
SPEERS:
Well let me just briefly turn to housing affordability. I’m not sure if you’ve seen the latest figures out from CoreLogic today, 19 per cent house price growth in Sydney over the last year. 16 per cent in Melbourne. APRA as you know announced some measures last week to try and tighten the rules for investors, limiting the number of interest only loans that banks can issue. Did they go far enough in your view?
TREASURER:
We’ll see. They’ll monitor this closely. I think this was another sensible, calibrated policy intervention from APRA. That is, I think, the preferable way to deal with these issues. Chris Bowen expressed concern about these calibrated measures, the sort of scalpel approach to dealing with this issue, but he wants to bring the chainsaw of abolishing negative gearing to the table. I don’t quite understand that. On these measures, I think they’re very sensible. Around 60 per cent or almost 60 per cent of investor loans in residential property are actually interest only. Around about a quarter are for owner occupiers…
SPEERS:
Should they be allowed at all? Interest only loans in the current environment?
TREASURER:
Sorry?
SPEERS:
Should interest only loans be allowed at all in the current environment?
TREASURER:
About 30 per cent is the judgement of APRA, 30 per cent is the measure the banks should now align themselves to…
SPEERS:
What do you reckon though?
TREASURER:
I’ll support their advice and judgement on that.
SPEERS:
Do you think they’ve done far enough? Or do you think they should go even further below 30 per cent?
TREASURER:
They’ve made their judgement and they’re the independent regulators in this area. I attended the Council of Financial Regulators, you’ll know some weeks ago, where these issues were discussed. It’s for them to make those calls on what their regulation is. I think they’ve made a sensible judgement. But we’ve got to keep monitoring it extremely closely. It’s not just about the house prices here too I should stress David, on interest only loans, we’ve got household debt to GDP running about 125 per cent or thereabouts. In a time where interest rates are now, what you want to be doing is paying down your principal, you want to be reducing the principal on your debt. Now, this I think is a very sensible measure both in terms of dealing with a hotter demand around investor lending, but it’s also a sensible measure to try and address the issues around levels of household debt, which is an external liability in many respects and that does put pressure on how people view the stability of the Australian economy. Now, we know that that household debt is backed up by real prices, real values in the Australian real estate market, but nevertheless it’s never a bad thing, particularly when rates are low, to be paying down your debt.
SPEERS:
I know you don’t want to do anything that’s going to further fuel the market, and build up that debt even further, you said a few weeks ago you didn’t have any proposals to allow people to access superannuation for buying a home is that still the case?
TREASURER:
I just said I wasn’t speculating on the Budget David that’s all, others are…
SPEERS:
But you did say no proposals, is that still the case?
TREASURER:
What I’m saying is I’m not speculating on the Budget, others inevitably will, it’s five weeks away now and we’ll be finalising our plans and proposals not only on housing issues but on any other measures. As I said on the weekend, our goal is to ensure that we grow the economy. Then we must continue to consolidate the Budget, so we can sustainably afford the services that Australians rely on. We need to keep downward pressure on the rising cost of living, and when you put these three things together, what you get is a higher standard of living for Australians, and that’s what our goal always is, and the Budget will continue to address. It’s about people’s jobs, it’s about their wages, it’s about their incomes and their services.
SPEERS:
It does sound to me like you were a few weeks ago playing down the idea of accessing super, you’re a bit more careful in your language today am I reading too much into that?
TREASURER:
I think you’re reading far too much into it, all I’m simply saying is the Budget is in May and I haven’t speculated on any of these measures, only those in the media have, and some have vivid imaginations. I don’t think it’s helpful for me to speculate on people’s imaginations.
SPEERS:
Fair enough, we’ll no doubt talk more in the lead up to the Budget, and we look forward to seeing what is in it. Treasurer Scott Morrison, appreciate your time this afternoon, thank you.
TREASURER:
Thanks very much David, good to be with you.