DAVID SPEERS:
Minister thank you for your time, the tax changes announced today will leave the budget $2.4 billion worse off and that’s on top of the $8.8 billion already announced to transfer to the Reserve Bank. If the Budget was in crisis before, what is it now?
ARTHUR SINODINOS:
I think the important point to make about the changes we’re announcing today is that in some cases we didn’t think the revenue was actually going to be delivered. An example I gave at the press conference was around the superannuation measure for investment earnings above 100,000 a year, where I recited to the press conference the advice we’d had from Treasury about the capacity to implement the measure and the high compliance cost that were attached to it. So my view is that, yes in terms of the budget bottom line, what’s written down in the economic statement and elsewhere, there is $2.4 billion of measures we’re not proceeding with, but that’s extra taxes we’re doing away with and that is actually a good thing for the economy. What you’re asking me about is our commitment to get the budget back into the black and sustain that over an extended period. The whole purpose of the Commission of Audit and the other measures we’re taking on the spending side is to have a really good look at expenditure and create that medium term fiscal sustainability. What we want is lower taxes off the back of lower spending and that’s going to promote economic growth, that will increase revenue and that will also increase or support the budget bottom line. So there is a virtuous circle here, it does mean taking some hard decisions up front about what we keep and what we get rid of. But we had over 90 measures that the public, business, other taxpayers felt was creating uncertainty because they didn’t know whether they would be ever legislated even though they’d been announced, and that was inhibiting economic activity in its own right. And we’re here about promoting economic activity, not inhibiting it.
DAVID SPEERS:
So it sounds like you’re saying the $2.4 billion announced today will be more than made up for in cuts through the Commission of Audit process.
ARTHUR SINODINOS:
The commitment we made in the election campaign and the measures we put out during the campaign indicated that over the forward estimates, based on what Labor had laid out in the economic statement and then in the Pre-Election Economic and Fiscal Outlook that came out during the campaign, the budget bottom line would be $6 billion better of under our proposals and over time there’d be $15-16 billion less debt. Now of course, since then we’ve been advised that there may have been a further deterioration to the budget bottom line. The economic parameters underlying the budget may have shifted, now we will take that into account when we do the Mid-Year Economic and Fiscal Outlook. But we are taking the measures…
DAVID SPEERS:
But you’ve shifted them yourself, haven’t you? With the $8.8 billion transfer to the Reserve Bank and then the tax changes announced today.
ARTHUR SINODINOS:
Any self-respecting Government, when it comes in, has to weigh up the priorities of competing measures. We’ve looked at this from a revenue lens, we’ve looked at it from a red tape lens, we’ve looked at it through a good policy lens. We thought for example, self-education expenses should not be capped at $2000, because that is actually stopping the 80% of people on less than 80,000 who are accessing this tax deduction from having a capacity to improve themselves. We need knowledge workers in the future, we need a more innovative economy. So we take decisions based on the policy, on the red tape implications, on the capacity to implement a measure and also on the revenue. But what I am saying is that the Mid-Year Fiscal and Economic Outlook will be full of swings and roundabouts, so I’m not going to speculate on where the budget bottom line will come out. It will be out in December and that will give people a capacity to judge our fiscal credentials, because it will lay out a path over the next 3 or 4 years and then in Budget we will consolidate that based on advice from the Commission of Audit on where to cut spending.
DAVID SPEERS:
OK, well you talked there about low income earners when it comes to the education tax rebate, what about superannuation? You’re scrapping a benefit for low income earners, superannuation benefit for them, but you’re also cutting taxes or doing away with a tax increase Labor had promised for wealthy retirees.
ARTHUR SINODINOS:
In the case of superannuation earnings of above $100,000, as I indicated at the press conference, the advice from Treasury was it was very expensive measure to implement and essentially it could not be implemented. It would also catch a lot of people with less than $100,000 per annum in income earnings in the superannuation retirement phase. So this measure would have been very difficult to realise the revenue that had been mentioned, it would cost money to implement and it would have big compliance issues for the superannuation funds. In relation to the low income super contribution, that was linked to the Mining Tax. Initially the Mining Tax, when it was called the Resources Super Profits Tax, was going to garner $49.5 billion. In the PEFO, the Pre-Election Economic and Fiscal Outlook, that was down to $4 billion, $4.4 billion and we were being asked to support a whole series of outlays, which would not have the revenue attached to them, to pay for them. We could not do that. What we’re doing for low income people on super, particularly women, who are the main people on low incomes, who have issues with superannuation because of broken patterns of work, coming in and out of the workforce to have children. What we are doing there, is we are going to be paying super through our Paid Parental Leave plan, so that they get more in retirement. They get a higher income when they are in the phase of caring for children early on and they also get money put away for superannuation. That’s a very important reform.
DAVID SPEERS:
Can I ask you about the thin capitalisation rules, the changes Labor announces where meant to make it harder for multinational companies to profit-shift out of Australia. You’re going to proceed with an amended version of that, can you explain what that will mean for these companies?
ARTHUR SINODINOS:
Well they were wanting to remove the deduction completely, it’s called the 25-90 deduction, which was going to inhibit the capacity of Australian companies wanting to invest abroad. Now we’re an open economy, we rely on open trade and investment. This was going to be counteracting our capacity to expand internationally. We’ve got a lot of innovative enterprises that can do that. Our view was that, where there are integrity issues, as in potential misuse of deductions and the like in this area, we were going to work with industry and with the Tax Office and the Treasury to address those integrity issues so we don’t throw the baby out with the bathwater. This is about not just saying a measure goes out completely because there may be an issue with one particular part of it, deal with the problem, but keep the measure, because it’s doing good things for Australia.
DAVID SPEERS:
Alright, you talk there about doing good things for Australia, can I turn to the Archer Daniel bid for GrainCorp, the American takeover of GrainCorp that’s proposed? The Treasurer will make a decision on this next month, what will be the driving principles behind his decision?
ARTHUR SINODINOS:
The Treasurer and I had a discussion about this this morning and he, I think, alluded to that in the press conference, and that is that he will be driven by what he believes is the national interest in this matter. He doesn’t want to do anything that’s contrary to the national interest. So he was effectively saying at the press conference today, for all the people who are commenting out there, whether pro or con, to him, he’s just going to blot out the white noise. He is going to act on the basis of sitting down and calmly looking through the pros and cons of the proposed investment and he won’t do anything that’s contrary to the national interest. He will take advice, but at the end of the day it’s his decisions and under the law it’s his decision and his alone. And so he is essentially saying people can speculate all they like, but at the end of the day he will not allow that to push him into one or other side of the argument. We have to wait until he’s finished his deliberations and he will make his decision I think in December.
DAVID SPEERS:
As you well know Senator, your National Party colleagues and indeed some of your Liberal Party colleagues in the bush are very concerned about this. Does the interest of Coalition harmony play any role in the decision making process here?
ARTHUR SINODINOS:
The coalition is always most harmonious when we’re all working together in the national interest. So what the Treasurer is doing, is saying to his colleagues that he will work exhaustively through a process of looking at the pros and cons of these measures. He is happy to receive any advice or deliberations, you know privately and all the rest of it, where people feel there are issues that need to be raised, but what he’s not going to do is engage in megaphone diplomacy on the topic and he’s encouraging his colleagues to follow his example.
DAVID SPEERS:
Assistant Treasurer, Arthur Sinodinos, thanks for joining us this afternoon.
ARTHUR SINODINOS:
Great to see you, thanks.