SUBJECTS: Budget, Tax reform, Superannuation, Treasury forecasts, Medibank Private
HUGH RIMINTON:
Hello, and welcome to Meet The Press. Outside times of war, it is economic management that tends to win elections. With Wayne Swan's budget, Labor is promising a return to surplus years ahead of what seemed impossible a year ago. Black is the new black.
[GRAB] LINDSAY TANNER:
The infamous 'debt and deficit' scare campaign is dead - stone dead. And what has killed it is that the budget is heading back to surplus.
The Opposition isn't buying it.
[GRAB] TONY ABBOTT:
The quickest way to get rid of this debt will be to get rid of this government.
RIMINTON:
In his budget reply, Tony Abbott committed himself to opposing the Government's new mining tax in opposition and rescinding it in government.
[GRAB] TONY ABBOTT:
The die is cast. Neither side will retreat. But fiscal credibility remains at least as central to the coming election. The Government is saying not just company tax cuts, but the proposed new 12% superannuation guarantee are at risk under the Coalition.
[GRAB] CHRIS BOWEN:
Labor isn't the best friend superannuation has ever had - Labor is the only friend superannuation has ever had. Financial Services and Superannuation Minister Chris Bowen is our guest and later, the national secretary of the Australian Workers' Union and Vice- President of the ACTU, Paul Howes.
[Morning newspaper wrap]
Good morning, Minister. A big day for Jessica Watson yesterday.
CHRIS BOWEN:
She has done very well.
RIMINTON:
The joke going around is that the Prime Minister has finally met a minor that he likes.
BOWEN:
[Laughs] Well I think the whole nation would join with the Prime Minister and the Premier and welcome her home. Well done.
RIMINTON:
Tony Abbott says not that mining will be the issue on which the next election turns. Do you buy that?
BOWEN:
Well, every election has a range of issues. Health will be important; the threat of the return of WorkChoices will be important; economic management and the risk that the opposition poses will be important; but so will also our Resources Super Profits Tax and what we are paying for with– the cut to company tax, particularly for small business and the very important boost to the retirement income of Australians. Through our changes to superannuation – moving the Superannuation Guarantee to 12 per cent and giving low income earners their tax back on their superannuation contributions…
RIMINTON:
When you get this out, you've got $9 billion a year coming on stream out of this tax. The argument that is made is that you cannot take $9 billion out of an industry without hurting that industry.
Is it your position that the industry will proceed without any break on it from this tax?
BOWEN:
All the modelling shows that when you change the tax treatment of mining, as we are proposing, and combine it with a cut in the company tax rate, then you will see mining grow over the medium-term. These changes to the mining tax treatment that the mining lobby has been calling for, for as long as I can remember, as long as I have been involved in looking at economic policy, miners have been calling for more incentives for exploration; for a more efficient tax treatment.
The Henry review found that the royalties, the current tax treatment of mining, are the most inefficient taxes in the country. It is time to change that to get a more efficient and more equitable tax treatment of mining in Australia.
RIMINTON:
You would think then that the mining industry would be cheering and they are not, let's have a quick listen to some of what they are saying There was the threat right now of a capital strike from mining companies. This in recent days from the head of Rio Tinto.
[GRAB] TOM ALBANESE:
I've already asked our managers to re-evaluate all new capital projects under worst-case tax scenarios.
ABBOTT:
So, this great big new tax has already put all investment decisions on hold.
RIMINTON:
So this talk of a capital strike, can it be believed?
BOWEN:
Well, you are always going to see a lot of brinkmanship with a change like this, a lot of argy bargy, a lot of claims and counter-claims. But we will just stick to the national interest and the national interest is that the Australian people deserve to have a share of the growing profits that have been driven by the mining boom. The minerals under the ground in Australia belong to all Australians. We need a more fair, equitable, and efficient tax treatment of it. We are going to see a lot more of this; we knew when we took this decision, that there would be a lot of fight-back. We knew that this is a very well-resourced sector, which would argue vigorously their case and put a lot of resources into that, but we also knew that is used in the national interest and that it was an important decision to make.
[GRAB] TANNER:
We do not support any suggestion that it would be good for the Australian economy if there was any slowing of mining activity in Australia.
RIMINTON:
So, if there is any slowing of mining activity as a consequence of this tax, does that means on the Government's own measure, the policy will have failed?
BOWEN:
Our modelling shows that there will not be. You will always get changes in international demand and different circumstances have different effects, but our modelling and our research and our very considered analysis shows that there wouldn't be that negative effect, and that by changing the taxation treatment, providing more incentives for exploration, would have a positive effect. As well, of course, of the very important corporate tax rate across the board that every business in Australia would benefit from, which would need to be funded through this tax.
RIMINTON:
What is your analysis telling you about the polling numbers that you're getting? Right across the polls, there seems to be one narrative - that this government has lost its mojo with the public. Is that how you read it?
BOWEN:
There's no doubt that we have been through a difficult patch; we have made some decisions which has been difficult; has frustrated some and annoyed others. We are going through what most first-term governments go through. There's a perception in the community that first-term governments do not get defeated. In my view that is an historical accident, not an historical rule. First-term governments often have a difficult time, as people get frustrated about certain decisions that the Government has to make from time to time acting in the national interest…
RIMINTON:
But a lot of the frustration is now coming home to the Prime Minister himself. The suggestion being that he can come up with these wonderful complex recipes – to sort of go into Masterchef metaphor land– but he can't plate it up, he can't sell, he can't cut-through to people with what the Government is trying to put together?
BOWEN:
What is happening here is that the Prime Minister has returned to more normal levels; He has been on stratospheric levels of support for some time. More than for any Prime Minister in living memory has his popularity has been so high. He has now returned to more normal levels for Prime Ministers. Prime Ministers making tough decisions, from time to time, have to take the political downside. That's what has happened to us. The Prime Minister is now preferred Prime Minister by about 15 points, which was about the same level that he was preferred over John Howard, and how John Howard was preferred over Mark Latham.
But I'll say this Hugh, I expect this election to be close, to be tough, and if people are contemplating a protect vote against the Government, because they are frustrated about one or other of the decision we have made, really need to think carefully. Do you want to wake up on the Sunday after the election with Tony Abbott as the Prime Minister of Australia, because that is a possibility in any election, and a first-term government traditionally comes very close to losing? John Howard came very close to losing in 1998; Bob Hawke came very close to losing in 1984…
RIMINTON:
Funny that line you just said was the line that Paul Keating said about John Howard, and then he got election. Can this government afford any more back-flips?
BOWEN:
We are just going to continue to take decisions in the national interest and that means, sometime, making unpopular decisions. It often means frustrating people. We understand that some people are frustrated and disappointed that we didn't get the ETS through. We understand it. We argued vigorously with the Liberal Party; we struck a deal with the Liberal Party – the Liberal Party signed off on a deal - and they reneged on that deal. We are frustrated and disappointed too that Copenhagen wasn't a better outcome; it was a reasonable outcome and there was progress made, but we were arguing for a better outcome. The Australian people would have liked to have seen more progress in Copenhagen. We understand that and we accept that. The Prime Minister has made it very clear that he would have liked more progress there as well.
RIMINTON:
Time for a break. When we return with the panel, how much will this election determine the comfort of our retirement? Meanwhile, the budget seems to have inspired some unusual metaphorical wanderings.
[GRAB] ABBOTT:
How can you believe a Government which spends like a drunken sailor? Telling us that all of a sudden it's going to go from promiscuity to virtue?
TANNER:
Tony Abbott's approach to budget policy is like those dodgy American televangelists, who preach chastity during the daytime TV shows and at night are out at cheap motels.
RIMINTON:
Welcome back to Meet the Press with Financial Services Minister Chris Bowen. And welcome to the panel, Jessica Irvine of the 'Sydney Morning Herald' and Glenn Milne, columnist for 'The Australian'. Good morning, Jessica and Glenn. Welcome.
Now in his budget reply, Tony Abbott disputed the Government's claims that the mining super tax will help boost superannuation. He sees the super burden falling elsewhere.
[GRAB] ABBOTT:
The Government must come clean about whether higher superannuation contributions are to be paid out of workers' pockets or by their employers. If it means an extra 3% tax payroll tax on every business, that's a $20-billion-a-year handbrake on economic growth.
JESSICA IRVINE:
Good morning Minister. You have said as part of raising taxes on mining companies, you are going to use some of that money to put into people's superannuation accounts? Isn't that a good idea at anytime of day to increase the levy from 9% to 12% - do you want to be the minister that does that regardless of what happens to mining taxes?
BOWEN:
We'd like to do that. We think there is a big gap in the retirement savings of Australians; that we don't have enough savings for individuals or the nation, for a dignified and comfortable retirement. But it does come at a cost and the Liberal Party either misunderstands this or represents it.
You have tax concessions on superannuation that are taxed at lower level than normal income. That means when you increase the superannuation guarantee, there is a very significant cost to the Budget of doing so. By the time the superannuation guarantee hit 12 per cent, it will be $3.6 billion a year. In addition to that we are returning the contributions tax to low income earners and allowing people over fifty, very importantly, to 'catch-up' on their superannuation payments, so they can put more money aside for superannuation at those concessional tax rates.
Now this is all expensive. It would be fiscally irresponsible to do this without a mechanism to pay for it, and that mechanism is the resource super profits tax. The Liberal Party can try and cut the knot, but the fact is that if you are going to put more money aside for superannuation for Australians, it will come at a cost to the Budget, and it needs to be funded if you are going to be responsible economic managers.
IRVINE:
You are sort of holding that hostage aren't you? Its people's retirement nest eggs that you are saying you aren't going to get that unless you can the miners on board with this.
BOWEN:
As I say Jessica, it needs to be funded. I don't think the Australian people would approve of us making these sorts of commitments without a funding plan to do it; and our funding is the resource super profits tax. Either the opposition needs to say 'we won't do this, we won't boost the retirement incomes of Australians, or we will fund it another way'. From what I've seen so far they are saying that they won't boost the retirement incomes of Australians.
That means denying a 30-year-old in today's workforce, on average weekly earnings, an extra $108,000 when they come to retire. Or it means a woman who has to take maternity leave or work some period as a part-time employee, $78,000; Tony Abbott wants to deny that increase in retirement income.
IRVINE:
You are saying that it comes as a cost to the Budget, but it comes as cost to the Budget because you are losing income revenue when you do that. So aren't you just giving with one hand and taking with the other? People will get lower wages because their employers are paying more for super. Isn't that how it works?
BOWEN:
These are always matters for wage negotiations and that is what has happened when superannuation was introduced, and of course we heard the same thing then. The Liberal Party argued then that this would be a tax on jobs; unemployment would go up and businesses would be driven out….
IRVINE:
But it comes out of wages doesn't it?
BOWEN:
I don't think anybody wouldn't seriously now say that superannuation isn't a very good thing for Australians, and for Australia. And yes, it does get built into wage negotiations; the unions have recognised this - employers and employees will need to sit down and discuss it. That's why we have done this over a very long period of time, nine years. Some people have criticised this for taking too long. This will allow plenty of time for this to be built in, to company projections; we have timed it to coincide with the corporate tax cut in the first instance, and also to allow plenty of time for allowed employers and employees to sit down and factor this into their waged negotiations.
GLENN MILNE:
Time, time, you mentioned time Minister. Everything that we have been discussing here is predicated on the out years, 2014, 2012, et cetera.
I'm going to ask you a trick question, so be ready for it - did you see the global financial crisis coming?
BOWEN:
I do not think many people predicted the severity of the global financial crisis.
MILNE:
Now that is precisely my point, in 2014 you are predicting that the Budget will go into the black. I mean, how can you say that? I had a conversation with Peter Costello the other day, who did bring down surplus budgets, and he made the very good point I think, that you don't have a surplus budget until you write it into the Budget papers?
BOWEN:
Well this is the Treasury modelling done by…
MILNE:
But you can't blame the Treasury.
BOWEN:
No, no, in fact I am backing the Treasury here, Glenn. The Treasury take a conservative approach to these things…
MILNE:
But they got it wrong last time.
BOWEN:
This is the point. Joe Hocky last time said that the Treasury is being far too optimistic; they've got heroic assumptions, and these figures will never be delivered. Of course, they were delivered and better then delivered. Now he is saying that they were too pessimistic last time. Last year he said that the Treasury was being too optimistic, now he is saying that last year they were too pessimistic.
Forecasting is never an exact science…and the Budget papers make that clear. There is always an element of risk with forecasting...
MILNE:
You are saying in that that intervening international events could occur, which means that we don't go into surplus.
BOWEN:
I am saying that these projections are conservative. These are the Treasury's best estimates looking at the international and domestic situation going forward. And that traditionally, the Treasury estimates, sure they vary one way or the other, but they don't vary consistently one way.
Last time, as I say, Joe Hockey said that Treasury was being far too optimistic and that we were dodging the books, and there were all sorts of allegations about the integrity of the Treasury. Now we are seeing the same, but they can't be believed, because the Opposition got it so wrong last time.
MILNE:
One thing specific that was written in the Budget papers, and fair enough, Tony Abbott says you should sell Medibank Private. You're keeping it of course. Why should the government run the Medibank Private?
BOWEN:
We have the view that Medibank Private plays an important role in terms of medical health insurance premiums and that it is appropriate that the Government have some activity there; that government be putting downward pressure on what is a very important cost for many people. I think the Australian people would agree that Medibank Private is an important institution and shouldn't be sold, and that certainly is our position. The Howard and Costello Government talked about the surpluses that they delivered, but they were partly delivered by a lot of privatisations, and some of them were appropriate and some of them weren't. We think that this is one will be inappropriate.
RIMINTON:
Okay we are out of time, Minister for Financial Services, Chris Bowen.
BOWEN:
Great pleasure.