23 July 2013

Interview with Ross Greenwood, 2GB Money News

SUBJECTS: G20, the economy, PNG arrangement, debt, Fringe Benefits Tax, car manufacturing industry.

ROSS GREENWOOD:

We appreciate your time, Chris Bowen.

CHRIS BOWEN: 

My pleasure Ross, good to talk to you.

GREENWOOD:

You're just back from the G20, and the G20 is the largest 20 countries in the industrialised world, what sort of feeling did you get about the world right now and Australia's place in it?  

BOWEN: 

Yeah, I am just back from the G20 meeting of Finance Ministers. And look I went to the meeting concerned about where the world economy is heading with question marks around some countries – and I didn't hear anything at that G20 meeting that would change my view, I must say.

I do think the world economy is facing some headwinds and some challenges. You've got Chinese growth coming off, still growing strongly compared to the rest of the world, but down from where it was. That's not a crisis but it's something we need to be concerned about and aware of because we're very closely linked to Chinese economy now. We've got the European economy in a pretty deep recession and a long recession now, and that's obviously dragging down world growth. And I talked to the Finance Ministers of some of the emerging economies, places like India and Brazil, and they're also seeing their growth not being as strong as they might have predicted, or the world might have predicted a little while ago. So I do think we're going to see some challenges in the world economy in the period ahead. Now Australia is well placed to deal with that, but it will affect us of course.

GREENWOOD:

I was going to say that you also, before the election, have to put out the pre-election economic statement. Clearly the timing of that is very much up to the Prime Minister. But in that there have already been suggestions that there may be downgrades to economic forecasts, such as budget deficits may blow out further. That would mean that the Government's net debt would also start to rise even further than previously forecast.

BOWEN:

Well a couple of things there, Ross. Yes, there's a pre-election statement that is always put out and these days in most elections it is also common for the Treasurer of the day and the Finance Minister to put out their own statement – you can expect both of those things to happen this time. And they update the figures and they obviously update the Budget projections. What we've said is that we'll stick to our strategy, which does mean some difficult decisions from time to time. We've already made some of those savings decisions which no doubt we'll talk about and from time to time they'll continue to need to be made. And we've said the new measures will also be paid for.

So you've got things like the asylum arrangement with Papua New Guinea which will have some upfront costs which will need to be factored in and updated in the updated economic statement.

GREENWOOD:

Just one thing about that, PNG Prime Minister Michael (sic) O'Neill has been quoted as saying costing have not been done and I cannot simply give you a figure that is imaginary; and basically saying that PNG has done well under out of this, it's a good deal for the country. I mean you must have done some numbers on this because you've got to stick them into that economic statement. What sort of numbers have you come up with?

BOWEN:

Well look you need to look at this holistically. This is an important arrangement to try and stop people coming to Australia by boat for all the reasons that we would understand that that's important – the most important being saving people's lives and getting a fairer system. It also means less cost to the Budget over time, if boats do stop coming, because they're expensive.

So, all of that needs to be factored in. This is a pretty comprehensive arrangement with Papua New Guinea, obviously we want to make sure it works at both ends, and I'll put all of the figures in that updated statement, Ross.

GREENWOOD:

But there is a bit of a finger in the air about this because you don't quite know what impact this measure is going to have?

BOWEN: 

Well look obviously it is an important and comprehensive measure. We've moved quickly on it. Kevin has been Prime Minister now for about three weeks, he's made this a priority to get it fixed and we've made huge progress to get it done. It does mean that there's some detail work going on and has been going on as we've talked to the Papua New Guinea Government about it; and of course all of those figures will be updated in the Budget update.

GREENWOOD:

Alright, I just want to take you through one thing. In one of your first economic notes that you put out, just as previous Treasurers have on a Sunday night, you again just as the former Treasurer Wayne Swan had done, have shown Australia's debt, net debt, compared with the rest of the world. It showed it to be favourable compared to the United States or Europe or the United Kingdom, which have all been in recession.

Just one thing about this, and I guess a lot of people do worry about Australia's net government debt and the direction of it more rather than the size of it, the direction of it and that's something. I spoke last week with David Murray the former chairman of the Future Fund plus also of course the former Chief Executive of the Commonwealth Bank, certainly someone who needs to be listened to. Here is what he told us:

"…To say that Australia is favourably placed gives a misleading position of our economy because Australia has high net foreign liabilities, that is both the government and private sector are indebted to the rest of the world. Now this is most unusual for an advanced economy. Most advanced economies have net foreign assets. Because we have this position with the rest of the world, our situation is actually worse than people we think are in bad shape and in my view now the Commonwealth Government has, their debt is probably $200 billion higher than it should be."

It's an interesting point, Chris Bowen, because clearly what David Murray is saying here is because of rising Federal Government debt along with private sector debt it makes Australia more vulnerable to shocks; shocks in the currency, shocks in our terms of trade, all of these types of things have an impact potentially on interest rates, certainly on the economic health of Australia.

BOWEN:

Well David's partly right there. I wouldn't agree with his conclusion, though, but he's partly right to point to Australia's debt position including private debt and that's been the case for a long, long time, Ross.

As you know, we've had high private debt and that's been the case for as long as anyone could care to remember because the banks borrow overseas to fund their lending, our companies borrow overseas to fund their investment in expansion, and in and of itself that's not a bad thing because it means our economy grows. But it means that you do have to have an eye to that [inaudible] which is an important part of the equation. Our Government debt, nobody could argue, isn't low compared to other countries, it certainly is low, very low. And one way of looking at that is the credit rating agencies look at government debt rates around the world and we're one of only eight countries where all the three big credit rating agencies say, "Well we'll give it a AAA and we'll give it a stable outlook". And Moody's recently had a look at Australia and they actually looked at the total debt, not just the Federal Government debt, but the Federal Government plus the state government debt. And they said, "Well look Australia's actually got the second lowest government debt rates in the world". The only country that's got less is Luxembourg, in terms of the comparable countries.

So that's a pretty good thing and, yes, we do need to be honest about where we're placed around the world and, yes, our debt levels when you take into account private sector debt, government debt, have always been high. But if you're going to say, well the Government should reduce its debt because our private debt is high, well I think you really got to look at where Government debt is now compared to the rest of the world. And yes we've got a plan in place to bring it down because we do want to see lower government debt, we want to see a return to surplus. But if you're going to have this debate and these discussions it's got to be held in a way which recognises the context and the fact is most governments around the world would give their own teeth for our rate of deficit and for our national debt levels when it comes to government debt.

GREENWOOD:

There's no doubt about that but as I say the questions is, it's that total debt as to whether it makes the shocks.

I want to go one other point that clearly has made a lot of headlines in the past week or so. Since the carbon tax changes were announced, moving to an emissions trading scheme one year earlier than forecast and then obviously saves were required about $3.8 billion. One of those key measures was Fringe Benefits Tax on cars, which has caused an outcry and as you're aware a number of companies, leasing companies, salary planning companies, have already announced significant job losses even since that day. I want to first off go to the Deputy Prime Minister Anthony Albanese:

"There's a lot of people clearly fiddling the system and let me tell you clearly as I sit here in the Sydney CBD, the chances are it's not a Holden Commodore, it's a BMW…"

Now, do think that Albo might have been a little flowery there as now we are discovering the vast majority of people who do have leases might be public servants, might be people on less than $100,000 a year, and in fact, you know that the industry is giving you different numbers than what maybe the Australian Bureau of Statistics was giving you?

BOWEN:

Well, the Australian Bureau of Statistics doesn't have any reason to give us the wrong numbers of course, Ross, they do this work very professionally.

Look, there's a couple of points to be made here. Firstly, was this an easy decision to make? No, of course it isn't, no government like making decisions like this that are going to annoy people. But you've got to make tough decisions in government. We made the decision to move to a floating carbon price and I think that was the right decision for Australia; I think that most business commentators would agree, it will improve our competitiveness while at the same time meaning that we are taking action on the environment, so that's the right decision, point one. Two – it's got to be paid for. We could make all sorts of decisions and not pay for them but it wouldn't be the responsible thing to do.

GREENWOOD:

Okay, but I'll pick you up on this, though. Surely and here you go I'll just throw it out for you, surely rather than making every person who has a company car fill in a log book and you might say, well that's not so onerous we can do it different ways, sure. But it's about productivity, about the use of people's working time. Surely it would have been easier rather than the 20 per cent statutory declaration that they could make, you could have raised that to 30 per cent or 35 per cent. Now sure, the industry might not have been happy but it would have surely taken a lot of paperwork away from those people who drive company cars.

BOWEN:

Well I will come to the paperwork point, Ross, because that's an important point. But I just want to say this: apart from there being a decision taken to pay for the lower carbon price, it's also a matter of fairness as well. Now if you go down to the car yard on Sunday with your wife and you decide you need a new car for your family – it's not going to be used for work but it is going to be used for your family and that's the perfectly appropriate and the right thing for you to do. You don't get a tax concession for it, you don't get a tax break for it.

So, if you go down to Parramatta Road on a Sunday, in my view, you should be treated exactly the same way as if your company buys it for you and then leases it to you, if you're not using it for work. It's a matter of fairness here, Ross, we need to treat people the same.

Now if you are using your company car for work then you should get a tax concession for it, no question about that. And all we've said is, we just need a little bit of evidence to say that you are using it for work purposes. We don't need much, we don't need you to keep records for the whole time. What we've said is, if you keep some sort of a record, a logbook, for three months, that will get you a tax concession for five years. Now frankly Ross, I don't think that's too onerous. We're talking about tax payers money and if you -

GREENWOOD:

I agree with you but why not just change that limit from 20 per cent to 30 per cent? You could have changed it to 50 per cent if you wanted to. Do you understand what I'm saying? Just to make life easy for business? You're supposed to be taking away the red tape from business and red tape keeps on thinking you're throwing more of it at them.

BOWEN:

No, no. I completely understand your point Ross but if you claim any sort of tax deduction most people understand and accept that you're meant to keep some sort of record. Now I don't think it's too much to say three months' worth of record keeping then gives you a tax concession for five years. Now most people have to keep records the whole time.

You know if you claim the childcare rebate you've got to show that your child is in childcare the whole time. If you claim other sorts of deductions, work related expenses, you've got to keep the records. Now we've said three months' worth of records and you can choose which three months over a 12 month period so you don't choose the period when you're on holiday and you're not using the car for work purposes; you can choose to do it when you're doing your most work related travel to maximise your tax concession. That's fine, we'll let you do that and then you can claim that same tax deduction for five years. Now that's not that bad Ross. And these days there's lots of phone applications, phone apps, you can download it on to your phone, you put your rego number in, you put your odometer in, you press go when it's a work related expense and it will send your records off for you to your accountant. The world's moved on since the 1980s.

GREENWOOD:

I couldn't agree more. Okay, one last part about this because this is a consequence of the action that you have taken and that's fine. I concede, that you are the Treasurer and you can tax people in any way in which you want to.

What about the fact that even within days, the car industry was reporting 8,500 cancelled vehicle sales –are you not concerned about the future of Australian manufacturing? After all it was your Government even the Prime Minister at the very beginning when he first made his first speech, when Kevin Rudd had become the Prime Minister, he said well we'll do everything to try and keep the car industry in business in Australia.

BOWEN:

Well we do want a car industry in Australia and we've worked with Holden and Toyota and we continue to work with them. As a separate question, we continue to work with them about what sort of investments are required to keep that car industry in Australia -

GREENWOOD:

- But this could tip General Motors over the edge and you understand that.

BOWEN:

Let me finish the sentence please, Ross. This particular measure is separate. Now, yes we'll work with the car companies but Ross every company in Australia, every industry would love it, would just love it, if the Government said, 'Look tell the people that you're selling to, that the Government will give you 20 per cent of the cost back and it's a really tax effective thing to do'. I mean every manufacturer, every service industry in Australia would love that, because it's a good deal – now that doesn't mean it's the right thing to do.

We have said, fair go, if you're using your car for work purposes then you should get the tax concession.

GREENWOOD:

Will Holden survive as a manufacturer in Australia, Chris Bowen?

BOWEN:

Well I certainly hope so, but there's not many countries in the world with a strong and sustainable car manufacturing industry. It is tough. I think they can, I think they will, we'll certainly work with them on it, but we've seen other companies close over the years. So it is tough and anybody who suggests it's easy, is having you on.

GREENWOOD:

Chris Bowen, Treasurer, we appreciate your time here on Money News.

BOWEN:

Good on you, Ross.