QUESTION:
Treasurer, perhaps if I could just ask the first question. In a way you’ve brought together today the key message about the reduction in personal income tax rates, and I think many of us understand your position in the global context as well. What we do here as well is make reference to increasing the Medicare levy, potentially increases in that, changes in [inaudible] presenting this into the green paper in a very clear and simple way. It’s going to be important to sell that message. So I just thought I would reach to you and see how we set up that context up well so we get that message through?
TREASURER:
Well, increasing the Medicare levy, which is a proposal put forward by two states, is simply about increasing income tax, simply dressing it up, it’s an increase in income tax. Of course, the Medicare levy only raises a fraction of the total cost of Medicare [inaudible] raises a fraction of the total cost of the National Disability Insurance Scheme. And the Medicare levy applies for people earning more than $20,896 and it becomes a flat tax at around $26,000 from memory, a little higher for seniors around $33,000. Look, if we are concerned about the impact of a higher tax rate as a disincentive that is there, a higher Medicare levy simply does that. It increases the tax rates [inaudible] and is essentially a flat tax, which causes enormous pain for people earning just over $33,000 - $34,000 a year.
MODERATOR:
Thank you. Questions? Yep…
QUESTION:
Treasurer, [inaudible] first of all, thank you for outlining that vision. We certainly need tax reform in this country. Prior to the last election when our Prime Minister said we had a Budget emergency, you noted the fact that we need to live within our means. Will you, between now and the election, outline very clearly to the electorate so we can vote fairly, what Government services will be cut or scaled back [inaudible]. Will you before the next election, tell us clearly where government’s funding will be cut so we know what we’re voting on?
TREASURER:
Yes [laughter].
QUESTION:
Jonathan Tyler, University of Technology, Sydney. Treasurer, how will you achieve these admirable goals when you have a Senate which has no responsibility?
TREASURER:
I don’t think there’s any good answer to that really. This is about the national interest. It is about the national interest. The Senators at the moment are spending less time on government legislation than it has in many years, it seems to talk about all the other issues. They spend a lot more time talking about other issues other than the Government’s own reform agenda. I think there are a number of Senators who withstand [inaudible], because I think all Senators in the Coalition will understand how important this is. Outside of the Coalition, there are a number of Independent Senators that will understand that the best way to get the economy moving is to provide people with an incentive to invest and have a go. And I think there are a large number of people in the Parliament that understand, that those most affected, adversely affected by bracket creep, are inevitability going to be middle income and lower income Australians, who want to get ahead. You just can’t keep penalising incentives and expect that the world’s going to get better. I mean, it just doesn’t work. At the moment, terrific, our economy is one of the fastest growing economies in the developed world. And sometimes it doesn’t feel like that domestically. If you look around the rest of the world - and we have one of the fastest growing economies in the developed world. And we’ve been fortunate, and we’ve got the benefit of a lot of hard work over the last few years, particularly in our exports of iron ore and coal. But we cannot sit on our laurels and expect that things are going to continue to get better unless we earn our future, unless we earn our opportunities. And we have to give our people an incentive to get ahead. We’ve got to do it. Because if they feel that it’s hard to get ahead in Australia, they are more mobile than ever before. Companies are more mobile than ever before. I mean, 12 companies pay a third of all company tax in Australia. 12 companies pay a third of all company tax in Australia. We have one of the highest collections in the world of company tax, and just 12 companies pay it and they’re not hard to work out. The four major banks, two of the big miners, that have just seen their profits halve, which in turn affects our ability to raise money. A few of the retailers, a telecommunications company, it’s not hard to work them out. What if they start expanding offshore, paying tax offshore, reducing their payable tax in Australia, but becoming more profitable along the way. There are a number of companies that have done it over time. So what we’ve got to do is provide an incentive for people to have a go in Australia. For the next Atlassian or the next [inaudible] - or whatever case that might be, setup in Australia, have a go in Australia, employ Australians, and expand offshore, but make this your base. Make your shareholders in Australia your base. And that’s what I really want to do.
QUESTION:
Treasurer [inaudible]. You said we should not be taxed unless you have earned the income… but you then went on to confirm to the employee share scheme changes that were made. Sure, those changes made some very important [inaudible]. What if the shares are not sold at that time? Not all employers are so heartless [inaudible]. I could go on and give other examples, it’s only going to complicate [inaudible] so there’s much more work to be done in that area.
TREASURER:
As I said, in principal, we’re heading in the right direction. We should be encouraged. We’re heading in the right direction. I can see there’s more work to be done, but we’re heading in the right direction.
QUESTION:
Treasurer [inaudible], retired accountant, Tax Services Australia. My rough economic understanding is that you have a recession, you have some deficits. We’ve had 24 years since the last recession fortunately. We seem a very long way from surplus and if we have another recession or worse, our moderate debt levels now could easily become completely different. Can you outline more as to why we’re in deficit now and why we don’t have a surplus in sight?
TREASURER:
Well, we do have a surplus in sight, you’ve got to reduce government expenditure as a percentage of GDP. This year it’s 26 per cent and it’s too high. It’s too high. In part, we didn’t have the growth that we were expecting. In part, we faced the largest fall in the terms of trade in Australian history. And when I came to office, we had iron ore at around $130 a tonne. It’s around $45 to $50 a tonne now. It was our single biggest export. Why am I positive about us addressing this? 55 per cent of Australia’s export revenue comes from mining and resources, 55 per cent. But it’s 10 per cent of our GDP, 10 per cent of our economy, around 2 per cent of jobs. Agriculture is around less than 5 per cent of GDP and it represents roughly another 10 – 15 per cent of exports. So our export dollars are coming from mining resources and agriculture. 70 per cent of the Australian economy is services, but just 17 per cent of our exports - just 17 per cent. So for the first time in our history, for the first time, we were always the land down under, for the first time in our history, we can compete with the rest of the world because of the internet and new telecommunications. We can provide services into the fastest growing region in the world, in immediate time, whether you’re located in Sydney, or [inaudible], or located in Darwin, or located in Perth, or located in Broken Hill, wherever the technology allows to you to do it. So you can be an accountant and provide financial advice into a market overseas about [inaudible]. You can be a financial adviser and provide financial advice into China or into Japan, where you’ve got massive ageing populations that are looking to invest money back into global markets. And we can do that. And now through our Free Trade Agreements we are removing the barriers, we’re removing all the barriers so that our people can sell products and services directly into these countries. But you know what, that’ll help. That’ll help to address the Budget. And why? Because we’ll be a more prosperous nation. At the same time we reduce our recurrent expenditure. Welfare is still growing, more than 15 per cent in real terms over the next four years. 15 per cent in real terms over the next four years. And of course, we’ve got to address that. Part of it is because of the ageing population, which is totally understandable. But part of it is because the previous government locked in expenditure that they didn’t properly pay for, and the same in health, the same in education. So, we’ve got to be better at delivering services, that’s in partnership with the states, but also, we’ve got to look to broaden our revenue as a Government and that comes from diversifying the taxation base.
MODERATOR:
Treasurer, I’m just conscious of the time, we’ve properly got time for one more…
QUESTION:
Treasurer, we certainly welcome the six principals for tax reform that you set out. With regards to being fit for the purpose of the modern economy, what are your views of the [inaudible] globally competitive, and how important is bipartisanship to achieve that?
TREASURER:
Well, we are in discussion with the states about tax, and I don’t want to pre-empt those discussions, I really don’t. We have good faith in discussions with the states about it. There’s no doubt that with the exemptions in place in relation to the GST, the GST’s pace is narrowed, particularly with the growth in the healthcare sector, which is essentially GST free. And because health is growing with the ageing population, it means that the tax base for the GST is narrow. So, wherever we can have integrity measures, such as and most obviously, the low value threshold for the GST [inaudible]. Look, we’re working on the tax mix, I don’t want to say any more than that. How important is it to be bipartisan? Well, it’s vitally important. The most encouraging voices around the table at the treasurers meeting, were in fact, for me, the Liberals, all thought that this needs to be done. But also, there were some Labor voices that said this needs to be done. Now they said they’ll also be very public in their support for the change. That’s hugely encouraging, hugely encouraging. I hope they are publically supportive, because ultimately, they’re also the beneficiaries. As I point out to my state colleagues all the time, if NSW grows, if Tasmania grows, if the Northern Territory grows, if all the states grow, that’s good for Australia, that’s good for me. And if I can lift the economy, it’s good for all of you. And yes it can be patchy around the nation, in central Queensland is feeling it hard. Western Australia has found it pretty tough with the end of the mining construction phase. But you know what, if we lift the tide, all boats rock. And that’s why tax reform, and economic reform, can never end, can never end. There’s no finish in mind for reform - because reform is basically orchestrated change. That’s what reform is. And if we can control change, we can get maximum benefits out of it, for all Australians.