ALAN JONES:
Treasurer, good morning.
JOSH FRYDENBERG:
Nice to be with you Alan.
ALAN JONES:
Thank you. Can I just ask you the first question about this embassy issue? Are you going to be moving the embassy to Jerusalem; the Australian Embassy and advancing the two-state solution?
JOSH FRYDENBERG:
Well, the Prime Minister is going to begin a process now to consider that possibility. He has obviously made some positive comments about that, he's also announced that we will be deepening our defence ties with Israel, as well as looking at the Iran deal.
I think this was principled and positive by the Prime Minister; and Israel is an anomaly as a country where Australia has an embassy, but not in the nation's capital.
ALAN JONES:
I mean, Jerusalem was the capital of the Jewish state 3,000 years ago.
JOSH FRYDENBERG:
Well, there's a bit of continuity there and as you know, West Jerusalem, where Donald Trump established the American Embassy, would always be part- would always be Israel's capital as part of a two-state solution.
So, I think this announcement by the Prime Minister is welcome and I think it's in Australia's national interest to deepen our ties with the only democracy in the Middle East.
ALAN JONES:
And you've already voted against the Palestinian bid to chair the United Nations group, the G77, it's unbelievable they even think that they could be successful in that.
JOSH FRYDENBERG:
Well, I think this again is an important announcement by the Prime Minister, an important position. Obviously, it upsets those on the left, Alan. What they fail to understand is that if you happen to be gay or from a minority in some of these Arab countries, you don't get a fair go.
In Israel, there is tolerance for everybody. It is a democracy, it's a vibrant democracy, but also it's been a long standing friend of Australia and next year, we'll be celebrating 70 years of diplomatic relations.
ALAN JONES:
A by-election on, a critical by-election on, on Saturday. I've said many times, I don't believe it's critical because it affects the future of the Government, it's critical because it's an outstanding candidate and we need outstanding candidates in Canberra.
However, can the Government and you particularly as Treasurer, and the former Treasurer Scott Morrison, be criticised for not really prosecuting the case about negative gearing and dividend imputation and these two policy issues by the Labor Party have the potential to impose very significant economic damage on people who are going to vote on Saturday.
JOSH FRYDENBERG:
Well, you're right that they will damage the Australian economy and they will hurt the hip pockets of Australian families, be they in Wentworth or anywhere else.
In terms of negative gearing and the changes to the capital gains tax, this would be coming at a bad time for the property market, as prices have come down in capital cities for 12 consecutive months. And we're seeing more first home buyers get into the market than previously.
Now, Labor's going to take a sledge hammer to that and as you know, a family's greatest asset, the predominance of their wealth, is in the family home.
ALAN JONES:
That's one side of the story, Treasurer, but on the other side of the story are people who can't afford a home and therefore rent. Now, if people don't get the advantage of negative gearing and decide to stick their money somewhere else, there's less housing available for rent and rents are gonna go up. Now, that's not government saying that, BIS Shrapnel said that.
JOSH FRYDENBERG:
Correct. There's a lot of independent commentators who've talked about the impact on rents in the market, bearing in mind that investor properties in the residential market are around a third of the overall housing stock, so you take that out and you will increase rents.
ALAN JONES:
Have you prosecuted that case successfully? I mean, this is the point, I just don't understand why I don't hear this from every treetop from the Government. The same thing with this awfully named, dreadful name, dividend imputation but basically, people who don't pay tax don't get the benefit of the rebate. Now, there's thousands and thousands of people caught up in this.
JOSH FRYDENBERG:
Well, you're absolutely right, there are- and I have an article today…
ALAN JONES:
That's correct.
JOSH FRYDENBERG:
…in the Australian. There are 900,000 individuals who will be slugged with a higher tax as a result of this policy from the Shorten Opposition. There are 200,000 self-managed super funds that will be affected and there will be 2,000 super funds.
Now, in Wentworth, there are 8,000 individuals who will also be directly affected and anyone who's planning for their retirement will now be penalised for saving, for taking responsibility.
This will increase the number of people on the pension and adversely, and perversely as well, this policy will mean that if you have a high income and you're a wealthy person, you get the full benefit…
ALAN JONES:
Full benefit.
JOSH FRYDENBERG:
...full benefit of these franking credits, whereas if you're…
ALAN JONES:
That's it, but if you're a battler there and you pay no tax, then they're not going to give you the rebate. Now, the significant point here and I just say this to my listeners is when the Howard Government introduced this rebate refund thing, dividend imputation, dreadful word, phrase, in 1999, the Shadow Treasurer, Labor, Simon Crean said, we have no difficulty supporting the proposal because it's our policy, it builds on the major reforms accomplished by Labor almost 15 years ago and it improves the current taxation system faced by low income investors, especially retired Australians.
Now, that was Labor in 1999. Now, Labor in 2018 says we're not going to do it.
JOSH FRYDENBERG:
Absolutely and 84 per cent of those people who are hit by Labor's policy have a taxable income under $37,000. And 96 per cent of those affected have a taxable income under $87,000.
ALAN JONES:
Well, some people, you're not getting through on that. I mean, you've got to keep prosecuting the case. But while I'm on retirees, can I ask you something which has been a lingering nightmare for many, because I think the self-funded retiree is the hero of Australian society. They don't want welfare, they want to be independent.
But of course, we've got these draw-down rules. So, if you're under 65, you've got to draw down 4 per cent of the valuation of your self-managed super fund; so if it's a million dollars, you've got to draw down 40,000. And now with interest rates where they are, their money's not earning 40 grand.
Can't you alter the draw-down rates 65-74, it's 5 per cent; 75-79, 6 per cent. Can't you alter the draw-down rates to be consistent with the earnings of that money in the market?
JOSH FRYDENBERG:
Look, this is an issue I know you've raised with me before, I remember you raising it with Malcolm Turnbull and look, there are lots of reasons for it, but these issues, whether its related to draw-downs, whether it's related to the self-funded retirees, we will- whether it's related to the negative gearing or to these dividend imputation credits, we will prosecute the case between now and the next election and for the people of Wentworth.
Because we're in the home straight now, Alan, and if we get the Liberals to vote for Liberals, then Dave Sharma can get home by a nose. But right now, he is behind.
ALAN JONES:
Right, just on that, there's a million things. But we are going to be talking to the Treasurer to be able to get people to understand what the Government is doing about this, you see. I know that you're very strong on company tax and there's a determination to get that down to 25 cents in the dollar. I don't want…
JOSH FRYDENBERG:
That should pass the Parliament this morning.
ALAN JONES:
Good on you, now I don't want to be critical here, but there is a thing called, as you would know, an effective tax rate and that's the rate paid by companies when everything is taken into consideration and god knows what else.
And according to the US Congressional Office, the United States of America's effective company tax rate is 18.6 cents in the dollar, UK 18.7. We're down to 10.4, 10.4 cents in the dollar. When you look, and this is the correspondence I get, at the personal tax, some poor coot out there working his stomach out this morning and he's 60,000, 70,000; once he gets to 37,000, he's paying 32.5 cents in the dollar.
That's one dollar in every three he loses. Now, I'm saying to you as the new Treasurer, what chance is there of giving significant relief, I'm not talking about $530 rebate at the end of the financial year, significant relief to this poor coot at 32.5, when the effective company tax rate may only be 10.4?
JOSH FRYDENBERG:
Well, the reason why the company tax rate is an effective rate is because businesses invest and therefore…
ALAN JONES:
Appropriate deductions.
JOSH FRYDENBERG:
Correct. And that is different from the normal personal income tax system. Now, when it comes to wholesale change to our system, what we are doing is protecting against bracket creep, which will save people thousands of dollars.
But we're also simplifying the system, we're abolishing the 37 per cent tax bracket and under our changes, we will see 94 per cent of Australian tax payers pay no more than 32…
ALAN JONES:
But that's way down the track. That's way down the track and you're trying to win an election. See, wouldn't you- you've got a massive bureaucracy there. Couldn't you say to the bureaucracy, could you give me a paper as to what it would cost the country to have a tax free threshold of $30,000. What would it cost?
And then we cut down somewhere. I mean, we've got a welfare bill of $158 billion. If you cut that by 20 per cent, surely to God we can, we're saving $30 billion.
JOSH FRYDENBERG:
Well, our whole raise on debt is to lower people's taxes. Bill Shorten is promising $200 billion of new taxes; property taxes, taxes on your income, taxes on your savings, taxes on your electricity bill. That's what you'll get from Bill Shorten. From us, you'll get lower taxes.
ALAN JONES:
Well, just coming back to Bill Shorten and prosecuting the case, they're arguing, it seems to me, about this social wage, now, the current minimum weekly wage is $695. If you wanted to achieve what they're talking about, a living wage, which they say 60 per cent of the median wage; you'd have to phase in increases of $194 a week.
Now, is the Coalition prosecuting the damage this would do to employment? There's no one- you know, you can only pay for wages out of profit, and what this would to do company profits and employment. A social wage – is that going to be something you're going to be addressing?
JOSH FRYDENBERG:
Well, we will be taking them to task on all of these issues as we've been doing to date, because Alan, at the end of the day the Labor Party is taking their instructions from the union movement.
You know, the Secretary of the ACTU, who has said its okay to break the law, just the other day, the Labor Party introduced a private members bill into the Parliament to revise all our trade agreements and currently one in five Australian workers are supported by trade.
Under the Labor Party, if they get their chance in the Lodge, the unions will have a seat at the top table.
ALAN JONES:
Well, the unions are saying a wealth tax, they're wanting an inheritance tax, I mean isn't this something we should be telling the people about?
JOSH FRYDENBERG:
Well, we are. And every day we're prosecuting the case and I'll say to the forklift driver in Parramatta who's listening to you, you'll be $4,500 better off every year than you would be under the Labor Party's tax policy.
ALAN JONES:
Righto. Well now, look, someone in, as you've heard me say many times, in Canberra doesn't understand the difference between investment and ownership. It's a bit like, I make the analogy about the cow and the milk, you sell the milk but you don't sell the cow. Now, here we've got this, I'm asking you again, Hong Kong based group CKI, who want to buy the biggest infrastructure outfit in Australia, APA.
Now, I think this is a try-on, this mob, but just for the benefit of my listeners, this APA, our outfit, Australia, own virtually the entire east coast gas pipeline grid, half of Victoria's electricity network, all of South Australia's electricity network, they transport more than half of Australia's gas around the country, 15,000km pipelines, they manage $20 billion of our assets, this is an Australian company, including gas mains, gas fired power stations, storage facilities, processing plants, Australian owned, and here's this mob, Beijing Government controls Hong Kong, they just stopped the entry of a US warship into Hong Kong Harbour.
Treasurer, are you going to say no to the CKI bid to buy, own this Australian infrastructure outfit APA?
JOSH FRYDENBERG:
Well, you and your listeners would fully understand; one, that this is a very sensitive matter but two, as the Treasurer and as the decision maker in this case, I am not going to run a commentary on this.
ALAN JONES:
But isn't it easy?
JOSH FRYDENBERG:
Well, there is a process that the company is going through. It's called the Foreign Investment Review Board process and I do want to make two principled points. The first is Australia has a savings gap meaning that we need foreign investment…
ALAN JONES:
But this is ownership.
JOSH FRYDENBERG:
No, hear me out…
ALAN JONES:
This is ownership, Treasurer.
JOSH FRYDENBERG:
Hear me out. Let me make two points, you let me make the first. The first is that we do have a savings gap; so infrastructure has helped us develop the Pilbara for example and create the billions of dollars' worth of export income that we have.
But the second point is, we have a national interest test and the national interest always has to be served, particularly when it applies to critical infrastructure and assets that are, you know, important to the country. So, let me consider it. It's currently going through a process.
ALAN JONES:
You told me that last time. Hang on, CKI, I am telling you Treasurer something that you know, CKI won't go near anything in the United States, anything strategic, because they know they'll get blocked.
And in Australia, I understand, that CKI didn't think they'd get approval to own the Dampier to Bunbury pipeline, and this is a try-on. This bit is a try-on. CKI will keep buying until they are told no more and they expect to be told no. I don't know why you just can't say no it will not happen.
JOSH FRYDENBERG:
Well…
ALAN JONES:
Anyway, that's it for next week.
JOSH FRYDENBERG:
…there is a process…
ALAN JONES:
That's it for next week. We'll talk to you next week. Thank you for your time.
JOSH FRYDENBERG:
We didn't even talk about Paris.
ALAN JONES:
I know. No, that'll be next week too.
JOSH FRYDENBERG:
Thank you, sir.
ALAN JONES:
There you are, Treasurer Josh Frydenberg.