DAVID SPEERS:
Treasurer Scott Morrison, thank you very much for speaking to us this afternoon. Can I start with what has happened on the share market today it is down nearly four per cent – worst result in two years, below 5000 points the ASX. Are you worried about that?
TREASURER:
Well these are obviously difficult days and there are lots of head winds, we already know that. I think the issue for the Australian economy, and for Australians more generally, is we know that we have to swim against the tide in many respects but we are swimming against the tide I think incredibly well and our focus as a government is to do everything we can to back Australians and back Australian business and get from where we are now to where we need to be in the future. There will be days like this there will be changes to how people make forecasts and things like that overseas. We need to take all of that in our stride because what we have to focus on is what we have to do rather than becoming overly focused on the things that are happening externally.
SPEERS:
It is the big miners that are dragging down the market here. It is happening around the world and it is driven by concerns internationally about China and what is happening in the Chinese economy. Now I know Joe Hockey was pretty optimistic about the growth story in China, how do you view what is happening in China at the moment?
TREASURER:
Well I think it is well summarised, obviously growth rates out of China weren’t what they used to be ten years ago but a ten per cent growth rate ten years ago is as good as a seven per cent growth rate today. We are coming off a much higher base. All of these economies are going through transitions including our own and so the issue is what do we do about it? What we have to focus on is our resilience, our strength, who we are going to trade with, how we are going to transition and how we are going to deal with the things that we have control over. Whether it is on controlling our spending or whether it is ensuring that our tax system can support people to do all the things they need to do.
SPEERS:
We are closely tied to what happens in China, is China going to grow more strongly or is it going to weaken?
TREASURER:
Well I will leave others to make the forecasts on this and it is not my job to make those forecasts, there are plenty of people who will provide those forecasts.
SPEERS:
You have some of the best apparently advising you.
TREASURER:
Absolutely but my job – the government’s job is not to respond to every figure and every event. It is to put in place a set of very strong policies, a strong budget discipline, a tax system that can help people make the decisions to do the things that they want to do in the economy, to help people transition through what will be a time of change so we come out on the other side. And the good news is this, I believe we will get to the other side strongly and we will be stronger as a result as a country and more prosperous as a country.
SPEERS:
When you are setting those tax and spending priorities you have got to have a good idea haven’t you of what is going on in the economy, what revenues is going to come in and what’s not?
TREASURER:
Of course we do and we do.
SPEERS:
So are you optimistic about China?
TREASURER:
Well China will have its impact on our economy like it will on many economies. They are our biggest trading partner and that is why the China Free Trade Agreement is so important. That is why it is there, a government that actually saw the opportunity and was able to realise it where others have failed to do so. So we are doing what is in our control I think to make the most of our opportunities out of China. Now what will happen in China will be a matter for how they set themselves and the decisions they take there. What matters at our end is what we do about it and as a government we are very focused on what our response has to be, how we make ourselves stronger, more competitive and backing Australians because we do, we think Australians have the ability to deal with all of these challenges.
SPEERS:
Well China has also in recent days announced that it will introduce an emissions trading scheme in 2017. That it will apply to a whole range of key sectors, including steel and iron ore production. What is this going to mean for Australian exports of coal and iron ore?
TREASURER:
Well I think, I mean we obviously have our own policy on these things and we are taking those to Paris. I know that is a separate issue to what you have raised with me and we will obviously be looking closely at what all of those decisions will mean for our own performances and economy and how that impacts on our growth. That is how the process works and how people fashion the growth forecasts which in turn set what our receipts will be and potentially what it might impact even on our payments.
SPEERS:
So it will have an impact on all of that?
TREASURER:
Well what I am saying is you have got to look at all of that you have got to assess it. But the point I keep making David is this, we are not going to run around jumping every time something happens overseas. That would not be a smart strategy. We need to be confident in our economies underlying resilience and strength. We need to be confident in the ability of our people and our businesses to be able to move through this transition and we need to back their confidence. The way we back their confidence is the polices we put in place in terms of tax, the way we keep our own spending under control and ensure that we don’t increase the tax burden on the income they are earning to chase spending down the road.
SPEERS:
Sure, but I am just trying to establish whether China’s new climate policy will hurt our coal and iron ore exports?
TREASURER:
Look I don’t think those are things that anyone can have a crystal ball on David. I mean the real impact of those on how the Chinese economy operates and what decisions are taken I think everyone will have a view about that and I don’t think there is any…
SPEERS:
But again yours is pretty important because this is about how the economy is run and what sort of revenue you can bank on.
TREASURER:
Well David you are talking about one specific policy of one, albeit our largest trading partner and I am not going to go and prognosticate on those sorts of things. Regardless of what impact…
SPEERS:
Someone in Treasury surely will, won’t they?
TREASURER:
Regardless of what the impact of those decisions are in China it doesn’t change what we have to do at this end and it is my job to put in place the right policies and the right budgetary policies to make Australia stronger to deal with whatever happens. Australians will sit at home and they will do “well what does all this mean for me? What does it mean for me?” What they want to see from the government is we are doing the right things to make them as strong as we possibly can to deal with the changes that inevitably are coming towards us and we need to back their ability to get through them. I think Australians will and we believe in them to do that.
SPEERS:
Can I just get your view as Treasurer now on an ETS. China is going to have one; Europe has already got one, New Zealand, South Korea, California. Will the Australian Government at any point revisit whether we should move in that direction?
TREASURER:
Well David our policies on that are very clear, aren’t they? I mean you know what they are, we are taking them to Paris, we have our programmes is in place and Greg Hunt has championed those over a long time and they are working.
SPEERS:
Is it a philosophical objection to an ETS? I mean what is the argument for not having one?
TREASURER:
I mean we are doing what’s working. It is working so we are going to keep doing it.
SPEERS:
But if China and Europe which I think together will represent some two thirds or whatever of the global economy.
TREASURER:
It is not clear the full extent of what they are moving towards and the practical effect of all of those things. They will make their choices as countries, we will make our choices and the choices we have made are working so we are going to keep pursuing them.
SPEERS:
So this won’t be considered by Australia?
TREASURER:
Well we are going to do what is working David, I keep saying this, this is what we are going to do. If it works we are going to keep doing it. I think that is common sense, I think there has been an outbreak of common sense.
SPEERS:
Let me turn to the mini summit that the Prime Minister has called for Thursday here in Canberra, follows the National Reform Summit a month ago with business, union, welfare groups that were involved in all of this. We heard what they had to say, it was a lengthy – a very good day long session there. Why does the government need to hear from them again?
TREASURER:
Well we should always be listening. I mean that is what good governments do, you are always listening. They have got a large number of people together and…
SPEERS:
This was only a few weeks ago though, have they got something different to say or…?
TREASURER:
This is a good opportunity for them to bring their considered, collected views directly and discuss it with the senior ministers in the government. Now I wouldn’t describe it as a summit I would describe it as a meeting and we will listen very carefully to what they were able to discuss on that day and what their suggestions are going forward. But one of the most important things I think together we can accomplish is this, whether it is particularly in the tax system where they have had a lot of discussion about that. How do we take the Australian people with us about the sort of changes you need to make to your tax system that actually will boost economic growth going forward? Because there are two schools of thought when it comes to tax; one is that you need a tax system that draws more out of the income we are earning as a country and sadly I think that is the view that the Labor Party has undertaken. Our view is that you need a tax system that inspires growth, because that is what deals with your revenue challenge. Just because revenue is less than expenditure at the moment it doesn’t mean you necessarily have an issue when it comes to where your revenue is going to go in the future. There are two ways you can deal with that, you can try and suck more tax out of what people are earning or you can try and have a tax system that builds your revenue over time because it builds growth.
SPEERS:
I am interested though because in that summit a few weeks ago – and I sat there listening to a lot of it, there was as you say a lot of talk about the revenue side of things about the GST, about superannuation tax breaks, I don’t think there was agreement about one spending cut or one specific area of spending restraint. Which is what you have said is the problem, spending.
TREASURER:
Well it is a problem because if you have a spending problem then you will have a revenue problem because you will be trying to forever chase your spending with your revenue. That is why I believe Chris Bowen does have a revenue problem because he has got a spending problem and he has got a $50 billion hole in what his projections are going to be if they were to follow their policies. But from our perspective it is about ensuring you control expenditure and then you have revenue is based on the nation’s economy earning more. I want the economy to earn more. Now that has obviously taken some hits with movements in commodity prices and things of that nature that will impact your earnings – wage growth has been actually quite modest and quite low. That impacts what people are earning, now if people are earning less the government is earning less. So the answer to that is not to suck more tax out of the system and out of people’s pockets it is to actually grow income because when you grow income you grow the revenue base and that is how you get the Budget back in balance.
SPEERS:
Does that mean personal income tax break paid for through the GST?
TREASURER:
Well the design features of what you come up with I think is the second question. The first question is do you need to do this at all and I think there is a broadening consensus. When you have the average taxpayer, the average wage earner I should say in this country about to move into the second highest tax bracket, at $80,000, next year you have got a problem with the incentives in your tax system. Now that is not a sustainable position any more than 26 per cent of GDP as spending is a sustainable position. I would make this point that if spending to GDP was the same as it was when Peter Costello left as Treasurer we would be in surplus today. It was 23.1 per cent, it has gone up three percentage points since then and revenue as a percentage of GDP has only fallen one. I think that gives you an indication of where the problem is.
SPEERS:
Is superannuation – let me just clarify this because this came through loud and clear from all of these key groups at the summit, business groups, welfare, ACTU all agree something needs to be done about all of those tax breaks at the top end.
TREASURER:
Well what I have said when this position has been put to me and it was well discussed at that summit as you have said, is we want to look at the system and anything, any idea that is going to encourage Australians to work more and work more effectively and work more productively, that is going to save more effectively for their future – and not just for their retirement but to save to buy a house or to save to do whatever they want to do as a family and as an individual and invest more in more productive enterprises, invest in business. Anything that does that David, we are looking at, that is the rule, we are not into the rule out, rule out game on the features. We know what the benefits need to be and if there are measures that are going to achieve those benefits, great. Let’s look at them.
SPEERS:
I have to ask, Tony Abbott said today that no policies have changed and no phrasing has changed from you and Malcolm Turnbull. But what I suppose what you are saying on superannuation is a bit of a change.
TREASURER:
Well we will wait and see what the outcomes are of all of these discussions but I think there has been I think an opening up of what is being prepared to be considered but not an opening up for an ideological purpose or anything like that. I think there is a very fresh breeze of pragmatism about some of these issues and what that will lead to is saying well at the end of the day we are doing this to help the Australian people get from where they are right now and you know I think quite rightly we will look overseas and we will look what is happening in other places and people will look at these things and have some concern. But then they will look to the government and say “well what are you doing about that?” We will back them to get from here to there and I believe they will get there and they will get there under the policies that we will be advocating, pursuing and implementing.
SPEERS:
Treasurer Scott Morrison thanks for your time.
TREASURER:
Thanks a lot David.