ELLEN FANNING:
Scott Morrison, thanks for joining us.
TREASURER:
Thanks Ellen.
FANNING:
You've unveiled today, a $23 billion improvement in gross debt over four years. It's been a phenomenal year for jobs growth, 400,000 new jobs for the economy this year but wages growth is lousy. It's Christmas, Treasurer. Do Australians deserve a pay rise?
TREASURER:
I think Australians always do but at this point in the cycle what we've seen is exactly as you've said, we've had 1,000 jobs being created every single day in the economy this year. What that means is over the next few years the labour market will continue to get tighter. We're already seeing some movement on wages in those parts of the economy where it is quite tight and we can expect to see that flow through to wages more broadly in the economy. So with the economy growing, with businesses investing, with profits starting to really improve now, I think they're all good signs for wages growth into the future.
FANNING:
But I mean, there's a lot of economists scratching their heads about why this hasn't already happened. And I'm sure you, in your quiet moments, have done the same. 1.9 per cent wages growth last year but we've had 20 per cent increase in corporate profits. Unemployment is right down 5.4 per cent. I mean, any economic textbook would say wages should be growing by now. What's your take on why they're not?
TREASURER:
Well, I had serious work done on this earlier this year and unveiled that a few months ago. This is largely the hangover from the mining investment boom and the impact of terms of trade changes and commodity prices. What we had was an elevated level of wages which was well above where productivity was. And those two forces basically got out of sync. Now the mining investment boom is over, and we've worked through the transition, then we can expect to see these two things come together again. That's why we're much more optimistic about where wage growth is heading over the next four years. We do acknowledge over the last four, in particular, that it's been pretty heavy going for wage increases and with cost of living pressures, also adding into that, that's had its effect on consumption. That's why we have focused so much on putting downward pressure on these cost of living issues, particularly on energy. But also on housing affordability. Just in the last week of the parliament we passed our tax cut for first home savers.
FANNING:
That issue of wages growth is really critical over the forward estimates for you as Treasurer. You've got a doubling over four years. And you're really relying on that, because you need the extra taxes from those higher wages to get back to surplus. But you've got people like Ian Harper, who sits on the Reserve Bank Board saying, these are strange times and maybe wages growth doesn't start to ignite in the way you hope it will until unemployment comes well below 5 per cent. That's not predicted to happen over the next five years. To what extent are you vulnerable on that return to surplus, those critical high wages to get you there when you've got that sort of uncertainty around wage growth?
TREASURER:
Well, first of all, what we've done in this update is we've actually reduced the wage growth expectations over the Budget and forward estimates. That has flowed into a write-down of some $8 billion in revenue from individual taxes over the budget and forward estimates period.
FANNING:
That in itself is astonishing, given, as I say, corporate profits running at 20 per cent, I mean what has to happen for people to get those wage rises?
TREASURER:
Let me stop you on that. We had 12 consecutive quarters where profits were going backwards. They were going negative, and for the first time over the last four quarters we've actually had positive profit growth. For 12 quarters before that, that we weren't seeing that outcome on investment, I should stress, and so what we've had is turning round now. That's welcome. When you continue to see the investment, when you continue to see the profits lift, when the economy continues to grow, that's where wage growth comes from. It doesn't come from any other source. There's no magic button the Government can press which all of a sudden delivers wage growth to people. It has to come from an economy.
FANNING:
Are you intending to cut middle class taxes next year?
TREASURER:
Well, as the Prime Minister has made it pretty clear, that's the task I have before me. To ensure that we deliver more for middle income earners as we move forward into next year and the years beyond that. And that's certainly the sum of work I've got to do in the lead-up to next year's Budget and beyond.
FANNING:
Are Peter Costello's words ringing in your ears?
TREASURER:
Peter Costello's words are always ringing in my ears, Ellen. Sometimes literally.
FANNING:
He said do nothing. Does he ring you up?
TREASURER:
We talk all the time.
FANNING:
Alright, well do nothing to jeopardise that return to surplus by 2021, that's what he's saying?
TREASURER:
I agree.
FANNING:
Wouldn't it be prudent to leave tax cuts until we've got that return to surplus by 2021?
TREASURER:
We believe we can achieve both of those and we certainly wouldn't be moving ahead with any changes to personal income taxes if it was to put the AAA credit rating, or the return to surplus, at risk. These are to be achieved together.
FANNING:
Really?
TREASURER:
Yes. You wouldn't do it any other way.
FANNING:
Isn't that asking a lot of Australians to believe that you can do both? In their personal lives they know you can't spend and save at the same time. I wonder what's your greater commitment? The Prime Minister has said this is what I want you to do, Scott. What's the higher priority for you? Is it the surplus or the tax cuts?
TREASURER:
I intend to deliver on the mission which is to achieve both.
FANNING:
You already have skinny surpluses once you back into the black in 2021, about half a billion a year for a decade is what's projected. To what extent are you gambling there, that you won't have another economic shock, that you won't need more than that in a war chest to get Australia through a recession?
TREASURER:
One of the reasons why you see those surpluses stay at about half a per cent of GDP over the medium term, is because we have in place a tax to GDP cap of 23.9 per cent. So there's speed limit on taxes…
FANNING:
And then you'll cut taxes on top of that?
TREASURER:
No, no, no. That's my point. In the document, what you'll see is what the tax share to GDP would look like if you let it rip over and above that. So there's a lot of room in that medium term area to actually do positive things to reduce the tax burden back to the tax to GDP cap and that's already funded into the medium term. That's why I believe these things are achievable.
FANNING:
It is possibly your last appearance on 7.30 this year, Treasurer. Christmas is a time for reflection, to set resolutions for 2018. Have a think about this — what are you resolved to do better in 2018?
TREASURER:
Well, I think the job as Treasurer is always to stay the course. You've got to keep the ship firmly headed in the direction of this responsible path back to balance to ensure the economy continues to grow, that we see the investment going into private enterprise which delivers the jobs and the earnings that Australians rely on. You cannot deliver on Medicare, you can't deliver on schools funding, you can't deliver on the NDIS if you don't have a growing and strong economy. People can make all the promises they like, like the Labor Party always does, but they can never back it up with the economic management that at the end of the day delivers it and it's my job to lead that economic management for the Government and that's what I'll be absolutely focused on next year because that's what people expect of me and that's what I'll be delivering.
FANNING:
I'm not quite sure that's the answer to the question but have a wonderful Christmas break, Treasurer. Thank you for speaking with us.
TREASURER:
Merry Christmas, Ellen and to all of the 7.30 listeners, and let's always celebrate Christmas, hey.