GARETH PARKER:
Scott Morrison, good morning.
TREASURER:
It's great to be back here in the west.
PARKER:
Appreciate your time. 9221 1882 is the talkback number and the Treasurer is happy to take talkback calls today, which I appreciate. Appreciate you giving listeners the opportunity to ask you a direct question if they have one. Is this the victory lap?
TREASURER:
It's an important opportunity for me to come to WA and say thank you to Western Australians for showing a lot of patience over a long period of time. They were waiting a long time for this and this is a significant change to the formula, not just putting in a floor but a big change to the formula, which means that WA will not be penalised in the future as they have been in the past for their GST share by getting on and doing business here in WA and realising the potential of this great state.
PARKER:
Ok, what everyone wants to know is when it kicks in, when does it start?
TREASURER:
Well it basically kicks in, pretty much straight away. I mean the top ups –
PARKER:
But what needs to happen to get us to that 70 cent and then to the 75 cent – so you've outlined the, sort of, the two milestones, the two-stage process, but when do we get to 70 cents?
TREASURER:
Well I think, I'm hopeful we can land the agreement with the states and territories by the end of the year. Ultimately the Commonwealth is in a position, as you know, you and I have discussed on this program before, to just basically put this in place. But I think the more durable way to do it is actually to get the support of all the states and territories. That locks into an intergovernmental agreement and I'm very confident we'll be able to land that by the end of the year, if not sooner.
PARKER:
So you've spoken to the Western Australian Premier, Mark McGowan, yesterday. I presume he's on board. We would expect that but what about your discussions with other state and territory leaders so far?
TREASURER:
Well I've spoken to all of my counterparts as Treasurers, and I think we've had a very good hearing on the first announcement. We've got a meeting coming up, which we're hoping to have in September. They all understand what the proposal is and they can see how the arrangement will leave no state worse off. In fact, they're all better off. And so it's just a matter of reconfirming that data and working through the process. So I think we've had a good response but they obviously want to see the details of the numbers and that's fair enough.
PARKER:
Can one state hold it up?
TREASURER:
No.
PARKER:
Why not? If you need the agreement of all the states? What's your back-up plan?
TREASURER:
Well, I actually don't need the agreement of all the states.
PARKER:
You can just do it?
TREASURER:
The Commonwealth Government can act, it always has been able to do that. But I don't think that's in the best interests of Western Australia or any other state.
PARKER:
So if for example, Tasmania or South Australia say: well listen, we see a leverage opportunity here. We'd like to extract a little bit more benefit from the Commonwealth, and they play hard ball. What do you do?
TREASURER:
Well I'm not going to get into hypotheticals and I don't anticipate that being their approach. I think the states are going to engage in this in good faith and I'm certainly not going to say or do anything that would undermine that opportunity. So I don't think that's a helpful way to look at it. I think there's good faith to putting an agreement in place here. I think we'll work to that conclusion. I think we'll get constructive and cooperative support from Western Australia of course, but my discussions with New South Wales, with South Australia, with Tasmania, equally with the Queensland and Victorian Treasurers, they've been productive discussions.
PARKER:
If you get agreement this year, is it July 1 2019, the financial year of July 1 2019 that Western Australia can expect to see its GST floor come in at 70 cents in the dollar?
TREASURER:
In 2019-20, it'll be at 70 cents.
PARKER:
And that's a guarantee?
TREASURER:
Absolutely. That's what we're going to do. And that actually happens outside of the GST distribution system, because for the first two years, we will continue to provide those top ups to 70 cents. In the third year, the formula changes. And the formula changes then over six years. And that's when I think the real benefit kicks in for WA. Because that means that what comes their way is the result of a better and improved and fixed formula, not as the result of any, sort of, grant or benevolence from a Treasurer in Canberra.
PARKER:
I'd love for you, listeners, to take this opportunity to pick up the phone and give us a call if you've got a question for the federal Treasurer, Scott Morrison, this morning. Just to, I guess, cover off on that whole GST issue, the other element of the plan as you've alluded to is the fact that no state is left worse off. So that means you need to find money to pay them off. Where does that money come from? We're borrowing it?
TREASURER:
We're running a growing economy and it will continue to grow…
PARKER:
So we're borrowing?
TREASURER:
…and it will continue to grow over the next – no, I mean, in fact net debt falls over the Budget and Forward Estimates. Our debt will fall by $30 billion over the next four years and we'll be in surplus from 2019-20 onwards, so, in this program, the Budget will already be in surplus. So that means no, we won't be borrowing to do that. We'll continue to run a tight budget as we do. But as I said yesterday at the Chamber of Commerce and Industry event yesterday morning, to get a durable solution to this it wasn't just about getting an outcome for WA. You had to deliver a national outcome. I mean, we were dealing with a national problem here. WA, as best as I could understand, was not looking for some special deal or some sort of gratuitous payment or something like that. They were looking for a fundamental change to how the system worked. And I agreed with them. And that's why I've decided to change it.
PARKER:
Yesterday we spoke to your Liberal colleague, Senator Dean Smith, from this state, from Western Australia, who wants an inquiry into our population growth. Now this has been something you've talked about before and I think you've generally supported the level of immigration that's been currently ongoing in the country. Now you're a former immigration minister yourself of course. If immigration is cut, what does that do to your budget bottom line? Does it take you away from the realms of the surpluses you're projecting in the out years?
TREASURER:
Well, this is how the policy works: we have an annual cap on permanent residency visas. And that's at 190,000…
PARKER:
Some people think that's too high.
TREASURER:
Well that's the policy. It's a cap, it's not a target. And last year, we came in more than 20,000 beneath that. And that's fine. That's how the policy's supposed to work. It's not designed to produce 190,000 each year. It's to provide a limit of 190,000 each year.
PARKER:
But even at 170,000, some would say…
TREASURER:
If it comes in at 170,000 each year, or less than 170,000, then ultimately what happens in the budget updates, is to the extent that impacts on the numbers, it's reconciled at that point.
PARKER:
Ok, my fundamental question is if you cut the immigration rate, can your, do your Budget numbers stand up?
TREASURER:
Well, it's not just the immigration numbers that produce the budget. And it's not just the permanent visa numbers. It's the overall population growth numbers. Now, the population growth is running at 1.6 per cent, and the strongest growth has been in places like Victoria. In Western Australia, population growth is running at less than 1 per cent. Now that's well below where Western Australia, I know, would like to be in terms of supporting its economy.
PARKER:
And everyone who wants to see house prices go up here knows that's a big part of it. So this is an uneven story isn't it?
TREASURER:
Well of course it is, and to talk about immigration numbers having a universal impact right across the country is a nonsense. That's not how it works. It's like saying there's one single national single housing market, that's a nonsense as well. Two-thirds of the population increase we had was actually in New South Wales and Victoria.
PARKER:
Is that a problem for the country do you think? That everyone pours into Melbourne and Sydney?
TREASURER:
Well it's just an historical fact. I mean…
PARKER:
But is it something that we should try and influence with other public policy?
TREASURER:
Well, we do through the temporary migration program and we have a number of programs which are designed to get people out into regional areas. But at the end of the day, you know, you go back to when Adam was a boy, ever since then, wherever people have moved in the world, they've tended to gravitate to where jobs and opportunities are. And that has seen New South Wales and Victoria get the lion's share of population growth. So that's why you have to be careful when you're managing a population policy, that you just don't run one for Sydney and Melbourne. You've got to run a policy that also works in Perth and in Darwin and in Tasmania, South Australia. I mean, in Western Australia and South Australia, we still have sub 1 per cent population growth. That's one of the reasons in particular in WA, not just the GST formula, that they've also had weaker GST distributions because of that lower population growth. So, it's not a simple picture. The Department of Home Affairs and the Treasury did a pretty exhaustive analysis on the economic impacts of all this in the last year. It's a good study. The Productivity Commission's done a study. So there's been a lot of work done on it.
PARKER:
We haven't got the Treasurer forever so don't miss out if you'd like to ask him a question. Bill Shorten says we should cut the number of temporary immigrants. It's not a permanent immigration problem; it's a temporary immigration problem.
TREASURER:
Well, Bill Shorten just needs to…
PARKER:
Working visas and the like.
TREASURER:
Bill Shorten needs to check his facts. I mean, this bloke lies like he has breakfast in the morning. The number of people here on temporary skilled visas, here right now, is 20 per cent less than it was when Labor left office.
PARKER:
So you say you've already solved the problem?
TREASURER:
So what is he talking about? I mean, he just makes this stuff up. Temporary skilled migration plays a role in the overall migration program: deals with skills shortages in particular areas. That's its role. And for Bill Shorten to try to go off on some sort of distraction on this, frankly because he can't keep up the pace when it comes to lower energy prices or economic growth or a plan for a stronger economy, I think just shows the bankruptcy of his own position.
PARKER:
There's a report out today from the Association of Superannuation Investors that basically chronicles the pay of the top 100 ASX CEOs that says that the realised pay of those top 100 ASX CEOs rose 12.4 per cent last year. The Financial Review, I've got it in front of me here, there's a whole bunch of figures. Don Meij, the boss of Dominoes, $37 million. Nicholas Moore from Macquarie, $25 million. Chris Rex from Ramsay Health Care, $22 million. Now I don't know if they're worth it or not, but there wouldn't be many workers in Australia who've got a 12.4 per cent pay rise last year.
TREASURER:
No there wouldn't and that's, those companies have to explain that to their shareholders and their customers…
PARKER:
Are you happy with that situation?
TREASURER:
Well, it's not for me to be happy or unhappy about it. It's for shareholders and customers. They're the ones who do business with these companies and they're the ones who fund these companies and own these companies.
PARKER:
The average Australian worker must just scratch their heads when they see those figures.
TREASURER:
Well I can understand that. Of course I can understand that. I mean, we've had a low period of wage growth now for some protracted period of time. It's a hangover basically out of the back of the mining boom.
PARKER:
Do you think that's going to continue by the way?
TREASURER:
No and I don't, and that's also the view of the Reserve Bank Governor as well, that we've hit the trough and when it comes to wage growth and things are starting to look up. And we've seen that in the recent data. It's not growing at a rapid rate but it's certainly improving and we expect it to continue to improve. And in some sectors, particularly in the health sector and the IT sector, in the construction sector, where there's been a lot of demand for labour, particularly for the big infrastructure projects that we've been investing in, that has seen wage growth lift in those areas. But at the end of these days, at the end of the day, these companies and their boards who decide these salaries, have got to be accountable for them. And they've got to explain it.
PARKER:
Just whack your headphones on because Carlo has called through. He's got a question about company tax cuts. Carlo, good morning.
CALLER:
Yeah good morning. Good morning, Treasurer.
TREASURER:
G'day Carlo.
CALLER:
You know, I'd like to know, your Party goes on about Australia doing so well at the moment. We're, you know, competing great in, [inaudible] the economy's moving forward and such. I mean, how can it be that you're going to go and give these big tax cuts to big corporations and then you say that you need the tax cuts to keep Australia being prosperous. We're prosperous already, then why, like you just said, why hasn't growth happened in the past ten years? I used to work for a company, I've had to go back to working for myself because I couldn't survive and feed my family and my wife because, you know, the wages just weren't enough.
PARKER:
So Carlo, you're a small business owner yourself. There's a lot of scepticism about, in the community, this is what I detect, scepticism in the community that your big company tax cut plan will in fact deliver results for ordinary Australians.
TREASURER:
Well it's tax competitiveness for all businesses. It's not just large businesses, it's all businesses. We've already legislated to take small business tax rates down to 25 per cent. The Labor Party will reverse that if they come to government. They will have higher taxes on businesses as small as the corner shop to the largest business in the country. So higher taxes for all businesses. And I'm concerned about where the level of wage growth is in the country, as are other senior figures, whether they're in the Reserve Bank or other places.
PARKER:
But can you guarantee that tax cuts will result in wage rises or will they just be bigger profits for shareholders?
TREASURER:
A company is not going to be in a better position to pay higher wages if they have to pay higher taxes to the government. I mean, it just stands to reason. How on earth does making companies, large or small, pay higher taxes to the government make them more likely to be in a position to pay higher wages to workers? Now the other point I'd make is this: I mean, think about Qantas for example. They're a large business and their CEO gets paid a pretty big salary as well I think.
PARKER:
$11.2 million according to the Fin Review.
TREASURER:
$11.2 million, there you go. Now, Qantas has 13,000 businesses that are part of their supply chain, that depend on Qantas' success for the success of every single one of those businesses, and the tens of thousands of jobs that are in those businesses. So a more competitive tax rate for Qantas, and all these other larger companies, is also good for small business because their clients are those large businesses. And that's why it's the right change. We have the second highest corporate tax rate in the developed world, in the OECD, if we don't change this. And that means other countries will come and cut our lunch and take our jobs.
PARKER:
Anthony, good morning.
CALLER:
Yeah, my question is: in the housing industry obviously finance is very tight at the moment since the banking inquiry, but what I'm coming across is most banks are making it very clear that most interest-only loans on investment homes, which is the mum and dad investors across Australia, that they will not renew interest-only loans. They're going to make them interest and principle, which could cause a crash of home prices with panic selling. What strategy have they got in place?
PARKER:
This is going to be a problem, Anthony's right about that.
TREASURER:
Well the interest-only loan changes were brought in about a year ago, just over a year ago. And it dealt with run-away house price growth in the eastern states, which was putting massive pressure on the economy, on the level of household debt, and was actually causing concerns amongst international ratings agencies and it was being consistently raised as something that could lead to a downgrading of our credit rating for Australia. So this was a serious problem that had to be addressed. I mean, 40 per cent of new home loans were going on interest-only and that was allowing investors to seriously bid up prices, and was exacerbating the problem of house price growth in the eastern states. So that prudential trial was introduced by APRA. The banks have been responding to that. And what the evidence is to date, is that when people have been converting over from interest-only, and there's still interest-only loans out there by the way. I mean, the cap is 30 per cent, so there's still a lot of interest-only loans out there. And a lot of the smaller banks too have more room to move when it comes to interest-only loans. So if people want to look at another bank, the smaller bank, who has some room, then shop around. But the evidence is, and we look at this very carefully, is so far, there's been no evidence that people have moved from interest-only into principle and interest. And negotiating those terms with their banks, they're able to move onto a lower rate because it's a lower rate on principle and interest than it is on interest-only.
PARKER:
Well we're out of time but I just want to ask you: are you concerned about Australia and our economy getting caught in the crossfire of a trade war between the United States and China?
TREASURER:
I think this is a realistic concern and that's why Australia has to be a passionate and effective advocate for free trade around the world. And that's what we've been doing, we've been doing that with the agreements we've been able to reach. Whether it's with the United States, protecting in particular, our manufacturing and steel industries from the tariffs that the US had imposed on other countries. We were successful in avoiding that. But also the agreements with China, with Japan, with South Korea, we've demonstrated a passion for free trade, which is delivering better jobs and better outcomes here in Australia. But, I mean, the world needs to be careful. I'll be off to the G20 at the end of this week, where all the largest economies of the world gather and their Finance Ministers. And the world has to be careful that is doesn't score an own goal here when it comes to how they manage this issue of trade. And because countries can get caught in the crossfire here between – and it's not whether it's the US and China, but it's Europe, it's the UK, it's a whole range of countries that are caught up in this. So we need some cool heads and we need to keep focused on what the real outcome is here, and that is more trade because that means more jobs. And you've got a global economy now, which is highly integrated. I mean, you've got the percentage of your economy which is made up of trade now is increased significantly since 20 years ago and that's as true in Australia as it is in the United States, China, the UK, Canada. In the UK and Canada, more than half their economy is based on two-way trade and it's up over 20 per cent now in the United States. When you introduce all this cost on tariffs and trade protectionism, that just pushes up the prices for everybody. It costs jobs and it costs customers more at the till.
PARKER:
Well we absolutely need to get to a break. 38 Australians died in MH-17. Does it bother you to see President Trump glad-handing with Vladimir Putin?
TREASURER:
I think that troubles everybody.
PARKER:
Scott Morrison, thanks for your time this morning.
TREASURER:
Thank you.