GERALDINE DOOGUE:
Treasurer good morning and welcome to Breakfast.
TREASURER:
Good morning Geraldine. Good to be with you.
DOOGUE:
Could we go first to that interplay between negative gearing and capital gains tax. The Grattan Institute has found that these tax incentives combined cost the public purse $11.7 billion a year and it’s recommending some changes which it says would save $5.7 billion. How can we continue to afford such generous deductions given the state of the Budget?
TREASURER:
Well, first of all they are not concessions they are just the simple application of tax principles that have been around for 100 years. Secondly the report today confirms a number of things, that the proposals to change negative gearing what is in effect a housing tax undermines the value of your home. It can push up increases in rents, it won’t make any meaningful contribution to housing supply and it creates unfair distortions, particularly the Labor proposal, because of its muddled composition. For all of these reasons Geraldine we don’t think that now is at all a time, with the sensitive nature of our economy, to be going and hitting mum and dad investors with higher taxes which is what this is.
DOOGUE:
But as you know if you read the report through, the Grattan report, it basically says that there’s only about a 2 per cent likely impact on house prices, and that it’s this combination of negative gearing and capital gains which is distorting more than virtually any other country in the world our investment decisions, that’s not good for the future.
TREASURER:
Well I don’t accept that analysis Geraldine, either from Grattan or your characterisation of it. What I’m saying is, is that we have a system at the moment which means that around two thirds of those who are investing in this way are mum and dad investors. They’re earnings less than 80….
DOOGUE:
But they reject that as you know themselves, they actually do a breakdown of who’s doing the investing.
TREASURER:
The sheer numbers are this - two-thirds of those who actually use it, by the number of people who actually engage in negative gearing are mum and dad investors. I mean they’re nurses, they’re teachers, they’re police officers. For example…
DOOGUE:
You have read the report have you? They specifically rebut that…
TREASURER:
No, they’re talking about the value of deductions, not the number of people. There are 19,000 police and emergency services workers who use these arrangements. There are over 50,000 teachers who do this. They are normal mum and dad investors who are just trying to get ahead to provide for their families, to provide a secure investment income for their future, and we’re simply saying we’re not going to change those rules. Now the Labor party want to change those rules, because their plan is they just want to increase the tax burden on the Australian economy, and that is the worst thing you can do at this very sensitive and critical time.
DOOGUE:
One of the comments they make, and the Reserve Bank also notes this, as does the Henry Tax Review, is that in Australia more than almost all other countries except for New Zealand, there is this fascination with investing in property to make a loss. Almost all the growth in property investment since 1994, this is in the report, has been loss-making landlords. Is this good for Australia? Is this the Australia you want to see?
TREASURER:
As I said two-thirds of Australians including some 39,570 mid-wives who are engaged, and nurses who are engaged in this, it’s creating an asset base for them and their families and their future. Now I know that it’s the popular consensus amongst some Geraldine, that this is some big rort for big high income earners. That’s a complete and utter myth. The people who know that to be a myth are the people who are engaged in investing in this way for their family. They’re plumbers, they’re tradies, they’re…
DOOGUE:
And they’re very high income earners, and they’re people who work in the finance industry it’s quite plain. The graph is there, I’ve seen it.
TREASURER:
Geraldine I can tell you the number of finance managers who are involved in doing this is 7,428. The number of nurses and midwives is 39,570. The number of electricians is 17,559. The number of metal workers is 10,794. Now they’re the taxation office statistics. These are the people who are doing it Geraldine. This idea that we need to go and tax them more with this housing tax of Labor’s I don’t think is a good idea at all. I think it goes against fairness, and people, ordinary mum and dad investors who are just trying to get ahead and if you want to do something for families you don’t go and hit mum and dad investors with a housing tax.
DOOGUE:
I’d like to play you, if I could now a grab from a man called Adrian Pisarski who we had on the program yesterday who is Chief Executive if National Shelter, talking to me about what he thought was a really prudent medium term outlook for housing prices in Australia.
PISARSKI: I don’t think that lower home price, is necessarily a bad thing. Nobody wants to see a crash in the house price, that would be bad, but moderating house price overtime should be the goal of sensible policy in this area. Current settings have been leading to massive house price inflation over the last 25 years, and they’ve created the situation where you need six or eight times the average yearly household income to afford a property now.
DOOGUE:
That’s Adrian Pisarski speaking there. In other words, this is again, speaking of bringing up the inter-generation aspect of this Mr Morrison as we talked about yesterday. Yes you’ve got worries about housing prices, but you’ve also got a lot of young people feeling locked out.
TREASURER:
And the only thing that Labor’s policy will do is further lock them out, because what it will mean is that for those who continue to engage in negative gearing on new properties, that will only be for the wealthy because under Labor’s policy you can continue to offset, even for existing properties, your losses against your investment income. So if you’ve got a lot of investment income, which people on high incomes do, if you’ve got executives on high salaries with lots of investment income, they will continue to be able to offset their losses on their properties against that income. But if you’re a mum and dad investor, you haven’t got that investment income to set it off against. Now late last year, APRA made some changes and APRA, the prudential authority for regulating our banks, they introduced some changes for the banks when it came to investor lending. What we’ve seen is both the Sydney, and the Melbourne markets in particularly, which were overheating, moderate over the last six months. Now that was a responsible policy change put in place by the banking regulator which has taken the heat out of the some of the investor side so the market which has been good for everybody. That is what is called a measured and responsible reaction to what was happening in the market. It has been commended by the Governor of the Reserve Bank, Glenn Stevens, in his many interviews on this topic. That is the way you address these issues and you also address it by increasing housing supply by getting all the inefficient regulation that is clogging up our cities, that is clogging up our towns across the country and not allowing more supply to get into the market. Now the Grattan Report today again said that this plan isn’t going to do anything for housing supply. In fact Geraldine, I don’t know if you know, but the policy actually doesn’t just apply to housing, they are not going to allow you to invest in shops or factories. The capital gains tax…
DOOGUE:
They are generally not negatively geared, that is what the report shows, it’s very interesting.
TREASURER:
But they do negatively gear them Geraldine. So it is not just on housing, this goes well beyond everything else. On capital gains tax it applies to shares and companies who are units in the trust, for rights and options in leases and trust distributions and licenses and convertible notes and it goes on. This is very far reaching.
DOOGUE:
Do you think the capital gains tax discount at the moment is set at the right level?
TREASURER:
Yes.
DOOGUE:
Because I mean it was brought in to count for possible inflation by the Howard Government and I think the suggestion is that this is an unintended consequence – this combination of the capital gains tax discount and the negative gearing, this was not the plan.
TREASURER:
Well Geraldine, if you want to stop people doing something you tax it more. So if you want to stop people investing, tax it more. That is what increasing the capital gains tax rate by 50 per cent which is what Labor are proposing to do will actually do. If you want to stop someone from investing, well tax them more and that is what Labor is proposing to do. Now all of this is seated in this view that some believe that Australian should be paying more tax. When they talk about a revenue problem what they are saying is Australians are not paying enough tax and they should be paying a lot more. Labor agrees with that because they are going to increase the tax burden on the Australian economy by over $100 billion over the next ten years. That is not a plan for growth and jobs. The Budget I will bring down next week will be focused on growth and jobs, focused on backing in investment. People are earning out there in the economy and creating jobs, that is what our economy needs at the moment not another big tax grab from another Labor government. We have seen how that ends before.
DOOGUE:
Now you have heard Deloitte Access Economics releasing its annual pre-Budget monitor and its warning of another $4.3 billion blow out in this year’s deficit. Now just following up from what you are saying, you are clearly talking about then cuts from elsewhere are you if you want to relieve the tax burden on some people?
TREASURER:
Well the parameter estimates will be finalised over the next week and they will be announced in the Budget. There are a lot of things that move around - international prices, markets, growth forecasts, all of these sorts of things. They will be finalised over the next few days and they will be put in the Budget. I would encourage people to wait until May 3 to see what the outcome of that is. But you control what you can control in a Budget and what you can control is you don’t spend more than you save. That is certainly what we have always been doing in this government. We will continue that and that means we will stay on a positive path to get the Budget back in balance.
DOOGUE:
You did see I suppose again in the Financial Review today the ANU poll where they discussed with 1,200 Australians their attitudes to tax. It found that actually they were in favour of more spending on social services rather than reducing taxes.
TREASURER:
Well for those who want to pay more taxes then we can allow for them to go down to the tax office and they can register for themselves to pay more taxes. I don’t think most Australians want to pay more taxes overall. I think what they want to see is a tax system that is more sustainable, a tax system where we crack down on multinationals seeking to avoid tax or on those loopholes that exist in the system – and they do exist for high-income earners and you can expect us to be addressing that as well. But what you don’t do if you want to grow the economy, if you want to support jobs, you don’t increase income tax.
DOOGUE:
Just a couple of other quick ones, on the future submarine program Treasurer. Can you confirm the announcement re who will win the subs is today?
TREASURER:
That would be highly inappropriate for me to speculate on those matters. Of course, I am a member of the National Security Committee and have been very involved in these things. What is important from our defence procurement plan is that we are actually getting the technology and other transfer that occurs from being involved in these projects. They are significant expenditures of public money and we will be focusing on ensuring that Australians get the real benefit of that for jobs and growth in the future.
DOOGUE:
Just before I let you go I wonder if you saw Four Corners last night on a man called Hamid Khazaei who was actually part of your watch as Immigration Minister and his particular fate? Here is a small grab:
THEN IMMIGRATION MINISTER MORRISON: Our focus and care has been on this young man from the moment he presented to medical officer sat Manus Island and on focusing on the interests and engaging with the family. That is where our intention has been and that young man is still with us but his condition as you know at the moment is [inaudible].
DOOGUE:
At the time Treasurer, if you watch the programme, he was probably braindead at that time and then subsequently died. Did you find that report troubling?
TREASURER:
I didn’t see the report last night I was driving down to Canberra last night. But there is a coronial enquiry underway into that matter which I indicated would be the case at the time. I don’t think it is appropriate for me to offer commentary on something that is the subject to a coronial enquiry. It is a very upsetting case. It was a very upsetting case at the time and there are a lot of factors there and I will let the coroner do their job.
DOOGUE:
Thank you indeed for joining us Scott Morrison.
TREASURER:
Thanks Geraldine.