E&OE…

DAVID SPEERS

Good evening, welcome to the program. Well, tomorrow state and federal leaders sit down; the final big meeting of the year, the final COAG meeting of the year, the first for Malcolm Turnbull, and key on the agenda will be tax reform. Are we any closer to seeing some agreement between the states and the Federal Government on why we need to reform the tax system? There in mind, Tony Abbott promised this tax reform White Paper process before the last election, and it’s been running for roughly about a year now. We had a discussion paper that was released back in March, and yes there’s been a new Prime Minister come in and opening up more issues to consider everything on the table including the GST. But as we head into the COAG meeting tomorrow, we still have very divergent views on what we’re actually trying to achieve. Scott Morrison, the Treasurer, making it clear that his aim is no increase in the net tax burden, in fact he’d like to see it come down and so would many Liberal MPs. He wants to be able to deliver income tax relief and company tax relief: they are his priorities. Yet we’ve also heard today from the Victorian premier, Daniel Andrews, that he does not want to see the overall tax burden come down, and he wants to see some way of actually finding more money to pay for health and for schools. So if the states and the Federal Government can’t agree on why we need to reform the tax system, it doesn’t look like they’re going to agree on how to reform the tax system. To look at all of this and the other big issues of the week, we are joined tonight by Liberal Senator Scott Ryan, he is the Assistant Cabinet Secretary, Chris Berg from the Institute of Public Affairs, Sean Kelly, a former Labor adviser, and Labor Senator Deborah O’Neill. Welcome to all of you, thanks for joining us. Now this tax debate, it has gone around and around for a while; if we can’t get agreement between the states and the Federal Government on this basic question of why we need to reform the tax system, it is hard to see how there’s going to be agreement on how to reform the tax system. Scott Ryan, why do you think we need to reform the tax system?

SCOTT RYAN

Well we’ve got a tax system that was set for a different era, and we had substantial tax reform nearly two decades ago and we had some a decade before that. The world economy has changed and the Australian economy has changed, and so we need a tax system that actually suits the needs we have today; not only in giving government resources to provide the social services and the safety net that we all agree, despite the occasional disagreement about the extent of it. But we also need to ensure our tax system isn’t punitive, that it doesn’t punish work. And there has been report after report, and I don’t think anyone in Australia would suggest that our tax system, particularly its interaction with the welfare system and things like childcare, is actually fit for purpose today. It doesn’t encourage people to go back to work; we have tax welfare traps…

(Interrupted)

SPEERS

What is the evidence of that though? Just picking these apart, it discourages people from going back to work? RYAN Just in the life of people we meet, my staff and myself and my friends, the interaction for example between the tax system and the childcare system we know has an impact on female participation, predominantly female participation in the workforce. SPEERS If that’s the problem, don’t you think you address that, I’m not saying this is the answer, through changing the childcare and support that’s available? RYAN And we’ve made some announcements in that regard, which will be debated in the Parliament next year.

SPEERS

And you’ve wound some of that back since then.

RYAN

We’ve also redirected it towards people to try and give them an incentive to go and work. SPEERS But you aren’t offering what you said you’d offer. But anyway, on tax…

(Interrupted)

DEBORAH O’NEILL

I’d love to come back to that.

SPEERS

Ok, we’ll come back to that. So that’s one area, mums going back to work, what else is the tax system doing at the moment that’s hurting the economy?

RYAN

We’ve got rather punitive income tax rates, so when you’ve got the average male full-time weekly earnings moving into the second highest tax bracket next year, which I don’t think anyone suggests was the intention of the tax system at any point in its history to have that great bulk of people paying the second highest rate of tax. We know from report after report, including those commissioned under Labor, that high company taxes – and we do have a relatively high corporate tax rate now – actually do directly impact not only on investment but on wage levels. And that was Ken Henry’s report that outlined that. But tax is one part of the overall economic puzzle, it’s a big part. But one of the things that the Prime Minister and Treasurer have made clear is that we can’t just look at tax in isolation; we do need to look at the welfare system, that effective marginal tax rates, between people going out off welfare and on to work, and they can be extremely high, in seventy to eighty per cent range. So, it’s one part of a bigger economic reform agenda. I don’t think anyone suggests that the tax system is ideal, and so this is part of a process…

(Interrupted)

SPEERS

Sure, but I do think it is important to get to the specifics of where it is actually hurting the economy at the moment. Deb O’Neill, do you agree that the tax system is not working at the moment?

O’NEILL

Look, I think that I just read in the last couple of days Andrew Leigh making a comment that the gap between what we spend and what raise is about 1.5 per cent of GDP. So, when I read that it gave me some hope…

SPEERS

As in, we are spending too much?

O’NEILL

Well, we’re spending a bit more than we are currently gathering from the Australian people and in that gap we have to do something because frankly, when we look at the impacts of the Federal Government’s cuts in the 2014/15 Budget around health and education we see why that gap really matters. You know $50 billion out of, well actually it is $57 billion out of health and $30 billion out of education is hurting unbelievably. When we have that gap it means that states like Queensland where we know it is $11.8 billion out of health will mean that there are 4.9 million outpatient services that won’t get delivered.

SPEERS

Okay, but you are talking here about what is coming in future years if those – and I don’t think Labor is saying they will restore that money – with the tax system we have right now, I just want to focus on this, Sean you have seen this debate over many years. Do you think the tax system as it is currently structured is causing the sort of problems that Scott Ryan suggests?

SEAN KELLY

Oh, look let me start by saying we definitely have a revenue problem. There is this debate about whether we have a spending problem or a revenue problem, and of course there are savings that can be made on the expenditure side. But, Deb’s point is very (inaudible) to this, we know we have a revenue problem because in that first Abbott/Hockey Budget we did see $80 billion worth of cuts to health and education, now do you restore all of that? That is obviously a question up for debate, but it is worth remembering that this GST debate kicked off when Mike Baird started it, and Mike Baird started it because he was concerned about those cuts, and that is a Liberal premier. I think, David, you posed the exact question: if we are going to talk about a GST increase, then what is the motivation? Either what is the ideological motivation, or what is the motivation at a taxation level. To get at that motivation you have to look at what people’s plans for expenditure are. I have to say, it did worry me today when Scott Morrison made very clear to all of the premiers that all of the money raised through the GST would be funnelled back to compensation of some sort…

(Interrupted)

SPEERS

Or tax cuts.

KELLY

Yes, tax cuts largely in the form of compensation was the argument he made. He said it had to be neutral in its overall impact on the tax system.

SPEERS

See, now what is wrong with that?

O’NEILL

It doesn’t bridge that gap then, David. And you know we took a million people out of the taxation system by tripling the tax-free-threshold, so compensation for those people through the mechanism simply isn’t available.

SPEERS

Okay, but if we are talking about that $80 billion that was announced in that first budget that the Federal Government wouldn’t give the states for schools and hospitals, is anybody saying that that money is going to be there? I mean Labor is not saying that.

O’NEILL

Any budget decision that you make, the tax that you spend reveals your values. Labor is always going to say that we need to look after the health and wellbeing of this nation. Frankly, it is very hard to earn and contribute to the tax if you are not well, if you can’t get to you…

(Interrupted)

…these things are absolutely intertwined.

SPEERS

Sure, no doubt about that, but Labor is not saying that it would proceed with that spending, is it?

O’NEILL

We would need to make sure that we attend to those realities; that is a priority for Labor, health and education are the things we stand on. We are the party of Medicare.

SPEERS

Sure, but that $80 billion?

O’NEILL

The $80 billion is why we need to have a very serious conversation about the revenue side as Sean was saying.

RYAN

David, can I address – there is a myth here. There is an important myth to address here. By all means criticise people for a reduced rate of growth, they were not cuts. One state treasury officials referred to those last minute…

(Interrupted)

KELLY

We are having a semantic debate here.

RYAN

No, it is a very important point…

(Interrupted)

…let me finish here. It is a very important point. One state treasury official referred to Labor’s promises as the Unicorn Fund, because it was never going to happen. If I promise you $1 million tomorrow and you know I don’t have it and you go off and say that I have cut it by not delivering something I never had, then more fool you. By all means say a reduced rate of growth.

SPEERS

Let’s just agree that there is $80 billion that Labor said they would pay in the next however many years…

(Interrupted)

RYAN

But didn’t fund.

SPEERS

Didn’t fund, and now the Government says that they are not going proceed with that $80 billion.

O’NEILL

No, that was a set of values…

SPEERS

I am talking about the $80 billion.

O’NEILL

Yes, but it is money that was anticipated would be a spend in a Labor government moving forward.

RYAN

But you had no revenue source for it, there was no chance of meeting that.

KELLY

I am happy to say put the $80 billion specific figure to one side; it is absolutely unarguable that there is going to be significant increased pressure on our health system over coming years. This week the Prime Minister, Malcolm Turnbull, announced what I though was largely a pretty good innovation statement, but if you are going to talk about innovation and investments in productivity enhancing reforms – which he did, quite a lot – then you can’t ignore investments in the long term health and education….

(Interrupted)

SPEERS

Chris, let me bring you in on this, I mean do you agree that there is a growing pressure in health in particular that states are staring down the barrel of, they are worried about that they don’t have the money to pay for.

CHRIS BERG

That is absolutely right, but that directs our attention not to the tax system but reforming the health system so it is more capable of dealing with future budget pressures. Sean raised the issue of whether we have a spending problem or a revenue problem, now if we are going to be completely honest around the table it depends on your perspective, what is your preferred level of Government spending. But right now, the Australian Government spending is spending about 26 per cent of GDP which is almost exactly what the Rudd government was spending in the year they were trying to stimulate the Australian economy.

SPEERS

Yep, it is just a tick below that 2007 figure.

BERG

Yep, and we are about to find out on Tuesday exactly what that final figure is. We clearly have a spending issue, now you might say I want spending to be 26 per cent of the Australian economy, but when it comes down to it we are spending far higher than what the norm has been over the last decade, we are spending far more now than the Labor government was spending in its last year, we clearly have a spending issue and we need to tackle that. Now, I have some serious problems with the way that…

(Interrupted)

O’NEILL

We can’t get that truth out of the Government in Parliament.

BERG

That is between you and the Government. But, between this little table here we have talk about the serious issues, and I am very, very concerned about the direction the tax debate has gone because we are having this tax debate in probably the worst possible time to have a tax debate, which is…

(Interrupted)

SPEERS

Because we are so deep in deficit.

BERG

When we have such a giant gap between spending and revenue, all of the political incentives will be to raise taxes, raising taxes will genuinely harm the growth of the economy in the short and medium term.

O’NEILL

Well, not if we get some of the people who haven’t been paying their fair share of tax. And that is fairness argument too.

RYAN

That is on the margins.

BERG

We can actually break that issue down. So, there is a claim that perhaps people who are wealthy are not paying enough tax, and there is a claim that people who are wealthy are dodging or specifically avoiding tax.

(Interrupted)

O’NEILL

Not just people Chris, but multinational companies.

BERG

Multinational companies are made of people, this is one of the amazing things about the corporate tax debate the corporate tax is levied on individuals, and it is levied on humans. Corporations do not pay tax, people eventually pay those taxes as Senator Ryan pointed out, and those taxes tend to be paid by the workers. One of the problems with the corporate tax is it hides the incidences…

KELLY

I feel as though we are on a fairly long tangent at this point.

SPEERS

There are other things that corporations do like dividend payments to shareholders and all of that; it is not just paying their lowly workers.

BERG

Yeah, but those shareholders are us.

RYAN

There is a myth being propagated by Labor and the Greens that taxing Apple and Google is going to fund this gap between a historic much higher than average level of spending and historically below the average level of taxation.

SPEERS

I don’t know why the Government spends so much time on…
(Interrupted)

RYAN

Because it is important to do, but it will not solve the issue and the gap.

KELLY

But Scott, what is the case for the GST then, to bring it back to what we were actually supposed to be talking about, what is your argument for raising the GST?

RYAN

Well, hang on, we haven’t made an argument to raise the GST.

O’NEILL

You put it on the table.

KELLY

The Treasurer went to a meeting today and said: I am open to this. What is the Government’s justification for it?

RYAN

The Treasurer presented some modelling that was done at the request of the states that was part of a really a first time state/Commonwealth consultative process to try and see if the states can…

(Interrupted)

KELLY

Surely, there must be some thinking at high levels of Government about what the justification would be. Please tell me there is some thinking about this.

RYAN

Sean, the point is that we made a point that we are not going to do what Labor did before the Henry Review and just rule things out. This needs to be a deliberative, consultative discussion about how we meet the needs and actually to a certain extent…

(Interrupted)

KELLY

You could have just said: I don’t want to answer the question.

O’NEILL

It didn’t sound like that this morning with the veiled threats by Scott Morrison. RYAN The Government does not have a position on raising the GST, it is simply not the case. The only leader of a government out there arguing for that was Jay Weatherill. But we have said that we are not going to rule it out and we have said that we are going to have a discussion with the states from everything from revenue bases – which was today – to the states revenue needs. But, it would be erroneous and it would be foolish to simply say: we are not going to discuss three or four things. That would be an immature approach to tax reform.

KELLY

I agree with you, and I want to say that I think it is an enormous step forward. We should give some credit to Malcolm Turnbull here I think, it wasn’t that long ago that Tony Abbott was making the case that it was Bill Shorten’s decision about whether or not to raise the GST…

(Interrupted)

BERG

It is an interesting test about how we are, apparently, unable to deal with that issue. The Government says: everything is on the table, and immediately the Labor Party says: they are definitely going to raise the GST then.

KELLY

I don’t disagree with you about the way the debate is occurring in this country.

O’NEILL

The GST is on the table, clearly. Last week Senator Nash was saying it was on the table, this is the most interesting thing that keeps appearing on the table.

SPEERS

What is wrong with having something considered?

O’NEILL

What is wrong with having that considered is that we know it is a profoundly regressive tax. We know that it is going to take $10 billion in terms of just fresh food per annum, and it is going to take it out in the most devastating way for regional and rural economies.

SPEERS

Why didn’t Labor get rid of the GST? O’NEILL Well, that was a promise from some time ago and when we came into Government, Australians had voted for it…

(Interrupted)

SPEERS

But, if it is that bad, that evil and that regressive, why didn’t you do something about it? Wind it back or…

(Interrupted)

O’NEILL

Compensation was able to be offered then. We are headed…

(Interrupted)

SPEERS

Sorry, compensation can be…

(Interrupted)

O’NEILL

Was offered at that point in time.

SPEERS

So, you could do that again?

O’NEILL

No we can’t because we have got a million people out of the taxation system and we have got a whole change in a raft of other taxes that make that not really an option for right now.

SPEERS

But, when the GST came in, there were plenty of people – pensioners, unemployed – out of the tax system, they were compensated, it can be done. When you brought in the carbon tax there were people who were on pension and unemployment benefits and so on, you had to compensate, it was a very regressive tax.

O’NEILL

And a significant change that happened then is not available, it is not among the suite of things that are available to the Government. So what we are going to see…

(Interrupted)

SPEERS

What is not available?

O’NEILL

We will see big companies pushing the price increases down onto sub-contractors. Small businesses are going to feel this very, very heavily. Small businesses that are already struggling with their cash-flow…

(Interrupted)

RYAN

GST is a flow-through tax though.

O’NEILL

Another 5 per cent…

(Interrupted)

SPEERS

I just fail to see the difference between when the GST came in, when the carbon tax came in, I mean there are ways to compensate people who are affected unfairly by this.

O’NEILL

I think the commentary that I have read around this area indicates that the range of options that were available previously are no longer available and one of the most significant things I return to is that there are now a million people who are completely out of the taxation system and there is an efficiency gained by doing that…

(Interrupted)

BERG

In the sense that you cannot give people below the tax-free-threshold tax cuts, that is absolutely true. Except, those people are also the beneficiaries of the welfare system, so there are definitely techniques that you can use to do it.

RYAN Yes, tax credits.

BERG

We don’t have a sole single mechanism; we have lots of options throughout the welfare, the tax welfare system.

SPEERS

And Scott Morrison’s argument on this…

(Interrupted)

The Treasurer’s argument on this is with pensions and…

(Interrupted)

BERG

But we are talking to moving to a more efficient tax.

SPEERS

…they are tied to CPI, they are indexed and they do go up twice a year in line with prices. So, if the GST comes in and they do that and prices go up then automatically these things would go up. Is that enough compensation?

RYAN

Sorry, I missed the first part of what you said.

SPEERS

If you go down the path of putting up the GST, prices go up, CPI goes up and automatically because the pension and unemployment benefits and so on are tied to CPI they go up.

RYAN The last time there was a consideration of that – and of course a lot of these payments are linked to heightened CPI as well they are linked to wage growth and that has traditionally been a bit higher – but as that moves around people, treasury did last time and Labor did with the carbon tax, look at the basket of goods people consume and tried to weight measures to compensate for that. There are mechanisms, there are tax credits – the family tax benefit system works on the basis that a lot of the people who receive it don’t pay tax and so it returns more to them than…

(Interrupted)

SPEERS

Then doesn’t this get to the problem…

(Interrupted)

O’NEILL

Well, that entire system is completely under attack. I mean, there is so many things that have been removed by the Federal Government around that entire area and in childcare, you know this trade-off around childcare, it was mentioned earlier, this is to get women back into the workplace, have you been to regional Australia and rural Australia these women who are not going to get childcare for their children because there is no jobs for them to go to? But these are the consequences…

(Interrupted)

SPEERS

Back on how you are going to square the circle here, if you are going to put up some of those payments you are talking about, you are increasing government spending.

RYAN

And look, this is one of the things the Treasurer has alluded to, which is why the Government hasn’t got a firm policy either way on this. What we are saying is that these issues need to be considered.

SPEERS

What is your starting point, I mean you personally, would you like to see spending go up at all?

RYAN

No, I think we are above our historic long-run average on spending, we have an income tax system where not only is second highest bracket about to capture the average wage-earner, but I think there is an issue of fairness. You have 2 per cent of taxpayers paying more than a quarter of all tax, one per cent of taxpayers paying more than 16 per cent of tax. You have got the top quarter of taxpayers paying more than two thirds of all tax. I think fairness is a two-edged sword, we actually have to consider the limits of tax and transfer as well because when you get to those levels, you start to get to punitive levels of taxation. And it does have a clear proven established disincentive on work and investment.

SPEERS

I want to move on from the whole tax debate, but let me see if I can…

(Interrupted)

BERG

No! We never will, we never will, this is the problem.

SPEERS

Let me see if I can get a landing point from – I am not sure if we will get it from you, with respect Scott Ryan, because everything is on the table and nothing is in or out – but what would be the ideal change, Chris Berg, to do what we need to do?

BERG

At this stage I think the ideal change is no change; I am very sceptical about the tax reform approach…

(Interrupted)

SPEERS

Even with bracket creep pushing us all into higher…

(Interrupted)

BERG

I think we should do piecemeal things absolutely, and I think we need individual tax cuts to come through across the board, I want to cut income tax, I want to cut the corporate tax for lots of different reasons, but I don’t like the idea of this grand bargain that we are talking about. Whether we are trading GST or…

(Interrupted)

SPEERS

Funnily enough, I wonder if Sean is going to agree with you here.

BERG

Very much you might, but I just want to make one point which is that: in theory the GST is a more efficient tax, but the political system is going to ensure that it is not very efficient by doing all of these compensations and these sorts of things. So you can ask an economist should we have a higher consumption tax, they will say ‘yes’, when you present them with a model in the real world they will probably look quite (inaudible).

SPEERS

Sean, if you were going to craft a tax reform package, what would you be doing?

KELLY

Can I say, Chris’ point about efficiency and political efficiency is a very good one, and of course that is why it comes down to how the money ends up being spent. As I have said on this show before, I am open to the idea of a GST increase depending on the way that money is spent if it the compensation was very much targeted at lower income earners, if you used the remainder of the money to increase the money that has been cut, to increase the expenditure on health and education, if you put some of that money towards structural deficit, then I think it could play a valuable role. Increasingly as this debate unfolds, and more and more is written about it and more analysis comes out, I am drawn more to an increase to the Medicare levy or even the model put forward by some people which would be a consistent flat land tax across the, not a flat tax, but a consistent land tax across the country because then you are talking about an incredibly efficient tax and also a very progressive tax because you are talking about people with particular level of wealth, obviously you would have to put in some allowances for retirees there. But, there are other mechanisms available, I’ll say what I said at the start, we do have some elements of a spending problem but we also have a revenue issue.

SPEERS

And Deb O’Neill, given Labor wants to find ways to fund health and education in particular, what sort of changes to the tax system would you prefer?

O’NEILL

Well I think there are already some that are being put on the table, you know were sort of assessing how many things have been put out by Labor in opposition, you know there are fifty items fifty significant policy items, the most of any opposition in thirty years, so, clearly some of the ones that have been indicated…

(Interrupted)

SPEERS

I think though, unfortunately for Labor, you have spent most of those in other areas already.

O’NEILL

Well, look it is a while before the next election if we believe the Prime Minister, in September, and I am sure there will be more ideas advanced there. But, in the end we do, as Sean has very clearly articulated, have a revenue problem where we need to make sure we have the funds that this country requires us to gather to be able to provide the services that Australians do expect. People need to be able to get to the hospitals, need to be able to get to the doctors and some of the…

(Interrupted)

SPEERS

Are there any other tax changes on top of the cigarettes, multi-nationals, and super changes that Labor has announced that you would advocate?

O’NEILL

No, look I think I will stick with what has been announced so far and I will continue on the journey, but you know health and education are a priority we need to find the money for because the impact of the cuts that have already happened and the tearing up of the national partnership agreements around health and the tearing up of the Gonski agreements are already effecting the outcomes of the health…

(Interrupted)

SPEERS

And the Medicare levy idea that Victoria and Queensland support?

O’NEILL

I think that is something that is a lot more palatable to Australians because they…

SPEERS

So you are open to that?

O’NEILL

Well personally I would be, but I am not making policy for the Labor Party here tonight. I think that that is a conversation that is worth having because people understand the value of contributing Medicare when it is allocated as a hypothecated tax to health.

SPEERS

Pretty sure, you are not going to give us a steer, but what is your thinking on where this should land?

RYAN

There is a philosophical difference here, when we have spending above the historic average and revenue only a tiny bit below it, we know there is a cost to increasing taxes, there is a huge cost to increasing income taxes we would go back above 50 per cent as the top income tax.

SPEERS

So, that is off the table?

RYAN

The Treasurer has made clear that he is not interested in that. That would put us back into the area that Paul Keating took us away from.

SPEERS

Rule that one out.

RYAN

The Treasurer has made clear that he is not inclined towards that because it doesn’t fit with our desire to reduce the burden of income tax. The truth is the Medicare levy doesn’t come close to funding health expenditure, and constitutionally it is not hypothecated…

(Interrupted)

SPEERS

Something that is going to…

(Interrupted)

O’NEILL

8.3 per cent of the spend at OECD average, we are below it. As we become a more sophisticated society people are expecting, and an older society, are expecting that we are actually able to fund our health care.

RYAN

If you define success by spending you are heading down the path of the American health system which spends double what we do and has lesser health outcomes…

(Interrupted)

O’NEILL

We define it by longevity…

(Interrupted)

RYAN That is not by spending.

SPEERS I am going to butt in and we are going to go to a break, because after that innovation, we might actually have a bit more agreement on what needs to happen here to deliver the ‘Ideas Boom’ that Malcolm Turnbull is talking about, stay with us.

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SPEERS While the debate about tax will go on and on and on, we have had fairly significant economic policy announcement this week, the first big one from Malcolm Turnbull really. His innovation statement, this is about delivering the ‘Ideas Boom’ which he is confident will follow the mining boom. Now, there are many elements to the package that has been unveiled and I want to touch on a few of them, let’s start with start-ups because this is where the tax breaks are being offered by the Government and by Labor as well in a slightly different form. I think you were talking about tax deductions, I think you were talking about tax offsets but we won’t get bogged down in the differences there. Scott Ryan, to you first, are you saying mum and dad investors should put their money into start-ups?

RYAN It is not primarily focussed on that, David. Everyone who has worked in this space – and I did a little bit of work in it years ago in the pharmaceuticals industry – knows that there is a bit of a capital hole in Australia between an idea and trying to get it to proof of concept where it can be picked up by often a larger corporate or by business partners. And that has been the case a lot in the health sciences where we have a fantastic international record, but increasingly also in information technology and other areas. Where it has worked quite well, for example, is in resources where we have had some of the world leading technology but there are those champion Australia corporates that actually take those ideas and run with them. So, one of things this package is trying to do is to address that capital hole through changing the culture, some of these tax offsets, and a capital gains tax holiday.

SPEERS But what are they aimed at?

RYAN They are aimed at people who have got an idea or a process innovation, and that is…

(Interrupted)

SPEERS But, hang on the tax breaks are actually aimed at the investor?

RYAN The tax breaks are for the investor to attract capital.

SPEERS

And who are the investors you are trying to attract? RYAN The investors predominantly will be people who have vehicles to invest – they could be high-net-worth individuals trying to attract corporate investment to add to the RND tax credit that we now have in place. I don’t think you will often see a lot of mums and dads do it because in all honesty mums and dads tend to use vehicles like superannuation funds or trusts to invest. But, these tax benefits will directly flow through to those investments. Out superannuation industry, for example, has been highly risk-averse and haven’t been a great investor in this space. I note today, just this afternoon, a global champion and world leading company in Australia, CSL, in blood-products in pharmaceuticals has announced they are going to do more research in Australia and support more investment in this because of the package announced on Monday.

SPEERS

Are you saying super funds should be putting money into these start-ups?

RYAN

You have got to look at the whole capital market. That ranges from trusts, high-net-worth individuals, from corporates to super funds, a lot of people have talked about how we release the trillions of dollars of capital we have in super funds because a lot of it is invested effectively in the market and indexed-based funds.

SPEERS

It would be great to see start-ups start up and succeed a lot more than they do and the jobs to flow and all of that, but isn’t worth putting into this whole debate the reality that eighty to ninety per cent of start-ups fail and if you invest them you are more likely than not to lose that money.

RYAN

The Prime Minister also made the point that we have to, this is the second element of this is becoming less risk-averse. As a culture our corporates, our businesses are high-risk averse and so if you are going to get into this space – and in the pharmaceutical space 1 in 500 medicines makes it to market – then you do try and have pulling arrangements so you can spread your risk and these offsets and allowances allow that as well.

SPEERS

But isn’t there a responsibility for the Government to point to the risks that are there? It is different to putting your money into bricks and mortar.

RYAN

Yes, but with all due respect, I don’t think that we are suggesting that we should go and replace our mortgage offset account or our bank account for a rainy day with investment in start-ups.

SPEERS

Sure, but super funds, you have given that example, we all have superannuation, do we want our super funds…

RYAN

You don’t need a lot. At the moment so much of our super funds are invested in market-indexed share portfolios and some super funds, there was the event with First State the other day parking just a little bit, a sliver of money, in some of these start-ups. That will have huge benefits, partly to change the culture but also because it will lead to stronger partnerships with our researchers. We have a very high public share of investment in research and one of the world’s lowest private shares. We have a very low public-private collaboration. One of the other elements of this is changing university research funding to not just reward it on research footnotes and the traditional academic measures but also reward collaboration with industry.

SPEERS

Chris, what are your thoughts on this, because if you look at the comparisons internationally research, we really struggle with this whole start-up culture innovation, culture in commercialisation research and getting good ideas to turn into businesses.

BERG

Sure, so here is what I quite like about it: I particularly like the reforms to insolvency provisions. Particularly because that targets the specific issues which the Prime Minister was talking about which is that we have a risk-averse business culture, we have had over the last decade a really striking decline in the number of new businesses entering industry as a comparison to the total number of businesses. That is a real worry. What we should be doing is encouraging, not so much innovation as it is entrepreneurship, we are trying to get people to start up new companies and those companies – everybody thinks of start-ups as app companies or pharmaceutical companies, I am just as interested in people starting up stores, I am just as interested in people starting up milk bars as I am starting a new app. SPEERS But they won’t get the tax breaks will they?

BERG

No, and this is one of the problems. What I am worried about with the innovation program is that it is targeting the wrong metric; it is targeting what it sees as ideas as if the Government has an idea of how firms begin with concepts and translate them into commercial success. What we need to be doing is looking at the market in general, looking at the regulatory framework around all market activity and allowing people to innovate within that market framework rather than sort of the with the innovation program had twenty-eight separate measures. That doesn’t strike me as the right approach; we need to be looking at regulatory barriers to entrepreneurship, innovation and business in general.

SPEERS

So, like Uber disrupting the taxi industry, AirB&B disrupting the hotel industry, if someone comes up with a way that you can disrupt the milkbar industry, to take your example, they should attract some help from the Government?

BERG

I don’t think they should attract some help, Uber is a great example because Uber’s problem is not capital by any means, it is not a start-up. Its real problem is the regulatory framework that doesn’t meet its disruptive needs. All of these customers are flocking to Uber…

(Interrupted)

RYAN

It is what stops it…

BERG

Literally prevents it from doing it what it did. There was a court case in Melbourne that suggested that Uber may be illegal in Victoria as well. Now, that is a perfect example of how the barriers to innovation are not so much at the very start-up level, but they are in the regulatory frameworks that govern the entire economy, that have been causing problems for our economy for a very long time.

SPEERS

This is a debate about whether you do need some regulation around health and safety an d training and…

(Interrupted)

BERG

Not in the slightest, it is a debate about what we mean by an innovation program. What has been good about Malcolm Turnbull’s approach is that he has been: what is the bottom up idea, what are we talking about with innovation.

SPEERS

But you wouldn’t go with the tax breaks for particular sectors?

BERG

No, absolutely not because that is a form of central planning that I don’t think the Government has capacity to do.

SPEERS

Sean, what do you like in what is being discussed this week?

KELLY

I like a lot of things but I think Chris didn’t quite say it but alludes to a broader issue, and this is true of both major parties’ policies, that the truth is that we don’t actually know how much government can actually do to foster innovation and of course there hasn’t also been a lot of discussion this week about the significant barriers we face simply by virtue of being in Australia that have very little to do with anything the government can do. Population and the size of….

(Interrupted)

Let me finish – it is almost impossible to imagine Uber having started in Australia, and it is not because there aren’t very ingenious people in Australia, it is just because it would have been very, very hard to raise the capital because firstly there is less capital floating around regardless of what you do to the tax system and second because of the size of the market. All of that said, I don’t think there is some good elements in there, I think Chris is right that the bankruptcy provisions in particular could go a long way, I think there is also a fair chance because they apply to businesses across the country that they could have unforeseen consequences, so I think that is one the Government should be watching pretty closely over the next few years. I think the extra funding for significant sized projects, the certainty that is given to long term research projects is very important.

BERG

That is a really interesting example because you say we don’t know how innovation works, we actually do know what doesn’t work in innovation. The OECD has been very clear about this, they did a study a few years back about trying to match economic growth to the amount of money governments spend on research, development, and innovation programs and they could find no correlation whatsoever between public spending on research and economic growth.

KELLY

Chris, that is a very narrow minded view of the aim of research. The aim of research, and especially scientific research, shouldn’t necessarily be to deliver economic growth…

(Interrupted)

BERG

Well, in this case it is. It is part of innovation program…

(Interrupted)

KELLY

No, no, no, no, no…that is not fair to the Prime Minister with all due respect. This was an innovation statement, he did not say this is solely an economic statement, in a large part it is, absolutely. But that does not mean that that is the sole outcome of innovation. I don’t think we should talk as if it were. I am not sure that is something that either of you would actually…

(Interrupted)

SPEERS

And the example was given by the head of the CSIRO about the Wi-Fi example, that came from research about something very different, into deep space I think…

O’NEILL

Exactly, blue sky thinking, it is absolutely critical.

SPEERS

Yeah, exactly the pure research, and it has come out with this thing that obviously has a huge global commercial realisation.

BERG

But in that case it would show up on economic growth statics because you would be able to see where we spent that amount of money on that…

(Interrupted)

SPEERS

Sure, but the funding for that research was not tied to (inaudible) outcome.

RYAN

This is where one of the key elements is improving the links between particularly universities but scientific organisations and commercial organisations, because that was not designed to be what it ended up being. And it has a huge beneficial impact on the economy through its utilisation, much more so than the CSIRO ever made out of a profit, although they have got a good profit stream. So this is the second part of why innovation is important, it is actually to get technologies out of places where they might not be directly investigated but someone sees as an opportunity.

KELLY

That policy was first put forward by Ian Macfarlane, but I just say that out of….

(Interrupted – laughter)

SPEERS

We might come back to him a little later.

RYAN

But this is one of the key things. So, when Ian Frazer started working on the science that lead to a cervical cancer vaccine, it wasn’t to develop a vaccine, it was to understand something and then that lead to the science that lead to, which he drove, has created incredible health measures all around the world.

O’NEILL

I don’t think we can put an accounts measure around the capacity to wonder and to actually go to deep problem solving partnerships…

(Interrupted)

RYAN

My point being, if you don’t have the…

(Interrupted)

No, you have to pay for it, but if you don’t have the collaboration, if you don’t have the links and so much happens inside our organisations that we don’t know what we are missing out. Is there another Wi-Fi? Is there something going on that could lead to another health break-through? and this is why improving the collaboration between institutions and commercial world was so important, because scientists aren’t always the best people at spotting a commercial opportunity or a commercial application, we need to get these people talking more and that was one of the key elements of this package.

O’NEILL

Well, one of the ways they won’t be talking more is through the internet and the very slow broadband. I have such scepticism about Malcolm characterising himself as the innovation Prime Minister given he is the one who has put the (inaudible) basically on the NBN. We have the (inaudible) tracked to the future, and we have multi-technology mix – better known as Malcolm Turnbull’s mess in my view – the reality is you were talking about the size of our market, we needed ubiquity for people at one end to be able to communicate with people at the same speed, that has been completely ruined by this dog’s breakfast.

SPEERS

Apart from the NBN though, to get to the innovation statement this week – any tick?

O’NEILL Look, what I was really disturbed by in viewing the Leigh Sales interview was how little detail there was around this. There seems to be a lot of rhetoric. Do remember that this is the Government that is putting a billion back in to something it has taken 3 billion out of.

SPEERS There is a fair bit of detail in the – I don’t know about the particular interview – but in all the documents and policy papers.

O’NEILL

Well, yes but there is a bit of analysis that is going into looking at those documents and those policy paper that is revealing much of this is restatement of already made announcements. So you have got to be a little bit more sceptical there as well. In addition I think Labor has certainly put forward a case for innovation and one area that people aren’t talking about, you know we are talking about all of the sexy bits, but education, investment in education is critical. We have a Government who has taken 30 billion out of it and yet we want to generate an innovative nation…

(Interrupted)

RYAN

And an opposition that won’t commit to spending any of it.

O’NEILL

We need to make sure…well, Labor is always going to look after education much better than you guys ever do, and that commitment to that is through our STEM program, the science, technology, engineering and maths commitments. To have one hundred thousand places where people who graduate with those sorts of qualifications can get out HECs free and get into the businesses….

(Interrupted)

SPEERS

Just on that, and we have to move on from this, but just on that someone was putting it to me that 100 000 HECs free places at university – is that going to encourage more people to take up a STEM course at uni?

O’NEILL

It is to the students that I am talking to who actually are so under pressure in terms of dollars.

SPEERS

By the time you finish year 12, by the time you finish your high school you are pretty well decided by then about whether you are going to follow a STEM career or not?

O’NEILL

Look, you may be if we don’t actually have the proper training of teachers. But that is another part of Labor’s package, that we actually train the teachers in primary school and in secondary school to make sure that the capacity is there. The reality is there are tens of thousands of teachers across who are teaching science, technology, engineering, and maths without a degree and without any access to the further training…

(Interrupted)

RYAN

This is the thing, you speak to the people in this field and they raise this particular issue: if you found the forty thousand qualified teachers to teach high school physics, and teachers before year 12 chemistry, and advance mathematics – there are not the jobs for them. You’re right, there are people in these positions at the moment who do not have the qualifications, particularly in regional areas and we have actually made key announcements on that and we are now testing teachers before they graduate to make sure they do have the skills – and the first results came out last week. The challenge here is that it is not just about bumper stickers about saying: I am going to train more, I am going to make more students do this. You have to find the jobs for them and support them. And at the moment, quite frankly, there aren’t the positions available.

SPEERS

We have to move on, I think there are a number of pieces to the puzzle. Believe it or not there is actually a fair bit of agreement now on teaching coding, on entrepreneur visas to bring in good talent, on tax breaks for start-ups.

O’NEILL

Did I miss the girls in coding initiative of the Government? Did I miss that? SPEERS I know you want to pick fights but I am just saying believe it or not you do actually agree on more than a few things in this space.

We’ll take a break, then I want to turn to Tony Abbott’s comments this week on Islam and the need for reform and also Ian Macfarlane, will he actually be able to defect to the nationals?

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SPEERS

Now let’s look at what Tony Abbott, the former Prime Minister has had to say this week about Islam. A few things, he has given an interview, he has written a newspaper column, he has given a speech last night in Singapore, making a number of points and they are more nuanced than some suggest but he does say there is a massive problem in Islam he says that reformation and enlightenment are things that happened in the Christian Church but not in Islam and he did talk about cultural superiority as well. Chris Berg to you first on this one, what have you made of these contributions?

BERG

I think it is very hard for an outsider to reinterpret someone’s own religion to them. So, very wary of saying: that Islam needs ‘X’, particularly Islam needs what Christianity had at one stage. The reformation was not to remove religious violence from Christianity and in some respects quite the opposite in some parts of Europe. But, I think what, to go to his points so what is happening in Islam at the moment; I suspect that we are actually seeing the results of a reform movement itself. It doesn’t look like the Christian one, but what we are seeing in the Middle East and particularly in Iraq and Syria in ISIS controlled Iraq and Syria we are seeing the counter-reformation so to speak. We are seeing the pushback against modernity that Muslim migrants in the western world are enjoying.

SPEERS

Even Tony Abbott himself in his speech in Singapore last night did talk about, here it is: in the past forty years our region has seen the fastest, largest advance in human well-being. And he talked about freedoms being freer in this region, more prosperous, safer etc. In this region we have the largest Muslim country in the world.

BERG

That is absolutely right and we have a huge Muslim…

(Interrupted)

SPEERS

So, we are actually seeing this reformation…

(Interrupted)

BERG

We are seeing this contest. So, put aside the reformation idea we are seeing a context within a great civilisation about what that civilisation’s relationship has with western modernity.

SPEERS

And yet we obviously have a problem with extremists’ interpretations of Islam, Scott Ryan, that we are seeing create problems not just in the Middle East but around the world. What have you made of your former Leader’s intervention on this?

RYAN

Firstly I think no purpose is served by not having these debates. What we are seeing in places like France with the rise of unpleasant political parties is the suppression of speech. I think what the former Prime Minister said, which I think Greg Sheridan alluded to this morning, he is a former Prime Minister, he is a former Leader he is entirely entitled to speak his mind, he is particularly well informed. He is even himself using language he didn’t use when he was in office. Can I say, I think I personally look at this through the prism of our region, we have the largest Muslim nation on Earth that is a pluralist nation and that is now a democracy. Some Leaders of whom, particularly Susilo Bambang Yudhoyono have been prominently pluralist leaders arguing for the sort of Islamic faith or practice that has existed in Indonesia for centuries and that is pluralist in nature. The truth is that we are looking at a poisonous element that is coming out of one part of the world, that started with a poisonous anti-Semitism…

(Interrupted)

SPEERS

Sure, but to cut to the chase – do you agree that we have a problem in Islam?

RYAN

I think we have a problem with the export of a poisonous ideology from one part of the world. I don’t see the problem in Indonesia, when I see it land in other nations I see it exported from one part of the world. It started with Iran and the fantastical overthrow of the Sha….

(Interrupted)

SPEERS

Nobody doubts that, but Tony Abbott is saying that all Muslims need to have a good look at themselves and their religion.
RYAN

Again, I think we have to be fair to the former Prime Minister here. His article and speech were particularly, in my view, thoughtful. He talked about how we needed to partner with people who were fellow Australians and of the Islamic faith. It was a considered speech. I think what we need to look at this as is a problem from one part of the world that has exported it, firstly from Iran and is now exporting it from parts of the Arab world, and everywhere you go around our region where there have been problems it has been an export of wahhabism the export of poisonous ideology…

(Interrupted)

SPEERS

Okay, sorry to cut you off but we are nearly out of time. Deb O’Neill what do you think? Do you have a particular problem?

O’NEILL

I am absolutely frustrated, it is spectacularly unhelpful I think that speech is. I think the relief that Australians have felt at Tony Abbott’s voice not being the one that they have had to hear.

SPEERS

What has been unhelpful?

O’NEILL

The conflation of Islam with extremism, to say to an entire religion and every person of a particular faith across the world: you need to sort yourselves out and have a reformation. The arrogance and the hubris of that are gobsmacking, frankly.

SPEERS

Sean?

KELLY

That was not a well-informed speech, it was an ignorant speech, the idea that one should conflate the entire Muslim faith under one heading of Islam is ridiculous, and stupid and bordering on bigotry. Scott has made the exact point that everybody should be making, that Tony Abbott’s speech showed an ignorance of: Indonesia is not the same as Saudi Arabia; Iran is not the same as Malaysia.

O’NEILL

Or Turkey.

KELLY

The Islamic population is one quarter of the world’s population and for a former prime minister of this nation who clearly harbours some ambition of coming back and being prime minister again to come out and say Islam, Islam itself is a problem and for Josh Frydenberg to follow that up, for Cabinet Ministers to jump on board is a real problem.

SPEERS

That’s I guess…it comes back to another debate. Look, we are nearly out of time but I did just want to squeeze in, sorry to rush this, Ian Macfarlane – will he, should he be allowed to swap to the nationals?

RYAN

His local electorate council I think meets on Saturday, the state executive of the Liberal National Party meets on Monday, I understand. I think my boss, Arthur Sinodinos, said that it left a little bit of a sour taste in people’s mouths and I think Arthur is particular well-informed on this. I would suggest that the relations between the Parties are set at an election time, so whatever happens I think it is a matter for the Prime Minister and the Leader of the National Party but we would prefer he remained in our ranks.

SPEERS

If he does change, no change in the Ministry until that election?

RYAN

I’ve learnt that you serve at the pleasure of the Prime Minister, don’t provide public commentary on his Ministry. But I think, to be fair the relations between the parties were set after the last election and I think that provides stability going forward.

SPEERS

We’ll take that as a no change to the Ministry for this side of the election. We have got to go; we are right out of time. Thank you all for a very interesting discussion tonight.

Thank you for your company as well, we will be back at the same time next week.

(ENDS)