Topics: 2016 Budget, negative gearing, small business tax relief, jobs growth, Labor’s $20 billion black hole.
E&OE…
RAF EPSTEIN
The Federal Budget was released last night which means the Prime Minister Malcolm Turnbull has explained what he plans to do over the next year. It is of course, a platform for the Coalition’s re-election. There will be an election on the second of July. There are some income tax cuts for those at the higher end. There’s also a significant grab from the superannuation accounts of those at the higher end. Labor’s already promising to significantly change the way we negatively gear. You’ll hear from both the government and the Opposition and you’ll have a chance to ask questions on 1300 222 774. The negative gearing issue continues to bite, and the Prime Minister Malcolm Turnbull was speaking to Jon Faine this morning, in an echo of the family he visited in Sydney with the one year-old who was having a home bought for them with negative gearing. Jon Faine asked the Prime Minister what his kids should do if they are asking him for help to get into the housing market.
(Audio of the Prime Minister and Jon Faine – 04.05.16)
EPSTEIN
Scott Ryan’s a liberal Senator in Victoria, he is Malcolm Turnbull’s Minister for Vocational Education and Skills. Good afternoon, Scott.
SCOTT RYAN
G’day Raf.
EPSTEIN
Time Watts is part of Bill Shorten’s team. He is the Labor member for the seat of Gellibrand here in Melbourne. Good afternoon, Tim.
TIM WATTS
Great to be with you, Raf.
EPSTEIN
Scott I’ll start with you, is that the best advice the government’s got if you can’t afford a house? Have a wealthy parent?
RYAN
I think to be fair, I heard the interview, it was a light-hearted part of a serious conversation that the Prime Minister was having with Jon. The Prime Minister has made a number of speeches before and supported by all the research on the area that says housing affordability is primarily an issue of land release and actually facilitating home building…
(Interrupted)
EPSTEIN
You’ve criticised negative gearing in the past, haven’t you Scott? In different guises?
RYAN
But he…the point about housing prices though is that every report we’ve ever had says that especially with population growth in a city like Melbourne, you need to facilitate housing development. And in too many of our large cities in Australia we’ve had too many restrictive policies force up the price of land, which is the single biggest part of someone buying their first home.
EPSTEIN
And I want to give you a chance to tell people what’s in the Budget for them, but a quick response Tim Watts – even John Daley from the Grattan Institute who strongly backs Labor’s plan, he doesn’t think it’s going to have a big impact on housing affordability.
WATTS
Well look just on what Scott’s just said then, that this is some kind of a slip-up that we need to read in context, let’s just understand, three times in the last week Malcolm Turnbull has said something extraordinary on housing policy. Last week he did this press conference in Sydney that you alluded to earlier, where he was showing parents buying a house for their one-year-old child as some kind of moral paradigm of housing affordability. On Monday of this week, he in Question Time said that negative gearing was a, quote ‘basic economic right’. Now I must have missed the Goldman Sachs declaration on human rights that included that one, but that struck me as peculiar. And then today on the Jon Faine program, Malcolm Turnbull told the people of Australia who are worried about housing affordability that they ought to just go out to their parents and get them to shell out. This shows that Malcolm Turnbull’s not just out of touch, he’s on another planet.
RYAN
This is just confected outrage, Raf. I mean this is just – can we just expect and allow our politicians to be human? I mean, we can download and listen to the interview, I heard it live, and there was a conversation, a serious one with the Prime Minister and Jon, and that was a tiny excerpt of it.
EPSTEIN
Just a quick response Tim Watts – Housing is not going to become dramatically affordable. We can have the argument about whether or not negative gearing is something a government should pursue and you might want to have an argument on equity grounds. However, Labor is not arguing that your changes will lead to drastically cheaper housing, are you?
WATTS
Well Raf, when you’re dealing with these broad trends across our economy and our society, you need to ask the question of, is government making things better, or is it making things worse? Now at the moment our tax system is structured to give an advantage to investors over first home-buyers. So if you’re buying your second, third, fourth, fifth, sixth house, you have an advantage when you’re standing at that auction competing with people trying to break into the housing sector for the first time. Now you can argue about the quantum of the impact that that might have, but that doesn’t make sense to me as a structural way to deal with our tax policy.
EPSTEIN
Now look 1300 222 774, this conversation is going to go on until the second of July. So it’s going to be a long conversation. I’m very aware that most of us cannot cram all of these numbers into your mind, so if you’ve got a question, about what either side is proposing, or if they are not talking about what you would like your politicians to talk about, 1300 222 774. Scott Ryan, can I ask without platitudes, to give people your brief summary of what’s in the budget. It’s constantly talked about as a plan, that it will deliver jobs and growth, but just – I mean, tell me a few of the levers you’re pulling that will actually have an impact on my life?
RYAN
These levers that we announced last night, to use your phrase, build on what we’ve announced over the last six months. You know, this started with our National Innovation and Science Agenda, which was to empower investment, newer technologies, newer jobs, education that actually gives people those opportunities. The second plank was to change competition laws to give small business a fairer ground on which to compete, and then our defence industries announcement a couple of weeks ago will actually support high-tech manufacturing right across the country. The budget is the labour’s part of this plan. And so last night we had some tax measures which are about fairness. They include making sure that 500,000 Australians don’t pay the second highest tax rate because they just go, their wages go up with inflation where they would actually have to pay a higher rate of tax but really be no better-off. That’s 500,000 people that are affected by that income-tax change. We’ve put in place expansion of the reduction in tax rate to small business and actually expanded the number of small businesses that applies to because that is, they are the people who really do make the difference in the employment market.
EPSTEIN
Ok slow down, I just don’t want to give people too many details.
RYAN
Sure.
EPSTEIN
I just want to ask you if this is a, is this a fair question: That tax cut, or that tax advantage I suppose I should call it for those over 80 thousand, that affects maybe 1 in 4 or 1 in 5 people. The negative gearing as its currently structured is used by about 1 in 9 workers. So for every one nurse who’s using, nine are not. Is that a fair way to portray what you are offering? You’ve got negative gearing advantages one in nine, that particular tax advantage helps one in four or one in five.
RYAN
Well when the current tax system was introduced under John Howard and Peter Costello, there was a strong commitment to make sure average tax payer stayed on the 30 per cent tax bracket. Now average tax payers, there are various measures of them, but 500,000 of them by one measure are going to go through that this year. And so this is about actually keeping the system fair and saying, if you’re on broadly described average earnings, and there are multiple measures, then you’re not going to pay more than 30 cents in the dollar plus the 2.5 cent Medicare levy. You shouldn’t be pushed into the second highest tax bracket when you’re on any definition of average weekly earnings. So that’s why that’s important. But the negative gearing debate we’re having Raf, it shouldn’t just be focussed on housing because this is a very important point, Labor talk about it when it’s only about housing, but their negative gearing plan says if you have $100,000 of investment income off a million dollars in family trust, you can negatively gear against that off as many houses as you want. But if you earn a $100,000 in any job as earned income, you can’t negatively gear. Labor’s proposal doesn’t just discriminate and have an impact on housing prices, what it will do is also empower those with huge investment incomes to continue to negatively-gear.
EPSTEIN
Now Tim Watts I will give you a chance to generally spruik your wears as I gave Scott Ryan a chance with the budget. Scott Ryan is from the government, he is a Minister. Tim Watts is one of Bill Shorten’s backbenchers. I just want to go to a few calls. 1300 222 774. Lyn’s in Melton, Lyn what did you want to say?
CALLER
Yes, hi Raf. Mr Ryan is saying that the cause of the unaffordability of housing is due to lack of supply. Well we’ve had wide-scale land releases all across Melbourne. There is no shortage of land to buy, there’s shortage of homes to buy, and yet we’re still being one of the most unaffordable places to live. So he’s argument is flawed.
EPSTEIN
Scott?
RYAN
Well one of the differences between Melbourne and Sydney is that Melbourne does have better land release policies than Sydney, and that is why particularly out in the northern and western suburbs and the south-eastern suburbs of Melbourne houses are more affordable than Sydney. That’s a testament to our home town. But every research report talks about everyone that land release, and facilitating development of lots, both through the taxes and levies that local and state governments apply to them as well, is the prime driver of housing affordability. That’s not contested by anyone in the sector.
EPSTEIN
Ok let’s get one more call before we giver Tim Watts a chance to spruik his side. Toby is in Dromana. Toby what did you want to say?
CALLER
Yeah I have two quick things. Firstly, why is it just the smokes that always get the extra cash? I’m a smoker and you know I guess I probably shouldn’t smoke, but why don’t they enforce a tax that covers the majority of Australia which is encouraged at lesser tax increase and everybody contributes, why is it just the smokers? I think it’s just a bit of discrimination. And the lower-income – $78,000 the low-income earner. That’s like nearly $30,000 more than what I earn, and I don’t anybody else that’s on more than $50,000. I think you’ve got to stop including people that earn over 200,000 a year. I think that’s a bit wrong.
EPSTEIN
I take your point, so your income is about $45,000. Toby, I might put that to both of our politicians because there is a smoking tax coming from both. Tim Watts, I will start with you. Labor got in first on the tobacco excise increase, he has got a point doesn’t he?
WATTS
Look Toby, I hear you but I would say to you as you said yourself, you need to smoke less. The issue with tobacco taxes is we generally as a government prefer to tax things that we want people to do less of and putting a tax on tobacco achieves a good public health outcome as well as raising revenue for the Government.
CALLER
Yeah, but isn’t it a human right that we’re allowed to smoke, I mean we are abiding by the rules by not smoking in the MCG, or in public places. We have a human right to do it. We are not harming anybody else, apart from ourselves.
EPSTEIN
Tim?
WATTS
You’re right, you can smoke but you will pay a higher tax rate for it. This will relate to the second point you make though, because tax decisions are about trade-offs. If you increase tax somewhere you might be able to reduce it somewhere else. Now, the point that you identified that you don’t know anyone earning around this $80,000 point gets to the nub of the real deception that the Treasurer is pursuing when he says that $80,000 is average earnings in Australia. He is using average as though he is implying it is the median. The difference between average and the median is that the median is the income that 50 per cent of people earn more or less of, so the median is substantially less than the average in income. So, when he talks about average incomes, 75 per cent of Australians earn less than the average income. So increasing tax on tobacco helps us reduce taxes in, I think, a fairer way in other places.
EPSTEIN
Follow up question Tim Watts, I don’t want to get into who is right or wrong on the amount of money that will come from raising the tax on cigarettes. I think you are both planning to have about 40 bucks a packet I think by 2025, something like that. But let me ask you this question: it looks like Treasury is saying that you will receive $20 billion less, that is a figure over a decade, you will receive $20 billion less than you thought you would receive with that proposal. Would you concede that there is another $20 billion that you are going to need to find over a decade?
WATTS
You are exactly right to say that this isn’t a question about who is right or wrong. So we costed out tobacco policy that has now been adopted by the Government, after they mocked it when we introduced it. But when e costed that, we went through the Parliamentary Budget Office and they used the same assumptions that the Treasury uses in trying to work out how much…
(Interrupted)
EPSTEIN
But Treasury is the authority, isn’t it? So they have said that you are going to need to find that extra money aren’t you?
WATTS
Treasury has now changed those assumptions, so we will factor that into our policy development process and change the settings.
EPSTEIN
The problem is that you have proposed about $100 billion worth of measures, so if a fifth of them are gone, that is an issue no?
WATTS
We have substantial head-room in the amount of revenue and savings that we have announced compared to the new policy commitments we have made Raf.
EPSTEIN
Quick response Scott Ryan?
RYAN
The first point I would make is that Malcolm Turnbull actually proposed this policy in 2009 in his Budget Reply to then Treasurer Wayne Swan when I was first in Parliament. When it comes to these costings, Treasury is the authority, Treasury collects and measures the revenue. This is just consistent with what we have seen from Labor when they were last in office. They make these heroic assumptions about revenue, they promise spending against them, and then they wake up a year later and go ‘whoops, the money didn’t turn up’. There is no small ‘c’ conservatism to their financial management, there is always a risk with Labor that they simply make promises that are not reflective of reality. And that is what we saw last time they were in office. This is a massive issue, $20 billion, it is not a rounding error as one Labor person described it.
EPSTEIN
It is a fair bit of money, I will give Tim Watts a chance. He is a Labor backbencher, Scott Ryan is the Minister for Vocational Education. Okay Tim Watts I gave Scott Ryan a chance to spruik the Budget, we know a fair bit about what Labor is going to do. People may have heard of a royal commission on the banks, we have been talking about negative gearing. How is any of what you are proposing going to help me? Which levers are you going to pull that I am going to see an impact on?
WATTS
What we saw from the Treasurer Scott Morrison this week, I have characterised it in football terms as like the Richmond Budget. And I hate to say that because my mum is a Richmond fan. It was a Budget with high expectations that was met by mediocrity and disappointment. What you will see from Bill Shorten on Thursday night is what I would like to call the Western Bulldog Budget. I have a bias as a Footscray man, but it will be a Budget that doesn’t just rely on a few highly paid stars, it is a Budget that invests in bringing everyone along and has success by ensuring that we all prosper. And that is what Bill Shorten means when he talks about putting people first. We have committed to an extraordinarily large investment in our schools because we believe that is the way you drive growth and prosperity over the long term. We have committed to a baseline on university funding, because we again believe that is the way we create growth and wealth in our economy over the long term. And, we have committed to substantial infrastructure investments to unlock productivity in our cities and again, from the Budget earlier this week Victoria was a real loser in this respect. We had less than 10 per cent of Commonwealth outlays on infrastructure, and we have made it very clear – Anthony Albanese our Shadow Transport spokesperson – that we will make the Melbourne Metro our number one priority for the Federal Government. What we have seen from Malcolm Turnbull is a lot of talk and very little action. $958 million allocated earlier this week for the Melbourne Metro. It doesn’t even cover the cost of the new South Yarra Railway station that they are demanding be built as part of that funding.
EPSTEIN
Let’s have a question from Mark in Burwood, because I think it directly addresses what Labor proposes. Mark, what did you want to say?
CALLER
On the radio I heard Labor was attacking the tax plan for Liberal regarding the 25 per cent in company which is a good thing I reckon…
EPSTEIN
The company tax rate?
CALLER
Yeah , it will put us to a level playing field with the islands so we can trade more investment which is a good way for us to grow the economy and grow the jobs and we will have the money for all of the houses and (inaudible) and now Labor is always just splashing money around things and they are going to pay for house, and also pay for education but we are not in the position while in deficit. So, what is the reason why we don’t want to support that reduced company tax rate and then increase the economy for the country?
EPSTEIN
Tim Watts?
WATTS
So the answer to that is, the first thin to note is that we do support a reduction in the company tax rate for small businesses – businesses with a turn-over up to $2 million. What the Government is proposing is substantially increasing that turn-over threshold to get that reduced company tax rate. In the short-term to $10 million. But, over the life of this policy to $1 billion. Now, a $1 billion turn-over might be a small business in Goldman Sachs terms but it is not a small business in any kind of normal Australian’s conception. So what we have said is that we will support a reduction in company tax for legitimate small businesses, but we won’t go along with this great fiction of $1 billion small businesses. The crucial point to note there is not even the Treasurer can tell you how much this policy will cost. They have rolled this out over a ten year period…
EPSTEIN
But it is a decent aspiration, isn’t it?
WATTS
…both in the House of Representatives and the Senate. How much does it cost Raf? Scott Morrison couldn’t tell us in Question Time today. Mathis Cormann couldn’t tell us in Senate Question Time today. It is not…
(Interrupted)
EPSTEIN
Scott Ryan can you address that? Because you often criticise Labor for making ten-year projections that they can’t account for. If you can’t say how much that will cost, why should they support it?
RYAN
Because we cost things over the four years of the Budget estimates. We don’t actually look at the cost of childcare rebates over ten years, Medicare system over ten years, they are not in the Budget.
(Interrupted)
EPSTEIN
The Coalition’s Budget had the ten-year figure for health and education that is used against you all of the time.
RYAN
They are very loose projections, because we pointed out where the unfunded promises were made by the previous government. We legislate lots of policies in this country, through the Budget, through programmes that people take for granted every day that are not costed out over ten years. The reason this 25 per cent tax rate going to all businesses after ten years is so important is that investment is what drives growth. We don’t compete with the higher tax countries of Europe, or the higher corporate tax rates of the United States. We compete primarily for investment in our region. They have much lower tax rates, we are above the OECD average, we are no longer a competitive place for investment and that is actually costing people jobs. It was Wayne Swan’s Henry Tax Review that actually pointed out that the biggest burden of lower business investment actually falls on lower wages. .We need to attract international capital to drive our growing services sector, to take advantage of our trade agreements, and that is why we have set this as a target over ten years and we have offset all of the costs over the Budget period over four years.
EPSTEIN
Can I out this to you Scott Ryan, tell me if this is a fair question as well. If you average out the unemployment rate over the terms of the Labor government and over the months that you have had so far, I am just trying to give people an idea on jobs creation I don’t know if this is a fair comparison or not, but under Labor from December ’07 to September 2013 – so that includes the GFC – they have got a lower unemployment rate it is about 5.1 per cent under you it is about 6 per cent. So the unemployment rate is higher on average under the Coalition than under Labor. Isn’t previous performance a great indicator of future performance?
RYAN
One of the important things about the economy, and John Howard and Peter Costello always gave credit to Bob Hawke and Paul Keating for many of the reforms they enacted a decade before the Howard government got elected, is that there is always a lag effect. Over the last year we have had 300,000 jobs created. Now that is the fasted jobs creation in nearly a decade. So the policy that you put in place sometimes take time to take effect because they impact business confidence but they also can have an impact in a negative way and a lot of what Labor did, we had some terribly low levels of investment, particularly by small business while Labor was in office. Now, before Kevin Rudd came to office…
(Interrupted)
EPSTEIN
So you are saying that all of the bad jobs numbers are a result of Labor’s policies before you and all of the good numbers are to your credit?
RYAN
No, What I am saying is that there is a lag effect of economic policies. So, bad policies take some time to turn around. Last year in particular we had the fastest job growth we had seen in nearly a decade because some of the policies we had enacted a year earlier were starting to take effect…
(Interrupted)
EPSTEIN
Just to clarify, that is the number of jobs created per month? That is the number you are talking about?
RYAN
300,000 jobs in the last year.
EPSTEIN
Okay, so that is the number of jobs growth over 12 months…
(Interrupted)
RYAN
Yeah, correct. Your job growth, your employment growth.
EPSTEIN
Okay, I get you. Tim Watts, just a final query to you, I mentioned the $80 billion health and education that you constantly talk about, Scott Ryan might not be happy that it was included in Tony Abbott’s first Budget, however, you constantly talk about an $80 billion cut but you never pledged to replace that money. Why should we listen to you talking about it if you never pledged to replace it?
WATTS
We have outlined in detail where the out years of Gonski will be coming from under Labor, we have shown…
(Interrupted)
EPSTEIN
But you’re not putting the $80 billion back?
WATTS
The $80 billion is both health and education, we have released a very detailed schools funding policy announcement, there will be further announcements from Labor on health policy to come before the election date. But we have been very clear in outlining how we will be funding the biggest investment in Australian schools for two generations that we will be taking to the next election.
EPSTEIN
Gentlemen I will leave it, thank you both for your time.
RYAN
Thanks for having me Raf.
WATTS
Thanks Raf.
EPSTEIN
Scott Ryan is the Minister for Vocational Education; Tim Watts is the Member for Gellibrand.
(ENDS)