E&OE…

DAVID LIPSON

Moving on now and I want to discuss the MYEFO mid-year budget update with our panel this morning, Scott Ryan and Matt Thistlethwaite. Scott Ryan, to you first of all I know you can’t give us the number but it seems clear that the deficits are getting worse, not better. Why is that?

SCOTT RYAN

Let’s give the Treasurer and Finance Minister the opportunity to outline the detail when MYEFO is presented in Perth later today. Importantly, as the Treasurer has previously pointed out, the new commitments the Government has undertaken since the Budget – and they relate to national security, as well as immigration matters such as accepting the 12 000 refugees to be resettled from Syria – they have all been funded through offsets in other spending areas. If any principle is the most important, that is the one that needs to be taken forward over the next few years. We cannot have unfunded spending commitments, with the deficit the way it is, with a rapidly dropping iron ore price that was over $100 when the Government took office, and was $48 when the Budget was delivered in May and is now substantially below that. The Government and the community, we all need to trim our sails, we all need to ensure where we want to undertake an additional program for very good purposes that we offset that spending somewhere else to ensure we are not adding to the deficit. The details of that will be outlined by the Treasurer and Finance Minister later today.

LIPSON

We are expecting debt to tick over $600 billion; does the Government still believe that there is a Budget emergency?

RYAN

The language that I have always used David, is that we have a genuine Budget problem in this country. Spending, for example, is now well above historic levels at just under 26 per cent of GDP. That was what Kevin Rudd called emergency levels, that was what Ken Henry as Treasury Secretary standing next to Wayne Swan and Kevin Rudd referred to as emergency levels. This country has an issue that we are spending substantially more than we can collect, where we want to undertake existing and additional programs, and existing programs that are growing fast such as health expenditure and education expenditure, that revenue and that funding needs to come from somewhere. Now, we believe that we cannot constantly keep increasing the tax burden because that is actually proving to be a break on growth. And, unlike Labor, we understand that while it is important to tax multi-nationals and it is important to address issues in the tax system where all revenue is not fairly being collected, that is not going to solve the structural problem. Labor has been blocking a lot of our attempts to bring this budget back into balance in the Senate, through blocking not just spending cuts, but also reductions in the rate of growth of spending.

LIPSON

Matt Thistlethwaite, it may have been John Howard’s Government that set in train some of the conditions during boom times that are making things hard now, but in Government when things started to turn for the worse when it came to the mining boom, the economy and the like Labor did very little to actually address it. Should Labor bear some of the responsibility for the situation we are in and as Scott Ryan is calling for there, actually usher through some of the savings measures that the Government wants to put through?

MATT THISTLETHWAITE

David, you are right in indicating that the Howard Government laid the foundations for the fiscal problems that we have today. Many of the commitments that they made at the time, during what was and we all knew was going to be a temporary boom period in the mining boom, some of the policies they put in place were permanent. You had…

(Interrupted)

LIPSON

You had six years in Government, why didn’t you fix it?

THISTLETHWAITE

When we introduced policies, we sort to fund them. So the carbon price, that was completely funded by the revenue that was raised and we did undertake some cuts whilst in Government, and since being in opposition we have also backed $20 billion worth of spending cuts, and we have outlined a number of policies that will raise close to $20 billion in additional revenue over the next decade. They include a crackdown on multi-national profit shifting, a reduction in some of the massive superannuation tax concessions that by all accounts is going to be the biggest item of expenditure for the Budget over coming years. So, we have taken a very responsible approach to fiscal consolidation.

LIPSON

Scott Ryan, back to you, one of the suggestions in the papers this morning is that one of the savings measures is going to be around welfare compliance – that is cracking down on people who are cheating the welfare system. This is always a popular thing, but is it a reliable source of revenue to put in Budget numbers?

RYAN

It is proven to be one of those developments that improved technology, and we have got investments going into the human services’ technology systems, that we can actually tighten up and make fairer – and part of fairness is ensuring that payments only go to those who need them and qualify for them – so it is a very important measure. For those who talk about integrity in the tax system, that is a legitimate discussion, there also needs to be integrity in the welfare system and to ensure that payments only go to those who are legally entitled to them. Now, Matt there tried on one of the greatest try-ons that I have ever heard, even for the Christmas season, which was to blame Howard and Costello for the Budget deficit that he created. The simple point is: Labor undertook the single largest and most rapid increase in Government spending under Kevin Rudd that we have seen in my and Matt’s lifetimes, since Whitlam was prime minister, and that spending was unfunded. When they undertook a lot of their spending it was from things like the mining tax that didn’t actually collect any revenue. So, Labor undertook this dramatic increase in spending, yes tax is slightly below historic levels but spending is way above it. That mismatch has been driven by a rapid growth in a Labor government’s spending programs and spending initiatives, and rapid growth in existing spending programs like health and education. And, unless that is addressed we are not going to solve the Budget deficit which is why today the Treasurer and Finance Minister will outline not just the forward trajectory but how every decision the Government has taken over the last six months has actually be fully funded, unlike Labor.

THISTLETHWAITE

Can I just respond to that please David?

LIPSON

Sure.

THISTLETHWAITE

The baby bonus, the 50 per cent capital gains tax discount…

(Interrupted)

RYAN

That was 1999, Matt.

THISTLETHWAITE

…the tax cuts, the massive tax concessions on superannuation. These were Howard Government policies that were completely unfunded and we are all paying for them now. The foundations for the fiscal problems that we have today were well and truly laid by the Howard Government, and we are all paying for them now.

RYAN

The biggest part of the mining boom, the highest prices and the highest term for trade happened under Kevin Rudd. The biggest part of the mining boom that we have had in our history actually happened while Kevin Rudd was prime minister, not while John Howard and Peter Costello were.

LIPSON

I want to turn to growth forecasts, Scott Ryan because it seems that they are going be somewhat downgraded or adjusted, if you like. Have things really changed that much since May in terms of the economy and the factors that affect growth, or is this an admission that the Government got it wrong in May?

RYAN

Let’s be clear about what these growth projections are, years three and four of the budget estimates are just really projections based on historical averages and assumptions. They are not estimated to the same degree as are the current financial year and the financial year coming afterwards. The situation has changed a little since the Budget, the iron ore price has continued to fall, there are a few more global economic headwinds, so what the Treasury has undertaken and we will see some numbers later today – I mean, I have learnt to not always trust newspaper reports – is that the Treasury will make its best estimate for the current financial year and the year ending in June 2017. But the years after that are really just projections, they are not estimates to the same degree and not as much should be read into them.

LIPSON

Yes, because Scott Morrison has said something along the lines, in the past couple of weeks, of he doesn’t want to be a Treasurer who makes heroic assumptions when it comes to growth. Matt Thistlethwaite, Wayne Swan made some pretty heroic assumptions when it came to returning the Budget to a surplus, which never eventuated. Now it seems the surplus is getting further and further away.

THISTLETHWAITE

That is right, and what is important is that we put in place the policies to ensure that there is a process of returning to a balanced Budget over time. And you really do need to, David, tackle superannuation tax concessions. All economists indicate that they are going to really swallow the Budget into the future. Labor has had a look into this, we have developed a policy on it and it will raise additional revenue over the forward estimates and the next decade. So, if you are going to take a responsible fiscal approach, then you really do need to tackle those difficult questions and to date, this Abbott/Turnbull Government has completely ignored this uses and failed to tackle those tough issues.

LIPSON

I want to turn to Ian Macfarlane and the LNP’s decision to block his attempt to defect to from the Liberal to the National Party Room in Queensland, well in Canberra really we are talking about. Scott Ryan, now that he can’t be a National, would the Liberals be happy, would you be happy to welcome him back into the warm bosom of the Liberal Party Room?

RYAN

It is a unique situation in Queensland, which is that there is a single Party. Ian expressed preference to change but the reality is for his branch members, for the voters in Groom he still has Liberal National Party next to his name on the ballot paper, the bunting and the posters are all the same. In the spirit of Christmas, David, occasionally we might have an argument over Christmas with a relative but the following Christmas we always welcome them back with open arms. Obviously this has been a very difficult time for my colleagues in Queensland, I think the Liberal National Party executive of Queensland made the best possible decision given the circumstances. Look, let’s take this to the spirit of Christmas, I know Ian said that he is going to reflect on his future over that time, but we have all had those examples where we have a disagreement one year and we welcome them back the following year.

LIPSON

I certainly know some of your colleagues are not so happy to see him come back to the Liberals after attempting to leave. What do you think he should do? I know it is up to him, of course, to decide his future, but if he is to step down should he hold off until the election?

RYAN

I have learnt not to provide advice to my colleagues publically, if I have got something to say to them I will do it over the phone or in person. I think it is fair to say that absent a compelling reason, people do prefer their colleagues to serve the full term. But, I am not going to provide any personal advice to Ian, he has got obviously, as he said, some thinking to do over the break.

LIPSON

And a by-election before the election wouldn’t be helpful would it?

RYAN

I don’t want to say too much that is read into Ian’s particular situation, but as a general rule we prefer people serve their full term absent exigent circumstances which sometimes exist.

LIPSON

Matt Thistlethwaite, the attempted defection is not the same as someone going from the Liberal Party to the Labor Party or Greens or something, it is still under the Coalition banner, is this something we can expect from politics?

THISTLETHWAITE

I think that Ian Macfarlane has attempted to defect because he has seen that Mal Brough was promoted to the Ministry and he was demoted. This is symbolic of the simmering tension that exists in the Coalition at the moment, you have people like Cory Bernardi crossing the floor, you have others out there campaigning against Muslim-Australians, you have got division in the Party over their approach to climate change, one minute they are supporting international permits the next they are not. This is just symbolic of the simmering tension that there is within this Government.

LIPSON

I want to turn to Anthony Albanese and the report in The Australian newspaper today that he is very much the frontrunner for the seat of Barton at the next election, Matt Thistlethwaite is that something you would support? You would like to see him in that seat and can he win it?

THISTLETHWAITE

Well at this point in time, David, the redistribution hasn’t been concluded so it is not wise to speculate on what the outcome is going to be. The Electoral Commission are taking objections at the moment to the proposed boundaries and they will make a decision in February. But, Anthony Albanese is a great member of the Labor Party , a great Parliamentary performer, a great local member, he has been in the Parliament since 1996 and I have got no doubt that he will be in the Parliament after the next election.

LIPSON

So, it is an option though that Labor is very much looking towards? Moving him from Grayndler across to a different seat to sort of sure him up? Is that a vote of confidence, I suppose, in his potential leadership credentials?

THISTLETHWAITE

Anthony has said that he is not a candidate for the leadership, Bill is the Leader and as I said at the moment there is really no point in speculating on what the outcome of the redistribution is going to be and who is going to shift where because the boundaries have not been determined as final, they may change. It has happened in the past that the Electoral Commission has changed their initial boundary proposal. So, at this point in time it is pure speculation and there is no point in second-guessing what is going to happen.

LIPSON

Okay, Matt Thistlethwaite and Scott Ryan, we are out of time, great to talk to you both this morning. Thank you very much for that.

(ENDS)