24 January 2016
Transcript - #2016007, 2016

Interview with Peter Van Onselen & Paul Kelly, Sky News Australian Agenda

SUBJECTS: National Platform for Economic Growth and Jobs, taxation, superannuation, Budget

PETER VAN ONSELEN:

As mentioned off the top of the program, our main guest today is the Treasurer Scott Morrison, thanks very much for going here.

SCOTT MORRISON:

G'day, gentlemen.

PETER VAN ONSELEN:

Can I start by, I guess, building off the second half of Paul's editorial there? How important is it to you and to the Government that you not only win the election later this year, but you do it having built a really substantial platform from which you can derive a mandate for solid economic reform?

SCOTT MORRISON:

Well, putting the politics aside, the most important thing is growth and jobs, and the most important thing to continue to see our economy grow and jobs grow is to ensure that we continue to have structural changes and reforms.

Now that's not just me saying that. I mean the IMF, the World Bank, others, when they've looked at their global growth outlook, and they've looked at the economies around the world, it's been a consistent theme in everything they've been saying.

Now, the Australian economy is improving, the service sector in particular, and we're seeing that flow into really strong jobs growth last year, over 300,000 jobs, because our growth now is much more employment intensive. Now, that's a good thing. But the other thing we know is that you just can't stand still. If you stand still in this economy, you go backwards.

PETER VAN ONSELEN:

Well, on that, can I just ask because one of the issues is clearly going to be what you put forward at the election, whether you sell it sufficiently to get a strong mandate. But even if you do, how you then deal with the Senate out the other side of it. Putting detail in a package ahead of the election - is that key to try to convince potentially recalcitrant senators on the crossbenches to back your ideas if you are successful at the polls?

SCOTT MORRISON:

Well, I think there's a number of steps. I mean the first step is explaining what the challenge is, what the problem is we're trying to address. And the challenge we're trying to address is growth. It's all about growth, because that's what drives jobs, and all of our policies need to frame around that. That's what the Innovation Statement was about towards the end of last year - the things we need to do to drive growth. Equally, whether it's dealing with the Senate or the Opposition, whoever that may be… and we've got an election that we have to win, and we have win it on the terms that I think Paul has set out, in terms of getting that strong mandate for the sort of changes you need to implement over a term of government, and I think that's really what the contest should be about.

And we have a very strong view about how we think we need to grow the Australian economy, and that will be laid out in chapter and verse over the months and months that are ahead of this election. And that will, I think, assist in this new political climate, where mandates matter when it comes to dealing with the Senate.

Now, I remember when I was taking a number of bills through the Senate, whether it was on multinational tax at the end of last year, which we got through - Labor opposed it - or whether it was changing the pension in the middle of last year - which Labor opposed and we got the support of the Greens - or the temporary protection visa changes. Particularly on that one there was no one who could say we didn't have a mandate for it in the Senate and that was a very important part of the discussions we had. So setting out why, what we're trying to address - Australians know that the environment at the moment is very volatile globally and they know we need a strong economy at home and that's what our plans are designed to address.

PAUL KELLY:

Without going into any aspect of detail here, is it your general intention to bring down an ambitious tax agenda, which can be taken to the election?

SCOTT MORRISON:

Well, certainly, any changes to the tax agenda at that substantive level would be put to the Australian people before an election. What's been interesting though, Paul, I think over the last few months is we've taken a bit of a different approach, Malcolm and I, to this tax debate. We have had the not-rule-in-not-rule-out process. And what that has actually done, has fostered, I think, quite a real debate out there in the community, amongst policy-makers, in private and public sector alike, the various groups. We've been talking - whether it's to ACOSS and ACCI and everything in between - and we've seen proposals come forward from various different groups, ideas teased out, whether it's on superannuation. Now they're not necessarily proposals the Government is putting forward, but the community is putting these proposals forward and I think that's actually conditioning and informing the debate far better than this old style process of big tome documents that's all brought into one and they end up becoming doorstops and, worse than that, they don't effect the change we need.

PAUL KELLY:

OK, well, just on that point, the Government has been planning a taxation white paper going back to the period of Tony Abbott and Joe Hockey. I guess one of the problems, one of the potential problems, with a comprehensive white paper is that it's somewhat difficult for the Government to focus the debate and target the debate. Do you agree with that? Do you intend to modify the process?

SCOTT MORRISON:

Well, we're not hostage, I think, to those sorts of processes and I think that's something Malcolm and I were making pretty clear. We want this debate to progress in a civilised way, and I think it largely has with a few 'lettuce' exceptions here and there. But what we've tried to focus on is listening over the last number of months as this debate has unfolded, and an interesting part of that debate is it tends to coalesce around a number of issues. See, the tax system is not an end in itself. The tax system is designed to support growth, it's designed to support people build up their retirement savings for the future, it's designed to do things around innovation, and innovation is the issue, retirement incomes is the issue, growth is the issue. Whether it's on retirement incomes, for example, I think people want to know what would be changes to the tax arrangements for superannuation in the broader context of superannuation changes.

As you know, we're pushing for tighter governance of superannuation. We're looking for more independent directors. We're looking at greater choice out of the Financial Systems Inquiry Report. So I think these things are going to coalesce more around these subjects, because that's what the Australian people are interested in. They're not interested in reading a large tome on tax. They want to know what it means for super…

PAUL KELLY:

OK, well, if they're not interested in reading a large tome on tax, though, isn't the reality that a white paper is likely to be a large tome on tax?

SCOTT MORRISON:

Well, it depends how you construct it, Paul, I mean…

PAUL KELLY:

So you'll change the approach, will you? You'll basically change the approach?

SCOTT MORRISON:

We're open to different approaches, but what matters is actually articulating the argument, articulating the reasons and taking the Australian people with you. So that's what our objective is.

Now, a white paper is simply this - it's a statement of government policy and a statement of government policy can be done in many ways. The Innovation Statement is a very good case in point. We brought forward a whole range of issues on tax that were to be addressed in white papers on tax later, and we brought them forward and we put them in the context of innovation, so people could see that it wasn't so much about tax as it was about spurring the agility in the economy that we needed, and tax had a role to play in that.

PETER VAN ONSELEN:

But surely a tome, as you put it, on tax is exactly what we need because of the complexity involved. It might not be something that you expect the Australian people to shuffle through every page of the 500-plus pages of it, but there's such complexity in the moving parts of the economy. You know that better than anyone.

SCOTT MORRISON:

Well, that's true, but at the same time, it has to be put in a particular context. I'm not suggesting for a second that the detail and the various things that will be part of, you know, alternative ways to present this would be in any way diminished in what possibly we could also consider.

Presently, I mean, we have the current arrangement, which says there'd be a green paper and a white paper. But what the debate over the last three or four months, I think, has shown is, in many ways, the public have moved beyond that. I mean, there has been…your next guest, Kate, has been making forward suggestions. Others have. And that's been a positive thing so in many ways I think we've advanced the debate I think a lot more effectively over the last four or five months than a green paper ever would.

PAUL KELLY:

Just on that point, if we can just cut to the chase here, given that you've focused on growth and jobs, given that you're concerned that someone on average wages is likely to end up in the second top taxation bracket, isn't the reality here based on the numbers, that if you're going to substantially change this, you need to put the GST into the equation? I'm just asking about the numbers.

SCOTT MORRISON:

Yeah, I know and I've said a lot about personal income tax and you're right about that, Paul. I think that, together with our high rates of company tax are things that hold the Australian economy back.

Let me give you an example. Bracket creep, as it's known, or the inflation tax as others like to call it, no one sort of, apart from the Government, is running around saying, "well, you know, who's going to compensate the people who are wage-earners next year?" I mean they're going to see a higher rate of tax, wage-earners, next year, if we don't change the income tax rates. No one's saying, "well, they need to be compensated." There's plenty of talk of compensation for people receiving transfer payments - and this is something that's obviously important in the context of a tax debate - but what about the compensation for people who are running businesses, going to work every day, backing themselves every day? There's no compensation for them if we leave the tax rates where they are…

PAUL KELLY:

Well, no one even talks about it, do they?

SCOTT MORRISON:

Well, I do, and I'm quite passionate about it, because I think that's one of the things that is holding the Australian economy back. Now, the question is how do you achieve that? Now, at the moment in this debate we're having, people have talked about a lot of issues that are important. Multinational tax is important. That's why we got the bill through at the end of last year, which Labor voted against. Issues of dealing with the digital economy and taxing digital products through GST, we'll have legislation in the Parliament on that this year. Whether it's issues around superannuation, we've been pretty open about the fact that we're considering more issues than we were previously. But you know all of these issues - workplace deductions, the House of Representatives committee is having an inquiry into that. All of those do not generate an amount of revenue that would look at the sort of larger scale tax changes that many Australians, I think, would like to see when it comes to reduced personal income tax and a better deal on company tax.

PAUL KELLY:

So that's really the argument for addressing the GST.

SCOTT MORRISON:

Well, that's the dynamic of the argument, Paul, and I think there are a lot of sort of fairy tales out there at the moment that if you just go and do this on multinationals, all that or all the rest of it, that somehow all of Australia's tax problems are solved. All of those things are important and we're looking hard in all of those areas and doing things in all of those areas…

PETER VAN ONSELEN:

But suffice to say, suffice to say…

SCOTT MORRISON:

It's a fantasy for the Opposition or others to say that all you have to do is do something on multinationals tax and somehow you can cut personal income rates. It's a fantasy.

PETER VAN ONSELEN:

If you want to deal with - substantially deal with - bracket creep and if you want to substantially deal with our relatively high corporate tax rate, GST reform is the only way to substantially do that?

SCOTT MORRISON:

Well, the alternative… I mean, the other thing which I haven't mentioned which still remains incredibly important is you still need to get your expenditure as a percentage of GDP down. Now, our budget, our update late last year, ensured that we are still on the plan, 25.9% of GDP this year, down to 25.3% of GDP over the budget and forward estimates so expenditure as a share of the economy is contracting under the policies we've put in place. We had over $10 billion of further savings just in MYEFO to make sure we were hitting this year's targets.

But let me make this point: In the last 30 years there has only been one year in which a surplus has been achieved, where expenditure to GDP has been more than a quarter of the economy, and that was in 2001. And that was a bit of an aberration because that was the year the GST came in and there were movements in both receipts and expenditures that year around the introduction of those measures.

My point is this: You can have a surplus at any level of expenditure, so long as your taxes are higher than that. Now, the Opposition will say they can deliver a surplus but ask them at what percentage of GDP expenditure would be and ask them at what level of tax that will cost them. What matters is the size of the government in the economy and how you can have a sustainable surplus based on an expenditure level which is achievable.

PAUL KELLY:

Well, seeing you've raised that issue, essentially is what you're saying that there's a good surplus and a bad surplus, there's a good way to get to a surplus, that is on spending reduction and there's a bad way to get to a surplus, that's taxation increases - is that essentially what you're saying?

SCOTT MORRISON:

That's spot on, and that's exactly the point Peter Costello was making yesterday with which I concur. He wasn't saying that we shouldn't have tax reform. He's saying that you shouldn't be jacking up taxes to achieve a surplus and I agree with him. I mean, our revenue as a percentage of GDP over the budget and forward estimates are rising and they're rising partly because of the significance of bracket creep. They will rise more strongly, naturally, if we can lift the rate of GDP growth, particularly nominal GDP growth. Now, back in those years, they had a much stronger rate of nominal GDP growth than we have today. World growth is flatter than it was then. Commodity prices are lower. All of those things are different to what was happening back then.

But you're right to say the way to do this is to focus on what should be the government as a share of the economy. And history tells us that if it's anything more than a quarter, then you are on the way to a surplus which is not a desirable type of surplus. You want one where your government expenditure is sustainable at a realistic level.

PAUL KELLY:

I mean, we need to come back to this issue. I'd just like to though focus again on tax just to wrap up some of these taxation issues. In terms of the discussion about the GST - and you've given some signals about this over the last several months - to what extent is it correct to say that the Government's inclination, if the GST is to be in the equation, would be to increase the rate of the GST rather than broaden the base of the GST into other areas, such as health and education?

SCOTT MORRISON:

I should stress that right now the Government has made no decisions on this…

PAUL KELLY:

Sure.

SCOTT MORRISON:

And we are very much still in that phase, we've said quite plainly and I don't think we're boxed into any decisions on these issues at this point.

PETER VAN ONSELEN:

Can I just ask you a quick question on that though, Scott Morrison? Because earlier you did say in the fullness of time the details will come out. So there's no set position yet. You're still flexible. But those details will come out before the election?

SCOTT MORRISON:

Of course. Of course, as they should, as they absolutely should. And there are a number of key statements along the way between now and the election. Obviously, there's a budget, which I'm looking forward to bringing down later this year. And there are a range of opportunities all the way along throughout the year for these things, I think, to be articulated and worked through and there's still a lot more work to be done and the Government has not come to any views on these topics…

PAUL KELLY:

I appreciate that, but is the attitude more in terms of lifting the GST rather than broadening the base?

SCOTT MORRISON:

Well, when you look at this issue, and particularly the issues that have been raised around health and education for example, if that were something, and others have proposed this, the issues that were present back when the GST was originally introduced around health and education are still there today. They weren't not put on the GST because of the Senate at the time. It was actually a policy decision of the government. And so if the Government were to go down that path, you'd be looking at the same fundamentals.

But right now, right now, the issue is not the GST. Right now, the issue is what are you trying to achieve? What we're trying to achieve is high rates of growth, high rates of job growth in particular and how is the tax system actually stopping people who are actually out there backing themselves achieving the goals they want to achieve? And personal income tax rates are a blocker to that. Company tax rates are also a blocker to that.

PETER VAN ONSELEN:

Scott Morrison, we need to take a break, but just one last question on this side of personal income tax cuts and bracket creep, colleagues on your side of the Parliament have expressed a concern to me that if you up the rate of the GST, that's locked-in spending naturally increases in the economy, whereas if you find some income tax cuts, the problem is that bracket creep will always find them down the track, but, of course, the increase to the GST is ever present. Is there any possibility or likelihood, or is it on the table, even, the idea of indexing income tax?

SCOTT MORRISON:

Like I say, everything's on the table…

PETER VAN ONSELEN:

That's not very reassuring, though.

SCOTT MORRISON:

Everything's on the table but, I mean, it's 15 years since the last time we were in a situation where the average wage earner was going to fall in the second-highest tax bracket. Last time that occurred, Peter Costello made the changes he made. And so that has, you know, had its impact over a long period of time.

But there are two ways to achieve what you're talking about. One is to index it, as you say. The other is to ensure that you have constant pressure, which takes me back to that point about expenditure as a percentage of GDP. You've got to be serious about trying to keep the government as a percentage of the economy at a particular level. If you do that over time, then you can deliver the bracket creep reversals over time. But if you let expenditure get out of control, which is what we've seen over many years now - over the last two years, we have kept expenditure constant. In fact, this year, 2015/16, we're going to spend pretty much in nominal terms exactly what PEFO said it was going to be before the last election. The thing that has changed has been there's a lot of movement up and down in between that. So we've kept expenditure constant and we've kept it under control with a lot of pressures on it. That's the way that I think you deliver improvements to tax down the track. But you've got to fix the big problem first.

PETER VAN ONSELEN:

We're talking to the Treasurer, Scott Morrison, on our first episode of Australian Agenda for 2016. We're going to take a break. When we come back, we'll continue the discussion and we'll widen it into the state of the economy, including globally.

(COMMERCIAL BREAK)

PETER VAN ONSELEN:

Welcome back. You're watching Australian Agenda, where Paul Kelly and I are speaking to the Treasurer, Scott Morrison. We'll get to some of these other economic issues in a moment and we may even have times to talk about the NSW pre-selections, which I'm sure you're keen to talk about.

But perhaps a bridge to the concept of pre-selections still on tax reform, late last year, I spoke to Treasurer Mike Nahan from Western Australia. I've been in Western Australia for the last couple of weeks. In that interview on Newsday, he talked about it being high time to even consider threatening the pre-selections of Liberal MPs at the federal level if they don't get on with equalisation of the GST. That's how frustrated he was when handing down his MYEFO to end the year. They've got a deficit problem of their own. How important do you think equalising the GST is to get state premiers, in particular Western Australia, on the table, or at the table, to be able to get wider GST reform, if that's the direction you go?

SCOTT MORRISON:

Well, not surprisingly, this is a very controversial and hot topic amongst the states. I mean, when the treasurers meet, you see that writ large in the discussions that take place between them on this. And I think it's important to understand that the scenario we're seeing - and Western Australia in particular is seeing it at the moment - is quite irregular. And I don't think it's anything that the architects of this system ever envisaged taking place. And I've been engaging with Mike now since becoming Treasurer, as did Joe previously, on trying to find ways to ameliorate the impacts of this. Previously we had the infrastructure funding commitment over and above, which supported Western Australia in that situation and the WA Treasurer and I have continued to have, I think, these discussions, because you've also got to be mindful of then not penalising some of the other states, like South Australia and Tasmania, for whom these issues are also very critical as well.

But, look, I'm sure Mike was just expressing frustration around the issue in what he was putting forward to you, but I think Western Australians watching the program should be very conscious of the fact that the Government does understand that this is a very difficult problem. It's one not of anyone's particular making. It's the product of a whole range of assumptions and parameters that go into this black box model, and to the extent that needs to be reviewed, well, that's another issue.

PETER VAN ONSELEN:

But a member of your ERC now holds the portfolio that you once held - Christian Porter. I mean…

SCOTT MORRISON:

Well, there are two West Australians in the ERC, of course Senator Cormann as well, so, I mean…

PETER VAN ONSELEN:

…And Christian Porter made this a major part of his maiden speech when he moved to federal politics, after being a state treasurer. I mean, is there pressure internally from the Western Australians to get something in that space?

SCOTT MORRISON:

Western Australians, as you know, are never shy, never shy, whether it's, Steve Irons or whether it's, you know, it's Mathias or whether it's anyone in this area, Christian or Senator Smith - there is a very strong advocacy, which is put, rightly, by the Western Australian members of the Parliament. The Prime Minister and I and the rest of the team are very just conscious of this issue.

But, look, there are no easy solutions to this because we have to take a national perspective on it. But I've always said I've been quite sympathetic to the situation the Western Australians find themselves in. Because, look, they are at the pointy end of the transition of our economy.

Now, the transitioning of our domestic economy is great news here in NSW. I mean NSW is now the powerhouse economy of the country. It's very much picked up where Western Australia left off and it is benefitting from the services side of what's happening now, and we're seeing services exports now three times what they have been traditionally. But in Western Australia, they are making that big shift from the decline in the investment phase of the mining boom. The services industries are picking up, but it's a more difficult challenge for them and we'll continue to work closely with them.

PAUL KELLY:

Under what circumstances might you consider the proposal from the South Australian Premier, Jay Weatherill, for the states to get a share of income tax revenue as part of an overall tax reform package?

SCOTT MORRISON:

First of all, Jay, I think, is demonstrating that he's interested in the economic debate about this. I think that the discord between him and Bill Shorten has largely exposed Bill Shorten's lettuce tour as basically a political stunt, interested in improving numbers not that relate to the economy for Bill Shorten, but maybe his own numbers. So I think he's exposed Bill Shorten's political motive on this whole lettuce thing. But on what he's doing, Jay is focused on growth in his own economy and he's focused also on what he believes are his revenue issues. Now, the two are quite separate in some respects.

The South Australian Treasurer has made a good argument, I think, about how the states can broaden their revenue risk from the Commonwealth. At present, it's all derived from the GST. But the GST is based on a fixed basket of goods, which are attached to this, obviously doesn't apply to fresh food and it doesn't apply to health and education and all those sorts of things, and they're interested in having an access to a revenue source which has a broader exposure to the economy. Now, you can do that without changing GSTs and any of these sorts of things. That's just, I think, a very constructive discussion about what is the revenue base of the states and the relationship with the Commonwealth. Now, we've accepted that argument in good faith and are genuinely looking at how that could be potentially achieved and we're working some options up that could be considered by the treasurers this year. Now, that's not committing us and it's not committing them. But I think they made a good point. They also made a point, like all state premiers do, that they'd also like that and a lot more money to spend a lot more things. Well, I think I made things pretty clear to the treasurers late last year that that wasn't something that I was particularly interested in, or the Prime Minister. We can potentially address those issues other ways but on the issue of looking at how you broaden the revenue base for the states in a revenue neutral, essentially sense, and that means it's their growth projections - and it gives the state treasurers, I think, a bigger share in the national economy and that's a good thing. I mean we all want states making decisions which are good for the national economy…

PETER VAN ONSELEN:

The 'Courier Mail' is reporting that you've cancelled the 11 February meeting with state treasurers. Is that true?

SCOTT MORRISON:

No, that was the meeting that we brought forward to last year and so…

PETER VAN ONSELEN:

You don't need it?

SCOTT MORRISON:

We did that discussion late last year so, no, I think that's an unkind way for them to have reported that. The engagement with treasurers has been very good and look, if we need a meeting, we'll have one but at the moment we're working on the things we talked about at the last meeting and we'll be presenting those openly to them to discuss.

PAUL KELLY:

Now, in terms of a tax package, Labor's committed to a tobacco tax, an increase in the tobacco tax. Are you attracted to making that bipartisan and taking the revenue from it into your overall package?

SCOTT MORRISON:

All things are on the table and we're not ruling things in or out, Paul. I mean…

PAUL KELLY:

So that's on the table?

SCOTT MORRISON:

You've heard me say that before.

PAUL KELLY:

Sure.

SCOTT MORRISON:

And that applies as equally to that point as any other.

PAUL KELLY:

Are you attracted to that idea?

SCOTT MORRISON:

Well, I'm not really going to make a commentary on it other than this - Labor has put it forward as a sort of growth revenue to support growing levels of expenditure in education and health, now the whole point…

PAUL KELLY:

Well, I know that's not how you would see it.

SCOTT MORRISON:

No. No. And I think this is a point. If we were to look at it, because everything you look at is on the table so I'm not suggesting anything there, but Labor has said they want to do it to support an expenditure item that is increasing. Now, the whole point of doing something like that is fundamentally as a health measure to actually reduce the amount of people smoking in this country, not increase it. But I think they're sort of forgetting that element of it. So I think their reasons for doing it is to raise revenue, not actually address a health issue.

PAUL KELLY:

OK. Let's talk about super.

SCOTT MORRISON:

But I should say on that, that again goes back - those measures, whether it's tobacco, whether it's the other things they've talked about, don't get even to the starting point of the broader issues we were talking about.

PAUL KELLY:

No, no. Sure. But let's just talk about super. I think you're attracted to the idea of a reform of super taxation on - at the point of entry - on the contribution side. To what extent are you attracted to tax there at a personal income tax level with a 15% or 20% discount?

SCOTT MORRISON:

Well, it's one of the issues that have been raised but superannuation I'm looking at as a whole, not just in terms of tax. I think that's the first point to make about superannuation. We've said we want to be fit for purpose. This is what the Murray Review said. It said you need to define the purpose of what you're doing with superannuation in a statute. I thought that was a good point, and we've said the purpose of superannuation now and, by definition then any tax incentives that are put into the system to support superannuation, is to ensure that people would be less reliant, or not reliant at all, on a welfare payment, i.e. the pension, in their retirement. Now, there are a whole range of people for whom the landing on the pension is not a reality for them. But they're particularly middle and middle income-earners, and in particular those most at risk, if they're not building up their superannuation over time, they're the ones who are most likely to be drawing down heavily on a welfare payment in the pension in the future.

So our argument on super is we've got to ensure the incentives are targeted to address the purpose and are not there as the form of building inheritance pools or tax free inheritance pools to pass on. That's not what super's about.

PAUL KELLY:

Well, given that argument you've just made, are you attracted to this particular mechanism?

SCOTT MORRISON:

Well, I think what I've said there sets out what the Government's views are more broadly and people can draw their own conclusions. On the retirement phase, though, I think we always have to be very careful on the retirement phase because people are in it. They set up their arrangements before going into it and whether it's technical retrospectivity or not, you are effectively applying a retrospectivity when you're looking at the retirement phase. Now, that's – again - not ruling anything in or out, I'm just setting out the nature of the discussion you have around these issues. Labor have chosen to tax heavily in the retirement phase. That's their call…

PAUL KELLY:

So that remains a point of fundamental difference between the Government and Labor?

SCOTT MORRISON:

Well, that's their point. We haven't yet made a final decision on these issues.

PAUL KELLY:

Look, in terms of the overall, in terms of the overall economics and politics of this, if you put together a substantial tax reform agenda, presumably you release taxation tables - given the state of the economy, to what extent do you think it's possible to ensure that virtually everybody is a winner from the process?

SCOTT MORRISON:

Well, what's important is that growth increases. What's important is that the shackles on enterprise in the economy…

PAUL KELLY:

Well, presumably that means people need to be winners.

SCOTT MORRISON:

And I think people will be winners as a result…

PAUL KELLY:

Virtually everybody?

SCOTT MORRISON:

Well, you've got to target compensation to those who most need that compensation in that system.

PAUL KELLY:

Sure.

SCOTT MORRISON:

And the compensation I'm interested in at the moment is the one we talked about before. No one has talked about compensation for people who pay higher taxes next year because they're going to pay higher personal income taxes because of bracket creek. Apparently you can just pay more tax and that's your problem. Now, we think that's important. We need to look at it. That impacts small business as well, because most small businesses are unincorporated. So that change is important.

So compensation needs to be targeted and real as it was done under - if you were to contemplate this, as it's been done previously - I mean, the previous government, they put in place a carbon tax and they had compensation for that. Now, we actually kept the compensation, so there is a lag compensation already in the system so to speak.

PETER VAN ONSELEN:

Can I just ask you a question a bit out of leftfield but in the spirit of everything being on the table, why are governments so afraid to look at the concept of an inheritance tax? Most nations around the world have it. We don't because Sir Joh Bjelke-Petersen abolished it the state level and all the other states followed suit. But, you know, in the context of not increasing the overall tax burden, it's the kind of policy that's in line with most of the OECD and it's the kind of policy you can see in the here and now of people's lives - income tax cuts and the like.

SCOTT MORRISON:

It's not something that I think has received strong support to date…

PETER VAN ONSELEN:

Is it just the politics of it?

SCOTT MORRISON:

Well, I'm saying we've been having this sort of open debate now for the last few months and I haven't seen that get a lot of currency.

PAUL KELLY:

Treasurer, in terms of the timing of this, you know, we're talking about a substantial tax package here, there's a lot of work to be done yet, a lot of consultation to be done, is the sort of timing we're looking at post-budget - that is you'll bring down a budget with initiatives in the budget. There may well be some taxation initiatives, but in terms of a major tax package, is it fair to think that's likely to come after the budget?

SCOTT MORRISON:

I think all that's pretty premature at the moment, Paul, to be making those sorts of decisions. What I can tell people is that these changes, if they're to be proceeded with, would go to the Australian people and they'd be well aware of the details of that. And what that would be fundamentally a position of the Australian people is this is how we think we can grow the economy, back enterprise, back innovation, back people who are working, saving, investing, to make our economy stronger in a time where things are quite volatile, we need to tighten things up and got more focus. That's our plan. That's what we want to do and the opposition will have their view.

PAUL KELLY:

OK. Well, this leads directly to this perennial question of election timing. To what extent can we be pretty certain there'll be no election before the budget, given all these plans? I mean I think it's fairly clear that…

SCOTT MORRISON:

I'm planning to deliver a budget and looking forward to doing that. I think it's a great opportunity to lay down some pretty important issues this year. But let's not overstate the budget either. I mean you do policy 365 days of the year - 366 this year. Budget day is not the only day that policy happens, and I think the Prime Minister and I and the whole team are keen to sort of constantly, I think, be engaging in this policy advance.

PETER VAN ONSELEN:

But in terms of…the set-up of the budget, I mean, going back to the Peter Costello article in the 'Australian', that you referenced, he talks about how you need to, in a sense, do what he did in '96, and that there are actually real similarities, when you look at it in percentage terms, with where we're at with debt and so forth. How, I guess, how frustrating is it for you? Your first budget is going to be an election-year budget, whereas Peter Costello is sort of making those suggestions but, of course, his first budget wasn't an election-year budget.

SCOTT MORRISON:

And look, I think politics was quite different back then too. I think mandate politics today is far more, is far more binding than it used to be. Until, I mean this is why the Prime Minister, the whole team are keen to just get on with government. We're not talking about elections. We're talking about the economy and the policy changes that need to take place. That's what we're focused on. We're focused on jobs and so we'll keep doing that. I think Australians are really wanting this sort of stable government and they're responding well to it. So we're just going to keep doing it and the election will be held when it's held and the Prime Minister will decide that so that means a budget, it means, the opportunity to make a series of statements over the course of the year at our timing.

PETER VAN ONSELEN:

But you did say "stable government" – I mean, Mal Brough is now sort of suspended. He might come back. Three's, we're awaiting the final report for Arthur Sinodinos from ICAC. Jamie Briggs is gone from the frontbench and, apparently, Warren Truss is on the way out, but we're not sure whether the Nationals are united behind Barnaby Joyce. There's a bit more uncertainty on the frontbench than perhaps…

SCOTT MORRISON:

No, I think that's overstated, Peter. There were some changes over the break. I thought the Prime Minister handled them extremely well in a very responsible and mature fashion. Those instances were regrettable, but the stability of the Government continued. I think it's actually the proof of the stability that changes will happen, things will occur from time to time, whether they're internal or external - the proof of stability of a government - and this was the great genius of John Howard and Peter Costello - is they dealt with the things that came their way in a mature and stable way and that is what we are doing and that is the real test of stability.

PAUL KELLY:

What's the message you're going to give the Australian people in this election year about the budget and about spending? Now, we know you're reducing spending over three years as a proportion of GDP from about 25.9% to about 25.2% - which is a modest, modest and incremental progress…

SCOTT MORRISON:

But difficult.

PAUL KELLY:

Difficult, sure. And this gets to my point. So at the end of the day, in terms of the journey back to surplus, do you accept that at some point there have to be some very painful expenditure decisions taken? And if you accept that, what would you say to the Australian people this year about spending?

SCOTT MORRISON:

The first point is our whole focus, as I've said, is on growth and on jobs and that's the context for tax discussions. It's the context for every single discussion as far as economic policy is concerned. When it comes to the budget, it's really what I was saying before. You can have a surplus at whatever level of expenditure GDP you like, so long as you're prepared to tax higher than that. Now, our view is, we don't…

PAUL KELLY:

You want to do it on the spending side?

SCOTT MORRISON:

We want to do it on the spending side and we want to calibrate the revenue to be in a place which ensures that we can meet those expenditures. So my concern, Paul, without looking at any particular decisions, it's not just the next five years, it's the next 10 years that you've got to look at on what - I mean, expenditure to GDP, once the NDIS and these sorts of things start kicking in, and indexation of other matters, then it starts to rise again unless we start to get that…

PAUL KELLY:

So in other words, painful decisions are going to be required presumably?

SCOTT MORRISON:

And these are things you need to do over a steady and constant path…

PETER VAN ONSELEN:

Will they be spelt out before the election?

SCOTT MORRISON:

And we're very committed to doing that. Our commitments to expenditure are set out…

PETER VAN ONSELEN:

But I mean the extra ones are required…

SCOTT MORRISON:

Right now, we have a plan to get ourselves to 25.2% in the year beyond the forward estimates. That's subject to prior estimates which can change and we all understand that. But we have a plan of expenditure restraint, currently, which gets us to that position. And that includes measures that are still unlegislated in the Senate, around $12-13 billion or so.

One for example, the Family Tax Benefit supplement payments. Now Family Tax Benefit supplement payments are paid once a year, a sort of Christmas in July bonus for welfare payments. They were put in place to ensure that, at the time, when people were doing their income estimation method, there was a balancing item at the end of the year to reduce that supplement in order to ensure that the books balanced at the end of the day. Now, we don't need that balancing item anymore, because we're moving to the one touch payroll system. So this was a one-off payment which was given every year which did not have a welfare reason which is still in the system and it's costing us billions. Now, we're trying to get rid of that to ensure that we can reduce government expenditure. That is being stopped by the opposition. It's being stopped by the Senate. Now, that is our policy. We're taking that to the election. Our policies for expenditure restraint are in the budget now.

PETER VAN ONSELEN:

In a sense, that goes to my concern here. You've got these examples of bringing spending under control, getting it down to 25.2%. That's still above the 25% marker that you have set earlier…

SCOTT MORRISON:

Yes I agree.

PETER VAN ONSELEN:

…in this interview and you've talked about before the Senate, dealing with the crossbench, the opposition and it's before, presumably, fresh election promises that always have to come out and it's before the NDIS being fully rolled out. There's a problem here that needs an even tougher set of solutions but of course now it's an election year.

SCOTT MORRISON:

But Peter this is why - and I was castigated for saying it and it is still my view and it hasn't changed - I said, the problem with the budget is expenditure. Revenues next year will rise to the long-run average as a percentage of GDP next year. That will not happen in the budget and the forward estimates. Now, we are committed to that task. It is not a simple task. I mean, the task today is we have - the family tax benefit didn't exist in 1996. We already reversed in the pension reforms last year a change that was made in 2007 which increased the cost of the pension by $1 billion every year. Now we changed that and we got…

PETER VAN ONSELEN:

What do you do if the Senate won't play ball?

SCOTT MORRISON:

But we got that through the Parliament, Peter. We have a record, about 85% of the savings measures – actually, a bit higher than that - that we have put over the last two years, we have actually implemented. So we have got a track record of getting the savings measures through. What we have to work harder on is curtailing the new expenditure because, substantively, those and there's been spends on infrastructure, increased security requirements, things like this - we have to get that under control.

PAUL KELLY:

The core question here is will you come clean with the Australian people and actually tell them that the expenditure challenge is going to be one which will involve painful measures for the community?

SCOTT MORRISON:

We already have, Paul. We already have in this term of government. We have put forward, and have substantively legislated almost $100 billion worth of savings measures and budget repair mechanisms. So we have already said this. And the figures that we'll go to the budget on will be those in PEFO and what's in the budget which says about how we're trying to track expenditure down over the budget and forward estimates.

PAUL KELLY:

OK, what's your response now - you'd be aware that you've got a lot of critics who are saying you've gone soft on spending, and a lot of people point to the fact that the Government abandoned the commitment by 23/24 to get back to a 1% surplus and instead the commitment now is to get back to surplus as soon as possible. What's your response to critics who say this was a sign of weakness and softness?

SCOTT MORRISON:

Well, I think they are completely overplaying it and I don't engage in these sorts of hairy-chested statements about these sorts of things. I understand the practical realities. We can't predict what happens with global uncertainty around all the things that impact on a budget. The thing that's impacted on the budget over the last two years has largely been the changes in revenue because of what we did, particularly in MYEFO, we revised the growth forecast down. That doesn't mean that our growth outlook has decreased. It's actually increased but I think some of the projections we've made on growth in the past have overstated the budget position down the track. Now, I'm keen to be pretty upfront and honest with people. We're going and will continue to get expenditure under control. In one MYEFO, which was just designed to get the budget back on track from where it was announced in May, we announced savings of over $10-11 billion. So we're committed to that task and we'll keep on about it but to have the test of these things being some arbitrary goal, I think, frankly, dumbs the debate down. The real test is how we're getting expenditure down. are we actually doing it? And the answer to that is, yes.

PETER VAN ONSELEN:

One final question if I can. You've been very generous with your time. I've got to ask you about the NSW pre-selections…

SCOTT MORRISON:

I thought you were going to ask me about the global economy, Peter. I thought that was of burning interest [inaudible] my interest and I'm sure interesting to your listeners.

PETER VAN ONSELEN:

We've run out of time and I know you'll want to give us a very detailed analysis of what's happening in the pre-selections in NSW. Is this open factional warfare? That's what some people are saying…

SCOTT MORRISON:

Rubbish. No, that's nonsense. It's a complete beat up. We had a redistribution late in the political cycle and this is the normal process that occurs when you've had a redistribution that effects a lot of boundaries. I think, once the dust settles, people will see this nonsense that's been reported for the last few weeks for exactly what it is, and the party members will make their decisions on these issues as they should and we'll have that democratic process and it will be resolved in an orderly way. I think a lot has been read into this which is frankly people trying to fill copy.

PETER VAN ONSELEN:

Treasurer, Scott Morrison, we appreciate you joining us for the first show back in the year. Thanks very much.

SCOTT MORRISON:

My pleasure. Thanks, Peter. Thanks, Paul.