7 October 2015
Transcript - #2015010, 2015

Interview with Fran Kelly, Breakfast, ABC Radio National

SUBJECTS: OECD Report Supports Australian Government Action on Multinational Tax Avoidance, providing real opportunities for Australians who want to work, save and invest, superannuation, industrial relations, immigration portfolio

FRAN KELLY:

Scott Morrison welcome to Breakfast.

TREASURER:

Hi Fran, good to be here with you in Sydney.

KELLY:

These OECD recommendations to stop corporate tax avoidance have largely been welcomed by the tax experts as we have just heard. But some say they don’t go far enough in terms of providing greater transparency of what is going on within companies, that will help the top companies keep cheating on tax. Do you think these rules are good enough, are strong enough?

TREASURER:

Well they are the product of more than two years of work – international work by more than 60 countries and Australia played a very central role in that and particularly the former Treasurer, Joe Hockey, played a very important role as the Chair of Finance Ministers as part of the G20. You have got to be very careful how you calibrate these initiatives, it is not something you take a blunt instrument to because the consequences for a country like Australia where you can potentially put up the cost of people doing business in Australia if you get this wrong and the impact on jobs and investment, is very serious. So I think this is a very good package, it has been well consulted upon and Australia is already well ahead of where this package was brought down on. We had the laws introduced in September which do crack down on multinational tax avoidance, does introduce the country by country reporting, does increase very tough penalties for those who are found not to be paying their fair share of tax.

KELLY:

Well when is it going to work though because as you say Australia now has some of the strongest tax integrity rules in the world and there was some criticism for Australia going out ahead of the rest of the world and this agreement? But a third of our biggest companies here pay less than 10 cents in the dollar, when will they start paying their proper tax liabilities?

TREASURER:

Well we already have 30 companies which the tax office has already been working with and had people imbedded there working through the various arrangements they have to ensure that these companies are paying their fair share of tax. I will be making an announcement later today with the Tax Commissioner and giving an update on where we are at with the progress of those initiatives. We have been able to identify additional companies as a result of the legislation that we introduced in the Parliament recently. So we already are getting results but everything on the thin capitalisation rules which is another controversial topic but we have the best thin capitalisation rules I believe going around and they are entirely consistent with what the OECD has recommended. The Opposition has put an alternative to that and the great risk and the advice I have of that approach is it will impact on jobs and investment, it does go too far, it isn’t flexible enough and we need to make sure that we don’t take blunt instruments. Now my offer to the Opposition is pretty straightforward, we would be pleased to look at what they are proposing but they would have to provide their assumptions and their modelling so the Treasury can properly understand it. As we understand it currently what they are proposing could really risk jobs and investment in Australia because it is too much of a blunt approach.

KELLY:

Yes but flexibility can also mean loopholes, the tax forgone in the decade to 2013 was about $80 billion we know. The recent Senate enquiry heard that Apple for example paid just $80 million in tax in this country on sales of $6 billion. Will big multinationals like Apple, Google, and Microsoft still be able to minimise their tax? Have all the loopholes been closed under our law or in conjunction with these OECD changes?

TREASURER:

I think it is an ever receding finishing line on these sorts of issues and you keep moving forward. You need to modernise your tax system to deal with the way that companies are operating in a modern economy. The Prime Minister has talked about a 21st century economy, well we need a 21st century tax system and a compliance regime to back that up. Now we put $86 million into the Tax Office to go after these sorts of things, we put legislation into the Parliament, we were ahead of the curve in terms of the initiatives that were announced by the OECD and I think we are making great progress. Now I would like to see a greater level of cooperation on these issues across the Parliament and looking forward to support for the measures that are introduced because at the end of the day we just have to do what works Fran. This shouldn’t be a contentious issue politically; we just need to do what works.

KELLY:

Ok, well we heard in that package there that if this works it should allow countries like Australia to do things like lower our company tax rate, get more competitive on that level. That is one of the spin offs for a country like Australia and the government and others have said for a long time our company tax rates are too high, they are not competitive. When you were sworn in as Treasurer you said we are in a low wage growth environment, the thing that is principally undermining the performance of the economy is largely the tax system. On the radio yesterday the Prime Minister said everything needs to be on the table when it comes to designing a more productive tax system. Of all the things on that table, Treasurer, what do you think will do the most to lift productivity?

TREASURER:

Well what I want to see, as I have said before, is I want a tax system which encourages Australians to be able to work and to save and invest because that is what will actually boost growth in our economy…

KELLY:

Yes, so where do you prioritise there?

TREASURER:

The way you will lift revenue, which is already forecast to increase over the budget and forward estimates, but the way it will particularly lift is if we increase what we are earning as a country. To do that we need a tax system that gives people incentives and particularly at the personal income tax level. That is the situation where we have next year, if you are on an average wage you will go into the second highest tax bracket. 15 years ago some 80 per cent of Australians were paying 30 cents in the dollar now today that figure has fallen to 25 per cent.

KELLY:

So you are committed to changing that and giving tax cuts?

TREASURER:

It is inverted – sorry I got those figures round the other way. You had 30 cents in the dollar was being paid by 80 per cent and now that figure has fallen down to 25 per cent. So it is very important that we have a tax system that actually rewards effort, rewards people saving, rewards people investing. That is why it is important that we look at the tax system in terms of what it produces overall and the trouble with the tax system debate to date is it has all been locked up in particularly features - company tax, particular levels of income tax, whether it is the GST or other things like that. You have got to look at the whole system and how it can actually generate and produce and support growth.

KELLY:

The government is on the record under the last Treasurer, I think you too committed to bringing – giving tax cuts – income tax cuts to deal with bracket creep at the next election. Does that mean, obviously you can’t do that in isolation, at the next election if not before there will be a tax reform package brought in that offers income tax cuts and explains how the revenue is going to be raised to pay for those?

TREASURER:

Well, I don’t propose to rush into any of these things. I think what is important is that we get the tax system right and that needs to take the time it needs to take to get people along with what is needed to change. I think at the moment I don’t think there is a broad understanding about the real opportunities for everyday Australians about what can be achieved for them with changes to the tax system. I think one of the problems we have in the tax debate is, I have referred to it as a bit of an accountants picnic but what that means is that people think of tax reform as just ‘well the government wants you to pay more tax.’ What I am saying is no. What I want is a tax system that rewards people for doing the things that they want to do in the economy, businesses to be able to grow and expand and do the things they want to do and that is what the tax system has to support. The tax system is not there just to suck money out of people’s pockets, it is supposed to do it in a way that actually grows the economy not retards the economy. That is why I am very concerned about debates which sought of suggest that we should be driving up revenue by driving up taxes.

KELLY:

Not asking to rule things in or out at all because everything is on the table, we know that, including superannuation and the notion of curbing superannuation tax concessions for the wealthy but there has been a call in the last few days, again, for focus to also be looking at low income earners and superannuation subsidies for them. The Government was planning to, had moved to get rid of Labor’s low income super subsidy. Is that back on the table, help for low income earners?

TREASURER:

One of the interesting things, in the meeting we had last week it was Cassandra Goldie who raised it – and I worked closely with Cassandra when I was in the last portfolio on pensions – she said that all of these measures we have to look at whether they are fit for purpose. Now, what does that mean when it comes to superannuation and what does it mean for expenditure for that matter? Well, we need, in superannuation, to have a system that ensures that when people get to retirement age that they won’t be dependent on a welfare payment, on a pension…

KELLY:

Including lower paid people?

TREASURER:

And obviously that means we need to look at what the savings performance and capability is of people on lower incomes but they are the right questions, Fran. I mean the answers will come as we work through the package in more detail but the message I have for Australians more generally is the only reason we would change any of this would be to leave people better off and in a stronger position to be able to be more independent in the economy and to be able to have more choices than they have now. Now, if the changes don’t achieve that goal then they are not something that the Government is interested in.

KELLY:

Scott Morrison, can I ask you about penalty rates because the Prime Minister has given the strongest signal so far that weekend penalty rates should be wound back that they don’t reflect, the way they are paid don’t reflect the modern economy and modern lifestyles. Is Government going to make change in this area?

TREASURER:

Again, what I don’t want to do, Fran, is in industrial relations, workplace relations in this country for far too long it has been this pitched battle between unions and business, capital and labour, and frankly that is boring and it is not helpful. What we need to have is a mature discussion about these issues where we look at how the system works and what we want is more people, particularly young people, being employed, we need flexibility in the system which means people with disabilities, people who have been long term unemployed can get a go in the labour market. Now, I don’t see why you wouldn’t want to consider anything that wouldn’t achieve those sorts of goals and if we are going to get locked into it and if the Opposition Leader Bill Shorten wants to go back to yesterday’s politics and drag us into a pro or negative penalty rate sort of debate I don’t think that helps the economy, I don’t think it helps the debate. We can have a mature debate about workplace relations, the question is will broader politics – other parties – be able to engage in the same adult discussion.

KELLY:

Well, the PM’s message was you don’t want people to lose out on this…

TREASURER:

Of course note.

KELLY:

And there seems to be a suggestion of some kind of change in, maybe tax credit in return for lower rates of pay, you lose on the penalty side but you get a better tax treatment – ideas like that?

TREASURER:

I think these are all very innovative ideas and in the UK Iain Duncan Smith has done some excellent work in looking at those sorts of systems. What you want is a tax system and a payment system that locks together and a labour market system which links in with that to ensure that you are better off working than being on welfare, that when you are working you’re not going to be taxed out of existent and that you will be able to get on and make a way for yourself. Now, we need the flexibility in our system to ensure we have this agile and innovative economy. Let me refer to a story which I came across when I was up in Caboolture. There we had a very good welfare organisation getting people who are drug addicted into work and they worked out that they couldn’t change the people to get into the job because they had some very serious disabilities so they changed the workplace to match the person, say for example who might have been on methadone, and were a bit slow in the morning. Now, they told me that the only way they could really employ people in that situation was if they were on casual rates because the award wouldn’t accommodate it. Now, I want to see people with disabilities, people who are long term unemployed get jobs and we need a system that helps them get those jobs and I don’t know why anyone would want to rule out anything that would help young people get into jobs.

KELLY:

So, the Government is not afraid of getting into the IR changes if required?

TREASURER:

The Government is not afraid of getting people into jobs. That is what the Government is not afraid of and I would like to see other parties, in particular the Opposition, get past this boring old industrial relations rhetoric of us versus them. We are all in this together and we need to get young people in jobs.

KELLY:

Can I just ask you finally Treasurer, something in your old portfolio of immigration, because in a moment we are going to be talking about a case that begins in the High Court today challenging the Government’s constitutional power to detain people overseas. Could offshore processing be vulnerable to legal challenge?

TREASURER:

Well, I am not going to commentate on what the High Court may or may not do. Those matters, I think, are ably being looked after by Minister Dutton. What I will say is this though, our border protection regime has been incredibly successful, it has saved lives it has ended the terrible cost that was being incurred and has ensured integrity of our refugee and humanitarian programme which enabled us recently to commit to 12,000 additional refugees and humanitarian entrants coming in response to the Syria crisis. Now, they are all important outcomes and anything that would put that at risk would greatly concern me and I think it would greatly concern many Australians.

KELLY:

What about, you have been greatly concerned about the reports over the last months of abuse and even rape, as we heard last week?

TREASURER:

Of course I have, Fran.

KELLY:

And you are not worried that the offshore detention centre isn’t right in dealing with those, in allowing that abuse to happen?

TREASURER:

Every day when I was in the portfolio, and every day that Minister Dutton has been in the portfolio we have sought to improve the arrangements at Nauru. I remember when we came to Government there was a $1.2 billion funding hole, to even put the most basic of facilities for families on Nauru. There wasn’t even a playground there, there weren’t rooms for infants to have their nappies changed; there was nothing there when we came to Government and we had to spend the money to get all of those facilities in place – to get the medical facilities in place and we have done a lot of work. Now, there will always be more work to do and I commend Peter Dutton for the job that he has done in continuing that programme but at the end of the day, Fran, we have a border protection regime which ended the deaths and I don’t want to see that happen again.

KELLY:

Treasurer, thank you very much for joining us.

TREASURER:

Thanks very much, Fran, good to be here with you.