1 March 2017
Transcript - #2017024, 2017

Interview with Ross Greenwood, 2GB

SUBJECTS: National Accounts – December quarter 2016; Turnbull Government’s responsible Budget management; Government bond issuance; Turnbull Government’s crackdown on multinational tax avoidance

ROSS GREENWOOD:

Let’s go to the Treasurer, Scott Morrison who is on the line right now.

TREASURER:

Very happy to be with you as always.

GREENWOOD:

You would be happy tonight because quite clearly the country is not in recession, far from it. In fact it is strong economic growth. Over the two quarters it is still sub-par but at least it is still better than what it appeared to be in September.

TREASURER:

Well that is the case. I think this bore out what pretty much everyone was saying after the last figure. That was a bit of a surprise and has proven to be an aberration. I don’t think anyone was expecting the December quarter to be negative who was serious about understanding these issues. But for it to come back the way that it has at 1.1 per cent but which means over the full calendar year last year our economy grew by 2.4 per cent, that puts us above every G7 economy – the UK, US ,Germany, Japan but also stronger than economies like South Korea. So in the growth stakes we are continuing to do very well. Now having said that, I want to make it really clear that we know that across the country that growth has not been experienced equally. There are parts of the country that are doing it really tough. There are Australians who are also doing it really tough.

GREENWOOD:

There is not enough work is there Scott, that is the truth.

TREASURER:

Well there is not enough hours and we want to see more jobs. This is one of the things that concerned me about the numbers - the wages growth. But you don’t get wages growth unless you have profitable companies and you can’t get a job in a business that has shut. You can’t get a job in a business that isn’t open and you certainly won’t get a pay rise if the company that you are working for is going backwards.

GREENWOOD:

Would you acknowledge what the Reserve Bank Governor said a week or so ago that most of the employment that was created over the last 12 months was part time employment? Is it a case of employers now who are maybe worried about the industrial relations system are going to casual and part–time workers because they know they can have flexibility in their workforce that is very much needed in any business in uncertain times?

TREASURER:

Well the facts speak for themselves and they bear out what the Governor has said. That is what has happened on part time and full time employment. There was stronger full time employment growth later in the year. I think there are issues of flexibility but those issues of flexibility sometimes are actually about what is being sought by employees as well in some cases. Some people these days have very different demands on them, particular when you have women coming back into the workforce and want two or three days rather than five or maybe just one. The labour market is responding to that but I don’t think that also says that there aren’t others out there who want more hours and there are a lot of people who want a lot more hours and we are only going to get more hours if businesses are investing more and earning more and you don’t do that by pushing businesses out the back door.

GREENWOOD:

Truth is that government does not create jobs long term. It is actually business that creates jobs.

TREASURER:

Of course.

GREENWOOD:

So you need business to create more don’t you?

TREASURER:

Absolutely. That is absolutely the case. That is why the plan we have been trying to get legislated through the Parliament would take the tax monkey off the back particularly of small and medium businesses to give them a bit more room. One of the suggestions today was because company profits were up in the December quarter - now I should be clear about that it is mainly in the mining resources sector and had a lot to do with some pretty good prices off some very good volumes - so I think there will be a lot of businesses out there listening right now saying hang on a tick that didn’t happen to me in the December quarter. What I do know about small and medium sized businesses is that they have been carrying a lot of the cost burden of ensuring they can keep their teams together in their businesses and while wage growth has been very modest they have been putting their hands in their own pockets to keep those jobs in place. I think they are real heroes of the economy.

GREENWOOD:

Ok. Let’s go to the Treasury Secretary John Fraser, an important character in the running of our economy. He has said today to Senate Estimates that he does not want politicians to squander the current prices of the resources, in other words iron ore and coal have seen good price rises over the past few months. How do you try and avoid that politically given the fact that obviously you have all sorts of competing interests for more money to come from all sorts of areas?

TREASURER:

Well if there are improvements in revenue that come as a result of improvements in commodity prices, what you do is you bank it. In the same way you don’t reduce your spending by 30 per cent because you might have had a 30 per cent fall in the terms of trade you don’t chase it down the valley, you don’t chase it over the hill. They are the things that come and they go. What you do when you prepare a budget is you do it on the structural issues about how much you are spending and how much revenue you are earning. That will have a variance on it depending on the things we are talking about. But John is right. If commodity prices continue to hold at higher levels then yes that is likely to have a positive impact on the budget. But we have to reduce the debt. We have to reduce the deficit and we are on a path to do that by 20-21. So that has to be hit and that is what we are working to. It is not a forecast, it is not a promise, but it is certainly the projection we would very much like to see achieved.

GREENWOOD:

But it is also true that right now because there is not a significant amount of development in the resources sector even though you have higher prices of commodity and therefore there is more income coming through, we see that through the terms of trade and so forth, the point is it is not all of it coming to the bottom line of the government, it is not going to more wages, not going to more employment as we have said. There is a gap there so it is not really as though the government is awash with riches as previous governments have been where there has been a mining boom on.

TREASURER:

That’s true and the result we are seeing here is just for one quarter which is what I should stress. One swallow does not make a summer on these sorts of things. We have to be cool headed about it. In the mid-year statement in December last year I took a very conservative approach on these commodity prices Ross because I wasn’t going to go and tell the country and ratings agencies and bond markets where we have been doing really well on bond markets - we had a record single issuance just this month, the biggest one we have ever had and this says that investors around the world and Australia rate Australian bonds and we are a good bet.

GREENWOOD:

The sad part is of course you have to issue those bonds because the country is going into debt. That is the truth that most people forget and neglect. Even though they are in demand, people know Australia will pay it back, but the truth is you have got to keep on issuing more bonds.

TREASURER:

Well you do it when you have a deficit which we are obviously seeking to have eliminated and the current projection is by 20-21. But even when we had no debt under Peter Costello we still ran a liquid bond market because that was obviously the demand of the financial markets and that is why you had no net debt but a small level of gross debt.

GREENWOOD:

Can I take you to one issue on this and that is also two things. I didn’t mention households and the fact that households were a big contribution to public growth.

TREASURER:

Yes.

GREENWOOD:

The second one is public investment. That is clearly the government. That is infrastructure. But as you point out you need business to be actually doing its share of the lifting. The real problem I would have thought with household consumption is while I see household consumption, in other words consumers are spending, at the same time the household savings ratio has fallen from 6.3 per cent down to 5.2 per cent. In other words, with wages down it would appear as though households are starting to borrow to consume. Is that really a good thing long term for the government and for the nation as a whole?

TREASURER:

Well I wouldn’t draw that conclusion. I would say absolutely we have seen household consumption, the contribution of that to our growth more than doubled in these figures from September to December. It went from 0.2 to 0.5. So that is a significant improvement. We still have a household savings ratio. So, it is still a positive savings ratio. It has fallen down from where it was at the peak after the GFC. You hit a GFC, you hit a major economic event and people go into their cave.

GREENWOOD:

They were frightened at the time? They didn’t think they would have a job.

TREASURER:

It is entirely rational. What we are seeing is that lower household savings ratio combined with the really strong consumption figures. What that is, is a vote of confidence in the economy. People are looking forward with a more optimistic view. Now, things might not be exactly as they want them to be right now but the ANZ survey that came out earlier this week showed again that there is a resilience to the Australian consumer. We have seen the same thing in the UK. You would have seen that too Ross. They have gone through a big shock with Brexit but the British spender is still out there. That is true of Australians as well. They are showing confidence and they are out there, they are participating in the economy. What we need to do now is drive that investment which drives the jobs and the wages. Now, on investment that went up by almost 2 per cent in this quarter. That is the first time, after 12 quarters where we had a negative result on that. So, that was an encouragement. I hope it continues but if the Parliament decides to make businesses pay more tax then that makes that hard.

GREENWOOD:

Ok quick one for you, will the tax commissioner get a bonus if he can deliver the $2 billion from the actions he has taken against these seven major multinational companies that would owe $2 billion to the Government?

TREASURER:

Like the Tax Commissioner, I and he are servants of the public and that is what our job is and we expect nothing more than to do that.

GREENWOOD:

Strange, I thought public servants got bonuses these days, Scott?

TREASURER:

They will do their jobs and he is doing a very good job and as you know the multinational tax avoidance bills that we have introduced and we have got another one on the Diverted Profits Tax which I am taking through the Parliament means that we as a government have done more to crack down on multinational tax avoidance than any other government and there is going to be an increasing dividend from that and in what you are referring to before I came on air that is where it starts to happen. When you have got these multinational companies, well, if they are going to be here that is fine, but they have got to pay their tax on what they earn here and we are very adamant about that. These measures we put in place Labor voted against. They actually voted against them. It is unbelievable that they did but they did and we got it through anyway and we are starting to see the results of that.

GREENWOOD:

What we should stress here, is unlike say commodity prices which come and go and you have got to be careful about how you account for that, in this case this is actually money you can bank. It is one straight in the bank.

TREASURER:

That’s absolutely right and that is why it is necessary. Everyone needs to pay their fair share of tax. It is not optional. It is not a [inaudible] scheme. We want taxes to be lower…

GREENWOOD:

So does Donald Trump. He wants taxes to be lower he announced it today. Is that a challenge to Australia?

TREASURER:

In my first Budget I cut personal income taxes and sought to cut company taxes as well. I would like to continue to see people paying lower tax. I have always had the view that a dollar in your hand is better than a dollar in the Government’s hand and we will continue to work down that path. We have also got to get the Budget back to balance and that is why it is important that the Parliament passes these savings on welfare, which they are refusing to do at the moment. They are basically saying they want taxpayers to pay a higher welfare bill. We don’t agree with them. We have got that legislation into Parliament and eight out of 10 income taxpayers go to work every day to pay for the welfare bill. We think we could get that more under control but at the moment the Labor Party is saying ‘no, we want you to pay more for welfare’.

GREENWOOD:

The problem is politically, and you and I have discussed that before. It is very easy when it comes to either penalty rates, when it comes to cutting welfare, whatever it might be, for someone to say, ‘hang on there is somebody out there who is not going to be, or a broad number of people out there are not going to be better off’. Politically it is an easier thing to argue that line as distinct from making the long term rational argument that the country has got to cut its cloth and that somebody has got to pay their way.

TREASURER:

That is why Bill Shorten is such a huge risk to the people who are listening to this program because he will make them pay higher and higher and higher levels of tax because he has no interest in getting spending under control. That is why he is a very dangerous man when it comes to the money that is in the pockets of taxpayers. He will take it.

GREENWOOD:

Treasurer, Scott Morrison. Always great to have you on the program.

TREASURER:

Good to be with you Ross.