31 March 2016
Transcript - #2016040, 2016

Interview with Leigh Sales, ABC 7.30

SUBJECTS: COAG; taxation.

LEIGH SALES:

Treasurer, thank you for joining us

TREASURER:

Thanks, Leigh.

SALES:

You're having dinner with the state treasurers tonight, presumably to soften them up for tomorrow. As concisely as you can, can you please tell us what exactly will you propose to them at COAG tomorrow?

TREASURER:

This is part of a new chapter, we hope, with the states and territories, Leigh. What we're proposing to do is something they've really put to us over the last few months, to give them greater certainty, greater autonomy about their funding sources, and this is a way of buying them in more in terms of the economic growth of their own states. But the proposal is essentially this: that the Commonwealth would reduce by a Commonwealth discount the tax rates by a figure, let's say for argument's sake 2 per cent and that the states and territories would be able to then have a state income tax levy of a flat rate of 2 per cent. This would go for a transitional period, that would be agreed between the states and territories and the Commonwealth, and that would be beyond the next term of Parliament – so well beyond the next election and the election after that. And over that transitional period, no state or territory would be worse off because what we would do is we would reduce the funding of transfer payments by the same amount that they've got in increased revenue from this new income tax. So, what it does is it resettles the accounts here, and ensures that states are now clearly getting a certain income stream from the Commonwealth that is tied to the growth in their own state. Let's not forget that income tax is growing at a faster rate than the GST; so they get a higher growth rate income stream, they get the certainty of that funding going forward, and they get greater autonomy over their own budgets, which is good for service delivery.

SALES:

Wouldn't you get a warmer reception to this proposal, though, if you said "righto we're restoring your health funding over the forward estimates, we're going to commit to the Gonski funding for those final two years so you're covered in the medium term, now let's talk about this proposal for the long term"?

TREASURER:

Well, we are having a discussion tomorrow about health funding in particular. But the…

SALES:

But what I'm saying though is if you just came to the table with that, they'd be a lot more receptive to discussing rest of your plan?

TREASURER:

Well, it's a two-way street. And right now, the funding arrangements are as they are. But we want to enter this new chapter and put behind us this process that has gone on for so long, where there's finger pointing and there's states coming to the Commonwealth for money and we want to get to the point where states are in more control of their budget. When states are in more control of their budget, they are better able to make choices and to assign funding to the priorities that they've set and they've put to their own people in their own elections.

SALES:

On that point about state control, you and the Prime Minister have said that it won't lead to people paying higher taxes, but logic dictates that you can't give that guarantee, because it will be up to the states to determine that?

TREASURER:

Well, I can give that absolute guarantee for the next term of Parliament and for the entire transition period over which this would apply. Because the proposal we're putting to the states and territories is that we would take, as I said, let's say for argument's sake that rate down by 2 per cent. They'd put it up then by 2 per cent – so no income taxpayer pays any more tax.

SALES:

But beyond that, they've already said they don’t think there is the funding to cover health and education expenditure over the long term, over the horizon. So therefore, logic dictates that at some point income taxes would have to rise?

TREASURER:

Last year, last year, what the states said to me as Treasurer and what also the leaders said to the Prime Minister is that they wanted to get greater certainty over their budgets. Particularly, the treasurers were saying: all this tied funding, there are over 100 different agreements between the Commonwealth and the states, some of these agreements are for just a few hundred thousand dollars and you've got bureaucrats going round shuffling bits of paper backwards and forwards. That's not the way to run a proper federation. What we want to do, through this proposal, is get a renewed chapter where the states would for, let's say it's 2 per cent, Leigh, that's $14 billion in untied grants to the states, that they can spend on the things that they decide they need to spend it on. And you asked me about whether they'd want to increase taxes. I can tell you as a Treasurer, you never want to increase taxes, Leigh, but the problem is, if you're just spending money and you go to someone else to raise the taxes, well, there's not the same pressure on you to keep that expenditure as efficient and as targeted as you can make it. And what this does is it puts that discipline back on the spending process, because...

SALES:

Let's turn specifically, I want to turn to schools funding. Is it possible that under this plan, the states could end up assuming all funding for state schools?

TREASURER:

Well, that would only occur (a) if we all agreed to do that and (b) they'd have all the funding that they would have going forward for funding those schools as part of their income tax revenue. So...

SALES:

Is that the federal Government's preferred position, that the states take over funding for schools?

TREASURER:

Well, we haven't got to those sorts of issues yet, Leigh.

SALES:

Well, the Prime Minister was floating it today?

TREASURER:

Well, that is an option, but there are over 100 of these different funding agreements that exist between the Commonwealth and the states. So, let's take public schools, for example. That's around $6.8 billion in 2017-18. If the states got a share of the income tax revenue, that's $14 billion. So, the states would be in a position to completely fund that. I mean, the same way that they fund police stations and jails and things like this, no-one sits round in the states and territories and says, "well, the state Treasurer needs to go to the federal Treasurer and ask for more money to run our police stations."

SALES:

But your Government's own discussion paper on federation reform that Tony Abbott released says that handing over full responsibility for public schools to the states runs the risk of very different funding models being applied across the states and territories giving rise to concerns about fairness. It would also undermine the considerable degree of cooperation across the schooling sectors that's built up over many years.

TREASURER:

I think what's changed, Leigh, is that what we're saying to state and territory governments is, “you've been elected as sovereign governments”. They're not branch offices of the Commonwealth. If we really think or if the people of that state don't think that their Education Minister is better placed to run their schools in their state and make the right choices about their schools and their state – well, they shouldn't vote for them.

SALES:

But hasn't the past proved that that's not the case? Otherwise, why do we have a national curriculum? There's been a need to impose a level of federal coordination?

TREASURER:

You can have a national curriculum without having the federal Government paying for basic issues in schools. What we're saying is we want to give the states a new opportunity and that is to have a certain revenue stream. Now, this is very important. States need to be able to plan how they can deliver services better over a long period of time. Reform can't always be done in two or three or four years. What this proposal does is make sure the states have a certainty about the revenue they would get in perpetuity because income tax goes on, they're getting 2 per cent every year, for argument's sake, over that entire period of time. They've also got the autonomy of how they spend some $14 billion, if that were the figure, and they can reprioritise that spending as they see fit in the same way the Commonwealth does and as sovereign governments need to, to make choices and put the funding where they think it's most important.

SALES:

Just before we run out of time, on your relationship with the Prime Minister, is it a partnership or is he the CEO and you're an employee?

TREASURER:

We're colleagues and he is the first among equals in our Cabinet. That's the sort of Cabinet Government he's running. The Prime Minister and I have known each other for a long time and we have a very strong relationship. It's the sort of relationship that enables you to deal with the normal issues that come before Prime Ministers and Treasurers. I mean, you would expect that in such a partnership.

SALES:

Do you consider you're part of his inner circle?

TREASURER:

Well, of course. We've been part of each other's inner circle for a long time in our relationship and the Prime Minister and I are able to talk about any number of issues.

SALES:

And how often do you talk?

TREASURER:

Every day and every hour on occasions.

SALES:

And so how do you explain then that over the past fortnight there have been a few instances where it looked like you weren’t singing from the same song sheet, such as yesterday on this proposal when he sounded highly committed and you sounded more cautious.

TREASURER:

Well, I'm a cautious sort of fella, Leigh, when it comes to spending money. What happened yesterday was the Prime Minister had been, as I have been for the last almost six months, working with states around these sorts of issues and that information had found its way into the media and the Prime Minister thought it necessary to provide some clarity around that proposal.

SALES:

It's not the only instance though, because there was also the Budget date issue and there was also you were a little further out on GST reform than what he was?

TREASURER:

You would expect on some reform issues that different members of the Government will take different advocacy positions. That's, I think, quite normal. And we were able to work through those issues and get to, I think, a good decision. In terms of bringing the Budget forward, the Prime Minister and I have been discussing that since early February. He knew the timetable that we needed to make that decision. The logistics of when he took a trip to the Governor-General's house was really not critical to my preparations for the Budget, because I knew what the timetable already was, should he choose to exercise that and we were prepared for that contingency.

SALES:

Scott Morrison, we're out of time. Enjoy your dinner. I hope it's not too feisty

TREASURER:

It will be a good night. Thanks very much, Leigh.