5 April 2017
Transcript - #2017061, 2017

Interview with Sabra Lane, ABC AM Radio

SUBJECTS: Turnbull Government’s Enterprise Tax Plan to drive economic growth; Federal Budget.

SABRA LANE:

Thank you for joining us this morning, Treasurer.

TREASURER:

G’day Sabra. How are you?

LANE:

I’m well. The RBA Governor, you’ve just heard him. He has just delivered, well it is a rebuke to the banks that too many loans are still made where the borrower still has the skinniest of income buffers. What do you think?

TREASURER:

Just because a bank says you can borrow, it doesn't mean you should. And sometimes when people look at what the banks say they will loan to them, they seem to think that that is somehow a green light and it's an assurance that they will be able to repay this. Individuals always have to make the ultimate choice about these things and I think the actions taken by the banking regulator most recently – and prior to that as well – have tightened up these conditions. It was just over a month ago, Sabra, that I went to that last meeting of the Council of Financial Regulators and we discussed these issues and I'm pleased with the actions that the regulators have taken. They need to keep watching it closely because using a scalpel to deal with these sorts of issues is much more preferable than using a sledgehammer.

LANE:

How worried are you personally that many house-holders have got themselves in too deep when wages have been pretty flat in recent times?

TREASURER:

Over the past decade, the percentage of income on debt repayments has actually fallen but the level of debt has risen. Now, rates have fallen faster than you've had the debt rising. So, the net position of all that is that you've got the majority of the debt held by those on higher incomes, some 60 per cent of the debt is held by those on the top 40 per cent of incomes. And so, as Phil Lowe said last night, Australians are coping with it well, but that's no reason for complacency and I think the changes that APRA have put in – the banking regulator has put in – have been very sensible. But you've got to be very calibrated about this. The biggest risk to the Australian economy are obviously things to our north in terms of how China continues to perform – they have a very big impact on the Australian economy and the story there remains very solid. But equally, the other shock which is referred to by ratings agencies and others is if there were to be a housing shock in Australia – now, I don't think we're at risk of that – but what could produce those sorts of results are the sort of sledgehammer policies that the Labor Party have been proposing, particularly on abolishing negative gearing. That is a sledgehammer. And no one is advocating a sledgehammer who knows what they're talking about.

LANE:

Treasurer, Mr Lowe has pointed out though that rising property prices have encouraged people to buy residential property as an investment and that it's reinforced upward pressure on prices and he says taxation arrangements applying to investment property are prompting people to take up these interest-only loans. Isn't that a diplomatic way of saying that those tax breaks have played a role?

TREASURER:

What he's saying is that you need to take action on interest-only loans and that's what the regulator has done. There are a number of ways you can do it; you can do it through macro-Prudential controls, which is, I think, the more calibrated way to do this. But if you take a sledgehammer to the property market, Sabra, then you are in real serious risk of a self-fulfilling prophecy on issues around the housing market and the housing market strength is important to the strength of the national economy and that's why I think this more sober common sense, practical, measured approach that we're adopting by supporting the regulator to take these actions and others is the right way to go.

LANE:

You also have a lever that you could use, tapering back the capital gains tax discount. Could using that also help put some balance back into the sector?

TREASURER:

Well, there are a number of issues you can address in this area. We've already taken very strong action on things like foreign investment in residential property and this Government has been the most heavy handed, if you like, in cracking down on excesses in foreign investment in real estate and that's a big issue. We've tightened those controls. We've increased the compliance resources. We've had $100 million worth of residential property which has had to be divested so we're getting tough on foreign investment in residential real estate. There are a raft of other measures, particularly on the supply side, which the Governor, as you know, in your earlier report today, highlighted. At the end of the day, the Governor continues to say that the big issue driving the mismatch in house prices around the country is supply and demand…

LANE:

[Inaudible] silent on that point alone, the capital gains tax discount in particular I'm interested in talking about. That could not, could it not – if you tinkered with that, that could help put balance back?

TREASURER:

Well, the key judgement that has to be made is, in any of these areas, that you don't do harm. And the status of our housing markets around the country are very different. I mean you've got one set of circumstances over in Perth and to that matter in South Australia and Tasmania. I mean negative gearing and capital gains tax concessions exist there as well and property prices in Perth are going the other way or have been in the eastern states you've got a very different response. Even on the east coast, you've got a different market in Queensland than you do to Sydney and Melbourne. So the idea that you should be focusing solely on these broad tax policies that have impacted every market and will impact it differently, you've got to be very careful about this. This is why the Government, in addressing the demand-side issues in the housing market, have always preferred working with the regulators to ensure that they use their more common sense, calibrated and measured responses rather than... basically Labor say they want a chainsaw and we think you should use a scalpel.

LANE:

Yeah, OK, you've made that point. Now, turning to the Enterprise Tax Plan, the Government's tax plan which passed Parliament – a business that you visited yesterday wasn’t overly effusive about it. He told our reporter yesterday that it wasn’t major, it wasn’t going to help and it is not going to change the way they do business. What is your response?

TREASURER:

I note that if you take the tax burden off businesses, if you give them access to the instant asset write-off, if you give them full depreciation provisions, if you ensure that they can operate their GST on a cash basis and that is what we have done for companies up to $10 million and provided a tax cut for companies up to $50 million then if they are paying less tax they can invest more and they can grow their business.

LANE:

How do you respond to Daniel Zovko’s point there, the Government picked that business yesterday as an example of a great success story and he said…

TREASURER:

The conversation we had, the Prime Minister and I had with them yesterday, Sabra, was a very positive one and they were very welcoming of the change. Like small businesses are all around the country – 3.2 million businesses…

LANE:

Maybe he wasn’t so up front when face-to-face but he told our reporter later that it wasn’t going to help.

TREASURER:

Well, I don’t think that’s how it could be characterised.

LANE:

Well, I’m quoting to you what Mr Zovko told us.

TREASURER:

Let me finish my point, 6.5 million employees work for businesses that have a turnover of less than $50 million. Now, that is a massive support for businesses that employ that many Australians. That’s more than half the Australian labour force. Now, the Labor Party use to say they believed that reducing company tax actually achieved these outcomes and they still must believe it for businesses up to $2 million because they say it will work for businesses up to $2 million but businesses over $2 million then, you know, it doesn’t work. Well, that’s just a nonsense, that just highlights that Labor’s policies on this issue are all over the place. There’s no consistency to them, there’s no consistency with what they’ve ever said on company tax with what they’re saying now. We have been completely consistent and we think this is a positive way to support small and medium sized businesses deal with the challenges that they have.

LANE:

Treasurer, thank you for dropping by and talking to AM this morning.

TREASURER:

Thank you very much, Sabra.