5 April 2017
Transcript - #2017062, 2017

Interview with Leon Byner, 5AA

SUBJECTS: RBA Governor’s speech; Turnbull Government’s Enterprise Tax Plan to drive economic growth; Energy policy; Federal Budget.

LEON BYNER:

Scott, thank you for joining us today.

TREASURER:

G’day, Leon.

BYNER:

I want to start with the most current of stories which is out of the Reserve Bank Governor in a speech in Melbourne where Philip Lowe is warning that people are increasingly stretched debt-wise, low wages growth isn’t helping. He hinted in his speech that the Government should look at property tax concessions like negative gearing and capital gains. He also says that these concessions are encouraging people to invest in property and fund them through cheaper interest loans only and he talks about a ‘debt bomb’ waiting to happen. Now, you’d be alarmed at this, wouldn’t you?

TREASURER:

The rising level of household debt has been of concern for the Government for some time. Our debt today for households is some $2.3 trillion – that’s a lot of money. But our household assets are $11.3 trillion, Leon. So the point about that is, yes, our debt has been rising but the assets that support that are also quite significant – it’s about five times coverage. The other point about this is that as interest rates have fallen, people’s level of debt has risen but what that means is the money they’ve got available to pay that debt is having to pay it on a lower interest. So, the share has actually fallen. In other words, while the debt is higher, the actual percentage of what is going out in meeting those repayments out of your income has been falling over the last decade. So, the point about all that is there’s no one story on this. Yes, the debt has been rising. Yes, that’s concerning. The interest only loans which is about 40 per cent of the loans that are taken out. Now, 60 per cent of investor loans are interest only, for owner-occupiers it’s about 25 per cent, and the point that Phil Lowe is rightly making which I’ve been making now for some time is this is an area that the regulator – the banking regulator – needed to take further action on. And I’m very pleased that they have. I should stress that when he was talking about housing affordability, he was saying that supply and demand issues are the major factors there. House prices in Adelaide are different to house prices in Melbourne, which are different to house prices in Perth, and negative gearing exists in all of those three markets – so it can’t be responsible for driving prices down in Perth, keeping them stable in Adelaide and driving them up in Sydney all at the same time.

BYNER:

Alright. The Government keeps saying it won’t make changes to negative gearing but is there room to pare back or reform the concession?

TREASURER:

What the banking regulator has done is use the tools available to them to cool that top-end of the market investors. Now, they did this back at the end of 2014 and they had some real success with that. Investor loans were growing at over 10 per cent and that halved the growth in that. Since January of this year, we have seen that creep up again and I met with the Council of Financial Regulators which is chaired by the Reserve Bank, APRA the banking regulator, ASIC the companies regulator and Treasury. We had a very serious discussion about this and the rising levels of debt and what could be done about that and I think the banking regulator has pulled the right rein on this. The alternative is you can have a calibrated, measured, sort of scalpel-like approach to this – which is what the banking regulator’s doing, which I think is sensible – or you can take a chainsaw approach which is what Labor’s saying, abolish negative gearing and if you think through the consequences of that for the housing market then that’s the way to really crash the economy…

BYNER:

So, Scott, what you’re saying is negative gearing is off the table now for any Budget considerations?

TREASURER:

I’m not speculating on these things. Our comments on this are on the record. What I’m saying is the way you deal with this sensitive issue is you’ve got to be very measured and you don’t go into sort of the jingoistic policy responses that the Labor Party goes around with. They don’t have a housing affordability policy, they’ve got a tax policy. What they want to do is raise taxes because they can’t control their spending. They dress it up as saying, ‘It’s going to mean everybody in Sydney can buy a house’, that’s rubbish.

BYNER:

Alright. But you’re in Government now for the next two years so what will your housing affordability package look like?

TREASURER:

That will be outlined in the Budget, Leon. I’m not about to go into detail on it here. But the measures that have been outlined by the banking regulator to cool investor demand at the top-end, I think they’re very sensible. I think that’s the way you deal with this problem and if there are further measures that are necessary – whether that’s by the regulator or by the Government – then they will be taken.

BYNER:

Now, there’s going to be an enormous campaign by Labor and GetUp! against the up to $50 million turnover tax cuts but interestingly, a report by the Grattan Institute says the decision to lower the tax rate to 25 per cent for business with a turnover for up to $50 million will only grow the economy by 0.2 of a per cent. Do you agree with that?

TREASURER:

Well, that’s the Grattan number. All I know…

BYNER:

What’s your number?

TREASURER:

Our number is it lifts it by one per cent when you implement our full Enterprise Tax Plan and those benefits commence immediately because businesses like down in South Australia that I met during the election campaign, Tyres and More up there in the Adelaide Hills or Precise Machining and Manufacturing out in the electorate of Hindmarsh. These are businesses with turnovers between $2 million and $10 million. As of today, as of last Friday in fact, what they are getting is a cut in their company tax rate to 27.5 per cent, they also get access to the instant asset write-off which means that everything they’ve bought up to $20,000 this year, they can write-off immediately in this year’s tax. On top of that, they get what is called the pooled depreciation provision which means they combine their assets together for the purposes of depreciation. They also get to do their GST on a cash basis which has obvious advantages to businesses of that size. That’s what we’re doing for them, I know that takes the tax monkey and the compliance monkey off their back and that can only help them. It can only help them.

BYNER:

Your opposite says this measure up to $50 million turnover is going to have a very moderate, slight effect on Australia’s wellbeing in terms of increasing jobs or prosperity. Do you concur with that?

TREASURER:

No, I don’t, and he’s either lying now or he was lying before when he said that cutting company tax is a ‘Labor thing’. He wrote a book about it. He actually wrote a book saying we should cut company tax and now when he gets the opportunity to vote for it, he does the opposite. Now, the interesting thing about this, Leon, is the Labor Party said they would support a company tax cut for businesses up to $2 million. But then they won’t support it for businesses up to $10 million or $25 million or $50 million. If you can find any consistency in that argument, mate, I’ll give you one of those chocolates from down in Haigh’s because you’d deserve it because there is no consistency. If you have an electron microscope, you could not find Labor’s economic growth policy because it’s not there.

BYNER:

I need to ask you about the big campaign that’s about to come against Xenophon and the Coalition about the $50 million turnover tax cuts which they’re arguing is all for the big-end of town. What do you say to that?

TREASURER:

Well, again, that’s absolute – I won’t say the other word – it’s rubbish. It’s rubbish. Let me go through some of the businesses that are up to $50 million in South Australia. Scantech – now, they’re the world leader in the application of online real-time management technology for bulk materials – they’re turning over $13 million. E S Wigg & Son – they’re a manufacturing business with a turnover of $16 million – they’ve been a specialist in print and manufacturer of envelopes. There’s a biotechnology company dedicated to better treatment for cancer – they’ve got a turnover of $16 million a year. Then there are bigger ones like Mayfield Industries – they’re an oil and gas, mining, minerals, utilities, energy and water process firm – they’ve got a turnover of around $40 million and they’ve got 94 employees. There’s Workskil Australia – they’ve got 508 employees and they provide employment and community services and they’ve got a turnover of just under $40 million. Now, if they think those companies are Google or Microsoft or the big multinationals, well they’re kidding themselves. And while Labor rails against us cutting taxes for those businesses, let’s not forget, they voted against us when we wanted to increase taxes for multinationals.

BYNER:

When will the $75/$125 one-off payment get to various people that Nick Xenophon’s brokered?

TREASURER:

We’ll be announcing that in the Budget.

BYNER:

With regards to the PRRT, this is controversial because many energy experts have said that we’re missing out on substantial amounts of revenue hence there is a Senate inquiry. Do you anticipate to get help for your Budget bottom line as a result of this inquiry?

TREASURER:

I initiated an inquiry with Mike Callaghan, a distinguished former Treasury official, and he has been looking into this now for some months. The thing about oil and gas projects as you’d know is they’ve got very long lead times and so you don’t go playing around with things in this area lightly. You’ve got to be very conscious of the impact on investment decisions about making changes in this area…

BYNER:

Do you acknowledge we’re missing out on any money on this?

TREASURER:

No, I don’t.

BYNER:

You don’t?

TREASURER:

No, I don’t. I acknowledge that there is a need to look into this issue carefully and that is exactly what I’ve done and I’m awaiting that report. What I’m saying is, is if there are improvements that need to be made in this tax then you need to be very careful about how you do it because the last thing we want to see, Leon, is go and scuttle a major investment project in this country by making changes to a tax arrangement which is critical to the yes-no decisions of those boards. That would cost jobs.

BYNER:

The thing that’s costing jobs right now are the gas and electricity prices in this state…

TREASURER:

True.

BYNER:

…as you know.

TREASURER:

Absolutely.

BYNER:

And we are paying infinitely higher prices for gas than what our customers on long-term contracts can buy in Japan. Now, can we sort this?

TREASURER:

Well, that’s what the Prime Minister’s already taken action on. He was the one that got them all in one room…

BYNER:

What will be the price we’re going to be charged then?

TREASURER:

What that means is that we’ve got an absolute guarantee from the gas companies for peak supply of gas in the Australian market…

BYNER:

At what price?

TREASURER:

That will be determined once we get into those environments. But the key is you’ve got to get access to the gas.

BYNER:

Yes, you’ve got to get access but it’s got to be accessed at a price that people can afford.

TREASURER:

But that’s the whole point about getting the access, Leon, this hadn’t been addressed until the Prime Minister got them all in a room and he said, ‘I want a guarantee from you that we will have access to the gas that the country needs so it doesn’t go offshore, it stays onshore to keep energy prices as low as they possibly can be…’

BYNER:

So when we will know a price figure…?

TREASURER:

…He got that commitment and that is now being worked through and priced and he used the big stick that if they don’t do it then the Government has very serious remedies available to make them do it…

BYNER:

When will we know the price, Scott?

TREASURER:

That is yet to be determined, Leon. I can’t give you a definitive answer on that today. What I do know is that we’ve done the work to ensure we get access to the gas and without that, I can guarantee the prices would be a hell of a lot higher.

BYNER:

Superannuation, now, there’s going to be some changes as of 1 July. What are your understanding of the major changes just so the public get it from the man who makes the changes here?

TREASURER:

The principal one relates to the level of assets you can have when you’re in the retirement phase in the tax free element and that’s $1.6 million per person. If there’s two people, obviously $1.6 million for each of them, and there are some reasonable grace periods around that kick-off date around 1 July but I’d be encouraging everybody, because they’ve had since the last Budget, quite a bit of time to make some preparations for this. These changes were all about making superannuation tax concessions fairer, more sustainable so they could be there for future generations and these changes do come in on 1 July, they do impact on those with the largest balances and they will now be paying – above $1.6 million, on the money they held in addition to $1.6 million – they will be paying 15 per cent tax on that, not zero.

BYNER:

Scott, we look forward to speaking with you again. That’s the Federal Treasurer Scott Morrison with some updates on a number of important issues on 5AA.