1 May 2017
Transcript - #2017067, 2017

Interview with Sabra Lane, ABC AM

SUBJECTS: PC to review economic impact of horizontal fiscal equalization; Budget 2017

SABRA LANE:

Treasurer Scott Morrison, welcome to AM.

TREASURER:

Thanks, Sabra.

LANE:

Now, before we talk about the Budget, the GST review, the former WA Nationals Leader Brendon Grylls told this program that voters in his state would come after the federal Government with baseball bats if the formula did not change. Is that in part why you commissioned this review?

TREASURER:

What the review is doing is looking at what the national economic impacts are of the way that we distribute the GST revenue. There are a lot of parochial points of view in this debate as the Commonwealth Treasurer I have got to take a national point of view. What this Inquiry is doing is looking at what are the productivity impacts of the way that we calculate this distribution of GST revenues? How does that affect capital and labour moving between states? What does it mean for what states are doing for their own policies and programs to boost productivity? Whether it is in WA or indeed my home state of NSW, where I know they have had some frustrations for some time. They forge ahead in making economic policies and sometimes the argument is that penalises them when it comes to the distribution of GST. So, we need to know the answer to that question – is this negatively or positively impacting our national productivity?

LANE:

Whatever the Commission recommends, will you accept those recommendations in full or will you reserve the right to go away and cherry pick what you like and what you don’t?

TREASURER:

First of all, the Commission is not going to be recommending any changes to the formula – that is not their job. That is the job of the Commonwealth Grants Commission. Secondly, any and all of the findings, as well as any of the recommendations, that would be worked through with the state and territory Treasurers and that would be an important, and currently, missing part of this debate. There’s some important facts here we need to get on the table. What is the national productivity impact of how we distribute GST revenue?

LANE:

To the Budget now, are you still aiming to deliver a surplus by 2020-21?

TREASURER:

We’ll update the projections on the Budget balance next week and that’s the time we’ll do that, not today. What’s important is that we continue to keep control over our current expenditure and that at the same time we do the things that drive the economy forward. As I’ve remarked last week, we are seeing – for the first time in a long time – some improvement in the global economy. Australia is very well positioned to take advantage of that and we need to ensure that our choices that we make in this Budget – I mean, Chris Richardson makes this point: budgets are about choices and he’s right – we make the choices that ensure that Australia is in the best possible circumstances to take advantage of what’s down the road.

LANE:

Will the Budget protect Australia’s AAA credit rating given that now there are fears that Australia’s accumulated household debt now put that at risk?

TREASURER:

This is said before every Budget and every statement. It’s for the ratings agencies to make their own decisions. They said it was going to go at MYEFO. No, it didn’t. We took the right decisions back then. We were very conservative about our forecasts and those choices have proved to be very, very well-placed. We’re making similar choices as we go into this Budget. We’ve been very prudent, very careful and it’s our expectation that that will be well-received.

LANE:

The Government’s prosecuting an argument now about ‘good and bad debt’. That good debt funds things like infrastructure, bad debt is linked to welfare payments. Why should the Government fund projects that the private sector won’t?

TREASURER:

Infrastructure is one of the most important things you can do for your national productivity. There’s not a productivity study that’s been done in the last 20 years that had not highlighted the importance of economic infrastructure that boosts productivity. But that said, let me just make clear that the taxes that come in every year, the recurrent dollars that come in every year on revenue, that’s what needs to pay for schools and for hospitals and welfare and things like this. That’s where the first dollar of taxpayer revenue should go – to schools, hospitals, Medicare and so on. What we’re talking about here is if you can’t keep your expenditure under control, then you obviously have to borrow more and more to pay for those everyday expenditures. Now, you don’t do it in your household budget, you wouldn’t do it in your business budget and you can’t sustainably do it at a federal level either. That’s why it’s so important we get the budget back to balance, so we can continue to sustainably support things like Medicare and schools and hospitals and pensions and all of those things. But when you’re borrowing money, when the taxpayer is borrowing money, it’s got to go towards projects which have a much longer timeframe for delivering that benefit.

LANE:

Since 2012, roughly, the level of debt has doubled and back then the Coalition argued that that level of debt was a Budget emergency. So, why make this argument now? I mean debt is still rising, it will soon break through the $500 billion mark.

TREASURER:

Debt, gross debt, since we were elected in 2013, the growth in debt, has fallen by two-thirds.

LANE:

But it’s still going up.

TREASURER:

It is because we’re still in deficit and that’s why we need to get the Budget back to balance and that’s why it’s been such a strong focus of our Government to do exactly that. To get the Budget back into balance so that debt does not continue to grow. The debt we’re focused on...

LANE:

Some must be scratching their heads and saying, “Ok, the level of debt then was a Budget emergency but now it’s ok to be borrowing more to build other projects, possibly projects that some private companies won’t put their money behind?”

TREASURER:

Overwhelmingly, the Commonwealth’s debt is for recurrent purposes. That’s why I make the distinction, there is a proportion of that debt which goes towards important things like infrastructure, energy infrastructure, communications infrastructure and so on. What I’m saying is that, that continues to be an important part of our growth story as a country. People invest in Australia for a number of reasons, the fact that we’ve had 25-plus years of continuous economic growth being one. Secondly, there is a Government here which is trying to reduce the longer term tax burden on investment in Australia and thirdly, investing in an infrastructure plan over the next decade and beyond which shows you can invest in a growing economy that’s seeking to grow it more by its investments in economic infrastructure.

LANE:

A Deloitte report into university funding that found that most student fees actually cover most of the costs of university courses. Does that mean that universities can sustain a cut?

TREASURER:

What it means is there’s a fact now on the table, which shows that while funding has been growing around 15 per cent, that the cost of actually doing this business is around 9.5 per cent. Now, that can been down to the economies of scale and the good management of our university sector, but it also demonstrates that it’s hard to make the argument that somehow universities are falling behind when it comes to a funding question.

LANE:

But they’re also educating students, ultimately that boosts the nation’s productivity, a form of infrastructure if you like, investing in the nation’s human capital.

TREASURER:

What it is is we’ve seen an increase in funding for universities, we have seen that the cost of educating people has not risen as fast as that funding. And that presents some obvious issues there to ensure that the tax payers interests are best reflected in how we engage in the sector.

LANE:

Not all infrastructure makes a good return to the public…

TREASURER:

That’s true.

LANE:

Can you guarantee that the projects that you fund will make big returns to taxpayers and that they won’t be just simply pork barrelling exercises?

TREASURER:

There’s good infrastructure and bad infrastructure. There’s no doubt about that as well, and the right choices on project selection. You’ve got to fund the projects and get involved cleverly in the projects that do make that big boost to infrastructure. That’s why cost benefit analysis is so important. That’s why the work of infrastructure Australia is so important, you’ve got to focus on the projects that give you the bang for the taxpayer’s buck. But most of all, that grows the economy, which grows wages, which puts more in people’s pockets, and reduces ultimately the cost pressures on their cost of living.

LANE:

Alright, on housing affordability, the idea of using superannuation seems to have been killed off, but what about people being allowed to salary sacrifice, for example, to accumulate a deposit, is that kind of thing possible?

TREASURER:

Well it’s a week out from the Budget, I haven’t speculated before and I’m not about to start doing that now, Sabra. Chris Richardson makes an important point, one frankly I’ve been making now for months. Housing affordability is not something any one level of Government can solve. But he’s right to say, which is what I’ve been saying, there are important things you can do. It’s one of the biggest cost pressures on Australian families and not just in Sydney and Melbourne, there are people struggling with rental affordability in Perth, in Hobart, in Adelaide, in the Northern Territory, in Townsville, wherever you go, there are people for whom this as a real struggle. So it’s important the Government listens to that and does things that it can do, working with other states and territory governments to reduce that pressure. Our focus is on reducing the pressure.

LANE:

Treasurer, thank you very much for joining AM this morning.

TREASURER:

Thanks Sabra, thanks for your time.