27 July 2016
Transcript - #2016088, 2016

Interview with Jon Faine, ABC 774

SUBJECTS: 2016 Election, negative gearing, youth employment, multinational tax avoidance, superannuation, Royal Commission into the Juvenile System in the NT

JON FAINE:

Scott Morrison, good morning to you.

TREASURER:

Hi Jon, good to see you.

FAINE:

What lessons do you take then, from the near death experience of the federal election?

TREASURER:

Well first of all, we went to the Australian people with an economic plan and that was supported because we won the election. However close it is, I think the message that we had is that you’ve got to drive the economy, you’ve got to drive growth, because that is the one thing that is going to give people security about their jobs.

FAINE:

And a counter-analysis is that in fact where you started the campaign…

TREASURER:

Which was 50-50.

FAINE:

Well no, when the Turnbull Government came into office, when you were appointed Treasurer, when the faux campaign really started you were way ahead and that argument nearly in fact cost you office.

TREASURER:

I’d offer a very different analysis to that. When the election campaign started just around about the time of the Budget, we were sitting at about 50-50. By the time of the election, it was about the same and we were able to maintain what was a very strong argument for economic policies that were focused on growth, on innovation, on jobs, on ensuring people can invest…

FAINE:

I don’t want to prick the balloon in the bubble there, but in fact when you were appointed Treasurer and Malcolm Turnbull was sky-high in the polls, you were miles ahead and the Labor Party thought they were out of business.

TREASURER:

There was a big boost at the time, and these things always moderate.

FAINE:

You didn’t seize the moment.

TREASURER:

We were dealing with some very difficult issues around tax reform and other issues on the federation, and they were difficult issues that we had to work through and we worked through them. By the time we got to the Budget we laid out the plan and I think Australians saw very clearly that the Prime Minister and I and the whole team had a plan to take the economy forward and we were successful at the election.

FAINE:

Were you given a faecal sandwich, to put it politely, when you were asked to try and deliver things like a state-based income tax or a GST increase?

TREASURER:

We don’t resile from the fact, Jon, that we dealt with and addressed those issues.

FAINE:

We all know you floated balloons that crashed.

TREASURER:

No, I wouldn’t put it like that Jon. I’m not quite sure what you would have preferred. We could have just come in Jon, and we could have said, it’s all off the table. Not going to look at any of it, not going to consider any of it, we’re just going to rule it out on political grounds. Now I don’t think that is the sort of political debate that we were seeking to have in this country. We dealt with those issues, yes it got very difficult and it got untidy.

FAINE:

Are we still at an untidy position?

TREASURER:

No, because I think in the Budget we set out a very clear plan for how we were going to take the country forward, both fiscally and focusing on growth, and particularly ensuring that private investment in our economy is the thing that above all is going to deliver jobs and security for families across Australia.

FAINE:

The corporate tax cuts were toxic and still are, are you going to persist with them?

TREASURER:

No, I don’t accept that Jon, we took those corporate tax cuts, we took the entire plan which was focused on driving investment in our economy, of which that was an important part. Together all of these measures saw the Government seen as by far and away the preferred economic manager for this country. No-one can dispute that. Whether it’s in the private or public polling, that was an absolute clear lead the Government had, and as a result of that lead Jon, the Opposition had to resort to the campaign they pursued. They weren’t arguing about the economy, they were arguing about other issues…

FAINE:

Mediscare nearly worked for them.

TREASURER:

They didn’t want to talk about because they knew they were a dud on the economy.

FAINE:

The negative gearing changes in fact though worked out to be a big winner for them. Are you in any way tempted to revisit your resistance to those changes?

TREASURER:

No I’m not, because they weren’t a big winner Jon. If you’re honest about it I think you’d say that the country split about 50-50 on that issue. There were those that were very opposed to the changes, there were those that were very for the changes. Those changes I think, when they were argued for housing affordability, I think masked the much bigger challenge we have with housing affordability and that is how you address the supply issues region by region, city by city around this country.

FAINE:

There’s an equity argument to do with their policy, not just housing affordability, and you’re trying to deal with that on the one hand in super but you’re denying it when it came to the negative gearing argument.

TREASURER:

Well I don’t accept the argument on negative gearing Jon, because the argument on negative gearing would have disadvantaged those middle-class families, those ordinary families, the vast majority of whom are the predominant investors in this area. They would have been disadvantaged.

FAINE:

They’re the ones outbidding their neighbour’s kids.

TREASURER:

If you have a high net worth, right, and you have a large amount of investment income, then Labor’s changes to negative gearing wouldn’t have touched you at all. You would have been able to negative gear properties because you could offset the net rental losses against your investment income. Now the only change they were making is that you can’t offset the net rental losses against your wage income – and do you know who that is? It hits wage earners, and wage earners are police officers, nurses, teachers, and they would have been the victims of Labor’s policies, not the beneficiaries, and that’s why I don’t support it.

FAINE:

Does the Turnbull Government take any learnings then from the near death experience and from what’s gone on in the UK with Theresa May’s remarkable speech on becoming Prime Minister, Pauline Hanson’s ripples through the Australian political landscape, Donald Trump’s success in galvanising support on the Republican Convention there. Do you have a look at saying, well there is the new economy, we’re fans of the new economy, but there’s too many people being hurt through the transition?

TREASURER:

Well I put it this way, and this is I think the learned experience not just in Australia but all around the world. As you know I just got back from the G20 in Chengdu where this was a topic of discussion. From our perspective, from mine particularly, this is about participation. How do you have more of your population involved in the economy and feeling not left out of the economy? So growth is important, but getting people engaged in the economy, engaged in economic activity, engaged in employment, engaged in the tax system, engaged in all of the areas of how our economy operates. If you are isolated from that, and I talked at Chengdu about how we need to be careful of creating a society of taxed and taxed-nots - they are seen at opposition to one another. I know the terms of social inclusion and all of those sorts of things, I’m not getting into that debate or signing up to that, what I’m saying though is that participation in our economy and finding as many pathways for participation – you were just talking about one earlier through education. I talked about it in the Budget through our Youth PaTH Programme for employment. In the previous Budget as Social Services Minister I put in place programmes to see how we get young migrant youth into education and work, and we put $20-odd million into that particular programme to target specific communities in Sydney and Melbourne. Now that is about participation, and I think that is the focus.

FAINE:

And dealing with transfer pricing? The way multinational corporations and their advisers avoid paying their way.

TREASURER:

Of course, that was in my Budget.

FAINE:

It is, but is there any progress on it?

TREASURER:

Yes.

FAINE:

Because there is enormous impatience in the community as more and more of the load falls on those of us who do pay tax, to see that in fact it’s being shared with those who don’t including large corporations.

TREASURER:

And that’s why we put the multinational anti-avoidance legislation into the Parliament last year, and were successful in passing the Parliament with the support of the Greens in the opposition of the Labor Party. Our next set of legislation will deal with the Diverted Profits Tax, which picks up the idea form the UK and that will come in as well. The Government is the side of politics that is actually doing constructive things in this area, we’re beefing up the resources of the taxation office to get that revenue in.

FAINE:

When Scott Morrison goes to all of the very many functions that Scott Morrison is invited to, and when Scott Morrison is sitting at the lead table with the heads of PriceWaterhouseCoopers, Ernst and Young, KPMG and the other advisers who in fact do this manipulation, advise on the tax of transfer pricing and avoidance and the like, why not say to those people, there’s no more government work whilst you’re trying to tread both sides of the street? You can’t advise all of these corporations on how to avoid making their contribution to Australia’s particular needs here, you can’t both do that and be participants in government largess as contractors at the same time?

TREASURER:

Well we are an open economy Jon, and they are in no doubt about the Government’s resolve through what we have put in legislation, through the resources and structures we’ve put in the Australian Taxation Office, to ensure that income earned in Australia has tax paid on it in Australia. So that’s our resolve, we’ve put that legislation in place.

FAINE:

They’re ripping us off.

TREASURER:

The system, if it allows those sorts of things to take place, then I need to address the weaknesses in the system. That is exactly what I’ve been doing.

FAINE:

What about looking the people in the eye who are in fact pulling those levers and saying stop ripping the country off, and we’re not going to sit at the table with you until you stop ripping us off?

TREASURER:

Jon they are in no doubt about my view or the Government’s view when it comes to the integrity of the tax system. Up in Chengdu I said there were three things we had to ensure about the tax system, we had a tax symposium. The first one is that you’ve got to ensure the integrity of the base of your tax system. That isn’t just the areas that we’ve been talking about, which has been a key focus of the G20. The whole base erosion, profit shifting, all of these sort of issues, and Australia is leading the world in this area.

FAINE:

But not making much actual progress?

TREASURER:

Well the legislation came in in December Jon, in December. We put the resources in this year’s Budget to ensure the revenue flows from that and the revenue has been identified in the Budget.

FAINE:

Not much though.

TREASURER:

Well Jon that is how much revenue there is on this based on the analysis and the support and it was twice what the Labor Party were promising.

FAINE:

The trillions that are washing around the world that aren’t being taxed need to somehow be captured. People are talking about bank account transaction taxes and the like, all of which have been got rid of as the only effective way of doing it.

TREASURER:

As you know I’m not a keen fan of higher taxes Jon, but I am a keen fan of ensuring that people pay their tax. Whether that’s multinationals or anyone else, people must pay their fair share of tax and they must pay the tax that is set out in our laws. If there are weaknesses in our laws, then it is this Government, particularly in the area of multinational tax avoidance, who has acted. For six years Labor did nothing on this and our Government is the one that has acted. But to make the other point, the base has to be strong, it has to deal with these erosion issues. But it also has to be current, it has to deal with the digital and shared economy and we’re making changes in those areas as well. The tax base has to be sustainable, and that’s what the superannuation changes are all about. It is ensuring that we have a sustainable tax system for superannuation that means it will be there in 20 or 30 years time - that our superannuation system is not a system that is designed just to pass on wealth. It is there to support people not being on a paid welfare pension in Australia.

FAINE:

Do you concede at all that it cost you, if not votes, then certainly donations and some support even within the Liberal Party, your superannuation policies in the last election?

TREASURER:

Some have made that argument; I mean in the top 10 seats where people were affected by these changes, we actually had swings to us in half of those seats. Seats like Josh Frydenberg’s here in Melbourne, in Kooyong, or Julie Bishop’s over in Perth. In my own seat, I was very much below the state-wide swing in New South Wales; it was pretty much a status quo result. So no I don’t accept that it has been that. The work has shown that in those seats that were least affected by these changes, that’s where the swings were, and those that were most affected, that’s where the swing was least.

FAINE:

So why does the campaign persist, because those who are propagating this particular theory including several prominent economists and people, business writers in the media in particular are demanding, thumping the table, demanding that you in some way dance to their tune.

TREASURER:

I think these changes are fair. I think these changes make the system sustainable and address one of the biggest economic challenges we have, and that is the ageing of our population.

FAINE:

So will you right now say no, it’s not changing while I’m here?

TREASURER:

We took this policy to the election; we put it in the Budget. It sits critically as part of our fiscal strategy as well as our strategy to make sure we’re addressing the ageing of our population and the sustainability of our superannuation system.

FAINE:

Sure, but you didn’t answer my question.

TREASURER:

Does it sound like I’m making any changes to it Jon?

FAINE:

Well I’m just trying to get you to actually say…

TREASURER:

There are technical issues that need to be resolved.

FAINE:

Will you rule out succumbing to this particular campaign?

TREASURER:

Jon, we’re committed to our policy, that’s what I’m saying. That’s what we’ll stick to, and we’ll stick to it for this reason. We’ll stick to it because - let’s take the issue of the $500,000 non-concessional cap, which has had the most attention to it. The average contribution of all those who make non-concessional contributions - so for the purpose of listeners if you’re not familiar with the superannuation system, that can be fairly complicated – that is the contributions you put in after your superannuation guarantee levy and after your concessional contribution. So only a quarter of people in the superannuation system actually make these contributions.

FAINE:

Not enough for some people.

TREASURER:

Over the last eight years, I think it is, the average contribution of those people who have put in after tax contributions is $41,000. So $460,000 still left to go…

FAINE:

But there are some very influential and noisy people who want to be able to accumulate millions in a tax-free system.

TREASURER:

Those who have already put $500,000 in, their average contribution is $700,000 already and their super balance average is $2 million.

FAINE:

Are they out of touch?

TREASURER:

Look, I can’t see the argument which says, in this environment, for making the system sustainable, and in this environment where we’re having to make changes across the board on the Budget, how you can run an argument which says that you’ve already put $700,000 in, you already have a super balance of $2 million, we should allow another $500,000 on top of that.

FAINE:

Whilst we’re making other people pay to go to the doctor, or whatever it might be.

TREASURER:

While we’re making changes in difficult areas.

FAINE:

It doesn’t stack up.

TREASURER:

But that doesn’t mean Jon there aren’t technical issues, which is the case with any Budget measure, any Budget measure. I’ll give you an example.

FAINE:

Now you give them wriggle room. That makes them think, ah, there’s still hope.

TREASURER:

No, I made one of these changes before the election, and one of those changes was real property. If you have a self-managed super fund, and you had entered into a contract before the Budget night, and you are relying on non-concessional contributions to complete the contract, well I said OK. That’s the sort of amendment or technical implementation that we need to address.

FAINE:

Very briefly, two minutes to the news and two important issues. Rod Simms from the ACCC yesterday said that privatisation creates inefficient monopolies.

TREASURER:

Well that’s a very shorthand way of misrepresenting him I think Jon. What’s he’s saying…

FAINE:

Front page of the Fin Review, that’s what it says.

TREASURER:

Well I’d make the same criticism if that’s the takeout. What he’s saying is when you do privatisation, you need to ensure that you put the right regulatory arrangements around it to ensure that it actually produces the best outcome for consumers. If you gear the privatisation in a way that just results in an entrenched monopoly where prices just can go through the roof, you’re not serving the economic interests of that privatisation. You’re not serving the consumer interests either, and I think that’s an obvious point which I think most economists would agree with and certainly I would agree with in that context. He’s not talking against privatisation, he says when you do it, do it right.

FAINE:

Very briefly, Royal Commission into the situation Four Corners revealed the other day. The Prime Minister says a narrow one; you said you want a broader one. Which Royal Commission will we get?

TREASURER:

Well no, that’s not what I said Jon…

FAINE:

‘Broader systemic issues’ you said on radio yesterday.

TREASURER:

In relation to what occurred specifically in that facility and what might be occurring in the Northern Territory. Now we’ll consider those matters at Cabinet, the Prime Minister is consulting with the key stakeholders, as you’d expect him to, including with the Opposition. It’s important we get this right, and I think everybody’s attention is focused on getting it right, myself, the Prime Minister and everyone else included.

FAINE:

Great to have you in the studio for a longer discussion than we can have on the phone, and I look forward to seeing you again.

TREASURER:

Thanks Jon.

FAINE:

Scott Morrison, Federal Treasurer in Malcolm Turnbull’s Government.