11 May 2017
Transcript - #2017094, 2017

Interview with Fran Kelly, RN Breakfast

SUBJECTS: Budget 2017

FRAN KELLY:

The Treasurer joins me in the Parliament House studio. Scott Morrison, welcome back to Breakfast.

TREASURER:

Hi, Fran.

KELLY:

Minister, the banks are on the rampage over this new tax. Is this what you wanted all along? A war with the banks, which are even less popular with voters than the Government?

TREASURER:

I’m not having a war with the banks. What we've simply done is in the Budget address a number of measures and this includes a very fair and reasonable levy on the major banks, just the big four and Macquarie as well. And on top of that, I mean that is consistent with the practice of this type of a tax and levy all around the world. Now previously the banks in Australia have not faced that type of a levy, but there are similar levies in everywhere from the Netherlands to the UK where banks are taxed differently to the rest of companies. So they have not had that arrangement here in Australia before, it exists in other places.

KELLY:

Is this in the UK, because in the UK, the banks got bailed out in the UK, the GFC. Our banks didn’t need to be bailed out.

TREASURER:

Well, not just in the UK, I mean I can go through the full list with you if you like, Fran.

KELLY:

Let’s not do that we’ll use too much time.

TREASURER:

There’s similar taxes in Austria, Belgium, France, Germany, Hungary, Iceland, Netherlands, Poland, Portugal, Slovakia, Sweden and the United Kingdom.

KELLY:

Yeah, ok.

TREASURER:

I mean our banks are very profitable and it’s good to have profitable banks. There’s, in some cases, twice the level of profitability in banks than other countries. And I think that this is a very fair and reasonable thing to do in this Budget, and we’re talking about $1.5 billion out of profits in the banking sector of over $30 billion a year. So this is not an unreasonable thing, particularly given the challenge we have in the Budget coming back from $13.5 billion in reverse savings. I mean, that has to be dealt with and I think this is a very fair way to do it.

KELLY:

Well, the banks say it’s not fair, of course, and they say it’s not reasonable either, and they point to the fact the Murray enquiry said that our banks need to be “unquestionably strong”, and to fulfil that, the banks are required to hold a certain level of capital, borrowing that capital.

TREASURER:

Which this levy does not touch. The levy does not include that capital that they’re required to hold for being unquestionably strong.

KELLY:

Well, but so what is it a levy on?

TREASURER:

It’s a levy on…

KELLY:

On their borrowings?

TREASURER:

No, it’s a levy on their liabilities, excluding the following things – it doesn’t include that tier one capital, it doesn’t include shareholders’ capital, it doesn’t include mortgage liabilities, I need to say it doesn’t include anything they hold on the mortgages, and it doesn’t include bank deposits up to $250,000. So this is their liabilities, less all of those things. And that’s a similar practice which is used in other jurisdictions…

KELLY:

But it’s a tax ultimately, that will have to be paid for, therefore it will reduce their profits.

TREASURER:

Fran, it’s $1.5 billion out of a total profit pool of over $30 billion. I mean that’s what it is, that’s what they're being asked to pay…

KELLY:

Yeah, but their profit pool, I mean and this is what the banks are fighting back with and pointing out, the CEO of the Commonwealth Bank, Ian Narev, says this is bad policy, we need to call it out, there is no such thing as a cost absorbed. I mean that profit pool is either shareholders or depositors or mortgage holders, isn’t it?

TREASURER:

On that basis Fran, every time the banks’ power bills go up, do they put up mortgage rates? I mean every time executive salaries go up, does that mean they pass that through to mortgage rates?

KELLY:

This is a $1.5 billion hit.

TREASURER:

$1.5 billion out of a $30 billion pool of profits, Fran. I mean, honestly, this is not an unreasonable levy, it’s not an inconsistent levy. It’s actually a very well structured piece of policy, to target on those liabilities to exclude all the things that I’ve just mentioned, so bank deposits, pensioners’ bank accounts, the capital they’re required to hold in order to be unquestionably strong. See Fran I want them to be unquestionably strong, I also want them to be unquestionably fair, I want them to be unquestionably competitive because that’s what our banking system should do to do the right thing by their consumers.

KELLY:

I’ll come to the competitiveness in a moment. But if the bank is made up of shareholders, borrowers, lenders and staff, who’s going to pay for this levy? Who’s going to take this hit?

TREASURER:

Fran, on that argument, when we said we were going to cut the company tax rate, which we wish to do, does that mean they would be dropping mortgage rates?

KELLY:

Well, you want them to do that to be more competitive, correct?

TREASURER:

I want the banks to be competitive, I want them to be strong and I want them to be fair. It’s $1.5 billion, this is my, what I…

KELLY:

So you do want them to drop mortgage rates – that’s what competitiveness is about, for small business, the rates might go down?

TREASURER:

I want consumers to get the best deal. I want banks to be accountable, I want their executives to be accountable through our executive accountability regime. I want them to be strong, I want all of these things, Fran, because that’s what’s good for our financial sector. And to say that $1.5 billion out of a profit pool of over $30 billion is unreasonable for the banks to bear in the national task that we have, when at the same time over the next ten years, it’s this Government which is also looking to reduce the overall level of company tax for all companies, down to 25 per cent over the next decade, I think this is a pretty fair arrangement.

KELLY:

Do you accept shareholders are likely to have reduced dividends because of this?

TREASURER:

No I think banks should absorb the costs. I mean they absorb costs every day, Fran. They absorb them every day. I mean they’re saying they have nothing they can do out of the enormous level of turnover that exists in banks and even if you just look at their operational costs as opposed to the volume of transactions that go through banks, which is very significant, if they're telling me that $1.5 billion can’t be found in order to do their bit, and then they’re saying that levy, that extra tax, actually should be put on all taxpayers across the board, well I don’t accept that argument.

KELLY:

Doing their bit, it’s about Budget repair, pony up and do your bit for Budget repair, that’s what you said. Why is it permanent?

TREASURER:

Because it’s a structural change to the way we’re taxing banks, levying banks.

KELLY:

So, it’s a bank tax?

TREASURER:

Well, I’ve never sort of shied away from that. Call it a tax, call it a levy, we’re levying, taxing the banks on their liabilities excluding all the things that I’ve already outlined and this provides a permanent and structural position for the revenue, permanently. Now we need to keep the budget in balance Fran, once we get back to balance. You don’t get there and then all of a sudden retreat, you’ve got to stay there and if you look at the underlying cash balance over the next ten years, then you will see that the balance remains positive, but we’d like to make it stronger.

KELLY:

This time it’s the banks. Corporate Australia argues this move could raise issues of sovereign risk. Earlier this morning I spoke with the Qantas CEO, Alan Joyce, let’s have a listen.

ALAN JOYCE:

Look Fran, I do believe that having surprises and uncertainty is not good for business and I think people in the business community would tell you that certainty of policy and certainty about what governments are going to do is critical and anything when it comes to corporation tax or taxes on any parts of our system that makes us uncompetitive is always something that I, and any business leader, would be concerned about.

KELLY:

So that’s Alan Joyce this morning, uncertainty bad for business. Is it good management to spook corporate Australia like this? And they’re all thinking, because you’ve heard it, who’s next?

TREASURER:

Well, the reason why we wouldn’t have done this through the corporate tax system, which some other jurisdictions do by the way, they have a higher tax on their banks through their corporate tax system, not through a levy like this. The reason you wouldn’t do that is to ensure that the rest of the corporate sector understood very clearly that this wasn’t about putting higher taxes on other large corporates. This is specifically tailored in to the arrangements for the banks. So I think the rest of corporate Australia can feel very at ease at that. I mean, we’re cutting the company tax rate to 25 per cent. I mean that’s what our government is doing and…

KELLY:

Yeah, you’re taking $7.4 billion off the banks and then you’re whacking…

TREASURER:

We’re taking $6.2 billion off the banks.

KELLY:

I mean, sorry, you’re taking $6.2 billion, and then, and the corporate tax cut you will relieve them of $7.4 billion, now you’re taxing them $6.2 billion?

TREASURER:

But we need a competitive corporate tax rate. We’re taking it down to 25 per cent, and as for surprises, mortgage holders get to find out about that about the same way. I mean it’s traditional for these sorts of measures to be announced in a Budget, and I think that was the appropriate way to do it.

KELLY:

You’re listening to RN Breakfast, our guest is the Federal Treasurer Scott Morrison. It’s sixteen minutes to eight. Treasurer, the biggest revenue measure is the half a per cent increase in the Medicare levy. $8.2 billion over four years, much of it to help pay for the NDIS.

TREASURER:

No, all of it.

KELLY:

No, some of it goes to the Medicare…

TREASURER:

No, all of it. No, sorry I thought you were talking about the increase. The increase in the Medicare levy…

KELLY:

The $8.2 billion?

TREASURER:

All of it goes to the NDIS. Every single cent.

KELLY:

Ok, all of it goes to the NDIS. How can you appeal to Labor and the Greens to “meet us in the middle on this”, when you’re scrapping the two per cent deficit levy on high income earners?

TREASURER:

Well, they are completely…

KELLY:

What’s “middle ground” about that?

TREASURER:

They are completely different things, Fran.

KELLY:

Bill Shorten tonight will stand and pledge to try and force you to keep the tax on the rich. He makes the point you’re lifting the deficit levy, the deficit over the coming year is going to be ten times bigger than you forecast, so it hasn’t done its job.

TREASURER:

Bill Shorten’s playing class war politics with the disabled, and I really think that’s unfortunate. We sought to pay for the funding gap in the NDIS by putting forward savings. The Labor Party rejected that and so we’ve done exactly what they did when they first introduced this important scheme which we supported. They put a half a per cent levy on the Medicare levy and that is exactly the same thing we’ve done now. This is all going to the NDIS, the levy only comes in once the additional bills come in and that gives us the opportunity over the next two years to explain to Australians exactly what the NDIS is going to deliver and for us to focus our attention on that.

KELLY:

Yeah, but why did you take that tax that you already had at $1.2 billion you’re already drawing from this levy on high income earners…

TREASURER:

Well, first of all, Fran…

KELLY:

Why not leave it there?

TREASURER:

Well, first of all, it doesn’t go anywhere near to paying for it…

KELLY:

No.

TREASURER:

And secondly, it was designed for a different purpose and there was legislation and a promise attached to that legislation that it was there for that purpose of Budget repair. Now that comes off on 30 June and that doesn’t require legislation. The legislation was already passed and it was already supported by the Parliament.

KELLY:

Ok, Treasurer, just finally, you’ve had a touch up from Peter Costello this morning, he says, “No one is talking about paying back debt.” The Budget lifts the debt ceiling, in fact, from $500 billion to $600 billion. Where will gross debt be in ten years’ time?

TREASURER:

In ten years’ time it will just be over $700 billion and $80 billion of that will actually be so we can ensure that we don’t touch the Future Fund for the next ten years.

KELLY:

So the debt keeps rising, what happened to the debt truck?

TREASURER:

Net debt is actually falling over the medium term and it falls to around 8.5 per cent of GDP. Net debt actually peaks in 2018-19.

KELLY:

Gross debt’s at $725 billion.

TREASURER:

It’s net debt that matters in terms of its impact on the Budget because there are assets to support it. As I’ve said, $80 billion of our increased debt over the next ten years is to ensure that we don’t touch the Future Fund, which I know Peter strongly supports.

KELLY:

So you’re not going embarrassed about that debt rising to that level?

TREASURER:

What I know is that $80 billion, and slightly more than that actually, in the increasing gross debt, means that in a century, literally one hundred years, we don’t have taxpayers having to pay for unfunded superannuation liabilities because it’s better to draw it down from the Future Fund and allowing the Future Fund to mature to the point where it can do that job. Now, I know Peter supports that. I mean, Peter and I worked closely through on that policy on the Future Fund, and the reason we’ve had to increase gross debt over that ten year period by that amount is because of our decision on the Future Fund.

KELLY:

Treasurer, thank you very much for joining us.

TREASURER:

Thanks a lot, Fran.