27 July 2017
Transcript - #2017142, 2017

Q&A, Australian Industry Group

SUBJECTS: Address to AI Group – Guaranteeing the essentials, a foundation for fairness; Enterprise Tax Plan; Skilling Australians Fund; the Turnbull Government’s plan to deliver more reliable, more affordable and more sustainable energy

QUESTION:

Why and where should South Australian businesses be optimistic? Where does that optimism come from and where do you see the growth areas for South Australia going forward?

TREASURER:

Well, I’m going to be cheeky and start by saying in March of next year there are great opportunities to realise some optimism in South Australia. I genuinely mean it actually. But I had dinner with some businesspeople from South Australia last night and I was enthused by their continuing passion for South Australia, despite the challenges that are here. We were chatting around our tables about the opportunities that exist in the health industry, in the educational and research institutions, the science-based institutions here, the collaboration that occurs in a smaller community like South Australia between universities and innovators and companies and so on, the human services, new companies that we’re seeing emerge here out of South Australia and – I’m just trying to remember the name – Ubercare. Ubercare here in South Australia, what an extraordinary idea that they’re actually making a reality here in South Australia. This is an innovative place, this is a smart place, where the opportunities for collaboration and innovation, I think, are very, very strong.

Off the back of that, you merge a defence industry which now actually has a defence procurement pipeline pumping into it which had been basically switched off for six years under Labor. Those investments and the investments in the infrastructure can set up the opportunities that lower tax rates and so on. When I was at high school, I think Adelaide was the third biggest city in the country. I don’t want to see South Australia settle for a non-mainstream state economy agenda. Australia can have in South Australia a mainstream economy agenda but it does require stronger leadership here at a state level to facilitate and drive that by a government’s that’s going to focus on growth, that is going to see these things happen here in South Australia. The Federal Government is certainly up for it and I’m not just saying it because the investments we’ve made – whether it’s in infrastructure or defence or right across the board – demonstrate that. So it’s over to South Australians. You’ve clearly got what’s there and I know you feel heartbroken about the fact that one of the things that many South Australians who’ve been worked hard over their lives here and they see their kids move interstate and go somewhere else and they want them to have the great lifestyle that you’ve enjoyed in South Australia and why you live in South Australia. I think that’s one of the great markers the state has to set itself, that people will be able to raise their families here and families will stay here and realise the opportunities that are here. So, I’m very optimistic about what can happen in South Australia.

QUESTION:

We have two manufacturing facilities in this state and I’ve been involved in manufacturing now for nearly four decades. One of the problems we’re having is our ability to survive in the marketplace. We’re just recovering from some pretty lean times and now we’re hit obviously with the power bills, with payroll tax which is a problem and it disincentives you to employ more people, the other big problem I’m finding is the ability to get tradespeople. We can’t keep relying on 457 visas, we were a power company in training over the years. Unfortunately, the Government incentives to train people are very, very minor and not very incentivising. We’ve got a big problem in the next five years to get skilled people. If we can train people and put the money into the employer to train people – because the best place to train people is in the workplace, not in technical colleges, that’s wasted money. You need to get the people on the ground and learn the trades because we are going to be in serious trouble in five years’ time as we can’t get tradespeople to do the work.

TREASURER:

Thanks for your question. In the Budget, we actually had thought through that precise issue with the changes we made around 457s and so on. Without going into the new visa arrangements there, effectively it’s broken into two streams. One which is for temporary genuine short-term labour that is needed for bulge projects – whether it’s mining investment or big infrastructure projects which need people in for a short period of time and they come and they go. Then there is what I call the ‘pathway’ type visa which is those who come out with skills, come under the new scheme, stay here four years, invest, integrate, want to stay longer, permanent visa. But one of the things that wasn’t working under the 457 scheme was the training side of this. The levy that was previously there was there if you had a 457 worker in, you were supposed to pay 1.5 per cent of your entire payroll on training and education or you paid more than that to an industry fund – wasn’t working. The compliance on those things, frankly I couldn’t put my hand on my heart on and I don’t think the money was going to training. So what we decided to do to sort of step back up from that and say, well, we’re going to continue to have this process that if the skills that you need aren’t available to you, if you need to have someone come in on one of these programs, we’re going to directly levy that position. That money is what’s going to support and build up the Skilling Australians Fund because governments at a state and the federal level can look at the national and state-based skills development needs and invest in – I would hope – exactly the type of programs that you’re talking about. Now, as Treasurer, I don’t get involved in the issue of how that program may well then be delivered. That’s obviously what our Vocational Training Minister, Karen Andrews, is involved in and working with the states. But we want a new deal with the states on the Skilling Australians Fund so it is practically addressing on the ground the skills that are needed in Australian workplaces. Where businesses are using foreign workers to do that, then they’ll be paying for those services to be able to be continued to be provided. So there is a nexus there that the whole point of that levy is that if you are in need of someone to come in on a visa to do a particular job, then we’re clipping the ticket on that to ensure that hopefully in the future you won’t need to do that because we’ve invested the skills funds wisely to ensure that you’ve got Australians ready and able to do the job.

QUESTION:

Australian businesses spend tens of thousands of hours producing submissions for the Tax White Paper which has gone on the shelf with the Henry Tax Review, I assume. So what I want to know is what is the meaningful tax reform that you’re going to be doing apart from tax cuts?

TREASURER:

I disagree. In the 2016-17 Budget we had the superannuation changes that came out of that process. The tax cuts came out of that process and we continue to draw on the work that was done through that White Paper process. You’ll recall a couple of years ago I made a case for how we might proceed with one of those issues which related to the tax mix switch. I sat in a room full of state Treasurers and said, are you interested in this proposal which was there to change the GST rate and they said, yes, we are and I said, ok well, what taxes are you going to cut? They said, no, just give us the money. So I said no. Because that’s not tax reform, that’s just a tax increase to fund more and more expenditure by particularly some state governments who can’t control it. There was no appetite for that change to achieve any meaningful tax reform at a state and territory level, and the GST goes to the states so unless the Federal Government – and this is an option we considered – was going to take the increase from what would happen from that GST and invest that in lower taxes more generally, particularly at the personal income tax level, that was considered but in an economy growing where we we’re currently at and where revenue was growing where we’re currently at, the compensation bill for those on fixed incomes and transfer payments and the like was around about $19 billion a year. That pretty much didn’t have enough of an assessed economic impact on growth to really justify the change. So what happened with that was we ran that 100 per cent all the way to ground and it didn’t stack up. Now, many of you would have done that in your own businesses – you have things that you thought, well, this could make a difference. You did the due diligence and you made the sensible decision at the end of the day about whether to proceed or not. So that’s where we got to on that particular issue.

But in every single Budget, you will find changes that have been made to our tax system. Right now, we’re dealing with some tricky issues around staples. I announced changes to improve integrity around negative gearing in the most recent Budget. We have announced changes in our innovation package which also came out of the White Paper on angel investing and enterprise venture partnerships. These things are having a real positive effect on new start-ups. So we continue to draw on that work is my answer. But I actually always think it has been missed that the idea that someone’s going to bring down from the mountain the great totem of tax reform and it will solve all of our tax problems and that it will pass the Senate is just not true. So as Treasurer, I work in the realm of the reality of what we get done. As I said, 126 pieces of legislation in 12 months – we’re making good progress and where we can continue to improve the tax system, we will do that.

Now, what we’re worried about is I don’t know what Bill Shorten is going to announce on this weekend when it comes to trusts or things like this. But I do think it is going to be based on this principle of envy and it’s not about tax reform, it’s about ideological championing on his part I think. They are contemplating, at the New South Wales Labor Party conference, a technology tax. A technology tax. They want to tax you more for using technology in your business. They’re talking about inheritance taxes. Their commentary on trusts, and people in South Australia would really get this about trusts – trusts you use as a small business or particularly in a rural business, a family business, farm business, you do because of the flexibility it affords you because of the great variability in what your income flows are because of the nature of those businesses and to protect the family assets over generations. Now, the fact that Jim Chalmers said the other day, “we’re not going to get rid of them, we’re just going to tax them more.” Well, that was comforting, that should fill you all with great relief. And they tax them more because they don’t get it. They don’t get what it’s for. They think if you’re trying to make a buck, you’re doing something wrong, that you’re doing something sneaky, that you’re trying to do someone over. That’s what the Labor Party thinks about business. They think it’s a scam. They think you’re just running a scam to rip people off and therefore, you should be punished for it, and the score has to be evened up through the tax system. We don’t share that view and I don’t think the Australians buy it either.

QUESTION:

The electricity issue, all of the papers and the discussion – because the growth industry in South Australia now is getting diesel generators. None of the discussion focuses around where we want the electricity price to be say in five or ten years’ time. It’s all about, we might stop the growth or we’ve got to have more sustainability or we’re going to meet the emissions targets. The issue for business, are we going to be having electricity prices that start at 20 cents per kilowatt hour, 25 or 50? None of the policies, and I think you should take this back to the Productivity Commission, tell us what policies will get us to an electricity price of 20 cents per kilowatt hour, 25 cents. We don’t see that and I know [inaudible] because high cost producers or high cost users are going to be forced out. In other words, manufacturing is going to rot. The debate needs to come down to what is the price of electricity we’ll have in five years’ time on the basis of [inaudible]?

TREASURER:

It’s a very good question and the short answer is I want it to be lower. Your customers want the prices of your products to be lower too. I don’t know what the prices of your products are going to be six months from now, 12 months from now – couldn’t tell you. Modellers will seek to estimate. What we don’t want it to be is a growing share of costs to Australian businesses. In addition to the direct financial costs to businesses of the cost of power is the opportunity cost for businesses of the cost of power which is spending the entire time in the business working out how to make power prices lower through the changes you’re making to your efficiencies and so on. That’s not finding new customers, that’s not developing new products, that’s not focusing on customers needs, that’s just spent on the cost side of the equation and that’s robbing your businesses of [inaudible] growth time, in my opinion. Now, what I outlined today were the five issues that we think all taken together would put downward pressure on the costs of electricity. I can’t tell you what the iron ore price is going to be a week from today, let alone six months from today, four years from today. So we’ve taken very conservative estimates on what the iron ore price is going to be when it comes to the budget. So, all of the policies we’ll work on will have modelling that will indicate what the impact potentially is on electricity prices and the Finkel Report has that. The Finkel Report comes to the conclusion that if you do nothing then prices will be higher than if you do something along the lines of what he’s suggesting. Now, there’ll be an economist’s picnic and a forecaster’s picnic about whether the numbers are right or whether they’re wrong and that process has already begun. [inaudible] and nor do I expect them to get it exactly right either. They’re about trends and directions and relativities between different policy options but what I would encourage [inaudible] hopefully, by saying when we are looking at every element of this, every chart, every model, we’re looking for the options that have the line going more like this than like this. A lot of running a Government budget is no different to really running your own budget. You want your cost curve to be flatter than your revenue curve and this Government is actually achieving that – I made those remarks in the speech I gave last week. Now, on energy, you’ve got to be pushing that curve down. The whole issue of running businesses is pushing your cost curve down. It’s growth into the future. So, I can’t tell you what the electricity price is going to be any more than you can tell me, if you’re running a business, what your prices are necessarily going to be a year from now, two years from now. But I think you’re absolutely right that business needs the certainty about what the framework is so they can form a very informed judgement about what it can be and we put information into the market that on our best assessment we believe that’s where prices are going.

Now, you make another important point about the volatility of prices in the energy market and the way the National Electricity Market works with the wholesale price set as the cost of the last producer on board. That’s an issue which the Government is looking at really carefully. That scheme was set up some time ago in quite a different economy to what we’re in today and so it really is putting everything on the table in terms of how we address this problem. I know people would like us to have an answer on electricity prices by tomorrow afternoon – that demand gives you the world’s biggest battery. That’s where that goes. Looking for that sort of an answer immediately and I know that’s not your [inaudible], that’s what that is. But if you want a Government to seriously look at the problem, work it through and come to an outcome that will last for the next 20-30 years, that’s the process we’re engaged in. We’re working through Finkel. There are excellent things in Finkel. 49 of the recommendations we have already embraced, and we’ll work through this issue of the clean energy target. But, at the end of the day, what we want is to take the approaches suggested and it has been put forward we can say, we want the price to be set at a particular benchmark five years from now. And then you basically have companies bid on delivering on that price. Now, that’s an alternative approach which has some merit to it – whether it’s better than what others have put up, these are the issues you have to work through. But ultimately, have confidence there’s no other issue the government is spending more time on than energy prices. The Prime Minister and I talk about it every single day, just to have a word about where we’re at with various reports and talking to colleagues. I was talking to Senator Fawcett here yesterday when I was in town and he’s been doing some work on this here in South Australia. So, it is one of the biggest nuts to crack in public policy but what we’re really desperately trying to do is frankly all the political ‘BS’ around the climate wars, I’m so over it and your prices are going up because of it. So put that to one side. Whatever perspective you come from on this, whether you love coal or whether you hate coal, doesn’t matter. What matters is how do we achieve what the gentleman’s just asked me and that is get to a lower price, sustainably, enduringly and preferably being able to tell you what it is. Preferably.