5 July 2018
Transcript - #2018145, 2018

Interview with Ross Greenwood, 2GB

Subjects: All States and Territories better off from a fairer way to share the GST; energy

ROSS GREENWOOD:

Let's go to the man who's right in the middle of this, the Treasurer, Scott Morrison. Many thanks for your time, Treasurer.

TREASURER:

Very happy to be here, Ross.

GREENWOOD:

The first question a lot of people are asking is where does the $7 billion come from? Have you suddenly broken open a treasure chest somewhere that's been otherwise undiscovered?

TREASURER:

Well no, I wouldn't put it that way. But, remember it's not $7 billion in one year. This happens over eight years and it builds up over time and it gets to about a billion dollars extra we put into the total pool of money that's distributed amongst the states. That's when the GST collection is at about $100 billion dollars. So, I know these are obviously big numbers, but when you are dealing with a federal government they're the sort of numbers that you deal in. So what that does, is, it means that when we change to this new formula over that period of time, that, if there is any state or territory that might get a slightly smaller size of the slice of the pie, the pie is going to be bigger, which means that ultimately they'll be better off. What that enables us to do is deal with a real problem with the way the GST is distributed – this formula. Your introduction, I think summarised it rightly. What happened to WA is they fell down to a share of less than 30 cents per person in Western Australia of their GST. What's even worse than that is that the actual amount of money that they got out of the GST was less than what the Northern Territory had got, and they've got a population 10 times the size. So, when you're getting absurd results like that, clearly there is a problem. What we've done is fix that problem by using New South Wales or Victoria, the higher of which, as the standard by which you're evening everything out by and secondly putting in a floor so that no state, including New South Wales and Victoria, or any state for that matter, can have a share less than 75 cents per capita in the dollar of GST.

GREENWOOD:

Ok, let's go now to the New South Wales Treasurer, Dominic Perrottet, who spoke about this today. Here's just a little bit of the way in which he interpreted these changes.

PERROTTET:

Their public service is growing at a much greater rate than their population growth. Yet what we've seen today as a result of this decision is that the taxpayers of New South Wales will continue to subsidise Queensland, provide their surpluses, and build their schools and hospitals.

GREENWOOD:

Now I know that you are a proud New South Welshman and you are also the Federal Treasurer, but are you happy with New South Wales continuing to subsidise Queensland and especially given the fact that Queensland has not done the same sort of work in terms of, shall I say, reforming its own economy as New South Wales has?

TREASURER:

Well, that's certainly true, particularly recently, under the Baird-Berejiklian Government, but it is also true that New South Wales and Victoria have been subsidising Queensland and frankly Western Australia, Tasmania, South Australia, the Northern Territory, and the Australian Capital Territory, and all the [inaudible] states since 1900. So this is not a new phenomenon that the larger states have always subsidised the smaller states. I think some in Queensland would be surprised to know that Queensland actually does get subsidised under this arrangement. There are a couple of reasons for that. I think Dom makes, you know, some interesting points there. I'm trying not to get into the, sort of, argument between the states over this but I think the points that he makes are fairly made. But also, Queensland is a far more diverse state in terms of its geography and its remoteness. And it also has a much higher level, proportionally speaking, of indigenous Australians and that also has an impact on the formula. So, look, I think he makes some good points, but New South Wales has always been carrying water, as has Victoria, for all the other states since, you know, Barton and Deakin got together over a hundred years ago.

GREENWOOD:

The problem I could see is that if you start to reward states and actually this is another thing that Dominic Perrottet said today, which sort of makes a bit of sense, but then you start to think of the politics and you start to wonder.

PERROTTET:

We believe that states that embark on reform should be rewarded and not penalised.

GREENWOOD:

See, I would imagine that that's pretty hard because who judges the reform. Who works out whether, you know, if there's an election and political parties change inside a state government. That's what makes that sort of an idea pretty difficult I would have thought.

TREASURER:

Well I think they're fair points too but I think Dom's making a more general point that at least you shouldn't be penalised when you do it under the GST formula and I think he's dead right about that. But equally, the case applies to the minerals sector. I mean why should Western Australia have had their share of the GST fall to less than 30 cents in the dollar simply because they went out and they dug stuff out of the ground? And the problem with the GST formula that we have had in place, which we are changing is, that it doesn't take any, into account, of the value of what's underneath our feet in each of our states. So you know, New South Wales has a lot of gas, which is locked up. So does Victoria. You know, the resources all around the country. Western Australia, as soon as they put the shovel into the dirt, then what we are seeing is that all of their mining royalties and these sorts of things, they get factored into the formula. If you leave it in the ground well it doesn't. Now, I don't think that's right either. So the change to the formula is actually going to allow Western Australia to now, you know, get on with that and using the resources they have and not be penalised for doing it. And hopefully that will also encourage other states and territories to realise their resources, whether they're gas, coal, or anything else.

GREENWOOD:

Ok, so then we go to the point of where is the money coming from. Now the Government in the Budget did say that the Budget is expected to be back into surplus, or profit if you like, in the black, one year earlier than anticipated. Just looking at the latest numbers out of the Department of Finance last Friday, which showed that up until May this year, in May in fact there was an underlying cash balance of $4.9 billion dollars. And even, say for example, over the course of this year, there has been a net operating balance, or a fiscal balance, if you like, of $1.1 billion. Now, to be honest, the underlying cash balance over the year, is still minus $10 billion but that's about $8.2 billion better than what was expected than during the Budget period.

TREASURER:

We've got to wait until the final figures come in for the end of the year, as any company would too. So we aren't getting ahead of ourselves. But you're right, I mean, things have been improving. We've been seeing that now for some time. I don't think there's been any accident to that. We've been creating an environment for businesses to do better. The more competitive business tax rates we've had for businesses of less than $50 million turnover, the work we've been doing and most recently passed when it comes to personal tax cuts. I think this is providing people with a lot of confidence. The instant asset write off. I won't trouble your listeners by running through a long list, but the point is the economy has been going more strongly and my argument has always been: if you grow a stronger economy then that's good for guaranteeing essential services like hospitals and schools because it's the stronger economy that delivers the revenues not by putting taxes up. Our view is, you get taxes down, you get them lower, the economy goes more strongly, and then ultimately your Budget finances are also benefitting from that. Now, where we'll end up at the end of this year, we'll see. But we were able to bring that balance forward by one year in 2019-20. All of these costs will be hitting the Budget in latter years, specifically the larger component of that, when we have got a projected surplus of more than one per cent of the size of the economy. So, that's where it comes from. It comes from good Budget management. It comes from making sure you keep control of spending and that you don't let taxes run away and that you keep doing things that make the economy stronger. The biggest risk to GST revenue is actually a weaker economy. If the economy was growing at half a per cent or one per cent less, if consumption was growing less, well then there'd be less GST revenue and all states and territories would be worse off.

GREENWOOD:

Alright, one final one before I let you go: the National Energy Guarantee. Your Government has to negotiate with the states and territories. There's a forthcoming COAG meeting for that. Then you've got to go back to the Coalition Party Room. You can hear the debate happening even inside your own party right now in regards to this. In regards to the states and territories, do you believe that you can get some form of agreement on a National Energy Guarantee with them?

TREASURER:

Well we are very hopeful of that because I think states and territories understand that one of the reasons why electricity prices have gone up is because of the policy gridlock and, you know, the ideology wars that have been going on for too long. Politics has been pushing people's prices up. People having fights about these issues has been pushing the prices up. So, we need to get the certainty in place of what the rules are. The National Energy Guarantee, from the work done by the Energy Security Board, which works for all states and territories as well as the Commonwealth, that has forecasting that the National Energy Guarantee would see household power bills fall by about $400 a year. Now, that's a good thing. So we've got the plan to deliver on that. We've also got the plan that will be ensuring that we get continuous baseload capacity expansion. The way that happens is if you get the rules right, then people will invest money. If they think politicians are going to argue about these things forever, then they won't invest money.

GREENWOOD:

And invest money into coal as well as solar or thermal or whatever else it might be?

TREASURER:

Yeah they can knock themselves out. They can do it in coal, solar, wind, they can do it in gas. If we can get more gas out from under people's feet on the east coast, then that will really reduce electricity prices. I think we talked about it earlier in an interview this year, Ross, I was over in Texas at the start of the year, I mean prices there are a third of what they are here in Australia or at least half as much. And that's because they've been able to unlock their gas resources. So we've got a lot of gas here. I don't care whether it's coal, gas, solar, but it has to be, you have to have [inaudible] power, you've got to have baseload power, and there are many ways to achieve it. We just think the subsidy era has to end whether it's for renewables or for coal or for anything else.

GREENWOOD:

Always great to have you on the program. Treasurer Scott Morrison, many thanks for your time.

TREASURER:

Thanks a lot, Ross. All the best.