7 December 2016
Transcript - #2016182, 2016

Interview with Ross Greenwood, 2GB

SUBJECTS: September Quarter National Accounts; Turnbull Government's enterprise tax plan to drive economic growth; maintaining Australia's energy competitiveness

ROSS GREENWOOD:

Thanks for your time Scott.

TREASURER:

G'day, good to be with you.

GREENWOOD:

Now, the Australian economy, as I say, four times since our last recession when it has gone backwards and on each one of those occasions there seems to have been a fairly clear reason as to why the economy has contracted. Is there any particular reason as to why it has gone backwards this time?

TREASURER:

I think the important thing is to look at the trend over several years and for the 12th consecutive quarter we have had a contraction in new business investment and this remains the biggest challenge confronting the Australian economy and it is something we have been focussing on. We focussed on it in the Budget and that is why the Enterprise Tax Plan has been so important. That is why our infrastructure program and investing in that has been so important and completing and rolling out the NBN and all of these important projects which drive investment. The key one which remains frustrated in the Parliament is getting these lower tax rates, particularly for small and medium sized businesses and those small businesses many of them listening to your program tonight, with a turnover of up to $10 million a year, I want them to have access to the instant asset write-off, I want them to have access to pool depreciation provisions at a tax rate of 27.5 per cent and to get that I need it to pass the Parliament.

GREENWOOD:

Is this simply an unfortunate coincidence or is this a genuine wake up call to politicians and even to the Federal Government?

TREASURER:

Any figure like this, I think, is certainly a wake-up call and the wake-up call is that you can never, ever, take economic growth for granted. We have had 25 years of consecutive, annual economic growth and that is approaching the world record but you can't get complacent and think that you can just go and tax the economy into the ground or that you can do things and just expect the economy to keep churning along. People's wages, the number of hours they can work a year, the sales that their businesses can achieve. All this depends on an economy that is supported by private investment and private investment has been weak now for some period of time. We need to do things that coax that capital, as I say, out of its cave and get into the businesses, reinvesting it in businesses. That is where the hours are going to come from, that is where the additional wages are going to come from.

GREENWOOD:

But doesn't it come back to Government and Government leadership to provide the confidence for business to go and invest, to provide the environment for Government to invest. The Reserve Bank has pretty much done everything that it can do, it has got interest rates at record lows, wages growth is at record lows, you have got a situation where the dollar is now far more advantageous to business – and yet it still seems to be not enough. The only thing that is missing here appears to be the Government and Government policy.

TREASURER:

No, I wouldn't agree with that. What I would say is business confidence has remained buoyant and consumer confidence is up 13 per cent on what it was a year ago, Ross. What we did see in these numbers, the encouraging part of these numbers is we saw compensation of employees. Now, that is wages and that is measured in how many people have worked and how many hours they are working. What we saw for the second quarter running, is we saw the compensation of employees, wages actually improving over the last two quarters. Similarly, with private companies we did see an improvement in their profits measured in the gross operating surplus. So, that is encouraging but so much more needs to happen. That is why the Enterprise Tax Plan, which would see overall, over the next ten years the corporate tax rate fall to 25 per cent, that would keep us in the competitive arena. We have got the UK which is already going to 17, we have got the US under Donald Trump who rightly wants to take it down to 15. In our own region, whether it is in Singapore or whether it is Korea, or whether it is New Zealand we will fall off the pace of the competitiveness of our tax rate and we will see investment go elsewhere. This is why it is so important to people's jobs. This is why I put it in the Budget and this is why I'm asking the Parliament to get on board and support it.

GREENWOOD:

Are you suggesting now, 27 per cent taxes for small business or thereabouts is enough? Given the fact that in other parts of the world the taxes will be significantly lower? Would you like to see those taxes go lower again?

TREASURER:

Well, of course I would but that all has to be sustained within the Budget.

GREENWOOD:

But isn't the Australian Government in a far better budgetary position than the UK, Europe or the United States. Aren't we in a better Budget position than those countries?

TREASURER:

Well, we are actually. We actually are.

GREENWOOD:

So, how come they can afford it and yet we can't?

TREASURER:

Well, this is the point you need to put to Chris Bowen and Bill Shorten because they are the ones that are saying we can't even afford to move to 27.5 yet they for many years supported corporate tax cuts and now refuse to do it just to basically try and jam the Government. They seem to be wanting to get into the house by burning it down in the first place. That is politics but what is needed is for businesses to have that environment which will support them making investment decisions. There are many other areas of Government investment, in infrastructure in particular where we are continuing to roll out a rolling $50 billion infrastructure plan.

GREENWOOD:

I hear that Scott, but the other point, also today, is that even Government spending during this quarter was down, along with business investment that you spoke about. Both of these things were contributors to this negative number coming out of the GDP.

TREASURER:

In one quarter, but the performance over the year though on public final demand was 4.8 per cent in the positive. On dwelling investment it was 7.2. On household consumption it was 2.5. The one that actually drove the real negative result here was business investment. Public final demand has actually been contributing to growth and certainly has over the course of the year. That will continue our investment in communications, the health investments that are being made and all of this will be important going forward. If we want to see higher rates of growth, which supports the jobs, which supports the hours that I know people want to get to be able to support their incomes, then you need businesses to be in a position to invest. What we have put forward with the Enterprise Tax Plan, we put it in the Budget, it is there, we need to move on that. You make a good point. Does it go far enough? The Parliament at the moment says it is going too far and the Labor Party is saying that it is going too far. They say they want to match the backpacker tax rate for New Zealand but they don't want to match the business tax rate and particularly the small business tax rate. It just doesn't make any sense.

GREENWOOD:

Do you countenance the fact that in the next little period of time. Once you put out the Mid-Year Economic and Fiscal Outlook statement, which is on December 19 and then also with this number here you could very well be the Federal Treasurer who has lost Australia's triple-A credit rating and also place Australia in recession for the first time in 25 years?

TREASURER:

That is getting well ahead of itself. That is not what the Government is working to. We have got the mid-year statement coming out on the 19th of December and the key numbers that affect the Government's revenues are not real GDP but nominal GDP, as you know. The nominal GDP result was a half a per cent increase in the September quarter and through the year that was 3 per cent. So, that will obviously be taken into account as we finalise the mid-year statement. The pressures on the credit rating are very real and I have been highlighting them. The best way to guarantee to support the retention of the credit rating is to pass the savings we have in the Budget, to return the Budget to balance which is projected to be in 2020/21. Now, we have already got despite the contrary opposition of the Labor Party more than $21 billion of those measures saved and legislated through the Parliament. We have made more progress on that in the last five months than we have made in years, but we need to go further and we need to – the Parliament needs to lift itself to this challenge.

GREENWOOD:

The Parliament needs to lift itself, maybe the public needs to lift themselves. You , today, quoted what you said was one of the great reformers, and one of the great Treasurers of Australia, you mentioned Paul Keating. Now, he talked about…

TREASURER:

He lost the credit rating, you might recall.

GREENWOOD:

Yes that's right, which you pointed out today…

TREASURER:

And had a recession too.

GREENWOOD:

And had a recession but he had the recession he had to have but he also called out for Australians, the banana republic statement. Is it time for a Treasurer, such as yourself, put it straight between the eyes of the Australian people and said look if you don't get this change, you don't get this reform, frankly we might end up as the banana republic. Our debts might go too high, your standard of living will drop. Is it as plain as that the Australian people have got to hear it?

TREASURER:

Well, I largely said that in August, September of this year.

GREENWOOD:

Keep saying it for goodness sakes – they need to hear it.

TREASURER:

You will recall the speeches, I said it pretty much as bluntly as that. I said we have had 25 years of consecutive economic growth and I don't want to see Australia in the position that it was 25 years ago when we had that event that we had to have, apparently. We have had a generation grow up now that has never known that. I don't want to see that happen in this country.

GREENWOOD:

Do we have to have one now Scott Morrison? Is that the thing that wakes people up?

TREASURER:

Today, it is more than a wake-up call. It was a negative quarter and it was more than just a warning. It actually happened and unless we can get business investment back running in this country with a good competitive tax regime then these are the very real threats we face. You know what the market economists have said today and they know what is in the pipeline and what was more likely to occur in the December quarter and we hope that will be the case and I think that is the likely outcome. The need to continue with the changes that make our economy more competitive, so people's jobs are secure. One of the biggest areas of that is on energy prices. Electricity prices are now growing at 5 per cent…

GREENWOOD:

Private health insurance is going through the roof. The health system can't cope. There are a number of things. Why is it Scott Morrison, just a final one, why is it that you and Chris Bowen can't utter that recession word. Why is that so verboten?

TREASURER:

I think it is important to encourage optimism. We have always believed that, the Prime Minister and I, and there is a lot to be optimistic about. Even despite this result we are still growing faster than the United States, Canada, Germany, Japan – six of the top G7 nations in the world. And we have terms of trade turn up in the last two quarters and I said there was the improvement in the national incomes as well. With people getting those extra hours and that extra income and having those jobs. That is something to be positive about and we build on that but the thing I want to overlay on that is for business investment to be competitive in this country and we are doing everything we can. That is everything we do as a government is designed to achieve that and we need a Parliament who are going to work with it. Just like, back under the Hawke-Keating days, the Coalition supported the Hawke Keating Government in the economic reforms that they started, that was followed by the Howard-Costello Government. The Turnbull Government remains committed to those principals that achieve that prosperity. Bill Shorten and his Labor Party have abandoned it.

GREENWOOD:

Scott Morrison, Treasurer of Australia. And as I say, that one quarter where the economy has gone backwards, economists do believe it will rebound in the next quarter. The question is whether that is in fact the wake-up call that Australians might ultimately need to get that change. We appreciate your time in the program tonight.

TREASURER:

Always Ross. Good to be with you.