24 October 2017
Transcript - #2017207, 2017

Interview with Tom Elliott, 3AW

SUBJECTS: Labor’s debt and deficit disaster; 5 Year Productivity Review

TOM ELLIOTT:

Scott Morrison good afternoon.

TREASURER:

G'day Tom.

ELLIOTT:

Firstly the debt, I mean I know it's only a number, but it's a big number…

TREASURER:

It's an important number.

ELLIOTT:

Gross debt ticked over $506 billion, what are we doing about this?

TREASURER:

We're reducing the deficit, we're reducing the growth in Government expenditure. We're bringing the Budget bank into balance. Until you've got the Budget back into balance then obviously you're going to keep adding to debt. There are a number of milestones you have to hit along the way to achieving the ultimate goal. Firstly you have to get your expenditure growth down, and this Government has the lowest rate in expenditure growth of any Government in the last 50 years.

ELLIOTT:

So what is the rate at which expenditure is growing?

TREASURER:

Just under 2 per cent, 1.9 per cent.

ELLIOTT:

Is tax revenue growing faster than that?

TREASURER:

Yes it is.

ELLIOTT:

So if revenue is growing faster than expenditure is growing, how long till we get back into surplus?

TREASURER:

2021 is the current projection, and it's been held at that level since December of 2015. Prior to that it was being pushed out, and out and out. That was one of the key issues that our ratings agencies were raising. So that's why we have been so assiduous in ensuring that we have been able to maintain that projection. That's how we've kept the AAA credit rating.

ELLIOTT:

Sure, ok. Let's say we do finally get back to surplus in 2021, that means between now and 2021 our debt continues to go up. Where does debt peak in your view?

TREASURER:

Net debt is basically what Peter Costello got rid of, over the course of that time he was Treasurer. And net debt will peak next year in 2018/19 at 19.8 per cent of GDP, which is a bit higher than where it peaked on the last occasion and then after that it will start to fall. Over the course of the decade it falls down to about 8 per cent of GDP but I wanted to refer to another key, because we're talking about debt, and there are many ways to look at debt. One of the reasons we've been going into debt over the last decade is we've been having to borrow money to pay for every day expenditure, the pension, all of these things.

ELLIOTT:

We're using the credit card to pay the long term bills.

TREASURER:

Well the short term bills actually. The cash bills. As a Government we will reach the point on the first of July next year, where that will no longer be the case. We will no longer have to borrow additional money to pay for the annual pension, education, health and all those bills. The only thing we're going to be borrowing for, from the first of July next year, is for infrastructure. For defence spending. And for dealing with the unfunded superannuation liabilities that's what the Future Fund…

ELLIOTT:

Do you think though we will make a meaningful reduction in our debt any time soon because what's worrying me is that if we don't, I know everybody says oh well Australia's debt is not that bad compared to Greece, compared to Ireland, a whole of …

TREASURER:

Compare to the United States, the United Kingdom, and a lot more less-desperate countries.

ELLIOTT:

Yeah but I note that a lot of our debt is actually owed to overseas lenders and they might not be very forgiving if push came to shove, if economic conditions suddenly go backwards, as they did just nine short years ago.

TREASURER:

We have a split. We have a split of debt that's held by domestic institutions, and we have debt that's held by overseas institutions including central banks of other countries. We have four times coverage most of the time when we issue new Commonwealth Government Securities. Our debt is actually highly sort after because it's been very credible, and we pay it back and we get a good price for it that's why we retain our AAA credit rating.

ELLIOTT:

That doesn't mean we need to keep increasing it…

TREASURER:

I don't wish to. That's why we're reducing the deficit, slowing growth in government expenditure and getting the Budget back into balance.

ELLIOTT:

Is there anything left to sell? Your liberal predecessor going back a couple of decades Peter Costello had plenty of assets to privatise and did so. Is there anything in the coffers left to sell that you could wipe out a big chunk of debt with?

TREASURER:

Nothing of that scale, I mean, there was a lot of low hanging fruit on those things back then, and equally, the former Labor Government did with the Commonwealth Bank and Qantas and other things as well, so that sort of era they went through those things, so I wouldn't say there are things of that sort of scale any longer and there's certainly no plans. Earlier on in the Government we dealt with Medibank, and that was dealt with. But beyond that, not on the same proportional scale that we had. That's why it's the long hard slog Tom. This is turning around a debt tanker that Labor set in train.

ELLIOTT:

Can we look at a few individual things, for example small company tax cuts, now, that's great for small business, no doubt about that, won't that reduce your revenue rather than increase it in the short to medium term?

TREASURER:

What it does, it will drive investment from companies in Australia, boosting growth in the economy. The growth in the economy then supports the boosting in revenues, so you can shut up shop, get in a cave and hope the storm blows over, or you get out there and you grow your business. You trade your way forward. We want to see the economy grow, and we've had record jobs growth. We've had the strongest growth in full time jobs in the last 12 months than in any other time on record. That's almost 40 years.

ELLIOTT:

You're absolutely right, unemployment is low. It's at 5.5 per cent.

TREASURER:

Should be lower.

ELLIOTT:

I know, but the point is that everything is actually going pretty well, and yet still our debt is going up, that's what worries me. Whereas what if we have, I don't know, another GFC is round the corner, or commodity prices take a tumble, or any number of things…

TREASURER:

Well you're right about that but remember net debt, from the first of July 2018-19 for that financial year it starts to fall after that.

ELLIOTT:

Are you confident that if, and I know the company tax cuts are going through…

TREASURER:

And that's factored into those numbers by the way.

ELLIOTT:

Yes but are you confident that businesses will reinvest, a lot of businesses might just say great we'll pay ourselves a bigger dividend and just retire debt of something like that. They might not go and grow their businesses as a result.

TREASURER:

The way we phased the tax cuts is this, we started at the small businesses first, and we've already been able to legislate for businesses up to $50 million in turnover. What we have seen is a response of investment increasing. Now, larger businesses on our plan don't actually get those tax cuts until the end of the 10 year period, and the reason you do that is because a small business is making a decision about what it's going to invest in, in the next 6 months. Larger businesses are making decisions over 10, 15, 20 years. Particularly very large businesses. We're signalling to them very clearly the tax rate will be coming down to that and they can make investments based on the certainty of having those tax arrangement legislated. Now, we're not the only people doing that. France is doing exactly the same thing as us. I suspect they've seen what we've been doing.

ELLIOTT:

Donald Trump is doing it.

TREASURER:

Well Donald Trump will take it down to 20, the way he is doing it is a little different to us. Their tax code works a bit differently. But you're right, the Brits are taking it down to 17 per cent, and…

ELLIOTT:

So if we don't cut taxes we run the risk of being uncompetitive?

TREASURER:

Yeah jobs and investment go offshore.

ELLIOTT:

Another thing I mentioned at the start, you commissioned this report from the Productivity Commission and I read that you want to look particularly at the health and education sectors, are there big gains to be made by reworking public health or reworking public education?

TREASURER:

Absolutely. Absolutely.

ELLIOTT:

In education do we increase class sizes for example?

TREASURER:

No what you do is you make sure universities are focused on teaching rather than publishing, and while building knowledge is an important part of what a university does, has for centuries. But…

ELLIOTT:

And in health?

TREASURER:

And in health, getting it more focused on the patients, making sure doctors, specialists and all these organisations, all of these professionals are better linked up in the way they are now, and the system is more flexible and we're not spending money on unnecessary surgeries. Just on knee arthroscopies the savings were something like $200 million dollars.

ELLIOTT:

Can we save money though? Again, with the goal of reducing the deficit, reducing the debt?

TREASURER:

Of course, but you'll remember in my last Budget I had to reserve $14.7 billion worth of further savings because the senate wouldn't pass them. The ratings agencies were going to downgrade us because they basically no longer believed the Parliament would pass those savings and they were going to discount them, so I had to find the money elsewhere. Had I not done that, our debt would have been more expensive because we would have lost the triple-A credit rating thanks to the Labor Party for blocking savings.

ELLIOTT:

If you could, would you get rid of the Senate?

TREASURER:

I've got a colleague, Christian Porter, he is a minister and a member in Western Australia. He says complaining about the Federation is like Switzerland complaining about the mountains. They're there. When I used to play footy, Rugby I'm sorry to a Victorian audience, when I used to play footy, you had to play on the field that was going to be on that day, and the field that I have to play on as Treasurer, there are states, there's a Senate, they are the knowns and you've just got to deal with it.

ELLIOTT:

There's the Labor Party as well.

TREASURER:

They're a bit more unknown.

ELLIOTT:

Scott Morrison I appreciate you coming on.

TREASURER:

It's good to be on mate, happy to be with you anytime.

ELLIOTT:

Great I'll hold you to that, Scott Morrison. Federal Treasurer of Australia.