30 March 2015
Transcript - #2015064, 2015

Tax Discussion Paper launch, Q&A

CASSANDRA GOLDIE:

Good morning, Treasurer. Thank you very much for your presentation this morning. I welcome your comments in your speech in that it's in the DNA of our nation to care for those who are the most vulnerable and the most disadvantaged. As you're fully aware the Council of Social Service and others in our community had significant concerns with the last Budget that you handed down and the impact that it had on those who are disadvantaged and vulnerable, for example, young people who are out of work, sole parents, and pensioners. Will you commit, in terms of the next Budget and in tax reform, do you commit – does the government commit to spare people who are on the lowest incomes from reducing their circumstances and their incomes any further?

TREASURER:

Well, you know, there's been this debate about fairness. Fairness is about ensuring that we have a well-funded safety net not just today but into the future, and given you raise Budget and I am really trying to focus on tax rather than last year's Budget or this year's Budget, so it'd be helpful if other questions focus on that, the trajectory of expenditure was to well over a third of GDP but the tax collected only ever equated to around a quarter of GDP. So, clearly we were never going to get to the point where we live within our means. Then you're passing the buck to some future government and it could be a Labor government, could be a Green government, could be whatever, could be another Liberal or National government but you're passing the buck and I'm not into passing the buck. We have to accept responsibility at some point. And if you want to have a well-funded National Disability Insurance Scheme, which is not fully funded at the moment, if you want to have a welfare system that is sustainable, which is not fully funded at the moment, if you want to have an education system that is going to give people the best opportunity to prepare for work and it's not fully funded at the moment, then the question is: how do we fully fund it? Now, Cassandra in her response to my speech talked about fairness. It is in the eyes of the beholder. And this is where I want everyone to think a bit more deeply about things. Two per cent of taxpayers pay 26 per cent of personal income tax – two per cent. I'm not saying they should be taxed more or less. But I tell you what, I bet they think they should be paying less tax cause two per cent of taxpayers are paying 26 per cent of all personal income tax. Twelve companies are paying a third of all company tax. So, I look at this and I say well what happens if two of those 12 companies decide to relocate operations offshore? Or become more virtual? What if those two per cent of taxpayers that are paying more than a quarter of all personal income tax decide that they might want to do what some have already decided to do and relocate to Singapore or Hong Kong? And run their businesses out of another jurisdiction? And these are the questions we’ve got to ask, because 10, 20, 30 years ago, it was inconceivable in one sense that companies or individuals would move to lower tax jurisdictions but they did, but now, because of the digital economy, because of new technology, they're more mobile than ever before. So, what happens is, I lose that tax. And if I lose that tax, the tax burden falls on lower-income people to pay for the services that are locked in by legislation. So, if you want, I'm sharing with you the challenge that lays before us as a nation and asking you to think a little more broadly about how we are going to ensure that we have a tax system that is fair and competitive.

CASSANDRA GOLDIE:

I might throw – we’ll go to you next.

QUESTION:

Thanks Cassandra, and thank you, Treasurer. Paul Drum from CPA Australia. Treasurer, I'm interested in - we have too many taxes, and a lot of our taxes are state taxes. I'm very interested in how the Federal Government intends to engage with the States. We know that South Australia at the moment, for example, are conducting their own state tax review, which is appropriate because the States have to do some heavy lifting as well and not always look to the Commonwealth. However, if we go back to the Henry report that talked about 125 taxes, of which 10 raised 90 per cent of the revenue, we know a lot of the most inefficient taxes are state taxes. So, I'm very interested in how the Federal Government intends to engage with the states to ensure that they're on board to address what is a whole of country –  a national tax reform issue? Thank you.

TREASURER:

Well, it's a good point. I asked the states to participate in the Intergenerational Report and for various reasons they chose not to, which is regrettable because, Cassandra as your members know, a lot of the growth in expenditure is actually at a state level. They have got a lot of funding pressures in relation to healthcare in particular, running the hospital system and with an ageing population, they're going to have more and more pressure on a range of things such as home and community care and the like. So, the question is where are they going to get their revenue? Now, given that so many of them have ruled out changes to the GST, and if the States who get every dollar of GST don't want a change to the GST then so be it, that's it, end of story. Unless there is a proper discussion about how we are going to fund State activities, as well as Federal activities, and you're looking at the entire system. Now, there are many different competing pressures but I will say to you: I'm meeting with all the State Treasurers in just over two weeks. I will invite them to participate, as the Prime Minister has invited the Premiers to participate, in the Federation White Paper process. Look, I say again, this will end up having to be bi-partisan. It will. I mean, State and Federal, Liberal and Labor, whoever's in government is going to have to deal with this issue. I mean, there are unstoppable forces at play in the world economy, in the digital economy, consumers are more empowered than they've ever been previously. The old regulation – the old system is not going to serve us into the future. So therefore, either we have a mature public debate about this and now there are no state elections, maybe just maybe we can have a fair dinkum discussion about the best interests of the nation without having parochial interests at play.

CASSANDRA GOLDIE:

Got a question from I think is it Gerard Brodie from [inaudible]

QUESTION:

Thanks for your address, Treasurer. Gerard Brodie from the Consumer Action Law Centre. I know you didn't want to talk about the last Budget but just quickly, there was cuts to community services in the last Federal Budget which is causing financial insecurity for many community organisations. And that is having an impact on the most vulnerable but to your tax paper, how do we have the conversation about raising the appropriate revenue to deliver sufficient funding for community services?

TREASURER:

Well, again, we would be the first of what would be many governments that start cutting spending unless you can raise more revenue. I mean, what you are seeing at play is what any government will have to deal with. And that is growing expenditure with less money and it is nigh impossible to do that. We haven't found the magical solution to that one. And if there are – you know, if there have been cuts in the area as you correctly identified, I don't doubt that's the case, I would say to you, sir: this is why we're talking about tax. This is why we're talking about a system that ensures that we can compete. Now, every day someone comes up to me and says what about Google, what about Ikea, what about all these other companies that are providing services to Australia and may not be paying their fair share of tax? And our leadership role in the G20 – we drove the agenda hard and said, ‘it's only going to work if all the countries, all the biggest economies in the world work together to make sure that people pay their fair share of tax’. These large companies take the view that they're complying with the laws and they may well be. But the problem is, the laws have holes because the laws were designed for a Woolworths, a Coles, a Myer, and other traditional operators. They never contemplated the Googles or the Yahoos or the emergence of Uber or Airbnb and the like. So, it's a patchwork of taxation, which means inevitably that we're not collecting the revenue that we should be collecting and that we want to collect, that is fair. And fairness cuts both ways. I mean, I want to be as fair to Australian taxpayers as we want to be fair to those people most vulnerable in the community. So we've got to get that balance right. And that's why we're having this discussion on tax, because ultimately, if you have the burden fall on a few people or a few companies, they move. And they're going to move into the future because the world is truly a global economy. I mean, we now have a global economy. Whether we like it or not, it is unstoppable. So therefore, if they can move, they will move, and because they're carrying a large chunk of – not the majority burden but because they're carrying a large cohort of the burden, this is a major potential threat to our ability to fund your sort of services.

CASSANDRA GOLDIE:

Is it Rob? Rob Hudson from Brotherhood? Yeah.

QUESTION:

Thank you Treasurer. Rob Hudson from the Brotherhood of Saint Laurence. Given the concern that the Australian community has about housing affordability and the concern expressed by economists like Saul Eslake that negative gearing and other tax concessions are distorting the housing market, can you commit through this tax review that if in fact negative gearing and other tax concessions are found not to be the best way to assist low-income people in terms of housing affordability, that you will do something about them?

TREASURER:

Well Rob, I'm interested in whatever submission the Brotherhood of Saint Laurence is going to put forward because this is part of the conversation. The tax system and the structure of the tax system and concession in the tax system, various concessions, have economic outcomes and ultimately have real outcomes on individuals. I've already spoken to Saul many times over many years about his view on negative gearing and the view was when Bob Hawke got rid of negative gearing back in the '80s, a lot of people said well that meant that rents increased, so those people who were least able to afford an increase in costs ended up paying more rent because of course homeowners, home investors needed to recover the full costs of the interest payments on the loans associated with those properties. But Saul's point is: well it only happened in Sydney it didn't happen in other places that rents went up. Well, if it happens in one part of Australia, it happens effectively in all parts of Australia because the Commonwealth Government can't discriminate in one particular market and certainly can't apply tax in one particular jurisdiction within the Commonwealth. We have to apply it to the whole country. So you know, people have raised negative gearing in comparison with Europe. Europe has rent controls, so they’ve got a different system entirely and then others have – other countries have rental subsidies above and beyond the rental subsidy we pay for those people that receive welfare in Australia. So there are many different systems. I and Tony Abbott, Tony Abbott and myself, all the Government are concerned for first home buyers in particular who are finding it increasingly difficult to get into the home market, into home ownership. We are very concerned about that. One of the big areas of response is going to be supply and I'm also going to raise that with the Treasurers in the next couple of weeks but there are many other suggestions on the table and we welcome the input but I'm not giving guarantees now. I mean I've released the paper in the last 20 minutes and now you're the first cab off the rank to say please give a guarantee. Well…

CASSANDRA GOLDIE:

Don't rule anything in, don't rule anything out.

TREASURER:

Correct, correct.

CASSANDRA GOLDIE:

We've got a gentleman over here and then I think Ian, yeah thanks.

QUESTION:

Ben Potter from the Australian Financial Review. Treasurer, thanks for this this morning. I know this is…

CASSANDRA GOLDIE:

I thought we weren't allowing the media to ask questions today?

QUESTION:

No one told me.

CASSANDRA GOLDIE:

I'll squeeze you in, go for it.

QUESTION:

I'm wondering – this is not the constituency that ACOSS serves but for savers who have bank deposits, justification for putting an extra [inaudible] on that when we know if they're not in a super account then it's the least - it's the former saving that already had no concessions. It's valuable for the stability of the banking system and they're arguably already taxed on the inflation component of the interest each year anyway. So what – and I think the other issue about this kind…

TREASURER:

Sorry, what tax is this?

QUESTION:

This is the bank deposit tax that's been floated.

TREASURER:

Oh right.

QUESTION:

It was previously gotten rid of because it was very administratively burdensome and arguably didn't really raise much more than it cost to administer. So, I'm wondering if you can give us some insight into the thinking behind that?

TREASURER:

Well, ask Chris Bowen, he came up with the idea and it was their policy, they announced it before the last election as a way of [inaudible] dealing with potential financial collapses and it was a recommendation at the time that the Treasurer Chris Bowen said came from the Council of Financial Regulators, that if there were to be an authorised deposit taking institution that collapsed, then the money that sits in this fund [inaudible] those people with less than $250,000 in their bank account had their money protected. Many other countries have ex-ante systems such as that. Australia had an ex-post system and now I asked David Murray to consider that in the Financial System Inquiry, he did. Part of the trade-off is that the banks have to increase their capital and of course the banks don't want to increase their capital and the banks don't want to pay for this fee. So it's a nice place to be but ultimately we will properly respond to the Murray Inquiry in that regard but quite frankly this is part of the frustration of partisan politics isn't it? The other mob come up with a tax idea and then we get blamed for implementing it. How does that work?

CASSANDRA GOLDIE:

Ian.

QUESTION:

Thanks Treasurer. Like Cassandra, I’m fortunate enough to have had a little bit of a sneaky look at it yesterday. So, Ian Yates from COTA Australia, for Councils on the Ageing. Firstly, to congratulate you on the scope of this paper and the depth of questions that it drills down to and secondly to congratulate you on the process, which I think is likely to generate a real conversation as you want. Thirdly and fourthly, from this morning, I agree with you that we need a bi-partisan approach and this sector need to be emphasising that to all parties and it was pleasing in response to Gerard's question that you recognise that we raise tax to pay for things which probably the paper doesn't deal with. I particularly want to welcome the focus for the first time I think in this Government on the taxation or non-taxation of super. That's certainly something a lot of us will be commenting on, particularly because of our concerns about the pension changes but taxing super has both a revenue implication but it also interweaves with retirement incomes policy and I'm wondering if we still can't have a bit of a review of the retirement incomes approach looking at pension, super, all those interconnections in tandem with this review?

TREASURER:

Well, that's a very good question. It is a very good question because what is obvious is retirement incomes is a hugely complicated area and it's not just about taxation as you rightly point out and had pointed out in the past, it's about their direction with the age pension system. It's also interacts with the aged care system and one of the things that becomes quite obvious out of the Intergenerational Report when you give it a bit more of a deeper think is that as the population is ageing and we have fewer people under the age of 65, it's not just a case of asking where the tax is coming from but where is the consumption coming from? The household consumption and household consumption is by far the largest driver of economic growth in the Australian economy every year. So, we actually need older Australians to have enough money in their accounts to be able to properly consume and in fact have discretionary – hopefully – discretionary money available. The second thing is when the superannuation system was designed – to his credit – by Paul Keating in the early '90s, life expectancy was 72. Life expectancy is currently 82 and in the not too distant future, 20, 30 years’ time it's going to be 92 and by the middle of this century, 100, and what I must say is quite confronting for me is where I hear of people that have participated in the superannuation system and then run out of money because they're living longer. I mean, that's unfair. It's also grossly unfair that we should be in a position where the age pension may not - not our policy but any future government's policy is unable to properly fund people in their retirement as they get older. So, I want to make sure that retirement income for all Australians is adequate, is importantly able to cover all the bills but also maybe even give people some discretionary opportunity. And currently, 10 per cent of all Commonwealth Government spending is on the age pension. And with an ageing population, that will increase. So, the question is how do we make sure that those most vulnerable get the very best support that we can provide but at the same time, give the entire community the option to increase their savings? Now, it's something we are very actively considering at the moment, very actively considering, because quite obviously this is an extremely complicated area of public policy but also, importantly, there's got to be some stability in this area of policy. I think what undermines confidence in superannuation is constant change and yet there are anomalies in the superannuation system and there are case examples where the interaction with the age pension is unfair for some. I give you one classic example: a lot of small business people save up and buy you know a shop or buy an investment property that is their retirement savings. They haven't got superannuation and they pay tax on the income that might come from the investments they've worked for whereas someone else might have been lucky to be part of the superannuation system that may not pay tax on their income. I mean, is that fair? It's, you know, it's a rhetorical question in a sense and yet they access the same community services in one form or another. So, these are big questions, as Cassandra said, big questions that need to be resolved. And one review may not – one review of the entire tax system may not be able to do all that.

CASSANDRA GOLDIE:

Joe, I think we're just about – we might be able to squeeze …

TREASURER:

Sure.

CASSANDRA GOLDIE:

Yep, one more in. Paul?

QUESTION:

Thanks Treasurer. Paul McDonald, Anglicare Victoria. Two quick questions. You say we're getting older, and wealthier and that is true, yet, I'm not sure if we're getting more generous in that time. It's expected the age care households, or the aged households, will double their wealth – their household wealth. We also know that, well, in looking in the tax report here, it's a light touch on how to encourage the wealthy to give to philanthropy. And secondly, it doesn't touch on inheritance tax. Maybe – probably you say it's a discussion paper, we have got everything on the table; one paragraph sums up that we're not willing to talk about the handing down of wealth through such a tax. And I'm interested in your view about how to – what will the taxation paper say about how to encourage giving, given that we've got of the 8001 people who earned over a million dollars, only 40 per cent gave to charity. So, from the sector point of view, we're interested in that connection between taxation and philanthropy? And the second final, very quick question is, if we get the taxation right, on behalf of the 665 young people I've had under our care in the last year, will you lift the policy of preventing Newstart, for those going into Newstart, by six months; will you lift that policy if we get this taxation right?

TREASURER:

Okay. Well, there was about six questions there. I thought there were two, but there were about six. So, let me just pick and choose. You know, the thing about inheritance taxes is their massive minimisation around the world in inheritance taxes. And again, the mobility of humanity is changing the nature of the way things are happening. I mean, it's self-evident that for some people, the richer you are the more mobile you can be for individual tax purposes. And that is increasingly the case. Now, governments can try and prevent that, but realistically, they'll pretend to be able to do something about it but it's nigh impossible to stop someone from moving to another country for a particular purpose.  So, in relation to the broader issue of jobs, I have no doubt that most jobs in the future are going to come from new and emerging businesses. And really, I mean, as I pointed out, I mean, you look at companies that didn't exist when the last tax reform great debate occurred, and I was there in 1998 – there was no Facebook, no Twitter, no Uber. Apple was seen as effectively a pretty defunct company, Microsoft was starting to have an impact, but no one quite knew what it meant. The world's changed dramatically. The world has changed dramatically. And, frankly, it has moved faster than anyone could have anticipated. And that applies for individuals as much as corporates. So, the great job creator in the future will be small business, in my view; and businesses we haven't even heard of, businesses we could not even conceive would be around in a year or two, let alone 20 years, they will be the great employers of the future. And what we've got to do is empower them through the tax system.  Now, in relation to young Australians, it is at the forefront of our minds, as we are preparing the small business and jobs package, what we can do to provide greater incentives for small business to have a go at employing a young Australian. In fact, we want them to employ all Australians –older Australians, younger Australians, mums coming back to work. Workplace flexibility is hugely important in that regard, massively important.  And if I can digress for one moment and point out that the retail shop that has regulated trading hours and regulated awards is competing against someone who has no regulated trading hours and no awards. So, how do we ensure that Australians earn a decent income, and yet, and yet, consumers are marching with their feet to businesses that may not have a shop front? May not employ another Australian? May not have regulated hours? Consumers – Australian consumers are marching, and they're choosing this and we can't regulate Australian consumers' behaviour to say, ‘look, you're not allowed to buy online, you're not allowed to buy something over the internet and get the package delivered, you have to go down the shopping mall and buy a product during these hours at this price’. Well, that's not going to be us, it's not going to be any government. So, what we've got to try and do is identify opportunity. And opportunity will come through better facilitation of small business, in particular engagement with young people. Obviously, opportunity will come through an education system that is more work-friendly, but opportunity will also come by expanding our markets. And that's one of the reasons why we have driven so hard to open up new markets in China, Korea, and Japan. Not only do consumers get the benefit of it – I mean a Toyota Yaris, which is one of the cheapest new cars on the market, is $800 cheaper, $800 cheaper, as a result of our free trade agreements already. But, also, importantly, there are new businesses that are expanding into Asia and expanding into our region, and those business opportunities will create jobs. And we've got to get the balance right. I hear you about the six months, but we are endeavouring to get the balance right in a rapidly changing environment.