19 April 2015
Transcript - #2015081, 2015

Interview with Barrie Cassidy, ABC’s Insiders

BARRIE CASSIDY:

Treasurer, welcome to the program.

TREASURER:

Good to be with you, Barrie.

BARRIE CASSIDY:

After a week of discussions on the global economy, are you more optimistic or more pessimistic about the immediate future?

TREASURER:

Well, I’m certainly more optimistic about the future. This time last year, there was a deal of pessimism and as the year wore on, jurisdictions like Europe had a 40 per cent chance of recession. What’s been reported to us is that Europe is growing and in fact it’s probably going to grow stronger. The United States is near full employment and they expected it to grow stronger. Certainly, whilst China is managing lesser growth, it still has very strong growth. The reforms in India and Japan are going through and they are actually forecasting stronger economic growth and even South America is forecasting that it’s going to get better as a result of the ending of the drought. So that’s all great news for Australia and it’s certainly very encouraging about the direction of the world.

BARRIE CASSIDY:

Now your UK counterpart George Osborne though, talking to the Telegraph in London, said the mood is noticeably more gloomy than the last international gathering and he was of course talking about the potential for a crunch point in Greece.

TREASURER:

Well, I think that would be specifically about Greece rather than about the whole world, and in relation to Greece, quite clearly there is a looming default of one form or another. Now, the Europeans have that in-hand. In my discussions with key Finance Ministers from Europe, they’re clearly on top of the issue, they’re managing it very carefully. But they’re not going to let any troubles in Greece hold back the rest of Europe from continuing to grow and certainly in discussions with Mario Draghi today, it’s clear that there is a feeling that growth is going to improve in Europe and not be held back by what happens in Greece.

BARRIE CASSIDY:

Now on multinationals and their taxation arrangements I understand you’ve come to some arrangement with the United Kingdom?

TREASURER:

Well, on the floor of the G20, I raised the fact that we joined with other countries in expressing a concern, a deep concern about profit-shifting by multinationals. Whilst we recognise that the OECD is undertaking work which Australia initiated and promoted last year, we obviously want to go further and faster. So, the Chancellor of the Exchequer, George Osborne, and myself have announced that Australia and the United Kingdom will work together to drive the global agenda, going after multinationals that are shifting profits away from the countries where they earn the income. We are going to work with them on their diverted profits tax, which is already implemented, but we are going to send officials over to the United Kingdom as soon as their election is complete and we are going to together, lead the world and ensure that we work with the OECD in developing the very best practices. That will absolutely ensure that companies earning profits pay tax in the jurisdictions where they earn the profits.

BARRIE CASSIDY:

Does this mean that you will mirror each other’s legislation?

TREASURER:

Well, no, the United Kingdom already has legislation in place and is imposing a new tax. Australia does not need to impose a new tax, but certainly there are ways that we can beef up the integrity measures around our own taxation system. We can learn a lot from what the British are doing with their so-called Google Tax. But importantly, importantly, the whole world needs to work together and by the United Kingdom and Australia coming together on this initiative, we are going to lead the world and work with the OECD and the G20 to ensure that companies pay the proper amount of tax where they earn the income.

BARRIE CASSIDY:

So you work together but you’ll have different approaches?

TREASURER:

Well, at this stage there needs to be a different approach because we have different taxation systems. But Barrie, the OECD through its Base Erosion and Profit Shifting program, is trying to setup consistent global definitions and rules in relation to companies. We welcome that. We are going to the next stage, which is to go after those companies, particularly individual companies that are not paying the proper amount of tax where they earn the income. So we are going one step further than what the OECD is doing, but we are going to establish a new benchmark and we are going to do it together. Now, this coordinated action by two leading jurisdictions such as Australia and the United Kingdom, will strengthen the global framework so there’ll be nowhere for companies to hide, and certainly, it will ensure over time that they will pay tax in the jurisdictions where they earn the income.

BARRIE CASSIDY:

Both the G20 and the OECD want global definitions, they want a global approach. Is there any concern on the part of either of those organisations that what you’re doing might hamper their progress?

TREASURER:

Well, before I raised it on the floor of the G20, I spoke at length with Angel Gurria, the head of the OECD, and he accepted that under the existing program and the work the OECD is doing, it doesn’t cover diverted profits in the way that the UK Google Tax does. Now, from our perspective, we are very much focused on ensuring that no matter where the company is located, no matter who the company may be, there are integrity measures in place. We are going to rely on other countries, but that’s why we did it on the floor of the G20, to make sure that the 20 biggest economies are all on board, know where we’re going, and have the opportunity to join us.

BARRIE CASSIDY:

And you’re comfortable that’s the case? They are on board with your approach?

TREASURER:

I am comfortable that’s the case

BARRIE CASSIDY:

Okay, now there’s more commentary this morning or this weekend on the Budget, suggesting the Government is in retreat on reform. When the Prime Minister says much of the hard work has been done, you can understand why that concern exists?

TREASURER:

Well, people are entitled to a view. We’ve got to make sure that we have the right Budget for the times that we have. Now we have consistently said Barrie, that we want to have structural reform that helps to deliver a surplus as soon as possible. As soon as possible means that we’ve got to deal with the economy as it stands at the moment. We’ve got obviously very low interest rates and the Reserve Bank is working hard to try to stimulate the Australian economy in that regard. And importantly, we’ve got a hostile Labor Party in the Senate, which is doing everything it can not only to block our measures to improve the Budget bottom-line, but to block their own measures, that they proposed at the last election to improve the Budget bottom-line. Given all of those factors, we are doing everything we can to improve the Budget and ensure that we get back to surplus as soon as possible. But at the same time, we’ve got to make appropriate savings in order to spend on initiatives that are going to help to strengthen the Australian economy and future proof the Australian economy. That’s why we’re going to have a small business package, we’re going to have a families package, and that’s one of the reasons also why we are also so focused on ensuring that we have greater integrity in the taxation and welfare systems.

BARRIE CASSIDY:

But in the Budget itself, will you be any more precise than that in terms talking about a return to surplus? Or will that be the language you use, as soon as possible?

TREASURER:

Well, in the Budget you’ll see the numbers, you’ll see the numbers…

BARRIE CASSIDY:

But will you be putting a date on the return to surplus?

TREASURER:

Well, we never put a date on returning to surplus. We just need to show that we have a quality trajectory, a quality trajectory back to surplus and that we are getting the Budget under control. Now, you’ll see that in the Budget. Most importantly, we also are not going to chase down the dramatic write-downs in revenue associated with a fall in the iron ore price. Clearly, it would be ridiculous for us to impose further significant tax increases on the Australian people at a time when we have a fall in revenue associated with the drop in iron ore, because that would slow the economy. We’re trying to do everything we can to speed up the economy and to create more jobs and that’s what the Reserve Bank is doing as well. It’s trying to look at ways to speed up the economy by lowering interest rates. So, we have to work together. Fiscal policy, monetary policy, they need to work together to try and raise the level of growth.

BARRIE CASSIDY:

Are you then able to at least assure the electorate that there will be smaller deficits over the coming years, that there’ll be an increasingly smaller deficit.

TREASURER:

Well, that’s what we’re aiming at, Barrie, absolutely [inaudible]. You will see the numbers on Budget night. The numbers do show that as a percentage of GDP we are reducing the deficit to a point where we can get it back to surplus, but it also relies on the good will of the Labor Party who effectively with the Greens, have control of the Senate. It is patently absurd that they are opposing their own policies to improve the Budget bottom-line, let alone opposing ours. No matter what happens in the future, whether it’s a Labor Government or a Coalition Government, whoever is in Government is going to have to fix the Budget. We have a credible path. We have a plan to do that - that is endeavouring at the same time improve the Australian economy. We’re dealing with an opposition that has no plan, and that’s part of the challenge.

BARRIE CASSIDY:

And just based on what you’re saying, that you’re losing revenue obviously, you’ve got problems with the Senate, so how do you drive down the deficit?

TREASURER:

Well, over time you’ve just got to focus on growing the Australian economy, that helps to grow revenue. But I think we need some measure of stability and predictability in Government, which is exactly what we’re doing. We’re always going to have left field challenges. In Australia at the moment, as you know, there are national security issues and we’ve had to spend a lot on money in recent times, further strengthening our efforts to combat threats to our national security. Thank God we did. You can see the benefits of that expenditure, but we’re going to continue to have challenges from time to time. That will require us to spend more money in particular areas, ut also means that we’re going to have to make savings along the way. Some of those savings are difficult, but what we’re trying to do is ensure that they do not affect Australian households, so Australian households can go out with confidence and spend money and particularly have confidence that we’re going to see lower unemployment.

BARRIE CASSIDY:

Just a couple of quick ones before you go, Peter Costello drew attention to bracket creep. He points out that the forward estimates for this Budget will go out until 2019, and that is likely to show nine years of unrestrained bracket creep. Is that a tolerable situation?

TREASURER:

Well, firstly, Peter Costello didn’t draw attention to it, I did. I actually drew attention to it on numerous occasions, including the speech where I launched the tax paper a few weeks back. So, yes we are concerned about bracket creep. In fact in Parliament I pointed out that Australians on average incomes would move into the second-highest tax bracket in the next couple of years. Now that is going to slow down the Australian economy and it’s bad for households. But the only way you can afford to give tax back to the Australian people is if you can reduce expenditure and again, I urge the Labor Party to help us to reduce government expenditure. So, in turn we can further reduce taxes and then give Australian households more money. But at the moment, the challenge we have is that we’re trying to reduce government expenditure, we’re being blocked in the Senate in a number of areas. We have gone some way but there is more to do, and at the same time we are facing higher taxes through bracket creep and that is simply not sustainable into the future.

BARRIE CASSIDY:

Just finally, Western Australia’s complaints about their share of the GST revenue remains unresolved. The Prime Minister held out the prospect, or at least raised the option, of putting a floor under the level of decline in any one State’s share. Is that the way to go?

TREASURER:

Well, it’s something that’s going to be considered in the context of the Federation White Paper and it’s something that I’ve discussed with the State Treasurers. Clearly it is unfair to have one State receiving less than one third of the GST paid by its citizens. It’s unfair, it’s unsustainable actually, and frankly, we need to come up with a better arrangement. I understand the Prime Minister spoke to the Treasurers about that. We’re also going to speak directly to Western Australia about some of the challenges they have, but of course it’s a two-way street. If we’re going to support Western Australia, then Western Australia also needs to undertake some of the economic reform that other States have undertaken, which over time will help to further strengthen their economy. But I also want to point out that Western Australia has done a lot of heavy lifting for the Australian economy more generally over the last few years and as a Federation and as a nation, we have an obligation to take that into account now.

BARRIE CASSIDY:

Treasurer, thanks for your time this morning.

BARRIE CASSIDY:

Thanks very much Barrie, appreciate it.