17 July 2015
Transcript - #2015158, 2015

Q&A – COSBOA National Small Business Summit, Sydney

MODERATOR:

Ladies and gentlemen, the Treasurer is very happy to take some questions from the floor. I can see over the back there.

QUESTIONER:

Minister, thank you, you speak digital disruption. You talk [inaudible] in some of those terms. The biggest frustration to small business, sorry one of the biggest frustrations to small business, is the internet capacity. We don’t have coverage, we don’t have good service. As soon as I speak to people who are even slightly regional, and by that I mean anything 10,000 kilometres out of the GPO, people complain about the internet. Where are we at, seriously, in terms of enabling this digital disruption, for business efficiency from the internet?

TREASURER:

Well, as you know, we inherited a National Broadband Network that had some massive structural problems. The Minister for Communications, Malcolm Turnbull, has engaged in complete upheaval at the NBN, which is now delivering an NBN that’s been rolled out much faster, and more effectively than it was. There’s still much work to be done. I’m not for a second suggesting there isn’t. But, I’m confident, I mean we’re spending in the vicinity of $70 billion. It is by far, the largest infrastructure project in Australia. We are rolling that out, and as I heard the Chief Executive say yesterday it’s on track, but, obviously, we need to do everything we can to roll it out faster and more effectively. I fully recognise that. I went to Longreach a few weeks back and saw how vitally important communications are for the School of the Air, for example, where you can actually be in Longreach and 1,000 kilometres away there are kids sitting in farmhouses, sitting on half a million or even larger properties, half a million acres. It’s empowering people in a way that I’ve never seen. Now that School of the Air, may be just one day, has the capacity to be exported into Asia. Imagine what it could do in Indonesia or Vietnam, or places like that. And you can do it from Longreach or Cloncurry or any part of Australia and that’s what that connectivity will deliver, and that’s why I’m so positive about the services opportunities not just domestically, but globally. But yes, we have a responsibility to deliver those tools, and if we can speed it up, happy to look at that as well.

MODERATOR:

I’m not sure if [inaudible] is in the room from the Booksellers Association. The bookseller in Lane Cove will now have the physical books that are coming to his place from overseas. What about virtual and electronic books and services that are purchased from overseas?

TREASURER:

The same applies. We’ve just heard about the benefits of the internet, and the technology, but there are challenges. Now, people can download within reason obviously, whatever they want from wherever they want. How do we have a taxing point on that, because the money’s transferred overseas? So now, you wonder what the benefits are of, for example, the G20 being held in Australia, and us chairing it. We helped to drive that tax agenda, in partnership with the work already being done by the OECD. So you go to the 30 largest, or 40 or 50 largest companies in the world that sell those products into jurisdictions and you say okay guys, you have to charge a GST. Now, of course, there’s going to be many others that you can’t quite catch that immediately. But if we can go to the major providers, and in this case, for example, it might by Netflix into Australia, or it might be someone else providing digital products into Australia. If they’re selling into Australia, we can go to those companies and say, right, you have to charge a consumption tax [inaudible] agreeable to it. Because they, as you know, don’t actually pay the consumption tax, the consumer pays it. And because Japan, the Eurozone and a number of other economies, have in fact, applied this tax, there’s scale now to go to these companies and say, right, you have to apply the tax. Now we’re doing it on digital services. It is now an open opportunity in relation to physical products like parcels. And you see it in retail, in clothing, in bicycle parts, a range of different things, where the products are coming from overseas into Australia below the tax threshold, and, it’s causing problems for Australian retailers. Well, we believe now we can go to those companies, using the mechanisms provided through the OECD, the G20 and others, and say to those companies you have to apply the GST, so there’s a level playing field with Australian retailers. Having said that, we also want to ensure they pay tax. Big company tax if it’s appropriate. And we’ve got another mechanism that we’re using in relation to that, particularly, if they have a physical presence here in Australia.

MODERATOR:

Kathryn? Treasurer, this is the 2014 Small Business Champion of the Year, Kathryn Bordonaro.

TREASURER:

Well done. Congratulations.

QUESTIONER:

Thank you very much. And thank you to COSBOA again for the title. My question is, in 2000, when the GST was introduced, there was a $2 million turnover benchmark, that was a carve-out line to define the difference between a cash accounting business and an accrual accounting business. And that sort of then became generally adopted across all forms of government as the defining mark of a small business. That turnover figure hasn’t been indexed since 2000. We’re 15 years down the track. Is there any intention to perhaps index that figure at some point?

TREASURER:

Well, these are the real and meaningful reforms that can make a difference. We thought very carefully about what defines a small business in the lead up to the Budget. What we are endeavouring to do, is to have as consistent definitions as possible, for a range of different things, and over time, lift that threshold. That’s as far as I’m going. But you note that the $20,000 instant asset write off applies to businesses with turnover less than $2 million. There are many things, as Bruce Billson will tell you, and I’m sure has, there are many things that could be applied, but what we’re endeavouring to do is raise the threshold that defines small business and for our current purposes, within our current Budget, $2 million has been where it’s at. I recognise there are other areas, rather than cherry-pick I’d rather lift the definitional threshold that applies across the board.

MODERATOR:

I don’t think you’ll get any argument there. I think Josh de Bruin [inaudible] supermarkets would struggle to make any form of a living [inaudible].

TREASURER:

Look it’s been a vexed issue for so long. I mean, when I was Small Business Minister and some of the team are here, I see [inaudible] and a number of others. For industrial relations purposes, small businesses had a number of employees, equivalent to full time, for tax purposes it was turnover, in other circumstances it was profitability, it was kind of crazy right. You can have a newsagency that can have a turnover of more than $2 million. I won’t share it because we’ve got our friends from the media. I mean, I went into a newsagency somewhere in Canberra, I said, this Budget’s going to be great for you, I said what’s your turnover? And he said $4 million. These are the things we’re very aware of.

MODERATOR:

Dominic Schipano, COSBOA Board Member.

QUESTIONER:

Good morning Mr Hockey. Thank you for your presentation. By the way, I do deal with the NBN and we’re getting there. We’ve still got a long way to go and schools are one of the areas we’re involved in. My question is actually about productivity in schools. Unfortunately at the moment we’ve got quite a few items in the training area, which is sort of frustrating the sector. One of the things we think about productivity is to actually increase the schools in the workforce. Is there any plans in the future to actually look at that?

TREASURER:

Well, that’s one of the reasons why our wage subsidy programs have been reformatted to make them more flexible. So, for example, in the case of Restart which I announced in last year’s Budget, which was a $10,000 if you employ someone over the age of 50, we have made it more flexible to accommodate training needs, bring the money forward to an employer to help reskill and retrain. There are a range of different initiatives, involving literally billions of dollars of Commonwealth Government’s money, that are now more flexible. So we’ve built flexibility into that. In relation to apprenticeships for example, we’re giving them interest free and discounted loans. Previously, for example, if you were undertaking an apprenticeship you’d get a tool box payment. Now we’re saying we’ll give you a loan of up to $20,000. We’ll discount it if you’ll finish that apprenticeship, importantly. And, you’ll get other benefits along the way as well. For sub diplomas and a range of other things, we’re now extending the benefits that university students have - they get effectively a massive concessional loan to undertake their study. We’ve now extending that beyond the university campuses to sub diplomas and the like for training purposes. So people have the same opportunities to reskill, or to skill up as someone going to university. It’s blatantly unfair that you can get a government loan to go university, but you couldn’t get it to upskill in a particular area. We’re endeavouring to get it right. As I say there’s more work to be done, particularly with partnerships of the States, and some areas of training, but there’s more work to be done and there’s a plethora of new initiatives that we’ve announced that I’d urge you more to get more information.

MODERATOR:

Terry Moody.

QUESTIONER:

[Inaudible] and thank you for the Budget. It was fabulous for small business and I congratulate you on it. My question is, targets tend to focus on Government’s outcomes across a range of their departments. Have you ever considered small and medium business target as a percentage of the Australian economy?

TREASURER:

That’s a good question. You know, I always looked at not as a percentage of the Australian economy but as a part of the job story. Because, if you have more people in jobs, you have more people confident about their future, they’ll go out and spend and they’ll help to lift the economy and they’ll innovate, they’ll spend their own money on innovation. And one of the challenges I think we’re meeting at the moment is to prevent a continuing rise in the unemployment rate given that we’ve got below trend growth. I’ve found that recent unemployment figures encouraging but there’s still much more work to be done. In terms of targets, we’ve got more macro targets than trying to lift a particular sector to a percentage of GDP. Our macro targets are that we will want to continue the prosperity story in Australia. We are now approaching an historic world record for continuous economic growth. But history doesn’t matter when the future’s not as good as it should be. What we’ve got to try and do is ensure we can take care of our future. And one of the things that weighed heavily on our minds, when we were negotiating the Free Trade Agreements with China, Korea and Japan, and now Andrew Robb’s negotiating with India, you can have the battles about the tariffs on particular agricultural products, but the question is, can we sell our services into those jurisdictions. Can you open an aged care facility in China for example, what hoops do you have to go through to do that? Can you be a financial adviser in Australia with mandarin language skills and sell financial products into Singapore, or into Korea, or into Japan? And they’re the things that we’re doing. So small business is a part of everything we’re thinking about, including in infrastructure, how can we get more small businesses involved in the actual massive infrastructure program that we have. So the answer is, no I haven’t thought about a target as a percentage of GDP, but, I want you to know from a Government perspective because we recognise from a small business perspective, small business is the engine room. But we also recognise that big business is becoming more mobile. And it’s becoming less national. There’s companies now that [inaudible] offices in the United States, or in Sweden or the UK, but really these are global companies. They have no home in a sense. The people that do have homes are small businesses. And that’s why we’re very focussed on the interests of small business, and how to progress them into large businesses.

MODERATOR:

It’s interesting that you talk about free trade agreements because immediately after this [inaudible] and straight after that we have a session on free trade agreements.

TREASURER:

Good, it’s a massive opportunity.

MODERATOR:

Yes…

QUESTIONER:

Thank you Treasurer. I’m Wendy Blair from the Australian Hairdressing Council. I was interested to hear you mention the $20,000 loan, or up to $20,000. That may be necessary for some people to take up an apprenticeship. However, if you look closely at the stats, it’s not helping yet. We’re shrinking apprenticeships rather than growing them. We need more incentives. Removal of the tools for trade is a further disincentive because parents, and your one, don’t want kids to go into debt unnecessarily. We’ve tried to avoid them getting loans when they’re young. And it’s a complex problem, we’d like further discussion and some further incentives for both employers and for the employees. So we’d like further discussion on that.

TREASURER:

Sure, sure, absolutely. Look, the reason why Tools for Trade [inaudible] it was actually quite limited and it applied to only particular professions. Whereas this is a broad approach and the discount is actually quite significant. The discount is a cost to the Government. It’s certainly not costless to us, I can’t remember the exact figure, but it’s hundreds of millions of dollars each year to provide discounted loans which broaden out beyond those professions, such as yours, that have a reliance on the Tools for Trade. Bear in mind of course that the $20,000 instant asset write off is a massive benefit for those too. I was explaining to make up artists at television stations that they can claim it, they hadn’t thought about it. They hadn’t thought about it. And young tradies can, if they can, borrow the money to buy a second hand ute, or a new ute but it is unlikely, but a second hand ute and you can instantly write it off against your tax. There some of the benefits, it cuts both ways. We’re trying to incentivise economic activity and give people an opportunity to invest in their own careers at the same time. Would we prefer to give grants to people? Yes and no. I was always taught that nothing’s for free. Someone always has to pay. And when you give our a grant, I think it’s important to remind people, how many average workers would pay all their tax to towards that grant. The second thing is, when you borrow the money you think more carefully about how you’ll spend it. Because you’ll have to pay it back. There are swings and roundabouts in that regard. One of the problems we’ve had with apprenticeships is we had a massive drop off, massive drop off after a year or two. So if you actually tie people in as far as you can to finishing their apprenticeship, through the loan scheme, then it ensures they have that skill on a permanent basis. And that’s been one of the challenges with HECS, or HELP, as it’s now known. The drop off after first year has been significant. So we’re trying to ensure, this isn’t the sole motivation of having a loan scheme, but we’re trying to ensure part of the benefit of the loan scheme, is people thing more carefully about what courses they start before they start them, and secondly, they’re more likely to finish them. So that there is not a year or two that is wasted along the way.

MODERATOR:

Can I progress Wendy’s discussion, just a little bit, because I look after the hair and beauty industry in Tasmania, I don’t think it’s the case of apprentices not applying, it’s more a case now of employers  [inaudible] because the Tools of Trade that was given to the apprentice, also paid for example, for their training fees. That cost has now been put straight onto the employer, so every year there’s an additional, somewhere between $1,000 to $1,500 cost to put on an apprentice.

TREASURER:

So, there are wage subsidies though, there are significant wage subsidies particularly for young people that have been put in place and greater flexibility about those wage subsidies.

QUESTIONER:

Can I argue that the apprenticeship wages have gone significantly higher and whilst I understand that adult apprentices have a difficult road to hope [inaudible]…

TREASURER:

You’ve just raised another issue in workplace relations, which is a very big issue. I hope that COSBOA and your industry have provided a submission to the Productivity Commission, which is reviewing workplace relations at the moment, but it’s another example where, through decisions of the Fair Work Commission, they can end up creating an environment that is a massive disincentive for employers to employee more people. And, this is a very important structural issue for Australia.

MODERATOR:

Next one please, over the back there.

QUESTIONER:

Carrington Clarke from Sky News. Treasurer, can I just get you to comment on BCA Chairman, Catherine Livingstone’s comments yesterday, where she described the political environment in Australia being at a new low, where we have this case where one side of politics offers something on tax reform, Labor offering superannuation, to be rejected by the Government. The Government offers potentially some form of [inaudible] when it comes to GST, it’s not backed by the Opposition. RBA offers something on negative gearing, it’s not backed by yourself. And that this is creating an environment where both sides are unwilling to tackle the big tax issues that we need to reform. Will the Government take a leadership role on this issue? And will be open to suggestions about changes to try and get this conversation actually going, as opposed to be continually stopped?

TREASURER:

Well, it’s easy to sit on the sidelines and to pass comments, whoever you may be, but from our perspective we’re getting on with the job of reforming not only the Australian economy, but facilitating the reform of the Australian economy. In a debate about any particular area of change, there will be views expressed. They’re perfectly entitled to express those views, everyone’s entitled, including political parties. So if, in the case of GST, the Labor Party say there’s no way they’re going to agree to reform under any circumstances, whether it be at a State level where the State Premier is the beneficiary of a change in the GST, or be it at a Federal level where the Labor Party and the Greens have the capacity to block it in the Senate. Well, I don’t think we should spend an enormous amount of time debating that particular issue, when there are plenty of other issues to focus on. In the case of superannuation, as I’ve said on numerous occasions, we are in a period of low returns and probably an extended period of low returns for superannuants, for self-funded retirees, part pensioners. Now is not the time to take more of those returns as Labor’s is proposing, for the tax man, because that simply diminishes the amount of money that they get in that pocket. Frankly, what we need, is for some period of stability in superannuation policy, particularly in relation to tax policy. And for the extraordinary amounts that some people have in their superannuation, they accrued it under old rules put in place by previous Governments. You would not be able to accrue some of the extraordinary sums that sit in superannuation in a handful of accounts at the moment. You wouldn’t be able to do that now. So frankly, I think we should be all focussing on areas where we can get agreement, can get reform. And I welcome the Opposition’s participation in the debate. I welcome comments from the Business Council, from COSBOA, from everyone. Everyone’s got an opportunity to participate. I’m not sure that a blanket attack on everyone is necessarily going to be helpful to the debate.

MODERATOR:

Mr Treasurer, you’re a busy man. Thank you very much for your time.

TREASURER:

Thank you very much.