24 August 2015
Transcript - #2015178, 2015

Interview with Peter van Onselen, PVO NewsDay, Sydney

PETER VAN ONSELEN:

Treasurer Joe Hockey, thanks very much for your company.

TREASURER:

Great to be with you, Peter.

PETER VAN ONSELEN:

So is that right, there will definitely be an income tax cut of some sort that you will take to the next election?

TREASURER:

Well we’ve always said that we were going to consult widely with the community and key stakeholders in the lead-up to the next election about tax reform. We’re doing that – we’ve received 850 submissions already. I had a very long meeting with state treasurers last Thursday and Friday. We’re on track and we will take a tax reform package to the Australian people at the next election.

PETER VAN ONSELEN:

How can you afford to do that though? It’s not your fault but spending cuts that you have flagged in two Budgets, now look like being in large part blocked in the Senate. How can you afford to do the tax cutting if you can’t get your spending initiatives through the Upper House?

TREASURER:

Well we’ve got most of our savings through, I’m not saying that’s the end of it – there’s more savings to be achieved and expenditure as a percentage of GDP is still too high. But, having said all of that, we are getting reasonable growth in the Australian economy. The Australian economy is one of the fastest growing economies in the world at the moment. I think what you’re going to see is that we’ll have to make appropriate trade-offs. There’ll be some tax cuts in key areas, there’ll be some tax changes in other areas. The mix between the states and the Commonwealth will be a little different as well.

PETER VAN ONSELEN:

Explain for us the economics of how when there is still large amounts of debt building up obviously through deficits and obviously the overall accumulated net debt, you can at the same time as that introduce tax cuts? Is there a stimulating effect for example that makes it worth doing in and of itself, despite the debt that you need to slowly work your way through paying back?

TREASURER:

The fundamental point is that you can improve the quality of the taxation system and that can help to improve economic growth. If you stop penalising people for what they’re doing and start providing an incentive for them to get better reward – the tax system can be hugely important in that regard. That’s why we’re looking at tax changes.

PETER VAN ONSELEN:

So will you also – so the deficit levy will come off as announced and as planned initially, but we will also see tax cuts – to how many levels I suppose when you look across at the four I think it is – tax brackets?

TREASURER:

Well wait and see Peter – yes the deficit reduction levy is coming off. We said it would end on the 1st July 2017 and we keep our word. That is coming off. I noticed that Labor haven’t said anything about it yet, which will be quite interesting because they’re the ones that tend to argue for higher income taxes all the time and they’ve left us with a legacy of higher taxes – personal income taxes. So much so that now we’re about to see people on average weekly earnings move into the second highest tax bracket which in itself is a disincentive for people to take that extra shift to work a little bit harder for extra money.

PETER VAN ONSELEN:

I don’t like the Labor Party ruling out GST reform any more than I like what I’m about to ask you about in the sphere of superannuation reform – where the Government has ruled it out. But wouldn’t that be an example – the one on your side of the Parliament, the superannuation side – wouldn’t that be an example where, if you were prepared to look at changes there you could actually deliver more by way of addressing bracket creep and providing income tax cuts.

TREASURER:

Well there are two issues. Firstly Peter, what we’ve said is that we’re going to slow down the increase in the superannuation guarantee payment which we did as part of the negotiations for the removal of the mining tax. So, there isn’t the same sort of growth, that money is not moving out of the taxation system at the speed it would have if Labor were re-elected. The second thing is as you’re seeing quite obviously in markets today – a great deal of volatility in returns for a lot of superannuants and people that rely on their savings. In fact, returns are on average at a lower level than they’re been for a number of years, prior to the global financial crisis. So, what we’re saying is well now is not the time to hit them with a new tax. They’ve got less return on their investments and their superannuation than they would have expected before the global financial crisis. Given that household consumption is more than half of the growth in the economy each year, if you penalise people and take away more of their income they’re going to spend less and it’s going to slow down economic growth. In fact, the best thing you can do is have a tax system that is fair, a superannuation system that’s predictable and importantly give people an incentive to invest and have a go.

PETER VAN ONSELEN:

So if you look at the next sort of, say three to five years in terms of what the Government might outline as part of its tax cuts to income taxes for the next election – can we assume that at the minimum the sort of cuts that will be provided will offset the inflationary impact of bracket creep? Will it sort of at least keep a level playing field?

TREASURER:

Look, you’re asking me to describe in detail what the tax cuts will look like at the next election, or tax changes at the next election more generally. I’m not going to do that. We’re part of the way through the conversation with the Australian people. Peter I’d just emphasise this is not either or. It’s not a case of either getting back to surplus or having tax cuts and a bigger deficit, that’s just not right. Because what we’ve shown is by getting rid of the carbon tax and keeping the tax cuts in place, by getting rid of the mining tax and importantly, by delivering $5 billion of tax cuts for small businesses at the last Budget – you can actually have strategically targeted taxation change that helps to grow the economy and in turn, helps to deliver better revenues that compensates you for the losses of those tax changes.

PETER VAN ONSELEN:

I’ve seen some perhaps cynical reporting in your favourite newspaper the Sydney Morning Herald, which seems to suggest that perhaps the timing of these tax cuts in the lead-up to the Canning by-election – is there any correlation there or is that just co-incidence?

TREASURER:

No, none. There’s no correlation and I’ll tell you why, because I’ve been talking about taxation reform for months now and years in fact. Tony Abbott took it to the last election where we said we would have a tax white paper. You remember we went through that entire election campaign not ruling out some initiatives. We were heavily criticised by the Labor Party for that but we kept our word. We’ve got a taxation white paper process which is well underway. This is another step along the way – we’ve received 800 submissions. Obviously we’ve posted a lot of those on the internet and we are engaging in a discussion, it doesn’t stop for any one event.

PETER VAN ONSELEN:

Just before you go Treasurer, the markets today are reacting savagely to declining markets out of China and declining confidence about the state of the Chinese economy. As Treasurer, how worried are you about these volatility signs that seem to certainly be out there globally and at the very least perhaps infecting us at a domestic level?

TREASURER:

Well look, as I’ve said on numerous occasions, it is a case that we are going to see some volatility in markets. We are going to continue to see that volatility into the future as the world rebalances after the dislocation of the global financial crisis. Now what we’ve seen is a lot of money go into equities markets out of the bond markets over the years, because bond yields have been very low. With the US Federal Reserve now actively considering increasing interest rates, you may well see capital flows out of equity markets. You may well see capital flows out of emerging economies into US Government bonds or into government bonds generally. So there will be continuing volatility. What we need to focus on is the fundamentals and from an Australian perspective the fundamentals are strong. From a US economy perspective the fundamentals are strong. Europe is doing better than anyone expected 12-months ago, and China, even though it has had significant market volatility, there was an inevitable correction for what is a fairly new market and that correction does not reflect the fact that the Chinese economy will continue to grow and grow relatively strongly. Just in a different way to the way we would have expected five or six years ago.

PETER VAN ONSELEN:

What impact on your forward estimates in the Budget and perhaps therefore reflected in MYEFO at the end of the year – what impact do things like the declining oil price or the declining Australian dollar have on those projections?

TREASURER:

Well Peter we pretty much expected things to head in this direction. Our forecast for iron ore prices is about right. Clearly with very low interest rates in Australia there was going to be a correction in the Australian dollar, particularly against the US dollar where you’re seeing – in the most obvious and flagged decision for years, the US Federal Reserve is poised to increase interest rates so that will naturally lead to a strengthening of the US dollar. You’ve seen the Chinese make decisions about their currency. So there are corrections around the world, or there are changes around the world in currencies, but so far I don’t think anything is particularly surprising. A lot of these directions are fairly well flagged.

PETER VAN ONSELEN:

Labor frontbenchers and backbenchers alike, when you talk to them on background they suggest that they’re predicting an early election at the start of next year, assuming that the summer months aren’t bad for the Government. Simply because they think that you’ll want to get in ahead of having to deliver another Budget. You see the mud map obviously every week in relation to those projections, are they talking hot air?

TREASURER:

Yeah.

PETER VAN ONSELEN:

Okay [laughter]

TREASURER:

Yes they are – I love the thought that the Labor Party on background are speculating about an election, I mean really. That’s pretty impressive stuff, they’re real gurus in that regard. I’d say to you Peter, because of the way that all the Budget numbers are revealed at the beginning of an election campaign and it’s been thus since the Charter of Budget Honesty. The idea that somehow you go to an election to try and hide any changes in the Budget is ridiculous because frankly, the Secretaries of the Treasury and Department of Finance independently sign off on the Budget numbers in the first two weeks of an election campaign. So their argument is nonsensical.

PETER VAN ONSELEN:

But on exactly that though – I mean this is a bit of history now. The numbers that you presented post being elected were quite different to the numbers that Chris Bowen put up in the exact context of the pre-election update that you were discussing. Why do we then work off not the pre-election update as you say, that is done with the independence of Treasury, but the one that was presented by the Government subsequently after you’d had a closer look at the books?

TREASURER:

Well, I tell you why. For example, if you had a look at the books you wouldn’t have seen that the Reserve Bank was short changed by about $8.5 billion. Now, we weren’t to know that, we didn’t know that. In fact the Secretary of the Treasury and the Secretary of the Department of Finance – if they may have known that it wasn’t something that was at the forefront of their mind. But what we have faced was some increased volatility that placed the ability of the Reserve Bank at risk to cope with fluctuations. Now as you’ve seen in the last two years, we’ve seen quite dramatic change in the Australian dollar. It’s been good for the Reserve Bank to have an improved balance sheet, that’s one example. The ACCC constantly had to live off its capital, we had to put more than $200 million into the ACCC [inaudible]. These are the things that weren’t revealed in the numbers and worst of all the Labor Party said it was sacking 14,000 public servants but it had nothing appropriated for redundancy and just said that the public service would pay for it themselves. Well those things were just unsustainable and obviously we identified it, there’s greater transparency about Budget numbers today than there was under the previous Government.

PETER VAN ONSELEN:

So just my last question for you Treasurer. Is it your hope or your expectation that the income tax package which I realise you can’t give us chapter and verse here today, but would it be your hope and your expectation that it would form the centrepiece of the Government’s re-election pledge in terms of what it would look to do in its second term?

TREASURER:

Well, tax reform is essential for Australia, it is absolutely essential that we have reform in the taxation system to prepare the Australian economy for the 21st Century. The next election is about jobs, growth and community safety. Our tax reform proposals will fit directly into that to help to create more jobs and greater prosperity right across the Australian community.

PETER VAN ONSELEN:

You’ll be able to do a lot more Mr Hockey by way of income tax cuts if you look at the GST.

TREASURER:

Well there’s lots of things we can look at and we are working closely with the states. I must say there are some Labor states that are far more sensible about taxation reform than Bill Shorten, but that won’t come as a surprise to anyone.

PETER VAN ONSELEN:

Nope, that’s true. Mr Hockey appreciate your time on News Day, thanks for joining us as always.