5 March 2015
Transcript - #2015028, 2015

Interview with Rafael Epstein, ABC 774 Drive, Melbourne

SUBJECTS: Intergenerational Report, Tax white paper

RAFAEL EPSTEIN:

Bruce Billson good afternoon.

MINISTER BILLSON:

Hi Raf.

RAFAEL EPSTEIN:

What is the point of this report? This is the fourth one. For most people it is a cloud of statistics and it evaporates the next day.

MINISTER BILLSON:

I suppose that is one way of looking at it.

There is another way of looking at it and that is having a look at where we have come from as a country, what our longer term sustainability is for the sorts of works and services we hope for – try to get an insight on what the population will do in terms of size and demographic composition and basically what we need to do to keep the great promise of our country Raf- and that is, that the next generation will have it better than those who have been here before us.

That is what it is about. It is actually a 40 year look forward. The report is prepared under the Charter of Budget Honesty that the Howard Government introduced…

RAFAEL EPSTEIN:

Yes I am sorry. I realised I just said 30 and not 40.

MINISTER BILLSON:

Well it is some decades. What is 10 years amongst friends? I suppose when you are 30 and when you are 40, quite a bit.

But it does look at what the trajectory is and whether we are on track to, as I mentioned earlier, deliver that great promise that the next generation will have it better than those before them.

Let us have look at economic growth. What is going on there? What is happening with the workforce?

The lifespan of our citizens – there is some great news in here. Our life expectancy is projected to increase from 91.5 years today to 95.1 years in 2055.

RAFAEL EPSTEIN:

Do you think people are enamoured with the concept of working in retail at the age of 80? I suspect many people would not like that idea at all.

MINISTER BILLSON:

I guess the other thing it points out is we are just not sure what the economy will look like in 2055.

One of the key points that is made in this report is that given that population and demographics are hard to change without some wholesale change to migration and fertility rates, given that when we look at participation rates we compare our economy with the number of men and women of different ages that are in the workforce compared to Canada and New Zealand for instance, in some other countries where have a higher rate of participation. In Canada and New Zealand’s case we are substantially beneath that.

But then there is the next piece Raf which is the productivity piece. Do you know our listeners since 1975 can be proud to know that since ’75 they have doubled the wealth that they create for the hours they work in our economy.

That is an interesting story but it also points to dynamism, change in the economy, what is technology doing and these are things that it draws out.

RAFAEL EPSTEIN:

I will get into technology because the Treasurer used a word I had to look up.

MINISTER BILLSON:

I hope I know which one it is.

RAFAEL EPSTEIN:

We will play it to you.

The big difficulty though is the predictions are difficult to make and when it comes to the tough policy.

I think the Treasurer was asked well do you want people to retire later and he said well no this is not about necessarily this government; it is about the next government.

I suppose what I find interesting about this report, I think everyone is up for the conversation yet when it comes to the additional things you have done in this report, which is to project Budget spending under various scenarios – you have made some really heroic assumptions around Labor.

I might just read those assumptions out so people know what we are talking about.

You have got forecast for the cash deficit, so how much money the Budget does not have in 2055 which is 40 years away, under the policies of the Labor Government you suggested you would have a cash deficit, budget deficit of 12% of GDP.

Under the policies that your Government has passed so far, the deficit is half that. And under the policies you would like to have passed but have not been able to, you get a surplus in 2020, which seems to say hey the Abbott Government is onto something.

But there is some heroic assumptions about the ALP, number one being no carbon pricing which I think they are very keen on and number 2 being income tax cuts every year and threshold movement.

You cannot really make those gross assumptions about your opponents can you? Does that not devalue the conversation you want to have?

MINISTER BILLSON:

Raf I think you are taking it into a politicised space that I do not think is its real purpose. The document basically says what are the policy settings that the Commonwealth was on prior to the election of the Abbott Government, then what are the proposals that have been put forward and what has been legislated.

It is not a question of cherry picking here and there it is actually dealing with those policy settings as they were and in that context and the impact is defined…

RAFAEL EPSTEIN:

But if the real purpose was not political you would ask Labor for some input. Assuming they are going to give away tax cuts every year.

MINISTER BILLSON:

That is exactly the conversation.

RAFAEL EPSTEIN:

But assuming they want to give away tax every year that dramatically devalues the document does it not? Because it makes their Budgets look horrible and yours look great.

MINISTER BILLSON:

I do not think so. I think you are reading too much into it.

The previous policy settings that are captured in the report actually reflect the actually policy settings not someone’s thought bubble or an idea…

RAFAEL EPSTEIN:

Am I wrong to say that it includes continuous income tax cuts under Labor? Your modelling of their Budget?

MINISTER BILLSON:

Continued the tax cuts that they had announced in conjunction with the Carbon Tax which was forecast to increase. So you are saying it includes the Carbon Tax yes but there were expenditures attached to the Carbon Tax, remember that conversation some time ago.

It is basically saying that is what the set and forget position was, that was with no change. It also points to what the Parliament of Australia has embraced and represents what has been implemented and then there is some other policy parameters that are the subject to quite a lot of discussion, but if they were implemented what the scenario would be.

But that does not mean they are the only ideas that are out in the market place and the whole point of this document is to start that conversation. A conversation Australia has to have about the trajectory and the choices we make for the future. This is the purpose of that document and that is the way I would encourage people to have a look at it.

There are many other policy settings people might contemplate.

RAFAEL EPSTEIN:

Can I ask about some of them?

MINISTER BILLSON:

You can but it would be an interesting conversation if you are drawing me into the hypothetical but let us see how we go Raf.

RAFAEL EPSTEIN:

Let us see how we go. Let us move on from the calculations of where Labor’s Budget would end up or yours.

What you do not do is as important as what you do do and I think there is a lot of talk outside of the Labor Party and the Coalition around superannuation concessions.

We often on talk back get conversations about some gradual changes to negative gearing. There is an interesting example today in the Financial Review of the salary packaging for many of the medical people who work for not for profits, that is a $500 million saving each year. There is a whole lot of ways of bringing money in that the Coalition never talks about.

MINISTER BILLSON:

I do not think that is quite right.

We have instigated the tax white paper process, that is, a companion piece of work to the Intergenerational Report.

The Intergenerational Report frames the broader trajectory and the directions that we are on and where there is a need to take sensible action today to ensure that we take care of the future – that is its purpose.

Then that enables the kind of conversation that you are seeking to have Raf. That is why the tax white paper process is there so that people can bring forward their ideas and their perspective, understanding the trajectory is that we are on as illustrated by the Intergenerational Report and then we can have that debate.

But to have those discussions in a vacuum ends up just being a bit of a slanging match about different ideas and who you are targeting and what would this do without actually framing it in terms of what the effort is for our nation.

So I think this is a helpful contribution to the very discussion and the debate about what measures are better than others and what the impact is – that is what the document is aiming to generate as a national conversation.

RAFAEL EPSTEIN:

I am interested too because the new head of Treasury John Fraser has very much fallen into line with a lot of what the Coalition has been saying which is that it is a revenue not a spending problem.

That very much echoes what you have been saying so that does not seem to leave much room for super concessions, negative gearing, salary packaging – those sorts of things.

MINISTER BILLSON:

I would not suggest it shuts off the discussion. I think the point that the Treasury Secretary has been making, and as is evidenced in this document, if we leave the current expenditure settings the way they are, you end up looking at a tax take of about 37% of the economy.

When you start having that much of the tax take coming out of the economy, that has a real impact on people’s preparedness to go to work if they are having so much of their money taken out by tax for people to invest, to engage in business formation, to innovate, to decide to create a small business or to pursue an idea they have with the goal of generating some reward for their effort and enterprise but also making a contribution to the tax take.

So I think Mr Fraser’s point was that without dealing with the expenditure side of the equation, the increase in taxation burden more generally could be completely overwhelming for the economy and stifle the very productivity and prosperity that we are seeking to achieve as a nation and that is why he is saying look you just cannot tax your way out of this.

I think it was Winston Churchill that said that taxing your way to prosperity is a bit like standing in a bucket and trying to lift yourself up by the handle. It has some inherent limitations on how effective that is.

RAFAEL EPSTEIN:

A lot of people texting in and I have got to confess I have been reading parts of the report. I have not read it all. I did not get to the bit on climate change.

I noticed the Opposition Leader accusing you of saying sometimes there could be positive benefits from climate change. What does the report say about climate?

MINISTER BILLSON:

There is quite a large section on climate change for a number of reasons. One, it is very relevant and it has an impact on our prosperity and our opportunities in our country.

Secondly, as part of the discussions with the Senate, we undertook to make sure there was an exposition on climate change and what that might mean for the broader economy.

In the report it makes two points. Climate change can have, in an economy sense, a positive impact. That is, depending on what part of the, let us call it climate eco-system, you are in.

For areas where water is not an issue, the extra carbon dioxide has a greenhouse effect that can accelerate agricultural and primary production. However, it also makes out the point that where you have got semi-arid environments, that can have a real impact on water availability.

RAFAEL EPSTEIN:

Does it mention the renewables industry?

MINISTER BILLSON:

Let me just have a look. I have read through this with great gripping interest. It is quite a read.

It does point to innovation and technology being a key tool in the kit that is needed to tackle climate change and climate variation.

RAFAEL EPSTEIN:

Bruce Billson I do need to wrap this up but I do want to test you with one more thing. Now no shame here because I did not know what the Treasurer was saying so I am just going to play this to you. I want you to decode it for me.

[Audio of Treasurer]:

Consumers are changing the world through the use of technology. They are disintermediating everyday life. They are disintermediating government and regulation. And consumers need to be empowered, they need to be sovereign. We have got to facilitate change rather than trying to restrict change.

Bruce Billson what does disintermediating mean?

MINISTER BILLSON:

Put simply, it means you do not need the middle person to get your needs met. So if you are a passenger wanting to get a lift to the ABC studios in Southbank, you do not need to ring up a cab company, you can grab an app and actually find someone who is the driver and go direct.

That intermediary, that is, that central part in that commercial relationship in so many areas of the economy, consumers can go to directly to the person who is supplying a good or service that they want and they do not need to go through a middle person.

RAFAEL EPSTEIN:

So did you have to look that up or is this one of the words that gets thrown at you by the bureaucracy all the time? Or you are just well-read?

MINISTER BILLSON:

Look I would like to think it is the latter being a boy from Frankston, but I hope it shows some policy perspicacity. There is another word for you Raf.

RAFAEL EPSTEIN:

Bruce Billson thank you for your time.

MINISTER BILLSON:

Great to talk and best wishes to you and your listeners Raf.