Event Jennifer Westacott interview with Fran Kelly, ABC RN Breakfast

Speaker Jennifer Westacott

Date Wednesday, 3 April 2019

Topics Budget 2019, tax and Newstart

E&OE

Fran Kelly, ABC RN Breakfast, host: Well, back in the black, and back on track and all without increasing taxes. It's like magic. That's the pitch from the Morrison Government in a budget doubling as a curtain-raiser to an election, next month. There is something for a lot of people in this big spending budget, there’s tax cuts for workers and small businesses. There's cash for health, education, roads and rail, but the roads and rail spending out does the health and education spending. It must be said. The opposition has labelled it in election con and says the budget is funded in part by making people with a disability wait longer for the services they'd been promised. To discuss all this, I'm joined by our regular post budget panel by Cassandra Goldie, the chief executive of the Australian Council of Social Service or ACOSS, Jennifer Westcott joins me too in the Parliament House studios. Jennifer is the chief executive of the Business Council of Australia and Nicki Hutley is a partner at Deloitte Access Economics. Welcome all of you back to breakfast. Good to see you again. Nicki Hutley, you're the new one to our post budget panel, so let's start with you. The government is forecasting a $7.1 billion surplus for the next financial year. So, we're not back in the black quite yet, but we're heading that way. It's up to $11 billion surplus in 2021 and just under $18 billion the year after that. How much should we be counting on these surpluses ever materialising?

Nicki Hutley, partner, Deloitte Access Economics: Well, look, I think in the first year of the forward estimates there’s a fairly good chance that, barring something absolutely terrible, you know, a real black swan event that we will actually get to see at least the first of these surpluses. But I think that's the main point is that surpluses forecast out for the next four year, in fact, the next 10 years to a to get debt back to zero are incredibly optimistic. I mean, Australia's been incredibly fortunate to have 27, almost 28 years of uninterrupted growth. That is highly unusual. It's been a lot of luck. So-

Fran: So, this budget tells we're heading for 38 years of uninterrupted growth.

Nicki: Well, and of course, you know, there's this budget is, there's some gems in there. There's some good things in there, but it is a house built on shifting sands.

Fran: Okay, before I come to Jennifer Westacott on that, just tell me what you think the gems are briefly, can you Nicki.

Nicki: Yes, well I mean, obviously more spending on mental health services is really good. I think you know, the infrastructure, and we need to see the nitty gritty of that, but you know, forward thinking, even things like the fast rail from Geelong to Melbourne, these are good things. They might not stack up necessarily in the short term, but over the longer term with our growing cities, this sort of investment is absolutely critical. So, I point to those two things as being good. And you know, you could also argue that the tax cuts for income are a bit profligate, but on the other hand, we do have very low consumer spending at the moment and there is something that is needed to give a bit of a kickstart to jump the system. And so you know, something normally that's temporary and targeted to households would not be seen as a bad thing with the economy being a little bit wobbly as it is.

Fran: Okay, Jennifer Westacott, just on that, the tax cuts, are they profligate or are they the stimulus we need? You know, the government wasn’t a big fan of the $1,000 cheques during the GFC, but essentially this is going to be a $1,000 cheque for people at budget time.

Jennifer Westacott, chief executive, Business Council: Well, that’s right.

Fran: It’s not a one off.

Jennifer: But there’s two parts to this. There's some serious payments to people in this year and then there's some quite substantial structural reform moving everyone to 30 per cent, so 94 per cent of people to 30 per cent. That's big structural reform obviously that’s years out. But no one should underestimate that these tax brackets have been quite incentive sucking. And I think if you kind of take Nicki's point about a slowing economy and then you take the point about slowing wages, higher cost of living, you know, it's crucial to give people money back and obviously encourage consumer spending. So, there is a growth effect of the tax cuts. I agree with Nicki. I think the infrastructure stuff is very strong and you know, I think some of these things go unnoticed. Like how long is it since we've been talking about fast rail in this country and we've got some series projects happening, we've got this national rail agency, the projects in the city deals. I mean these are very important things and they've been a kind of pattern for a long time. I think the surplus is crucial. I think people forget why it matters to be in a surplus. But to Nicki's point, and this is the point we were making yesterday, to pay the debt down to zero, you've got to assume we are going to have 40 years of uninterrupted economic growth or no big slow down at some point given the volatile world, the slowing of China.

Fran: Are you saying voters shouldn't believe that?

Jennifer: No, no, I just think that that we've got to make sure that we do all of the work on, on keeping the pro-growth stuff happening. Now, the one thing that I'm disappointed in the budget, there's no economy wide push to get investment up, which is still 1990 levels as a share of GDP. But you know, I'm not being cynical about, I think the budget's very good and very responsible. I just think now the choice for whoever wins government is to keep the discipline but keep the focus on the pro-growth spending because if we don't get the growth, you know a lot of these things get very vulnerable overtime.

Fran: Okay, Cassandra Goldie do you think this budget is good and responsible?

Cassandra Goldie, chief executive, Australian Council of Social Service: Well, I don't, I think the budget has again turned its back on people in the lowest incomes. And the scale of this tax cut package is irresponsible when we look at the potential risks over the medium to long term. The scale of the tax cut package once it's all in place, absolutely puts essential services at risk. We’ve already got huge gaps in, I mean there's a modest in mental health, but actually the big gap is about $2 to $3 billion per annum age care, again, a drop in the ocean in terms of the backlog for people needing home care packages. So, we've got to see this for the risks that it's putting into this budget. If there are, you know, the so called economic headwinds around the corner, we know who's going to pay the price every time the budget gets tight. It's people on low incomes, essential services, community services that get cut out of the budget. And of course, absolutely nothing for people in the lowest incomes. Newstart, it's a travesty.

Fran: I want to come back to Newstart, but can we just stay-

Cassandra: With their very generous tax cuts for people on the high end. Let us not lose that picture because it’s really crucial, 11,000 once they’re in place per annum.

Fran: We will get to that flattening of the tax structures, is it, is it a positive or negative, but that's down the track a bit but I just want to go to one thing you mentioned that there is some money for mental health. We spoke to the Prime Minister earlier. He singled out the $461 million for mental health as a thing he is especially proud of in this budget. Let’s hear him:

Prime Minister Scott Morrison: I don't know of a family in this country, that in some way through a friend or God forbid directly in their own family's experience, that they've been touched by youth suicide. That's what a surplus does. That's what a strong economy does. That's what the thing I'm most proud of in this budget that we're going to take on the challenge and combat youth suicide in this country because it's taking far too many of our young lives.

Fran: So, that was the Prime Minister earlier. Cass Goldie do you give the government the points for this youth suicide package?

Cassandra: Well, it isn't enough, Fran. I mean, I'd like to say it's going to really change the picture here, but it's $100 million per annum. The estimate is we need about $3 billion-

Fran: Is the focus on indigenous youth suicide because that's been the story, that's shocking story of our nation in the last [crosstalk]-

Cassandra: Yes, it has but if you look into what's been committed there in terms of the specifics, it's about $5 million over the forwards for, you know, $5 million not $5 billion, $5 million has been put in there for indigenous specific youth suicide prevention. This $100 million, we don't dismiss it, but it's a kind of a sign of saying, okay, and how are we going to keep that going? We know the gap is huge in the country, in this area, and so these are the choices we're making, and we're very worried with the tax arrangements and we’re not going to be able to continue to invest what we're going to need to tackle youth suicide in Australia.

Fran: Nicki, I’ll come back to you in a moment, but Jennifer Westacott, just on this, this spending $5 million for indigenous youth suicide. That doesn't sound like a lot. There's not a lot of money if any money for this for our university sector. There's a few big sort of gaps in here for-

Cassandra: Dental health.

Fran: Dental health is one. But even on the pro-growth message that you were talking about, investments in R&D investments in our universities, not there in this budget.

Jennifer: I think the stuff on VET and it's great to see a bit of a skills package emerging. It’s great to see VET-

Fran: It's not a lot either.

Jennifer: And I think the challenge is that we've got to actually get these systems fixed, particularly the VET system and you've got to get, you know, a common information system across VET and universities, you've got to get a common funding model. These are big reforms. They take a lot of cooperation across the federation. Mental health is good to see. I'm a big initiative there, but again, this is one of these things that, you know, if we could ever revive the COAG process, you've got to put mental health and VET kind of right up the front because these are big system failings, particularly mental health. It's crucial that we don't dismiss good ideas. I mean, we're always going to have a debate about more and I agree with Cassandra on Newstart on which we should be doing more on some of these areas, but if the economy starts to falter, if the economy slows down, if unemployment goes up, you cannot do some of the things Cassandra's talking about. You just simply can’t. So, what we want to see is a continuation of budget discipline, pro-growth, and then of course making sure that we make the provisions on things like Newstart on mental health, but we also need system change on mental health. I chair Mental Health Australia and I know quite a lot about it. You know, we need a series kind of system change.

Fran: We will have an ongoing discussion about mental health as we do on this issue. Nicki Hutley, the flattening of the tax system because the big pitch from the from the Prime Minister and the Treasurer is that by 2025, 95 per cent of workers will pay a tax rate of no more than 30 cents in the dollar. The treasurer, last night said this is progressive that the top quarter I think of taxpayers will be paying the bulk of the tax in this country. Is it progressive? Is it a sensible move and one we have to make because I'm sure Cassandra Goldie is going to tell me in a moment she thinks this is the wrong direction.

Nicki: Well, I'd agree with Cassandra, I mean by definition a flatter tax system cannot be more progressive, it's just a contradiction in terms. And if you say that the, you know, the top, whatever it is, 10 per cent is paying, you know, 30 per cent, the question is how is, how much is that relevant to relative to what the top 10 per cent actually earns. It's not, it's not about how much they're paying, it's about how much they're paying relative to how much of the national income they take. And that's still not quite balanced, right. And just to get back to that-

Fran: So, do you support this flattening of the tax to the 30 per cent rate by 2025?

Nicki: No, I think there is, you know, we need to provide incentives for people, to keep earning and to push themselves up, but it's not, to me, we've got to be about fairness. And I think this is, you know, the budget is, it shouldn't be about political brinkmanship and, you know, some sort of magic show. It should be about a genuine statement. It's a compact too for the government to address market failures and to address inequality in the country. And we don't see that. We don't see those statements. And you know, I'd actually like to do away with the budget night, for as fun as it is for us economists, and have more considered statements, something that's, you know, a state of the nation type address as the Americans have and have more considered budgetary measures throughout the year. One of the things that we don't look at, for example, with mental health, you know, we say, well, we've got to have a much stronger economy to spend more on mental health, but we’re not looking at is, you know, an economist will do a total cost benefit analysis. And what every economist will tell you is that if you spend money on mental health prevention, particularly in the early years, you will reap that many times over in avoided costs over the long term. And a budget that only looks at four years, doesn't allow you to really capture that because everybody's saying, quick, quick, quick, get to surplus now.

Fran: You're listening to RN Breakfast it’s 18 passed eight. Our guests are on our post budget panel, Nicki Hutley economist and partner at Deloitte Access Economics. Cassandra Goldie, who's the chief executive of ACOSS and Jennifer Westacott, who's the chief executive of the BCA. Now, Cassandra, I can see you champing at the bit there. A budget, if we're talking about mental health, a budget that doesn't really do anything to increase Newstart and it hasn't done it for a long time. And we now have all sorts of groups, including everyone in this room and beyond calling for Newstart allowance increase, a budget that doesn't do much to help the very lowest paid in this economy is not good for mental health, is it?

Cassandra: Well, it's not, not good for all of us-

Fran: I mean that's all of stress.

Cassandra: I mean, you know, three years ago I was sitting here and the treasurer was saying, we're not doing Newstart because you know, we don't have enough room in the budget and now all of a sudden we've got enough room for $158 billion in a tax cut package, and completely turning your back on doing anything to provide help for people on the lowest incomes. I mean, the business community is totally on board. Deloitte, Nicki, I know you have absolutely said the most important spend we should have in the budget is to increase Newstart.

Nicki: Absolutely, and can I just point out that it's $3 billion a year and of that $1 billion is returned back in terms of extra activity and tax collections over time, so $2 billion, compared to the 140 odd.

Fran: Okay, Cassandra go on.

Cassandra: And this is good economics as well. I mean, when we talk about the lowest third of households will not get anything out of the tax cut package. Let’s be very clear about what who we've got out there in the Australian community and we needed to lift up the incomes of people who have the least, the bottom 30 per cent of households. That's where we could and should be guaranteed every dollar would be spent in the real economy in the regions. This is what Deloitte’s great work has shown in terms of bang for your buck in the economic sense as well. It makes, it makes good economic sense to do. It certainly makes good social sense to do it. And I think it's extremely heartless for this government with all of the evidence before it and the community sentiment to do not a cent and yet deliver a 11,000 in cash back to people on $200,000. I really hope people in high incomes actually have a voice on this budget to say, actually, I don't need that tax cut at the moment. I'd much rather see that money being provided to people who have the least and ensuring that we've got excellent mental health-

Fran: Okay, Jennifer Westacott, you don't need persuading on the Newstart, you’ve been campaigning for this for a long time. It makes good social sense.

Jennifer: No absolutely, for a long time. It makes good sense, I don't want to see Australians pitted against one another though. I think, you know, if you're on $50,000 and you’re living in Western Sydney and you’re travelling every day and you're trying to get to work, you know, getting some money in your pocket and your wages aren't going up. You know, I don't begrudge those people at all I want-

Fran: There's no argument with that. But if you're on Newstart and you’re earning $277 a week and you don't get the $75 electricity payment that everyone else is getting-

Jennifer: You won’t get an argument from me on that. I've been arguing for Newstart to go up-

Fran: So why is the government doing this?

Jennifer: I don't know. I’m bewildered by it. But not just the government, Fran. Labor says we're going to review it. Well, what are you got to review? I mean, seriously, I mean, you know, it's so demonstrably unfair. I don't know why people have been excluded from the energy one off payment. I imagine-

Nicki: Josh Frydenberg just announced this morning that he will extend it to the Newstart payment [crosstalk].

Jennifer: Because I think the theory was, or the policy, you can understand the policy position. People are on Newstart temporarily, but you know the data doesn't support that 60 per cent of people are on it for two years or more, 28,000 people on it for 10, I do not understand why this is beyond us, this. but can I go back to mental health and, you know, it's something I actually know a lot about. We need to get big system change here. So, what everyone should be holding the two political parties to account, is that we need a serious mental health strategy, some serious mental health system change to deal with people in on early prevention, on housing, people in the acute inpatient system on suicides. You've got to start somewhere though. And, and I think, you know, the government’s, expenditure is good, but of course it's not near enough. But we have got to make sure that we don't start in these debates saying, in a pitting people against one another. We need a seriously strong economy, a growing economy. We need to get a focus on these big issues, but gee, we've got to make sure we fix these systems too because they're failing people.

Fran: Okay, we're going to run out of time in a moment. We are heading into an election campaign. We have two different economic, pretty, economic different pictures being offered by the major parties at the moment. I'm going to go around and ask each of you to give me a minute answer. Nicki, starting with you, we've got Labor's pitch, which yes, is putting up taxes, but Chris Bowen puts that as, you know, fixing up the loopholes and the inequalities in the tax system and putting that money more equitably across the economy to the lowest paid as well. Then we have the government, which is this blueprint we've got before us, $300 billion of tax cuts coming down the train, down the tunnel at us. And, you know, a fair amount of spending. Where do you, how do you, which of those blueprints do you see as the better for our economy?

Nicki: Well, I think given the long-term issues, particularly think the Parliamentary Budget Office is just pointing out the $36 billion extra that our aging population is going to down to cost us over the next decade alone. We have to be building more in the tax base or we have to lower spending. My preference is to cut some of the largesse that we've had. And so I think there's a slightly more responsible budget, a budget in waiting from the ALP. I think whoever wins government is going to have difficult decisions and that some of the largesse that we have seen today, we'll have to-

Fran: Do you mean in tax cuts when you're talking like largesse, you’re talking tax cuts?

Nicki: In tax cuts, we’ll need to be, but I mean, if you have a look at this budget, there's something in it for almost everyone except the big end of town, of course. And then, you know, even small businesses, so some of this is going to have to at some stage be wound back. It's not sustainable. We’ll have to see what Bowen gives in his budget reply speech, though.

Fran: Your minute is up. Let's go to Cassandra Goldie.

Cassandra: Yeah, we'll look at least what we've got from the opposition is some so called base broadening around the tax system. We've actually got some tax reform going on there. The housing tax concession arrangements, I mean housing affordability, if you talk about people on the modest incomes, it's the pressure on the housing costs and we are absolutely backing the changes to the tax reform tax arrangements in the housing area because it is what's still the big problem in getting the right profile on housing. And of course, on Newstart, we want to see in the budget reply, the opposition say we will do the right thing. It's clear we need that increase.

Fran: How much of an increase?

Cassandra: $75 absolute minimum per week. And let us make sure that we are not throwing money out the door in tax cuts to people, who, on balance budgets are always about choice, don't need them at the moment. And we're not going to have the money for services. And I think we've got more of a recognition of services at the moment from the opposition. But, let’s see.

Fran: Your minute is up. Jennifer Westacott, do you see Labor's plan as a base broadening or just lifting of taxes?

Jennifer: Well, I think it would be better if there was less ad hoc stuff in their tax staff. I mean, you know, this is what Ken Henry said, don't just touch negative gearing touch the whole treatment of savings. That's real tax reform. We just seem politically incapable of doing that. You know, I think the challenge for both political parties is credible discipline on the spending side. I mean, if we drop the ball on this now and the surplus, it gets compromised, you know, that is just going to make the sorts of things that Cassandra wants spending on, which I agree with her about, harder and harder and harder. But people keep forgetting, if you do not power up the economy, if you do not make it more resilient, if you do not make it more competitive, all these choices are going to get harder and harder and harder. We have got to grow the economy faster, and that's what our political parties should be judged on that people have got a credible plan to do that.

Fran: Jennifer Westacott, Cassandra Goldie and Nicki Hutley, thank you very much for joining us. It's a busy day ahead for all of you, so thanks for your time. That’s Jennifer Westacott, she's the chief executive of the Business Council of Australia, Cassandra Goldie is the chief executive of ACOSS and Nicki Hutley is an economist and partner at Deloitte Access Economics.