Event: Jennifer Westacott, Michele O’Neil and Danielle Wood interview with Patricia Karvelas, RN Breakfast, ABC Radio
Speakers: Patricia Karvelas host, RN Breakfast; Jennifer Westacott chief executive, Business Council of Australia; Michele O’Neil president, ACTU; Danielle Wood chief executive officer, Grattan Institute
Topics: 2023-2024 budget; housing; inflation; JobSeeker; welfare support; business investment; skills

E&OE

Patricia Karvelas host, RN Breakfast: Joining us this morning for a look at how the budget will affect workers and employers and the economy more broadly in the years ahead is the Grattan Institute CEO, Danielle Wood. Business Council of Australia chief executive, Jennifer Westacott and Australian Council of Trade Unions, president Michele O'Neil. Welcome to all three of you and beginning with you if we can, Danielle, did the government deliver the budget the economy needed?

Danielle Wood chief executive officer, Grattan Institute: Look, I think they were very aware of the broader economic circumstances in delivering this budget. There was obviously a huge amount of pressure on them to deliver cost of living relief, both across the population and particularly for the most vulnerable. They have done that to some degree. But they've tried to keep it modest given the risk that too much spending would add to inflation. So even though there's likely to be some inflationary impact from this budget, they have kept that relatively contained. And they've been quite responsible in terms of the big revenue windfalls they've had in they've largely banked to the bottom line. So, I think as a sort of macroeconomic document they've done relatively well.

Patricia: Jennifer, the government's $4 billion surplus has been labelled small and politically motivated. But how important was it that it delivered a surplus?

Jennifer Westacott chief executive, Business Council of Australia: I think it's really important to deliver a surplus. It builds confidence in markets, it builds resilience in the budget, it gets us back on track. I think Danielle’s point in banking 82 per cent of those revenue gains into the bottom line all strengthens the budget. The issue is how to sustain it. So for us, there is a bit of a missed opportunity in the budget about driving productivity, driving investment. Which is going to drive higher economic growth, which is going to get us back into sustainable surpluses, and obviously give people higher wages. But no one should criticise the government for getting back into surplus and giving us that resilience and that buffer. But we have got to remember, why are we in surplus, people are working harder and less unemployment, of course, and companies are paying more tax.

Patricia: More tax is definitely part of the story. Michele, surplus, the Greens have been critical of it saying that, I'm paraphrasing here, but essentially, the government's been stingy in its welfare increases, because it wants to deliver this political surplus. Do you think it's important to deliver a surplus?

Danielle: Well, what I think's important is that we have a budget that delivers for people, and then that delivers for the economy. What we've seen in this budget is, in fact, what's delivered the surplus is that we've had more workers in work, and wages finally starting to rise a bit. That's been the surprise element of putting the budget in better shape than everyone expected it to be. So, it shows that if you get more people working, if you get higher wages, it's actually good for workers and the whole economy. So, that's a really critical part of the story of this budget. And we think there's more work to be done on wages that 15 per cent wage increase for aged care workers is so critical, some of the lowest paid most undervalued workers doing the most important work in the country. But there's more that's needed for the care economy and more that's needed for wages generally. That the government has supported that important lift that's needed in the minimum wage and of course, the bargaining and equal pay rights are there. But we want to see changes that are going to deliver more action on wage theft, and also more action to address loopholes that lead to insecure work. And of course, the government could pay its own workers more. So, there's the capacity for them to lead the way on keeping wages moving by giving public sector pay increases.

Patricia: The government forecasts a $13.9 billion deficit next year with the losses increasing to the mid-30s for the next two years. But economist Chris Richardson says he wouldn't be surprised if Labor delivered another surplus next year. Because you know, record commodity prices could happen again. Danielle, do you think it's within range?

Danielle: It's absolutely within range. So, at the moment, they have made the commodity price assumptions. They are assumptions, not forecasts at slightly less conservative than they used to be and they used to be extremely conservative, but they are still conservative. So, if we see commodity prices, even if they come off a bit, they'll still be much above those budget assumptions, and you can pretty easily close a $13 billion gap. The same would be true if the labour market stays stronger than expected that is expected to come off in the second half of this year as economic growth starts to slow so it's certainly plausible that we could be seeing another surplus next year.

Patricia: Let's go to the JobSeeker increase of $40 a fortnight Jennifer. The BCA has also long been calling for an increase to JobSeeker. This morning the Prime Minister also mentioned the fact that we're at record low unemployment. And, and there are lots of job vacancies and he wants to invest more in that area. Now, that's a critique also of the Opposition, but the Prime Minister is talking about a review and doing more here. What more can you do to fix that? And do you need a bigger raise to the unemployment benefit to get people in a position where they're job ready?

Jennifer: Yes, I welcome what the government's done. I think they've been careful. You've got to fix this system because it's not working. There are nearly 40,000 people on JobSeeker who have been on it for 10 years. That tells you the system is not working, something is wrong there. We need to invest in skills, we need to get people that are targeted for jobs that they can get. We need to stop sending people to jobs that they have no chance of getting. There’s a foundation skills package in the budget, which is really important. That should be targeted to people who are kind of very disadvantaged job seekers or people who've been on JobSeeker for a long time. Over time, we need to get JobSeeker at 90 per cent of the age pension, which I think we all agree on. We’ve got to do that in a staged way timed with proper reforms to the way the job services system works. For example, why are we giving providers payments after someone has just been in a job for four weeks? When they should be in a job for 26 weeks and it shows that they'll be in the job for longer. Why aren't we giving long-term unemployed people a training guarantee? So, they can upgrade their digital skills and get into the workforce. It's a whole package. But boy, do I support putting up JobSeeker.

Patricia: And even more in the future?

Jennifer: Yeah, I think it has you have got to do these things in a staged way, and you've got to kind of do it in conjunction with fixing the system. Because we do have a very, very low levels of unemployment. So, it should be possible to get work, but many of these people are extremely disadvantaged. So that is why I think a lot of people would say it's counterintuitive to raise JobSeeker with low unemployment, to me it's not. These people cannot get work, and they are extremely disadvantaged.

Patricia: Michele?

Michele: Look it's a start on JobSeeker but more needs to be done to lift people out of poverty. Because one of the things with that payment being so low, is that you don't have the money to be able to pay rent, you don't have secure housing, you're missing meals, you can't get the data on your phone to be able to look for a job. You can't pay for the transport to go to job interviews.

Patricia: So, $40 a fortnight does it really make all of those things more achievable?

Michele: It's a start, but it is not enough. There is a need to continue to lift JobSeeker if you can't participate properly in the way that Jennifer's describing, if you're in poverty, and we should be able to address this, like it's essential.

Patricia: Danielle, do we know what happened here inside of government? I mean, I know that you're not a political correspondent, you're an economist. But I'm intrigued because the Treasurer really held the line, no increase, no increase, then something shifted. Was it because they found out that there was kind of rivers of gold coming their way and they could do something?

Danielle: Look, I am just speculating here. But certainly we know that the treasury numbers and revenue numbers often come in quite late. I think probably the news that the budget was likely to be in surplus hit quite late in the piece. When that news hit, undoubtedly some of those pressures on the government to do something for the most disadvantaged, became even stronger. So, I think it would have been very difficult, given the government was posting a surplus not to see at least some movement for those people that are really doing it very tough.

Patricia: Michele?

Michele: I think that's true. It is important that you look at fairness and equity and this is one of the reasons why we say that the stage three tax cuts should also be reviewed. Like we don't think it makes sense to have a system where we need to be spending more, we need to be supporting people more. We've got big calls on the budget in terms of health, in terms of NDIS, in terms of lifting wages, all of these things are critical for people in our economy. But we've got to have a fairer tax system and a tax system that's going to give $9,000 to the richest people in Australia in a tax break and zero to an early childhood educator or an aged care worker is not a fair system. So, looking at what's going to bring in more tax and we welcome the lift in the Petroleum Resource Rent Tax – that's important to see those offshore gas companies starting to pay a bit for our resources that they're making huge profits out of. Also, there's work on multinational tax that we welcome too but those stage three tax cuts have got to go.

Patricia: Rent assistance is up 15 per cent and there's been a bit of a discussion about whether that might be inflationary potentially. Do you have thoughts on that Jennifer?

Jennifer: Look, that was the point I was going to make. I think you've got to see that JobSeeker increase, combined with the increase to rent assistance, combined with the energy efficiency relief, like it's a package to assist low-income workers.  I think there's always a risk that you put more money into the economy, and you run the risk of increasing inflation. Just on the stage three tax cuts, I disagree with Michele on that. To me the budget shows why you should go ahead with the statutory tax cuts, because once again, it's the silent tax of bracket creep, the silent tax on people doing a bit better, that is paying for the budget to be back in surplus. Now people will say, well, they're inflationary, too. But they're not due to happen till July next year, when you look at the forward estimates, inflation is back in the RBAs target range. So, I think we've got to proceed with that. Then this massive simplification of the tax system, which is just too complex, too difficult. But I just think we've got to think about the cost-of-living things as a package, you can't just take JobSeeker or energy efficiency, if you're a low-income person you get all of that together.

Patricia: There's not just one element.

Jennifer: That’s just one element and I think that's a pretty smart thing that government has done.

Patricia: Yeah, I think I think that's right. There is more than one. But back on the stage three tax cuts Danielle. If you look at the forward estimates, and over the next 10 years, and the projections, the tax take is huge. The tax take from individuals and bracket creep is part of the story. When you look at it in the context of the stage three tax cuts, does it change your view that they need to be altered?

Danielle: No, it doesn't change my view. I mean, I'm partly between Michele and Jennifer here. I think, because we don't index tax brackets, over time, we periodically need to give tax cuts to give back bracket creep. But you know, still, when I look out over that medium term outlook, we still have a problem with structural deficits and I just think those stage three tax cuts are too large, given that fiscal position. So I wouldn't eliminate them, I would pair them back, essentially, by leaving the 37 cent tax bracket in which would just reduce the size of the tax cut for those over $120,000. That's the group that that's been overcompensated for the impact of bracket creep at the moment. That to me, would be a more balanced package. So, you don't just let bracket creep remain unchecked. But you have to give cuts that are consistent with fiscal responsibility, and they will be inflationary as well. So yes, they're a bit down the track, but we're still expecting to see inflation quite high then. So, trimming the size of the package is also I think, going to be good macroeconomic management.

Patricia: Michele, on bracket creep, if you do look at the figures in the budget, a lot of the heavy lifting is being done by individual people like tax, people who pay tax and just have a job in this country. Do we need to really revisit the mix here?

Michele: Look we're concerned that still too many large companies in Australia that pay no tax and so that's not talked about a lot in the budget. But the announcement about that OECD that there should be at the very minimum a 15 per cent tax payment by corporations. Now we've got a higher tax for companies than that. But some companies somehow in our system, managed to still not pay tax. So, everything that can be done that it makes sure that big business and corporations are doing their fair share of lifting here because we can't rely on ordinary working people to be the only people paying their tax, which seems like where the sort of imbalance is at the moment. What we know is that company profits were up 21 per cent last year, while wages went backwards in real terms. So, if we want to see a fairer system on tax, that's the direction we need to go in.

Patricia: Danielle, could you just explain. I just got a text message from a listener asking what is bracket creep? And I think sometimes we do use language that perhaps people aren't entirely across, could you just explain what it is and why it matters?

Danielle: Yeah, sure. So, when your wage goes up over time some component of that is compensating for inflation. And some component is what we call a real wage rise which actually enables you to buy more, because the tax brackets are done on nominal terms. As your total wage rises, including the inflation component, more and more of your income is pushed into higher tax brackets as your wages grow and that means your average tax rate is going up. Some of that is because you can now purchase more. Some of that is just because of the impacts of inflation so that the tax take is essentially bigger on your real wage over time unless you compensate by shifting the tax brackets or giving tax cuts.

Patricia: Thanks for that. I just think it helps people out a little. Look the one part of the budget where I felt perhaps the government was a little undercooked and correct me if you think I'm wrong, is housing. We've got clearly big numbers of people coming into the country and I know that there's a consensus at least in this room that there should be an increase, especially after the pandemic. But there isn't enough housing stock and there isn't enough planning around that. Jennifer, do you think enough was done? Sure, rent assistance is up. Yes there's this bill in the Senate, just to be clear, they have got some measures. But do we need a more sustained housing policy?

Jennifer: Absolutely. I mean, there's a build to rent initiative, which is great. Because we've done no innovation in housing for a long time in Australia. I say this as someone who ran the housing department in two states it’s something I know a lot about. So, first thing is we've got to release more land; we've got to get the planning system to happen faster; people are waiting two years to get their development application; waiting three years to get a subdivision. There's a lot of tax on those on those subdivisions. So a house has cost $200,000 before we've actually started building the house through taxes and charges. We've got to innovate on housing product. We don't do enough innovation on prefabricated housing, like the Germans do, where a house can be set up in a week. We don't do enough on really innovative financing packages. So why aren't we getting the superannuation, the industry super funds to work on things like build to rent and on rental schemes. We just need a whole of approach on housing, we always do things like stamp duty relief, which I still think we should do. But we always do something on the demand side, nothing on the supply side, and we are where we are. Then I just want to pick up on the company tax bit though. Because, over 50 per cent of the revenue that is saved the budget is from companies. The Tax Commissioner says in terms of the large corporates, there's only about a $2 billion and that's a question that's about people challenging their tax. In terms of the PRRT we're talking about companies paying billions and billions and billions in taxes – already a super profits tax. So, we've got to be careful here. I'm all for companies paying their tax and meeting their tax obligations. But we have now got to compete with the Inflation Reduction Act in America, it's going to suck investment out of this country. We’ve just got to be careful about overstepping here and killing off investment incentives, because those investments will go somewhere else, and the jobs will go with them.

Patricia: Michele, returning to the housing issue. You represent workers who obviously are fighting for pay rises, but if they can't afford housing, or access housing near their jobs they’re stuffed right?

Michele: Housing is a massive issue for working people and not just interest rates, but of course rents. Those huge increases in rents as well as interest rates have just made it incredibly hard for people to get by. So, we need to do more in terms of the supply side, we need more housing stock and more affordable housing stock and more community and public housing stock. So that it actually addresses the need. Not just have measures that are going to make housing more expensive, which some of the existing programs do. We think the bill that's before the parliament, of course, there's more that needs to be done, but let's get that done. Then build on doing more, it's essential, and it's urgent. This is not something we can wait around about this is an urgent need affecting Australians today. It's only going to get worse unless we invest more. Of course, the federal and state governments need to work together on this because of the planning issues and the density issues and we’ve just got to get on with it. The other thing I think, is that people talk about older women being the people that are affected by the largest increase in homelessness. The budget also does some important things around women. I think that recognising not just the pay increases for aged care workers, but the support for single parents, increasing that cut off from 8 to 14 is a is really important change which is long overdue. Also the work that's needed to really keep that wages moving in the care economy as the next stage of that. All of this is about cost-of-living relief, there's some good measures in there. But of course about gender equity too, and things like wages, housing, all of these matters, particularly affect women in a different way.

Patricia: We're out of time, but it's been such a great conversation. Thanks to the three of you.