Fight Club on ABC 774 with Rafael Epstein (May 2016)

04 May 2016



ABC 774




RAPHAEL EPSTEIN HOST: Liberal Senator of Victoria he is Malcolm Turnbull’s Minister for Vocational Educational, good afternoon Scott.

SCOTT RYAN: G’day Raf.

EPSTEIN: Tim Watts is part of Bill Shorten’s team, he is the Labor Member for the seat of Gellibrand here in Melbourne. Good afternoon Tim.

TIM WATTS: Great to be with you Raf.

EPSTEIN: Scott I’ll start with you, is that the best advice the Government has got if you can’t afford a house, have a wealthy parent?

RYAN: I think to be fair I heard the interview and it was a light hearted part of a serious conversation that the Prime Minister was having with Jon. The Prime Minister has made a number of speeches before and supported by all the research in the area that says housing affordability is primarily an issue of land release and actually facilitating home building.

EPSTEIN: But he also criticised negative gearing in the past didn’t he, Scott Ryan, in different guises.

RYAN: But the point about housing prices though is that every report we have ever had says that, especially with population growth in a city like Melbourne, you need to facilitate housing development and in too many of our large cities around Australia we’ve had restrictive policies that force up the price of land which is the single biggest part of someone buying their first home

EPSTEIN: And I want to give you a chance to tell people what’s in the budget for them, but a quick response Tim Watts, even John Daley from the Grattan Institute, who strongly backs Labor’s plan, he doesn’t think it’s going to have a big impact on housing affordability.

WATTS: Well just on what Scott just said just then that there is some kind of a slip up that we need to read in context, let’s just understand 3 times in the last week Malcolm Turnbull has said something extraordinary on housing policy. Last week he did this press conference in Sydney that you alluded to earlier where he was showing parents buying a house for their 1-year-old child as some kind of model or paradigm of housing affordability. On Monday of this week he in Question Time said that negative gearing was a quote basic economic right- now I must have missed the Goldman Sachs declaration on human rights that included that one, but that struck me as peculiar. And then today, on the Jon Faine program Malcolm Turnbull told the people of Australia who are worried about housing affordability that they ought to just go to their parents and get them to shell out now. Malcolm Turnbull is not just out of touch, he is on another planet.

RYAN: This is confected outrage Raf. I mean, this is just, can we just expect and allow our politicians to be human. I mean, you can download and listen to the interview. I heard it live and there was a conversation, a serious one, between the Prime Minister and Jon and that was a tiny exert of it.

EPSTEIN:  Just a quick response Tim Watts. Housing is not going to become dramatically affordable. We can have the argument about whether or not negative gearing is something the government should pursue and you might want to have an argument on equity grounds, however Labor is not arguing that your changes will lead to drastically cheaper housing are you?

WATTS: Well Raf when you are dealing with these broad trends across our economy and our society, you need to ask the question of ‘is Government making things better or is it making things worse?’ Now at the moment our tax system is structured to give an advantage to investors over first home buyers. So if you’re buying your second, third, fourth, fifth, sixth house, you have an advantage when you are standing at that auction competing with people trying to break in to the housing sector for the first time. Now you can argue about the quantum of the impact that might have, but that doesn’t make sense to me as a structural way to deal with our tax policy.

EPSTEIN: Now look 1300 222 774; this conversation is going to go on until the 2nd of July. So, it’s going to be a long conversation. I am very aware that most of us cannot cram all of these numbers into your mind so if you have got a question, about what either side is proposing, or if they are not talking about what you would like your politicians to talk about, 1300 222 744. Scott Ryan, can I ask you without platitudes to give people your brief summary of what's in the Budget. It's constantly talked about as a plan, that it will deliver jobs and growth. But just tell me a few of the levers you are pulling that will actually have an impact on my life.

RYAN: Well, these levers that we announced last night, to use your phrase your phrase, build on what we've announced over the last six months. This started with our national innovation and science agenda, which was to empower investment in newer technologies, new jobs and education that actually gives people those opportunities. The second plank was to change competition laws to give small business a fairer ground with which to compete. And then, our defence industries announcement a couple of weeks ago will actually support high tech manufacturing right across the country. The Budget is the latest part of this plan. And so last night we had some tax measures, which are about fairness. They include making sure 500,000 Australians don’t pay the second highest tax rate because their wages go up with inflation. Where they would actually have to payer a higher rate of tax but really be no better off. Its 500,000 people that are affected by that income tax change. We're putting in place an expansion of the reduction in tax rate to small business and actually expanded the number of small businesses it applies to. Because, they are the people who really do make the difference in the employment market.

EPSTEIN: Okay slow down, I just don’t want to give people too many details. I want to ask you if this is a.. is this a fair question? That tax cut, or that tax advantage I suppose I should call it for those over 80,000, that affects maybe one in four, or one in five people. The negative gearing as it's currently structured, is used by about one in nine workers. So for every one nurse who is using it, nine are not. Is that a fair way to portray what you are offering? You have got negative gearing advantages: one in nine. That particular tax advantage helps one in four or one in five.

RYAN: Well when the current tax system was introduced under John Howard and Peter Costello, there was a strong commitment to make sure average tax payers stayed on the 30 cent tax bracket. Now average tax payers, there are various measures of them, but 500,000 of them by one measure are going to go through that this year. So this is about actually keeping the system fair and saying: if you're on the broadly described average earnings, and there are multiple measures, then you are not going to pay more than 30 cents in the dollar plus the 2.5 per cent Medicare Levy, you shouldn’t be pushed into the second highest tax bracket when you are on any definition of average weekly earnings. So that’s why that’s important. But the negative gearing debate we’re having, Raf, it shouldn’t just be focused on housing. And this is a very important point, Labor talk about it when it’s only about housing, but their negative gearing plan says if you have $100,000 of investment income off a $1m in family trust, you can negatively gear against that of as many houses as you want, but if you earn $100,000, in any job, as earned income, you can’t negatively gear. Labor’s proposal doesn’t just discriminate, and have an impact on housing prices. What it will do is also empower those who have huge investment income to continually negatively gear.

EPSTEIN: Ok, now Tim Watts, I will give you a chance to generally spruik your wares, as I gave Scott Ryan a chance with the budget. Scott Ryan is from the Government, he is a Minister. Tim Watts is one of Bill Shorten’s backbenchers. I just want to go to a few calls, 1300 222 774. Lyn’s in Melton, Lyn, what did you want to say?

CALLER: Yes, Hi Raf, Mr Ryan is saying that the cause of the unaffordability of housing is due to lack of supply.  Well, we’ve had wide scale land releases all across Melbourne. There is no shortage of land to buy, no shortage of home sites, and yet we’re still one of the most unaffordable places to live. So his argument is flawed.


RYAN: Well, one of the differences between Melbourne and Sydney is that Melbourne does have better land release policies than Sydney and that is why, particularly in the Northern and Western suburbs and South Eastern suburbs of Melbourne, houses are more affordable than in Sydney.  That’s a testament to our home town. But every research report talks about everyone that land release and facilitating development of lots both through the taxes and levies that Local and State Government supply to them, as well, is the prime driver of housing affordability and that’s not contested by anyone in the sector.

EPSTEIN: Ok, let’s get one more call before we give Tim Watts a chance to spruik his side. Toby’s in Dromana, Toby, what did you want to say?

CALLER: Yeah, I’ve got two quick things to say, firstly, why is it just the smokes that get the extra tax? Yes, I’m a smoker and I probably shouldn’t smoke, but why not enforce a tax that covers the majority of Australia, which would encourage a lesser tax increase and everyone contributes. Why is it just the smokers, I think it is a bit of decimation. And the low income, $78,000 is the average low-income earner, that’s like $30,000 more than what I earn and I don’t know anybody else that’s on more than $50,000. I think you’ve got to stop including people that earn over 100, over $200,000 a year, that’s a bit wrong.

EPSTEIN: Ok, I take your points, your income is about $45,000 Toby, I might put that to both our politicians, because there is a smoking tax coming from both. Tim Watts, I’ll start with you. Labor got in first on the tobacco excise increase, he’s got a point doesn’t he?

WATTS: Well, look, Toby, I hear you, but I’ll say to you, as you’ve said yourself, you need to smoke less, the issue with tobacco taxes is that generally, as a Government prefer to tax things that we want people to do less of.  Putting a tax on tobacco achieves good public health outcomes, as well as raising revenue for the Government.

CALLER: Isn’t it a human right that we are allowed to smoke? I mean we’re abiding by the rules by not smoking at the MCG or in public places. We have a human right to do it, we’re not harming anybody else apart from ourselves.


WATTS: You’re right, you can smoke, but you’ll pay a higher tax rate for it. This relates to the second point you made though, because tax decisions are about trade-offs. If you increase tax somewhere, you might be able to reduce it somewhere else. Now the point that you identified, that you don’t know anyone earning around this $80,000 point, gets to the nub of the real deception that the Treasurer is pursuing when he says that $80,000 is average earnings in Australia. He is using average, as though he is implying that is the median. The difference between average and median is that median is the income that 50% of people earn more or less of, right? So the median is substantially less than the average earned income. So when he talks about average incomes, 75% of Australians earn less than the average income, so increasing tax on tobacco helps us reduce taxes in a fairer way, in other places.

EPSTEIN: Follow up question, Tim Watts. I don’t want to get into who is right or wrong on the amounts of money that will come from raising the tax on cigarettes.  I think you’re both planning to have $40 a packet by 2025, but let me ask you this question. It looks like Treasury is saying you will receive $20 billion less, that’s a figure over a decade, that’s $20 billion less than you thought you would receive with that proposal. Would you concede that there is another $20 billion you are going to need to find over a decade?

WATTS: Well Raf, you're exactly right to say that this isn't a questions about who's right or wrong, we costed out tobacco policy that has now been adopted by the Government after they mocked it when we introduced it. But when we costed that we went through the Parliamentary Budget Office, and they went through the same assumptions that the Treasury uses in trying to work out how much...

EPSTEIN: But the Treasury is the authority, isn't it? So they have said you are going to need to find that extra money, aren't you?

WATTS: Well, Treasury has now changed those assumptions, so we will factor that in to our policy development process and change our settings.

EPSTEIN: But that's a big problem isn't it, you've only about $100 billion worth of measures, so if about one fifth of them are gone, that's an issue, no?

WATTS: We have substantial headroom in the amount of revenue and savings that we have announced compared to the new policy commitments that we have made Raf.

EPSTEIN: Quick response, Scott Ryan.

RYAN: Well, when, the first point I'd make is that Malcolm Turnbull actually proposed this policy in 2009 in his budget reply to then Treasurer Wayne Swan when I was first in Parliament. But when it comes to these costings, Treasury is the authority, Treasury collects and measures the revenue, but this is just consistent with that we have seen from Labor when they were last in office. They make these heroic assumptions about revenue, they promise spending against them, and then they wake up a year later and go 'oops, the money didn't turn up'. There's no small c conservatism to their financial management. There is always a risk with Labor that they simply make promises that aren't reflected in reality, and that's what we saw last time they were in office. This is a massive issue, $20 billion, it is not a rounding error as one Labor person described it.

EPSTEIN: It's a fair bit of money. Look, I will give Tim Watts a chance, he's a Labor backbencher, Scott Ryan is the Minister for Vocational Education. Okay, Tim Watts, I gave Scott Ryan a chance to spruik the Budget, we know a fair bit about what Labor is going to do, people may have heard of a Royal Commission on the banks, we have talking about negative gearing, how is any of what you are proposing going to help? Which levers are you going to pull that I am going to see an impact on?

WATTS: Well Raf, what we say from the Treasurer Scott Morrison this week, I've characterised it in football terms as it was like the Richmond Budget. Now I hate to say that because my mum is a Richmond fan but it was a budget with high expectations that was met by mediocrity and disappointment. What you will see from Bill Shorten on Thursday night is what I'd like to call the Western Bulldog's Budget. I have a bias as a Footscray man, but it will be a budget that doesn't just reply on a few highly paid stars, it's a Budget that invests in bringing everyone along and having success by ensuring that we all prosper. That's what Bill Shorten means when he talks about putting people first. We've committed to a extraordinarily large investment in our schools, because we believe that's way you drive growth and prosperity over the long term. We have committed a baseline on university funding, because we believe that's the way that we create growth and wealth in our economy over the long term. We have committed to substantial infrastructure investments to unlock productivity in out cities. Again, from the Budget earlier this week, Victoria was a real loser in this respect, we had less than 10 per cent of Commonwealth outlays on infrastructure and we have made it very clear, Anthony Albanese our Shadow Transport Spokesman, that we will make the Melbourne Metro the number one priority for the Federal Government. What we have seen from Malcolm Turnbull is a lot of talk but very little action. The $958 million dollars that was allocated earlier this week to the Melbourne Metro doesn't even cover the cost of the Yarra Railway Station that they are demanding it built as part of that funding.

EPSTEIN: Let's have a question from Mark in Burwood, because I think it directly addresses what Labor proposes. Mark, what did you want to say?

CALLER: On the radio this morning I heard that Labor was attacking the tax plan of the Liberals regarding the 25 per cent in 10 years, which is a good thing I recon.

EPSTEIN: They company tax rate?

CALLER: Yes, it will put us on a level playing field with other islands so we can attract more investment, which is a good way to grow the economy and grow the jobs. Then we will have the money for health and education. And for now Labor are splashing money around saying they are going to pay for health and education, but we are not in a position, we are in deficit. What is the reason we do not want to support and reduce the tax company tax rate under them and increase the economy for the country?

EPSTEIN: Tim Watts?

WATTS: The answer to that is the first thing to note is that we do support a reduction in the company tax rate for small businesses, that's businesses with a turnover of up to $2 million. What the Government is proposing is substantially increasing that turnover threshold to get that reduced company tax rate, in the short term to $10 million, but over the life of this policy to $1 billion. A billion dollars turnover might be a small business in Goldman Sachs terms, but it is not a small business in any normal Australian's conception. So what we have said, is that we will support a reduction in company tax for legitimate small businesses, but we won't go along with this great fiction of $1 billion small businesses. The crucial point to note there is that not even the Treasurer can tell you what this policy will cost. They have rolled this out over a 10 year period...

EPSTEIN: But it's a decent aspiration isn't it?

WATTS: Well how much does it cost Raf? Scott Morrison couldn't tell us in Question Time today, Mathias Cormann couldn't tell us in Senate Question Time today. It's not outlined.

EPSTEIN: Scott Ryan can you address that because you often criticise Labor for making 10 year projections they cannot account for. If you can't say how much that will cost why should they support it?

RYAN: Because we cost things over 4 years in the budget estimates, we don't actually look at the cost of childcare rebates over 10 years, of the Medicare system over 10 years, they're not in the Budget.

EPSTEIN: It was the Coalition's budge that had a 10 year figure for health and education that is used against you all the time.

RYAN: But they're very loose projections because we pointed out where the unfunded promises were made under the previous government. We legislate lots of policies in this country through the Budget, through programs that people take for granted every day that aren't costed out over 10 years. The reason this 25 per cent tax rate going to all businesses after 10 years is so important is that investment is what drives growth. We don't compete with the higher tax countries of Europe, or the higher corporate tax rates of the United States, we compete primarily for investment in our region. They have much lower tax rates. We are above the OECD average, we are no longer a competitive place for investment, and that is actually costing people jobs. It was Wayne Swan's Henry Tax Review that actually pointed out that the biggest burden of lower business investment actually falls on lower wages. We need to attract international capital to drive our growing services sector, to take advantage of our trade agreements, and that’s why we have set this as a target over 10 years, and we have offset all the cost over the Budget period over 4 years.

EPSTEIN: Can I put this to you Scott Ryan, and tell me if this is a fair question as well. If you average out the unemployment rate over the terms of the Labor Government and over the months that you have had so far, I'm just trying to give people an idea on jobs creation I don't know if this is a fair comparison or not, but under Labor from December 07 to September 2013, so that includes the GFC, they've got a lower unemployment rate, it's about 5.1 per cent. Under you, it's about 6 per cent, so the unemployment rate is higher on average under the Coalition than under Labor. Isn't previous performance a great indicator of future performance?

RYAN: Well, one of the important things about the economy, and John Howard and Peter Costello always gave credit to Bob Hawke and Paul Keating for many of the reforms they enacted a decade before the Howard Government got elected is that there is always a lag effect. So, over the last year we have had 300,000 jobs created, now that's the fastest jobs creation in nearly a decade. So the policies you put in place sometimes take time to take effect because they effect business confidence, but they also can have an effect in a negative way and a lot of what Labor did, we had some terribly low levels of investment, particularly by small business while Labor was in office...

EPSTEIN: So you're saying that all of bad job numbers are a result of Labor's policies before you are all of the good number are to your credit?

RYAN: No, what I'm saying is that there is a lag effect of economic policy. So bad policies take some time to turn around, but last year in particular we had the fastest job growth we have seen in nearly a decade because some of the policies we enacted a year earlier were starting to take effect.

EPSTEIN: To clarify, that is the number of jobs created per month, that's the rate you're talking about?

RYAN: That was 300,000 jobs in the last year.

EPSTEIN: So that's the number of jobs growth over 12 months. Ok, Tim Watts just a final query to you, I mentioned the $80 billion health and education that you constantly talk about. Scott Ryan may not be happy that it was included in Tony Abbott's first Budget, however, you constantly talk about an $80 billion cut you never pledge to replace that money. Why should we listen to you talking about it if you have never pledged to replace it?

WATTS:  We have outlined in detail where the out years of Gonski will be coming from under Labor.

EPSTEIN: You're not putting the $80 billion back.

WATTS: Well the $80 billion is both health and education. Now we have released a very detailed schools funding policy announcement. There will be further announcements from Labor on health policy to come before the election date. But we have been very clear in outlining how we will be funding the biggest investment in Australian schools for two generations that we will be taking to the next election.

EPSTEIN: Gentlemen I will leave it there, thank you both for your time.

RYAN: Thanks for having me Raf.

WATTS: Thanks Raf.