WAYNE SWAN MP
MEMBER FOR LILLEY
CNBC ASIA SQUAWK BOX
WEDNESDAY, 9 MAY 2018
SUBJECT: 2018 Budget
BERNIE LO: Speaking of Australia – a turning point for debt. Australia's Government is unveiling its annual Budget so it can return to surplus a year earlier than originally forecast. And they are also offering tax cuts that are starting in less than two months. That is most certainly going to be welcome relief to those who, presumably, need it most.
MATTHEW TAYLOR: That's right Bernie, but they are not actually going to get that money until a year's time – so into 2019. But that was one of the features, of course. The Budget released tax cuts for low- and middle-income earners; of course, kicking in July 1st, but the payment's going to come as a lump sum at the end of the financial year. Significant changes, as well, to the income tax space out to 2024. Really flattening the tax system and removing one tax bracket as well – that 37 per cent tax bracket; the second-highest marginal tax rate. Removing that altogether, this goes right up to 2024. You mentioned the return to surplus – the Government's calling it a balanced Budget next fiscal year with a small surplus of $2.2 billion. Out over the forward estimates, we see surpluses ramping up to around about $6 billion. The ratings agencies are, as you might think, considering the Budget and getting back to surplus in the foreseeable future – S&P is still maintaining its negative watch on Australia's triple-A rating. Moody's is saying that provided assumptions in the Budget live up to expectations, it does provide a positive step in improving the fiscal outlook.
But let’s get plenty more on someone who knows all about Budgets a lot more than me. It's Wayne Swan, the former Treasurer and Deputy Prime Minister of Australia with me here in the courtyard of Parliament House. Wayne, I appreciate you joining us as always. What did you make of the Budget in general?
WAYNE SWAN, MEMBER FOR LILLEY: Well there's been a substantial surge in revenue; something like $26 billion over four years. This is the first surge in revenue, the first real return of revenue, we've seen since the end of 2008. So the country has experienced a series of Budget deficits. So now the revenues have surged and the Government has decided not to fix a number of problems, they've decided to give a small tax cut at the end of next year really for most people of only ten dollars. But what they did decided to do was continue their $80 billion worth of corporate tax cuts, as well as flag very substantial tax cuts for the top end in personal income tax for people up to $200,000. So what this really amounts to is, I think, a Trump-like race to the bottom in tax, where the Government intends to continue to starve some of the productive infrastructure in our economy – particularly education and training, which really needs a surge of investment as well. It’s a good thing we are coming back to balance, but that is largely on the back of this surge of revenue. The Government is effectively spending a lot of money on these tax cuts and that is what the rating agencies would be worried about.
TAYLOR: Yes, it is something like $140 billion over ten years if you look at everything they've baked in. We'll get to tax in a moment or so, but I just wanted to speak to you, I guess more broadly, about returning the Budget back into the black. And of course it’s been a challenge to get there. And the next challenge is for the Government to pay off the debt, which is hundreds of billions of dollars. How much of a priority should that be?
SWAN: I think it should be a substantial priority and they've chosen to minimise that. Receipts are 25 per cent of GDP. We would've been in surplus when we were in Government after the GFC if we had receipts at 25 per cent of GDP. So the fact is, the money's coming in. They've taken a decision not to make a priority for further deficit and debt reduction. They've chosen to give $80 billion worth of corporate tax cuts and, in the longer term, very substantial tax cuts at the top end of the income distribution.
I think they are the wrong priorities for the country. Because I don't think what's going to drive growth will be those tax cuts at the top end; it's going to be the essential tax cuts for corporates to invest now and it's also going to be the spending power of people on modest wages – those people under $100,000, where there's two incomes. And they're not getting a good deal out of these tax cuts
TAYLOR: Well, exactly. It's something like $500 a year that you get. And the Treasurer says, "well, you know, that's some new tyres for the car, or perhaps one quarter of an electricity bill." Where would you have directed the windfall that the Government's got over the last six months?
SWAN: Well we've got some very big challenges in education, which I think goes to the core of our productive capacity into the future. They've slashed $17 billion out of school education. We've also got a crisis in aged care and I bet you anything that we'll be back here, later this year, talking about that crisis in aged care and the Government will have to respond.
Look, it's always a balance. We need to get the incentives right in our system, particularly in our tax system, both personal and corporate. But we also need to invest in that productive infrastructure. The productive infrastructure that drives the productivity that we need in the country.
TAYLOR: Okay. A lot's been made about this being, potentially, the final Budget before we go to an election. Does it reek of an election Budget to you?
SWAN: Well I think they've got their fingers crossed that they might actually get a break out there. I mean, they've got very substantial media backing domestically for their approach. But the truth is, it was only a few months ago they were actually promising a tax increase to people on low incomes. And they've backflipped in that time. It was only a few months ago that we had a deficit and debt emergency. That's out the window. I think they've got substantial problems with their credibility. You can't backflip overnight and suddenly say, "deficit and debt doesn't matter," when for years and years you've talked about a crisis and an emergency. I think they've got a credibility problem. The battle's going to be on. And we'll see who wins.
TAYLOR: Australian voters, though, often have particularly short memories. And if there's something that gets thrown their way, they're likely to perhaps jump on the bandwagon. Do you think that what the Government's announced today will go down well with voters? We were having a chat before and you said that you think that this flattening of the taxation system, where people that are on $40,000 are going to pay exactly the same amount [i.e. rate] of tax as someone earning $200,000 isn't going to go down well.
SWAN: If you're on $37,000 and they give you $4, and then you're on $200,000 and you get a massive amount of money, people are going to say there's something wrong with that, particularly when they are under cost-of-living pressures. So it is true that people out there would be looking forward to a modest tax cut, because there are price pressures in the economy. And they should get that immediately.
But they are trying to camouflage a massive restructure of the personal income tax system, which I think the Australian people will not buy.
TAYLOR: Okay, let's talk about some of the assumptions in the Budget. Because we always end up having this conversation – are the assumptions, are the predictions too rosy? Are they not rosy enough? The Government has said that it's kept commodity price expectations, for instance, lower, and that's been one of the reasons why we've seen this increase in revenue over the last six months. But on wages and growth – 3 per cent on wages, 3 per cent on growth – what do you think on that?
SWAN: Well, global conditions aren't too bad. So I think maybe 3 per cent growth is fine. But that assumption on wage growth doesn't gel with anything that's going on in the economy. They're not predicting the unemployment rate goes down. And we've got a lot of slack in our labour market, particularly when it comes to labour underutilisation. It's up to about 14 per cent of the workforce. A lot of people out there can't get the hours they need. And that is one of the factors that is leading to lower wage outcomes, along with the attitude of employers. So I don't think that figure on wage growth is credible.
TAYLOR: On wages, what can really be done? Because we've been mired in this benign wage growth situation now for the best part of two years, maybe even more. You mention underemployment, yet we've had record job creation over the last 12 months or so. So why are we still seeing slack in the labour market, and not getting this improvement in wages?
SWAN: The job creation we're seeing is only keeping up with the growth in the labour market. It's not what the Government says it is. We've got a lot of slack in the labour market, a lot of casualisation, a lot of insecurity, and I think that is one of the underlying factors behind lower wage growth.
And until the Government comes to grips with that – because it's out there advocating wage cuts for some of our lowest-paid workers in key industries by attacking penalty rates, so until those settings change – we're going to continue to have a lot of slack in our labour market. Our economy has not been as strong as it should have been and that's why I don't think these settings will work. More investment in critical infrastructure and more investment in human services would actually strengthen the economy and tighten the labour market in a way which this tax cutting will not.
TAYLOR: Okay. We're out of time, but as always, appreciate it. Wayne, thank you very much for joining us.
SWAN: Good to be with you.
TAYLOR: Wayne Swan, former Deputy Prime Minister and Treasurer there. Bernie, back to you.
LO: Yeah. Long and great career. Give him—give Swanny a big hug from me, Matt. See you later.
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Authorised by Noah Carroll, ALP, Canberra