Transcript - RN Breakfast



SUBJECT/S: Inclusive Prosperity Commission report; Foreign Investment

FRAN KELLY: A new paper from what’s called the Inclusive Prosperity Commission says unless inequality is tackled seriously in Australia, the nation’s economic growth, as well as our social cohesion, will be threatened.

The paper is called Inequality: The Facts and The Future. It’s released this morning and the Chair of the Inclusive Prosperity Commission is Wayne Swan, Labor’s federal treasurer for six years. He joins us in our Parliament House studios. Wayne Swan, welcome back to Breakfast.

WAYNE SWAN: Good morning, Fran.

KELLY: In simple terms, what is the connection with rising inequality and slower economic growth?

SWAN: Well, first of all, rising inequality – that is income concentration and wealth concentration – has been a feature of the developed world for over 30 years, but now it’s reached crisis proportions. If we want to grow strongly then we have to grow more fairly.

So, what are the economics of that? The economics of that are very simple – that if more and more people are concentrating more wealth and income in their own hands then the rest of the population, which is getting larger, actually has less money to spend – that is less money to consume.  Now people on low and middle incomes have a far higher propensity to consume than the wealthy. The wealthy tend to save a lot more of their resources. So, what you’re taking out of the economy is capacity of those on low and middle incomes to consume and drive growth. So, this is a fundamental feature of growing inequality. And the trickle-down economics that we’ve seen practiced in the developed world over the last 30 years has led to hollowed out middles classes and armies of working poor right across the developed world, but most particularly, in the United States. Fortunately, in Australia over the last 30 years we’ve done a lot better than many other developed countries but we are now seeing signs of greater inequality emerging here and as that emerges that will be a handbrake on our economic growth and our living standards well into the future.

KELLY: But looking at Australia, if we look at the figures released by the OECD in 2014, show that annual disposable household income in this country is considerably higher than the OECD average.

SWAN: Too right.

KELLY: Inequality though – income inequality – is also higher than the OECD average. So, the economy has been going strongly but the gap between rich and poor has been widening so doesn’t that contradict your theory of the connection?

SWAN: Not at all. In fact, we are more unequal and in recent times we are seeing more unequal concentrations of wealth and we are also seeing living standards being eroded for the middle.

Look, Fran, I am very proud that over 30 years, median income households in Australia probably have done the best in the western world. But that’s been on the back of a set of inclusive policies, largely put in place by Labor governments.  A good strong minimum wage, a fair industrial relations system, a commitment to universal health and education and a progressive tax system – they’re important building blocks for distributing the gains of growth more fairly across our economy. And why this report is important is those building blocks are now being very substantially attacked by a conservative consensus that wants to pull them apart and go down the American road of economic policy.

KELLY: So, you – in this paper – you talk about, you identify five signposts for inclusive prosperity: good jobs and wages; housing you can afford; healthcare when you need it; education for the future; secure income in retirement. Now I’m pretty sure that if you ask Malcolm Turnbull and the Coalition, and the Treasurer Scott Morrison that would be signposts that they sign on to. Their whole election mantra was jobs and growth.    

SWAN: Well hardly.

KELLY: And they made significant changes in the last Budget to superannuation, in terms of looking a secure income in retirement. That’s how they would see it.

SWAN: No, well, their whole election mantra is a mantra of trickle-down economics and is precisely the opposite of what this country needs at the moment if we want to continue to grow more fairly. For example, take their proposition of a corporate tax cut. That was a huge handout to multinational companies and our big banks. That is precisely the sort of tax policy that produces a more unequal and unfair Australia, and it raids the Budget and saps our capacity to invest in health and education, which are the great drivers of social mobility and greater intergenerational equality into the future. We had an election about trickle-down economics and the Government nearly lost that election precisely because they were putting forward a set of polices – whether it’s in industrial relations and an approach to the minimum wage or to penalty rates, whether it’s their approach to ripping money out of health and education or their commitment to a whole set of tax policies which are not progressive – all of those will lead to greater unfairness overtime in Australia.

KELLY: How we talk about these things though always comes down to Budget. Now, we’re in a moment in time where both parties are talking consistently, and I think in unison, about the need for Budget repair, and Budget repair is the notion that’s been handed down too from the head of Treasury and the head of the Reserve Bank, but both of those people, if we quote Martin Parkinson and most recently the outgoing Reserve Bank Governor Glenn Stevens, urging politicians or warning politicians against restoring resorting to quote: ‘narrow notions of fairness to block tough decisions on reform and Budget repair’. So, Glenn Stevens, just last week, warning against these narrow notions of fairness. Is there a danger that that’s what you’re doing here?

SWAN: Well, Fran, that’s your interpretation. The fact is.

KELLY: Well, I’m quoting him. I’m wondering how you interpret it.

SWAN: And I’ll address that. Good fiscal policy is an essential building block for a strong economy and a fair society. So, when you’re talking about fairness, doesn’t mean to say you can have an ever-increasing amount of money spent as a percentage of GDP but good fiscal policy isn’t offering an unfunded tax cut to corporates to the tune of $50 billion a year. Budget repair is an important part of a healthy economy and good economic policy but the size of the Budget surplus isn’t the sole measure of the health of the economy.

So, Labor is committed to Budget repair and, most importantly, during the election we put forward a comprehensive range of policies for Budget repair. Policies which would see Budget repair done in a fair way and a more economically rational way and they were rejected by the Government. Not having a $50 billion corporate rate – tax cut – which wouldn’t drive growth it would just increase profitability of companies is a very bad way to grow and that’s not fair Budget repair.

KELLY: And yet when you were Treasurer, people point to the fact that you supported company tax cuts.

SWAN: Yes, I did. But of course, what has happened since then is that those company tax cuts were supposed to have been funded by eliminating loopholes in the tax system. And since that time, those loopholes have blown out and we are now seeing massive tax evasion particularly by multinationals. That stops our capacity to grow fairly because it saps our ability to introduce Budget repair in a fair way and saps our ability to invest in health and education. So, these issues of tax – the progressive nature of our tax system – go to the very core of how we grow fairly and strongly into the future.

KELLY: You’re listening to RN Breakfast. Wayne Swan is a former Labor federal treasurer, of course. And he’s currently Chair of the Prosperity Commission which has released this new paper. It’s entitled, ‘Inequality: The Facts and the Future’. Inclusive Prosperity Commission I should say.

KELLY: Can I just ask you a couple of other issues relating to your past experience as treasurer?  On Friday, Treasurer Scott Morrison killed off the two Chinese bids for Ausgrid – the Government-owned State Grid – and the Hong Kong listed Cheung Kong infrastructure. Labor says it accepts the decision. Labor assumes and trusts the Treasurer is acting on advice of the national security agencies. When you were treasurer, you eased foreign investment rules; you doubled the thresholds at which investments would be vetted by FIRB. What’s your reaction –what’s your opinion – of this move by the Treasurer?

SWAN: Well, firstly Fran, I introduced the National Interest Test and I defined the National Interest Test, including national security. That was laid out very clearly, as far back as 2008. And when national security issues were pertinent to a particular decision I applied them. So, you will find any number of decisions that I took where I was knocking back investment or holding up foreign investment on national security grounds. So, I’m entirely supportive of the decision taken by Scott Morrison on this occasion. The problem is that it’s totally inconsistent with the way in which he has been behaving in recent times. So, these proponents of these investments were told a little while ago that they’d be okay and then suddenly the Government changed its mind. That’s the problem here. They have not been consistent.

KELLY: Is the problem here that we need a new set of rules that are publically understood?   

SWAN: No, it is not and the Government ought to do more to outline the principles that govern their National Interest Test. For example, I can tell it now because a period of time has passed, I stopped a Chinese investment in a mine because it was in our missile launch zone. That was a pretty fair application of the National Security Test contained within our foreign investment guidelines. So, it’s very important that our national security is part of the equation. So, whilst I support the decision taken by Scott Morrison on this occasion, he has been completely and utterly inconsistent on this question and that is what is causing the uncertainty when it comes to the future of our investment outlook. So, it’s the way in which he’s gone about it on a number of occasions where he’s been inconsistent that I have a problem with.

KELLY: Wayne Swan, thank you very much for joining us.

SWAN: Thank you, Fran.