Transcript - Sky News Weekend Briefing



SUBJECTS: Trump corporate tax cuts; a competitive tax system; wage suppression; digital disruption; Global Financial Crisis; finance sector deregulation; US financial markets; prospects for centre-left parties; Barnaby Joyce.

AHRON YOUNG: Now the debate between left and right's everywhere at the moment of course – no more so than when it comes to the economy. Now a former Deputy PM and former Treasurer claims progressives risk being run over by right-wing populists. The current crisis of governance could actually present the perfect opportunity, he says, to take another look at just how we view the economy – as in, what is a success, and what we view as a failure. Wayne Swan, the Member for Lilley and the former Federal Treasurer and Deputy Prime Minister for three years joins us now, live from our Sydney studio. Thanks so much for your time. 


YOUNG: We saw the PM at the White House today. Obviously, the US introducing these sweeping company tax cuts. Given that speech that you gave in Sydney today talking about inequality, how do you think Australia, the Prime Minister should go all the way with Donald Trump on this one?

SWAN: Well he has gone all the way with Donald Trump on this one. It is economically destructive and it’s socially poisonous for our societies. You can’t just give tax cuts to the wealthy and the large corporations and engage in wage suppression and think that your economy will grow more strongly.You can’t argue that when you’re giving tax cuts to companies that aren’t actually investing it in growth and jobs but are taking it in CEO salaries and share buybacks, that that’s going to do anything other than make inequality even higher.

YOUNG: You'll recall of course during the mining tax debate, a lot of vested interests involved in the political process. Do you think it still exists today, particularly when it comes to this issue of corporate tax cuts?

SWAN: Too right. I mean, what corporate leaders are arguing for is their own self-interest. They’re not arguing for the national interest. It’s true that we need a competitive tax system: a competitive company tax system, a competitive personal tax system, but the effective rate paid by most companies in Australia is around 24 [per cent] and on some measures, much lower than that. The truth is that there are Australian companies here now who've been investing in the United States over the past decade, which has had a higher corporate rate than Australia. The fact is that investment decisions are taken for a whole variety of reasons. They’re taken because there’s good governance, they’re taken because of the strength and the skills of the people, they’re taken because they've got infrastructure. This notion that there’s some elixir that will flow – there’s a jobs bonanza that will flow from company tax cuts – is just nonsense.

YOUNG: Talk to us your views on where Labor stands on these issues. You've spoken about the so-called Buffett Rule. I want to hear exactly what that is, what your views are on that. But also where should Labor be focusing its attention, because so much talk about inequality, wages struggling to keep up, where should Labor be pointing their view? 

SWAN: Well first of all, the wages share of our national output is at 50-year lows. Wages growth is as low as it's ever been on record. So we've got wage stagnation here in Australia. They had wage stagnation effectively in the United States for 30 years. And in that country, the rich got richer, the middle class got hollowed out, and they created vast armies of working poor. Now that didn't happen in Australia, largely because of Labor governments. But what we've seen over the last half-a-dozen years is stagnation of living standards flowing principally from lower wage growth, and the fact that the government has taken the meat axe to the social safety net. So we need a better mix of investment in this country to drive growth. Investment in our people, investment in infrastructure, and we do need a competitive tax system. But what those companies are arguing and what the Federal Government is arguing is not going to drive the investment and jobs that they are claiming. It will go straight into the pockets of some of the wealthiest corporates and individuals in the country and it won't drive jobs and growth. That's been the lesson around the world, and that's what's going to happen here. So we need an alternative, and that's what we've been talking about at this conference. We need a strongly progressive tax system. We need an industrial relations system that gives workers more bargaining power so they can get a fair go in the workforce. We need a decent transfer payments system in the social security system. We need a range of factors put together so we can continue to grow as we have, continuously, over the last 26 years. 

YOUNG: One of the biggest losers of the past 30 years in the speech you gave today has actually been the western low- and middle-income earners.

SWAN: That's right.

YOUNG: How do you think that's happened?

SWAN: It's happened because of wage suppression. It's happened because progressive taxation has simply been dismantled in many countries and it's partly a factor of trade and globalisation in some of those countries. Governments, particularly in the United States, did not move to assist workers that had been affected by globalisation. They've suppressed wages. I mean, the minimum wage in the United States is just a disgrace. One of the big differentiators between the economy in Australia and the economy in the United States is a decent level of minimum wage in this country. Because, after all, it's basically the wages and the spending power of low- and middle-income earners that is the principal driver of economic growth. So when you suppress that part of your economy, you suppress growth. You also create great inequality, which poisons your society. 

YOUNG: We know the western middle-class wage growth over the past 30 years is something like 1 per cent.

SWAN: That's right, across the board.

YOUNG: A whole lot of debt for a whole lot of households as well.

SWAN: That's right. But in this country we did better because we had a stronger industrial relations system and a higher minimum wage and a government, principally a Labor government in the critical periods, committed to a social contract between unions, employees and business. And we worked cooperatively, together—

YOUNG: What about disruption though? What about the disruption? I mean there's so much out there at the moment, we see the internet as killing off so many of the jobs the middle class once did, a lot of companies moving jobs overseas as well. We are seeing that that is a reality in this country is now facing. So when we talk about the rules, the taxes that need to be put in place, how do you do that when people are having to compete in a race to the bottom, just to try and get work?

SWAN: Well there is a race to the bottom on tax and there's an emerging race to the bottom when it comes to work. I mean, underemployment in Australia now is almost the highest on record. The figure is something like 14 per cent of the workforce. While the overall level of unemployment as measured is five-and-a-half [per cent] roughly, underemployment, people wanting to work more hours, is very high. So the labour market is still relatively slack. But the challenge is going to come – a bigger challenge – with the Fourth Industrial Revolution where, as you rightly say, technological change is going to start to move and hit jobs in many middle-income sectors that have not been hit before. So the big challenge we've been talking about at this conference is "what do governments do, working with business, harnessing the technology, putting in place new approaches for industrial rejuvenation and jobs in new areas of service. How do we work together to make sure that the Fourth Industrial Revolution works for all of us, not just for a few.

YOUNG: Let's turn the clock back about ten years now. You guys had just come into government, the GFC hit, you rememeber it well of course. The conditions that led to the Global Financial Crisis. How different are they to the conditions we see at the moment?

SWAN: Look, I'm not one to be alarmist. Some people are saying there could be another crisis around the corner. The problem we've got is many of the policy changes as a result of the crisis that had been put in place by governments across the world, particularly the re-regulation of the finance sector, which was the cause of the Global Financial Crisis, are now being wound back by Donald Trump in the United States. I mean, next month we will have the 10th anniversary of the collapse of Bear Stearns, which was the fifth-biggest investment bank in the United States. And that heralded the beginning of the Global Financial Crisis and the collapse of Lehman Brothers. So on the 10th anniversary of these events, we've got the United States taking out the regulations that everybody put in so we won't have another Global Financial Crisis. So we should be very careful with this government in the United States which is deregulating the finance sector, and if it does that it will make things more unstable, not more stable.

YOUNG: So what do you see as the Trump effect being on global economics, and even what effect it's having in this country? We know the TPP, obviously, he's backed away from, but in this country there's been a lot of concern from the left, from unions as well about many of these deals that are happening around the world, with free trade agreements with different countries – between Australia and different countries – so in one sense they're in a way agreeing with Donald Trump, aren't they? What do you think Donald Trump's legacy will be?

SWAN: Well it's hard to say. But Donald Trump campaigned as an economic populist, and all he's done in the economy is give tax cuts for the rich. He's not followed through on some of his commitments on trade at all. So that is an uncertain outlook. The problem is there isn't a coherent framework when it comes to trade and Donald Trump for us to make any real predictions about how things will go. But he's the beneficiary of Barack Obama fixing America up after the Global Financial Crisis. What jobs growth is coming through in the United States is a legacy of Obama. It's got nothing to do, at the moment, with his tax cuts, although he's trying to claim credit. The truth is we're uncertain about where he will go in key areas of economic policy, and that's not good. But if his only key economic policy is to put a large amount of cash in the pockets of very wealthy people, that's not going to be very good for growth, and if he does it at a time when there's near-full employment in the United States, he runs the risk of fuelling inflation. So what you're seeing now is the US Dollar go down in a marked way. The stock market might be going up, but international markets are looking at fiscal policy in the United States: huge tax cuts, not funded, blowing out the budget deficit, and that's causing a lot of uncertainty around the world.

YOUNG: Where does that go? We saw a couple of weeks ago there was – I don't want to use the word correction, because that would be too strong – but do you think we are due for a correction if what you've talked about is actually going to continue?

SWAN: You can have small and large corrections. There's no questions that there's a great deal of exuberance in stock markets, but the ones you ought to look at are what's happening with the currencies. And at the moment, they're marking the US Dollar down, largely because they think a loose fiscal policy in the United States is going to push up interest rates and that's not going to be, in the long run, good for American growth, or global growth. So there's a lot of worry about them spending like drunken sailors in the United States when unemployment is low and that's quite ironic when the conservative side of politics always campaigns against deficit and debt when they're in opposition, but comes to government and blows it out. That's what Malcolm Turnbull has done and he's continued to do more of that here with a $65 billion unfunded corporate rate cut. That tends to make investors nervous as well.

YOUNG: Let's look into the future. Because if we have a look back at the dominant economic policy of the last 40 years, it's really come out of Washington, but we know that America, in a way, is being succeeded in that regard by China, by Asia. Where do you think Australia should be looking? Do you think we should be continuing down the Washington path? Do you think the world should be continuing down that path? Has it been good or bad for us, that sense of economic stability, I guess you'd say, and where does China fit into this?

SWAN: Well first of all, Australia didn't adopt the Washington Consensus. We had Australian Laborism in operation here, with an Accord and a social contract between business, the unions and government. We didn't go down that road, and as a consequence of that, we've become a much wealthier and a fairer economy than many others. But essentially the Washington Consensus, or trickledown economics, is on the nose around the world at the moment. But when a radical populist like Donald Trump comes to power and starts to implement further trickledown policies, then that's got ramifications for the rest of the world. I'm optimistic about Australia. We're in the right part of the world at the right time. The China economy continues to grow strongly. The economies of our Asian neighbours, particularly in Southeast Asia, continue to be strong. Indonesia for example is rapidly heading towards, over the next six or seven years, to be the sixth largest economy in the world. Keeping up good relations in the region, not just with China, is an essential part of our economic health. But also having a good trading relationship with the United States has always been important. The real trick for us is to do both: to have good relationships with the Americans and good relationships in Asia. 

YOUNG: You made a really interesting point today during that speech about the elephant in the room -- pointing out that if someone says about the elephant in the room it's all you can therefore think of – your warning words to the centre-left, when they're talking about the economy, saying really don't fit into the frame that's been set by those of the right – what do you think the centre-left should be doing?

SWAN: Well we should be putting forward a pretty bold program which is based on strong fiscal policy and very sensible monetary policy. We should be looking very clearly at strengthening the bargaining power of our workforce, making our tax systems more progressive, making investments we need in the governance of our country, in strong infrastructure, good education policies. Because we all know that the emergence of the Asian middle class is not just going to be reflected in terms of demand for iron ore and coal, it will be surpassed for demand for services from Australia. You can see that in Sydney, and I've been here for a couple of days, and you can see it in the number of Chinese tourists touring here. Providing services – goods and services – to the Asian middle class and to the rest of that middle class emerging in Asia that you can see at the top of that elephant means there is a very bright future for Australia in the region.

YOUNG: As a former Deputy Prime Minister I need to ask you about one of your successors, who hasn't exactly been a success in recent days, of course. What have you thought about the Barnaby Joyce affair?

SWAN: Well he should have resigned a couple of weeks ago. I was simply dumbstruck that he fought on in the circumstances that he found himself in. It was clearly untenable. He clearly was going to be defeated in a party room ballot so he walked the plank.

YOUNG: You've been around for a while. The Prime Minister has said continually that he had no idea, he hadn't been told that this – that they were in a relationship. Do you think that that is likely?

SWAN: Laughable and unbelievable.

YOUNG: Why is that?

SWAN: Why's that? Because there was a lot of talk of this behind the scenes in Parliament House. It is unbelievable that at any time, that he didn't know about it.

YOUNG: Cory Bernardi says he's not the only one; is that your view?

SWAN: I wouldn't have a clue.

YOUNG: Do you think a politician's personal life should be fair game? I mean, as I say, you've been around for a while. What do you think the expectations are of politicians these days – has it changed?

SWAN: Well, I think people's view of things has probably got lower than it's been before, particularly because of instances like this. No, I think a politician's personal life shouldn't be fair game, but when their personal behaviour conflicts with the public rules and mores that they set for everybody else, like Barnaby Joyce has done, then that is fair game. If you're making pronouncements about how other people should live, in their circumstances, when your own don't live up to that standard that you've set publicly for everybody else, then that is fair game.

YOUNG: Alright, Wayne Swan, thanks so much for your time.

SWAN: Thank you.