WAYNE SWAN MP
MEMBER FOR LILLEY
E&OE TRANSCRIPT
PODCAST
THE LUCKY COUNTRY
THURSDAY, 10 MAY 2018
SUBJECTS: Budget 2018; Labor Budgets 2008–2013.
RICHARD DENNISS: Hi. I'm Richard Denniss, Chief Economist at The Australia Institute. Welcome to episode three of The Lucky Country. This week, we'll be talking about all things Budget, and later on in the show I'll be talking to former Treasurer Wayne Swan about what it's really like to put a Budget together.
But first, what is a Budget and why should we even care? Budgets are about priorities, but you can no more understand the heart of the nation from its Budget Papers then you can understand a family by its household budget. Revenue growth has got nothing to do with personal growth or growth in community spirit, but in Australia we are obsessed with our Budget. It speaks volumes that in our country, the Treasurer's Budget speech is the biggest political event of the year. In the US, the President delivers the State of the Union address and in Australia our Treasurer speaks to the state of our public finances.
What an insecure nation we've become. Despite being one of the richest countries in the world, we fret and scrimp over the piddling sums of money we spend on the unemployed and the ABC. Our leaders tell us on the verge of becoming uncompetitive and then we impoverish our public finances further still with more and more rounds of tax cuts – tax cuts that flow primarily to the wealthy.
There is no doubt that budgets are important. They help to shape our economy and our society. They spell out what we want more of and what we want less of. Politicians like to tell all voters and all interest groups that they're a priority, but the Budget Papers make clear who the real priorities are.
This year, the Government made clear that its priority was helping older Australians. Don't get me wrong; I like older Australians. Some say I am one! And I hope to be a much older one, one day. But let's be clear. Young people, young families and problems like climate change that will cause so much harm after most older Australians are gone, were not a priority for this Budget, or the last one, or the one before that.
The problems faced by young people have been systematically ignored by successive governments. The vast majority of young people can't possibly hope to buy a house and live in it and bring up their kids if they wanted to, in the same way that most older Australians chose to.
Indeed, most can't even afford to buy a house in a capital city even if they and their partner work. But the cost of housing, the cost of child care, and the low wages paid mainly to young people were not the priority of this year's Budget – or last year's.
Australians can afford to solve any problem they want, but that doesn't mean we can solve every problem we want. That's why Budgets are important. They spell out our priorities. They spell out the things we want to spend more money on and less money on.
But what they don't tell us about is what kind of country we're actually trying to become. The Budget doesn't give us a goal other than to get the Budget back into surplus. And the Budget doesn't tell us how we should treat each other, although how we spend money, and who we give it to, and who we take it from gives us a lot of hints about who the deserving and the undeserving are – in the eyes of the Government, at least.
My next guest is Wayne Swan, former Australian Treasurer and Euromoney's Finance Minister of the Year back in 2011. Wayne, thanks for joining us on The Lucky Country.
WAYNE SWAN, MEMBER FOR LILLEY: Good to be here.
DENNISS: You delivered six budgets; which was the most important?
SWAN: Look, unquestionably 2009. Budgets are not just some sort of pure document with numbers. They're an expression of values, they’re an expression of the direction of the country, and they’re an expression of how you achieve that in terms of economic policy.
And of course, in 2009, what we brought together was our first stimulus of 2008, our second stimulus of February 2009, and we put together a whole plan for the future of the country, and a direction for responding to the Global Financial Crisis.
But other big initiatives also went through – for example, the biggest pension increase in Australian history and paid parental leave. They were all in the 2009 Budget.
DENNISS: But – and you know, I'm sure some of our listeners remember that period – didn't that just drive up the debt? Wasn't that the cause of all the problems we've got today?
SWAN: Not at all. This was fundamental investment in the future of the country. If we had not made the investment in the stimulus, then we would have been facing higher debt and higher deficit, because our unemployment would have gone through the roof.
I mean, we kept unemployment down when it went through the roof right around the world and the consequence of that for our Budget was a stronger economy.
DENNISS: So I know this is a strange question to be asked, but I think it's an important question. You were awarded Finance Minister of the Year after the 2009 Budget.
SWAN: That was in 2011 that I was awarded Finance Minister of the Year, because they had the opportunity to have a look at what the long term impact was.
DENNISS: But hold that thought. How come in Australia we complained about the deficit going up, and Euromoney said you were the Finance Minister of the Year? How do we explain this?
SWAN: Because they agreed with the IMF – and every other credible economic authority in the world – that Labor in Australia had put in place the most effective stimulus of any advanced economy. It was great value for money and it gave an underlying strength to our economy through 2010 and 2011, whilst the rest of the world was still suffering from the aftershocks of the Global Financial Crisis, the European debt crisis, the debt cap in America – the economy was shaky all through the period around the world, but not in Australia.
DENNISS: So you make it sound like the Budget is not just about reducing the size of the deficit?
SWAN: Of course it's not. It's all about the allocation—
DENNISS: Hang on, that is really confusing!
SWAN: Yeah that’s right! It's all about the allocation of resources, so that we can create prosperity and spread opportunity around for our people. It's not fundamentally a financial document; it's also an expression of our values and it's an expression of what we want for our people – and how we can do that in an economically responsible way. And that includes, at times, deficits and debt.
DENNISS: So let's talk about that. This year, the Commonwealth will spend around $460 billion. That's a lot of money. How, as Treasurer, do you reconcile the fact that every Cabinet Minister wants to spend more money on their portfolio?
SWAN: This is the key to being a successful Treasurer and delivering six Budgets, because you really have to have your colleagues onside. You cannot sit in Cabinet and have that Budget Cabinet operate in a way in which everyone just says me too; I want my particular project this week.
There has to be general agreement about the fiscal objectives and social objectives and what you need – and I had this; I was really lucky – I had really co-operative colleagues. They all signed up for producing a collective document. Sometimes that meant that they didn't get to put forward their pet project.
So we had a pretty strong cabinet, where my cabinet colleagues cooperated, because we all understood if we were going to achieve the outcome we needed for the people – lower unemployment, a fairer society, a more prosperous economy – then we all had to put our pet projects in our pockets for a while and we had to work out what the priorities were.
For example, in the 2009 Budget we did two really big things at a time when the conservatives were baying for our blood on deficit and debt. We did parental leave. We had been a laggard on parental leave and we fixed up the obscenity of how low our age pension was for single age pensioners, who were living in abject poverty.
Both of those things were done at a time of great economic stress. It was also done, I might say, when there was still some doubt about how the global economy was going, and whether it was going to recover. And we had it a bit more certainty by Budget 2009, but we faced aftershocks right through the next 12 months and on.
DENNISS: So here we are in 2018. We've had two Budgets from Joe Hockey, we've now seen three Budgets from Scott Morrison. We're still in deficit and the GFC is a long way behind us. Why are we still in deficit and can we afford big cuts in company tax rates?
SWAN: No, we can't afford big cuts in company tax rates. But look, they have stuffed up their economic policy, basically, and now they've come to this point where they claim there is good debt and bad debt. I mean, they are all over the shop.
The fact is we have suffered lower growth than we should have had. They have had a lower dollar and lower interest rates than we experienced when we were in power. They've had two powerful stimuluses domestically and they've had a recovering global economy.
Their settings have been all wrong. They should have moved to investment in infrastructure years ago. Because what they've really been doing is they’ve been playing politics, not economics, and of course it has been obvious to anyone who's observed them that their Cabinet and Budget processes have not been operating effectively.
DENNISS: So tell us about that. I mean the Budget comes down in May each year; when does Cabinet and when does the Treasurer start thinking about the Budget?
SWAN: They start thinking about it straight after they deliver the last one, because you can't do everything at once. But the situation—
DENNISS: With a cigar maybe?
SWAN: Well that’s the way the Liberals do it. It's exploding cigars; they happen all the time.
But the real serious work starts early in the year – in January, February. You're thinking about it over Christmas, you start bringing your Budget Cabinet together increasingly through that period; you're getting agreement from the colleagues through February and early March, and then it gets really, really intense.
I mean, I still have withdrawal from not spending six weeks to two months here, as I used to do prior to Budgets, because your Committees are meeting regularly. Also, there’s intense work to do with the bureaucracy as well.
So I used to spend a lot of time in at Treasury in the lead up the Budget. I'd walk around the Lake late at night, see the sunsets, just as the cold comes in and the leaves drop. It’s a lot of intense work, particularly for those two months before delivery.
DENNISS: And what about your Cabinet colleagues? If you've got Health Ministers who want to spend more on health, Education Ministers who want to spend more on education – do the spending Ministers usually come with ideas for how to collect more revenue, or do the spending Ministers show up saying, “why don't you take it off one of my colleagues and give it to me?” There must be some robust conversations.
SWAN: There are very few that walk into the room and say take it from my colleagues and give it to me. It wouldn’t be very smart and it’s a pretty good way to lose the argument.
But of course they do [come up with ideas for how to collect more revenue] and of course we canvassed both sides of the Budget. And once we've determined what our priorities are, then we then we work out how we're going to fund them.
And that can happen roughly in parallel. We'll have a global view about what we think we can do, but it really does depend on the enormous amount of goodwill and talent amongst your Cabinet colleagues. And I had – working with Julia Gillard in particular – the likes of Jenny Macklin and Tanya Plibersek, Stephen Smith, Stephen Conroy. You know, we had a team that understood what our constraints were; that for the wider good, we had to put our pet projects away. That was particularly the case in 2010-11 through to 2012-13, when all of the revenue just fell out of the economy and we were looking for savings.
It is forgotten that we did some four or five budgets and an equal number of MYEFOs where there was substantial savings in an attempt to come back to surplus. Now, as it turned out, the drop-off in revenue was so great, it wasn't possible to come back to surplus. So we had to run a higher deficit. We did that in the interests of supporting employment in our economy.
DENNISS: So in terms of revenue: we spoke to Joe Stiglitz earlier in the year here on The Lucky Country about the need for corporate tax cuts. When you were Treasurer, Labor introduced a carbon tax; you tried to introduce a mining tax. You've been involved in international efforts recently to try and get multinational companies to pay more tax. Are those issues linked in any way?
SWAN: Too right they are. We were trying to shift the balance in the company tax system towards more super profitable companies so we could give struggling small businesses a better go. And that was the objective domestically.
But this race to the bottom that has been led by multinationals to sink, or collapse, the corporate tax base is profoundly destructive both in terms of economic growth and also in terms of fairness in economies in both advanced and the developing world.
This push to crash corporate tax rates is basically a threat to democratic process itself. Because if governments around the world are not in a position to raise their revenue in a fair and equitable way, and have to actually default to much more regressive methods of taxation to get the money to pay for health and education, then in the long term growth will be lower and societies will become much more profoundly unequal.
DENNISS: But I've heard the neoliberal argument again and again – we in Australia can't do anything about this. If we don't cut taxes then no one will play with us.
SWAN: It’s crap.
DENNISS: Sorry, tell us what you really think.
SWAN: Well no, it is. It's complete crap. As anyone who studies this knows, the effective rate that companies are paying in Australia is nowhere near 30 cents per dollar. It's more like 24. The ones that are actually paying 30 cents on the dollar are super profitable and some of them are our big banks.
The truth is that international profit shifting and debt dumping is wrecking the tax bases, not only of countries like Australia. It is having a far more profound effect in the developing world. And what it means is, this race to the bottom, is that those countries in the developing world are never going to be able to achieve the Sustainable Development Goals if these multinationals get away with this rank and obscene tax avoidance.
DENNISS: So what can we do about that here in little old Australia? How do we work with other countries?
SWAN: How about we have a strong international leader for a change? Don’t do what we're doing on climate change, which is going backwards. And we do need some of the big countries in the world to sit down and give the BEPS [Base Erosion and Profit Shifting] process – which is a process in place through the OECD – a lot more teeth. We need to work with some of the bigger economies in the world to basically tell these multinationals enough is enough, and there are ways to lead towards that.
What the process I'm now involved in with the International Commission [ICRICT] is looking at, is certainly a minimum rate which is underpinned by a series of structural changes in the way in which tax is collected. But of course now, because we've got Trump in the White House, we're not seeing a lot of international heft come to the party that we really need to fix this problem.
DENNISS: Well you make it seem like if we tried and worked hard together we might actually be able to fix it.
SWAN: Well I kicked off this process, called the BEPS process, in Moscow in 2013, and it's gone some way, but it needs to go a lot further. And the reason it's not going a lot further is because the political weight’s not behind it. We need big countries in the G20 to get in there and get it done.
DENNISS: Now just finally, most listeners probably know I'm a bit skeptical about economists’ ability to predict the future and make long-run forecasts. You famously said the Budget would be back in surplus come hell or high water, before we had an enormous flood in Brisbane.
SWAN: Then we did get high waters. $5 billion.
DENNISS: So keeping that in mind, no one's perfect here.
SWAN: You know, it was a silly thing to have said. And it got derailed by the collapse in tax revenue, which has now bedevilled the current government. It also got derailed by unforeseen circumstances, which are two reasons why you should never say it.
But the truth was, I came out fessed up and at the end of 2013 just said it wasn't going to be achieved, because revenue and circumstances have changed. The opposition said that, essentially, that wasn’t satisfactory, and it wasn’t right.
Of course, you know they'd be caught in the same revenue vice we did. And rather than say it's a revenue problem, they’ve continued to say it's a spending problem which is why our economy has been far weaker. Because their responses haven't been correct in this environment, we really have to put ourselves in a position where we understand that circumstances in economies do change. As Keynes said, if the facts change, so do I.
DENNISS: Indeed. And I was going to ask you, given that – and I think everyone needs to recognise that, the world is more complicated than any economic model – what would your advice be to the current Treasurer and his determination that we will be getting back into surplus soon?
SWAN: Well he looks like he's throwing it out the window. It's important to have a pathway to surplus, given a set of economic conditions. If conditions change, you move the pathway. But responsible budgeting says you’re Keynesians on the way up and Keynesians on the way down. So of course it's sensible in the good times to save money. But not irrespective of what happens with the conditions that surround you.
So he's now out there, talking a lot of gibberish about all of this. It's almost incomprehensible what he's talking about. But what we do know is a pathway to sound finances and prosperous economy. It is not quite as simple as he makes it seem.
DENNISS: Well, Wayne Swan, thanks for joining us on The Lucky Country.
SWAN: Good to be with you.
DENNISS: That was former Australian Treasurer, Wayne Swan. Now to see if the Budget passes the pub test, Lucky Country producer Jolene Laverty went and spoke to a few ordinary Australians.
JOLENE LAVERTY: So you've had a little bit of time to digest the Budget. What do you make of it?
PUB PATRON #1: They've wanted to hit a chord with the public without necessarily giving away too much.
LAVERTY: Do you feel like you would like the tax cuts that are coming to lower- to middle-income earners? Assuming of course, you're not earning the big bucks.
PUB PATRON #1: Look, I think that tax cuts are nominal. They’re going to be translated over a long period of time, during which time inflation is going to erode whatever value they have. So as I said, it's a populist antic just done as a nominal thing.
PUB PATRON #2: Very little. Being a small business owner, I have been waiting for 30 years for them to actually do something for small business and I think I’ll wait another 30. So I don’t think I’ll be bothered looking at it.
LAVERTY: What about this idea of the corporate tax cut? Have you given much thought to that and how it might affect you?
PUB PATRON #2: For a small business owner, it won't make any difference because they hardly make any profit whatsoever. So one or two thousand dollars that it might save them, it's not going to account for anything.
So for a corporate tax cut to be any good for this country, in my opinion, which might sound a bit crazy, is that it's only good for the big businesses which might make enough money at it that actually invest or put more people on.
LAVERTY: What do you make of the budget?
PUB PATRON #3: Well everyone wants to pay less tax, so everyone's going to say yes surely.
LAVERTY: So what do you make of the budget?
PUB PATRON #4: Lots of things, but the first and the main thing is that I think the $10.70 or $10.50 in tax relief ought to have gone directly towards the Newstart.
LAVERTY: You said lots of things; so you've obviously given it some thought. What's some of the other things that you considered?
PUB PATRON #4: I think fundamentally a flat tax rate for people on the lowest income right up to $200,000 is simply not right. The people at the highest end, it's appropriate that they pay more in taxes as a rate than people on a low rate.
LAVERTY: And at what point in their wage do you think people should start paying the higher taxes?
PUB PATRON #4: I’ll leave that to the actuaries and accountants to work out. But ought it to be that the most – not the most – but the very comfortably off ought to pay the same as those who are not even on the poverty line? That's just not right.
DENNISS: Thanks Jolene and thank you for joining us here on The Lucky Country. We hope you can join us again next week. This podcast is brought to you by Schwartz Media, publisher of The Saturday Paper and The Monthly, and Future Super, Australia's first fossil-fuel-free super fund.
ENDS
For the full recording, go to: https://player.fm/series/the-lucky-country
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Authorised by Noah Carroll, ALP, Canberra
