SKY NEWS RICHO PROGRAM
WEDNESDAY, 6 MAY 2015
SUBJECT/S: THE GOVERNMENT’S MISHANDLING OF THE BUDGET AND THE ECONOMY; THE UPCOMING BUDGET; THE RBA'S DECISION ON INTEREST RATES.
GRAHAM RICHARDSON: Tony Burke welcome to the program.
SHADOW FINANCE MINISTER AND MANAGER OF OPPOSITION BUSINESS, TONY BURKE: Good to be back.
RICHO: Now I want to just take you through a few things. First off, you did something out of the normal, as in you plural, the Labor Party, did something right out of the normal, right outside the playbook, when you decided to announce a policy 18 months out from the election. That of course involved superannuation and that’s a big thing, a courageous thing. But it can’t be the end can it, there will be more coming?
BURKE: Well that’s right. There’s five different policy areas we’ve gone on the record on and two of them are revenue measures. It is unheard of, at this point in the cycle, for any Opposition to have announced more things that will improve the bottom line than would hurt the bottom line.
You add together what we’ve done on multinational tax and on superannuation and across the next 10 years it’s more than $20 billion of improvements to the Budget bottom line. That’s acknowledging two things Richo: First, you don’t want to do what the Government did in the last Budget, which is hit people so hard right now that you hit confidence and have a negative impact on the economy itself. You also can’t ignore the fact that over time we need to make sure we’re actively improving the Budget bottom line.
These policies that we’ve announced with multinational tax avoidance and high income superannuation are about not only improving the Budget bottom line, but doing it in a way that you’re targeting those who can best afford it and also making sure you’re not attacking the household budget on the way through.
RICHO: Well I agree with that, but there does have to be some attacks on the household budget. I mean the thing about the last Budget, I spoke about the night of the Budget and every day since I think, is that it was unfair because all the burden was placed on low to middle income earners and virtually none on high income earners.
If you’re going to have a real Budget repair, if you’re going to solve some of our debt problem then there is going to have to be some sacrifices made by everybody. Now that’s going to be the hard part. When are you likely to announce cuts, when are you likely to announce things that will actually hurt people, the majority of people not a smaller number?
BURKE: Well don’t forget there are a significant number of measures from the last Budget that did go through. A number of changes to family payments for example, went through with the support of the Opposition to the tune of, over the foreword estimates, over those four years, the Budget bottom line ended up more than $20 billion better off because of changes we supported going through the Parliament. Some of those changed have already made their way through.
It is true you’re going to have some policies that have impacts not simply on the people at the absolute highest end of the income scale. It’s also the case that on some of these policies you have a very simple choice. Now the amount of money that in revenue over ten years we improve and bring back to the Budget with our changes to high income superannuation and multinational tax, are roughly similar to the amounts of money that the Government wants to save by cutting pension indexation. It’s not simply a case of ‘oh well, if you hit people who are poorer, you just had to do it’ - there are choices here.
Labor won’t be in the business of pretending there isn’t a budgetary problem. We’ll accurately define it, we won’t call it an immediate emergency, we’ll deal with it in the medium term because that’s the problem we actually have. It’s also the case that when you work through these issues, you often have a choice of who is best able to afford to help and we won’t make the mistake that the Government made simply because it’s not what we believe, and that’s to have a situation where the less someone can afford to pay the more this Government’s targeted them.
RICHO: Well actually I want to return to that phrase ‘pretending that there isn’t a problem,’ because I think there’s still a bit of that happening in the Labor Party. But just getting back to this, are you saying that that means that a family, a typical family in your electorate, which is in western Sydney, and a lot of those families are single income families, single income $70-$80,000, they’ve got three kids, are you saying you’ll take nothing off them?
BURKE: What I’m saying is there are some impacts that have already made their way through the Parliament. There are freezes in different payment systems that have taken place, there’s been some dropping in total caps on your Family Tax Benefit payments, there’s been a series of impacts that have already happened. We’ll apply the same lens to whatever the Government puts forward in the Budget. When they put forward changes we’ll have a look at whether or not it meets the fairness test, whether or not it’s being done in a responsible way and we’ll work those issues though then. I’m not in the business of giving absolute guarantees for policies the Government hasn’t yet announced to give you an indication of what we’ll support and what we won’t.
RICHO: I didn’t ask you to give me an indication of any individual policy at all. I’m just saying, are you, per se, opposed to any cuts to those on lower incomes?
BURKE: Well I think through the answer I just gave I’ve made clear that that’s not something we’d rule out absolutely. We’ll look at each policy in its merits.
RICHO: Ok can we move on. I’ve already commented on this but what’s your take on the interest rate situation as of yesterday. The Reserve Bank takes it down to a two per cent cash rate, which is just so low as to be almost unbelievable. Now I can remember interest rates approaching 20 per cent; two per cent is just bizarre. How low can it go?
BURKE: Well, I don’t think anyone quite knows the answer to that question. It’s certainly the case, and the Reserve Bank in their minutes have noted, the concept they do believe you start to get a diminishing impact on the economy, as you get down to these sorts of numbers, as to how much of an impact you in fact have on trying to charge up a bit of extra spending.
What we need to remember I think Richo is if you get all the way back to the first principles of what are you trying to achieve with a Budget - when you get a crisis like we had with the Global Financial Crisis, there were two key tools that were able to be used to make sure that Australia made its way through that crisis better than pretty much any other country in the world. One thing that happened was the Reserve Bank knocked interest rates down a lot and then the Government pumped additional money into the economy; particularly though households. Now at the moment the Reserve Bank doesn’t have the leeway to be able to make those sorts of shifts down because they’re already at two per cent; they’re already that low.
Similarly, that’s why there’s a medium term challenge on dealing with the Budget deficit, because you want to make sure that over time you’re building up your stocks again so whenever a shock like that comes, and no one knows when it will be, you hope it’s a long time off but you know at some point that sort of global shock will come again, that the Government’s in a situation to be able to look after the economy and look after jobs. Right now we don’t have that extra give in the Reserve Bank cash rate that we had at the time the Global Financial Crisis.
RICHO: Now part of the problem is the Reserve Bank reduced interest rates, hopefully it saves people; they don’t have to spend that money on the mortgage. So theoretically they can go out and spend it, but the reality is they’ve saved it by just using all the money on the mortgage. Isn’t that right? It hasn’t worked.
BURKE: Yeah, that links directly back to the confidence point. When we started talking about the Budget earlier in the interview, I made the point this Government went too hard in their first Budget. When you go that hard, what happens is household confidence just takes a huge hit and people are very reluctant to spend. Not only does the confidence then ricochet through the economy, it also means when the Reserve Bank lowers cash rates, when you get that flow through to bank interest rates, people are in a situation where they’re thinking ‘well, I better not spend that money’. So your impact back through the rest of the economy is less.
Part of that goes right back to what happened at the last Budget and for now, for a year and a half, we’ve had a Government that talks like it’s an opposition and talks down the economy every single chance it gets. When a Treasurer and a Prime Minister keep doing that, it’s no surprise people in charge of the household budget look and think ‘well, maybe they know something about this, they might be right’ and you get this contractionary behaviour across the economy.
RICHO: Well it seems we had a mining led recovery and it was the heart and soul of the economy. Now the Government seems to want to make it the housing industry.
BURKE: You’ve got a situation where you can’t manage an economy the way you might back a horse in a race. You can’t just pick one section of the economy in a nation as big as Australia and say ‘that’s the only bit we’re going to back’. When they saw the manufacturing industry start to close down and all the announcements we were dealing with a bit over a year ago now, the Government was quite unfazed thinking ‘oh well, mining will see us through’. You can’t put, in an economy like ours, all the eggs in the one basket, then be trashing your education budget, be trashing the different forms of investment in the future that you might otherwise do.