Sky News Speers Tonight (1)

03 August 2017


SUBJECT/S: Labor’s plan for a fairer tax system for all Australians; inequality; industrial relations


SAMANTHA MAIDEN: Earlier I spoke to Labor frontbencher Jim Chalmers, who will hold the Finance portfolio if the ALP wins the next election, and I asked him is this a tax grab or tax reform?


JIM CHALMERS, SHADOW MINISTER FOR FINANCE: G'day, Sam. I just thought that was a pretty disappointing contribution really in the newspapers today. That argument basically says that we can only have economic growth in this country if we let two per cent of taxpayers at the wealthier end of the taxpayer scale decide how much tax to pay. I don't think that argument really bares scrutiny. Economic growth in this country does not rest on giving tax concessions to those who need them least. There would be no relationship between growth and our policy on trusts.


MAIDEN: OK, John Ralph made the point though that it was different, your policy to his original recommendations to treat companies, trusts and cooperatives the same. Why did you reject that? You no doubt would have looked at his original recommendations?


CHALMERS: Of course we did. We looked at all the different proposals that have been made over the years; proposals which have also been looked at and squibbed by the other side. We looked at all the different rates and we didn't think it was appropriate to tax at the company rate. We think 30 per cent is the best way to go about it, a minimum rate of 30 per cent, for some of the reasons that others have identified. If you tax at the company rate, or if you tax them like companies, then you get into the dividend imputation system, which means that you don't get the savings that you're after. So I'm not surprised, it's fine really for people who have made proposals over the years to defend their original proposals. We're very confident that we've struck the right balance and that we've come up with a policy that has been quite well supported in the days since it has been announced. We've done the work for something like a year now on this policy. We've considered all the different proposals and we've come up with one that we think is pretty good.


MAIDEN: It's a good point that you make, though. Peter Costello flirted with this idea, Joe Hockey flirted with this idea, John Howard introduced some limited reforms to trusts. Why is it that Chris Bowen and yourself have been able to convince Bill Shorten that this is the way to go? A big target strategy, if you will?


CHALMERS: First of all, you're right to point out that John Howard made an important step way back in 1980, we supported what John Howard did and we're really building on the good work that he did. Peter Costello and Joe Hockey have floated this idea and have been shouted down by their party room and have been unable to proceed with it. I think on your broader question about being a big target, we want to make the most of this opportunity in Opposition to propose substantial policies. Not just tinkering around the edges, but the big changes that we want to make in this country. And most importantly, we want to do that with plenty of time between the announcement and the election so that people can hold them up to the light and consider whether they want to support our proposals or not. It worked with negative gearing, it worked with superannuation. It's working now because people appreciate the opportunity. There's no surprises: this is what we'll do. If and when we win Government at the next opportunity, people can consider that in plenty of time before they cast their vote.


MAIDEN: You said you've been working on this proposal for a long time and I've certainly heard MPs and staffers suggest to me that you considered putting this in the Budget in reply speech, but decided to keep working on it during that process. How long was this on the books that Labor was having a really close look at this?


CHALMERS: The principal architect of this has been Chris Bowen, with Bill Shorten's work and input and Andrew Leigh's work and input, indeed right across the economic team. And as I said before, it's been going on for something like a year now and that process has been so long and detailed and considered because we wanted to make sure we got it right. We didn't make an announcement on the run, we didn't come up with something that had to be substantially altered a day or two after the announcement. That's how tax policies should be made in this country. In a careful and considered way that we've gone about this change to trusts.


MAIDEN: In the past there's been speculation that Bill Shorten was a reluctant convert to negative gearing reforms; that Chris Bowen really had to argue the case over a long period to steel his spine. Was this a hard sell to the Labor Cabinet or not?


CHALMERS: You alluded to this before. Bill Shorten's capacity to present a substantial policy agenda is very encouraging to this kind of work. I would think it would be a wrong interpretation, the one that you just mentioned. But all of us, right across the Shadow Cabinet, the broader party, particularly the economic team, what we try to do is discuss and deliberate on these things for some time to make sure that we get them right. That means occasionally playing devil's advocate, it means seeking outside opinions confidentially where we can. All of these things are the ingredients really of a good policy making process, a long-term policy making process and Bill's been the central part of that, with Chris Bowen and Andrew and others.


MAIDEN: John Ralph though, suggested this was something of a blunt instrument in those criticisms that you referred to in The Australian newspaper; that it was a tax grab rather than tax reform. How do you describe it?

CHALMERS: It's not an especially radical idea. It's a common sense idea which addresses simultaneously the two big challenges we've got. We've got a Budget which is a mess, debt and deficits blowing out substantially, we've got a tax system that's unfair and this is one way to deal with both of those things simultaneously. No one has ever said that an important part of this isn't Budget repair. It is. An important part of this is repairing the Budget. We've got gross debt around half-a-trillion dollars for the first time in Australian history under this Government. So that is part of it. But fundamentally it's about making the tax system fairer. We've got a tax system that is part of the problem and not part of the solution when it comes to growing inequality in this country. And so I think it ticks a lot of boxes, this particular policy that we've announced. 


MAIDEN: Critics of course argue - some at least - that you haven't gone far enough for high income earners who flush their salary through a trust. If you tax them at 30 per cent distribution rate, you're still giving them a pretty hefty tax cut, aren't you, from the top marginal rate?


CHALMERS: If the best criticism that can be made of our policy, Sam, is that we didn't go far enough, we'll take that. There has been people who don't support the policy, we'd expect that. Those who say we should have gone further, they're entitled to their opinion. But as we spoke about at length a moment ago, we put a lot of thought, probably the most thought was into the rate that we applied the tax to distributions and we're comfortable where we landed. If people say we should have gone further, good on them. If people say we went too far, we expect that too. A lot of people criticised the announcement before it was even made, which gives you a bit of an insight into how the Government operates, the Turnbull Government but also aspects of the media. We're very happy with the response to our proposal. We accept that sometimes people have different views; it doesn't trouble us greatly. We factor them in, but we've got to make a decision and show some economic leadership.


MAIDEN: Farmers were critical before the announcement and I'll get to them, but just walk me through - and viewers - how this would work. If I am a high-income surgeon, I'm earning let's say a million dollars a year. I'm putting what is essentially a salary through a trust, in order to essentially income split and then when I've distributed it for example with some payouts to my wife and my adult children, am I not still getting a very big tax cut than I would than if I was paying that at the top marginal rate? Just explain to me how that would work in that cameo if you like under your proposed reforms.


CHALMERS: It's the wrong comparison to make, Sam, I think between the top marginal rate and the 30 per cent rate that we're levying. The most important comparison is the zero per cent rate that a beneficiary of a trust would pay. Say if you distributed less than the tax-free threshold, say you distributed $18,000 to a non-working adult child who might be at university or a non-working spouse, that person would pay zero per cent on that being a beneficiary on that distribution. What we're proposing is that they pay 30 per cent. So the relevant comparison isn't between the top marginal rate and 30; the relevant comparison is between zero and 30. That's because our top priority is to deal with the egregious examples of income splitting. There are other reasons as well to choose 30 per cent rather than the top marginal rate - 30 per cent is also the same tax levied on so-called bucket companies, which are an alternative to trusts. All of these factors are very important, but I've seen even very good commentators like Michael Pascoe and others make the case that we should have gone to the top marginal rate. I think the best way to deal with the egregious example of people distributing to spouses or kids or parents who are earning nothing and paying no tax, that should be our top priority. That's an important consideration that went into us choosing the 30 per cent rate.


MAIDEN: Do you concede though that people will still be able to income split? They'll still be able to reduce their tax - high-income individuals - it will just be a little bit less generous.

CHALMERS: It doesn't abolish discretionary trusts, that's correct. And we never said in the lead up to, or during the announcement, that our objective was to get rid of them entirely. Our objective is to tax them more fairly than they would be taxed otherwise under the Turnbull Government. The Turnbull Government wants to make it possible for people to pay zero per cent tax on some of these distributions. We don't think that's fair and so our proposal is much fairer, a much better alternative to the situation that currently exists.


MAIDEN: Is there a discount in your $17 billion estimate for behavioural change for people no longer using these mechanisms to reduce their tax?


CHALMERS: The Parliamentary Budget Office costed this policy. They took their time to do it properly and rigorously and they take into account behavioural changes where they can. But also they give us quite a conservative assessment of the costing. It wouldn't surprise me if the $17 billion figure was a very conservative estimate of the tax revenue that could be raised from our proposal. But the reason we have that Parliamentary Budget Office is because they know their stuff consistent with the various Budget protocols, they come up with the best assessment that they can and that's the number that we've released.


MAIDEN: Do you have a range, yourself? I mean, if that's a conservative estimate, what do you think it's more likely to be?


CHALMERS: I'm not going to speculate, Sam. I'm just making the point that the PBO is a very conservative estimator of costings. They factor in all of the things that they are able to factor in, consistent with the Treasury and Budget and costing rules. They give us that costing. It's not for us to second guess it. We release it. $4.1 billion saved over four years and $17.2 billion over 10 years, that's the number. That is a really substantial down payment on Budget repair that is fair. It means that we are playing a constructive role in fixing the mess that the Government has made of the Budget.


MAIDEN: And if your tax take is growing, is it a problem if Labor's proportion of tax to GDP rises even further? Are you prepared to wear the mantle of a high-taxing Government?


CHALMERS: There are three ways to fix the Budget, Sam. One of them is revenue changes like this one. Another one is savings measures, and we've announced our share of savings measures. We took a whole bunch of them to the last election. We'll take a whole bunch of them to the next election. And the third way is to grow the economy in a way that people are earning and paying income tax and all of those sorts of things and you're paying less out in welfare benefits and other entitlements. Those are the three ways to go about it. This is an example of a revenue change, which is a very important one, and we've made other revenue changes. But we've never said that you should put all of your eggs in one basket. 


MAIDEN: Labor's embarking on this change partly because it argues inequality is a 70-year high. Is that a credible claim to make, do you believe?


CHALMERS: I do, and right across the board whether you take that measure or other measures - wages, measures of wealth, measures of the labour share of national income - there are all kinds of measures that show that inequality is growing in this country. you need only look at our labour market for example to see where wages are at, to see all the underemployment that we've got, the precarious work, the insecure work to know that there's a reason why a lot of people think the rules of the economy are written to benefit somebody else and that's because they are, whether it be in terms of collective bargaining, whether it be in terms of tax reform, which we've been spending our time talking about now, Sam. All of these issues are crucial. From time to time, people will try to pretend - as the Treasurer does remarkably, just showing again how spectacularly out of touch he is - that there's no inequality in this country and that it's not becoming a bigger problem. They should stop making excuses for inequality. They should stop making it worse with their tax policies and they should get with the program. The OECD and the IMF and others have said that dealing with inequality is crucial to building economic growth in developed economies and that's what we're on about. And if the Government was on about that too, the country would be in better nick.


MAIDEN: We're told that the Labor Party wants to make unions more powerful, to bolster their ability to bargain and that this in turn could assist economic growth by securing wage rises. How are you going to do that? And would you like to see new protections put in the national employment standards for casuals to address the casualisation of the workforce?


CHALMERS: One of the reasons why wages growth is so low – it's historically low, as you know we've got the lowest wages growth in this country at the moment since those records have been kept -  and one of the reasons for that is the decline of collective bargaining and the decline of unionism. We were talking before about Michael Pascoe, who wrote the piece about the trusts proposals that we've made, he's also written some important stuff about the decline of unionism and how important that is to ensuring that wages are growing in a way that creates demand in the economy, which is what all businesses want. They want people to have the means to spend and invest and save what they earn and what they're entitled to. So it is an important thing, to get collective bargaining up, to get unionisation up so that people are getting the wage outcomes that they deserve and so that our businesses are getting the demand in the economy, which is crucial to getting the place growing at a sustainable and stronger rate than it is now.


MAIDEN: Do you see anything emerging of an ACTU-style accord or some sort of formal agreement between a Shorten Labor Government and unions?

CHALMERS: I haven't seen concrete proposals for that, Sam. Obviously the accord in the 1980s was a very successful piece of public policy, almost universally regarded as a successful piece of policy. We're putting a lot of thought into the industrial relations arrangements in this country. Brendan O'Connor, my colleague, gave a terrific speech last night at the Sydney Institute, as you would know, about all of these sorts of issues. But fundamentally what it comes back to is just one simple point - we will not get the growth we need in this economy with wages growing as slowly as they are and without people being able to spend and invest, ordinary working people. Growth in this country comes from the bottom up, not the top down. And that's why we need to look right across the board at our workplace arrangements to make sure that people are getting a fair go at work, getting a good return for their effort and, in turn, spending in our economy, supporting our small businesses.


MAIDEN: Ok, Jim Chalmers, thanks a lot for your time tonight.


CHALMERS: Thank you, Sam.