HOST: The Prime Minister is here. Mr Rudd, good morning.
PM: Good morning Greg, welcome to my electorate.
HOST: [Laughs] Yes.
PM: Oh, were you welcoming me to the program? Sorry about that.
HOST: Yeah, it is your electorate, for those of you outside the city. You're going down to the Labour Day march, looking forward to that?
PM: Oh yeah, it'll be good to catch up with the folk down there, a lot of the nurses and a lot of those who work in hospitals. Spend some time talking to them about the new National Health and Hospitals Network.
HOST: OK, let's talk about the response and your thinking to the response to Mr Henry. I was just going through some of the editorials and it's mixed, some are quite favourable, others very negative, some in the middle ground. Geoff Kitney in The Australian Financial Review says this: 'Wayne Swan's baby entered this world yesterday in the typical way, its parents saw much more beauty in it than the witnesses to its birth. The long and laboured birth of the Government's response to the Henry tax review has delivered a malnourished child with its promise already limited by fears about the future trouble it might cause.' So, tell us a little bit about this baby you delivered to the nation yesterday.
PM: Well let's cut to the chase, what it is all about? On the one hand what we are doing is bringing about big changes to superannuation. That is, right now, I don't think people have enough to retire on. That's why we are changing the superannuation guarantee levy from 9 per cent to 12 per cent. For someone 30 years of age today, that means more than $100,000 more in terms of their retirement income.
HOST: That kicks in gradually?
PM: Kicks in gradually because we are very mindful of phasing that in over time with business.
The second thing is this: tax cuts for business, that is, bringing the company rate down from 30 cents to 28 cents; but also for small business bringing in an immediate arrangement for them to basically write off $5,000 in terms of their investment on assets like computers and those kinds of things in their offices, which means less time with the tax accountant, more time with your customers, more time with your families, but it helps the bottom line.
Third thing: and that is taking a new national investment fund for infrastructure to build our roads, rail and ports for the future.
But all three of the above, the super changes, the tax cuts to business and small business, and the investment fund for road, rail and port funded through a new Super Profits Tax on the mining companies of Australia, because they are currently earning, through the mining boom, Super Profits. We believe the Australian people should get a fair share.
HOST: OK, they would argue that they are going to get more than a fair share, that their contribution has been more than fair over the last five years, I think the figure was $334 billion in that time. How do you respond to their concern?
PM: Well look, you'd expect some of the mining companies to be out there and complaining about this because what we're talking about is a fair share for the Australian people and that means making sure that we've got something which provides them with a fair return, but also, a fair return for working people for their superannuation, tax cuts for small business etc.
But here is the key figure: $80 billion in Super Profits earned by the mining companies over the last decade. During that period of time, how much did the Australian people get through the existing taxes on those mining companies? An additional $9 billion.
Next point - the biggest miners: BHP, 40 per cent foreign owned, Rio Tinto, 70 per cent foreign owned. Most of these Super Profits are going overseas as well, so we're saying to the Australian people, it's time that the people got a fairer share and about a third of this amount goes to superannuation for working families, a third of it goes to tax cuts for small business and businesses in general, and another third goes to investment in our future infrastructure needs.
HOST: PM, one of the points the mining industry points at though is that they employ something like one in four Australians, probably more in Queensland and Western Australian, and particularly in regional areas, and their argument is that if they're forced to pay even more, then that could be affected long term.
PM: Let me respond to that head-on. Firstly, when it comes to a Super Profits Tax, it is imposed on Super Profits. If they're not out there earning massive amounts they don't pay the Super Profits Tax -
HOST: When does that kick in then?
PM: We make sure it's very, very clear in terms of what's calculated in terms of a normal rate of return in an investment of that order of magnitude, that this Super Profits Tax doesn't kick in until after that, and then we retain 40 per cent of those Super Profits, they get to keep 60 per cent still.
Second point is this: out there in the mining industry at the moment, we've got a situation where a lot of the miners, particularly small to medium companies, when they're kicking off, and starting out in life, they're taxed currently on a royalties regime, that's what it's called, which is based usually on volumes of what you produce, not the profits of your company. Under our new proposal, it's much better for small to medium companies starting off, who don't register big profits in their early years.
And finally, exploration, a $1 billion worth of tax incentives now, for exploration companies in order to grow our mining industry overall. Bottom line: based on our independent modelling, overall mining production with increase by 5.5 per cent as a result of these reforms, not go backwards, but we're going to have a fear campaign in the meantime, I fully predict it.
HOST: OK, but a guarantee from all the study and modelling you've done, that regional Queensland, that's where we are right now, won't be affected?
PM: Well look, let's go to regional Queensland. I was just in Mackay last week. And I presume you broadcast up there, I'm not quite sure where you land in your broadcast footprint these days. I was in Mackay, talking to locals. Mackay, you've got this huge mining activity happening out there in the Bowen Basin, but they you look at downtown Mackay, and you've got these massive trucks rumbling through the streets, and frankly, terrifying a lot of local people on their way to the port or wherever they're going.
What the people of Mackay want, and the Mayor, Mayor Col Meng of Mackay, he wants a ring road, to actually divert these trucks from the middle of town out to the port. Guess how much the ring road is likely to cost? About a quarter of a billion dollars. So are the rate payers of Mackay going to pay for that? Are the taxpayers of Queensland just going to pay for that? Or should we be asking the big mining companies, who are making these Super Profits, to make a contribution to our future infrastructure needs? So that's my practical example of how, in fact, using this money to build road, rail and ports helps.
HOST: Okay, coming back to the company tax reduction you mentioned a moment ago from 30 per cent down to 28 per cent, I think Mr Henry had recommended 25 per cent. And maybe that's an example of where many are saying you've been timid in your response to what Mr Henry suggested. I think out of 134 recommendations you've picked up around 10, some are saying less. Is it 10 you've picked up?
PM: You know the bottom line is this, we asked Ken Henry, the Secretary of the Treasury, to do an independent review of the entire tax system as a long term blueprint for reform.
What have we said in response to that? This is what we are doing now, and we've been very upfront about what we're doing, very upfront about what we're never going to do, and very about what constitutes a whole series of areas where we can do some further work in the future.
But that is how it was planned at the first step.
Secondly, what we've done is bite off what I think is a big slab of reform right now. When you talk about superannuation, so many of your listeners are worried about the adequacy of their superannuation on retirement. This is designed to deal with that long-term. And for 20 years people have been saying 'please do something about boosting the adequacy of superannuation, lift it from 9 per cent to 12 per cent'. Well we've done that.
And secondly for older Australians over 50, people like you and me mate, well no, actually, people out there who don't have sufficient in their superannuation, then we're providing an opportunity also for them to be able to have better tax incentives to top up their super as well.
HOST: OK, if part of all of this, however, Prime Minister, was to simplify, to rationalise our tax system, to what extent does it do that when the States still have, you know, there's payroll tax, there's this tax, there's that tax and I think Mr Henry wanted to do more in that area. Is that something you are committed to doing?
PM: Well, Rome wasn't built in a day, and therefore you've got to move at this step by step. There are a whole range of recommendations in there for the states and territories to look at, and they can respond to them as they see fit.
But as I said, here is a big slab of reforms which go to superannuation for working families, tax cuts for business to make them more globally competitive, and to take the pressure off small business. Don't underestimate the impact of this $5,000 immediate write-off. If you've got a small business of one or two people, frankly, that actually helps buying a computer or two, the ability to write that off rather than the current complex tax arrangements, there's a lot of simplification involved in that.
HOST: Company tax is still high, relative to other nations we're number three in the world at the moment, your changes will bring it down to about ninth, still high.
PM: We end up, as I'm advised, about the middle of the pack out of the OECD, that's the organisation of the most advanced economies. There are about 34 countries in the OECD. I think we end up now at about number 17. We were drifting higher as other countries of the world brought their tax rates down, so that's why we've acted, in other words to make sure that our major companies remain competitive globally, but at the same time not taking our eye off the fact that Super Profits are being earned by some of our biggest miners and a large slab of those super profits are going offshore. I believe firmly in people getting a fair return on their investment, but so too should the Australian people because they own the resources ultimately themselves.
HOST: Yeah ,Tony has just rung in with a question from Rocklea, wanting to know why, why not cut, and I think we've probably just covered that, why not just cut payroll tax in an effort to stimulate employment? Is that something you see being done as one of the next steps in all of this?
PM: Well, obviously when it comes to state-based taxes there's still a large slab of work to do, but the State Governments will answer these recommendations from Ken Henry in their own terms.
What I'm concerned about now is bringing about these three big changes that I've spoken about: for super, for business tax for small business and for the funding of future infrastructure by providing a better return from the biggest mining companies.
HOST: So when you opened Mr Henry's review and you looked at things like an inheritance tax on the family home, what was your response?
PM: Well, I'm glad you've raised that, because when people say you haven't gone far enough with implementing some of Ken Henry's report, and its recommendations, as you said, include the family home in the means test, introducing a lands tax on the family home, requiring parents to work when their youngest child turns four, we've ruled those out, and I imagine most of your listeners would appreciate the fact that we've ruled those out as well.
So ,when we commissioned Ken Henry, Secretary to the Treasury, an independent public servant, advised by an independent panel to provide a full set of recommendations with, you know, their Treasury hats on, that's what they've done, but our job, as the Government of the country, is to say this is what we can do now, this is what we need to do more work on for the future, and here's a whole bunch of stuff we'll never touch.
HOST: And that's one of those you'll never touch?
PM: Well spotted.
HOST: He does, however, suggest - he doesn't say it point blank, but he does suggest that for you to rationalise it and simplify it a way that you would want to do long-term, you are going to have to have a look at the GST. Is that one of those you'd never look at or one of those in that middle ground you talked about somewhere down the road?
PM: No we're very clear about this, the GST will remain at its current rate. I've said that before and we will not change our position on that.
HOST: But if you are looking at it root and branch, and we are trying to simplify things, why would you point blank rule it out? If you hypothetically raised it to 12 per cent that would get rid of a lot of these other taxes.
PM: You might be looking for a very interesting news angle this morning Greg but I'm not going to give it to you -
HOST: - No I'm just being honest with you why, if you are-
PM: -We won't be moving on the GST. Remember, as far as the GST is concerned, and it grows probably at about 6 per cent per annum, look at our, very closely recently in terms of long term funding of our hospital system, a big change we've now had is to dedicate one third of the GST across the States and Territories to a new National Hospitals Fund, the fund the future health needs of the country. So in terms of the rate: no change.
HOST: You nearly need to leave, just before you go you're going down to the Labour Day March. The union movement has been a powerful force for good in most cases, or in many cases, in our country. Where's it at now? What's your reflection on this Labour Day?
PM: You know if it wasn't for the trade unions standing up for people for the last hundred years, you wouldn't have so many basic things out there. You wouldn't have a minimum wage, you wouldn't have things like, frankly, superannuation, they campaigned hard for that back in the '80s and '90s. You wouldn't have basic things like penalty rates, overtime, you wouldn't have basic things frankly, like holiday pay.
You know, people complain a lot about what certain unions do, I have from time to time as well, people out there at the radical fringe. But if you were to take the big span of history, people who have never been a member of a union in their life but look at some of the basic things they take for granted, I just think they've been a powerful force for good in Australia, and many, many good people in them.
HOST: Their relevance seems to be declining however.
PM: I don't know. I was speaking to some of them, some of the unions recently. Depends where you are in the economy, some of their membership is growing all the time. Shop assistants union, because retail is doing well in Australia. Take the nurses for example: big union, strong membership. I've been consulting with them very closely on the development of our Health and Hospitals Reform package recently.
You know, it's a mixed picture but so too is the growth patterns right across the economy. But if you take the overall sweep of things, and this is where I think Mr Howard got it so wrong with WorkChoices, that just got the balance all wrong in Australia. I think people want to make sure that working people have a fair go, and I think unions have been part of making sure that fair go is kept alive. Super is big, and that's why these reforms on super are so important for working people.
HOST: Now just finally, Paul Keating I think wanted it brought in initially at 15 per cent didn't he? We're now up to, well it will be up to 12 per cent. Where do you see it going to beyond the 12?
PM: Well we've looked at this very carefully, we think adequacy, that's the term that they use in the superannuation literature, adequacy is we believe, based on the numbers we've got, is broadly delivered by the 12 per cent number. We're always mindful in terms of the long-term needs of working families, but you know, we've got to do things that we can afford.
So what we've done is brought together this integrated package which balances out asking the biggest mining companies, frankly, to pay Australia more. Secondly, for working families to benefit though super, for our small businesses to benefit through changes to the tax system and to use that revenue from the mining companies to pay for some of the infrastructure needs of Australia, road, rail and port, which frankly the taxpayers are already having to foot out of their own pocket.
HOST: You need to be going up to the march so enjoy that, you won't be marching anywhere near Paul Lucas will you?
PM: Not quite sure where Paul will be walking. I think I'm with one of the unions anyway, one of the unions who are relevant to the hospital sector.
HOST: Our PM, Kevin Rudd, thank you.
PM: Thanks, Greg, for having me on the program.