HOST: Prime Minister, good morning
PM: Morning, Sandy. Thanks for having me on the program
HOST: A pleasure. 138 recommendations, you've adopted just a handful. Why have you been so cautious?
PM: Well, let's actually go to the reforms that we've embraced. This package of reforms we've embraced means that every worker, small business and company will be able to pay less tax and contribute more to national savings. This is a major, far-reaching and significant reform that prepares Australia for a more secure and stable economic future.
You can do a mechanical count of the numbers of technical recommendations, and some of those you wouldn't touch with a bargepole, but I've got to say the core ones to do with, firstly, keeping our Government finances strong, protecting the future of the Australian economy, ensuring working families and small business get their fair share from the nation's natural resources wealth, which ultimately belongs to all Australians. I think this is a good start. Of course, there is more to do.
HOST: But it's not exactly a root-and-branch reform of the tax system, is it?
PM: Well, what we did when we commissioned the Henry Review was to undertake a comprehensive review of the tax system in order to provide a guide, long term, as to what reform should be.
What we've done is take this sizeable block of reforms now. We believe this is done correctly in the national interest and again to go to the core of it, what we are doing is creating a new tax on some of the biggest mining companies in order to help fund the superannuation guarantee, which lifts from 9 per cent to 12 percent, adding an extra $108,000 to the retirement super of an average worker aged 30 now. We are also, of course, on top of that offering generous tax breaks to older Australians with low super balances to boost their super with lump-sum payments, but also importantly for every small business out there, a tax break by funding instant write-offs of purchases up to $5,000.
These are very important changes, which go to, as I said, every worker, every small business, every company in the country.
HOST: All that will the appeal to the electorate, no doubt, so can I put this to you - is this something that has the next election in mind, as opposed to reforming the tax system which you promised to do?
PM: Well on the question about keeping the economy strong, and keeping our finances strong and ensuring working families and small businesses get their fair share, let's go to the one of the core elements of this reform, which is bringing down the company tax rate. Right now the company tax rate out there is higher, by international standards, than it has been in decades past. What we've done by reducing the company tax down from 30 to 29 to 28, is bring it back to the middle of the field.
This is a big reform for all companies, large and small, but for small business, all 2.4 million of them in Australia, a tax break by funding instant write-offs for purchases up to $5,000. They are the engine room of the economy, small business, and for all your small business listeners this morning, that is a big help as far as their bottom line is concerned and not having to go to the accountant for everything.
HOST: The Henry review wanted it down to 25 per cent. Why didn't you go all the way?
PM: What we've got to do is make sure we maintain our tax reform in an overall framework of fiscal responsibility - that is, keeping our Government finances strong. On the one hand what we've said with the big mining companies around Australia, many of whom are foreign owned in part, some in whole, is that we believe that they can deliver more when it comes to the overall needs of the Australian community. That's what we call the Super Profits Tax.
On the other hand, taking the revenue which we raise from that, we're doing these three things - bringing the company tax rate down from 30 to 28 cents in a dollar, but we've said we've got an open mind in terms of after 28 cents in the dollar whether we go further as well. But then there are the other changes for small business, the other changes for superannuation earnings for average workers and, what we haven't talked about this morning, a new, $5.6 billion-plus infrastructure fund to invest in the railroad and ports needs we have for the future.
We think this is a good, strong and balanced package.
HOST: I'll ask about that in just a moment, but last night on Channel 7 you disagreed with David Koch who gave his version, having been in there, read the review, been in the lockup, he said this was an opportunity missed. I know you get briefings on what's in the papers. Is there any commentator this morning that isn't saying this an opportunity missed? I'm looking at the headlines here: 'crucial reforms in the too hard basket', 'lack of courage under fire'. Lack of courage seems to be the theme of all the commentaries. Can you point to anyone who isn't saying that?
PM: You can debate what the third parties may say. Take, for example, the Council of Small Business Association of Australia, and they are out there representing associations which bring together 2.4 million small businesses. What they have said is that this is a welcome set of reforms because they understand from their membership that this $5,000 instant write-off for purchases is really important. That may not impress some of the commentators but if you're out there running a small business in Western Sydney today and you've got to think about 'what am I going to do when I confront the tax accountant'?, let me tell you, this reduces your burden considerably and enables you to spend more time with, instead, your customers and your families.
On the overall reform can I just say it's pretty important, John, to bring down the company tax rate. It's also fundamentally important to boost our national savings. Remember, for nearly 20 years governments have been debating whether we should bring up the superannuation guarantee from 9 percent to 12 percent. When it comes to super, many people heading towards retirement don't have enough. What we've done is actually close that gap, move to 12 percent, which no previous government has done, and that means that if you're an average worker aged 30 now, it means an extra $108,000 of retirement super. That's a big help, together with the other super changes, too.
HOST: Can I ask about that, because a lot of those small business people that you referred to earlier listening to us know over the next decade they're going to have to be going from 9 percent to 12 percent super contributions. Where would you imagine that extra 3 percent would come from? Would it come principally from the employer or would you accept them reducing the sort of pay rises that they will be giving their workers in the future so they can afford to then pay the 12 percent?
PM: There are two answers to that, and I think both are really important. The first is why we have decided to in fact levy this new tax on Super Profits by big mining companies is to provide also a tax benefit to all companies - large and small - bringing down the company rate with a special additional benefit for small businesses which we've just talked about, this $5,000 immediate write-off, and the reason we've done that is that it provides them also with the financial capacity over a much longer spread of time to bring in the increases to the superannuation guarantee, which is spread out over the decade.
But the second point is this - in any industrial relations negotiation between companies and their employees, obviously what happens with the future with the superannuation guarantee will be a factor in those negotiations. It has been in the past and of course it will be in the future as well.
HOST: You've talked about a two-tier economy in the past, both you and the Treasurer, and the mining sector, of course, is that top-tier that we hear so much about now. Do you not run the risk with your tax on the resources sector of killing the goose that laid the golden egg?
PM: Can I say when it comes to this Resource Super Profits Tax let's just have a very clear figure in mind. Resource profits were over $80 billion higher over the last decade, but the Australian people only received an additional $9 billion and when you go to some of those big companies like BHP - it's more than 40 percent foreign owned; Rio Tinto - more that 70 percent foreign owned, we believe it's time for the Australian people, and local communities, and the retirement savings of all Australians to get a fairer share of the natural wealth of this country, which ultimately is owned by all Australians.
On how this compares with rates around the world, can I just say many, many other countries are moving towards this profit-based tax that we have embraced with the Super Profits Tax. Countries like Norway have a vastly larger tax than this. They have huge natural gas resources. The Canadian provinces have moved in similar directions, and can I just say, the Petroleum Resource Rent Tax applying to off-shore developments has already had this 40 percent Super Profits Tax for the last 20 years, hasn't got in the road of major developments there. In fact it's that tax regime which applies to the $50 billion Gorgon project which has been announced recently.
HOST: Yeah, can I just ask in relation to Norway that you've just mentioned, don't they put the proceeds of their tax into some kind of future fund and pay off government debt? The reason I ask is, is there anything in what you've said, particularly in the new resource tax, to pay off the debt that we borrowed to get ourselves out of the global financial crisis.
PM: Let's go to three things. As I said before the purpose of this overall Super Profits Tax is to lift the superannuation retirement earnings for all working Australians, help small business, all 2.4 million of them, but here's the third bit - to create a new national infrastructure fund, at least $5.6 billion and growing over time, to invest in the roads, rail and ports we need for the future. That's investing in our future capital because unless that is being invested from somewhere, in terms of the source of capital, then it follows, of course, that governments will have to increasingly have to borrow to invest in those-
HOST: -Sure.
PM: -sorts of infrastructure needs-
HOST: -But isn't this the time, when the economy is growing, to be trying to pay off that debt so we're insulated again when the next downturn comes?
PM: Can I say in terms of the Government's overall policy on budget surplus and the Government's policy when it comes to Government debt, let's just bear very clearly in mind this Government has, through its actions, has not only kept the Australian economy out of the global recession, but we've done so with the second-lowest unemployment, the lowest debt and the lowest deficit of all the major advanced economies. Therefore, for scare campaigns to be run around that, frankly, is just politics from our political opponents. Any international commentator looking at our relative performance on budget deficit and debt coming out of the global recession would simply say Australia, compared with the rest of the world, frankly, is in a very, very strong position. As I said - the lowest debt, the lowest deficit of all the major advanced economies.
HOST: Prime Minister, we'll leave it there, thank you.
PM: Thanks for having me on your program.