HOST: The Prime Minister Kevin Rudd joins us now on 891 mornings. Good morning Prime Minister.
PM: Good morning. Sorry for not making your program yesterday morning, guys. I was delayed with various things in Sydney.
HOST: Please don't apologise, there's a lot on your plate, you're running a country. Now, a lot of people this morning -
PM: I'm in Perth at the moment so it's bright and early.
HOST: It certainly is. Now, a lot of people this morning would be thinking, how am I going to pay the bills? Interest rates have gone up yet again. Prime Minister, do you accept any responsibility for this interest rate stress?
PM: These are decisions taken independently by the Reserve Bank.
Secondly, if you look at the Reserve Bank's recent statements about, let's call it the fiscal policy settings of the Government, they have indicated that they believe that fiscal policy settings, that's what we do though Budget policy, is about right.
What the Reserve Bank is doing is making its own decisions about the overall challenge of dealing with long term inflation in the economy.
But having said that, I understand full well why the RBA's decision to raise interest rates but that's very tough on working families paying off a mortgage and this one will result in probably an additional $50 to monthly mortgage repayments.
HOST: Prime Minister, can you explain, to the working families that you talk about a fair bit, why you're continuing to stimulate the economy while the Reserve Bank's trying to slow the economy, and they're caught in the middle, they're paying the piper.
PM: On the question of stimulus, can I just draw your attention to the fact that stimulus began to be reduced in Australia in the third quarter last year. That's how we designed it. That is, that it was peaking in the second quarter last year when the Australian economy was under great stress from the global economic recession.
Remember, this time last year, we were dealing with huge struggles to just keep the economy afloat and that's why the Government stepped up to the plate and developed a national economic stimulus strategy. And as a result, what we succeeded in doing was, among the major advanced economies , keeping the Australian economy out of recession. The only one to do so. With the second lowest unemployment, protecting hundreds of thousands of Australian jobs, with the lowest debt and the lowest deficit. As I said, that stimulus peaked in the second quarter of last year.
HOST: But, isn't it also the case that you were encouraging new home owners, in the housing market, during the global financial crisis [LINE DROPS OUT] - I think we've lost the line to the Prime Minister. Please stay with us, we're going to try and reconnect with Kevin Rudd. He's talking to us this morning from Perth where he has gone, to the West, as part of the Government's sell of its adoption of part of the Henry tax review and of course the big thing that we heard on the weekend was that it's decided to hit the big mining companies who are bringing in super profits. We'll continue that discussion with him in just a moment.
HOST: Let's go back to Perth. Prime Minister, Kevin Rudd. We've established the line. Prime Minister, wasn't it the case though that during the global financial crisis you were effectively encouraging new home owners into the housing markets with the first home owners scheme when interest rates were at their record lows. Now, there is some stimulus coming from Government. It remains in the economy and that's causing those people stress. So, do you accept any responsibility for the cocktail that they're having to sip?
PM: I think the key challenge for us was to ensure that we didn't have hundreds of thousands of Australians thrown onto the unemployment queues last year. If we were in Australia running the same unemployment rates as we see in America or in Europe - and in previous recessions, that's been the case, in fact our performance has usually been worse - if we were doing that, we'd have half a million more Australians out of work.
That's why we did the national economic stimulus strategy and that's why it was supported by every peak industry body in the country because it kept the economy going.
Secondly, you mentioned first home buyers. What we did then of course was to significantly increase the First Home Owners Boost but we then cut that back during the course of last year as this signs of recovery came in. You -
[LINE DROPS OUT]
HOST: Ain't going to happen is it?
HOST: Not going to happen. It's just not going to happen there. Oh, well we are attempting to talk to the Prime Minister of the country. I assume on a mobile phone line is it? Is that a mobile phone?
HOST: Yes it is. So, ah, that's the Prime Minister's mobile. It's not happening, we do apologise for that. That is frustrating for you, I know, as a listener. For us, as broadcasters, and more importantly for the Prime Minister.
HOST: Prime Minister Kevin Rudd, I think we need some telecommunications infrastructure to the West.
PM: I think we may need something. But third time lucky, let's see how we go.
HOST: I think we're moving on to jam tins on string now.
PM: [laughs] Different phones but stronger signal I think.
HOST: Thank you
PM: Sorry about that and sorry to your listeners.
HOST: Prime Minister, you met with some of the heavyweights in the mining industry in more ways than one. How did that go last night? Have you had to give any ground?
PM: I think you could describe the meeting as robust. We had a strong meeting with representatives of the mining industry. They, of course, expressed their concerns about this Super Profits Tax that we're proposing. We've said we'll work with the mining industry in Queensland and WA and South Australia also and elsewhere in the country on the details and on the implementation.
But the reason for doing this Super Profits Tax is pretty basic. Over the last decade, we've had an increase in super profits to the mining industries by about $80 billion. But when you look at the return to the Australian people, it's only been about a $9 billion increase through the existing royalties structure run by the State Governments. And a lot of those super profits are heading out of the country.
So what we are doing is three things. Using that Super Profit Tax to, one, make sure we've got better superannuation retirement for all working Australians, and that's increasing it from nine per cent to 12 per cent. Two, a cut in the company tax rate including a $5,000 tax break for all small businesses; and three, using those funds as a future source of infrastructure investment for the resource States and other parts of Australia as well, to build road, rail and ports for the future.
HOST: Did you remain locked in on your 40 per cent? Have you walked out of the meeting still committed to 40 per cent?
PM: We think we've got that right. But we are prepared to talk to the industry, as I said, about details and about implementation.
HOST: So you won't move on the 40 per cent? Or it might be 35?
PM: No, we think we've got that about right.
HOST: You think you've got it about right?
PM: Yeah, well, I think we have. We spent a lot of time on this, as well as - I notice comments that have been made by various mining industry council representatives - we've also been very mindful of where this rate stacks up with comparable rates around the world.
I think that it's very important that the Australian people begin to get a fairer share from these natural resources of Australia. Remember, the people own these resources, the companies lease them. I'm all for a fair return to the mining industry but I also want to see a fairer return for working families.
HOST: Can you clearly define a super profit?
PM: Well, a super profit is calculated in this way. If you have for example, in a mining company, a normal profit is made up of revenues minus expenses. What's a super profit? Revenues minus expenses minus what we call an ordinary return on investment. How do we define an ordinary return on investment? If you took your investment capital and, for example, invested it at the long term government bond rate, that runs at about six per cent.
So profits in excess of that are defined as super profit. Then, what we do is say that those companies running those super profits can keep 60 per cent of that but 40 per cent of it, we believe, should come back to the Australian people in investment in better super for working families. Also for the -
HOST: Yeah.
PM: - two million plus small business, tax breaks, but also investing in infrastructure which is expensive.
HOST: Alright, Westpac have just announced a record 32 per cent profit - $2.8 billion on the back of working families, who are paying interest rates, higher interest rates. Why not consider a super tax on banks? Why pick on the resources sector?
PM: Well, the resources sector are sitting on a resource which is owned by the Australian people. Let's be very clear about that. What happens with our mining -
HOST: But the banks are sitting on huge piles of cash, that are owed them, that are owned by the Australian people. 32 per cent profit, Prime Minister.
PM: I go back to my point about what the actual nature of resources is. They are owned by the Australian people, and companies actually lease them. Therefore what we are doing is making sure there is a better return for all Australians.
If you go to financial companies of the type that you've described, remember, any taxes imposed there will then flow through to the concerns about mortgages that you've just raised before. Therefore an interest rate -
HOST: What, you're saying there'll be no impact for little people from taxing big mining companies?
PM: Well, I simply draw your attention to the fact that most of their product is sold overseas, that's the first thing.
Secondly, these are Australian resources and if you've got an $80 billion increase in the super profits of our mining industry and only $9 billion increase in the return to Government around the country to spend on road, rail, ports, hospitals and schools, all I'm saying is there should be a fairer share coming back to the country. I think that's a reasonable point of view.
And I notice even some of the Premiers, including the Premier of WA, Mike Rann, who said he's opposed to a super profits tax, has said for many, many years now that the mining industry is under-taxed. All that I'm trying to do is make sure we get some resolution on this and that working families, small business and the rest of the economy through better investment in infrastructure, gets a fair share.
HOST: Will mining companies be refunded this, the State royalties they've had to pay?
PM: Under the royalties regime, of course we have an agreement whereby that is dealt within this regime. And that means that if State Governments maintain their royalties regime, which I assume that they would, then of course we're not going to double tax people. The individual companies concerned have that dealt with in the regime.
HOST: Well Kevin Foley here in South Australia has been talking about doubling royalties that this State Government has been charging people like BHP Billiton for the Olympic Dam project. So, would Kevin Foley be able to up the royalty to 7 per cent and you would impose a 40 per cent super profit tax and what would happen to that 7 per cent royalty that Kevin Foley's collecting?
PM: What we've said in terms of royalties is that we would of course use the super profits tax to deal with royalties which arise from existing contracts and those which are currently scheduled.
As for future contracts, and maybe they are the ones that you're referring to with Treasurer Foley, we intend to sit down with the State Governments and work out an arrangement for the future. But we're not in the business of being blind to the impact of State royalties regimes.
Can I just add two further points about it though. Royalties regimes are a very blunt instrument on the industry. They are imposed on volumes rather than profit. So, it doesn't matter if a mining company is profitable or not, a royalties regime gets whacked on them just by the quantity which is dug up out of the ground.
A profits tax of the type we're suggesting, of the type we've had for the North-West Shelf for the last 20 years which has supported major developments there, is based on whether a company is profitable. If they're not profitable in their early years, frankly it's to their tax advantage under new scheme and that's why we want to expand the breadth of the mining industry and our modelling says that's the effective way -
HOST: So, should Kevin Foley be banking on being able to double his royalties?
PM: As I said, it depends, and I'm unaware of the detail of what Treasurer Foley has recommended and I'd rather the Treasurer, Wayne Swan, deal with him on that. But if he's talking about a future regime, that is as opposed to current royalties imposed on existing projects or scheduled royalties regimes, then that is the area where we wish to sit down with State Governments, including that in South Australia, and I'm sure that those two Treasurers will do so.
HOST: Are you concerned about mining companies, not just selling their product overseas but taking the operations overseas? Some of them have threatened this.
PM: Whenever you propose an increase on a tax to this sector, there is often a standard response which is to say that projects will close or they'll be shifted offshore.
Part of that's a negotiating process. Part of it is because mining companies may have decided that individual projects don't stack up anyway and they may have been wanting to cancel them or postpone them for other reasons.
But on those miners with legitimate concerns about the impact of what we are saying on their particular projects, we'll be sitting down with them as we are already with, literally, dozens of mining companies around the country working out the detail of this new super profits tax and its impact on them.
As I said, if companies aren't earning super profits, they don't get taxed. This is the big change between this system and the previous system.
And if you want to build big new companies like BHP and Rio from the ground up, you've got to provide them with incentives to get past first base. Which means, when they're not earning a profit, to make sure it's advantageous for them to stay in the industry.
HOST: Carol from Ironbank has called us, we're talking to Kevin Rudd, Prime Minister, on the phone from Perth this morning, here on 891 Mornings at ten to nine. Carol, good morning.
CALLER: Good morning. Yes, I'm just wanting to know, like, I am one of the little people and in the last few days we've lost about $14,000 in our superannuation, self-funded investments from the mining stocks going down. And I just whether he's given any thought to what's to happen to those people?
HOST: Kevin Rudd, Prime Minster.
PM: Carol, thank you very much for your call. If I look, for example, to the fluctuations in the share prices for the big mining companies, my understanding is that yesterday's close, for example, for BHP was something in the vicinity of about $39. Over the last year it's fluctuated between $31 and $44. Rio, for example, closed yesterday at around $67. Over the last 12 months it's fluctuated between $46 and $81. As you know, share prices change the whole time.
What we're on about is a bigger mining industry for the future. That means broadening the base so that all Australians benefit from it, but also, working families, benefit with their superannuation as well.
So many workers listening to this programme this morning do not have enough to retire on and that's why we want to increase the superannuation guarantee level from nine to 12 and that has to be offset with some of the tax cuts we're giving to business and that has to be offset by this new super profits tax that we're imposing on the most profitable miners in the country.
HOST: And would you expect, getting on to the personal superannuation increases, that there needs to be a wage offset there as there was initially when the scheme was set up under the Accord, under the Hawke/Keating Government?
PM: What I know about our industrial relations system is that there will inevitably be argy-bargy with every enterprise bargain that goes on around the country and I'm sure this will figure in it somewhere. What we've tried to do -
HOST: But you're not going to make it a pre-condition as it was in the outset of the scheme?
PM: It will inevitably - given the way in which in which the industrial relations system works now, and it is different from the system we had in the 90s, enterprise bargaining will of course be the framework within which these discussions occur on wages. And of course, I'm sure super will feature in a number of those negotiations as well.
The key thing though is this. Right now, so many of your listeners retiring will not have enough super. We brought in this scheme, remember, effectively from 1993. Under the changes we have proposed, what will happen, if you're a 30 year old entering the workforce now, your super in current dollar terms will be something like $108,000 more because of the changes that we're bringing in. For people over 50 listening to your program this morning, also, tax changes we're bringing in to make it much easier and more tax advantageous for them to top up their super as they get close to retirement, people over the age of 50.
HOST: Prime Minister, is it possible that your efforts to clear the decks before the next election have backfired, and people no longer see you as a principled politician?
PM: Well there's been a lot of criticism, for example, on the question of emissions trading. Let me just take that one head on. I can't change the fact that Mr Abbott, at the end of last year, backflipped entirely on the question on the Liberal Party's historical support for an emissions trading scheme. They voted it down in the parliament.
The Greens, on the other end of the political spectrum, also voted it down in the Parliament.
Simply calling a spade a spade, which is to say that we can't get this emissions trading scheme through the Parliament is a difficult message to explain to the Australian people. I understand that. But I think it's far better to be upfront about it.
On the key questions underpinning it though, namely action on climate change - first and foremost, this Government's commitment to bringing down greenhouse gas emissions has not changed one bit. Our targets remain the same.
HOST: Except they've been put off until 2013?
PM: Well, just to recognising the reality that the legislation that we spent two years developing up until the end of last year and got the Liberal Party to agree to under Mr Turnbull's leadership, resulted in a leadership coup against Mr Turnbull, by Mr Abbott and Mr Abbott describes climate change as quote "absolute crap".
If you can't get it though the Parliament, it's very important simply to be frank about that fact and outline your changed timeline for getting there. Our commitment to green house gas reduction hasn't changed one bit, nor has our commitment to an emissions trading scheme as the cheapest way to get there. What it has changed is our pathway to get there. I'm just being upfront about that.
HOST: And Mr Abbott is also predicting that even if you win the next election you'll be dumped as leader within six months.
PM: Well can I say, on the question of Mr Abbott, I would strongly suggest that he begin focusing on positive policy and positive alternatives for the future. It's very easy to be negative all the time, to criticise everything and propose nothing.
What we have done, in the last several months, is put forward the biggest reform to the health and hospital system our nation has seen, signed on to by all State Governments with the exception of WA.
What we've also put forward is a very big change to the taxation system that helps working families with retirement income. These are the things we stand for. They're positive policies. The introduction of the first paid parental leave scheme in the country on 1 January next year.
Mr Abbott's habit is simply to criticise, to criticise and to criticise.
HOST: Kevin Rudd, Prime Minister, thank you for giving us your time this morning. You've been very generous.
PM: Thanks for having us on the programme.