LEIGH SALES:
Prime Minister, thank you for coming in.
PRIME MINISTER:
Good evening.
LEIGH SALES:
France already has a submarine production facility, it’s built more than 100 subs there. Its exported them to nine countries and yet the Australian Government is building this local facility here so that sub-building work can be done in Australia. Given the cost premium involved, how is this move not a social welfare program at odds with you r free-market Government?
PRIME MINISTER:
That as far as possible every dollar that we spend of defence procurement is spent here in Australia because that drives Australia economic growth and Australian jobs. It drives Australian technology. Drives advanced manufacturing and all of the spin-offs that comes from that. You see the defence industry operates at the very frontier of innovation and technology. So it serves to pull the rest of the economy along in that regard. There is a lot of spin-off benefit. So yes, we have a sovereign defence force and we should have a sovereign defence industry with construction here, wherever possible in Australia.
LEIGH SALES:
I take you point regarding the spin-off benefits, but how much extra is it costing to do the work here in Australia rather than having it all done in France and then exporting it here?
PRIME MINISTER:
Well you – can I just say to you, all three bidders nominated the order of magnitude - what is called a ‘rough order of magnitude’ - between building overseas and building in Australia. Such a premium as there is, is very manageable.
LEIGH SALES:
And what was it exactly in dollar figures?
PRIME MINISTER:
I can’t go into that with you at this stage Leigh I can assure you, but let me just say this to you. You’ve got to remember that these are very complex pieces of machinery.
They need to be sustained and maintained in Australia. They need to be built in Australia and it is a vital part of our national economic plan, our plan to ensure that we have the jobs and growth in the 21st century economy. That we successfully transition from an economy that has been fuelled up by a mining construction boom, to one that is more diverse. Our Defence White Paper, our Defence Investment Plan, is all part of our overall plan for a strong 21sAt century economy.
LEIGH SALES:
How much of each submarine will actually be built in South Australia?
PRIME MINISTER:
Well the submarines will be built in South Australia and the bulk of the components, the elements in the submarine will be built in South Australia and elsewhere in Australia. But of course, as with any product of advanced manufacturing in the 21st century, there is a global supply chain and there will be elements components that are built in the United States or supplied from France. But the majority, the bulk of it, will be built in Australia and indeed here in South Australia.
LEIGH SALES:
And when you say the majority, do you mean, you know, 55% will be built in Australia or 95% of them, is it substantially the whole thing? Or is it about half?
PRIME MINISTER:
Leigh, let me restate what my objective is; I am committed to Australia having the strongest defence capability we can afford, to keep us safe. Behind that we need a strong defence industry and so where ever we can spend the dollars we commit to getting the capabilities for our defence forces in Australia, wherever we can spend those dollars in Australia, we will. So these submarines
LEIGH SALES:
Sorry to interrupt, but to test the veracity of what you’re saying, what I’m asking is how much of these submarines will be built in Australia? Is it 90% is it 50%?
PRIME MINISTER:
Well Leigh, the submarine has not yet been designed. So we are working with the French as a design partner. It is going to be based on their latest submarine, their Barracuda submarine. But it is going to be an Australian-French partnership to design a new submarine and the majority of the construction, well, all of the construction and the majority of the components, the work that goes into that, will be built in Australia. That is the, that’s our policy, that’s our commitment and that is what you’d expect.
LEIGH SALES:
What do you say to the suggestion from you enemies that this announcement is about shoring up your political position in South Australia?
PRIME MINISTER:
The competitive evaluation process was extremely thorough, as we described today, as the Defence Minister described in the press conference today. What we had was unambiguous advice from our Defence Department, from the independent experts, naval, submarine experts that assisted us. Unambiguous advice that the French proposal represented the best capabilities for our unique needs. Now the proposals from Germany and Japan were excellent and had great capabilities, but the French one was the superior one for our needs and that is why we’re proceeding with it.
LEIGH SALES:
Just one quick question before we move off this –have you spoken personally to the Japanese Prime Minister Shinzo Abe about this?
PRIME MINISTER:
Yes I have.
LEIGH SALES:
And what was the content of the conversation broadly?
PRIME MINISTER:
Well can I say to you that we, in all of my discussions with Prime Minister Abe, including the most recent one, each of us shared our unwavering commitment to our strong, special strategic partnership with Japan which will become stronger in the years ahead. And part of that is our trilateral relationship with the United States.
LEIGH SALES:
The Japanese have put out a statement to say that this decision is deeply regrettable.
PRIME MINISTER:
Well it is - we can clearly understand their disappointment at not being successful in the competitive evaluation process.
LEIGH SALES:
Let’s move on to negative gearing. On the weekend you said that Labor’s negative gearing and capital gains policies would take a sledgehammer to property prices. Where is your modelling for that?
PRIME MINISTER:
Well there has been modelling published earlier. Well actually it was given to the Labor Party last year in fact by BIS Shrapnel which demonstrated that but Leigh -
LEIGH SALES:
And is that the modelling you’re relying on when you say that?
PRIME MINISTER:
Let me just – this is a matter common sense. Around a third of the buyers of residential property currently are investors. What Labor is proposing will take all, or almost all of them out of the market. Now if you take, if the market, the residential property market is soft now and it is declining in many cities, in Perth for example it has been declining for several years, if you take a third of the buyers out of the market, prices, values will fall. That is common sense.
LEIGH SALES:
But you’re saying – and I’ll com e back to the common sense point in a moment – but you’re saying that it would take almost all of them out of the market. If you look at what’s happened around the world, what happens around the world in countries that have far less generous capital gains tax policies than Australia, far less generous negative gearing policies, they have vibrant property investment markets.
PRIME MINISTER:
Well that’s not actually entirely accurate alright Leigh if I can just pick you up on a couple of things. Firstly what Labor is proposing to do is to jack up capital gains tax by 50 per cent and that would make it the second highest in the comparable developed countries. Now let me say to you capital gains tax is a tax on investment. If you want people to do less of something you jack up the tax. So what Labor clearly wants is less investment, less investment means less jobs. We want to see more investment. Now as far as property investors are concerned, in a market like the United States where negative gearing is generally not allowed, what you see is rents being much higher, rental properties being owned by big companies and big investors. You don’t have what we have in Australia which is mum and dad investors, people on average incomes, buying a flat, buying a house. I mean 70 per cent of the people who negative gear in Australia own one property, and another 20 per cent own two. Most of these people, most of these Australians are hardworking Australians trying to get ahead. Most of them are on average earnings or less and the Labor Party wants to take them out of the market.
LEIGH SALES:
Well actually the statistics, the statistics are that the top ten percent of income earners receiving three quarters, sorry it’s the top ten percent of income earners receiving three quarters of taxable capital gains.
PRIME MINISTER:
Well Leigh, that is, that is beside the point. Of course people on the highest incomes will make the highest gains because they tend to have more property. But what Labor, but Leigh –
LEIGH SALES:
So therefore these policies, these policies favour most people who are on the highest incomes.
PRIME MINISTER:
Leigh there are well over a million Australians most of whom are on average earnings who have an investment property and they are negative gearing it. These are policeman –
LEIGH SALES:
And how many Australians that leave who don’t have that. What, 22, 23 million?
PRIME MINISTER:
I’m sorry Leigh I couldn’t hear that question.
LEIGH SALES:
I said how many Australians does that leave who aren’t involved in negative gearing? I don’t know what the population is – another 21, 22 million?
PRIME MINISTER:
Well there are obviously many Australians that don’t invest in property but does that mean that you should ban all Australians from being able to do it?
And let me just go on Leigh. Let me give you a very good business example. Labor wants to ban negative gearing on any asset except new dwellings. So that includes commercial property. That includes shares. That includes business assets. Now why, what possible point is there in preventing you from investing in a shop and negative gearing that? That is simply a Labor tax grab. It has nothing to do with housing affordability.
LEIGH SALES:
On housing affordability, on the weekend when you announced that you wouldn’t change negative gearing, you were there with a family with a young baby. The subtext of what you were saying was that, ‘okay sure, maybe you can’t afford to buy your own house to live in, but here is what you can aspire to; you can keep living with mum and dad and buy an investment property and maybe one day your children might be able to buy a property of their own’. Is that the sort of country you see Australia becoming?
PRIME MINISTER:
Australia is a country where people should be able to exercise their economic freedom and invest where they wish. Negative gearing, the ability to offset interest expenses from an income earning investment against your personal income, that has been part of our tax law since 1915. It’s a hundred and one years old. It is not a tax break, it is a standard concession. Now let me give you an example however, of how unjust and ill thought out and reckless Labor’s plan is. Under Labor’s plan, a plumber whose earning $100,00 a year would not be able to negative gear an investment property or shares for that matter against his income, as a plumber. However, a wealthy person with investment income, dividends, rent, interest of $100,000 a year would be able to negative gear against their investment income. So under Labor’s plan, workers, people who live, whose income comes from their personal exertion, will not be able to negative gear but people whose income comes from investments, will. Now how is that fair?
LEIGH SALES:
When you started this section I asked you if you could give me the modelling for your assessment that it would take a sledgehammer to property prices. You said it’s a matter of common sense. So is what you’re saying to voters ‘I don’t actually have hard evidence here. It’s my common sense and so you have to trust my analysis on this’?
PRIME MINISTER:
Well Leigh, you know, your viewers tonight understand the laws of supply and demand. If you take a third of the buyers out of a market…
LEIGH SALES:
But what I’m asking is how do you know you’re taking out a third.
PRIME MINISTER:
…prices will come down. Pardon?
LEIGH SALES:
Where is your modelling for the fact that you’re taking out a third?
PRIME MINISTER:
Well Leigh again it’s a fact, we know that around…
LEIGH SALES:
But you said a third, that’s very specific, what are you relying on for that?
PRIME MINISTER:
Well if you’ll let me finish I’ll give you the answer.
We know from the statistics - the banking statistics and the ATO statistics - that around a third of the people who borrow loans, who borrow money, to invest in property are investors. And most of them will be negative gearing that, and I might say even if they were positively geared- even if the rent of the property they were buying was higher than their interest, if under Labor’s plan they would run the risk if for whatever reason they incurred a net rental loss, perhaps the tenant stopped paying rent or the property was vacant or it needed expensive repairs. If for whatever reason they suffered a net rental loss they have to cover it out of their after tax income. So that is a very big risk. So we can say very confidently that under Labor’s plan, all or almost all of those investors, personal investors, who are borrowing money are, to buy investment property, would not take that risk because the consequence obviously, the expense of having to offset your net rental loss against your own income, is very high.
Now if you believe Leigh, that you can take a third of the buyers out of the market, or up to a third of the buyers out of the market and not affect prices, well then that would be a fairy tale. If I may say so…
LEIGH SALES:
A quick, a quick, we’re going to run out of time and I want to ask you a quick question to finish. You’ve said that you intend to call the election for the 2nd of July. When will you be visiting the Governor General to formalise that?
PRIME MINISTER:
Well as I have said. I will be calling on the Governor General to advise him to dissolve both houses of Parliament and call an election for the 2nd of July. And I’ll be visiting him after the budget, and obviously the Leader of the Opposition’s reply. And that will be done, you know, very shortly. But after the, at an appropriate time after the budget, and on or before the 11th of May.
LEIGH SALES:
And after the budget reply speech as well?
PRIME MINISTER:
Yes exactly that’s exactly what I said.
LEIGH SALES:
Prime Minister thank you very much for joining us these evening.
PRIME MINISTER:
Thanks so much Leigh.
[Ends]