LAURA TINGLE:
Good morning.
PRIME MINISTER:
Good morning. Good to be here on these very large chairs. Do you sit on the centre or on the edge?
LAURA TINGLE:
I’m not quite sure. I feel like I’m in a scene from The Jetsons or something.
Thanks so much for your speech, Prime Minister. There are some very similar themes running through your speech and through some of the proceedings yesterday, although I think a slightly different take from the speakers. We had some very interesting views. Perhaps, surprisingly, for a business audience there was a recognition that policy now has to address this sense of inequality that seems to be feeding the populist wave around the country. That produced, as you did earlier, some interesting thoughts from your old colleague, Jim O’Neill.
PRIME MINISTER:
Well, I mean, he’s quite right in the sense that you have to demonstrate - the way to counter the rising tide of populism is to demonstrate that open markets and trade are good for jobs. Good to deliver economic growth and deliver greater opportunities, and that is what we do every day.
You see this particularly in regional Australia. Imagine how challenging it would be in regional Australia - and I recognize that covers a lot of communities with very different economic environments -but imagine what it would be like if we did not have those big export trade deals. You know, imagine where you would be in the bush, if cattle prices were half the level they are today? Imagine if we were not able to secure greater access for, as I did ten days ago, for Australian sugar and Australian beef into Indonesia?
These are all driving better outcomes and that is the point you know, that free trade and open markets are the key to jobs.
LAURA TINGLE:
You mentioned in your speech, you know, there are all these things that have become dirty words.
PRIME MINISTER:
Well I haven’t said they have. I said they shouldn’t be. They’re not.
LAURA TINGLE:
But like productivity and things like that. Jim O’Neill actually raised this very interesting idea, that basically, the corporate view, the profit share just can’t keep rising. He was talking about how he believes in this wave of economic prosperity, if you like, is going to require a lift in wages. Now this isn’t so much an issue in Australia. It certainly is an interesting repositioning and rebalancing of the debate, when you’ve business recognising that policy has to be seen to be recognising inequality even if, in order to support free trade.
PRIME MINISTER:
I didn’t hear Jim’s speech obviously, but I agree with the point that inequality is, and the perceptions of inequality, the realities of inequality, are very big issues.
Now, it is vitally important that we advance Australia fair - with the emphasis on fair - and that is a pillar of our economic policy.
One of the differentiators that we have in Australia is that we have a high minimum wage relative to other economies, particularly the United States. We also have a very highly means-tested welfare system. In fact, Andrew Leigh - before he was in politics - did quite a lot of work on this. The way in which social welfare is distributed in Australia is much more focused on the bottom quintile - bottom 20 per cent of income, household earnings ranked by income - than for example it is in the US, where means testing is not nearly as effective.
So I think we’ve done a better job on addressing that, but it certainly is a big issue. We recognize that and that is why growth has to, you know, the rising tide of growth has to lift all boats.
LAURA TINGLE:
There is a perception issue though, I suppose, I think both Cassandra Goldie and Brian Loughnane on a separate panel were talking a bit about this. Cassandra Goldie, for example, made the point that tax cuts for higher income earners went through with virtually no discussion. She compared that with this sort of fight that is going on about cuts to previous welfare payments, which you know, you say that are perfectly fair. But she was just talking about how the focus on budget repair - which is a very worthwhile thing - does tend to mean that the debate about equality gets a bit hostile along the way. Is this issue of acknowledging that people do feel this, issues with inequality, become an important part of how you frame your Budget message for May?
PRIME MINISTER:
Well, it is. The Budget has to be seen as being fair and it will be. The last Budget was. If you look at the changes we made to superannuation, we made prior to last year’s Budget, you could have $200 million, you could have any amount in your retirement account, superannuation and pay no tax at all. What the changes we’ve introduced mean, is that the tax-free amount is up to $1.6 million and after that of course the tax is still only 15 per cent.
But you look at the pushback we had on that.
So, I delivered, my Government delivered, the biggest reforms to superannuation since it was introduced. Which delivered a fairer and more flexible superannuation system. The winners particularly, were people on lower incomes and in particular women. So, I say that on the day after International Women’s Day. They were the biggest winners out of that. Flexibility and fairness.
Now that is what we delivered in my Budget last year. So we’ve delivered on greater equality and greater justice and greater fairness.
LAURA TINGLE:
If you go to the, shall we say, simple political argument, Labor will say: ‘Well they’re funding big tax cuts for companies, but are beating up on welfare recipients’. That’s what you say when you’re in politics. If you think they’re, if you believe as you do that company tax cuts are really important, do you think you need to rebalance the mix of various policy arms to implement the May Budget? So that it is perceived that the pain, if you like, is being shared around and the gains are being shared around differently?
PRIME MINISTER:
You’re asking me really, Laura, whether I think the Budget should be fair. Of course the answer to that is ‘yes’.
I mean the argument for reducing company tax is the same one that Bill Shorten made in 2012, and Chris Bowen put it in his book, and Paul Keating made when he reduced company taxes. It’s just in order to remain competitive. Globally, we need to have a competitive company tax rate regime. Ours is now one of the higher company tax regimes. You would have heard this from all of your presenters, no doubt. So it’s a matter of competition. The fact is that if you increase the return on investment by lowering company tax, you get more investment. If you get more investment, you get more jobs.
Most of the benefit of lower company taxes goes to labour - to workers in other words. That was set out in 2010 in the Labor Party’s budget when they put in company tax cuts in that budget. Of course, it’s the same rationale [inaudible].
LAURA TINGLE:
You talked about the AAA rating is under pressure. How much pressure is it under? I mean, do you feel that we could lose the AAA credit rating this year?
PRIME MINISTER:
Well, I think that as long we are seen to be maintaining a credible return to surplus, in accordance with the trajectory that is set out in the Budget and confirmed in MYEFO, all other things being equal - which of course they never are - we should be able to maintain it. But the reservation the ratings agencies have expressed, concerns they’ve expressed, is whether we can secure the relevant savings through the Senate. So that’s why I have to work hard to get things through the Senate.
But having said that, I’ve succeeded in getting a lot more through the Senate than most commentators ever thought we would.
I don’t kick things into long grass, I try to get them done. The Australian Building and Construction Commission is re-instated. The building code, if you like, the delay in the application of the building code that we agreed to last year with Senator Hinch, has been reversed. So that’s now fully implemented. Many people said we couldn’t do that.
The Registered Organisations Bill, which requires unions and employer organisations to comply with the same principles of disclosure and accountability as companies. That’s now law of the land. There are many others. We get things done. But you have to negotiate.
LAURA TINGLE:
In your speech when you’re talking about the risks to the AAA, you are really targeting Labor in your remarks.
PRIME MINISTER:
Sure.
LAURA TINGLE:
But whether it’s the Budget, whether it’s Government policies, whether it’s the whole indications of populism, I mean it’s not just Labor who is trying to set the agenda on this. I mean, One Nation obviously is a big player. Why do you only talk about the Labor Party?
PRIME MINISTER:
Well Labor is the Opposition. Labor is the alternative government. They are setting themselves up to be an alternative government and we expect a high level of responsibility from them, the public do. Of course anything, any measure that Labor supports, will fly through the Senate. So the one absolutely guaranteed way to get something through the Senate is to do it with the support of the Opposition.
LAURA TINGLE:
How much of a threat or how much pressure do you feel from the minor parties? Because it’s not necessarily just a right-left divide is it? It is a complex issue to have to deal with a party like One Nation which has got a smorgasbord of policy positions.
PRIME MINISTER:
I think in terms of the political debate, Laura, outside of Parliament, we stand up for our values and our principles.
The Liberal Party is a party of freedom. Fundamentally, our view of the world is that the Government’s role is to enable you to do your best.
Labor’s view of the world, fundamentally, is that government knows what it is best and will tell you, will compel you.
Now there are many differences and issues on particular policy, but that’s the fundamental dividing line between my side of politics and Bill Shorten’s. It’s a view about the individual and their relationship to the Government. It’s a view about freedom. We believe in more freedom. That has always been the case.
Now as far as the minor parties are concerned, they have a range of policies. They are generally not looked at very closely by the public because they don’t see them as being ever likely to form government. People don’t pay a lot of attention to the Green’s policies. They should, you know. They absolutely should. Withdrawing from the US Alliance, how would that look? Legalising more drugs, how would that look? I could go on. It’s a long list of policies which appeal to a small sub-set of voters perhaps, but which are not regarded as relevant by the public.
What we have to do is focus on our mainstream policies, our mainstream values which as I say, are focused on ensuring that we do everything we can to enable hard-working Australian families and their businesses to get ahead.
As far as the Senate is concerned, every member of the Senate - whether they’re an independent Senator in their own right like Derryn Hinch or they are part of a small party like One Nation or the Nick Xenophon Team - everyone has to be respected and we have to woo them, persuade them, to support our measures if we can’t get the support of Labor or the Greens.
LAURA TINGLE:
You said in your speech that it wasn’t good enough for Parliament to simply want you to raise taxes and not cut spending. But it strikes me that it’s probably more a case of people wanting, in the Parliament, for you to do both in various combinations. But on the tax side, there is obviously a lot of housekeeping work being done on things like the Petroleum Resource Rent Tax. Is that the extent of the likely tax debate for the current term of the Parliament?
PRIME MINISTER:
Well, we’re in the lead up to the Budget, and of course, your role is to encourage me to engage in speculation about the contents of the Budget so that it will be revealed before it’s delivered. But my job as Prime Minister is to resist that.
[Laughter]
LAURA TINGLE:
Oh go on. I know you want to.
[Laughter]
PRIME MINISTER:
I know. Well, actually I don’t.
[Laughter]
Look, I lead a very traditional cabinet government. I am a firm believer, in matters of Parliament and Cabinet, I’m a very staunch traditionalist. I believe that on matters like this, Cabinets, Governments should confer privately, have forthright discussions within the Cabinet. I think there are very few policy ideas that aren’t improved by discussion in the Cabinet. I believe in that: collective decision making. If you do that privately, make a decision and then you announce it. So I try to avoid, you know, a sort of trade in public speculation.
LAURA TINGLE:
Sure. Avoiding public speculation, but, do you envisage … I mean, they are quite complicated political times. Do you envisage being able to relaunch a discussion about tax for the next election? Or is it just too hard?
PRIME MINISTER:
People talk about tax all the time. After all tax tingles the hip-pocket nerve which is the most sensitive, so you’re advised. So yeah, people will be talking about tax all the time, you know, your Op-Ed pages every other day has got a piece on tax. So there will always be a discussion on tax.
The question is, from our point of view, we believe Australia is highly taxed today and it is. I mean, let’s face it, let’s not kid ourselves, Australian tax rates are high. Personal income tax rates are high relative to comparable economies. Company tax is very high and the relativity is likely to worsen as the United States moves into a lower company tax regime. We can see what the indicators are and what other jurisdictions have done.
So we are already highly taxed. What we need to do is to ensure that those taxpayers’ dollars we raise, we spend most efficiently and effectively.
LAURA TINGLE:
Does it also suggest at some point if you want to bring those rates down, you need a bit of a tax mix switch doesn’t it?
PRIME MINISTER:
Ah, well, this is what you are sort of yearning for, increase the GST again are you?
LAURA TINGLE:
Oh, more or less.
[Laughter]
PRIME MINISTER:
Well look, okay we’re not going to do that. Can I just recap, just make an observation? I regularly read complaints that the Government has not taken on big tax reform. Well we have. We actually have. The superannuation tax reforms alone were extremely complex and very comprehensive. That alone, by itself was a substantial tax reform, complex reform too. Of course, we’ve lowered middle income tax rates in a sense, in that we’ve increased the threshold for the middle income rates. So half a million middle income Australians will not go into the second highest tax rate now. That’s an important reform too. There have been other measures as well, of course.
But I just want to say about the GST, the issue with the GST is simply this - I know a lot of people will say: ‘You should just increase the GST and then use it to cut company tax or give it to the States.’ You know, Jay Weatherill, the South Australian Premier is possibly the most audacious, because he, a Labor Premier, he is cutting state business taxes over the forward estimates by about $400 million, at the same time as he urges the Federal Government to raise its taxes to give more money to South Australia.
Think about that.
But the problem with the GST, raising the GST, is that because so many Australians are not in the tax net, by the time you have kept the bottom and second bottom quintile – so the bottom 40 per cent of households by income - are compensated so that they are not worse off, or not materially worse off, you have very, relatively little money left. So that’s one, that is one clear objection.
So the idea that there is this huge, easy pot of gold to grab, simply did not stack up. That’s why we rejected it as a proposal last year. That’s the flaw in the argument.
LAURA TINGLE:
In a lot more immediate sense, Nick Xenophon told us here yesterday that he won’t talk to you about the passage of company tax cuts until you do something about energy. How much of a problem is that, just on the company tax cut side? If you wanted that sorted, and given what you say about finalising the Budget –
PRIME MINISTER:
Well look, we’ll continue talking to Nick and all of the Senators. But can I just say that the challenge of energy policy is a very complex one. There is no single, quick fix. You’ve seen, I’ve referred to today, the news about gas. Now I foreshadowed this in my speech to the Press Club. Here’s the reality; all of the climate change and energy modelling over the years has assumed a switch from coal to gas, gas having a lower emissions profile. They have assumed gas at a vastly lower price than it is today. They have assumed that its available. What we have now is a scarcity of gas, driven by politics. This is because – why do we not have enough gas? It is because state governments are not allowing exploration and development of onshore gas.
In Victoria, the Labor Government, which is in the absurd position of proposing a 50 per cent renewables target, has allowed – indeed you would say by increasing the royalty, encouraged – the closure of Hazelwood, admittedly a very old power-station and so forth. But they have seen that closed, at the same time as they will not allow the development of the gas resources within their state’s boundaries, which have been assumed to be available in all of the modelling.
So Laura, we need to have more gas and more gas which will deliver more opportunities; for industry for households and for energy generation. As I said in my speech, I’m going to bring the CEOs of the east coast gas companies together very soon. Because we need to have a very serious discussion about how they’re going to address this. Because we are facing an energy crisis in Australia, because of this restriction on gas. You can have all of the economic mechanisms, market mechanisms, you like. They’re only as good as the assumptions you feed into them. As you know, “garbage in, garbage out”.
If you’ve gone in there and you’ve assumed $4 a gigajoule gas, and you’ve assumed there’s plenty of it, and in fact gas - when you can get a long term contract - is in excess of $9 a gigajoule, then you’re not going to get the outcomes that you’ve previously assumed.
So there is a lot of changes, I believe, that need to be made to the market. We also need to take into account, of course, the full range of technologies.
I’ll give you another example. I’m happy to be corrected, but as far as I’m aware, I’m the first politician, or at least leader of a Government, that has put energy storage on the agenda. Now we’ve got ARENA and CEFC doing a storage round. We’ve already announced support for a feasibility study for an energy storage project in the Spencer Gulf. We need to get more of it.
If you have a large amount of variable renewable energy, wind and solar, isn’t it obvious that you need storage? Isn’t it blindingly obvious that you do? And yet you have state governments that do these big goals and have done nothing in that regard. So whether it’s batteries or pumped hydro, or other technologies – batteries and pumped hydro are the two obvious ones – there’s going to have to be a lot more of that. The energy network, the energy grid, is being rapidly disrupted and I don’t believe we have faced up to the consequences of that disruption and what it means for very large fixed assets that have been established on the assumption of a different regime, you know, where you have central generation from big power stations. We are moving into a much more distributed environment and our market rules have got to protect that. That’s why there’s an issue about price, as you know, the five minute versus 30-minute pricing and settlement. Should it be five by five as it is in some parts of America, and so forth.
LAURA TINGLE:
I’d like to check you up on some of those - several of those points. You talk about access to onshore development of gas and that’s an issue. Some people would say that the crisis is so extensive that that won’t solve all the problems, that it’s not going to be a real issue but -
PRIME MINISTER:
That it won’t solve it soon enough you mean?
LAURA TINGLE:
Well it might not solve it soon enough, it might not produce enough gas, if you like.
PRIME MINISTER:
Laura, can I tell you, we have so much gas in Australia. I mean the availability - gas reserves or gas resources is not the issue. There are two - the biggest problem at the moment is the political opposition from state governments to it being explored. That’s the biggest problem.
LAURA TINGLE:
Sure, but you’re saying it’s a political problem. But you’ve also said that you’re going to call in the companies to see what they’re going to do about it. I suppose that leaves the really glaring question of: “Well, what can you do about it?” I mean, you’re saying it’s a state government problem. But whoever’s fault it is, people just want to have access – whether it’s manufacturers, whether they’re consumers – we’re talking about, as you say, a crisis. Shouldn’t the Federal Government be able to, or be willing to try to intervene in quite an aggressive fashion? Should you be thinking about things like, you know, obviously problems over sovereign risk, but should you be thinking about domestic gas reservations? Should you be thinking about more aggressive ‘take-it-or-leave-it’ provisions? Doesn’t it require
national -
PRIME MINISTER:
Well there are. It certainly requires a solution and the first step is to bring the companies in. To talk to them and listen to them about how they would propose to resolve this challenge. I mean they may dispute the forecasts given by the operator, the market operator, for example. But the first step is to engage with them. Now’ I’m doing – I might say, there’s a number of people in the energy sector here today, I won’t single them out – but I’ve be speaking to them quite extensively about this issue for a while. But the gas issue is a very, very big one. Again, bear this in mind – I know we’ve got lots of bankers and numbers people here – when you look at models, and people say: “Oh, there’s been an economic model, it tells you this”. You’ve got to look at the assumptions and everything that has been assumed historically about energy transition here has made assumptions about plentiful and much less expensive gas than we have at the moment and that is a big challenge now. That’s probably as far as I can take it but I agree with you we need a solution. I agree with you.
We cannot afford to be in a situation where Australian businesses and households effectively run out of gas and that might mean again that the operators or the companies come and say, ‘that’s all exaggerated, it’s alarmist, it’s not true and this is why and this is how we can ensure supply’, and we’ll listen to that very carefully. But I can tell you by going around talking to industrial firms whether it’s a glass maker as I was visiting in Victoria recently, the rapid increase in the cost of gas and you are talking about as I mentioned nine dollars a gigajoule just to put that in context. If you were generating electricity, nine dollars a gigajoule would roughly give you a cost of one hundred dollars a megawatt hour. So that’s very expensive. That is expensive. That’s why it is used for peaking power. If we’re talking about transitioning to gas as a baseload fuel and we’ve got that price already – likely to get higher – it’s a big issue. Another metric, we are paying, Australian businesses are paying for gas, here on a continent filled with gas, we are paying around three times the amount for gas as a similarly situated firm would in the United States. So that’s another issue.
LAURA TINGLE:
What all these energy companies have actually been saying in the last week in particular and what they’ve probably as a result therefore likely to say to you is we actually need an emissions intensity scheme. We need that for investment certainty. What do you say back to them?
PRIME MINISTER:
Well I think we certainly need investment certainty and the politics and ideology has done a lot of damage to the energy debate over a long period of time. You see this most - the most egregious example of that is Labor’s commitment to these huge renewable energy targets without any thought as to how they can be integrated. Let me give you an example. Just let me give you an example in South Australia.
South Australia has a big wind power component, about 40 per cent of its notional capacity. Those wind turbines can generate anything from 100 per cent of the state’s demand to zero per cent. So extraordinary volatility in supply. At the same time, because there aren’t a lot of big baseload customers and because it can get very hot, as South Australians know, demand can go from say one thousand megawatts to three and a half thousand. So you’ve got volatility of supply and volatility of demand. Now that’s seen elsewhere in Australia as well. What that clearly means is there should have been - if you are going to go down that track - where was the focus on storage? Where was the focus on ensuring there was the backup? Instead, South Australia in this sort of dreamy ideological, sort of like a greenie ideological dream, relied more and more on transmission from Victoria where the power was coming from brown coal generators in the La Trobe Valley which have the highest emissions intensity in the country.
LAURA TINGLE:
You have tried to reframe the debate about energy away from -
PRIME MINISTER:
It should be about economics and engineering. Those should be the two lodestars of our national energy policy. We’ve got to get the ideology and the politics out of it.
LAURA TINGLE:
Isn’t what the companies are saying is their position? It’s not about the ideology of an emissions intensity scheme, it’s about the practical realities of it. Is there scope to reconsider an issue like that or policy instruments like that that will create the investment certainty to get gas fired power stations which you need in place without looking at it through a climate perspective?
PRIME MINISTER:
There’s the point. An emissions intensity scheme would deliver, as you said, arguably, if that was its objective, would deliver more gas fired power. Where’s the gas? And at what price? You know, adhering to a particular model, a particular technique is easy to do – it’s easier to put it into a headline. But what you need to do is to deliver an outcome. What Australian’s want is a result. They want to have energy security, they want to have energy that is affordable and we want to meet our internationally agreed emissions reductions objectives. Our targets, what we agreed to in Paris.
We can do all three but if the answer is just, you close down coal and move to gas, well where’s the gas for a start. We’ve got a shortage of gas and what about the price? So saying we have got constraints on supply of gas at the moment which created the problems we just described and we have also failed to take into account the necessary technologies to support variable renewables. We have done, we have to have a market which encourages – and it may be that it will have to be mandated in the future – but again, this is what we are working through with Alan Finkel, what about storage? If you are going to introduce more variable renewable energy into the grid, fair enough, but you must be able to point to some storage to back it up. Otherwise you get that extraordinary situation that you have in South Australia where you have got this huge wind component, as I said, which can deliver 100 per cent of your supply one moment and then zero per cent at another. That is not a way, that is not a sustainable way forward. We’ve got to do better and the two goals, two lodestars for me, in my Government are economics and engineering. We need the outcome. Affordable, reliable energy and we meet those emissions reduction targets.
LAURA TINGLE:
Well I had about 400 other questions but unfortunately we don’t have over 4 hours.
PRIME MINISTER:
Thank you.
LAURA TINGLE:
Thank you Prime Minister.
[ENDS]