KGB: Shadow Treasurer Joe Hockey

Shadow Treasurer Joe Hockey tells Alan Kohler and Stephen Bartholomeusz: 

–      How the Coalition's plan to maintain personal tax rates will help stabilise fragile consumer confidence

That the recent budget papers are the worst he has seen in 20 years

Where public service job cuts will come from

How the Coalition plans to move small business administration to the Department of Treasury

The Coalition's plan to set up a framework on superannuation

The $28 billion of cuts from the 2012 budget that the Coalition hopes to drive through

–      The Coalition's plans to issue infrastructure bonds

ALAN KOHLER: Joe Hockey, a deficit of 5 per cent of GDP is an emergency, but 1.5 per cent, is that an emergency really?

JOE HOCKEY: I think the issue is, Alan, that the government is consistently promising surpluses, but they’re not getting there and in doing so, it says that there are challenges that lie ahead – and structural challenges. And when you actually look at some of the cyclical challenges that underlie the headline numbers in the budget, you can see that unless the government takes remedial action, or whoever is in government takes remedial action immediately, that the debts and deficit are just going to keep growing.

AK: Yes, but there’s a fine line isn’t there, particularly in opposition, when you come out with extravagant statements like ‘crisis and emergency’ when it’s clearly not – apart from perhaps in political terms – which tends to frighten people? I mean we have a potential problem of confidence in the country, business and consumer, and you guys are going around and saying we have a fiscal emergency when we don’t.

JH: Well, you’re entitled to that opinion. My opinion is unless we address some of the structural issues in the budget, we are going to continue to increase borrowings. I don’t like the fact that Australia is an importer of money. It exposes itself more and more to volatility in international financial markets as a result of the government being out there and borrowing in competition with our banks. Now, the fact is somewhere between 70-86 per cent of government debt is held by people overseas and it’s also the case that Australia is a net borrower of money. And the banks, as you know, borrow from overseas in those markets. They compete with the Australian government. And if there is to be further volatility in those offshore markets, and there will be, then we increase our exposure to that volatility by the government being in the business of borrowing more money. So, we’ve got to get it back. 

And by the way our terms of trade, as you know, are higher now than at any time under the Coalition and they’re still around the highest levels in the last 100 years. If we’re not in surplus when we’ve got very strong terms of trade, when we have unemployment below 6 per cent and when you’ve got trend growth, when do you run a surplus?

AK: So, if it is an emergency, how can you justify going ahead with full pay parental leave?

JH: Well, what we’ve said is that’s going to be paid for by...

AK: The increase in taxes.

JH: ...the 3000 largest businesses, and we’ve also said that we’ll have modest tax cuts associated with that. But what you’ll see before the election is our whole plan and the timing of that plan. And I can assure you that we are very focussed on the immediate fiscal challenge.

AK: Will it be different to what it is now?

JH: Well, I’m not going to give you the scoop, but I can say to you...

AK: Come on, Joe, what...?

JH: You can try, but I’m not going to pre-empt where things are at. We want to see the final budget numbers, which are released ten days into the campaign, and that will influence a number of initiatives obviously.

STEPHEN BARTHOLOMEUSZ: Joe, you referred to the record terms of trade, a record investment. We’re coming out of a China inspired economic bubble and we’re coming out with $220 billion dollars of accumulated deficits. Are you conscious of the risk, in trying to deal with the scale of the fiscal issues, that you could actually plunge the economy into something quite unpleasant?

JH: Look, I am very mindful that consumer confidence is fragile, that business confidence is fragile. I am very mindful of that and that’s weighing heavily on our thinking and that’s one of the reasons why we were determined to maintain the current personal tax rates rather than withdrawing them back to the pre-carbon tax package levels; the same with the pension. We are determined to make sure people aren’t going to receive less in their pockets. But at the same time the flipside is we’re going to have to change government expenditure in other areas and accept the Labor Party savings. So, it’s a balancing act. And I think what people are crying out for is stability and certainty and predictability, and that’s what we’re endeavouring to give. Now, that’s very hard from Opposition. And even our worst critics would say Tony Abbott released more information last night than any Opposition leader has ever done in a budget in reply speech in the parliament. But we’re on track.

SB: Given the scale of the challenge that you see and the economic circumstances, is the job of getting the budget back to a sustaining position a two-term job as opposed to a single term?

JH: Probably. We are still peeling back the budget. I mean, the mining tax numbers don’t add up. The carbon tax revenue does not add up. I’m not quite sure about where the company tax revenue is at, but previous estimations have been too high and from my perspective we’ve got to dig deep into those numbers, into the forecasts as well. For example, as you know, the Reserve Bank said that they expected growth next year to be between 2-3 per cent. The government has forecast it 2.75 per cent, so they’ve gone towards a higher end of expectations. And in doing so that inflates their revenue and therefore justifies their expenditure, in their view. So, these are the things we’ve got to get to the bottom of.

SB: The budget has another $30 billion dollars deficit in front of us, but predicts nominal growth and GDP of 5 per cent and rising.

JH: Which is at odds with what has happened this year. They’ve been blaming nominal growth for the lack of revenue and yet they’re quite prepared to have 5-5.5 per cent in the out years, which again suggests that the revenue numbers are inflated.

SB: In the context of the uncertainty about what might actually happen in those out years, the two big spending programs are the NDIS, which you’re committed to, and Gonski, where you haven’t said whether you will or won’t, depending what the states do. Could you actually afford to do both those programs? Because the numbers are quite large.

JH: Well, the government has been quite devious because, as you know, in the budget they only present four-year numbers. And in fact they’re cutting education funding over the next four years including, we believe, cutting school funding over the next four years, but after that, in the numbers they don’t have to present, in what would be third term of a Gillard government, that’s when there would be a massive ramp up in education funding which they haven’t explained. So, I’ve felt as though in dealing with this budget, we’re in a bizarre world. The budget papers are the worst, most complicated and incomplete budget papers I’ve seen in 20 years. And one good example is they claim they have 10-year funding for the NDIS and they have one table in the budget that actually doesn’t explain what that 10-year funding is, but in the lock-up they were apparently handing out to journalists, selected journalists only, the list of 10-year funding, which means they didn’t even properly prepare the budget papers. I mean, that’s not the way to run a budget.

AK: But you’ve committed to the NDIS yourself, haven’t you?

JH: We have, yeah.

AK: So, you’re in for it, whatever it is?

JH: We are. But we are going to do it...

AK: And you’re going to have to fund it.

JH: We are going to do it in a more efficient manner with a better outcome and we’ll do it by following more closely the Productivity Commissioner’s recommendations, ensuring there is a contestable market in various parts of it and various other things.

AK: But you’re not going to do the Gonski school funding, right?

JH: We haven’t committed. We’ve said there needs to be a national scheme and there is no national scheme at the moment. Only one state has signed up, New South Wales, and other states like Victoria I understand have said they’re not signing up. Western Australia definitely is not signing up. I mean, what sort of a scheme is it? The whole focus of the Gonski recommendation was to have a single national scheme and there is none.

AK: But you’re going to have a big review of COAG and what states do and what the Commonwealth does, so maybe it could all change out of that?

JH: Well, it’s true. This is the thing. You know, Alan, I’m one of the only people that has ever attended a premiers’ conference on the other side of the table with a premier when I worked in New South Wales government for Nick Greiner and John Fahey and then being, hopefully on the other side of the table working with the premiers, I can see both sides and the challenges that both have. But the thing is we’ve only got one taxpayer. And whether you’ve got federal government or state government imposing taxes on them or imposing regulations on them, it’s the same human being, an Australian out there that is copping it. And from our perspective – and it’s very, very important – Tony Abbott has announced that we will redefine the modern view of federalism. And we’ll do that in consultation with the states and we’ll take it to the electorate, if we are to be re-elected.

AK: So that has to affect school funding, right?

JH: Well, no, it doesn’t because what it has to do is work out who’s responsible for what. It doesn’t mean a cut in the level of funding.

AK: No, no, I don’t mean it as a cut. I just mean that...

JH: How it’s structured.

AK: How it’s structured.

JH: Absolutely. Look, we’ve got to have efficiencies. We can’t continue to have thousands of public servants in Canberra second guessing what public servants at a state level are doing. And that’s one of the reasons why we do not want to go down the road of federal government funding for metropolitan public transport. Because then you’re going to have bureaucrats in Canberra that are trying to work out bus timetables and train timetables and zoning rules above railway stations and what the net present value is of certain projects. Come on, I mean, this is duplication.

AK: So, you’re going to get rid of 12,000 of them?

JH: Yes.

AK: Where did you get that number from?

JH: Well, it’s natural attrition over two years, out of the public service.

 AK: So, every year 6000 public servants less?

JH: At this stage, yeah. I mean there is a ramp-up in a sense of the number of public servants that will retire over the next few years.

AK: Is that retirement or leaving for other jobs?

JH: It can be leaving for other jobs as well.

AK: Because the problem with that is that the people who leave are those who can get another job, because they’re good.

JH: Yeah, that might be the case.

AK: Yeah, and the duds get left behind.

JH: Well, I mean I will obviously speak with department heads about the exact nature of it, but that is what we are budgeting for and that’s what will come out.

SB: One of the things you’ve talked about is the size of government. I think it’s a bit over 25 per cent of GDP today. Leaving aside what you may or may not do in a first term with 12,000 public servants or so, do you have a view about what the rational size of government relative to GDP ought to be in the long term?

JH: Well, I wouldn’t put a target on it because obviously there are going to be fluctuations according to economic conditions, but from my perspective you’ve got to look at the engagement of the public sector in the life of the private sector and the fact that, you know, we’ve got 20,000 more regulations in the last five years. Well, the public service in Australia generally has increased by 141,000 thousand over the last five years; 20,000 in Canberra. So look, if they’re frontline people, you can understand it with the growth in the economy, right, because you will have more people going to school and more people in hospitals and so on, so if it’s nurses and teachers, okay, you can understand it, even though I’d like to see more of them in the private sector than the public sector.

But having said that, it’s the intrusion in people’s lives. And you just think about your everyday life, how the regulation has become so onerous over the years. And I’ve often told this story about, you know, my dad running a small business and he put the A-frame out one morning outside to say ‘now open’ and along came a council guy and said ‘you need a permit for that and you’ve got to pay that permit’. I mean, what the hell is that about? And so you’ve got to have it on this place, not on that place. Every part of our life is regulated and the more you regulate, the more you crush innovation.

AK: So, you’ll have the streets full of A-frames?

JH: (Laughter) Well, we love to at election time, Alan. We all try and do that. But that’s the thing. It’s a little example. Another example, I mean I’m gasbagging on, but I went to a pizza place the other day and they [had] two tables outside, [and] you can’t put them together because they make too much noise, so you’ve got to have them six inches apart, they make less noise and you can only have seven chairs, not eight, even though each table has four sides because, oh well, because then they just say eight chairs is too noisy, but seven chairs is okay. Hang on, what’s going on?

AK: But they’re not federal legislations.

JH: No, but it’s the culture of regulation and federal government is as bad as anyone else. And we...

AK: In fact, you’re going to empower local councils probably.

JH: Well, no, that’s not our position... but...

AK: No?

JH: Ease up. But from my perspective, right, we’ve been as guilty, we’ve been as guilty. And Liberal has been as guilty as Labor on this. But the starting point is someone has to do something. Now, for example, in relation to FOFA (Future of Financial Advice), we railed against a whole lot of new regulation on FOFA and we will wind that back. And why? Because it’s unbelievably onerous for people. The paperwork associated with it is ridiculous. And one of the key reasons, if I can just add it, one of the things that was really important last night was Tony Abbott announcing that we’re moving small business into the Treasury portfolio. And why are we doing that? Because I think a lot of regulation, particularly out of Treasury agencies like ASIC and the ACCC and some of the others, that has focused on, you know, designing regulation for big business, for the businesses that can get in the door in Canberra, for the businesses that have enormous legal departments and compliance departments and human resources departments and so on, whereas a small business in Australia doesn’t have all of that. And therefore the benchmark for regulation should be a small business and not a big business for the generic business regulation in Australia.

AK: I have a couple of questions from Bob Gottliebsen who can’t be with us today unfortunately. First question is to do with that. What’s your timetable for extending consumer protection type legislation to protect small business in their contracts with large businesses?

JH: Well, we’ve said that we...

AK: What are you doing in the first six months?

JH: Well, we’ve said in the first term we are going to have a review of the competition rules and part of the reason why we’re bringing small business into Treasury is to help with that review because we do want it to have a small business focus and the equality of opportunity for small business. So, that will be part of the more general review into the competition laws.

AK: The other one is will you remove Martin Parkinson, the Treasury Secretary?

JH: I’ve got no plans to remove anyone other than Wayne Swan.

AK: Bob didn’t ask this, but my supplementary question is, do you blame Treasury for the missed forecasts over the last five years?

JH: Well, I’m reluctant to, I must say, because ultimately the forecasts that are published belong to the Treasurer. His name was on the front of the document and the Minister for Finance. Their names are on the front of the budget documents that …

AK: But he’s not a macroeconomist with a bottle in his office...

JH: Well what is interesting is that there are a lot of Treasury officials now in the Treasurer’s office on a scale that we haven’t seen before. We now have more departmental people working in ministerial offices, Treasury departmental people working in ministerial offices as political staff than ever, by far, in multiples – and that’s never happened before. No one can remember that. You can one- offs, but the number of people in political offices from the department …

AK: So, when you’re Treasurer perhaps you’ll get Martin Parkinson in and say, ‘okay Martin, what were your forecasts?’

JH: Yeah, yeah.

AK: What were yours and what were Wayne’s?

JH: Well, let’s not get ahead of the game.

AK: No, but...

JH: I mean the 14th of September is...

AK: You’re going to want to know, aren’t you? You’re going to want to know what were your forecasts over the last five years? You know, and then if they were the same as Wayne Swan’s, what happens then?

JH: Well, we’ll have a chat. But hang on, we haven’t won the election, so please, please. We haven’t won the election. There’s an election and I’m not getting …

AK: Final Bob question. Will you support the government’s proposals on superannuation, so that people can plan, because we don’t people….

JH: Well, we have no choice. We have no choice because...

AK: You could do anything you like, as Tony said last month.

JH: Well, the problem is the budget is in a mess and the initiatives that they have announced on superannuation, we have to go with. But what we’ve said and what I’ve said is that we need a framework around superannuation and the financial system review – which is not something we thought up overnight, I’ve been on about it and been criticised for two years about it, alright – that we need a framework for the future of financial services in Australia and that includes superannuation. Superannuation was an issue that the Wallis review didn’t really focus a lot of attention on, so that is a key part of my financial system review and what we’ve said is that in government we’re not going to make any adverse decisions in relation to superannuation and I have said to the financial services industry that for so long as that review is underway we will not have any negative changes to regulation and if we do that, we get a period of stability that is so necessary.

AK: Are you okay to keep going because...?

JH: Yeah, I’m enjoying this.

AK: Well, I’m enjoying it too, so we want to keep going.

SB: One of the things Tony Abbott announced last night was the audit commission, to groans from the government front bench obviously. Is it, as they say, simply a guide to further cost cutting or are you looking at the sort of the scale and nature of government?

JH: Well, it is. It will have fairly broad terms of reference. I think it’s important if you do it and it will be led by people from the private sector with the support of people from the public sector. If you’re going to go through that process, make it meaningful and make it structural. I mean, you know, it’s not hard to find cuts, but it is hard to make structural change that actually delivers a more efficient government. So, I’m not seeing the commission of audit as some sort of, you know, waste watch committee on steroids; I’m actually seeing it as an opportunity to redesign some of the structural delivery processes and structural mechanisms for the delivery of public sector support into the community. Now, we already have a number of thoughts about how to improve service delivery and I think we can do a lot better in that regard, but there are other areas of government that we need to better coordinate our effort and ensure that we don’t have duplication across departments.

AK: One of the things Tony Abbott made a big deal about in his reply speech was the need for proper Cabinet process like John Howard and Bob Hawke had, right. Now, there are misgivings in your party room about the paid parental leave scheme, not just because of that, but also because of it was just announced without going to Cabinet. So is that the last time Tony Abbott and you will do that? Now that you’re talking about proper Cabinet process, you won’t do that again?

 JH: Look, can I say to you in our party room people are free to express an opinion and there can be public misgivings from time to time. In the Labor Party the party room keeps challenging the prime minister in leadership ballots. So, from our perspective we’re allowing people, and they’re allowed to, express a view and an opinion and they do. That’s a good thing.

AK: No, no. That’s not the question I asked you.

JH: But from time to time there will be decisions that need to be made, right, that will have to be decisions made by leadership. That happens. That’s life. It happens in every walk of life. But you also have a democracy. Now, from a business perspective, as you know, big decisions, really big decisions go to shareholders and they have either an extraordinary general meeting or they have their annual meeting.

AK: Well, okay...

JH: And in the case of politics, big decisions are often left to the chief executive and the board.

AK: What does a proper Cabinet process involve? What does it mean?

JH: Well, it means...

AK: Does it mean that PPL (Paid Parental Leave) doesn’t go to Cabinet or does it?

JH: No. Well, it means discussions about the issues. I mean, for example, I went to shadow cabinet on Monday and spoke with my colleagues about the challenge associated with Labor failing to legislate $28 billion of savings from last year’s budget and I went there and I asked for, you know, the shadow cabinet to give me the capacity to be able to, with Tony, make the right decisions in response to the budget on Tuesday night and we’ve done that. Now, that’s, you know, that’s part of the job of leadership.

AK: $28 billion of cuts that have been done by somebody else, that somebody else can get the blame for. It’s pretty easy decision?

JH: No, it isn’t because there are some decisions that we don’t like and, you know, for example, the changes to superannuation we don’t like, and we’ve said that, but, you know, these are the things we’ve got no choice about because we’re inheriting the mess.

AK: Are you thinking about infrastructure bonds?

JH: Yes.

AK: And in what form would they take? Would they be specific to projects or would they generalised infrastructure bonds? And when are you going to do that?

JH: Well look, yeah, we are. And one of the things that I’ve said repeatedly, and I’ve been saying for some years now, and that is that I want to push out the maturity date of government bonds to create a benchmark yield curve, a benchmark out to 50 years, right. And I think that’s hugely important. And we will, if necessary, instruct the AOFM (Australian Office of Financial Management) to build liquidity around that which is, you know, basically – you don’t go straight to 50 years, as you know, you’ve got to build it out and build liquidity around it – and I see that as a terrific way, as a starting point, to start to stimulate the bond market. And I applaud the government for their attempts to try and invigorate the bond market, but it isn’t working. And I think the government, the federal government, with more active AOFM would actually do a terrific job in helping to invigorate the longer dated, more maturing debt.

SB: You’ve announced amongst other things a review of the tax system. Given that the Henry Review wasn’t that long ago and nothing in it other than the mining tax was enacted, why have another review and, if you do, will you include GST?

JH: Well, I think you’ve got to have everything if you’re going to be fair dinkum about it and if you are going to have everything, the issue is whatever comes out of it needs to be taken to an election. Now, the Labor Party is trying to run this scare campaign about the GST, you know, some secret agenda. Nothing compares with what they’ve done on the carbon tax; promising no carbon tax and the day after the election effectively saying here’s your carbon tax. I mean we’re not going to cop a lecture from the Labor Party about honesty on tax. They are the last people to give such sanctimonious advice. From my perspective you’ve got to go to the electorate with a package. If you’re going to have real reform, that’s when you have your extraordinary general meeting of shareholders, if you like, and the shareholders are the Australian people – because it is so significant. And I think on the big reforms that’s what we’re going to do. We’re going to seek a mandate and our mandate now is for stability and our mandate is to try and fix the joint and our mandate at the following election, if we win, will be for tax changes, for a new relationship between the Commonwealth and the states. They’re the sorts of things, the big, substantiative structural changes, that we’ll be seeking a mandate for if we’re re-elected and that’s the challenge.

AK: We’d better leave it there. Thanks very much, Joe.

JH: Thanks very much. Great to be here.

SB: Thanks, Joe.

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