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Interview with Karl Stefanovic: Today: Chinese stock market; downturn in economy; Budget; tax cuts



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Interview with Karl Stefanovic, Today KARL STEFANOVIC:

Joe, a good morning to you.

TREASURER:

Morning Karl.

KARL STEFANOVIC:

The markets are spooked. Are you this morning?

TREASURER:

No, I think Ross's advice to be calm is good advice. There are lots of moving parts here Karl. For a start, the Chinese stock market today is still 40 per cent higher than it was just 12 months ago and there has been a lot of flighty money in the Chinese stock market, so that's part of the equation. The other part of the equation is that there is a lot of speculation that the United States Federal Reserve is going to increase interest rates in the United States, so there’s been quite a bout of movement of money from stock markets into the bond markets as a response to that sort of speculation. So, all of those things happening at the one time, there is an argument that some of the markets were pretty topsy. It is a correction, but it is important that we stick to fundamentals. The Australian economy last month created 38,000 jobs. When we came to office, it was averaging 3,600 jobs a month. So, more than 10 times the number of jobs in the Australian economy last month. And the fundamentals are still strong in China. You know, it’s a massive economy with a growing population. The fundamentals are still strong.

KARL STEFANOVIC:

Okay, Terry McCrann writes today there’s not much firepower left. He says interest rates around the world are near zero. All countries have huge deficits and this is why it threatens to be worse than the GFC because it doubles up on 2008. What do you think about his comments?

TREASURER:

Well, yes, there isn't the same firepower that there was in 2008, but there’s not the same crisis at all. In fact, there is no crisis now. It is a correction. Next week I'll be travelling to Turkey to meet with G20 Finance Ministers and Central Bank Governors, including Stanley Fischer from the US Federal Reserve. We'll get an update there, but the world is coming together to deal with these sorts of issues. I'm absolutely confident, absolutely confident that the fundamentals of the Australian economy and the global economy are still good, are still good. That's, without doubt, that is the situation.

This press release was received on August 26, 2015 - Parliamentary Library

KARL STEFANOVIC:

It stands to reason if their economy is in a downturn of some kind or certainly not progressing as well as we thought it might be, that they’d be demanding less resources from us and that has a flow-on effect to our economy, doesn't it?

TREASURER:

Well, our volumes are actually up. Our iron ore volumes, for example, are up to China…

KARL STEFANOVIC:

Plenty of others are down though…

TREASURER:

What it is, is prices have come down and what China is doing, it has massive off shore capital, and so, even though it is producing a lot of steel in China, it is using its off shore capital to buy its own steel and build railway lines and massive infrastructure right around the world. So, you know, they actually do have a plan. Last week I met with one of the most senior economic figures in China. He was in Australia in Canberra, when Canberra was distracted, we were in those meetings. He reassured us, from his lips to our ears, that China would use whatever tools it has available to make sure that it grows relatively strongly this year. Now, when they say that in China, you know they can actually deliver it. There's no doubt.

KARL STEFANOVIC:

Regardless of that, if prices are down then revenues are down. How can you propose a tax cut while tackling debt, while tackling a deficit disaster and then promising a surplus within five years?

TREASURER:

Well it’s not either or. We have made a number of really difficult decisions to get the Budget back on the right track. A lot of those decisions have actually passed through the Parliament. We will start to see the dividends of those in the next two or three years. But unless Australia has tax cuts, that provide an incentive for people to work more, put in greater effort, get greater reward, then we’ll start to fall behind the rest of the world.

KARL STEFANOVIC:

Those Budget numbers though, and a surplus in five years are based on bracket creep right, over four years, over four years?

TREASURER:

Which we should explain - bracket creep is where wages increase because of inflation, or just general wage increases, and it takes people into a higher tax bracket.

KARL STEFANOVIC:

Okay, so if those numbers are calculated on that and you remove bracket creep, then the numbers are all out, aren't they?

TREASURER:

No, you have got to look at the trade-offs. For example, in this last Budget we were able to deliver a $5 billion tax cut for small business which was incredibly successful and we were able to do that by making savings in other parts of the Budget. So it’s a balancing act Karl. You have got to get the balance right. Obviously we’re looking at the entire tax mix. It is not just about personal income tax cuts. There are other taxes we can simplify and potentially broaden but...

KARL STEFANOVIC:

The bracket creep’s $25 billion though? How are you going to save $25 billion? We can't save any at the moment.

TREASURER:

We are getting the budget deficit down...

KARL STEFANOVIC:

Not at the moment we are not?

TREASURER:

We are. The Budget deficit is coming down and when I release the final Budget numbers for the last 12 months, people will see actually we beat expectations.

KARL STEFANOVIC:

Just on that question, how do you save $25 billion over the next five years, four years?

TREASURER:

Obviously we are, firstly, we are saving that amount of money. Secondly, we did, in our last Budget, build in tax cuts. Now, we put them out to 2020 until the Budget was into surplus, but obviously if we can find ways to save money now to get the tax mix right now, we can deliver those tax cuts, because - I say this Karl - the best thing we can do for the Budget is have a stronger growing economy and if we have a stronger, growing economy, then that will deliver the revenue we need. So, we actually can invest in growth by having a better tax system...

KARL STEFANOVIC:

I understand all that and I don't think there's many people around that don't say we need some sort of tax reform, but at this point we don't have tax reform. How long is it going to be and every day that goes past we are piling on the debt?

TREASURER:

The starting point is that we are discussing it with the states. They have got a keen interest in this.

KARL STEFANOVIC:

They’ve said no…

TREASURER:

No they haven't actually…

KARL STEFANOVIC:

[Inaudible] So, GST is the way we are going?

TREASURER:

Last Friday, I had meetings with all the state treasurers. It was actually a very productive meeting…

KARL STEFANOVIC:

So GST is where we’re going?

TREASURER:

It was a very productive meeting. Secondly, we have received 850 submissions from the general public and a whole lot of key organisations like the Tax Institute and so on. And thirdly, we will come back to the Australian people with a plan for the future of the tax system at the next election.

KARL STEFANOVIC:

There's a lot of pressure. There’s a lot of pressure there.

TREASURER:

I don't see it as pressure. I see it as an opportunity for Australia and the fundamental thing is there's got to be an outcome, and the outcome has to be more jobs and greater prosperity. We can buy our future if we can get it right.

KARL STEFANOVIC:

Okay, at the moment you are not getting it right according to the latest polls. At the moment you are going to get obliterated at the next polls, at the next election. How are you going to come back from here?

TREASURER:

Good policy. Keep creating jobs. Keep focusing on the fundamentals that matter.

KARL STEFANOVIC:

At this point though you’ll lose, right?

TREASURER:

You know, Karl, I saw this in 2004, I saw it in 1998. I have seen it previously - where we have gone on to win an election, even weeks and months just after those sorts of polls. You can always come back, but what you have got to focus on is jobs, growth, economic growth, and obviously national security.

KARL STEFANOVIC:

You’re not considering a move into Sylvia's job, newsreader on the Today Show?

TREASURER:

Well, she is far better at this than me, although I might swap pay cheques. You guys get paid very well at Channel Nine.

KARL STEFANOVIC:

Sylvia does…

TREASURER:

As long as you are paying your fair share of tax, I don't mind.

KARL STEFANOVIC:

Don’t worry about that, plenty of tax. Good to see you. A job ahead of you.

TREASURER:

Appreciate it.