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ANNOUNCER: Meet the Press with Paul Bongiorno. Hello,

Press. Hello, and welcome to Meet the

The pace of the election year,

already helter-skelter, will

accelerate this week with the

Budget on Tuesday. The Henry Tax

Review has finally seen the light

of day, with a limited response the

friendly. Government hopes will be voter-

This long-term plan, released today,

builds a stronger economy by using

super profits earned from the

resources owned by all Australians.

The tax as it

The tax as it stands, as announced,

will be catastrophic for the mining industry. That's quite clear.

Newspoll spoiled the party with the

Coalition heading Labor for the

first time in four years. It's

still a political Everest that the

Coalition has got to climb. My job

as Prime Minister is to take

decisions in the national interest.

Some of those decisions won't be

popular, but, um, I intend to get

on with the job. In a double whammy

for the Government, the Reserve Bank upped official interest rates Bank upped official interest rates

for the third month running.

This is one of the difficult

consequences of an economy that is recovering.

Business leader and Henry Tax

a guest. Review panellist Heather Ridout is

And later - second-guessing the

Access Economics. Treasurer. Chris Richardson of

But first, what the nation's papers

are reporting this Sunday, May 9. The 'Sunday Age' says

The 'Sunday Age' says austerity

rules in no-thrills Budget.

Treasurer Wayne Swan won't be

delivering a big-spending pre-

election Budget in the style of the

Howard government. With an eye to

the problems in Europe, Mr Swan

says the theme of the Budget will

be disciplined economic management.

The 'Sun Herald' reports, "Suitors

in line to court kingmaker Clegg."

The Liberal Democrat leader joined

the two men vying for his support at a

at a London wreath-laying ceremony.

Mr Clegg says Tory leader David

Cameron deserves a chance to govern

and his party has given him the

green light to negotiate.

The 'Sunday Mail' has the

provocative headline, "Ripped off -

what a pack of bankers." A

University of Canberra study has

found the four big banks have used

the global financial crisis to

gouge an extra $733 from the average customer.

And for Mother's Day, the 'Sunday And for Mother's Day, the 'Sunday

Telegraph' cites a Galaxy poll that

finds the secret of happiness

revealed - be a mum. The poll finds

mums want more 'me' time, help and

money. Welcome back to the program from the Australian Industry Group

Heather Ridout. Good morning. Good

morning, Paul. Good to be back.

Happy Mother's Day. I should be getting served

at this moment. getting served breakfast at-in-bed

To the Budget - what is the highest

priority in the Australian Industry

Group's point of view for the

Treasurer on Budget night? What's

important is that the important

gets precedent over the urgent and

often in a pre-election budget the

it's the other way round.

We're looking for the Budget to do

the heavy lifting in terms of

restoring us to surplus fast and

investing in good spending going

forward, spending that will

increase the productive capacity of

the economy, in education and

training, in support for export and

development and capability in

business. But very prudent and very

cautious spending. Well, your group

has pushed training very hard. I

see some speculation on Friday that

there will be something for

training in there. How important's

that? Well, it's absolutely vital.

I mean we've done a survey of

members and 75% of them expect to

be hit by skills shortages at an

extreme level over the next five

years. Skills Australia, the board

that I'm on, has calculated we're

going to be 240,000 skilled people

short by the year 2015, even with high immigration rates and current

training levels. So there's not a

much more important issue than that

and compounding all that is that

46% of Australians don't have

for a modern functional literacy levels suitable

for a modern workplace. So we've

got a big challenge on our hand in

this education area. So, as you say,

you want some good spending but how

important is it for the Government

to rein in spending in terms of its

relationship with interest rates?

Business, of course, is finding it

hard to get affordable credit. Do

you think there is - there will be

and there is a strict link between

spending and interest rates? Oh, I

have very little doubt about that. The Reserve Bank will

The Reserve Bank will be looking

very closely at the Budget to see

whether fiscal policy does its

share of the heavy lifting. The

monetary stimulus has been

withdrawn from the economy. For

business we're a full percentage

point above the old interest rate.

The covenants on small business is

very tough. A quarter of our

members are complaining. It's a

tough scene, but if the Budget

doesn't do some pretty smart work

on fiscal policy, it will put more

pressure on interest rates, as pressure on interest rates, as

night follows day. Looking for

relief on especially small business,

the Government has announced a

company tax cut and more generous

write-offs for assets. Now, the

Australian Chamber of Commerce and

Industry says that, um, that the

Government should split the company

tax cut and the assets write-off

from the resource tax. They say

that business needs this no matter

what happens with the resource tax.

Would you echo that call? Look, I

think it's very important that the

proceeds from the super tax aren't

necessarily sustainable because you

can have cycles in booms and to

devote all of it to current

expendure is dangerous. We support

part being devoted to it and parts

to other things. In terms of his

proposal, I think the Henry Review supported stronger supports for

small business so we have some

sympathy with that view but it will

leave a billion-dollar-plus hole in

the Budget. Well, that's the point,

isn't it? That the Government's got

to pay for tax cuts in some way.

Indeed. The Henry report isn't

about tax cuts. It's about tax

more robust reform to try and put in place a

more robust tax system for the

future that's consistent with our

aspirations. Well, the Government

is promising to raise compulsory

super contributions from 9% to 12%.

Tony Abbott says it's bad for

business. It's effectively a 3% tax

on payroll. It's a $10 billion a

year slug on small business. It's a $20 billion a year slug

$20 billion a year slug on the

economy generally. Heather Ridout,

your panel didn't recommend that

the Government go this way. Do you

think they've made a mistake? I

think we recommended keeping it at

9% but effectively increasing it

through changes to tax and other

things. I think in the past when

there's been these kind of

increases there's been a very

formal trade-off with wage

increases. Under the old increases. Under the old act, the

party were compelled to take it

into account in minimal wage

increases for example. We'll seek

to make sure that through

agreements with unions and

enterprise bargains and any other

way, we can get trade-offs to

ameliorate the impact on business.

In a two-speed speed, structural

pressure on huge areas like

manufacturing, we have to make sure

these sorts of things work. It's

going to take nine years to get going to take nine years to get to

the 12% and if history is anything

to go by, employers, in fact, build

the super into the wage

arrangements. They do. But then

when you take on a new employee,

you're stuck with a whole lot so it

is quite a big issue for business

and small business in particular

and that's why it's very important

that when minimum wages are

increased at the first point, they

increase by 0.25% less, etc, etc. increase by 0.25% less, etc, etc. So you're

So you're willing to live with it

but do you regret the fact the

Government's gone this way? I don't

think the Government needed to do

it this way. There was always the

tug of war between what Henry lemd

which was prudent and this kind of

increase which is the populist kind

of approach but it had some pretty powerful advocates. Time for a

break - when we return with the

panel, the Henry Tax Review. The

miners say it's a prescription for

economic disaster. And the coolness

under provocation award goes to under provocation award goes to

financial services minister Chris

Bowen. In the retirement incomes of

Australia - Global warm something a

hoax! Nick Minchin is a champion!

He exposed the global warming hoax!

Climate-gate! Any more questions

Good on Nick Minchin! He's a


WOMAN: I've been in the same job

You're on Meet the Press with

Australian Industry Group CEO

Heather Ridout and welcome to the

panel Michelle Grattan of the 'Age'

and Steve Lewis from News Limited.

Good morning, Michelle and Steve.

Good morning. Good morning, Paul.

Well, despite the fact the mineral

council urged the Henry Review to

replace royalties with a tax on

profits, the sector has declared

world war three on the Government

and the Opposition is right with

them. The tax has been called a

super profit tax. It's actually not.

It's a super tax on profits, which

coincidentally, if you look at the

letters, it stands for the word

STOP. This is a very, very bad tax

and I can see no way that the Coalition could support it.

Ms Ridout, we're seeing or hearing

some very extreme language from the

mining industry. Do you think that

it is going over the top? Do you

think it is really true that this

tax will stop or put on hold for a

long time significant projects?

Look, I think it's inevitable it

will put on hold for a while until

the details are resolved about the

design of the tax and how it's

going to be imposed upon companies.

But there's no doubt that the

conceptual - the concept behind a

super profits tax is the right one

and was, in fact, supported by the

industry, and the whole task now

has to be for the Government to sit

down with the industry to get the

allowance, the uplift factor, the

starting point right so it is a

genuine super profits tax and get

the transition of the existing

projects worked out into this new

arrangement. We've got a petroleum

metal tax, similar kind of concept.

It works being. The Gorgon project

went ahead with it. We shouldn't be

too concerned. If we can get it

right, it will work for both sides.

But Ms Ridout, the resources sector

is promising a major campaign

against the Government. There's

talk that they will spend millions,

perhaps tens of millions of dollars

in the election lead-up. Are you

concerned, as a high-profile

business lobbyist? Are you

concerned that sort of campaign may

actually undermine the relationship

between the business community and

the Rudd Government? Well, the

minerals industry has had a strong history

history of opposing a number of

issues. The native title issue was

tough for them. The CPRS issue was

tough for them. So they're a vocal

and powerful lobby. My concern as

the CEO of the Australian Industry

Group, who have members who supply

the industry in construction and

manufacturing and services areas,

we want to get the tax worked out

and properly through for all of business. The Minerals Council business. The Minerals Council do

what they have to do for their

constituency but the business

community as a whole - It's hardly

going to be constructive, is it? If

the Minerals Council, BHP, Rio, etc,

pour millions of dollars into a

public campaign. It's a democracy,

Steve. They can do whatever they

like with their money and they've

got a legitimate right to strongly

advocate their own position and

they should do it. Well, in trying

to sell his big new tax on miners,

the Prime Minister played the

'please explain' xenophobia card.

Here he is. BHP's 40% foreign-owned.

Rio Tinto's more than 70% foreign-

owned. That means these massively

increased profits, the $80 billion

I referred to before, built on

Australian resources, are mostly in

fact going overseas. Ms Ridout,

he's got a point, hasn't he, the

Prime Minister? That these profits

are being repatriated overseas? Do

you have some sympathy with the

Prime Minister's argument? I have

sympathy with the review that these

resources belong to Australia. It's

not super profits in the chemicals

industry or banking or whatever.

The Australian community have a

right to a property share of these

profits. The Prime Minister's job

is to make a judgment as to how

that is best achieved and that's

what I guess he's trying to do. I

mean you can go into all those

arguments about foreign ownership.

Australia needs foreign investment

spread badly. We cannot develop this economy without foreign

investment so we have to get that

argument fairly well balanced in my

view. On the wider question of the

Henry Review, you and your panel,

the rein I had panel, put in months

and months of very hard - 18 months.

18 months for the national interest.

Of very hard work and yet the

Government has really picked up

only a tiny

only a tiny minority of that report

and some of its measures weren't

even recommended. Do you think that

the Government will ever come back

to the report and do many other big

things? Or do you think really it's

now shelved indefinitely? Michelle,

the last root-and-branch review of

the Australian tax system was done

in 1975 and I studied it at

university and it wasn't

fullymented ever and the three big

recommendations weren't implemented

for something until 10 to 25 years

later. The Henry Review sets out

138 recommendations for a pathway

to a much more robust tax base for

Australia. It will take a long time

to pick that up. Are you

disappointed there wasn't more

first up? Yes. To some extent but

how many fights can the Government

fight at the one time? There's some

fairly radical and difficult

proposals to communicate in the tax

review and they're all - they all

need to be - the light shone on

them. They need to be robustly

argued through. So I have some

sympathy with the feeling that the

Government can't do too much at a

time. But it does need to give some

direction I suppose about how this

is going to be achieved. Ms Ridout,

aren't we seeing, though, a pattern

of behaviour from the Rudd of behaviour from the Rudd

Government - with tax, with ETS,

with a lot of things. It's

basically squibbing the hard reform.

Are you concerned, as a leading

business lobbyist and someone who

is close to the Rudd Government,

that they appear to be squibbing

the big reform and doing backflips?

I think in the lead-up to an

election, you have a tug of war

between caution by the Government

and opportunism by the Opposition.

I would say about the CPRS, we're

talking about uncertainty in the

mining industry about calls through

the resources tax. Well, there's a

lot of uncertainty out there in

industry about what to do about the

CPRS being put off and will we put

a price on carbon later. That's a

disappointing hiatus and I'm

calling on the Government in the

Budget to put some money into the

climate action fund. Our members

want to be good citizens on this

and know eventually there will be a

price on carbon. Would you have

preferred Kevin Rudd to stick to

the emissions trade scheme as a

short-term objective? What's the

position of your organisation on

it? You were reviewing your

attitude. Where have you come down?

We're still finalising our position.

Given it's not going to start until

at least 12012 and it was

inevitable that we would have to extend extend the time that it started

because of the problems with

Copenhagen - Did he have to go that Copenhagen - Did he have to go that

far, though? Well, I don't think he

did but what we have time to do is

improve the scheme but a market-

based scheme is the best way to

achieve least-cost abatement. Our

members are committed to reducing

emissions, efficiency and a market-

based mechanism. We'll say to the

Government, in the Budget put Government, in the Budget put some

money back into the climate change

action fund, so that industry can

get on with the job of doing what

it needs to do so that when this

thing does come into play, we'll be

prepared and the whole thing will

be better understood. Thank you

very much for being with us today, very much for being with us today,

Heather Ridout. My pleasure. Thank

you. Coming up - economist Chris

Richardson looks into his crystal Richardson looks into his crystal

ball for Budget night.

Treasury Secretary Ken Henry stood

at the door like a sentinel while he listened to

he listened to the Government's

response to his 138 recommendations. response to his 138 recommendations.

They took up four. That inspired

cartoonist Ron Tandberg in the

'Age' to sees the Government's

response more as a tear-off than a ringing endorsement.


was dead, just the name.

You're on Meet the Press. You're on Meet the Press.

On Tuesday, Wayne Swan brings down

his first pre-election Budget but

he says don't expect a Howard-like

big spend. He's done that already,

many would say. The whole focus of

the Government through the tax

package we announced on the weekend,

and through our no-frills Budget,

will be to make sure that growth is

sustainable for the long term.

And welcome again to the program, Chris Richardson from Access

Economics. Good morning. Good Economics. Good morning. Good morning. morning.

Well, we know that politicians like

to pull rabbits out of the hat. Do

you think that Wayne Swan's foxing

here? I don't. He says there's not

much money and I do think that's

right. All Treasurers of course

exaggerate that. But the economy

had a fairly small hit. The Budget

actually had a bigger hit than most

people realise. Most people think

of unemployment where of course we of unemployment where of course we

didn't move that much, but incomes

did, particularly company incomes,

and that tax effect is bigger and

will linger a little longer than I

think most people realise. So

revenues will be down? Not down but

not revised up quite as fast as

you'd think. A year ago, it looked

like sackcloth and ashes and a very

big recession around the world and

a recession here. Of course, none

of that happened and the Government

took out a lot of insurance off the

back of that and, as it turned out,

too much insurance, and the

lingering stimulus cost means that lingering stimulus cost means that

still a big deficit next year as

well. It will be smaller, we think

about $12 billion smaller, than the

Government last estimated, but

that's still $35 billion and it's

not until the years after that that

it gets closer to balance. Alright,

Chris Richardson. Well, on Tuesday, Chris Richardson. Well, on Tuesday, you and

you and many others will be looking

for when the Budget is forecast to

go back into the black. What is the go back into the black. What is the

Access forecast for that? What

year? I think 2013/2014 is the

earliest possible that you can see

it. And remember more than anything

else, it comes down to what happens

in China. These days, the Budget

has a "made in China" stamp. Until

about 2003, the best single

indicator of the budget was indicator of the budget was

unemployment. Since then, it's been

things like coal and iron ore

prices and they, of course, are

thrown around by the strength of

China. If China stays strong, then

by 2013/'14, we'll be back in

surplus. Mr Richardson, looking at

things more widely, the average

person is going to be particularly

interested in what's going to

happen to interest rates for the

rest of this year. How many rate

rises do you forecast still to

come? And what sort of magnitude? I

think we'll see another three. That

will push the Reserve Bank's

official rate back over 5%. You

know, you can't say for sure what's

happening in Greece or more widely

in Europe is a worry. So far, it's

mostly a European worry but it's a

reminder that all those bad debts

didn't go away. There's almost as

many public sector bad debts as

there were private sector bad debts

and that could reach out and slow

the wider-world economy. But

chances are that Australia's recovery continues, interest rates

continue to rise. We're now close

to normal on that but the economy

itself is moving beyond normal.

Interest rates will do the same. So

your message is that home-owners

can look forward to another 0.75%

interest rate rise. You don't think

the Government on Tuesday will be

tempted to bring down a Paris

moanious Budget that will put

downward pressure on interest

rates? I think that would be a

great thing and an overdue thing.

Do you expect that? No. It's an

election year. So despite the no-

frills rhetoric from the Government,

you think that there will be some

new spending measures on Tuesday? I

guess a better way to describe it

is I don't think the cuts will be

as big as necessary. The Government

is well aware that stimulus needs

to be wound back. A lot of that is

automatically in the system but it

still needs to do more. It will be

limited in how much more it

actually does because there's an

election just round the corner. Can

I ask you about the ETS? In your

forecasts you're assuming an ETS.

Do you think that it is absolutely

inevitable that Australia will have

one? And what year do you think

that that will come by? I don't

actually think it's inevitable,

because the argument has long since

gone beyond what's sensible to

something purely in the political

realm and we have a flawed

government proposal and an unusual

Coalition proposal and both sides Coalition proposal and both sides

are scared now of the issue. My

fear is, of course, that we won't

do something sensible and that a

big chunk of Australian industry

simply won't know the basis on

which it needs to make big

investment decisions in the next

few years. Can I quickly ask you

about the global instability and

your comments earlier about China -

is there a risk for Australia that

this global instability will hit or

impact on China as we saw China

impacted several years ago at the

height of the global financial

crisis? Is there a concern? There

is a risk. How big a risk? Look, a

big lesson - the further you look

out - actually it's not in the next

handful of months. It's actually

the passing of time that poses the

bigger risk. The lesson that the

last couple of years, or indeed

history full stop, is that there is

no miracle economy and relying on

greet growth out of China from here

to eternity is a dangerous thing. I

said before our Budget now has a said before our Budget now has a

"made in China" stamp. So does the

next recession. It's not on the

immediate horizon, but it will

happen. Just turning to tax, do you

think that it is really

disappointing that the Government

hasn't done more out of the Henry

Review and do you think, really, Review and do you think, really,

the main recommendations or the

remaining main recommendations of

that review will be buried next

term? I think Heather Ridout made

the excellent point before that

that this is a big reform exercise

out of the Henry Review. It forms a

path way for all Australians, not

just the Government, not just the

Opposition - we have a good look at

where the tax system should go over

time. I think we'll get there eventually.

eventually. We won't go threat from

either side of politics before the

election, because it means dealing

with difficult issues. What's the

most important of the outstanding

issues? Some of the most important

things are some of the hardest to

deal with because they're actually

State issues rather than Federal

issues. A bunch of State taxes are

among the worst in Australia and

they need to be dealt with.

Federal-State relations are a big issue

issue and not a particular focus,

understandably, of the Henry Review,

but that needs to be done as well. Superannuation, as you were talking

about before, what was actually

announced the other day was not

what the Henry Review recommended.

There's still a lot ahead. Chris

Richardson, just finally, your

investment monitor last week

predicted a new resources boom. Is

that in any way threatened by the

Government's super tax on mining

profits? I think it is. Now, we are

advisers to the minerals sector so

I should note that. And you guys

had quite a good discussion of it

before. I'd simply add the two

things that the other economists

are noting. First - that you need

greater fairness in the transition.

The whole idea of this tax is that

the Government shares the risk up

and down and if you simply apply it

to all the existing mines without a

proper transition, then the

Government just scoops off all the

successful risks, the existing

mines, rather than sharing in the weakness.

And the other thing too is you

can't have a doubling in royalties

basically without an impact on

international competition. Thank

you. OK. Thank you very much for

being with us today, Chris

Richardson. Thanks to our panel,

Michelle Grattan and Steve Lewis. A

transcript and a replay of this

program will be on our website. Until next week. Goodbye.

Until next week. Goodbye.

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