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Transcript of interview with David Speers: Sky News PM Agenda: 13 February 2016: Labor plan for funding health and education and balancing the Budget; the Government's fortnightly ministerial reshuffle



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CHRIS BOWEN MP SHADOW TREASUER MEMBER FOR MCMAHON

E&OE TRANSCRIPT TELEVISION INTERVIEW SKY NEWS, PM AGENDA SATURDAY, 13 FEBRUARY 2016

SUBJECT/S: Labor plan for funding health and education and balancing the Budget; the Government’s fortnightly Ministerial reshuffle.

DAVID SPEERS: Joining me now from the NSW Labor conference is Shadow Treasurer Chris Bowen. Mr Bowen, what do you think this policy is going to do for investment decisions - not only in housing - given you're talking about the capital gains tax discount. Is this going to spook investors at all, do you think?

CHRIS BOWEN, SHADOW TREASURER: This is a carefully-crafted policy, David. It is bold, it is an important initiative, but it is based on a year's worth of consultation and careful design. It provides a more level playing field for first home buyers compared to investors. David, only 1 in 7 people buying a house in Australia at the moment is a first home buyer. 50 per cent of house purchases are investments. We want to make sure that there is a level playing field and it is fairer. Of course, this does provide as well a $32 billion boost to the budget bottom line over the next decade.

SPEERS: What does your modelling suggest this will do to the price of newly- constructed homes? If investment for negative gearing can only go into newly- constructed homes, what's that going to do in terms of a price impact?

BOWEN: What it'll do in terms of housing affordability generally is take some of the heat out of the increases. We've had house prices going up in Sydney, for example, and right across Australia, at about 11 per cent over the past year. What that does is it freezes more and more people out of the market. All of the evidence suggests that we do need to make it fairer. Now, there's a couple of myths out there. One is that house prices will collapse; another one - which was just perpetuated by Graeme Morris on your show - that old Liberal Party myth and lie that somehow rents will explode. That's based on a false reading and a false recounting of what happened in the 1980s and there is no modelling, no independent modelling, to support that.

What we'll see is very little change to rents because even if a landlord leaves the market, then a renter also leaves the market by buying a house. So what we're going to see is a fairer system which helps Labor fund important initiatives. This is $32 billion over 10 years and it's also a better approach when it comes to making our tax concessions more sustainable. At the moment, about half the benefit of negative gearing goes to the top 20 per cent of income earners. We want to keep negative gearing but we want to put it to work to generate more houses, more apartments and more jobs.

SPEERS: With the existing housing stock you can currently negatively gear but under your plan you would no longer be able to negative gear. Surely if there are fewer people negatively gearing, investing in existing housing stock, then the rent price on that will go up, won't it? Do you concede that, that rents will go up?

BOWEN: No, not at all. Because we'll also be creating additional supply. The best thing we can do for housing affordability, whether it be rental or purchase, is to create additional supply. It's not just me who says that; any number of experts will tell you that. We have a housing supply shortage and you can put the market to work and use negative gearing to encourage people to invest in new supply. New houses, new apartments. We'd work with the states and territories to ensure any blockages to new supply coming along are dealt with and we've allowed a reasonably long lead- time, to 1 July 2017, to ensure that the appropriate mechanisms can be in place. But the key is supply. At the moment the proponents of the current arrangements say - I've seen the Property Council and others say - that negative gearing increases supply. Well David, 93 per cent of existing negative gearing goes into old properties. Only 7 per cent goes into new properties. If we are spending this money to encourage new supply then we are doing it in a very wasteful way. If I saw a program that had a failure rate of 93 per cent, I'd be pretty concerned. If the policy objective is new supply then negative gearing is failing 93 per cent of the time at the moment.

SPEERS: The Treasurer, Scott Morrison, has criticised your plan for only raising $560 million over the four-year forward estimates period. That's not enough, he says, to pay for what Labor wants to do and the spending commitments you've made. What's your response to that?

BOWEN: I've seen some pretty pathetic responses in my time, David, but that probably tops it. The Treasurer, the best he could come up with is to say that it only saves half a billion dollars over the forwards. What this budget needs is good quality measures, structural changes, which build over time and which might not raise very much money because there's a long lead time in the first four years, but over the decade raise serious money. I think what's really happened here is that the Treasurer has been caught policy naked. He has not a single jot of an idea apart from increasing the GST. I heard Phil Coorey on your show earlier say that the Labor party is smashing the Government when it comes to policy and on this one, Phil is right. While they are internally focused, dealing with Cabinet splits, chaos, resignations, scandals, the Treasurer trying to save a disgraced minister, and failing; while they are focused on that, we're getting on with the job of delivering policy, announcing well-developed policy. That's what we've done today. It's the next iteration of our policy work, building on what we've done on multinational tax, high

income super, tobacco, the Emissions Reduction Fund, and the Baby Bonus. We are getting out there announcing policy. Scott Morrison - who I'll debate anytime, anywhere - can't even come up with a single costed, detailed policy and he's got all the resources of the Treasury at his disposal. It's a remarkable situation, David, that two and a half years after an election, the Labor party has more costed policy on the table than the Liberal Government.

SPEERS: Ok. Let me come back to your policy then. Because it's not just negative gearing. There's the capital gains tax change as well. What is your modelling show halving the capital gains tax discount is going to do for investment, not just in property.

BOWEN: This will raise about $7 billion over the decade; almost exactly $7 billion over the decade. Of course, over the decade that is a small proportion of the trillions of dollars of investment that will occur in the economy over the next decade. But this is a very important principle. You and me David - but more importantly, people working in factories, policemen, nurses - they pay their full marginal rate on the income they derive from the fruits of their labour. But if you happen to invest in an asset which grows in wealth, well good on you for investing wisely but you pay 50 per cent less tax than someone who earns their income through labour. Now that is not fair and in the current environment it is not sustainable. It might have been ok in 1998 when it was introduced and the Budget was raining gold bars. But when you're looking at other things and the Government says we have to cut the aged pension and spending has to be cut, how is this sustainable? What this will do is keep an appropriate reward for investment in the system; 25 per cent is a decent reduction. It's a decent discount but it's not overly generous; 50 per cent was much more generous than was required to make up for the impact of inflation over the past two decades. So what we have is a properly calibrated policy which will still encourage investment. Of course, start-ups - under our Start-up Angel Investment Plan - are exempt from capital gains tax completely. We've also said there's no net impact on small business. So we have a very clear and well thought-out plan which makes our tax system fairer.

SPEERS: But it will, surely, dampen the incentive for mum and dad investors to invest?

BOWEN: What mum and dad investors will do is make investments based on good fundamentals. Of course, companies are already not covered by this particular system. This is about investors, primarily into bricks and mortar and also into some shares, not necessarily into the sorts of things which you see small businesses investing in.

SPEERS: I'm just wondering what your modelling shows about this element. On the capital gains front, what impact will that have on investment?

BOWEN: What our analysis shows is that $7 billion over a decade does not in any sense reduce the amount going into productivity-enhancing investments because you think about it over a decade, it's substantial for us in terms of our budget but it's a tiny proportion of the trillions of dollars of investment in the Australian economy which come from all sorts of sectors: small business, large, mums and dads

investing into shares and into property. This is a sensible policy, David. As I said, the best the Treasurer could do was cry and whinge that it only raised half a billion dollars over four years. If that's the best he's got, the best criticism he's got of this very major policy announcement today, I look forward to debating him.

SPEERS: Two quick ones: is this it in terms of revenue-raising measures from Labor before the election?

BOWEN: We have much more policy to announce, both in spending decisions and in re-prioritising spending right across the board, and of course on important policy issues elsewhere. We have the commitment of more saving than spending over the decade; that's our fiscal rule. This is not the end of our policy David, far from it.

SPEERS: And I'd better get a reaction from you, on behalf of Labor, to the reshuffle the Prime Minister has just announced this afternoon. There's a few new faces in the Cabinet and the outer ministry as well, what do you make of some of the changes?

BOWEN: This is the fortnightly reshuffle, David. Malcolm Turnbull's fortnightly reshuffle which he now does after each scandal, where we have a brave face and some spin saying this is rejuvenation. Whereas really what it is is taking out the trash and getting rid of the scandal-plagued ministers and covering up by bringing somebody new in. We were told, of course, we'd get government for grown-ups and calm, stable government under Malcolm Turnbull and instead we have had a revolving door of ministers affected by scandals. We don't get distracted by that. Somebody said to me today: why would you announce your policy on a day when the government is distracted by scandal and crisis? I said: if we waited for clear air from the Liberal Government, we'd be waiting a long time and you probably wouldn't see any policy until the next election. So we're just getting on with the job.

SPEERS: Shadow Treasurer Chris Bowen, live from Sydney's Town Hall at the NSW ALP Conference. Thanks very much for that.

BOWEN: My great pleasure, David.

ENDS