Telstra, Disability Pensions, Bracket Creep, Superannuation, Budget Discipline, Intergenerational Report, Labor's Economic Policy, Trusts, Competition Policy, Medibank Private, Shareholder Ownership

Bob McMullan - Shadow Treasurer

Budget Reply Address Questions And Answers

Transcript - Press Club, Canberra - 22 May 2002

E & OE - PROOF ONLY

JOURNALIST: Mr McMullan, Steve Lewis from the Australian Financial Review. In your speech you talked about Labor being the advocates of hope rather than the advocates of fear but as the Treasurer, Peter Costello, has said this morning some of Telstra's two million shareholders will be somewhat concerned at Labor's plans, or at Labor's consideration for Telstra, and indeed your plans, which will be outlined fairly shortly by Lindsay Tanner to continue structural separation of Telstra. Could I ask you as the Shadow Treasurer, can you provide an ironclad guarantee to Telstra's two million shareholders that if Labor wins office next time and proceeds with these plans that none of those shareholders would be worse off? And, secondly, are you aware of claims of the cost of structural separation would be in the order of about $1 billion alone.

MCMULLAN: I think most of the Telstra shareholders are worried that the collapse in the Telstra share price under its current leadership, with Minister Alston's confused leadership, is what's causing their portfolio to be under stress, and I don't blame them for being concerned about that. And, of course, Senator Alston's proposition, which went to the Cabinet, certainly addressed the issue of whether or not there are problems for consumers and downstream businesses because of the nature of vertical integration of Telstra.

And that is an issue which the discussion paper, which will be released this week, will address. It is a discussion paper which is designed to focus on the interests of consumers and the interests of businesses who need an efficient telecommunications sector to drive their downstream efficiencies, it's an ongoing part of the challenge that a competitive economy needs to meet. Simon Crean and I have both made general remarks about that in the past, there is nothing new about that. But it is very desirable that Opposition is earlier in the three-year term put out discussions papers that traverse options.

This won't be the first nor the last. And I suggest in terms of any more detailed consideration you wait until Simon and Lindsay release it later in the week.

JOURNALIST: Allan Thornhill from the West Australian, Mr McMullan. There has been clear abuse of the disability system by politicians who have been hiding older workers at a time when health - has been improving the number of people on disability pensions, particularly amongst older people, has been just rocketing up. Now there is clearly a misdescription of people, older people who are generally healthy but are still being put on disability pensions because nothing better has been found for them. What will Labor do about that?

MCMULLAN: You had me worried there for a while. But there are a number of people who have been paid a disability support pension for whom they and society would be better if there were positive measures taken to assist them to get back in the work forces. And if the Government wants to initiate positive measures of that sort we will support them. There are some small measures, actually in this Budget, that are not part of the controversy around the disability support pension. We are supporting those measure and we would advocate more. It's clear that the Job Network is an absolute failure in providing support to people in need of significant assistance to find a job. That area of the Job Network is letting people with disabilities down very badly. Most particularly, older men. I know that sounds like vested interest form me but I don't expect to be unemployed for at least two years and then electors of Fraser willing perhaps not for longer than that.

But, yes, men of about my age and more once they lose their job find it extremely difficult to get another, the success rate is very low. And the sorts of specialised assistance that they need is not available. And many of those people do wind up on disability support benefits but they are not rorting the system. They don't want to be on disability support benefit they want to be working. They may well have significant disabilities that impede their capacity to work full time but they don't need to be abused by the Government and they certainly don't need their income cut by $52 a fortnight plus losing access to their pensioners concession card which means they have to pay the higher of the massively increased pharmaceutical benefit costs that are just going to go through this Budget if the Government has its way.

So there is need for positive reform. Colleagues of mine who know more about it are very positive about the recommendations in the McClure Report. I don't want to specifically say I endorse that because while I have read the summary I have not read the detail sufficiently to say chapter and verse I endorse it. But at least that's a positive direction and colleagues like Wayne Swan are encouraging the Government to go that way and if they do they will have our support.

JOURNALIST: Mr McMullan, Jim Hanna from AAP. You've mentioned several times the role of bracket creep in shoring up the surpluses in the last few year implying that Labor won't be doing that if it gets to office. Given the Government's criticised you, for what it calls your negative role in tax reform what plans do you have to return bracket creep to taxpayers?

MCMULLAN: We have already made it clear that we will be putting forward some positive tax measures in the lead up to the election. We can't do it in detail until we have a clearer picture of the state of the Budget. We look like we are in that told cycle again where the Government builds up massive surpluses in the first couple of years and of the three year electoral cycle and spends it all in the third to try and get itself re-elected. Now that is no way to run the economy or the country but we have to be conscience that that might be going to happen and therefore get the details of our measures calibrated against that sort of possibility.

But the idea that we should target an income tax cut for working families that Simon has had out there for some time and, which I and others have been advocating also, is the most interesting new idea in tax policy debate in this country. It has been done successfully in the United States by Bill Clinton, in the United Kingdom by Tony Blair, and I look forward to working with Simon to do it here.

JOURNALIST: John Millard, Art Sound FM. Mr McMullan, we as Australians are very poor savers, despite the reforms of 1992, we have very low superannuation compared with many people in the world. And, in fact, recent media reports have suggested that we 'baby boomers', if we could ever afford to retire, will have trouble with supporting any sort of decent lifestyle. Despite this fact we have some of the highest taxes on superannuation in the world with the 15 per cent surcharge, you mentioned earlier in your address that Labor plans to cut superannuation taxes for all Australians. Despite this, in this Budget the one cut, and I realise it was to high income earners, has been opposed. The Labor Party when elected to Government, will it support the eliminating for all Australians?

MCMULLAN: Thanks John. It's a very important question. In his response to the Budget Simon Crean outlined, not just that we would oppose the Government's tax cut to the wealthiest three per cent but that we would be redistributing the proceeds of that and one or two other measures relating to superannuation to fund a smaller but significant cut in the 15 per cent contributions tax that all contributors to superannuation pay. And that would be both a bigger incentive to saving, have a bigger impact on savings outcomes, and be fairer. What particular measures we take to the election to assist superannuation will be assessed closer to the day. If we could get agreement on that package now with the Government, that's of course what we would do. But if they spend the money in some other way that's an option that won't be open to us we will have to look at alternatives.

But I have said publicly, and it remains my view, that changing the nature of the taxation of superannuation is a very important priority for increasing national saving. The thing to remember is that the tax take from superannuation has trebled since John Howard became Prime Minister, trebled. No wonder we have people feeling that there are some disincentives to saving.

JOURNALIST: Sid Marris from The Australian. You've talked about structural reform of the Budget and the damage done in a spending spree last year. That by extension means that you must be looking at ways of reining in that spending and performing some structural repair. What sort of things are you going to have to look at and, for example, and please don't limit yourself to my one example, would you consider reversing the extension of the highest PBS concession to 200,000 wealthiest self-funded retirees last year?

MCMULLAN: Thanks for the invitation Sid. It will be a significant discipline on us. We can't unmake the changes of last year; we have to start from the bottom line we ware given and do the best we can from there. So that will be a challenge, but what it means is that we will have to be very rigorous. My colleague, Stephen Conroy, the Shadow Minister for Finance, and I stand to be very unpopular amongst our colleagues, but I hope they will find it rewarded in terms of recognition in the community that we have been fiscally rigorous.

And there was an example of it on Budget night, that when we propose new measures we will have to examine closely their fiscal significance, their fiscal impact. I don't think we will be giving as detailed an outline of alternative funding arrangements for every measure we announce as we did on Budget night, that was a bit of a one off. But the general principle that's associated with that, which is that we are going to have to look at reallocation, is very strong.

Let me give you some examples. A superannuation example that John just asked is one. Why would a government prefer to spend more money to give a tax cut to the wealthiest three per cent when it could through a small package of adjustments give an increase to all superannuation contributors with less impact on the Budget? Why would a government prefer to go down the route of an inefficient and ineffective Baby Bonus when those outcomes can be better achieved by measures such as Paid Maternity Leave?

There are, therefore, plenty of opportunities for us to reallocate, but no easy opportunities. There is no money spent out there that somebody doesn't appreciate and welcome. There are no easy opportunities to make cuts; they would already have been made. If there were cuts that nobody would be unhappy about, Peter Walsh would have cut them long ago.

So, there are hard decisions that we will have to make and I think we will have to be judged over the next couple of years in the making of them, but I'm very confident that we can do it. And so far we have had very good support from our colleagues, even those in spending portfolios, although that might not be quite such enthusiastic support as we get closer to the election. But so far, so good.

JOURNALIST: Josh Gordon from The Age. Mr McMullan, you have talked about the Intergenerational Report and said that it's merely a cynical political exercise to justify spending cuts and you've also said that there are other options rather than cutting, to fill the expected $87 billion hole left by the ageing population. And, in particular, you have highlighted improving productivity growth. I am just wondering specifically what could we do to squeeze out those productivity growth improvements given that we have a decade of fairly strong productivity growth?

MCMULLAN: Well, we have had a decade of strong productivity growth built on the back of some very difficult and sometimes painful changes in the 80s. And we are gaining the benefit of those changes now. The lead times are long. What I am concerned about is, we are not making the changes now to drive the next lot of productivity improvements, and now is the time we should be investing to do it. And what progressive governments around the world are doing is looking at what they see as the new productivity revolution, which comes from innovation, education and training, research and development, driving new ideas and developing the skills and the resources to turn them into Australian businesses and Australian jobs. The links between initiatives and returns are much too long for the electoral cycle. It wouldn't even be solved by a four-year term; you often get the benefits 15 years down the track from initiatives you take. But, we need to start taking them now. You don't need a new report to prove to you that the fact that Australian investment in education and R & D is falling, and falling further and further behind the OECD average, is a serious problem for the future of our country, and that we won't drive the productivity gains we need to fund the living standards we want in future for ourselves and our children without investment in that productivity change; as we will not do it without getting the productivity benefits from driving more competition, including telecommunications.

JOURNALIST: Tom Allard, Sydney Morning Herald, Bob. One of the myriad of reviews into Labor's election losses pointed out, I think it was the Wran/Hawke one, that Labor didn't have a credible alternative economic policy going into the last election. I was wondering whether you agreed with those sentiments and where you think Simon went wrong?

MCMULLAN: Well, firstly to rescue the reputation of two other former colleagues, it wasn't the Hawke/Wran review that said that and I am sure, when it comes down, it won't. But let me quote a very authoritative source, what I said on a previous occasion with regard to this, which has been singularly misquoted by the Treasurer, was that there was a perception, we do have a political problem, all oppositions have it, that we haven't succeeded since 1996 in convincing the Australian people that it would be as safe as some of them would like to trust economic management to us. If you look at, for example, the question in Newspoll yesterday as to whether we would bring down a better Budget than the Coalition - just seen on its face, it was quite disconcerting, it said 49 per cent said no, 26 said yes; but that actually was the narrowest margin there has been since 1996. The gap between us is narrowing in terms of perceptions of good economic managers. And I would like to say that is all down to me but I think the credit all goes to Peter Costello - he is narrowing the gap for us. And, that will make it an easier task. It is always easier to make gains against a weakened opponent; so that is one of the reasons it will be easier. But we have been slowly eroding the legacy of the high interest rates of the late 80s. There is no point walking away from it - people remember that period and we still wear it. It is slowly eroding as we put out, time after time, costed, carefully-crafted, economically-balanced propositions to the people. In the last two elections, we have put out policy propositions that made lesser calls on the surplus than the Government. So, the facts about our economic responsibility are strong - the public perception is changing favourably but slowly, and we need to continue that effort. I think we have probably got another two years of hard work to do.

JOURNALIST: Laurie Wilson, the Nine Network. Let me just take up that point. No matter how profligate or otherwise the Coalition may have been and no matter how much you commit yourself to this fiscal rectitude, I put it to you that the imagine is that Labor will always be, in the public's mind, a bigger spender than the Coalition. Now, what can you do and I suggest you suffer, at least with some voters, from that image. Now what can you do to turn that around? First question.

Second question, I seem to recall it wasn't that long ago that the Treasurer was muttering something about superannuation being the next big area of reform - I am not too sure what happened, we certainly haven't seen it yet I assume. I am wondering whether or not though you think that superannuation should be a major area of reform or simply an area that needs some changes as we go along?

MCMULLAN: Thank you Laurie. With regard to the first question, what underlies the question and it is true, the public has broad, long-term perceptions of both the major political formations, if I put the Coalition on one side and ourselves on the other. When asked, they always say we would be better at dealing with health and education. They carry the corollary that they think we will spend more money on it; so that can lead them to the perception that, while we would be better at solving the social problems, they worry about whether we would be right in dealing with the economy. It is one of the reasons why I think we are in government in all the states and territories and not federally. It is the two sides of that coin that drive those two outcomes; but they are not immutable. They had those views when we won five elections in a row. Those perceptions were there and we were able to overcome them by good policy and good advocacy. But it is a challenge. If the challenge was for the Howard/Costello Government to convince people that they had the best solutions for health and education, it would be a mountain for them to climb. We have a significant molehill but I think we can do it.

With regard to superannuation, yes, you are right - I think it might have even been here, but it was somewhere that Treasurer Costello announced that superannuation was the next big reform area. Now you can't get the 's' word to cross his lips. What I think was happening was this: he was getting a hard time in the Party room about the superannuation surcharge and what he meant by reform was, he was going to reduce the tax on the superannuation of all the Liberal Members of Parliament -- because that is the only reform he has made. For the rest of Australia - nothing.

But it is a big challenge. The saddest thing is that actually they wrecked the best initiative for superannuation in 1996. There was, costed and budgeted, a proposition to provide a 3 per cent co-contribution to workers contributions above the 9 per cent of the superannuation guarantee. It would have taken us to 15 per cent. It was a terrific policy and they blew the money, it has gone. And I think that probably is a proposition to which we will not be able to return. There are some good ideas that have a window of opportunity, and you can seize them but once they are gone, they are gone, and you have to come back and find another way to achieve the same objective.

Whether, ultimately, it is primarily driven by change in the tax or by way of public assistance with contributions, is a challenge that we will have to meet over the next couple of years. Nick Sherry is putting up propositions. We put one proposition in response to the Budget last week; we will continue to examine propositions in the lead up to the election. But if you really think that over the next 40 years we face big budgetary challenges, the first thing you would do would be, say what do we do about savings and superannuation in this country, and you would start of program of reform. We have seen nothing in six years and no hint on anything to come. It is one of the big challenges for our country. We need to face it. We will take some propositions to the next election.

JOURNALIST: Mr McMullan, a couple of easy questions. Superannuation - can I ask you then, do you see the need to go above the 9 per cent as GSC? Mr Beazley, in the lead up to the last election, said that perhaps we have to go to 15 per cent. He didn't say what the mix would be, but do you concede that it is desirable to head towards a 15 per cent level of superannuation. And secondly, you said there were no easy opportunities - I suggest there is one that is staring both the Government and the Opposition in the face - that is, the taxing of trusts, which of course both sides squibbed in the lead-up to the last election. If Dick Warburton and the Board of Taxation come up with a sensible proposal in the next few months, which they are working on, will you today give a guarantee that Labor will look sympathetically towards some clampdown on the current system of trusts?

MCMULLAN: Well, let me deal with that first and then go back to superannuation. I have spoken to Mr Warburton in his capacity as Chairman of the Board of Taxation about a number of issues including trusts. I don't intend to say here the private conversation we had. But it is clear that, as we said to the government previously, if they were prepared to take an initiative to tax trusts equitably, we would be prepared to support them. It is not an easy issue, because many of the trust structures in this country are put in place for legitimate reasons, and you don't want a tax proposition that achieves the desired revenue objective but destroys all the legitimate or other purposes for which people enter into trusts. So I didn't give Mr Warburton, and I can't give you Steve, a blank cheque that says, if someone comes forward with any proposition for tax trusts we will vote for it. There is a serious tax problem in there, a serious threat to the revenue, and it needs to be addressed, because it is also an inequitable threat to the revenue. The people who enter into trust arrangement for avoidance purposes are often relatively high income and very high income individuals, because they are very elaborate structures that require a lot of expenditure to set them up - you need to be saving a lot of money to do it. So we will have a look at the proposition. I welcome the fact that the Board of Taxation is going to look at it, but whether there is an answer that can balance both those imperatives is not yet clear, but if they come up with, we will welcome it.

With regard to superannuation, I am not absolutely convinced that we need to get contributions up to 15 per cent. I certainly don't intend to propose that we should increase the Superannuation Guarantee Charge itself - that is, the proposition that employees should put more in, that was not our previous 15 per cent proposition, and that won't be our next one. But, some of the data is not crystal clear on this. There is some data which suggests that for low income Australians, 9 per cent will go a long way towards meeting their reasonable aspirations. Many of them will still have some call on the pension, but what is wrong with that? They are entitled to have that. They have paid their tax. It might not be enough for higher income people but they are in the capacity to make substantial private arrangements. So I don't think that is crystal clear that that is the top priority but a higher percentage would be better for all the savings and retirement income reasons that John raised in his question earlier.

So, we will be looking at two options - in the generic there is a lot of sub options. One is, mechanisms for increasing the contributions, and the other is mechanisms for reducing the amount of the contributions that gets eaten up by tax before it gets into the fund to generate savings and retirement incomes. Which of those two paths we go down will depend upon what, if anything, the Government does between now and then - I am pessimistic they will do anything and we don't know. We will have to deal with the facts of the next election when we come to them and the way the options come out and the way the Budget looks. But those are the two streams down which we could go. Something certainly needs to be done.

JOURNALIST: The metal unions have been very critical of Labor's economic policies and want them reversed. They are suffering from what I guess it would be fair to say, they are suffering as a once highly protected area from the kinds of reforms Labor made in the 80s. What have you got to say to them?

MCMULLAN: Well, there are two ways forward for the manufacturing, there are two scenarios for manufacturing - one is that we can take what is and try and hide it behind walls from the world, and hope it flourishes in some manner that defies all economic history; because no industry anywhere has flourished in those circumstances. The alternative is to go out into the world optimistically and try to build on the great momentum that we generated in the late 80s and early 90s, of dramatic growth in the exports of elaborately transformed manufactures, which has transformed our export profile, improved our terms of trade and been economically very successful for the country. I am an unabashed advocate for the second, but I think we have to accept that if, for example, there is a need for another round of change that impacts upon metal workers, and I am not convinced that there is, but if that should prove to be the case, if the nation wins but a small group loses, the winners have to be more open about the requirements to compensate the losers. And I think we tried in the past, but I don't think we did it quite well enough and we need to do better in future. But we now have a very open economy. We have a very open economy. Trade as a percentage of our GDP is essentially around the OECD average now. I don't think that is the area of the next round of changes. I don't think that people in the metal manufacturing area are going to find themselves at the forefront of the next round of changes - I think it is going to be elsewhere in our economy.

JOURNALIST: Mr McMullan, the ACCC at the moment is investigating all the oil companies, both supermarket retailers, Qantas, for a few hours yesterday NAB, the major electricity providers and some bizarre exercise machines which I am not totally familiar with. Do we have a serious problem with the way business is conducted in this country or a problem with the regulator?

MCMULLAN: I think we could both do to do some enquiries into those exercise machines, Sid, but let me leave that for another day. I don't think that we should think that big business in Australia has suddenly become a rogue organisation that needs reining in but we have been, in the way that Alan asked about metal workers, we have been asking all parts of our economy to perform in a more competitive environment and now it is starting to apply to the top end of town. Well, good. And I will not be sympathetic to a proposition that the review of the ACCC and the Trade Practices Act, which is going on, should lead to an outcome where our biggest companies are not subject to the pressures and rigours of competition while workers at the coalface and small business is. It is difficult, and no regulator gets it right all the time. But if you ask anybody who is regulated whether the regulator ought to ease off on them, they always say yes. That is why they are not the right people to ask.

JOURNALIST: Mr McMullan, I was going to ask you whether Labor has developed a position on the potential sale of Medibank Private but instead I will ask you what sort of reaction you got from Mark Latham for your less-than-warm embrace of his plans to make us all shareholders.

MCMULLAN: Well, I will answer the question you didn't ask - we are opposed to the proposal to sell Medibank Private. I am not absolutely sure that it belongs to the government to sell and we see it as the thin end of the wedge for getting the government out of health insurance, and we are very committed to Medicare and we don't want to see anything undermine it.

With regard to the economic ownership propositions, Mark and I have had discussions so he knows that I enthusiastically support the idea that we need to shift the emphasis on the way we help poorest Australians out of their poverty to include asset options as well as income options. It is a new pathway out of poverty and I support it. I am not convinced that the share ownership, the first shareowners assistance is where I would start, but I notice in a speech Mark made recently, he said it is not where he would start either. It is one of a number of options. We may finish there but I don't think we will start there and nor does Mark.

Ends.