Labor’s Budget reply Bob McMullan - Shadow Treasurer Shadow Minister for the Arts

Press Conference

Transcript - Question & Answer, National Press Club, Canberra - 21 May 2003

E & OE - PROOF ONLY

STEPHANIE KENNEDY: Mr McMullan, you said that the Baby Bonus was a flop and that the money could be spent elsewhere. Would a Labor Government abolish the Baby Bonus and where would that money be spent? And the Treasurer, Mr Costello, says if you do scrap the bonus, then it will mean an increase in taxes for mothers having children.

MCMULLAN: I read the Treasurer's very stupid response to what we have been saying. I don't know how I can make it any clearer. Ever since the Baby Bonus was introduced, we made it clear we thought it was appauling policy, poorly targeted, and inefficient. And we said from the very first debate that we reserved the right to take that money and allocate it elsewhere, and we will. We will get rid of the Baby Bonus and, we will, when we are ready, announce the alternative places in which we will spend that money to provide assistance to families. The overwhelming majority of Australians will be better off by that money being more equitably distributed. It is true that a few very wealthy families will not. But the overwhelming majority of Australian families will actually have more money in their pocket if we take that $500 million a year and spend it more fairly to assist families with children.

MICHELLE GRATTAN: Mr McMullan, despite being well received, Simon Crean's Budget reply is still being overshadowed by continuing leadership speculation. Quite a few people in caucus say there will be a vote in June. Do you think there will be a vote in June to try to end this leadership problem? Do you think there should be? And, if not, do you have any other solution to overcome the difficulty?

MCMULLAN: The reason that from time to time the Budget reply is overshadowed by leadership speculation is because people like you keep asking about it; and I don't really intend to feed it much by giving more of a response than I have said in public before; which is, it is clear that it is in the long term interests of the Labor Party that this matter be resolved by the end of the June. That has always been my view. It is my public view. It is my private view. It remains my view.

JOSH GORDON:The Fairfax poll this week found that 77 per cent of people would prefer increased spending on services like health and education to the small tax cuts delivered in last week's Budget. Just wondering what would you like? As a punter, which would you prefer? And, following on from that, is it possible, can you honestly say that a Labor government would be able to cut taxes, increase spending on services and keep the Budget in surplus?

MCMULLAN: Well, I am one of the affluent few who gets $11. I am not like the poor punters who only get $4. But we will support the tax cuts, meagre and modest as they are, because families deserve the tax cuts and because the tax scales need to be overhauled. So, we will vote for the tax cuts. As to your primary question, the only manner in which we can find new money for our spending priorities -- in which I include tax cuts, it is not technically a spending priority but it is a draw on the surplus -- the only way we can find new money for that is by continuing the tough process of making savings and we will do that. And we are committed to delivering surpluses for so long as the economy reflects anything like the forecasts and predictions in the Budget. If it continues to be as strong as that, we will deliver surpluses. And that is as it should be, because we are committed to balancing the budget over the cycle. And therefore we have some hard decisions to make. We have shown last Thursday we are capable of making them and there are more to come.

MORGAN MELLISH: Yesterday, Treasury secretary Ken Henry outlined his reform agenda for dealing with the problems associated with the ageing population and part of that included lowering personal income taxes. How serious is Labor about addressing those problems associated with the ageing population and do you see lower income taxes as a fundamental part of that solution?

MCMULLAN: I haven't had the chance to read the secretary's speech in full. I have been a little preoccupied with writing a different one. But I have seen the reports of it, and I am aware from his previous speeches that he has what he calls the ‘three Ps' –population, participation and productivity -- as the drivers that we need to get right in the response to the ageing population. I think the secretary is right about that ‘three Ps' strategy. I have spoken of it in the past and will again in the future, and we are developing policies specifically to respond to all three points: the question about population policy which Simon has spoken about, questions about participation and productivity which I spoke about today. I think he is right about those three priorities. I want to have a look at what he said about how tax fits into that before I comment on that specific – I haven't read his speech. But I think his general approach is right and I wait with bated breath for the Treasurer to make any mention of any of those three points.

MATT WADE: Mr McMullan, given the shifting attitudes to taxation versus social spending we have just been discussing, in your comments on the importance of sustainability, wouldn't it be a good policy move to reintroduce petrol tax indexation?

MCMULLAN: I don't see any government in the medium term -- that is, as far ahead as I can see, that is the definition of the medium term -- reintroducing indexation of fuel taxes. Environmentalists do raise concern about it but I have got the general impression Australians like it.

MARRIS: Sid Marris from the Australian. I notice you and some of your colleagues have made this comment that the Budget in reply speech has been overshadowed only because journalists asks questions so I will do you a favour and I will ask you both a question about leadership and about the Budget.

MCMULLAN: Can I choose which I answer?

MARRIS: You will, as always. I just want to clarify, you talk about the issue needing to be resolved by the end of June, so are you actually saying that this needs to be one or other, or a third party needs to actually makes their position known before the Caucus and it be debated before the Caucus by June? And the question about the Budget: in the speech, Simon Crean said bracket creep would be returned as tax cuts and better services. With respect, isn't that a deception – either you return bracket creep as lower taxes or you don't?

MCMULLAN: On the first one, I didn't say anything today I haven't said before; nor have I said anything that I don't think -- I was about to say 99 per cent but I suspect the true answer is 100 per cent of the caucus think it is true. And I have no intention of saying how I think that should be done; not in public. I will reserve that for inside the party.

With regard to the bracket creep question, I was asked this question quite properly on Sunday in a TV interview I did and I responded then, and that essentially sums up the position. What we are talking about there is that we will not allow the proceeds of bracket creep simply to build up in the government's coffers. We will, from time to time, make decisions as a government about the ways in which the proceeds should be returned to Australians. And sometimes -- and it goes back to some of the earlier questions -- sometimes that might be best and most importantly done by using the resources to fund new services. But we won't do it by stealth. It will be a transparent process by which people are aware that bracket creep is putting money into government coffers and that we are spending it on public services. But certainly a priority in that will be dealing with issues to do with tax cuts, and particularly to do with the proper process of keeping the thresholds appropriately updated. But government is about choices, and each year governments need to make choices about -- if bracket creep is continuing and the economy is strong and it is producing surpluses, we need to make choices about how we spend those resources. And we will, and Simon was outlining and I am confirming simply the priorities that we will apply in making that choice.

KEN RANDALL: Mr McMullan I notice one commentator this week suggested you could index bracket creep. What do you think about that?

MCMULLAN: Well, some people express things clumsily; but I am not of the view that we should index the tax scales because that works on the presumption you think they are absolutely right at the moment and shouldn't be changed, and that is not my view.

FLEUR ANDERSON: You have spoken a lot about the battlers who have been betrayed. Given that the average wage is now approaching the second highest tax bracket, who are these people that you are talking about who need tax cuts and the money returned to them? And second, you have said that household debt is rising at an unsustainable level. How do you plan to discourage families from getting themselves into debt?

MCMULLAN: The battlers to whom I am referring are essentially working Australians earning from $30,000 up, and beyond that $45,000 rough mark you talked about when you talked about average weekly earnings. And families in that category, particularly if they are raising children, are doing it quite tough. And if this Budget and all its measures were to be implemented, they would be doing it tougher; and if our alternative were implemented it would be in their interest. That is to whom I am referring, and the way in which I am explaining the choice that those battlers make.

With regard to the explosion of household debt, I share the view of the governor of the Reserve Bank, that the rate of increase of household debt has been unsustainable. There was a very important article and analysis of that in the Economist magazine recently, showing how Australia was a standout in terms of the explosion of household debt. And it is a very serious problem at the moment, not because families are collapsing under the weight -- though individuals are but not collectively -- but because it heightens vulnerability. It makes individuals and families very vulnerable to individual adversity, to regional adversity, or to a national downturn. If, for example, Macquarie Bank's forecast that the economy will slow by half a per cent more than we expect because of the strength of the currency were true, and therefore non-farm GDP growth grew by just over 2 per cent, you can expect that that would lead to unemployment rising. And unemployment rising at a time of high debt is a very serious problem for families and they are very vulnerable. You can't pass a law to stop people borrowing money. People make judgements about their own individual concerns. But we have previously issued releases about the sort of initiatives that the Federal Reserve Board in the United States has taken about guidelines for housing lending that I think need to be considered in Australia. That was an initiative which we outlined some months ago, and I think those are the sorts of things that we need to talk about and more, it would also be very important if the government, the Treasurer and the Prime Minister were reinforcing the warnings that the Reserve Bank governor is giving, instead of undermining them.

KRISTA HUGHES: You have indicated that sometimes it would be appropriate for a Labor government to run a budget deficit. In what circumstances would it be appropriate, and what triggers would you need to see in terms of GDP, inflation, the dollar, unemployment and that sort of thing before that would be appropriate?

MCMULLAN: One healthy thing that has happened in the economic debate in Australia recently is that the idea that you should never run a deficit has been killed stone dead. It has been killed stone dead by two things. One is the fact that the Treasurer ran one in 2001-02. He tried in his Budget speech to create the false impression that he never did, but he ran a budget deficit in 2001-02 and said at the time it was the appropriate thing to do because the economy needed a stimulus. I suspect that wasn't right, but nevertheless it killed off the argument that you should never run a deficit, and the Treasurer hasn't referred to it since.

And he also said that when it was reported that the scale of the American deficit that was going to be generated by, amongst other things, the tax cuts proposed by the President, he said that he thought that was appropriate – that they should be moving into that sort of deficit because the economy was slowing. The logical corollary of a proposition that you want to balance the budget over the cycle means you will run deficits when the economy is running significantly below average. The laws of arithmetic demand that. You cannot balance the budget over the cycle and run a surplus every year. That actually is arithmetically impossible and a nonsense and bad economics. What you should do is sustain strong surpluses when the economy is growing well to give you the resources to spend it when the economy slows. That is why we talk about balancing the Budget over the cycle, as well as its significance for not accumulating debt for future generations. But it is principally about the role of the so-called automatic stabilisers in the economy and their counter-cyclical influence, which smoothes the ups and downs, and it is about logically accepting that if you advocate balance in the budget over the cycle that means sometimes there will be pluses and sometimes there will be minuses. That is my view. As far as I know, it is the government's view as well.

JOHN MILLARD:Mr McMullan, rare praise was given by a government minister to the Labor Party last week when minister Brendan Nelson, the education minister, praised the previous Labor government for reintroducing university fees that were abolished by the Whitlam government, euphemistically known as HECS. I accept that there has been a large increase in that HECS charge in the last few years under this government, and another huge increase is predicted by what is what is even more euphemistically known as HELP. Will a Labor government guarantee to reduce those HECS charges back to what they were under the Keating Government, if not lower; and, if not, why not?

MCMULLAN: Well, can I say first of all I am an unequivocal supporter of the principle of HECS. I was when it was introduced and I remain so. I think it is a fair and appropriate measure, well-structured to distribute the cost of university education fairly and to collect it at the appropriate time. It is a principle that has been seriously undermined John by two decisions that the government made. One, to increase the rate of HECS very significantly, and the other, to lower the threshold. The government is moving some part of the way to repairing the second of those by proposing in this Budget to lift the threshold at which you start repaying HECS to $30,000. What they are not saying is, had they not cut it, had they maintained the indexation of it, it would at the time they are proposing to increase it to $30,000 actually be $39,000 already. So it is not one of the great reforms of our time but it is a step in the right direction, and we said we will support it. But we don't intend, at least I don't have a proposition before me, to do anything about reducing HECS other than as it relates to the repayment threshold. But we certainly don't have sympathy with the proposition that it should be increased, and particularly that there should be a discretionary increase of up to 30 per cent in university fees. That is a recipe for two or three tier higher education delivery in Australia and it is not a proposition we support.

KEN RANDALL: Mr McMullan, the Treasurer here last week confirmed that he has been converted to the view that there should be a preservation of the bond market rather than the complete elimination of debt, which probably was good news for a lot of jurisdictions where, particularly, governments and other institutions facing superannuation obligations have lost a lot of money on investments in recent years. Do you have any thoughts about the bond market and the future of running those sort of funds?

MCMULLAN: Yes, I made it clear earlier, and it is our policy, that we support the retention of the bond market. We urged the government to do that and I welcome their belated recognition that it is good public policy to retain a bond market. And I think that we should look more actively at the question of using the resources that might otherwise have been used to pay off debt to offset the government's unfunded superannuation liabilities. I think that stands out as an appropriate balance sheet item to which the government should apply the resources. And we have, for some time, made it clear we support the retention of the bond market, because -- it is very arcane and for most Australians a rather remote institution, but -- it does play an important role in making investment opportunities available to, as you say, superannuation funds and others. It does play a very good pricing role in the financial market. And the general assessment is without it the price of capital in Australia would go up. And it is important, certainly in times of difficulty, to have a well-structured and available Commonwealth Government securities market that can continue to supply to government the resources it needs in times of stress. So, I welcome the final decision by the Treasurer that he is going to keep the bond market. I think that is a belated but appropriate recognition, and we should now turn our attention to the efficient and effective investment of the resources that would otherwise be used to pay off the debt. Every other country that has confronted this problem has been able to develop an appropriate arms-length structure to invest across a range of financial instruments such that they deliver an effective and efficient return to government, and maximise the benefit to the public in that way, and to offset it against current or future balance sheet liabilities – in Australia's case – at the first instance, I think the unfunded public sector superannuation liability. That is a policy that I think we should adopt and pursue.

STEVE LEWIS: I am conscious that I have my back turned to some of your shadow ministerial colleagues and that they have sharp utensils at their disposal, so I won't ask you a question about leadership. I will actually ask you a question about leadership of the ACCC, Graeme Samuel. You again reiterated your opposition to his appointment today, and you refer to the Bulletin article and the question about whether, if Peter Costello goes ahead and appoints him as an acting chairman, whether Graeme Samuel's role would be legitimate. What is your view? Are you saying that if Samuel is appointed, that that would undermine the legitimacy of the ACCC? Are you saying that essentially it would cruel its role as the competition regulator in Australia?

MCMULLAN: I think there are two reasons why it shouldn't happen in the short term. The first is, that it would be disruptive, and a total undermining of the proper processes by which the Trade Practices Act suggests that a chairman of the ACCC should be appointed. But I also think there does appear to be some doubt about the legal situation. I am neither a lawyer, nor if I were, do I feel qualified to give the definitive ruling. What I don't want to see is important ACCC cases in the High Court in seven years time because it's challenged as to whether the Commission was properly constituted at the time the decision was made.

JOURNALIST: Do you think it will happen?

MCMULLAN: I think there is a serious risk. I mean, once somebody raises the fact that there's a legally arguable case, you then have a serious risk that the first person or the first corporation that is found to be in breach and penalised under the new regime will consider those potential grounds to challenge, and pay somebody a very large amount of money to make the case that it should be so. And it could be in the courts for years. That's entirely unnecessary. Even if you think Graeme Samuel is the appropriate person to chair the ACCC – and I don't – it would be very unwise to the point of folly to make an interim appointment of that sort.

JIM MIDDLETON: Mr McMullan, I just want to clarify things on a couple of subjects that you've raised here. First of all, the scrapping of the Baby Bonus. Are you pledging that in scrapping the Baby Bonus all that money would be allocated to assisting parents with newborn children? And will it be used to fund your promise to introduce Paid Maternity Leave? Secondly, on the question of balancing the Budget over the cycle, given that we are now moving into the softer part of the economic cycle, where growth is coming off, doesn't economic prudence dictate that you will be severely constrained in the kinds of promises that you can make at the next election? And also, in addition to that, the other thing pointing to that is that at the first hurdle, which was in dealing with the Medicare promise of last Thursday, you couldn't even fully fund that despite searching through the Budget?

MCMULLAN: Well, let me deal with both those questions. On the Baby Bonus, yes I can make it unequivocally clear that when we propose to abolish that – as we will - we will allocate every dollar to programs to assist families, and families with children, and targeted at the time in which the children are born. Part of our package of response to that is Paid Maternity Leave, but it's not all of our package, and how we allocate the Baby Bonus money will be a decision we'll make subsequently and then announce. But I can guarantee that will all be targeted to families in the circumstances equivalent to those that become eligible for the Baby Bonus.

The question with regard to the limitations of balancing the Budget over the cycle and our capacity to fund programs, we are quite clearly committed to balancing the Budget over the cycle. And on the economic forecasts and predictions and projections in the Budget, we think it's appropriate that the Budget should continue to be in surplus and we will deliver that. And we have funded the Medicare and superannuation package in a manner that leaves the Budget in surplus, and there is no secret that our primary funding priority is saving Medicare. So we have applied a small amount of the surplus, less than 5 per cent over the four-year period, to funding Medicare. And we think that's a very appropriate balance and we will not be running the Budget into deficit in any of the foreseeable economic circumstances that we confront.

SID MARRIS: If Peter Costello was to become Prime Minister before the next election, who are you anticipating to be Treasurer?

MCMULLAN: Tony Abbott. And I know that there's frantic lobbying about that, and it is sometimes quite amusing to see people, for example when Alexander Downer acted as Treasurer in Peter Costello's absence, his performance in Parliament, you can say was I suppose noteworthy. And we are voting for him. But I suspect my endorsement won't do him the world of good.

MICHELLE GRATTAN: Mr McMullan, you said the leadership needs to be resolved by the end of June. But, I'm wondering why you are so coy in saying how this should be done. It's hardly a private, internal matter to the ALP anymore. And isn't it really an obligation on people like you with experience and respect within the party to get this sorted out in some fashion as soon as possible. And secondly, on health, is there a danger that when you cut back, or make less generous in some fashion the private health insurance rebate – as Labor's indicated it expects to do – that you might lose some of the political gains that you have made by expanding the help for bulk billing?

MCMULLAN: On the leadership question, I think how the matter is resolved is an internal Labor Party matter. I intend to keep it there. But I'm not stupid enough to think that anyone would believe me if I said I didn't have a view about whether it ought to be resolved – of course it should. And to the extent that I've any capacity to influence that, it will be enhanced by my saying how it should resolved so I have no intention of doing it.

With regard to the rebate, we have not – let me make one specific point about it and then one general point about possible electoral consequences of tough savings decisions generically – not just about the rebate. We have not said more about the rebate than that it is under review. All of the health budget is under review including the private health insurance rebate and that will remain the case until we make some final decisions and announcements. So it doesn't have any special category, it's simply under review. And my colleague here, Senator Conroy, the Shadow Minister for Finance, the Shadow Assistant Treasurer, David Cox and I have the task of scouring expenditure looking for savings. We are therefore the three most unpopular members in the Shadow Cabinet but that's alright, that's our task, and we are finding savings and we will continue to do so.

But you are right generically, so I don't want to respond any further than that to the rebate, it is just in the mix. But, there are no big savings options that are popular. Every dollar in the Budget has got a constituency. It's there because somebody gets it, and they all like getting it. I haven't found anybody who says, `here's this money I get in the Budget but it's a really bad idea, why don't I give it back?' and they're coming knocking on your door asking for you to take it back. If there's anybody out there of that view they should come to see me or Stephen Conroy, we'd be very pleased to see them. But, we will. You do pay a price every time you make a decision to make a saving and that's a fact of life with which we have to deal.

But I think Australians have got to the point where they want people to be more straight forward about what it is they stand for, and recognise the reality that funding it sometimes means hard decisions. And we sought to do that on Thursday night quite explicitly, and we will continue to do it. And I think in some ways we will lose electorally as a result of that because constituencies will be offended. But I think more broadly, we will gain because Australians want to know that the alternative government of Australia has got the wit and the will to make the tough decisions necessary to fund the priorities that we have. We will therefore be free to articulate, because we will be able to fund them. So, I think it is good politics and good policy. But we will do it, we are determined to do it, and there are a number of options under review at the moment, and there will be more.

MORGAN MELLISH : Mr McMullan, in your speech you said you are concerned that the strengthening currency could slow the economy even worse than expected. Should the government adopt policies to stop the dollar from rising and would Labor support that?

MCMULLAN: Well, no, I don't think the government should be targeting the appropriate value of the currency. What's happening is that the United States dollar is weakening. It's not that the Australian dollar is across-the-board dramatically strengthening. We're essentially standing still and the US dollar is weakening, and there is a plausible argument that says in the long term that's good for the international economy. Time will tell about that, but it's a perfectly plausible argument. But, it has short term implications for the Australian economy in terms of slowing growth. I don't think the appropriate response is to try and have a knee-jerk response to target a value of the currency. I think in any event we'd probably fail. But, I think if you tried – I don't think it's appropriate to try – what I think you need to have, the real problem is they should have been in place already, strategies to make the underlying rate of growth stronger such that the negative impact of the currency is outweighed. We've been coasting on the back of a soft currency for a long time. That's not a sustainable long-term growth strategy, and most people have been saying so. And now, the consequences of that coasting are coming home to roost, when the one things being injecting a bit of growth in our economy, which is soft-currency-driven exports, is not there any longer. And the first look at the figures I saw that came out today looked a bit worrying in that regard, with regard to our manufactured exports. I think that is an issue that, there's a failure of the Government to act over the last five or six years, that we will come to regret if the currency stays as strong as some people predict.

Let me just give you a little bit of background about the Macquarie Bank statement. It seemed to me a fair assessment. There will be an interesting debate about it, but they got the general direction right. But they talked about losing half a percentage point of economic growth if there's a sustained 10 per cent improvement in the value of the currency. Now, the Budget assumes the currency will be 60 cents on average over the year, and there is no shortage of bankers who suspect it's about to go to 70 cents. Now, I don't speculate about that and I don't express a view, I simply say if we've already got virtually a 10 per cent increase – and we haven't started the financial year yet, and there are many of people who think the direction is likely to be sustained and upwards – if that's the case, then the Macquarie Bank assessment might not only be right, it might be an underestimate. Let's hope that's not the case because I don't want to see the economy slow, because that will mean unemployment will go up. I think with the non-farm GDP growing at 2.75 per cent, that's about as low as it can go without unemployment going up. So I don't wish to see it slow at all because the last thing a Labor Party in government or opposition wants to see is unemployment going up.

(ENDS)