ADDRESS AT THE 'FAIR SHARE' BOOK LAUNCH

I begin by acknowledging the traditional custodians of the land on which we meet the Gadigal people and pay my respects to elders past, present and emerging.  As the person who aspires to be the next Treasurer of Australia, I commit myself to the task of eradicating the scourge of Indigenous disadvantage in our country.

I’m honoured that Michael and Stephen asked me to do the honours at the Sydney launch of “Fair Share”.

This is a seriously good book.

I mean really good book.

It is, in my opinion the most important book on the Australian economy that has been written in some time.

Michael and Stephen don’t confine themselves to one policy debate or issue.  This book goes to investment, inequality, tax and the budget, the environment. 

Now I like it because it’s serious but readable.  I like it because it is about important issues.

But I confess, I also like it because I agree with it.  There’s not much in terms of the arguments put in “Fair Share” that I disagree with.

In the time available today I won’t go through every argument in the book, but I will focus on two that are important and relevant in today’s policy debates.  And I’m sure the authors won’t mind that I take the opportunity to use the launch of their book to argue for some of Labor’s policy offerings in keeping with the arguments they put in the book.

Michael and Stephen point out that the budget is repair task is far from complete.  That even if the return to surplus trajectory currently in the budget (which is predicated on an optimistic forecast of wages growth somehow whirring back into action in coming years), the longer term task is very significant.  Even on the Government’s own projections, the surplus won’t surpass half a percent of GDP over the next decade.

And, as “Fair Share” points out, using the projections for the Government’s then legislated policies, the Government’s own 2015 Intergenerational Report found that the budget could be expected to fall back into deficit in the mid-2020s and, with current policies could be expected to be as large as 6% of GDP by 2054/55.

Now this budget challenge won’t be fixed by tinkering or half measures. Shaving a million here or there off miscellaneous government expenditures.  It will require big levers to be pulled.

And I agree with Michael and Stephen when they argue that the best way to tackle the deficit is by “reducing what are euphemistically called ‘tax expenditures’. These tax expenditures that typically serve the same purpose as payments on the expenditure side of the budget, but they are much less subject to review and are not usually cash limited, so their costs can blowout”

That is of course exactly the course that Labor has been pursuing over several years.

We’ve announced detailed policies to reform negative gearing, the capital gains tax concession and the family trusts system, all of which were previously regarded as politically sacrosanct but which needed to be reformed and will be reformed by an incoming Labor Government.

And last week of course we announced our reforms to dividend imputation refundability.

A few key points:

We are the only country in the world with a fully refundable dividend imputation system.  No other country in the world returns a tax credit to people who have not paid income tax.

Refundability is also an anomaly in the Australian tax system.  The vast majority of tax concessions are not refundable.  You can use them to get you taxable income down to zero, but not to generate additional cash refunds.  Take a tradie for example, who has considerable expenses in materials and petrol.  They can claim expenses and can, theoretically get their taxable income down to zero.  But they are not going to get a cash refund for additional deductions after that.

Dividend imputation was introduced in 1987 but wasn’t refundable until 2000. When the Howard Government started sending refunds to people who hadn’t paid tax, it cost half a billion a year.  It now costs close to $6 billion and, with the cost is projected to blow out to $8 billion by the end of this decade.  That’s more than the Commonwealth spends on public schools. It’s more than we spend on childcare.  It’s three times what we spend on the Australian Federal Police.

This is a poorly targeted policy.  80% of the benefit of refundability goes to the wealthiest 20% of households.

The top 1% of Self-managed superannuation funds claimed an average $83,000 in imputation refunds:

For all these reasons, reform of imputation refundability is vital.

The other thing to note about the budget situation, is that return to surplus is made so much harder with an unfunded company tax cut at a cost of $65 billion.

Again, Michael and Stephen put it well when they say:

“We question the value, especially in a tight budget situation, that will be derived from the 2017 Liberal government’s plans to cut company tax.  In our view, this tax cut is unnecessary, and as we will show, even on the government’s own economic modelling it is unlikely to make much difference to investment or economic growth.”

They go on to point out that in the last few decades countries like Japan, South Africa and the UK have all cut corporate tax with no appreciable increase in investment and also, Australia also gets a disproportionate share of investment from Asian countries and other countries that already have a lower corporate tax rate than Australia.

Now, in our view, we do need a tax regime which is more encouraging of investment.  But we think a corporate tax cut is a windfall gain for investments previously made, not a well targeted spur to new investment.

Hence, last week we also announced our Australian Investment Guarantee.

Under Labor’s Australian Investment Guarantee, all businesses in Australia will be able to immediately deduct 20 per cent of any new eligible asset worth more than $20,000, with the balance depreciated in line with normal depreciation schedules from the first year.

Assets such as tangible machinery, plant and equipment (for example, trucks and utes, but not buildings) and intangible investments (such as patents and copyrights) will be eligible for the immediate deduction.

The Australian Investment Guarantee is a pro-growth, pro-jobs reform that rewards businesses making new investments in Australia.

Under Labor’s Australian Investment Guarantee, only companies that make the decision to invest in Australia will benefit from this tax relief – while up to 60 per cent of the Conservatives’ company tax handout goes directly to foreign shareholders.

Over the past five years, business investment in Australia has collapsed by 20 per cent. Despite strengthening global economic conditions, business investment in Australia has remained subdued – with the RBA commenting that non-mining business investment has been “disappointingly low” in recent years.

Labor’s plan invests in growing the Australian economy and creating Australian jobs.

Unlike previous asset write-off schemes, Labor’s Australian Investment Guarantee is permanent – that means businesses can continue to take advantage of the immediate tax deductibility whenever they make a new investment in an eligible asset.

Thanks again for doing me the honour of conducting the Sydney launch of your book.

Paul Keating conducted the Brisbane launch, so I’m in very august company.

There are big challenges and opportunities for the Australian economy.

And big ideas need to be pursued. And debated.

And “FairShare” is a very good contribution to that debate.

I commend it to you.