"We would be urging the Government to include in any stimulus package, tax cuts, broad and sweeping tax cuts that will increase the tax base and increase tax revenues"
What on earth is she talking about?
The full transcript of today's typically peculiar interview is below the fold:
Shadow Treasurer, Julie Bishop
1 February 2009
Helen Dalley: But first the deepening global financial crisis. Overnight at the Davos Forum in Switzerland global leaders had a simple message; trade is the best economic surplus. The problem is that no one really knows what will work; whether to cut taxes, distribute one-off payments to those who need it, or to start spending more on buildings, roads and bridges, or a combination of all three. In Australia, Treasurer Wayne Swan has been talking about a stimulus package that has warlike “overwhelming force.” He, and the prime minister are said to be preparing a hybrid package which could include targeted tax cuts worth $2.75 billion for low income earners.
The Opposition on the other hand is arguing for broader and more permanent tax cuts. One of the chief supporters of that position is the Deputy Opposition Leader and Shadow Treasurer, Julie Bishop, who joins us now from Perth.
Julie Bishop, welcome to Sunday Agenda.
Julie Bishop: Thank you. Good morning Helen.
Helen Dalley: Now what do you think of the report in newspapers this weekend saying the government is considering tax cuts for low income earners, perhaps raising the tax offset to $1500 and/or lifting the 30% tax rate threshold to $37,000?
Julie Bishop: Well, Helen these are unprecedented times in that there’s no direct analogy with what we’re experiencing at present, but that doesn’t mean we ignore the lessons of history. In fact, this is the time to remember the past, and what has worked in the past, and it’s necessary for us to focus on policies that don’t just rely on a temporary injection of spending to stimulate the economy. History has shown that that just does not work, and the Rudd Government’s attempt last December to inject $10.4 billion into the economy as a temporary measure will prove to have not worked. It certainly won’t create the 75,000 additional jobs that the treasurer promised. But if the government ...
Helen Dalley: Sorry. On that score ...
Julie Bishop: ... is considering ...
Helen Dalley: On that score are you saying that $10.4 billion stimulus package has not worked?
Julie Bishop: Well, we’re still to see the final results, but I suspect it will not have the desired outcome of stimulating the economy. It certainly will not ward off recession and it certainly will not create, as the government promised, an additional 75,000 new jobs. Now the government is considering a second stimulus package; the first obviously has not worked and so within two months they are considering a second.
The point that the Opposition has been making since last year is that a stimulus package ought include as a centre piece tax cuts, because tax cuts drive productivity growth and they act as an incentive for people to work, for people to invest, to take risks, to increase entrepreneurial activity, and that’s what we need in our economy right now. And there’s plenty of evidence across the world that permanent tax cuts do stimulate the economy, but temporary one-off injections do not.
Helen Dalley: All right. If the government proposes a stimulus package that doesn’t include tax cuts, will the Opposition vote against it?
Julie Bishop: Well, it would depend what the package included, but we would be urging the government to include in any stimulus package tax cuts, broad and sweeping tax cuts that will increase the tax base and increase tax revenues.
Helen Dalley: Okay. If it doesn’t ...
Julie Bishop: Now there is plenty there ...
Helen Dalley: ... include that will you vote against it?
Julie Bishop: Well, it depends what else is in the package because there’s no one answer. Nobody has the single answer to stimulating the economy. And we’ve not said it’s either/or. We’ve said that tax cuts, broad-based tax cuts should be included in a stimulus package. And there are many senior economists are the world, including the IMF, who are urging that position that tax cuts be included in any stimulus package. Now, whether it merits or otherwise other ...
Helen Dalley: Excuse me Ms Bishop.
Julie Bishop: ... details of the package we’ll have to wait to see.
Helen Dalley: Shadow Treasurer, if I could just interrupt there, the IMF ...
Julie Bishop: Sure.
Helen Dalley: ... in fact is saying very strongly that tax cuts are not the way to go right at this moment and their most recent position on this was very much that you need that short-term injection to boost spending in the economy.
Julie Bishop: Well, in fact last week the Deputy Director of the IMF was urging that tax cuts be part of the mix, and that’s the point. It’s not either/or and we’ve never said that. What we’ve urged the government to do is to look at tax cuts to individuals, and particularly to business. Business needs to be relieved of the burden of taxes at this time so that their payrolls can continue to sustain workers; taking on new staff, paying off their bills. We need to ensure that business is sustainable, and part of that is to relieve the tax burden on business. That’s why we are urging the government to make tax cuts to individuals and business a centerpiece of any further stimulatory package.
Helen Dalley: It’s interesting the Opposition quoting the IMF because specifically this week Monsieur Blanchard said, and I quote, “measures must be focused on spending rather than taxes because cutting taxes in the short run don’t increase spending”. Now that’s a pretty clear vote against what you’re proposing.
Julie Bishop: Well, the IMF like every other person around the world does not have all the answers because last week the deputy director was urging tax cuts. And if you read the detail – I mean we can pick out one line here or one line there -- but overall the IMF is saying each country should tailor their responses to their country’s circumstances. Now Australia is in a very different position from countries like the United States or the UK and yet the government appears to be responding as if we are in the same dire straits as Europe, the United States, the United Kingdom. Australia is not. We have very strong underlying economic credentials. We had a surplus. We had very low unemployment. We have a very strong banking sector. We have a strong regulatory system. So responses that might work or might be considered in the United States and the United Kingdom are not necessarily the responses that you would have in Australia given our particular circumstances, and we urge the government to consider tax cuts.
Now just to dismiss them out of hand goes against the weight of evidence and is most certainly the view of some very senior economists that I spoke to in the United States just last week.
Helen Dalley: Julie Bishop, the Treasurer this morning has said that a temporary budget deficit is now inevitable. What’s your reaction to that?
Julie Bishop: Well, again as the IMF said, and as we have been urging for months now, if the government is going into deficit it must have a plan to put the budget back into balance. If the government chooses to go into deficit it’s a discretionary spend then there must be a strategy to exit it, and that was another position put by the IMF this week. So we would call on the government to tell the Australian public how they will balance the budget. If it’s going to be a temporary deficit how do they intend to get out of it? The government doesn’t have any money of its own. This is taxpayer’s money. This is money that taxpayers have provided through their work and enterprise and the work of businesses and the earnings of businesses. So if the government goes into deficit it’ll be taxpayers who are paying it off. And to restore business and consumer confidence people need to understand how the government proposes to do that.
Helen Dalley: Okay. The Business Council has also said this morning that a budget deficit is now almost inevitable. But they are saying that is quite acceptable and responsible for a government to do what it can to minimise the effects of the recession. Do you accept that?
Julie Bishop: Well, Helen, look at what’s happened over the last few months. The government had a forecast budget surplus of $21 billion. It decided to use $10 billion of that in a one-off temporary stimulus package. Now I believe the consensus willl be in due course that that didn’t work. So the government’s chosen to spend half the budget surplus in one hit. Now we support payments to pensioners but just not a one-off hit, that doesn’t change people’s spending habits. So it’s a question of the quality of the spend. If the government goes into deficit it depends upon what it is spending the money. Now infrastructure spending and spending on education are all worthwhile initiatives in their own right. You don’t need an economic crisis to spend on infrastructure and education, but it’s the quality ...
Helen Dalley: So the Treasurer ...
Julie Bishop: ... of the spend that will be important.
Helen Dalley: Yes. The Treasurer this morning has said that will encompass, it will be across a lot of those areas, including infrastructure. Is that something that you can accept if we go into budget deficit?
Julie Bishop: Well, infrastructure spending as long as it’s high quality spending is a good outcome in any event. You don’t need an economic crisis to spend appropriately on infrastructure. But let’s not kid ourselves that infrastructure spending is a short-term stimulus to the economy. Infrastructure by its very nature is long term and so over the long term it will have a beneficial effect, but it doesn’t provide the short-term stimulus that the economy needs. That’s why we’ve been urging tax cuts, permanent tax cuts so that people can use their after-tax dollars, the money that they get in their pocket over a period of time to keep spending, not saving.
Helen Dalley: Okay. The Treasurer ...
Julie Bishop: And there’s plenty of evidence to show that the multiplier for a tax cut is greater than that of a direct government spend.
Helen Dalley: The Treasurer has also said this morning that company taxes could be down by $50 billion over four years. Now that’s almost a fact now and that has come really over the last four or five months since the mid-year economic review. That’s something in a sense the government can’t control. Now will you accept that the budget probably needs to go into deficit simply because of that?
Julie Bishop: Well, what the government needs to do is balance the expenditure with likely revenues and so that’s a juggling act that must be done by governments all the time. Now Kevin Rudd said he was an economic conservative. He went to the last election even promoting advertisements about himself that he was an economic conservative. That meant he believed in smaller government; he believed in balanced budgets; he believed in surpluses; he believed in lower taxes. Today we find that Kevin Rudd’s no longer an economic conservative. What we need to hear is what the government proposes to do in terms of savings; what the government intends to do in terms of expenditure. The mid-year economic forecasts are clearly out of date. The government’s acknowledged that they’re out of date. Well that’s not good enough. They need to provide updated treasury forecasts of the current state of the budget so that we all know what state the budget’s in as well as updated forecasts on government expenditure, growth, unemployment and the like.
Helen Dalley: All right, Julie Bishop we’re almost out of time. Just really briefly if you could, the proposed boost for commercial property that the prime minister announced a few days ago, you and your leader have criticised it saying it’s only helping the big banks. But it’s really only $2 billion government contribution. Now it has to be voted on through parliament. Will you vote against it?
Julie Bishop: Helen, it’s actually up to $26 billion of taxpayer’s money. And as I said we should never forget the lessons of history. I witnessed in Western Australia in 1987, after the stock market crash, when a Labor Government got involved in the commercial property sector, very similar. And what happened, it ended up as WA Inc. When politicians get involved in the commercial property market it ends up with more bad loans.
Helen Dalley: All right. Ms Bishop, thank you so much for joining us, we appreciate your time this morning.
Julie Bishop: Thank you.