3 October 2018
Transcript - #2018026, 2018

Interview with Fran Kelly, RN Breakfast, ABC Radio National

Subjects: Removal of GST on feminine hygiene products; GST reform; digital tax; and Labor’s housing tax.

FRAN KELLY:

Treasurer, welcome back to Breakfast.

JOSH FRYDENBERG:

Nice to be with you, Fran.

FRAN KELLY:

First to the tampon tax. How confident are you of getting agreement today to scrap this tax?

JOSH FRYDENBERG:

Well, the state and territory treasurers had a very good dinner last night where we discussed this issue and there seems to be strong agreement that we should proceed to remove the GST from feminine hygiene products, so hopefully that becomes a formality today.

FRAN KELLY:

Why has it taken so long? Eighteen years, it’s been obvious from the start it was inequitable to have this tax. Why do you think it’s taken so long? Was it just about money?

JOSH FRYDENBERG:

Well, money is one factor. It’s around $30 million a year. But at the same time, people want to ensure that we don’t pick and choose the items that come out of the GST base and I think there’s been a desire just to maintain stability with that and that has probably prevented action before today.

FRAN KELLY:

Okay, as you said, this move will cost about $30 million a year in GST collections. Are the states going to get less? Or are you going to find the money from somewhere else as per the Prime Minister’s budget discipline rule. How are you going to address the shortfall?

JOSH FRYDENBERG:

Well look, the states are benefiting greatly from our extension of the GST to online purchases and also added compliance activities, which will see them benefit by $6.5 billion over the forward estimates. So I don’t think we need to pursue other areas where we need to increase the GST, I think what they’ll just need to do is to take that on the chin and we move forward.

FRAN KELLY:

Okay, well in talking of the GST and the carve-up, it seems you’ve got a battle on your hands to convince the eastern states that they’re not going to be worse off under your new formula, which will put a 75 per cent floor on distributions. Will you guarantee no state will be worse off under this new formula?

JOSH FRYDENBERG:

Well, all states and territories will be better off as a result of our national reform. That is based on the numbers put together by the Productivity Commission where they took the data from the states and we do know that the viability and the integrity of the GST system was at risk when we had a ridiculous situation that Western Australia was only getting 30 cents in the dollar and the Northern Territory, with one tenth of the population of Western Australia, and Tasmania, with one fifth of the population of Western Australia, were getting more GST revenue than Western Australia itself.

So, this has been a national problem where Scott Morrison has acted, as Treasurer, and we are putting now in place a national solution. That’s what the Australian people expect of us, to lead and that is what we are doing.

FRAN KELLY:

Okay, but will that national solution guarantee that no state or territory will be worse off and some of the states want you to put that guarantee in legislation. Why wouldn’t you do that?

JOSH FRYDENBERG:

Because what they want us to do is to run parallel systems – the old system and what we are proposing to be the new system. We are saying we are now moving to the new system and not only are we putting a floor at 75 cents in the dollar, which applies to all states, not just Western Australia, but we are also putting in an additional $9 billion which will see the states better off and there will be an additional billion dollars in perpetuity going into their GST pool. So, they will be benefiting greatly from this reform in addition to the other activities we’ve taken at the federal level to boost their coffers.

FRAN KELLY:

Why won’t you legislate that?

JOSH FRYDENBERG:

Well, we are going to legislate this reform and this is what Bill Shorten…

FRAN KELLY:

But not the guarantee?

JOSH FRYDENBERG:

Well, we don’t need to legislate the guarantee because we are not running parallel systems. Now, I’ll just point you to a Labor Premier, Mark McGowan’s comments in the papers today, saying that Labor just needs to get on board with this and put it behind us.

Bill Shorten, when he was in Perth just a few weeks ago, said he supported the Government’s reforms and that he supported the legislation. He can’t say one thing in Perth and another thing in Melbourne. He needs to support this national solution that we have put together.

FRAN KELLY:

I think it’s not that the states don’t support what you’re doing. They just want that guarantee. Victoria’s got modelling for instance suggesting that even under a best-case scenario, the eastern states could be hundreds of millions of dollars out of pocket, and billions in the worst-case scenario. Have you had a look at that modelling?

JOSH FRYDENBERG:

Well, Victoria is $425 million better off as a result of this reform. Currently, they get about 25 per cent of their revenue from GST and 45 per cent of their revenue from the Commonwealth. Now, they are a beneficiary of the reforms that we have put in place including…

FRAN KELLY:

So, have you looked at the modelling suggesting that if anything changes there in terms of you know, mineral prices, resource prices, that could change dramatically? Have you had a look at that? Have you satisfied yourself?

JOSH FRYDENBERG:

Well, I have satisfied myself and so is the now Prime Minister, and then Treasurer, based on the Productivity numbers that they put together, based on state government forecasts and their own data as to where each state will be under this GST reform.

So, we have very clearly taken the leadership role here, we’re creating a much fairer and equitable system, a more sustainable system, which puts in a floor of 75 cents in the dollar, which adds another $9 billion to the states and territories, in which case all of them will be better off.  

FRAN KELLY:

Okay. You’re listening to RN Breakfast; it’s 18 minutes to 8. Our guest is the Federal Treasurer, Josh Frydenberg. Treasurer, your Department’s released a paper looking at how the Government could tax Google, Facebook and other digital media giants operating here in Australia. Is that something the Government is now seriously considering? 

JOSH FRYDENBERG:

Well, a few points. Firstly, we all benefit from the digital economy. We’ve seen great strides in technology and we want that to continue. The second, though, point is that we want value to be taxed where it’s created.

Now you can achieve that by changing the transfer pricing rules, getting international agreement but also looking at more innovative ways, which are discussed in this paper looking at for example, where the advertising revenue is generated in order to ensure a fairer tax system.

Other countries, like Europe, other places like Europe and particularly the UK, the United States, they’ve released discussion papers, they’re having a look at this.

We’re going to pursue reform through the OECD and the G20, just like we did with multinational tax…

FRAN KELLY:

That’s a slow process though and Scott Morrison when he was Treasurer warned that we wouldn’t wait for the rest of the world. But are you concerned that it’s possible by putting on a tax like this in Australia, we could run afoul of our international trade obligations?

JOSH FRYDENBERG:

Well, very conscious of all those international agreements we have in place and very conscious of the need to work closely with our international friends and partners around the world...

FRAN KELLY:

But will we go it alone?

JOSH FRYDENBERG:

Well, let’s wait and see what the response to this discussion paper is. We’ve asked for submissions by November. The Treasury will take them, I will then discuss it with the Prime Minister and my parliamentary colleagues and we’ll take this issue forward.

But just as we did with multinational tax agenda, we are pursuing reform at the international level. Labor unfortunately voted against our greater taxes on multinationals. It’s produced an additional $7 billion of revenue to the Budget. We’ll do what’s right for the Australian taxpayer.     

FRAN KELLY:

Can we go to housing Treasurer? Housing data out yesterday showed national house prices have fallen for a full year, in Sydney, for instance, down 6 per cent, Melbourne, 3.4 per cent. Good news for home buyers. But do you have concerns?  

JOSH FRYDENBERG:

We’re watching it very closely. I think the housing market has come back to a more sustainable, healthy level. I caught up yesterday with the Governor of the Reserve Bank and as you know, they’ve kept the cash rate at 1.5 per cent, where it’s been for some time.

We had seen a dramatic increase in housing prices. Now, we are coming back to more sustainable levels. I think that’s a good thing. But what we can’t risk is seeing a major drop in housing prices that would flow from the Labor Party’s negative gearing changes, which is effectively a property tax on every Australian family.

FRAN KELLY:

But when you say a major drop, didn’t the confidential advice to the Treasurer, Scott Morrison, from his own Department, it’s your Department now, say the opposition’s plan might cause quote, “some downward pressure,” and could have quote, “a relatively modest downward impact on prices”?

JOSH FRYDENBERG:

Well, we’ve seen a lot of analysis to…

FRAN KELLY:

Well, that’s Treasury, presumably you’re banking on them.

JOSH FRYDENBERG:

The view is in the market, and this is what motivated the Labor Party in the first place with the policy, is and they’ve repeated it just yesterday, that what they want to see is the prices come down so that more people get into the market. Well, prices have already come down and as we know…

FRAN KELLY:

At the top end more than the bottom end, would you agree with that?

JOSH FRYDENBERG:

No, this was across the board because the people who have negative gearing, and there are more than 1 million Australians who do so, tend to have, two thirds of them, have a taxable income of under $80,000.

FRAN KELLY:

No, but I’m saying prices have come down more at the top end than the bottom end.

JOSH FRYDENBERG:

Yes, there has been some changes at the top end but I think what we’ve seen is a steady reduction in prices across the market. But let me just say the property tax, the changes to negative gearing that Labor is proposing will drive up rents and then also threaten the value that people have in their home.

FRAN KELLY:

Okay, I’m keen to get to something we heard earlier in the program, which, you know, experts say this housing slide isn’t over yet. We don’t have the full findings of the banking Royal Commission yet, which could see the banks come under further scrutiny from the regulators and that could translate into even tighter lending standards.

Did Treasury warn you that a tough response to the banking Royal Commission could have a negative impact on house prices?

JOSH FRYDENBERG:

No, what we have not seen the recommendations from the Royal Commission, so I talk to Treasury all the time and the Reserve Bank Governor yesterday and other key players in this field about the importance of maintaining access to credit in the market and importance of maintaining stability across the economy.

The Royal Commissioner himself in his interim report points out that he wants to get on and execute his job promptly because of the impact that the overall Royal Commission has on the confidence of the system.

But I and the Government will take all the actions that are necessary, Fran, to restore the public’s trust and confidence in the financial system because what we’ve seen is profits trumping people and the banks engaging in misconduct and inappropriate behaviour, which for a lot of people has been reprehensible.

FRAN KELLY:

Treasurer, thank you very much for joining us.

JOSH FRYDENBERG:

Good to be with you.