5 October 2018
Transcript - #2018037, 2018

Interview with Chris Kenny, Friday Feedback, 2GB

Subjects: GST reform; removal of GST on feminine hygiene products; interest rates; housing market; and the Wentworth by-election.

CHRIS KENNY:

Josh Frydenberg joined me just a short time ago.

JOSH FRYDENBERG:

Nice to be with you, Chris.

CHRIS KENNY:

Look, you had the stoush this week with the states over how to carve up the GST. Of course, this debate goes on year after year, after year. But there’s no way, surely, that you could ever compensate or give extra money to a state like Western Australia without eventually giving less money to the other states?

JOSH FRYDENBERG:

Well, the first thing to say is that the situation with Western Australia was threatening the integrity of the GST system as a whole. You’ve got a ridiculous situation where they were getting 30 cents in the dollar from their GST and the Northern Territory with one-tenth of the population and Tasmania with one-fifth of the population were getting more GST revenue than Western Australia.

So, we went to the Productivity Commission, we sought their advice, we did further work, we used the numbers that the states themselves provided and we came up with a model which would put a floor at 75 cents in the dollar to apply to any state.

And at the same time, we opened our own balance sheet and put in an additional $9 billion into the states and the territories, including an additional billion dollars in perpetuity from ‘26-27.

CHRIS KENNY:

That’s to make sure that no state is worse-off. That’s extra money on top of the GST to make sure that no state’s worse off.

JOSH FRYDENBERG:

Correct.

CHRIS KENNY:

Yet, still the states are not happy.

JOSH FRYDENBERG:

Well, the states should be happy because they’ve never had a more generous partner than they have in the Commonwealth and what they are seeing is their revenue from the GST increase exponentially.

It’s gone up 175 per cent from the time the GST was first established to today and it’s scheduled to go up another 65 per cent over the next decade and as you and your listeners know Chris, we’ve extended the GST to online purchases, which will give them an additional $6.5 billion over the next few years.

So, the states and the territories are getting more money as a result of the GST and this system that the Morrison Government is driving, this reform will lead to a fairer, more sustainable system.

CHRIS KENNY:

This is what I think though, taxpayers around the country, whatever state they’re in, must find so frustrating, I certainly do and that is the fact that when the GST came in, almost two decades ago now, with all the money raised by Canberra through the GST going back to the states in payments, this was supposed to put an end to all these arguments.

All the money going to the states, a growth tax and it was supposed to fund them in perpetuity, yet still we’ve got the states bickering. And you’ve got Labor and Liberal states as well as the federal opposition saying they’ll oppose your legislation. What’s going to happen to all that now?

JOSH FRYDENBERG:

Well, the first thing to say there is that Bill Shorten went to Western Australia campaigned with the Labor Premier, Mark McGowan, just a few weeks ago and said that he was on a unity ticket with us and would support our legislation to reform the GST.

CHRIS KENNY:

Indeed, Mark McGowan now is having a go at him saying, as a Labor Premier, what on earth is Bill Shorten doing opposing this plan.

JOSH FRYDENBERG:

Well we know that Bill Shorten is only interested in the politics not the policy and the policy would indicate that this is the best reform to take us forward and you will see for your listeners in NSW they will be $351 million dollars better off as a result of our reforms and for your Victorian listeners they will be $425 million better off as a result of our reforms, so…

CHRIS KENNY:

And our QLD listeners?

JOSH FRYDENBERG:

And QLD listeners will be $518 million better off.

CHRIS KENNY:

There you go you are rattling off the figures there…

JOSH FRYDENBERG:

Well it is true.

CHRIS KENNY:

Yeah look, the issue though is you’ve got legislation that at this stage won’t get through the parliament. Do you think that maybe Mark McGowan in Western Australia or other state Premiers can somehow talk Bill Shorten around?

JOSH FRYDENBERG:

Well I think that Bill Shorten now faces a real test, because he has promised the people of Western Australia he would support this legislation and let’s see what he does on the floor of the parliament. My suspicion is that he will try to move an amendment to put this guarantee, which would effectively set-up two separate systems and very problematic going forward. I think he will try to move amendments to see that happen, and if that fails I think he will get behind our legislation. If he doesn’t he will face a very hostile reception from his Labor counterparts in Western Australia, and indeed around the country, who see this reform as a step in the right direction.

CHRIS KENNY:

Ok, so the other big tax news this week, again related to the GST - but here why we have got all the states complaining about how much money they want to get from the GST - the other move was to have this new exemption from the GST for female sanitary products. Now, I know it is only $30 million a year or some such; it’s not going to break anybody’s budget. But the idea here that the states are now pushing to exempt stuff from the GST is an anathema isn’t it? And Federal Treasurer you’ve gone along with it and now we’re pulling stuff out of the GST and  raising less revenue than spreading it more widely.

JOSH FRYDENBERG:

Well when you change the distribution of the GST the federal government can do that through federal legislation. But when you change the rate or the base of the GST you need unanimous agreement from the states, territories and the Commonwealth. And it has taken 18 years to get to the point where the states are prepared to support the removal of the GST on feminine hygiene products. So I actually think this is a welcome change because this was an anomaly in the tax system. You had condoms and lubricants that were exempt from the GST, but they still applied to feminine hygiene products. I think this is now more reflective of community attitudes and expectations…

CHRIS KENNY:

Oh, but come on, there are so many necessities of life that are taxed under the GST; whether it is toilet paper, shoes, petrol or electricity bills. You can’t cave into this sought of pressure, what’s going to be next? What if the feminist campaigners say let’s get rid of the GST on bras and not have the GST on bras?

JOSH FRYDENBERG:

Look, Chris I think that one is a bit over the top as an analogy. I think the reality is that there was one anomaly here, we have made that change, we want to protect the integrity of the system and the base of the system, and more importantly in how you divide the pie. What we want to do is grow the pie and that is why we have policies that are delivering 3.4 per cent GDP growth - which is the fastest rate Australia has seen since the height of the mining boom. This is why our AAA credit rating has recently been reaffirmed, and this is why we have just announced the smallest budget deficit in a decade. All of which will be put at threat by Bill Shorten and his $200 billion worth of taxes.

CHRIS KENNY:

Ok, you say though this was one anomaly – so you are saying there are no more exemptions, no matter what product or range of products anybody comes up with in the future, no more exemptions for products that are already levied by GST?

JOSH FRYDENBERG:

There are no plans to change the base of the GST and the goods that are applied to and you might have heard me say at the time, that we are not about to increase the GST or apply the GST to any new goods to make up that $30 million. Because the states have seen their revenue from the GST increase quite dramatically including that $6.5 billion that they now receive as a result of its application to online sales.

CHRIS KENNY:

Ok, Treasurer Josh Frydenberg, of course we saw this week the Reserve Bank keep interest rates in Australia on hold, but we are seeing interest rates now creep up in the US and we are starting because of the cost of finance, the cost of their loans, we are starting to see some of the banks here inch up their home mortgage rates.

How concerned are you about a housing market crash in Australia? We know prices have come off particularly in Sydney and Melbourne this year. Some market analysts are talking about the down turn in the housing market going for a long while going quite deep. Of course that is good for those who are looking to get into the market and good for housing affordability. But are you worried about where the housing market is headed?

JOSH FRYDENBERG:

Well we believe these changes in the housing market where prices have come down for 12 consecutive months in the major cities, is actually taking the housing market to a more sustainable level. That is actually a healthy development and that is also the view of the Reserve Bank.

That being said we continue to watch it closely and again Bill Shorten will threaten people’s value in their home, their greatest single asset, with his changes to negative gearing and capital gains tax. And it is coming at the exactly wrong time, because we are starting to see house prices come back to a more sustainable level - they don’t need to be whacked with a new Labor property tax.

So we will watch it closely, but what we have also seen is more first home buyers coming into the market. More than a 100,000 loans went to first home buyers over the last year and that was the greatest number for some time and that is also a product of what APPRA has done in the housing market, which is to tighten the investor loan so that we are now seeing a change in the dynamic away from investor loans and residential acquisitions to more owner occupied residential acquisitions.

CHRIS KENNY:

And just very briefly, you were in the electorate of Wentworth this week campaigning with the Liberal Candidate Dave Sharma. How do you fancy the chances in that electorate going to the polls in about three weeks now?

JOSH FRYDENBERG:

Look, I think it will be very close, but I do think he is by far the best candidate and I am not just saying that because he is a Liberal, it is also because of the skills he brings to the table. He has been one of our leading diplomats, a very young ambassador overseas in Israel, where he did an outstanding job and experience in business as well and he will be following in the big footsteps left by Malcolm Turnbull in Wentworth.

So we were there together at Centennial Park, which is quite a remarkable place, because Centennial Park was the site of the inauguration of the Commonwealth on the 1st of January 1901, when out first Governor General Lord Hopeton and our first Prime Minister Mr Edmund Barton and first Cabinet were all sworn in and people came through the big gates there – 60,000 of them – to watch this inauguration so…

CHRIS KENNY:

They did indeed. And they turn up there every weekend these days to – to run around with the family.

Thanks so much for joining us Josh Frydenberg.

JOSH FRYDENBERG:

It is now on the National Heritage List.

CHRIS KENNY:

Indeed. Thanks for joining us Josh Frydenberg and have a good weekend.

JOSH FRYDENBERG:

Good to be with you.