17 February 2015
Transcript - #2015008, 2015

In the role of: Parliamentary Secretary to the Treasurer [23 December 2014 - 20 September 2015]

Interview with Rafael Epstein, Drive, 774 ABC Melbourne

SUBJECTS: Intergenerational fairness

EPSTEIN:

As I mentioned, Kelly O’Dwyer is the Federal Liberal Member for the seat of Higgins here in Melbourne, she’s also the Parliamentary Secretary to the Treasurer. Kelly O’Dwyer, good afternoon.

O’DWYER:

Good afternoon Raf.

EPSTEIN:

There’s been lots of, I suppose, mea culpas from the Government about last year’s Budget, for different reasons, but would you, why would you not agree that it was unfair?

O’DWYER:

Well, firstly, I think Raf it’s entirely reasonable to be having a debate and a discussion about fairness, and I think that Australians are a very fair-minded people and that their view is that public policy should be fair, but the debate that I kicked off yesterday in a speech that I delivered to the Centre for Independent Studies expressed the view that I am deeply concerned that fairness is being constructed by both the Labor Party and the Greens in a very narrow way. It’s being used as a one word slogan to encapsulate what I think is a very narrow concept – and that concept is whether Budget measures take more from those with higher incomes than they enjoyed prior to the Budget or the other way of looking at it, giving more to those with lower incomes than they enjoyed prior to the Budget. Now fairness, I think, is a much more sophisticated concept than that and I think we need to engage about this concept of fairness, simply not looking at just the redistributive aspects of it because it’s not just about that. It’s also about looking at other dimensions.

EPSTEIN:

Can I ask you, can I ask you about the other dimensions because I want…

O’DWYER:

Yes, let’s talk about them.

EPSTEIN:

I want to quote the study, first of all. So the reason people say the Budget was unfair, the bottom fifth, their income, the bottom fifth of people who earn cash, their income drops by 2.2 per cent, the top fifth of income earners, their income drops by 0.2 per cent, so one tenth of the amount in percentage terms. Why do you think that’s an unfair comparison?

O’DWYER:

Australia has a very progressive income tax and transfer system. We have one of the most Progressive income tax and transfer systems in the world and you have to look at not only what people are paying in income tax but also the benefits that they receive. We can quote statistics backwards and forwards Raf. I think in this country, we do accept we need a very strong social safety net, that is a critical matter for fairness and we’re certainly not arguing against that, what we’re saying is that fairness has other dimensions as well. Intergenerational fairness is a critical aspect and I’m happy to talk to you in a bit more detail about what that means, but also, when we talk about fairness, we need to talk about the hidden winners and losers from the current status quo position, we need to talk about how fairness impacts on personal responsibility and reward for effort and we also need to, when we’re thinking about long-term policy measures, look at the transitional aspects around the fairness debate as well. These are all sophisticated concepts but the Australian people are sophisticated and I think they are yearning for a proper discussion about this rather than simply being conned by a simple one-word slogan.

EPSTEIN:

So, why does intergenerational fairness, so I’m sure the Liberal argument is that we are imposing debts on our children and our children’s children, why is that more important than say, making a change on superannuation? Now superannuation is complex, but clearly, if you’ve got a one-size fits all discount as we have  at the moment, it benefits those on higher incomes more than it benefits those on lower incomes, why is, I’m not asking for whether or not superannuation tax will change, but why is the intergenerational fairness more important than fairness around super?

O’DWYER:

Well, I don’t think it’s the binary choice that you’ve presented Raf, I actually think the first thing to understand is what are we talking about when we talk about intergenerational fairness – we’re talking about a wealth transfer from our children and our grandchildren to us. I mean, let’s look at the six Budgets that Labor delivered when they were in Government. I think, from an intergenerational perspective, they were the six most unfair Budgets. They took us from a net cash position, money in the bank $44.8 billion dollars, to a net debt position of $202.5 billion in 2013-14. During that period, they delivered more than $240 billion in aggregate deficits and that was despite having inherited a surplus Budget. Why is that important? Well, it’s important because they also left a growth in spending, a trajectory of spending that would lead to ever-increasing deficits which would add to our debt, $123 billion and it’s significant. Everybody says, ‘oh, well, our net debt to GDP ratio is small, relative to the rest of the world,’ they say ‘look, you know, it’s only around about 15 per cent and relative to the rest of the world, that is small’ but, consider this, consider the case of Ireland. Just before the Global Financial Crisis in 2007, they had a net debt to GDP ratio of just around 11 per cent. That wasn’t considered to be a big problem, after the GFC…

EPSTEIN:

Maybe there are many people, and I suspect this is an argument that would be put forward by the ALP, maybe there are many people, they are willing to live with a certain amount of debt because that is a crucial ingredient in making our society fair now.

O’DWYER:

Yes, but you have to consider, let me just finish this point about Ireland because in six years that blew out, that blew out to around about 90 per cent, and their Budget and their economy is now struggling and the reason why that is important and significant is because the people who get hurt are not the wealthy people, those people can take care of themselves, the people who ultimately get hurt are some of the most vulnerable people in our community and so to simply say that we can ever increase debt, we can spend more money, we don’t need to live within our means is actually putting limited choices in the road for the next generation and that is simply not fair.

EPSTEIN:

So let’s say we accept your argument on intergenerational debt, doesn’t that immediately mean that you then turn to, hold on, who is going to pay to get us out of the very clear structural problem that we have and is there anything unfair about changing things and I’m not asking you to nominate what Government will or won’t do, but I guess I’m interested in the principle, if you look at things like superannuation tax concessions, like the way the pension applies to money in the bank versus a house, don’t we need to look at people who have greater resources and raising more money from them, because we have a revenue problem?

O’DWYER:

Well, we have a spending problem, for sure. And this current Government…

EPSTEIN:

We have both, don’t we?

O’DWYER:

Well, we also have a problem with a drop in revenue based on unrealistic projections, that revenue would continue to grow, that commodity prices remain high…

EPSTEIN:

Your revenue forecasts have also, have also failed just in the 16 months…

O’DWYER:

But the real problem here is spending more than you bring in and you can say well, we should ever increase tax to such a level that it becomes a huge burden for very few people in our population to sustain – that’s not going to be a sustainable solution to this issue. We also need to attack this issue around spending and we’ve started that process, I mean, it’s a long way to go, but we’ve started that process, we have actually reduced the real growth in spending from significant levels under Labor to around about 1 per cent and it was upwards of around 5 per cent.

EPSTEIN:

Can I ask you what you meant by unsustainable superannuation tax concessions are worth $16 billion per year, the pension, clearly is one of the biggest areas of expenditure.

O’DWYER:

I’m not saying, I’m not saying…

EPSTEIN:

Don’t we need to change the way they are…

O’DWYER:

My point about unsustainable was ever increasing new taxes onto fewer and fewer people in our community, that’s what I’m saying, Raf, when I talk about it being unsustainable. Certainly I think you have to look at policy measures and whether they achieve the policy objectives that they were set out to achieve. So superannuation, for instance, is there to provide a retirement income stream for people. It’s to give them security in their retirement, it’s not there as a tax dodge or a tax loophole, that is not the purpose of our superannuation system. Do we need to, from time to time, look at long dated policies and see whether or not any change is required? Well every government needs to examine that, I’m not taking a position on that, I’m simply saying that is part of the process. But when we do that, we need to also talk about what are the impacts going to be if there is any potential change and one of the points that I have raised in the speech that I delivered yesterday is we have to also consider transitional arrangements and fairness from a transitional point of view. Now it cuts both ways, the millennial generation says well, you should change it very quickly because it impacts us and it’s going to have the most significant impact on us, so change it. Those people though, who have made long term decisions over time, based on government policy settings say for them, change should be brought in over a period of time, because otherwise it is unfair. Now governments have to make difficult decisions in that space, but we need to be able to have a sensible, rational conversation about it.

EPSTEIN:

We’ll see if we can further the conversation, thanks for your time.

O’DWYER:

Terrific, thanks Raf.

EPSTEIN:

Kelly O’Dwyer, she’s the Parliamentary Secretary to the Treasurer, she could be your local Member as well, she is the MP for the city seat of Higgins in the leafy suburbs, as they like to say.