CANBERRA, ACT, June 14 -- The Treasurer of Australia issued the following transcript:
Note
Subjects: tax reform legislation
Tara Brown:
Thank you for your time, Treasurer.
Jim Chalmers:
Thanks very much, Tara.
Brown:
Did you intend to make life harder for young Australians?
Chalmers:
Of course not. This is all about making it easier for young Australians to buy their first home. And it's also about cutting taxes for workers and better aligning the tax treatment of labour income and asset income.
Brown:
Do you concede, at all, that this might be an unintended consequence with your tax reform?
Chalmers:
No. What we'll see with our tax reforms is if these changes had been in place, something like 90percent of young people would have been better off under the system that we are proposing. And that's because what we're doing here is we're making it easier for young people to buy their first home, we're cutting income taxes for the fourth and fifth time in this package. And that's because we understand that one of the defining challenges, not just in our economy but in our society, is housing affordability, and this package is all about addressing that.
Brown:
You must be taken by surprise then, to encounter the outcry from young people.
Chalmers:
Well, a couple of things about that. I mean, first of all, not especially surprised to see that there are some people who would like the existing arrangements to stay in place. Often they have the biggest megaphones in our community, in our society, so it's not especially surprising to see that the people who want to see everything left entirely as it is often have the loudest, most amplified voices. But we're doing this for young people in this country, and that's because we understand that for too long young people have been locked out of the housing market. It is, as I said, one of the defining challenges in our economy and our society is that for some decades now it's been too hard for young people to buy their first home, and these changes are all about helping to rectify that.
Brown:
But they seem to have copped that before anyone else, because they've been trying to get other streams of income, and that's through shares, that's through maybe starting businesses. Now they're saying you've just made this harder and longer for them to achieve their dream of buying their first home with the proceeds of that wealth.
Chalmers:
Well, that is overwhelmingly not the experience of young people in our economy and in our communities.
Brown:
Have you miscalculated how many people? Young people have shares.
Chalmers:
No, I don't believe so. I mean, in the most recent official data from the tax office provided to me by the Treasury, something like 11percent of people under 35 have shares. Even if it's a bit higher than that it's a minority. And what that tells us is that overwhelmingly the experience for young people in our economy is that they are earning wages and salaries, they're trying very hard to save up for their first home, and the intersection of the housing market and the tax system is making that much harder for people. So overwhelmingly, what this is about is helping young people buy their first home and cut their taxes to make life a little bit easier for them. I understand that sometimes the voices of people who want everything to stay exactly as it is are often the loudest voices, but overwhelmingly the experience of young people in our economy is very different to what you might read in the papers each day.
Brown:
So how does extending capital gains tax to shares and small business help first‑time buyers?
Chalmers:
Well, first of all, we need to recognise that a big policy mistake was made at the end of the 1990s which made investing in established homes much more attractive by overcompensating that, and it meant that investing in other types of assets like shares was under compensated. If you look at a period between that policy mistake and now, over a couple of decades, then in lots of instances investing in shares was under compensated in the old system. And so, with these changes, depending on the sorts of shares and how long you hold on to them for, some people will be better off, some people will pay a little bit more tax, but what we're doing here is removing the distortion that overwhelmingly encouraged people into established homes. That's why we've had these absolutely skyrocketing house prices, and this decoupling of the amount of money that people are earning and how much it costs to buy the first home.
Brown:
So, you're saying your policy will actually direct people to buying more shares?
Chalmers:
It will remove the distortion that encourages people away from shares into investing in established housing. I think any objective observer of our housing market over the last quarter of a century or so would conclude that our housing market is broken. And the tax system is part of the problem rather than part of the solution, and so we are rectifying that. And that's because the tax system has been encouraging people to compete with first‑home buyers at auctions even if you are buying a fifth or 10th or 15th home, because of the tax advantages that are available to people. So, by removing that distortion, we hope that people will invest for good economic reasons and not necessarily just for tax advantages.
Brown:
If you have young people who say thanks, but no thanks, we are entrepreneurial, we are ambitious. We can't get into the housing market in Australia, we've invested in shares to try and make that affordable. We want to start our own, our own business now, because of your Budget. They think their only chance of getting ahead is actually to leave the country, and if that's the case, you've failed, haven't you?
Chalmers:
Well, again, I mean, let's look at the facts of what we're proposing here-
Brown:
Well, I'm telling you, the facts of this scenario. Have you not failed in that case?
Chalmers:
No of course not. I mean, there are 4 existing concessions and carve outs for what's-
Brown:
Well, what's wrong with this scenario? I mean, they're seriously considering, their willing family, wanting to leave the country and feel that you've taken the ladder away from them, are they making that up?
Chalmers:
Well, the first point about that is that there's not much point in the ladder in the housing market if the first few rungs are missing, and for too long the first few rungs of the ladder have been missing. The second point I would make about that is this: when it comes to start‑ups, we have said in the Budget, before that and after that, that we're consulting in good faith on the best arrangements for start‑ups so that we encourage people to be entrepreneurial in our economy and in our society. The other point is this, and it's often missed: there are 4 existing concessions and carve‑outs for small businesses, and we're not watering down any of them. More than 90percent of small businesses can access those 4 existing concessions and carve‑outs in the tax system, and we're not replacing them or watering them down at all.
Brown:
Are you extending the threshold from a company with a turnover of 2million to 10million?
Chalmers:
We're consulting with small businesses about that, including with the peak organisations. I've been doing some of that consultation myself, and my department's been doing that too. We work together with the small business community to try and settle the best possible arrangements. We understand how important small business is in our economy. There are $3.5billion worth of tax cuts for small business in the Budget as well, including to help people invest in capital, whether its loss carry back, a whole range of really important tax reforms to encourage small business in this country.
Brown:
What else are you looking at? Because that sounds like a new review?
Chalmers:
No, we've made it really clear for some time now-
Brown:
To increase the threshold?
Chalmers:
- we've made it clear for some time now that we're engaging with the startup sector and with the small business sector. We know that the small business sector would like to see those thresholds lifted. Obviously, we've listened to the peak organisations. As we go through this consultation in good faith, I'm not able to let you know where that consultation might land, because it's real, it's meaningful, and it's not finished yet.
Brown:
Is it close?
Chalmers:
I mean, relatively close. I mean, we've been working very hard, consulting in good faith with small businesses and the startup community. We've said in the Budget, indeed, before that, privately, that we know that there are some issues in startups, for example, and we're interested in coming to a good landing point when it comes to that.
Brown:
And what else are you looking at? Because I know that you've talked about startups before. We're now talking about extending to a turnover of up to $10million in small business, is that right?
Chalmers:
We've been talking about startups and small business for some weeks-
Brown:
No, I understand that. I'm sorry, but reporting today talks, so the latest reporting talks about a review of that threshold of small business of turnover from 2million up to 10million, is that something that you're looking at?
Chalmers:
It's been clear for some time that those are the issues that the small business community and small business leaders have been raising with us, but because this consultation is real and meaningful I don't want to pre‑empt the outcomes.
Brown:
Okay. Are you also looking at innovative businesses?
Chalmers:
Well, we've made it clear that start the startup community-
Brown:
Is that the same?
Chalmers:
- engaging with the tech sector and others about the best arrangements here. None of that is especially new. We actually printed in the Budget papers that we knew that there was some consultation to do on the implementation details here, and that's not unusual. At every point, when Australia's had a major reform of our tax system, like we're engaged in now, there's been an element of consultation on the implementation details. There's been multiple rounds of legislation, and that's what we'll see here.
Brown:
And what about testamentary trusts? Are you winding that back?
Chalmers:
Look, we've made it clear that when it comes to the Budget, there's no taxes on inheritances or inherited assets. We've made it clear that the existing testamentary trusts are exempt. You can continue to have a fixed trust, all of the usual exemptions for vulnerable children and disability trusts, and the like, we've made that really clear already.
Brown:
This has been characterised as a humiliating unravelling of your tax reforms. Is that a fair criticism?
Chalmers:
No, of course it isn't a fair criticism. Again, you have to remember that the people with the biggest megaphones in this really important public debate about the future of our housing market and our tax system are the defenders of the status quo. The status quo in this country, when it comes to housing and tax, is broken, and it's broken because too many young people have been locked out of housing for too long. It would have been easier for us politically to leave everything exactly as it is, but it wouldn't have been the right outcome, particularly for young Australians who have been locked out of housing for too long in this country. And so, as I said a moment ago, every time when an Australian Government seeks to reform the tax system, there's an element of consultation on these implementation details, that's what we're engaged in right now, and that's appropriate.
Brown:
Given the confusion and sort of the bad reaction to your Budget. Should you have done more consultation earlier?
Chalmers:
We did as much consultation as was possible in the lead up to the Budget. Obviously, you can't consult on every detail-
Brown:
You must have, you must have known of the problems, the backlash, and the stuff that you're looking at reviewing now. You must have known what was going to come up before you announced it.
Chalmers:
Absolutely no element of this has been surprising to us, because we know that people will say and do anything to defend the status quo, which isn't working for lots of Australians. And for us, when we see a broken housing market, we see a tax system which is part of the problem rather than part of the solution, the responsibility for us is to address that. Now, there will be always the usual scare campaigns full of lies. We know that there are people who would like things left exactly as they are, and often they have the biggest megaphones in our society. But our job is to take the right decisions for the right reasons. Economic reform is always hard, it's always contested, it's always contentious, and that's because some people would like the status quo to remain in place. But the status quo is broken and that's why we're fixing it.
Brown:
An economist I've spoken to said that what you're proposing will hopefully have beneficial results, but not for another 20years. Which leaves a whole generation of first‑home buyers left without a home. What have you done to help those people now who want to move into their first home today?
Chalmers:
Well, we're making it easier for people to buy their first home by ensuring that when people go to auctions, for example, they aren't competing with people subsidised by the taxpayer, buying their 10th or 12th or 15th home. So that's an important change that we're making. We're also cutting taxes for more than 13million Australian workers. And so, there is near‑term help for people, but we're also seeking to make an intergenerational difference here now.
The logical conclusion of that argument that you've just put to me isn't that we should therefore do nothing about a problem which has been brewing in our economy now for a quarter of a century. It takes courage to make these kinds of changes. We understand that the reaction in some quarters will be spirited. We understand that people will say and do anything to defend this broken status quo, but for too long, too many Australians have been locked out of the housing market, and that's why we're acting to address it.
Brown:
And do you accept the lost generation?
Chalmers:
No, I don't. I mean, I think that the best time to make these sorts of changes, which will pay off in intergenerational terms, is right now. There is an urgency to this, because if we leave it for longer, then we'll just be leaving it to some other generation to fix, and some other government to fix. Now, of course, it would be easier just to defend the status quo, as some are doing in our daily newspapers, but it wouldn't be the right thing, particularly by those young Australians who'd be at risk of being locked out in generations to come. We don't want to consign future generations to this situation in the housing market, where it's too hard to buy your first home because we're subsidising to that extent people who are buying multiple homes as investors. We celebrate people doing well, we want more people to do well, and one of the big barriers to that in our economy and our society is the housing market and that's why we're addressing it.
Brown:
Have you done enough to increase supply?
Chalmers:
We're certainly throwing everything we can at the supply challenge, that's still primarily the main game when it comes to housing, building more homes. And that's why we've got $47billion worth of investment, more than any government in recent memory has done to build more homes in our communities. But at the same time making sure that there are affordable options, particularly for young people to get a toehold in what has been a difficult housing market for so long.
Brown:
You must have been disappointed by the reaction? You say it's brave, you say that this is a massive shake‑up of the tax system. Were you hoping for a happier response?
Chalmers:
No this was about what I expected when it comes to the voices of the status quo in our-
Brown:
But it's not, Jim, it's not just the voices of the status quo. It's young people today suffering, it's investors saying this country is no longer worth investing in. You know, there's no point in going into a high‑risk, high‑return business because there's no incentive.
Chalmers:
You need to be careful where you get your news from. I mean, for example, business investment is actually booming in this country, and the most recent business investment figures we saw a very substantial increase in business investment-
Brown:
And do you put that down to your Budget?
Chalmers:
No but it is the case that in this country there is so much that is attractive about investing in this country. There will always be people who try and talk our economy down, and by extension, talk our people down, but people are-
Brown:
But they're saying it's less attractive because of your reform?
Chalmers:
Well, there's $3.5billion dollars' worth of tax cuts to encourage entrepreneurialism, to encourage investment in the Budget. Again, not often mentioned in the coverage of the Budget, but billions of dollars in tax incentives for entrepreneurialism, and for start‑ups, and for small business, and for investment more broadly. And so we need to be careful not to talk our country down. Our country is a very attractive place to invest in. We've seen it in recent business investment figures.
Now, when it comes to the reaction to the Budget, of course, I expect that there will be people who will say and do anything to try and defeat what are essentially common‑sense changes, overdue changes, because the system has been locking too many young people out of housing. And so my job is not to make decisions just for the people who've got the biggest and loudest megaphones. My job is to make the decisions for the 90percent of young people, for example, who would have been better off under these changes. My job is to make it easier for people to buy their first home, my job is to cut income taxes for workers, to make the tax system fairer and stronger, and that's what I'm doing,
Brown:
And you don't think it's going to lead to less investment in Australia?
Chalmers:
No, I don't.
Brown:
Okay. Were you and the Prime Minister lying when you said you wouldn't touch negative gearing or capital gains tax concessions?
Chalmers:
Well that was the view that we held at the time. And we've been very upfront since then, saying we've come to a different view, and we're explaining why-
Brown:
You're saying that this restructure is common sense. Did you not have that common sense when you told everybody you wouldn't touch it?
Chalmers:
Well the view that we had at the election was that our efforts on supply and the 5percent deposits would be enough to deal with issues in the housing markets. It's become increasingly clear to us, the reason why we changed our position, the reason we came to a different view is because supply is still the main game in housing, the 5percent deposits are still really important, but we also need to make sure we're doing everything we can to make it easier for people to get a toehold in this difficult market. That's why we came to this different view, and having done so, it's why we're explaining to the Australian people why.
Brown:
You can see that is a broken election promise.
Chalmers:
I understand that people will focus on that, and I don't think that's necessarily unfair that people have raised that with us. We have come to a different view, we have come to a different position, and having done so, we're taking every opportunity, including in this conversation today to explain to your viewers why we've come to that different view. And that's because we see housing affordability, particularly for young people, as the defining challenge in our economy and in our society, and we're doing something about it.
Brown:
At the time that you made these promises, did you know you were going to do something different?
Chalmers:
No.
Brown:
Hand on heart?
Chalmers:
Yeah. Yeah, I mean, we thought at the time that our efforts on supply and our efforts on 5percent deposits were sufficient. They're not quite sufficient. We need to, in addition to investing in new housing, which we're still doing, another couple of billion dollars in investment in the Budget, in addition to the 5percent deposits, which are helping young people save a deposit for getting into their own home. The tax system is a big part of the challenge here, and that's why we're changing it. We know that we'll lose some political skin from this, but it's more important to us that we get the policy right, even if the politics are contentious.
Brown:
Do you think the policy will lead to less jobs in this country?
Chalmers:
No.
Brown:
Are you sure?
Chalmers:
What this policy will do is it'll apply a more neutral treatment, capital gains tax treatment, across different kinds of investments. So, over the years, it's made housing more attractive, it's made shares less attractive. It will rebalance that. So, we still expect to see very strong investment in the Australian economy. If you look at the most recent surveys, they've been upgraded in terms of people's investment expectations. And part of the reason for that is because this is a government which values investment in our economy. We've seen it absolutely booming in the last couple of sets of data, and we expect the interest in Australia, because of all of our strengths, to continue to be there.
Brown:
But by extending capital gains tax, how does that make investment exciting? How does it actually attract investment?
Chalmers:
Well, it's not extending a tax, it's changing the way that the discount is calculated. So there's still a capital gains tax discount, it's just calculated based on inflation rather than an arbitrary made‑up figure. Going back to the indexation model that existed before 1999. So, there's still a discount for capital gains-
Brown:
Less attractive?
Chalmers:
Not necessarily. In some instances, but not necessarily. Certainly, investment in established housing will be relatively less attractive, but by applying it across the board in a more neutral way, some other kinds of investment will become comparatively more attractive.
Brown:
You're being accused of recklessly rushing this through parliament. Why does the Senate inquiry only have 2days to scrutinise your proposal?
Chalmers:
Well, first of all, it's not the first Senate inquiry on capital gains tax arrangements. We actually just had a long‑ish Senate inquiry, it's the second one that we've done, so it's not the first one. It's not unusual for there to be relatively short and sharp inquiries on issues, particularly where the parliament has already considered it, as has been the case with the Senate committee on capital gains tax earlier in the year.
Also, it's not unusual for there to be multiple rounds of legislation, and so we'll legislate the core elements of these tax changes, including the tax cuts funded by changes to negative gearing and capital gains. There will be subsequent legislation around some of the other parts of the Bill. That's entirely normal. That's what's happened on every other occasion that there's been major tax reform.
Brown:
Yeah, and yet you've left yourself open to the criticism that it smacks of sneakiness. Are you being sneaky?
Chalmers:
Of course not. Of course not. I mean, we've, we've laid out in the Budget a costed plan for tax reform in this country. We had done before that a whole bunch of consultation about how we deal with intergenerational issues, how we make the tax system simpler, how we boost investment in our economy. We hosted an Economic Reform Roundtable around this time last year, or slightly later. We've been engaged in some of this thinking quite publicly for some time now. We've had a Senate committee on capital gains tax already, and we're legislating the core elements in the usual way, and there'll be subsequent legislation after that as well, and again, that's not especially unusual.
Brown:
But why the rush? I mean, if there is a call for a greater understanding of your proposals, why not let the scrutiny continue? Why not let the consultation continue and deliver it in a more comprehensive way.
Chalmers:
Well, the consultation is continuing, and that's an important part of this work-
Brown:
But, post legislating, I mean, why? Why that process? Why not have the scrutiny, have the judgment, have the consultation with business legislate it, and we're all happy. We're all on the same page.
Chalmers:
It's standard practice for businesses. I beg your pardon; it's standard practice for governments to legislate big tax reform in multiple pieces of legislation. I think the GST changes, for example, involved 30 different pieces of legislation. And so what we're doing by legislating the core elements first, we're giving investors and the broader community certainty about changes which are coming in down the track. We're consulting in the usual way on the implementation details, just like other governments of other political persuasions have done.
Brown:
Okay, and in terms of giving yourself discretion to change that, post‑legislation, without the scrutiny of the parliamentary process. Again, you've let yourself open, haven't you, to criticism?
Chalmers:
No. Of course not. And the reason for that is because in tax legislation there are often definitions settled by what's called legislative instruments, and they're disallowable by the parliament. So, none of those definitions would escape the scrutiny of the parliament. They can be disallowed by the parliament in the usual way. Whether it's a Liberal government or a Labor government making big tax reforms, that is standard practice.
Brown:
Do you accept that the greatest asset you risk losing is voter trust?
Chalmers:
Well we think that you build trust by making the right decisions even when they're difficult, for the right reasons, and explaining if that has necessitated a change in your position, as it has in this case. We're not pretending that we haven't changed our view on this, we have. We have come to a different view. And we've come to a different view because we don't want to leave it to subsequent governments and subsequent generations to fix this challenge in the housing market, which is locking too many young people out of the Australian dream of home ownership. That's our motivation here.
And again, it would have been easier politically, much easier, to leave everything exactly as it is, but it wouldn't be the right outcome, particularly when it comes to intergenerational fairness in our economy. So, we changed our view, we made it clear in the Budget. We've spent almost every day since the Budget explaining why that change in position was necessary. And that's because the status quo in the housing market and the tax system is broken, and we're fixing it.
Brown:
Thank you for your time.
Chalmers:
Thanks Tara.
Disclaimer: Curated by HT Syndication.
