KGB Interview: Chris Bowen

Shadow treasurer Chris Bowen tells Business Spectator's Robert Gottliebsen and Stephen Bartholomeusz:

- Australia's long-term fiscal pressures need addressing, but they do not constitute a budget emergency

- Why the Labor Party won't wait for the Coalition to take its budget policies to the electorate to see if it has a mandate for them

- Australia’s fiscal situation does not justify the extent of welfare cuts seen in the federal budget

- He rejected the deficit levy when given the option by Treasury because it would send Australian talent offshore

- Labor plans to vote against the GP co-payment and the reintroduction of the fuel excise

- Politicians need to be more honest and make realistic commitments in election campaigns

Stephen Bartholomeusz: Chris Bowen, thanks for joining us.

Chris Bowen: A pleasure. Nice to talk to you.

SB: I think we all understand that there’s a need to stabilise the nation’s fiscal position and that’s going to involve some difficult and unpopular decisions. You have already indicated you’re going to oppose a number of the key measures in the budget, which would delay or even derail the start of that process of consolidating finances. Is that a responsible position to take?

CB: Well, we are acting responsibly. We’re acting on what we believe to be the national interest. And the role of an opposition is not to be a rubber stamp. It’s not to be an echo; it’s meant to provide an alternative way forward.

So, the irresponsible thing for us to do would have been just to carte blanche reject the entire budget on the night. We didn’t do that. I indicated on behalf of the party what we would be opposing and indicated the other matters which we would further consider and some that we would be as constructive as we could be on. That’s the role of the opposition.

Certainly Tony Abbott and Joe Hockey worked backwards in opposing savings when the previous government put them forward. They opposed the indexation of the private health insurance rebate. When we made changes to the Family Tax benefit, Joe Hockey said it was akin to the one child policy of China.

So, they didn’t provide their votes on many savings measures and they certainly didn’t provide rhetorical support on the need to repair the budget, so we’re not going to be lectured by them. We’ll provide support where we think it has been justified, or we think it’s in the national interest and we’ll provide opposition where we think that is appropriate.

I’ve not only acknowledged but I’ve said when I was treasurer and now that I’m shadow treasurer, that there is a case for ensuring the long-term health of the budget because of the fiscal pressures which governments around the world are dealing with: ageing of the population, increasing health costs, for example. But this idea of a faux budget emergency requiring these sorts of changes is laughable and we’ll quote that out as well.

SB: A lot of the key measures in the budget and some of the less popular ones don’t kick in until after the next election. Why not let them take those measures to the electorate and see whether they have a mandate for them?

CB: Well, they’re building them into the budget now. They’re legislating them now. The Parliament has to vote on them now. This is not a change which occurs in 2017 or 2023 that’ll be voted on when a government’s received a mandate; they’re asking Parliament’s opinion now. Now, they promised the Australian people they wouldn’t do certain things. They’re legislating for them today, as we speak, and we’re asked to vote on them today.

So, it’s a bit of a sop, frankly, to say oh there’ll be an election first. They are building these things a change to indexation of the aged pension which is harsh and punitive and my understanding is the only person to try something similar was Margaret Thatcher. They’re building those into legislation now, building them into a forward estimate and so the Parliament has to deal with the legislation before it now, so we’ll vote accordingly on the face of what we see are the merits of the proposal.

RG: Chris, I want to take you into a less politically intense space and put to you that what we are really looking at is first of all a mining boom and the Howard government spent during that mining boom, and then the Labor government also spent during the mining boom, but then it stopped. I think the first person to wake up that it had stopped was in fact Wayne Swan. He did, and you did too, take a number of steps that begin the process of adjusting our spending to a quite different environment. I’m not sure Tony Abbott understood it, but that’s another subject.

What we’re looking at now is the further adjustment to the fact that we haven’t got a mining boom and both sides of Parliament will have to recognise that.

CB: I don’t disagree with that at all. In fact, I recall when we were in opposition last time, pre-2007, us saying we need to prepare for the end of the boom and Peter Costello laughing at us, sniggering as if the boom was going to go on forever, unlike every other boom in world history.

Of course it was going to come to an end. We identified the transition. The language I identified and prefer is the transition from the construction phase to the export phase, which is still good for the national income. It’s still good for export figures, but not so good for employment generation.

But we have seen a decline in terms of trade. But interestingly, you saw the impact on government revenue fairly quickly after Labor came to office. Terms of trade stayed strong, but government revenue started to take a hit. Of course you had the global financial crisis, everybody understands that, but you’re also seeing some structural changes.

In office both Wayne Swan and myself did identify the need for structural improvement to the budget. We did take tough decisions – Family Tax benefit, baby bonus abolition, means testing private health insurance rebate, multinational tax, even FBT on cars – which were about structural change and which again the Liberal Party sort of made great political hay in exploiting.

Now, some of the actual losses that people accounted were far less than what were accounted in his budget, but the then opposition was more than happy to make political mileage out of it. They didn’t respect the fact that there was structural change and that the budget did need structural repair.

RG: But the structural changes also related to the fact that the iron ore price and coal price have fallen. Both parties went into that last election promising big forward spending as though the mining boom was still going: Abbott with his parental leave and you guys had Gonski and the NDIS. They were good things to do. But didn’t…

CB: I disagree that the paid parental leave scheme was necessarily a good thing to do, but nevertheless. That’s a side point.

RG: Okay. That’s a side point.

CB: I mean a paid parental scheme is important; this one’s extravagant and unjustified in my view.

RG: But both parties went into the election with big forward promises, not recognising that the game had changed.

CB: I don’t accept that, Robert. Yes, we went to the election promising the Gonski funding model, which we see as pro-productivity. It’s about fairness, but it’s also about long-term productivity, investing in people from disadvantaged backgrounds so that they can contribute to the economy right throughout their working life. I see that as an economic reform as much as it’s a social reform.

We are not getting our best out of our people if people are working under their capacity right throughout their working life because they have an education that was affected by their level of disadvantage. And the national disability scheme, a way overdue reform which is a social reform, but one which is eminently justified.

This is the great myth that the current Treasurer perpetuates. We didn’t just build in the spending; we built in the funding as well. We took tough decisions. It’s all there. There’s a ten-year funding plan for each of those reforms. It’s all laid out. Not all of our funding decisions were popular, but we made them and say what you will about them; some you’ll support, some you’ll oppose, but they were there and they fund the Gonski reforms, they fund the NDIS and to suggest… for Joe Hockey to suggest otherwise is just plain wrong.

RG: But against that you’re still in deficit and the funding is just such a tawdry situation and I put to you, and I think it also applies to the Coalition in opposition as well, that neither party really understood the implication of the fall in the iron ore price, the fall in the coal price and the very big fall in mining investment. And I just don’t think either of our parties understood it. I think the Coalition now does understand it, but that’s down the track.

CB: Well, it’s very convenient they come to understand it in government. I’ve got to disagree with respect and then as you pointed out before, Wayne Swan was talking about it, I was talking about it, Kevin Rudd was talking about it. I remember addressing the National Press Club talking about the mining boom in construction coming to an end and that was, you know, something which not many people were talking about. And yes, we did recognise the impact of that on the economy and on the budget and that means a change of decisions.

Now, as I said before I think, we needed to be planning for this before it even happened. We were talking about ‘what do we do with the mining boom ending?’ from 2006, 2007 onwards when it was still the accepted wisdom that it would go on for ten or fifteen years.

RG: Oh, but Chris, wait a minute. To give you a hard time, and I recognise you did pick bits of it up -- I’m not arguing you there -- but you did put a mining tax in that required the boom to keep going. And then it didn’t keep going and you’d spent the money in anticipation of it. That was a big mistake.

CB: Well, I fully accept this point. Australia would have been better off if the minerals resource rent tax had been put in ten years earlier.

RG: Ah.

SB: Chris, the budget’s been widely described as being quite mean and hitting lower and middle income families and individuals quite hard. But with the structural deficit and a skinny income tax base, is there any other strategy that brings us back into surplus in the medium term that doesn’t hit those bands?

CB: Look, I think so. Again, I mean tough spending decisions are necessary and there was plenty of criticism when we did things like means test the private health insurance rebate and abolish the baby bonus, but they weren’t necessarily called mean. They weren’t called heartless because people accepted that yes, there’d be people missing out on subsidies and people missing out on payments, but it was hardly attacking your social fabric of the nation.

And I do think you can make those sorts of decisions. And you might say ‘well yes, you need to make more’, but they’re the sorts of decisions you can make, if you’re controversial at the time, which do have an impact and do contribute to returning to budget surplus.

But things like refusing to pay unemployment benefits, Newstart allowance to anybody over 30 for six months, I mean, what are these people meant to live on? Where are they going to go? And I just don’t think the government has understood and comprehended the size of these decisions. I mean there’s just no answer there to what these people are going to do. Are they going to turn up at charities? Are they going to knock on the door of their parents who might be aged pensioners and say “I’m moving back and I need you to put food on my table as well?” I mean how is this going to work? That’s just one example.

The change to pension indexation would mean dramatic change to the incomes of people on $20,000 dollars a year. I mean, you know, you’re on a good income, I’m on a good income, most of the viewers of this show will be on a good income. Twenty thousand dollars a year is not a good income. It’s not a generous income and yet these are the people we’re targeting here and it’s not something I think can be justified by the state of the budget, particularly as the government thinks that the state of the budget can afford sending $50,000 cheques out to people when they’ve had a baby.

I mean, budgets are about decisions. You’re faced with a whole range of things. I think you were referring to this before. Governments and ministers get given a whole lot of proposals, all of which are worthy, all of which are good, all of which you’d like to do. Budgets are about working out which ones you can afford to do. They’ve decided we can afford paid parental leave of their design and they’ve decided we can’t afford to index the aged pension reflecting wages or reflecting even a basket of goods that pensioners are likely to buy. I mean that’s their prioritisation. It’s not one that we share.

SB: Chris, if the deficit levy gets passed, you and I’ll be on slightly lower incomes. I think you said, to David Speers I think, that the old days of jacking up the top marginal rate whenever the government has a problem wasn’t sustainable. But do you support the deficit levy?

CB: I don’t like it. I wouldn’t do it if I was treasurer. And here’s a little tip for you. Every treasurer has been given it as an option. I was given it as an option, when I became treasurer, to budget repair. Wayne Swan, I’m sure, was given it as an option by the Treasury to say ‘look you could do this’. We all rejected it. Why? Because in the pre-globalised world, you could jack up marginal tax rates and people had no choice but to pay it really. In the globalised world, people can say ‘well I’m off, I’ll go to a lower tax regime, thank you very much. I won’t come to Australia from the United Kingdom or from Hong Kong or from Singapore’.

So, the world’s changed. Treasurers in the past had that opportunity. I don’t like it. I wouldn’t have done it. I didn’t do it when I was Treasurer. We are still considering our position because we’re not the government and we’re not going to write the budget from the opposition benches and we’re not going to be, you know, so negative that we just necessarily reject everything. And just because there are maybe some things that we wouldn’t do in office and we don’t approve of, doesn’t mean we’ll necessarily block all of them.

SB: I assume…

CB: I just think it’s an easy and cheap policy, frankly. It can be justified in some instances. Now, John Howard did it for East Timor. He did it for the gun buyback. We did it for the Brisbane flood rebuilding. There can be instances where a temporary levy can be justified, but just a general revenue repair, budget repair model when you’ve got a triple A credit rated budget and you’re sending out cheques for $50,000 -- I don’t see the justification.

SB: I assume when you were Treasurer, Chris, that Treasury would have given you advice about how people would respond to a high income levy. And is there a risk that it pushes more high income earners into more aggressive tax minimisation strategies?

CB: Well, I didn’t need that advice to tell me that, Stephen. I mean I think, you know, you would’ve worked that out, I could work it out, yes. To be honest with you it’s pretty clear that the attraction of tax minimisation means you’re going to see people going offshore, you’re going to see fewer people attracted in. I didn’t need a Treasury piece of paper to tell me that.

RG: Chris, are there two or three measures in this budget that you would stop? And how would you fund those, what else would you do to fund those particular measures?

CB: That we would stop?

RG: Yes.

CB: Well, we’ll vote against the GP tax because it’s a fundamental trashing of universal healthcare. We’ll vote against that. And the thing about it is the government’s not using it for budget repair. You know, they’re not saying we need to do this to return a surplus. They’re using this for a medical research fund. Well, a medical research fund’s great, a wonderful thing. Of course we’d all support that, but you can’t run the case we’ve got this terrible budget emergency, so we need to charge $7 to go to the doctor and by the way we’re not going to use that $7 to return the budget to surplus, we’re going to use it for a separate fund.

So I think they were being too clever by half. They were trying to wedge us and say, oh you don’t support medical research at the same time as undermining their own argument that this is necessary for budget repairs.

What would we do to replace the money? Well, they’re setting up a fund which they’ve chosen to set up, not one that necessarily is one that should be paid for by charging people to go to the doctor.

We also oppose the indexation of fuel excise. Now, I believe that’ll go through. The Greens will support that and their numbers together with the government will see that pass the Senate. That’s a matter for them and, you know, Tony Abbott railed against the carbon price and doing deals with the Greens for four years around the country and now he’ll sit with the Greens to increase the price of petrol. So, he can do that. We’ll oppose it, but I believe it’ll go through. So there are two examples that we’ll oppose: One which we stand a reasonable chance of blocking, I believe, and the other one, which it looks like it will go through anyway.

SB: Chris, that co-payment, isn’t the point of that to discourage frivolous visits to the doctor?

CB: Well, where is the evidence that we’ve got people who think oh I know what I’ll do, I’ll race down to the doctor’s surgery, I’ll sit in the doctor’s surgery for an hour with a whole bunch of sick people, coughing and sneezing, because I can’t think of anything better to do with my time? But if I’ve got to pay $7 dollars, I won’t do that. I mean I just think that’s an overstated issue. In my experience, people go to the doctor when they feel they need to go to the doctor. They don’t do it for fun. People have got better things to do with their lives generally than go down and spend an hour waiting to see a doctor. Now, sure there are some people perhaps who would fit that category, but the response of charging every Australian to go to the doctor to deal with that just doesn’t make any sense to me at all. It does undermine the fundamental principles of universal healthcare. You know, Medicare, frankly, is a success story. I mean countries around the world look at Medicare and marvel. Look at the United States and their torturous generational, intergenerational debate about healthcare, which rages to this day. It’s raged since the days of Franklin Roosevelt and rages to the day of Barack Obama and undoubtedly beyond, and we’ve got it right in Australia and this government seems intent on unpicking it.

SB: Chris, I don’t disagree with the way you describe Medicare there, but the cost of healthcare, the cost of the pension, given the demographics, is going to cripple the next generation of taxpayers unless we start doing stuff now, so what should we do?

CB: Well, just note though that we spend less on healthcare as a percentage of GDP than the United States by, you know, a massive proportion, so let’s not pretend that Medicare here is the problem. In fact, Medicare has been very much a part of the answer and unpicking Medicare will create more problems than it solves. So, I just don’t accept that there’s some sort of out of control socialist behemoth here called Medicare which, you know, some on the right would have us believe that it’s just simply not the case.

Now yes, health costs are increasing around the world. The technology is getting more sophisticated. We’re all living longer. We’re all benefiting from it. But high-tech medical care comes at a cost. That’s a given. Governments around the world are dealing with that. That’s not an Australian phenomenon. And yes, as we all get older, it’s a wonderful thing and as the old saying goes, you know, it beats the alternative, but it’s expensive for the nation because we need more healthcare. So, there are pressures there, but I just don’t accept that… Again it’s a pretty lazy policy, frankly; charging $7 to go to the doctor is a pretty lazy way forward in terms of funding the growing medical costs. Now, you asked what our alternative is. There’s an election in 2016 and I can assure you we’ll be going to the people with alternative policies. At the moment we vote on the proposals before us and the proposals before us we don’t like one little bit and we’ll be voting against it.

RG: Chris, in the last two elections the party that ended up being in government made undertakings in the campaign which they then breached. What are we going to do to make politicians more honest in their election campaigns?

CB: I think that’s a really good question and I think the key here -- I’ve thought about this quite extensively -- is being honest with people about what problems government can fix and what problems it can’t, or at least being straight with people about what impact you can have and I think, you know, frankly the lessons of this budget are very clearly that all politicians need to be mindful of what undertakings they give and how realistic they are. And having an upfront conversation with people that some problems are being faced by governments around the world and there are adjustments to be made. I think there’d be at the election some respect for that. I think that your question is a fair one and I think it’s incumbent on all of us and again, you know, this is what we’re seeing play out where there’s a promise to return to surplus with no new taxes and no spending cuts over and above what the Coalition had said they would do. That was always voodoo economics. I knew it, I’m sure you knew it. They denied it. And it worked for them in an election campaign. But it does eat away at the body politic when that sort of thing happens and it eats away at trust.

RG: But you do the same thing, it was the carbon tax in your case. So, we’ve got both parties doing this, and it’s not good for democracy.

CB: Well, without, you know, reiterating history, the carbon price, there was a hung Parliament and an agreement with a Greens party, so there was that discreet issue. In this case, you’ve got not one promise, but a whole web of deceit, frankly, which went into an election campaign, a whole election campaign designed around promises which are unsustainable and undeliverable, always were, always were. As I said, you knew it, I knew it, they knew it, but they were always undeliverable promises and now they’re paying the price and, as you say, the body politic is paying the price. The trust deficit is up very substantially, let me tell you. Walking around the community, there is a lot of red hot anger out there.

RG: But I think it affects both parties. I really think you have to look at this as a total political problem, not a one-party problem. And it’s not you…

CB: Well, I’m giving you my answer about going forward. I think it is incumbent on all politicians to be realistic about what we can offer, realistic about what problems can be fixed and how they can be fixed and I think there’ll be respect for that. It’s always tempting for a politician. Of course it is, always tempting to say I have a big fix and it won’t have any cost, but you’ve really got to have a mind for your credibility post-election. I can assure you in the Labor Party’s policy development process we are very focussed on making realistic commitments about what we can fix and what we can’t. We’re very focussed on what we say now being credible not only now, but hopefully when we form a government at the next election, which we are striving to do, so we’re very, very mindful of that fact and we’ll be very mindful of the commitments we give to the Australian people.

SB: Chris, we’ll have to leave it there, but thank you very much for your time. We appreciate it.

RG: Thanks, Chris.

CB: My great pleasure. Thanks and it’s been nice to talk to you.