JOURNALIST: Penny Wong is the Finance Minister. Penny good afternoon.
WONG: Good afternoon to you.
JOURNALIST: Now $1.8 million I think youll raise through this levy. Some people say that any decent government would be able to find that sort of money in savings in programs.
WONG: Well $1.8 billion is the amount. And lets remember for every $2 of funding for the Queensland and other flood-affected rebuild weve delivered through spending cuts is $1 through the levy. So the fact is $2 out of every $3 is delivered through spending cuts. Its $1 out of every $3 that we will be spending on the rebuild -
JOURNALIST: OK my question I guess is why cant you find that extra dollar through your own savings. It amounts, I think one economist said, to something like one cent in the dollar. Surely anyone can cut their spending by one cent in the dollar.
WONG: Well as I said, the context is $2.8 billion worth of spending cuts. The reality is there is an immense national challenge of rebuilding Queensland primarily but also other flood-affected regions across Australia. We know that this is one of the most costly natural disasters we have seen. I dont think anybody watching whats happened in the last weeks and days on television or in person can underestimate or would underestimate just what a significant natural disaster we have seen.
JOURNALIST: No one is doubting that. But if you can pay for two thirds of it, as you yourself say through spending cuts, why not pay for 100 per cent of it through spending cuts? Whats the big deal?
WONG: Lets remember weve got to get the balance right. And we think having two thirds of it through spending cuts, funded through spending cuts, but a modest levy. Lets remember what we are talking about here. People on incomes up to $50,000 or just under will not pay anything. People earning between $50,000 and $100,000 will only pay half a per cent between $50,000 and $100,000. So for someone on $60,000 youre talking less than a dollar a week. So this is a modest contribution to what is a very significant natural disaster.
JOURNALIST: You do have though economists such as Warwick McKibbin whos after all a Reserve Bank governor hes saying this is bad, might be good politics, might look good, but it is bad economics in that it slows down consumer spending just when these flood-affected businesses need to start regrowing.
WONG: Look we have a very strong economy. There is no doubt that there is going to be an effect on the federal budget, as the Prime Minister announced today. Some $5.6 billion is the early estimate of the costs of this rebuild, of the floods. And theres no doubt there will be an effect on our economy.
But the medium term outlook is a very strong one. Weve got very strong economic fundamentals. We have low unemployment. We have strong growth. And we have a very large pipeline of investment. So what weve brought forward is a balanced package that cuts government expenditure, that puts in place a modest levy, a levy much smaller than many of those initiated by John Howard, but recognises also we need to find the space in terms of resources that is, skilled labour to ensure we have the capacity to rebuild Queensland.
JOURNALIST: Penny you mentioned all that future investment and the way the economy is clearly entering into a pretty good period. I think we would all accept that. Why then make such a big deal about the exact time we return to surplus? Again that is sounding like politics to some people. In pure economic terms to return to surplus maybe a year later when we know its going to be easy to achieve is surely the more sensible thing when youve got a real disaster like Queensland occurring.
WONG: Look, I dont agree. I think this is about good economics and recognising where were going. Its recognising that in the short-term we have to fund the Queensland rebuild. But its also recognising that in the medium-term we are going to have an economy that continues to be close to capacity because of the things that youve talked about.
In those circumstances, it is sensible for governments to ensure you run a surplus. Its about reducing the footprint of government in the economy. Thats a sensible thing to do when youve got a lot of demand generated by the sorts of investments that we know are in the pipeline. In the short-term what were saying is we have to pay as we go. We have to pay for this rebuild which is something that is in the interests of all Australians. We will do so, two thirds of it, by reducing government spending. And one third by putting in place a very modest contribution that is progressive ie you pay more if you earn more. And you pay less or nothing if you earn less.
JOURNALIST: Youre listening to Penny Wong, the Finance Minister on 702 ABC Sydney. Penny you mentioned those spending cuts. When I look at the list though it seems almost exclusively green groups and environmental programs that are being cut back. The cash for clunkers, as its sometimes called, the solar hot water rebate, the Global Carbon Capture Institute. All these things are things that have been lined up on the chopping block. I know youre passionate about climate change. Is the environment the first to suffer when spending cuts occur?
WONG: Absolutely not. What we do know though is that the most efficient way of making that adjustment to a cleaner economy, to a low pollution economy, is to put a price on pollution, to put a price on carbon. Weve had to have the discipline of going through the federal budget and making, as I said, $2.8 billion worth of expenditure savings, either through savings, or deferrals. And there are programs across the board you have identified, there are a number of programs which have a carbon element. And the thinking inside the Government is very clearly that the most efficient way to achieve some of these outcomes is in fact to put a price on carbon.
JOURNALIST: But in the meantime, werent these programs helping us to reduce our emissions while the argument went on about how we were going to put a price on carbon?
WONG: And some of that has occurred. But lets recall this is the year in which Julia Gillard has said very clearly we do need to deliver a price on carbon. And look Richard, Im not going to pretend to you that these are easy decisions or that everyone will be happy. Whenever you have cuts to government expenditure there are people who will not be happy. We have to try and focus on the national interest.
JOURNALIST: Would you agree that the list makes it look as if the environment is the most disposable issue as far as this government is concerned?
WONG: I dont agree with that. I think what this shows is the Government is prepared to make some hard decisions about where it thinks taxpayers funds are best used. And our judgment was that taxpayers funds were best used in the rebuilding of Queensland rather than in some of these programs, given that we know a carbon price is a much more efficient way of achieving some of the changes we need to achieve.
JOURNALIST: Now let me go to the comments that were made by Tony Abbott a short time ago. He said one of the many things wrong with this levy is that victims will pay the tax. I know youve exempted people who are actually getting some flood relief payments but because of the means test, there are many victims who arent getting those payments, they will pay the levy. Youre basically taxing people who have already suffered.
WONG: Well what we are doing is exempting those who have been eligible for government assistance that is, flood victims who meet the criteria for government assistance.
JOURNALIST: A pretty strict means test.
WONG: I dont know if Id agree with that because there is a range of levels of government assistance, as you know. But I would make this point. This is Mr Abbott doing what he always does. Hes opposed to this. Hes opposed to the funding package to rebuild Queensland. Just like hes been opposed to the NBN and hes been opposed to action on climate change.
JOURNALIST: To be fair to him, hes not opposed to rebuilding Queensland of course. But he says hes opposed to this method of funding it. He says the Government should be able to find its own savings.
WONG: Richard, is that what he thought when he had a levy to fund his own election promises just a few short months ago? Is that what he thought when John Howard proposed no less than six levies when he was a Cabinet Minister or in the Government? The fact is a levy is good enough for Mr Abbott when he wants to fund his own election policies, but now he says its not good enough to help the people of Queensland.
JOURNALIST: Its funny politics though, tax cuts are always sacrosanct, nobody takes back tax cuts but levies seem OK. Yet what this levy does in effect is takes away the 2010-11 tax cut, it just puts that into reverse, wipes it off the books. Thats the effect of it. Yet we use one word for one thing and another word for the tax cut in the first place.
WONG: I dont think thats right. I think if you total up over the last three years, the amount of tax cuts that the Government has delivered, the levy is a very small proportion of that and people would still be ahead.
I understand that people obviously many Australians are doing it tough and that is why we have done three things. One is fund most of this package through spending cuts. Second, we have made this a very progressive levy so people who are earning less than $50,000 will not pay anything. And the third thing we have done is ensured that it is a modest one. As I said, if you are on $60,000 it will be less than a dollar a week.
JOURNALIST: And finally before I let you go, because I know you have to go. The absolute facts for people who are adding up their wallets at the moment. It starts July 1 of course, the new tax. It will go for one year only. If you earn between $60,000 and $100,000, 0.5 per cent goes onto the Medicare levy. That represents somewhere between a dollar and five dollars a week. If youre over $100,000 what happens?
WONG: Its actually not on the Medicare Levy, its added to your tax rate because that makes it a lower impost than if it were on the Medicare levy, which, as you know, goes lower down the income scale.
JOURNALIST: So it will be a separate line item in a way on your tax.
WONG: Essentially.
JOURNALIST: But over $100,000 its a 1 per cent impost. And it goes for one year and the guarantee is it ends after one year?
WONG: Thats why we wanted a modest contribution. And we wanted to ensure it was time limited. Thats why weve made the sorts of spending cut decisions that the Prime Minister has announced today.
JOURNALIST: Penny Wong, thank you very much for your time this afternoon.
WONG: Good to speak with you.
ENDS