SAMANTHA MAIDEN, HOST: We’re joined now by the Opposition Treasury spokesman, Chris Bowen who joins us from Sydney this morning. Mr Bowen you decided to go after trusts, small business is concerned about this. 200,000 of the 300,000 trusts involve small business. Isn't there a way to exempt legitimate small business use of trust from your policy?
CHRIS BOWEN, SHADOW TREASURER: Well good morning Sam. As you said this has been a reform which has been a long time coming and frankly long overdue and other governments including the Howard government squibbed it even though Peter Costello wanted to reform trusts and the reason I make that point is that this is a necessary reform which previous Liberal Treasurers have acknowledged. The point that you go to small business, this is a very carefully and calibrated, carefully designed and calibrated policy. The way a small business operates, the way the small business functions, the way they pay their employees is completely unaffected by this policy, point one. Point two, there are 3.2 million businesses in Australia, there is 318,000 trusts affected by this. Now of those 318,000 about 200,000 identify as some sort of industry. Many of those will be doctors, lawyers, accountants, partnerships, those sorts of businesses. That is where trusts are very heavily used. In the other parts of the economy where they are used they are mainly advised by an accountant for asset protection in case of unforeseen circumstances, legal action et cetera or succession planning.
So to repeat, the only impact on a small business where any affected is if they are making payouts, distributions to people who are uninvolved in the business, people who are not working in the business. It doesn't affect the operation of the business, it only affects what the trust chooses to do with that money and income splitting is something I'm sure we would all like to do. I'm sure you would like to do it Sam, to spread to the income around your family to people who don't pay tax or below the tax free threshold but you can’t and the vast majority of Australians can't, 98 per cent of taxpayers aren't impacted at all by our announcement but this is closing down a very big loophole.
Now I stress that people doing this have been doing nothing wrong, they've been complying with the law, they've been acting rationally. But nevertheless it is a loophole in the system which previous Treasurers have known needs to be closed but Labor is showing the courage to get on and do it and to seek a mandate to do it.
MAIDEN: I think my children are under the age of 18, I think John Howard knocked that one out thirty years ago.
BOWEN: He did. He did and that is an important point, I mean this is -- in many ways our policy is quite simple because we are taking John Howard's reforms from 1980. John Howard recognized the problem here but he only dealt with it for kids, for people under 18. He said if you distribute money from a trust to somebody under 18 I'll tax you at the top marginal tax rate. We're basically taking that regime and applying it to everybody except we’re not using the top marginal tax rate, we are using 30 per cent which we think strikes the right balance
MAIDEN: I'm wondering though if you have $17 billion over the next 10 years to play with, are you saying that money is already spent on hospitals and your Gonski plan or could you use that additional money to essentially lock in those small business tax cuts that passed the Senate earlier this year? You obviously had a policy for small businesses with a turnover of $2 million or less, what passed of the Senate was $10 million or less. Couldn't you use that money to give those small businesses that tax cut if you are elected?
BOWEN: Well Sam, two points. Firstly what we do is not hypothecate particular initiatives to particular projects by and large so we make the tough decisions, we improve the Budget bottom line, we make decisions like negative gearing, capital gains, managing tax affairs and yesterday’s very significant announcement and we don't say "Oh that money is for this". What we then do is on the other side of the ledger give important deliberations to spending initiatives and we make those announcements and of course Budget repair and returning the Budget back to balance.
And we make those announcements as we go and then closer to the election Jim Chalmers and I release our Budget bottom line and how those two have been brought together is very clear for all to see. In relation to the small business tax cuts, we've taken our time, we will continue to do proper deliberation, look at the impact on the Budget, the state of the Budget, what our competing policy priorities are and we will, Bill Shorten and I will make further announcements together with Katy Gallagher. When we are ready we feel that we should make that, it is a significant decision and we will make it in due course with all the information available.
MAIDEN: Okay, but what is ‘due course’ because clearly business actually does need to know what your agenda is on this to be able to plan? If you are going to an election saying that you are going to repeal tax cuts for thousands of small businesses, when do you need to tell them?
BOWEN: Well Sam, we could be – some people might not like our policies, some people might like them but one thing we could never be accused of is not being upfront in plenty of time with those policies. So I challenge you to name an Opposition which has announced detailed policy like this so far in front of an election and we will take the same sort of approach to those small business policies. Nobody will be under any disillusion about what our approach is. It will be very clear. Malcolm Turnbull can wonder around and say ‘that Labor has do this’ and ‘Labor has do that’. We will decide the policies and we will decide the timing of the announcement of policies.
MAIDEN: Okay, just one more quick question from me. In relation to your growth strategy, we’ve heard the unions would like to amend the National Employment Standards to give greater protections and greater rights to casuals, do you have a growth strategy going into the next election, of empowering unions to basically demand pay rises for low income workers?
BOWEN: I guess that’s an issue that is an important one but not a simple one. We do have a growth strategy and we will have plenty more to say about economic growth. The Government has one trick, a one trick pony when it comes to growth, their company tax cuts which will grow the economy by 1 per cent in 20 years’ time. We take a much more holistic approach, whether it’s NBN, infrastructure, schools, vocational education and training, we have a much more holistic approach, and we will have much more to say, a step change in our engagement with Asia, for example. In relation to our specific question, we don’t think there’s a choice between rising income inequality and improving economic growth, we think they’re linked. And it was the Governor of the Reserve Bank himself who said that workers and unions, I think he said workers, but it can easily apply to unions, they need to be out there trying to get more wage rises. That was the Governor of the Reserve Bank’s contribution. He is pointing out the problem with low wages growth in fact negative wage growth in real terms, is that it does eat away at demand in the economy. There’s no questions that the attacks on trade unionism across the economy and across the world have seen the bargaining power of workers impacted and that is one of the reasons we have seen lower wages growth around the world. We will work with unions and business on sensible policies, going forward.
CONNELL: You’ve put out today figures about trusts and small business – 198,000 – do you have a figure on how you will raise from those figures or the average figure they’re putting through discretionary trusts?
BOWEN: Well the average amount put through a discretionary trust for the highest quintile of income earners is $120,000. The next is $4,000…
CONNELL: But just for the small businesses in particular?
BOWEN: Tom, you can break this down anyway you like, we’ve put more information about this policy then the Government ever does about its policy. We put out a 10-page factsheet yesterday. We put those figures out today to put the small business piece into context. We’ve put a lot of information out there, as I say Tom, 3.2 million businesses in Australia and by their own calculations, roughly 200,000 of those trusts counting themselves as industry-related or small business, very heavily influenced by lawyers, partnerships, doctors, et cetera.
CONNELL: You say ‘heavily’, you said that earlier, but just how heavily? Do you have a figure on what is to justify the measure…
BOWEN: There are breakdowns of the different industry groups, industry types, that we can provide to you, that goes to the different sectors of the economy. You’ve got health, construction, et cetera.
CONNELL: Alright, we’ll look forward to that. You’re exempting farmers saying it’s seasonal. They’ve already got the income deposit scheme for one thing, what about tourism, that’s a very seasonal business?
BOWEN: Well Tom, people can criticise us for going too far if the like, I think we’ve got the balance right. Farming is different, it is particularly lumpy income, I do realise that, of course every sector has its cyclical ups and downs, that’s a truism. But farming is a particularly important part of the economy that is affected by factors outside of the control of the farmers like commodity prices. We think, given we looked at the farm issue in some detail, we figure it’s an appropriate exemption, for farms and for primary production given there are some particular circumstances about farming.
CONNELL: Can I ask as well, there are policies from Labor to increase taxation, essentially. Do you have a tax/GDP in mind? Or a cap that you will set?
BOWEN: No, but again, when Jim Chalmers and I outline the Budget bottomline including expenditure decisions, both cuts and increases, and our policies in relation to tax, all of those things will be able to be run through by your good self and other commentators.
CONNELL: So no cap at this stage? The Government’s is at 23.9 per cent.
BOWEN: Well, the Government’s really got an accounting mechanism in place. What we will be doing is, as I say, we’ll be crystal clear in all of our policies and the full implications of all of those policies will be out and able to be worked through by you and every other commentator to look at.
CONNELL: Alright, just finally, this will obviously affect people who are positively geared in property, you’ve already got something on the negative gearing side. Have you modelled them both at the same time to see if they’ll hit house prices too much?
BOWEN: Look trusts are used primarily for a range of purposes, there’s varying types of income flowing from trusts, including ‘passive’ income and various types of ways that your money can be earned that’s not PAYG. It can be capital gains, it can be other types of passive income, this is a measure which is carefully designed, and yes, we always consider the interaction of our policies, including our already announced policies in relation to negative gearing and capital gains tax, when we’re putting them together.
CONNELL: Alright, plenty of detail there, we’ll see where this all goes, Chris Bowen thanks for your time today.
BOWEN: Great pleasure Tom and thanks to you Sam.