Interview with Patricia Karvelas, Afternoon Briefing, ABC

Patricia Karvelas:

I want to bring in the Assistant Treasurer, Daniel Mulino. Welcome to the program.

Daniel Mulino:

Thanks very much for having me on.

Karvelas:

Matt Canavan thinks you should go to an election to test these propositions. Isn’t that the right way to deal with big proposals that haven’t been taken to voters?

Mulino:

So, Patricia, we’ve had a really important debate over the last year where we went to the election with a wide range of important measures which we’ve enacted, intergenerational fairness through reducing HECS and a range of other measures where we’ve dealt with tax measures, tax breaks for all Australian taxpayers.

We had a discussion last year, the 3‑day Economic Reform Roundtable, and a number of forums leading up to that, where we heard from the Australian public that they wanted action on the housing market and on intergenerational fairness in particular.

There was a day dedicated to tax reform and coming out of that was unanimity on this. People said it was urgent, people said we needed action. And so we’ve taken action in response to that and worked up proposals that will make a meaningful difference for young people.

Karvelas:

Okay. But we’re not talking about housing this week, we’re talking about the much more wide‑ranging consequences of this capital gains tax change. Just level with me. Do you think you can ring‑fence this so that it just applies to property so that it doesn’t apply to other businesses?

Mulino:

Well the things I would say about CGT changes is, firstly, CGT remains concessional. So even after these changes, CGT, earning money off capital remains concessional compared to earning money off labour.

So, the broader changes are really important in terms of better aligning taxes on labour versus taxes on assets or taxes on capital. So that remains the case.

Secondly, what we’re doing is changing one indexation method with another. And we’re changing the current method, which is to tax nominal gains with arbitrary reduction, with the original design from the Hawke-Keating government, which is to focus on real gains.

So we’re taxing capital gains in a much more coherent way, in a way that is much more related to the actual real gains that people are earning.

Karvelas:

Yeah, but 10 per cent of businesses will arguably be worse off, right?

Mulino:

No. So what we can see when we look at small businesses, for example, there are a number of exemptions at the moment. There are 4 main exemptions, the 15‑year holding period, the retirement exemption, and 2 concessions relating to active assets. All of those continue.

So if you’re a small business with less than $2 million in turnover or less than $6 million in assets, those apply, and –

Karvelas:

Should you change some of those though? The $2 million, for instance, can you look at making that higher?

Mulino:

Well, if we look at the Budget overall, we can see that there are a number of benefits that apply to all small businesses. So finally a government has acted and made the instant asset write‑off permanent. This has been something small business has been calling for a long time.

The Opposition was in power for almost a decade. They had 9 goes at this and never did it. We’ve done it. There’s also the loss carry back arrangements which apply to small business. So, there’s a lot of big wins for small business in this.

Karvelas:

Yet they’re furious. They’re furious. That’s – you can say that but right now you’re losing the public relations campaign.

Mulino:

Well look, I think there are some small businesses who want us to work this through, that they want to have it explained, and we are going through that. And I think, look, whenever there’s –

Karvelas:

I don’t think they just want it explained. I don’t mean to be rude. I think they want changes. I think that’s what they’re looking for. They’re not looking for just explanations from Treasury, they want changes. Are you prepared to make them? And have you modelled, for instance, if start‑ups are exempt what the impact will be for revenue, how much less revenue the Commonwealth would take as a result?

Mulino:

Well see, you’re right. What they want is a conversation and on a number of these issues that have been raised over the last week we have agreed that we will consult.

Now on the issue of VCs, the Treasurer indicated on Budget day itself but also very explicitly the day after Budget at the Press Club address, that he will consult on VCs. Because, firstly, they’re very important to our economy, they’re a key driver of innovation.

Karvelas:

Some of these people are saying, ‘We should move overseas’.

Mulino:

Well, and we’ve acknowledged that there are issues with the low‑cost base that they have. So, we are consulting on this issue. I’ve had a number of meetings already on this, and I know the Treasurer is himself of course having meetings on this.

Karvelas:

So how quickly are we going to get some sort of announcement about what that will look like given these concerns?

Mulino:

Well, I don’t have a particular timeline in terms of the parliament, but what we’re doing is working through. We are partly explaining this but also where people have genuine concerns, we are engaging with them in a meaningful way, and consulting –

Karvelas:

And is it just for start‑ups that there might be movement or other small business too?

Mulino:

Well, so, when it comes to small business, as we just discussed, 9 out of 10 small businesses currently benefit from these 4 exemptions in the CGT rules. But there are particular – where there are particular circumstances like goodwill, for example, we have indicated that we will engage with people who want to suggest changes.

Karvelas:

Okay. So to be clear, the changes we may see in terms of the consultation go beyond just start‑ups?

Mulino:

No, so we’re – just indicating that we’re engaging at this stage, that we’re talking to people, listening to people.

Karvelas:

Beyond start‑ups as well, like that’s key for me because I feel like there’s been a lot of focus on start‑ups, we’re going to talk to, you know, somebody who’s got a start‑up, I get that. But there are other businesses concerned too. Are they also going to be part of that?

Mulino:

We are having a conversation on some of those issues.

Karvelas:

Okay. How about negative gearing and all of those – that part of it, is that just set and forget, like as announced at the Budget or are there also discussions around that?

Mulino:

No, so we’ve basically indicated that with negative gearing we need to take action to make the housing market more accessible to young people, so we’re going to grandfather in people who are currently benefitting from that and we’ll allow people to negative gear on new constructions, on new builds.

Karvelas:

Does it annoy you that this week the government’s been out trying to sell the Budget but you’re not really talking about housing very much, you’re talking about everything but housing?

Mulino:

Oh, well, I think there has been a lot of discussion of housing. There’s been a lot of discussion of the negative gearing and CGT when it comes to property, and in fact there’s been a lot of support of that.

But look, it’s a reflection of the fact that the government has an ambitious agenda that there’s a wide‑ranging discussion out there. And I think that’s a good thing.

Karvelas:

New South Wales Premier Chris Minns has called for urgent action on income tax. He says some essential workers are having much of their pay rises eaten up by the tax office. He described a particular scenario where basically he says they’re working Monday, Tuesday and part of Wednesday for themselves, then working for the rest of the week to pay the government. Treasurer’s hit out at him. I mean I think on his numbers he’s a bit off, the New South Wales Premier, but his point that these workers are not getting the relief from the tax grab on property and other CGT, that’s right, isn’t it? They’re not seeing it transfer to them.

Mulino:

What I would say to start with is that we have now seen, when you include this Budget, but what we did in the first term, 5 different ways in which we’ve cut taxes, income taxes for all Australians.

So, there were the changes to the Stage 3 tax cuts, 2 tax cuts for all Australian taxpayers, and in this Budget the Working Australian Tax Offset which is targeted on people who are earning income from their labour, and also the standard deductions.

So, when you add these all up, somebody earning the average income gets up to around $2,800 reduction in their tax bill, which is very substantial. So, we are taking action on this.

The second point I’d make, PK, is when you look at the different measures in this Budget, we’re better aligning taxes on capital and distributions through trusts with taxes on labour. And so, what we’ve seen is tax reform through CGT, negative gearing, trusts and that money has basically been given back to workers earning money from labour through the WATO and also through the standard deductions.

Karvelas:

So, he’s saying clearly it’s not enough. Not enough work has gone in to actually delivering it back, and he’s a Labor Premier of our biggest state.

Mulino:

Well we have done a lot. We’re continuing to do more in this Budget. And as the Treasurer said, we will look for more opportunities where we can responsibly do so going forward.

So, the general proposition that we need to reduce the tax burden on income earners, it’s the focus of this Budget. But in fact, if you look at the budgets that we handed down in the first term, it’s been our focus right the way through.

Karvelas:

But do you see how because you’re collecting a lot of money, isn’t it $77 billion over the next 10 years? That’s the number I remember from Budget night. So that’s what you’re collecting. You’re not giving all of that back to PAYG taxpayers, so you’re kind of losing the argument with those people who might understand why you’re doing this, but they’re not getting that benefit.

Mulino:

So if you look at the forward estimates over the next 4 years, basically what’s being raised by all of these different tax reforms is largely being handed back to workers.

Karvelas:

But over the future.

Mulino:

Then when you look at the medium term, what the Treasurer has indicated, and the PM is that we will look for further opportunities where it’s responsible. So this is a real priority of this government. That’s been demonstrated in each of our budgets and will be something we look at further in the future.

Karvelas:

Just on one other issue, Tim Wilson gave his Budget reply speech today at the Australian Press Club. He said lots of things, but he also said he wants to legislate a new Small Business Act that creates a pathway for small business to provide feedback on every law. Is that a good idea?

Mulino:

Well look, I haven’t had a chance to look closely at his speech, and I’ll let the response be primarily delivered by the Minister for Small Business, but I mean for somebody who goes on about reducing red tape, interesting that he’s now suggesting more legislation. But look –

Karvelas:

Do you think it’s – do you see it as red tape? I mean it’s about giving business a voice, right, on how things affect them.

Mulino:

Well, let’s see the detail. But look, it’s interesting that they were in power for 9 years, didn’t make the instant asset tax write‑off permanent, didn’t deliver loss carry back. So, when it comes to concrete things that provide real benefits, they had a decade, didn’t do those kinds of measures.

I’ll look at his speech but I’m not sure if a new act or tweaking definitions is what small business wants. I think they’ll appreciate more the concrete benefits we’re delivering.

Karvelas:

Daniel Mulino, it was good to speak to you, thank you.

Mulino:

Thanks, PK.

Karvelas:

And that was the Assistant Treasurer.