Interview with Peter van Onselen and Paul Kelly, Australian Agenda, Sky News

April 3, 2016
Transcripts

PETER VAN ONSELEN: 

And as mentioned off the top of the program, our special guest is the Prime Minister, Malcolm Turnbull. Thanks for your company. 

PRIME MINISTER: 

Good morning. 

PETER VAN ONSELEN: 

Can I ask you – hindsight's a wonderful thing but, in hindsight, with some of the rebuff that's come your way from the premiers, do you think it would have been better to stick to the plan of a federation white paper and a tax white paper to perhaps build support? 

PRIME MINISTER: 

Well, often a quick and clear no is very revealing, and what we learned from the premiers is that they have no credibility, as Paul has just said, in calling on us, as they have done, to increase the GST, and give them the proceeds, or increase income tax and give them the proceeds, because when they were offered the opportunity to be able to levy a portion of income tax themselves, and have the ability, in due course, to raise it or indeed lower it, they had no interest at all. They didn't even want to discuss it, with the honourable exception of Colin Barnett, I should note. But there was certainly no consensus at all. And so what that means is that we have to live within our means. They don't want to raise taxes. Well, neither do we. So what that means is, given where we are, we have a fiscal envelope, there's a certain amount of money that we're raising. If they don't want to raise taxes and we don't want to raise taxes then what that means is we have to make sure the dollars we are raising are spent more efficiently in order to deliver the great services that Australians expect. 

PETER VAN ONSELEN: 

Were you surprised at the speed of the rebuff? Had you laid any ground work, informally perhaps, with some of the premiers where you expected a better reaction? 

PRIME MINISTER:

Well, we certainly had raised ground with the premiers in advance and of course this issue had been discussed in general terms at the last COAG in December. In fact, if you look at the December 2015 communique, you'll see that it refers to coming back with revenue sharing proposals. And, that's exactly what we did. The specific proposal this... this proposal has a threshold point, though. I mean there's obviously, if you were to proceed with it, there'd be a lot of detail, but the threshold question is this - do the states want to take more responsibility or take responsibility for raising more of the money they spend? And the answer to that was a resounding no. And given that, all the rest falls away. Unless they are prepared to consider taking responsibility for raising more of the money they spend, then questions of design and so forth are secondary. So that was the threshold political question and we had the opportunity to talk at some length, both in the larger group and, more revealingly, in the smaller dinners before the meeting and I'm quite satisfied that there is simply... as I said, with the exception of Colin Barnett, he's been an enthusiast or supporter of this concept for some time, there is really... there's no real support for this on the part of the states. They do not want to take more responsibility for raising more of the money they spend. 

PAUL KELLY: 

So this particular idea that you’ve proposed, can we assume that this is now dead?

PRIME MINISTER: 

Absolutely.

PAUL KELLY: 

That it won't be raised? You won't return to this after the election or anything like that? 

PRIME MINISTER: 

No, I think it is... it's something, Paul, that can only be progressed with the support of the states. The support is not there and, basically, the ball is now in their court. So we have made a very considered proposal that is consistent with recommendations that have been made by many bodies - the Henry Review, the commission of audit and numerous others. This is not the first time that this issue has come up. In the '90s, the states were making this argument and Paul Keating rejected it. So this has been around for a long time. But there is a fundamental question, threshold question, of political responsibility and, if the states are not prepared to take responsibility for raising more of the money they spend, then what that means is that we must live within our means   

PAUL KELLY: 

Well…

PRIME MINISTER: 

We are not going to raise - we are not going to raise taxes at their request when they're not prepared to do so themselves. 

PAUL KELLY: 

Well, what's your answer to premiers like Andrews from Victoria and Palaszczuk from Queensland who say no to your proposal, "We don't want the taxing powers," and then turn around at the same meeting and basically say, “Well, where's our money for health and education? What are you going to do to help us?" What's your response to that? 

PRIME MINISTER: 

Well, the response is that their claim, their call for us to raise taxes has no credibility. You know these state parliaments are sovereign parliaments, they have great, they have great taxing powers and they can... if they are not prepared to take responsibility for raising more of the money they spend and we've got to recognise that, say, in this state, in NSW, about 46% of all of the money that comes in to the State Treasury, and that is spent by the state, comes, one way or another, from the Commonwealth. In other states, in Western Australia, it's lower because of the GST formula. In other states like Tasmania and South Australia, for example, it is much higher. So they are already heavily dependent on the Commonwealth Government, especially of course because of the GST, which is levied by federal law. But the reality is if they do not wish... if they're not prepared to make the case to their citizens through their parliament for higher taxes, they cannot seriously or credibly ask us to raise taxes to give money for them to spend. I mean, there is no question that the best accountability is when a government has to raise the money that it spends. Now, the problem that we've had, obviously, is that they don't, they don't want to take up that responsibility. We can't force it on them. So that is clear. This has been a great and revealing moment of clarity. And what it reveals is that the Gillard promises were a fantasy, the money was never there. They know that. We know that. Colin Barnett, who was actually at that COAG, particularly knows that and described it very graphically on Friday. 

PAUL KELLY: 

But you're left with a problem, aren't you? Because you're left with the agreements Julia Gillard entered into in relation to health and education, and you've said on Friday, there's no credible means to fund these agreements. So isn't the reality that the Turnbull government will be facing a very significant shortfall in terms of this health and education funding? That's where we are. 

PRIME MINISTER: 

Well, I, disagree with that. I think that there is... the real question is not what was the fantasy offer made by Julia Gillard? You know, promising money that was never there... I mean, if the money was there, we wouldn't be in deficit, would we? I mean the fact is the money was never there. So the real question is are we, given our limited resources, we being all Australian governments, are we allocating those resources appropriately? Are we putting enough money in health as opposed to building roads or building football stadiums, versus schools.

PAUL KELLY: 

Yeah, but the first point, the first point I want to establish, PM I appreciate where you're going now. But the first point I want to nail down is you are not going to be able to honour, just as the Abbott government was not going to be able to honour these full Gillard agreements? 

PRIME MINISTER:

There is simply not the money to fund the promises that she made and she knew that at the time and Colin Barnett, who is the only premier still in office who was there at the time, also knew it and said so very graphically on Friday. But you see the real question is not what is the difference between the level of funding that we have at the moment and what Julia Gillard promised in her fantasy promise, the real question is do we have the right level of funding to deliver the services we need? Now, we've made some additional funding available for hospitals because we believe that we can, by doing so, ensure that Australians get this $2.9 billion of additional funding and it is linked to a national efficient price, it is linked to the states' commitment to supporting our primary health care reforms, which will ensure that people go to hospital less often, that they get the care they need from their doctors and they've got a doctor managing chronically ill patients suffering from a number of chronic conditions and there's a number of other reforms tied up with that which will ensure that our hospitals are under less stress and are able to do the work they really need to do more effectively. 

PAUL KELLY: 

Sure. But I guess the question here is what's going to be your response in the election campaign when Bill Shorten attacks you for not properly funding health and education to the required levels? 

PRIME MINISTER: 

Well, our answer is we are funding them to the levels needed to deliver the services and that in other words there are adequate resources. They need to be more effectively and efficiently used. But secondly, remember, the only way Bill Shorten can fund those Gillard era promises is by hiking up taxes. Now, what he is proposing to do, for example, at a time when we need to have more investment, we do need more investment if we are to continue this successful transition from an economy that was fired up by the mining construction boom to one that is more diverse, that is based on innovation, that's based on open markets, competition, productivity, if we want to do that, we need to have more investment. I don't think anyone will disagree with that. Shorten's negative gearing policy will restrict investment. It will restrict people investing in new businesses. His capital gains tax hike, putting capital gains tax up by 50%, that is a tax on investment. Now, if you want people to do less of something, you tax it more. What Shorten clearly wants is for people to invest less and that's what his tax policies will deliver. 

PAUL KELLY: 

If we can just come back to your policy issue, you said you're giving an extra $2.9 billion to health and hospitals. Will you give any extra funding to schools, to education, before the election? 

PRIME MINISTER: 

Well, we will continue addressing the schools funding issue and we expect to resolve that with the states early next year. 

PAUL KELLY: 

After the election.

PRIME MINISTER: 

Yeah, which would be after that, certainly after the election.

PAUL KELLY: 

So does that mean no extra money before the election? 

PRIME MINISTER: 

Well, Paul, we'll continue working on it. I don't want to... there is more work to be done on schools funding. I just want to make this point. The Federal Government's funding for schools has increased at a far higher rate, by 66% in real terms, as opposed to a much lower rate by the states, less than 10% over the same period. So our funding in some states, their funding per student I'm talking about has actually declined in real terms, whereas ours has increased. So there is more funding than ever before coming from the Federal Government directly into state government schools. So we have... and we are continuing to do so, providing that funding, growing into the future, at CPI. Our concern is that despite all this additional funding, this very substantial increase in funding, education performance standards have declined.

So we've been spending more and getting poorer results. And this is the point the Grattan Institute made recently, that governments should spend - governments and presumably oppositions would-be governments, should spend less time talking about how much money they're spending and more time talking about why we are not getting the results, the educational results, educational performance, the improvement in literacy and numeracy that we need. Why that's deteriorating. And the clear answer is that we need to be focusing more on teacher quality and ensuring that we have better teachers, that teachers are better supported and we get better teachers in the schools.

Now, the way... the challenge that we face as a federal government is that we can make reforms, as we have done, at the university level to ensure that people qualifying as teachers have got appropriate levels of literacy and numeracy, but we have no management influence over the way state schools are run. So we can't determine class sizes, we can't determine any of those, we don't have any of those levers and really the issue is not how much money is being put into schools. The issue is why are schools, despite receiving so much more money in real terms, in real terms, why is performance declining? And that's the real question. 

PETER VAN ONSELEN: 

Prime Minister, for me, part of that comes back to federation reform. And I just want to return to the first question that I asked about the white papers on tax and federation reform. Why did you decide not to go ahead that way when trying to address these issues? 

PRIME MINISTER: 

Well, because, Peter, I think there is a fundamental threshold question. I mean you can... you could write, as has been done in the past, you can write a very long paper about this and the commission of audit canvassed this. It's been canvassed on many occasions, but there is, there is no point going round and round with a dissertation unless you get over the threshold and the fundamental threshold point is, are the states prepared to take responsibility for raising more of the money they spend? And the answer to that...

PETER VAN ONSELEN: 

But can we really let it end there? I mean, you look at the reforms of the '80s, the reforms of the '90s, it strikes me that federation reform is the absolute next step. Yet, can we really tolerate a situation where a particular group of leaders just say no and then we move on rather than try to have the debate? 

PRIME MINISTER: 

Well, what we will have is real reform that is doable now. I mean we've got to be practical about this and not theoretical. I mean I'm the Prime Minister. I'm not a, you know, professor of federal relations, the history of federal relations, so I've got to be practical about it. What we have agreed to do with the states is to work with them to give them greater financial autonomy in the sense of greater freedom to allocate priorities and of course defend their priorities. And this is how it will work. At the moment, a large part of the money the states get from the Commonwealth Government comes in the form of what are called tied grants. There's specific purposes and there's a huge amount of paperwork and paper shuffling that goes between the state and the federal government. Some ministers have talked to me about the cost of compliance being almost as much as the amount of the grant. And it's not a very efficient way of delivering money. Federal governments, particularly the Rudd government, was very keen on telling the states how to run their affairs.

So what we've agreed with the states is that they will come back to us and Scott Morrison as the Treasurer is going to be in charge of this process with the state treasurers, they'll come back to us and nominate the tied grants they would like to untie. And that will be, obviously, a process and we will then free up that money and then turn that into a share of income tax so that they would have a share of our income tax receipts which they would then be able to spend on their priorities.

Now, the question is how they're held to account for that because of course this is money we're raising. Well, what we are able to do and again, this is reflected in the agreement and this is another big reform, so more financial autonomy for the states, that's a good thing, but also greater accountability. So the chief ministers and I have agreed that there will be, we'll be using digital platforms, smartphones and so forth, the Internet, to provide real time data to citizens on how government money, taxpayers' money is being spent. So, if you can see as you can in most Australian cities, precisely when the next bus is arriving, you should be able to see how your hospital is performing, how schools are performing, how money is being spent on law enforcement and so forth. Because so much of the money that the states spend is raised by the federal parliament.

PETER VAN ONSELEN: 

But isn't that still a form of window dressing in the sense that you'll see what's happening but we still have the vertical fiscal imbalance, we still don't have the financial accountability for the states and we still have a situation where there's a standoff over funding between the Commonwealth and the states? 

PRIME MINISTER: 

Well, we can't force the state parliament to pass a law. I can't compel them to pass a law. So there is no point pursuing an option that the states are so opposed to. Regardless of its merits. And, again, you know, politics is the art of the possible. But I disagree with you about the point about disclosure. It's much more than  that, it's not window dressing. In fact, a lot of the accountability processes we have at the moment, you know, the paper shuffling, that is window dressing because nobody actually, the public never see what the results are and they're often reported in various government papers that no one reads. If you have, in effect, an online dashboard of government performance, we'll be launching one of our first ones, the federal government, very shortly, then people will see precisely how things are performing. Now, I did this in my own way with the NBN. You may recall when the Labor Party was in there, was always great controversy about how much progress it was making, there was all sorts of claims. Under my time as Communications Minister, I caused the NBN to put up literally every single week their rollout and activation statistics. Of course, it became... once it was so transparent, it became completely uncontroversial. So if anyone wants to know where the NBN has got up to in terms of its rollout, the numbers up to last Friday are up on their site. 

PETER VAN ONSELEN: 

There's an irony, though, isn't there, about such openness and disclosure around that issue of the NBN or around the states via the COAG discussion that you had on Friday versus something like Operation Sovereign Borders, where there hasn't been that level of openness and Labor have complained about that since day one?

PRIME MINISTER: 

Well, in that case, there are matters of security and we have succeeded, since the change of government, we've succeeded, not only in stopping the boats, but we've also succeeded, as you've seen announced today, and it is great credit to our Immigration Minister Peter Dutton   that there are now no children who'd arrived unlawfully by boat in detention. 

PAUL KELLY: 

Was that an instruction, was that an instruction, a goal, that you, as Prime Minister, required Dutton as Immigration Minister to meet? To ensure that there were no children left in detention? 

PRIME MINISTER: 

Paul, it's always been a goal of the Immigration Minister, including his predecessor, Scott Morrison, and I have no doubt including my predecessor, Tony Abbott, to reduce, to get kids out of detention. Often, you know, there are big, there are complex security issues as you can imagine. 

PAUL KELLY: 

But isn't it true, but isn't it true to say that you required this before the election campaign? 

PRIME MINISTER: 

Paul, that's – you’re putting a political gloss on something that has always been a priority of the government...   

PAUL KELLY:

But I'm asking you, I'm asking you as Prime Minister, I'm asking you as Prime Minister, whether it was your personal requirement to ensure going into an election campaign as Prime Minister there were no children in detention? 

PRIME MINISTER: 

It was... Paul, it was not a requirement, it was my objective and Peter Dutton's objective   I mean Peter has, is, obviously administering the immigration portfolio and has to deal with these cases literally on a case-by-case basis. He has been progressively reducing that number from the time he became minister, as indeed Scott did before him, and the real message here is that we have stopped the boats. In July 2013, not long before the federal election, before Labor lost office, there were 2,000 kids in detention in Australia from the boat arrivals. Now there are none and that is a great achievement on the part of Peter Dutton. 

PAUL KELLY: 

If I can just ask you then about Nauru. The Commonwealth Government won the court case on Nauru but is it your view as Prime Minister that those people should not be sent back to Nauru? 

PRIME MINISTER: 

Well, we're reviewing those cases... reviewing all of those matters carefully - Peter is, on a case- by-case basis. I just want to, I just want to make this very clear. 

PAUL KELLY: 

But I'm asking, is it essentially your disposition as Prime Minister that people are not to be sent back to Nauru? 

PRIME MINISTER: 

It is my policy, it's our government's policy that, if you arrive or seek to arrive to Australia unlawfully you will not be able to settle in Australia. And that is why, again, as part of our exercise, we are working with other countries in the region to resettle people who are on Nauru or indeed Manus so that they settle somewhere else. But it is, you know, we've got to recognise the people smugglers are a very agile... these are the worst criminals, but they are very quick and they're very agile and any weakness on our part...

PAUL KELLY: 

You shouldn't call them agile, I think? 

PRIME MINISTER: 

Well, I regret to say they are. The way they use social media is... and the way they use technology is like a number of our enemies in the world today, very 21st century, but they are criminals and what we have to do is ensure that we do not allow them to create the perception of any weakness in our policy, because they will use that to market to their unfortunate customers, people they'll take advantage of, and the boats would start again. 

PETER VAN ONSELEN: 

You're watching Australian Agenda. We're speaking to the Prime Minister, Malcolm Turnbull. We'll continue to do so when we come back. 

[commercial break]

PETER VAN ONSELEN: 

Welcome back. You're watching Australian Agenda where Paul Kelly and I are speaking to the Prime Minister, Malcolm Turnbull. Mr Turnbull, can I ask you about the recalling of Parliament in April to have the double dissolution election debate, I suppose, is what it almost has become? Will the lower house sit the whole time as well? 

PRIME MINISTER: 

The lower house will sit for a, a portion of that time, for at least the first part of the week beginning Monday April the 18th, but we don't anticipate it will sit for the whole three weeks. The  purpose of the recall of parliament is to give the Senate plenty of time, 11 additional sitting days, to consider the Australian Building and Construction Commission bill and either pass it, as we're urging them to do, and if they do that, then they should also pass the registered organisations bill, another important industrial reform. And if they do that, then, of course, there would be no trigger for a double dissolution election, but if they don't, if they fail to pass the ABCC bill and they've got no excuse in terms of having the lack of time, there's plenty of time to complete their consideration of it...if they fail to pass it, then there will be an election for all of the house and all of the Senate on the 2nd of July. 

PETER VAN ONSELEN: 

And I know that you've said that your preference is that they do pass it. But are you working on the assumption that they won't, given that both have been rejected before? 

PRIME MINISTER: 

Well, it's hard... Peter, it's hard to predict. We’re certainly encouraging them to pass it. We're urging them to pass it. But as to what it really boils down... well, we know where Labor and the Greens are. They're against any restoration of the ABCC. They apparently believe that the state of affairs in the construction sector, where you have nearly 70% of all Australian industrial disputes, where you have 100 officials of the CFMEU up before the courts for breaches of industrial law, they apparently, Labor and the Greens, think that's fine. Now, it clearly is not. How many more inquiries, how many more commissions, how much more observation of the real world do you need to know that we have a massive problem in this huge sector of our economy, which employs over a million people. The rule of law must prevail and everyone will benefit from that. So it all depends on whether six, at least six of the crossbenchers will support it. Some of them, we know will. Bob Day, of course is a very strong supporter. 

PETER VAN ONSELEN: 

You would think the best case scenario though would require some amendments? How open is the government to amendments? 

PRIME MINISTER: 

Well, as we've said, if they come to the minister, Michaelia Cash, with an amendment that will secure the support of the six crossbench senators and secure, therefore, the passage of the bill and that amendment does not undermine the integrity of the bill, or as in other words, in our view, of course, inconsistent with its purpose, then she and the government would consider it. But, you know, we are down to the short strokes now. I mean the Senate has got to decide whether it wants to pass this bill or not. And if it doesn't, that's its perfect right and then the Australian people will have their opportunity to form a view. 

PAUL KELLY: 

But, PM, there's no secret about what the crossbenchers want. The crossbenchers are talking about something else altogether. They're talking about the creation of either a national ICAC or a series of little ICACs to cover individual industries. So can I just clarify what's your response to those particular demands? 

PRIME MINISTER: 

Well, whatever the merits of a national ICAC may be, Paul, and there are already many agencies dealing with federal agencies, dealing with corruption and criminal conduct and, you know, there are... it's a long list, as you know, beginning with the Federal Police. But, whatever the merits of that, that is quite separate and distinct from the ABCC legislation. We are talking about restoring an institution that, that materially improved...  

PAUL KELLY: 

OK... 

PRIME MINISTER: 

Compliance with the law.   

PAUL KELLY: 

So you're not going to go there?

PRIME MINISTER: 

No. 

PAUL KELLY: 

You're not going to go there in terms of those demands? 

PRIME MINISTER: 

No. That is not an amendment to the bill. That is a completely separate proposition. I mean if they want to have a federal ICAC, then they should move a private member's bill in the normal way. 

PETER VAN ONSELEN: 

Your Senate leader, George Brandis, sat where you are just a week or so before you announced the plan for this possible DD election and said that he anticipated that same sex marriage, both the plebiscite and then, if it was passed, the vote in the parliament, would happen before the end of the year. There was a bit of a retreat from that prior to us knowing whether there could be an early election. I was wondering, when I found out about the early election, whether Senator Brandis was thinking through that prism when he said that it would be by the end of the year. Is that on the cards if we do have a DD election? 

PRIME MINISTER: 

Well, our position is we don't know.  I don't want to get into hypotheticals, Peter, but the plebiscite will be held as soon as practicable after the election and every Australian will have a say on whether the law should be changed to allow same sex marriage. And that's our commitment and that will occur and, you know, whether that happens before the end of the year, obviously, depends on when the election is and at this stage, we don't know that. 

PAUL KELLY: 

And all the bills, the arrangement, the plebiscite bill and so on, setting up the plebiscite, all that would come post election? 

PRIME MINISTER: 

Yes. That's right. I think it's pretty clear what the issue is, but we'll be setting all that out after the election. 

PAUL KELLY: 

OK. Can I just ask you about submarines? You had quite a lot to say about ship building yesterday. 

PRIME MINISTER: 

Yes. 

PAUL KELLY: 

With the Defence Minister, clearly, this is the biggest single decision in terms of our defence industry. So are you likely to make and announce a decision before the election? 

PRIME MINISTER: 

Well, again, Paul, it depends when the election is. But the process, the competitive evaluation... as you just step back a little bit... Bill Shorten's remarks on ship building yesterday really hit the high mark, high water mark of political hypocrisy. In six years of Labor government, the Navy was neglected. They did not commission one ship from one Australian yard. The reason we are playing catch-up in the way we are, the reason why so many of the shipyard workers that Shorten was addressing are likely to be out of work for a period is because Labor failed to keep the process of commissioning and constructing ships for the Navy under way. So they did nothing for six years. So we've had to play catch-up on that and we're doing that and we've committed to future frigates and offshore patrol vessels.

Now, as far as the submarines are concerned, there is a competitive evaluation process. We are looking at proposals from Japan, Germany and France. And that process is coming to a close and we will make a decision, we, the government, will make a decision shortly. But whether it is before the election, obviously, depends on the timing of the election. But you can be rest assured that the decision will be taken after... with great care. A huge amount of work has gone into it to date and the government will take that decision with great care, recognising that we are dealing with the national security of Australia and, of course, the investment of billions and billions of dollars. 

PAUL KELLY: 

I just want to go back to tax. I put to you on tax that the public would have to be confused about your position. We had the debate about the GST. Then we had Scott Morrison emphasising the need to address bracket creep, then we had your proposal to reform the federation. What is the taxation objective for your government in terms of the tax package in the Budget? What's the priority? 

PRIME MINISTER: 

The priority is to drive growth, to drive investment and growth and that leads to jobs. Everything we are doing, every part of our economic plan, whether it is the innovation package that we announced in December last year, or the tax changes that you will see in the Budget, every part of it is designed to ensure that Australians are encouraged to invest.

PAUL KELLY: 

Well I…

PRIME MINISTER: 

And to hire and to be enterprising, I mean that is the way we continue growing. 

PAUL KELLY: 

OK. Well, PM, I assume from that answer that means you address company tax. 

PRIME MINISTER: 

Well, you can make whatever assumptions you like, Paul, but you know, we are now literally a month away from the Budget, so all will be revealed on the 3rd of May, a week earlier than previously advertised. So your curiosity will be, will be filled. 

PAUL KELLY: 

Now, this week, now, this week, CETA came out with a program to restore the surplus over a period of just three years, saying the real priority is to get rid of the deficit and get the country back into surplus. And that it's about time we got our priorities right on that issue. What's your response not to the details of that agenda, but to the basic principle? Because clearly that's not the position of your government.

PRIME MINISTER:

Well, we are certainly in deficit and we are moving... our forecasts are that we are heading back to balance and then to surplus and that, of course means.

PAUL KELLY: 

Over a decade   

PRIME MINISTER: 

Well, Paul, it is a long term project. The critical thing that we have to do is to ensure that we maintain strong economic growth. We had 3% real GDP growth last year. The most effective ways to reduce the deficit are, firstly, to eliminate spending, which we believe is, is unjustified in the current circumstances. In other words, to ensure that we use the resources we've got most effectively and that is clearly living... that's living within your means. 

PETER VAN ONSELEN: 

Just on that…

PRIME MINISTER: 

Can I just finish, Peter? But the bigger picture is if you can grow your economy at a faster rate than you're spending, then, over time, your tax receipts from a.... because, from a bigger economy...  

PAUL KELLY: 

That's probably not going to work. That strategy probably won't work.

PRIME MINISTER: 

Well it is, it is certainly, it's been very effective in other times and in other places and it's exactly how John Key got back into balance, but there is no question that if we do, if we have no hope of getting back into balance unless we can maintain strong economic growth. That's the fundamental premise and then, of course, we have to address spending but, as you know, Labor has opposed, Labor and the Greens and the Independents have opposed many of our efforts to economise in the Senate and Labor has $50 billion of unfunded spending commitments. Now, Bill Shorten is going to have to lay out where all of his additional tax revenue is going to come for that. He set out some proposals which would be very damaging to the economy. But where are the rest going to be? He needs to really hike taxes unless he is proposing to plunge us further and further into deficit and debt. 

PETER VAN ONSELEN: 

I wanted to ask you about Labor's negative gearing policy. You've been very critical of it and critical of the impact it’ll have on the economy. How can such eminent economists like Saul Eslake and Professor Richard Holden be so wrong in the way that they view the Labor scheme as being one that's worth while? 

PRIME MINISTER: 

Well, they are wrong and of course what Labor's proposing is quite different to, for years, many people have said. Looking at the question of housing affordability, they’ve said that, one way to make houses more affordable, in other words, one way to make the value of your house decline   is to restrict the number of buyers in the market and so to say that people, investors would not be able to offset net rental losses against their other income for residential property. Ok? And that's the so called negative gearing argument. As you'd recall, I've been involved in some very careful analysis of this over a long period of time and it is quite... as has the Reserve Bank and others. It is quite clear this is a supply side problem.

The reason housing is less affordable than it should be is because we're not building enough houses and this is one of the things we're seeking to achieve in our new cities policy is to ensure that we work with state and local governments to make sure that, as part of the deal, the city deal, of federal funding, that there is, there are appropriate planning decisions taken to ensure there is more housing and more affordable housing. So it is a supply side issue. But Labor's proposal goes much further than this. Labor says not only can you not negative gear existing residential property, you can't negative gear any asset unless it is a new dwelling. So you can't negative gear commercial property. What has that got to do with housing affordability? You can't negative gear a portfolio of shares. So you couldn't go and borrow money to buy a portfolio of shares and offset any loss against your income. You couldn't go and borrow   look, every one of us, pretty much, most of us, start off with our just human capital, and we get a job, we generate income, and then we borrow some money and very often we will capitalise a company, put some money into a company, perhaps with a partner and start a business, but that is all, buy some machinery, buy a vehicle, buy something, an asset that we can then build on. Labor says you can't negative gear that either. So what they are doing is standing in the road of enterprise, the path of entrepreneurship will be blocked by Labor.

The consequences for the economy and for job creation and investment are enormous and then you add to that increasing capital gains tax by 50%. I mean that is, that is, that is a tax on investment. Whenever governments want to encourage more investment, they cut capital gains tax. That's what we've done on the innovation agenda. Nobody said that was a misguided approach. So if a government or a would be government wants to increase capital gains tax by 50%, what it is saying   and this is what Labor is saying is they want less investment in Australia. Now, what's that going to do to our economy? 

PAUL KELLY: 

Prime Minister, a number of world figures have made comments about Donald Trump, about the extraordinary nature of the current United States election campaign. What Trump has said, what he's advocated in terms of foreign policy with all the extraordinary ramifications of that for countries such as Australia. What's your view about the Trump campaign? And how concerned are you about what Trump is saying? 

PRIME MINISTER: 

Well, I don't want to buy into as you'd expect, I'm not going to buy into the American political debate. I'm happy to express a view on some particular issues, however. I notice that, Mr Trump has said that he believes that, Japan and South Korea should be encouraged to acquire nuclear weapons. Well, that is absolutely not the view of Australia, as Julie Bishop has already said. She was in Washington at the time and I'd repeat here, we are opposed to the further proliferation of nuclear weapons and that is, that is the view of the global community and so, in that regard, without wanting to sound like every other leader at the nuclear summit that the President had in Washington a few days ago, we, would not support, in fact we would strenuously oppose, I think, as a global community, the further proliferation of nuclear weapons. 

PAUL KELLY: 

And what would be the consequences for the region of that? 

PRIME MINISTER: 

Well, it would be, clearly it would be, it would add considerably to tensions and the risk of conflict in the region. 

PAUL KELLY: 

Can I just ask you about Tony Abbott? Would you give consideration at all to restoring Tony Abbott to the frontbench post-election, just given the difficulties the government faces with Tony Abbott speaking out? Various people might think that there is a case for restoring him to a senior position, so the principle of Cabinet solidarity operates in that area. What's your view on that? 

PRIME MINISTER: 

Well, Paul, my view,  I'll just repeat what I've said before, is that in politics, renewal is very important in politics. I brought a lot of new talent into the Cabinet. I brought a lot more women into the Cabinet. And that's the, that is, that's the process I expect to continue in the future. I've got a very good ministerial team now and that's the team I'll be taking to the election, and we'll, we expect to have, after the election. It is a   we've got a very strong team. 

PAUL KELLY: 

Well, can I ask you then how confident are you that Tony Abbott will not be a disruptive force during the course of the campaign proper? 

PRIME MINISTER: 

Well, I expect all of the members and indeed candidates to be supportive and disciplined in the course of the campaign. And, generally and in the lead up to it. It's a team business, as you know. 

PETER VAN ONSELEN: 

But we were talking about the pragmatic realities around COAG before. Equally pragmatically, looking at the situation with the former prime minister, he will generate a lot of media attention whenever he speaks out. He's got a freedom to do it not just as a backbencher but as a former party leader and prime minister. Are you worried or concerned that that distraction, even if unintentional by him, is something that is going to get in the road of the campaign? 

PRIME MINISTER:

I am utterly undistracted. 

PETER VAN ONSELEN: 

And is your view on Tony Abbott that there will be no concern by him around conservative issues, where he starts to feel like the government is perhaps drifting into a more liberal course? 

PRIME MINISTER:

I am... our course is set to the election. The choice is between me and Bill Shorten. The choice is between a government which has an economic plan for growth, for investment, for innovation, for greater productivity, stronger competition for open markets, for better jobs. And on the other hand, a Labor Party that wants to defend the shocking industrial lawlessness in the construction centre, that wants to increase taxes on investment, that wants to stand in the path of entrepreneurship and wants to run up more and more debt to fund $50 billion of unfunded promises. That's the choice. That's the only choice that people will be facing on the election day. 

PETER VAN ONSELEN: 

But just one final one   you've been very generous with your time, but one final one on Tony Abbott. When you replaced him as prime minister in September last year, now here we are more than six months on, have you been surprised by the amount of distraction? Or is that to be expected, given that this occurred? 

PRIME MINISTER: 

Well as I said earlier, I am not distracted and if you'd been in politics even for as long as I am, which of course is nothing compared to the master I’m sitting opposite, but, it's, once you've been in politics for a while, you learn not to be surprised by very much. 

PAUL KELLY: 

Just, just, just a final question, do you think the, the, the core issue of the election campaign is whether we have a spending problem or a revenue problem? Underneath it, is that the core issue? 

PRIME MINISTER: 

I think the core issue is economic management and the... and, the reality is, Paul, that part of economic management, a key part of economic management, whether you're running a government or a company or a household budget, is living within your means. The Labor Party simply cannot escape the fact that the promises they have made so far unfunded. We haven't seen what their election platform will be, but what their promises will, of necessity, require   either a considerable increase in taxation or a considerable acceleration in debt. And that is... and, and, this is the moment of truth for Mr Shorten, because he has a massive   at least $50 billion   of unfunded promises that he is currently committed to and the question that Australians are going to be asking is do you want to live within your means.

Now, I think one of the... as we're getting back to where we began, one of the virtues, the moments of clarity from the COAG meeting is that it is clear   we believe Australians are paying enough tax. The states apparently believe we're paying... that they're raising enough tax. They don't want to raise any more. Good. Then we're all agreed that we're going to live within our means. And what that means is that we should seek to make our tax system, where we can, more efficient. We should seek to make sure that the money we have is spent most effectively so we get the best outcomes and spend less time talking... competing with how much money we're going to spend and focus instead on ensuring that the taxpayer gets the biggest and best bang from their buck that the government is raising and spending on their behalf. 

PETER VAN ONSELEN: 

Prime Minister, you have been generous with your time. We appreciate it. Thanks for joining us. 

PRIME MINISTER: 

Thanks very much. 

Ends

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