Kelly O’Dwyer on the intergenerational report

Intergenerational ReportParliamentary Secretary to the Treasurer, Kelly O'Dwyer joined the  program to discuss the intergenerational report."I think the great stocktake of where we are today and potentially where we are going," she said."What we’ve done with the Intergenerational Report is to look at where we stand today and where we could be going forward into the future. One of the issues that really stands out to me is the level of spending that we need to continue to make in order to just stand still, in order to just supply the current services that people expect and demand today."Full TranscriptMITCHELL DYE, Host: With me on the line now is Kelly O’Dwyer. Kelly good morning.KELLY O’DWYER: Good morning Mitch.DYE: Thank you so much for joining me this morning once again.O’DWYER: Great pleasure.

DYE: Now we’ve had you on previously talking about this review into foreign investment.
What’s happened since we last spoke?

O’DWYER: Since we last spoke, the Government has responded to the review. The Government has put out an options paper which has, in essence, responded to all 12 of the recommendations made by the House Standing Committee on Economics. In addition to responding to those recommendations, it has also put forward some proposals that are slightly different regarding increased administrative fees as part of the modest administrative fee recommendation the Committee proposed for applicants who are going to be screened by the Foreign Investment Review Board. In addition to that, it has put forward a particular penalty regime for smaller breaches of the foreign investment regime, smaller civil penalties, and for bigger breaches obviously bigger penalties. Finally, the options paper, looks at the definition of agricultural land as well, which is separate to what the Economics Committee was looking at with respect to residential property. It’s also an important part of our foreign investment regime and making sure that we are screening agricultural purchases in the appropriate way that gives people confidence in our foreign investment framework.

DYE: Well, penalties is the big one. What is the penalty regime at the moment that’s just been implemented?

O’DWYER: Currently, the penalties are criminal penalties only, which means that you have to prove that someone has deliberately contravened the law. You need to prove intent. The maximum penalty under the current laws is up to $85,000 for an individual and two years imprisonment. We’ve never imprisoned anybody before and I suspect that’s going to be quite a difficult threshold to meet. What we found during the Economics Committee hearings was that $85,000 was seen by many people as simply being the cost of doing business. Many people felt that they wouldn’t even be found out anyway. So even if they were found out, the penalty wasn’t seen as significant but most people thought they wouldn’t be found out therefore it was worth flouting the foreign investment laws. This is part of the reason we also recommended an administrative fee. The fee predominantly is to go towards making sure we have a beefed up audit and enforcement unit from within the Australian Taxation Office. This crack unit will be able to actually look at whether or not people have purchased property illegally and, if they have, we will then be able to apply not only criminal penalties to those people but also civil penalties on a sliding scale.

DYE: Well I’ve seen one possible penalty here of $10,000 per million dollars that the property was worth.

O’DWYER: That’s an administrative fee. That’s not actually a penalty. The civil penalties and the administrative fees are separate. The administrative fees are applied every time somebody seeks to purchase a property. Anybody who is a foreign investor whether they are a non-resident foreign investor or a temporary resident needs to be screened by the Foreign Investment Review Board if they are looking to purchase property – whether it is new property or established property. There are rules that restrict the purchase of existing property which I know you’ve spoken about before on your programme Mitch. These fees will go towards enforcing the regime – including new civil penalties which can be up to 25 per cent of the value of the property or, in fact, the capital gain that has been made on that property if that property has been illegally purchased.

DYE: Last week we had the launch of the Intergenerational Report. Is there one particular take out message from that in your eyes?

O’DWYER: I think the great stocktake of where we are today and potentially where we are going Mitch. One of the things that people talk about when they talk about our great nation is that we are a fantastically prosperous nation but we can’t take that prosperity for granted. What we’ve done with the Intergenerational Report is to look at where we stand today and where we could be going forward into the future. One of the issues that really stands out to me is the level of spending that we need to continue to make in order to just stand still, in order to just supply the current services that people expect and demand today. And the pressure on those services is only going to increase as our population ages and as there are increased pressures on our health budget, our welfare budget and our aged care budget. We’ve modelled what Australia will look like if we don’t commit to some reforms of our system – we will see a net debt to GDP ratio by 2054 if we just stay the same, of around 60 per cent. Now just to put that into context, that is currently net debt to GDP of Spain so we’re in Europe territory if we just continue on in the way that we are going without any new spending, without any economic shocks to the Australian economy. That I think is pretty sobering, which is why we need to make a plan today for the future so that our children can have the strongest possible future and the same sort of choices that the current generation have with respect to services.

DYE: Well the logical question that follows on from that is – do you increase taxation and then cut spending, do you do both? Which one do you choose?

O’DWYER: This is the conversation that we want to have with the Australian people because at the end of the day it’s the Australian people who end up paying for these services. Government money isn’t separate from the Australian people – it actually comes from Australian taxpayers, and having this conversation in an open and transparent way is the only way we are going to be able to resolve some of those big questions as to whether or not we need to continue to reduce spending, whether or not we think it’s appropriate and right to increase tax burden on the people who are already paying significant amounts of tax. And by the way, the current system assumes that if we do nothing, that some of those people on pretty average incomes will be in the second highest tax bracket simply by the fact that there will be bracket creep and that they will move into those increased tax brackets as they continue to earn a slightly higher income. Now that’s going to mean a big hit to the average household and that’s why we need to talk about it because at the end of the day you can only tax what people are prepared to be taxed, and you can only pay for those services that people are prepared to pay for, so it’s a complex conversation but it’s one we need to have.

DYE: Any ideas on which approach is going to be more likely – raising taxes or cutting spending?

O’DWYER: I’m someone who believes in smaller government and lower taxes. I think that it’s important that we all pay our fair share of tax. But increasingly we’re asking fewer and fewer people to share that tax burden and in order to pay for some of these services we need to be very realistic about when we ask people to pay more tax what impact does that have on our entrepurneral spirit. What impact does that have on encouraging people to work harder? What impact does it have on people being able to take a risk and employ other people which adds to our overall economy? I think the answer to that is it’s pretty negative. So we also need to look at the equation do we need to do things smarter? Can we reduce spending? Is spending really the best way to go or should we be looking at the outcomes that are delivered for the dollars that we spend? Are we getting value for money? And we should be getting value for money given that money is hard earned and given to the Government as part of people’s taxes.

DYE: The Treasurer had a concept, or spoke of an idea last week, talking about people being able to potentially use super to get into that first home that they need of course and it’s getting more and more difficult but Paul Keating today in the Age says that it’s a sign that the government is quote “always trying to pull the plug out of the bath of Australia’s universal superannuation pool” What do you think about that?

O’DWYER: Well it probably won’t surprise you to know that I disagree with Paul Keating’s assessment of this. You can’t be locked into the past, you have to always continue to look forward and what Joe Hockey has said is that it can be very difficult for young people to get a deposit together to purchase their first home, and we need to consider how we can potentially make that a lot easier for people. One idea that he has floated, just in the context of broader discussion about superannuation, is whether or not it would be appropriate, given that people do derive so much wealth from their home over their lifetime, whether it would be appropriate to allow those first home buyers to be able to draw down on their own money within their own superannuation fund. I think that’s a conversation worth having. I certainly hear a lot from people, not only in my own electorate but right across the country as I’m travelling round the country, just how challenging it can be for people to purchase a first home and I think that Paul Keating shouldn’t perhaps have such a closed mind on this issue but should instead be part of the conversation.

DYE: Well Kelly thank you so much for joining me this morning. I appreciate it very much.

O’DWYER: Great pleasure Mitch.

DYE: Thank you Kelly O’Dwyer there Federal Member for Higgins, also the Parliamentary Secretary to the Treasurer.


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