Senator the Hon Katy Gallagher

ROSS SOLLY: Well, it was the worst-kept secret in town. But Anthony Albanese, the Prime Minister, today finally putting some meat on the bone in regards to what is happening with the tax cuts. He made the address to the National Press Club. ACT Senator and Finance Minister Katy Gallagher was there. I saw her nodding effusively at times, Katy Gallagher. Which of course, is the reasonable and right thing for you to do. Welcome to ABC Canberra Drive.

SENATOR THE HON KATY GALLAGHER, MINISTER FOR FINANCE: Thanks for having me on, Ross, Happy New Year.

SOLLY: And to you as well. How has today been for you? Are you comfortable with where you are now as a government?

GALLAGHER: Well, we’ve certainly put out our proposal. It's a better way to reach more people. To give bigger tax cuts to 11.5 million Australians. So, I'm very, very supportive of the proposal, obviously. And you know, it's over to us now to explain why we're doing this. How we’re doing this. And what it means to people. And we know there's going to be a bit of politics around that. But we've chosen to go with – prioritise people over politics. And you know, I've got a few hard weeks and months ahead, I think. In terms of managing and communicating and getting this reform through.

SOLLY: I mean, the point was made today at the Press Club that no Prime Minister in recent times has gone back on a promise and then being able to win the next election. So, I'm sure that must be at the front of your mind.

GALLAGHER: We don't underestimate the significance of changing our position. That has been obviously, clearly, something that we have thought about. But when faced with pretty clear advice, when talking with people and listening to people's own experience about how things are going for them, it was clear that this is the best way to reach millions of Australians who are really feeling the pinch. For Middle Australia, for low- and middle-income earners, but for high income earners as well – who will still get a very significant tax cut. This was a way – a decision we could take that would make life a bit easier for people. And we took that path, as opposed to – what some might say – was a more politically easy or convenient path.

SOLLY: Well, I mean, voters will judge you on that. But the whole point of the tax cuts in the first place, Senator Gallagher, was, of course, to deal with bracket creep. Which had been, for fifteen years or so, mounting as an ongoing problem. Basically, now you haven't dealt with that. It's still out there. It's still going to be an issue. When people are saying, well, you know – is this basically killing off tax reform for the foreseeable future? Because bracket creep is a problem and the people at the top end of the market, there's been nothing done here to help them. Just a small tax cut.

GALLAGHER: Well, I don't accept that at all. And if you read the Treasury advice, it actually goes straight to this point and clearly shows that this is a very effective way of dealing with bracket creep. And that's why the thresholds are being increased. And I would say, for those at the top rate, at the 45 [per] cent rate, that that top bracket hasn't moved since 2008. So, we are dealing with bracket creep. That's part of what we're trying to do here, but also recognise –

SOLLY: But you can’t say – since 2008 – so, you’ve bumped it from $180,000 to $190,000... I mean come on, the cost of living – the index has gone up a lot more than that since 2008.

GALLAGHER: Well, what we've been doing – and including in ensuring that people in lower and middle incomes are able to get some tax relief through this package – we have modified that top threshold, but also significantly increased the $120,000 threshold to $135,000. So, this does deal with that bracket creep. But it also ensures we can reach millions more Australians with a bigger tax cut. Two point nine million Australians will get a tax cut under this proposal who weren't getting anything at all. Now we've had to have a look at this, sure. It’s different to the one that was proposed five years ago, but with the money available – and it is revenue neutral over the forward estimates – the changes that we are proposing reach more... Well, every taxpayer will get a tax cut for a start, which wasn't the case. And 11.5 million Australians will get a bigger tax cut. The benefits for women and for young people are significant. And it's a much better package that deals with bracket creep, but also helps us reach working people, middle Australia – who are feeling the pinch right now.

SOLLY: It's 5:25. You're listening to the ACT Senator and Finance Minister, Katy Gallagher, on the ABC Canberra Drive Show. You’re with me, Ross Solly. Katy Gallagher – I mean, economics is not my strong point. But how can the measures announced today not put more pressure on inflation? You're putting more money in people's pockets. How will it not? People are going to go out and they're going to buy stuff. They’re going to spend this money in places which will act as a pressure point once again, won't it?

GALLAGHER: Well, that's not what the Treasury advice says. It's not that the advice the government has been given. And I would say this is obviously for the common good.

[CROSSTALK]

SOLLY: But does that make common sense, though? The commonsense factor on the line, though?

GALLAGHER: Let me explain. Firstly, the changes that come in on 1 July, the total cost of them is essentially not delivered in one lump sum. They come in over time through that financial year through people's weekly wages. But also, and you'll see this in the Treasury advice, that yes, there is that the impact of people on lower incomes having a higher propensity to spend. But because of the changes that we're making, and dealing with issues around thresholds and rates through the marginal tax rates, Treasury expects this to have a positive impact on labour participation and therefore labour supply, so that those issues, in a sense balance, each other out. And the Treasury advice is that they do not believe that this – the changes – would have an inflationary impact. And another big factor is that it's revenue neutral. We are not adding more money into the system. That money has been factored in. And for those other reasons around labour supply, labour participation – which is a big thing for women. And the Treasury analysis goes to this. Because women are working predominantly in the lower- and middle-income areas, and more often than not at different points in their career are part-time workers because of caring responsibilities. They have a very sensitive – or they're very sensitive to how the marginal tax rates interact with their take home pay. And by dealing with some of those issues through this you know, the chance or opportunity for women to work more hours and take home more money is increased. And therefore you see an increase in labour participation.

SOLLY: 5:27. Just back on the political price that you may have to pay for this, Senator Gallagher. You’re an ACT Senator. David Smith, Alicia Payne, Andrew Leigh. All incredibly safe seats. You’re safe. There’s nothing going to happen. You know, you could murder Topsy and still get elected.

GALLAGHER: I don’t know about that. Oh, God.

SOLLY: Well, have you met Topsy? But what do you say, Senator Gallagher, to your colleagues sitting on a knife’s edge in their electorates? Who now go home tonight with the newspaper headlines screaming Liar, Broken Promise, et cetera. What do you say to them?

GALLAGHER: Well, this was supported unanimously by the Labor caucus. Yesterday we had a meeting. And we are Labor people. So, I think we went through all of the proposed changes.

SOLLY: But you can understand why they might feel nervous now? If they’re sitting on a margin of one per cent or something.

GALLAGHER: Sure. I mean, you know, we understand that particularly the Opposition and some outlets who support the opposition will, you know, want to create political controversy and run the politics alongside this. We had a choice to take, we could take that path and not deal with the reality of the economic situation we're in now and do nothing. Or we could take what clearly is going to be a subject of lots of political discussion, but the right thing to do. By putting people first. By making sure those tax cuts are bigger. For the average worker, it's going to be double. Essentially double what they would be getting. So, $1500 or $1600 in their pocket. It's a substantial difference. We've not chosen the easy road. The PM – and I'm sure he went to this today – the option to do nothing or to actually do something and help people was before us. He’s chosen that option.

SOLLY: Do you think you could lose seats over this?

GALLAGHER: Well, I think we have a job to do in explaining why we've made these changes. And I'm confident. I know here in the ACT I have good contact with constituents all the time. But you know, we've got to explain ourselves. We've got to explain why we've changed our mind. But I think if people have a look at it, they see it's better for women. Better for cost-of-living pressures. Better for labour supply. Reaches more people. More people get a bigger tax cut. I think the Australian people will see the benefits from this proposal. But it's over to us to argue that. And we're up for it. And we're being upfront about why we did it. Yes, it is a change in position, but we believe it's the right thing to do and it will deliver a better outcome for people across Australia.

SOLLY: Senator Katy Gallagher, I appreciate your time this afternoon. Thank you.

GALLAGHER: Thanks for having me on Ross.