And now we bring you the creator of the hard yards budget, the federal Treasurer Peter Costello. Treasurer, good morning and welcome.

Good morning John, thanks very much.

It seems that the budget has been accepted gratefully by most people. I’m not hearing a great deal of criticism. Are you?

Look I think the reception has been good John. We’ve managed to get Australia back into the black, which is the first time in 8 years. There are no increases in income tax, no increases in company tax, no increases in wholesale sales tax, no increases in the petrol excise. We cut the provisional tax uplift factor to 5 per cent and we’ve managed to get Australia into the black by being careful with taxpayer’s money. And I think that’s what good government is all about.

There are claims that the $2.7 billion surplus is made up largely of personal incomes increasing, that thing they call bracket creep. It must be a contributing factor.

Well bracket creep occurs where inflation pushes your nominal income up and you go into a higher tax bracket. But the one thing you can say about this budget is if there is bracket creep it’s the lowest in the last 30 years because inflation is the lowest in the last 30 years.

Yes, so that’s axiomatic.

Axiomatic. If inflation is back to the lowest levels that it was in 1962-63, whatever it’s doing to salaries, it’s not giving the kind of bracket creep that Australia had all through the ‘70s and‘80s and ‘90s when inflation was on 8 and 9 and 10 per cent.

It’s not unfair to say it’s a bland budget aimed at an election, is it?

Look, it’s a budget which wants to be responsible. It’s a budget that wants to set Australia up for opportunities we could never have had. You see, once you start paying your way, that is we’re not going backwards this year, you can then start reducing your debts and when you start reducing your debts, that means that your taxes can on better services or in the longer run, lower taxes.

But again it’s not unreasonable to call it a bland budget aimed at an election, is it?

Well…

I mean it’s not full of exciting stuff.

Well normally people would say that an election budget would have sort of gimmicks and bells and whistles. This is not a gimmick, bell, whistle budget. This is a budget which delivers on what we said we were going to do.

Yes. No increases in taxes, is that just softening us up for the GST?

No, because I don’t know, we’re checking this point, I don’t know if there’s ever been a government that could say throughout it’s whole term, it hasn’t increased income tax, it hasn’t increased company tax, it hasn’t increased wholesale sales tax and it hasn’t lifted the rate of petrol excise. In fact, what we’ve done is we’ve cut taxes. And you know provisional taxpayers? You know how that works John?

Yes.

At the beginning of every…

Yes. You’ve given them a hand by 1 per cent.

Well that’s right. At the beginning of the year they say well you earned ‘X’ last year, so next year we reckon you’ll earn ‘X plus 10 per cent’ and we’ll tax you on it. That’s what was happening. We’ve reduced that 10 per cent to 5 per cent. Halved it to give provisional taxpayers a much fairer deal.

Are there any new estimates on how much the sale of Telstra is going to yield for you?

I don’t actually, on legal grounds I’m not really supposed to comment on the likely price, but people can work it out for themselves. It’s three times whatever Telstra, it’s another, we sold one third of Telstra, so it’s another two thirds of whatever that sale raised.

And you think it’ll be about that same figure?

Yes.

What’s the size of the social bonus likely to be?

Well that’s something that we’re still discussing of course.

But what’s it likely to be?

Well it’s not something that we’ve actually fixed on, nor have we fixed on the way in which it will be delivered but look at it like this. If you reduce your mortgage, suppose you had a $100,000 mortgage and you reduced it by $40,000. That means when your mortgage payment comes around every month, you don’t have to pay interest on that $40,000. That’s cash in the hand. And it’s like that with a government. If a government reduces its debts, let’s say by $40 billion. It doesn’t have to raise taxes to pay the interest bill any more. Those taxes can go on new schools and new hospitals and new roads, and when you’ve got you’ve new schools and your new hospitals and your new roads, you can say well these taxes should be lower. That’s what good economic management is all about, getting the benefits out to future generations, rather than locking future generations up paying the debts of the past.

When will the tax package be ready?

Well after we finish with the budget and what we now do is we have to explain it to people. We’ll put it into the Parliament, we have a week off Parliament, we’ll put it into the Parliament after that, we’ll try and get it through before the end of June.

You don’t envisage any problems there do you?

Oh well we don’t control the Senate. Never have.

Yeah, but I mean you still would envisage any problems?

Well I think Labor would be silly if they tried to muck around with a budget that’s popular like this. But you know they might try and sort of delay things a bit.

Well I don’t think you’ll have much to worry about with Gareth. I think he proved last night he’s never going to be Treasurer. Conclusively.

And then we, then we start working up tax changes, so you know, it’s months probably.

Why would you mention tax reform in the budget speech and yet not announce any of the measures?

Because in a budget speech you’ve got half an hour to talk to the Australian public about the state of the economy. You’re not just telling them about how you’re going to spend money, you’re telling them the story. It’s the story of where we were, where we want to go to, what we stand for. The people we want to help like small business and the aged and rural and regional Australia. You’re telling them about what’s happening in their economy. How is Asia going to affect us? And then you’re saying to them, and what does this country need? And what this country needs is tax reform. And I tried to explain last night some of the reasons why we need tax reform. Why is it that people on average earnings if they go and do some overtime, or they get another part-time job, they’ve got to pay nearly one dollar in two tax. That’s wrong.

Well you answer the question. It’s one that I’ve been asking for years. Why is it? I mean what’s the point of it?

Why is it? And people say to me…

Well you can fix it.

Well we intend to fix it. And that’s what tax reform is all about. Why do we tax earning rather than spending? In this country we want to encourage people to save, so you know what we do? We go and we tax their income rather than their spending.

Why do you dismiss a debit tax totally?

Well debit taxes are thoroughly unpopular. I get more letters against…

So are politicians.

That’s true.

But we put up with them.

Is that why you dismiss them John?

No, not really, but I mean I know it’s unpopular and to me it seems to be almost unworkable but I’m interested in your theory as to why you don’t like it.

Well because I would get more complaints about debits tax. We’ve got a debits tax. I would get more complaints about it than any other thing. It’s from the pensioner who at the end of the month when they get their tax statement, their cheque book doesn’t match their cheque statement. And you’ve got to go through and you’ve got to find all those bank account debit taxes and those financial institutions duties and you’ve got to deduct them. Now what people are saying who believe in debits taxes is not only would everybody have to do that, but we should increase the debit taxes I think by 80 times.

Sounds like a good idea.

Yes, that sounds like a real winner that one.

I’m on strict instructions from a couple of close friends, who happen to be mutual friends, to ask you what is your intention regarding capital gains tax?

Well, we’ve already made some moves in the area of capital gains tax for small business. Where somebody has got a small business, suppose I’ve got a milk bar and I sell the milk bar because I want to buy a grocery, I want to build my business up. Under the previous law when you sold the milk bar you got hit with capital gains tax which meant that you couldn’t take the proceeds from the milk bar to buy the grocery. And we introduced what’s called a rollover, which says where you are rolling over from one asset to the next in small business, you wouldn’t have to pay a capital gains tax.

And what about in property?

And a lot of people are saying, well you should look at rollovers, not just for small business which has been a great move, small business has really benefited from that, but wider. And I’ve always said well we’ll keep an eye on that.

So you will look at capital gains tax?

I said, in the rollover area, we’re always keeping an eye to make sure the system is working as well as possible.

In America it works very well and it’s only about 20 per cent.

America has a different system of capital gains tax. It’s a lower rate but also…

That doesn’t mean we can’t have the same one.

But also I was just going to point out, I’m pretty sure they don’t adjust for inflation either. That is, you get taxed on nominal gains. One of the advantages of the current Australian capital gains tax system is you only get taxed on real gains, you take inflation out.

Can you meet the target of recouping $200 million in tax minimisation from rich people? I seem to have heard that promise before, now that wasn’t sustainable was it?

Well look this is the advice we’ve got from the Commissioner of Taxation. The Commissioner of Taxation has advised us that, I should say this John, I am never told the identity of any taxpayer, that’s right. The only person who knows it is the Commissioner of Taxation and the Commissioner of Taxation is, by law it is a criminal offence to give out any information to anybody including me. But what he says is, he says that having looked carefully at some practices of high wealth individuals, he has been able to recover in this year an additional $100 million. He then said to me…

What happened to the other $700? It was going to be $800 million.

Oh well yeah. I don’t know where those figures came from. He then said to me it will be…

I’m sorry, didn’t they come from you?

No.

You said a crack-down on tax minimisation would result in $800 million being recovered from rich people.

No, what I said was, that in the last year we would collect 100, and we have. And I then said on the advice of the Commissioner of Taxation if we continued the taskforce, we’d get another 100 next year and 100 the year after, which is 300 over three years.

It hasn’t happened though has it?

Well the Commissioner says it has in the last financial year 1997-98 and we’ve budgeted for it on his advice in 1998-99 and 1999-2000.

Will you guarantee not to spend any of the projected surpluses on election promises?

Well as far as I’m concerned, the surplus for this budget year 1998-99 is the outcome which we are determined to achieve.

Yeah. It’s really disappointing in a way. We can’t have a stoush about this budget because there’s not much wrong with it.

Well perhaps we should talk about some of the other things that I think would be pretty exciting new developments. Particularly I know a lot of your listeners who will be self-funded retired people would have been listening last night, and one of the new measures that we’re going to introduce from the 1^st of January is we are going to allow 220,000 new self-funded retirees to gain access to the Commonwealth Seniors Health Card. No I think Australia’s retired people will think that this is a great move because they’ve always felt it’s unfair if you go on the pension, you get this health card. If you’ve saved for your own retirement, you don’t.

Well I’ve talked to you about this before. I talked to Paul Keating about it and I think I probably talked to Malcolm Fraser about it as well. To me it’s always been ridiculous. Why has it taken so long when people who in fact are supporting themselves and saving the Australian taxpayers money are being punished instead of being rewarded. They should be rewarded.

Well quite right.

Well why has it taken so long?

Well let’s not think about why it’s taken so long, let’s think about the fact that from 1 January of next year it becomes fair again. And if you happen to be a self-funded retiree you can get that card. You are the person that saved for your own retirement. You’ll be entitled to the card. What it means is in relation to pharmaceuticals you’ll pay no more than $3.20 on any script and after you’ve had 52 scripts, that’s one a week for the full year, every one thereafter is free.

What about tax on savings?

Tax on savings. On 1 July of this year, tax on savings falls 7 per cent. And by 1 July of next year, tax on savings falls 15 per cent. So what that means, again, great news for self-funded retirees. If you’re self-funded retiree let’s say and you’ve got $60,000 which is earning you $3,000 in interest, you’d normally pay 20 per cent tax. From 1 July this year the tax rate falls 7, it comes down to, what’s that, 12 and from 1 July next year it falls another 7, it comes down to 5 per cent.

Yeah well that is good news. There’s a lot of good news for the elderly.

It’s a good story. And of course the World War II veterans who are going to be given the Gold Card.

Well again not before time, but as you say the fact is they’re going to get it.

They’re going to get it. And a lot of the veterans are asking me what does it cover. What it means is this. If you happen to be a veteran, that is, you were actually, that you faced hostile forces during the Second World War, you get free hospital treatment as a private patient, optical, dental, physiotherapy, chiropractic, podiatry all free whether it’s service related or not. You won’t pay the Medicare levy because this is a government that’s going to pick up the tab for our veterans. And just last night I felt so proud to be able to say on behalf of Australia, a thank you to those veterans who fought and a grateful nation returns the valour that they showed.

Yeah, well again and not before time. And given their ranks are fairly diminished, I wouldn’t have thought it was a very costly project that you’re involved in.

Well it’s several hundred million dollars. Fortunately for us a lot of the vets are still in good health too.

Why wasn’t some money set aside to have a look at healthcare generally? I mean if money had have been set aside to have an inquiry into the health system, I’m sure there would have been even louder applause for the budget than there’s been already.

Well we have…

It’s a mess.

Well we have had a bit of a look at the health system. And the basic problem in the health system John is that since Medicare came in, people decided that they didn’t have to take out private health insurance.

Well they also decided that they didn’t have to take out private health insurance because the cost of it kept escalating.

Well as the fit and the young started ducking out of private health insurance, the costs of the funds kept escalating and the premiums kept rising, so the fit and the young kept coming out and the premiums kept rising and the fit and the young kept coming out and the premiums kept rising.

Okay, so why not open it up for a bit of reasonable competition? I mean, you’re not adverse to competition in other areas, in fact you’ve encouraged it which has been terrific. Why not competition in that area?

Oh I think you’re right. You know I do think we’ve got to get some more competition. And one of things that the Inquiry has been throwing up, is giving people bonuses if they get into private health insurance and stay in. Another thing that we did of course is we started offering people money if they took out private health insurance.

And it didn’t work. And it was our money that you were offering people.

Well it at least stemmed, it stemmed the fall away.

It didn’t work though.

And then the other measure that we introduced is we said, go and take out private health insurance or your Medicare levy will rise by 1 per cent for high income earners. But I agree with you, I think there is still some more work to be done in relation to the health system.

There should be an inquiry into it.

Well there could be. We have as I said have had some inquiries and I think the problems are always the same, and you’ve got an ageing population requiring more and more health treatment and the Medicare system is not paying anything like the costs of running it and you’ve got to try and get people back into private health insurance, encourage them to do so and make sure you can fund health system.

Well that seems almost like an impossibility to get them back into private health schemes because they simply don’t want to go. I mean even with all the encouragement they’ve been given, they still didn’t want to go. It just needs more competition.

Yeah. They also think incidentally that they don’t have to take it out because they pay for it in the Medicare levy, but the Medicare levy doesn’t go anywhere near paying.

But that’s not their fault. That’s not the fault of the public.

I’m not about to put the Medicare levy up.

Well that’s a relief.

Well, you know look, when you work so hard to keep taxes down and why do we work so hard to keep taxes down, we work it so that honest taxpayers get a break.

You do it to get re-elected Peter.

Well John we also, it also means, keeping taxes down also means you’ve got to be very tight with the expenditures.

Well I don’t mind the idea of you wanting to be re-elected if you’re going to keep all these taxes down.

Well one of the, one of the measures that we put in place, I’ll just give you one measure. When we tightened up social security and I pay tribute to Jocelyn Newman and started checking on people who were getting entitlements, and found people that were getting them who shouldn’t have, do you know the Government saved $28 million a week.

Yes, an extraordinary amount of money isn’t it.

A week.

But isn’t it terrifying to think that the system was so slack that it could be ripped off to that extent.

Isn’t it terrifying that that had been going on for 10 years.

And more. And more.

28, just by doing checks, by saying that we were going to enforce the law, in some cases, you know, by following up people who had rung in from the public. Just think about that – $28 million a week that we saved the taxpayer.

Oh yes, that’s quite an achievement. Tell me this finally. If you were Prime Minister, when would you call the next election?

Well, I’m not.

No, we’re just playing a little game. If you were Prime Minister when would you call the next election?

If you were looking at the next election, I think you’d say we’ve got the budget back in the black, we’re back on track. We’ve now got to work on reforming the tax system, the ports and the wharves. We need a new mandate from the people to go on and accomplish that work and I’d call the election some time between now and March of next year.

Yeah. Probably I would have thought before the end of this year. But then again I’m not Prime Minister either. I never will be. Will you be?

Oh do you think I’d ever be a radio commentator?

No, that’s not the answer. Will you be Prime Minister?

Oh look people ask you those sorts of questions from time to time but I never think about it really.

But not too many people with such sincerity as I just asked you.

Well, you know, I never think about it. I’m happy being a Treasurer. There’s a lot of good work to be done and I intend to do it.

It seems you did a lot last night. The budget has been very favourably accepted and seriously, congratulations on it. I think you’ve done extraordinarily well. Again let me say I believe it is bland for the very reason that I mentioned and that is that you’re preparing yourself an election, and I don’t blame you. I don’t think anybody would.

Well I appreciate that John. And we appreciate too the way in which the public has given us such support to accomplish what is going to be a very good outcome for Australia.

Okay. Thanks for your time Peter. Terrific to talk you. And I can tell my friends capital gains will be looked at closely.

No doubt they were listening in.

I’m sure they were. Thanks for your time.

Treasurer Peter Costello.

ENDS