Transcript No. 99/33

Hon Peter Costello MP

7.30 Report

Tuesday, 11 May 1999

8.10 pm

SUBJECTS: Budget

SUBJECTS: Budget

OBRIEN:

Joining us now, the man who shaped this budget, his fourth for the Howard Government, Treasurer Peter Costello.

Peter Costello, listening to your rhetoric tonight, its as if youre saying let the good times roll.

Well, well weve had a good period in Australia. Not only has the economy grown, but it has grown in a region which has been in severe recession. If we were to go back 18 months ago Kerry, most people would be saying wed be in recession by now. And Korea and Japan and Hong Kong and Singapore and New Zealand and Malaysia, they all went into recession. We not only grew, we beat the world. We beat the Americas and Europe and the G7 and the OECD. Now, we think that the world will catch up with us a bit. I mean well come back to 3 per cent. But when I say 3 per cent growth, in Europe they would consider that a boom, and if we can get through this period of world uncertainty and instability, bottoming at 3 percent growth, I think the next decade, the decade, the first decade of the next century could be something very special for our country. We could have growth stepping up, we could have unemployment stepping down, we could be debt free, we could become not just a leading economy in this region, but in many respects in living standards, we could lead the world.

Okay. Youve also said leading up to this Budget that this Budget was also going to deal with unemployment that you werent turning your back on unemployment. But it does seem that the best youre offering in this Budget is to hold unemployment at its current levels. Is that good enough given the size of your surplus, given the other possibilities that you might have brought into play?

Well lets, lets make a few points about unemployment. Its too high but it is the lowest in a decade. Its taken us a decade to get out of that Labor recession back to 7.4 per cent. Unemployment will be fixed in Australia if we engage in reform. You wont improve unemployment by doing nothing. This idea that all you have do around is sit, sit and do nothing and youd solve unemployment, what we said about unemployment is this; strong economy, better industrial relations, new tax system, weve got the doubling of the work for the dole which is changing the interaction between the welfare system and work, and I think we are poised for a really big opportunity in relation to unemployment but youll only get it if the reform continues. If the Senate stops tax, if the Senate stops industrial relations, if the Senate stops reform of the welfare system, well, we wont make the inroads. Just as we are seeing the benefits now of the reforms four years ago, if we do the reforms now we are going to see the benefit in the years to come. But its all about the reform process.

Treasurer I wonder if I could come in here. Theres a very interesting bit in the Treasury papers part of the Budget where the Treasury actually says theres scope for unemployment to fall significantly below the current level of 7 per cent without igniting inflation. Now youre still predicting 7 per cent, so why arent you doing more. If the Treasury says it can come down, why arent you doing more now?

Well thats part of a statement on which we throw forward to the next decade. And in that statement we look at productivity and we say theres a very interesting thing has happened to this economy, in the last two years, productivity has stepped up. Its gone up a notch, its gone above 2 per cent. If you can maintain that productivity step up, you can increase the speed limit of the Australian economy. Weve always thought the long term growth rate in Australia is 3 – 3 . If you can have a long term growth rate of 4 per cent then you can make serious and big inroads into unemployment and thats what its switching forward to. But again you dont get there by doing nothing. You only

confidence that that will happen?

Well, well look I, we have a program which can make it happen. What stands between us and these opportunities of course is the Senate and we are going to argue our case with the Senate just as weve argued it with the Australian electorate. But if you want to sit around and say well weve run a 1930s tax system, you wont run a 2010 employment strategy.

But what exactly is your program. I mean weve got the tax package and the Senate will decide on the tax package soon, but what is your reform agenda for this term beyond the tax package? What are the key reform objectives?

Well, lets not overlook the tax package because thats probably the biggest reform of the tax system in what, 70 years. So thats a pretty big meal in itself and lets not overlook the privatisation of Telstra which is the biggest..

But theyre there, theyre on the board now.

Lets, lets you know just say theyre highest score on the board and lets start kicking and adding to it, Kerry.

Yes, were waiting.

Weve got our pay off debt strategy, weve got our industrial relations changes and weve got our changing of the disincentives for work in Australia. Now the work for the dole strategy is all about changing disincentives, changing the inter-action between welfare and work.

Just on that point, youve doubled the numbers but have you really evaluated how well its worked? In other words can you tell me tonight that of those who have gone through work for the dole how many of them have gone into work and you can now confidently say are back in the workforce?

Yes, yes I can. I dont have the precise figure here but Ive looked at them, the Minister can give you them. The numbers that go into work , from work for the dole, show its the most successful of the programs that weve run. It has, see what it does, it does two things. One is it gives people meaningful workouts. When people are out of work for a long time they dont have the regularity of fronting for work and staying there and all of those sorts of things and it gives them that ability. The second thing, is it gives additional, so it gives them confidence, it gives additional incentive to go and find employment.

Quite apart from the merits of work for the dole, work for the dole is not a reform strategy for the Governments second term. Now youve talked about industrial relations. How far will you go in industrial relations, will you put forward a second wave industrial relations program beyond what has been foreshadowed so far and what else will you do? I mean this is an ambitious Budget in terms of what the Treasury says. What sort of political leadership do we see from the Government this term?

Well we will put forward a second wave and

Beyond what Peter Reith has already foreshadowed?

Well he foreshowed his second wave last week. You know waves arent done by announcements, they have to be brought into actuality and bringing that into actuality, making it happen is going down this path of opening up the economy. Look let me go further. Australia is a financial centre. Weve come through an Asian recession, our markets dont miss a beat, we grow, we have low interest rates, we have a proposal on the books to abolish FID, BAD, stamp duty on shares and this could be the financial centre of the region.

I recognise that but were talking beyond the tax package Treasurer, weve been talking about the tax package for a long time and weve recognised the value of the tax package. What we want to hear from you is your agenda for this term.

Im giving it to you. As we announced Australia is a financial centre, the measures which will make this the financial centre. Australia as the centre for biotechnology and medical research.

Just on that point

..its something were good at.

Just on that point youve never been renowned for supporting the philosophy of Governments picking winners, but you have done in this instance. Why?

No. Its not a question of going out and saying, well find a company and well give it money.

But you are picking a whole field of operation, biotechnology.

No. Its a question of putting money into the research institutions. The way the National Health and Medical Research programme works, is young scientists have, they might be working in a university, they might be working in a hospital, they might be working in something like the Walter and Eliza Hall Institute

But youve earmarked biotechnology?

They put in applications for research. Now, a very small proportion of them are granted at the moment. By doubling the fund you double the capacity for those scientists to explore the frontiers of knowledge. What the Biotechnology Australia will do, is it will provide an advice centre for the commercial pick-up of those things. And were not going to go out and say that wed give it to this company or that company. We will give it to the Australian scientists who can push back the frontiers of knowledge and provide an Office that can help in advice for the next stage.

While were on health, with the new community rating system for private health insurance, to what extent do you expect that to raise the level of membership of private funds?

I think this is a big thing. Youve got to think about this. If you join health insurance some time in the next 12 months from 1 July, you will be credited as having joined at the lowest age and you will get the lowest premium for life. If you dont join within the next twelve months, or you are not currently a member and you join later in life, you will have a higher premium. Now this is a very strong incentive for people who are currently outside the private health insurance to go into lifetime cover. I think this is the biggest change to health insurance that weve seen in a long time.

How will this help address the fundamental problem affecting public hospitals, that of people not letting on that theyre in private funds going into public hospitals because theyre concerned about that gap between what they have to pay and what theyll get back from the fund?

Its got to be looked at as part of an integrated package, because as you know under the health care agreements, we also increase funding to public hospitals, the agreement with the States. But the more you turn up, the thing about private health insurance Id put is this, the Government will pay one third of your premium. Now what that says is, from the Governments point of view, every dollar we pay on the premium $2 goes into the health system. Its a way of getting more money into the overall health system, its a way of getting more money into the private hospital sector, which is currently under utilised, and it is a way of cutting queues in the public hospital sector. What happened in this country is, people wouldnt take out private health insurance because they thought to themselves that if I ever get sick I will go to a public hospital anyway, so why would I pay.

Very quickly, were are out of time. But with such a healthy surplus, and as youve presented yourself this time as an education Government, education friendly Government, did you really have to take away that lifeline, to clever students living in disadvantaged circumstances who have for the past couple of years, at least, enjoyed a subsidy to assist them into university?

Well, it wasnt a subsidy for living expenses. What those scholarships could do, is they could pay your tuition.

Yes. It was an incentive to go to university.

Now, the fact of the matter is that under the HECS scheme any student can have an interest free loan to pay their tuition anyway, and it only gets recovered when they get to a decent income. So, its just one of those things, its not a big measure, I think it is about $10 million or something per annum. Its just one of those things, the Department sat down and said is there any evidence that this program gets poorer kids that wouldnt otherwise go to university, in. It wasnt fulfilling its objectives. We take the view that if programs dont fulfill objectives, you review them.

Now, you dont just let taxpayers money go out on them forever, and everybody whos currently got a scholarships is quarantined for life.

And were out of time. Peter Costello thanks for talking with us.