Transcript No. 2001/068

TRANSCRIPT
of
HON. PETER COSTELLO MP
Treasurer

Radio National – Interview with Kathy Vanextel
Wednesday, 23 May 2001
7.40am

E&OE

SUBJECTS: Budget

VAN EXTEL:

Thanks Vivienne. Good morning Treasurer.

TREASURER:

Good morning Cathy.

VAN EXTEL:

Have you spent big on older Australians at the expense of middle Australia?

TREASURER:

Well, first of all on middle Australia, a person on average earnings today pays a top tax rate of 30 per cent and last year they paid a top tax rate of 43 per cent. So there has been a very significant cut in income tax for middle Australia and that’s helped a lot of families. And in this Budget what we do, what we’ve done, is we’ve introduced tax cuts for older Australians. If you’re a single older Australian, you can earn up to $20,000 without paying any tax. And for a couple up to $32,000, no tax, no Medicare levy and that is a reward for Australians who’ve saved for their own retirement, looking after themselves. They deserve it, the economy could benefit from it and the Budget could afford it.

VAN EXTEL:

Just in terms though of the middle income earners, there was some expectation that there would be further income tax cuts beyond what was presented last year, so there will be disappointment.

TREASURER:

On 1 July last year, the largest income tax cut in Australia’s history was introduced. The largest income tax cut in Australia’s history and it’s what 11 months old. You can’t sort of do the largest cut in history every 11 months or so. It was the largest cut in the first 99 years of Federation. And look I think income tax should be cut. That’s why we did so much work to do it. We nearly got all of the tax cuts through the Senate, you’re aware the Labor Party blocked some of them. But they are going to flow they are 11 months in, they’ve brought a person on average earnings down from a top rate of 43 cents to 30 cents. And have been of great benefit to families who additionally had increases in family allowance. Now it’s the turn for older Australians to share in the benefits of economic policy.

VAN EXTEL:

Well looking at the seniors then, is this a concession as Labor argues, that the GST has been hurting and that people weren’t adequately compensated, particularly pensioners?

TREASURER:

Well on the self funded retirees, Labor never accepted that self funded retirees should be treated on the same tax basis as pensioners. You’ve got to remember this, Labor always charged a self funded retiree more tax even when they had the same income as a pensioner. That was Labor’s view. Labor’s view was that self funded retirees should pay more tax than pensioners even on the same income. We first of all put them on the same basis and now we’ve kept them on the same basis and just gradually increased the threshold.

VAN EXTEL:

But when we talk about say the pensioners, where they are receiving a $300 one off payment is that a concession by Government that GST has hurt them?

TREASURER:

No, because when the tax, New Tax System came in on 1 July, the pension was increased.

VAN EXTEL:

And there was an expectation amongst a lot of pensioners that they would receive a $1000. There’s a lot of anger that a lot of them didn’t receive that.

TREASURER:

No, the pension was increased, the pension was increased 4 per cent on 1 July last year and the pension has been kept 2 per cent higher than the cost of living. The cost of living includes the tax changes, so that’s what came in as part of the New Tax System. This is something in addition and something separate. This is something that we’ve been able to pay to pensioners because the Budget was stronger than expected. For all of the talk last year about the Budget, the Budget came in stronger than expected and we decided who should share in the benefits of a stronger Budget. We thought that it was something that pensioners deserved and so they’re getting an additional payment which if the Opposition doesn’t play round in the Senate, could be paid as early as next month.

VAN EXTEL:

Alright then, back dating tax relief for self funded retirees, the immediate payment of $300 for pensioners, as well as the fast tracking of tax cuts for new motor vehicles for business, all suggest that the Government is leaving the door open at least for an early election?

TREASURER:

Well look, I don’t call elections. You’d have to put that question to the Prime Minister. But I think I’ve explained about self funded retirees and pensioners. Can I just explain about the cars because you raise that. If you’re in business and you buy a motor vehicle today, you pay no tax. If you buy an interstate trucking rig that’s going to be a tax saving of about $30,000. The reason we brought that measure forward, that was always going to come, but it wasn’t going to come until 1 July 2002, is to give people incentive to go out and invest in equipment. And that’s really to make sure that we pump a little bit of more stimulation into the economy. Business ….

VAN EXTEL:

Is that because you received advice that we needed an extra stimulus immediately?

TREASURER:

No, its because the economy this year is not going to be as strong as it was in previous years. We were growing at 4 per cent, we were growing at the fastest economy of the industrialised world for the last 4 years. Growth has turned down a bit this year and that’s why the economy can do with some stimulus. It will be good for the economy and then growth will kick up again next year.

VAN EXTEL:

On the issue of business, you’ve delivered on the $5 billion business tax cuts as promised. Business community though is still arguing that the measures in the Budget didn’t go far enough, particularly in terms of the impact of the GST and on the simplification of BAS.

TREASURER:

Well, one of the things we put in the Budget for 1 July is what we call a new simplified tax system for small business which is on their income tax side. They can do their accounts in cash, they have pooling arrangements in relation to depreciation. I think that will be very warmly welcomed by small business. In relation to BAS, we put in place a number of measures earlier in the year for simplification. Since ….

VAN EXTEL:

The argument is they don’t go far enough.

TREASURER:

Well, since then we’ve been through another BAS. And as I pick up feed back, people found that Business Activity Statement much easier. You don’t even have to do a calculation anymore. You can just pay what you paid last time and we’ve now moved to annual reporting. I think that will be of great assistance.

VAN EXTEL:

Moving on, looking at the issue of welfare. Could you be accused of being tricky in the sense that you’ve allocated $1.7 billion for welfare reform, but are expecting savings of $900 million which means that essentially you’re committing around $770 million. Now the welfare groups are saying that it should have been $1 billion net.

TREASURER:

I don’t think the right thing in reforming the welfare system is to say we just, we judge it by the figure in front of it. I think when you are looking at welfare reform you should judge it by its success. If we were really successful in reforming the welfare system, long term, it wouldn’t cost anything. It would produce savings. That’s why you do it. You don’t actually reform the welfare system to put a figure in front of a Budget measure. You do it because….

VAN EXTEL:

Patrick McClure who was the architect ….

TREASURER:

….. you’re trying to get people off welfare and into work. And if you were actually successful, it wouldn’t cost anything, in fact it would be a net saving.

VAN EXTEL:

Alright, Patrick McClure who is the architect of the essential welfare blue print is arguing that while the measures are positive, he’s disappointed that they don’t go far enough. He would have liked to have seen some of that spending much earlier.

TREASURER:

Well, that’s fair enough and I respect Patrick McClure for his views. I’ve done six budgets and I’ve never yet come across somebody who didn’t think their area should have been given more funds.

VAN EXTEL:

Alright, just…

TREASURER:

And it wouldn’t surprise me if somebody said that, the trouble is in a country of 20 million people where everyone thinks their area should be given more funds, you can’t do it all and you’ve got to try and allocate as fairly as you can and that’s what I think we’ve done in this Budget.

VAN EXTEL:

Now you have talked about a vision, this Budget being a vision for the future. Apart from welfare reform, there’s very little evidence of that.

TREASURER:

Oh this is the biggest defence build-up in Australia’s peace time. This will carry Australia’s defence forces in a way we have not done before. This is the biggest…

VAN EXTEL:

What about innovation technology, research and development?

TREASURER:

This is the biggest investment in Australia’s environment ever, with the Natural Heritage Trust now funded out to 2007. This is the biggest investment in strengthening Australian agriculture, plant, quarantine, attending to protecting our industries. You ask about innovation, this Budget funds a $2.6 billion innovation package, doubling of research, post graduate research. And most of all this Budget funds $5 billion worth of tax cuts and that’s a big investment in Australia’s future.

VAN EXTEL:

Treasurer finally, $0.5 billion surplus forecast, it makes it tight then for any, $1.5 billion I should say of surplus forecast. It makes it tight for any big spending in an election campaign, both for the Government and for the Opposition. Will that surplus survive a campaign?

TREASURER:

Well, a surplus is actually an outcome after you’ve finished all of your spending and all of your taxing, is what you expect the outcome to be. And that’s what I expect the outcome to be in June of 2001.

VAN EXTEL:

Any additional spending?

TREASURER:

In relation to the election campaign, I imagine it will probably be fought on what’s going to happen in 2002-2003 and the outcome in 2002-2003 will depend very much who’s in Government. If it’s the Labor Party I imagine we will be back in the land of deficit. That’s where we were under the Labor Party. If it’s a Coalition we will still be in surplus thereafter because we believe in balancing the books, keeping interest rates low, strengthening the economy.

VAN EXTEL:

Peter Costello thanks for coming in today.

TREASURER:

Thanks.