Interview with Paul Bongiorno

Meet the Press

Sunday, 30 April 2006

 

SUBJECTS: Budget, family tax benefits, Private Kovco, interest rates, foreign debt, wind farms, nuclear power

BONGIORNO:

Hello and welcome to Meet the Press. Record petrol prices puts pressure on interest rates and make framing this year’s Federal budget that much harder.

TREASURER (Wednesday):

Look, you hear of some companies that are announcing already that they want to put up prices because of fuel costs. Then, C, if a large number of people were to do that, then it wouldn’t help anybody.

BONGIORNO (Wednesday):

And, D, it puts pressure on interest rates, doesn’t it?

TREASURER (Wednesday):

And, D, the best answer always comes from Paul Bongiorno.

BONGIORNO:

This morning, the dialogue continues. The Treasurer is our guest. But first, what the nation’s papers are reporting this Sunday April 30. The ‘Sunday Mail’ leads with – mum’s fury, private Jake Kovco’s mother angrily denies her son took his own life. All the papers give prominence to the Kovco casket fiasco as the Government and the military struggle to make amends, an honour guard of 300 members of the dead man’s unit, the famous Third Battalion of the Royal Australian Regiment, greeted the flag-draped coffin on its return. The ‘Sunday Age’ reports – Costello warms to nuclear option, the clean energy of the future. The Treasurer is quoted saying the evidence is there of gradual global warming and we have to begin addressing it. The ‘Sunday Times’ has – home owners dread rate rise. Family budget faces crunch. The paper says with inflation on the rise there’s speculation that interest rates will rise to rein in spending. In just over a week, Peter Costello will deliver his 11th budget, an endurance record in itself, and it’s shaping as perhaps his most challenging. Welcome back Treasurer.

TREASURER:

Good to be with you Paul.

BONGIORNO:

If I could go to the Kovco matter, everyone’s talking about it this morning, it’s been a tragic week really for the Kovco family, made worse by the bungle. Nobody can be happy about that, can they?

TREASURER:

Nobody is happy, it shouldn’t have happened. It’s terrible for the family that it did happen, and our hearts and our sympathy go to them and of course our apologies go to them for what has happened. The most important thing now of course is to have an inquiry to first establish the circumstances of the death and then, of course, look at the circumstances of the delivery of the body back to Australia. But I hope now the family can get on with the burial and they can come to terms with their grief and the process can move on to establish the truth through these inquiries.

BONGIORNO:

On that point, it seems that the Defence Minister maybe added to the family’s grief by giving a different version, by speculating on how the death occurred?

TREASURER:

Well, I don’t think there’s any point in speculating now. What obviously happens in these circumstances is a terrible casualty happens, you make inquiries, you try and find out what happened, you get one explanation, but until everybody has been interviewed and all the pieces have been put together you never really get a complete picture and this is what a coronial inquest does of course. It goes to everybody, examines all the forensics and you come to a conclusion. Until you get the whole picture, you can’t actually say what happened.

BONGIORNO:

Is there any sort of lesson to be learnt from privatisation here? Some people have been critical of the military privatising the return of the body. I suppose the point being – maybe there are some things that should never be privatised?

TREASURER:

Well, Paul, you’ve got to make the best arrangements as you can. Bear in mind you’re coming out of a country where there are big security risks, you’ve got staging points in the Middle East. You’ve got to make the best arrangements and the quickest arrangements that you can. I don’t think you should broaden out from this to any general principle of Government administration except to say that the Government should do everything that it can to ensure these errors do not occur again. And can I tell you this, it is not matter of cost or anything else. Every cost that is required to do that will be provided for. It’s just a question of who’s on the ground, who has the arrangements and who has the facilities at the time.

BONGIORNO:

Coming to the budget, how’s it going to work this year? Do you have to wait until you see what the Reserve Bank board decides on Tuesday before you can finalise your budget, finalise what you’ll give and what you’ll take?

TREASURER:

No. The conduct of our monetary policy, which I put in place in 1996, is to have the independent bank monthly meetings setting the cash rate. It does that according to a formula that’s been agreed between the Government and it, an inflation formula of 2% to 3% underlying over the course of the cycle. That goes on on a monthly basis. The fact that there hasn’t been a change for some time means many people think that that process hasn’t been occurring. It has been occurring. It’s been occurring every month and that will go on before the budget, after the budget, for years to come, I hope. So, we don’t sit around and wait for these things. We make our own assessments as to what the economy needs, where it has to go, and we take the right decisions accordingly.

BONGIORNO:

You, as you’ve just pointed out, you have taken your hands off that particular lever, but in past years you’ve voiced your opinion. There are a lot of nervous people out there waiting on the Reserve Bank’s decision. Do you think there is a case for a change?

TREASURER:

For over 10 years now, Paul, I have studiously refrained from predicting future interest rates. You know that because you ask me on a daily basis.

BONGIORNO:

I’m just wondering if you thought there was a case for a change.

TREASURER:

Let me make this point – interest rates in this country will be set as they always have been, according to an inflation target, 2% to 3% underlying over the course of the cycle, and this will be determined by the board at its meeting. I don’t predict the future of interest rates. I’ve got other things that I’m turning my mind to at the moment, and that is an independent arrangement which has served Australia well over 10 years and will continue.

BONGIORNO:

On Wednesday at the release of the latest consumer price index numbers, Labor’s Wayne Swan said the rise in the basic cost of living makes tax reform all the more urgent.

SWAN (Wednesday):

Treasurer Costello in this budget must put an end to the tax grab on additional earnings of families. Families when they work a bit of overtime, when they do an extra shift, shouldn’t be losing 50, or 60 or 70 cents in every additional dollar they earn. That’s why we need some new policies with a bit of vision.

BONGIORNO:

You’ve said that women will be a big concern, a big focus, in this budget. Will you be addressing the issue raised by Wayne Swan there?

TREASURER:

Paul, as you know, he opposed tax cuts at the last election sorry, he opposed them the last budget he voted against tax cuts in the last budget. This is the kind of nonsense you get out of the Opposition. They vote against tax cuts and then demand that taxes be cut. I think they learn this at Labor Party training school not to stand for anything, not to have any policy but to demand things that they’ve previously voted against. I think we can put him to one side. What we can say is that last year we cut tax, the year before we cut tax, the year before we cut tax, we’ve legislated another tax cut from 1 July. If at the end of the budget process, after funding initiatives in health, in defence, in security, we can balance our budget and relieve the burden of tax, that is what we will aim to do. We’ve now got the Australian economy into a position where we can balance our budget, where our debt is low. We have big expenditures coming, but if we can fund those expenditures and reduce taxes, that’s our aim, this is the rule we’ve established over the last three years and we’ll continue to observe that rule.

BONGIORNO :

When we come back with the panel, we ask – is Australia’s record foreign debt a bigger problem than the Government admits?

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BONGIORNO:

You’re on Meet the Press with Treasurer Peter Costello. And welcome to the panel – Laura Tingle, the Australian ‘Financial Review and Michael Harvey, the Herald Sun. Remember the debt truck launched by the Liberals in Opposition back in 1995? It drew attention to our then record foreign debt. Mr Howard and Mr Costello had no doubts it was putting pressure on interest rates. 11 years later the Government has repaid $96 billion of its contribution. But Labor is unimpressed.

BEAZLEY (April 21):

All this Government has done is transfer the debt from Government to ordinary Australians. HECS debt up for Australian kids, credit card debt up for Aussie families, and the foreign debt up massively for all of us, from something like $180 billion when this Government came to office to $500 billion, half a trillion now.

TINGLE:

Mr Costello, you’ve been heralding the fact that the Government has no net Government debt any more but Australian households really wallowing in debt. At the very least that’s a big political problem for you now. Isn’t next week’s budget really going to be about trying to ameliorate the effects of petrol prices and other pressures on household budgets, on debt-laden households?

TREASURER:

Well, when you’re talking about debt, there’s a few different issues that you’ve got to carefully sort out. Otherwise you get people like Kim Beazley who don’t understand it making the kind of howlers you just saw him making. The Government doesn’t owe any debt, so that taxpayers have no obligation to pay taxes either to service debt or to re-pay it. We’ve repaid $96 billion of Labor’s debt. Now, then when you come to foreign debt, well, if the Government doesn’t owe any money, who does owe money to overseas lenders? Principally, the Australian banks. About 80% of that debt is owed by Australian banks – Westpac, National, ANZ, Commonwealth. That would be a worry if the Australian banks suffered some big shock which they weren’t prepared for. We’ve done stress tests on the Australian banks. They are very well capitalised, they are extremely profitable, the IMF, APRA, the Reserve Bank, all believe that the Australian banking system which carries most of that foreign debt under various scenarios wouldn’t be in trouble at all, scenarios such as a property crash, scenarios such as an interest rate rise. Whilst the Government owes none of that debt, while the private sector is well capitalised – and we don’t get complacent about that – then as the IMS has found, this is not a substantive problem.

TINGLE:

It is a substantial problem for Australian households and it’s not good, is it, that the economy is so driven by debt these days?

TREASURER:

Well, Australians have borrowed money during a period of exceptionally low interest rates, as you would expect them to. They were borrowing far less when home mortgage interest rates were 17%, with home mortgage interest rates at 7% they do borrow more. For many of them it’s enabled them to live in better houses or to renovate or to buy cars or to educate their children. As long as you see the capacity to service those borrowings and as long as the banks aren’t getting lax in relation to lending standards, which would be a worry, then you look back at the economy and you allow people to make their own decisions, but I do want to re-emphasise this point because I made it to the bankers myself, they shouldn’t become lax about credit standards, they shouldn’t be lending money to people who on various scenarios might have trouble with servicing. I’ve made that point to the banking sector. I’ve received assurances from the banking sector that their credit standards aren’t being reduced, if anything they believe that they’re actually being more prudent about them.

HARVEY:

Treasurer, one of the biggest pressures on household budgets is of course petrol prices and the Prime Minister has made some comments suggesting that family tax benefits are perhaps the offset, if you like, to that pressure. Do you see family tax benefits indeed as a tax cut?

TREASURER:

Well, they are, because with the family tax benefit a family with two children pays no tax at about $40,000 to $45,000. Let’s think about this for a moment. A family which is on almost average earnings in Australia, which are between $40,000 and $50,000 with two kids, pays no tax, zero. Because the family tax benefit nets out, cashes back, the whole of their tax liability. People sometimes say, “Well, let’s cut taxes for middle income families.” You can’t cut them because they’re paying none. They’re not paying any income tax. The only way we found that you could actually improve their position was by increasing the family tax benefit, which is a $600 per annum, which we did you’ll recall shortly before I think it was the 2000, 2001 election.

HARVEY:

So are changes to the family tax benefit in this budget going to make up for petrol price rises and indeed the prospect of interest rate rises?

TREASURER:

Michael, interest rate rises will go on across the cycle for a long period of time. Petrol price rises will come and they will go. Let me make this point. Let’s suppose the situation deteriorates in Iran. Then you would expect the petrol price to go up, could go up very very substantially. Now, the Australian Government of course has to bear in mind assistance to families, and we do, and that’s why families pay no net tax. But the idea that there is a countervailing action in the Australian Government for every development overseas is not the way we base policy. What we base policy on is within the Australian economy, within the ability to raise revenue, to service, to fund those services that we need and balance our budget, what’s the best deal we can do for families. That’s the way we set it.

TINGLE:

Treasurer, you’ve talked about what you can do for families, but they’re not the only ones and some of the hardest hit group at the moment are the very group you want to see getting into the workforce, that’s the single mums. Is there something you can do for them, because they must be being hit by all these pressures as much as anyone else?

TREASURER:

Sure. For those that are on pensions, what we do in fact is we tie our pensions to wages. Wages are moving higher than inflation, so pensioners, people actually on pensions of one kind or another, have actually been getting real increases now for five or six years. In addition to that, single mothers would get family tax benefits including the $600 per child lump sum paid at the end of the year, remember, that’s the payment Labor said didn’t exist. Had a mother come up to me the other day, she had four kids and she said she was looking forward to getting $2,400 lump sum tax free, at the end of the financial year which is the $600 payment.

BONGIORNO:

Treasurer, what about the 2.7 million Australians who are either childless couples or singles, they’re not helped by Family Tax Benefit A or B to meet rising prices?

TREASURER:

Well, you’re right, Paul, that our tax system favours families. That is, a family will pay less tax than a single person on the same income. You’re absolutely right about that. But I wouldn’t walk away from that for a moment, because the family’s got to support mum, dad and a couple of kids on that income. The single person only has to support one person. The fact that the family gets a much better tax deal and at average earnings pays no tax, actually helps that family with the raising of the kids. The raising of the kids is the future of our society. In an ageing society, we need more kids and they’re our future, and I don’t walk away from that for a moment.

BONGIORNO:

Coming up, Australians have doubts about the ethics of three senior Government ministers. And in the cartoon, Mark Knight in the Herald Sun is scathing over the private Kovco casket bungle – tomb of the unknown solder, Kuwait airport – for the mascot, ‘disgrace’ isn’t the word.

BONGIORNO:

You’re on Meet the Press. Late last week another email emerged in the Cole Inquiry warning the PM, Foreign Minister and the Trade Minister of concerns in the UN Security Council over corruption of oil-for-food sanctions against the regime of Saddam Hussein. Again, the ministers either could not specifically recall or believe they did not see it. After similar responses during their appearances at the commission, the Morgan poll found 54% of Australians thought the PM didn’t act ethically. 56% for the Foreign Minister and 55% for the Trade Minister.

HARVEY:

Treasurer, these are pretty worrying poll figures. You must be concerned about the prospect of political damage to the Government, or is this issue just too complicated for voters to care about?

TREASURER:

Look, the Cole commission will bring its finding down. It will make findings on what Ministers knew or didn’t know, what they did or they didn’t do. Let’s wait for the finding. I think once that comes in the facts will be there and people can make their own conclusions, but in the interim, just let’s acknowledge that the Government set up this commission, that the commission is charged with getting to the bottom of things and the Government has gone further than any other Government in the world in allowing…

BONGIORNO:

It’s a damaging perception, though, isn’t it?

TREASURER:

Well, whilst these things are going on, Paul, you are hearing one side of the story with witnesses coming through. Let’s wait until we’ve heard all sides of the story.

TINGLE:

Treasurer, about this time last year, you talked about the benefits of a smooth transition in the leadership of the Coalition. Do you still think that that would be in the best interests of the Government, and is there enough time to have a smooth transition of leadership, if necessary, during the current term of the Government?

TREASURER:

Well, of course, it’s always in the best interests of a Government, and anybody who thinks about that for a moment will realise that. But at the moment we’re focused on doing the budget. I’m totally focused in relation to that, and I’m not being distracted by other things.

HARVEY:

But beyond the budget will you rule out a challenge in this term, Treasurer?

TREASURER:

Michael, as I said, I’m not being distracted by anything else. I know that I get asked these questions every budget time. Experience has shown me that, whatever you say, people can always beat up the story. I have no intention whatsoever of beating – allowing anyone – even a master such as yourself, to beat up a story.

BONGIORNO:

It’s reported in one of the papers today that you haven’t committed to a 12th budget, is that right?

TREASURER:

Well, Paul, can I please just deliver this budget. I think there’s enough work to be done on the 11th budget before we start working on the 12th budget. As I said earlier, the budget is the premier economic statement of the Government. It’s a statement of our revenues and our expenses. We have a background of moving petrol prices, we have a background in relation to monetary policy which will rise and fall over the long and medium term, which has its own independent cycle, which is related to inflation, moving up and down all the time, and the Government must make sure that its decisions are consistent with ensuring that we have good, strong economic management.

HARVEY:

Let’s talk about some specifics in this budget then. It’s going to be a big surplus, plug some holes with that. We talked about front lines before, what about our northern front line? A big issue seems to have been the numbers of illegal fishing spottings on the rise again. Is there more we can do on that sort of issue?

TREASURER:

I think there is more that we can do, which is not to say we haven’t been doing anything to date, but certainly protecting our fisheries is a priority for this Government. We know that there have been a lot of vessels that have been sighted, many by some of the indigenous people. I think an investment in providing trackers or people who can give alerts, particularly amongst the indigenous community in northern Australia, would be a very, very positive thing to do. And the Government is also determined that those vessels that have been apprehended will be destroyed. We are looking at boat destruction facilities which will be used for illegal apprehended vessels in northern Australia, so that the message that goes out is – your boat might get here but it will never get back because it will be destroyed in Australia. We want that message to go out to illegal fishermen who are tempted to come into Australian waters in the north.

TINGLE:

Treasurer, you’ve been quoted again today talking about the benefits of nuclear energy, possibly in Australia in the future. But isn’t this a bit of a contradiction in terms? You’re not talking much about other forms of energy, and for example, wind farms seem to be something that the Government just can’t sort of accommodate, particularly in Coalition electorates. Don’t you think we should be doing a bit more to encourage some of those other forms of energy?

TREASURER:

Well, on wind farms, people make their own decisions about the uses for their land, but you’ve got to bear in mind there are planning requirements in relation to those things. Laura, you may not like your next-door neighbour putting a giant pylon in their backyard, the views of neighbours and planning requirements have been…

TINGLE:

Probably better than a nuclear silo.

TREASURER:

You may not like that either. And planning would have to be taken into account in the siting of a nuclear generator, quite right, absolutely right. But I think longer term, as we look to alternatives to fossil fuels, nuclear will come right back. It is coming right back.

BONGIORNO:

Do you believe it will be a hard sell in Australia, given that we don’t even want to dispose of our own nuclear waste for medicinal purposes?

TREASURER:

Look, we mine uranium and we sell it to people to build nuclear power stations. What would be the logic in saying, “Nuclear power stations are acceptable in every other country except the one where the uranium is mined?” What would be the logic in that? If it becomes commercial – and that’s a big if – because we have cheap supplies of fossil fuels – but if it does become commercial, I believe we thought to do it.

BONGIORNO:

Thank you very much for joining us today, Treasurer Peter Costello, and thanks to the panel, Laura Tingle and Michael Harvey. Until next week, goodbye.