Interview with Jon Faine

774 ABC

Thursday, 23 August 2007

8.35 am

SUBJECTS: Commonwealth surplus, investment and spending, State finances, tax cuts, nuclear energy, Dr Haneef, Geoff Cousins, housing affordability, Exclusive Brethren

FAINE:

Peter Costello, welcome back to 774 ABC.

TREASURER:

Good morning Jon.  Good to be with you. 

FAINE:

$17-plus billion, you have got money to burn, literally.  The States are struggling to pay for things.  Why not give the States more money?

TREASURER:

Well I am not going to burn money.  What we are going to do is we are going to invest for all Australians.  We are going to invest in three ways.  The first is we are going to put $7 billion into the Future Fund which will start provisioning for liabilities that we haven’t yet got the money to pay for – superannuation liabilities.

FAINE:

Which haven’t bothered you for the entire term of the Howard Government.  They have been sitting there, those sorts…

TREASURER:

No, no.  We started the Future Fund a couple of years ago.

FAINE:

Yeah, but you are throwing money into it now.

TREASURER:

Not throwing money into it.  Let me make this point.  The Commonwealth Government doesn’t pay for the superannuation of our defence personnel.  Every private employer puts money into the pay-packet and money into the superannuation. 

FAINE:

It’s just a Commonwealth priority.

TREASURER:

No, no, no.  The Commonwealth Government has never put money into superannuation.  And in 2020 we are going to need, on current actuarials, about $140 billion, mainly for our defence personnel.  So, we are going to put some money into superannuation so we can start covering those liabilities and we have been doing that for a few years.  And we are on track to meet that liability by 2020. 

The second thing we are going to do is we are going to put $6 billion into the Higher Education Endowment Fund which will endow Australia’s universities to build first-class facilities. 

FAINE:

And they couldn’t believe it when you announced the first round of money for this, now you are putting even more money in.  More than they wanted, more than they asked for, more than they expected.  You are putting more in.

TREASURER:

I don’t think it would be more than they wanted.  I think if you went to the universities…

FAINE:

Not in their wildest dreams the Vice-Chancellors (inaudible). 

TREASURER:

If you went to the universities they’d want a lot more but it is quite right, it is the best deal that the universities have been offered in our lifetime.  And then the third investment is $2½ billion into health and medical investment. 

FAINE:

At the same time there is intense pressure on all of the States, and they haven’t got enough money to pay for very pressing, if not more urgent – that is a subjective thing – but urgent priorities that you are not funding them for? 

TREASURER:

But these are urgent priorities.  They are health and medical investment…

FAINE:

What?  2020 defence force…

TREASURER:

No, no.  Well, let’s go to health and medical investment.  An investment which has never been made before, which will allow Australian hospitals to get state-of-the-art technology which they won’t otherwise be able to get.  We have been talking about new generation technology which will come on-stream and will offer people treatments they have never been able to get before and we are making provision for Australia to be able to afford to buy these technologies.  This is a wonderful investment in the health of the population. 

FAINE:

In fact, what you are doing is you are re-creating Federation and you are re-creating the fiscal arrangements between the Commonwealth and the States without ever sitting down to talk to them about it, aren’t you?  You are totally changing the way the Commonwealth works.

TREASURER:

No, I think you are going a bit far there.  Over the time that I have been Treasurer, we have in many respects enhanced State financial relations. 

FAINE:

In what ways?

TREASURER:

Well, the GST. 

FAINE:

There has been no increases as a proportion of GDP.  The States are getting the same proportion from the GST revenues now as they were getting at the start. 

TREASURER:

Which is what they always wanted.  Now, let me make this point.  It is a technical point but follow me through it.  The GST grows in proportion to the economy. 

FAINE:

Yes. 

TREASURER:

It is what is called a growth tax.  It is 10 per cent of goods and services.  As goods and services grow, 10 per cent is always the same proportion.  State Governments never had growth revenues before the GST.  If I hadn’t had put in the GST in place, the States would have been billions of dollars worse off.  Billions of dollars.  The fact they have actually maintained their revenues to GDP actually is a huge win for them.  And let me make this point.  The Commonwealth by the way, during the period, has cut its revenues to GDP. 

FAINE:

You have got a massive pool of money.  You have got a bigger and bigger part of spending it.  The States have not got a growth in the amount, proportionately available to the States…

TREASURER:

The States have maintained their proportion of GDP and the Commonwealth has actually cut its revenues to GDP.  So let me ask you, who has actually done better out of such an arrangement?  Now, I don’t think the States manage their finances well.  If that is your point, yes, I agree with that.  And I think most Victorians would say that the State Government of Victoria could have done much better and there are other States that could have done the same.  But let me make this point.  Their problem is not because the Commonwealth hasn’t looked after them.  This year alone in GST, they will get $9.1 billion for one year. 

FAINE:

And you have got $17 spare, $17 billion spare. 

TREASURER:

And they will get in addition to that, Specific Purpose Payments so that the Commonwealth Government will send to the State of Victoria $16 billion.  More than it has ever had before.  Now, if Mr Brumby can’t manage his finances…

FAINE:

(Inaudible).  There is an obvious mismatch, Peter Costello.  You have got $17 billion spare, the States haven’t got enough to provide the services and infrastructure. 

TREASURER:

No, no, no.  No, when you say ‘spare’, let me say, we have invested every last dollar.  It is not spare. 

FAINE:

You have chosen where to invest it, you could have chosen differently. 

TREASURER:

Well of course a Government always chooses where it invests.  You are not suggesting to me for a moment that Mr Brumby, if he did a surplus here in Victoria, should come to me and give me the money and let me decide where to invest it.  I am the Federal Treasurer, I account to the Australian public.  I manage the nation’s finances and I invest on its behalf. 

 FAINE:

And you will be judged on whether the voters, you know, only a couple of months if not even weeks, the voters will decide whether they think it is right to tuck $17 billion away into the future or to spend it now. 

TREASURER:

Well I think the voters will of course, judge the Government on its record and here it is. 

FAINE:

Victoria…

TREASURER:

Let me tell you what it is before we ask them to judge.  We took the Budget into surplus.  We paid off $96 billion of Labor debt.  We are funding $140 billion worth of superannuation, we have made record investment in health, record investment in education and 2.1 million more Australians are now in work.  That is the record. 

FAINE:

Nineteen minutes to nine.  Jon Faine with you with Peter Costello, Federal Treasurer on 774 ABC Melbourne. 

Yesterday, John Brumby picked up the theme that we raised on the programme yesterday with the State Treasurer.  And in Parliament he said there is $1.5 billion announced so far in this kind of Clayton’s election campaign for projects around Australia, but other than an offer of $30 million for  a $90 million pipeline up in Bendigo, I can’t find an announcement in Victoria to match the hundreds of million being spent in other States with more marginal electorates.  John Brumby, the new Premier here, accuses you of pork-barrelling. 

TREASURER:

Well he has got to make up his mind, doesn’t he?  Is his complaint that the Government is pork-barrelling or is his complaint that we haven’t spent enough in Victoria? 

FAINE:

He is saying both.  You haven’t spent enough in Victoria and you are spending money where there are marginal electorates.

TREASURER:

He is saying both.  He is saying, ‘you are spending too much money but if I am wrong about that, you are not spending enough.’  That is what he is saying.  And you know, you have only got to state his proposition and…

FAINE:

No, he is saying you are spending money…

TREASURER:

…think about it for a moment and you realise how wrong he is.  Believe me…

FAINE:

Well no, it’s quite consistent, Peter Costello…

TREASURER:

No, no, no.  let me go through what we are spending in Victoria…

FAINE:

What is it then?

TREASURER:

…because, well I will go through some of the things that I announced in the most recent Budget.  Particularly, let’s start with health and medical research, which Victoria is a leader in.  In this year’s Budget I announced $50 million to the Murdoch Children’s Research Institute at the Royal Children’s Hospital.  We announced $50 million to pay for the Australian synchrotron over the first five years.  You may have seen Mr Brumby go out and open the synchrotron. 

FAINE:

Yep.

TREASURER:

Do you know that Victoria couldn’t afford to operate it?

FAINE:

Victoria committed to it without all of the partners in place that it was hoping for, correct.

TREASURER:

And then it came to the Federal Government and said, ‘look, we have got this synchrotron but we can’t actually run it.  Will you please go 50/50 in the cost?’  So I allocated $50 million.  But you wouldn’t have known that because Mr Brumby was too busy getting himself up-camera at the opening.  We then put $15 million into the Australian Regenerative Medicine Institute at Monash University.  Now, in last years’ Budget, $50 million to the Walter and Eliza Hall Institute of Medical Research…

FAINE:

But these are Budget allocations, Peter Costello.  He is comparing, you are comparing last Federal Budget, he is talking about announcements in just the last few weeks to do with this election…

TREASURER:

Well hang on, I am going through, let me finish.  $37 million for the Howard Florey Institute.  These are all things which I did to support Victoria’s very important health and medical research.  $10 million for the Macfarlane Burnet Institute for medical research and public health.

FAINE:

It doesn’t compare to $500 million in South Australia just in the last few weeks.

TREASURER:

On what?

FAINE:

On, there were some infrastructure projects there.  And in Queensland there were road and tunnel projects and the like.  Hundreds of millions of dollars, everywhere else. 

TREASURER:

All right, let me just finish off with…

FAINE:

Well I don’t really want you to read through an entire list that I can see you have got.

TREASURER:

Well it is a long one, I have got the Olivia Newton-John Cancer Centre.  Did you know the Commonwealth put money into that?

FAINE:

Yes, that was announced months ago. 

TREASURER:

$10 million for the Murdoch Children’s Research Institute.  Now…

FAINE:

You are a Victorian, you are constantly telling us how important it is that the country not be run out of Sydney and all the rest, but Victoria is getting a rough deal. 

TREASURER:

Well hang on, Victoria has got more money for health and medical research because it has an advantage in that area and because it has world-class institutes in that area than any other State.  But let me come, because you raised South Australia and of course the big announcement that the Commonwealth Government has made in relation to South Australia is the air warfare destroyers which are going to be built in South Australia.  Now, the big announcement, which again, I had quite a lot to do with in relation to Victoria, is the construction and fit-out of two amphibious ships at Williamstown valued at approximately $600 million with an estimated 500 to 600 jobs.  Now, this is…

FAINE:

The tail end of the South Australian defence contract. 

 TREASURER:

No, no, no, I am sorry.  No, the South Australian is air warfare destroyers.  The amphibious ships are completely different.  These are ships with which you land troops and tanks.

FAINE:

The consolation prize. 

TREASURER:

Well hang on, there are two naval contracts in Australia.  One will be done in South Australia…

FAINE:

Yep.

TREASURER:

…and one will be done in Victoria.  Now, Jon, if you are I were sitting in Sydney and you were at the Sydney ABC, you would now be having a real go at me as to why neither Newcastle or Sydney got a naval contract.  And you would be saying to me, as has been said to me in Sydney, ‘is it true Mr Treasurer, that you lobbied for Victoria to get one of two contracts in the whole of Australia.’  And I would say, ‘yes, it is.  Yes it is.’  So there are two contracts and six states.  And Victoria has one of them.

FAINE:

Not enough to go around.  Wayne Swan from the Labor Party says that if he had $17 billion in surpluses he would engineer tax cuts.  Are you tempted? 

TREASURER:

Mr Swan has voted against nearly every tax cut which the Government has introduced.  Now, not this Budget but last Budget he went to the wall opposing tax cuts.  Now that we have cut tax in the last four Budgets, Mr Swan has discovered tax cuts.  Mr Swan should come out today and say, what incomes, what rates and what thresholds.  And I will make this prediction: he won’t do this because Mr Swan is one of those Labor politicians that walks both sides of the street.

FAINE:

Are you going to unveil…

TREASURER:

He thinks he can get a headline saying he is in favour of tax cuts, he will do it.  If he thinks that he can get a headline saying tax cuts would be inflationary and lead to interest rates, he will say it.  But the last thing I heard from Mr Swan, Jon, actually was that Labor wasn’t even going to have a tax policy at the next election.  So he has changed his mind in the last seven days.  He now wants tax cuts, let him release his policy. 

FAINE:

My question to you is, whether you are tempted by tax cuts?

TREASURER:

Well I cut tax in the most recent Budget and those tax cuts took effect on the 1st of July. 

FAINE:

Could we have a year with two rounds of tax cuts in an election year?

TREASURER:

Well, well – let me make this point – and we have also legislated a further tax cut to take effect on 1 July 2008.  So taxes were cut, what, six weeks ago and there is, legislated, another round which will take effect on 1 July 2008. 

FAINE:

And that was based on economic projections and budget settings that now you know can be completely and utterly superseded by even better figures and you have got billions more so you could engineer another round of tax cuts as we go to the polls.  Are you going to do it?

TREASURER:

Well Jon, I have cut taxes in 2003, 2004, 2005, 2006, 2007 and legislated another one in 2008.

FAINE:

You have just got your elbow, just, yes, sorry, go through again.  You were hitting the cough button with your elbow there. 

TREASURER:

I am sorry.  We cut tax in 2003, 2004, 2005, 2006, 2007 and we have legislated a tax cut for 2008.  And bear in mind also, that is just income tax.  On 1 July of this year, I think as people know, we cut all tax on payments out of superannuation for pensions and lump sums if you are in a taxed fund.  So, it is a pretty good record. 

FAINE:

It is a pretty good record, but my question was a very simple and specific one.  Are you tempted to introduce another round of tax cuts as a policy before we go to the polls?

TREASURER:

Look, I think the tax cuts which are already in the system which took effect on 1 July and the second round to take effect in 2008 are very significant. 

FAINE:

Is that all or will there be more?

TREASURER:

That is my answer to your question. 

FAINE:

Will there be more?

TREASURER:

Well I think I have answered your question. 

FAINE:

I feel like Oliver going up to ask with my bowl of soup. 

TREASURER:

Well I think Jon, you know, over the years if I may say so, you have probably been a bit critical of tax cuts.  You have probably thought we cut tax by too much.  And there are some economic commentators who have said that. Who have said that by cutting tax you risk what is already a very strong economy.  And I defend of course, my tax cutting record and I think it has been entirely appropriate.  But you do have to have a view to the main economy and you do have to make sure that in a strong economy you don’t add to pressures more than you should.  And that is what I bear in mind when I am cutting taxes. 

FAINE:

You can overshoot the mark.  I need to get through a couple of other things because Peter Costello, we are going to the polls to elect not just, a Howard Government, but presumably a Prime Minister who is planning this time, even though we have thought this before, to retire during some time of his term in office and we are electing a Howard-Costello team as much as anything else, are we not?  So let me ask you about some other issues.  Mark Vaile and the Prime Minister disagreed yesterday on whether or not there would be local referenda on whether you want a nuclear power plant in your electorate.  Which side do you come down on?  Do you back the Prime Minister or do you back Mr Vaile? 

TREASURER:

Well I am not sure which side is which but if…

FAINE:

Mr Vaile said there would be a local referendum for any place where we want to put it.  Mr Howard said no, it is commercial considerations that determines where a nuclear power station goes. 

TREASURER:

Look, this is a long way off.  You are talking about what might happen in 10 or 15 years.  But I don’t think anything like this should be done without full consultation of the local community and I think the local community would have every right to be consulted in a plebiscite.  But you know, it is not something that is going to happen in your or my political lifetimes. 

FAINE:

I don’t have a political lifetime.  The Greens say this election is a referendum on nuclear power in Australia. 

TREASURER:

Well, I would expect them to say that.  Wouldn’t they?  Because they wouldn’t want it to be a referendum, as it is, on who can manage Australia’s national security and its economy.  I don’t think the Greens would be in a referendum on that question. 

FAINE:

Eight minutes to 10.  With the Dr Haneef case taking yet another twist and turn, Kevin Andrews is even further on the back foot if such a thing is possible, over the release by Peter Russo and the defence team for Dr Haneef of the full second transcript of Dr Haneef’s interview.  There was no case established whatsoever in any of the material that has now been released for the public to scrutinise with Dr Haneef.  Are you embarrassed having Kevin Andrews as your Immigration Minister?

TREASURER:

No, I have a very high opinion of Kevin.  I think Kevin has been a very good Minister and he is absolutely attentive to detail.  Now, it is true that the Federal Court has found against him.  He has also appealed and…

FAINE:

A face-saving exercise. 

TREASURER:

Well I don’t know Jon.  You have got every right to appeal and it wouldn’t be the first time that a single judge has been overturned on appeal.  So let’s wait and see what the appeal finds.  But I will tell you this.  I do know Kevin, I know him very well.  He has a very good mind for detail.

FAINE:

You stand by your man.

TREASURER:

I do. 

FAINE:

Thank you, Dolly.  Geoff Cousins, who…

TREASURER:

Tammy, I think.

FAINE:

Yes, was it?  Tammy Wynette?

TREASURER:

Yes, not Dolly.  You are thinking of Dolly Parton. 

FAINE:

Yes, yes, I thought they all did it. 

TREASURER:

You have got strip clubs on your mind. 

FAINE:

Have you been…?

TREASURER:

I shouldn’t have said that, should I?  Keep going on your questions.

FAINE:

Have you?

TREASURER:

No.

FAINE:

Ever?

TREASURER:

No. 

FAINE:

Geoff Cousins is a prominent business figure who is on the board of Telstra.  Malcolm Turnbull says he shouldn’t be.  They are having a spat over the pulp mill in the Tamar Valley.  Should Geoff Cousins be removed from the Telstra Board…

TREASURER:

No.

FAINE:

…for criticising a Minister and the Government?

TREASURER:

No, no.  You don’t get removed from a board because you criticise a Minister.  Nobody would suggest that for a moment.  No, Geoff…

FAINE:

Well, Malcolm Turnbull did.  Your colleague.

TREASURER:

Well I don’t think Malcolm was saying that if you make a comment on a pulp mill you have got to be thrown off a public company board.  I think what Malcolm was saying was he thinks it is a bit rich for Geoff Cousins to be campaigning against him and he would rather Geoff not.  And I think we all would rather Geoff not.  But it is a free country and you are entitled to your views and Mr Cousins is entitled to his views.  I think Malcolm will get re-elected.

FAINE:

Well, we will wait to see.  I guess, every one will be wondering that.  Meanwhile though, an economic evaluation of the pulp mill has been released.  It has been done by Wells Economic and the University of Tasmania economist, Graham Wells, an economist-at-large.  A Melbourne outfit who say that Gunns have doubled up on their tax benefits and failed to show $847 million worth of subsidies in order to establish their economic case, which according to this report is wildly overstated and the pulp mill could cause more economic damage to the local economy than provide benefit.  Do you think it should go ahead?

TREASURER:

Well, let’s go back to (inaudible) here.  A private company wants to make an investment.  In order to make an investment you would have to pass an environmental test.  This would be both at State level and at Federal level.  At Federal level there is a federal environmental Act called the EPBC Act.  Malcolm Turnbull is responsible for discharging that.  After looking at all of the matters he is required to in the Act, he has made his decision.  That is, that it is consistent with that Act.  Now, whether the private investment goes ahead and whether it makes money or whether it doesn’t, is not the consideration of Malcolm Turnbull under the EPBC Act.  He has just got to apply the statutory criteria and that is what he has done. 

FAINE:

But whether the Government as a whole wants it, your Government in which you are a key figure wants it to go ahead is very straightforward and then you can stack up the reports and the figures whichever way you want to.

TREASURER:

Well it has been cleared under the Commonwealth statute but then it will still have to get all sorts of state planning approvals and all sorts of resource allocation and those are matters for the Tasmanian Government.  What the Commonwealth will do is administer the Commonwealth EPBC Act. 

FAINE:

Do you want it to go ahead or not?

TREASURER:

Look, it is not really a matter for me. 

FAINE:

You have an opinion undoubtedly. 

TREASURER:

My opinion is that the EPBC Act ought to be fully activated, and if it is contrary, and if there are any grounds where it is shown to breach proper environmental safeguards then it shouldn’t go ahead.  But Malcolm has found that there are no such grounds. 

FAINE:

John Symond who founded Aussie Home Loans says that the housing affordability crisis can be dealt with by giving tax breaks to first home buyers, negative gearing style.  Are you tempted?

TREASURER:

No.  Because there are already a number of tax incentives for investment in housing.  You mentioned one – negative gearing. 

FAINE:

Not for first home buyers, you can’t do that.  You have got to already own a home before you can do that.

TREASURER:

And capital gains tax cuts.  We have never had deductibility of mortgage interest, and the reason we have never had is we keep houses out of the tax system.  If you bring them into the tax system for deductibility purposes, they are going to be in the tax system for capital gains tax purposes and I don’t think Australians would want capital gains to apply to housing. 

FAINE:

To your…

TREASURER:

To any housing. 

FAINE:

To your residence. 

TREASURER:

To your residence, yes.

FAINE:

At the moment it is exempt.

TREASURER:

Yes, you are quite right.  Yes, I should have been more precise, yes.  For a residence.

 FAINE:

So you are not in any way tempted to that possible solution.  What other solutions then do you offer?

TREASURER:

Well the problem is not demand in the market.  Well, you know we have the First Home Owners Scheme of $7,000 for first home buyers.  And we believe that there should be stamp duty concessions for first home buyers. 

FAINE:

That is a State matter. 

TREASURER:

Yes, well they are part of this too, you know.  And the other thing that I think would make the biggest difference here is increasing supply and that is a question of increasing land allocation and increasing development opportunities by getting rid of some of the extraordinary charges that there is on the construction of new housing. 

FAINE:

You were asked yesterday about the Exclusive Brethren and you said, ‘well, we should be meeting with them.’  But the Government refuses to meet with extremist Muslim groups.  Why meet with one group and not the other?  They both have similarly weird views.  Exclusive Brethren – they don’t vote, women are discriminated against, they won’t take part in any broadcasts – television or radio – computers are banned.  They break up families.  All sorts of things. 

TREASURER:

Well, they have their own religious views and I don’t believe you should refuse to see people on the basis of their religious views. 

FAINE:

But you won’t have anything…

TREASURER:

I have meet them on many…

FAINE:

…to do with Hizb ut-Tahir for instance, an extremist Islamist group. 

TREASURER:

I think it is very different if somebody has a commitment to terrorism and killing. 

FAINE:

They question that, they just say they are being discriminated against because they are fundamentalists. 

TREASURER:

Well of course I meet with moderate Muslims.  I don’t refuse to meet with them on the grounds of their religious views.  I would not meet with somebody who supports terrorism.  Of course I wouldn’t meet with somebody who supports terrorism.  Does the Exclusive Brethren support terrorism?  No. 

FAINE:

Are they a cult?

TREASURER:

I mean, it is not a crime you know, because you don’t listen to the radio or watch TV, Jon. 

FAINE:

No…

TREASURER:

A lot of sane people don’t do that, you know. 

FAINE:

Especially but it is one of those things which puts you out of the mainstream. 

TREASURER:

So, okay, sure.  What about the Amish in America?  We have the Amish in America who ride around in horse and buggies for heaven’s sake.  Should you refuse to meet them because of their religious beliefs?  

FAINE:

The news waits for no one.  Peter Costello, Member for Higgins, Federal Treasurer.  Thank you for your time.