Interview with Laurie Oakes

Sunday

Sunday, 6 May 2007

SUBJECTS: Budget, Qantas

OAKES:

Mr Costello, welcome to Sunday.

TREASURER:

Thank you, Laurie.

OAKES:

A dozen Budgets, it’s a nice round number, will this one win the election for the Government?

TREASURER:

Well, there will be an election later this year, and the people will get their chance to decide who will lead Australia.  But the focus of the Budget is economic management.  It’s to make sure that we lock in the gains we have made over the last years, particularly the gains we have made in employment.  We got two million more people in work than we had 10 years ago.  To lock in those gains and to put a map down for the future as to how we are going to use this as a base to take on future challenges.

OAKES:

With the Government lagging so far beyond in the polls, obviously a lot of hopes rest on this.  Do you see an irony here that you were rejected for the leadership last year but now you are expected to save the Government’s bacon?

TREASURER:

Well, I see my responsibility as the chief steward of the Australian economy, and I have been doing that throughout the life of this Government.  The important thing in getting economic management right is to make sure people have jobs, that businesses are successful, that interest rates are stable and if we can accomplish all of those things, put forward to the Australian people the benefits that good economic management brings, then they will have a good choice at the time of the election.

OAKES:

The Government is obviously relying on its economic credentials to beat off the Kevin Rudd challenge.  How do you strike the balance between trying to demonstrate economic responsibility, and the need to buy votes with an election just four to five months off?

COSTELLO:

Well the way I would put it is this: unless families can be secure about their jobs, about their houses, about the prospects of employers in business, then you don’t have the opportunity to engage in good social policy.  Good social policy can only come about from a position of strength in the economy.  If you don’t have a strong economy, if you don’t have people in work, you can’t afford good hospitals, you can’t afford good schools, you can’t afford good childcare.  And economic strength is what gives us the capacity to do this.  So my objective is to keep Australia strong.  To make sure that we lock in the benefits of recent years, and to use that to improve services in the health area, in childcare, to build up our defence, to care for our environment, and to give people the opportunities that we want them to have in the future.  We have come a long way, but we have still got a long way to go.

OAKES:

You are obviously rolling in money, so you do have an opportunity to throw a lot of election goodies around.  I assume you are not going to resist the temptation?

TREASURER:

Well Laurie, the Budget will be in surplus.  Back before our Government was elected, when Labor was in office you recall they used to run deficit budgets, they spent more than they had.  We will not spend more than we have.  The Budget will be in surplus, the Government will add to savings.  We will not borrow, we will not drive up interest rates by going out and borrowing money for the Government.  But within that framework, that very strong framework which we will preserve in this Budget, we have got to make sure that we do things that will ease family burdens, help families with things like childcare, and ensure that children get a good start in life.  And that is what we’ll be doing.

OAKES:

Well you mentioned childcare, the headlines in newspapers today are about childcare – how big are the changes you are planning?

TREASURER:

Well, one of the things that has been introduced in recent years is a childcare tax rebate, which gives you a rebate on your tax for out of pocket childcare expenses.  What we are planning to do here is we are planning to bring that forward and to help families that, in fact, don’t have big tax bills.  Up until now, if you didn’t have a big tax bill, the rebate wasn’t of enormous value to you.  But what we want to do is we want to make that rebate, that 30 percent rebate on out of pocket costs for childcare available to all families, and to bring that forward.  The amount that you can get under that is $4,000 per annum per child.  And if you make that available to all families, and you bring that forward, that will be an enormous help to those families that are undertaking childcare at the moment.

OAKES:

So at the moment it is low income families that are not eligible because they don’t pay tax, is that the problem essentially?

TREASURER:

Yes, at the moment if you claim it through the tax system, (a) there’s a delay and of course (b), if you are not a low income family and you are not paying sufficient tax you don’t get the full benefit.

OAKES:

Now, you say you are bringing it forward according to the Sunday newspapers, that means that people will get two goes at this at once, in other words instead of a maximum of $4,000, they will get up to $8,000, is that how it will work?

TREASURER:

Well, those families that haven’t yet received their benefit for 2005-06, when we bring it forward will be eligible to get two benefits in one year.  And if the amount is $4,000 per child per year, and in that transitional year you can in fact claim two benefits, you would be eligible to get two benefits in the one year, which, of course, would be the great assistance to those families; hundreds of thousands – 700,000 – Australian families who have children in childcare.

OAKES:

I guess we should make clear the $4,000 or the $8,000 is a maximum.  I gather the average payment is just about $850?

TREASURER:

Sure, you are entitled…

OAKES:

So it is not as good as the Sunday papers make it look?

TREASURER:

…well you are entitled to 30 per cent of your out-of-pocket costs.  If your out of pocket costs were $12,000, you can get $4,000, if you out of pocket costs were $3,000, you can get $1,000, but it is a rebate for your out of pocket costs.  And of course if your childcare costs are less, the rebate was less, but of course you haven’t paid as much and the assistance is still at 30 per cent, which is valuable for all families.

OAKES:

Now you say you are bringing this forward. But in fact what you are doing is getting rid of a 12 month delay that you built into the system, aren’t you?

TREASURER:

Well, previously when it was claimed under the tax system, you had to wait for tax returns to be filed, for a benefit to be assessed, and then for a rebate to be paid.  By bringing it forward and taking it out of administration of the tax system, we now have the electronic means of doing it, and of doing it earlier.  We couldn’t do that in the past but by bringing it forward people get their money much quicker, and I think that will benefit a lot of families.

OAKES:

Well, when this was promised in the 2004 election, there was no mention of that built-in 12 month delay.  In fact your childcare policy which here, says on page three, “Legislation will need to be passed to enable families to receive payment of the 30 per cent child care rebate from July 1, 2005.”  Now after the election you said, “Sorry, you won’t get it until July 1, 2006.”  Aren’t you now just keeping a promise that you broke after the last election?

TREASURER:

No, because when you pay these things through the tax system, you have to actually wait for people to file their tax returns for an assessment to be made before you can give rebates in tax, and this is why rebates in tax just like your tax refund is always done in arrears.  When you swap it over, and you start paying it through the Centrelink system, you can bring it forward.  We will actually be changing this to take it from the tax system, to the Centrelink system, bringing it forward, and of course, the additional benefit of doing it through the Centrelink system is that those people that don’t pay tax, those people that don’t have offsets against tax actually get benefits which they would never have got if this had been administered through the tax system.

OAKES:

Okay, you mention tax, people will obviously expect tax cuts in this Budget.  Will they be disappointed?

TREASURER:

Laurie, the Government cut tax in the last four Budgets…

OAKES:

Yes.

TREASURER:

…quite significantly, and that is because our principle is we have to invest in good services – in good health services, in good childcare services, we have to look after the environment and we have to plan for the future with our Future Fund.  I have said that if we can do that and keep our Budget in balance we should always aim to keep our tax system competitive.  But we have got a lot of things to do before we get to that position.  We have health, we have got childcare, we have got the environment and we have got defence and we have got the Future Fund.

OAKES:

Well can you get to that position?  I mean you know the answer to that by now, your Budget has gone to the printers.

TREASURER:

Well, I am just making the point that we have a lot of objectives as we move through them, the balanced budget, and investment for the future, investment in health, investment in childcare, investment in the environment.  It is always Coalition policy to keep the tax burden as low as we possibly can.

OAKES:

Now, what group would you target for tax relief?  Would it be the battlers, would it be families, whose turn is it this time?

TREASURER: Laurie, I know you are building all sorts of assumptions into your questions but I’ll leave that alone, if you will pardon me.

OAKES:

All right, well what about the risk of another interest rate rise if you produce an expansionary budget.  Do you need to be careful of that?

TREASURER:

Well, we had to set the Budget in the economic framework, and the economic framework which I have laid down is the Commonwealth is not going to borrow.  We are not going to borrow.  Business is borrowing at the moment, households are borrowing at the moment, Labor governments are borrowing at the moment.  So they are all out there competing for savings.  The Commonwealth Government is not going to borrow.  We are not going to compete against other levels of Government and business for savings, and put pressure on interest rates.  We are going to build to the stock of savings, so that our actions will actually put downward pressure on interest rates, as opposed to the other sectors which are out there borrowing.  The Commonwealth Government is not in the business of borrowing, we are in the business of investing and we are in the business of investing for the future.

OAKES:

You mentioned defence, are you going to increase the proportion of the GDP that goes to defence in this Budget?

TREASURER:

We will be announcing in the Budget measures to increase Australia’s defence preparedness, not only in terms of defence personnel, but in terms of equipment.  And that means that we are having at the moment the biggest build-up in defence capability that we have had probably since the Second World War.  Now all of this equipment is extremely expensive, and you are buying equipment now, some of which hasn’t even been designed, to be state-of-the-art in four, five or six years, or maybe more.  So these are big sums, but they are sums that are worth it to ensure Australia maintains superiority in this area, and the capability to defend Australia and Australians.

OAKES:

What about climate change?  Will that make much of an impact on this Budget?

TREASURER:

Well climate change is something that I think will begin to emerge in the years to come as the climate changes that are going on now, and have in the past gone on, begin to affect our economic prospects and of course, our environmental prospects.  This is a long-term issue, it requires sound responses.  And we have thought about this a lot.  It doesn’t require a knee-jerk response.  You don’t go out to get to get a cheap headline on something like this.  We have thought about it a lot, we have thought about the way in which we manage the costs and we will have some practical measures which will deal with some of the changes that are going on over the decades which lie ahead.

OAKES:

Will you have anything in the Budget to match Kevin Rudd’s plan for low interest loans to encourage families to install energy and water saving equipment?

TREASURER:

Yes, well, that’s a real puzzle, isn’t it because Kevin Rudd has been running around saying he thinks people are in too much debt.  And then he goes out and announces a policy to get them into further debt.  I must say, I thought it was a real puzzle.  I don’t think he’d thought about it.  Either he thinks people are in too much debt, in which case he wouldn’t be enticing them with future loans, or he thinks people can easily carry their debt, in which case it is quite sensible to take out one of his loans.  But he can’t have it both ways. He can’t say…

OAKES:

I guess he would argue that…

TREASURER:

…he can’t say, “I’m worried about personal debt, and here is a loan to increase it.”

OAKES:

I guess he would say they would save money on their electricity and water bills and that would help them pay for the loan.

TREASURER:

Well let me make this point – if it were a saving measure, then people would be doing it in any event.  But let me make this point.  I think this is illustrative of the disjointed way in which Mr Rudd thinks.  It is always the next day’s headline, you know, the next media event.  It is not long-term policy.  When you are putting a budget together – $240 billion.  You have got to think about these things very carefully.  We have sat down and we have thought about these things for weeks and months, they are not pitched at tomorrow’s headlines, they are pitched to the next decade.  And you have got to make sure your policy is consistent, and you have got to think about things, you have got to research them properly.  That is the way we do these budgets.  You can’t afford mistakes when you are putting together a $240 billion budget in a one trillion economy.  And this is the result of months of work and effort.  It doesn’t appear from nowhere, it takes a lot of strategy, and you will see the results next Tuesday night.

OAKES:

Well as you say economic management is at the heart of the election campaign, I suppose you would have to admit that this time at least Labor is engaging on the economic debate unlike under Mark Latham when they ran away from it.

TREASURER:

Well I don’t think they are engaging in it…

OAKES:

Don’t you?

TREASURER:

…because their big announcement was they were going to appoint Rod Eddington to smooth their relations with business.  The first policy that comes up which concerns business is industrial relations.  They didn’t consult Rod Eddington.  We are yet to find out from Rod Eddington himself what he thinks about that policy, and we had Julia Gillard say the other day Rod Eddington was ‘just another voice.’  Now, aside from being a complete put-down of Rod Eddington, which it was designed to be and which it was, it rather leaves Mr Rudd and Mr Swan exposed for boasting that Rod Eddington was their key to economic credibility.  On the first hurdle Rod Eddington wasn’t consulted and is consigned to being another voice.  If you wanted an indication as to whether or not Labor had changed, whether or not Labor was really serious about rebuilding with the business community, I think their treatment of Rod Eddington will answer that question for you.

OAKES:

He hasn’t complained though and he hasn’t pulled out.

TREASURER:

No, he hasn’t pulled out.  But he also hasn’t told us what he thinks about the proposal to abolish Australian Workplace Agreements.  Rod Eddington of course is a director of Rio Tinto.  Rio Tinto is a major miner in Western Australia.  Rio Tinto uses Australian Workplace Agreements.  Lee Clifford, the Chief Executive of Rio Tinto had a lot to say about the Labor Party policy.  Rod Eddington, who wasn’t consulted, who we are told now was ‘just another voice,’ hasn’t yet actually said what his view is.  But I’ll bet you London to a brick, Rod Eddington supports Australian Workplace Agreements, particularly in the mining industry in Western Australia.

OAKES:

Well you raised the IR debate.  The Government blinked first, didn’t it, last week?

TREASURER:

I don’t think so.  The Government’s amendments last week, I think, are sensible amendments.  But you will recall that the story of last week was the Labor Party policy, how bad it is going be for business, and you would have to agree I think, that whatever their policy ends up as, this policy, this ACTU policy is a policy which has been nearly universally condemned by the Australian business community as being anti-job, anti-economic growth and anti-productivity.

OAKES:

Well I suppose some people would say that is what you would expect from business, that businesses don’t support the Labor Party and never has.

TREASURER:

Yes, but we were told that the Labor Party would rebuild with business.  We were told that the appointment of Rod Eddington was just a down payment in relation to that.  It is the same old Labor.  And just in case you had any doubt, there is another ACTU president, or is he secretary…

OAKES:

Secretary.

TREASURER:

…Greg Combet, going into Parliament, so he will join Ferguson, Crean, Jenny George.  You know, this is a superannuation club for the ACTU, the Labor Party frontbench.

OAKES:

Staying with IR though, the hundreds of thousands of people that have already signed AWAs will not get any protection from the new measures announced last week by the Prime Minister.  So you have a two tier system.  Where is the fairness in that?

TREASURER:

Well I think Laurie, the fact of the matter is to go back through all of those contracts, to go back through all of those conditions again would lead to enormous dislocation, and there is no real evidence, no real evidence at all that there have been egregious cases.  So what the Government has announced is protection measures for the future in relation to fairness.  I think they are sensible measures, I think they will work and I think you will see the benefit in relation to the workforce.

OAKES:

Now if the Government survives this election, it is widely assumed that John Howard will step down in the next term, I assume you expect that as well.  Do you guarantee if that happens that a Costello Government would not repeal or water down the fairness test the Prime Minister introduced?

TREASURER:

Well I’m not going to speculate on what might happen after the election.  My focus is this week’s Budget and obviously it is up to the people of Australia to decide who the next Government will be.

OAKES:

Apart from the Budget, the big news at the moment is Qantas, the attempted takeover.  Do you see any prospect now that the move can still be successful?

TREASURER:

Well Qantas had a time limit for a 50 per cent acceptance, which wasn’t met.  They then received an acceptance after the time limit.  I set up a thing called the Takeovers Panel, which can convene without great formality, and give quick decisions.  Qantas are going to go to the Takeovers Panel and they are going to ask whether it would we fair to extend the time.  Now, the Takeovers Panel can declare something to be unacceptable.  The bidders will have to convince the Takeovers Panel that something unacceptable happened in relation to this to have that time limit extended.  I don’t want to pre-judge the Panel’s decision, but that is the question that they will be asked.  I hope that they’ll make an announcement shortly and I hope that the Qantas Board will have something to say about their role before the stockmarket opens on Monday morning.

OAKES:

Mr Costello, we thank you.

TREASURER:

Thank you very much, Laurie.