Address to National Press Club

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Personal Income Tax Cuts
May 10, 2005
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Personal Income Tax Cuts
May 10, 2005
Labor’€™s Budget Reply – Doorstop Interview, Parliament House, Canberra
May 12, 2005

Address to National Press Club





1 PM

Download the slides (MS Powerpoint format) for this presentation.



The Treasurer Peter Costello with his annual Budget address. The centrepiece

this year is across the board tax cuts worth almost $22 billion dollars

over the next four years, while at the same time delivering a $9 billion

surplus. But despite his tax surprise, Mr Costello is facing criticism over

plans to get more disability pensioners and single parents into the workforce.

And after delivering his tenth Budget in a row, there are also questions

about whether this will be Peter Costello’s last.

From the Great Hall of Parliament House, the Federal Treasurer Peter Costello.


Ladies and gentlemen welcome to the Great Hall of Parliament House in Canberra,

and today as many of you have already heard, we welcome you to the first

National Australia Bank address. The National Australia Bank has become

the Club’s principal sponsor taking over that role from Telstra who

have had a long and productive period as our principal supporter for 12

years, and they will remain a major supporter in a different role which

you will hear more about later in the year.

But there could hardly be a better way to start a new relationship like

this than welcoming back the Treasurer the day after the Budget, his tenth,

please welcome Peter Costello.


Thank you very much Ken and members of the Press Gallery here in Canberra.

Just a moment ago the German Ambassador Dr Klaiber, presented an award for

somebody who had made the best contribution to public understanding of demographics

and ageing in our society. It was won by Cherelle Murphy, I thought I was

a chance to win it myself, Dr Klaiber, but Cherelle has as part of her prize

been offered an extensive trip to Germany. And can I just say to other members

of the Press Gallery if you are considering extended trips to Germany we

welcome that too.

Could I beg your pardon to go through some of my slides, this has become

a bit of a tradition of mine over the years to try and illustrate in some

graphics the way in which we approach this Budget and what we tried to do.

And I guess if I had to put an overall complexion on it I would say this,

that at a time when Australia’s unemployment is low we tried to engage

in long term structural reform to widen the workforce.

In particular to widen the workforce to groups in our society who have

been under-represented in the workforce. And that is a long term structural


Secondly, because we know we have this demographic date with destiny, because

we know that like other western industrialised societies the proportion

of the aged in our society will grow over time and present us with funding

challenges in 10 and 20 and 30 years time, we have laid down a plan to fund

the future. And it is called the Future Fund.

And the third thing we tried to do in this Budget is, having met the obligations

and made the investment in the services that our public need and want, having

balanced our Budget, indeed having brought down a surplus, our objective

is to keep the tax to GDP ratio as low as we can. A tax ratio as low as

is consistent with a balanced Budget and strong investment in services.

So let me try and explain how this Budget aims to do those three things.

The big structural reform, the investment for the future and a competitive

tax system for today. The Australian Budget this year, as you can see from

the second of those red graphs, is forecast to be in surplus. A surplus

of around about one per cent of GDP. Indeed, across the forward estimates

the three blue bars show that we are forecasting Budget surpluses across

the forward estimates. Around about one per cent of GDP.

You can see from that graph that this will be the eighth surplus Budget

that this Government has brought down. After having been elected when the

Budget was then in deficit at about two per cent of GDP, having a two year

program to drive the Budget into surplus and to keep it there over the course

of the last eight Budgets, with the minor exception in 2001-2002.

How do we compare with other western developed countries? Well, our red

bars here show where Australia is, consistent Budget surpluses around about

one per cent of GDP. The blue bars show the OECD, the other countries that

we compare ourselves amongst the developed countries of the world.

The OECD average shows that for a time the OECD got a Budget surplus around

1999-2000. Then with the onset of recession in the United States and recession

in Europe, and of course recurring recession in Japan, the other countries

of the OECD have slipped back into deep deficit led principally by the United

States, the world’s largest economy. And are forecasting Budget deficits

right across the forward estimates. Budget deficits of around three per

cent of GDP.

But Australia stands markedly in contrast. Not only are we not forecasting

deep deficits, almost alone of the developed economies of the world Australia

is forecasting surpluses. Why do I make this point, because in the chatter

of commentary over the Budget you will sometimes hear people say fiscal

policy has been loosened, this will put pressure on interest rates.

I just want to say to you, when you see a comparison like that Australian

fiscal policy stands out strongly against the other economies of the world.

The Australian Government is not borrowing. All other things being equal,

if a Government is borrowing it is driving up interest rates, if a Government

is saving it is driving them down. All other things being equal. That is

a big if. But all other things being equal, this Government, by saving,

is not pushing interest rates up but in fact, overall, pushing them down.

Running consistent surplus Budgets has allowed us to reduce net debt of

the Commonwealth which peaked at $96 billion in 1996 when this Government

was elected and has enabled us essentially to reduce our debt to a period

where it is really almost negligible. In fact, if we kept devoting our Budget

surplus to reducing debt we would eliminate Commonwealth debt.

Australia’s debt to GDP ratio is around, about 1 per cent of GDP.

The OECD average is about 40 per cent. It is a big difference. And of course

as we have reduced net debt, as you can see from the red line our interest

payments have also reduced.

Back in 1996 we were paying about $9 billion in interest payments, that

is the blue bar. Our interest bill was about the same as the amount of money

that we were investing in hospitals and schools. It was about two thirds

of the amount that we were giving out in assistance to families with children.

But as we have reduced that net debt, we have got interest savings –

interest savings of $5.7 billion per annum. Our debt has come down, our

interest has come down. It has freed up $5.7 billion per annum. We have

been able to invest that in more productive uses – in hospitals and

schools and in assistance to families. Our debt is down our funding on services

is up.

It is the stronger balance sheet which has reduced our interest payments

and given us the opportunities to invest in the hospitals and the schools

for tomorrow. This is a pro-youth graph – small payments on the past

and heavy investment in the future. An anti-youth graph would have a big

blue bar as we paid for the past and a smaller grey bars and red bars as

it robbed our investment for the future. The steeper the graph, the more

pro-youth the policy because we free the dead hand of debt off the Commonwealth

Government, we get our interest payment down, we start investing into the


And in this Budget we have made, I believe, the most significant financial

investment in Australia’s future in the form of a Future Fund. Over

the last ten Budgets the object has been to reduce net debt of the Commonwealth

to get it down from $96 billion. By the end of next year we would have reduced

it by $90 billion. We have been paying off debt and now the task can become

to build a financial asset. To grow an asset, now that we have retired debt,

which will match up unfunded liabilities that the Commonwealth currently


This asset is called the Future Fund. The Future Fund will be governed

by a statutory board of eminent Australians. Monies that will be put into

it cannot be taken out until such time as it can fully fund the liabilities

which the Commonwealth hold. The earnings will be held in the Fund. The

earnings will not be made available to the Budget. The earnings will be

held in the Fund and this is how we tighten budget policy. Those earnings

normally would have gone onto the bottom line. The earnings will not go

onto the bottom line.

This has been a thorough misunderstanding as per usual by the Opposition

in this debate. The fact that the earnings are kept off the bottom line

is a tightening of a fiscal policy. The money accumulates inside the Fund.

Now our unfunded liability is currently around $90 billion, will continue

to grow. By 2020 they might be around $130-140 billion. But I believe that

we so grow the Future Fund that in 2020 we will have sufficient funds to

meet those liabilities.

And I want to say to you again, why do we do this? We do this because we

know in 20 years time on an ageing population the same number of taxpayers

are going to be asked to support double the number of people over retirement

age. We do this because we know that medical advances are making medical

treatment more expensive all the time. We do this because we know that unless

we make provision now, the generations of the future won’t have the

financial capacity to sustain their health systems.

And there are people that say to me, oh why are you worrying about 20 years

time? Well I expect to be here in 20 years time. I expect to be one of those

older people that will be drawing down on the health system. Many of you

in this room will be part of that.

Last Budget we were concentrating on getting more of the young ones who

will be the taxpayers in 20 years time, now we are thinking about funding

the older ones. And again it is a pro-youth strategy. The youth of today

are going to be supporting double the number of people in retirement than

we are. So we want to give them a go, and take those liabilities off them.

They are going to have enough trouble. This could be the generation –

the generation that begins to fund those liabilities and build for the future.

And that is what the Future Fund is all about.

As you know our unemployment rate is now at a 28 year low, around 5.1 per

cent. That is why I believe it is time to do big reforms in relation to

welfare. In the past, the argument always would have been, why encourage

more people into the workforce? They won’t be able to get a job. But

if our unemployment rate is at 28 year lows, now is the time to do it. If

we can’t do it now, it will never be done. You know that encouraging

more people into the workforce and out of welfare may even lift the unemployment

rate. I have said that in the Budget papers but we should not be afraid

of that. This is a reform which is worth doing.

Our inflation continues to be low and so after investing in services, making

provision for the future and doing the big reforms for tomorrow, we have

the opportunity to also return to taxpayers some of the taxes that they


As you know at the moment, the lowest tax rate is 17 cents in the dollar.

We are proposing from 1 July of this year to cut that rate to 15 cents in

the dollar. And we are proposing to move all the other thresholds, not cut

the rates but to move the thresholds in two stages. The top threshold for

the 30 cent rate will move from $58,000 to $63,000 and then to $70,000.

The top threshold for the 42 cent rate will move from $70,000 to $95,000

and to $125,000.

The consequence of that will be that for more than 80 per cent of Australian

taxpayers they will not face a top rate above 30 cents. And by 1 July of

2006 only 3 per cent of Australians will face a top marginal tax rate. Ninety-seven

per cent of Australians will not face the top marginal tax rate.

Putting those tax cuts in place gives the highest percentage tax cut to

low income earners. That is the red bar. The blue bar is a nominal amount

in dollars. It is true that in dollar terms your tax cuts on higher income

earners is larger than it is for lower income earners. But that is because

lower income earners do not pay as much tax. And there are some people that

do not pay any tax when you add in Family Tax Benefits. It is a truism in

politics but I cannot say it enough – you can’t cut tax for

people that don’t pay it.

But the red bar shows that the largest percentage tax cut goes to lower

income earners. There are some people that are saying, some people even

in the Opposition, that are saying, that these thresholds are too high.

They are opposing our tax plan and I will come to them in a moment.

But I just want to say, by international standards, this puts Australia

at about the centre of the international standard. The OECD has done work

to try and compare countries and their tax thresholds. It says that the

proper measure of comparing where tax thresholds cut in is to compare where

the top threshold cuts in as a multiple of an average production worker.

Does the threshold cut in at the level of an average production worker,

does it cut in at double the level of an average production worker? Does

it cut in at triple the level of an average production worker and what is

that top rate when it does cut in?

Now this is a graph which shows countries listed along here – you

may not be able to read them – starting off with Slovak, Denmark,

Ireland, Belgium, Hungary, Luxembourg, Australia – where you see that blank

– New Zealand, Iceland, Netherlands, Germany, UK, Sweden and so on. The

blue dots show you what the top marginal rate is. You can see that around

about the developed world the top marginal tax rate is around about 50 per

cent – it may be a little under. You can see that Australia’s

is 48.5. Our top rate of tax is not wildly different to the average of the

developed world. But where it cuts in as a multiple of average production

worker salary is low. It is low by international standards, it is about

1 times, a bit more, an average production workers wage.

What our changes in this Budget do is they take Australia from there and

they put Australia there – right in the centre of international practice.

That top threshold still cuts in at a lower multiple of average production

wages than say the United States, up here, the last one is Turkey. I think

there are reasons for that being where it is on the graph.

It still cuts in lower than the United States, it is about the same as

Canada, it is higher than the UK and it is higher than New Zealand. People

who are arguing that somehow moving those thresholds has produced undue

benefits to people up the income scale ought to look at a graph like that

because what a graph like that shows you is that Australia is moving to

about the centre of international practice.

It is also being argued that somehow this doesn’t provide sufficient

tax relief for low-income earners. And so I want to say to you, if we take

low-income earners. From $10,000 to $120,000, the blue graph shows the percentage

tax cut that was introduced on 1 July 2000 when the Government brought in

the New Tax System. Again, largest percentage tax cuts to lower income earners.

When we cut taxes in the 2003-04 Budget, the red line shows again they were

distributed across the whole of the income scale. When we cut them last

year, we again weighted them in relation to the middle-income earners and

the tax cuts that we announced in this Budget for 2005-06 as I showed before

are weighted to the lower income earners again. The second round which takes

place in 2006-07 for middle and upper income earners. Have a look at the


What it shows is overall tax cuts delivered in the 2000 Budget, the 2003

Budget, the 2004 Budget, the 2005 Budget and the tax cuts to take effect

in 2006, you’ve got an average tax cut of about 20 per cent, but weighted

highest to the lowest income earners, where the tax cut has been up around

50 per cent.

These tax cuts are significantly in advance of bracket indexation. If we

had have taken those rates and indexed them over the last 10 years, the

top threshold – which we’re going to bring into – $125,000 would have

been $64,000. There are some people who have been arguing for indexation

of thresholds to inflation. Let me tell you if that is all the Government

had done, taxes would be significantly higher. The income tax cuts are well

in advance of inflation.

And it is as it should be. The more people you get into work, the lower

the tax burden can become. You will raise the same amount of revenue with

less tax from more people than you will from more tax from fewer people.

If you can increase the number of people in the workforce the tax burden

is more equitably shared and you can raise the same amount of revenue and

that’s where we come to welfare reform.

This graph on the left-hand side shows Newstart, the unemployment benefit.

You can see that has been declining since 1990. Why? More people in work,

unemployment has fallen. Those on Newstart benefits have declined. The right-hand

graph shows you in blue those on the Disability Support Pension and on top

of that in red, those on the Parenting Payment Single, what used to be called

the Sole Parent Pension. Unemployment has been falling. Unemployment benefit

recipients have been falling but sisability has been rising. Disability

has been rising by around 20 per cent in Australia over the last 4 years.

Have we had an outbreak of disability in Australia over the last four years?

The number of people on Disability Support Pension in Australia at the moment

is 6.5 per cent of the workforce. Is 6.5 per cent of the Australian workforce

disabled? I don’t think anybody thinks that it is.

And I want to make it absolutely clear that people who are not able to

work deserve income support and disability pension and that will not be

changed. But the rate of growth that you see in that graph would cause any

responsible policymaker to say, why is this occurring? Why is it that people

of working age in some areas seem to be dropping out of the workforce at

a time when unemployment is lower than it has been for 28 years.

What we’re proposing to do, is we’re proposing to change thinking

here. The thinking in Australia should not be that if I get onto one of

these pensions, I can stay out of the workforce. The thinking in Australia

ought to be, how will I participate in work? Am I capable of part-time work?

And our effort ought to be to encouraging those people to participate in

the workforce. We’re going to need them in the years which lie ahead

because the proportion of people of working age is not going to increase,

the proportion of retirees is going to double. So what we’re saying

to the Australian public is let’s make this a reform effort, get as

many people as we can to participate in the workforce. Encouraging people

who are capable of part-time work to do it. Encouraging mothers – many single

mothers work full-time, many work part-time, encouraging mothers to look

at part-time work.

I want to say to you, this is not a proposal to cut spending. This will

increase spending over the next four years. It will increase spending as

we provide more rehabilitation, more skills training to give those people

the opportunity to work. And I must say to you, in all of my dealings on

these particular subjects, I’m amazed by the number of people on Disability

Support Pension who say, ‘we do want to work, we want to work, we

want take part in mainstream economic life.’ And it is the services,

the increase in spending that’s going to help them do it. For single

parents, it is going to be the increase in childcare places which will help

them do it. And it is going to be the investments that we make that will

help and drive this great reform.

This is a Budget which marries together structural reform which will widen

participation in the workforce at a time when our workforce as a proportion

of society is declining. It will allow new people to come and participate

in mainstream economic life. A Budget that lays down a plan to fund the

future with a Future Fund which is more imaginative than anything that has

been conceived before. And it distributes the benefits of good economic

policy back to the Australian public. If we can keep our economy growing,

if we can meet that demographic change, if we can prepare ourselves for

what we know is coming in this society and around the world, Australia will

be stronger and it will be stronger because we have prepared for the future.

We laid down the measures, we called them early. We worked towards them.

We had a clear goal and a clear objective and we followed it through and

that is what this Budget is all about.

Thank you very much.


Thank you, Treasurer. And as usual the media questions which you enjoy

so much. The first one today is from Mark Reilly.


Treasurer, Mark Reilly from the Seven Network. Thank you for your address,

and can I also welcome the new sponsor of the National Press Club lunches

but in doing so, can I point out the unavoidable irony today, Treasurer,

in you presenting your Welfare to Work slideshow here at a lunch sponsored

by the National Australia Bank on the day it announces a $1.8 billion half

yearly profit, and plans to sack 1,300 people, sending them apparently from

work to welfare. Isn’t that a pretty poor signal of how corporate

Australia will respond to your plan to put single mums, working mums and

dads, I’m sorry, stay-at-home mums and dads and disabled people into

the workforce?


Well, Mark, I think it would be pretty rich to say that the National Australia

Bank announcement today was motivated by my Budget last night. I suspect

that the National Australia Bank in the decision that it made today, probably

would have been working on this decision for months, if not longer. The

National Australia Bank is able to defend itself. It is not my task to defend

the National Australia Bank. If the National Australia Bank has reasons

why it has done that, frankly, it can present them. That’s not my

job. I’ll work at creating a productive economy which will help all

Australian businesses be profitable. The profits of Australian companies

today are as strong as they have ever been. Overall, Australian companies

have created more jobs than ever before in Australian history. And unemployment

has fallen. As to the particular announcement of the NAB, you will have

to ask the NAB to justify it and I know they have a number of their people

here and I’m sure they will be very glad to do a press interview with

you afterwards, Mark.


The next question is from James Grubel.


James Grubel from Reuters, Treasurer. Just on the $16 billion you’ve

announced as seed money for the Future Fund which you say will cover the

expected $140 billion of liabilities by 2020, can you explain to us or give

us an idea of how much money you expect will be needed in that fund to service

that liability? And will the Government guarantee or set limits on that

Future Fund to guarantee that more than 50 per cent of that money will be

invested within Australia?


The Government will set an investment mandate which will determine whether

assets can be allocated overseas. We have said that some can be, which would

govern the class of assets that could be invested in, whether it be equities

or whether it would be fixed interest, whether it be whatever. But then

the Board will be responsible for investment. It will operate in a way that

a superannuation fund operates. And they will try and maximise their investment.

The amount that the Government has to contribute, of course, depends to

a large degree on the earnings rate and the capacity that the Government


Let me make this point. Where you have reduced your net debt and you run

a surplus, that surplus can either be held in the bank at an earnings rate

on interest or it can be invested. You would not want to hold $16 billion

at the bank. You would want to get a better return for the Australian taxpayer

and that’s what the Future Fund will do. We want to continue running

surplus budgets for two reasons. One is because we’ve got an eye to

the macro-economy, the other is because we want to set up a happy rendezvous

with our demographic destiny. As we run those surpluses, you will either

hold the money at the bank or you will invest it. And the Future Fund will

be that investment, an investment for a happy rendezvous with our destiny

in the future.


Michelle Grattan. Sorry, Michelle I thought you had the microphone already.


Speaking of happy rendezvous, Michelle.


Indeed. Michelle Grattan from The Age. Mr Costello, one of my colleagues

has pointed out that there is a large elephant in the room that we really

have to acknowledge, so can I ask you straight out, is this your last Budget

as everyone has been saying? And, do you rule out a challenge?


Michelle, I’m not speculating on anything today. I have a Budget

that I brought down last night. It’s $200 billion. I have to get it

through the Senate. It’s my responsibility to get the Australian people

their tax cuts and I am not going to be distracted.


The next question is from Shane Wright.


Treasurer, Shane Wright from Australian Associated Press. Last night, both

the Australian Chamber of Commerce and Industry and the Business Council

of Australia represented warmly your decision to cut these 3 per cent imposts,

tariff imposts, but they also said the job is not done on business taxation

reform. Can you assure the business community that there is more guts left

there for taxation reform in Budgets to come?


Well, we never want to rest until we have done the best that we can. We

have got to continue working, I am conscious of that. But with all due respect,

what would you expect the business organisations to say? A perfect world,

let’s disband our organisations. They have still got to exist and

to exist they have still got to have an agenda and after the company tax

has been cut from 36 to 30 per cent, after you have introduced rollover

relief, de-merger relief, after you have halved Capital Gains Tax, after

you have given small business rollover against Capital Gains Tax, abolished

the Wholesales Sales Tax, abolished Financial Institutions Duty, the Bank

Account Debits Tax, stamp duties on marketable securities and the Tariff

Concession Scheme, what do you think they are going to say?


Andrew Probyn.


Treasurer, Andrew Probyn from the West Australian. Last week

you said that after the Budget you would unveil a very strong response to

WA’s recalcitrance over its decision not to relent to your pressure

and axe its State taxes. Would you care to unveil what that very strong

response is today and will it involve withholding GST revenue?


Well not today Andrew. It is not yet 24 hours since we brought down the

Budget, I think the people of Australia are very interested in the Budget.

The first thing they want to know by the way is whether they will get their

tax cut on 1 July 2005. Why? Because we will have to pass these tax cuts

through the existing Senate and we have to get that through by 1 July. Labor

is voting against tax cuts. So, a very interesting play is going to occur

over the next couple of months. Will Australians get their tax cut on 1

July 2005 or will Labor yet again force the Australian public into higher

taxes? Now, to answer your question Andrew after we have dealt with Federal

Labor, then we will turn our attention to Western Australian Labor.


Glenn Milne.


Glenn Milne from the News Limited Sunday publications and The Australian.

Treasurer, in the current climate I will resist the temptation to make anything

of your observation that this Budget is driven at least in part by a youth

strategy, but I would like to return to the Budget Lock-Up last night where

you avoided this question almost Matrix like, and I will have another shot

at it. Which parts of this Budget – given that all Budget’s are a

collective effort – which parts of this Budget do you particularly claim

ownership of and I make that observation in relation to the tax cuts, and

the question I am really asking is whose idea were they?


Well, Glen, let me say this. The Treasurer is responsible for the Budget.

The Treasurer is responsible for designing tax measures. But these things

can only be introduced when they are approved by the whole of the Government

in a Westminster system. But I’ll say this to you, if you can balance

your Budget, pay for your services and reduce tax, that is what you ought

to do, that is my view. That is the view that I put down in 2003, 2004.

I don’t believe in irresponsible tax cuts. The United States, they

cut taxes and drove their Budget into deep deficit. To me that is not right.

That is cutting tax today and sending the bill to tomorrow. I want to pay

our bill today and then cut our tax.

I have long argued that the threshold for the top marginal tax rate was

too low and out of whack internationally. When you get a chance to do something

about it, you try and take that opportunity. Whether we will do anything

about it now depends on the Senate. Let me make this point. We are going

to introduce a tax Bill which cuts the low rate – the lowest rate – from

17 cents to 15 cents. It will increase the upper thresholds including the

top threshold to 125 per cent. It will be one Bill. It will be introduced

tomorrow. It will be voted on before the 30th of June. If it

passes, Australians will get their tax cuts on 1 July 2005. The last legacy

of the Labor Party, control of the Australian Senate, could be to deny Australians

their tax cut on 1 July 2005. The last stand of the last Party, under Mr

Beazley – you know this is the man that brought you Rollback. He could

deny Australians by blocking that Bill, which we intend to introduce tomorrow,

of their tax cut on 1 July 2005. Labor stands for higher taxes. You have

got to remember that point and this Budget will illustrate that.


Andrew Fraser.


Treasurer, Andrew Fraser, The Canberra Times. Given the recent

creation of the Department of Human Services which was a huge shake-up in

the bureaucracy and given the lateness of the completion of the Welfare

to Work package in the Budget process, are you confident all of the administrative

arrangements for your package can be in place in time and will you need

more or less public servants to implement it?


Well, one of the reasons why we have got a start date of 1 July 2006, is

to allow us to get all of those administrative arrangements in place. I

would hope we would get the legislation through later this year and that

gives us time to get the computer systems up and running, ready to take

place on l July 2006. I am confident that we will get there. Would we need

more public servants or less? Well, I hope that we don’t need more

because it is not our aim to have a big influx of public servants. Now,

I know you are from The Canberra Times and I know that you are

hoping that I will say what I said last year because you are hoping that

you will get a shock horror, ‘less public servants in Canberra’

headline. Sorry to disappoint. What about this – ‘Ho Hum –

Same Number in Canberra?’


The next question is from Greg Turnbull.


In fact, if you’d like me to write headlines for The Canberra



Treasurer, Greg Turnbull from the Ten Network. On the assumption that for

high income earners, too much tax relief is never enough, I wanted to ask

you a double barrelled question on the top marginal rate and the top marginal

threshold. When John Howard had your job he was happy to leave the top marginal

tax rate at 60 cents in the dollar. Paul Keating brought it down to the

level at which you now enjoy it. Can you do better or are you throwing that

fight? And secondly, on the threshold, when your new threshold cuts in,

in July 2006 at $125,000, it will be roughly three times average weekly

earnings. John Howard’s hero, Bob Menzies, had it at 17 times average

weekly earnings. Can you match Ming?


Well, it is true that it was on a much higher multiple but I think if you

go back and see what the rate was back in the time of the 50s and the 60s,

I think you will find the top rate was around 66 per cent and there are

some people, and you have quite rightly made the point, there are some people

that say, oh, you know, on a vastly reduced rate, your thresholds, or your

average, your multiples, on a vastly reduced rate your multiples should

be the same and I don’t think that is right. I would be much more

interested to go back and see what the multiple for the 47 rate was under

Menzies because it would have been a lot lower than a multiple of 17, if

there was such a rate.

On this question as to whether you should cut the top rate, my first point

would be our top rate is now more or less in line with the developed world.

In fact if I can flick that graph up, I think you will see that. Can we

get it lower than the developed world, you will say? My second point would

be this, in fact I will find a graph to show you. When you move thresholds

rather than rates, the actual dollar cut plateaus, do you see that? It rises

to about $4,500 which you get at $125,000, you get a $4,500 tax cut at $225,000.

You get a $4,500 tax cut at $500,000 and you get a $4,500 tax cut at $1

million. But if you cut a rate, that would just keep going right off the

bat. You would then get examples where people on $1 million, instead of

getting a $4,500 tax cut, they might get a $45,000 tax cut or a $100,000

tax cut. Now you would know Greg, what are our political opponents saying

to us today? Too much tax cuts for higher income earners. Imagine if you

cut a rate. Can you imagine the field day they would have then? They would

pull out Kerry Packer and they’d say, you know, he got a tax cut of

$100,000 and you only got $1. The thing about moving thresholds is I think

it produces fair cuts, but also capped cuts. Cutting rates produces much,

much larger returns at the upper income level. Now, at $125,000, only 3

per cent of Australians are going to be paying it. For 97 per cent, it is

irrelevant. Your argument about cutting the top rate is this: should we

now try and cut the top rate for the 3 per cent? You can imagine Greg, how

our political opponents would campaign on that. I don’t know if you

are trying to tempt me but that is why I have always believed that the important

thing is to cut the threshold. That is why I did it, have a look what it

did. Our rate is not out of whack, our threshold was out of whack and we

have moved the red bar from a pretty uncompetitive place to about centre.

And by the way Greg, I have still got to get this on through. The trouble

with the journalists is they are always working on the next one. As I often

say, don’t think about your custard pie until you have had the meat

pie first.