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May 9, 2000
Doorstop Interview: Budget, Telstra
May 12, 2000
May 9, 2000
Doorstop Interview: Budget, Telstra
May 12, 2000



Transcript No. 2000/42




Hon. Peter Costello MP


Radio 6PR with Paul Murray

Wednesday, 10 May 2000



First up this morning, Treasurer Peter Costello. Good morning Mr Costello.


Good morning Paul, how are you?


Very well thank you. Mr Costello with so much focus on the $8.2 billion surplus and how

it was achieved, did you make a mistake by dropping the Timor levy?


No. Let’s go back to when Australian troops were required to go into Timor as part

of the INTERFET forces. It was a huge commitment for this country, at least the largest

military commitment since Vietnam, some say even more extensive. But it had a cost and the

cost was about a billion dollars, $1,000 million. We said that Australian troops would

lack for nothing in East Timor and we were good to our word. We also said that that cost

of about a $1,000 million would drive the Budget into deficit, we didn’t want the

Budget to be in deficit so we would as a one-off measure in the next financial year have a

levy. And the levy would do this, it would pay all of the costs associated in East Timor

and it would keep the Budget in surplus. As our economy strengthened over the course of

Christmas and into the New Year it became apparent that we would be able to pay for that

commitment in East Timor and have the Budget in surplus without the levy. And we think it

is a matter of faith, if you say to the Australian people a one-off levy to keep the

Budget in surplus for East Timor and you can keep the Budget in surplus and pay East Timor

without it then you shouldn’t have the levy. And some people have said, oh why

didn’t you keep the levy and spend it in this and that, and our answer to that is

because we told the Australian public it was necessary for this purpose, if it became

unnecessary for that purpose we owed it to them not to impose it.


But you are in a position where you are under attack because the size of the surplus is

not what has been expected in some areas. You could have actually clawed back from

wealthier members of the community the cost of the operation for which you had a lot of

political goodwill and you would have given yourself more comfort in this Budget.


Yeah, but it wouldn’t have been the right thing to do. To have said to the

Australian public, we’re going to have a levy to keep the Budget in surplus and pay

for East Timor and to have the Budget in surplus and have East Timor paid, and go ahead

with the levy anyway it wouldn’t have been the right thing to do. People would have

said to us you mislead us. It’s funny isn’t it, here we have a situation where

the Government is really trying to do the right thing, some people say oh gee we’re

not used to that, you should’ve gone back to what Governments all done in the past,

you should’ve just sort of bagged the money, kept it in your coffers or spent

somewhere else and having talked the Government into it on one basis changed your word.

No, we’ve changed that, we’re doing what we say and that is what we said, so

that’s why the levy comes off.


Would you concede the dropping the Timor levy constitutes a tax break for the rich?


Well, the first thing I’d say as I’ve just said, dropping the Timor levy is

keeping faith with the Australian people, that is the first thing I’d say. The second

thing I’d say is that for people on incomes above $50,000 who were promised and will

get their income tax cuts on 1 July, it means that they won’t have an additional

levy. It’s a question of keeping faith. No, I wouldn’t concede that for a



Treasurer, most of the debate last night on television was all about what the markets

might think about this Budget. All we seem to hear is about what, you know, a bunch of

snotty nosed screen jockeys might think of this most important Australian document. Does

it really matter what the markets think about our Budget?


I think there is a lot of overreaction, you know. The dollar has been incredibly

volatile over recent weeks and some weaker retail trade figures came out, I think on

Monday and, you know, the dollar went down, because why? Because people said, well, the

economy is not overheating. And so the dollar had been completely volatile, it continued

its volatility yesterday. You know, somebody gets on the TV and says, ooh look at that

volatility ooh, you know, let’s all stand in awe of what happened. I think as I said

last night the dollar will go down, the dollar will come up. Overnight it came up. It is

much higher than it was last night, and I don’t hear all the commentators,

incidentally saying, oh, we overreacted, we were wrong. The most important thing from my

point of view is this, to keep the Australian economy strong. Now, what did we do in this

Budget? It’s our fourth surplus in a row, and this year will be the Coalitions fifth

year in Government. Labor’s last five Budgets, they spent more than they had and they

borrowed $80 billion. Our five years of Budgets, we’ve lived within our means and we

will pay back $50 billion. 5/8th of the Labor debt. They run up $80 billion,

we’ve now paid back $50 billion. And it is much harder to pay back then to run up, I

can assure you of that. That is good, sensible, sound economic management. And that is

what we are focussing on. You are going to get these daily, minutely fluctuations, but at

the end of the day, and I’ve made this entirely clear, we’re focussing on the

medium term and the long term, and we’re not distracted by minutely or hourly or two

hourly time frames.


I wanted to just ask you about the dollar. Do you think the dollar is a real reflection

of the state of our economy these days? It seems to me it’s just a vehicle for

international speculation most days.


Look, a lot of things, we have a floating exchange rate and a lot of things influence

it. A floating exchange rate is influenced by the growth in the economy, it’s

influenced by inflation expectations. But, there is a second side of this. When people

talk about the value of the Australian dollar, they principally talk about how it’s

moving against the US dollar. Now what changes that exchange rate is not just what’s

happening in Australia, but what’s happening in the United States. Because if the US

dollar rises, and it’s rising against every currency in the world, then that shows up

as your exchange rate coming off. Now, you know, I watch these things pretty carefully.

For example, the US dollar has been rising against practically every currency in the

world, which is telling you more about the US dollar than it’s telling you about the

Australian dollar.


Now, let’s just get to the sale of the mobile phone spectrum, which gave you $2.6

billion, which went straight to your surplus. Can you assure people that this $2.6 billion

is a reality?


Well, the Government’s been licensing people to use spectrum since radio started

in Australia. Radio, this radio is licensed on a particular spectrum, and you find it on

your dial, and the radio station pays a license fee, and that goes towards the Government.


Yes, but how do you know you’re going to get $2.6 (inaudible) . . .


Well, I’ll come to that. And then television came in, and television was licensed

to operate on a certain spectrum, and the revenues from those license fees are a public

asset, they are used for the benefit of the public. And then what happened, what’s

changed is in the last three or four years when we allowed competition in

telecommunications, is that new people decided that they’d like to come in and start

offering mobile phone services, and you see them advertised on TV, like OneTel, AAPT. And

we say, yes, you can pay a license fee and operate as long as you can find consumers, they

can actually make a profit doing it now. What will the license fee be? Well, we decided in

relation to these license fees, we’re going to maximise a return for the public. So,

we’ll just say, whoever wants to pay the highest license fee can get the license. And

I think the public would want us to do that. The public would want to say, we want you to

maximise the return on a public asset. Now, how do we put our values on it? Well,

we’ve been doing this since 1996. We did it in relation to license fees in the last

year, and for one of them the revenue that was paid to the Government was over a billion

dollars. So, we look at that sale which has just transpired and we say, well, that raised

a billion dollars on the auction market of such and such a spectrum, and we’ve got

this spectrum coming up in the next financial year, what value do we put on it? We get

independent valuers in it, I never do it myself. I get independent valuers in and they

give me a figure.


Okay, so you reckon your judgement is you’ll get the $2.6 billion?


Well, that’s the independent valuers’ judgment.


Alright. Now, the Opposition and the Democrats both say that when you were in

Opposition, you always said that things like spectrum was a capital asset and it

shouldn’t be used to prop up the Budget’s bottom line. Why do you do it now

you’re in Government?


We don’t. When we were in Opposition we always said, asset sales should never go

into the bottom line. That’s what Labor did, and we’ve never done it. We’ve

got an asset sale in this particular year, it’s Telstra. The second instalment

receipt on Telstra, we don’t even refer to it in the Budget, we just use it to pay

down debt.


So you say this mobile phone thing is a license, and therefore not an asset?


A license, oh yes the license has always been (inaudible) . . .


Sounds like an old argument about taxes and levies to me.


It’s always been a license, oh no, I’ll tell you the big difference. If you

sell off the Commonwealth Bank, this was a Labor Party thing, they sold off the

Commonwealth and spent the money and then went and borrowed. You can’t resell it. The

license fee, you license somebody to use it and the license runs out and you re-license.




It doesn’t go. The Government never sells it. The Government owns it all the time,

it just licenses people to use it. It’s a very big difference.


Okay. Alan Kohler, former Editor of the Melbourne Age, last night said, this was the

mobile phone Budget, I actually think it’s more like the Jeff Kennett Budget. What

did you learn from Jeff Kennett’s loss that you instituted in this Budget?


Well, leaving aside Jeff Kennett’s loss, because, you know, I don’t want to

go through that. But I think what you’re referring to is something that we have done

in this Budget, which is very important . . .


$1.8 billion into the bush basically . . .


. . . which is concentrating on improving services for rural and regional Australia.

And what we have said is, let’s really try in a defined area to address a

disadvantage. Now, there is a disadvantage in regional Australia at the moment in health

services. You get one doctor to 1,000 people in metropolitan areas, it’s one doctor

to 1,500 people outside the metropolitan area. And we decided we are going to take very

strong measures to get more doctors into rural Australia. For example, one of the things

we’re doing is we’re going to make 100 new medical places available in the

faculties. They’ll be given to people who are prepared to enter a bond that once

they’re trained they practise in rural Australia, won’t be able to practise

anywhere else. And they’ll be paid scholarships to train. And then we’re going

to make payments available to specialists, travel payments and incentive payments, to go

out and render specialist services in regional Australia. And then we’re going to set

up more of these health centres, not full hospitals, but health centres which bring

together services. You couldn’t have individual services in the country town, but you

could have them in one centralised health service. And these are practical, concrete

measures which are really going to do something about addressing the problem with doctors

and medical services, we’re going to focus it for real tangible results.


Yes. Now look, one of the things that the Budget papers show is that you expect that

inflation will rise by 4.5 percentage points during the course of the next year. Are you

worried about the wage pressures that that’s going to build up?


This is a really important point. When we change the tax system on 1 July and we

introduce goods and services tax, because of the tax changes there’s going to be a

one-off increase in the Consumer Price Index. It’s very important that people

don’t make wage claims on the back of that. And there’s no reason to make wage

claims, because any price rises will be more than compensated for by income tax cuts and

increases in family assistance. Well, we’re going to go for wage rises, and that

feeds back in, you get what’s called a second round effect. You’ve got the first

round is a tax change, the second round is if they use the tax change to try and go for

wage rises and push it into a second round. If there’s Government policy is to

confine it to the first round. That’s the policy of the Reserve Bank. People

shouldn’t be going for wage claims on the basis of it. People are going to have more

after-tax disposable income because their income taxes are being cut. And the biggest tax

cuts in Australian history are starting on 1 July.


52 days.


52 days. It was 53 days yesterday, which means it must be 52 days today.


Peter Costello, Federal Treasurer. Thanks for your time this morning, appreciate it.


Thanks very much for your time Paul.