Transcript No. 2000/41

TRANSCRIPT

of

Hon. Peter Costello MP

Treasurer

Joining us now from Canberra is the Federal Treasurer, Peter Costello. Good morning

Sir.

Good morning Jeremy, how are you?

I’m surprised you’ve got any voice left.

Well, it’s one of those occupational hazards that occur around Budget time and my

colleague John Fahey is unfortunately under treatment for legionella at the moment. It has

just been announced this morning and I think that all your listeners and I too would like

to see him make a full recovery.

Absolutely. How seriously is he affected?

I believe that he will be recuperating over the next couple of days and he is hopeful

for full recovery. And I know how stressful it is over this time of the year, particularly

for a Finance Minister, and he’s been working extremely hard on the Budget as we all

have, and we just all wish him a speedy recovery.

Yeah. It’s a wretched thing, there is no doubt about that. Simon Crean, I was

speaking with him earlier today. And you talk about these tax cuts, which I think are

probably largely very much anticipated and looked forward to, $12 billion or whatever it

is, in about fifty-one days time. He says the so-called biggest tax cuts in history

disappear in just one year, but the GST remains forever. He says that after two years the

Australian taxpayer is going to be paying 600 million or $600 per year more personally in

income tax than they are now. Is that true or not?

No. It’s one of those sort of tricky little points that the Labor Party tries to

put together. Everybody gets a tax cut and they get a tax cut forever. Let me make that

point first of all. If you happened to be somebody earning up to $50,000 at the moment you

can pay top marginal rate of 43 per cent and that’s being cut to 30 per cent, you pay

30 cents in the dollar rather than 43 cents in the dollar. Now, what he says is, oh but

you know look how income is going to be raised from income tax in the future. And you know

what raises that income, more people in jobs. Not that the people who are in jobs actually

pay more in income tax, it’s that more revenue comes to the Government because more

people go into work and…

So the same people are not going to be contributing more, there will be just more

people to contribute?

That’s precisely right. And I don’t know if he does it deliberately or not,

it may just be, it is possible that, you know, one of his advisers has given him this as a

debating point, but it is one of those awful errors you wish you didn’t make, and he

made it last night. OK, it wasn’t right and I hope that now he realises the error

that he has made he doesn’t say it again because those new income tax rates, and the

43 per cent rate for people on average earnings which comes down to thirty and all the

other rates, are fixed in legislation. They’re always there and they can’t be

taken away unless Parliament in the future legislates to take them away, and I can tell

you that the Labor Party might want to put up the income tax rates, but as far as the

Government is concerned we’re cutting them because we think income tax is too high in

this country.

I think most people will agree with you. $2.8 billion underlying cash surplus for

2000-2001, largely from the sale of what I imagine can be described as thin air, which I

think is very clever.

Well, let me go over it. The Government licenses people to use the spectrum. Your radio

station we’re talking at the moment on goes to the airways, and you pay a license fee

to use those airways.

When we turn on the television we receive the television signal because the television

broadcasters have airwaves on which they’re licensed to actually broadcast, and they

pay a fee to that and they should, Jeremy, because these are profit making concerns and we

should maximise the return to the taxpayer. Now, all that has happened is that in relation

to mobile phones and the like we’ve said, sure new players can come in and offer new

services, you’ve seen all these ads on television about new people who are offering

mobile phone licenses and we say, well they can use the air waves too but they have to pay

a license fee.

Well competition is good for everybody.

It’s good competition if they give better prices that’s good for consumers,

they pay their license fees like television stations and broadcasting stations then we

maximise them for the benefit of the taxpayer. And can I say this, that I think the

taxpayer would be justly angry with me if I didn’t try and get the best value for the

country and these revenues are included in Budgets as they always have been, as they

always have been. Notwithstanding all of that the Budget is in surplus and the great thing

is we pay back another $9 billion of Labor debt this year. Let me give you one figure

because I think it sort of illustrates the point very well. In the last five years of

Labor Budgets when they were running deficit five years in a row, they had to borrow $80

billion, $80,000 million to cover their Budget deficits. We’ve run surpluses, that is

we haven’t borrowed, we don’t have to borrow to fund our Budget. But not only

have we funded our Budgets, but we have now paid back $50 billion of that $80 billion

Labor debt. They run debt up, $80 billion, we’ve paid it down, 50 billion. We are 5/8^th

of the way there.

Yeah. And if you could get the sale of Telstra through I guess you would put a lot of

that to the complete retirement of debt and would be the envy of the world totally without

owing anybody anything?

If we sell off Telstra, and it is our policy when we sell assets to use all of the

proceeds to retire debt, the Commonwealth Government wouldn’t owe a dollar. And…

Put that in perspective for me. How would that stand with say America or Europe or

…..?

Miles in front of America, miles in front of Europe, miles in front of Japan. The only

let me say this…(inaudible)…. about how much you get is as a proportion of your

economy. At the end of this year the debt, the Commonwealth debt as a proportion of our

economy in Australia will be 7 per cent. And with Telstra it would be zero per cent. In

Europe the average debt, this is France, Germany, Britain as a proportion of their

economy, remember ours will be 7, is 50 per cent. The United States is about 50 per cent.

Now, if we could get to zero, no debt, we would be the envy of Europe and America and the

sale of Telstra gives us the capacity to do it.

Which should be bullet proof. When you say 2.6 billion expected to be raised from the

selling of the spectrum licenses, aren’t you kind of putting a, telegraphing to

perspective bidders that that’s what you want? Would it not have been better if you,

well to how you could have factored it into the Budget and kept it a little bit more

mysterious?

Well, normally we don’t. And to be frank with you I prefer not to for those

reasons. But there was so much talk about it and people were putting such sort of wild

figures on it.

Yeah. I heard 10 billion on it.

Yeah I know. And I saw that in the press and if we don’t actually disclose it

they’ll say, oh you know, he’s got 10 billion….we had to disclose it. But I

want to make this point clear, and I make it clear to bidders in case there are any

listening to your program today. We want to maximise the proceeds of that, the value of

what we’ve got on it. But if it’s worth more than that we will be maximising the

proceeds. You’re quite right some bidders might say, oh well if that’s what he

thinks it’s worth why would I pay more, and I don’t want to discourage them from

independently valuing or paying more I can assure you of that.

But first the problem is that the market at the moment is having a bit of trouble

valuing some of these telcos, it’s very, very difficult on a day to day basis to get

a handle on it.

Well, we have some experience. We’ve done this before, as I said, we’ve been

licensing the use of spectrum since broadcasting started in Australia and since 1956 when

television started in Australia. And what’s changed is that when we allowed

competition into telecommunications, see when Telstra controlled telecommunications right

it was the only company, there were no people who wanted to be licensed to compete. So

competition in telecommunications has been pretty recent, we’ve been doing it since

1996. But we do have some experience, we licensed a new player last year and the proceeds

were $1.3 billion. So, we basically look at the market prices on the basis of what we

received last year.

Treasurer, you can understand we are fairly concerned about the submarine of Australia.

And the story you’re going to put a certain amount of money towards completing or

fixing up, god knows why you have to do that, I don’t know. I would have thought you

got a bit of after sale service, but never mind. You are going to fix up two at more

public expense, and is the story that the other four go into mothballs, can that be right?

No. No, what we’ve said is that we’ve set aside money in this Budget to bring

two up to state of the art.

Which is what we were promised in the first place for the original $5 billion?

I couldn’t agree with you more Jeremy. This contract has been from a budgetary

point of view a real problem. It has been a mismanaged contract and you know, somebody

says how did it get to such a situation? Well, you might ask Kim Beazley when you next see

him because it was Mr Beazley that let out the contract. And it was Mr Beazley that was

responsible for all of this. It was another one of his financial projects. But anyway, we

inherit the situation as we find it Jeremy, and we’ve got to make sure if we have

these submarines that they are at full combat capability. We’ve set aside new money,

in addition to all of the money we paid for the contract, we set aside new money to get

two of them up to combat readiness.

And will that work be done here in SA by the Corporation or not?

Well, the Corporation has got the head contract, I think that there are some weapons

system that may involve some overseas contractors. But then after we’ve got those two

submarines to full combat capabilities then we’ll look at whether we need to upgrade

the remainder as well.

But they are looking at standing down about a hundred workers, (inaudible) the head of

the Corporation says that the work is 97 per cent done. But 97 per cent done, I’d

expect that you could go out there and see a submarine.

Well, you can see a submarine, they’re there.

Are you sure about that?

Well they’re there and they can sail. The question is you’ve got to make them

quiet enough not to be easily identified and you’ve got to make sure they’ve got

combat capability to actually be able to hit targets. And it’s the noise and the

combat capability that are the problems at the moment.

Is this the last bail out? Do we have to put more money their way?

Look, we’d like to see from the sake of the employment point of view, we’d

like to see the Corporation continue and to continue with ongoing work.

But, look from a general taxpayers point of view we contracted to have submarines that

were not noisy, were not easily identified by enemy, which could fire with full combat

capability. It is costing us a lot more money to get that then we contracted for and I

guess there is a bit of frustration on my behalf that the Beazley contract went so wrong.

I know you’ve got to go. But just one quick last question. Did last night win the

bush for you or not?

Last night, what we did is we said we’re going to fix the real problem with some

real solutions. And a lot of people say it is just promise money. No. What we want to do

is put real practical concrete solutions in a defined area. So we said what we are going

to do for regional Australia is we are going to give them more doctors and health

services. We’re not going to sort of look right across the field with some hare brain

schemes here and there. We are going to say, in this area we will fix the problem. We

bring together targetted measures to train more doctors, to bond them, six year bonds to

go out to rural Australia, more country kids in medical schools, more health services,

money to specialists to go out to the region. This is the biggest attack on this problem

that has ever been done, it is clearly defined and it is designed to bring about real

results and real achievement.

Treasurer, good to talk to you.

Thanks very much Jeremy.