Interview with Fran Kelly

7.35 am

SUBJECTS: Budget 2006-07

KELLY:

“Hey big spender” is the theme song this morning and you have to say it was a pretty relaxed and confident Treasurer last night, clearly excited about lifting the tax on superannuation payouts, radical he called that move and dolling out a tax cut across the board. Well Peter Costello joins us now in our Parliament House studio, Treasurer, welcome.

TREASURER:

Welcome, Fran good to be with you.

KELLY:

Treasurer, no wonder you were jumping for joy last week and you have a big smile on your face now, you had quite a treasure chest to play with $36 billion worth of tax cuts.

TREASURER:

Well we had a Budget which laid down some really serious long term reforms. The changes to superannuation are the biggest changes that we have ever had, at least since the current regime was introduced in 1988, and what it means is if you pay tax on your contributions to super and the fund pays tax on its earning – no tax on exit. This is revolutionary, when people figure out what this means. It simplifies the system, it gives them incentive to stay in the workforce because you will be able to take your super tax free and maybe do some part time work. It will not add into your taxable income and it will make superannuation a fantastic savings vehicle, so really it is a big reform and it is a good thing to do for Australia.

KELLY:

What is the best bit of that reform as you see it? Is it the incentive to try and keep people in the workforce because of course that is the demographic time bomb you have been warning about for years now?

TREASURER:

That is right. You do not get the advantage of these tax breaks unless you stay in the workforce to 60. Fifty five is the current preservation age we try to encourage you to stay till 60 and the other thing Fran is if you can take your superannuation and it is tax free you might want to remain in the workforce for a day or two or three and you will be on really low income tax rates then. You will not be adding the income from your part time job to superannuation and going into the upper tax bracket so it will be very tax effective to stay on in the workforce.

KELLY:

Very tax attractive for saving too. But nevertheless whichever way you cut it, it is still going to be a more attractive saving measure for the wealthy. It is the wealthy who have the luxury for being able to put more away in super, if you don’t have much money you can not put it away.

TREASURER:

Well, there is a limit we are, you will be able to put $50,000 a year away, so…

KELLY:

What I am saying is most people barely have anything to sort of pay the bills every week.

TREASURER:

…most people would not do that but of course they are putting away their 9 per cent everybody in the workforce is putting away 9 per cent of their income every year. And if you are getting closer to retirement lets suppose you are getting up into your fifties and you do have a bit of spare money, very attractive to put it into super.

KELLY:

But Treasurer you keep saying this is a Budget for middle Australia this is a Budget for families but in dollar or percentage terms it always comes back to the fact that a high earner on $150,000 gets more under this Budget more than double what someone on $60,000 gets. Eleven per cent for those earning $150,000, 3½ per cent for those on $60,000, where is the equity there?

TREASURER:

Well the equity is in the fact that people at $50,000 particularly who have families are not paying tax – it is hard to cut it. They are coming off a very low current tax situation and the only way you can actually improve their position is through family benefits and you have to take those family benefits into account and when you do they will be something like $30, some $40 a week better off.

KELLY:

So if you look at the sums according to your schedule in the Budget, if you look at the tax break alone, someone on $60,000 gets a tax break of just $10 a week someone on a $150,000 gets $120 a week. When you add in, have you done this sum of adding in the Family Tax Benefit, I am sure you have done it to someone on $60,000 that $10 a week tax cut and their Family Tax Benefit how much better off are we going to be?

TREASURER:

Well as I said for two kids about $30 a week and for three kids about $40 a week. That depends on the number of children of course and there is another variable in there it depends what their partner is earning but when you add in those Family Benefits as I said for middle income earners you are up around $30 and $40 a week.

KELLY:

Which is still a long way short of $120 a week?

TREASURER:

Yes, but Fran on $150,000 at the moment you are probably, you could be paying $60,000 of tax so when you say it sounds like a big tax cut, it does but they are paying a lot of money.

KELLY:

Which brings us to the obvious point these general tax cuts you are giving are only because you are bringing in a lot of tax. Are we paying to much tax generally?

TREASURER:

Well, I think we can afford to pay less tax, yes and that is why I am cutting it. Yes if we were not cutting tax we would be paying too much next year. That is the answer to your question and that is why we are cutting it.

KELLY:

Treasurer, you keep describing this as a Budget for the future but where is the future investment in our productivity here? Where is the capacity building investment in skills, in higher education, I mean the spending in those areas is minor in comparison to other measures?

TREASURER:

Well take higher education, more money on higher education than ever before in Australian history.

KELLY:

In this Budget new money?

TREASURER:

Absolutely.

KELLY:

Where?

TREASURER:

Well, because the demand driven programmes and the funding to universities which is indexed is providing more money to Australian higher education than ever before in Australian history.

KELLY:

But Treasurer that is sophistry with respect.

TREASURER:

No it is not.

KELLY:

It is continuation of the current programme and if you go to our universities now they will say they stretched the class rooms are stretched, the class rooms are too big, there is not enough lecturers. Kids are paying more than ever before to go to a university why not invest more?

TREASURER:

It is not sophistry Fran, it is real dollars.

KELLY:

But it is not new dollars.

TREASURER:

Just because I had already foreshadowed the greatest spending on higher education it does not count?

KELLY:

What about skills then?

TREASURER:

No let me finish this point, Fran very, very important before you shift off, very, very important the largest investment in higher education in Australian history. Now your point is, oh but we already knew that you were going to do that. It does not change the fact that…

KELLY:

(inaudible) over time the programme.

TREASURER:

…absolutely…

KELLY:

It is normal.

TREASURER:

… just because you knew I was going to make the highest investment in Australian history, in higher education does not detract from the fact that we are making it.

KELLY:

What about skills. Last year all of the talk was about skills crisis, business, industry has been saying we have to focus on skills. The Reserve Bank says we have a capacity problem part of that is to do with skills, where is the money in here for skills?

TREASURER:

Well when you talk about a capacity problem, let’s break this down it is just another word for saying full employment.

 KELLY:

It is another word for saying we do not have the skills we need in our work force is it not?

TREASURER:

No, when you say we have a capacity problem what you are saying is we do not have a pool of unemployed that are underutilised that can be drawn into the workforce to increase GDP. Now on one level that is a bad thing but on another level that is a good thing. That is actually the aim of economic policy to make sure that we do not have a big pool of unemployed. Let me tell you this, nobody complained about capacity constraints when Paul Keating had unemployment at 11 per cent. Now it is problem but it is a good problem. Now the Government…

 KELLY:

It is a problem you have not thrown much money at in this Budget?

TREASURER:

Well Fran you know we are building technical colleges around Australia to take kids who are in high schools into technical training. We have our largest skills agreement and training agreement ever with the States. You asked about infrastructure, we have the largest programme of investment in road and rail that we have ever had in Australia, now you can look at particular areas and you can say what about this what about that, but you will find in this Budget long term investment for the future of the nation and I would warrant to you bigger investment than we have ever had before.

KELLY:

Treasurer, I said at the start of this interview you seem particularly upbeat about this and no wonder $36 billion dollars worth of tax cuts, more billions spent on super tax cuts very hard politically for the Labor Party to attack. What about you and your future? This is your eleventh Budget we have heard lots and you will not say much about it now I am sure, but is part of your upbeat mood the fact that you consider this could be your last Budget?

TREASURER:

No…

KELLY:

Headed for higher things Treasurer?

TREASURER:

No. What I feel Fran is we have entered a very unique period in Australian history where the Government is now debt free. You know I feel that we have finally got the debt monkey off our back. And that has given us the opportunity to do things I have always believed we ought to do, improve the superannuation system, cut taxes and have decent investment and when you can bring it all together after a long period of time and see the fruits of a lot of hard work you know you are doing good things for Australians and that is what it is all about.

KELLY:

How many Budgets do you have left in you?

TREASURER:

I famously said about seven Budgets ago that I had about one left in me.

KELLY:

Exactly. We must be nearing the end of your patience. Treasurer Peter Costello thank you for joining us.

TREASURER:

Great to be with you Fran.