Interview with Laurie Oakes

Channel 9

Tuesday, 9 May 2006

SUBJECTS:

Budget 2006-07

OAKES:

Mr Costello, welcome to the programme.

TREASURER:

 Thank Laurie.

OAKES:

Was superannuation reform the rabbit you pulled out of the hat tonight, was that the most important thing in the Budget?

TREASURER:

It is one of the most long term reforms that we will see come out of this Budget, probably the longest long term reform to superannuation we have had in decades, it will mean that if you have paid tax on contributions into a fund, paid tax on earnings in the fund, money coming out of superannuation will be tax free. No tax on lump sum, no tax on pensions, no reasonable benefits limits, no aged based limits, simplification and lower tax.

OAKES:

And why is it important?

TREASURER:

It is important so that people can make decisions on their retirement with a much clearer idea of what they mean. At the moment it is very complicated to try and work out whether you take the lump sum or an allocated pension, number one. And secondly it will make saving much more attractive. If you want to save, put money into superannuation because the end benefits will come out tax free.

OAKES:

The income tax reforms were a victory for Malcolm Turnbull, he is the bloke that has been making a running on tax reform?

TREASURER:

I think they are a very welcome reform. We previously cut the low tax rates, now we had the opportunity…

OAKES:

Well you didn’t do much for the low rates in the last Budget.

TREASURER:

…well we did, we cut the lowest rate from 17 cents to 15 cents, and now we had an opportunity to cut the upper rates so we cut 47 to 45 and 42 to 40. And we have also pushed out the thresholds which brings us into line with OECD averages, that is what my international comparison showed and it gets more incentive in the system.

OAKES:

But it is not so long ago that you were at the Press Club ridiculing the idea of cutting the top rate and saying that would benefit millionaires. Why are you giving millionaires tax cuts tonight?

TREASURER:

Well, I think it is reasonable, you know, it is 2 cents, it is reasonable, it gets a flatter tax system and our international report showed that we are above the average. I don’t want to be out of step with the OECD, I want to be, at least on the line, perhaps even better.

OAKES:

Why do single income families do so much better out of this Budget than families with both parents working?

TREASURER:

Well that is not really the right comparison…

 OAKES:

But it is the comparison that is made in your own documents.

TREASURER:

…a single income person on $100,000 compared with two income earners on $100,000 – that is two income earners earning $50,000 each – so that when you…

OAKES:

And they get about half as much benefit as the family with one income earner earning $100,000.

TREASURER:

…when you cut the tax of a person at $50,000, because they are not paying as much tax, and in families, no tax, the tax cuts are much smaller than when you cut it for a person on $100,000 who is paying much more in tax.

OAKES:

But your Treasury document says that it is measuring an increase in disposable income…

TREASURER:

That is right.

OAKES:

…so why do single income families get more disposable income?

TREASURER:

It is measuring, if you were to compare two income earners on $100,000 each with one income earner on $100,000 the two would get much more. What you are comparing is two income earners on $50,000 each…

OAKES:

No I am not, Treasury did.

TREASURER:

…with one…

OAKES:

(inaudible).

TREASURER:

…no, no, no, no, no, I am just explaining the table to you. You are comparing two income earners on $50,000 each with a single income earner on $100,000. Now, why are the benefits different? Because the person on $100,000 pays more tax so the tax cut cuts more dollars out of the much higher tax that they pay.

OAKES:

Will the combined benefits from your tax changes and your family benefit changes compensate people for petrol price rises and the interest rate rise?

TREASURER:

If you are a middle income family say on $50,000, tax cuts of $10 a week, family benefits of $20 a week for two kids, $30 a week for three kids, you would be $30 or $40 a week better off as a result of this Budget. That is money that you can use to meet bills or save and if you can I would recommend save. Put it into super, super is a good investment.

OAKES:

What about the impact of the big spending measures of the Budget on interest rates and why are you so sure that all of this money you are throwing around won’t add to inflation?

TREASURER:

Well this is a responsible Budget, it is still a surplus, we have now eliminated Labor’s debt, $96 billion of Labor debt and as a consequence of that we can afford to distribute lower taxes, that is what we do, give families a go.

OAKES:

And why is that not inflationary?

TREASURER:

Because we still have still got a Budget surplus. A Budget surplus and no debt. This is responsible economic management which is designed to keep interest rates low.

OAKES:

So the Reserve Bank would approve of what you have done?

TREASURER:

Well, I would think so.

OAKES:

Did they know last week what was in the Budget?

TREASURER:

Well I have a lot of discussions with the Governor of the Bank and let me say this, he knows that Australia’s fiscal policy leads the world. This would be one of the strongest fiscal policies in the world, maybe if you exclude Norway or Singapore but outside of that better than America, Britain, France and Germany and Japan and anywhere else, he knows that. Anybody who looks at the evidence knows that.

OAKES:

You have allocated some big amounts for road and rail projects, $2.3 billion just for Auslink projects, that is a big win for the Nats isn’t it, the National Party?

TREASURER:

I think it is a big win for Australia, actually. Let’s take the Hume Highway, we bring forward the dual carriageway to 2009, this is between our two biggest cities. Now you might say, well, that helps a person who has got an electorate that the Hume Highway runs through. Sure. It also helps the person who has got an electorate in Sydney and the person who has got an electorate in Melbourne because freight is going to move quicker and cheaper and faster. So you can’t isolate this out and say this is only a benefit to rural people, most Australians live in the cities, the two biggest cities in Australia are Sydney and Melbourne and we are improving the freight route between it.

 OAKES:

And what about the question of who made it happen? The Nationals are saying they made it happen.

TREASURER:

Well Laurie, at the end of the day the Government makes things happen and the Treasurer puts these decisions in the Budget…

 OAKES:

But it leaves the rural Liberals out in the cold, doesn’t it?

TREASURER:

…he takes a lot of advice, the Treasurer, in my experience, especially this Treasurer from MPs from all Parties.

OAKES:

How did the Government come to be so awash with money, to rephrase the old question and give it a new twist, where is the money coming from?

TREASURER:

Well, strong company profits is the area that has increased and that is largely led by banks and mining companies. Mining companies and banks are extremely profitable at the moment, they are paying more in company tax. Individuals are getting income tax cuts as a consequence, this is a pay-off if you like for having a profitable company sector. Laurie, Australian companies are more profitable today than at any other time in Australian history. The profit share to the economy is higher than ever before…

OAKES:

(Inaudible) banks (inaudible).

TREASURER:

Well the banks are a part of it, they are a big part of it and the mining companies are another part of it and it is the profitability which we are taxing which allows us to redistribute to individuals.

OAKES:

Final question, why doesn’t the Budget do anything substantial to deal with the skills crisis in this country which is obviously affecting productivity?

TREASURER:

Well, of course it does, this is…

OAKES:

(Inaudible).

TREASURER:

…yes, well this is a Budget which improves our taxation system, which recognises and rewards people who have got skills, it is a Budget which has a $5 billion skills package, it has got record spending on education, it has got new investment in innovation funds, we have got the Australian technical colleges coming on, I could be here until the end of your news bulletin on all of the things that we do on skills and it is a major investment in Australia’s future.

OAKES:

Mr Costello, we thank you.

TREASURER:

Thank you.