Interview with Jon Faine

744 ABC

Wednesday, 9 May 2007

8.35 am

SUBJECTS: Budget 2007-08

FAINE:

Mr Costello, good morning. 

TREASURER:

Good morning Jon.

FAINE:

It must be difficult to do an about turn instead of being Scrooge McDuck, Treasurer, you now have to be the generous fellow who hands out a prize to every child.

TREASURER:

Well I think what you are seeing now is the results of strong economic management over a long period of time.  When I first became Treasurer, when we had $96 billion worth of debt and the Budget was in deficit, we had to fix the situation.  We fixed the situation.  There are now 2 million more Australians in work and our economy is about 1½ times the size it was and if you grow the economy that brings benefits for people.  That is the object of growing the economy – and to be able to share the benefits of economic growth is what policy is all about. 

FAINE:

(inaudible) you are just the beneficiary of a resources boom, a global demand for what we have got to sell, that really no one has any control over.

TREASURER:

Oh well, Jon, I think if you look at the progress that we have made over the last 10 years, we used to owe $96 billion, we have no debt.  We used to pay $8½ billion a year in interest payments, we are now saving that money.  We never had the ability to pay superannuation, we are now funding it.  And from here we can move on do other good things like invest with our Endowment Fund in higher education.  And this will be a perpetual fund.  A perpetual fund, the capital will be preserved forever…

FAINE:

And I will come into that in detail in a moment.  But effectively, (inaudible) taxpayers are still paying more in tax than we ever have before, that is where you are getting this money from so it is not surprising that you have got it to spend back. 

TREASURER:

No, in fact…

FAINE:

(inaudible) GDP to tax (inaudible). 

TREASURER:

…Jon, in fact the tax to GDP has fallen very considerably and the international…

FAINE:

Include the GST, don’t exclude it because that would be very artificial.  If you include all tax, you have more in total tax than we used to.

TREASURER:

No, the tax to GDP ratio, Commonwealth tax to GDP ratio has fallen.  And if you want to include the GST which you can do, you have to also include the comparison of all the taxes that GST abolished.  You have to put back in wholesale sales tax, you have to put back Bed Tax, you have to put back Financial Institutions Duty, you have to put back Bank Account Debits Tax, you have to put back stamp duty on shares.  And Jon, once you do all of that, you will find that Australia’s tax burden is falling and income tax to GDP in particular has fallen…

FAINE:

Oh of course.

TREASURER:

…and we had an international report which came out…

FAINE:

(inaudible) GST, that is $40 billion a year. 

TREASURER:

…well, well, actually as you know, State Government gets all GST. 

FAINE:

Yes but we pay it.

TREASURER:

Yes.  The Commonwealth Government has cut income tax to GDP.  We had an international report last year which found of the 32 or so countries of the developed world Australia had the eighth lowest tax burden. 

FAINE:

Can we go over the details of the Endowment Fund for the benefit of Commonwealth funded universities?  Who is going to decide where that money gets spent?

TREASURER:

There will be an expert committee which will have a representative of the sector…

FAINE:

One representative from universities?

TREASURER:

Well we think that there will be a committee of say, three, it may have certainly people who have had experience, but they can’t be somebody who is serving at a particular university because we have got to be fair as between all universities. 

FAINE:

Well this is the thing, there is going to be an almighty squabble over who gets that money. 

TREASURER:

Yes, I think the universities will tender with their proposals and…

FAINE:

(inaudible).

TREASURER:

Well, but that is the way of doing it, Jon.  You want to make sure that your funding goes to the best project, don’t you, and…

FAINE:

Well this is the thing, how will it work?  Will they be competitively tendering, will they?

TREASURER:

You can competitively tender and they will put in their bids.  An expert committee will assess them and they will recommend to the Minister.  Now, if you put $5 billion in the fund, which we are going to do as soon as the financial year closes, and we can establish the mechanisms, your earnings in a year should be about $300 to $400 million.  So, that would mean in 2008…

FAINE:

(inaudible) isn’t it?

TREASURER:

Pardon?

FAINE:

That is a pretty lowly amount of return, isn’t it, on $5 billion?

TREASURER:

Well, let’s hope we can do better.  $400 and an 8 per cent return, right, $300 is a 6 per cent return.  Let’s hope we can do better.  So, that money can be spent in 2008.  Now, of course, if we put another $5 billion in at the end of 2008, then your earnings for next year could be as high as $800 million.  The capital is never going to be touched.  It is to be there forever.  I…

FAINE:

(inaudible) I think every Vice Chancellor and every student, every academic and every parent of a prospective student which pretty much covers a large chunk of the population, the question they want answered is whether or not politicians will determine where that money gets spent or it will be completely at arm’s length, independently decided and not be pork-barrelled. 

TREASURER:

Well of course, just bear in mind politicians decide who currently gets finding.  But the good thing about this Endowment Fund is it will be untouchable capital and the earnings will be available for distribution between the universities with the advice upon the recommendation of an expert committee.  So it is much, much preferable really, to the way in which the current system operates. 

FAINE:

You have also announced that there will be a lifting of the cap on domestic full fee places.  Is that going to trigger some form of, like an arms race, some sort of competitive upgrading of places at universities and force up, eventually, as market forces compete for places, force up the cost of tertiary education?

TREASURER:

No I don’t think so.  Because you have got to bear in mind that the Australian Government, the Commonwealth funds HECS places, these are government places in the universities.  And we will continue to fund those.  And the universities which offer those places will have to offer places if we are funding.  Now, what we have said is, after they have offered all of the places that the Commonwealth Government funds, if they want to take in private students they can.  The reason they take in private students – by the way, they are overwhelmingly overseas students – is that by taking them in they can actually generate more income which they can spend on the universities and spend on their courses.  So, we say to them you can do that but you have to guarantee and you have to provide all of the Commonwealth supported places which the taxpayer pays about three-quarters of the expense of and the student takes out the help loan, the interest free loan for the balance. 

FAINE:

Constraints on the proportion of Australian students who will be charged full fees will be completely removed.  Correct?

TREASURER:

The…

FAINE:

The proportion of Australian students who can be charged full fees.

TREASURER:

That is right.  The universities can take in full fee paying students but…

FAINE:

Without any…

TREASURER:

…the point I am making is they cannot refuse to offer or stop offering the Commonwealth subsidised places that the Commonwealth pays them to provide.

FAINE:

Understood.  But over time this will surely mean that the funded positions are effectively frozen and all future growth for university places will be fully funded.  In other words, people will now pay for all new places in universities until…

TREASURER:

No, because we are not freezing Commonwealth funded places.  In fact, in this Budget we have actually increased funding for Commonwealth places.  But let’s suppose the Commonwealth funds 100 places and the university says well, we can actually have 102, we can take in two full fee paying students.  The next year the Commonwealth funds 105 places and the university says, well we can take in four full paying.  The next year the Commonwealth says we will fund 110 and the university says, well will take in 10 full fee paying places.

FAINE:

But it is not…

TREASURER:

(inaudible) actually diminish the number of Commonwealth supported places because we are increasing those.  All it says is that the universities can take in as they do at the moment, fee paying students. 

FAINE:

But it won’t take long for a Vice Chancellor to say, look, you don’t need to increase the number of government funded places in course X, Y or Z because the increased growth is better filled by full fee paying students, we will make more money out them that way.  We will fund more places, fund more facilities and make more income. 

TREASURER:

Well, I have never seen a Vice Chancellor come to the Commonwealth and say, we don’t need more funding.

FAINE:

No, but what they will tell you is if we can put an extra ten people into this course or that course, we would rather do it from full fee paying students because they pay us more. 

TREASURER:

Well, let me tell you, we are going to fund increases in Commonwealth supported places.  And if we fund increases in Commonwealth supported places the universities have to provide them.  They can’t not provide them.  

FAINE:

Time is limited Treasurer and I need to move onto other things although I am sure there are many more questions and I am getting text messages from people saying that all you are doing is putting back into the universities the money you cut from them in earlier years.  Do you want to quickly respond to that?

TREASURER:

Well it is not the case.  This is a education package which increases funding by $3 ½ billion, that is recurrent funding and then it establishes an endowment fund of $5 billion.  Now just to give you some idea, the collected endowments of the Australian university sector, that is every university in Australia, the collective endowments which they have accumulated, some of them over 150 years, is $5 billion.  So what they collected between them over 150 years doubled last night.  And if we have the opportunity to bring down next year’s Budget, it may well have tripled. 

FAINE:

Kevin Rudd says it is only because he set the agenda and forced you into the corner on education and university funding.  He said that on AM this morning. 

TREASURER:

Well, I didn’t hear what he said but I would be very surprised if Kevin Rudd has ever thought of an Endowment Fund for the Australian university sector.  I don’t think he has ever mentioned it, he might prove me wrong.  He might produce a policy.

FAINE:

Not exactly an Endowment Fund but putting an emphasis on education, tertiary finding and universities for the future. 

TREASURER:

So it turns out in fact he didn’t think of an Endowment Fund.  So the Government announces an Endowment Fund and somebody who hadn’t thought of it says it was his idea.  I don’t think so. 

FAINE:

Was it your idea or Julie Bishop’s idea?

TREASURER:

Well, the investment in the Endowment Fund is an investment out of the Budget which the Treasurer – in this case me – decided to make, but I can say Julie Bishop is a very enthusiastic backer of the project. 

FAINE:

So, she came to you with the idea and you agreed to fund it.  That was your idea to put the money in there?  She had the idea…

TREASURER:

It was my idea to fund it, it was my idea to fund an Endowment Fund and she is a very enthusiastic backer of it.

FAINE:

Was it your idea or was it Julie Bishop’s idea?

TREASURER:

Well the investment in the Endowment Fund was and investment out of the Budget which the Treasurer, in this case me, decided to make.  But I can say that Julie Bishop is a very enthusiastic backer of the project.

FAINE:

So she came to you with the idea and you agreed to fund it, that was your idea to put the money in it, she had the idea (inaudible)?

TREASURER:

It was my idea to fund an Endowment Fund and she is a very enthusiastic backer of it.

FAINE:

The concept of it came from where?

TREASURER:

Well, Jon, I think I just said the concept of it came from my idea to fund an Endowment Fund.  But I don’t think anything turns on it.  It is not a question of somebody sitting down and saying it was my idea or your idea.  My only point is that it came from the Government.  I don’t think it came from Mr Rudd.

FAINE:

The issue is only an issue if someone is claiming it to be theirs when it isn’t their idea, if it wasn’t claimed then this scrutiny wouldn’t be applied.

TREASURER:

Sure, well I mean we can sit here and discuss this but…..

FAINE:

No it’s not a particularly productive use of time.  Tax cuts, Peter Costello there is something for pretty much everyone in all of this, in the commentaries in the newspapers this morning seem to be evenly divided, some say it could be inflationary some say maybe it isn’t.  Why isn’t it inflationary? 

TREASURER:

Because at the end of the day, after we have invested in education, after we have improved health care, after we have done I think a very good payment to pensioners and cut tax, our Budget is still in surplus.  In fact our Budget is still strong.  It is still one of the strongest in the world and it is in surplus around about 1 per cent of GDP – which is what we are punting for, which is what was reasonable, which is will ensure that we don’t put undue pressure on the Australian economy.  And that’s why we were able to cut tax because we can still keep our Budget in surplus.

FAINE:

I have looked at through the material available to me this morning in the time I have had and on solar and other forms of alternative technology when we last spoke just ten days or two weeks or so ago I was kind of getting the hint that there was going to be some spectacular announcement.  But I can find the doubling of the rebates for the installation of solar panels but nothing else, is there something else?

TREASURER:

Well I think it is a pretty good measure Jon.  If you want to put a solar panel which can reduce electricity to your home, into your home, the Government will pay a rebate of $8,000.  $8,000 is a lot of money.  Now I’m told that these panels cost about $14,000 so you’ll get more than 50 per cent back.  Now that’s a very substantial rebate, I don’t know about you but you can get rebates on your water bills at the moment…….

FAINE:

How much is that?

TREASURER:

$300, and that’s a good programme, not putting it down, but its $300, this is $8,000.  You know if you think to yourself average wages in the country, $40,000 to $50,000, you know – that’s a fifth of someone’s average wage.

FAINE:

(inaudible).

TREASURER:

That’s a very substantial amount of money – $8,000.

FAINE:

Do you think it will radically alter the cost benefit analysis for households installing solar and some predictions from the industry is that it will force prices up.

TREASURER:

Well you have got to bear in mind that solar doesn’t always work; it doesn’t work if it is raining or if there is no sun so you have got to stay connected to mains power.  But for those periods particularly over summer where we have a lot of sun it will enable people to go off the grid.  That will give them savings, they’ll feel good because they are doing something about the greenhouse issue.  It won’t leave them exposed if they are still connected to mains because you will still have that supply of energy.  But at the end of the day if you want to go halves in this with the Government it is a very very practical measure I think. 

FAINE:

Well the industry is saying this could put prices up, that people tend to, as happened with rainwater tanks, supply and demand, it could be counter-productive.

TREASURER:

Well, I say to the industry, you are about to get a rebate offered to your clients which will cover 50 per cent of the cost of your product.  Now this will mean that your products will be sold at a much greater level than otherwise would have been the case.  Now don’t kill the goose that laid the golden egg.  Don’t go out there and say “we’ll put up prices”, go out there and say “we’ll put up volumes” because that’s what we want you to do.  We want solar panels to be available to people, this is why we pay the rebate, so that we can get more people on it?  Don’t put up prices, they’ll make more with people on these panels.  Keep your prices and increase your volume, there is still going to be a good dollar in for businesses that make solar panels, believe me.  (inaudible) without putting up prices.

FAINE:

At the same time, as I said before we were sort of expecting there might be some announcement about more monies for research into this cutting edge technology.  Making solar more efficient, more effective, more affordable not just on the existing technology, subsidising the option of it, but making Australia a global leader on adopting cutting edge solar technology – but nothing there.

TREASURER:

Oh yes, we have a thing called the Low Emissions Demonstration Fund which is a fund which is available for research and actually production of cutting edge technology.  You might remember last year that I announced that we were going to provide a grant to set up a solar power station up near Mildura.

FAINE:

I understood this, we have spent a lot of time over the last few days talking about it.  But I was looking last night for something new and additional, Peter Costello, did I miss it?

TREASURER:

Well the Low Emissions Technology Demonstration Fund still has a very large sum which is available for allocation and that will be allocated as these projects come forward. 

FAINE:

Is this an issue, I can behind the scenes tell you, Peter Costello, there have been phone calls coming in dribs and drabs as we have been speaking, as soon as I asked you about solar the phones have gone completely nuts.

TREASURER:

Well it is a good thing I think, because I think the public is interested in solar.  Here’s a very practical measure where individuals can respond with this rebate.  And Victoria could well have the largest solar power plant in the world if this plant in Mildura comes on line and it works.  We can make energy out of solar, that’s not the problem.  The problem is the electricity from solar is more expensive than the electricity you are currently buying, so that if you went on to solar your electricity bill would go up.

FAINE:

Do you want to speak to some of these people Peter Costello who are calling in to talk about solar power?

TREASURER:

So we are trying to encourage the technology to make it cheaper and we are trying to encourage households to engage in putting these solar panels on their roofs.

FAINE:

Can we grab a few of these callers now?

TREASURER:

Sure Jon.

FAINE:

Neil from Hastings go ahead…..

CALLER:

Yes, Mr Costello 12 months ago I was going to put the solar grid onto my place and it was $20,000 and I was wondering where you got that cheaper rate of $14,000?

TREASURER:

Well, it depends on the capacity because the bigger the capacity the more expensive.  But the industry estimates are the standard panel which is available for a house is around about $14,000.  Of course if you want to put in a bigger model which costs $20,000 you are still eligible for the rebate.

FAINE:

Neil, with the rebate now available has it changed your mind at all about it?

CALLER:

No, I think I’ll just factor that in.

FAINE:

All right good on you, Anne in Cheltenham, morning Anne.

CALLER:

(inaudible) and where on earth are we going to get $14,000 to start with (inaudible)?

FAINE:

Peter Costello quickly.

TREASURER:

Well of course if it costs $14,000 and you take advantage of the Government rebate you won’t have to pay $14,000 you will only have to pay $6,000, that’s the idea of the rebate.  Now having said that, you know, I understand that not everybody will put a solar panel on their house but a lot of people will and those people that do do it will be making a practical contribution.

FAINE:

I’ve got a full board of calls on just solar power but I will stop there for the moment and get people after the nine o’clock news.  Peter Costello do the punters reward a government for tax cuts or do they just say well thank you, you have given back to us what you took in the first place?

TREASURER:

I think what people want to see is, they want to see decent investment.  They want to see good services; they want to see balanced budgets.  But if you can do all of those things and reduce the tax burden you should do so.  Now these tax cuts will put $16 per week back in the pockets of people on average wages between $40,000 and $50,000 in Australia.  Some people will say “oh $16 a week!”  But for a taxpayer in that range between $40,000 and $50,000 that’s quite a big part of the tax they pay.

FAINE:

(inaudible) there is no doubt about that, but do you think there’s a reward for it or not?

TREASURER:

Well it is not a question of rewards it is a question of doing what is right by the Australian economy.

FAINE:

I see, how many months out from an election?

TREASURER:

Well, you know, I think you can look at my record over ten years.  Two million new jobs and doing what is right for the Australian economy involves building our capacity.  I also think that if you keep the tax burden low then you encourage more people into the workforce at a time when unemployment is very low and there are many businesses that are looking out for workers, encouraging people back into the workforce is a very good thing to do.

FAINE:

All right I am getting text messages saying that the $500 one off payment to pensioners is almost a concession that pensioners can’t live off the pension that you have set for them.

TREASURER:

Well Jon, making a bonus payment to pensioners, I think, is showing the capacity to share the benefits of economic growth.  If you are in the workforce, and we have got 2 million more jobs for people in the workforce, you will get the benefit of a job, in a growing economy.  If taxes are cut you will get the benefits of tax cuts.  But for pensioners who are not in the workforce to be able to share the benefits of economic growth and to pay a bonus I think will be welcomed.  It is $500 for a pensioner, for a pensioner couple that is $1,000.  For a pensioner couple that is quite a substantial sum. 

FAINE:

The fourth election has virtually begun from here on, and there is plenty left in the kitty for more amounts still to come the way I read it, is that right?

TREASURER:

I think the important thing is to keep a strong surplus for economic reasons, that’s very important for our overall economic settings.  Look if you get the economy wrong in this country you can’t do anything.  If the economy turns down, forget bonuses to pensioners or investment in education, we won’t be able to do any of that.  The important thing in this country is to keep the economy strong and if you keep the economy strong then you have the capacity to share benefits to people and that is what we are doing,  And part of keeping the economy strong is to have a good bottom line which is in surplus and which is building savings.

FAINE:

Thank you for your time this morning I am grateful to you, the Federal Treasurer and Member for Higgins in suburban Melbourne, Peter Costello, speaking to us from our Canberra studios.