Budget – Address to the National Press Club

2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 | 2003 | 2002 | 2001 | 2000 | 1999 | 1998
ASIC Receives Additional Funding
May 14, 2002
Superannuation; Labor’s new taxes
May 17, 2002
ASIC Receives Additional Funding
May 14, 2002
Superannuation; Labor’s new taxes
May 17, 2002

Budget – Address to the National Press Club




Address to the National Press Club, Canberra

Wednesday, 15 May 2002



SUBJECTS: Budget; Intergenerational Report; Interest rates; Telstra; Economy


Ladies and gentlemen, welcome to today’s National Press Club Telstra Address.

It’s one of those occasions in the year when I don’t need to say very much at

all. Last night the Treasurer presented his Budget, here he is to talk about

it further. Please welcome Peter Costello.


Thank you very much Ken. And it’s great to be back here again for yet another

post-Budget National Press Club Address. I would like to thank all of the journalists,

my special friends, who have come here today to listen, and to others as well.

I think the themes of last night’s Budget are pretty well known. It was a Budget

which continues a very strong economic policy which has been the hallmark of

this Government’s stewardship of the economy over the last six years.

It was a Budget which was framed against a very difficult economic backdrop.

In the first place, a global economic slowdown, recession in the United States,

and Japan, and Germany, Singapore and Taiwan. And a Budget which was framed

against some very real security developments – the events of the 11th

of September, Australia’s commitment in Afghanistan, our continuing role with

sanctions in the Gulf, an upgrade of domestic security at airports and an upgrade

of our border protection.

The Government is forecasting over the course of the next year, Australia’s

growth continuing to lead that of the developed nations of the world. And whilst

many of the developed nations of the world have rising unemployment, ours is

expected to fall, and by June of next year could fall to 6 per cent and after

that go lower into territory we have not been in Australia for quite some time.

But it will only do that if strong economic management continues, and this Government

is determined to keep strong economic management in this country.

One of the things that I did last night which has never been done before in

Australia is I brought down what we call the Intergenerational Report. And because

many of you have heard me on the subject of the Budget quite a bit already today

and yesterday, I thought I might briefly take you through some of the features

of this Intergenerational Report and of course at the end of this I am very

happy to take questions on the Budget in addition. But I thought for those people

who are here for the first time, or watching at home for the first time, I would

like to give you a snapshot of what we think on current projections might be

happening over the next forty years.

Now people have made the comment in the press, and they’re right, that over

the next forty years there will be numbers of developments which we can’t now

predict. And they made the point that you can only have guesstimates, and we

acknowledge that very freely. In fact in the Intergenerational Report we set

down all of the assumptions that we make and, sometimes we make different assumptions

to try and see what the sensitivity analysis is to the particular outcomes.

But I think we can make a couple of observations, for sure, about what the pressures

are going to be on us in forty years time. And what I want people to think about

is this, that if we know these pressures are coming on us in forty years time

we can incrementally adjust our policy now, or if we put it off, be forced in

to much more drastic measures later. The problems will not go away if we ignore

them. Moderate changes now, I will argue, are in the interests of sustaining

our system over twenty, and thirty and forty years time. And the person that

tells you, whether it be in the Opposition or anywhere else, that they’re opposed

to the moderate changes now is only telling you that they are arguing for more

drastic measures later on. We don’t have a choice in relation to some of these

drivers of expenditure.

The first point I would make about the Intergenerational Report is it wasn’t

sprung in this particular Budget. When we enacted the Charter of Budget Honesty

in 1998 we laid down in law that this is to be done every five years. And in

five years time somebody will produce the second Intergenerational Report and

we will be able to look and compare and see what the changes are, and measure

whether or not we have made some progress over the five years between then and


The story of declining fertility I think is well known, and it’s a big part

of the driver of the ageing of the Australian population. We estimate in 2042

in a population of around about 25 million people, the number of people that

are aged 54 or less will be approximately the same. It’s the people over 55

that will be increasing as a proportion of the population. In fact, as you can

see from those graphs, making up nearly all of the population increase between

now and 2042, and this is what we talk about, the change in the ratio of older

people to younger people in the community.

When we look out across the next forty years we find that the largest area

of pressure in relation to Government spending is going to be in the health

area. And in the health area the largest increased pressure by far is going

to be in the Pharmaceutical Benefits Scheme. This is a graph which compares

the proportion of the economy which is devoted to these schemes at the moment

compared to the proportion of the economy which we expect would have to be devoted

in forty years time. Now the economy is growing all of this time. It’s not that

the costs are growing in line with the economy, it’s that in even a fast growing

economy, the costs are growing so much faster, that the proportion of the economy

is rising all the time. And in our Intergenerational Report we find that ageing

is a factor in some of these measures. But the biggest factor by far in fact

is medical science. Even if your population were not ageing. The fact that medical

science can now deliver more treatments for conditions that we previously couldn’t

treat, and deliver them at higher expense, means that your pharmaceuticals are

growing much faster than the growth in the economy and over a period of forty

years are going to soak up a very larger proportion of the economy. Now if everything

else were equal in its share to the economy, you would have to find something

like $60 billion per annum to fund these pressures in forty years time. Now,

people could argue maybe it will be 50, maybe it will be 70, but I can tell

you it will be a lot of money.

We can make incremental steps now or we can make drastic steps later on. Our

aged care spending we know will rise over the next forty years, principally

as people begin to live longer and medical treatment improves. We know that

our payments in relation to the aged pension, the red bar, I am sorry, the,

I think it’s the blue bar in relation to that, will also be rising, principally

because the number of people who are eligible in that area will grow. But as

we look across our payments we find that the disability support pension is growing

faster than most of the other pensions and allowances. The disability support

pension which was applicable to about 200,000 people is now being claimed by

about 600,000 people. And numbers of people have made mention of the fact that

the disability support pension has to be addressed. For example let me give

you what one person said not so long ago in relation to the disability support

pension. Somebody said on the 1st of August 1999, “I think blind

Freddie out there in Australia can see that we don’t have one out of eight Australian

men in their 50’s disabled, totally incapable of work. Everyone knows the system

is being abused. For those who have got a capacity to work we should support

that and give them assistance to find work”, 1st of August 1999, Mark Latham,

Labor’s spokesman on economic ownership.

And those people that have looked at the disability support pension and those

people on the Labor side who do think about policy know that this is an area

to be addressed. Those people on the Labor Party side who don’t think about

policy and only see a political opportunity will deny this is a problem. But

I come back to my point – incremental changes over a long period of time, or

drastic changes as the problems develop.

Projected Commonwealth payments in relation to these areas are expected to

grow, particularly in the age and service pension, as the population ages. You

will notice that as a share of the economy, payments to families are expected

to decline and that is because the young as a proportion of the economy are

expected to decline. Again I keep making this point, this is a proportion of

a growing base, of an economy which is actually growing, so that even if you

were growing in line with the economy you would be stable as a percentage of


The good news, I suppose, in relation to aged pension is that whatever the

problems Australia has, we are better placed than other countries. We are better

placed than New Zealand or Canada or in relation to the OECD. We have problems,

they have greater problems. Now one of the reasons why we have lesser problems

is that over a period of time we did measures which were designed to actually

curtail the rate of increase, like means testing aged pensions, like the contributions

in relation to superannuation. And it is those kinds of changes that we have

now got to start facing up to in other areas of expenditure as well.

Projected Commonwealth education spending, you will notice, also declines as

a proportion of the GDP, not because spending falls, but because as younger

people are a smaller part of the economy and as the economy grows, the proportion

of the economy comes back. I keep coming back to this point. This is a moveable

base that you compare the spending to. It is the proportion of a growing economy

and so even though spending on all of these areas is expected to increase, because

the base increases faster, you can actually show as a percentage to the economy

it starts to fall.

Now this is a graph that perhaps only a Treasurer could muse on in the lonely

hours of the morning. It shows what the profile of taxes paid by people are

over their lifespan essentially, and as you would expect, it shows that people

come into the taxation system around about their twenties or their mid-twenties

and tend to move out of the taxation system by their sixties. They will continue

to pay tax mostly on investment income thereafter, but prime years for taxpayers

in that group between twenty and sixty. That is the group that I showed in the

first slide that is not moving in numerical terms and declining as proportion

of the overall population. The group that is increasing in numerical terms and

increasing as a proportion of the population is that group above sixty which

is not in that hump, that prime of taxpaying capability.

And so when we put all of these together on a growing economy with a pretty

static taxation base, with the drivers of medical science, with the ageing of

the population we are told something like this about the pressures that are

building up in our system. You can argue about the bars, whether some of them

should be longer or whether some of them should be shorter, but I think the

overall movement is clear and unchallengeable. That is, while we have a strong

fiscal position at the moment, and over say the next decade, thereafter the

fiscal pressures just keep mounting, and at the order of 5 per cent of GDP in

forty years time, that it is about $80 billion per annum in today’s terms. To

sustain these systems in forty years time you would be looking at about $80

billion per annum and I have shown you the taxpaying population is not going

to increase. And so we have to think about some of the choices that we are going

to make. The reason I put this Intergenerational Report out there is not for

today, it is not for tomorrow, if you look at that graph we have probably covered

the situation for ten years. But we need to start thinking now about twenty

years, thirty years and forty years. The next thing I want to say is, this is

principally a problem for the Commonwealth. It is the Commonwealth that has

the responsibility in the areas where the cost drivers are operating. That is,

in relation to medical science, in relation to pensions and in relation to income

support payments. The states who bear the principal responsibility in relation

to education, as I showed you, are going to be pretty much stable in relation

to GDP. In relation to infrastructure, pretty much stable. This is a problem

that the Commonwealth is going to have to deal with in relation to the current

division of responsibilities under the Federation. Well the good news as I said

earlier, is that of the countries of the world that are facing similar problems,

perhaps Australia is the best placed. Over the last six years we have now repaid

about $57 billion of debt and by the end of the current year, will have repaid

$62 billion. The debt that we are holding in proportion to our economy, which

was about 20 per cent when the Government came to office has been reduced to

about 5 per cent. We have made very significant inroads in relation to our financial

position. Correspondingly, the OECD with many of the same problems, in many

respects even greater ageing populations, have not made the same kinds of inroads.

Many of them do not have means tested age pensions. And many of them are still

to get to grips with some of the drivers of expenditure. So the good news is,

although we have a big problem, others have a worse problem. The good news is

that we have been making some inroads, at least over the last five years in

relation to securing our financial position. The good news in this respect,

is a bit like the good news in relation to economic growth. In a time when the

world turned down, Australia was strong and we were one of the lead economies

of the world. But if we want to stay there, if we want to stay there not just

in ten years time or twenty years time or thirty years time, if we want to be

there in forty years time, the kinds of changes and the kinds of restructuring

that we have engaged in over the last five years, the kinds of strong economic

policy that we have put in place, has to continue. That is the challenge for

Australia out into the decades and I can assure you we intend to meet that challenge.

Thank you very much.


Thank you very much Treasurer, as usual you have been very good in terms of

time allocation, we have a question period and the first question today is Iain



Treasurer, Iain Macdonald from Dow Jones. Given the Government is forecasting

a swing in the Budget to a surplus in the year ahead from a forecast deficit

and given that the Government is also forecasting a fall in inflation to 2 ½

per cent by the June quarter of next year, doesn’t this Budget argue that no

further interest rate rises are necessary?


Well I don’t think you will find that in the Budget Papers. Nor do I think

even the most imaginative reading between the lines can divine the monetary

policy other than this, that monetary policy will be set so that the underlying

inflation target which is between two and three per cent will be met. And you

shouldn’t understand the Budget in any other way.

This Budget holds spending in real terms and this Budget reduces in spending

as a proportion of GDP. This Budget reduces, we estimate in the Budget Papers,

by about half a per cent of GDP, fiscal stimulation. Now I think it’s appropriate

to do this at this time of the cycle. We’ve been through a year when there was

a global slowdown. America was in recession and Japan, and Europe was very sluggish.

I think with the challenges that were in the international community and on

the international world economy, and I should say, in 2001-2002, it was appropriate

to have a stimulatory policy. And the proof is in the pudding. Australia came

through an economic slowdown and a US recession. And it would be interesting

to find out the last time Australia did that, very interesting. But if you’re

forecasting the world economy to pick up and we are, it’s appropriate that we

start withdrawing some of that stimulus. That’s what the Budget’s designed to


You ask me about interest rates. For the benefit of the general public, I still

say, with the exception of the last couple of months, interest rates today are

still their lowest in 30 years. You know, the last couple of months was 25 points

lower than today, but if you leave them out, they’re still the lowest in 30

years, at today’s level. So these are very, very competitive interest rates,

it’s four and a quarter per cent lower than when the Government was elected

and I think that’s been a good part of the story of keeping the Australian economy



The next question is from Belinda Goldsmith.


Yes, Belinda Goldsmith from Reuters. Treasurer, the best kept secret in the

Budget this time round was the deficit for 2001-2002, with Finance Minister,

Nick Minchin, saying as recently as April the 10th to expect a surplus.

I wanted to ask you when you first realised that the 2001-2002 Budget would

be in deficit?


Well we watch the collections very carefully and you’ve got to make an estimation

as to what you think the collections will be. In the early part of this year,

they were very weak and we were watching them to see whether or not they’d be

a lot stronger. They did strengthen during the course of the year and the Treasury

best estimate is that by the close of the financial year, notwithstanding strengthening

revenues, a small cash deficit of about $1.2 billion will be the outcome. You

won’t actually know what the final budget outcome is until about the 30th

of September, because it’s not until the 30th of September that the

actual collections are all assessed and put in and matched against the expenses

and we publish that normally three months afterwards. So these things are full

of prognostications. There was a weakness in company tax collections particularly

in the earlier course of 2002. There was additional spending when we went back

into the Parliament for additional estimates earlier in the year in relation

to the war in Afghanistan and in relation to border protection. A combination

of those two events in relation to this financial year will be a small cash

deficit. A small cash deficit, which will be a much stronger position than America,

and Britain and Europe and the OECD and the G7. And a cash surplus in 2002-2003

as opposed to a deficit in America and a deficit in the UK and a deficit in

the OECD and a deficit in the G7. Australia’s fiscal policy in both this year

and next year will be stronger than any comparable country in the world. And

I think a big part of the secret to the Australian economic performance has

been some of the stimulatory measures that kept us out of recession in 2001-2002,

particularly the First Home Owners Scheme. And I think that the outcome of that

has been a successful one for the management of the Australian economy.


Nigel Blunden.


Treasurer, Nigel Blunden from the Nine Network. I was wondering if you could

put a figure on what you believe what the cost of the Budget would be if the

Senate blocks the planned changes to the PBS scheme and also if the changes

to the payment of disability pensions is blocked. What sort of a hole would

it leave in the Budget and how would you fill it?


Well, from memory the PBS changes are around about $380 million per annum.

So that if the Senate were able to drive, to completely defeat those measures,

the effect would be about $380 million per annum, probably rising in the

outyears. Yes I think, rising in the outyears to $480 million and $500 million.

The Senate, if it were to try and do that, of course, would be trying to damage

the Government’s economic strategy. Would it be new? No. You’ve got to remember

this. When we came to office the Labor Party tried to defeat every savings measure

and they were successful in defeating some. After we’d actually got them into

place and driven the Budget back into surplus, they said they were in favour

of surplus Budgets, they were just against every measure which was required

to do it. They’re spinning the same kind of argument now. They now say they’re

in favour of surplus Budgets, they’ll just take every opportunity to try and

vote against every measure which will produce it. We’ve seen this kind of behaviour

before, but I don’t think it will get them where they want to go. This was the

failed strategy of Beazley and Crean. They voted against GST and tax reform.

And there are a lot of people that voted for them in general elections thinking

that they actually believed it. Two weeks ago they said they now intend to keep

the GST and rollback’s dead. What about all of those millions of voters who

they nurtured for five years on a policy which we now find they don’t agree

with. And it’s going to be the same in relation to the Crean Opposition. I made

the prediction he would be more cynical and opportunistic as leader than he

was as deputy leader and hasn’t disappointed. It’s the thing about Mr Crean,

he won’t disappoint you when you’re looking for cynicism and opportunism, he

won’t disappoint you. And so here he is, on the one hand, he’ll be saying to

the Australian public, oh, we want surplus Budgets, we’ll just vote against

all of the savings measures.

Now the other thing I’d point out to you and if I could go back to my graph

in relation to the Pharmaceutical Benefits Scheme. Have a look at it. That’s

the pressures in relation to the Pharmaceutical Benefits Scheme. And Mr Crean

says he’s opposed to moderate changes. If you oppose moderate changes, your

choices will become more drastic. This will turn out to be a pressure cooker.

And he might say, I’ve got the lid going to keep the steam in and he’ll keep

it in for just so long as it will explode. The people who are really trying

to do the right thing by the Australian public are those that are trying to

put these cost pressures on a sustainable basis, not those that are trying to

fill them with disinformation and tell them that nothing needs change. I’d say

to the Australian people, that’s what they told you about the GST all those

years – wasn’t necessary, shouldn’t be done, would throw Australia into recession

– two years after the event, America goes into recession and Germany and Japan

and Australia comes through and it’s strong. It’s strong because good economic

policy was secured and it will be strong in the future if good economic policy

is maintained.


The next question is from Gemma Daley.


Treasurer, Gemma Daley from Bloomberg.


The forecast for net debt 2005-06 is minus $18.9 billion. Would you describe

this as an optimistic forecast. Does it include Telstra and does it mean the

Government will have an extra, almost $19 billion to spend that financial year?


Well, it does include Telstra, yes. What we are forecasting over the Budget

period is we are forecasting cumulative surpluses over the forward estimates

of around about $17, $18 billion which will be used to retire further debt.

The proceeds of Telstra, when added to that, would allow the Commonwealth to

completely retire all of its debt. That is, the Commonwealth would not be carrying

any debt. I think there are about two or three countries in the world that are

in that position. None of the Europeans, none of the Americans, but it would

put us amongst the top two or three countries in the world, one of them is Singapore,

incidentally. But we have always said that our programme is to retire debt and

imagine how that would set us up for the challenges of 2010 and 2020. As I went

through the graphs I showed that one of the reasons, although we have a problem,

that our problem is less worse if you see that declining debt. Now, if you were

to take that down as you forecast over the next 3 years to zero, you would be

in a stronger position. You would be in a stronger position to re-base your

aged care and your pharmaceutical benefits. But those people who say, oh, they

are also against further debt retirement at the time they are against the moderate

changes to sustain the social welfare system. So the forecast surpluses would

be applied to debt retirement and the proceeds of asset sales, if that were

to proceed, would also be applied. But I make this point, and I make this point

strongly and we have always said this that we will not be offering further shares

to the general public in Telstra unless we are convinced that the services of

Telstra in the regions in the bush have been brought up to standard. And what

that means is that we are working to bring them up to standard. Telstra is working

to bring them up to standard. And I also make this point, we want them to come

up to standard, not so we can sell Telstra, we want them to come up to standard

so that people in regional Australia have good service. And the sooner that

is done the better it will benefit them. And once we bring those services up

to standard then the Government’s policy is to offer further share owning opportunities.


Jim Hanna.


G’day Treasurer. Jim Hanna from AAP. Economists have been saying your forecasts

for growth and next year’s surplus are too cautious and that with the strong

domestic economy and the recovering world economy you will probably beat those

easily. They’re essentially saying that you are lowering expectations and your

surprises for a better than expected surplus at the next election. First of

all, how do you justify such cautious forecasts in the face of so much expert

opinion. And second, do you have plans for further tax reform given that the

bracket creep is going to deliver you an extra $5.5 billion in tax next financial

year and nearly $20 billion extra by 2004-05?


Well, thanks for that question Jim. Look, I do not think we are being too cautious.

I think these are solid, defensible, reliable forecasts. If we were to do better,

would I complain? Surprisingly enough no. But, I do not want to put in there

anything which I think is over-optimistic because if I put in anything that

is over-optimistic and we don’t meet it you will get me the other way Jim. If

you don’t get me coming you will get me going. If you don’t get me for being

over-cautious you will certainly get me for being over-optimistic and I always

try and prepare my defences against the members of the press early on and regularly.

So, we put in what we think are defensible forecasts – 3¾ per cent would

still be a stronger growth rate than any of the other industrialised countries

in the world. Stronger than America, and Britain and France and Germany and

certainly stronger than Japan. And I think it is realistic. I guess the Treasurer

would be more worried if people were saying the other way, that it was over-optimistic.

We have a plan to run a strong Budget position and if we were to have a stronger

Budget position it would give us the opportunity to pay down some more debt.

And I guess the point that I am trying to get to is this, that by paying down

our debts now we are actually doing something for future generations. The whole

idea of an Intergenerational Report is to try and work out if generations are

being fair to each other. Let me explain. The generations that have built Australia

and gave us wonderful infrastructure did something for us. And will our generation

do something for the next generation? We know that the next generation is going

to have big fiscal pressures and if we gave them all of those pressures and

a whole lot of debt as well we would be a selfish generation. But we won’t be

a selfish generation if in our generation we will have paid back this debt and

said to them at least you do not have to face all of those fiscal problems with

the hangover of debts that we ran up. And so I think we can say, particularly

over the last 5 years, we have, we have done something for the next generation.

I would not go so far as to say we have done all that is required but our Intergenerational

Report allows us at this period to make that observation. What I want with the

next Intergenerational Report in 5 years time is for somebody to sit back and

benchmark in 5 years time. Did they continue to work? Did they build upon the

foundations of what was done between ’96 and 2001? Are they still helping the

next generation or not? And I want Australians to now see what we are doing

in policy terms, in generational terms. How are the generations now looking

after each other. And it would be a poor thing if the baby boomer generation,

which had a pretty good run through the 1960’s, through the course of the late

90’s or the early 2000’s, said to the next working generation – they are the

people that are in the hump that I tried to show you before – said to the next

generation that is coming up after them, the people, when the baby boomers are

down here and the next generation is there, the baby boomers said we had a good

run in the sixties and we’d like an even better one in the twenties or in the

thirties. Because that is what they would be saying if we were not securing

that fiscal position. And so we can really do something with our retirement

of debt and I hope that we do.


Mark Davis


Treasurer, Mark Davis, Financial Review. Treasury’s discussion in the Budget

papers of the economic outlook, particularly the outlook for inflation, was

in quite marked contrast to the Reserve Bank’s concerns last week about inflationary

pressures emerging next year and about the risk of imbalances due to rising

household debt. Are you confident that Treasury has got it right and that the

Bank, therefore, has it wrong? And are we heading for a period of conflict within

the official family over the direction of interest rates?


I don’t think that there is a different assessment in relation to inflation.

I think that our inflation forecasts are pretty much the same as the Bank’s

and in fact, as you would know, the Bank would have an involvement through the

JEFG with our forecasts. And we are forecasting, in relation to the CPI, a year

average of 2¾ per cent and 2½ per cent at the end of June 2000. In

relation to the debt question we make the point in the Budget papers that, you

know, one measure is looking at debt to income, another measure is looking at

debt to assets because you borrow against assets. And although the ratio of

debts to assets in Australia has risen, it has risen to levels in comparable

countries and we make that point in here. Another measure to look at is the

servicing cost of debt and although debt has risen, although debt to assets

is the same as comparable countries the servicing cost of debt is still quite

low in Australia. Now, I think the Bank itself has made this point on numbers

of occasions, I don’t think there is any disagreement about that. What the Bank

referred to in its statement was that, from memory, in its statement of monetary

policy it talked about house prices and house prices are high, we all acknowledge

that. And I do not think there is any disagreement in relation to that but I

would not forecast great disagreements within the official family. We have open

and honest discussions as you would expect, very open and honest discussions,

but, you know, we are like any family, we all love each other at the end of

the day.


Laura Tingle from the Sydney Morning Herald, Treasurer. I wanted to ask you

about the Intergenerational Report which you want to talk about today. The genesis

of the Report was the National Commission of Audit which you commissioned and

then so warmly embraced in 1996. I think the intent of that, as I recall, was

that the, the intergenerational equity of particular budget measures would actually

be addressed which is something you haven’t done in last night’s Budget. And

I just wondered whether you would like to comment on the intergenerational equity

of some of your election commitments that you did meet in last night’s Budget?


Well, I think I have been trying to address the intergenerational equity question

in today’s speech and that is why I was talking about the generations being

fair to each other and bequeathing financial positions to each other, and giving

each other the capacity to meet some of those pressures. And I’ll tell you what

would be generationally inequitable – if we did not start making small inroads

now in relation to some of the pressures that are building up.

If you come back to the election promises, well, the largest election promise

that we made was the Baby Bonus which we delivered on last night and the Baby

Bonus is really a new measure to help families who have young children, and

I actually think as a matter of tax fairness to help working mothers. Let me

explain. A working mother who is in the workforce earning wages, goes on to

the marginal rate of taxation and then comes out of the workforce and has no

income and loses the value of five tax-free thresholds over five years. If that

working mother were an artist or a farmer they could average and they could

make use of those five tax-free thresholds. And what the Baby Bonus basically

says is that the working mother can get the same kind of deal that the farmer

and the artist has. The farmer and the artist has access to averaging because

they have fluctuations. And it would be unfair to take them at the full marginal

rate in the good season when they lose their tax-free thresholds in bad ones.

Well, in a working woman’s life, you take the tax, the full rate when they are

in the workforce and then they go out of the workforce or they go into part

time work and when the tax-free threshold would really be of some use, they

are unable to access it. And the Baby Bonus actually has it’s origins in, I

think, tax fairness. Now, in addition to that because it would be said, and

that’s all very well for working women who are on high marginal wages, but what

about women who weren’t in the workforce before they had a child? We introduce

a $500 minimum. But the origin of the Baby Bonus is actually tax averaging and

I think it’s fair over the lifestyle of working women, and most mothers are

working women or have been working women and probably will be working women

these days and you ask me as is it generationally fair? Well, I think it is,

because it is fair to the youngest generation. And don’t forget it’s all of

the kids that are being born now that we are going to look to Laura in twenty

and thirty years time to be paying their taxes for our social services. So,

we ought to value those children. We ought to value them because they are children

but, we also ought to value their economic role in society.


I am sorry to have to tell all our audiences that that is as far as we can

go today, the Treasurer of course has to get back to Parliament for Question

Time. I would like to thank him very much for once again joining us and there’s

a new momento in here for you, Peter Costello, it’s a clock. Don’t put any particular

significance on that.


Thank you very much.