TRANSCRIPT OF
THE HON PETER COSTELLO MP
Treasurer

Budget Lock-up Press Conference
Parliament House, Canberra

Tuesday, 11 May 2004
4.30 pm

SUBJECTS: Budget

TREASURER:

Well I think I will just go through some of my coloured charts, if you will

bear with me for a moment, to put the Budget in context.

The Budget is in surplus for the seventh year that the Government has been

in office, with a surplus this year of $2.4 billion. Other countries around

the world were in the same position as we were back in 1995-1996 when our deficit

was 2 per cent of GDP. And none of the other countries that are listed here

– the Euro area average, the OECD, the United States or Japan –

have managed to get their Budgets back into surplus but Australia has.

And when you have a surplus, that is net revenues over expenditures, you have

the opportunity to reduce your debt. Whilst other countries have been increasing

debt in the first part of this century, Australia has been reducing debt. And

our debt to GDP ratio at 30 June of this year will be about 3 per cent of GDP.

That is extraordinarily low by the standards of the developed world.

The OECD average debt to GDP is about 50 per cent. We are about 3 per cent.

So Australia is in an incredibly strong financial position. And this hasn’t

happened by chance, it has been a consequence of very strong economic management.

This compares the current year and the next financial year – Australia,

two surpluses – Japan, two deficits of 7 per cent of GDP – the United States,

5 per cent – the OECD, 4 per cent – the Euro area, 3 per cent. This is not an

accident, it is not a fluke, it is economic management.

And just allow me to, for those State based media, I just want to show you

this graph. Every State will receive a bonus this year in 2004-05, that is their

GST proceeds will exceed the amount of money that they would have received under

the old tax system, the Financial Assistance Grants. Every State, including

New South Wales, which will have a $100 million bonus, and Victoria, so I will

have to get some new ads up on TV, $200 million bonus. And some of the States

like Queensland are major beneficiaries. That is an annual bonus that Queensland

will be receiving in 2004-05.

Now the point about this is, as those revenues grow, the Commonwealth doesn’t

receive an extra dollar. We receive no benefit from the growing GST base. Because

the growing GST base in its entirety goes to the States.

Now economic management, strong economic management, has allowed us to put

in place some very important structural changes. And I think it is important

that the public does see the benefits of strong economic management. In this

Budget we will be increasing the base rate of Family Tax Benefit by $600. That

increase of $600 means that this benefit has increased by more than 100 per

cent since the Government was elected in 1996. That was our Family Tax Initiative

in our first Budget, that was the New Tax System in 2000, that is a $600 increase

in this financial year.

But we have also used the opportunity to accomplish some structural change.

And in particular to address this question of effective marginal tax rates.

This is for one child, of course the benefits are more substantial for two or

three children, the benefit increases by $600. So if you are on maximum rate,

you will go up from around $3,400 per annum to $4,000. If you are on minimum

rate you are up from $1,095 to $1,695. And the taper rate here is changed from

a 30 per cent taper rate to a 20 per cent taper rate.

So that previously as your earnings increased and you were on the 30 per cent

tax bracket here, you had a 30 per cent tax rate and a 30 per cent taper out,

an effective marginal tax rate of 60 per cent. The easing of that taper reduces

that by 10 per cent. That is a structural change, which is designed to assist

families in the pathway from welfare to work.

More importantly, Family Tax Benefit B has been changed to assess women returning

to the workforce in part-time work. Previously they began to lose their benefit

once their income went above $1,800 and they lost it completely a little over

$11,000. They will now lose no benefit until they earn more than $4,000 and

the taper is changed to 20 per cent, they can receive a part benefit up until

a bit over $18,000.

So the disincentive that some women found by getting back into the workforce

has been eased. That is a big structural change.

And the average married woman in part-time work, works 17.4 hours a week. The

average 17.4 hours could previously exempted that woman, married woman returning

to work, from any Family Tax Benefit. They can now receive Family Tax Benefit

and they do not have that disincentive to go back into the workforce.

The other thing we have done in relation to Family Tax Benefit B is that if

you go back into the workforce half way through the year, instead of your income

disqualifying you from the Family Tax Benefit you have already received you

keep what you have.

So you can go back into the workforce, you keep what you had in that financial

year, the income test is made more generous and the taper is extended.

These are very significant structural changes to help balance work and family.

This is directed squarely at the family which is struggling with juggling between

work and family. And it is a major structural change. We have taken the opportunity

of strong economic management to introduce major change.

And as I said earlier this shows how since 1999 the interaction of the tax

system and the taper rates have reduced. Back here the tax rate was 34 cents

and the taper 50 cents. The New Tax System 30 cents and 30 cents, as from 1

July 30 cents and 20 cents. We have addressed front and centre this question

of work and family in our response.

Now in addition to that, to help the work and family issue, we have the new

Maternity Payment of $3,000 per annum in a lump sum from 1 July rising to $5,000

and in addition to that as well we have an increase of 40,000 outside school

hours childcare places and we have additional family day care places as well.

That is reform. Significant reform. It meets the work and family issue, it improves

incentives, delivers more benefits to families.

And for those families, particularly what we regard as probably the standard

family in Australia, Dad on average weekly earnings of $50,000, Mum working

17.4 hours in a part-time job, the benefit in family assistance is around $50

a week. And that is as close as we can get to the typical Australian family.

Now that is benefits for families and particularly middle and lower income earners.

The second part of this package is a new tax scale. A new tax scale which increases

thresholds in two stages – one from 1 July this year, the second stage from

1 July next year – so that you will stay on the 30 cent rate up to $63,000 and

you will not go on the top rate until you are above $80,000. This will make

Australia more internationally competitive. It will increase incentives. It

will particularly appeal to those people who are in middle income brackets,

looking for a promotion, or upgrade skills and it will deliver a tax cut of

about $42 a week to somebody that is at that level.

The third component of this package of more benefits for families and employees

is the superannuation co-contribution. You have seen the ads on television with

the piggy bank, the dollar for dollar, which has just been introduced against

staunch opposition from the Labor Party and Senator Coonan had to fight tooth

and nail in the Senate. Well we are gearing that up. No longer dollar for dollar

but dollar fifty for dollar for people that want to make a contribution into

superannuation. And it will be extended to a far wider range of people. At the

moment you can’t get any assistance from this scheme when your income

hits $40,000. You will be able to get assistance from this scheme right up to

$58,000. Not the full $1,000 but you will get $1.50 for the amount that you

are allowed to put in. And even down here let’s say $50,000, if you put

in say $500 over 1.5, whatever that is, you will get $500 co-contribution from

the Government. That is yours, it is in your super account, it is part of your

savings, and it addresses the incentive to boost individual savings. It is a

benefit for all people, all employees that are within that taper range.

The only other thing I would like to say in relation to spending if I can,

is the ageing demographic as we know, which is with us, means that we have to

encourage more people into the workforce, which is what our family measures

are all about. But it also means that we need to grow more aged care places.

We have a $2.2 billion package to grow the number of aged care places over the

forward estimates. And in addition to that, in this year, before the 30^th

of June this year, we are going to make a payment to every aged care provider

of three and a half thousand dollars a bed. It is a payment of more than half

a billion dollars. Before 30 June to every provider, three and a half thousand

dollars per bed, if you had ten beds that is $35,000, if you had a hundred it

would three and a half thousand times one hundred, whatever that is, for them

to be able to improve fire standards, capital, and to upgrade building standards.

This is a half a billion dollar immediate injection into the capital of Australia’s

aged care system. And in addition to that we announced changes to the fee structure,

which will allow the providers to charge a higher fee which will give them more

capital, but that higher fee will be offset by the Commonwealth for low income

earners as the Commonwealth will increase the re-imbursement.

So when we tie all of this together, what we see is a picture of an economy

which has performed strongly in recent years. Strong economic management has

got our debt position in a very low level, it has got our Budget into surplus.

We now have the opportunity to do the structural reforms on work and family.

We meet the objectives in relation to encouraging savings and we make a very

significant investment into Australia’s aged care sector.

And as I say at the beginning of the Budget speech, without a strong economy

you couldn’t do this. It wouldn’t happen. But if you do have a strong

economy and your economic management is strong, you have the opportunity for

these investments. And I believe that these investments will set Australia up

for a very long period of time.

Families front and centre. Reform to family payments, a more competitive tax

structure, boosting retirement savings and investing in aged care brings together

economic work which this Government has been putting together for a long period

of time. Thank you.

JOURNALIST:

Treasurer, can you tell me how you are going to be sharing this new strong

economy (inaudible) with indigenous Australians (inaudible)?

TREASURER:

Sorry what?

JOURNALIST:

Can you share with us how you are sharing the wealth of this new economy with

indigenous Australians over the next year?

TREASURER:

Yes, we will be maintaining spending which was previously allocated to ATSIC

in total and what’s more, by abolishing ATSIC we save $61 million in political

and other activity, which will be re-directed into domestic violence campaigns

and health programs, so more dollars will reach Aboriginal communities on the

ground as a consequence of this Budget.

JOURNALIST:

Treasurer, how will you avoid the perception that the Government is simply

trying to buy the next election?

TREASURER:

Well, if your economy is strong, and you have got people in work, and your

companies are more profitable than at any other time as a proportion of GDP,

people should share in the benefits.

JOURNALIST:

But they didn’t last year.

TREASURER:

Well, let me come back to last year in a moment, you know, you do re-open

long memories, and how should they share in it? They should share in it by having

assistance with their families, mothers who are juggling work and family should

have better incentives, they should have the opportunity of 40,000 new childcare

places and people who are on middle income earners and are facing a 47 cent

tax rate shouldn’t have to do it, it should be returned to them. Now,

you mentioned last year, last year we increased all thresholds in the income

tax system as well and from memory the tax return last year was $2.7 billion,

this year it is above $14 billion, so all Australians get to share.

JOURNALIST:

Treasurer, you failed to get Senate support in 2000 to lift the thresholds

to, I think it was $75,000, you are now aiming for $80,000, what makes you think

the Senate is going to be any more likely to back your tax package, (inaudible)

in an election year?

TREASURER:

Well, $75,000 back then probably equates to $80,000 now. Maybe if you had

indexed $75,000 back then it would be more than $80,000, so what I am basically

doing is I am returning to the scene and saying that the people who should have

received income tax relief back in the year 2000 still deserve it, and what

has changed is this, is that the Australian Labor Party has now said that they

believe that they believe income earners between $60,000 and $80,000 are not

rich. Their leader has said that he doesn’t regard them as rich, therefore

they shouldn’t pay the top marginal tax rate, and so we will be asking

the Senate to enact that change. Let me just say, by world standards, our top

tax rate cuts in at $62,500 at the moment, by world standards that is low, by

world standards it shouldn’t come in at $62,500 and there are countries

that cut their top rates in at a lot more than $80,000 by the way, so if Australia

wants to keep a more competitive tax system, if you want to stay in touch with

the rest of the world, you cannot have your top rate coming in at $62,500, it

should come in at $80,000. And I think people that are living in the suburbs

on $60,000 or $70,000 are not the rich, they should not be paying the top marginal

tax rate and we will be asking the Australian Labor Party to put their votes

where their rhetoric has been.

JOURNALIST:

Treasurer what impact do you judge that these tax cuts and spending initiatives

in the Budget will have on economic growth?

TREASURER:

We think that the fiscal stimulus is a consequence of this will be about

per cent of GDP in the next year, and that will support our growth forecast

of 3 per cent which is slower than our growth forecast for this year which

is 3 per cent. Now, I think the Australian economy can grow at 3 per cent

on low inflation, I think we have proved that and we want to keep it there and

if you can keep it growing at 3 per cent, if you can keep your employment

growing sufficiently to hold unemployment at current levels. But if your growth

rate comes down much below 3 per cent your employment growth will not be sufficient

to keep unemployment at current levels, and unemployment at current levels as

you know are at 23 year lows.

JOURNALIST:

Treasurer, the Budget Papers suggest that you have found an extra $22 billion

over the coming 3 years just in economic (inaudible) variation, where is that

money coming from?

TREASURER:

Mostly from company tax, company tax has been very strong…

JOURNALIST:

Do you expect it to continue at this rate?

TREASURER:

…and, well the company profits as a proportion of GDP, the profit share

as a proportion of GDP around 25 per cent is the highest ever recorded in Australia.

Australia’s companies are profitable and here is an interesting one for

you, we cut the company tax rate and increased the collections. We cut it from

36 per cent to 30 per cent and we have never had such strong collections, now

the Laffers amongst us would say there was a cause and effect there, but there

may be other factors but company revenues are strong.

JOURNALIST:

Is this a Breeding Budget Mr Costello? Are you the family friendly Treasurer

saying get out there and procreate?

TREASURER:

Well you know, if you can have children it is a good thing to do, you know,

you should have, if you can, not everyone can but you know, one for your husband

and one for your wife and one for the country. Some will manage two for the

country but, two only will only replicate yourselves so if you want to beat

the ageing demographic you are just back to square after two, you make no net

improvement and some of you of course will have to have bigger than one for

the country because you will have to make up for some of your friends that aren’t

even replicating themselves.

JOURNALIST:

So does that mean you are not patriotic if you only have two children?

TREASURER:

You go home and do your patriotic duty tonight.

JOURNALIST:

Last year’s tax cut was around $4 and it didn’t go down too well

in the electorate, for the earner on $55,000, this year they will receive a

$7 a week tax cut, do you think they should be more appreciative of a tax cut

of $7 than they were last year?

TREASURER:

Well look, I think when you can cut taxes…

JOURNALIST:

That was a single.

TREASURER:

…when you can cut taxes you should do so, there is another point, with

people, if people are not paying that much tax it is hard to cut that much tax,

you know, here is the effect, in percentage terms of our three sets of tax cuts,

under the new tax system, last year and this year. For people on very low incomes,

the tax cuts last year were a very large percentage of their tax bill. Now,

it is not a lot in dollar terms, but as a percentage of what they were paying

in tax it is a large proportion, now, I think that where you can balance your

Budget, when your debt position is strong and where you can meet your expenses,

you should try and work to reduce revenues and that is what we are doing.

JOURNALIST:

Treasurer … the inflation outlook is very low (inaudible) are interest

rates coming down?

TREASURER:

Well, I won’t comment on the future movement of interest rates.

JOURNALIST:

Treasurer…

TREASURER:

Thank you for inviting me to.

JOURNALIST:

…will this Budget affect the Government’s chances of winning the election,

whenever it is?

TREASURER:

Well look, it is not our plan to lose the election right? So I will start

off by saying that, and the reason for that, and I feel this very strongly and

a lot of people in this room won’t agree with me, I don’t think

you can trust Mr Latham with economic management, I think it could be one of

the worst things that could ever happen to Australia, I have said it before,

worse than Whitlam. But having said that, the focus of this Budget is reform,

economic management, economic reform, that is the focus of this Budget.

JOURNALIST:

Treasurer, why is the (inaudible) a double $600 extra payment on the Family

Tax System this year?

TREASURER:

Well they get $600, an increase of $600 every year…

JOURNALIST:

This year they get two.

TREASURER:

…yes, I will come to that. So that if you are $3400, they get $4000

if they are in the minimum payment of $1095, they get $1695, that is a lump

sum every year at the end of a financial year starting with the end of this

financial year, which is on 30 June 2004. We decided to make an additional advance

payment so that they will receive $600 providing the Parliament appropriates

it, before 30 June, and their annual $600 entitlement when they reconcile after

30 June which means that depending on when they put in their reconciliation

they could get $1200 per child, three children $3600, and that $600 benefit

goes on year after year after year. So, we increase the benefit but we bring

forward an advance payment if you like.

JOURNALIST:

Treasurer, Labor and welfare groups have been warning about the family debt

overpayment for years, isn’t it a bit cynical to bring forward relief

a couple of months out from an election?

TREASURER:

Well, if the consequence from this is that because people get an increased

payment then they won’t … let me start, first of all we are trying

to encourage people to get the right payment, if they are under paid during

the year, they get it made up, if they are over paid they have to pay it back.

That was Labor’s system, except for one thing, they never made it up where

there was an underpayment. Under Labor you had to pay back if you had been overpaid

during the year. If you have a $600 lump sum available at the end of the financial

year and you do have a debt it may offset it but it is not introduced for that

purpose because we hope that nobody gets the wrong payment, if you have got

the right payment throughout the year you will get $600.

JOURNALIST:

Mr Costello, what is in this Budget for people who don’t have children

and are low income earners and therefore won’t benefit from tax cuts and

who may not be able to afford their superannuation contributions?

TREASURER:

Well, you are talking about single income people who don’t have kids

basically, now most of the single income people who don’t have kids and

who are living on $50,000 or less are self-funded retirees, that is who most

of them are.

JOURNALIST:

But not all of them.

TREASURER:

Well, I will come to some others in a moment, you know, I am a slow thinker,

I have got to go through it bit by bit, and those Australians qualify for the

Senior Australians Tax Offset, which can mean they don’t pay tax up to

$33,000, so bear that in mind, for the self-funded retirees we have already

introduced a Senior Australians Tax Offset. So now, what you are talking about

is a single income person who is under 65 and who doesn’t have children,

some of those people will be single people who expect to become part of families

and will have children, a large proportion of them, you know, what we used to

be in our youth. But others of them who intend never to marry or never to have

children, will be single income persons below retirement age who don’t

have children and I think the superannuation guarantee will be very attractive

to them, I think they will have some disposable income and what the Government

is saying to them is if you want to put $100 into your retirement, then we will

give you $150 and you will have $250 of additional money in your superannuation

fund and I think that will be very attractive to them actually. Last question.

JOURNALIST:

How many taxpayers will benefit from this Budget, form the tax cut?

TREASURER:

Well I can’t, I will find out the precise figure for you rather than

estimate it. OK, thanks very much.