TRANSCRIPT
THE HON PETER COSTELLO MP
Treasurer

Interview with Catherine McGrath

ABC, PM

Tuesday, 13 May 2003

8. 15pm

SUBJECTS: Budget

McGRATH:

Treasurer thank you for speaking to our PM special. First of all, looking at

the big picture, a surplus of $2.2 billion, growth 3 per cent, 3¼ per cent,

down from an estimated 4, and tax cuts worth $2.4 billion.

TREASURER:

Well, the fact that the Budget is still in surplus after the funding of the

war in Iraq, increasing security, the drought obviously, means that Australia

continues to lead the world, we will be one of the few developed economies of

the world that will have a surplus in the forthcoming financial year. Most of

the others are in deep deficit. And the work of previous years in paying off

debt meant that we thought we could share some of that surplus in the form of

tax cuts that could be returned to taxpayers. And so you have got $2.4 billion

worth of tax cuts in the next financial year.

McGRATH:

Well, lets look at those tax cuts, starting at $6 a week for those earning

between $21,000 and $24,000 down to $4 a week for those I think from $30,000

to $50,000. Would you describe that as modest?

TREASURER:

Well, these are reductions in people’s tax, nobody is saying that it’s a tattslotto

type sum, but I think people recognise the fact that, if you can reduce tax,

you should do so, particularly when all of the State Labor Governments are increasing

taxes…

McGRATH:

Well, let’s have a look at $6 a week for low income earners, that wouldn’t

replace bracket creep would it?

TREASURER:

…particularly as all of the Labor States are increasing taxes at the moment.

The fact that the Commonwealth can fund the war in Iraq, and defence and cut

taxes, I think is a pretty big demonstration of the difference between Labor

management and Coalition management. The fact that we can reduce taxes and do

so in a responsible way I think will be welcomed. People welcome the fact that

having got the Budget into a strong position, we can reduce some of the tax

burden.

McGRATH:

Well, can we look at that though? $6 a week for low-income earners, does that

replace bracket creep?

TREASURER:

Oh yes.

McGRATH:

It does?

TREASURER:

Oh yes, for low-income earners, they haven’t been subject to substantial increases

at all.

McGRATH:

Well, what about the $4 a week then, $4 a week for $30-35,000?

TREASURER:

Well, let me answer your question…

McGRATH:

Well, you have answered the first question.

TREASURER:

Well, let me tell you, as you would have seen for low income taxpayers, this

is a 10 per cent cut in their tax, so that is a very substantial amount.

McGRATH:

So a win for them. Middle income earners $30,000 to $50,000 – $4 a week, two

loaves of bread possibly.

TREASURER:

Well, I think it’s a win for all taxpayers. Every Australian…

McGRATH:

Let’s look at that. Two loaves of bread, $4 a week?

TREASURER:

Well, every Australian is receiving an income tax cut. Now you can’t portray

that as not of advantage, I am sure if the Government had brought down income

tax rises, conversely you would be complaining long and loud.

McGRATH:

I am not complaining, I am just asking you about it…

TREASURER:

No, no, no.

McGRATH:

Does the $4 a week replace bracket creep for them? No it doesn’t.

TREASURER:

But let me make the point…

McGRATH:

But can I ask you does it or doesn’t it?

TREASURER:

…unlike any other Government in Australia, not only are we not increasing

taxes, we are actually reducing them. Now I don’t over sell this, I am not trying

to say that this is a huge financial windfall, but the fact of the matter is,

this is a tax reduction. Tax reductions only come along very rarely.

McGRATH:

Note taken, it is a tax reduction. Separate question, $4 a week, does that

replace bracket creep for that group?

TREASURER:

That group is well in front of where they were in 1996 when the Government

was elected, yes. Much further in front than if we’d indexed scales to the 1996…

McGRATH:

But not in the last few years then?

TREASURER:

Well it depends, where you want to take the starting point. If you want to

take the starting point from when the Government was elected, yes.

McGRATH:

Yes, but not in the last one or two years?

TREASURER:

Oh, absolutely in the last one or two years.

McGRATH:

Can I ask you about this tax cut then, it is based on what, the size of the

surplus or on what you thought was an appropriate tax cut?

TREASURER:

It was based on holding in balance the need to have a surplus Budget to pay

for the war, to upgrade security, to look after our farmers, and then take a

responsible decision about the amount of tax reductions that we could have.

And the amount of tax reductions that we have are consistent with strong economic

policy. If the economy had been weaker we wouldn’t be able to have any. If the

economy had been stronger, you might have been able to have more. But it is

a question of having responsible economic management.

McGRATH:

Treasurer, if we can move on to the education changes announced in this Budget.

Why deregulate fees to this extent?

TREASURER:

Well, the object here is to allow universities to set fees so that where they

have student demand, they can meet that demand. It is also to allow universities

which are more in demand to achieve excellence and attract students on that

basis.

McGRATH:

Now students have already indicated prior to this Budget that they would fight

an increase in fees and Vice Chancellors were concerned too that it would put

a lot of people outside the realm of being able to afford a university education.

TREASURER:

Well, this has been the subject of discussions with the Vice Chancellors. As

Brendan Nelson has indicated there is a lot of support in the higher education

sector for deregulation and flexibility. I don’t expect every university to

agree but I believe that there is widespread support for a lot of these changes.

McGRATH:

Can we look at some of the costs? If we look at a six-year medical degree,

a five-year medical degree, $50,130 an estimated cost that it would be under

the new system, currently that person might pay $38,000. It is a big increase.

TREASURER:

Well, it is an increase of about $11½ thousand but bear this in mind,

that the taxpayer is putting $92,000 into that particular course, and bear this

in mind, that the person who paid that fee would get HECS which means a no-interest

loan, and they don’t have to pay off that loan until they are earning an income.

McGRATH:

Well, lets look at another course. Imagine if you did a three-year course in

computing. The fee could be up to $21,000 a year, currently it is about $15,000.

Now what happens if you finish your computer course, have $21,000 to pay and

can’t get a job? You are not going to be very happy about the Government then?

TREASURER:

Well, if you don’t get a job you won’t have to repay the HECS charge. You only

repay the HECS charge when you have an income and we are lifting the income

threshold to $30,000. So until you are on an income of $30,000 you won’t be

repaying anything.

McGRATH:

Some of the middle income young families you’re trying to attract with the

tax cuts are going to look at this if they have got particularly teenagers,

and think that’s more cost, more cost for my kids, more cost for me.

TREASURER:

Well, for a person who gets a HECS place they pay no up-front fee. The Commonwealth,

or the taxpayer I should say, makes a very large contribution to their education.

They make a contribution. But they do not have to repay that charge until they

are earning $30,000. If the course is not worth it, if it is not going to get

them a job then people just won’t take those courses up.

McGRATH:

How do you think a young medical graduate coming out in say Sydney or Melbourne

where house prices are high, looking at a $50,000 debt to pay is going to feel

about this in a few years’ time?

TREASURER:

Well that graduate coming out now has a HECS charge of $38,000 but bear this

in mind, the taxpayer is putting $90,000 into their education.

McGRATH:

But looking, that is a separate issue, but looking at the fact they will pay

$50,000, how do you think they will feel about that?

TREASURER:

Well, they will feel that they are paying an additional amount but they will

also feel that if it is not worth it they won’t be enrolling. And they don’t

have to pay any up-front fee, they only start to make repayments once they are

earning $30,000.

McGRATH:

Voter backlash do you think or not?

TREASURER:

I think that it is a sensible way of ensuring more people can get to university,

of sharing the cost between the taxpayer and the student and making sure that

the students will demand that the universities will be responsive to their needs.