TRANSCRIPT

THE HON PETER COSTELLO MP

TREASURER

Interview with Jeremy Cordeaux

5DN

Wednesday, 12 May 2004

9.45 am

SUBJECTS: Budget

CORDEAUX:

Treasurer Peter Costello, and I believe Sir, you still have some voice left?

TREASURER:

It is great to be with you Jeremy and yes, still in full voice.

CORDEAUX:

Now, what is the hardest thing? Is it getting up there, is it putting the Budget

together, is it getting up there in Parliament, or is it all of this palaver

that goes on for days afterward?

TREASURER:

Well, putting a Budget together is a big task, it is in total $200 billion

and it ranges from everything from costs of maintenance on fighter aircraft,

docking costs for your submarines, it goes to roads, it goes to pensions, it

goes to health, schools, the tax system, the superannuation system and it just

covers the whole field so you have got to allocate money in each and every one

of these areas, make it add up and it does take quite a lot of management, a

Budget takes about 6 months to put together.

CORDEAUX:

How much of it do you actually do?

TREASURER:

Quite a lot of it actually, a lot of the writing of it, I have to take responsibility

for everything that is in the thousands of pages so I have to write quite a

lot of it and read all of it.

CORDEAUX:

And you obviously have to make sure that the sums add up at the end of it.

TREASURER:

Yes.

CORDEAUX:

How many times do you check and double check that the sums are right?

TREASURER:

Several times. What we do now of course is we allocate the money and then

we key all of these estimates into computers and we run them through the computers

to add them up, but what I have to do is I have to make the allocations of the

money and we run spreadsheets for really, 24 hours, 6 or 7 days a week before

we do it.

CORDEAUX:

Your critics both in politics and in the media would probably go through it

with a fine tooth comb so you would have to be very careful, I see that Mark

Latham has cancelled his overseas trips for later in the year, now that has

got to be seen as something of a compliment.

TREASURER:

Well, he said it is because of the Budget and I suppose that is a compliment,

I think there is another element too, that he was going to have a very difficult

trip, that he was going to have trouble getting access to Senior American policy

makers because of some of the things he has said recently, so I think he found

a convenient time to pull out.

CORDEAUX:

Well, he obviously also suspects that an election is sooner rather than later.

TREASURER:

We can’t have an election until after 30 June anyway, so he could well

have gone to American in June, but there you go.

CORDEAUX:

You have said that the world is in for some difficult times, that there is

some choppy water ahead, have you got enough, enough money in the coffers if

things don’t go as well as they have gone in the past?

TREASURER:

Well, I think it is a prudent surplus, it is not a large surplus, it is $2.4

billion which compared to the size of our economy is not a large sum, but we

are in surplus, that is the point, America isn’t, Britain isn’t,

France, Germany and Japan aren’t, so the big economies of the world are

not in as strong a position as we are, but they are bigger economies, they don’t

get buffeted by international developments to the degree that we do. We are

a pretty small economy on world standards, we have only got 20 million people

in our country so we have got to work that much harder.

CORDEAUX:

Well, this coming election is going to be I guess, fought, in my mind anyway,

it is going to be fought on economic management grounds and if you look at where

we are at the moment we have paid off a lot of debt, very low unemployment,

low inflation, low interest rates and an economy that is powering ahead, and

probably the envy of the rest of the world, have we ever been in as finer shape

before?

TREASURER:

Well, not for the last 25 years certainly, I think Australia probably went

through a good period in the early sixties although we did have a credit squeeze

in the early sixties, you know, maybe four years ago was the last time that

we were in the kind of position we are in now, our unemployment rate is the

lowest it has been for 25 years and our inflation is as low as it has been for

25 years and our Budget position is pretty strong and it has been through a

difficult period, we had the Asian financial crisis, we are still not out of

drought, this really worries me Jeremy, this drought has not broken in much

of South Eastern Australia, so we have still got some challenges ahead but,

over the last few years, strong economic management has brought results for

Australia and you can see that in the fact that more people are in work than

ever before in our country.

CORDEAUX:

Apart from though, the drought, what is it that you fear? What is it that

could go wrong for Australia?

TREASURER:

Well, I think there are two other really big challenges out there, one is

that most of the countries of the world are going to have rising interest rates,

America, Britain, so there is going to be global rising interest rates and we

have got to watch that to make sure that we in Australia run economic management

in a way that can keep our economy strong and the second thing Jeremy is oil

prices are at record levels and that is going to put pressure on prices at the

pump and it is already. This is all related to Iraq and what is happening in

Iraq and the Middle East where most of the world’s oil comes from, so

we have got interest rates, oil prices and back home this drought which still

won’t go away.

CORDEAUX:

I was talking to Professor Peter Saunders from the Centre for Independent

Studies, and he was talking about the whole thing of taxation and how really

it is pretty silly for tax aspirations, incentives, tax efforts enterprise,

when these are really the sort of things in Australia we should be encouraging.

TREASURER:

Yes, I agree with that, I really do, and at the moment you can go on the top

rate of tax at $62,000 and I think, I don’t think you are rich at $62,000,

there are a lot of middle income earners that are facing that top rate so in

the scales which we want to legislate to apply from 1 July, we want to kick

that top rate out to $80,000 so that people who are middle income earners won’t

face top rates of tax.

CORDEAUX:

Because in the United States before you get on the top rate of tax there,

you have to be earning, he was explaining, almost $400,000 a year.

TREASURER:

That top threshold is much higher in the United States. You have got to remember

in the United States though, they don’t just have federal income tax,

they also have state income tax but having said that, their top rates don’t

kick in until much higher, and we have been out of step with the rest of the

developed world, I think, because our top rate has cut in too low and last night

went a long way to improving things.

CORDEAUX:

But is there anything you could raise money, raise revenue with without taxing

enterprise and energy and effort, I mean is it the right thing to be taxing?

The consumption tax seems to be right because that is anti-inflationary and

it is spread very broadly across the place.

TREASURER:

Yes, well that is the idea of GST of course which is delivering very strong

revenue growth for State Governments, the other thing you can do, which we are

doing, is the company tax rate, we actually cut the company tax rate but we

are still collecting large sums out of company tax and that is because companies

are more profitable than they have ever been and what we are seeing in this

Budget is that as company tax rises, that is that the take from company tax

rises as business becomes more profitable, we are able to distribute benefits

to families and middle income earners and that is good economic policy.

CORDEAUX:

Isn’t it interesting though, that you lower the company rate and your

tax take actually goes up?

TREASURER:

Yes, that is what happened.

CORDEAUX:

It certainly happened in Ireland where they brought it down from something

ridiculous to 12 per cent…

TREASURER:

Yes.

CORDEAUX:

…the total take was much greater…

TREASURER:

Absolutely, they got a whole lot of new investment, we brought it down from

36 to 30 and companies have never been so profitable…

CORDEAUX:

…on that basis would you aspire to bring it down further? No harm in

asking.

TREASURER:

…a good question Jeremy, but it is not just the rates, you can’t

say that this is a function of the rates, it is the fact that companies are

making good profits at the moment, they are making good profits because inflation

is low, consumers are confident, consumer spending has been strong, unemployment

is very low. What that means is that people have got money to spend and when

they have got money to spend, your companies start making bigger profits.

CORDEAUX:

In the light of what you have just said, is this the right time for people

to be running around hitting the housing boom on the head?

TREASURER:

Well, I think the housing boom is coming to an end, prices are stabilising

and in some areas they are falling, now I have been warning for some time that

this would happen…

CORDEAUX:

Yes.

TREASURER:

…you can’t have these prices just rising by large percentages

year after year after year, and I have been saying it would happen and frankly

it has to happen. We have to stabilise house prices, but some of the State Government’s

decided to whack new taxes on housing just at the time when the market was coming

off which was blundering in to an area where they could actually do great damage.

CORDEAUX:

I see in the fine print you have been very generous to the circus industry,

why was that?

TREASURER:

Well, we have a thing in Australia called the NIDA, the National Institute

of Dramatic Art and they are trying to set up a national institution of circus

arts where kids that want to be trained in circus arts can go and get training,

it is not being funded anything like NIDA is, but it is an interesting idea,

a lot of kids are, I have seen these kids, they go to this school, they learn

acrobatics and boy, they are incredibly talented and apparently Australia is

one of the world leaders in circus arts.

CORDEAUX:

(inaudible) it would be fascinating to see how they lobbied you for that but

anyway, also the ABA, the Australian Broadcasting Authority is being changed

significantly, what is behind that?

TREASURER:

Well, we are trying to get some improvement and some rationalisation in that

area and so we are bringing the Australian Broadcasting Authority and the Australia

Communications Authority together.

CORDEAUX:

And the end result of that merger will be what?

TREASURER:

It will be hopefully, more efficiency and better regulation.

CORDEAUX:

And you found fault with the previous arrangement?

TREASURER:

I don’t think it was working as well as it should have.

CORDEAUX:

Treasurer great to talk with you, congratulations, I think as I said at the

beginning of the programme it is very hard to please everybody but you seem

to me to have gone a long way with this, the Labor Party is obviously going

to pass most of it in the Senate.

TREASURER:

Well, I hope so. Look, let’s not muck around, we are proposing a payment

to families of $600, if the Labor Party will pass the legislation we can get

it out before 30 June, we are proposing tax cuts and if the Labor Party will

pass them you can have a tax cut on 1 July, so let’s not muck around you

know, we have had so much Senate obstructionism, we really have, let’s

just get on and let’s do something for families.

CORDEAUX:

Treasurer, good to talk to you.

TREASURER:

Good to be with you, thanks.