TRANSCRIPT

of

THE HON PETER COSTELLO MP

Treasurer

Interview with John Laws

2UE

Wednesday, 12 May 2004
9.10 am

SUBJECTS: Budget

TREASURER:

Good morning John.

LAWS:

Are you well?

TREASURER:

I am well thanks and you?

LAWS:

Yeah fine. Are you happy?

TREASURER:

Well I think that families have received the Budget well, that they know the

difficulties that they are having with raising children and balancing work and

the fact that the Government has recognised this and is doing something positive

to address it I think, means that families have received the Budget well.

LAWS:

You are handing back billions of dollars in tax cuts and family allowances,

is that simply as a result of us being taxed too heavily in the past?

TREASURER:

I think middle income earners do face heavy tax burdens and they do need relief.

And that’s why I announced the proposal for relief last night. I have

a proposal which means you won’t go on the top tax rate until you earn

$80,000.

LAWS: Yeah.

TREASURER:

At the moment you can go on it if you earn $62,500. I don’t think people

who are on $62,500 are rich. You would have a lot of policemen and firemen that

would be on incomes like that and they want to do overtime or get a promotion,

they shouldn’t be facing the top tax rates. And so the plan which I announced

last night is that you won’t go on that rate until you earn $80,000. We

have got to get that through the Senate.

LAWS:

Well, you shouldn’t have a problem with that should you?

TREASURER:

Well, I hope not but the last time we tried the Senate rejected it. So, let’s

hope we can get it through the Senate. If we can get it through in the next

couple of weeks it will apply on 1 July, the start of the new financial year.

LAWS:

Okay, Labor appears to be saying they will support all of these measures,

from what I have heard.

TREASURER:

Well, it looks like they might. But you know, then they say, oh well we might

amend it or we might do something else. That would delay it. Now I just say

to the Labor Party, don’t delay it. We have got to get this in place so

that people can get tax relief on 1 July and families can get a payment before

1 July.

LAWS:

Okay.

TREASURER:

We have got a proposal to actually make a payment to families before 1 July.

LAWS:

Yes I understand that. But this obviously must be a result of us being taxed

too heavily in the past otherwise you wouldn’t change?

TREASURER:

Well, it is the fact that I think the tax burden is too high on those middle

income earners…

LAWS:

Yes, so they were taxed too heavily in the past?

TREASURER:

Well, let me put it this way, I tried before…

LAWS:

(inaudible)

TREASURER:

…no, no, no John, it is a very important point, I tried before to do this…

LAWS:

I know and it has…

TREASURER:

…in 2000 and we were defeated in the Senate. So, if you are asking me

should it have been done before now? The answer is yes. Unfortunately it was

defeated in the Senate, let’s see if we can get it through the Senate

this time.

LAWS:

Yeah, well let’s hope you can. The Government’s third term agenda

was all about balancing families and work. Could you tell me why we have had

to wait until almost the end of that term in fact the end is nigh, I would imagine

more nigh than we thought it was. Why did we have to wait until almost the end

of this term when you told us at the beginning of the term it was all about

balancing families and work?

TREASURER:

Well, we have been putting together this package which is the largest package

ever. It is the biggest package for families ever put together and the fact

that we have worked on it for a long time I think has made it better and it

has certainly made it bigger. And it consists of so many interwoven initiatives

that I think when it is taken together it is going to make a real difference

for families juggling work and child rearing responsibilities.

LAWS:

Okay, and I accept that. And obviously it is geared up because of a forthcoming

election. It would be crazy to have it geared up in any other way?

TREASURER:

Well, it is geared up to keep the Australian economy strong and…

LAWS:

And it will see you people get re-elected?

TREASURER:

Well, look if the people have a choice between the economic management of

our Government and the economic management of Labor at the next election, well

I think the difference and the contrast is pretty clear actually.

LAWS:

I agree with you. But if you didn’t want to get re-elected there wouldn’t

be a lot of point in you being there. I mean if you are bored with the job,

you people obviously want to be there.

TREASURER:

Sure, I mean if your question is this, would I prefer to win the next election?

The answer is yes. Not aiming to lose it John. I can assure you of that.

LAWS:

Well I am happy to hear that because as I say it would be pointless to have

a Government there that weren’t hell bent on being the best and winning.

What is behind the decision to target income earners in the two top tax brackets?

That’s going to annoy some people. It shouldn’t…

TREASURER:

It shouldn’t.

LAWS:

No, no, it shouldn’t.

TREASURER:

It shouldn’t. It shouldn’t. Because this is really unfinished

business. If you go back to 2000 when we were doing GST and the big tax reforms,

we had a proposal to cut rates for everybody. The Senate allowed that part of

the package which cut the rates for low income earners through but it wouldn’t

pass benefits for middle income earners. And as a result they didn’t get

the tax relief that was really part of the package. And so we have come back

to it. And we want to attend to it. We want to complete that unfinished business.

LAWS:

Yeah. I have heard mention being made this morning here and there, and I think

have read it too, of you trying to pander to the big end of town. Those two

top tax brackets are hardly the big end of town are they?

TREASURER:

No, you are not on the big end, you are not the big end of town if you are

earning $60,000.

LAWS:

(inaudible)

TREASURER:

You could be a policeman, you could be a builder’s labourer, there aren’t

many builders labourers that are earning less than $60,000 I will tell you.

LAWS:

Well I hope not.

TREASURER:

That is not the big end of town. The big end of town are the large corporates

and this is one area where we are collecting more tax on big companies. The

big companies have had big profits and really what is paying for this relief

to families and middle income earners is company tax on the big end of town.

LAWS:

Okay. Why don’t you, I mean we have regular indexing of many things don’t

we?

TREASURER:

We index payments, we mostly index payments. Yes.

LAWS:

Okay. And you index things like levies on cigarettes and booze and stuff?

Why don’t you index the tax scales?

TREASURER:

We don’t index levies on petrol.

LAWS:

You do on cigarettes and booze.

TREASURER:

We do on cigarettes and booze.

LAWS:

Why don’t you have regular indexing of the tax scales?

TREASURER:

Because if you did that I don’t think you would get as good a structure. For example if we’d have just taken the tax scales as they existed before last night and indexed them, middle income earners wouldn’t be getting the relief they are getting.

LAWS:

Yeah but these new higher thresholds they are going to be gradually eaten away by bracket creep as well. So why not just index them?

TREASURER:

Well, they won’t be gradually eaten away if we keep inflation low. This is the other point.

LAWS:

Yeah but I mean so we’re dependent on you to do that.

TREASURER:

Yes.

LAWS:

And you have done it successfully.

TREASURER:

Yes.

LAWS:

But wouldn’t it just simplify it, wouldn’t it make the place happy if we just had these tax scales indexed and adjusted? I mean, they have in the past…

TREASURER:

Well, not in Australia, there was a very short period in the 1970’s, thirty years ago that was done, but that is the only experience I can remember. I don’t think it was ever done before that.

LAWS:

Yeah well because it hasn’t been done before but except on one occasion doesn’t mean it should be done again?

TREASURER:

I don’t think it is the right response actually because what you do then is you just basically freeze the structure as it stands and adjust it for inflation. And it rather assumes the structure as it stands is perfect. I think you should keep working on the structure as it stands for structural improvement.

LAWS:

Okay, well tell me how it differs to the excise on alcohol and cigarettes?

TREASURER:

Well the excise on cigarettes is basically set to discourage people from smoking. That is basically why it is there. The excise on alcohol is probably there for the same reason.

LAWS:

To stop people drinking?

TREASURER:

Well, not to stop them drinking but you wouldn’t want to encourage more drinking.

LAWS:

Yeah well okay, I accept that. So these new tax scales are they there to stop people earning?

TREASURER:

Well no they are there to actually increase incentive. Because what they do is they say to those middle income earners right up to $80,000, if you want a promotion, if you want incentive, if you want to do overtime, you are not going to be hit with the top tax rate as you have been in the past. And that is why we are doing it – to improve incentive.

LAWS:

You have announced, that is a very important thing, incentive.

TREASURER:

Oh look, if you want to have a strong economy, and we want a strong economy.

LAWS:

Sure.

TREASURER:

We have got to get more people in work and we have got to give them incentive to work. And that is what this is all about.

LAWS:

Yes, but I would have thought knowing that they are not going to be suffering from bracket creep would have been yet another incentive to have them work?

TREASURER:

Well knowing that they are going to get a very decent $42.00 a week tax cut will be a bit more of an incentive.

LAWS:

Okay well we can agree to differ on that and you are the boss so I can’t do much about that.

TREASURER:

(laughs)

LAWS:

Well it is your deal.

TREASURER:

(laughs)

LAWS:

You have announced a one-off payment of $600 to supplement the Family Tax Benefit. Will that be eaten up by the debt some families have incurred by miscalculating incomes? That was a very bad thing that.

TREASURER:

Yes. Well every family that is on that benefit, there are 2.2 million of them, will get a payment before 30^th of June. So that is just a straight payment.

LAWS:

Yeah.

TREASURER:

Then on an annual basis there will be an additional lump sum of $600. If they have a debt that can be applied to extinguish it, but if they have been getting the right payment they will get an additional $600. And of course if they have been underpaid, they will get their underpayment and the $600. So…

LAWS:

Okay.

TREASURER:

…it’s an increase for everybody.

LAWS:

Have you simplified the system to avoid those problems of miscalculating incomes because they were genuine mistakes?

TREASURER:

Yes they were. There was, I think, an area that needed improvement which was when Mum went back into the workforce, started earning income, then that was counted against her benefits. And in many cases she was obliged to repay benefits. We are fixing that.

LAWS:

Okay. Why does a family on a big income, and I mean a big one, get access to that $3,000 Maternity Payment? I mean, couldn’t it be means tested and the additional money, the left over money being spent on childcare or similar family measures?

TREASURER:

Well there aren’t that many families, so it is not a huge sum in total.

LAWS:

$3,000?

TREASURER:

Well, you’re saying take the number of families say over $100,000 that are getting $3,000 and apply it elsewhere. I am saying that the total sum is not large. But I think the principle is right. I think every family that has a baby incurs additional costs. And every such family should get a benefit.

LAWS:

So all those people in waterfront houses around the place, they are just as entitled to the $3,000 for having a baby as somebody who lives out at Mt Druitt?

TREASURER:

I don’t think there are going to be many people with waterfront places who are young families having their first child John.

LAWS:

But nonetheless there will be some.

TREASURER:

Oh, you know, let’s be realistic. Young couples having their first child don’t tend to live in waterfront places.

LAWS:

Okay, wouldn’t it be easier to means test it nonetheless?

TREASURER:

Well, you can apply a means test and you can set up a new departmental section to administer it and you can require them to put in forms and you can check their…

LAWS:

What you are saying here is…

TREASURER:

I will tell you at the end of the day the amount of money you will spend administering it…

LAWS:

…would be more than you would save?

TREASURER:

Well you would be lucky if you saved anything frankly.

LAWS:

Okay, what do you say to people, I have got a bundle of emails here from people all over the country, what do you say to self-funded retirees and other pensioners who argue there’s really not a lot in it for them? There’s always going to be people saying there’s nothing in it for them?

TREASURER:

Well, you have got to remember this, that back in 2001 we introduced the Senior Australian Tax Offset which means that low income self-funded retirees can earn up $20,000 or more without paying tax. Their tax cuts as part of this package were part of the 2001 Budget.

LAWS:

Okay but are they right in saying there is nothing in it for them this time?

TREASURER:

I don’t think they are because…

LAWS:

Well, what is in it for them?

TREASURER:

Are we talking about retirees?

LAWS:

Yeah.

TREASURER:

Well, we have just announced superannuation changes which can allow them to access superannuation…

LAWS:

But you didn’t do that in this Budget.

TREASURER:

Well, I did it a couple of months ago and we will be legislating it this Budget.

LAWS:

Yeah but how do I answer the people who say to me, there is nothing in this Budget for us?

TREASURER:

I have just announced the largest investment in aged care in Australian history. And many of those retirees will be looking for aged care. We announced a $3,500 subsidy for beds in aged care which will mean that their opportunity to get aged care will be dramatically improved.

LAWS:

Yeah, not a lot of help for them if they are in their own homes at the moment though?

TREASURER:

Well, if they are in their own homes at the moment and they are middle income earners they will get tax cuts. If they are low, they will get tax cuts too by the way. If they are middle income earners.

LAWS:

Yeah.

TREASURER:

If they are low income earners the Senior Australian Tax Offset has given them tax free thresholds up to $20,500.

LAWS:

Okay. This $3,000 rightly or wrongly going to cause some people in the community to say this is going to raise the prospect of more teenage pregnancies because they get three grand a child. Now to a lot of people $3,000 is a lot of money.

TREASURER:

Yes, well I don’t think anyone would have a child for $3,000, a one-off $3,000. A child is you know somebody who has got to be looked after…

LAWS:

Yeah.

TREASURER:

…for a very long period of time. But we have given some consideration to that to, there will be some cases where it will be necessary I think to carefully administer the payment so that it is not used for bad purposes.

LAWS:

So you are nearly means testing it?

TREASURER:

Not means testing it. Just ensuring that it can’t be wasted.

LAWS:

Now listen, are we so bad in the cot in this country that we have got to bribe people to have children?

TREASURER:

Look John, I said yesterday, we have got an ageing population right?

LAWS:

Yeah.

TREASURER:

What is happening in this country is our fertility rate is 1.7. Let’s say two parents are producing 1.7 children on average…

LAWS:

Yeah.

TREASURER:

…so they are not even replacing themselves.

LAWS:

No.

TREASURER:

So that is what prompted me to say, I don’t know if it was the right thing to say, I said one for the husband, one for the wife and one for the country.

LAWS:

Yeah. Well I think it’s the right thing to say. Will the maternity payment apply to each new child or is it a one-off payment for the first child?

TREASURER:

Well you have got to remember John, some people won’t marry and they won’t have any children. That is why those that do have got to make up for them as well.

LAWS:

Yeah sure.

TREASURER:

And not everyone can have children obviously. But, we are an ageing population. People are not having as many children and that means, listen to this, the number of people of workforce age is not going to increase over the next four years but the number of people of retirement age, over 65 is going to double. So you are going to have double the number of retirees supported by the same number of people in the tax system.

LAWS:

Yeah. Well…

TREASURER:

And that is a big bill coming down the track.

LAWS:

You bet it is. You bet it is. But back to the maternity payment, will the maternity payment apply to each new child or is it just a one-off payment for the first child?

TREASURER:

No, all children. All children.

LAWS:

Okay, you have increased the co-payment for the low income earners putting money into super, how can they afford to do it? I mean, they are still on low income they have got to be flat out being able to do it anyway and won’t your $1,500 co-payment be subjected to the 15 per cent contributions tax?

TREASURER:

I think people can make payments. You might only put $100 in but you are still going to get $150, so you put up $100, $250 goes into the fund.

LAWS:

Okay. But you know…

TREASURER:

That is a pretty good benefit. It is your money and it stays there.

LAWS:

But the $1,500 would lose $225 in contributions tax?

TREASURER:

Well no it will be subject to an earnings tax, I think that is what people are saying. It will be subject to an earnings tax as it is invested. And money is earned in relation to that. But that is a benefit for you which is now earning additional benefits which are subject to earnings.

LAWS:

Okay, but will it be taxed when you hand it over as the co-payment?

TREASURER:

No, it is a co-contribution from the Government.

LAWS:

Very complex, we will avoid that because it is complicated, people can ask about it later. Why is there no move, you and I have discussed this before and I think you approved of the idea when I put it to you, why is there no move to make super fund fees performance based?

TREASURER:

Well, we tried to do that.

LAWS:

I mean…

TREASURER:

We tried to introduce choice, we are trying to get that through the Senate and I think as I said to you, we have been doing that since 1996.

LAWS:

Yeah. But I mean fund fees are based on the overall amount that happens to be in that fund. But if it is not performing you still pay those same fees?

TREASURER:

Oh I know.

LAWS:

Well that’s not right.

TREASURER:

What’s even worse if it is not performing you can’t get your money out and take it to another fund.

LAWS:

That’s right. At least with taxes they only apply to the annual return. So surely you can do something about that?

TREASURER:

Yes well we have got legislation in the Senate but the Labor Party is in league with the union funds and the union funds don’t like to have competition. And that is why they won’t pass the legislation. And I hope, now, let’s pass the legislation, we have been working on this since 1996.

LAWS:

I tell you what, there is a lot of legislation in the Senate.

TREASURER:

Oh John, honestly, you announce these things. You try and do things for the Australian public and the Senate has the capacity to block it. All of the things that I announced last night have to be passed through the Senate. All of them. And the people get so frustrated, they say hang on you announced this, when is it going to happen? And I get frustrated and I say, well you know we have got these Senators that are blocking legislation. And you know, they are blocking it for their own political interests.

LAWS:

Yeah, so you’re telling me that the Labor Party will block this legislation in relation to making super fund fees performance based simply because pressure is put upon them by the unions?

TREASURER:

Well I am telling you that they are blocking legislation which allows freedom of choice and freedom of choice will allow people to take their money out of non-performing superannuation funds and put it into low fee performing ones.

LAWS:

Okay, just back to our fertility rate. If there is anybody that is lucky enough to have twins do they get six grand?

TREASURER:

Yes, it is for each child.

LAWS:

Okay so you get nine grand if they have triplets?

TREASURER:

Well if you have triplets you would need a bit of help from somewhere.

LAWS:

I think you would need more than nine grand. Treasurer you know I am not one for tricky questions in a bid to get tricky answers. Is there anything wrong with ambition?

TREASURER:

No.

LAWS:

Do you want the top office?

TREASURER:

Well John I am not going into those sorts of issues today because as you know the press just try and run off them and run diversions and I don’t want to be diverted today on anything.

LAWS:

There are a lot of, I know you don’t, there are a lot of people out there that like you, there are a lot of people out there that are very fond of you, and there is probably a lot of people out there who don’t like you as it is with most people. But those who like you would like to feel confident that if there is a vote for the Howard Government that ultimately we might end up with you as Prime Minister or the reverse. And surely your ambition must be to be the Leader of this country?

TREASURER:

Well look, I have been in politics for a while now. I have devoted the last eight years to being the best I can be in the job that I am doing and I am absolutely focussed on it. And I am focussed on getting the Government re-elected and who knows what the future holds but that is precisely where I am focussed at the moment and I am not being distracted from that, not for a minute.

LAWS:

Okay, but as you do subscribe to ambition and I know you are an ambitious man or you wouldn’t be where you are now. Obviously you would like to go further in life?

TREASURER:

Well, I have got a family, I would like to go further in life and watch them grow up and you know there are a lot of things that I would like to do in life.

LAWS:

Yeah. Well, that will do. That is about the best I am going to get isn’t it?

TREASURER:

You are not going to do any better than that. No. We have been down that track a thousand times John.

LAWS:

Yeah, but you have never had such a diverse walk down the track as you have with me?

TREASURER:

Yours are always colourful walks down the track. “A” for effort but it’s a non-responsive answer.

LAWS:

Okay, well I accept that because you are focussing on something that is very important, a Budget, obviously designed to help you win an election. I would think by the look of the Budget you will win an election.

TREASURER:

Well, thanks for that John but we are just trying to do what is right for Australian families.

LAWS:

And win an election?

TREASURER:

Well…

LAWS:

Of course you are.

TREASURER:

…if we can run the economy well and that brings better job opportunities for Australians, then sure that would help us in the election and that is what it is all about, economic management.

LAWS:

Sure I agree with all that. Apropos nothing, when is the election going to be?

TREASURER:

Don’t know.

LAWS:

Haven’t told you yet?

TREASURER:

No. I don’t think he would have decided. It will be sometime this year I would say.

LAWS:

Oh it will certainly be this year. I would think it might be quick. You had better prepare yourself.

TREASURER:

Well I don’t know. I have got no say in it. I am like you. Maybe you have got more say in it than me.

LAWS:

Thank you very much Peter Costello for your time.

TREASURER:

Good to be with you.

LAWS:

Good to talk to you always.

TREASURER:

Thank you.