Interview with John Laws

2UE

Wednesday, 11 May 2005
9.10 am

SUBJECTS: Budget

LAWS:

Treasurer, good morning.

TREASURER:

Good to be with you John.

LAWS:

Are you happy?

TREASURER:

Well, if you can balance your Budget, and if you can pay for the services that

the country needs then I think it is advisable to try and cut tax as much as

you can. We believe that if you can keep taxes lower, if you have the opportunity

to do it, you should do it and we did it. And we did it last night.

LAWS:

It seems to have been pretty well received. You must be happy about that?

TREASURER:

Well, I think the reaction today has been positive and what we are saying in

relation to the tax system is those on lower incomes get a lower rate and people

won’t go on to the higher rates of tax until much higher thresholds and

this means that for 80 per cent of Australians they won’t have a tax rate

higher than 30 per cent. That is great and only 3 per cent of Australians will

be on the top rate. Or turn it around, 97 per cent of Australians won’t

be on the top rate.

LAWS:

That sounds better. But why the need for such extensive tax cuts hard on the

heels of a pre-election spending spree? And you certainly had that.

TREASURER:

Well, the economy has been sound. Our Budget is balanced. You remember Labor

left the country with $96 billion of Government debt…

LAWS:

Yes.

TREASURER:

…we have now reduced that by $90 billion. So we have got most of that

debt out of the way. That has given us big interest savings because we do not

have to pay interest on the Labor debt any more.

LAWS:

Yes. Tell me what was the interest on that?

TREASURER:

Well, we are saving now $5.7 billion a year in interest payments.

LAWS:

Wow. That’s a lot isn’t it.

TREASURER:

That is a lot of money. And as a consequence of that Australians do not have

to pay taxes which are so high.

LAWS:

Okay. Speaking of interest rates, we have already had one interest rate rise

here since you were re-elected. What’s the risk of another hike in the

wake of this extra money going into the economy?

TREASURER:

I do not think the Budget will have any effect on interest rates. That is because

the Budget is in surplus, and it is a strong surplus. So, the Government won’t

be spending more money than it has. The Government will be saving money. What

that means is if the Government is not borrowing it is not competing against

others, it is not driving up interest rates. If the Government is saving, it

is adding to the pool that others can borrow and it is driving down interest

rates. So a surplus is good for low interest rates.

LAWS:

Okay. But $66 billion in pre-election spending, now another what? $80 billion

in handouts. That’s a hell of a lot of extra money, a lot of activity

in the economy.

TREASURER:

Well…

LAWS:

That could put pressure on inflation surely?

TREASURER:

When you talk about figures like that, we cut taxes by $14 billion last year

and another $21 billion. Now some people say that is spending. It is not spending

it is reducing the amount you collect in tax and it is tax cutting. Our Government

stands for lower taxes.

LAWS:

Yeah. But it is extra money circulating isn’t it?

TREASURER:

Well, that is right. People get to keep more of what they earn. I do not think

that is a bad thing John. I think that is a good thing.

LAWS:

Now if I have got a bundle of emails here as you would have guessed already,

of similar tone to this one. I will only read part of it. The rich get richer

and the poor get poorer. The same old story. That’s what this Budget is

all about. More people earn between $30-50,000 so why only six lousy dollars

what an insult. What’s that going to buy me? Certainly won’t pay

off my mortgage when I get my extra $6. That is a fellow from Hervey Bay in

Queensland. You are going to get a lot of people saying that. What’s your

retort to that?

TREASURER:

We have cut tax for all Australians.

LAWS:

You think that’s, but that’s what they don’t understand.

This…

TREASURER:

Yes we have cut tax for all Australians and for low income earners – cut the

rate. Cut the rate of tax. And the fact of the matter is that people will get

the opportunity to keep more of what they earn. And in fact for families around

$30,000 or $40,000 the family benefits that the Government pays exceeds their

tax liability. Now if you are paying a low amount of tax and that is cut it

may look small in dollar terms but in percentage terms it is the lower income

earners that get the largest percentage income tax cut.

LAWS:

Yeah but that’s…

TREASURER:

The reason it does not add up to so many dollars is they are not paying as

much in income tax in the first place.

LAWS:

That’s right. Exactly right. Okay, well you’ve explained it. It

is difficult for me to explain it because people don’t want to accept

it but it’s true as far as percentage is concerned they’re doing

okay.

TREASURER:

If you, you know, if you are paying $100 and you get $10 off that is a 10 per

cent cut. If you are paying $1,000 then you get $100 off, that is a 10 per cent

cut. It is the same but in nominal dollars the amounts are different. And the

point is here that lower income earners are paying less tax, their tax is cut,

it does not sound as great in nominal dollars but in percentage terms it is

more.

LAWS:

Yeah. Well there you are. Why has the Disability Support Pension been able

to increase by 25 per cent over the past few years? Have the guidelines for

that been too lax?

TREASURER:

Well, I think they have, yes. Do you know John that we have 6.5 per cent of

the Australian workforce on Disability Pension? Now 6.5 per cent of Australians

are not disabled.

LAWS:

Well how have you allowed that to happen?

TREASURER:

Well, we did announce some changes two years ago. We put them to the Senate,

the Labor Party blocked them. We have had another go in this Budget. The Labor

Party will probably try and block them again, but after 30 June the Labor Party

won’t be able to block legislation any more so we will be able to do something

about it.

LAWS:

Okay, because I mean you have been there nine years.

TREASURER:

Oh yes, but John in fairness, I did announce a programme in relation to this

maybe two or three years ago, and the legislation has never got through the

Labor Party in the Senate.

LAWS:

Okay. Can you tell me what is going to happen to people who are now on some

sort of disability allowance? Are they going to be reassessed?

TREASURER:

No, people who are currently on the pension will keep it. There will be no

change for those that are currently on it.

LAWS:

Why not?

TREASURER:

Well, because we thought that it would be important to reassure people, those

that are already on it and the important thing was to try and stop the growth

in the future. And the rules will change so that if you are going to try and

get on it after 1 July 2006, that is 1 July next year…

LAWS:

Yeah.

TREASURER:

…it will be harder to get on.

LAWS:

Okay, but we obviously have people on welfare that don’t deserve to be

on welfare?

TREASURER:

Well John, I think the important thing is to stop the growth and as you know,

it is very easy to scare people and we knew that Labor would run around and

try and scare those on existing pensions so we thought the important thing was

to be able to reassure them and get on with improving things in the future.

LAWS:

Yeah, but if they’re on a disability pension and as you’ve said

yourself there are plenty who aren’t disabled, why should they continue

to get the money? You are creating two classes of welfare.

TREASURER:

Well, what we are saying to everybody who has currently got a benefit, you

keep it, but in the future in Australia the qualification to get that benefit

will be tighter.

LAWS:

Okay. So you’re telling us really that all the people who are receiving

a disability allowance now are fine, upstanding, honest individuals?

TREASURER:

Well, we are saying that they can be reassured because when we tried to change

the qualifications a couple of years ago, the Labor Party went around and tried

to scare the genuinely disabled, and there is no intention whatsoever to affect

the genuinely disabled. So, to make that point clear we have just said that

if you are on an existing benefit there will be no change. What we are doing

is tightening eligibility for the future.

LAWS:

Okay. Is that fair to the taxpayer?

TREASURER:

Well, put it this way, if that enables us to get this system in place and to

get it through the Parliament it will be a great improvement.

LAWS:

But after the end of June you will be able to get it through anyway no matter

what you do?

TREASURER:

Yes. We should be able to and that will enable us to get a much better system

in place for the future.

LAWS:

Yeah. But I am you know…

TREASURER:

You are saying to me, I know what you are saying to me, you are saying to me

why don’t you go back through all of the past. You could do that. It would

be very time consuming and it would involve a lot of reassessments and the political

judgement I make is that our political opponent would manage to use that to

scare the genuinely disabled. We do not want to scare the genuinely disabled.

The cut through line there is to say that nobody who is on existing benefit

will have their rules changed. The economic advantage is therefore to tighten

things for the future.

LAWS:

Okay, even if they are dishonestly receiving a benefit?

TREASURER:

Well, if they have qualified, not if they are dishonest, oh no, I should be

clear about this. If you are dishonest it is different. But if you have qualified

under the criteria that have existed in the past you will keep the benefit.

I am not saying you know if you are an absolute, if you have lied or something

like that, that you stay on it. But if you have met, properly met the qualification

which is incapable of being in 30 hours of award wages in a particular week

then your entitlement will not change.

LAWS:

But you accept the criteria has been too lax anyway?

TREASURER:

It was too lax. And it will be tightened for the future.

LAWS:

It has jumped 25 per cent in recent years and speaking of increases –

what about the single mother’s pensions? They are up by about 18 per cent?

TREASURER:

Yes. Yes. Well again, the funny thing is as unemployment has fallen, that is

less people on unemployment benefit…

LAWS:

Yes.

TREASURER:

…numbers on disability and single pensions have increased. And if you

are on the single pension or if you are on the disability pension you do not

have to look for work. If you are on the unemployment benefit you do. And so,

we think it is fair to support people who need income support but we also think

it is fair that if you are able bodied and you receive income support, it is

fair to other taxpayers that you have to look for work too.

LAWS:

Yeah. Well I don’t think you will find too many arguments there. But

you have been encouraging mums to stay at home, now it appears you want shove

them back into the workforce.

TREASURER:

Well John, let me say, the support for mums at home is Family Tax Benefits.

LAWS:

Yeah.

TREASURER:

If you are on a parenting payment, a Sole Parent Pension, that is in addition

to those benefits, you get the Family Tax Benefit (A), the Family Tax Benefit

(B), the Maternity Allowance, and the Single Parent’s Pension as well.

And what we are saying is you will keep all the Family Tax Benefits but when

your youngest child is six you should be encouraged to look for part-time work.

LAWS:

Okay but that Family Tax Benefit (B) that came in for stay at home mums didn’t

it?

TREASURER:

That’s right.

LAWS:

So you…

TREASURER:

All stay at home mums. Some of those mothers will be on a Single Parent Pension

as well and some of them won’t be. The ones that are either married or

de facto do not get that Single Parents Pension because their partner is in

work. So we are only talking about here about people who are not in work.

LAWS:

Okay. So what you’re saying to single mothers if you are capable of work…

TREASURER:

Part-time.

LAWS:

…and your child is in school…

TREASURER:

Yes.

LAWS:

…then you must get a job.

TREASURER:

You will be encouraged to look for part-time work, yes.

LAWS:

Well how will be they encouraged?

TREASURER:

Well, there will be more childcare so that they can get access to childcare

services. There is the Job Network which will give them referrals. There will

be training schemes if they need training and there will be people to help them

with getting job ready.

LAWS:

Yeah well, most people would agree absolutely with what you are suggesting.

But how do you encourage employers to hire them part-time? Are there that many

part-time jobs available?

TREASURER:

Oh yes. The big increase in the Australian economy in recent years has been

in part-time work – in retail, part-time work for carers – there

has been a massive build-up in part-time work in the Australian economy over

recent years and the unemployment rate at the moment, John, is the lowest it

has been in 28 years. So if you are ever going to encourage more people to get

into the workforce now is the time to do it.

LAWS:

Okay. How much are you going to punish these people if they don’t do

as suggested?

TREASURER:

Well, if you are capable, if you are able bodied and you are capable of looking

for work in the future, these reforms start on 1 July of next year. Then you

will have all of that encouragement and your income support payment will be

the same as for unemployed people.

LAWS:

So Newstart. So it will be about $77 a fortnight less?

TREASURER:

Well the Newstart is, there is two differences, it is a different rate and

it has a work obligation attached to it.

LAWS:

Do you think that some single mothers have been rorting the system?

TREASURER:

Oh I would not say rorting the system but many single parents work you know

John.

LAWS:

I know.

TREASURER:

Many of them work full-time, many of them work part-time. The idea that a single

parent cannot work is wrong. A single parent in a modern society can work when

their kids are at school and particularly, with increased childcare they ought

to be encouraged to work.

LAWS:

There has been an argument in Parliament that changes to your super arrangements

have created two classes of MP but I think you have created two classes of welfare.

TREASURER:

Well this quite commonly happens. When the rules in a particular area change

then it is common to quarantine those people that were on the previous rules.

It is quite common. We do this in the tax area all the time because if you change

them for existing classes it will be said that it is a retrospective change.

So it is quite common to quarantine them and to change eligibility in the future.

It happens all the time in the Tax Act. It happens in relation to superannuation

and it will happen in relation to welfare.

LAWS:

Okay, well I suppose we have to accept that. I think most people agree with

what you are endeavouring to do.

TREASURER:

Well what we are trying to do John is this. If you have got more people in

work paying less tax you can raise the same amount of money as you raise from

fewer people in work paying more tax. So the more you get into work the lower

tax burden can be for everybody and you will raise the same amount of money.

So we want to spread the work around, get more people into work, raise the same

amount of money and that will mean lower taxes for everybody.

LAWS:

Okay. We seem to have become the ATM of the South Pacific giving money away

here, there and everywhere. A billion for Indonesia, $840 million for.png and

the Solomons, $511 million over four years for Iraq – you know, our commitment

is a long way from over there isn’t it?

TREASURER:

Well these are substantial commitments. You know we have troops in Iraq and

they are contributing to reconstruction. If you want to put troops into the

field you have got to make sure they are properly trained and equipped.

LAWS:

And the point is we don’t want to.

TREASURER:

In relation to the Solomon Islands, that country was just cracking apart, and

we believe that it is important to restore law and order in the Solomon Islands.

Why? If you have got countries near you that are cracking apart with no law

enforcement they can become havens for drug runners, they can become havens

for terrorists – you do not want to have on your near borders countries

that cannot maintain law and order and that is why we have been engaged in places

like the Solomons and.png.

LAWS:

Yeah. Well we’re certainly giving plenty away and yet we’ve got

to tighten the rules on medicines for older Australians. How do you explain

that to them?

TREASURER:

Well, you know, I would say that it is very much in Australia’s interests

that there is law and order in Papua New Guinea and in the Solomon Islands.

Can I say to you that Papua New Guinea is across a very narrow strait…

LAWS:

Very.

TREASURER:

…from Australia. Drug runners could easily go across that strait, illegal

immigrants could easily come across that strait, you could have terrorists that

could penetrate that strait and it is very much in Australia’s interests

to try and help maintain law and order in Papua New Guinea.

LAWS:

Yeah well I mean I think a majority of elderly people listening would say their

own health is of far greater importance given they have grown up here, paid

taxes here, and yet millions go offshore while they pay more for their medicines.

I don’t think that is fair.

TREASURER:

Well, when you say pay more for their medicines, at the moment, if you are

a pensioner or a concession card holder you pay $4.60 for your medicine. That

medicine might in fact cost $100 it might cost $1,000. Even if it costs $1,000

you pay $4.60. Now after you have bought 52 in a year they are free. What we

are saying is over time that Safety Net will rise to 60. After 60 in a year

they will be free. But remember this, you will only be paying $4.60 even if,

suppose the medicine costs $100, you pay $4.60 and the taxpayer subsidy would

be $95.40.

LAWS:

Yeah well we understand that. Tighter rules on prescriptions means they could

end up paying more however. And yet we have got all this money for other countries.

TREASURER:

Well only in the sense that they have been getting free prescriptions after

52 in one year and over a period of years they will have to buy 60 before they

become free.

LAWS:

Yeah, so they’re tighter.

TREASURER:

Well as I said, the number is going up over four years from 52 to 60.

LAWS:

Yes.

TREASURER:

But they will still be at $4.60.

LAWS:

You didn’t happen to see Michael Somare on television last night?

TREASURER:

No.

LAWS:

Being very unpleasant about Australia – allegedly giving him $840 million.

TREASURER:

I did not see it. I was otherwise engaged last night John.

LAWS:

Of course. How remiss of me.

TREASURER:

I had a certain event on last night.

LAWS:

Yes you did. I could not imagine you sitting back having a quiet drink and

watching Sky News.

TREASURER:

I didn’t…

LAWS:

Okay, thank you very much Peter Costello.

TREASURER:

Great to be with you John. It is a pleasure always.

LAWS:

Thank you. That’s very nice of you.