Interview with Jon Faine

3LO

Wednesday, 11 May 2005
8.32 am

SUBJECTS: Budget

FAINE:

Mr Costello good morning.

TREASURER:

Good morning John, good to be with you.

FAINE:

If there is so much money that you can offer tax cuts to everybody including

substantial cuts for high income earners, why did you have to have break your

promise on the Medicare threshold, you could have kept that promise if you wanted

to, couldn’t you?

TREASURER:

Health spending this year John will be $45 billion compared to $20 billion

when the Government was first elected. There is no area of Government expenditure

growing faster and with the ageing of the population we are projecting that

the health system will be unsustainable in 40 years time. So, what we have to

do now is we have to get it onto a sustainable footing and we made some key

decisions in this Budget to do that.

FAINE:

But you would prefer to offer tax cuts and make Peter Costello look good and

make Tony Abbott look bad for breaking an election promise, that is what it

looks like.

TREASURER:

No, no John, the Medicare Safety Net, which never existed before was introduced

without proposed thresholds. We couldn’t enact it through the Senate,

the Senate changed it and now it is time to put it on the basis that we originally

proposed. But let me make this point John, this has never existed before. This

is an 80 per cent rebate, it was opposed by the Labor Party and if Labor ever

gets to office it will be abolished, it will be abolished. So, the good thing

about…

FAINE:

But the difference to that Labor policy it is about your promises, your Parties

promises at the last election.

TREASURER:

No, it is about whether or not people will have a Medicare Safety Net, that

is what it is about and they will have one, they will have one.

FAINE:

And you promised to us that there would be a particular set of policies in

place and you have broken that promise.

TREASURER:

Hang on, we promised an 80 per cent rebate which will pay $1.1 billion to what

is it, 1.5 million Australians. Come on John.

FAINE:

Why such generous tax cuts for people who arguably need them least? Where is

the incentive for ordinary Australias, we heard from them on the programme yesterday

who are just struggling, working poor, struggling to get by on a basic wage.

They get $6.

TREASURER:

Well, can I say this, Australian families that are on middle incomes in Australia,

in fact have family tax benefits which exceed their tax liability and that is

whatever liability they have, the family tax benefit which is paid extinguishes

it. So many of those families in net terms are not paying tax…

FAINE:

Not all of them by any means.

TREASURER:

…well, the family…

FAINE:

And it is savings (inaudible).

TREASURER:

…and John there is a principal in relation to tax – you can’t

cut tax if people aren’t paying it, number one…

FAINE:

But a lot of people…

TREASURER:

…number two, if you are paying a small amount, then when it is cut, although

in nominal dollars it doesn’t look large, in percentage terms it is very

large. The largest percentage tax cuts under this proposal go to the low income

earners.

FAINE:

Who needs it more, someone trying to raise a family on $50,000 or someone who

is earning $200,000?

TREASURER:

Well somebody raising a family on $50,000 doesn’t pay tax until they

go above $40,000 John with the Family Tax Benefit.

FAINE:

That is not a claim that stands up under all circumstances Treasurer, you can’t

say no Australians pay tax on $40,000 if they are raising a family, it is just

not true.

TREASURER:

John it is. When you, depending on the number of children you have, the Family

Tax Benefit with two or three children, is actually more generous than the tax

they pay. Now, why is that so…

FAINE:

(inaudible).

TREASURER:

…no, no John, let me explain…

FAINE:

(inaudible) model which not everybody does anymore, families are much more

flexible in their arrangements then (inaudible).

TREASURER:

…if you do it on a dual income too, John. You remember last year’s

Budget, last years Budget I introduced Family Tax Payment, an additional $600

payment, do you recall that?

FAINE:

Yes.

TREASURER:

And I said last year that the reason we were doing that was that was the way

you could actually get benefits to families because a dual income family with

three kids doesn’t actually pay tax until they get to about $40,000. That

is the only way you could do it, that is why we did it. Now, let’s come

to last night’s Budget. In last night’s Budget we cut tax rates

for lower income earners. They were on a 17 cent rate, they are now on a 15

cent rate. And then we said for the great bulk of Australians, we want them

on a tax rate of 30 cents in the dollar. And 80 per cent of Australians will

be on a tax rate of 30 cents in the dollar. And then we said the highest tax

rate would not cut in until $125,000 in 1 July 2006, so that only 3 per cent

of Australians will pay the top tax rate. Ninety seven per cent of Australians

will not be worried by the top tax rate. So that means that you can go right

through your working career with promotions, with overtime and very few Australians

will ever come into that top tax rate and that is the way it ought to be.

FAINE:

If the Future Fund is to cover future unfunded superannuation liabilities,

who has been the Treasurer for the last ten years while those unfunded super

liabilities have accumulated?

TREASURER:

Well, these superannuation liabilities John started accumulating 50 years ago.

FAINE:

You have had ten years to fix them, now you are going to lock up future surpluses

to pay it.

TREASURER:

Well what is your argument, that I should fund them or I shouldn’t?

FAINE:

I don’t think you need to but you could use future surpluses to offer

tax cuts…

TREASURER:

Ok, I don’t need to fund them but I thought the implication of your question

was that I had been sitting around not funding them for the last ten years,

you have got to make up your mind here John.

FAINE:

(inaudible) look after themselves in (inaudible).

TREASURER:

Ok, so I shouldn’t fund the liabilities?

FAINE:

And you could use future surpluses to offer tax cuts further down the track

or infrastructure spending.

TREASURER:

Well I think we should fund the liabilities and I will tell you why I think

we should fund the liabilities. If we don’t start funding these liabilities

today, in 20 years time when we have got the ageing of the population upon us,

when we have fewer people in the workforce supporting many more people in retirement,

when our health budget is going to be seriously haemorrhaging, if these liabilities

mature, young Australians who are going to be responsible for the running of

this country in 20 years time and paying the tax to keep it going won’t

have a go. So, I am putting in place a Future Fund to give young people in this

country a go. It is going to be hard enough for them in 20 years time. They

are going to be supporting a lot more people like you and I John, who are going

to be aged and who are going to be drawing down on the health system and I want

to be able to look those people in the eye and say I funded liabilities of current

and past generations so you are going to have a much better go in 20 years time

and that is why it is an investment in the future. Let me tell you that this

Future Fund is probably the largest significant long-term investment that an

Australian Government has even engaged in and it is going to meet our biggest

structural challenge which is the ageing of the population which is going to

change society as we know it over the next 20, 30 and 40 years.

FAINE:

Nineteen minutes to nine, Peter Costello, I don’t understand the Future

Fund, it looks like it is just some sort of a feast for the capital market,

it is doing favours to your mates at the top end of town, I can’t see

how it impacts and benefits ordinary Australians at all.

TREASURER:

Well ordinary Australians whose taxes go to pay these liabilities will have

that burden lifted off their shoulders. Let me tell you the burden of $90 billion

of liabilities which the Commonwealth Government is currently carrying…

FAINE:

Which haven’t bothered you for the last ten years you have been Treasurer.

TREASURER:

…well, they have absolutely bothered me…

FAINE:

You haven’t done anything about them.

TREASURER:

…well see, you keep coming back to this point. On the one hand we shouldn’t

be doing anything but on the other hand I should have been doing it ten years

ago.

FAINE:

Because it will look after itself over (inaudible) time.

TREASURER:

Well, well John, come on, I can answer your question, but just tell me what

your criticism, we should do something about it or we shouldn’t?

FAINE:

Well it seems a missed opportunity to me, if you have got $33 billion from

Telstra and you have got all of these Budget surpluses into the future, there

is nation building opportunities rather than just investing money in the markets.

TREASURER:

Should we do something about it or shouldn’t we do something about it?

FAINE:

You should be doing specific things not just hand it over the merchant bankers

to play with it.

TREASURER:

Should we do something about it or shouldn’t we do something about it?

FAINE:

I have just answered that question, what is wrong with my reply?

TREASURER:

Come on John, we have on the one hand…

FAINE:

(inaudible) hand it over to the merchant bankers so they can sit back and play

with it and make money along the way, you should do nation building things with

it.

TREASURER:

Should we do something about unfunded liabilities or shouldn’t we?

FAINE:

I think unfunded liabilities would look after themselves and if you have got

future surpluses you could do nation building things with the money rather than

handing it over to the merchant bankers.

TREASURER:

Well I profoundly disagree with you. The idea that $90 billion will look after

itself John is not realistic I must say to you. I profoundly disagree with you.

I am the Treasurer of Australia. The idea that $90 billion can just look after

itself. You know, let me tell you, this is real money.

FAINE:

Well in effect I…

TREASURER:

And I want to put…

FAINE:

…Peter Costello on the $90 billion of last year not this year.

TREASURER:

…no, no, I announced the, I announced the Future Fund last year. John,

let me tell you what the record is here, I think it is very important. I know

you have to be controversial and you put these things to be controversial, but

when I became the Treasurer of Australia the Government owed $96 billion and

had unfunded superannuation liabilities. Over the last nine years we have reduced

the $96 billion of Labor debt by about $90 billion. So, I have been repaying

debt. Now that we have got the debt under control I want to go further, I want

to start funding liabilities. We couldn’t talk about funding liabilities

before because we owed $96 billion in debt and we have been paying down the

mortgage, now it is time to go out there and do something about the accrued

liabilities. Now, this is a very technical argument for your listeners but let

me tell you something, this will put Australia in one of the strongest positions

of a developed country around the world…

FAINE:

Alright.

TREASURER:

…this will take the weight off future generations. This is an investment

for the young people of Australia and let me make this prediction, in 2020 John,

when you and I are in our retirement, when we are drawing down on the health

system, when we are looking for the young people of today to pay our bills,

you and I will probably sort of nosy up to each other in a coffee shop and we

will say in 20 years time, gee we are glad those liabilities were put together

because if they weren’t there would be no aged care for you and me John.

There would be no hospital for you and me, there would be no pharmaceuticals

for you and me.

FAINE:

Your super might cover the coffee but mine probably won’t. Peter Costello,

I have only got a few more minutes with you, you haven’t funded Victorian

roads to the extent the State Government wanted and asked for, you keep saying

it is because they broke a promise but you break promises, your Party federally

broke a promise, what is the difference between your broken promise on Medicare

thresholds and their broken promise on toll roads and freeways.

TREASURER:

Well, when you say we haven’t funded Victorian roads, we are funding

the Hume Highway, Hume Highway by-pass, Calder Highway, work proceeds in relation

to Roads to Recovery Black Spot funding…

FAINE:

But the big one, you know what.

TREASURER:

…well we have also indicated that we are prepared as the Commonwealth

to help build the freeway.

FAINE:

The Scoresby is still how many, what? $560 million short (inaudible).

TREASURER:

If the State Government doesn’t want to build a freeway, it doesn’t

need Commonwealth money. Now let me make this point John…

FAINE:

But you have got a very selective application on broken promises.

TREASURER:

…hang on, if you pay a toll to use a road, you shouldn’t have to

pay a tax as well. The tax…

FAINE:

No, no, hang on, you break promises when you think you need to but you won’t

let the State Government do the same.

TREASURER:

You pay your tax and your tax can build roads. If the State Government says

well we don’t want taxes to build the roads, we don’t want a freeway,

we want user pays, we want a tollway, why would you put taxes into it?

FAINE:

You don’t see the hypocrisy in the double standard?

TREASURER:

Well hang on, John, that is going to be a privately owned road. Let’s

go back, I think a moment ago you were saying you weren’t too enamoured

of merchant bankers.

FAINE:

Yep, I think I did say that.

TREASURER:

Well some merchant bankers are going to own Steve Bracks’ tollway. We

are told they are going to get $7 to $8 billion I think out of the users. Why

would Australian tax payers top up the merchant bankers who have got $7 or $8

billion in tolls? Why would you put taxpayers’ money into a privately

owned road where they are going to take $7 or $8 billion in tolls.

FAINE:

Treasurer I am told you are expected elsewhere in a moment, last question,

the National Australia Bank today axed 4,000 jobs around the world, 2,000 of

them in Australia, that is 2,000 more people looking for work in this country.

TREASURER:

Well look, I don’t know what the decision was but I feel for people who

have lost their jobs. The National Australia Bank better have a pretty good

explanation because the National Australia Bank as you know, is a highly profitable

organisation and the National Australia Bank ought to justify its decisions.

What can I do about it? All I can do about it John, is run a strong economy

with low interest rates so that business, other businesses can become profitable

enough to create work, and I will leave you with one thought which is, unemployment

is as low today as it has been in 28 years. I know that will be no great consolation

to those people down at the National Australia Bank but your chances of getting

a job are better today than they have been in the last 28 years.

FAINE:

Well I didn’t even ask you about the leadership.

TREASURER:

I know, but you did give me a thorough workout John.

FAINE:

Thank you for your time this morning.