TRANSCRIPT

THE HON PETER COSTELLO MP
TREASURER

Interview with Kerry O’Brien

7.30 Report

Tuesday, 11 May 2004
8.10 pm

SUBJECTS: Budget

O’BRIEN:

The Treasurer is joining us now. The man whose own future is tied to the success

of this, his ninth Budget. Treasurer, Peter Costello, still breathing heavy?

TREASURER:

I have had to race up to your programme Kerry, so forgive my physical fitness.

O’BRIEN:

The Government’s previous emphasis with family benefits was on those

families where mothers opted to stay at home. This one doesn’t discriminate.

What caused the change of heart?

TREASURER:

Because we think it is important to extend this benefit to women that want

to re-enter the workforce and so we have essentially taken a benefit which was

only previously available for the purely single income family and we have said

that if Mum wants to go back to work and work part-time she won’t lose

her benefit. So it eases the transition if you like for women back into the

workforce. The average time done by married women who work part-time in the

workforce is 17.4 hours. And so they can keep their benefits now and that delivers

them very big increased family assistance.

O’BRIEN:

Now Mr Howard promised that this would be his third term agenda – getting

that balance of work and family right. Why did we have to wait until the end

of your third term, in the shadow of an election, to see the colour of your

money on this?

TREASURER:

Well we have brought together so many things. This is the biggest package

ever.

O’BRIEN:

Yes, but why did we have to wait?

TREASURER:

And by bringing it together as one package we could integrate it – increased

amounts, different income thresholds, different tapers, maternity allowance,

we have in there additional childcare places. This is, nothing as big as this

has been done. It is not only delivering benefits to family but it is improving

work incentives and somebody said, “If you are looking for a barbeque

stopper, this stopped it.”

O’BRIEN:

Yes, but you have been talking about the barbeque stopper for years now. And

in fact we know from Cabinet leaks early this year that you acknowledged the

burden on families in Cabinet discussions as late as 18 months ago. But you

virtually ignored families in the last Budget. Doesn’t that just scream

cynical election timing?

TREASURER:

No, because in the last Budget we were doing different things, including cutting

income tax right across the board.

O’BRIEN:

That was the milkshake and sandwich tax cut.

TREASURER:

Well hang on, no, right across the board for everybody Kerry. And the thing

that has happened in this Budget is bringing those strands together. If we had

have delivered this package last year it would not have been of this dimension.

The enormity of this…

O’BRIEN:

But it would have…

TREASURER:

…and the way in which…

O’BRIEN:

…it would have begun to address a problem…

TREASURER:

…and the way in which…

O’BRIEN:

…you knew two years ago was a problem?

TREASURER:

No, the point is you have got to harmonise these things, because the interaction

of the tax system and the welfare system means that if you only move on one

you can get all of your incentives out of whack. And by moving together we have

managed to not only to help families but help families as Mum is coming out

of the workforce to have a child, as she is going back into the workforce after

she has had the child, and as the children are coming through the schooling

system so that parents have choice. This is all about choice. More choice for

families.

O’BRIEN:

This is also about the Budget, about the election. Let me hear you say that,

because that is what the audience would believe…

TREASURER:

…well…

O’BRIEN:

…to some degree this is about the election.

TREASURER:

This is about good economic policy. Now, do I think good economic policy will

help in the election? Of course I do. I am sure of this, that bad economic policy,

high unemployment and high inflation should be punished in an election. So do

I think good economic management is important? Of course I do. Do I think the

Opposition can do it? Of course I don’t.

O’BRIEN:

Well, Mr Howard, when he acknowledged the problems that you’re now seeking

to address now, Mr Howard acknowledged those problems three years ago. Now your

Budget speech tonight is peppered with the word family. Do you know how many

times you mentioned families in your last Budget speech? Once, in the last sentence

of the whole speech. Why wouldn’t we just assume from that that you denied

people those benefits last year in your last Budget simply because you wanted

the clout and the impact closer to an election?

TREASURER:

Because we couldn’t have done this in the last Budget.

O’BRIEN:

Why not? You had a surplus.

TREASURER:

Look Kerry, we didn’t have the dimension and we didn’t have the

capacity and we didn’t have the ability to draw it all together. But you

sound a bit disappointed that it is so beneficial to families. Well I think

a lot of families will be very happy.

O’BRIEN:

Mr Crean points out six million forgotten Australian households who he says

don’t receive a single cent in either tax cuts or increased family benefits.

TREASURER:

Would it surprise you if Mr Crean whinged about something? I don’t think

so.

O’BRIEN:

I think Mr Crean is a critic of you in the same way you are a critic of him.

When is one whingeing and one not?

TREASURER:

Well I think, I don’t think we have seen Mr Crean on a positive issue

for a long, long time. So let me move on from that…

O’BRIEN:

What about his point?

TREASURER:

…and say this benefit is available, Family Tax Benefit to 2.2 million

Australian families, the Maternity Allowance is available to every woman that

has a child. It is not even means tested – to every woman that has a child.

We have a superannuation incentive which is available to everybody who earns

up to $58,000 and we have income tax reductions for people that are on middle

income. In fact I have gone through all of those areas and I think families

first, yes, families front, families centre. A more competitive tax system?

Yes.

O’BRIEN:

Why have you left out, why have you left out those under $52,000 from the

tax cut?

TREASURER:

Because those people will be great winners under the family package.

O’BRIEN:

But don’t they deserve the same return on bracket creep as everybody

else?

TREASURER:

Well, last year we did. You see, and…

O’BRIEN:

You said that was across the board.

TREASURER:

It was. Last year was across the board, including to low income earners.

O’BRIEN:

Well, now you are giving a second tax hit for some but not for others.

TREASURER:

You asked me about low income earners, last year we did it across the board.

Now low income earners pay less tax. If you are paying less tax it is hard to

cut it by a large amount.

O’BRIEN:

Right.

TREASURER:

You just said earlier oh well it wasn’t enough. The way you can get

bigger benefits to low income earners who don’t pay that much tax is to

deliver it in another way, deliver it in their family payments so that they

actually get the money in their hands. And I will tell you something about delivering

it to families in this way, this delivers to people who don’t pay any

tax. So you think of this, there are a lot of Australian families that in fact

pay no tax. If you cut tax, they get nothing. And they are the lowest income

families in our community. So if you deliver it by way of a family payment,

you can get larger sums but you can get it to all people including those who

don’t pay any tax at all.

O’BRIEN:

I wonder what, how much of a virtue you can claim of the tax cuts as a response

to bracket creep when respected, for instance, respected tax economist Neil

Warren has calculated that if our pay packets had been protected against bracket

creep for the past 25 years the tax free threshold would be more than $13,000

a year not $6,000. The threshold for the top tax rate would be $120,000 not

$62,000. So, whichever way you look at it, you are just getting back a small

proportion of what government has taken from ordinary workers in bracket creep.

TREASURER:

Well, if your point is that the tax cuts aren’t large enough you will

be urging everyone to pass them.

O’BRIEN:

No, what I am asking you is whether you can really claim that what you’ve

done is genuinely addressing bracket creep?

TREASURER:

Well, you have got to make up your mind as to whether the tax cuts are not

enough or too generous. I think they are about right and I think they are responsible.

I have dealt with this before, if all this Government had done had been to index

tax brackets, actually you would be paying more tax today if that is all we

had done.

O’BRIEN:

Well, Neil Warren’s point again…

TREASURER:

No, no, no, you said 25 years, with all due respect…

O’BRIEN:

Well, now I am coming up to 2000, the year 2000 income tax cuts…

TREASURER:

Well hang on, let me explain it to you Kerry. We haven’t been in Office

for 25 years.

O’BRIEN:

About half of that.

TREASURER:

No, we have been in office for eight years.

O’BRIEN:

I added a rough (inaudible)…

TREASURER:

Eight is not half of 25.

O’BRIEN:

And the Fraser Government was in for eight years.

TREASURER:

Oh, okay, so we go back to the Fraser Government, can we come to the facts.

The facts are these. We have been in Office for eight years, we were in Office

in 1996. If we had indexed the thresholds in 1996 to the CPI you would be paying

more tax today than you are. That is, the changes with the New Tax System last

year and this year are better than bracket creep. Now the question we have got

to ask ourselves here, and this is what I am going squarely…

O’BRIEN:

(inaudible)

TREASURER:

…squarely onto is this. Should the top marginal tax rate in Australia

cut in at $62,500? You look around the world, that is very low by world standards.

It is very low for people who I regard as middle income earners at $62,500 and

I think to make our tax system better it ought to be increased to $80,000.

O’BRIEN:

Very quickly, the tricky question, the one you would call tricky. Both you

and Mr Howard continue to be coy about his departure date and your future as

Treasurer or Leader if you win the election. Don’t you both owe it to

the people you are asking to vote for you at the next election to come clean

now about your plans?

TREASURER:

Well, I have said over and over again, I am working for the re-election of

the Howard Government.

O’BRIEN:

That’s not answering the question.

TREASURER:

And I am going to be serving in it.

O’BRIEN:

But people…

TREASURER:

…let me tell you this…

O’BRIEN:

…the people who you are asking to vote for you…

TREASURER:

I will be serving in it.

O’BRIEN:

…won’t know whether they are voting for John Howard for Leader

or you.

TREASURER:

I have just said to you, I am working for the re-election of the Howard Government

and I would hope to serve in it. And I have said that. Now, the only point is

this Kerry, it is the people of Australia who will decide who the next Government

will be.

O’BRIEN:

They won’t decide the next Leader.

TREASURER:

They will decide whether or not we get the chance to continue the economic

reform. I hope they do, but both of us are in the hands of the people of Australia.

O’BRIEN:

Peter Costello, thanks for talking to us.

TREASURER:

Thanks.