TRANSCRIPT
THE HON PETER COSTELLO MP
Treasurer

Interview with Kerry O’Brien

7.30 Report

Full Transcript

Tuesday, 13 April 2003

SUBJECTS: Budget

O’BRIEN:

Peter Costello is with us now. Unexpected tax cut, Peter Costello, You managed

to keep that one under wraps very nicely. I don’t think any of us can recall

a time that a Treasurer was able to deliver such a major surprise without any

hint of it in advance, so when is the election?

TREASURER:

Well, look I guess it’s important that these announcements are made on Budget

night, I have always believed in the budget process and I think that it is important

that we announce them to the Parliament…

O’BRIEN:

But there has been some carefully contrived leaks and coming from the Government…

TREASURER:

If we can prevent it from leaking out so much the better, but at the end of

the day Kerry, we took the view that if we could meet our defence spending,

our security spending, if we could meet the cost of the drought and the cost

of Iraq, and the budget was in surplus, then any amount over that should be

returned to the taxpayer, and that’s the view that we took.

O’BRIEN:

So when did you know that you were going to be able to deliver a tax cut?

TREASURER:

Well, as we kept working on the figures, particularly with the end of the war

in Iraq, it became clear that we were looking, as we forecast, at a budget surplus

of around $4.5 billion, we could have had a surplus of $4.5 billion and we’d

have paid off $4.5 billion worth of debt. We decided to have a surplus of $2.2

billion and we will pay off $2.2 billion worth of debt, and the remainder will

go back to the taxpayer and I have always said…

O’BRIEN:

But when did you make that decision?

TREASURER:

Pretty late in the process once we were pretty confident of the figures, but

I have always said, if your budget is in surplus, if your debt is low, and we’ve

now got one of the lowest debt levels of any Government in the world, if you

have met your expenses, then the taxpayers should share in some return.

O’BRIEN:

So whose tax cuts are these? Are they the Prime Minister’s or yours? Who actually

initiated them? Did you say to John Howard, I want to have a tax cut in this

Budget, or did John Howard say to you, I want you to find a way of giving us

a tax cut?

TREASURER:

Well look, I came to the view that it was economically responsible to cut taxes

in this Budget.

O’BRIEN:

So these are your tax cuts?

TREASURER:

Well you know I was in touch with the Prime Minister while he was overseas

but I was back here doing things so, he you know he wasn’t discussing these

in Texas, I was back here working on them.

O’BRIEN:

So, when you and Mr Howard were discussing the timing of the cuts, the issue

of election timing wasn’t mentioned even once?

TREASURER:

No its, the way we look at it is we now have a strong debt position, our debt

to GDP ratio is below 4 per cent. The United States is about 50 per cent. So,

we could have paid off $4.6 billion of additional debt, we’ll still pay off

debt, but why not return something to the taxpayer, and that’s how we decided

to do this.

O’BRIEN:

And the issue of election timing wasn’t mentioned once?

TREASURER:

I don’t think so Kerry, not that I can recall and I am sure that I would recall

it.

O’BRIEN:

Well just yesterday, even then I think you were still pouring cold water on

the prospect of cuts, was that to maximise the impact?

TREASURER:

No, look I was asked yesterday what would be the focus of the Budget, and I

said it would be defence and security, and higher education. Now, if you have

done your defence and security, and your higher education and your drought,

and you can afford some return to the taxpayer, do that as well. I think it

is a good principle for Governments to abide by.

O’BRIEN:

In overall terms, $2.4 billion sounds like quite a generous tax cut, but in

individual pockets its not a lot is it. I think $6.30 a week for someone on

$24 thousand a year, $4 a week for someone on $30-50 thousand a year. I mean

that is a couple of loaves of bread or a loaf of bread and pint of milk, or

a litre of milk, or it might be, it might be half a packet of cigarettes.

TREASURER:

Well I think they’re responsible Kerry, I think these are responsible tax cuts…

O’BRIEN:

But it’s not going to go very far is it?

TREASURER:

Well look, the sums are like $300 dollars a year, $400 hundred dollars a year,

$500 hundred dollars a year. But I think they’re responsible. Let me put it

like this. I don’t think there would be another Government around the world

that’s balanced its budget, met its defence and security and cut tax. You might

have the Americans who are cutting tax, but they don’t run budget surpluses.

They are other countries which are increasing tax, like the British and still

running deficits, we would be one of the few countries, if not the only country

around the world that has a balanced budget and is cutting taxes.

O’BRIEN:

Now after, after you delivered the tax cuts that were compensations for the

GST, you were quite boastful of the fact that 80 per cent of Australians would

be paying no more than 30 per cent income tax. Now that 80 per cent has now

dropped back to 75 per cent hasn’t it?

TREASURER:

Well I think after these tax cuts, its about 75 per cent.

O’BRIEN:

Yeah, in other words, even after these next round of tax cuts there’s still

5 per cent, that figure has dropped. There are still people paying more tax.

TREASURER:

Absolutely. Kerry, the first of July 2000 was the largest tax cut in Australian

history. They were $12 billion per annum.

O’BRIEN:

But your going backwards aren’t you?

TREASURER:

This is $2.4 billion. It’s, what’s that a fifth? It’s a fifth. I make no pretence

about it. I’m not saying this is the largest…

O’BRIEN:

But on that trend, which you think was quite important, after the GST…

TREASURER:

…It’s a fifth…

O’BRIEN:

…that trend is now going backwards.

TREASURER:

But what we have done is we’ve cut taxes. Now, Kerry, would I like to cut taxes

by more? Well, sure. If we hadn’t have had a drought and a war probably we could

have cut taxes by more, but to fund a war and a drought, and security and cut

taxes, is something that very few if any other Governments in the world have

been able to do.

O’BRIEN:

You made a big fuss over the Senate’s refusal to pass your cuts to the Pharmaceutical

benefits scheme in the last budget, you said it was sabotage, but you have comfortably

met that pharmaceutical benefits bill and still recorded a substantially higher

surplus than you predicted a year ago. So, what was your fuss about it?

TREASURER:

Well, no my point on pharmaceuticals is this: that pharmaceutical system will

break, it won’t break this year, or next year, but it will break in 5 or 10

or certainly break in 15 years time, if we don’t fix it now. That’s my point.

And if we don’t fix that now that will break believe me, and I said at the time,

not next year, not the year after. I did that in the context of an Intergenerational

Report looking down the track 40 years. And I’ll say it again, those changes

need to be passed. We haven’t given up on those changes. They have been rejected

twice by the Senate.

O’BRIEN:

Higher education. You are making much of the fact that you are finding extra

money for higher education. But what do you say to the university student who

will face, a HECS student, who will face an increase of up to 30 per cent in

his or her fees as a result of your reforms?

TREASURER:

Well of course they will be covered by the HECS scheme, so they won’t…

O’BRIEN:

But still, one way or another they are paying it.

TREASURER:

Well, they will get an interest free loan which they don’t have to pay back

until they earn more than $30,000. At the moment they have to start paying back

when they earn $24,300 odd.

O’BRIEN:

But let me hear from your own lips. Many Australian university students will

in future be paying up to 30 percent more in their university fees, whether

they pay it upfront or later, they will be paying up to 30 per cent more in

their fees. How do you justify that?

TREASURER:

We have said that the university can charge up to 30 per cent more. That’s

they way they are going to do it…

O’BRIEN:

How do you justify that?

TREASURER:

I justify it on this basis: that at the end of all of that, the average student

contribution to the actual course fee will be 26.8 per cent. That is, the taxpayer

will still be paying ¾ of that student’s course fee. And as to the ¼,

the student will be given an interest-free loan. Now, there’s a lot of people,

Kerry, who never get near a university. But they pay tax. And they are going

to be paying ¾ for that student’s course fee and you have got to be fair,

in my view, between the ones who will never get to university but will pay for

it, the ones who will pay for it and get to university, and I think a fair contribution

between the student and the community generally.

O’BRIEN:

But the bottom line of both your Medicare reforms and your higher education

reforms are, that many Australians potentially, will face much higher bills

at the GP, and much higher university fees.

TREASURER:

I totally disagree with you in relation to…

O’BRIEN:

Well the proof of the pudding will be in the…

TREASURER:

…in relation to the Medicare. Can I tell you why I totally disagree with

you? Because the changes to Medicare were to put additional amounts of money

into the system, so that it makes it easier for bulk billing. Now I have heard

some people say that by putting more money in, fees will somehow go up. Can

I just tell you it doesn’t stand to reason? You put more money in, we say fees

will remain the same and more people will get access to bulk billing.

O’BRIEN:

Well the vast bulk of independent analysts in this, plus a wide body of doctors,

plus, plus, plus, would disagree with you.

TREASURER:

Well can I say that I totally disagree with that prospect that by spending

an additional $900 million somehow people go backwards.

O’BRIEN:

We will find out soon enough. Very briefly, in what circumstances do you believe

a double dissolution will be justified? We are not talking about a technical

trigger. But the point where you believe that fundamental reforms are being

blocked to the point that you justify double dissolution?

TREASURER:

Look I hope that it is never justified. Let me make this one point. There’s

one easy way for a double dissolution to be never justified and that is if the

Senate passes a Governments program.

O’BRIEN:

Yeah, we are talking reality.

TREASURER:

Are we?

O’BRIEN:

Well we are talking the real exercise of this system as its functions. The

Senate has the power to do that and the Senate is very likely going to block

your Medicare reforms and quite, quite probably much of your higher education

reforms. Will they be substantial enough reason for you to have a double dissolution

election?

TREASURER:

Well Kerry, we are an elected Government, I think the people of Australia elected

us to get on with governing, we intend to do that. I don’t think that the Senate

has the grounds to hold this Government to ransom, in relation to budget measures,

and we will be arguing very strongly for our Budget.

O’BRIEN:

Very, very briefly, is this your last Budget as Treasurer?

TREASURER:

Well this is tonight’s Budget, that’s a big enough task, don’t ask me about

any others Kerry.

O’BRIEN:

Peter Costello thanks for talking to us.

TREASURER:

Thank you very much.