TRANSCRIPT

of

THE HON PETER COSTELLO MP
Treasurer

Interview with Peter Thompson

Radio National

Wednesday, 12 May 2004
7.32 am

SUBJECTS: Budget

THOMPSON:

Peter Costello thanks very much for coming in, good morning to you.

TREASURER:

Good to be with you Peter.

THOMPSON:

Now to these tax cuts firstly. This is the second year you’ve provided tax relief and the second year in a row the response has been critical. Why did you consider that you could actually introduce a round of tax cuts but they not be across the board?

TREASURER:

Well last year that were across the board and I really regard this as unfinished

business in the taxation system. That when we introduced the big tax changes

in 2000 at the time of the GST we cut income tax rates for those lower down

the scale. We reduced rates, we changed thresholds but we were never able to

get tax cuts for the middle income earners through the Senate they were defeated

by Labor and as a consequence of that I believe that the income tax system is

lop-sided and that we have really come back to unfinished business.

THOMPSON:

So, if it’s unfinished business then, and I know you say that those

– the tax cuts that you have announced – would be more or less in line with

what you proposed a couple of years ago that were knocked back by the Senate,

but given the size of the surplus was there not room to actually make those

tax cuts more wide spread?

TREASURER:

Well we did things for lower income earners in other ways particular through

family payments but let me just come back to the income tax. You should not

go on the top rate of income tax at $62,500. $62,500 – you’re not rich.

There are a lot of people in the suburbs that are raising families and paying

mortgages that would be horrified to think that they’re considered rich

under the Australian taxation system. There are policeman and fireman doing

overtime that would be up there, building workers are getting paid more than

that. So, you should not go on the top marginal tax rate until you’re

on $80,000 that’s what has been wrong with the Australian Taxation System.

We have announced the plan to return to that unfinished business and this time

we ask the Senate to be sensible and to pass them. It is necessary to re-balance

the taxation system.

THOMPSON:

Can we go to the other end of the scale for a moment. The low income people

with no children, when they look at the press today and try find out the details

they will see that the aside from the superannuation co-contribution which is

more generous which they may or may not access I suppose but they don’t

get any reprieve and just another element of that question the budget doesn’t

seem to build in elements which makes it more attractive to go from welfare

to work those people.

TREASURER:

Well it does. Let’s go to the single young person. The single young

person would one day aspire to be in a family, they have a family and when they

do have a family they will be very, very pleased with this family package. The

older person, the retired person who might be on a low income was able to access

the senior Australians’ tax offset which we introduced two years ago.

That means that qualifying people do not pay any tax until they reached $20,500.

So in past budgets we have addressed the situation of the senior Australian,

so in this budget we come back to the unfinished business for the middle income

earner and help for the family and the way you deliver bigger benefits to families

is not by moving low income tax thresholds but by actually giving them family

payments you can deliver much more and let me give you another example. There

are some families that pay no tax. In fact there are a large number of families

that pay no tax.

THOMPSON:

What sort of numbers are we talking about?

TREASURER:

You are talking about a very substantial number of families – hundreds of

thousands, possibly more. So, if you cut tax rates you would then be saying

to me well what about the families that do not pay tax you have not done anything

for them. So, what we do is we say we can help those families but we can help

them by making a payment to them rather than moving tax rates.

THOMPSON:

are you saying then that the fulcrum for determining whether lower income

earners should earn, should gain tax cuts or should be the beneficiaries of

the various hand outs you have mentioned was on this question of the fact that

many families don’t pay tax.

TREASURER:

Yes, many families do not pay tax…

THOMPSON:

…was that the decider for you?

TREASURER:

Well, well you, that was one of the factors, yes, and a very big factor that

we took into account. If you cut tax rates down at the lower end for those very

many families that in fact pay no tax, it is of no benefit and you would then

rightly be saying to me what about those people you have not done anything for

them. The only way you can help those people is not through the tax system but

through the family tax benefit you actually can pay them and every one of them

will be getting $600 per child increase, one payment before the 30^th

of June and one each year thereafter.

THOMPSON:

Now of course every issue can’t be chased but last night I heard you

say to Kerry O’Brien that when it came to the BBQ stopper re-gearing things

for families which this budget clearly is aimed to do that there hadn’t

been room earlier in earlier budgets to do this, this was by way of explanation

about why hadn’t the government moved earlier on this. Why wasn’t

there room?

TREASURER:

Well, well nothing of this dimension this is the largest package in Australian

history it is not just the increase and amounts it is the change in the income

tests, it is a new maternity payment of $3000, it is 40,000 new school child

care places, 4000 family day care places. This is the largest package of family

measures ever, and if we had tried to put this together a year ago, or two years

ago it would not have been anything like the dimensions that we have been able

to put together for this budget.

THOMPSON:

That’s because income from company tax receipts and the like is much

higher?

TREASURER:

It is because our economy is much stronger today than it was last year and

stronger than it was the year before. We are now getting some of the pay off

of strong economic management and in particular and if people say well who is

paying the tax it is a simple answer it is companies. Company tax receipts are

booming because companies are more profitable today than ever before in Australian

history. The profit share as a proportion of gross domestic product, the size

of our economy is the highest level ever recorded in Australian history.

THOMPSON:

The family package is the fulfilment of this third term vision I suppose it’s

coming late in the day but if you search for ideas of what might happen in the

next term if the government is re-elected there are not too many signs or is

it more of the same.

TREASURER:

Well there will be more strong economic management I can promise you that

to keep people in work. Our unemployment rate is as low now as it has been for

23 years and we want to keep it there, go further if we can. So there will be

more strong economic management and I also think Peter, that one of the things

the country has got to face up to is this ageing demographic, we are all ageing

not just you and I and your listeners, but the proportion of the aged to the

proportion of young is growing and this is going to be a real challenge for

Australia and this is why we are starting to lay down initiatives to promote

saving for retirement. We are trying to encourage people to stay in work until

they’re 65 and we are also making a great investment in the aged care

sector that is the other big area of investment in this budget.

THOMPSON:

I think you said yesterday in the budget news conference lock up that this

is not a plan to lose the election and that is obvious that would be the task

for any Treasurer in a government. Has this spending priorities of this really

been geared or pre-determined really by the narrow targeting of this particular

elements of the electorate that you must win over.

TREASURER:

Well there, there is a substantial spending element of this for families,

yes there is but the next part of this is not a spending part it is a tax cutting

part. So what we are actually doing is we are cutting taxes, we are making investment

in key areas and we are trying to set Australia up for a much better age care

system as the population ages. I think I said flippantly last night I would

not mind it if we had a baby boom that might do something to address the ageing

of the population. Unfortunately it would not do it for about 20 or 30 years.

But in the meantime we have got to cope with this ageing demographic. The number

of people over 65 in Australia is going to double whilst the number of people

in the workforce is going to remain the same and that means the same number

of people in the workforce supporting double the number of retirees in this

country.

THOMPSON:

You have talked about it or you and the Prime Minister have talked about this

as a reforming budget but does it accept the notion that there has been a change

of emphasis within the government about women staying at home with their children

as distinct from women, at least going back to work part-time that the shift

is more towards the latter, that is, women wanting to work part-time.

TREASURER:

A big part of the changes that we announced are to address the situation of

the working mum who is coming back into the workforce to work part-time and

we have done a bit of an analysis on this. Married women working part-time the

average number of hours they work is 17.4 per week so that is telling you that

by and large they’re working two days, two and a bit days when they come

back into the workforce. They’re juggling that with child rearing and

the changes we announced will allow them to have additional benefits as they

move back into part-time work.

THOMPSON:

Can we just talk about the economy more widely. How can Australia avoid an

interest rate rise or a series of them, given that rates are on the move upwards

in the US and Europe and if you’d answer that the context of the budget

too which is adding what you’re estimating half a per cent of growth in

the coming year. That is of course the stimulus which might encourage the Reserve

Bank to increase rates.

TREASURER:

Well sure, not sure of the last part of your question, sure in relation to

the first part of your question – global interest rates are rising. They will

rise in the United States, they have just risen in Britain and so this is going

to take a lot of management in Australia but you have got to remember this point

that one of the reasons why interest rates are rising in the United States and

in Europe, they may also rise, is these countries have been in recession and

are now coming out. In other words they do not need the stimulation to try and

get their economies out of recession. We in Australia did not follow the rest

of the world into recession we managed to keep on growing. So that our rates

never came down as low, we did not need the degree of stimulation that they

have and we are not now emerging out of a recession, in fact our growth has

been pretty steady it may even come off a bit in the next year so half a percentage

point of stimulation, half a percentage point of GDP that is of stimulation

won’t be over heating the Australian economy.

THOMPSON:

Well with that being said can we still resist rate rises if, if the US pushes

rates up as it’s forecast to do so and it’s already happening in

the UK.

TREASURER:

Well, we will need a lot of careful management in this country…

THOMPSON:

…what do you mean by management there?

TREASURER:

Well, you need to manage properly inflation. You need to manage properly wages

outcomes, you need to manage what’s obviously happening in the housing

market as prices come off, you need to manage the tax system and you need to

manage the budget. We will need a lot of careful management to address this

situation but we have got the track record, we’re eight years now, for

people to look at the track record of the government, and I think it is a strong

one on economic management.

THOMPSON:

Thanks for joining us.

TREASURER:

It is great to be with you Peter.