TRANSCRIPT
THE HON PETER COSTELLO MP
Treasurer

Interview with Peter Thompson

Radio National

Wednesday, 14 May 2003
7.32 am

SUBJECTS: Budget

THOMPSON:

Mr Costello good morning to you.

TREASURER:

Good morning Peter.

THOMPSON:

If I can just deal first of all, of where the tax cuts came from. Were they

your idea?

TREASURER:

Well look, the way in which we approached this Budget, Peter, is we had to fund

the war in Iraq. We had to fund very extensive drought assistance, about $740

million. We had to increase Australia’s security in the wake of Bali and we

wanted to keep our Budget in surplus. And when we were able to do all of those

things we could have had a larger surplus and paid down some more of Labor’s

debt, but we have paid off $63 billion of Labor debt. So I thought that the

better thing to do would be to return some of that to the taxpayer and so that

is what we do – $2.4 billion is returned to the taxpayer, and that is the way

it was done.

THOMPSON:

So, because you are more across these things than anyone else you are the sole

architect of those drivers are you?

TREASURER:

Well, yes, I am doing the constant updates, and I am writing the Budget, yes

I am, yes that is my responsibility for better or for worse.

THOMPSON:

I don’t understand how this process works only I know it is very intense. I

mean, when do you get, in fact, the figures before you that says, yes, there

is room for a tax cut. Did that happen in the last few weeks?

TREASURER:

Well, we start doing the Budget in November so I have been working on this for

6 months, and back in November, obviously, we hadn’t committed troops to Iraq.

We committed troops in January, from memory, and so you obviously just have

a running account. You have just got to take into account things as they happen.

Back in November we did not know how long the drought would go. So, you have

really got constant updates as to what is happening. You have got to make key

assumptions about what is going to happen in terms of word growth, oil prices

and all of these things. And as the picture became clearer and as I became confident

that we could fund the war in Iraq it became possible I think to keep the Budget

in surplus and make a small return to the taxpayers and that is what we have

done.

THOMPSON:

I know the Prime Minister said months ago that if there was surplus money he

would prefer to return it by way of tax cuts. I mean, when was it clear to you,

when were you able to actually say we can go that way?

TREASURER:

Well, you have got to make various assumptions. The critical thing I think is

as the war came to an end in Iraq and that enabled us to try and get some kind

of fix on defence spending because obviously if the war had gone longer that

would have been something that we would have to take into account. But paying

for the war, and that is about $750 million, and the drought it’s about $750

million, defence build-up of about $2 billion over 5 years. We were still in

surplus and normally what we do with surpluses of course is we repay Labor debt.

Well, we have re-paid $63 billion of Labor debt and we are now getting the interest

savings so I thought it was responsible to return some money in the way of tax

cuts.

THOMPSON:

And you hinted last night that you spoke to Mr Howard just whilst he was abroad,

saying we can do this, so, as recently as a week ago?

TREASURER:

Well, as recently as a week ago, yes, I was alerting him on the final shape

of the Budget, yes.

THOMPSON:

Can we focus on growth for a moment. Australia has done very well in recent

years but the forecast is the growth will be down to 3.25 per cent this year,

off from 4 per cent last year. How can unemployment stay steady at 6 per cent

in those circumstances? I mean it is also, there is a real sense there that

the unemployment market is very difficult at the moment, or the employment market

I should say.

TREASURER:

Well, in this financial year we think the, this is 2002-03, we think growth

will be around 3 per cent and a little stronger in the next financial year,

3 ¼ . So about what we are experiencing now and that is enough growth to

meet new people coming into the work force and people who are coming in for

the first time. But it wouldn’t bring your unemployment rate down. So it means

that you will have new jobs being created. It means that during the course of

the year you will have more people in work on a 3 ¼ per cent growth, but

as you say it is a little lower than we got used to in the late 1990’s with

4 per cent growth. 4 per cent growth you generally have your unemployment rate

falling.

THOMPSON:

Look, the, and I know these days in that Budget presentation at half past seven

on Budget night there is much less said about the economy generally and much

more focus on programmes. But one other thing which I don’t think you mentioned

last night was the Current Account Deficit which, I mean there used to be a

time when these things were given a lot of attention in the public domain. Because

our dollar is going up and because of our general trade situation being not

so good it has gone from 3 per cent 2 years to well over 5 per cent, 5.75 this

year just finishing, 5.25 next year. There used to be a time when people were

very worried by that, are we to be worried now?

TREASURER:

Well, let me say I would always like a lower Current Account Deficit than a

higher one, so I am not for a moment saying I like high Current Account Deficits.

But the times when we were really concerned about this in the late eighties,

early nineties, the Current Account Deficit was generally above six and at least

in the early 1990’s the Government was borrowing large sums of money. We are

in a different situation now. The Government is not borrowing money, in fact

the Government is actually re-paying, the Government is putting money back into

the system. The borrowing that is going on is all in the private sector and

all at their risk. If they feel that by borrowing, and it is mainly banks that

are borrowing these days, they can make money and it is a good investment. That

does not worry us nearly as much as if it is the Government that is borrowing

and spending it on expense programmes. So it is the quality of your Current

Account, it is the dimension of it. But having said all of those things, the

lower the better, and what would, make our Current Account Deficit lower? Well,

if the economies of the world were stronger, if the United States were to recover

our export markets would recover. I don’t think the Current Account in the 5

per cent range as it currently is, is so much a feature of what is happening

in Australia as so much a feature as to what is happening with our trading partners.

THOMPSON:

Just listening to what other political party leaders have been saying in recent

days, it is quite clear that the education reforms and the Medicare reforms

were in for a bollocking in the Senate. You already have double dissolution

triggers, in a sense this Budget, I mean most of the commentators today are

saying this Budget sets up the possibility of an election?

TREASURER:

Well, look, it is up to the Senate isn’t it. We announce a Budget and back in

the old days Budgets used to be enacted by the Senate. That was the theory of

democratic government. You have had a Labor Party which has decided just to

oppose everything they can, as a tactic. But I do not think it is doing them

any good Peter, I really don’t. I think they would be better if they said that

they will take a positive attitude, now it is up to Mr Crean what he does, but

I don’t think the opposition at-all-costs tactic is a good one for them.

THOMPSON:

Thanks very much for taking time this morning, I know you’re busy.

TREASURER:

It’s great to be with you.