Interview with John Laws

2UE

Thursday, 2 February 2006

9.20 am

SUBJECTS: Childcare, superannuation, AWB

LAWS:

Peter, good morning.

TREASURER:

Good morning, good to be with you, John.

LAWS:

Good to be with you and Happy, Happy New Year.

TREASURER:

Happy New Year to you all of 2006.

LAWS:

Thanks Peter. What’s this your 11^th Budget, isn’t it?

TREASURER:

Yes, but whose counting John?

LAWS:

Me, me, but you have got to be counting too surely, you have got to be saying, oh God, enough is enough.

TREASURER:

It is a lot of work but that is what you get paid for and you know, I don’t look forward to being locked up in Canberra for the next several months but it is important work, it has got to be done, if we don’t get our Budget right people will lose their jobs, businesses will be unprofitable, people would have pressure on their budgets so it is important that we get it right and I go in with a great deal of enthusiasm.

LAWS:

I know you can’t tell me what is going to be in it and I know you won’t tell me what is going to be in it but is it fair to say that childcare and superannuation might get a mention there?

TREASURER:

There was certainly, we have got to focus on helping families and we know a big part of that is childcare and helping families with the balance between work and child rearing. I have had a theme for several years now to encourage Australian families and as you know to lift birth rates and if that is one of the focuses of government policy then childcare is a big part of that, yes.

LAWS:

So obviously very important and obviously will get a mention. Wouldn’t it be better to simplify things, I mean don’t have special payments, don’t have rebates, don’t have schemes that nobody can understand and that don’t deliver what is required, just let families pay for childcare from their pre-tax income?

TREASURER:

Well, it is not entirely clear how you could allow families to pay from pre-tax income, you know, what families actually get is they get their net, tax is deducted and they get net, but what we do is we allow families to choose the kind of childcare they want. It might be the childcare centre, it might be in a private home, it might be some other arrangement and then we send an assistance payment to the provider so that it defrays the cost…

LAWS:

But couldn’t they simply write it off as a tax deduction?

TREASURER:

Well if you went the other way, well, we also allow that. We allow a childcare rebate of 30 per cent.

LAWS:

That’s right, it is only 30 per cent, why not forget all of those special payments and all of the other things and just say you can claim as a tax deduction the childcare payments that you make during the year?

TREASURER:

Well if you are on the top marginal rate that would be advantageous but if you weren’t on the top marginal rate you would end up paying more. You see, a 30 per cent rebate means that for most people who are on the 30 per cent rate or less it is the same as or better than tax deductibility. You see John, most parents and particularly most women don’t pay the top marginal tax rate. If you say to them we will give you a tax deduction, they won’t get the top marginal tax rate deduction, they will get less than that, they would actually get less than they are currently getting.

LAWS:

Okay, I’d like to think about that. What about this suggestion that you drop the Fringe Benefits Tax on childcare?

TREASURER:

Well there is no Fringe Benefits Tax where an employer provides childcare at their premises. There have been suggestions that you should allow employers to provide it somewhere else and have the same treatment. Look, I am not going into the ins and outs of policies, obviously there are some good points in that policy, there are some bad points. I was interested to see that a submission was made in relation to it, I mean we consider all of these submissions as we have in the past but there are pros and cons in all of those suggestions.

LAWS:

It seems to me another one of the problems is attracting enough trained staff.

TREASURER:

Yes I think the bigger point, John, really with childcare at the moment is places. I think that many parents are saying they have trouble finding places and it is a question of, well the private sector provides most places, encouraging the private sector but the Government does provide places particularly for school-aged children. And over recent years we have had a particular focus on increasing outside of school hours places, that is places when your kids finish school they can go to an after school programme for several hours until mum or dad can pick them up because mum and dad get out of work later.

LAWS:

Yes.

TREASURER:

And we have increased the number of places from 72,000 to 285,000 so we have increased it five-fold over the last ten years. Now that doesn’t mean that there still aren’t shortages around but it has been a particular focus and it is another thing where we are looking at very carefully.

LAWS:

Okay, I still don’t quite understand why there couldn’t be some sort of process whereby your employer paid your childcare costs for you out of your pre-tax income?

TREASURER:

Well as I said, you could, that is all very well if you are an employee. It would be of no assistance of course if you were self-employed, it would be of no assistance of course if you are in small business where small business employers don’t and can’t run childcare centres and it could benefit some people but it wouldn’t benefit everybody. That is the point I make, all of these things have pros and cons, yes, of course they do.

LAWS:

On to superannuation, why do we tax superannuation three times? As we earn it we get taxed on it, while it is there we are taxed on it and finally when we get it we get taxed on it again. Three times.

TREASURER:

Well we don’t tax it three times, that is the industry’s characterisation but it is not the fact. Let me go back a step. When superannuation was taxed at 30 per cent back in the early 80s, it was 30 per cent when the money exited from the fund. In the late 1980s Paul Keating decided to bring forward half of that taxation so he would tax at 15 per cent when it went in and if you paid 15 per cent when it went in you got a rebate on the 30 per cent exit tax. Now it wasn’t that it was taxed twice instead of once, what happened was it was still taxed at the same rate but it was a bring forward. The same rate in two instalments. So it is just not right to say that it is taxed twice, if it is taxed on the way in you get a credit for that tax against the tax liability on the way out. If you didn’t tax it on the way in you wouldn’t get the credit, it would be taxed at the same rate – a higher rate – on the way out.

LAWS:

Well there was a recent suggestion from your own Finance Minister, Nick Minchin, he said that the 15 per cent tax on super contributions should be removed.

TREASURER:

Well if you removed the 15 per cent on contributions you would remove the 15 per cent credit you get for it – the rebate – the full credit you get for it.

LAWS:

Yes but wouldn’t that give retirees on average an extra $35,000 to live on when they retire?

TREASURER:

Well you know, what the industry did John, is it then said, oh, no, no, we would like the bring forward abolished and the rebate kept. But if you abolish the bring forward there would be nothing to rebate. Do you understand my point?

LAWS:

Yes I do.

TREASURER:

If it was 30 per cent and you paid 15 per cent now and you get a credit for that against the exit, they said well abolish the 15 per cent now and still give the credit.

LAWS:

Yes well I understand you can’t do that.

TREASURER:

Can’t do that. Well if you are an interested lobbyist for the superannuation industry you might want to do that.

LAWS:

The most important one is that I know that the Prime Minister, and I am pretty sure you feel the same way, you are keen to encourage people to keep working in Australia, to stay at work, to keep on working for as long as they can and yet you stop them at the age of 70 from contributing to their own superannuation.

TREASURER:

Well we, this is an interesting one, isn’t it. We actually, well I actually, lifted the age for superannuation contributions to 70 – it used to be 65…

LAWS:

That is right, so why don’t you abolish it altogether?

TREASURER:

…well you know, again there are pros and cons with all of these things and…

LAWS:

But there can only be pros for the taxpayer.

TREASURER:

…well let me make the point, at some point if you put money into superannuation to save for your retirement at some point you are expected to retire and to live off that money. It used to be 55…

LAWS:

Yes, expected by whom though?

TREASURER:

…well by yourself, by society, by your employer.

LAWS:

Well to hell with society. If you want to keep on working isn’t that your business and if you want to contribute your money to your superannuation shouldn’t you be allowed to do?

TREASURER:

Sure well, you know, the expected retirement at one point was 55 and you can still get your superannuation at 55 and we have been encouraging people to stay on in the workforce and to encourage them to work until 65 which is the aged pension age and then I lifted the superannuation contribution to 70. Now you know, there is no magic in 70, the only thing I will say is it is much higher than it used to be.

LAWS:

Yes but why is there any limit at all? I mean if a bloke can make a contribution to society and pay regular tax while he is doing it at the age 85, why the hell can’t he make contributions of his own money to his own superannuation?

TREASURER:

Because, this is the thinking behind it – the reason you are contributing to superannuation is so that you can build up a sum to retire on and at some point it is expected that you will retire.

LAWS:

Yes but if you don’t you are still saving the Government and other taxpayers money because you are not…

TREASURER:

Oh absolutely and I encourage people to stay in the workforce for a long time. As I say, there is no magic in this, the thinking is that at some point somebody, if you have built up a nest egg to fund yourself in retirement, at some point it is expected that you will retire.

LAWS:

Yes but who…

TREASURER:

Well that is why you are building up superannuation, John. Why else would you build up superannuation if it wasn’t to support you in retirement?

LAWS:

Well maybe you want to retire later, maybe you think you are going to live or maybe you want to give it to your kids, I don’t know.

TREASURER:

Well you see, that is a problem. If you are building up superannuation to give to your kids that does become a problem because superannuation is, it is not a estate planning device for the kids it is superannuation is built for retirement.

LAWS:

Yes but if you drop dead…

TREASURER:

Yes it does go to your kids, quite right.

LAWS:

…it can go to your kids.

TREASURER:

You are quite right. But you know, the reason why you build superannuation is to support yourself in retirement.

LAWS:

Yes but what happens if you don’t want to retire? I mean what the hell business is it of the Government’s if I want to work until I am 85?

TREASURER:

We would absolutely encourage you to do so.

LAWS:

Okay, but you wouldn’t let me contribute to my own superannuation fund after the age of 70.

TREASURER:

Well the critical question is, superannuation is concessionally taxed. Can I just go back a step? You said why is superannuation taxed three times…

LAWS:

Yes.

TREASURER:

…and you are now saying why can’t we put more money into superannuation?

LAWS:

Yes.

TREASURER:

Now why would you want to put more money into superannuation – because everybody knows that it is taxed far more concessionally than normal income.

LAWS:

That would be a good reason to put money in, wouldn’t it?

TREASURER:

Good reason, but I am just going back to your earlier point. If it was so horribly highly taxed three times why would people be desperately trying to put money into it?

LAWS:

Well they probably wouldn’t be, I don’t know.

TREASURER:

(inaudible) point you know, that this illustrates the fact that superannuation is not taxed highly. In fact it is taxed very concessionally and taxed so concessionally that people want to put more money in. It used to be stopped at 60, then it was extended to 65, now it has been extended to 70. You are saying well why can’t I get the advantage of putting money into superannuation to 75 or 80 or 85. Now, I am saying there is no magic in this. It is just that it is a concessional taxation system to build up retirement savings and at some point people are expected to retire. You know it used to be 65, I have put it to 70. I am not saying there is any magic in it.

LAWS:

Yes but whose expectation is that?

TREASURER:

Well you see if you allowed people to put money into superannuation…

LAWS:

No I am not…

TREASURER:

…they get a concessional tax rate until the day they died and they never lived in retirement…

LAWS:

…and they worked all the time.

TREASURER:

Then in fact, as you quite rightly pointed out, what it would become is a way of getting estate planning, giving money to the kids on a concessional taxation arrangement.

LAWS:

Well what is wrong with that? If you are still working because if you are working you are still paying tax?

TREASURER:

Well anyway, we are going around in circles, but if…

LAWS:

No, no, no…

TREASURER:

…no, no, no, if you are working and still paying tax that is not a problem. What you are putting to me is you are working and putting money into superannuation and thereby minimising tax.

LAWS:

No, if you are working and paying tax, like you are when you are 65, what is the difference between being 65 and 75 if you are working and paying tax and at 65 you can put money into your superannuation and at 75 you can’t?

TREASURER:

There is nothing wrong with working and paying tax, but the advantage with superannuation is that you are working, paying tax on that part of your income which you are taking as income, but paying very much less tax on that part which you are setting aside for superannuation.

LAWS:

Okay, but you are also saving the Government, thereby other taxpayers, the amount that you would be taking out in pension money.

TREASURER:

Absolutely.

LAWS:

So why can’t those people, I mean you should be rewarded for working, not punished.

TREASURER:

I agree with that.

LAWS:

Okay, well why stop at 70? It is unfair. You are not going to find too many people who are going to want to work until 75 or 85 but there might be a few and it is their money and it is their time and they are paying tax, why shouldn’t they have the benefits of superannuation? What is age? It is only a number.

TREASURER:

Well as I said John, it is assumed that by 70 people would have been able to save enough for retirement…

LAWS:

But what happens if they don’t want to retire?

TREASURER:

…well they don’t have to retire.

LAWS:

No, but they then don’t get the benefit of being able to put money into superannuation.

TREASURER:

No, they stay in the workforce, they keep earning income. But your point is why can’t they have the concessional superannuation taxation on that income rather than just the normal taxation on that income?

LAWS:

Yes but they pay the normal taxation anyway as they do at the age of 69.

TREASURER:

No you don’t. The whole idea of superannuation is that you have your employer set aside money into superannuation which is taxed at 15 per cent rather than 47 if you are on the top rate or 30 per cent if you are on the usual rate. The whole idea of superannuation is that you don’t pay full income tax.

LAWS:

No but I mean in addition to what you are doing with your superannuation money, which is money you have saved, you have not spent, you have made sacrifices to save it and then you want to put it into your super fund, apart from that you are still paying ordinary taxation on the money you earn.

TREASURER:

If you are an employee you don’t save money. What you can do is you have your employer put the money into superannuation which avoids the normal taxation arrangements and is taxed at 15 per cent – that is the point I was making earlier – now that is very advantageous. A point I was making earlier rather than triple-taxed, it is very advantageous which is why people want to do it. If you could do that until the day you died you would leave an accumulated estate in a far better tax preferred position than if you couldn’t do that until you died. Now the law has always said, we will encourage people with concessional taxation to build enough money for their retirement but we will not allow them to use superannuation to build an estate which can be passed on to their children. It is to support somebody in retirement. And so there has always been an actuarial calculation as to at what age would you assume a normal person would have saved enough to go onto their retirement income. It used to be 55, put up to 60, put up to 65, put up to 70. Now you know, it is assumed that on average people after the age of 70 will be in retirement. Now as you rightly point out, longevity is increasing, people now are working to 65 and beyond…

LAWS:

And longer.

TREASURER:

…and beyond. And if we get to a stage where there is an expectation or a wider pattern of people working on into their 70s, obviously this will have to be reviewed. Now as I have said to you, there is no magic in the age of 70. That is the thinking behind it. I have put it up in recent years and as patterns change it could well go up further.

LAWS:

Well I would hope it would because you shouldn’t be punished for turning 70. I mean, old age is not an offence.

TREASURER:

Absolutely John, I couldn’t agree with you more.

LAWS:

Okay, just before you go, how much damage to Australian and US relations are going to be caused by the Australian Wheat Board scandal?

TREASURER:

Look, paying bribes is an offence against Australian law and paying money to a regime like Saddam Hussein ran in Iraq, a regime which was under international sanction, is absolutely unforgivable. The reason why the Oil For Food Programme was set up was that innocent Iraqis could get food rather than starve to death while the regime would be punished. And if it appears that this programme was manipulated so that the regime was not punished, supported, that is a very, very serious matter and I think all Australians would be genuinely concerned. Now this is why we have got a commission that is going on to have a look at it. It hasn’t finished yet, it can’t make any conclusions until it reports, we should all wait to see what the report is, but if the Commissioner finds that people rorted the UN Oil For Food Programme to get money knowingly or recklessly to the Saddam Hussein regime it will be a matter of severe concern I think for all people in Australia.

LAWS:

Okay, but as the situation stands right now, how much damage to the relations between Australia and the United States has there been?

TREASURER:

Well nothing has been found yet and we should await the outcome.

LAWS:

It appears that the Government misled the US Congress two years ago when it claimed the Australian Wheat Board was squeaky clean, it wasn’t, was it?

TREASURER:

Look, some evidence has been put before Commissioner Cole which has raised serious questions but I am not going to pre-judge the finding, I will wait and see what Commissioner Cole says. But I will make this point: if anybody did rort that programme and funded Saddam Hussein then it is a disgrace.

LAWS:

And what would result from it?

TREASURER:

I would think they would be prosecuted and if they were to be prosecuted they would be subject to conviction and penalty.

LAWS:

Would that penalty include jail time?

TREASURER:

I think it could John.

LAWS:

Okay, thank you Treasurer very much for your time, as usual it is always good to talk to you and thank you.

TREASURER:

Thank you very much John, Bye.