Interview with Fran Kelly

Radio National

Wednesday, 9 May 2007

7.35 am

SUBJECTS: Federal Budget 2007-2008

KELLY:

Peter Costello, good morning.

TREASURER:

Good morning Fran.

KELLY:

Well Treasurer the rabbit is out of the hat in the Budget last night was HEEF, the Higher Education Endowment Fund. What’s the point of this, it’s a bricks and mortar fund isn’t it?  It’s about money for more lecturers, more classes and cheaper seats.

TREASURER:

Well of course they are funded with recurrent funding from the Budget but I think there has been a general run down in the facilities at our universities.  I think if you compare them with first class universities around the world which have huge endowments, huge endowments, that they have nothing like that.  So to establish an endowment fund, to keep the capital, to make sure it is never spent, the capital is never spent.  But to put down that endowment so that the earnings can be used by the universities is a long term reform.  That money will be there in ten, twenty, thirty, forty, fifty years I hope, a hundred years.  And this is long term reform to engage in capacity building.  In relation to education of course first class facilities, first class students, first class economy, that’s what we want to see.

KELLY:

Well the Shadow Treasurer Wayne Swan on Breakfast this morning says that you have slashed and burned in education and he points out that education spending was 2 per cent of GDP when you were elected and it is now 1.6 per cent that you have gone backwards.

TREASURER:

Yes it is a very tricky claim as you would expect from him.

KELLY:

Is it right?

TREASURER:

No, no.

KELLY:

So why is that?  When you came in you took a large amount of that out of higher education. You have more crowded classrooms, more (inaudible) students.

TREASURER:

We didn’t.

KELLY:

You did.

TREASURER:

In fact what the Labor Party I think complained about was that we did allow universities to take fee paying students.  But we did that because they actually opened up new sources of revenue and bear in mind all of the money that came from fee paying students went straight to the universities.  It has opened up new sources of revenue.  Now the good news is here we are we have set up this Endowment Fund.  I hope the Endowment Fund will be there for a century, long after we are gone.  And we are putting $5 billion in, that $5 billion which we put in Fran doubles the endowment that is currently there for the whole university sector in one fell swoop.  So in 150 years the Australian universities got $5 billion.  Last night they doubled it.  And if we are elected, re-elected, there will be more put in next year and the year after until we have built up to a huge fund.

KELLY:

Is there an amount set aside for next time, next year, will it be another five, another five?

TREASURER:

I have a figure in my mind but……

KELLY:

Share it with us.

TREASURER:

Whoever brings down next year’s Budget and if it is me I do have a figure in my mind.

KELLY:

Who will decide how this money is spent?  How do you ensure that it is (inaudible)?

TREASURER:

We will have an independent committee of experts and they will recommend to the Minister.

KELLY:

And the Minister will be bound to certain recommendations?

TREASURER:

Well the Minister will follow their recommendations I am sure of that.

KELLY:

At the same time you mentioned full paying students, on the one hand you have put enormous money away for future generations to improve the facilities at universities, at the same time you are removing the cap on all full paying student at universities which means ultimately we will have more students that will be paying their way fully paying their way through university.

TREASURER:

No I don’t think so…

KELLY:

If the universities can charge they will won’t they?

TREASURER:

No, because the Commonwealth funds are HECS, or what’s now called HELP places.  We fund so many places, now what the universities can do, after they have provided those Commonwealth funded places, is if they have got room, they can take in a fee paying student.  But if we fund them for Commonwealth subsidised places, HECS HELP places, they have to provide the place, to use our money for that.

KELLY:

Aren’t you also allowing them to take in more students on (inaudible)?

TREASURER:

That’s right we allow them to take in fee paying students and we are allowing them to take in more if they want to.  Now the full fee paying student, they make money out of.  Most of them incidentally come from overseas.  They make money out of them.  The reason they take them in is they use it as a source of revenue.  But they have to provide the places that the Commonwealth actually pays to provide as HECS HELP places.

KELLY:

What we see as a result of what you have said is the ratio of Commonwealth funded student places  (inaudible) change, are we going to see that? 

TREASURER:

Look you might in some courses, you won’t in others.  But if they are taking a private student and the university is not compromising its academic standards, nor deteriorating the position of the Commonwealth funded student, then using that as a source of income the university can actually give a better service.

KELLY:

Treasurer, there are more tax cuts in this Budget, (inaudible) don’t you think people would have appreciated their $16 per week tax cut going toward the (inaudible) on global warming?  I mean $40 billion would go a long way in climate change measures.  Do we have our priorities right here? 

TREASURER:

I think we have.  My point would be this Fran, you can only address global warming from the position of a strong economy. 

KELLY:

Well we have that.

TREASURER:

We have that and we need to keep it.  Let me make this point, developing countries won’t be addressing global warming.

KELLY:

But we haven’t addressed it either in this Budget.

TREASURER:

But for them they don’t have the ability or the where-with-all.  If we keep our economy strong we can address global warming better.  And we can do things like we have done in this Budget, the biggest investment in the Murray-Darling Basin ever in Australian history, the Natural Heritage Trust….

KELLY:

That is not necessarily global warming funds, isn’t that the….

TREASURER:

I think the National Forest Initiative to stop the cutting down of tropical rainforests, the establishment of carbon sinks, rebates for photovoltaic systems in houses so people can actually start powering their houses off the sun.

KELLY:

What about energy, because that $8,000 subsidy is as I understand it is an existing subsidy that we use to have for these measures (inaudible) so we are going back to a subsidy we used to have some years ago?

TREASURER:

Well the system, the standard system, costs about $14,000 of which the Commonwealth will offer $8,000.

KELLY:

Which is what you were offering some years ago.

TREASURER:

Well what happened when it was originally started there was a subsidy but it had to be reduced in order to fit within the program, we didn’t have the money to fund it.  But now that we have the money to fund it we are funding it for $8,000 for a household and a household system only costs $14,000, it’s not bad.

KELLY:

So presumably you are able to invest some money to fund the recommendations from the Government’s Climate Change Report? (inaudible)

TREASURER:

The taskforce is going to look at an emissions trading scheme and recommend in relation to that.  Now obviously we will respond to that, and if you move to an emissions trading scheme then a whole lot of other consequential things will follow.  But we have got to do everything in order and in its place, we have got to get the report first off.

KELLY:

With strong economic credentials and strong growth forecast for next year, 3 and 3/4 per cent, which is significantly higher than this year’s growth, its predicted on average rainfall, have you been taking to God, do you know something we don’t?  And are we now likely to get that rainfall as a result of (inaudible)?

TREASURER:

What else can you do when you are trying to predict what will happen in the next year other than assume average conditions?  If they are better than average there is an up side, if they are worse than average there will be a down side.

KELLY:

What will be the down side then if the rains don’t come?

TREASURER:

Well this year we are in a one in a one hundred year drought and that is about half to three quarters of a percentage point of growth.  Now I don’t think we will be in a one in a hundred year drought and the Bureau of Meteorology says that there will be some rain. But you have got to remember this by the way, even if it rains the drought doesn’t break, it is going to take years before the drought breaks.  But if you have a modicum of rain you will get more production than you got last year, why, because last year was an all time low.

KELLY:

Are (inaudible) no mention of that crisis coming here.

TREASURER:

We are in it, we are in it, we are….

KELLY:

Will inflation (inaudible)?

TREASURER:

We are in a one in a hundred year drought crisis at the moment.  Rural production has fallen by over 20 per cent, by over 20 per cent.  It is right on the floor but when you are looking at growth and you say you are right on the floor even a modicum of rain will pick you up a little bit off the floor.  But you are still way below where you would be in terms of average production.  But what has happened in the Australian economy let me tell you, there is a sector of the Australian economy which is on its knees and that is agriculture.  Fortunately we have a much more flexible economy these days we don’t ride on the sheep’s back.  We are not a one industry country.  We have other industries such as construction and building and wholesale and retail and mining and education which are doing well and the overall effect of those is to compensate for the absolute desecration in relation to the drought and falling production.

KELLY:

Sorry Treasurer we are almost out of time but it is our tax (inaudible) not too happy about the lack of business tax reform, the BCA’s Michael Chaney (inaudible)?

TREASURER:

Of course I have cut company tax from 36 to 30 per cent, introduced full dividend imputation which I don’t thing any other country in the world has.  I’m pretty sure that there is no other country in the world that has divided imputation.  When you compare Australia’s company tax rate to the United States they are much, much less so I think Australia’s company tax arrangements are good.  The good thing for us is that our companies are very profitable.  I don’t think anybody in business would be complaining at the moment so on a reduced tax base with good business profitability you still get decent revenues.

KELLY:

Treasurer Peter Costello thank you very much for joining us.

TREASURER:

Thanks Fran.