Interview with Laurie Oakes

Sunday, 2 July 2006

SUBJECTS: Federal-State relations, tax

OAKES:

Mr Costello, welcome to Sunday.

TREASURER:

Thanks, Laurie. Good to be with you.

OAKES:

The Sunday Age this morning has got an extraordinarily long feature on the Liberal leadership again. So I thought we had better get that out of the way before we move on to portfolio matters. You seemed to say on radio the other day that if John Howard decides to stay another term he has your full support to do that. Is that right?

TREASURER:

Well I made the point that no one has worked closer with John Howard than I have over the last 10 years, and it has been a very successful government and I am very focused on what I am doing. As for the matters in the future, I think that they will be worked out over time. But I am not being distracted by them.

OAKES:

The new electoral boundaries in New South Wales have made Mr Howard’s seat more marginal. Did you raise a glass to the electoral commissioner?

TREASURER:

I have no influence over the Electoral Commissioner, I can assure you of that. I think the redistribution probably makes our task a little harder in New South Wales. And that means that at the next election, as we front up, we can’t just be looking at trying to hold seats. We have got to start winning some, and we will certainly have to win some others in other states.

OAKES:

Will you need John Howard to run in Bennelong to win that?

TREASURER:

Well look, what happens with John Howard obviously is a matter for him. He has held that seat now probably for well over 30 years, he hasn’t been defeated yet and I have no doubt that the electors of Bennelong value him as a member. But this is all speculation, these things will be worked out in due course and there is no point in being distracted by them.

OAKES:

The Sunday Age in that piece I mentioned quotes a recent comment by New South Wales Liberal MP Jackie Kelly, a former minister, and she says, “You know western Sydney is important to John Howard. I don’t know where I would be in a Costello government, whether they would value the burghers of Lindsay. What is your answer?

TREASURER:

Of course. There is no doubt that as somebody who has been Treasurer now for 10 years, I think the proof is in the pudding. What do I do in relation to policy, low interest rates, balanced budgets, more jobs, better education, better health. People in Lindsay know this. Under my economic management, instead of paying interest rates over 10 per cent, they are paying interest rates of around seven per cent. They know that there are 1.7 million new jobs. They know that their unemployment rate has dived. They know that there has been an improvement in relation to education funding. They know that their family tax benefit has increased to over $4,000 per annum. They know that under the most recent Budget which I announced they are getting tax cuts as of yesterday. And the proof is in the pudding. The standard of living for people in Western Sydney, and not just people in Western Sydney but in the suburbs of Brisbane and Melbourne and Adelaide and Perth and Hobart, is very, very considerably better than it was 10 years ago, and that has been hard, sustained economic activity and it is that activity that we have got to lock in if we are going to give better opportunities for the people of Western Sydney in the future.

OAKES:

Well you grabbed that free kick. But doesn’t the comment of Jackie Kelly’s and comments like that suggest you are seen as very Melbourne and you have a Sydney problem and if that is the case, how would you solve that as PM — spend time at Kirribilli House?

TREASURER:

I represent an electorate in Melbourne. It is my duty to represent my electors, and I will. But to say that therefore you are not interested in New South Wales and Queensland and Western Australia and South Australia and Tasmania is completely wrong. As a national figure, and you know I have been the Treasurer of the country for over 10 years — my duty is to every single person in this country and that is what I take seriously and it is silly just to say that somebody’s electorate is in one state so they don’t care about the other states. That is no more true of me than it is true of John Howard to say that because he represents Sydney he has got no interest in Melbourne or Brisbane. Patently not true. I represent Melbourne. That doesn’t mean I have got no interest in Sydney or Brisbane. Patently untrue. As a senior minister, you have got dual duties here. You have got a duty as a Member of Parliament to your own constituency but you have got a national duty and I have never squibbed national duty, Laurie. Never have, never will.

OAKES:

Okay, well people are learning more about what you believe in outside the narrow Treasury portfolio. You gave a speech in Sydney on Monday setting out five key challenges for the century, and the first one – and probably the most important – was making federalism work. Now I assume if you were rewriting the Constitution now you would eliminate the states?

TREASURER:

If you were starting with governance arrangements for Australia today, you wouldn’t start where we now are. What we now have, is we have six states, which originated as six colonies, that federated within the framework of a great empire — the British Empire. Now as the empire has faded, the colonies joining together have given rise to a new consciousness. It is the consciousness of nation, of Australia. And an independent Australia, not an Australia within the Empire but a nation conscious and proud of itself. So our consciousness today is very different to what our consciousness was in 1901. Now, for constitutional reasons, we have states and we always will have. We have got to re-cast the way in which the Commonwealth deals with the states to bring it into modern reality. The states now no longer perceive themselves as sovereign colonial governments or even, indeed, sovereign independent governments. They are much more working within Commonwealth direction and I think we have to re-cast our arrangements to take notice of that.

OAKES:

You said the other day that the states increasingly were branch offices. As they become branch offices, won’t that involve some re-jigging of the distribution of GST revenue and general financial arrangements?

TREASURER:

Well this is my point. In 2000, the states were given the largest financial free kick since the Second World War, certainly. A growth revenue of GST. It was my hope that they would take the revenue and that it would give them newfound independence. They have taken the revenue, but the rhetoric hasn’t changed that much. Whenever there is a problem, the Commonwealth is blamed and asked to step in. Now my point is that having given them the opportunity with the growth revenue to, as it were, become more independent, that opportunity having been missed, it looks to me as if the movement is now going to be in the other direction.

OAKES:

Including the money, the movement of money. Will the Federal Government need to take some money back to cover the new responsibilities?

TREASURER:

I am not foreshadowing that. I would like the states to take the money – and we are talking about $37 billion per annum – it is not an insignificant amount and take responsibility in key critical areas, and use that money in key critical areas. The old blame game, the finger pointing that is over. Nobody is interested in that any more. I would like the states to take the revenues and take responsibility, let the Commonwealth get on with its areas of responsibility, and the federation improve its cooperation because it is bedevilling every area. Whether it is health or whether it is education, every area is now bedevilled by the problem of federalism. It is because our constitutional model was good for 1901 but it needs improvement for 2101.

OAKES:

The Federal government has used the corporations power to take over industrial relations. Are there any areas now that the Federal Government can’t move into if it wants to, given its the corporations power and its power over the purse strings? For example, can’t you now control things like gambling, ports, uranium mining, universities, hospitals, private schools, charities, just about anything at all?

TREASURER:

Well I would like the Federal Government take complete responsibility for the Australian economy. That I think would be in the nation’s interests.

OAKES:

(inaudible)?

TREASURER:

Let’s go to one of the points you mentioned, ports. See the Commonwealth doesn’t own a port, doesn’t control a port, and yet the ports are the lifeblood for our external relations and our international trade. I think the Commonwealth should have appropriate regulatory responsibility for the ports. How can we take responsibility for our export infrastructure and our trading position if we don’t have regulatory responsibility for ports? I think we should have. We had this situation, you will recall, up in Queensland in Dalrymple Bay, Australia’s premier cola exporting port, where delays in the regulatory arrangements cost us about two years of increased income. The Commonwealth didn’t have any jurisdiction to intervene. I think the Commonwealth should take responsibility for the regulatory arrangements in ports. It would be something that I think if the states were prepared to hand that over, it would compliment the Commonwealth responsibility for the national economy, which it should take.

OAKES:

But you could take it, couldn’t you? You don’t need them to hand it over?

TREASURER:

I don’t think we can. We have asked the states if they will allow our regulatory arrangements to prevail and I understand that is still being discussed. Even in the corporations area Laurie, the only way the Commonwealth has been able to take responsibility for corporations is on a reference from the states, and we just got that again recently. So, there is still significant areas where the Commonwealth, which has to take responsibility for the national economy and we do, is limited in its powers. I would like the Commonwealth to take full responsibility for the national economy in relation to tax, in relation to interest rates, in relation to growth, in relation to jobs, in relation to industrial relations. And then I would like to see the states with their large and growing revenue base, take responsibility for other areas – areas like health and education.

OAKES:

Well I had better get on to tax, we are running out of time. Do you expect that people will spend the tax cuts that they got as of yesterday or will they save them because of their concerns about soaring petrol prices and interest rates?

TREASURER:

Well it is a matter for them and when you put money back into people’s hands, they are the best people to judge to know how to spend it. But I would recommend if people can put aside some money that would be good too. So if you can save, I would certainly welcome that but it is a matter for individuals. It is their money.

OAKES:

The NATSEM, the economic modelling group in Canberra, has produced studies showing that there are losers from your tax cuts and family payments system. To quote The Australian, hundreds of thousands of Australians at both ends of the income spectrum, labour under heavier tax burdens than they did in 1996. Now are you concerned that there are losers?

TREASURER:

Well let me give you the actual statistic. The Australian claimed yesterday that a family with two kids between — one aged 8 and one aged 13 — would be $44 a week off worse off. Let me tell you, in fact their real take-home pay is $339 per week more. More. Now, let me tell you how this trick is done. The Labor Party commissioned some research to show that average tax rates can be higher on people with higher real incomes. Well of course they can be. If your wage went from $50,000 to $100,000, your average tax rate could increase. But what they left out of the equation was the fact that the wages are much higher in real terms. In fact the surprising thing with that research was even though incomes have risen in real terms, there were still many people who had lower average tax rates, which proves that not only has the Government cut tax and cut it far in excess of indexation but has for many, many people cut average tax rates, even though their incomes are much higher in real terms.

OAKES:

Do you say there are no losers?

TREASURER:

There are no people who are worse off in all of those cohorts today than they were in 1996 — in terms of real disposable income.

OAKES:

We thank you.

TREASURER:

Thank you very much.