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Final Budget Outcome, Tax Cuts, GST, Health Spending – Interview with Maxine McKew, 7.30 Report


Interview with Maxine McKew

7.30 Report

Wednesday, 30 September 2003

SUBJECTS: Final Budget Outcome, Tax Cuts, GST, Health Spending


Treasurer, not a bad pre-election position to be in with these figures.


Well, the Budget came out in surplus, and that is really a story about

what happened in the year ended 30 June, we’ve moved into another financial

year, we hope to keep the budget in surplus, we have heavy defence commitments

and heavy drought assistance commitments, but we are one of the few countries

in the world that is in surplus and keeping the Australian Budget strong

has been a big part of keeping our economy out of recession.


So what do we do with that surplus? When do our pockets start to feel

heavier with the tax cut you are going to give us?


Well, we cut taxes on 1 July of course and we are now 3 months into the

financial year and that tax cut is overall about $2.1 billion, that is

in the current financial year…


But that is the sandwich and milkshake tax cut of $4, isn’t it?


…well, it is $2 billion. To give you an idea of the numbers involved,

if you cut annual taxes for average wage earners by $200, which we did,

all up, that is about a $2 billion tax cut, which has come into effect

on 1 July.


Sure, but as it turns out you could have been more generous, I mean you

underestimated receipts by $3.6 billion, why was that?


Well, company profits were stronger in the year ended 30 June than we

forecast. It has been a very profitable time for Australia’s companies,

the company tax rate at 30 per cent as a consequence has delivered more

revenue, that is one of the reasons why we have been able to cut income

taxes – strong companies, strong growth – and as a result we have been

able to fund all of our commitments, which included the war in Iraq,

drought, the difficulties in relation to SARS, and still come out in

front, which is a pretty good result.


Treasurer, how much of that higher revenue would you think is repeatable,

by the way?


Well, this is the forecasting business Maxine, that was the outcome for

the last financial year, finishing on 30 June. We now have to make an

estimate, don’t we, as to what company profits will be in the current

year, up until 30 June 2004. This is the forecasting business. If we

can keep our economy strong, those profits should maintain, but we have

got a very difficult international situation, the drought is not yet

over, and all of that will have to be factored in to the estimates that

we make.


Even so, what about the tax cuts?


Well, we have cut taxes this financial year…


I know…


…if you let me go on…


…but what about looking ahead to next year?


…well let me go on. This is the principle that we laid down in this

year’s budget: if we can fund our decent expenditures, if we can maintain

our troops in the field with the support that they require and our domestic

security and balance our budget, then we should return to the taxpayer,

by way of cutting taxes. That’s what we did this year, that principle

will be good for any future years, if we happen to get into that situation.


You say we should do it, will you do it?


Well, if we can maintain our troops in the field, if we can have just

expenditures in the health area, if we can overcome the international

downturn and SARS, and fund a drought, and keep our budget in balance,

if we had some money over at the end of that, my preference is always

for reducing taxes. Bear this in mind too, we are also going to continue

with our overall tax reforms and the next tax to be abolished is the

bank account debits tax.


What about the taxes that have been piling up though? I mean the Opposition

says since 1996 the average family has paid $8,000 more in federal taxes.

The GST, bracket creep, the sugar tax, the dairy tax, you could go on

with all the specific levies, it is not bad from a reforming taxation



Well, we have done the greatest tax reform in Australian history. And

incidently Maxine, we…


And you have got the revenues to prove it.


…we were fought every step of the way, every single step of the way,

weren’t we? And what has the Labor Party now done Maxine? Came out a

week ago and it said it now supports GST.

After all of that effort, after everything we went through, two elections

in this country, after the blockages in the Senate, guess what? Labor

supports the GST. The only thing I say about Labor’s economic policy

is this Maxine, we had the decency to argue it and to put it into practice,

they opposed it all the way, and now they want to take the benefit of





…I tell you this we will continue, we will continue reforming Australia,

because we want to lead.


OK, Treasurer, there is a Newspoll today though that shows Labor and

the Coalition level pegging on the two party preferred vote, you don’t

think that might be because some Australians are feeling that they have

got the blunt end of the stick. They have got a GST, as they see it,

minimal tax reform, and declining services.


No I don’t think that is the case Maxine. The reality is this, let me

go through it. All GST revenue is received by State Governments. Can

I just make this point? Not $1 of that is received by the Commonwealth,

that is spent by the Victorian, the New South Wales, the Queensland,

the South Australian, West Australian, Tasmanian, Northern Territory

and ACT Governments, right? All of it, every single last dollar to provide

their services. What the Commonwealth has done after introducing that

system, is it has actually reduced its income taxes, a strong economy

has delivered strong revenues, if we can have decent services and balance

our budget, then of course we want to keep on reforming Australia’s taxation



Treasurer, of course the other part of the argument will be, apart from

those who will say, yes we should have the tax relief via another tax

cut, there will be those who will say of course in the run up the next

election that the surplus should be directed towards significant national

investment. And one would have to say you could do a lot to support our

universities and our public hospitals with that extra $3.6 billion.


Well we have just negotiated a new public hospital agreement which is

increasing spending by 17 per cent.


Which doesn’t satisfy one single State Premier.


I have never come across a State Premier in the history of Federation

that didn’t want more money.

Now, every one of those State Premiers now has total GST revenue, and

a 17 per cent increase in health expenditure. It is our job to fund decent

social services, to balance our budget, and to keep Australia strong

and I am absolutely focused on that.


But Treasurer, are you convinced that average families feel that services

are being properly funded. Don’t you think many of them feel they are

paying higher education bills and higher doctor bills?


Well Maxine, you know, you have just had a number of questions insinuating

that taxes should be lower and now a number of question insinuating that

expenditure should be higher.


Well I am saying…


You can’t have both.


…no I am saying this…


No you can’t have both Maxine.


…is going to be contestable. This is the contestable ground…




…people feel they are not getting tax relief but they look at their

expenditure side and they are paying more in bills.


And what is the question?


Well the question is, do you understand the predicament of average families?




You’re saying that the States are getting all this revenue, families

are looking at their household expenditure, and what they pay to you

in revenue, and don’t feel they are getting much back.


Well the answer to your question is absolutely, and I make this point,

we think it is important to fund decent social services. We have had

an increase in funding for health, we will maintain our troops in the

field, whether they have been in Iraq or are still in East Timor or the

Solomon Islands, we will balance our budget, and if at the end of the

day, we can reduce taxes as well, we will, but we will only be able to

do it if we can keep the Australian economy strong.


Just finally Treasurer, the last time you spent down the surplus, that

was the run up to the 2001 election, plenty of constituent groups were

bought off there, but did that contribute to sustainable national wellbeing?


Well Maxine, the Australian economy grew in the last financial year,

it grew whilst the American economy went into recession, Japan was in

recession, most of Europe was in recession, look up at Singapore or Hong

Kong, these are economies that are contracting, the Australian economy

continues to grow. It doesn’t happen by accident, it is not a fluke,

it takes a lot of management. And the fact that we can continue to grow

means that we can have decent services, and if we can balance our budget,

lower taxes.


Treasurer for that, thank you.


Thank you very much.