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Inflation, Company Tax, Call Centre, Pensions, GST, Food Prices, Tasmania, Government, Rollback, HIH insurance, First Home Owners Grant

Transcript No. 2001/034



Hon Peter Costello MP


ABC Radio, Burnie, Tasmania

Interview by Ross Peddleston

Wednesday, 11 April 2001



SUBJECTS: Inflation, Company Tax, Call Centre, Pensions, GST, Food Prices,

Tasmania, Government, Rollback, HIH insurance, First Home Owners Grant


Peter Costello, good morning.


Good morning (inaudible)


Well take talk back calls very soon but I have got some questions to put to

you, by the way, if you would like to speak to Peter Costello, then the number

is 1300 361 688. We have limited time so call straight away, 1300 361 688,

to talk to Treasurer, Peter Costello, and put your concerns to him.

Lets put a couple of questions which have been raised very much in the news

in the last couple of days. It was interesting that Stan Wallis, no left winger,

that is the Chair of the Coles/Myer, said this morning, or in our AM program

this morning, saying that the GST is causing what he calls distortion in the

retail market. That there is a form of price control through the ACCC, and

that, what he called the pressure cap on inflation, would have to break sometime,

and that we will have then an inflation breakout. What is your response to



Well, I think most consumers would think that it is a good thing…


Well I wouldnt think that an inflation break out is a good thing?


… that it is a good thing, you know, that there has been restraint, and that

is the way it works and consumers…


But is it inevitable that that price cap will break?


Well, you cant have it both ways Ross. You cant say, (inaudible) put our

prices up more, but, I (inaudible) restraint. (inaudible) report from the Competition

Commission recently, talked about the way in which many prices have actually

decreased because of GST. If we were still operating under the old tax system,

the price of fresh food would be higher today, if we were still operating under

the old system the price of many toiletry goods would be higher today and so

in very significant areas the New Tax System has brought prices down and the

best news of course, is if you happen to be in work you have had income tax

cuts, so you pay much less income tax than you would have been otherwise.


Interesting that you should mention employment. You are in the region, one

of the regions in Australia that has the highest unemployment in Australia.

Youth unemployment at disastrous levels and you have got a situation where

Saul Eslake, from the ANZ, said, far from having an unemployment figure with

a five in front of it, by later this year you will have an unemployment figure,

nationally, with a seven in front of it. That will mean in Tasmania and in

this region, probably an unemployment region with something between a ten and

a fifteen in front of it. Is that not a failure of policy on your Governnments



Well, lets suppose you had unemployment at 7 per cent, lets suppose (inaudible)

its what 1.5 per cent lower than it was when the Government came to office.

Lets put this in perspective. Since the Howard Governement came to office

there have been 800,000 new jobs created, (inaudible) ….saying, oh well,

you might plateau at only 800,000 new jobs. But, politics is the business of

comparing what would have been otherwise, and if Labor had remained in office,

what we now know is there would have been 800,000 less jobs.

Now, let me come onto the point here in Burnie, where unemployment is still

too high, and we have got to make sure that we continue to work to give people

job opportunities. What is good for creating job opportunities? Well, low interest

rates is going to help, that is a big part of it. Reforming the tax system

is going to help. On 1 July we cut company tax, it is good for companies.


People in this region dont care, Treasurer, people in this region dont care

about the macroeconomic setting that you are talking about. They want real

action, specific action, that will help them and their community.


I will come to that in a moment. I think, can I just explain why it is important,

I think, for cuts in company tax because you want companies to employ more

people, and this is why people should care. The money has got to come from

somewhere doesnt it? And cutting company tax is one of the most important

things you can possibly do to boost companies so they can employ more people.

Now, let me come to something specific. One of the reasons I am here today

is the last time I was here was in 1998, and one of the things I announced

here in Burnie, when I was here in 1998, was that we would establish a call

centre. I said that we would establish a call centre to give more work opportunities

here in Burnie. Today, I am going to go down and I am going to visit it. We

established that. True to our word, I think it has created some 40 to 50 additional

jobs here in Burnie and it is a classic example of something concrete, tangible,

on the ground, promised and delivered.


Okay. There is plenty more for me to ask you, but we would like to take some

calls. Can you put your headphones on, Mr Costello, and we will take some calls.

And our first call is from Charles in Hobart. Charles, good morning.


Good morning. Good morning Mr Costello.


Hello Charles.


Look, I have got a fairly simple point here that I wish to make, is that I

am a pensioner on a fixed income. Despite everything that you have expounded

my pension, with increase, is going far, well, its not going anywhere anymore.

I have far less money, I am buying food for far less than what I used to buy

before in quantity, quality, and yet you keep saying that everything is supposed

to be getting better. Im afraid, from my point of view…


…(inaudible) come to the situation…


Im not, I am considerably worse off.


Well let Peter Costello have a say.


Can I say in relation to pensions the way in which we work pensions now, Charles,

is we either index them to the movement of prices, that is, if prices go up

3 per cent, we move the pension up 3 per cent, or, and this is something that

our Government introduced by legislation for the first time, we move them in

accordance with earnings and we index the pension to 25 per cent of earnings.

Now, because earnings have been increasing faster than prices over the last

4 years, we have actually been increasing, indexing the pension to those earnings

and it has been going up in excess of the consumer price index. But, that means

that pensioners have been fully protected against price rises, in fact, pensions

were increased 2 per cent in real terms from 1 July. And the other thing, I

think, is of great interest to pensioners is we have also increased, introduced

a 30 per cent rebate on private health insurance recently. So, whereas 2 years

ago, if you had private health insurance you had to pay the full insurance

premium, today you can get 30 per cent of the price back.


In our Burnie studio today is Treasurer, Peter Costello, this is ABC Tasmania,

and it is nineteen minutes to eleven. Mr Costello, not with us for much longer

so we will move straight on and Helen is next. Hello Helen.


Good morning. Good morning Mr Costello.


Good morning Helen.


Look, we know nobody likes paying taxes. I mean that is the reason I gave up

cigarettes many, many years ago.


You were wise to do so.


I know.


You would be paying a lot more now if you were still smoking.


Well, I wasnt very enamoured with the particular Treasurer we had that time,

so I thought, right, that is one I dont have to pay him.


One of the reasons we kept putting tax up on cigarettes was to try and discourage

people from smoking, so there is a case of where it works.


Right, the reason I did ring. There seems to be an awful misconception going

on about the GST and the effect on food. Now, we live on a pension, so we have

got to watch our cents, to (inaudible) the dollars, we dont see many of the

dollars, its the cents that we see. And yet, I was speaking to one of my daughters

up in Queensland and she was bemoaning the other night about the cost of groceries

since the GST came in. And I happened to look at mine and I said, look, it

is hardly anything. I have got one here for $74.67, of that $1.91 was GST.

People have got the idea, because groceries are definitely going up Mr Costello.


Sure, well, actually in relation to food there is no GST on food, so you will

often hear people say, oh, food has gone up because of GST. There is no GST

on food so it cant be GST, that is the one thing we know. But, food prices

go up for a whole host of reasons, some food prices went up recently because

there were floods in northern New South Wales and Queensland, which affected

the price of fresh fruit. Meat is going up at the moment and one of the reasons

why meat is going up, I was in Albury yesterday and I was speaking to a farmer

who said that he was selling fat lambs today for $120 a lamb, and a decade

ago he was selling them for less than $2 a lamb. Now, one of the reasons meat

is going up is we are getting better exports overseas, you have had an outbreak

of foot and mouth in the United Kingdom. Australian farmers are getting very

good prices on the international markets and the price is going up in Australia.

Now, people will turn around and say, well, I paid more for my meat it must

have been GST. There is no GST on the meat, but the prices can move for all

sorts of reasons.


But, Mr Costello, there is a GST input into the industry. I mean, transport

pays GST, packaging pays GST, this is not a simple equation is it?


There is no GST built into food because business gets all of the GST back.

That is the whole idea, no business pays GST. If you are in the transport business

you get your GST back and right down the chain every business gets their GST

back and if the product is GST free there is no tax in the product. That is

why, when food became GST free the price fell because under the old tax system

of Wholesale Sales Tax and indirect taxes, it got built into the price. All

of the studies showed that food actually fell. Now, the determinant of a price

in a market is not just tax, you know, you can assess the tax change from the

30th of June to 1 July and after that all sorts of other factors

start taking over. Some of the factors that are affecting food today, I talked

about the meat price, it might be (inaudible). The fact that the world oil

price has gone up and diesel now costs more, that will get built in, but, not

tax. And the one thing you can say about GST, is the price today of fresh food

would be higher, all other things being equal, if the tax system hadnt been



Lets move on and take another call very quickly. Stan is on the line. Gday


Sorry, my apologies, I have mis-heard the name, it is Pam. Good morning Pam.



Good morning. Look, Mr Costello, I have been hearing that David Crean, he is

saying that the GST is bad for tax, but, from my memory, didnt all the states

have to sign signatories to establish the GST when it first, you know, put



Oh, yes. No, this is a very good point. All of the states agreed and last Friday

week we had a meeting Canberra to decide the allocations of GST revenue between

all of the states. And Mr David, Dr David Crean, was up there in Canberra trying

to get as much GST revenue as he possibly could…


And he wont be in the black until 2007 – 2008.


Let me come to that in a moment, Ross. And although his brother is the Labor

Party Treasurer, who runs around Australia, the Shadow Treasurer, who runs

around Australia saying he would like to have a GST rollback, Dr David Crean

never once asked for a rollback. No Labor State Treasurer ever asked for a

rollback, they just couldnt get enough. Now, I want to finish this point.

Every dollar of GST revenue goes to the states, every single last (inaudible),

and here in Tasmania, the amount that will be going to Tasmania is over $1

billion, over $1 billion of GST revenue. Now…


But, lets come back to that point, the, by the State Governments figuring

it was going to be in the black for this new system, it was actually going

to get more money from this new system by 2006 – 2007, it is a year later.

2007 – 2008, until Tasmania will be better off than it is at the moment?


Well, let me come to that. Tasmania in 2000 – 2001, is going to get $1 billion,

$61.5 million of GST revenue. In 2001 – 2002, Tasmania will get $1billion,

$107.6 million in revenue…


The impressive figures….


No, let me finish, let me finish. Tasmania gets more GST revenue per head of

population than any other state, and you recall that Victoria and New South

Wales went to that conference and said you are giving Tasmania too much. Now,

Tasmania gets the best possible deal. That $1 billion of GST revenue, now funds

the salary of every school teacher, in every classroom, in every school in

Tasmania. If you are going to roll it back you are going to have to start taking

teachers out of classrooms, which is why Dr David Crean never asks for rollback.

He asks for more.


Dr Crean has surely has got to do the best he can out of the system that is

in place? He is not going to ask for something which is impossible under the

present Government.


Well, of course he has got to do the best (inaudible), and what is the best

he can do? The best he can do is by keeping GST in place. If Dr Crean thought

it was better for Tasmania to rollback the GST and get less money, and start

taking teachers out of classrooms, dont you think he would be saying it? He

has got his brother running around trying to engage in populist politics, saying,

you know, we will roll back the GST, when you hear that what it means is less

teachers in classrooms, less police on the beat, and they will be making the

money up from somewhere else, including higher income taxes.


It is coming up to ten to eleven here on ABC Tasmania. Now, I know, Treasurer,

that you have got another commitment to go to, so, we will leave the calls

there because there are a couple of other brief questions that I wanted to

ask you, specific questions.

Tasmanian business is, or there is some sections of Tasmanian business, looking

to be in serious trouble when it comes workers compensation insurance, because

of the collapse of HIH. $30 million worth of commitments in Tasmania, especially

for companies that took on the responsibility of self-insuring for workers

compensation. They think that part of the problem is the failure of the federal

regulation system which left a major company and a major re-insurer go under.

Now, do you feel responsibility for that? Will you make a financial contribution

to industry in Tasmania to help them get over that problem?


Well, first of all, when you say will you make a contribution, I dont have

money. The only money a government ever has is the money it takes from taxpayers.

So, your question really is, do we think other taxpayers should put in money

to help out a business that failed.


The Government spends taxpayers money, are you prepared to spend the Governments

money to get Tasmanian business over this situation, which is no fault of theirs,

and they say is the fault of the federal regulation system which you oversee.


Well, I am just telling you to answer your question, (inaudible). But, again

you said, will you spend Government money and the only point I made is there

is no such thing as Government money. There is only taxpayers money. That is

the first thing. Governments dont make money. Governments take from taxpayers

and they give to other people. So, the question is, do I think that we should

put taxpayers money in this situation. What I think is this; we have a prudential

regulator called the Australian Prudential Regulation Authority. It is charged

with regulating these bodies and at the moment it is discussing whether or

not these policies will be passed on to continuing insurers. But, a provisional

liquidator, and the provisional liquidator is going through that company and

saying do we have assets that we can realise to honour those policies. Now,

I hope that between the provisional liquidator and the prudential regulator,

that they can solve the problem and I certainly would not be looking at putting

taxpayers money into a company until all of those revenues have been explored

and exhausted.


That might take quite some time?


They are working on it, I cant tell you. These are professional people who,

you know, we have got, what, a provisional liquidator, we have got regulators

on the other hand and they are looking through it. I cant tell you when they

will report but they ought to exhaust all of their remedies before anybody

talks about stepping in because at the end of the day, as I said earlier, where

Governments step in for failing businesses, they are not stepping in with their

own money, they are stepping in with other taxpayers money.


A couple of final, very quick questions. The State Government is administering

the Home Owners Grant that you are giving out. They come through the State

Government, the Tasmanian State Government tells me it still doesnt have the

letter outlining what the eligibility criteria are, so it cant actually give

out money. No State Government has the letter from your Government telling

it, telling it the eligibility criteria so it can give out money. You have

made a lot of political play about the Home Owners Grant, why havent the eligibility

criteria been passed on?


I think the letter they received was on the 9th of March…


They say they dont have the eligibility criteria.


Well, they have the letter, I have got a copy of the letter. They have the

letter, it was sent the day of the announcement (inaudible), the Prime Minister

to the Premier…


And that gives them enough information to start giving out money.


…and that gives them enough information to start giving out money. All they

have to do, by the way, is give out money which is re-imbursed to them

by the Commonwealth and frankly, they should put a bomb under their bureaucrats

and start getting it out. The funny thing is when we introduced the $7000 grant,

Dr David Crean was running around handing out the cheques because he thought

it was politically popular. Now he has got the opportunity to hand out $14,000,

re-imbursed, fully re-imbursed by the Commonwealth, I suggest he puts a bomb

under his bureaucrats. I read in one of the papers today, one of the States

was saying, oh, we havent printed our forms yet. Now, I dont know how long

it takes to print a form, you know, maybe they could type one up and photocopy

it, but, make it available. The $14,000 is available now, and I will tell them

the conditions of eligibility, it was in the letter that they were sent last

month. The conditions of eligibility is anybody who is eligible for the First

Home Owners Scheme, wants to enter into a contract between now and the end

of the year is going to be eligible, provided they start construction within

the period of 16 weeks, is going to be eligible for a $14, 000, non-taxable

grant. Get in there and ask for it, dont take no for an answer, and the States

ought to put a bomb under some of their bureaucrats and photocopy the forms

so they can get it out to the applicants.


And finally and very briefly, when will you decide about the Shell takeover

of Woodside which is a difficult political problem for you?


Its, look it is a very complicated one. The Foreign Investment Review Board

is still looking at it. I think the decision has to be made before the end

of the month, so I imagine we will decide before the end of the month.


We will leave it there. Peter Costello, thank you very much.


Thanks very much Ross.