Doorstop Interview

Asian Development Bank, Sydney

Wednesday, 3 August 2005
11.45am

SUBJECTS: Interest rates, Telstra, NSW Government, taxes, Child Care rebate,

Future Fund, Consumer Confidence

JOURNALIST:

Well Treasurer, the Reserve Bank kept interest rates on hold. Are you expecting

a prolonged period of stable interest rates going forward?

TREASURER:

Well the decision today to keep interest rates on hold indicates that the economy

is continuing to grow solidly but with low inflation. Because inflation is low,

then our interest rates have been low and whilst inflation is kept low, they

will be kept low. My impression is that with solid growth continuing into the

future, providing that we can manage emerging issues, we should be able to keep

inflation low in the future. That is consistent with giving people certainty

in relation to investment and particularly business certainty in relation to

growth. That is the way we would like to keep it.

JOURNALIST:

Is setting up a trust fund for rural Australia relating to the sale of Telstra

one of those emerging issues?

TREASURER:

Well the point I make about any proposal for spending money is that it has

to be consistent with national economic objectives and it has to be financially

responsible. We didn’t get to a situation of balanced Budgets, low inflation

and low interest rates by fluke but by hard work. If we give up the hard work

now, then we can put those objectives at risk. So whatever is done in the policy

area has to be consistent with national economic objectives, and that is my

focus.

JOURNALIST:

But do you oppose a trust fund?

TREASURER:

Well as I said, these matters will be discussed inside the Government but the

decision must be consistent with national economic objectives. Australia is

not a country that just runs itself with endless resources. We have to make

sure that we make good and financially responsible decisions and the pay-off

for that is low inflation and low interest rates. If you give that game away,

then you give away the benefits of good economic policy.

JOURNALIST:

The new Treasurer and Premier in this State has axed the vendor tax. Do you

have a response to that and do you think he is defying you by not cutting stamp

duties?

TREASURER:

Well he has cut a tax that should never have been introduced. Really, the vendor

tax should never have been introduced and finally the New South Wales Labor

Party has accepted the inevitable and gotten rid of something that should never

have been introduced in the first place. So, better late then never, that is

the first point. It was totally misconceived, it was introduced at a time when

the market was cooling, it was unnecessary, it was counter-productive and it

never raised the revenues that it was supposed to raise. Now, having gotten

rid of a tax which should never have been introduced, what should the New South

Wales Government do now? It should look at cutting the taxes which are replaced

by the GST. That is what it should be doing. It should now turn its attention

to stamp duty on mortgages which is going to be replaced by the GST by every

other State and it is time that New South Wales accepted the inevitable in relation

to that as well. Let’s not have another debacle like we had on the vendor

tax where they take years to accept the inevitable. Let’s see the New

South Wales Government continue with a new mood of realism by abolishing stamp

duty on mortgages.

JOURNALIST:

Would you look to reforming the GST distribution if the new Premier looked

towards abolishing some more of those taxes?

TREASURER:

No the taxes are to be abolished on the basis of GST which is paid to the New

South Wales Government. A record funding, higher than ever before…

JOURNALIST:

But not a fair distribution, they say.

TREASURER:

…higher than ever before in the history of the Commonwealth.

JOURNALIST:

Is New South Wales holding back the Australian economy?

TREASURER:

Well New South Wales has been mismanaged badly under the Carr Government and

as a consequence of that, that has held back the Australian economy, not to

a large degree because the States have a more minor effect on economic policy

but to a degree yes. If New South Wales were managed better then New South Wales

growth would be higher and national growth would be higher. Now, I don’t

want to overstate this, I don’t want to say that the State Government

is the major determinant of economic policy in Australia, plainly it is not,

but it has an influence and to the degree it has an influence it has been a

negative one here in New South Wales.

JOURNALIST:

Treasurer do you think we have seen the peak in interest rates for now and

could they be falling next year?

TREASURER:

I never talk about future movements in interest rates.

JOURNALIST:

Mr Costello, you suggested that assistance to the rural sector as a result

following the sale of Telstra may pressure interest rates. I haven’t found

any analyst, any market analyst who says that a $2 billion trust fund would

have any implications for the interest rate outlook in this country, it would

be insignificant.

TREASURER:

What I said was financial mismanagement would pressure interest rates and it

will. And try asking every analyst in Australia, would financial mismanagement

of the Australian economy pressure interest rates – the answer is yes.

JOURNALIST:

(inaudible)?

TREASURER:

No, hang on, hang on, you managed to ask them another question no doubt determining

to get that particular answer. Could I suggest to you that a more accurate rendition

of my comments would have got a more accurate answer?

JOURNALIST:

Well I asked them whether a $2 billion trust fund would put pressure on interest

rates, $2 billion in spending, and they said no.

TREASURER:

Well that is a very interesting answer to an interesting question but let me

direct you to what I said. Financial mismanagement in this country will put

pressure on interest rates and for the last nine years we haven’t engaged

in financial mismanagement and we are not going to start it in the next year.

The reason we are not going to start financial mismanagement in this country

is the consequence of that will be higher interest rates. A point I think that

you would get a near 100 per cent approval rate to. It just shows you, if you

want a particular answer, just think of a question and you will get there. Congratulations

to the ABC on the issue.

JOURNALIST:

On the Future Fund, has the Government made any decisions on when it is going

to appoint directors and have you approached any candidates?

TREASURER:

Well the Government will be introducing legislation in this next session of

Parliament to establish the Future Fund. We will then be appointing directors

once the fund is established and obviously, yes, we are considering possible

appointees at the moment.

JOURNALIST:

Treasurer, the Child Care Rebate, is that going to continue to be paid on a

delayed basis and never at the end of the financial year as suggested by The

Australian this morning?

TREASURER:

It will be paid on tax returns as when it was announced in December of last

year.

JOURNALIST:

So this year will be the only…?

TREASURER:

No, no, hang on, it will be paid on tax returns. Unfortunately The Australian’s

story that there is some change is wrong. This was announced last year and

is being delivered as announced and I regret to inform you that any suggestion

that there has been a change in the policy from the way that it was announced

last year is wrong.

JOURNALIST:

What about parents that do keep their records in order, can they claim for

a rebate in the year that they pay the fees?

TREASURER:

The way in which you are going to claim a rebate on tax is on your tax return.

This is the way you do claim rebates on taxes by the way. You know when you

have self-education expenses you claim them on your tax return. Now, what happens

in relation to childcare is the following. You pay childcare, at the end of

the year you assess your eligibility for the childcare benefit. The childcare

benefit reduces the net amount that you pay in relation to childcare. Once you

have got the net amount you can claim that on the tax return and get a 30 per

cent rebate. It is done in arrears. It is done in arrears because until such

time as you have reconciled your childcare benefit you don’t know what

your net amount is. Once you get your net amount you will claim it against your

tax. Now, I have always said it will be done in arrears. It has to be done in

arrears because until such time as you have had the reconciliation of the benefit,

you don’t know what your net out of pocket is, therefore you can’t

calculate the 30 per cent rebate on a net amount out of pocket. This is a point

I made entirely clear when it was announced in December of last year, that is

why there has been no change on that announcement.

JOURNALIST:

On IR Treasurer, there is a bit of confusion about what exactly the package

will, the details of the package will be. Are you concerned that the kind of

uncertainty might lead to it being watered down or implemented piecemeal?

TREASURER:

Well look, the Government has announced the direction that it intends to go

and is now preparing a Bill to put that into legislative form. The Bill will

be available in October and hopefully passed through the Parliament this year.

Now it is true, until such time as you pass the fine print of the legislation

you are going to have arguments about how the legislation applies to this situation

or that situation, but I do believe that the direction of the policy is known.

JOURNALIST:

What do you think of (inaudible) Retail Sales figures yesterday?

TREASURER:

Well look, I think consumer confidence is still robust. I don’t see any

evidence that there is gathering heat in relation to retail spending. It is

quite possible that a big influence in the factors you saw was the bringing

forward of sales and half yearly clearances, but we will get a better fix on

that next month. Thanks very much.