Transcript No. 99/26

Hon Peter Costello MP

Interview with Neil Mitchell, 3AW

Wednesday 14 April 1999

8.30 am

SUBJECT: Tax reform, Australian aid workers, international economy, PM’s residence,

Grollo Tower, aid workers, Timor, Budget, football

First money, the GST, the Budget, both coming to crunch time. In the studio with me the

Federal Treasurer Peter Costello. Good morning.

Good morning Neil.

Now the GST first, and building argument that there needs to be more compensation,

particularly for pensioners. Will there be?

Well, it would be different if somebody had identified a group that were worse off. If

a group were worse off as a result of the tax changes we’d certainly look at that.

But the thing is that every analysis that’s been done has now come to the same

conclusion: that as a result of the tax changes there’s no group that will be worse

off.

Professor Neil Warren’s analysis?

Professor Neil Warren’s analysis …

One of your supporters for so long.

Well, no, Professor Neil Warren’s analysis which was contracted by the Labor Party

and the Democrat Senators came to the conclusion that there was no group worse off.

Well, does he not say in yesterday’s Financial Review, those groups who are …

the second group who are suffering, those who are neither taxpayers nor welfare recipients

are largely forgotten. Third the compensation package may work in the short term will fail

in the long term. It is not adequate.

Well, he finds that …

This is the bloke you’ve quoted as support.

No, well his analysis found that there was no group worse off. That’s his finding.

He then goes along and says well why don’t we increase pensions. Well that’s

another argument. But as a result of the tax changes, nobody has identified a group that

is worse off. No demographic. You can’t identify them by income level. You can’t

identify them by occupation type. This has been gone through more than any other tax in

Australian history and nobody has yet identified a group that is worse off. Now …

But is it not true pensioners are effectively marking time, if wages advance at a

higher rate, pensioners 25 per cent tied to average weekly earnings, the compensation is

irrelevant. They’re ahead of it.

What happens is if GST puts prices up, pensioners have an increase more than the price

change, right. So they’re better off. Pensioners are actually better off as a result

of tax changes than they will be if it’s defeated. Let me make that point. The way to

get an increase in the pension is to get this tax package through. Now people ..

… because you’re going to have to pay more

Yes but you get a greater rise in your pension than prices go up. That’s the

point. Now, people then say oh well what happens in the future if wages go up faster than

prices. If wages go up what our Government has legislated is that pensions will go up in

proportion to wages as well. And that means that they’ll be even better off, the

pensioner will be even better off if the pension becomes driven by wages rather than

prices.

But the compensation package becomes irrelevant then doesn’t it?

Well, because they’ll be even better off.

The ACOSS, you said nobody’s identified anybody who’s worse off. ACOSS claims

they’ve got one million families who would be worse off. One million. Will you look

at them?

Yes, well that’s what they claimed until they realised they’d left out the

family tax benefits. That one million figure was produced by them overlooking the family

tax benefits. Let me just go through what the family tax benefits are because it’s

very important …

But just before you do that … but surely the simple point is, you say nobody will

be worse off …

And that analysis was flawed. ACOSS now concedes that analysis was flawed.

You say, am I right, nobody will be worse off?

Nobody has identified any category of person by occupation, by wage level, by welfare

group that will be worse off as a result of the tax changes. Now …

What about self-funded retirees? Where’s their benefit?

Well for self-funded retirees, well let me go through it. They get income tax cuts.

They get excess imputation credits. Let me explain what that is. At the moment a lot of

self-funded retirees will have shares. If they’re paid a franked dividend that’s

taxed at 36 cents in the dollar, but many of these retirees don’t pay a marginal tax

rate of 36 cents in the dollar. Most of them …

Many of them aren’t paying much tax.

That’s right. Mostly they’re on 20 cents.

We’re not getting a lot of benefit from any change.

Well they lose the 36 cent tax that’s being franked on their dividend. We’re

introducing refund of excess imputation credits so they’ll get that back. So a third

thing for the self-funded retirees is Aged Persons Bonus. If you’re living off

interest you’ll be getting a bonus in proportion to your earnings off interest. And

of course the fourth thing in relation to aged persons which has been incredibly

beneficial is from 1 January, which we’ve already introduced, the 30 per cent rebate

on private health insurance.

So are you confident in saying, in very simple terms, nobody will be worse off?

I can go further than that. I can say that most Australians, nearly all Australians,

are much better off. It’s not just a question of nobody being worse off, as a result

of tax change, the overwhelming bulk of people will be better off, that’s number one.

But number two, the country will be better off. Now I want to make a point about tax

But what about number three: will nobody be worse off?

Yes, of course. I’ve said that many, many times.

… inaudible …

You haven’t identified, nobody has identified …

Forget identifying …

Nor can you identify, nor are we able to identify, and that all leads to the one

conclusion that there is no category of person that is worse off. What’s more, most

people are much better off and thirdly the country, the country is streets in front of

where it will be if we don’t reform our tax system.

OK. Does that mean you’re not looking at Brian Harradine’s argument for an

extra $100 million?

Well, look, I always look at what Brian Harradine says for this reason …

Why? You just told me nobody would be worse off.

For this reason, that if Labor and the Democrats are against tax reform, you can only

reform anything in this country with the support of Brian Harradine. We did everything

possible. We went to the electorate. We won an election. We put the policy out there.

We’re trying to introduce it.

So is he going to get his $100 million?

Well he’s got an argument about another matter actually, it’s not about the

tax, it’s about this youth allowance. I think that’s what you’re referring

to.

Yes.

Now, the fact that Brian Harradine asks for something doesn’t mean we do it. But

you said do you look at what Brian Harradine says: I always do. When he has a bad argument

we don’t follow it. But if he ever has a good argument we give him a decent hearing.

Why? Let me tell you why.

Because you want to get it through.

Because at least he’s open minded. And we want to get reform …

You’re trying to buy it through.

We want to get reform through in this country. I mean Labor and the Democrats are

against everything so we never listen to anything they say because they never change their

mind. They don’t have an open mind.

If somebody, if you can be convinced that there is a group worse off – and a lot

of people are claiming it, including I would say Professor Warren – if you can be

convinced that there is a group worse off, will you look at changing the compensation

package.

I’ve, we’ve always said we would make sure that low income earners were

protected and we have. If we’d have been wrong about that we’d have looked at

it.

… inaudible … if somebody comes forward and convinces you.

Well, Neil, you know, we put out a policy, we go through an election, we’re

re-elected. You’ve got four Senate Committees, four months, 16 months of inquiry.

The minds are being focused now.

Every single interest group in the country and here we are now in April and every

single analysis shows that this is good for the country. But can I make another point, I

think this is a very important point.

But just before you do because, look, I get back to Professor Warren. He’s been

quoted by the Prime Minister as the GST expert because he supported you often in the past

and we now have him, Associate Professor of Economics, University of New South Wales, says

the compensation package will hit pensioners and low income earners. He says it’s not

good enough. If he’s right will you fix it.

No, he says it’s not good enough because he says they don’t improve as much

as he would like. He says they improve. He says as a result of tax changes pensioners are

better off. That’s what he says. But he says …

He says your package is not adequate.

Why shouldn’t we make pensioners even better off. That’s what he says.

He’s got an analysis, he’s done it demographically, I don’t think his

analysis is the best analysis …

You used to. Or the Government did. How many times have you quoted this bloke.

Hang on. No. Neil Warren was the author of Fightback.

Yes. You thought that was alright at the time.

Well, he thinks we ought to go to Fightback. Now the electorate doesn’t. Nor do I

incidentally. But even if you take his analysis, he says everybody is better off, he says

what about making people better off further. Now let me make this point, because it’s

a big point about tax Neil. Never before in Australian federal political history or State

political history has it been argued that in order to change tax you have to show

everyone’s better off. When the income tax was introduced in 1914 not everybody was

better off. When the capital gains tax was introduced in 1985 the whole object was to make

some people worse off. When the fringe benefits tax was introduced the whole object was to

make some people worse off. When Labor increased all wholesale sales tax rates in 1993 the

object was to make people worse off. When they increased petrol excise it made people

worse off. I mean this is a tax plan which has gone into paths no other tax plan has ever

done. That is, not only are you reforming the tax system but you’re doing it in a way

to make people better off. Nobody yet says that there’s any identifiable category

that they can say is worse off. We’ve had an election on it. Six States and two

Territories have agreed with the Commonwealth Government to introduce it and we’re

sitting around saying this all depends on one or two Senators because the Labor Party and

the Democrats don’t recognise the outcome of the election. Now, let me ask you this

question, what happens if tax reform doesn’t go through in this country?

No, no.

Let’s start asking that question.

OK, well look you’re going to have to ask that question, if you look at the polls

54 per cent, the latest poll say 54 per cent opposed to it. Do you accept you’ve got

a bit of selling to do yet?

Well, Neil, go and do a poll on how many people support income tax.

Yes but that’s different. I mean we’re talking about a significant

Why is it different?

We’re talking about a significant change and it’s been …

No, the point I’m making is …

As you said, much discussed. It’s been discussed and turned inside out and 54 per

cent say no.

The point I’m making is this: if you ask a poll of the Australian public on

whether they support any tax, you’d get resounding no’s.

Is food untouchable?

And the fact that you can get a poll like that on that particular tax reform by asking

that question, is quite high. Let me tell you the real question …

Is food untouchable?

You ought to be asking. You ought to be asking …

… inaudible …

You know which is this: do you support income tax cuts? Let’s see how far the

polls …

Well, do you believe you’ll be better off under a GST, a lot of people don’t

believe they would be.

It’s not just GST. Hang on … the GST

… part of it …

The GST is part of funding income tax cuts, family tax benefit increases, reforming

Federal/State relations, streamlining tax collections in this country. You ask about one

side of the package. You should be asking are you in favour of the other sides of the

package too?

Is food untouchable?

Yes, because look …

Totally?

If you take food out of this package you blow a $5 billion hole through the package

I understand that but we’re in this sort of negotiating time. How many balls have

you got in the air?

So, we won’t be doing that you can’t add $5 billion on to the cost of tax

reform without driving the Budget into deficit. The probably impacts in relation to

interest rates and the economy generally. And all of the economic effects that that would

have. You just can’t do it.

So how many balls …

And it’s silly anyway. Well that’s not one of them.

What are they?

And one of the great questions is how do you define food? It’s easy to say. I mean

when you say to people what’s food, you say, well let’s say for example: is

Kentucky Fried Chicken food? They say no that’s takeaway. So, well what about a

chicken which is cooked in Safeway, is that food or is that takeaway. They say well,

it’s takeaway, you know if you buy it to take it away. What about if it’s been

cooked in Safeway and cooled down? Is that takeaway or is that food? And they say, what

some of these European jurisdictions say is oh well, well it must be food if it’s

cooled down. So you know what happens then, you have tax collectors going around with

thermometers sticking them into chickens trying to work out what their temperature is

because if it’s a high temperature it’s takeaway and taxable, and if it’s a

low temperature, it’s food and not taxable. So if you want an army of tax collectors

in your supermarket sticking thermometers in chickens let’s try and sort of exclude

food from the GST.

Well what balls are in the air at this stage, you said that’s not one of them,

what are the balls in the air?

Well, obviously when Senator, if Senator Harradine wants to come to us and make

representations we’ll listen to them. Let me tell you one of the balls that was in

the air up until last week: it was a claim for compensation from Queensland and Senator

Mal Colston came to me and he put a case and I had a chat to him about it. There was some

strength in the claim. Queensland wasn’t given the totality of the claim, it

wasn’t even given half, but it was given something and I think we’ve got that

ball out of the air now.

OK. We need to take a quick break here, we’ll come back with more from the Federal

Treasurer, Peter Costello.

The Treasurer, Federal Treasurer, is with me, Mr Costello I read there’s a new

funding deal coming for non-government schools in the Budget. Is that right?

Well, I can’t confirm or deny anything in the Budget as you know before Budget

night and I’m not quite sure where you read that.

Bulletin today.

Did you? But what I think I can say to you is the quadrennium is coming to an end,

that’s four year period for funding schools.

Good, I was wondering what a quadrennium was.

It’s when you win four race horses, four race meetings in a row, no that’s a

quadrella. No the quadrennium is coming to an end and so the Government is looking at what

it will be doing for the next four years.

So we can say that there’ll be a review of the funding situation.

Well it has to be reviewed, the four year period is coming to an end and we’ll be

looking at what to do in the next four years.

Now the Grollo Tower isn’t going ahead. I know your good, close, personal friend

Peter Reith had a flat down there. Did you have one as well?

No I didn’t. No. I was never really a big rap for the Grollo Tower

architecturally.

So are you glad it’s not happening.

Look, I’d quite like Melbourne to have the highest building in the world, I think

that would be a feather in our cap, but architecturally it didn’t appeal to me. I

think you could do something better than that.

So where will the residence be when you’re Prime Minister?

Well the residence of the Prime Minister will be The Lodge in Canberra as it always is.

What about this idea of a residence for the Prime Minister in Melbourne, whoever that

may be?

I think there’s something in it. There’s a residence in Sydney as you know,

and one in Canberra. And if you want the Prime Minister, you know, to have a base and get

the Prime Minister down more I’m sure having a residence would do it. I don’t

think the Government’s going to put any money towards it. But if somebody was in the

position to donate a property, and I saw that, you know, there was some suggestion of

that, you’d have to look at it I suppose.

You wouldn’t buy one though?

You wouldn’t spend money on it no because, you know, there are other priorities.

But suppose somebody came along and said I have this residence I will donate it to you, it

will be available for a Prime Minister to stay in Melbourne I think it would be a good

thing for Melbourne actually, because you’d get the Prime Minister in Melbourne more

often. And Melbourne’s a great place to live.

The Prime Minister has said not while he’s there will there be a residence in this

town.

Well, I think what he said was that we wouldn’t be spending any money on it, and

nor will we be. But I think for the long term point of view, of Victoria having a

residence would be a good thing and if it didn’t cost any money, if it was given by

gift or something, you’d probably look at it then.

How are you getting along with Jeff Kennett. He gave you a hell of a payout last week

as a Victorian Minister, or a Minister from Victoria. Might as well not have you there.

Yes, and then he went on TV on Sunday and said he didn’t mean it and he was just

getting worked up for the Premiers Conference. I think I said at the time it’s the

kind of thing you expect the Premiers to do on the eve of the Premiers Conference.

It’s kind of, it’s a funny thing to watch them you know. It’s like sort of

deep down in the back of their brain there’s this program that says Premiers

Conference coming, please attack Canberra now. And one by one they all come in and one by

one they all say this is the worst thing that’s ever happened to New South

Wales/Victoria/ South Australia/Tasmania, you know just sort of use the word from the

program here. And then on the way out where you get an agreement, which we did, a

fantastic agreement – six States, two Territories and the Commonwealth all agreeing

on tax reform – they all came out and said, oh I really didn’t mean it.

What will the war in Europe do to the world economy long term do you think?

I don’t know that the war will have an effect on the world economy. I don’t

know that it’s an economic issue. It’s a terrible humanitarian disaster as you

know. But I think what’s going to be driving the world economy in the next year is

obviously US growth.

Is anything going to stop it? I know Terry McCrann keeps describing it as a runaway

train.

Well, the world stock markets are stronger than they’ve ever been. You know the

Australian stockmarket has been closing at all time records day after day. The US economy

is still strong. The Australian economy is strong. I was going to go on and say in the

world economy whether Asia recovers and the pace of Asian recovery is going to be the big

factor in the next couple of years and in particular Japan. Japan has had I think five

quarters of negative growth and there is not any sign of recovery of the Japanese economy.

Now, for the second largest economy in the world this is going to be dictating world

economic prospects for quite some time.

Do you expect a correction this year?

In Australia?

Mmm.

Well, I expect that the Australian growth will slow. We’re growing at 4 and three

quarter per cent which is the fastest growth in the developed world. We’re

outstripping the US, all of Asia, all of Europe. I don’t think growth will be up at

those 4 or 5 per cent levels, I think there’ll be a slowing. But if the slowing comes

back to 2 to 3 per cent that will be a fantastic outcome. Because if the Australian

economy slows to 2 to 3 per cent that means we’re slowing to a growth rate in front

of Britain, France, Germany, Japan, nearly all of the developed world which would be a

terrific outcome.

The Budget, I understand you’re not going to tell me what’s in it, but what

will be the philosophy of it. I mean, if you were writing the headlines now, what is the

philosophy of the Budget we’re going to look at? Is it tough? Is it, how does it

approach?

The philosophy will be firm line. Australia stays in surplus. Australia leads the world

in debt reduction and Government delivers election mandate.

What will it do to me though? What will it do to me, or the people listening now, how

does it affect them? Other than the GST, which they know, how does it, does it get tougher

for them? Does it get easier for them? Is the money spent where they need it?

Firm line and what it will do for them I hope is keep the Australian economy growing,

interest rates low and jobs growth continuing. The funny thing about jobs is that when

you’ve got jobs growth and unemployment falling as it’s been over the last year,

sort of people switch their focus off unemployment. And that’s good if we can keep

jobs growth going unemployment now is lower than it’s been for the whole decade of

the 90s and I think we could make further inroads.

Just back to international relations. Do you think there’s anything else that

Australia can do for the aid workers who are facing the spying charges?

We’re doing everything we can. We can assure the Australian public we are doing

everything we can. This is a ridiculous charge that’s been put against them. There is

no grounds for holding aid workers at all. These are people who are there trying to help

in a very humanitarian way and the idea that you could trade on these aid workers for a

cessation of NATO activity is preposterous. Australia is not even a member of NATO. And it

is just absolutely preposterous that you could try and bargain on an aid worker in

relation to a military activity of which Australia is not a member. And we’re making

representations and we’ve got Malcolm Fraser making very strong representations and

again we call on the Government to release these humanitarian aid workers.

MITCHELL:

Timor is another area which is starting to look very difficult. Now I know I’ve

talked to the Prime Minister about us moving sort of troop bases in a sense up to the

north and that’s going to have to be paid for as well obviously. But what do you see

happening in Timor.

Well, we think that it’s quite clear that as Indonesia withdraws and there’s

going to be Timorese autonomy it’s going to be hard for the Timorese to get that

country moving. Australia will have obligations in relation to aid and we will probably

have obligations in relation to peace and security. It is on our doorstep. We have a very

major interest. And again we hope for a very peaceful settlement. If there’s not a

peaceful settlement it will be a big problem for the Timorese and Australia will be

expected to play its part.

OK, well thank you very much for your time. I just wondered, I should, quick one about

ANZAC Day. How come the other States are taking the ANZAC Day Monday off? I mean I know

it’s not a Federal area but it’s a strange thing to do isn’t it?

Yes, it is. As I understand it we celebrate ANZAC Day on ANZAC Day here. And I think

that’s the right way to do it. It usen’t to be the case of course . In Victoria

we used to have a holiday, you can recall those holidays.

Sure.

But I think we’ve moved to celebrating it on the day as we have with Australia Day

which is I think the right approach. But it’s a State issue as you say.

Looking forward to the Budget?

Yes.

Did you get a good holiday?

Yes, the Budget’s on the 11^th of May and I think the Saturday before

our football teams play each other.

Very well, how much?

You name the price.

Well you’re the man who’s running the gambling inquiry. Would you bet on

camel racing?

I don’t know a thing about camel racing. How do you bet on camel racing.

If you bet on football, you bet on anything.

Well, one of my colleagues always said to me once, he said never bet on humans because

at least you know with horses they’re trying.

The Treasurer, Peter Costello.