Labour Force Figures, OECD Report, WMC, Budget – Doorstop Interview, Canberra

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Labour Force Figures, OECD Report, WMC, Budget – Doorstop Interview, Canberra

Doorstop Interview

Senate Courtyard

Parliament House, Canberra

Thursday, 10 March 2005
12.15 pm


SUBJECTS: Labour Force Figures, OECD Report, WMC, Budget


Well today’s labour force figures are more good news for the Australian

economy. 20,000 new jobs were created in February and actually part-time employment

decreased meaning that full-time jobs that were created in the month of February

were 37,900 new jobs. And in the last year the total number of jobs created

in the Australian economy have been about 325,000 new jobs.

So we have got our unemployment rate continuing at 5.1 per cent, it is the

lowest in around 30 years. We have good participation rates, they are up near

all-time highs. More Australians are in work than ever before and in the month

of February the Australian economy kept creating jobs.

For young people, what this means is that there has never been a better opportunity

to get a job, in fact in the Australian economy at the moment, far from talk

about unemployment, there seems to be a lot more talk about shortage of labour.

Shortage of labour is a good problem to have. It means that people can find

work, that there are more jobs chasing people than there are people chasing

jobs and that is what happens when you get unemployment low. We haven’t

been in this territory as I said for 30 years, but labour shortages, although

it is a problem and it has to be dealt with, it is a good problem. It is much

better to have more jobs chasing people than more people chasing jobs.


So even with the economy slowing down, you would expect jobs growth to continue

over coming months?


Well you have seen, I think the expression that I had was there was ‘oomph’

in the Australian economy. There is still some oomph there because you are seeing

it in relation to the creating of jobs, 20,000 in the month of February. I do

believe however, that demand is slowing and I think the housing cycle is slowing

as well. So you wouldn’t expect in the next year the kind of job creation

you have had in this year. 325,000 jobs have been created in the last 12 months,

you wouldn’t expect that over the next 12 months but it does appear to

me as if job prospects are still good.


So does this jobs growth in February justify the Reserve Bank’s move

last week on interest rates?


I don’t think the Reserve Bank referred to strong employment as a bad

thing, or one of its motivating factors. If you look carefully at what it said,

it said that it believed there was still a lot of demand and one of the things

that it pointed to was high consumer confidence as I pointed out in the House

yesterday. Consumer confidence has certainly turned around in the last month

or so, so that probably indicates I think that demand will slow. But I wouldn’t

want employment to slow, if we can keep the lowest unemployment in 30 years

so much the better.


(inaudible) while there is still some ‘oomph’ as you put it in

the economy, not enough oomph to justify a second round of interest rate rises?


I don’t think we should be afraid of low unemployment. There are people

that say if you get unemployment at 30 year lows that must mean you have got

a problem coming. The whole object of economic policy is to get unemployment

low and you can keep it low in a growing economy as long as you make sure that

your wages don’t break out. If your wages are consistent with productivity

you can keep low unemployment and a growing economy. The only time you get into

trouble with low unemployment is if people say well there is more bargaining

power for wages and if wages get out of whack with productivity, that is when

you start to get worried.


Treasurer, on Telstra, what are your views about operational separation that

has been advocated by the ACCC and by the Communications Minister?


Well I think that it is important that we have a competitive model which allows

people to compete but obviously Telstra is a vertically integrated company and

a lot of people have already bought shares in it on that basis.


Treasurer why are Australians paying more tax than they did eight years ago

when everyone except in Iceland is paying less tax in the developed world?


I am so glad that you asked me that question because I can tell you that the

graph on the front page of The Australian today is unfortunately misleading.

The reason it shows a spike in 2002 is that in 2002 state payroll taxes were

included in the figures for the first time. This appears at page 30 of the text

and I will read it out to you: ‘The increases in the wedge noted for Australia

and Japan in 2002 are also the result of changes in reporting practices. In

the case of Australia, state payroll taxes are included for the first time.’

Now, payroll taxes weren’t introduced for the first time in Australia

in 2002, it is just that the OECD asked to included them for the first time

in 2002. When you include them in 2002-2003-2004, obviously the tax on incomes

goes up. What should happen if you want comparable figures back to 1996 is to

include them in 2001, 2000, 1999, 1998 back to 1996. If you want a graph that

actually does that you can find that, if you want a table that actually does

that in the OECD statistics, you can actually find that. It is on page 94 rather

than page 95. And as the graph on page 94 shows on the two earner married couple,

income tax and employee contributions has fallen since 1996.


Has the tax burden increased since 1996?


Well as I said, as the table shows on page 94, it has fallen.


Are Australians paying too much tax in your view?


Well since we are talking about the OECD the OECD does compare amongst 30 countries

and its revenue statistics show that out of the 30 OECD countries, Australia

is the eighth lowest. And some of those countries that are lower than Australia

are countries we wouldn’t normally compare ourselves with, they include

countries like Mexico, Korea and Turkey. What these statistics show is that

the United Kingdom for example, Britain has a higher tax take. It shows that

the United States is below Australia but Australia of course is below all of

the European countries, the Scandinavian countries and amongst the Anglo countries,

lower, lower than New Zealand, lower than Britain and higher than the United



Are you planning measures in the current Budget to bring down Effective Marginal

Tax Rates?


Well, the current Budget will involve additional tax cuts. I have already announced

those and they will be taking place from 1 July 2005. They were announced in

two stages, the first stage took effect on 1 July 2004, the second stage is

yet to come.


What would be the situation in terms of the regulatory situation if Rio is

to bid for WMC?


Well under the foreign investment rules in Australia, if you are a foreign

corporation you need approval to make an investment of that dimension. Xstrata

made a bid, it required foreign approval, foreign investment approval. BHP has

made a bid, it will have to get foreign investment approval for that bid. Rio

Tinto is also a foreign corporation, it would also have to get approval if it

were to make a bid.


Would the same conditions apply as it would to Xstrata in terms of CEO and



I am not sure whether there are any conditions on CEO and CFO for Xstrata.

There were conditions on CEO and CFO for BHP in relation for its dual listing

of Billiton they were put in place for the dual listing, they applied to the

dual listing. The application for BHP in relation to WMC Resources would be

a separate application and that hasn’t been ruled on yet.


Mr Costello are you concerned that on Government’s own spending is due

to rise about 10 per cent last year which according to ANZ is the highest rise

since the Whitlam Government?


No because if you look at the Mid-Year Review, which actually puts the rises

in percentage terms and produces comparable figures for the years since, going

back the 70s, it was actually lower than other periods and from memory it was

around 3 – 4 per cent.


Just on the OECD Report, are you concerned even without the state payroll tax

that the increased tax slug is being hit hardest on those on low and middle

incomes as compared to those on higher incomes?


No but this is the whole point, you see this is why the story is wrong. When

you put the state payroll tax in for the first time in 2002, the tax take goes

up. But when you have comparable figures, that is the payroll taxes out through

the whole period, the tax take went down. Now, you know, it is the difference

between the two tables…


But the tax take on low income earners versus high income earners, it doesn’t

have to do with payroll tax.


…well the OECD figures try and get comparability between countries and

countries have different ways of taxing income. Let me go through it. In Australia…




…well hang on, hang on. In Australia we have income tax. In many European

countries what they do is they have income tax and they have a thing called

social security contribution which is an income tax by another name. Then in

other countries what they do is they instead of taxing the payroll in the employees

hands, they tax it in the employer’s hands. We call it a payroll tax,

in those countries they call it an employer contribution. What the OECD tries

to do, is it tries to do comparability taking into account all of the components

– income tax, employee contributions, employer contributions. In 2002

it said to Australia, we haven’t been including your payroll taxes, we

will. And when you included those payroll taxes for the first time in 2002 you

got the spike which The Australian graph showed. But the payroll tax

wasn’t introduced in 2002, what should have been done is they should have

gone back and put it into all of the figures back to 1996. What in fact they

did was they put a footnote, and I don’t blame anybody for this, and it

took me a while to read the report myself and to find it, and they put a note

on page 30. So there you have it.


What are the chances of new additional tax relief in this Budget?


Well there will be further tax relief in this Budget, there will be tax cuts

coming into effect from 1 July…


But beyond the measures that you announced a year ago.


…well hang on, these measures have to be funded in this Budget along

with increases in outlays. Now, one of the things we have to do in this Budget,

we have to set aside $1 billion for Tsunami relief. We will have to set aside

additional funding in relation to election promises. Now, in this Budget what

we have got to do is we have got to bring all of that together and fund tax

cuts and we will be doing so. Thank you all very much.