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National Accounts: December Quarter 1999
March 15, 2000
Labor’s tax chaos
March 18, 2000
National Accounts: December Quarter 1999
March 15, 2000
Labor’s tax chaos
March 18, 2000

Ministerial Council, Telstra


Transcript No. 2000/26


The Hon Peter Costello MP



Parliament House

Friday, 17 March 2000

1.10 pm

SUBJECTS: Ministerial Council, Telstra


Well, today’s first Inter-Governmental meeting on the reform of Commonwealth-State

financial relations was a very productive and positive meeting. It was the first meeting

of State Treasurers and Commonwealth Treasurer to discuss the reform of Commonwealth-State

financial relations, which involves revenues from goods and services tax going to State

Governments, and to discuss the amounts that will be going in accordance with the

relativities of the Commonwealth Grants Commission. It’s certainly a much more

positive framework then the old Premiers Conference framework, and there was really no

issues in dispute as to the amounts that would be given to the States under the

arrangements of the GST. I’m pleased to say that the State Treasurers of both

political persuasions were cooperative, have a determination to implement the New Tax

System, and are working towards the goal of the reform of Commonwealth-State financial

relations. I’ll be releasing this afternoon the amount of the allocations to each of

the States under the agreed formula. And now that we have an agreed formula it’s

taken a lot of the argy-bargy out of this particular argument. And long-term, not only

will tax reform give Australia a better taxation system, but long-term the States will be

in a better financial position because they’ll be getting revenues from goods and

services tax.


Treasurer, there’s two things. The States, first of all, they say, that under the

new GST deal that they’re going, some of them aren’t going to be better off from

the GST until 2007. And the second thing is, they’re very upset about the cuts to

specific purpose payments, and they’re talking about legal action . . .


Well, I’ll be . . .


. . . for breach of contract.


. . . I’ll be releasing the actual allocations after the conference, but there are

some States that will get additional revenues from GST, as you say, later on, I think, in

relation to New South Wales, 2005, some that will be a long way ahead, as early as next

year, Queensland, 2001, will be in front. Now, the fact of the matter is, that all of the

States would’ve been further in front at an earlier period if the Senate had passed

the Government’s legislation. And it’s a point that’s not lost on the State

Labor Treasurers, I can tell you. Because as I pointed out, when the Australian Senate

altered the Government’s tax policy, it took $6 billion out of the States’

revenues. It took $6 billion out of GST, it took $6 billion out of the State’s

revenues, and that left the States worse off than they could’ve been if the policy,

which this Government took to the people and was elected on, was enacted in full. And the

Labor Treasurers acknowledged that it was the blocking tactics of the Labor Party in the

Senate that altered the GST base, and it means that although they are all as well off as

they would’ve been under the old system and will all be better off than they

would’ve been if the old system had continued, it’s going to take some of them a

longer period to realise the dividends. And I think that they made it entirely clear to me

that they took a pretty dim view of the way the Federal Labor Party had been operating.

And I pointed out to them that if a rollback strategy were ever implemented, instead of

them being better off after four years, they probably wouldn’t be better off after

forty years.


So where’s the . . .


A proposition . . .


. . . $750 million?


. . . a proposition which none of them demurred from. I don’t think you’ll

find very much support for a rollback out of the State Labor Treasurers and Premiers. Now

in relation to, you asked me about Specific Purpose Payments, in relation to Specific

Purpose Payments, there are no cuts to Specific Purpose Payments. The Specific Purpose

Payments, as we said in the Inter-Governmental Agreement, are not being reduced as part of

tax reform. Now, let’s go to the Health Care Agreements because that was also raised.

In relation to Health Care Agreements, the increase in funding in the Health Care

Agreements over their five years from 1998/9 to 2002/3, the increase in nominal terms is

38 per cent, in real terms 25 per cent. That’s the increase under the Health Care

Agreements. That is the largest growth in Commonwealth funding for Health Care Agreements

that there’s ever been. Now, you can always say, as some of the State

Treasurer’s do, what, only a 38 per cent increase. You know, we’d like more than

a 38 per cent increase. But, I tell you what, if I was getting a 38 per cent increase in

nominal terms, I’d be pretty happy.


Why is the Commonwealth breaching the Arbitrators decision on health funding?


The agreement in relation to health funding had several indexes. It had a population

growth in ageing, it had a utilisation, and it had a cost index to be developed which has

never been agreed on. Now what the Commonwealth has said is, in the absence of the

development of that health output cost index, the Commonwealth will apply the index which

it applies to itself – the wage cost index – which is, we believe, the appropriate index

for costs in hospitals. Not the Consumer Price Index, it’s the cost of running a

hospital, not the cost of buying consumer prices which is the appropriate index.

That’s always been our position. It’s the index that we apply to ourselves.


But didn’t the Commonwealth agree to this arbitrator?


The Commonwealth, in its agreement, agreed to a health output index which has never

been agreed with the States. We have been unable to get that index. In the interim,

because that couldn’t be agreed, an arbitrator came in with a CPI decision, and a CPI

decision is not the appropriate index, self-evidently. Hospitals aren’t buying

consumer prices. Hospitals aren’t out there buying – you would index a pension to a

Consumer Price Index because a pensioner is buying goods in a CPI basket, they’re

buying their petrol, they’re buying their confectionery, they’re buying their

food. That is not the way costs are driven in hospitals. In hospitals costs are driven by

wage increases, which is why the appropriate index is the wage cost index, which is what

the Commonwealth applies in relation to itself.


Now the States are wanting a meeting with the Prime Minister on this issue. What do you

think about that?


Well as I said, we had a long discussion about health today. This was actually a

meeting to discuss the implementation of the New Tax System, and because there was such

agreement on that and that agenda finished, we actually managed during the course of the

morning to have a discussion about health as well. And as I said at the meeting, that just

as I was quite happy to listen to their views on health, if any Premier wants to put their

views to the Prime Minister, I’m sure he’d be very happy to hear them.


The States say Mr Costello, that you haven’t accepted the recommendation of your

own review, Mr Castles, the former statistician, and instead of getting CPI plus a per

cent they’re actually only getting 1 per cent in real terms, is that true?


What they’re getting in real terms is . . .


Each year.


Well no. What they’re getting in real terms over a five year period is a 25 per

cent increase, and in nominal terms a 38 per cent increase. So let’s . . .


So what’s that on an annual basis?


Well in 1998/99, it’s a real growth of 11.45 per cent, in 1999/2000, 3.52 on that,

and the next year 1.93 on that, and the next year 3.2 on that, and the next year on that

3. And that’s in real terms. A 25 per cent increase in real terms. This

increase, I mean, you can say, and look, you know, if you wanted to make the point, you

know, that you’re in Canberra, you could say, oh, only a 25 per cent real increase.

The State Treasurers would say, you know, only a 25 per cent real increase. A

25 per cent real increase . . .


But Mr Costello . . .


. . . in health funding is, well, is just an increase which is way out of proportion

and more generously than anything under the Medicare agreements.


But didn’t Mr Castles know that?


These increases are substantial increases. And not only is there a cost increase, but

as I said earlier, there’s a utilisation increase, there’s a population and

ageing increase, and in addition to that, the root cause of the health problem in

Australia, which is the decline in private health insurance which means more people are

using public hospitals, is being addressed by this Government with a $1.3 billion rebate

for private health insurance, so that for the first time ever we look like we could be

stopping the exodus from private health insurance and turning it up. And may I say again,

this point is acknowledged even by the Labor States, acknowledged that for the first time

this Government is doing something about private health insurance, and that’s another

$1.3 billion that’s being put into the rebate system.


(inaudible) no breach of the agreement then, 18 months ago, so there’s no breach

of that agreement?


There’s been no breach whatsoever of the Inter-Governmental Agreement, which we

are here to discuss. In relation to healthcare funding, the Commonwealth is observing the

promised grants, which it promised, which is a 25 per cent real increase.


Can I ask you another topic? Apparently Moody’s has downgraded Telstra’s

economic outlook rating from stable to negative, and it’s all to do with, they

won’t get, with the full sale of Telstra (inaudible).


Well look, I haven’t seen the announcement, but let me make this point, that

Telstra is a company which is now privately owned as to approximately 49 per cent, and

Telstra would as a company be able, I believe, to fulfill its mandate and operate better

if it were entirely in private ownership. And subject to guarantees of standards and all

the like, which can be set by legislation, that is the Government’s policy. Now, if

Telstra is going to be caught in this position where it’s half privately-owned and

half Government-owned, I don’t think that is going to be a good outcome. Telstra

should all be either privately-owned, or if people really think that nationalisation and

Government ownership is necessary they ought to have the courage of their convictions and

nationalise it. If the Labor Party really believes that you need a nationalised

telecommunications company, I don’t understand why it doesn’t nationalise the

lot of it. And the economic point is, that Telstra is now in this position, well we know

why it won’t nationalise the lot of it, because it’s a laughable proposition.

Telstra ought to be put in a position where subject to community safety standards, and

subject to service standards, and subject to access standards, which can all be set by

legislation, it has the opportunity to perform efficiently.