Transcript No. 2000/105

First today, it’s more money, Australia’s rolling in it. The GST, growth in

the economy has brought the surplus up $1.5 billion more than expected to $4.3 billion

dollars. Employment prospects are supposedly improving although it’s a bit difficult

to tell a few thousand workers here in Victoria that. This could be the economic sunshine.

In the Canberra studio, the Federal Treasurer Peter Costello, good morning.

Good morning Neil.

Is it true that Mitsubishi is considering pulling out of Australia?

I don’t know anymore than has been reported in the press. I saw that the

Australian manager, I think he was, said he had no knowledge of it. But what’s being

reported apparently is an interview given to the Financial Times in London and I’ve

heard a reporter describing that but I’ve got no additional knowledge of it, Neil.

Will you be pursuing it?

Oh yes, I’ll make some enquiries to find out what’s happening. Obviously we

want to have a healthy competitive car industry in Australia and we’ll be very

interested to know what Mitsubishi’s real intentions are.

Now if this is the economic sunshine not a lot of people are getting warm. Executive

salaries up 26.8 per cent. At the same time jobs going here in Victoria. Smith Family

report says a lot of people with jobs are still below the poverty line. Are the executives

being greedy here?

Look I look at some of those executive salaries and wonder how the companies pay them

yes I do. Now as somebody who’s Treasurer in the government and sees salaries which

are many, many multiples of the amounts that senior Ministers get paid, yes I do query

what’s going on.

Are they justified?

Well you wonder don’t you? The boards themselves award these salaries and I

suppose the boards think they are but I think many of the shareholders wonder whether the

boards are making the right decisions. I say to the shareholders exercise a bit of clout

with your directors. This is not determined by Government these are private corporations.

Shareholders elect directors, directors set the pay scales and it’s really up to the

shareholders to act Neil.

I was looking at the banks, Westpac David Morgan I think $2.5 million or $2.4 million

to close branches and put up fees.

Well, as I say, you wonder about these salaries. I don’t set them, the taxpayer

doesn’t set them.

Is it opening a gap though? I mean the Smith Family report saying that a lot of people

in jobs who are still below the poverty line and it’s not just poverty it’s a

matter of lower income. Is this gap opening between the haves and have nots in this

country?

Well if it’s the same survey as I saw, was it the Smith Family…

Smith Family yep.

And NATSEM wasn’t it?

Yeah.

They actually reported that the percentage of people living in poverty had actually

declined since 1990, so that was the good news. There’s still people that they found

were living below the poverty line but the numbers had actually decreased over the course

of the 1990’s so that is a good thing. You raised the question of jobs in Victoria.

As we know, there’ve been a couple of high profile collapses and there’ve been

some decisions to take investment out of Victoria to South Australia. Now this is a lesson

for Mr Bracks. This is a big lesson for Mr Bracks in a competitive world he’s got to

keep Victoria competitive. But if you look at the overall national economy, which as

Treasurer I have to do, in the last 4 years in net terms there have been an additional

800,000 new jobs created in Australia.

So are you saying Victoria’s on the nose?

I’m saying that when people make decisions as to whether investment is going to go

say in Victoria or into South Australia they compare the tax regimes and government

decisions do have an effect on that. And I’m making the point that if Mr Bracks and

the Victorian Government aren’t running a competitive economic management other

states will step up and try and steal their investment.

Is Victoria being soft on unions? Is that part of it?

Look, there is undoubtedly a fear in Victoria that since the Labor Government was

elected the unions seem to have had more muscle. They have engaged in a number of wage

campaigns that are not justified on the grounds of economic growth and are not consistent

with good economic outcomes and that is worrying people about Victoria, yes it is.

Ok, well the Australian Industry Group does say the opposite, they say there’s

nothing wrong with Victoria it’s more of a sea change in manufacturing, which is part

of your problem.

Well, there are world factors going on in relation to manufacturing and national

factors. That is true. But when you are competing state by state you’ve got to make

sure you’ve got the best state environment. That’s the point I’m making. If

you want to look at the economy overall, we know that the great growth area of the economy

in recent years has been the service side of the economy. There have been 800,000 net new

jobs in Australia since 1996, our unemployment rate in Australia as a whole is the lowest

in a decade and if we can have another year or two of strong economic growth we can take

that unemployment rate down below 6 per cent. That was the message that I had yesterday.

I’d like to have a look at that in a moment. Just on a specific though, is it true

that you or officials of the Treasury had a meeting with South Pacific Tyres about a month

ago, two months ago?

Well, I certainly didn’t, no.

The Union is claiming that they were told by the company, because 500 jobs went there

yesterday, that a request was made of the Federal Government through you or through your

office for assistance and were told “We’re not into industry welfare”. Was

there any request made for assistance for that tyre company?

Well, Neil I certainly didn’t meet South Pacific Tyres. I don’t know of

anybody in the Treasury who did.

Are you aware of any request for Government help?

I’m not aware of a request.

While we are talking about salaries. Telstra salaries, who sets the salaries for

Telstra executives?

The Board.

Ok. So there’s no Government responsibility for them?

No. Except to say that the Government is a majority shareholder so it has an influence

in the people who are appointed to the Board.

Well, they’re pretty healthy too aren’t they the executive salaries there?

Too right they are.

Well, can’t you do anything about that as a Government?

Well, I suppose the shareholder, the Government could speak to the members of the Board

about it. But you’ll find in relation to companies like Telstra, where there are a

lot of private shareholders, and 49 per cent are private shareholders that the other

shareholders’ views have got to be taken into account too and undoubtedly they want

the best people running their company.

I’d be a little bit surprised if the public shareholders wanted huge salaries

though.

Well, you’ve got to bear in mind the private shareholders. A lot of mums and dads

now own Telstra shares Neil and they have a interest in seeing those shares as high as

possible and the dividends as high as possible. By the way, it’s a reason why there

is no logic in having a half Government owned corporation. The Government gets itself

embroiled in commercial disputes. A corporation either ought to be totally privately

owned, or totally Government owned. The situation where you’re half Government owned

with a 49 per cent private shareholding is, in my view, not the best outcome for the

corporation or the Government may I say.

Now, some of the figures has, the GST has brought in more than expected. How much more?

Well, what we’ve noticed in relation to the GST is what we call a transitional

factor, that it’s taking some businesses longer to claim their input tax credits back

than we expected. They will claim them back it’s just that they are taking longer to

do it, so some of the refunds which we budgeted to pay in this year will be kicked over to

next year. So you’ve got a one off factor, it doesn’t mean that we’ll

collect more, it just means that we’ll collect more in this year as refund claims go

back to next year.

How much of the GST provided out of petrol?

Well, there is GST on all consumption, including petrol.

Yes. We are well aware of that Treasurer.

Well, I’d like to go through petrol in a moment.

Good.

And if people spend more on petrol the probabilities are that they adjust their

consumption to spend less on something else. We don’t think that that actually means

that the overall take of GST will go up.

How much as GST taken on petrol?

Well, the GST on petrol is about 1/11^th of the price.

No, I understand that, but how much revenue has it brought in?

We don’t separately estimate that.

You don’t know?

We don’t separately estimate that. No we don’t.

What about on gas because you didn’t have a tax on gas and now you have?

The way you estimate GST revenues is you say GST revenues will be 10 per cent of the

consumption of goods and services, the total consumption of goods and services in the

economy. Now, consumption in one area goes up and consumption in another area goes down,

but the GST take is on the overall consumption. So….

But given your promises on petrol shouldn’t you be working out how much money

you’ve taken out of petrol, GST on petrol, and how much you previously took out?

Because you promised there wouldn’t be any difference.

Well, what we said, and what we do do is we look very carefully at the excise. The big

argument has been about excise on petrol, right. Let me make this point at the beginning,

the excise on petrol is 38 cents a litre. It doesn’t rise or fall with the price.

It’s 38 cents whether the price of petrol is 50 cents a litre or a $1.00 a litre or

$1.50 a litre or $2.00 a litre, the excise is 38 cents.

Yes, it rises or falls based on the inflation rate.

Well, that’s twice-yearly indexation, and we’ll come to that in a moment.

There are a lot of people that think, oh if the petrol price was 90 cents and now

it’s a $1.00, the excise has gone up. No, the excise has not changed. The excise

never changes.

No, but your bunging the GST on top of your excise, so you’re taxing a tax.

Hang on. So what changes is the world price of oil, right.

Yes. I think we understand it pretty well.

No, no.

No.

Because what was announced yesterday was that far from there being any windfall from

petrol excise, petrol excise collections have actually dropped.

How much?

They’ve dropped in the order of about $40 million.

So how much did they bring in?

So, what they’ve done is that the excise has been the same but consumption has

reduced. So far from there being any windfall in relation to excise collections on petrol,

actually there was a shortfall.

But you can’t argue these figures and then tell me you don’t know how much

GST has taken out of petrol. If you’re going to talk about the tax take on petrol,

you’ve got to be fair and talk about it across all tax on petrol. How much is petrol

tax across the board brought in? Is that up?

Well, there are, you don’t produce a global figure on petrol Neil. What you

produce is what the tax on petrol is, and that’s excise, right, and that has dropped.

And you’re seriously telling me you can’t say how much the GST has brought in

on petrol?

What the GST has got from the total economy, which we believe at the moment is

constant….

Which is how much?

About 23 billion, 24 billion across the whole economy which is constant. And then there

are some people who say, oh well you should take into account company tax on oil company

profits. And what we do we…

I’m not interested in that, I’m interested in what people are paying at the

pump and how much the GST has brought in from petrol at the pump?

That’s what the RACV does, it then says you’ve got to take into account

the…

But we don’t know the answer to that question do we?

Well, we do actually know the answer to the question of the super tax on profits from

oil companies. But the point I’m making is….

The question I’m asking, not the question you’re asking yourself. I mean, the

question I’m asking, which is, do we know the answer to how much the GST has taken on

petrol?

It has taken, this is the answer to your question, 10 per cent on the price times the

volume.

And what’s that?

Well, I don’t have the volume figures because what we do is we estimate total GST

take, which is about 24 billion.

Well, let me put it to you this way. About a year ago, 25^th November last

year Mr Costello told Parliament, “when you equalise out the tax arrangements you

excise or taking the form of GST”. Do you stand by that you are taking the same

amount of tax out of petrol that you were previously?

We reduced petrol excise by 6.7 cents per litre, we abolished wholesale sales tax, and

we introduced the GST.

But the bottom line, do you stand by…

And the effect of the all those arrangements, when they were done, was to get the same

amount of tax.

When they were done. What about now they’ve been done and they’ve been

enforced. Do you stand by the fact that you are not, the argument that you are not taking

any more tax out of petrol?

Hang on, and then the world oil prices arise. So there’s a change because of world

oil prices, not because of taxation arrangements but because of world oil prices.

But you’ve just told me that doesn’t affect the excise.

The world oil price does not affect the excise…

Ok. So it’s the GST.

But as you said, the world oil price, which feeds into values, affects GST, but not

overall collections. What it does is it moves collections from different commodities.

Therefore, are you or are you not now taking more out of petrol in tax than you

previously were?

Not as a consequence of the taxation changes.

But are you taking more or not?

Neil, as a consequence of the taxation changes, no. We had the Australian Competition

and Consumer Commission go through this and the Australian Competition and Consumer

Commission did a very simple survey. It surveyed between the 30^th June under

the old taxation arrangements, and the 1^st July under the new taxation

arrangements. And the survey showed that prices were not moved by taxation. They were not

moved, the taxation changes were properly designed to have no affect on price. What has

happened is something that could have happened at any stage over the last decade,

unfortunately for the world and for Australia it happened in August of 2000….

So the price went up.

…which was the US barrel price, which is set largely by Saudi Arabia and the OPEC

nations increased.

The price went up, therefore you take more out.

The price went up so that the price went up at the bowser, not because of any taxation

changes.

But you take more tax out because the price went up, correct?

You had a value add tax, in relation to GST, which moves in relation to that price.

Yes.

Any chance, I probably shouldn’t waste time asking, any chance that the excise can

be held off or modified in February?

No.

Ok.

The change, I think we’ve been through this a thousand times, the change….

Yes we have. I’m just hoping. I mean, we’re talking about these niceties of

movements and things, the bottom line is people out at the pump are paying more and

it’s hurting like hell.

Well, people at the pump are paying more and it’s hurting like hell.

Yes. You agree?

Absolutely.

And some of it’s you?

No. What can bring it down is the world oil price, the thing that has pushed it up. And

by the way, if the world oil price comes down, of course, GST comes down too, excise

doesn’t move GST does. The thing that can bring petrol prices down Neil is a reversal

of the thing that took it up, which was a tripling of the world oil price. And

realistically Neil, unless you can get that world oil price down, you can’t bring the

prices down.

What about LPG. How much are you taking out of LPG?

Well, in relation to LPG, we don’t have an excise in relation to LPG.

No, but you have a GST, which you didn’t have before.

We have a GST which is 10 per cent on LPG.

I know that. Do you know how many dollars that has brought in?

I don’t have those particular figures, no.

We’ll take a quick break and come back with more for the Treasurer, Peter Costello

in our Canberra studio in a moment.

Mr Costello is in our Canberra studio. The Reserve Bank, Mr Costello, says interest

rates have peaked unless there is a sudden inflationary shock. Do you agree?

Well, I agree with what the Reserve Bank said, yes. That is one interpretation of what

they said.

What’s yours?

Well, I think that as long as we keep growth sustainable and inflation low that will be

consistent with the low interest rates that we currently have. We….

Because we are expecting a higher inflation rate than expected aren’t we?

That’s the prediction in these figures.

No. We are forecasting, inflation at the moment is about 3.2 per cent and we are

forecasting absent the GST changes which we take out of those figures that inflation will

be around about 3, 3 .

Oh, I thought we were looking up to 5.75?

That’s including the GST component, which is the one-off tax changes, which we

take out of the figures and the Reserve Bank takes out of the figures because it’s

not a measure of ongoing inflation, it’s one-off tax change.

So, it doesn’t have an impact on interest rates?

No, that doesn’t. The Reserve Bank has made it entirely clear that it abstracts

that when it looks at inflation, as does the Government.

We were talking about Telstra earlier. Is it right, if Telstra is sold you’d be

looking at a $14 billion surplus, $14 billion within three years?

Well, if the, the Budget is already in surplus, yes. And if you sell Telstra you

don’t use any of that money at all on recurrent expenditure, it just adds, and what

we do with it is we pay down debt. This is a very important point Neil….

Well, paying debt, sure, I was going to say how do we share in it? If there is a $14

billion surplus, other than it being a good way to buy an election, how do we share in it?

We pay down our debt, and when we pay down our debt then we don’t have to raise

taxes to pay the interest bill. This is a very important point Neil, back in the

1980’s when the Labor Party was selling off the Commonwealth Bank and Qantas, they

took the proceeds of the sale and spent the lot of them in the year of the proceeds. That

is, at the end of the year all of the money had gone and the asset had gone too.

But what’s your target? When do you want the debt paid off?

So, what I’ve always said about asset sales is I am not going to spend the money

in the year of the sale because you’ve got no asset and you’ve lost all the

money. What you’ve got to do if you make that sale, is you either get another asset

of equivalent value or you put the money in the bank, you put it in the bank so it’s

there for future generations. And that’s what we do, when we put it in the bank we

reduce our mortgage, everyone gets the benefit. When I became the Treasurer of Australia

we had to raise $9,000 million of taxes just to pay the interest bill. Now, as we get the

mortgage down, and if we eliminated it, that’s $9,000 million less in taxes that this

country needs.

When you became Treasurer, what was the tax bill for the country?

The tax bill?

Overall, what were we paying in taxes?

Well, I don’t have the precise figure here.

I guarantee it’s gone up.

Well, the economy….as a proportion of the economy it has gone down. It would have

gone up in nominal values because the economy has grown so strongly and there are more

people in work, but as a proportion of the economy it has gone down.

Well, what’s your target? When do you want the debt paid off? What is it, $80

billion did you say?

The Labor Party ran up $80 billion right.

When do you want it paid off?

Well, we’ve paid off 50, so we are 5/8’sof the way of undoing

Labor’s damage to the economy and if we pay off another 30 we’d be back were we

were before the Labor Party recession.

And when would you aim to have that 30 paid off?

Well, if Telstra is privatised it can be done much quicker. You could do it within the

next two or three years.

Ok. So that would be the target would it?

Oh yes, that would be a great outcome. Imagine if the Commonwealth of Australia owed no

debt.

See, I’m still a bit baffled by all this though, debts coming down, the

employment’s going up, inflation’s steady, everything you are telling us,

surplus going up. Dollar still through the floor.

Against the US dollar it’s very low. Against the European currencies, the German

mark, the French frank, the Swiss frank, the….

Is the rest of the world as confident as you are about the Australian economy?

Well, that’s what I’m saying, the measure against the US dollar is really an

evidence of the US dollar strength, which has baffled many people around the world over

recent months, including some observations the Governor of the Bank made recently.

Mr Costello, thank you for your time. We haven’t talked about football. What do

you think about Channel 9 trying to poach it from 7?

Well, I suppose it’s a commercial deal. The only thing I say is this, we’ve

got to have games on free to air television so that people can see them, and I hope that

the ordinary football punter isn’t cut out because it goes on pay TV or the internet.

Here, here. Thanks for talking to us.

Thank you.