Press Conference

Treasury Place, Melbourne

Thursday, 3 February 2005
10.15 am

SUBJECTS: OECD Report; air warfare destroyers.

TREASURER:

Well the OECD has released its 2004 Economic Survey of Australia overnight

and in the course of its survey it notes that Australia has become the model

for the developed world in terms of structural reform and macroeconomic management.

The OECD points out that the economy has an enviable degree of resilience and

flexibility and that Australia as a consequence has had a prolonged period of

good economic performance.

It forecasts continuing growth in the Australian economy accompanied by low

inflation and the Government of course will be publishing its own forecasts

in the course of the Budget but we see good prospects for continuing growth

in the Australian economy keeping it at the forefront of the developed world.

Notwithstanding that, it is important that we continue to keep the economic

reform programme running in Australia. And that is a point that the OECD makes

in its report. It is important that we continue with structural reform – and

can I indicate that the Government remains absolutely committed to structural

reform, much of which has been frustrated by a hostile Senate – but if Mr Beazley

wants to change the policy of the Labor Party and support industrial relations

reform then much of that reform agenda could be put into place more or less

straight away. If Mr Beazley can’t change the position of the Labor Party

maybe we will have to wait until after July of this year.

The OECD also notes that commendable progress has been made towards reforming

tax but issues remain. The OECD says that the priority for tax reform should

be simultaneous continuation of policies which contribute to the lowering of

high effective marginal tax rates and the raising of the threshold at which

the maximum marginal income tax rate cuts in, consistent with Budgetary objectives.

And the Government would agree with that assessment and that it is important

that we continue the steps that we have put in place to improve the interaction

between the tax and welfare system. And we agree with raising the threshold

at which the maximum marginal income tax rate cuts in and we will be raising

that on 1 July 2005.

So whilst this is a glowing report of the state of the Australian economy and

the reform which has taken place to date, it is important that we continue here

in Australia to get on with the reform programme particularly in areas of tax,

industrial relations, welfare reform – with many of the initiatives which

we have already flagged and which we will have better opportunity to put in

place with a better Senate after 1 July of this year.

JOURNALIST:

And what the report is just saying – obviously we haven’t seen it – it

does seem to suggest that the Government is dragging its feet and could do more

to cut that personal tax, that personal marginal rate further. Is that a possibility?

TREASURER:

Well you can see it. It has been released. It is a public document. And I think

most of the media outlets do have a copy. But what it says, it says that, and

I will read you on page 11: “The priority for tax reform should be continuation

of policies which contribute to the lowering of high effective marginal tax

rates”, that’s at the lower end, “ and the raising of the

threshold at which the maximum marginal income tax rate cuts in”. Now

the Government will be raising that threshold on 1 July 2005. We raised it on

1 July 2004. We will be raising it again on 1 July 2005. And we absolutely endorse

the observations that are there made by the OECD.

JOURNALIST:

The issue of the Future Fund is raised. Are you able to give us any more detail,

any more substance about that idea here? Any structure? Have you done much work

on it?

TREASURER:

Well we have done a lot of work on the Future Fund. We announced it as part

of the campaign. I have made statements as to the way in which funds will be

managed through the Future Fund. And I expect to be able to put the final details

on the Future Fund in the context of this year’s Budget in May.

JOURNALIST:

In terms of labour market reform it talks about targeting pattern bargaining.

Is that something that you would be looking at in your industrial relations

reforms?

TREASURER:

Sure, there is no point in taking the industrial relations outcome from one

workplace and then trying to apply it in some kind of pattern across an industry

or across a sector. The important thing is that each outcome be negotiated and

tailored to each workplace and based on productivity in that workplace. And

we want to encourage that and our industrial relations reforms will take steps

to continue encouraging that.

JOURNALIST:

Treasurer I think the (inaudible) Telstra (inaudible) should be made to (inaudible)

in Foxtel in the interests of competition. What is your stance on that?

TREASURER:

Well look I think that we have to look at all avenues of promoting competition

and structural competition in the economy. But I am not flagging any changes

in relation to the Governments communication policy because I think that the

greatest issue at the moment is to ensure that Telstra is treated like the competitor

that it is, as one of a number of competitors in the telecommunications industry

not as a government department. And whilst Telstra still has a majority Government

ownership it tends to be treated unlike a private competitor to the degree that

it should but more like a government department in some respects.

JOURNALIST:

Treasurer can I ask if you know, and whether it is accurately reported that

this American shipping company Northrop is entering the bidding for (inaudible)

warship and what do you think about it?

TREASURER:

Well look tenders have been called and as I understand it this Northrop may

well have put in a tender. I don’t know the details of its tender but

as the Defence Minister has repeatedly said, the builder of the ship will be

an Australian company. So I can’t comment on how Northrop proposes to

meet that condition or what the essence of its bid is. It may well be that it

is in partnership with someone else, I wouldn’t know, but as the Defence

Minister has repeatedly made clear, the builder of the ship will be an Australian

owned company.

JOURNALIST:

So there is no chance of buying one “off the rack” from America?

TREASURER:

No. We have decided that we will actually be building these ships in Australia.

There is a tender which is going on at the moment. The tenders will be assessed

in accordance with the conditions and it won’t be “off the rack”

shopping for an air warfare destroyer.

JOURNALIST:

And you are sticking with your line that the most competitive bid is the only

test?

TREASURER:

Well meeting those other conditions as to capacity, as to ownership, then the

syndicate that will win the tender will be the one that can meet the conditions

with the best product for the best price.

JOURNALIST:

Just before you go, just back on the tax rates, even though you are raising

the threshold wouldn’t you agree that unless more is done to overhaul

the tax system there is still a disincentive for people with that top marginal

rate?

TREASURER:

Look I think it’s important that we have the most competitive tax system

we can consistent with meeting the expenditure requirements in relation to health,

education, aid to Tsunami affected victims, protecting the country against terrorism,

building air warfare destroyers and balancing the Budget. And they are the expenditure

requirements that we have and we have got to have a tax system which is capable

of delivering that and as low as possible consistent with delivering that. And

that is one of the reasons why we are increasing the threshold on both 1 July

last year and 1 July this year. We must continue to keep working to have a tax

system which is as competitive as possible because that will keep our economy

growing and our economy is growing.

JOURNALIST:

Will you look at a more comprehensive overhaul of the system though beyond

this year?

TREASURER:

Well let me just remind you, we have cut the company tax rate, we have halved

the capital gains tax, we have given small business capital gains tax rollover

relief, we are raising the top threshold on 1 July of last year and 1 July of

this year, we are introducing tax reductions for mature aged workers, we have

just cut childcare expenses with a new 30 per cent rebate for working parents.

This is a very, very full agenda and we continue to work on our agenda consistent

with good investment in education, consistent with good investment in health,

consistent with fighting the war on terror and consistent with balancing the

Budget. We want to keep our income tax and other tax rates as low as we possibly

can. Thanks very much