Interview

6.10 pm

SUBJECTS: Tax cuts, health spending, economic management

UHLMANN:

Peter Costello, good afternoon.

TREASURER:

Thanks Chris.

UHLMANN:

Now, a fist full of dollars on the first day of an election campaign, doesn’t that look a little desperate?

TREASURER:

This is an ambitious tax reform plan.  It is a plan which over five years would make the Australian tax system really competitive.  And it is being delivered in three instalments starting on 1 July next year, followed up 1 July each year thereafter.  It will cut tax for every Australian taxpayer and particularly for the low income earners.  As you heard in the introduction to not have to pay any tax at all until they go over $16,000 will encourage a lot of people back into the workforce.

UHLMANN:

Aren’t you concerned that this will be inflationary, it will drive up interest rates?  Wouldn’t it have been better to do something else with this money?

TREASURER:

Well, let me make the point, if you had spent the money you could have inflationary consequences, but to return it to people and to help them with their bills at a time when they are facing cost of living pressures, I think is a very responsible thing to do.  But it is not just returning it, it is delivering a tax system of which we can really say it is internationally competitive and which will encourage a lot more people to join the workforce.  Let me give an example.  A recent small business survey, small business was asked to nominate their problems.  Number one problem: getting staff.  And that is because unemployment is so low.  Now, if we are going to make it possible for small business to get staff and grow, we have got to encourage more people to join the workforce, and cutting taxes particularly for low income earners is a very good way of doing that. 

UHLMANN:

But don’t we now have two really important institutions – the Government and the Reserve Bank – acting at odds with the economy?  You have got your foot on the fiscal accelerator and the Reserve Bank has got its foot on the monetary brake.

TREASURER:

No because at the end of the day after delivering these tax cuts, we will still have a Budget surplus over 1 per cent of GDP.  Now, this puts Australia in a pretty unique position in the world.  The Americans don’t do this.  The British don’t do this and the French and the Germans, and Japan doesn’t.  Australia of those countries and indeed of the OECD average, would have the strongest budget position of any of them.  And here we can reform our tax system which will build capacity in the economy and still keep our Budget in surplus. 

UHLMANN:

The Government, the Federal Government is not pulling its weight in the hospital system, its level of funding is decreasing in the hospital system, we hear so many stories about what is going wrong there.  Why shouldn’t you have spent some of this money there?  $34 billion would have done a lot of work in hospitals. 

TREASURER:

Well it is not true to say that the Government’s funding of hospitals is decreasing…

UHLMANN:

It has been declining…

TREASURER:

It is not.

UHLMANN:

…the Australian Institute of Health and Welfare figures show…

TREASURER:

It is not, it is not the case, Chris. 

UHLMANN:

…in hospitals. 

TREASURER:

No, that is not the case either.  It is at record levels.  It is at record levels. 

UHLMANN:

As a percentage of what you have spent…

TREASURER:

Now, let’s get a little more precise here.  Under our Government, health spending has increased from something like $20 billion to over $50 billion.  Health funding is increasing every year.  Funding on public hospitals is increasing every year.  $42 billion in the last five years and in the next five year agreement it will be more than that.  So let’s be clear – we believe in well funded hospitals which ought to be run far better by the way – they are run by the States – they ought to be run far better.  We also believe in keeping the Australian economy growing.  If you don’t keep the Australian economy growing, if you don’t keep people in work you won’t have any revenue to fund these services that we all want.  And it is by reforming the economy that we have got so many people in work, further reform will get more in work and further reform and more people in work will give us the ability to fund those services. 

UHLMANN:

Wouldn’t it have been better to simplify the tax system, you take a lot of people away from money, you then churn it through the bureaucracy and you give it back by way of middle class welfare.  Wouldn’t it be better to have a simpler tax system?

TREASURER:

Well I think the tax system is getting a lot simpler if I may say so. 

UHLMANN:

75 per cent of Australians need an accountant to sort it out. 

TREASURER:

Well, we have got rates of 15, 30, 40 and 45 which we aspire to bring down to 15, 30, 35 and 40.  So the rates are declining, most Australians won’t even, won’t ever have to pay a higher marginal tax rate that 30 cents in the dollar.  Low income Australians won’t even have to pay tax and this is getting to be a much more straight forward tax system.

UHLMANN:

All right, isn’t this really about bowling a googly to the Labor Party on the first day of an election campaign?

TREASURER:

Well if the Labor Party wants its…

UHLMANN:

It is a political exercise, isn’t it?

TREASURER:

… if the Labor Party wants to support a reformed tax system which is internationally competitive, builds capacity, is fair, and supports low income earners, they will support Coalition policy.  And if they come out and support this policy, well and good.  But they have had a chance to respond and have a look at it, they obviously don’t know where they are going, they look as if they are at cross-roads.  But I would say this to Mr Kevin Rudd: he claims to be an economic conservative, an economic conservative will support low taxes.  An economic conservative will support this tax reform plan.  If he wants to be an economic conservative he should support John Howard, Peter Costello and the Liberal Party in this tax plan. 

UHLMANN:

One last quick question, you have set a target of keeping a surplus that sits at 1 per cent of GDP.  Your Mid-Year Economic and Fiscal Outlook says that outcome will be 1.3 per cent in 2007-08, does that mean you have got $3 billion to spend on this campaign?

TREASURER:

Well we think 1 per cent of GDP is prudent.  In some years it has been higher – I think last year it was 1.6 – but we have set 1 per cent as a prudent benchmark, we will keep our Budget in surplus and we will keep debt to zero. 

UHLMANN:

Peter Costello, thank you.

TREASURER:

Thanks Chris.