Tax Cuts, Labor’s Tax Rises, Water, Interest Rates, Defence Spending, Education, Income Splitting, Pensions – Interview with Matt Abraham and David Bevan, ABC 891

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Tax Cuts, Labor’s Tax Rises, Water, Interest Rates, Defence Spending, Education, Income Splitting, Pensions – Interview with Matt Abraham and David Bevan, ABC 891



Interview with Matt Abraham

and David Bevan

ABC 891

Wednesday, 21 May 2003

8.35 am

SUBJECTS: Tax Cuts, Labor’s Tax Rises, Water, Interest Rates, Defence Spending,

Education, Income Splitting, Pensions


Good morning Matthew Abraham.


Good morning David Bevan, and Good morning Federal Treasurer, Peter Costello.


Good morning Matt, Good morning David.


David has already made the point that I have I worn a tie especially for you.


I am very impressed by your appearance, part of it is of course that you have

got a camera on these proceedings so you look beautiful for that, presumably.


We have been sprung.


And we have lots of listeners who would like to ask you questions. Tim from

the, from, I think about the Murray River will be our first caller. If, other

people would like to ring in 8343 4891 or 1800 811 891.


That’s the idea, the Treasurer has come in the studio, happy to take your calls,

has the headphones on in a moment and that’s what we try to do here, if you

would like to talk direct to people making decisions affecting your pay packet,

your future, and who knows the future, the future leader of the nation one day,

then give us a buzz 83434891 or 1800 811 891. Treasurer, you must be in the

lucky position of being the first Treasurer in history who is being asked not

to give people tax cuts.


Well I don’t think I would say that I am in that position. I think the public

view is that we should keep taxes as low as possible. And it’s our view, that

once we have meet our legitimate expenses, in this case it was the war in Iraq,

the drought relief, the upgrade of security, the increase in health spending,

that if you could still balance the Budget and have the room to reduce taxes,

albeit by a slight amount, that you should do so. That’s what we did in this

Budget. We met our expenses, we balanced the Budget and we returned something

to the taxpayer.


And yet the headline in yesterday’s Fairfax poll was, “Forget the tax

cuts, Coalition voters want Health and Education.’


Well, I have never come across anyone who wanted higher taxes, in all my life.

People want, I think good services, and I think that is what we are delivering

in the health area at the moment, and in relation to education, and then they

want taxes to be as low as possible. They basically want both. They want good

services and they want low taxes, and it’s striking that balance. I think this

Budget did strike the balance. We had some big expenditures, we had a war and

a drought, but to be also able to reduce taxes was something that I thought

was economically responsible. That’s why we did it.


I suppose though, if the tax cuts were seen as, like McHappy tax cuts, you

can get a McHappy Meal and still have some change from $4 and maybe get two

for $10, then if they are seen as small tax cuts, or piddling, as I think the

Telegraph may have put it, then, then do you have a problem where people say



Forget it…


…you know, its $2.5 billion, we would really rather that went into health

and education.


I don’t think so, I think actually part of the criticism is that they should

have been larger. Mostly people who say well look you know, and they focus on

small amounts, they are not saying I didn’t want a tax, they are not saying

I wanted a tax rise, or I didn’t want a tax cut, mostly they are saying they

would like larger tax cuts. And as I said before, I think the public’s view

is that they want good services and they want low tax, and the art of Government

is try and balance them. But, let me ask you, let me put it this way, there

aren’t many countries around the world that have been able to balance their

budgets and reduce taxes, and there aren’t any in Australia. As we know all

the state Governments are increasing their taxes.


Well, there is another way of looking at it though, is leadership being able

to increase taxes, for the common good? And I mean I think Frank Crean is quoted

by Bob Ellis, I am sure you would take that in the right spirit, Frank Crean,

Simon Crean’s dad, as saying taxes enable us to buy civilisation.


Well, I am not putting forward the abolition of all taxes. I agree that we

need, we need taxes. We need taxes for defence, we need taxes for security,

we need taxes for drought relief, and we need them for health expenditure. I

agree with all of that. I agree with the proposition. But the question is, if

you have the capacity to meet those expenses, and you have your Budget balanced,

isn’t it fair to return something to the taxpayer. That’s the basis I have put



Well, can I put it to you another way? The Fairfax poll shows that there is

a lot of support for Labor’s commitment to Medicare and to higher education.

Now, Labor is way behind the Government in the polls, but the pressure is building

and it might take something like a change of leadership on either side to suddenly

even up the race. And that is why a lot of people say that Peter Costello will

not get the leadership, because there is this pressure building up. People like

Labor’s policies, they just don’t like the political scenario at the moment.


I don’t think people have a clue what Labor’s policies are. I mean if you know

what they are, you are doing better than me. I have now watched the Labor Party

in opposition for seven years, and I wouldn’t have a clue what their policies

are. You know, they will say to you for example, the other day they said, oh

we are in favour of Medicare, but did you hear the tax rises that they propose

as part of that? I have counted a couple in the last couple of days. They are

going to increase taxes on mothers giving birth to their first child, by abolishing

the Baby Bonus. Now, do people know that? That it is Labor’s policy to increase

taxes for mothers having children. The other thing that I am pretty sure is,

their policy, they haven’t yet announced is they are going to reduce the private

health insurance rebate. Put everybody’s private health insurance payments up.

So, you can say, oh well, you know they are promising these goodies, but until

you actually see the price tag, and the price tag with Labor is always the same,

higher taxes, I don’t think people will be able to assess their policies, and

hopefully we will get that much more clarified before the next election.


It’s 21 minutes to nine, lets go to the callers. Good morning Tim.


Yes, Good morning. I would like to firstly congratulate the Federal Treasurer

on what I think is a fair and reasonable Budget. I think it is a very genuine

budget in tough world times, I think it is a good Budget for individuals. I

genuinely think that seven or eight years into Government, it is a very credible

and fair outcome, but that’s not the purpose of my call. I specifically wanted

to raise and perhaps alert the Federal Treasurer to the, I think the almost

universal concern that South Australians have about the plight of our water

supply, the Murray River, and I have noticed that Simon Crean has come out with

some initiatives and I know that John Howard responded by saying that there

is already a process in place, I guess as a South Australian, and I have only

been living here for six or seven years but, I have become emotionally very

attached to the Murray River, I think it is a huge issue for all South Australians…


Have you got a question Tim?


…the specific question is, Federal Treasurer, can you give us some hope that

in the next twelve months we might get some packaging, some funding for the



OK, the Treasurer only, heard most of your question, his first pair of headphones

broke, they were broken and that’s part of our campaign for funding for the

ABC. That was quite deliberate Treasurer, however…


I will leave 20 cents so you can put some tape around those headphones, I am

terribly sorry for that.


…can you save Tim’s River Murray?


Look, I think it’s one of the most important environmental issues for Australia,

and we have in place some plans at the moment which are designed to address

this. We have in place plans working with the Murray Darling Basin Commission

as part of our Natural Heritage Trust, we have a big program to deal with desalination,

which again will involve a lot of work of the Murray Darling basin. But I think

the most important thing here is going to be water rights. Upstream water rights.

I think the biggest problem we have on the Murray is where upstream – this is

NSW and Queensland – people are taking more water out of the Darling Murray

system than the river can handle. And these water rights are given by State

Governments, and we have a major issue here to clarify those water rights, to

get them down to sensible, environmentally sustainable amounts, and to allow

farmers to give some up, which will take some compensation, or trade them to

higher users. And we are working very hard in relation to that at the moment.


But if ever there was an issue where a national government should intervene,

surely that is the Rover Murray, and we have had more than enough talk, and

it is time for the Federal Government to intervene and take away water allocations

and compensate people fairly.


Well, we don’t give the water allocations, this is the problem, they are given

by State Governments.


But no, my point to you is that you have powers, you can step in, you can do

things and surely there has been enough talk, it is time for a Federal Government

to step in, to intervene.


Well, I am not quite sure we do have powers, but what we do have and what we

are trying to use, is our National Competition Policy, and this is a policy

by which we give money to States who are promoting good regulatory environments,

and we are going to use these payments to say that States that do not fix their

water trading rights, do not deal with this over-allocation will suffer financial

penalties. And that’s the way we are going to try and drive them to fix it.


Competition policy wasn’t meant to fix up the environment, that’s about a market-driven

economy isn’t it…




…you’re using competition payments to get an environmental outcome.


You know this is a great misconception. Competition policy was – one of its

prime objectives was to promote a proper water policy for Australia. Absolutely.


Well that didn’t work


Well, we haven’t been tough enough with it. I think that is the answer. We

haven’t been tough enough. We have made these payments to the States without

demanding enough from them in return. And one of the things that we have to

demand from them in return is fixing this water rights and water-trading situation.


So we have seen competition policy being used as a bit of a hammer on shop

trading hours in South Australia to get some de-regulation here. It’s basically

a bit of a cure-all, if it’s used properly.


Well, there are a number of, competition policy had a number of aspects. There

was an agreement to promote national energy markets, so that you could trade

gas across State borders, electricity across State borders. There was an agreement

in relation to water, so that water which flows across State borders would be

efficiently and properly allocated, and then the final leg was in relation to

anti-competitive practices. Now, that’s the one that has got all of the publicity.

But, take gas, up until quite recently, every State made its own gas, and the

gas pipes stopped at the State border. And if one state had a shortage, you

never pumped gas across the State because that was your competition, and so

we probably had too many gas stations in the wrong places and we had major shortages.

Now one of the things is to try and get a national grid in relation to this.


Let’s take your calls for Treasurer Peter Costello in the studio here at 891

ABC Adelaide. And Bill is next, Good Morning Bill.


I’m, my question just relates to interest rates. For the last five or six years,

interest rates have been low, and being in the property and valuation game,

I see that we are breeding a mob of home buyers who believe that interest rates

will be low for the, for an extended period of time. I was just wondering whether

the Government, whether there is any long-term prognosis and whether there is

any views on levels of borrowing as result of low interest rates.


Well, I think it is worth bearing in mind Bill, that interest rates at the

moment are at 30 year lows. I think that there is a tendency to say well, this

must be the normative situation. They are at 30 year lows, you can get a home

mortgage at interest rate of about 6 ¼ per cent. I remember when I bought

my first home, in the late 1980s, when Paul Keating was Treasurer, and it was

17 per cent. And we would not have believed in those days that a 6 per cent

interest rate was possible. It just would have been completely outside our consciousness.

Now, if you look back over the past 20 or 30 years, interest rates were generally

in double figures. So, the point I am making here is, we are in a period where

interest rates are very low, that’s been a part of government policy to keep

them low, so young homebuyers can get into the property market, but what I would

say to people when they are buying homes, you have got think in a 30 year mortgage,

that things won’t always be the same as they are now and you have got to make

an allowance for that.


So is there a bit of a caution there that times are good, but as a, they have

been good for a while and things do go up, you shouldn’t load yourself up to

the gills.


It’s a bit like the stock market Matt, stock prices go up and stock prices

go down. There is a lot of people who thought that they would never go down.

All I am saying is, that it is our policy to keep interest rates low, that is

why we are running strong economic management to keep them low. But I just say

to people, bear in mind when you are looking at your private expenditures, that

these are 30 year lows, and I think it is always…


So don’t load yourself up to the gills…


…have a bit of a cushion.




John is next, Good morning John.


Yes Good morning. An issue on the so-called tax cuts, not the $5 McHappy Meal,

but I think that they should be in reverse order. I mean instead of giving $4

to the lower income people, or and $11 or $17 for the higher, it should be reversed,

and while I accept that you can’t get the same balance as (inaudible) reverse,

it’s more likely that the lower income people are going to spend that money,

put it out in to the economy and generate business, whereas those in a higher

income, apart from the 46 cent in the dollar take out tax, always goes straight

into savings and super.


Treasurer Peter Costello.


Well, the thing is that as you earn more in Australia you pay more tax. And

the income tax cuts that we have laid down are fair across all of the tax brackets.

If you are a very low-income earner, you don’t pay any tax, so it’s very hard

to cuts taxes for those people. But, right down at the bottom although the tax

cut is less in dollar terms, it is a larger percentage of the tax they pay.

Down below $20,000, they are getting a tax cut of about 10 per cent, about 10

per cent of the tax that they pay, and at the upper end they are getting a tax

cuts of about 2 per cent. Now, that’s because at the upper end they pay more

tax, and the tax cuts work out that for some people it’s $300 a year, for some

it’s $200, for some it’s $400, for some it’s $570. So even though for those

at the top end it $570 per annum, its actually a lower proportion of the tax

that they pay because they are paying more tax in the first place.


Thank you John, thank you Treasurer Peter Costello, here on 891 Mornings.

Dan Farmer is Vice President of the Australian Education Union here in South

Australia. Dan, your question?


There is not much in the budget for public schools, but my question relates

to the transition to work funding that come through (inaudible), but I notice

that there a cut to that, and I just wanted to know what that is going to mean

to programs in (inaudible).


Well, I would say that there is an enormous amount in the Budget for public

education, because the Government again lifts the money that it puts in relation

to education and if an say this Dan, the Government also forwards to each of

the States their major source of revenue, the GST, which pays for public education.

GST is now paying for every school teacher in every classroom in every school

in South Australia. That’s the tax reform that we put in place to fund those

schools and get the State finances onto a sustainable basis. Now, in relation

to the particular programmes, we look at all of these programmes from time to

time, those that are doing well, we continue, we evaluate them all the time,

but I can assure you of this, we are not taking money out of the programmes

as a whole.


In a moment we will go to John, Robert, and Rodney. It’s ten to nine. John,

you have got a question about the cost of the war I think? Good Morning John.


Good morning. Mr Costello, how much money up to date, how many billions up

to date, have the Liberal Federal Government spent on the war in Afghanistan,

the two wars in Iraq, on the sanctions which starved the Iraqi people for 12

years, and on the incursion into East Timor? And aren’t the…


The incursion that restored democracy to East Timor


I beg your pardon?


Is that the incursion that restored democracy to East Timor?


Look, East Timor belonged to Indonesia…




…and has for a thousand years…


Well, let’s put the question to Treasurer Peter Costello.


Well, I am not sure that East Timor did belong to Indonesia for a thousand

years, but leaving all that aside, I can give you some, I will try and give

the best figures I can. The additional funding for the war in Iraq was around

about $645 million, that’s over and above what we were paying anyway to the

soldiers by way of salaries and so on, and that’s the additional cost. The Australian

military operation in East Timor cost a bit over $1 billion per annum, when

it was first taken and probably is still running at about $500-$600 million.

We still have a battalion…


That might surprise many people…


Yes, a thousand people, a thousand people, we have still got a thousand people

in East Timor, about a battalion, that’s been a pretty significant defence cost

for Australia, and that’s ongoing and maybe ongoing for sometime. But, can I

just say, this was no incursion in East Timor. I make this point, that East

Timor is, as you know, was under colonial rule and came under Indonesian rule

quite late, I think it was in 1974 or 75. The Indonesian Government agreed to

allow an act of self-determination in the East Timorese people took that, and

Australia’s part in East Timor, was as part of a UN Force. This wasn’t an incursion,

it was part of a UN force which was sanctioned by the UN, and ended up giving

the East Timorese people independence in their own country, so I wouldn’t call

it an incursion.


Robert is next. Hello Robert.


Yes Good morning Gentleman, the first thing, there is a burst water main on

the corner of Young Street and Goodwood Road, can you get SA water onto that…


Ok, we will fix that..


…thank you…


I am on to it right now, our people are on to it.


…good on you. The $4 a week tax cut, well I thought well this a quick calculation,

we probably would have been better off giving 280 people $100,000 a week in

a lottery that the Government could have run, that might have been a bit more

useful. And thirdly, Mr Costello’s government, declared war on Iraq on the basis

that there were weapons of mass destruction, that it was a clear, present danger

to our country. Now, there are no weapons of mass destruction found, what is

Mr Costello’s position? Thank you.


Ok Robert. Skip the water main.


Well, look the search is still going on Iraq. Some mobile apparatus has been

found. It does appear as if there were certainly capacity in relation to weapons

of mass destruction. I think that the jury is still not in, in relation to that.

But secondly, I would say of course I think that the evidence that is now coming

to light in Iraq would horrify any decent person, just another killing field

discovered last night I saw on the news as they pulled skulls, some of them

still with bullets, the tens of thousands, the hundreds of thousands of people

were murdered in and around Iraq by one of the world’s great dictators, and

I think Australia’s contribution to bringing that dictator down was thoroughly

justified. In relation to tax cuts, as I said, the tax cuts which were introduced

in this Budget for some people $200 a year, for other $300, for others $400,

for others $500. I would say this, that I think people would like to keep taxes

as low as possible, consistent with meeting our other obligations in relation

to Iraq and drought, and that’s what the Government is trying to do, and most

other Governments in Australia are raising their taxes. Now would we have liked

to reduce them by more, yes. But I think it is better to be lowering taxes than

actually raising them as most other countries are.


It’s just gone five to nine; we have only got another few minutes left but

Mary has called in. Good morning Mary.


Good morning. I have a question, I am a stay-at-home-mum and an article in

the Advertiser is very interesting. It says income splitting already is allowing

single income families on $60,000 to $75,000 to have the same tax bill as two

parents earning the same figure. Well, we have effectively introduced income

splitting Mr Howard said yesterday. This would greatly help us, is this true?


Yes, that is true, because we introduced a thing called family tax payment

part A, which is a tax rebate per child, and we introduced a thing called Family

Tax payment B, which allows the stay at home mother an additional tax cut. And

when you put those both together you find that the single income family with

two or three kids, up to about a large sum of the order that you have just said,

is doing better than income splitting. It is, our reforms are better than income

splitting for stay-at-home-mothers in the most numerous tax brackets. Now, that’s

the consequence of the tax changes that were put in place back in 2000.


We are listening to the Federal Treasurer Peter Costello, here on 891 mornings,

and Paul, hello Paul.


Good morning Treasurer. Currently the rebates for solar panel, power panels,

to go on your roofs reach about $20,000 per month for South Australia. I am

sitting in a queue of about 160 and I am about half way up the queue to get

our solar system in, is there any, what is the prognosis on increasing that

rebate back to the old rate?


This is the solar rebate. Well, I haven’t got the figures here with me so I

can’t verify them one may or the other, but I will certainly get some advice

in relation to that.


And we will get back to you with those figures Paul, from the Treasurer’s office.

Irene, I think you might be our last caller. Good morning.


Good morning. Mr Costello, I am a (inaudible) person living on my own, and

I have got to survive on $190.10 a week, which is my widows allowance, this

is the same as the unemployment benefit, when are you going to increase this,

because it is very hard to live on.


Well, we try and index all of these benefits, so that people maintain their

position and they move in relation to prices, so that as prices move these benefits

move up too, and that’s the way in which we have set them so that you maintain

your position as against prices, it is important that we keep prices down. Inflation

has been low over recent years, it has been down around about 2 per cent, and

we also have, of course, some additional benefits in relation to rent assistance

and other benefits which you may be eligible, for I don’t know. But our policy

is to keep these benefits in line with price rises so that people can maintain

their spending power.


Irene, thank you for your call.


Thank you Irene.


Now, Treasurer, probably not a well known secret, but as number one ticket

holder for Essendon, is the real reason you are over here to try and psych up

the Port supporters ahead of the Docklands game on the weekend.


Well I think I’ll leave Adelaide before I psych up the Port supporters actually.

I’ve still got a few days here before I take them all on, but look, I will say

this, Port are a great team, there is no doubt about that, and they have got

a couple of ex-Essendon players down there, Gavin Wanganeen, Damien Hardwick,

Cockatoo-Collins, few of the old Bomber boys down there, and they are making

a great contribution, I think Port will probably be there at the end of the

year, I hope the Bombers are there too.


Peter Costello, Federal Treasurer, thanks for coming in and thank you for taking

our listeners’ calls.