Interview with Catherine McGrath

ABC AM Programme

Friday, 16 December 2005
8.05 am

SUBJECTS: Tax, economy, Cronulla riots, abortion

MCGRATH:

Treasurer, good morning.

TREASURER:

Good morning Catherine.

MCGRATH:

It seems everyone is talking about structural reform and the need for it, except

you.

TREASURER:

Well, we have got a very strong structural reform programme going on at the

moment in relation to electricity, in relation to gas, you will recall the port

and infrastructure blockage points that were raised early in the year particularly

in relation to the mineral boom. These are all of the things that are designed

to lift the capacity of the economy…

MCGRATH:

But people want to talk about tax reform of the system and you are not open

to that.

TREASURER:

…let me just, you said in the introduction that this could be one of

the greatest periods of economic growth, what I said yesterday is we have grown

for 15 years, our Budget forecasts are for another four years of growth. If

we were to do that, that would be 19 years of continuous growth in the Australian

economy, and I don’t believe that has been matched by other countries,

hardly matched at all in Australia. So the key here is to keep the Australian

economy growing and growing in a low inflationary way that gives us the opportunity

to improve living standards and, if we can, have a lower tax burden.

MCGRATH:

I will get back to that earlier point though, you have got more than $40 billion

over four years, you have got a range of groups – incredible cooperation

here – groups like the Australian Industry Group, the Brotherhood of St

Lawrence, parts of the Labor Party, parts of your own Party saying that structures

are wrong, they need to be fixed, you need to broaden the base and lower the

rates.

TREASURER:

Well look, when you get into tax discussion I think you have got to be specific.

When some people talk about broadening the tax base what they mean in higher

Capital Gains Tax, we won’t be doing that. When some people talk about

broadening the base they say, don’t allow people to deduct legitimate

expenses that they have for uniforms when they go to work, we won’t be

doing that kind of thing. There are some people that point to overseas countries

like America which has death taxes, we won’t be introducing death taxes.

So, where there are realistic proposals, yes of course they will be considered

but I don’t regard a higher capital gains or wiping out people’s

tax deductions as a legitimate improvement in the tax system. What we ought

to be doing is we ought to be doing what we can to fund the growing and looming

expenses such as health because people still want better health systems, balancing

the budget because that helps keeps pressure off interest rates and then after

we have attended to those matters, getting tax as low as possible.

MCGRATH:

And yet all of those groups I have talked about talk about lowering the top

rate from 47, at least closer towards 30 per cent the corporate rate and also

major relief at the bottom.

TREASURER:

Yes well that is tax relief across the board – at the top and at the

bottom. And the point about that of course is that is what we did in last years

Budget, we cut $22 billion over four years off taxes, we forecast a surplus

of about $9 billion, it is about $2.5 billion stronger. Now, that $2.5 billion

could be eaten up in additional expenses and you be precisely where you were

back at the time of the last Budget. This is why I made the point yesterday

that if we are going to keep room for additional tax relief, we have to keep

a grip on expenses. Can I say to you, that $2.5 billion could be very easily

spent with some of the proposals that are floating around at the moment.

MCGRATH:

Alright, but Saul Eslake for example from the ANZ says that you can have revenue

neutral change of the tax system that is not going to put inflationary pressure

on and it should be done.

TREASURER:

Well revenue neutral change Catherine, of course means that if somebody gets

a tax cut somebody else pays more, that is what it means and a revenue neutral

would mean that there would be no overall tax cut. That is no overall tax cut,

that would be the same revenues. Now, you have got to know if you wanted to

support that who the losers would be.

MCGRATH:

Well he is talking about an overhaul of the system, I mean philosophically

you are closed to that or are you…?

TREASURER:

No, I am just making this point. A revenue neutral change means there is exactly

the same amount of losers in dollar terms as winners in dollar terms. Now, you

would have to know whether you were one of the losers or one of the winners

before you could decide whether or not you supported that.

MCGRATH:

Right, we have got a huge piggy bank at the moment, what are your priorities

for spending then on infrastructure and skills?

TREASURER:

Well my priority actually is to hold expenses, the growth of expenses because

I believe if we can hold the growth of expenses then we can have a lower tax

burden. If expenses were to grow, that is we have got growth factored in, ordinary

growth but there are now new claims, then the increase in expenses itself will

account for any lift we have had at the Mid-Year Review and crowd out the opportunity

to lower taxes. So, as we go into this Budget round I think that ought to be

the priority.

MCGRATH:

So obviously less spending, but as people head on their Christmas holidays

they are going to be aware of the road situation around Australia, concerned

many of them about their own safety, their driving safety, what about spending

more money on roads for example?

TREASURER:

Well you see we have got a $14 billion programme for roads already and we have

already factored in increases. Now, when I say restrain expenses I mean hold

expenses to those increases which are already factored in. The proposal for

increases on increases which would increase the expenses that we are expecting

of course, would crowd out the opportunity for a lower tax burden. I think a

lower tax burden ought to be a priority rather than increasing the rate of growth

in expenses.

MCGRATH:

Treasurer, just quickly on some other issues – Cronulla in the last week

– we have seen violent scenes there, clashes between different ethnic

groups, what do you think Australia has learnt in the last week?

TREASURER:

Well I hope that what we have learnt is that youths particularly have to obey

the law, that brawling in public is unacceptable and that…

MCGRATH:

Are we a racist country?

TREASURER:

I don’t think we are a racist country, but I think racial divides can

easily be fanned up particularly if you let law and order get out of control.

And the most important thing is to make it absolutely unacceptable to all people,

but to youths in particular to smash property or bash other people. This is

unacceptable and if it is allowed it can fan racial tension but policing ought

to stop it in the first place and if alcohol is contributing to it, it is a

legitimate tactic to restrict the supply of alcohol.

MCGRATH:

Alright, the Senate Inquiry into RU-486 is underway, are you for it or against

it?

TREASURER:

Well, I am really interested in seeing all of the medical evidence. If the

medical evidence is that it is unsafe of course I would be against it.

MCGRATH:

The medical evidence isn’t that it is unsafe, the medical evidence is

that under supervised implementation it is fine.

TREASURER:

Well I am interested in seeing all of the medical evidence before making a

final decision and actually talking to some doctors about how it works. But

the threshold point as you say is, is this safe because no therapeutic treatment

which is unsafe should be allowed.

MCGRATH:

Is it right to re-open the whole abortion debate in Australia?

TREASURER:

I don’t think it ever really closed, Catherine. There are some debates

that will be with us until our death. One will be abortion, another will be

tax incidentally, I don’t think these debates ever open or ever close,

they are there and you just deal with them as they arise. The one thing I would

say about the abortion debate is I think there ought to be respect for everybody’s

positions, I don’t think partisan or abusive debate will help society

resolve these issues in any way and I just appeal for a bit of respect on all

sides.

MCGRATH:

Treasurer, Peter Costello thanks for joining the AM Programme this morning.

TREASURER:

Thanks Catherine.