Interview with Philip Clarke

2GB

Monday, 31 October 2005
4.10 pm

SUBJECTS: Tax, fuel, cross-city tunnel

CLARKE:

Mr Costello, good afternoon to you.

TREASURER:

Good afternoon Philip. How are you?

CLARKE:

I am not too bad. Well what’s your, everyone else has got a view on whether the track should be watered or not, what’s yours?

TREASURER:

I think it should be softened a bit don’t you. I think it should be softened to make sure that Makybe Diva runs and I think this is going to be a big sentimental race. Wouldn’t it be great if she won again.

CLARKE:

It would be amazing if she won again, I know, you would have to remake the movie, the Phar Lap movie would be the second movie on the runnings I reckon.

TREASURER:

I think we could sort of make a, what is it, a sequel, we could bring Phar Lap back with DNA and race Phar Lap off against Makybe Diva, you know, the race of the century.

CLARKE:

You know what, there will be people around who would do it if you will fund it for them I am sure.

TREASURER:

An animation maybe or a computer graphic, we can compare the time, maybe we could even put Seabiscuit in there as a third, the great Seabiscuit.

CLARKE:

That’s right. Yeah well Phar Lap did go overseas and win a big race. He won the (inaudible) of course and Makybe Diva has not done that.

TREASURER:

No.

CLARKE:

So it would be a good race.

TREASURER:

Well that’s right and didn’t that add to the Phar Lap legend that Phar Lap was poisoned by those rotten crooked people that got to him eventually.

CLARKE:

You mean our near and dear and close neighbours the United States.

TREASURER:

No I am sure it was the mob or someone like that.

CLARKE:

Yeah. All right, well tomorrow’s tomorrow and of course today’s today and speaking of races and all that, the race down to the next election and tax cuts and so forth, I mean there is a big surplus there and a lot of talk about tax in Canberra. Your colleague Malcolm Turnbull of course has been putting up proposals for tax cuts in various shapes and forms, I mean, the room is there to do it isn’t it?

TREASURER:

Well we cut tax in the last three Budgets and the most recent round of tax cuts were in May. Now people say, oh well the outcome for last year was a surplus. You have got to remember we have cut taxes since we had that outcome and the critical thing is not what the outcome last year was but what it is going to be next year. So our view is that if we can meet our expenditures, particularly in health and security and balance the Budget then we should try and keep taxes as low as possible. So we have done that for the last three years, if we have the opportunity to do that again of course we will look at it at the time.

CLARKE:

If you had a priority, I mean, is the priority the top income tax rate, is it the complexity of the tax system, is it the overall tax burden?

TREASURER:

It is the overall tax burden is the most important thing because that tells you what the tax burden to the size of the economy is. And as I say it has been falling. Now the thing I have learnt about tax is it doesn’t matter what the rates are, people always want them lower and the important thing I think is that you are fair to everybody, that is why we cut rates in the last Budget and increased thresholds because that was fair to everybody. You might recall we had a devil of a time getting it through the Senate but we did in the end. And I think you do have to be fair to everybody when you try to cut taxes.

CLARKE:

There’s no doubt about that but if there is room there and opportunity to do that, providing all things being equal, if the opportunity is there you will take it?

TREASURER:

Well, you never quite know what is going to happen. And we are talking now about the financial year starting in July next year. Tell me this, will the oil price be where it is now? Will the world economy be strong or weak? Will we have had the Avian Flu? You have got to make all sorts of assumptions but here is the principle of course that if you can balance your Budget, fund health, defend the country, you ought to try and keep your tax rates low and that is what we try and do.

CLARKE:

Fuel prices is the imponderable, it has already driven inflation so far this year, I mean, the biggest thing, it will continue to do so and the prospect down the track is pretty gloomy isn’t it?

TREASURER:

Well this is the thing, the fuel price averaged in the September quarter, that is from July to September, it averaged 119 cents a litre. But at some points during that quarter it was up around 130 and what is it today – about 120 is it?

CLARKE:

Hmm.

TREASURER:

You know, what will it be in December of this year? This is the great imponderable. I hope it is lower than it is now. But this will depend on supply factors, it will depend on demand particularly in North America as it goes into winter, it will depend on Chinese demand which is pushing it up. I want lower petrol prices, I want lower oil prices, that would be much better for our economy. But this is a great imponderable and if it were to rise higher than it is now, you are quite right, that would push inflation up and we don’t want that to happen in Australia.

CLARKE:

No indeed not, indeed not. All right, there has been a lot of talk in Sydney this week, over the last couple of weeks about the cross-city tunnel and the notion of these private-public partnerships in which costly projects are taken off the taxpayers books as it were and the tax is essentially shifted onto the private sector and onto individual motorists. The best analysis seems to be in most cases these end up costing the taxpayer more than they ought to. Do you have a view about these things?

TREASURER:

I do. You have got to be very careful when you are looking at these partnerships to make sure that taxpayers get value. If a government is going into this project in order to get something off it’s balance sheet, that is not a good enough reason. And I do hear people say from time to time, oh, you know, let’s have a long-term lease to the private sector because it goes off both the cost, it goes off our balance sheet…

CLARKE:

That’s right.

TREASURER:

…and of course the price, ie the revenue goes off our balance sheet or our profit and losses as the case may be. That is not a good reason. That is a very bad reason.

CLARKE:

I mean, it is touted as being at no cost to taxpayers but of course it ends up being a cost to the taxpayer one way or the other.

TREASURER:

Well it does, in the sense that it is collected directly from the users and you have got to be very, very careful that you are getting value outside the simple accounting advantage. And the other thing I would make about roads in particular, it has always worried me that that purpose surely of getting a new road is to ease congestion. If you say it is a term and condition of the new road that you increase congestion somewhere else so that you increase it and then you force people to come onto your tunnel, on the public road, on the free road, the congestion can sometimes end up worse than it was before the new one was built. Now this is not actually improving the situation. And I am very, very wary about this, governments ought to be quite clear in their minds that when you finish building these things the overall congestion is better and not worse.

CLARKE:

Yeah. All right, just two things before we go. March next year was said by your supporters to be a deadline for the Prime Minister to announce his intentions. Is that still the deadline?

TREASURER:

Nobody’s ever spoken about deadlines Philip. Nobody has ever spoken about that.

CLARKE:

Oh. And who’s going to win the Melbourne Cup?

TREASURER:

Well look, how could you go against Makybe Diva? How could you? How could you in all conscience, I think…

CLARKE:

You could back the winner of the Caulfield Cup for starters.

TREASURER:

Well this could be the greatest horse of all time if it actually wins. Is it seven or is it eight? You know, in human years this is a pretty old horse. The fact that it is still galloping around the track is pretty good.

CLARKE:

Seven years old.

TREASURER:

Seven years old.

CLARKE:

All right, you reckon Makybe Diva, well you are not going to make any of us rich by backing Makybe Diva but as you say who would be (inaudible)?

TREASURER:

You will be sentimentally and culturally and psychologically rich Philip.

CLARKE:

I am so rich. Thank you very much. Good to talk with you Mr Costello.