Interview with Kerry O’Brien

7.30 Report

Monday, 29 August 2005
7.30 pm

SUBJECTS: Tax, leadership

O’BRIEN:

Peter Costello, given the headlines of the last few days on tax, I wonder can

you just clarify whether you and the Prime Minister are in step on whether you

believe that the top income tax rate is too high.

TREASURER:

Well, if we could make it lower, I’d support that. Yes, of course I would.

You know…

O’BRIEN:

But can you make it lower?

TREASURER:

Well, that’s the critical question. Asking me whether I’d like lower tax rates

– asking a Liberal whether they’d like lower tax rates is like asking a farmer

whether he’d like rain. The answer is ‘yes’.

O’BRIEN:

What’s drawn everyone’s attention, of course, is the high, the highest tax

rate. Mr Howard said last Thursday and again on Friday that he believed the

top income tax rate of 47 per cent was too high. Do you believe that the top

tax rate of 47 per cent is too high?

TREASURER:

And if we could make it lower, of course, yes of course I’d love to see it

lower. In fact, but I wouldn’t just restrict myself to the top rate, by the

way. I’d say of all rates, of course we’d like to see all rates as low as is

consistent with good budget policy, low interest rates and decent expenditures.

O’BRIEN:

But in the interview last Thursday night, Mr Howard quite specifically singled

out the top tax rate.

TREASURER:

And my view is if you could have a lower top tax rate of course we’d love to

have that in Australia – of course we would.

O’BRIEN:

But he says he wants to see that now. Do you want to see that?

TREASURER:

Look, what will govern how far we can reduce tax rates – what will govern it

is this – can we balance our budget? Can we restrain our expenditures? Can we

keep interest rates low? Will our economy continue to grow? Now, if you can

put all of those things together, tax rates should be as low as is consistent

with those outcomes.

O’BRIEN:

But philosophically, if you’ve got a choice of raising the top threshold so

higher income earners pay less tax or lowering the top rate, does it matter

to you which way you go?

TREASURER:

Well, it becomes a political question, Kerry. Let me say, in this year’s budget,

we pushed the threshold up so that, from 1 July next year, you won’t pay the

top rate until you earn a dollar over $125,000. Now, that was defeated by the

Senate. Kim Beazley said because it gave $90 a week tax cut to somebody on $125,000,

he said it was unfair and unAustralian. It was defeated twice in the Senate.

Now, we finally got that through earlier this month on one vote in the Senate,

and all of this is just a question of what is achievable, what can you do? It

was hard enough to get the threshold increased, Kerry, without trying to do

more ambitious things in the last parliament.

O’BRIEN:

But at the National Press Club speech you gave, the Budget speech in May, you

were quite dismissive of the idea of delivering big tax cuts, as you put it,

to millionaires – you gave the example of the millionaire who would get a tax

cut of $4,500 under your budget cuts, with your movement in the threshold –

the same as a person, as you said, earning $125,000. But if you cut the top

rate, that same millionaire, you said, might get a tax cut of $45,000. And you

seemed to deplore that idea.

TREASURER:

Because I wanted to give tax cuts to everybody. The tax cuts which we introduced

on 1 July are for everybody. The truth of the matter is, Kerry, there is so

much money for tax cuts, right – $22 billion in this Budget. If you put $22

billion on everybody over $125,000, you get a big tax cut but if you want people

on 10, 20, 30, 40, 50,000 to get a tax cut, you have got to share these things

around. Let me tell you this – when our tax changes take effect, only 3 per

cent of Australians will pay 47 cents in the dollar, and that doesn’t mean they

pay 47 cents in the dollar on their first 125,000. It’s on each dollar after

their first 125,000. Am I interested in them? Yes, but let me tell you, I’m

very interested in the 97 per cent that don’t pay the top rate as well.

O’BRIEN:

But in May, it seemed that you were philosophically driven towards the thresholds,

too, because you said to the Press Club you preferred moving the tax threshold

because it produced fair cuts – you stressed the word ‘fair’…

TREASURER:

And gave everyone a tax cut.

O’BRIEN:

…but also capped rates. Now, if you cut the top tax rate, it’s not a capped

rate, is it?

TREASURER:

Sure, and of course, what was the political attack on us, Kerry? The political

attack on us was it was wrong to give $90 a week. That’s the political attack

we had to weather. We were defeated twice in the Senate. We only scraped home

in August. My political judgment tells me, if we’d have done anything other,

we would have got an even worse reception.

O’BRIEN:

It seems then that you’re saying that you’re governed in your policy making

by the politics of whether you’re going to get whacked by the other side rather

than by what’s right.

TREASURER:

No, the politics of whether you can enact it or not.

O’BRIEN:

Your backbench colleague Malcolm Turnbull has also gone to great lengths on

this issue of tax rates modelling 279 options for cutting the top rate and broadening

the base. And he says Australia’s high-income tax rates, he calls them ‘high’,

“their high income tax rates encourage tax avoidance and income splitting,

discourage hard work and cause people to leave the country.” He says, “they

discriminate against salary earners in favour of those operating companies.”

TREASURER:

Well, some of that would be right and some of it’s not.

O’BRIEN:

Which part isn’t?

TREASURER:

Well, you know, let me make this point. When you hear people talk about broadening

the base, what they’re actually talking about is increasing taxes in some areas.

The immediate question you ask somebody who wants to broaden the base is, who’s

going to pay more under that proposal? And that’s why, when you see these options,

they’ve got to be very specific before you can actually assess who comes out

in front and who comes out behind.

O’BRIEN:

Okay. Of course, every issue where there appears to be some difference between

you and the Prime Minister is always going to be seen these days in the prism

of leadership particularly as we move into next year, Mr Costello. It’s not

just journalists who are counting down to crunch time, is it, it’s your colleagues

as well?

TREASURER:

Well, people can see these issues within that paradigm but I don’t myself.

This is the way I look at it. We did a budget, we cut taxes by $22 billion.

We were defeated twice in the Senate. We finally got it through. Some of it’s

not yet come into effect. And if the opportunity arises to do more, why wouldn’t

you? Would I like lower tax in this country? Of course. Now, the only caveat

I’ll put on that is I’m not going to do anything to put interest rates up. I’m

not going to drive the Budget into deficit. I’m not going to do anything that

would reduce health care for Australians or protect the vulnerable. And I want

to look after the 97 per cent as well as the 3 per cent. But you know, within

that, if more becomes achievable, why not?

O’BRIEN:

I guess the leadership question now is if Mr Howard makes clear by early next

year that he intends to stay on and contest the next election, will you have

the ticker to challenge him or move to the back bench?

TREASURER:

Well, Kerry the issues of next year will be taken care of in good time. Let

me assure you, and I’m not going to hypotheticals, I’m not going to speculate

in relation to this – very focused on giving good economic outcomes to the Australian

people.

O’BRIEN:

Well then, this isn’t a hypothetical question. Is it true that you told Mr

Howard when you met him in his Sydney office after his comments on leadership

in Greece that you were no longer prepared to wait indefinitely for him to leave

office?

TREASURER:

We had a long conversation. I don’t recall particular words.

O’BRIEN:

I think you’d recall if you told him words to the effect of that.

TREASURER:

Even if I did, Kerry, the lovely thing is it was a conversation between him

and me, and I want to encourage him and me to have frank and open exchanges,

and we do have them, that’s why I don’t talk about them on national TV.

O’BRIEN:

But it’s interesting that you haven’t rushed to deny that because that would

be very significant if you said that to him.

TREASURER:

I haven’t confirmed and I haven’t denied. To be frank, you put to me what was

in a conversation a long time ago. I mean, I could rack my brains and try and

think…

O’BRIEN:

I think you’d remember that if you said it.

TREASURER:

…or Kerry, I could say to you, which is my general principle, that we have

lots of discussions about lots of confidential things and the day I start disclosing

them to 7.30 Report is a good day for you, but it’s probably a bad day for our

relationship.

O’BRIEN:

Peter Costello, thanks for talking with us.

TREASURER:

Thanks.