Interview with Kerry O’Brien

7.30 Report

Wednesday, 1 March 2006

7.30 pm

SUBJECTS: Tax review, childcare

O’BRIEN:

Peter Costello, I assume your tax review is an important exercise as a benchmark for future reform. If so, I’m surprised you’ve been able to manage without it for the last 10 years through all of your tax policy changes?

TREASURER:

I think we’ve made important strides over the past 10 years on the indirect front. We’ve cut company tax. We’ve cut Capital Gains Tax. We’ve replaced wholesale sales tax with GST. We’ve cut income tax rates and raised thresholds.

O’BRIEN:

All without the benefit of this review that’s suddenly become urgent?

TREASURER:

Sure. Sure. What we are doing now is we’re going to benchmark where we’ve got to against international practice. That will show that in some areas Australia leads the world and hopefully it will highlight areas where we’re not leading the world and they will become the priorities that we address over the next couple of years.

O’BRIEN:

A couple of business representatives, a handful of Treasury bureaucrats, a 4-5-week deadline, that is not what you would call a sweeping review, is it, which I suppose is why some sceptics have said it’s just a device for you to recapture control of a tax debate that’s got rather messy over the last few months?

TREASURER:

This is not a review which is going to come up with policy. It’s not going to recommend particular rates. It’s not going to recommend particular bases. What this review is going to do is it’s going to benchmark Australia against the world on the indirect tax front, on the income tax front, on the business tax front, on the retirement incomes tax front. Now, I think we have to get a set of agreed facts out there. You hear people demanding change in one particular area or another. I don’t think there’s any agreement on the facts. I don’t think there’s any real understanding as to how our tax system compares with international practice. So this report will put that together. Once we get that together, we have an agreed statement. We have an international benchmark. We’ll be able to highlight those areas that we intend to address and the Government will be setting policy in relation to those areas.

O’BRIEN:

But the two men that you’ve put many charge of this review aided by some of your bureaucrats are two men who both come from business, both of whom seem mostly preoccupied with cutting business taxes and cutting the top rate of tax. Why no broader representation of a broader community view?

TREASURER:

I think when these two men sit down and look at the international evidence, they’ll have to come to a conclusion as to whether Australia’s business taxes are high by international standards or low. The fact that they are businessmen doesn’t change the facts. I trust them. I believe they’re men of integrity. They’ll be able to assess the information. The facts are –

O’BRIEN:

But why two businessmen? If you’ve chosen anyone, why are they both businessmen?

TREASURER:

Because they both have a strong interest in tax. So do a lot of people. Well, Dick Warburton is the chairman of the board of tax, which puts him in a unique position.

O’BRIEN:

And a company director.

TREASURER:

He’s a chairman of the Government’s board of tax. He’s been working on tax issues for years. Peter Hendy is in a similar situation. They are independent of the Government. I wanted somebody who is independent of the Government.

O’BRIEN:

Peter Hendy is a former Liberal adviser.

TREASURER:

Yes, so we could be sure they were assessing the information. A lot of the information is, as you know, published by international agencies. I wanted two people who are competent, interested, understood the area to bring that together quickly.

O’BRIEN:

Dick Warburton has thrown business superannuation contributions into the mix. As far as he’s concerned, that’s a tax on business. But it’s not a tax, really. I think that those contributions were negotiated by the previous Labor Government as a trade-off with Australian workers for productivity gains and wage rises foregone. So if he knows so much about tax, how could he get that wrong?

TREASURER:

Oh, well, I agree that the super guarantee, this is the 9%, that’s really part of your remuneration package.

O’BRIEN:

So why is he calling it a tax?

TREASURER:

I haven’t seen the particular articles or the way the questions were framed, but let me tell you what the facts are. The facts are that this is set aside by an employer. It’s part of an employee’s remuneration. It’s their savings. It is always owned by them. They may not be able to draw down on it until they are over 55, but it is their savings and this is part of a remuneration package. It is not a tax.

O’BRIEN:

So

TREASURER:

In fact, Kerry, let me say, it’s one of the things that Paul Keating and I agree on.

O’BRIEN:

You might want to pass that on to Mr Warburton.

TREASURER:

I will.

O’BRIEN:

What do you say to the view you’ll use this study – given it’s just sort of come from nowhere and following on several months, as I said, of messy debate, National Party calling for tax cuts of one sort, Liberal colleagues calling for tax cuts of another sort, the business community building pressure for tax cuts – suddenly we’ve got this very short review. What do you say to those you’ll use this study as a rational or excuse to give tax cuts to the wealthiest 3% of taxpayers on the top rate as a way of softening any political backlash from those who miss out?

TREASURER:

Well, let’s actually see how Australia’s top rate compares with top rates around the world. Now, there’s a lot of misinformation that’s put out here. People love, for example, to compare Australia with the United States. What they forget is they’re only comparing with the US federal income tax. There are US state income taxes – I think in 48 states. If you happen to be in New York or Los Angeles or a big city you pay a city income tax. There are traps for new players in all of these debates, so one of the things I want this group to do is to put all the income taxes on the table when you are measuring against the United States. You also find in many of these countries what is called a social security contributions tax. This is just tax by another name. You’ve got to bring these things in. Now, when we put all of these things together, how do our top rates compare around the developed world? How do our thresholds compare? How do our bottom rates compare? How do our business taxes compare? I actually think the important thing here is to get information, Kerry, because I’ve listened to lobby groups put their position over recent months. Every lobby group can produce a statistic which is designed to get a tax break for it –

O’BRIEN:

One thing that can’t be argued, I think, is the quite hefty disincentive, or even inequity, for people on welfare who want to return to work but face the highest tax rate of all and I wonder whether you will tackle that in this Budget?

TREASURER:

Well, look, again, there’s a lot of talk about how that’s a tax rate. What you are actually talking about is they’re subject to the same tax rates as anybody else, which is 30% for most Australians.

O’BRIEN:

But they end up paying 60, 70, 80 per cent.

TREASURER:

No. Under our welfare system, when you start earning income, you begin to lose welfare. It’s not a tax rate at all. What people are doing there, Kerry, is they are adding a tax rate to a welfare entitlement and calling it a tax rate but it’s not a tax rate and again, Kerry, you are illustrating how we need to get to the facts on these things.

O’BRIEN:

I noticed at the Press Club today you talked about making Australia the most female-friendly country on Earth and you nominated areas where we could do better. Child care was one of them. I imagine the words of fellow Liberal and former minister Jackie Kelly would still be ringing in your ears from a few weeks ago when she urged you to scrap the shambles of a child care system and start from scratch to build a new national policy. I don’t think your response was all-embracing, was it?

TREASURER:

I think the child care system that we’ve got at the moment is good. It would be one of the better systems in the world. Is it perfect? No.

O’BRIEN:

Well, imperfect when you’ve got a national waiting list of child care, as she said, of 175,000 places with skyrocketing child care fees – her claim.

TREASURER:

Hang on. Do we need more places? Yes, I agree with that. Are fees increasing? Yes, they are. Not because of the child care system, by the way, but because of wages in the sector. It is a bit unfair to say that the fact that fees are going up indicates that our child care benefit is inappropriate. But do I think that things can be improved? Yes, and I think we ought to try and do that, Kerry. I’ve increased fees – places, I should say – I’ve increased places in child care quite substantially over recent budgets.

O’BRIEN:

We look forward to your next budget, too. You are now Australia’s longest serving Treasurer but you didn’t really want to still be wearing the Treasurer’s shoes this year, the Budget shoes this year. How do you deal with the frustration? Do you pray, do you meditate? Plotting and dreaming doesn’t seem to be much of a choice.

TREASURER:

I amuse myself with doing interview was searching journalists, Kerry.

O’BRIEN:

You always could try the voodoo doll, if you are desperate.

TREASURER:

Look, I enjoy what I am doing. I enjoy being kept on my toes. It’s a stimulating job and I’m just very grateful for the opportunity and privilege to discharge it.

O’BRIEN:

Peter Costello, thanks very much for talking with us.

TREASURER:

Great to be with you, Kerry.