TRANSCRIPT

THE HON PETER COSTELLO MP

Treasurer

Interview with John Laws

2UE

Friday, 28 February 2003

9.15 am

 

SUBJECTS: Telstra; AMP payouts; Budget; Geoff Clark; leadership

LAWS:

Peter Costello, good morning.

TREASURER:

Good to be with you John.

LAWS:

Good that you’re busy, you are busy aren’t you?

TREASURER:

There’s a lot on at the moment, obviously with what is happening in Iraq, difficulties

in the world economy, we’re doing a Budget at the moment, coming up for May,

so there is an awful amount on, but that’s what they pay us for.

LAWS:

Yep, what about Telstra?

TREASURER:

Well, you saw yesterday that Telstra announced a special dividend and also upped

its normal dividend, and I think that will be some good news for the Telstra

shareholders. But of course Telstra shareholders would be disappointed about

the share price and Telstra has been affected – as have all telecoms around

the world – by the fact that financial markets had a love affair with telecoms

in the late 90’s and they have fallen out of love.

LAWS:

That’s about it really, isn’t it, because it was unbelievable at that time and

everybody wanted to be involved?

TREASURER:

Absolutely, and you looked around the world and it was the dot-com revolution,

anything that had a dot-com in it was going up on the stock market, and if it

had a telecom in it, it was going up with it. And underlying all of that, Telstra

continues to make a substantial profit so, in terms of what it is actually doing

and the money that it is making it is still making a profit. But the love affair

of the dot-coms and the telecoms of the late 90’s is over.

LAWS:

Yes, that’s going to cost you about a billion dollars, that dividend, and of

course that would mean that if the rest of it is sold off that would be lost,

wouldn’t it?

TREASURER:

If you sold further shares in Telstra you get the proceeds of the share sale,

obviously, and in return you don’t get future dividends, that’s absolutely right.

And that is why the Government has said, with the share price as it is, we don’t

think it would be appropriate to sell with the share price as it is. We have

made that entirely clear, we would not sell unless we thought there was a decent

share price there.

LAWS:

Okay, when will the share price turn around?

TREASURER:

Well, I am not in the business of making stock market predictions, but the point

I would make is that Telstra still has a substantial profit. By world standards

it is doing well, by world telecom standards it is doing well and our position

is that we won’t be selling any shares unless it is commercial to do so.

LAWS:

Okay, with the economy performing well, and our economy is performing well,

why are so many companies struggling? And they are, Telstra, AMP, plenty?

TREASURER:

Well, AMP is struggling because it went into business in the United Kingdom,

principally, and it has got the situation in the United Kingdom where it bought

a business that pays out essentially pensions, and the business has to invest

in the stock market to make the money to pay those pensions and the world stock

markets, in particular in this case the British stock market, is very down.

World stock markets are down all around the world whether it is Dow Jones, or

the FTSE…

LAWS:

Oh yeah, they’re every where.

TREASURER:

…or the, the Australian stock market is down. It is probably down less than

most of the other stock markets of the world…

LAWS:

But…

TREASURER:

…but they’re all down.

LAWS:

Yeah, but it’s not just AMP, there’s HIH and there’s One-tel. I mean there’s

been a few others. Southcorp’s struggling, a lot, and yet our economy’s okay?

TREASURER:

Our economy is probably, if not the strongest, certainly amongst, you know,

the couple of strongest of the developed world. Whilst Europe is in trouble,

Japan is in trouble and America has been through a recession, the Australian

economy has continued to grow. That’s because we have had low interest rates,

we’ve had a good budget position, we’ve got a new tax system, and it helped

the Australian economy through a very difficult world situation. And it is a

bad world situation at the moment.

LAWS:

But given that all these problems exist among these bigger companies aren’t

you concerned about superannuants?

TREASURER:

I think, John, this is going to be a difficulty in Australia, yes I do. People

got used to big returns in superannuation when the stock markets were strong

in the 1990’s and most superannuation funds have reported negative returns in

the last two years…

LAWS:

Yes, yes…

TREASURER:

…that is, that is the amount that people were entitled to has actually gone

down rather than going up.

LAWS:

Well, were they entitled to it, or is it what they expected?

TREASURER:

Well, what they were being promised on current returns. Now you need to look

at that in a longer context. There was extraordinary big growth in the late

nineties and we have now had a couple of years of negative returns, but some

of these superannuation funds I think are going to have to be very careful about

their investments, particularly those that went off shore,…

LAWS:

(inaudible)

TREASURER:

…there were some that went offshore into the American market just at the time

when they were turning right down.

LAWS:

Made a real mess of that. But what about the people who are considering retiring?

I mean there are going to be a lot of people hurt here, self-funded retirees

are going to be hurt?

TREASURER:

Well, as I said, there was a very strong return over the last 10 years and there

has been negative returns in the last two, so if you look at it over the longer

term people are substantially in front, there is no doubt about that. But it

depends really, doesn’t it, on what happens to the investment climate in the

next couple of years. If the investment climate in the next couple of years

continues to be as difficult as it currently is then yes, that could affect

people’s savings, yes.

LAWS:

How do you feel, not professionally, personally, when you hear these fellas

who are failures, I mean they are acknowledged failures, getting huge handouts

from people like AMP? Stan Wallis and these other people who have presided over

the destruction of a perfectly good company, halved its worth? And they get

a $20 million pay-out?

TREASURER:

Well I think the public can’t believe it.

LAWS:

What about you?

TREASURER:

I can’t believe it. I can’t believe that anybody is worth $20 million. I couldn’t

believe the chap who got $32 million. He might have been good, in that case

it’s said that he actually built the company…

LAWS:

Yeah I think he might (inaudible)…

TREASURER:

…but I find it hard to believe anybody’s worth $32 million.

LAWS:

Well this fella, Paul Batchelor from AMP, and you know what’s happened to AMP,

he’s negotiating a deal of $20 million. Now, like it or dislike it, the man

has got to be described as a failure, wouldn’t you agree?

TREASURER:

I can’t believe that anybody would be worth $20 million and I make this point,

whose money is it? It’s…

LAWS:

It’s shareholders.

TREASURER:

That’s right, it’s not the Government’s money, I can assure taxpayers it’s not

their money, it’s not anything that I have controlled, I can assure you all

of that. It is the money of the people that bought shares in the AMP. And I

am not an AMP shareholder, but if I were, I would want to know who was running

the AMP and why they entered into these sorts of arrangements.

LAWS:

You see it’s also the money of people who just hold policies with AMP?

TREASURER:

Yes, it could be too, because if…

LAWS:

Well it would be.

TREASURER:

…it probably wouldn’t be that great in the scheme of things but yes, it is

an expense against the earnings of the AMP and to that extent would affect policy

holders, yes.

LAWS:

Okay, and Mr Wallis, and Mr Batchelor and all the others who are going to get

the mighty pay-out don’t even have to attend the Annual General Meeting to explain

their behaviour. They’d still get their money but wouldn’t it be nice if they

at least had to go through the discomfort of telling the shareholders how they

managed to screw their company into the ground?

TREASURER:

Well I think the shareholders are owed an explanation, absolutely, and I hope

that the shareholders demand it at their Anuual General Meeting. You see some

people will take another view, of course, they will say if they don’t like a

company, I’m not talking specifically of the AMP, but if they don’t like a company

what they do, of course, is they exit the company. Nobody forces you to stay

in a company. Some will take that view but I hope others will take the view

that they’ll want strong explanations, absolutely.

LAWS:

Why…

TREASURER:

I think taxpayers would demand them of…

LAWS:

…of you.

TREASURER:

…yeah, of a Government. Mind you, we don’t pay anyone a salary of $20 million.

LAWS:

Well, to me I think money is great and I think the more people that make it

the better. And I think the fella with the $32 or $34 million pay-out may well

have deserved a sizeable sum of that because he did create the company. But

these people have effectively halved the value of a prospering company and they

get thanked for their failure. I mean they should, can’t some law be introduced

that says…

TREASURER:

Well, a law, law can be introduced, and is in place, which requires them to

disclose, that’s how we know all about this, the law says you must disclose.

But you have got to remember this, that it is not taxpayers’ money that is being

used to pay this, it is not Government money…

LAWS:

No, no, it’s difficult for you to intervene.

TREASURER:

…it is the money of the people who went and bought the shares, who decided

to go into this. It is their money and it’s, they can do with their money whatever

they like. They can sell out if they don’t like it, they can stay in, they can

demand that the directors take a pay cut or whatever. People say, well, what

is the Government going to do? Well the Government has a responsibility in relation

to taxpayers’ money but this is not taxpayers’ money.

LAWS:

No, I understand that, but surely the Government has also an obligation to businesses

to make sure that they are run correctly and fairly, and should not those arrangements

be disclosed when they’re entered into?

TREASURER:

I think what the Government can and should do is ensure that there is disclosure

so that the shareholders know what’s happening. Now at the moment the law requires

you to disclose for company directors to have their remuneration approved by

the shareholders, the law requires disclosure in relation to senior executives.

I have spoken to the chairman of the Australian Securities and Investment Commission.

I have said to him if he wants to recommend any heightened requirements that

can work, the Government will be very sympathetic to introducing them, absolutely.

LAWS:

Some, one thing you do do, and this is your responsibility and I don’t think

you should do it, is give these people who get these massive pay-outs a concessional

tax rate?

TREASURER:

Not really. Where they get paid remuneration they are taxed and the full marginal

tax rate is 48 ½ cents…

LAWS:

Yeah, but when they get the payout it’s 30 cents?

TREASURER:

…so, so, well, where they are getting remuneration it is 48 ½, and I

guess that is one consolation to the taxpayer, that some of this comes back

in tax…

LAWS:

Okay, but if they’re getting a salary of $300,000 a year, which would be highly

unlikely I would think, and that was being taxed at 48, then surely if they

say okay, well don’t give me all that now, say give me $20 million when I say

goodbye and that’ll only be taxed at 30?

TREASURER:

I don’t think so. It’s a technical area but those payments which are classified

as remuneration are taxed at the full marginal income tax rate. There are some

provisions in relation to termination payments in the nature of superannuation

that can be taxed differently. But as it turns out I did actually make some

inquiries when some of the large remuneration packages hit the press and my

advice is, if it is related to remuneration, full marginal income tax rate.

LAWS:

Yeah, but they say it’s not.

TREASURER:

Well…

LAWS:

They say it’s a pay-out and then they’ve paid 48 cents in the dollar on their

$300,000 a year or $500,000 a year and they pick up $20 million and only pay

30. They are robbing you, Peter.

TREASURER:

They can take their chances with the Tax Commissioner, John. I’ve never heard

anybody suggest in Australia that he is a patsy.

LAWS:

He sure ain’t. But I tell you what, he is a terrifically good bloke, he would

be wide awake to all this.

TREASURER:

Absolutely, look he is an independent statutory officer, he is charged with

collecting proper tax, and I can assure you he is no patsy and they can take

their chances with the Commissioner.

LAWS:

Ok, well another thing is when the companies make the payments, they get a tax

cut too.

TREASURER:

It is not a tax cut, when a company pays an expense, it comes off its profit.

Like the company would pay rent, light, power, wages, and that is all taken

off its profit, and the company at the end of the day pays tax on its profit.

So it’s not that it gets a tax deduction, the wages come out of profit, that’s

the point.

LAWS:

But it is a tax deduction because it comes off their tax.

TREASURER:

It comes off profit and you’re only taxed on your profit. So, it is an expense

of business and because it is an expense of business, it comes off profit and

only the profit is taxed, that is the way it works. But that has always been

the case. You could not say to companies…

LAWS:

Doesn’t mean it is right though.

TREASURER:

…we will tax you on money which is profit and expenses. That would be unfair

to companies. The proper way to tax this is to tax it in the hands of the person

who receives it, and that is what we do.

LAWS:

But the trick they are getting away with is, we will put you on a salary of

half a million, you will be paying forty-eight cents in the dollar on your half

million, and then at the end of the year we will give you a bonus of ten million

and you will only pay thirty cents.

TREASURER:

No I don’t think so. The bonus, if it is related to bonus for working, as it

is, would be taxable at the marginal tax rate. That’s the advice I’ve got.

LAWS:

Well maybe we should talk to the tax man about this because…

TREASURER:

He would be very happy to talk to you.

LAWS:

Listen, who sets Geoff Clark’s salary, the boss of ATSIC?

TREASURER:

I would think off the top of my head it would be the Remuneration Tribunal,

there is a tribunal which sets Commonwealth officials’ salaries.

LAWS:

Who sets yours?

TREASURER:

Remuneration Tribunal.

LAWS:

Same one?

TREASURER:

Same one, I would think.

LAWS:

You better have a talk to them. He gets $235,000 a year, you get $185,000.

TREASURER:

He gets paid more than me.

LAWS:

He does. You’re the Treasurer.

TREASURER:

Yeah.

LAWS:

Your going to be the Prime Minister more than likely one day. And this man

gets paid more money than you.

TREASURER:

Seems so.

LAWS:

Well what do you think about that?

TREASURER:

Well, I am not going to start complaining about my salary, because I do not

think that I would get much sympathy from the public. But, all I can say is

there is a Tribunal that does it, I abide by the Tribunal’s ruling. I assume

he does too.

LAWS:

Not only does – I bet he does, I bet he loves the Tribunal, but not only does

he get $235,000 a year, he gets himself into pub brawls, winds up in a court,

and ATSIC pay $45,000 dollars worth of legal fees for him. It is very unlikely

that you would get into a pub brawl, unless you happen to be with me.

TREASURER:

What, get into a brawl with you, you mean?

LAWS:

But I mean, if you went to the Prime Minister and say, listen…

TREASURER:

If you and I got into a brawl, I don’t know who would win John. We would be

both as slow as each other.

LAWS:

But if this happened, and you went back to the Prime Minister and said, listen

I got involved in a pub brawl and I have got to go to court, will you pay the

court costs? Of course he wouldn’t. So why should this man have taxpayers’ money

because he decided, and apparently it was a very, very unpleasant pub brawl

with foul language, dreadful language, being thrown in all sorts of directions,

and the taxpayers, which includes you, we have got to pay the bill. Is that

right?

TREASURER:

I think the principle would be if you got into trouble in the course of doing

your job, then your employer should look after you, if you got into trouble

in a private situation that had nothing to do with your job, you were just in

a pub for a drink, then the principle is that you’re on your own. I think that

is the principle here.

LAWS:

And you would not see that as being unreasonable?

TREASURER:

Well no, and that is the principle that we have always followed, I think that

is a reasonable principle. If it is in the course of your job, if you get into

trouble because you are doing something you have to do because of your job or

you’re going to a meeting, in the course of your job or something happens, then

the employer looks after you. But if it is outside of your job hours and it

is not to do with your job, then you’re just in a social situation, then it

is your responsibility.

LAWS:

Yep, well the court case is not over yet, it has all been alleged, some detail

has come out. But what we do know is that ATSIC approved the funding of forty

five thousand dollars for legal expenses. Now, you’re the boss of money in our

place aren’t you?

TREASURER:

Yep.

LAWS:

So how can you condone that?

TREASURER:

Well, as I say, my view is that if it is something you do in a private capacity,

you’re on your own, that is my view and that is the rule that generally applies

in private enterprise or in the public sector. This decision that has been made,

has not been made by the Government, it has been made by the Board of ATSIC

as you know…

LAWS:

And is the Board of ATSIC totally autonomous?

TREASURER:

Yes. It is like its own Government, they have elections, they elect this Board,

it is like sort of a, its own Government and it has made its decision. Now Phillip

Ruddock, the Minister, has written to the Board and asked them to reconvene

and reconsider, but it makes the decisions, it’s not the Government that makes

the decisions. You know they have ATSIC elections, you get on a roll, you elect

the representatives of ATSIC, and it is responsible for all of the affairs of

ATSIC.

LAWS:

Ok, well all of that is fine, we pay for our Government, don’t we?

TREASURER:

Yep.

LAWS:

The Australian population, we pay for our Government

TREASURER:

And taxpayers, I should say that the ATSIC money is taxpayers’ money.

LAWS:

That’s the point.

TREASURER:

The taxpayers’ money is passed across to ATSIC.

LAWS:

Ok, well you’re a lot better at numbers than I am, the Aboriginal population

makes up about two percent of the Australian population, so that means that

ninety-eight percent of the money that goes to ATSIC is coming from white people

to allow black people to run their Government. Where is the equity in that?

TREASURER:

Well you see the reason that the money is given to ATSIC is, and I think that

people would legitimately think that this is important, is to help with standards

of health, education, to look after disadvantaged people in the aboriginal community,

and I think that people will all agree with that. That’s important.

LAWS:

If it is done.

TREASURER:

But, you know, you would have to ask yourself, and ATSIC will have to ask itself,

is this a good use of money which has been given to look after aboriginal disadvantaged

and aboriginal health and aboriginal wellbeing. I think the public would say

to itself, yes it is important to look after aboriginal health and welfare and

to deal with disadvantaged, because there is terrible disadvantage amongst some

of the aboriginal communities…

LAWS:

It has not improved. The lot of the Aboriginal people have not improved since

the invention of ATSIC.

TREASURER:

Yes, well that is right and I think it is very important. I think that the

taxpayers want to know that they are getting value for money, they are entitled

to know that.

LAWS:

And I think also they are entitled to know that the money is being spent correctly

and to the aboriginal people who are genuinely in need, and my god there are

plenty of them who are, are getting the assistance they deserve…

TREASURER:

Yes, absolutely

LAWS:

But how is forty-five grand to Geoff Clark going to help the underprivileged

aboriginal people?

TREASURER:

You will have to ask Geoff Clark that.

LAWS:

I don’t think I will get an answer Peter, that’s the problem and I really think

it is the sort of thing, and when you hear, and I know (inaudible).

TREASURER:

Well Phillip Ruddock has written to them, and asked them to reconvene, and

to re-look at this issue and these are all very valid points that should be

made in the context of that decision and I can also point out, you know this

that, the former Chairperson of ATSIC, Lois O’Donaghue, takes the same view.

LAWS:

I am not surprised at that, she is terrific.

TREASURER:

It is up to them to make the decision.

LAWS:

Is the cost of the war going to blow the Budget out given you are already forfeiting

the money from Telstra’s sale in the short term?

TREASURER:

The cost of the pre-deployment will run into hundreds of millions of dollars

and are obviously, we don’t know whether there will be a war, we don’t know

the duration of the war, so I can’t be more precise than that, but we have already

pre-deployed ships and aircraft and special forces and that pre-deployment alone

will cost hundreds of millions.

LAWS:

We haven’t got a bottomless pit what do we do?

TREASURER:

Well John, we will have to be very careful in other areas of Government expenditures,

because nobody is going to allow our troops to go off to the Middle East without

proper and adequate support and funding. That is the first priority of the Government.

And so what it means is that other things which we might have done, we won’t

do, we will just have to more careful, and the soldiers will take priority.

LAWS:

You have been Treasurer for nearly seven years?

TREASURER:

Yes.

LAWS:

A long time?

TREASURER:

Yes.

LAWS:

How much longer are you going to be Treasurer?

TREASURER:

Well, I am in the middle of the next Budget and I’m totally focused on that

and that is going to keep me fully preoccupied over the next couple of months

and that is all I am focusing on.

LAWS:

That is a nice way of saying, John that is none of your business.

TREASURER:

Well, it is a way of saying that I’m fully focused on the job that I’m doing

at the moment and I have got a very big responsibility and I’m not thinking

outside of that.

LAWS:

Do you still think about being Prime Minister?

TREASURER:

Look, as I say, I fully focus on being Treasurer, I don’t think speculating

on those sorts of things are very helpful.

LAWS:

Helpful to me.

TREASURER:

Be a good story for you, that wouldn’t be helpful for me or what I am currently

focused on.

LAWS:

Ok, well I should not like to do anything that is not going to be helpful to

you Treasurer, it is the last thing on my mind. It will be interesting to see

what the story is with the big payouts ultimately, it will be interesting, probably

more interesting for the people of Australia to see what the end of the story

is with Mr Clark and his earning capacity and his ability to have this legal

funding provided by the taxpayers of Australia, I don’t think those two things

will go away nor do I think they should, do you?

TREASURER:

I think the public has got a right to know what is going on, absolutely and

I think the public has got an interest in this and as I say, the only person

that can give you explanations in relation to this is ATSIC, so you are entitled

to get an explanation in relation to that in my view.

LAWS:

Okay, big weekend planned?

TREASURER:

Well, I hope to see something of my kids actually, go home and do a barbecue

for them.

LAWS:

Good on you, I hope you enjoy it. Peter, always good to see you and I appreciate

your time, you are very generous with it.

TREASURER:

It’s great to be with you John, thanks very much.