Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Disclaimer: The Parliamentary Library does not warrant or accept liability for the accuracy or usefulness of the transcripts. These are copied directly from the broadcaster's website.
Peter Costello says Govt is acting on ageing -

View in ParlViewView other Segments

Peter Costello says Govt is acting on ageing costs

AM - Thursday, 25 November , 2004 08:04:00

Reporter: Alexandra Kirk

ELEANOR HALL: The Treasurer, Peter Costello, says the Productivity Commission's findings endorse
the Government's warnings of the need to act now to prevent a fiscal crisis in the long term.

Two years ago Mr Costello began the process of looking at the economic consequences of Australia's
ageing population, releasing what he called an 'intergenerational report'. And he says today's
report by the Productivity Commission echoes the concerns raised in the earlier report.

Mr Costello has just returned from a meeting of the G-20 in Germany and has joined us in our
Melbourne studio.

The Treasurer is speaking to Alexandra Kirk.

ALEXANDRA KIRK: Treasurer, good morning.

PETER COSTELLO: Good morning Alex.

ALEXANDRA KIRK: Firstly, the Productivity Commission has put the cost of Australia's ageing
population even higher than your intergenerational report of two years ago, and it's predicting a
looming fiscal gap of as much as $2,000 billion. It says that you need to make some tough decisions
on tax and health. Are you ready to act now?

PETER COSTELLO: Well, we raised this issue two years ago because we thought the important thing was
to take the Australian public with us in understanding first of all, the dimensions of the problem.
And this independent report has confirmed what we said in our intergenerational report.

And the point that I've been making all along is: Australia will have to deal with the ageing of
the population, and it will have to deal with the major costs that that will bring. We'll either
deal with it in small licks early on, or be forced be deal with it in large dislocation later on.

But we will have to deal with it. Demography is destiny. Our destiny has been set by the changing
fertility rates since the 1960's. It's set in stone - we can't walk away from it, we can't change
it.

ALEXANDRA KIRK: So will you take up the challenges now put up by the Productivity Commission for
action, both on tax and health?

PETER COSTELLO: You either deal with it early on in small amounts or later on in larger amounts.
And we have begun to deal with it. Now, we've begun to deal with it in trying to get pharmaceutical
benefits onto a sustainable footing. Let me give you one figure, which the Productivity Commission
finds - and I think Australians ought to think about this carefully.

For men who are aged 65 to 74, the average costs of their pharmaceutical benefits is 18 times men
aged 15 to 24. 18 times. So as your population ages and you get a much larger proportion in that 65
plus, the draw down on Pharmaceutical Benefits Scheme is 18 times the cost of when they're young.

Now, what that tells you is you've got to get this Pharmaceutical Benefits Scheme onto a
sustainable basis, or the ageing of the population will break it. That's why we had two years ago,
small measures to try and make this financially sustainable.

ALEXANDRA KIRK: So people are going to have to pay for the drugs themselves now - for the real cost
of the drugs?

PETER COSTELLO: Well, as you know, we announced changes in our budget two years ago - they were
opposed in the Senate. We finally got them through, and by winning the election, we've been able to
keep those measures in place.

So what we've got to continue to do is we've got to continue to get best cost per dollar, because
the ageing of the population is just going to drive these costs out of the reach of average
Australians.

ALEXANDRA KIRK: But the Productivity Commission is urging far more serious action on a broader
front, saying you have to improve the cost effectiveness of the health system as a whole.

Don't you now have to address what to do, for example, with older Australians who are in hospitals
because there are no nursing home beds for them, in order to relieve the pressure on the stressed
hospital system?

PETER COSTELLO: Yeah well, let me give you another figure which comes out of this report. The cost
of health care for somebody between 35 and 54 is $1,700, in average. If you're over 85, it's
$7,900. So in that older group of Australians, health care costs per person are four times what
they are for younger Australians.

Now, what that means is, you've got to ensure that you're getting best value for dollar in health
care. It also puts into perspective, incidentally, that a promise to give free private health care
to everybody over 75 - the Medicare Gold promise - was probably the most irresponsible promise
that's ever been made in Australia, when you look at these figures.

ALEXANDRA KIRK: But Labor lost the election and you won the election, so isn't it time to
concentrate on what you're doing, and isn't it time to address the problem of the number of older
Australians who are in hospitals when the hospitals themselves say they should be in high care
nursing homes?

PETER COSTELLO: Well, the most important thing is to try and keep as many older Australians as
possible out of hospitals - that's to improve healthcare so that they can stay at home, and to
improve health and community care packages.

If we just say we're going to move people over 85 into hospitals or aged care homes, frankly we're
giving the game away. The idea is to keep as many as possible in the community.

The idea, as I've said, is in age groups where we have under-participation, particularly men over
55, to keep them in the workforce longer. And we've got to try and engage people in society much
more, because we know once they retire, their healthcare goes up, their illnesses go up, and in
fact these are the areas where we're going to find increasing pressure to fund services.

ALEXANDRA KIRK: In your view, should the commonwealth take over the running of the hospitals from
the states?

PETER COSTELLO: Well, look - one of the things incidentally that this report finds, is that this
huge fiscal gap, six or seven per cent of GDP - we're talking 50, 60 billion dollars per annum - is
going to be borne by the commonwealth.

One of the reasons why I commissioned this report was that state governments said, of, what about
us? We're going to have to bear some of this cost. In fact, what the report finds, is it's going to
have to be borne by the commonwealth, and the commonwealth's going to have to deal with this.

The point I make - the commonwealth can't keep on taking over new areas of expenditure, when it's
bearing the brunt of the ageing of the population, whilst giving the states the growth taxes which
we have.

ALEXANDRA KIRK: So what tangible action will you take then? You've outlined what the challenges
are.

PETER COSTELLO: We'll increase participation. We've got to increase participation amongst older
males. We've got to increase participation amongst women coming back into the workforce.

We've got to increase participation amongst people that are on disability support pension. We've
got to give incentives for people to work part-time - maybe by drawing down on their
superannuation, over 65.

We've got to put the Pharmaceutical Benefits Scheme on a sustainable basis. We've got to get people
to co-contribute to their health care costs with private health insurance incentives.

All of the things that we've been working on, we have to put in place and we have to deliver
further, and we have to raise the productivity in our economy to cope with what is set in stone.

This is going to happen. That's my message. It's done. Demography is destiny, this is set stone.
The only question is how we respond to the ageing of the population.

ALEXANDRA KIRK: Well the Productivity Commission says on the productivity front that the Government
should index the marginal tax rates to the cost of living increases, which would cut the extra
revenue that you need by half. You've been unwilling to do that so far - is it now time to bite the
bullet?

PETER COSTELLO: Well, we've done better than that. If all we had done was index the tax scales of
1996 to inflation, then people would be paying more tax than they are today. What we've actually
done, is we've reduced income taxes in real terms.

And I actually think that's still the game here. If all you were to do was to say over the next 40
years we'll just index those thresholds to inflation, I think you'd be ruling out what we ought to
be working out, which is in some respects and at some levels, reducing them.

ALEXANDRA KIRK: You've just returned from a meeting of the G-20 in Germany and in this time, the US
dollar has continued to plummet. Is there concern among the G-20 about the low US dollar?

PETER COSTELLO: Oh yes, there's a lot of concern, particularly between Europe and America - this
has become a very tetchy relationship. The European economies are not growing strongly. The
American dollar is falling - that is making it harder for the Europeans and improving the
Americans' competitiveness.

The Europeans would like a stronger US dollars and the US would like the European economies to grow
faster, and it's become very tetchy. From Australia's point of view, our dollar is now at a quite
high level.

Part of that is because commodities are high, but the other part of it is that the US dollar is
falling all around the world. And this is making life tougher for Australian exporters.

ALEXANDRA KIRK: And would the G-20, including Australia, like the US to do something about the...
something to stop the slide in the dollar?

PETER COSTELLO: Well, I don't think it's real life to expect a government to intervene in relation
to its own currency and nobody is asking that. But what the G-20 did say, and it reaffirmed this in
its communiqués, is that the Americans will have to deal with their deficits, including their
budget deficit, which is very, very high and their current account deficit.

And the American administration knows that, and it's said that and it will have to deal with that
over time. That might reduce some of the imbalances in the world at the moment, and certainly get
the American economy onto a stronger financial footing.

ALEXANDRA KIRK: And on the continuing problem of the secrecy of... in Switzerland, of Swiss bank
accounts and Australian has a stake in here - has there been any progress?

PETER COSTELLO: Well we raised this matter at the group of 20 in Berlin - we pushed very strongly
for concerted action against countries that are applying secrecy laws which is helping tax
avoidance and corporate malfeasance.

And our initiative was taken up, it was endorsed by the G-20 and the group of 20 - these are the
largest nations in the world financially - are going to put pressure on those countries that are
not currently complying.

ALEXANDRA KIRK: What sort of pressure?

PETER COSTELLO: Well, they're going to start off by applying diplomatic pressure and there could be
graded responses.

Now, some of these countries may think to themselves, oh well, we can withstand pressure from
Australia and they probably can. But, if the pressure comes from the United States and Britain and
Germany and France and Japan and the group of 20, then I think we've got much better prospects.

It's something I pushed very strongly at this meeting and the meeting endorsed it. And the nations
have pledged to take this up with countries that are not complying.

ALEXANDRA KIRK: And just back on the domestic front, your colleague, Foreign Minister Alexander
Downer is predicting that the Labor leader Mark Latham will face a leadership challenge by
Christmas next year. As a sporting man, what odds do you give Mark Latham, leading Labor at the
next election?

PETER COSTELLO: Well, I think they've probably made up their mind about Mr Latham, but what they
haven't made up their mind about is the alternatives, so I'll watch like everybody else to see what
alternatives emerge over the course of next year.

ALEXANDRA KIRK: And speaking of leaders, when do you think you'll assume the Liberal leadership?

PETER COSTELLO: Well, I get asked this question practically every day, and the answer never
changes, Alex. I'm very happy doing what I'm doing at the moment and I'm working on big issues -
like funding Australia for the next 40 or 50 years.

ALEXANDRA KIRK: Mr Costello, thank you.

PETER COSTELLO: Thanks Alex.

ELEANOR HALL: The Treasurer, Peter Costello speaking to Alexandra Kirk.

(c) 2006 ABC