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Transcript of media doorstop: Sunday 30 March 2003: Parliament House, Canberra: petrol prices and the budget, ACCC chair, Reserve Bank governor.

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Subject: Petrol prices and the budget, ACCC chair, Reserve Bank governor.

MCMULLAN: The Treasurer today deliberately misled the Australian people about the impact of the increase in oil prices on the Commonwealth Budget. The Treasurer said there is no benefit to the Commonwealth Budget from the big flow of extra GST revenue that Australian households are paying as petrol prices go up. That is absolutely untrue, and he knows it is absolutely untrue. This financial year, every extra dollar of GST revenue flows directly to improve the bottom line of the Commonwealth Budget, because it reduces the amount the Commonwealth has to pay in compensation to the states. The Treasurer knows that. Every independent commentator knows that. He deliberately set out to create a false impression this morning. I think it is because he is embarrassed at the massive way in which he is now the highest taxing Treasurer in Australia, and he is trying to cover up the fact that not only is income tax higher as a percentage of GDP than it’s ever been before, but he is ripping off more and more in indirect taxes as well.

The disturbing thing is, this is also part of a pattern of behaviour by the Treasurer, where he tends to deny uncomfortable realities. On Friday he sought to deny that he is reducing the tax on excessive executive termination payments by a Bill he introduced into the Parliament last week. Media assessments suggest that that amendment could reduce the [revenue] benefit on some executive payouts by as much as a million dollars. Now I can’t validate that particular assessment, but I do know that the tax increase is going to cost taxpayers millions, and the only beneficiaries are going to be people who are getting excessive termination payments. And again on Friday, the Treasurer deliberately sought to confuse the situation in the hope that he wouldn’t be exposed for taxing ordinary families harder and harder and going soft on the top end of town.

JOURNALIST: Is it time for the Treasurer to be more up front about how much exactly the war is going to cost this year?

MCMULLAN: Well, it would be good if the Treasurer was more frank about that. But as the length of the war gets harder and harder to predict, the cost gets harder. What I really want him to do is to be frank about how the revenue is flowing in to fund it. In the Budget, I assume we’ll get some assessment of the cost of the war for this financial year, and a first estimate of it for next financial year. But the thing that is being covered up is the massive

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increase in revenue. The ANZ Bank independently assessed that increased oil prices will benefit the Commonwealth by about $600 million this financial year.

JOURNALIST: Do you think there is a prospect of a deficit for 2003-04?

MCMULLAN: Well, there shouldn’t be a deficit in 03-04 because we’ve got this massive surge of revenues. When you’re getting the highest level of taxation ever, you should be able to fund decent services without a deficit. But I’ll wait and see what the Treasurer has to say on 13 May.

JOURNALIST: But if the war drags on, and it’s going to be costing us hundreds and hundreds of millions of dollars, as he says, do you think there’s a prospect, or do you think there’s enough of a buffer?

MCMULLAN: I think the only reason that the economy might go into [budget] deficit is if it slows significantly, if the rate of growth is much less than the Treasurer appears to be currently anticipating. That’s what will have a big impact on the Budget. Now clearly I hope that doesn’t happen, because that will be bad for the economy and bad for families who will start to lose jobs, and that will have an impact because of the very high debt burden that families are carrying. If the economy slows, families will be hit hard. If the economy goes into [budget] deficit, that’s I think what will make it do so.

JOURNALIST: Part of the reason for the big tax take is that the non-farm part of the economy paying the bulk of the nation’s taxes is quite strong. That’s a good thing, isn’t it?

MCMULLAN: That’s not the case. That’s why the whole GDP is getting bigger. But why is the Commonwealth taking a bigger proportion of it? That’s because the Commonwealth is not giving back any income tax cuts, and bracket creep is driving people to paying a higher and higher proportion of their income in tax. Of course the absolute amount of money gets bigger as the economy gets bigger, and as you say that’s good, because the economy is growing. But the proportion of that output that the Commonwealth government is taking is getting bigger and bigger. That is the problem.

JOURNALIST: The Prime Minister has talked about wanting, down the track, to offer tax cuts to Australians. Do you think the war makes any prospect of tax cuts in the foreseeable future unlikely?

MCMULLAN: The Commonwealth Government absolutely has to look at providing tax cuts. It should be doing so in this budget. It may have blown it to such an extent that it can’t afford it. That will be a great pity for Australian families. But certainly Australian families are owed a tax cut. They are paying more of their income in tax than ever before, and they are owed a tax cut by the Howard government. They should get it in this budget. If they have blown the Budget such that they can’t afford it, then that would just be another case of Australian families carrying the burden for the mismanagement of the government.

JOURNALIST: But on the information we know about this budget, the prospect of any meaningful tax cuts must be zero?


MCMULLAN: Well, it is possible to say that the way the government blew the budget, lost control of expenditure in the lead-up to the 2001 election, and their subsequent behaviour probably means they can’t afford an income tax cut. But they should be able to. Families are paying more income tax than ever before. The GST is reaping in more money than indirect tax has ever taken before. And nobody can say that there is a massive increase in good services in health or education. Those services are falling. So families deserve a tax cut. They should get one. But it is possible that Peter Costello has so lost control of the Budget that he can’t afford to fund one.

JOURNALIST: Does the war make a good excuse for the Commonwealth not to offer tax cuts?

MCMULLAN: It would be a pity if the Commonwealth hides behind the war to avoid offering tax cuts. If the war is costing hundreds of millions of dollars, as the Treasurer says, then that is probably correct. Then in a Budget

of hundreds of billions of dollars he should be able to afford a tax cut, but I suspect that he won’t.

JOURNALIST: You gave a speech last week saying budget deficits aren’t all that bad, by themselves. Do you think the Treasurer might be taking your advice on fiscal policy?

MCMULLAN: I said in that speech that I thought the Treasurer agreed with me, because he had run a deficit, and he had applauded the United States running a deficit. So I was hoping that we had got rid of the deficit fetish in the Australian debate about economic policy. But if the economy is growing anything like as much as the Treasurer says it is, then we should not be running a deficit this financial year or next.

JOURNALIST: The US is looking at a deficit of about 3 1/2 per cent of the total economy. The OECD in fact is on average in deficit. Isn’t Australia doing pretty well, given that, to be running a surplus at the moment?

MCMULLAN: Both sides of politics have had a public commitment to balancing the budget over the cycle, and if the economy is running strongly, that means you should be running a surplus. I think that it’s a good healthy situation for Australia to be having both sides of politics committed to

balancing the Budget over the economic cycle and to running surpluses when the economy is strong. That’s a good thing to have, and I think we should maintain it. And I hope it isn’t undermined this year by a deficit, like it was last year, when the Treasurer ran a deficit at absolutely the wrong time.

JOURNALIST: The Treasurer says he is going to break the deadlock over the successor to Professor Allan Fels. What do you think he should do?

MCMULLAN: Well, I have thought for some time that there isn’t actually a deadlock. What there is, is that the Treasurer has mishandled this thing from day one. He’s just been arrogant and assumed that he could make a nomination and not bother with the rules about how such positions are filled. The situation is, his nominee does not have the support required to fill the

position, and he should look for another one. It’s the height of arrogance to pretend that the only person in Australia who can do any particular job is the person you’ve nominated. Everybody who’s been looking at this issue knows


there are people inside the Commission and outside perfectly capable of filling the job of chairman of the ACCC, and the Treasurer should be looking for a consensus candidate instead of being unnecessarily provocative and divisive.

JOURNALIST: But he does have a point when he says that the majority of governments, including the Commonwealth, support one person, and the alternatives have got the support of one or two states at best.

MCMULLAN: Well, there are alternatives who have not been nominated by anybody, but who would make very good heads of the ACCC. If I mention their names that will be the end of their prospects, so I’ve got no intention of doing that. But we all know they exist, and their names are in discussion. But the rules say the Commonwealth has the major power, it has the power of nomination. But because we want heads of the ACCC to be people who have broad support across all the governments of Australia, we have a set of rules about how they have to be nominated. And that’s not just a quirk of history, that’s a deliberate choice because we want heads of the ACCC to have the confidence of the overwhelming majority, if not all, of the governments of Australia. And that’s a good thing. It’s a healthy thing. And its been undermined by Peter Costello’s provocative, arrogant way he’s gone about handling this nomination. And I hope he can find a nominee who can get that widespread support. Such people exist, but he’s not looking for them.

JOURNALIST: The Commonwealth also has the power to appoint on an interim basis a chairman of the ACCC. Its been suggested that Samuel might be appointed on a 12-month basis. What we be your response to that?

MCMULLAN: Well, that would be, if the Treasurer does that -- and that’s entirely speculative -- it certainly wouldn’t be an attempt to achieve any sort of consensus or broad basis of support for the filling of the position. And I think that would be a pity and it would indicate another failure of the Treasurer to be able to win majority support in sensitive circumstances, and just try to bulldoze his way through on the assumption that his view is the only legitimate view.

JOURNALIST: Do you think Mr Macfarlane should be reappointed as governor of the Reserve Bank?

MCMULLAN: I think Mr Macfarlane has done a very good job as the governor of the Reserve Bank. The Treasurer said he had his confidence. He also has mine.