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Treasurer discusses GST; jobs; unemployment; wages; workers' entitlements; prices; Consumer Price Index; beer; fuel.



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Transcript No. 2000/14 TRANSCRIPT OF The Hon Peter Costello MP TREASURER

John Laws 2UE Friday, 11 February 2000 9.10 am

SUBJECT: GST, jobs, wages, workers entitlements

LAWS:

The Federal Government had some good news yesterday on the unemployment front, that the jobless rate had fallen below 7 per cent. Treasurer Peter Costello predicts it could fall to a decade low of 6.5 per cent by the middle of the year. Although the drop’s partly because fewer people are looking for work, and also the way the figures are calculated I think is starting to confuse some people. Anyway, despite all that, the GST remains the Government’s biggest challenge. And I suppose the Government’s biggest problem. It’s been the subject of almost daily scare campaigns in one way or another. And Peter Costello is the one trying to calm the fears, and he’s on the line. Good morning Treasurer.

TREASURER:

Good morning John. How are you this morning?

LAWS:

I’m pretty good. What about you?

TREASURER:

Not too bad actually.

LAWS:

Are your, is it fair to say, I think I heard somebody say, that your economic credentials are on the line over this tax, is that fair?

TREASURER:

Over the tax reform?

LAWS:

Yes.

TREASURER:

Well, I’m quite happy to stand up and say, that this is the biggest tax reform in Australia’s history and as the Treasurer I’m the person that’s responsible for tax reform, and I think this will be one of the great structural reforms for Australia. It’ll bring us into the modern era. There are 150 countries in the world that now have a GST or a value added tax. 150 countries in the world have all managed to make the switch. And as part of that we are reducing income taxes, the largest income tax cuts in Australian history, reducing capital gains tax and increasing family allowances.

LAWS:

Yes. Now they’re all the things of which we’re aware and yet they seem to be all the things that aren’t being readily accepted by the general public. I talked yesterday to my friend Peter Maher from Rehame, the research organisation. And it transpires that this is the most talked about thing on radio in Australia at the moment, this GST. And less than 6 per cent of people have anything favourable to say about it, and sadly less than 3 per cent of women. So even though there are all the plusses that you mentioned and there are all the plusses to which I’m, which I’m aware - like the capital gains tax halving, like the reduction in PAYE tax - why is it that it’s not being accepted?

TREASURER:

Well, I think that people, obviously, where there’s change people are worried about change, they’re looking forward and they’re saying well, how is this change going to affect me? And people get worried about possible negative implications. That’s one thing. The second thing is, that people haven’t seen income tax cuts, and the income tax cuts come on 1 July.

LAWS:

Yes.

TREASURER:

So that what you’re seeing at the moment is one side of the equation, which is the changes to indirect tax. What you see after 1 July is the other side of the equation. People are going to have much more income in their pocket. For a family with two children (inaudible) $30,000, that’s $70 a week extra. $70 a week extra in either less income tax or more family allowances, and what that’s going to do is put more money into their pockets, so that if there are price rises - there’ll be some price rises along with some price falls - you’ve got more money to spend, which is the whole idea, incidentally, of reforming taxation.

LAWS:

Yes. The point of prices falling is one that is confusing a lot of people and bewildering a lot of people because there’s no guarantee that prices will fall. I know that you say the market will level out and people will have to be competitive,

but we’ll get to that in a minute. You estimated the GST’s impact on prices would be around 1.9 per cent.

TREASURER:

We said that the overall impact on the Consumer Price Index would be of the order of 1.9 per cent . . .

LAWS:

What . . .

TREASURER:

. . . (inaudible). The package was changed a bit in the Senate but that’s the dimension, yes.

LAWS:

Well, most of the economists, and dare I say I imagine that some of them are as qualified as people in Treasury, most of the economists are saying that that in fact will be at least 3, somewhere between 3 and 6 per cent.

TREASURER:

I think what they’re saying and we’ve said this too, is that the overall impact is the impact over a period of time. What you would expect is you would expect prices to go up short term and then as other taxes come off and work through the system, come back down again. We’ve said, during the course of the first year you’ll get a bit of a spike and then it will come back. We’ve said, that the impact during the first year would be around 2 ¾ per cent, we think, on the Consumer Price Index I think that’s the view of a lot of other people as well. Because what happens is, you see, you introduce GST and you abolish wholesale sales tax . . .

LAWS:

Yes . . .

TREASURER:

. . . right, that happens on day one. But then as the year goes on, you get savings flowing through because wholesale sales tax is embedded in a whole lot of other prices. It may take some time, those embedded or indirect wholesale sales taxes, to work their way through the system. So you get a spike, and then as the other embedded taxes come off and work their way through the system it comes back down again.

LAWS:

What about these examples? Beer over the counter rises by 7 per cent, restaurant meals up by the same. They say most clothing up by 10 per cent, new homes by 8 per cent, club membership up by 10 per cent. The beer is the one that’s bothering a

lot of people, it seems extraordinary, but it is.

TREASURER:

Well, what we’ve said is we’ve fixed the way in which GST and excise works so that the slab, we work off a slab of package beer, moved 1.9 per cent. That was our policy. When you come to a beer in a pub, you’ve got a service component in relation to that beer so you would expect the price to go up more than 1.9 per cent. But you’ve just read out a list of a whole lot of things which would go up. There’s another list of course of a whole lot of things which will come down . . .

LAWS:

Yes, did that yesterday.

TREASURER:

. . .and when you balance them out over a period of time you get a price impact of the dimensions that we’ve just been talking about. Anything that has a direct wholesale sales tax at the moment of 22 per cent should, in a competitive market, come down.

LAWS:

Mr Howard said to me on this programme during the election campaign, he said and I quote him: "we’ve taken care to ensure that there is no significant increase in the price of alcohol, it’ll be no greater than in relation to beer, for example, the normal CPI increase", well it is greater, isn’t it?

TREASURER:

Well, that’s packaged beer and I think . . .

LAWS:

Well, he didn’t’ qualify.

TREASURER:

Well, I actually asked him about that the other day and he said he was answering a question, this is what I was told, of somebody who’d written in or faxed in or something from a bottle shop. And he took the question as applying therefore to packaged beer and the policy, and, you know, I wrote the policy, is always entirely clear. When you talk about a beer, you’ve got to talk about a product. There are so many different products of beer and we said we’d take it, the benchmark product, a packaged slab. Now, I am told incidentally, I don’t know if this is right, but I’m told that it’s something like 75 per cent of beer is now packaged beer for consumption. Whether that’s right or whether that’s wrong, we worked off the price move in relation to packaged beer and as you know one of the reasons why you do that, is that you can get large variations for different beers across the counter. You’ve got to have a standard product that you work off, and ours was

packaged beer.

LAWS:

Now what happens if you ask for a bottle of beer instead of draught beer?

TREASURER:

The price effect on bottled beer would be the same - 1.9 per cent.

LAWS:

I see. So the 7 per cent would only apply to draught beer?

TREASURER:

That is the estimate that’s been given in relation to the service of a draught beer . . .

LAWS:

Going to make a hell of a . . .

TREASURER:

. . . across the counter.

LAWS:

. . . make a hell of a mess of the sale of draught beer, isn’t it?

TREASURER:

Oh, well look, you know, as I said, at the end of the day there’ll be some prices that come down, there’ll be some prices that go up, but at the end of the day everybody’s got more money in their pocket. I mean, this is the whole idea, is to say to your beer drinker as much as anybody else, we’re not going to tax you as much. We’re going to give you and your family higher family allowances, you’ve got more money in your pocket. Now, that will more than outweigh any price rises, it’s up to you how you spend your money.

LAWS:

Yes. Well . . .

TREASURER:

You can’t have it both ways. You can’t say . . .

LAWS:

No, I agree with that . . .

TREASURER:

. . . oh well, we’ll drive prices down.

LAWS:

. . . I agree with that . . .

TREASURER:

. . . and we’ll cut income taxes.

LAWS:

. . . that’s one of the attractive things about the GST. But what about the service of drinks in restaurants, that’ll be even bigger, won’t it?

TREASURER:

Well, in relation to the service of drinks, because there is a service component, you would expect that there would be a greater price rise. No price is going up more than 10 per cent, but you would expect that there would be a greater price rise than if you happened to go down and buy a bottle, like a bottle of wine or something, because when you buy a bottle there’s no service component. It’s the same principle in relation to beer.

LAWS:

When you say, no price will go up more than 10 per cent, isn’t that a bit sweeping?

TREASURER:

Oh no. Look, at the end of the day this is a 10 per cent GST. So, if there were a product, and I don’t think there actually is a product, but if there were a product out there on the market that had no direct or indirect tax on it at the moment, if there was such a product, and I haven’t yet come across such a product, that product would move 10 per cent. But most products won’t move anything like it because most products currently have a direct tax which is abolished. And those direct taxes are embedded in other things that go into its price, like the transport system, like the warehousing system, like the retail system, and when you take out those embedded taxes you also take out taxes that flow into the price. So, depending on the level of taxation at the moment, some things will go down, there are some things that will go up by minor amounts. But with a 10 per cent overall tax you would have to actually find something that has no embedded tax or no direct tax at the moment for it to even go up 10 per cent.

LAWS:

What are you going to do about fuel in country areas?

TREASURER:

Well, what we’re going to do is, we’re going to reduce the excise which is currently on fuel, and then the application of the GST means that the price to the consumer will be the same. But the price to people who use it in businesses,

because businesses can claim more GST back, will fall 10 per cent.

LAWS:

So are you telling me, around Albury Wodonga at the moment they’re paying 90 cents a litre . . .

TREASURER:

Yes.

LAWS:

Is it going to stay at 90 cents a litre?

TREASURER:

Yes, that’s the plan. Yes.

LAWS:

So they won’t pay anymore anywhere in Australia?

TREASURER:

Well, let me make this point. It will stay at 90 cents per litre as a result of the tax change. What I can’t guarantee you is, I cannot guarantee you that world oil prices won’t move. And if world oil prices move they would push that price above 90 cents, or if world oil prices fall they will bring it down. But the tax change itself will mean that the price is the same before and after the tax change. But after the tax change the price will still move as a result of world oil prices. As a result of the tax change, I’m saying, the price will be the same.

LAWS:

Okay. That reduction in excise is going to leave you with a huge hole in the Budget, isn’t it? How do you make up the shortfall?

TREASURER:

Let’s make no bones about this. We are cutting fuel excises by $1.9 billion. I mean, we are cutting fuel excises by $1.9 billion.

LAWS:

So where do you get the money?

TREASURER:

Well, one of the ways in which you get the money is you get it from GST. I mean, this is a proposal to put in place a 10 per cent across the board, with the revenue that that raises you abolish things like wholesale sales tax, you reduce excises -$1.9 billion, you cut income taxes and you cut capital gains taxes. Now, let me go

through the . . .

LAWS:

But could I just interrupt there, partly through GST, the GST money goes to the States. How does the . . .

TREASURER:

Well that’s right.

LAWS:

. . . how does (inaudible).

TREASURER:

The reason we sent it to the States is that the States are supposed to, with that money, pay for the hospitals, and their schools, and their roads, all of those sorts of things. So, in the future instead of the Commonwealth giving the States grants, as we currently do, the States will have the revenue from GST to accomplish all of those goals. But let me go back to the, to excise - $1.9 billion - I mean, how do I get that figure?

LAWS:

Yes.

TREASURER:

Well, we cut excise on all petrol as I said, so that we equalise the price back after GST. That’s the first thing we do. The second thing is, we extend the diesel fuel rebate scheme for farming and mining communities. The third thing we do is we cut diesel excise from 43 cents to 20 cents. Why are we doing that? Well, if you live in rural or regional Australia and everything comes up to you on the road and that is taxed at 43 cents a litre, that is increasing your costs. So, we’re more than halving that to reduce transport costs to rural and regional Australia so the price of these goods is not inflated by the transport costs.

LAWS:

So the end result of that will be what?

TREASURER:

The end result of that will be cheaper transport costs to rural. . .

LAWS:

But not cheaper goods?

TREASURER:

. . . well it will. That’s why we, you get cheaper transport costs to rural and regional Australia. That means they pay less to get products up there and less to get their products out of there which means that their exports become more competitive and the transport cost, which is built into everything they buy in the shops, is reduced and so that comes off prices.

LAWS:

Do you still believe that there are limits to compensating country people for the GST hike in fuel?

TREASURER:

No, no. What I’ve said in this, the Government policy is, the excise will be reduced so that with the application of GST the price is the same. And that has to be done according to the Constitution, that’s what I said. That has to be done according to the Constitution. But I’m pretty confident that we have now got a Constitutional scheme which will accomplish that.

LAWS:

I know you deny any link between last week’s interest rate hike and the GST, but the Reserve Bank did point to a very, very buoyant housing sector, isn’t that being driven by the rush of people to complete building work before the GST takes effect?

TREASURER:

Oh look, when you look at an economy, you’ve got to look at it overall. If you looked at the Australian economy now you’d say, yes, there’s a buoyant housing sector, business investment has come off a bit, retail spending is pretty strong and employment growth is pretty strong . . .

LAWS:

Well, well, where? Not in Gunnedah, not in Rutherford . . .

TREASURER:

Well, you’ve got to look . . .

LAWS:

. . . not in Burke . . .

TREASURER:

. . . when you’re looking at it economy wide, you’ve got to look at things economy wide, the unemployment figure yesterday was . . .

LAWS:

But you’ve got to look . . .

TREASURER:

. . . 6.8 per cent.

LAWS:

. . . but you’ve got to look at things country wide too.

TREASURER:

Yes, of course you do, of course you do. And you would look at that whole picture and you would say, that the Australian economy is been performing pretty strongly. And we measure it by growth, growth has been about 4 per cent per annum. Which, incidentally, is probably one of the strongest growth rates in the world . . .

LAWS:

Yes.

TREASURER:

. . . but much more than anything you’d ever get in Europe.

LAWS:

Back there you mentioned the jobless figures, but the question that needs to be asked about the jobless figures is, how accurate are they? I mean if you’ve worked one hour in the week of the survey, one hour in that week, you’re not counted as being unemployed. If you’ve applied for a job in person or on the telephone in a four week period prior to the survey being taken, you’re not counted as unemployed, but if you’re on Job Search you have to by law apply for jobs. So that means everybody on Job Search is listed as being employed.

TREASURER:

No, the definition is you got to be looking for work right, that’s the first thing, I mean…

LAWS:

Yeah but they check it, check it on a regular basis Peter.

TREASURER:

Well hang on, you got to be looking for work, because let’s suppose you’re a 70 year old pensioner right, you’re not looking for work, you couldn’t say a 70 year old pensioner was unemployed. So you’ve got to be looking for work.

LAWS:

Yeah

TREASURER:

Right, that’s the first thing…

LAWS:

Okay, so a lot of people have just given up looking for work.

TREASURER:

… and, and you’ve also got not have worked in the last week. I think the test is as you said, I’m not entirely sure. If you’ve worked in the last week…

LAWS:

One hour.

TREASURER:

Well this has always been the definition John. I mean that’ s the definition since time immemorial. We didn’t introduce this.

LAWS:

Well we, no I’m aware of that. I’m not blaming you for it. But the other anomaly is, if you’ve applied by phone in person or in writing for a job in the month before the survey, you’re not counted as being unemployed. But one of the conditions of Job Search is that you search for a job and they check to see that in the last week or two weeks; that effectively means that anybody on Job Search is listed as employed.

TREASURER:

Ahh, no. The definition of work, you’ve got to be looking for work and you’ve got to be unable to find it.

LAWS:

Yeah but they check to see if you’re looking for work and if you’ve looked for work in the last month before they’ve taken the survey you are listed as employed.

TREASURER:

No that’s wrong. If you are looking for work and you can’t find it, you are deemed to be unemployed. But, let me move on, in fact that has always been the definition. Using that definition as your measure of unemployment, 10 years ago the unemployment rate was 11.2 per cent.

LAWS:

Using the same definitions.

TREASURER:

On precisely the same definitions by the way.

LAWS:

Yeah that’s right.

TREASURER:

At the moment the unemployment rate is 6.8 per cent. The only point I make, using the same precise definition as we have always used in Australia, the unemployment rate has fallen.

LAWS:

We didn’t have Job Search 10 years ago, did we? It was just simply the dole.

TREASURER:

Job Search is, it’s more or less the same thing.

LAWS:

Well no it’s not, because it’s mandatory that you look for work. That’s why its called Job Search, you’ve got to be searching for work.

TREASURER:

When we had the dole, when we, or unemployment benefits as it was then called, you also had to look for work. The only thing that’s changed, is that since this Government came into office, we’ve said you’ve got to look harder for work. But if you are looking for work and unable to find it…

LAWS:

You’re unemployed.

TREASURER:

… you are unemployed. That’s the definition.

LAWS:

Does the Reserve Bank fear that the GST could spark off a new round of wage increases as people sort of seek compensation for higher prices?

TREASURER:

Well I think this is an important point and if I could just go through it, because there are two steps.

LAWS:

All right.

TREASURER:

Where you change a tax system which is, a one off tax change…

LAWS:

One would hope.

TREASURER:

Oh well, I mean, you only do this every 70 or 100 years. Then you sit down, you say, well we would expect a price effect from that one-off change, we know it’s one-off, there is no point in targetting monetary policy for one off changes, we look through the one off change to the underlying economy and we see in the underlying economy, apart from the one-off change, if there’s no rise in inflation then we’re not worried about the inflationary situation. The Reserve Bank has made that entirely clear, we look through this one-off change.

There is, the second point, however and that is, if people decide on the back of a one off change that they’re going to for example, go for excessive wage claims, and those claims are granted, then you would expect the wage claim, not the one-off change, the wage claims to go into inflation. The Reserve Bank has warned and I have warned, about this second-round effect and made the point, there’s no point in going for wage claims based on this one-off change, because in fact people are going to have more money to take home. It’s not as if you’ve got to go for a wage increase, because the whole idea of this is to cut income taxes. You’re going to be taking home more after tax income anyway, and so that’s why you shouldn’t have these wage claims and I know some of the unions…

LAWS:

Yeah well that’s the point that I make and that was what I found a little disturbing. Some unions already have secured GST related clauses in their awards. In fact Queensland Rail union went back to work yesterday after the Industrial Commission agreed that workers could seek compensation for the GST if it becomes an issue later in the year. So I mean already these things are in place.

TREASURER:

Well that’s right. And you know I totally reject such claims. And I make the point, and I’ve always made this point that if wages get out control, its always been the case in Australia, you want to go back to the seventies under Whitlam, if you want to go back to the early eighties when the Metal Workers were doing it: if people go for excessive wage claims, and that builds into wages, and that builds into inflation; it has two effects. It generally leads to high unemployment and it generally leads to higher interest rates. Now one of the reasons we’ve been able to have low interest rates here in Australia over the last 3 or 4 years is that wage claims have been moderate and that’s been consistent with low inflation and that’s benefitted people with a stronger economy and a growing job market and lower

interest rates.

LAWS:

Okay, just quickly, if the economy is growing strongly and it is, given the figures you’ve given me, won’t, won’t $12 billion in tax cuts run the risk of then overheating the economy. That’s surely got to be in the back of the mind of the Reserve Bank hasn’t it?

TREASURER:

Well you know, I’m always amused when I hear people put that argument because on the one hand …

LAWS:

It’s not a bad argument is it?

TREASURER:

Well on the one hand I keep hearing this argument, oh, we’re all going to pay more under the GST. And just in case that’s wrong we’re all going to have so much money with $12 billion of income tax cuts that maybe we’re going to be given too much money. You can't have it both ways, you can’t actually be paying more taxes under the GST and be doing so fabulously well under income taxes that we’re overcooking the economy. The truth of the matter is, that these are income tax cuts which are affordable and only affordable because we are reforming the indirect tax system with a GST. They are deserved by hardworking Australians and they are part of the overall structural reform of the Australian taxation system which is long overdue.

LAWS:

Okay. I know you’re a busy man this morning, but just a couple of things. What’s your view on this concept of corporate welfare to bail out failed companies? I don’t think you are in favour of it are you?

TREASURER:

Look I’ve supported the schemes that have been put in place in response to the recent failures. I’ve also said, look, you’ve got to consider the taxpayers in all of this. Bear in mind this. Taxpayers never cause these companies to fail.

LAWS:

No, that’s the point.

TREASURER:

These companies fail and the employees were left high and dry because the employers, John, didn’t put aside money to pay the employees’ entitlements. That’s my complaint.

LAWS:

Yeah well that’s…

TREASURER:

The employers have failed here and I say there’s two things that we ought to do. One is that we ought to look very carefully at the employers to make sure that they have faithfully obeyed the law and the Australian Securities Investment Commission is going to be doing that in relation to the National Textiles case. And secondly when we protect employees who are deserving people, they didn’t do anything wrong, we’ve got to make sure that future employers don’t think that this is going to be a free ticket on the taxpayer.

LAWS:

You see it’s a rather unfortunate, I mean I’m very happy for the people of National Textiles and any decent and honest Australian whose entitled to money and gets it, that only makes me happy, but it’s a very unfortunate precedent that’s now been set, because there are many who are going to be unhappy saying well, why didn’t we get the same benefits? Not unreasonable question.

TREASURER:

We’ve also got to limit the exposure of the taxpayer. At the end of the day, at the end of the day I think this is a point well worth making, and you know you and I know it and I’m very conscious of it as the Treasurer, at the end of the day the Government has no money except peoples’ taxes.

LAWS:

Right.

TREASURER:

And when you hear somebody saying well the Government should pay for something, what they’re really saying is the taxpayer should pay for something, and the Government’s got to pay for it, it’s got to go and find some taxpayers to get some tax out of them.

LAWS:

Yeah well we quite often hear the Government saying that the Government will pay. The Government should also remember what you’ve said and the Government should say, well I shall ask the taxpayers?

TREASURER:

I shall ask the taxpayers to pay. Now I have every sympathy for the employees of National Textiles and I think they were given a shocking rap and it’s not their fault. Mind you its not the taxpayers’ fault either, this is my point…

LAWS:

And it’s a good point.

TREASURER:

… it’s actually the employers fault. I mean there was an employer there and the employer was supposed to be putting aside money, so I say two things. And I’m about to introduce some laws into the Parliament to tighten the laws in relation to company directors. I’m going to have - the Australian Securities Investment Commission is doing an investigation to make sure the current law was obeyed, and we’ve got to ensure that we don’t send the message to all these employers that they can put their bills on the taxpayers. So we’ve got to have an ongoing system which limits the exposure of the taxpayer.

LAWS:

Why is the Prime Minister so keen that that deed should be agreed to, because if a deed is agreed to then the employers cannot be investigated, the company can’t be investigated any further.

TREASURER:

Well he’s been advised, and the whole Cabinet, the Government has been advised, that the deed of arrangement is the best way of getting money which can be available for the employees. That’s what he’s been advised.

LAWS:

Well there has been very strong advice to the contrary. Not from me, but from people who should know I think, the Australian newspaper made comments about it yesterday, fairly blunt comments about it politically, but that the money could be received without the deed of arrangement being in place. Now given the criticism that the deed of arrangement has now amassed, wouldn’t it be easier for the Prime Minister to say we’ll just go and do it in the usual fashion, without the deed of arrangement in place.

TREASURER:

Because he’s sort of working on the principle as I am and the Government is, we all are, that I just put to you, we’ve got to limit taxpayers’ exposure, right?

LAWS:

Yeah.

TREASURER:

Now, if the best way of limiting taxpayers’ exposure is a deed of arrangement which makes available some finance to pay the employees, then the taxpayers going to be in for less. Now that’s what we’re looking at. We’ve got to minimise

the liability for the taxpayer, and if the deed of arrangement makes more money available from the company or its creditors, then the taxpayers’ in for less and he’s determined to limit the liability to the taxpayer as am I, and the Government.

LAWS:

Yeah, the sad thing about that is that the Prime Minister is getting criticism because it appears to the cynics that he is perhaps protecting people involved.

TREASURER:

Well look, the cynics will be with us always, and you know they all get on the newspapers and they are full of wisdom on what should be done, but you and I know, and I think the whole of Australia knows at the end of the day John Howard doesn’t do this to protect anybody. And John Howard hasn’t done this to help anybody other than the employees of National Textiles. They are the people that were deserving of help we’ve got to do it in a way which limits the liability to the taxpayer. That’s been his sole motivation and I will defend him to the hilt on this I was in all of those discussions.

LAWS:

Yes I accept that.

TREASURER:

And there was never one suggestion for a moment that he was motivated by anything other than his desire to ensure that justice was done to the National Textile employees and I can tell you that there was no other consideration on his mind, or my mind, or the Cabinet’s mind, or the Government’s mind. And these cynics can run around and they can engage in the usual kind of sleaze, which they invariably do, but it won’t change the facts.

LAWS:

The Prime Minister has agreed now to meet with the sacked workers from Pelaco in Melbourne, I think he’s meeting with them this morning. You know that’s the thing which is going to worry a lot of people that you may well have started a precedent that will be demanded around the country. The poor old Prime Minister will be spending his waking hours talking to sacked workers. There’s plenty of them.

TREASURER:

Well, you’ve got to make sure that you, you’ve got two competing interests here. You’ve got to make sure that you help employees that have done nothing wrong and that you don’t expose taxpayers to unlimited claims. We, we think we’re getting the balance right with the scheme that we are putting in place from 1 January.

LAWS:

Why don’t the workers get their money before the bank?

TREASURER:

Well they will if they were both on the same level. But what you’ll find is that if…

LAWS:

Are you going to put them on the same level?

TREASURER:

Well hang on, I should go back, go back. If they are on the same level, that is, they are both unsecured they get their money before a bank. An employee gets their money before other unsecured creditors. What you will find with banks, is mostly they don’t actually just lend you money, mostly they take your property.

LAWS:

Yeah but they don’t…

TREASURER:

That’s called a secured creditor.

LAWS:

That’s right, so the secured creditors, they’re top of the list aren’t they?

TREASURER:

Well, what a secured creditor is, is somebody who has actually taken an interest in your land or your property. He’s not just a creditor, he actually has taken your, an interest in your land or your property and what he does, he says forget about the money, I’ll take the land and the property.

LAWS:

So that’s like…

TREASURER:

It’s always been like that.

LAWS:

It’s just like a mortgage.

TREASURER:

That’s the way banks works.

LAWS:

It’s like a mortgage.

TREASURER:

Well a mortgage, it is a mortgage. You know when you and I take out a mortgage right, on our property…

LAWS:

Yeah.

TREASURER:

That is effectively giving the bank an interest in our home. You often hear people say I live in a home which is owned by the bank. It’s pretty true you know. And if the money goes they just have the land, they’ve taken an interest in your property.

LAWS:

Yeah. Well it still seems to me pretty tough and I know it seems to you pretty tough, that those hard working people who did nothing wrong, didn’t put anybody at risk except themselves by accepting the job, don’t get their entitlements.

TREASURER:

That’s right.

LAWS:

I would have thought that was just absolutely illegal, it’s certainly immoral.

TREASURER:

Well I think it is too. I think it’s a shocking situation and I’ll come back to this point. At the end of the day, there was a liability there. It’s still there. The liability is the employers’ liability. Nothing has extinguished that liability. The only thing that has happened is, that the employer, who is liable, says well sure I’m liable, I just don’t have any money. And in that situation you step in, and you say well, okay, taxpayers will help out in this situation, but we don’t want to give this idea to employers that if they run out of money the taxpayers are going to stand behind all of their liabilities. We’ve got to work on a scheme, which we are doing which will ensure that employers have responsibilities and meet them.

LAWS:

I mean if it gets to that stage it’s all very well for the employer to say I’m terribly sorry about all this and I know I’m responsible, but I haven’t got any money. I mean why doesn’t somebody ask the question, well how did you let it get to this stage?

TREASURER:

Well, precisely. Very good question and that’s why you have a body called the Australian Securities Investment Commission, that’s the corporate regulator, and it is asking those questions right now. You know, there’s laws on all of this, there’s laws that say when companies can continue to trade, you know and one of the laws says you’re not supposed to trade if there’s a reasonable prospect that you can’t pay your debts. Now I’m not going to prejudice any person in any particular situation. We have a corporate regulator, it’s independent, it’s run by respected people and it will look at all of those questions.

LAWS:

Okay Treasurer, thank you for your time. Are you having a quiet weekend or a busy one?

TREASURER:

They’re all really busy unfortunately, but I’m having a birthday party for my son who’s just turned 13 tomorrow, so six boys, six 13 year olds around at home.

LAWS:

That will keep you busy. Tell him happy birthday from all the John Laws listeners.

TREASURER:

Thank you very much John.

LAWS:

Good to talk to you Peter.

TREASURER:

Okay, bye.

LAWS:

Bye. Peter Costello, Treasurer.