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Budget 2003: Treasurer comments.



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THE HON PETER COSTELLO MP Treasurer

Interview with John Laws 2UE

Wednesday, 14 May 2003 9.10 am

SUBJECTS: Budget

LAWS:

Peter Costello, Good Morning.

TREASURER:

When you said it was 85 per cent I decided to have a try and you can imagine the cameraman's delight as I did it.

LAWS:

We will probably see it on television.

TREASURER:

You will probably see it on television and you can blame yourself for that one John.

LAWS:

Something I did want to ask you about, that I saw on television, you were being televised I think in your own office and there was some kind of piece of card standing up which you dismissively threw on the floor. What was that?

TREASURER:

My goodness. I can't recall. Maybe it was the confidential Budget papers that the cameramen were trying to film. They get into my office, they pretend they are filming me, but they wander their cameras looking for confidential documents, (inaudible) get back to the studio and try and blow them up to see what was on them.

LAWS:

Yeah, cause they can really get to these things, they can zoom right in...

TREASURER:

Absolutely. They zoom right in and then they go back and they can freeze frame and then they try and get a story out of it. These cameramen, there is a few of them looking at me now, John, giggling about their tricks.

LAWS:

Despite the $2.4 billion worth of tax cuts, you still can wear the medal for the highest taxing Government in the nation's history, can't you?

TREASURER:

No.

LAWS:

Yes you can.

TREASURER:

No we can't. Because that wasn't the case before the tax cuts and not the case after the tax cuts.

LAWS:

Well where did that myth come from?

TREASURER:

Oh well, that is something the Labor Party says. What else are they going to say? But the fact of the matter is, after we funded the war in Iraq and the worst drought in Australian history, and we increased funding on security, the Budget was still in surplus, so we decided to return some of that to the taxpayers in the form of income tax cuts. If it hadn't have been for Iraq and if it hadn't have been for the drought, maybe it could have been more. But I think this is responsible and it's some return for the taxpayer.

LAWS:

Are the tax cuts a kind of an admission that the GST cuts have been eaten up by bracket creep?

TREASURER:

Not, that's not part of our thinking. Our thinking is that we have priorities as a Government, the

biggest obviously was the troops in Iraq, we can't let our troops down, and the second of course was looking after the farmers during the drought, and the thinking is that now that we have got the debt, we have paid back $63 billion of Labor's debt now, so now that we have got the Commonwealth debt down so much, we didn't need to focus as much on debt repayment, and we could return something to the taxpayers and that's what happened in this Budget.

LAWS:

Ok, let me rephrase it. Was, were the cuts that came because of the GST eaten up by bracket creep?

TREASURER:

Oh, no. The cuts which were introduced in July of 2000 were the largest income tax cuts in Australian history. No, they weren't eaten up.

LAWS:

Yeah, I think that middle-income earners would disagree with that.

TREASURER:

Well, look I think middle income earners feel that they work hard, I think that Australians work probably as hard as anybody in the world, and they would like a lower tax burden, and I agree with that, and my view is that we should keep taxes as low as we can and that's why we have reduced them in this Budget.

Would we like to reduce them more? Well of course, you'd always have taxes as low as possible, but given the fact that we funded a war in Iraq and the economy was knocked around by the worst drought in Australian history...

LAWS:

Yeah, we understand all that...

TREASURER:

...the fact that you're cutting taxes at all makes it pretty unusual. None of the State Labor

Governments, I notice, are cutting their taxes.

LAWS:

I think a lot of people were quite surprised that you did give...

TREASURER:

Yes.

LAWS:

...them a tax break. A lot of middle income earners, however, are facing the prospect of a 42 per cent tax rate under this current system, you know that is kind of half their money, where is the incentive for these people?

TREASURER:

Well, their income up to $52,000 will be at a maximum rate of 30 per cent. And that's the overwhelming bulk of Australian taxpayers. When you have a dollar over $52,000, that can be taxed at 42 cents, but your income, up to $52,000 is a maximum of 30 per cent.

LAWS:

Yes, but you see, $52,000 for a family with three kids, living in a city like Sydney, is not a lot of money...

TREASURER:

And I agree with that...

LAWS:

...battlers' money...

TREASURER:

Bear in mind with families, that we pay family benefits to families that have children, additional benefits if mum is a stay at home mum, those mums in the workforce should be getting a tax cut out of this as well, in fact both income earners would be getting a tax cut in a family. Now, John, I am not going to say that this shifts the world, I think you know, for somebody in the $20,000 bracket, the annual tax cut is $329, somebody in the $40,000, it's an annual cut of $208. So, you have got to bear those amounts in mind, but it has got to be one of the few Budgets in Australia recently where taxes were cut, mostly they go up, that's what all the Labor States are doing.

LAWS:

Yeah, that's true. I accept all that. I am not arguing with you about your Budget. I think your Budget is okay.

TREASURER:

Yes, well it is just a question of doing as much as you can and if in the years to come things were more benign and we could cut taxes more, obviously we would look at it, but to have been able to do that, I think it is a show of faith to the Australian public that we were able to fund a war and the drought and still cut taxes as well.

LAWS:

But you have got those other little levies and things that you try to disguise as not being taxes which are taxes, like the airport noise levy, an extra ten months of that costing $17 million, there's a rise in aviation fuel excise of $6 million, there's some funny things, that fuel thing I find very hard to understand. I mean we talk a lot about the heightened risk of terrorism...

TREASURER:

Yes...

LAWS:

...you talk about the impact of the drought...

TREASURER:

Yes...

LAWS:

...we talk about the spread of SARS, they're all things impacting on tourism and airlines, why would you raise the tax on aviation fuel when they are battling to keep the aeroplanes in the air anyway?

TREASURER:

I don't think the aviation fuel is a big cost. The two things that come up in relation to the airports is that, you mentioned the noise levy...

LAWS:

Yes...

TREASURER:

...well this is not money that goes to the Government, this is a levy that was put in place long before I became Treasurer...

LAWS:

Where does it go?

TREASURER:

...well it goes to the people that live in the flight paths to make sure that, well in some cases their properties were bought, so that they could move out, in other cases they were double glazed and insulated to try and protect them from noise.

LAWS:

You say it wasn't introduced while you were Treasurer...

TREASURER:

No...

LAWS:

...which is true, but you are the Treasurer who is extending it for ten months.

TREASURER:

Yes, because there are more people that are suffering from the noise who need to have their houses fixed up. It doesn't come to Canberra, it goes to the residents. Take the Ansett levy, why is that levy in place? Well, that is to pay the Ansett employees because their employer went bust and didn't pay its debts. That's not, wasn't put in place to raise general revenue, that's going to the poor old Ansett employees who lost their jobs, and you know, if I may say so, their employer didn't properly account for their monies, so, I don't like it and the moment, we have always said, that the moment that the employees are paid their just entitlements it will be abolished.

LAWS:

Yeah, but just back to this fuel, that aviation fuel, I mean if the cost is going to be increased, Qantas have knocked off a lot of people and they might have to knock off more...

TREASURER:

No...

LAWS:

...with the increase in the aviation fuel.

TREASURER:

Well this is an indexation factor from memory, it keeps it constant to consumer prices. It's not a new thing.

LAWS:

What, so you, no it's not a new thing but you didn't have to raise it.

TREASURER:

Well we aren't raising it, if we are talking about the same thing it's indexing aviation gasoline to the consumer price index.

LAWS:

But it is...

TREASURER:

Which is an existing program.

LAWS:

It is an extra burden on the airlines, I mean it is going to cost more for Qantas to get those aircraft in the air.

TREASURER:

I don't think that is a major cost, John. The major problem that Qantas is facing at the moment, let's be frank about this, is SARS. Because of SARS, airport numbers, airline passenger numbers are down...

LAWS:

Yes, I am not suggesting it is down because of you...

TREASURER:

...and I hope SARS can be contained tomorrow, but until the SARS outbreak is contained it is going to be tough in the aviation industry I acknowledge that.

LAWS:

We are getting $2.4 billion a year in tax cuts, but these hidden levies, the things I am talking about,

they are raising $31 billion.

TREASURER:

Well...

LAWS:

I mean the Departure Tax, the Milk Levy, the Sugar Levy, plenty of others...

TREASURER:

Yes, keep going. I have seen that $31 billion...

LAWS:

...is that wrong?

TREASURER:

Well, let's tell you what the major items are. Customs duty. Introduced 1 January 1901. Second largest item from memory, Medicare Levy, which is part of the tax system introduced by Bob Hawke, and I think the third was, petrol excise, which I think was introduced I think in the 1920s or 1930s, which we have actually frozen, which doesn't rise in line with the consumer price index so, you have got to look, when you actually look at what they are talking about, they are not talking about milk levies or anything else, the basis of that claim in customs duty which has been in place since the days of Federation, petrol excise which has now been frozen, and the other, the Medicare Levy, which is part of the income tax system.

LAWS:

So you are telling me that you're totally blameless?

TREASURER:

Well, if you want to go through it, we've actually reduced customs duties, that's a reductions in tariffs. In fact, we've been criticised for reducing tariffs, you'll recall, a lot of people said we shouldn't have been reducing them.

LAWS:

True.

TREASURER:

The Medicare levy was the Hawke Government initiative, which we haven't changed.

LAWS:

Are you going to raise that levy?

TREASURER:

No.

LAWS:

Okay.

TREASURER:

No. And petrol excise, which, when we came to office used to increase with the cost of living and we froze it. In fact, the petrol excise now is 38 cents. If it had been indexed from its current levels, we would have left that system in place, it would be about 45 cents a litre by now say. So, in fact, John, we got criticised by a lot of economic commentators at the time for cutting the petrol excise. So in relation to two of those, we cut them and were criticised, and one we haven't changed. So it's a bit, a bit rich to, you know, talk about $31 billion.

LAWS:

Okay, but you're not, you're not telling me the number is wrong?

TREASURER:

Well I'm telling you that is a figure you can construct if you add up tariffs, which we have cut, petrol excise, which we have cut, Medicare levies, which is part of the income tax system and is counted as an income tax, you can't count it twice, both as a levy and as the income tax system.

LAWS:

But you did introduce the Medicare surcharge as part of that private health change.

TREASURER:

Yes, that's true, but let me tell you, the Medicare surcharge is not paid by everybody. The Medicare surcharge is paid by people who don't take out private health insurance. Nobody has to pay, in fact we want nobody to pay it because we want everybody to take out private health insurance, which the Government also introduced, you recall, a 30 per cent rebate on.

LAWS:

I can't tell you how many letters I get from people both in the workplace and retirement concerned about the performance of their super funds and investments. You'll receive an extra $440 million in revenue from super funds next year, wouldn't that be better left to grow in those funds for retirement?

TREASURER:

Well look I sympathise with people on superannuation who are seeing their returns cut. Absolutely. It's been a very bad couple of years. I think on average in the last two years, superannuation funds had negative returns. That is, they finished the year with less than they started. Now why is that? That is because the stock markets that these superannuation funds invest in have fallen, fallen very considerably. It's been a very bad time, around the world, some of these stock markets have been in the American and the Japanese, some of these super funds have been in the American stock market and the Japanese stock market, but that's an investment return thing. That's not a government consequence. Until those markets pick up, these funds are not going to be making good returns.

LAWS:

Okay, but taxes on super fund earnings and contributions will rise by 10, 12, 13 per cent or something to over $4 billion, nearly $5 billion, but many of those funds are making losses and the Government's not wearing those losses. You're just sitting there, you're doing okay.

TREASURER:

No, because it works like this. That if you are paid income, you pay tax, for most people at 30 per cent. If you say I want my income put into superannuation, ie, don't give it to me now, put it into superannuation, it's taxed at 15 per cent, so you pay less tax. You pay 15 per cent, you'd be paying 30 for most people, you'd be paying 30 per cent if you took it as income. So it's a discounted tax rate, that's why people put money into superannuation. The rates are not going up, it's just that people are taking advantage of putting more money in superannuation. The rates are not changing.

LAWS:

When you, when you compare our superannuation arrangements to yours, you probably don't do it

very often. When you do it, do you feel embarrassed?

TREASURER:

Well, look the superannuation scheme for MPs is part of their overall package. I think that when you compare their salaries with the private sector, I'm not sure that they are out of whack with the private sector, John.

LAWS:

$52,000 is not a lot of money.

TREASURER:

Well that's right.

LAWS:

That's what the average John Howard battlers make, and his superannuation is affected by market forces. Yours isn't.

TREASURER:

Well, John Howard, he's the Prime Minister. I mean you wouldn't expect him to be paid the average wage.

LAWS:

Oh, no, no, quite not.

TREASURER:

But, I'll guarantee you this, if you took the chief executives of the top 100 businesses around Australia, he'd be paid less than every one of them.

LAWS:

I'm sure of that, but I'm not drawing that comparison. I'm just saying the different effects...

TREASURER:

They're not running a country.

LAWS:

That's right.

TREASURER:

And if you compared a Treasurer to the chief executives of the banks which he's responsible for, I'll tell you he'd be lucky if he'd be getting (inaudible).

LAWS:

Yeah, well, all of that, all of that's probably right too. This is your eighth Budget. That's a lot isn't it?

TREASURER:

Yes it is. It's a pretty long stretch.

LAWS:

Going to be your last?

TREASURER:

Well, look, all I'm thinking about at the moment is this one, because we haven't enacted it yet and I hear that the Senate, I heard your introduction, John, about the Senate...

LAWS:

Oh Christ, what a waste of time.

TREASURER:

...and you know, so yesterday before the Budget is delivered, they've been threatening to block the Budget.

LAWS:

I know, before they've even heard it.

TREASURER:

And, you know, these Senators that are going to, say they're going to block the Budget, you know they don't come on your program and justify themselves, they're not held accountable in any...

LAWS:

They can't justify themselves.

TREASURER:

...in any way, and yet they want to block Budgets before they've even seen them. And I think the people of Australia will say, look we elect a government, get on and do your work, say to the Senate, let them get on with it and if they muck things up, well we'll vote them out. But at least let them get on with it.

LAWS:

Yeah, but you've got to understand that the Senate is just desperate for the limelight. That's all that matters. They don't care about the running of the country, they don't care about the improvement of the country.

TREASURER:

Well they're not responsible. If they block a Budget measure and the economy turns down, do you think people are going to start blaming them? John Howard and I are responsible, so that's why we try so hard, and yet these Senators reserve the right to block our measures. And I honestly say, if Simon Crean wanted to turn over a new leaf, and he said he did, remember, he'd tell those Labor Senators not to be so obstructionist.

LAWS:

Yes, and they are obstructionists. Look it appears that you and I share the same opinion. I know you've got lots of other interviews to do, that you're much in demand and I know you're not going to answer the question about will you do another Budget, so I might as well not waste your time or mine by asking it again, eh?

TREASURER:

But it's great to be here with you.

LAWS:

It's always good to talk to you. I enjoy it very much.

TREASURER:

Thanks very much John.

LAWS:

And I think the Budget is a very, very good Budget and I think the country is in great shape and I

think the Government is doing a good job.

TREASURER:

Thank you very much John.

LAWS:

Nice to talk to you, Peter.

TREASURER:

Cheerio.

LAWS:

Bye. Our Treasurer, Peter Costello.

© Commonwealth of Australia 2000