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Treasurer discusses tax cuts; economic management; Election '07; and Visy-Amcor decision.



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Interview with Neil Mitchell 3AW

Tuesday, 16 October 2007 8.35 am

SUBJECTS: Tax cuts, economic management, Election ’07, Visy-Amcor decision

MITCHELL:

Mr Peter Costello, good morning.

TREASURER:

Good morning, Neil.

MITCHELL:

Well is this a rabbit or have you got more left in there?

TREASURER:

Well it is a very ambitious plan to reform the Australian taxation system in three instalments towards our ultimate goal over a five year period. And what it will do is it will raise the tax free threshold so that you won’t have to pay a dollar of tax until you go over $16,000 if you are a low income earner. It will cut the rate for part-time workers, particularly working mothers who on average, won’t face a higher income tax rate than 15 cents. And it is a plan to cut the top rate which is currently 45 cents to 42 cents with the ultimate goal of taking it down to 40 cents. Now, this is important, a tax system competitive to encourage people to work, to build our economy and it is a very ambitious plan for Australia’s economic future.

MITCHELL:

A very good answer but nothing to do with the question. Is there more to come? Is this the beginning of what you have got to offer?

TREASURER:

Well this is obviously a major economic plan of the campaign.

MITCHELL:

No promises for corporate tax rates?

TREASURER:

No we won’t be cutting that further, we cut that to 30 cents some years ago.

MITCHELL:

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Any more, well, they’re still saying today that they are looking for help on company tax. Nothing to come?

TREASURER:

Well I am sure business would always like lower company tax rates but having cut 36 to 30, I think that is a reasonable rate. Now this is, to answer our question, this is the major economic plan of the election because it will build a tax system which will build our economic capacity. Now there will be other things said during the election on other issues but this is the major economic plan of the election.

MITCHELL:

On the basis of this spending, how much have you got left?

TREASURER:

Well it is also obviously the, a very substantial tax cut at $34 billion. So you would expect the major economic plan for Australia’s economic future to be big in dollar terms and in fact it is.

MITCHELL:

When did you begin plotting this? How long have you been working on it?

TREASURER:

Well these things normally come together over months and I have been working on this for quite some time and we were able to fund this from extra employment. We now anticipate that in this financial year we will have 100,000 additional people in work higher than we thought at Budget time. If you get more people into work Neil, they don’t claim unemployment benefits, the Government saves on expenses as a consequence. If you get more people into work they too pay tax, the Government gains in revenues and with more people coming into work, paying taxes rather than taking payments, we have the ability to distribute lower taxes to others in the community.

MITCHELL:

Is this your initiative or the Prime Minister’s?

TREASURER:

Well look, we are a team and we work together. Obviously a lot of the leg work is done by the Treasurer, it is the Treasurer’s job, but these big decisions, we work together.

MITCHELL:

The reason I asked, I thought it was only, was it last week or so you were suggesting people were jaded by tax cuts.

TREASURER:

I am not sure about that but I can tell you it has always been my belief that Australia needs an internationally competitive tax system. I have always wanted to do it, I have been working towards it over the last five years and of course with the GST reforms in 2000, now we can see the goal. Here is the goal: a top tax rate of 40 cents, low income earners not paying any tax until they go above $20,000, working Mums who are working part-time in the workforce not paying more than 15 cents in the dollar and families having more money in their pockets. Here is the goal, here is the plan, here is Australia’s economic future.

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MITCHELL:

Is this the big bang? I mean, is this it? If you implement this, and it depends on you being elected clearly, you have got it right, that is it for the tax system?

TREASURER:

Well if we are elected we will go about implementing this. I have laid down the three stages and the five year goal. And if we can get the Australian taxation system to that five year goal, in five years this will be a pretty good tax system by international standards.

MITCHELL:

I just wonder if people are a little bit cynical about this, no, not cynical, they want tax cuts, they expect them now and in fairness you have delivered them over a number of years. They take them as a right almost. Do you really think you will have a political impact, it is going to win votes?

TREASURER:

Well I would say to people that it is a way of dealing with cost of living pressures. We know people have cost of living pressures. There is not much you can do about most of those cost of living pressures. You know, say food prices which are going up because of the drought. But one thing the Government can do is it can cut tax and put more money in the take-home pay. That is what we are doing. So, it does deal with cost of living

pressures but it is doing it within an ambitious five year plan which is a plan to build our economy. And if we achieve this plan I would expect that the new competitive tax rates will put more people into jobs. Unemployment as you know is at 30 year lows, but this will put more people into jobs - more people in jobs, more taxes will be raised, less payments will be made.

MITCHELL:

Why will putting $34 billion in the economy not be inflationary?

TREASURER:

Well it is a three stage plan starting on 1 July next year so it doesn’t do anything in the immediate term between now and 1 July and of course at the moment the tax cuts which we announced in the Budget are still taking effect, so there are some tax cuts in the system at the moment. And then it is done in three instalments and it is fully costed, fully paid for and after it is done the Budget is still in surplus. So this is what good economic policy is about: getting people in work and raising lower amounts of revenue for more people so that the Government can fund its services with more people paying less tax.

MITCHELL:

Why, okay you are saying it is not inflationary, no pressure on interest rates?

TREASURER:

This is carefully timed to take effect over three years, fully paid for, fully budgeted and at the end of it the Budget is still in surplus.

MITCHELL:

How much extra does it give you?

TREASURER:

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Well this is how people cost these things. Notionally it gives the Government $34 billion less for another three years.

MITCHELL:

But how much does it give you in your back pocket?

TREASURER:

Oh I haven’t looked at the scales but I look at the global amounts and it gives the Government $34 billion less.

MITCHELL:

Well I have got the scales in front of me. What are you paid? A couple of hundred?

TREASURER:

Yep.

MITCHELL:

A couple of hundred. $50 a week.

TREASURER:

Yep.

MITCHELL:

Week one. $100, week two, year two rather; $128 the third year. Will that make a difference to you?

TREASURER:

Well I don’t do these things for me…

MITCHELL:

Oh no, I am not suggesting that, I am looking at the sort of, the cynicism, I mean, will it actually help or will you just say, there you go, bank fees, there you go petrol prices, it’s gone.

TREASURER:

…but you wouldn’t be better off would you, if the bank fees and the petrol prices rose and you didn’t have a tax cut. You wouldn’t be better off. If the bank fees rise and the petrol fees rise, I mean one of the things you can do is you can cut tax and that will make you better off than if you don’t cut tax. But from my point of view, I am looking at this as a reform which will generate a stronger economy and more jobs. That is the way I look at it.

MITCHELL:

What is your challenge to Kevin Rudd here? I hear you saying he has got to come out with an answer immediately, well that would be irresponsible. It is fair enough that he works on it for a while but what is your challenge to him, does he match it?

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TREASURER:

Well Kevin Rudd is very fond of saying ‘me too’ on economic policy. I have balanced the Budget, Kevin Rudd says ‘me too.’ I have paid off Government debt, he says ‘me too.’ I have put in place our monetary policy arrangements, which he opposed, but now he says ‘me too.’ I have now announced a tax plan which will make the Australian economy competitive, deliver more jobs, help families with cost of living pressures and Kevin Rudd, if he is interested in a plan for Australia’s future should say: ‘me too.’ He normally ‘me toos’ on economic policy, here is a chance for him to do so himself.

MITCHELL:

So you are suggesting he embrace your tax policy.

TREASURER:

Of course I am because this is a good policy for Australia’s future. If he is interested in Australia’s future he will ‘me too’ it. But if he doesn’t ‘me too’ this plan, then he is not interested in Australia’s future, he doesn’t have a plan of his own. This is plainly a good plan, you have seen that in all of the commentary today. People say: ‘would you like him to endorse it?’ Well of course I would because it is the right thing for Australia’s future.

MITCHELL:

You were critical of Kevin Rudd for not knowing the tax thresholds, you must have been embarrassed when the Prime Minister last night didn’t know the interest rate?

TREASURER:

Well look, there are a lot of figures that float around in people’s heads and you are not going to get 100 per cent on all figures all the time. But if you know, I think the point that the Prime Minister made was the official cash rate, which is 6½ per cent, and the mortgage interest rate which is 8.3 per cent is a lot lower at 8.3 per cent than it was under Labor at 17 per cent.

MITCHELL:

But was it embarrassing?

TREASURER:

Oh look, Neil from time to time, I forget figures, we all forget figures.

MITCHELL:

Oh really, what is the Australian dollar at the moment?

TREASURER:

I would say it is about US90 cents.

MITCHELL:

What did the market do yesterday?

TREASURER:

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I will tell you what - well the market has been very strong as you know.

MITCHELL:

I do know that. But the point is…

TREASURER:

The market is strong because business profitability is strong in Australia. Now, I am sure if you asked me 100 questions…

MITCHELL:

The point isn’t really…

TREASURER:

…I will get one wrong at some point.

MITCHELL:

Well we will have a go.

TREASURER:

No, no, don’t have a go. I will concede the point before you start.

MITCHELL:

The point is really, whether people like yourself and the Prime Minister are genuinely in touch. What is the price of a loaf of bread? How much is milk? How much is a beer, this sort of thing?

TREASURER:

Sure.

MITCHELL:

How can you really argue that you are in touch with real people?

TREASURER:

Well you know, we do buy things in supermarkets like anybody else. But you know, I will tell you, you probably buy stuff in supermarkets too, you wouldn’t remember the precise price on every occasion. But I will tell you this, when it comes to managing the trillion dollar economy I think I understand it. People can judge the way in which I have managed it. There are now more than 2 million additional jobs since I began managing it and my job is to keep people in their jobs. That is what I see is my greatest responsibility.

MITCHELL:

Mr Costello, we are going to this election voting for you as Prime Minister, aren’t we, at some stage?

TREASURER:

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Well look, we are going to this election with the Liberal team versus the Labor team.

MITCHELL:

Yes but if you are re-elected you are going to end up Prime Minister.

TREASURER:

And John Howard has said at some time before the election after this one, he wouldn’t contest the election after this one. So there would be a transition. But that is the election after this one, it is not…

MITCHELL:

No it is not, no it is not. It is in this next government and he made that clear.

TREASURER:

Sure. Well the next election…

MITCHELL:

(inaudible) you will be Prime Minister. So it is legitimate to say, how as Prime Minister will you be different to John Howard?

TREASURER:

Well people know what I stand for Neil. I stand for balanced budgets, low inflation, low interest rates, more jobs. I stand for no Commonwealth debt, I stand for a competitive tax system. I have been around a long time, people know that these are the things I believe in…

MITCHELL:

Those are the things John Howard believes in. How will you differ from John Howard?

TREASURER:

Well you know, I would hope that these are the things that all people in public life believe in. But I would say to you that people can judge my track record, I don’t just mouth them, I am not Kevin Rudd. I took the hard decisions to implement them, many of which were very unpopular at the time.

MITCHELL:

Well let me put it this way, will you differ from John Howard as Prime Minister?

TREASURER:

Look Neil, you know, as you would expect with two people, adult people who agree on a lot, from time to time you have difference of emphasis. Of course you do, but…

MITCHELL:

What will that be, because we’re being expected to vote for you as Prime Minister, what will those differences be?

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TREASURER:

But I’m not in the business of trying to think up and then emphasise differences.

MITCHELL:

But surely you have considered it already.

TREASURER:

Well over the years as you know, there have been different nuances in policies. But I will tell you this, over the years there has been great agreement on all the big things.

MITCHELL:

But Mr Costello, if you answer it in that way, how do people know what they are voting for with you as Prime Minister? Because they know you are going to be Prime Minister at some stage in the next government if re-elected. What are you going to give them that’s different?

TREASURER:

Well they know of me, 11 years of public service in the second most important job in the Government. Which, by the way, is a lot more than they know of Kevin Rudd who hasn’t served in a Government for a day.

MITCHELL:

But you have said yourself that you would branch into other areas. Branch into them now in the election campaign when we need to know.

TREASURER:

Well Neil, you hear a lot about me on things like a competitive economy, on jobs, on lowering the tax burden, on building a world-class education system - which we are in the process of doing, of addressing our water problems, of adjusting to climate change with policies to increase the take up of solar power.

MITCHELL:

But does your vision differ from John Howard?

TREASURER:

Well I am telling you what my vision is.

MITCHELL:

Does it differ from…

TREASURER:

It is of a strong prosperous Australian economy which is leading the world in terms of jobs and developing income to address the great challenges of our time like water, climate change and education.

MITCHELL:

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Okay, can I just ask you quickly, a decision comes down on Dick Pratt just after 10, are you hoping for a pretty tough fine here?

TREASURER:

Look Neil, the law says a competitor cannot agree on prices because if you agree with your competitor on prices, and prices are higher than they otherwise would have been, then the consumer suffers. And that is against the law to come to an agreement on prices with a competitor. Now, we have got a very well resourced ACCC which has investigated this matter, it has done a very successful job in bringing this investigation to a conclusion. Now, the penalty to be imposed will be imposed by the judge. I am not going to foreshadow the judge, I will leave it to the judge.

MITCHELL:

Thank you for your time. How much is a pot of beer? Who is the captain of Essendon? Who have they just thrown out?

TREASURER:

I just heard that on the radio.

MITCHELL:

What did you think about that?

TREASURER:

I was surprised that Mark Johnson got dumped actually. I think he put in some good games at the end of the season. So there you go, I think we will still beat Melbourne.

MITCHELL:

So do I. Thank you for your time.

TREASURER:

Thanks.

© Commonwealth of Australia 2000

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