The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Peter Costello

Peter Costello

Treasurer

11 March 1996 - 3 December 2007

Transcript of 12/05/99

Transcript No. 99/35
Treasurer
Hon Peter Costello MP

Radio 3LO with Jon Faine

Wednesday, 12 May 1999

8.30 am

SUBJECTS: Budget, tax reform

SUBJECTS: Budget

FAINE:

Peter Costello is the Federal Teasurer. He is in our Parliament House studio after a hectic round of interviews last night and already this morning. Peter Costello good morning to you.

TREASURER:

Good morning Jon, how are you?

FAINE:

Exceptionally well. Now a fundamentally optimistic outlook of the Australian economy is portrayed in your Budget?

TREASURER:

I think so. Weve come through two very bad years. Weve been through the Asian financial and economic crisis, the biggest crisis of the last fifty years. About every country in the region went into recession, and Australia didnt, and we grew. And we grew faster than America and France and Britain and Germany and Europe and the OECD. And we think as the world economy picks up, this will mean that Australia will pick up even more. And in the next decade I think there are some wonderful opportunities for Australia.

FAINE:

There is a certain amount of wishful thinking in budget projections. You say growth will be down to 3% but last year you didnt pick that it was going to go up to nearly 41/4%. So how reliable are these sorts of estimates?

TREASURER:

I think last year I was forecasting growth around 3 and the general financial commentary was that I was over optimistic. That I was complacent. That Australia would be in recession. So I think it is generally acknowledged that if we were wrong it was because we understated and most of the private sector forecasters was even wrong. In fact if you go back to September last year some of those that youre now seeing on the media were saying Australia was headed for recession. Certainly the Labor Party was claiming Australia was heading for recession. So youve got to frame your Budget according to predictions. I think 3% is the best peg that we can put it at at the moment. The world economy will come back. I dont think well be the fastest growing economy in the world. You cant maintain that forever, without serious economic reform. So well come back a bit. But at 3% growth that will be faster than the United States and faster than Europe. In Europe 3% growth they would consider to be a boom so, if thats our low point, its a pretty optimistic scenario.

FAINE:

If its going to be a boom though, it has to be sustained.

TREASURER:

Sure. And thats why we have to keep our Budget strong. If we threw up our hands now and said, happy days are here again, lets go and spend money we dont have, we could damage all of our prospects. We have to keep our Budget strong, we have to keep inflation low, and, one of the things thats kept the Australian economy going is low mortgage rates. People have got money in the hand. And since the Government was elected with 4% fall in home mortgage interest rates, the average family is saving $320.00 a month and they have a bit more to spend, and thats kept the economy strong.

FAINE:

A couple of things you have just said ring alarm bells for me, Peter Costello. You say that we cant go ahead and spend money we havent got, but you have got money. Youve got this huge $5.5 billion surplus and then you say well, we cant spend money we havent got. But thats exactly, in fact, what Australian families are doing. Bankruptcies are at an all time high. Yesterday a 91/2% increase announced in companies going into voluntary administration. Weve got a record current account deficit trending up, not down. So in fact what youre saying shouldnt happen are some of the things that already are happening.

TREASURER:

Well, the current account deficit is forecast to come down so we should just get that point clear. In relation to companies, you will always have some companies experience trouble and in the setting up of those companies that is not unexpected. But if you look at the economy as a whole as we have to, the profit share in relation to companies is at historic highs. The growth in the economy is at historic highs, and unemployment is, whilst still too high, is the lowest it has been in a decade. So I think most people would agree Jon that the economy has come through an Asian recession in pretty good shape. As I say..

FAINE:

But there are some warning signs arent there?

TREASURER:

Well, I said last night that the world is an uncertain place. And we didnt predict three years ago that the boom region of the world, Asia, would go into recession. All of our experience in our lifetime was a booming Asia. And now its a recessionary Asia. And when I brought down my first Budget three years ago I said we had to strengthen the Budget because we didnt know what the future would hold. And we did. And it is fortuitous that we did because we then went into an Asian recession. I am making the same point now. We have to strengthen our Budget because the world is still an uncertain place and you referred before to a surplus in the Budget. We need a surplus in our Budget because the world is an uncertain place and we need to protect and strengthen the economy. We want growth to continue. We want more jobs in the future. We want to make this a sustained period of growth and that requires careful prudent economic management.

FAINE:

But people arent saving, Peter Costello. Its clear that a lot of people because of the low interest rates youve just referred to, because of those low interest rates, people are going out and borrowing money to spend it now, not to invest it.

TREASURER:

Well I hope people do both. It is true I think that people are spending a bit more and I dont begrudge that because, look, our country went through a very deep recession in 1990/1991. Unemployment went above 11% and, I dont know about you, I can remember during Keating and Labor, home mortgage interest rates were 17%.

FAINE:

I clearly remember, I remember (inaudible)

TREASURER:

And coming off that hardship where people, you know, couldnt manage their mortgages. Their mortgages have come down and some of them are spending. Well thats not a bad thing.

FAINE:

But dont you need to enhance family savings some how? Theyre at an all-time low.

TREASURER:

Oh well, I think you do have to encourage people to save and because thats one of the tricks of tax reform isnt it? Our current tax system taxes you when you earn and when you save. We want to reduce taxes on earnings and savings, and put taxes on spending. Now, why? Well thats a pro-earning savings tax system, thats one of the big changes that were seeking to introduce. And I agree with you, if you can encourage further private saving that would be a good thing.

FAINE:

A surplus of $5.4 billion dollars, I would have thought that its politically your choice then to keep enough money in reserve to flush the GST through any blockages in the pipeline that you may encounter, between now and either the end of this Senate or the start of the next one.

TREASURER:

Well, thats not really why we try and budget for a surplus. We budget for a surplus, one to strengthen our economy against an uncertain world future. But the second reason we do it is at some point weve got to pay back our debt. When in the last five Labor Budgets the accumulated deficits ran up debt by $80 billion. Now when you get your budget back in balance youre not accumulating debt, but at some point youve got to try and start to pay that back, its like the mortgage, and $5 billion will go against that 80. It still leaves, you know, billions and billions of dollars. If we paid off Labors debt at $5 billion a year it would take us 16 years. Now weve got a plan which can do it faster than that and free Australia from debt, but even at $5 billion a year thats 16 years just to get back to where we were before those five years of deficits started. Its a very big ask.

FAINE:

Whether its 16 years or 17 years to repay debt, or whether its repaid at all, the question is that youre keeping enough up your sleeve to flush some out later on, if, and Id say when, you need to.

TREASURER:

Well, the surplus that were budgeting for is for this year for 1999/2000. The new tax system doesnt come into effect until the following year, 2000/2001. So this year doesnt really affect the new tax system.

FAINE:

Brian Harradine says for low-income families its too little too late.

TREASURER:

Well, I think hes referring to the Common Youth Allowance there. I dont think hes referring to the tax system because I think on any view the new tax systems going to be great for families. As I said last night, over 2 million families helped, $2.4 billion increases in all family payments, increased income tests so that it doesnt start cutting out on you at the levels it now does; more generous taper rates so that family allowances cut out on a more gradual income cut-off test than they do at the moment. And of course income tax cuts for all families. So I dont think anybodys said that, I dont think anybody could make the argument that the new tax system is against families, its absolutely pro-family. The Common Youth Allowance is another issue. Thats an allowance which gives common youth allowance to both people out of work and people who are studying. And last night we announced that up to 21 you could still get the benefit of family tax benefits over and above Common Youth Allowance which I think was a worthwhile extension.

FAINE:

Unemployment you concede will stay at around 7 per cent. Does that mean youre conceding the battle, or it doesnt matter what you do youre not going to be able to make substantial inroads in the next year?

TREASURER:

Well, what it means is we can consolidate our gains this year. In the last year, 180,000 new jobs were created in Australia and unemployment, which is still too high, fell to its lowest level in a decade. We havent seen unemployment this low for around a decade, and I think we can consolidate those gains. And as the world economy strengthens I think we can look forward in the next decade to big inroads into unemployment but

FAINE:

Over a decade?

TREASURER:

I said in the next decade we can look forward to big inroads into unemployment.

FAINE:

But what about the next twelve months, I suppose anyone whos unemployed would be asking?

TREASURER:

Well, the point I make, Jon, is this. You wont get more jobs by doing nothing. To get more jobs in Australia, youve got to keep the reform process going, and the reform process at the moment is stalled up in the Senate on tax and industrial relations. But as we get those reforms through they will open the gateway to more jobs in the next decade, in the first decade of, which is 12 months away, in the first decade of the next century.

FAINE:

Specific measures though are being called for in particular from the welfare lobby. When growth in the last year was at 4 per cent, as youve just reminded us, you made substantial inroads to unemployment. If growth slips to 3 per cent does that mean you lose those new jobs that you managed to create (inaudible)?

TREASURER:

No, no, thats the whole point, you keep all those jobs, thats the whole point. 180,000 new jobs and we keep them. And then as we engage in the reform process we can push growth up again, I believe, and as the world economy turns you make additional new net jobs over and above all of the jobs that youve kept. And thats really the secret I think. Just as, you take a country, well lets take some countries in our region, like Hong Kong, Singapore, now in recession. The last year they werent creating jobs, unemployment was going up. Weve come through, weve created new jobs, we can stabilise them and we can go on. And thats what we intend to do, and to have done that during the period of an Asian recession is great. If we can hold those gains and go forward that will be even better.

FAINE:

How far are you prepared to compromise on the sale of Telstra and the GST? Already now theres substantial talk about a double dissolution.

TREASURER:

Well, a double dissolution only occurs if the Senate rejects twice an elected governments policies, and it hasnt rejected the once yet. In fact, we cant get the votes on because as you know the Labor Party is trying to talk out time so we cant get to a vote. So its far too premature to look at anything like that. What we ought to do is, we ought to get on and get some votes. Weve been talking about tax reform in this country I think now for 25 years. It started with the Asprey Report in 1975. Here we are 25 years later. Were more advanced than weve ever been before in those 25 years. Asprey tried to do it, there was an attempt to do it by John Howard when he was in the Fraser Government. You recall that Keating and Beazley had a go at a broad-based consumption tax when Labor was in office in the mid-eighties. Were more advanced now than weve ever been before because weve actually got the legislation in the Parliament, and as you know Labor is trying to waste time and talk out debates. But I think the Senate should come to the votes and lets get the votes, lets see how they go.

FAINE:

And if they dont?

TREASURER:

Well, you see I think the Australian people are entitled to ask their Senators to vote. The Senators are elected and I think theyre entitled to ask to actually come to their votes, and I think it should to be done in all due time.

FAINE:

Im sure you do think that, but what do you do if that doesnt happen?

TREASURER:

Well, I, well if the Labor Party just keeps talking for ever and it doesnt come to a vote?

FAINE:

Indeed. I think they out-manoeuvre you in the Senate.

TREASURER:

Well I mean, I think public opinion will force them to give up this tactic sooner or later. Look, we had a sitting week where the Senate talked for 33 hours on five minor amendments, making it the tenth-longest debate, I think, in Australian history on five amendments. I think the people of Australia will start to ask after a while, you know, these Labor Senators that are just trying to run down the clock on the taxpayer. I think theyll start feeling the heat of public opinion soon.

FAINE:

As at the end of a football game your beloved Aussie Rules, if the team thats got the ball maintains possession you deprive the other side of a chance to score. Thats the game.

TREASURER:

Well, if you see Australia and our national interest as a game, but I dont. You see, were talking about the future of our economy here and were talking about the future of our tax system and were talking about peoples lives. And if you want to say its just a game and well keep possession and try and stop decent reform, at the end of the day who is the loser? The countrys the loser. I mean they might say, oh well, you know we were good at the game but the country loses. You know, it would be no consolation I think for those Senators to say oh well, we were good at the game while the world was uncertain and Asia was in recession and we stopped opportunities. I think at the end of the day theres a national interest argument here.

FAINE:

Just a few quick things to finish up, Peter Costello. No specific provision in the Budget for funding the federal allocation of money to see the Geelong Road improved. We all thought it was a done deal here after Alan Stockdales Budget last week. Is the allocation there, youre just holding out for an announcement during a state election here in Victoria?

TREASURER:

The way that it works is that the State Government normally, the Federal Government builds a national highway system, Highway No 1, and the State Governments normally build the remaining roads. There is a programme where a road can be designated one of national importance and you can get a contribution from the Federal Government. The Victorian Governments announced that it would like the Federal Government to designate the Geelong Road a road of national importance, and weve had a look at that. We have to have that assessed, and well be looking at that quite carefully.

FAINE:

Have you been following the fortunes of Bob Ellis with interest or glee?

TREASURER:

Oh, well I dont comment on him.

FAINE:

Not at all?

TREASURER:

No.

FAINE:

He, of course, is the author of the book that led to your defamation action in the courts.

TREASURER:

Mm. No, I dont comment on him.

FAINE:

All right, and rumours that Kevin Sheedys going to leave Essendon and go to Richmond would have caught your attention no matter how happy you were with the Budget.

TREASURER:

Yes I did. Yes, I saw that on the front page of The Age today. I think that might be some wishful thinking by the Tigers, because Sheedys very much part of the Essendon makeup and theyre having a great year, and all credit to Sheeds. I think hes in his 17th or 18th year of coaching, and theres new life in the old fellow yet.

FAINE:

Youd like to think so. And finally, Peter Costello, by the time the Sydney Olympics are over youd be looking to take over the Prime Ministership I presume, the way things are going now, if all according to plan?

TREASURER:

Well Ill be looking forward to the Olympics, I think Ill probably sit up and watch them on TV Jon, like most good Victorians.

FAINE:

But it would be probably for John Howard one of the high points of his Prime Ministership and a good point at which to consider handing over the reins.

TREASURER:

Well, as you know, I mean these are all hypotheticals and I dont comment on them one way or the other.

FAINE:

Thank you very much for your time this morning. Look forward to seeing you here in the Melbourne studio some time soon.

TREASURER:

Thanks Jon.