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. 99/36
Treasurer
Hon Peter Costello MP

Radio 2UE with John Laws

Wednesday, 12 May 1999

9.05 am

SUBJECTS: Budget

LAWS:

I think Ive discovered what is wrong with the Budget and I know youve all tuned in to hear what it is. If you hadnt already heard. Its too good to be true thats whats wrong with it. But it is true. Were all waiting for a whack behind the ear and its not going to happen this year. Probably not next year either. Quite simply John Howard and Peter Costello have delivered their promise to better manage Australias economy. OK, so theyve had a lot of help from worldwide economic conditions but they need credit and deserve it. Most of the economic commentators this morning cant find anything better to say than its a boring Budget. Why? Probably because it doesnt contain the usual headline of beer, cigarettes and petrol up. Its not a boring Budget. Its a very clever Budget with a few notable exceptions like the private health fund plan that I still cant quite fathom. It underlines Australias current booming economy as it is, promises even better times ahead after a small slump later this year. No real magic in the Budget numbers, the Treasurer has simply taken extra revenues and given them back to taxpayers, $10 million worth and Im sure there cant be too many taxpayers out there that see much wrong with that. Those extra revenues are a direct result of the economic boom times which have seen our share prices go up, our interest rates stay down and consumer spending go through the roof. I mean the one note of gloom, if there is one, on the horizon is unemployment I suppose. Were going to have to do more to tackle unemployment levels but $350 million to apprenticeship schemes is not a bad start.

But if you think the Budget was OK, this Budget, wait till the next one. I mean next year Peter Costello will also be handing out $5 billion in tax cuts. Really, Ive heard it said before, it was said by a Prime Minister, it doesnt get much better than this. It didnt get much better for him either. But I believe that to be the truth about this Budget. I think you would be going a long way to find problems with it.

13 13 32 if youd like to talk to us and on the line from Canberra Treasurer, Peter Costello. Peter good morning and welcome.

TREASURER:

Thank you very much John, good morning.

LAWS:

What a lovely Budget.

TREASURER:

Well we sat down and we tried to work out where we wanted to position the country for the next century and we want an Australia where the Budget is in balance, where mortgage interest rates are low, where families can hold on to their houses, where we can grow, I think, faster than the rest of the world. And we also have a vision for paying off all Government debt. We could enter the next Century like we entered this one, with a Government debt-free, clean sheet, no interest bill.

LAWS:

It would be good wouldnt it.

TREASURER:

No taxes on interest. It would be, John, it would just make us, you know, one of the really growing, dynamic, young countries of the world and thats the vision that we have.

LAWS:

Yeah, we should be that.

TREASURER:

We should. We came through I think some tough times and none more so than the last two years. And in the last two years the world has been in a terrible state. You look around Asia, Japans in recession, Hong Kongs in recession, Indonesia in recession

LAWS:

Yes, how we, either that or I suppose its your good management. I was going to say I dont know how we survived that but we did.

TREASURER:

Well everyone said that if Hong Kong and Singapore and New Zealand and Korea and Japan go into recession Australia will have to go into recession but we didnt and we grew and not only did we grow, we grew faster than Europe and Britain and America. Now, the worlds still an uncertain place and we cant predict whats going to happen in another two or three years but I know this, that if we keep our Budget in surplus, if we pay down our debt, if we keep our inflation low, well have a stronger economy to face all of those challenges and thats what the Budgets about.

LAWS:

Yes. Somebodys just asked me, please ask, Im reading it, please ask Mr Costello what happened to the dental health care for pensioners. Not a single dollar in the Budget for it. I didnt know anything about it, do you?

TREASURER:

Well, what theyre referring to is that the States have always run dental health care schemes for pensioners.

LAWS:

So that was a State deal not a Federal deal.

TREASURER:

Well, there was a limited Commonwealth program to get waiting lists down but weve always made it clear that this is a State responsibility, and in fact we are funding the States with more money, particularly in New South Wales, so they can keep all of those services going.

LAWS:

Yes, but is it going to be, obviously its been taken away, is it going to be given back?

TREASURER:

No, nothing happened in this Budget. This was, I think three years ago the Commonwealth-limited program came to an end. But no change in this Budget, thats something that happened three years ago.

LAWS:

What happens to the Budget surplus if the sale of Telstra doesnt go ahead? What contingency plans have you got there?

TREASURER:

Well, we, this is a budget for the 12 months starting 1 July, and for the 12 months starting 1 July that Telstra is not part of that Budget.

LAWS:

So it doesnt matter.

TREASURER:

Not in the 12 months starting 1 July. Now, our plan to make the Commonwealth debt free depends very much on the Telstra sale because if we put Telstra into private shareholders what are we going to do with the money? Well, were not going to spend it. I mean that would be the worst possible thing you could do. That would be going back to the Keating/Labor idea: you sold an asset and you spend it in a year. What we want to do is we want to pay down Commonwealth debt forever. What advantages does that give us? Well it means taxpayers no longer have to pay any interest bills. Its like living in your home mortgage-free. The money that youre earning goes for your services, its not going to service your mortgage. This could be a mortgage-free Commonwealth Government. We could pay off our debt and taxpayers get the benefit.

LAWS:

How would the taxpayers get the benefit? Theyd still be paying the same tax rates.

TREASURER:

Well, if you dont have to, when our Government came to office, when I first became Treasurer, the cost to taxpayer of interest on debt was $9 billion.

LAWS:

Yes but thats a bit of a distorted way of putting it. I mean the tax was going anyway, they didnt have to pay extra tax for that, it was going into consolidated revenue anyway.

TREASURER:

If you dont need, if you dont have a $9 billion interest bill you dont need to collect $9 billion of taxes.

LAWS:

Yes, but when that $9 billion is wiped off youre not going to lower the tax are you?

TREASURER:

Look, if you have a Budget in surplus and no debt, you shouldnt be raising more taxes than you need. Of course youd be returning it to taxpayers. Next year when the new tax system comes into effect in 1 July 2000 were going to cut all income tax rates. Why? Because if you have your Budget in line, if youve got a program to pay down debt, yes, you should be reducing taxes, thats what we intend to do.

LAWS:

Okay, but if youre not able to rub out that interest bill that we have of what, $9 billion?

TREASURER:

Well, that was the interest bill of $9 billion on full Commonwealth debt.

LAWS:

Okay, so if you cant wipe out that $9 billion interest bill taxes wont go down?

TREASURER:

Yes, you just keep your taxes high and thats the consequence of that.

LAWS:

But if that is wiped off theres a guarantee that taxes will come down?

TREASURER:

Well as I said, if youre not paying interest, if youre Budget is in surplus, if youve paid down your debt, you can have lower taxes. And theres a second thing about it, is this, that we would become amongst a very few countries in the world, certainly better than the United States and Britain and France, not carrying any debt. And that gives confidence to your economy and growth and jobs and low interest rates and all of the things that keep your economy going.

LAWS:

Peter, you know Im a simple-minded man, if we wipe that $9 billion away will taxes come down?

TREASURER:

Oh well, over time they will, yes.

LAWS:

They will?

TREASURER:

Mmm.

LAWS:

How do we know this lifetime rating system is the solution to the private health fund and why is this Government so keen to protect private health funds?

TREASURER:

Well, its not to protect the private health funds. Its, we know if private health insurance falls below critical levels that your public hospital system becomes over-burdened. One of the reasons youve got long queues in your public hospital system is people not taking out private health insurance and people not utilising the private sector. So, youve got to get the private health insurance levels back up. Were now giving a 30 per cent rebate. If you take out private health insurance the Government will pay 30 per cent of your premium. Thats available to everybody and that started on 1 January.

LAWS:

Yes, that helped a little bit, but its going to take a long time to get to $30 million that you spend on advertising.

TREASURER:

Its going to take a long time to turn those rates and get them up. So what were saying now is, we want people to join when theyre young and to make private health insurance a habit. And if you joined before the age of 30 then youre going to get a discount on your premium for the whole of your life. And if you happen to be over 30 youve got 12 months from 1 July to join and if you do join youll be credited as if you joined at 30 and youll get that discount for the whole of your life.

LAWS:

Yes, well thats a pretty good deal. But I mean, its a pretty good deal for the people, but its also a pretty good deal for the private health funds.

TREASURER:

Well, at the end of the day the private health funds basically pay back to the insured what they take in in premiums. The idea is, and it used to be the case in Australia, you left school, you got a job and you took out private health insurance. And we want to make private health insurance a habit, a lifetime habit. And to make it a lifetime habit, what we say is, you take it out young or if you happen to be old if you take it out in the next 12 months, youve got a premium for life . . .

LAWS:

Yes.

TREASURER:

. . . while you stay in it. Its a bit like, I suppose, car insurance. You know, if you dont make a claim on your car insurance you get a no claim bonus. Well, that wont be coming in in health insurance, but its kind of an idea of reward for people that have done the right thing. If youve joined before 30 or you join in the next 12 months youre considered to have joined by 30 and youll get a discount throughout the whole of your life.

LAWS:

The right thing being what the Government wants us to do?

TREASURER:

Well, the right thing being, I think, taking private health insurance and making some contribution to the private health system.

LAWS:

Yes, I mean I approve of the idea. I dont see why anybody like me should get free health, or you for that matter.

TREASURER:

Well, we shouldnt and what people like us, anybody really, we say if youre prepared to put 70 per cent up for the premium, the Government will put the other 30 per cent.

LAWS:

Do you belong to a private health fund?

TREASURER:

Yes.

LAWS:

Highest rate?

TREASURER:

Im not quite sure what rate Im on because my wife takes it out.

LAWS:

Listen, if the GST doesnt go through, God forbid, what happens to the Budget forecast? How do . .

TREASURER:

Well theres no change to the Budget in the next year because the new tax system, including the goods and services tax, starts in 1 July. So it would affect things, not in this forthcoming year but in future years.

LAWS:

Yes, so how do you straighten that out? What happens to the $9 billion interest bill?

TREASURER:

Well, I make this point, if we dont have a new tax system in the year 2000 Australias opportunities are going to be much less, thats the truth of the matter. People will not get income tax cuts, theyll not get additional family benefits, the economy will not get the boost.

LAWS:

Yes, I understand that. But what will happen to you? I mean what are you going to do?

TREASURER:

Well Im going to do everything I can to make sure that the Senate recognises the wisdom of tax reform.

LAWS:

How much are you going to have to give Brian Harradine?

TREASURER:

Well, we dont really see it like that . . .

LAWS:

We do.

TREASURER

. . . we, you know, the Government takes the view that were obliged to look at the national interest. And we put down a tax plan and we asked the people to elect us and we put it into the Senate and we want to keep our promises.

LAWS:

Do you think Brian Harradines being selfish?

TREASURER:

I think, well I hope hes considering things on their merits.

LAWS:

Yes, well he probably is but do you think hes being selfish?

TREASURER:

Well, as I say I hope hes considering things on their merits.

LAWS:

If hes not hes being selfish?

TREASURER:

Well, I trust that he is.

LAWS:

Okay then. I think a lot of people are starting to say, my colleague John Miller said this morning, that its tantamount to out and out blackmail.

TREASURER:

Well, I also make this point John, look, Senator Harradine wouldnt be deciding these things if it wasnt for the fact that all of the Labor Party and all of the Democrats and all of the Greens are voting against tax reform. He only gets in this position because Beazley lets him get into this position. I thought it was pretty interesting last night, you know, when Senator Harradine did a press conference on his reaction to the Budget. I mean, it was almost as if he was the key man. He certainly eclipses. . .

LAWS:

Well he thinks he is.

TREASURER:

Well, he eclipses Beazley. You see, wheres Beazley? I mean, Beazley has just dealt himself out of national politics on this.

LAWS:

I wonder why hes done that?

TREASURER:

You see. Its a classic mistake. Nobody knows what the Labor Party stands for, hasnt got any policy. Because he votes against everything all of the attention goes to Senator Brian Harradine. And nobodys interested in Beazleys view on Budgets or tax or anything else. We know it, hes just against everything. He keeps things simple. Whatever there is hes against it. You know, the sun came up this morning, no Im against that.

LAWS:

Brian Harradine isnt happy about the amount in the Budget for families. I would like to think that poor people, the people who need help and elderly people, people who genuinely need help, are going to get more and going to get looked after. Are they?

TREASURER:

Yes. Look, lets come to families. What were doing as part of our tax plan is we are increasing all family allowances. We are extending the income tests so that you can get it while youve got higher incomes. We are changing the withdrawal rates, at the moment for every additional dollar you lose 50 cents in family allowance, were changing that to 30. And this has the effect of giving an extra $2.5 billion, almost $2.5 billion to 2 million families. And you know, I think everybody whos looked at it said, gee, this is a great thing for families.

LAWS:

Except Brian?

TREASURER:

Well, hes got another point. Hes got a point about a thing called common youth allowance, which is a youth allowance which is paid to young people whether theyre at tertiary education or unemployed . . .

LAWS:

Are you going to accommodate him in that area?

TREASURER:

Well, in the Budget last night we announced that extension of family benefits which we cover young people up to 21 and its a, I think, a very good move and I think its good for those young people.

LAWS:

Just one final question. Is the economy strong enough to withstand a downturn on, over Wall Street for example? I mean how much of the budget relies on economies outside Australia?

TREASURER:

Well, its a point you have to look at very carefully. If Wall Street were to turn down and that were not to effect the real economy in the US, thats not a problem. But if a downturn on Wall Street led to a downturn in the real economy of the US that would impact on us. Now the interesting thing is the Wall Street crash in 1987 didnt directly feed into the US economy. The more important thing is not so much Wall Street but the US economy. The US economy is still strong which is good for the world economy. You know, people talk about the growth economies of the world, the US and Australia, and if the US were to turn down that would effect us, yes it would.

LAWS:

Okay, well really we cant, sort of, rip into each other because theres not much to rip and tear about.

TREASURER:

Lovely to be on your programme and my regards to Caroline.

LAWS:

Thank you very much Treasurer. Good to talk to you and congratulations. It seems, you know Im no economics giant, but it seems that those who are think its all pretty good. The headlines look great for you, you must feel encouraged and if youre encouraged, the Governments encouraged, its good for all of us.

TREASURER:

Lets hope the nation is encouraged too.

LAWS:

Okay, thank you Peter. Our Treasurer, Peter Costello.