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 23/05/01

Transcript No. 2001/070

TRANSCRIPT
of
THE HON PETER COSTELLO MP
Treasurer

Radio 2UE - Interview with John Laws
Wednesday, 23 May 2001
9.15am

SUBJECTS: Budget

LAWS:

Treasurer, good morning. Peter.

TREASURER:

I’m here, can you hear me? Good morning, John.

LAWS:

Yeah, can you hear me okay?

TREASURER:

Of course I can hear you, John.

LAWS:

I’m happy to hear that, Peter.

TREASURER:

I can hear you most days actually.

LAWS:

Well, I’m happy to hear that. Obviously you heard us about self-funded retirees who were very grateful.

TREASURER:

Sure did. I think this is a great step forward for self-funded retirees. If you’re ever a single you now don’t have to pay any tax or any Medicare levy until $20,000 and for couples, until $32,000. And just to put that in context, before the Government came to office they paid tax after $5,400, so that’s a real big increase.

LAWS:

It sure is. The budget surplus of $1.5 billion, that’s now being hyped as being above expectations but if we go back a few budgets, the forecast surplus for this one, $12 billion. What happened along the way?

TREASURER:

We cut tax. That was before we cut income taxes and company taxes and capital gains taxes. What we said is, we’ve got the budget back in balance, we’ve paid down some Labor debt, we’re showing surpluses, now is the time to cut taxes. And we cut income tax from 1 July last year and company tax again this year. We’ve abolished financial institutions duty. We’ve cut tax for self-funded retirees. We’ve abolished indexation on petrol. And so what we’re doing now is we’re returning the money to the community by way of tax cuts.

LAWS:

You’ve made some significant moves on the tax-free threshold to the Medicare levy for older Australians, as we say, the cut off for singles rises to $20,000 but those on half pensions, they’re still subject to a fairly onerous assets test, which I don’t understand. Why should an allocated pension be included in the means test, isn’t that an asset to you and me and all the other taxpayers because they’re saving us money?

TREASURER:

Well, to get a pension there are two tests. If you’ve got high incomes you can’t get a pension and if you’ve got high assets you can’t get a pension. I’m just going from memory here but…

LAWS:

Yeah, but the people who decide they want to get involved in one of these allocated pension schemes, why should that be seen as an asset? It’s an asset to you, they’re saving you money.

TREASURER:

Well, I don’t know that it’s seen as an asset. As I understand it, if you’re on a private pension and that [inaudible] as income and as a consequence you probably wouldn’t come within the pension test. That’s because you’ve got some kind of other income. But [inaudible]in context, you can get a part pension, if you’re a couple, up until $58,000.

LAWS:

But these things that I’m referring to, these allocated pensions, it’s treated like money in the bank by Centrelink. They rely on that money to generate their income so it’s hardly an asset. It’s an asset for you, it’s not an asset for them. It’s treated like it’s money in the bank but it’s not money in the bank, it’s an allocated pension scheme.

TREASURER:

Well John, look, without going through all of the details on that, and we can have a look at it, the way the pension system works is if you have an income, that’s taken into account in assessing whether or not you should get a pension, or people that are on a pension or a part pension in this budget get $300, which I hope can be paid in June. For pensioners and for self-funded retirees – people who are above pension age – they get an increase in their tax-free threshold to $20,000. It’s higher than it’s ever been before by a long shot. And can I just make this point – I think it’s important because you used to campaign on this, John, I remember it. Do you remember before we came to office the Labor Party used to tax the self-funded retiree on the same income as a pensioner? They had one rate for the self-funded retiree and another for the pensioner. On the same income, if you were a self-funded retiree you’d pay tax and if you were a pensioner you didn’t. And you used to campaign about that and the first thing we did is we made self-funded retirees and pensioners equal. We gave them the same tax-free threshold. We increased it for the self-funded retiree from $5,400 to $11,000. Now we keep them equal and we take it to $20,000. And this is a huge step forward…

LAWS:

I think it’s good.

TREASURER:

…for pensioners and for self-funded retirees.

LAWS:

Sure, I have no doubt about that. Can we please go back to the part pension people who are subject to this assets test. If they have an allocated pension fund it should not be included in the means test. It should not be considered to be money in the bank. If they blew that tomorrow they’d have their hand out to you to pass on money from the taxpayers because they wouldn’t be able to support themselves. It’s not an asset. It’s keeping them alive, it’s what they live off and Centrelink look at it like it’s money in the bank. That’s wrong.

TREASURER:

Well, as I understand, an allocated pension – and I could be wrong on this – it actually pays you money.

LAWS:

Yes it does, so that you don’t have to.

TREASURER:

And the way the pension system works is that if you are being paid money that’s taken into account in determining whether or not you get a government pension. And there are income tests in relation to that, when you go above a certain income you miss out on the pension. But it takes into account your income from whatever sources.

LAWS:

It does but…and then you can get a part pension or you can miss out on a part or a full one or miss out on a part pension. But what it is, the piece of paper that makes them the money to stop them getting money from you and the other taxpayers is considered to be an asset to them. It’s not an asset to them. It’s an asset to you and me and all the taxpayers. That shouldn’t be seen as an asset.

TREASURER:

Well, the budget, John, which we brought down last night, doesn’t change these rules one way or another.

LAWS:

Do you think you should have a look at it?

TREASURER:

Well look, we’re always willing to have a look at everything. But what happened last night is whether you’ve got an income, from any source, from a public pension or whether you’ve got a private [inaudible] or whether you’ve got company dividends or whether you’ve got interest, if you’re an older Australian you don’t have to pay tax until you go above $20,000, and you’ve never had that right before. And for couples, you don’t have to pay tax until you go above $32,000. You’ve never had that right before. And if you happen to be on $32,000 it’s a tax cut compared to last year for $75 a week. And can I make this point because I think it’s a very important point – these rules are backdated for 1 July last year, so the tax cut takes effect from 1 July last year and as soon as you put in your tax return, after the 30th of June.

LAWS:

Yeah well, at the risk of being a bit cynical I think that’s a pretty clever political ploy. They’ll have the money in the pocket before the election. That’s okay…

TREASURER:

But don’t you think it’s good to actually…

LAWS:

It’s an election year, you can do that.

TREASURER:

But don’t you think it’s good to actually bring the tax cuts in early rather than late. I mean, normally a government…remember back in the Labor days…

LAWS:

It’s absolutely miraculous that you can do this and we mustn’t talk about back in the Labor days because people are sick of hearing about that.

TREASURER:

Yeah well, too right they were because back in the Labor days they used to say we’ll give you a tax cut in three years time and they’d take it away before you got there. I was asked on TV last night, somebody said, oh, Mr Costello, this is the first time we’ve ever had a retrospective tax cut in Australia. I said, that might be right but that’s a good thing, isn’t it?

LAWS:

I would have thought it was an excellent thing. Just across to the $300 – wasn’t it going to be $1000?

TREASURER:

No, there are three different schemes here. The pension was put up by 4% on 1 July and it’s been kept 2% above the cost of living.

LAWS:

What about the $1000, though? We had a very well meaning pensioner accusing the Prime Minister of lying to him over this.

TREASURER:

Well, yeah, but the Prime Minister said, and he was right, that we introduced a bonus scheme for pensioners so you could get dollar-for-dollar up to a thousand a matching grant from the Government. If you had a private income of a hundred, the Government would match it. If you had private savings income of two hundred, the Government would match it up to a thousand.

LAWS:

But the people still feel that they’re entitled to ask what happened to the promise of $1000 because it was a promise.

TREASURER:

Yeah, it was a promise.

LAWS:

Then it was broken.

TREASURER:

No, the Government would match dollar-for-dollar…

LAWS:

Well, they didn’t get that…

TREASURER:

…[inaudible] private savings, the income from their private…some people didn’t have $1000 of income from private savings.

LAWS:

But the original promise didn’t have any conditions on it.

TREASURER:

Oh yes it did. That was the case, that was the case and that’s the point the Prime Minister made. But from last night, this is the third thing and this was introduced only last night, if you happen to be a pensioner or part pensioner, or a part pensioner, then you’re eligible for a payment of $300, lump sum, $300, all pensioners, all part pensioners, and it can be paid next month. The only thing that can stop that is the Labor Party because we’ve got the legislation in the Parliament and they should pass it today because if they pass it today we can pay it next month.

LAWS:

Okay, accept that. Are these measures for older Australians finally recognition the Government underestimated the impact of tax changes on people relying on fixed income?

TREASURER:

Well, what the Government did, as part of the tax changes, is it increased the pension, as I said, on 1 July. No, this is over and above and in addition to it. The reason we’re paying this is that the budget last year was stronger than anyone expected and paying a bonus for pensioners will be good for the economy, the budget can afford it and they deserve it. And the three things come together. The only thing that can stop it is the Labor Party and if they don’t, if you know, if they play straight on this the payment could be paid next month. They deserve it, the budget can afford it and it will be good for the economy.

LAWS:

During your speech last night I think I heard you refer to superannuation once. There’s plenty there for people already in retirement, but why no new incentives for people to save for the future?

TREASURER:

Well one of the things we changed last night is if you’re over 55 in the past you’ve had to spend your super before you could go on income support. We changed that last night. If you’re over 55 you can go on income support without having to spend your superannuation. That will be of great benefit for the people on superannuation. But the other think I said last night, I think this is an important point, when you put money into superannuation John, what does the superannuation fund do with it? Well mostly it invests it in shares. Superannuation funds, yours and my superannuation, people out there, is buying and selling shares all the time because they’re trying to maximise the return they can pay. And one of the things that I announced last night is they’re not going to be taxed if they buy and sell shares. So that will increase the money that they can make and it will increase the return to all superannuants eventually because they’ll be getting better investments. And also as those funds buy and sell those shares capital gains tax will be lower.

LAWS:

Yes.

TREASURER:

[inaudible] a lot of good actually, capital gains tax. Don’t forget that the Government cut capital gains tax in half for individuals.

LAWS:

But what you’ve done here is simply a reversal of what you did in 1996.

TREASURER:

Not in relation to capital gains tax. In relation to capital gains tax we cut capital gains tax for individuals and for superannuation. In fact we’re the only government that ever cut capital gains tax. The Labor Party introduced it and we cut it in half.

LAWS:

But when I say….it’s a reversal of what you did in ’96. It is in relation to the assets test.

TREASURER:

In relation to the superannuation……

LAWS:

[inaudible]

TREASURER:

…..previously we had taken that into account. In this budget we were bringing in benefits for people of retirement age which is over 65 for men or 61 for women. So we decided that we should do something to also assist those under retirement age and that’s why we announced that measure on superannuation.

LAWS:

The contributions are still taxed and a lot of people including me can’t understand why people should be punished for putting away their own money for their own future in order to save you money. It’s back to the same argument I’ve put up [inaudible].

TREASURER:

Well it’s a fair argument. That was introduced by Paul Keating in ’86.

LAWS:

No no.

TREASURER:

Yes it was, well it was.

LAWS:

But how long have you been there? You could have fixed it.

TREASURER:

Well that’s true. It was introduced in 1986. We cut a lot of Labor’s taxes. That’s one we haven’t cut.

LAWS:

One you haven’t cut either, in fact you increased by 15%, that’s the one for high income earners.

TREASURER:

Well let me tell you the ones we have cut – income tax; capital gains tax; company tax; stamp duties on shares; tax on motor vehicles; financial institutions duty. It’s a pretty long list.

LAWS:

I thought you were going on. Why should higher income earners pay 30%? Everybody else pays 15%. Why should higher income earners because they were fortunate enough to live in this great country and to be able to achieve a little more, why should they be punished for achieving?

TREASURER:

Well in relation to general income higher income earners are taxed at 47%. If they put money into superannuation they pay tax at 30%. That’s income earners over $100,000.

LAWS:

Yes but why should they pay at 30% when everybody else pays at 15%?

TREASURER:

Well to make sure that the tax concession for them between their marginal rate and superannuation is about the same as it is for low income earners.

LAWS:

So that means they’re not getting a tax concession.

TREASURER:

Well for low income earners who pay a marginal tax rate of 17% they’re still taxed 15% as they go into superannuation. They only get a 2% tax concession. Higher income earners get……

LAWS:

Why is anybody taxed on superannuation at all?

TREASURER:

Well that was introduced by Paul Keating in 1986. And I think the reason he introduced it, if you want the honest answer, the reason he introduced it is he wanted to bring forward tax receipts. And that’s why it was introduced in 1986 and it’s been part of the tax landscape for the last 15 years. And you might say well, you know, the Liberal Party’s done a good job of cutting taxes and here’s another area. We started with income taxes, we went on to capital gains tax, and in this budget we cut company tax. We’re now cutting financial institutions duty. Can I just talk about that one? You know financial institutions duty, every time you put money into a bank account or pay a credit card or mortgage……

LAWS:

Well we’re all aware of that.

TREASURER:

……and on 1 July we are abolishing that tax. Completely abolishing it.

LAWS:

And what is that tax?

TREASURER:

It’s called financial institutions……

LAWS:

No no, but at what level does it run?

TREASURER:

Well it runs for everybody who puts money into bank accounts and pays off their credit cards and pays their mortgage. They’re always taxed. You know when you get a bank statement and you’ve got all these taxes?

LAWS:

Yeah, but I’m asking at what percentage?

TREASURER:

Well it’s varying percentages according to how much. But the tax cut saves $1.2 billion.

LAWS:

But it wouldn’t be up to 30% would it and high income earners are paying 30% in order to do the government a favour for the future.

TREASURER:

It’s a tax every time you put….. Do you think you should tax people for putting money in banks?

LAWS:

No I do not. Why didn’t you change that before?

TREASURER:

Well we’re doing it on 1 July.

LAWS:

But there would be a lot of people who’d say that you’ve been there a hell of a long time.

TREASURER:

Well hang on John. I mean we are abolishing, the first government ever to abolish the financial institutions duty. I think that’s sort of a good thing don’t you?

LAWS:

I think it’s a terrific thing. Why don’t you be the first government ever to abolish the 30% tax on superannuation? There shouldn’t be any tax on superannuation.

TREASURER:

We can work on cutting income taxes for that (inaudible). If you’re saying why not cut a tax that applies to people over $100,000.

LAWS:

I’m not really saying that because you…..

TREASURER:

Well it only applies to people over $100,000.

LAWS:

I know. But then you would say to me that this was self interest. It’s not.

TREASURER:

No I’m not saying it’s self interest. We thought it was more important to cut taxes, if you want the honest answer, to cut taxes for people on $30,000 and $40,000. Average workers. The average worker had his top income tax cut from 43 cents in the dollar to 30 cents in the dollar.

LAWS:

Yeah that’s good.

TREASURER:

From 43 cents in the dollar to 30 cents in the dollar. If you’re an average worker last year you’re paying 43 cents in the dollar, this year you’re paying 30 cents in the dollar. We think that the important thing is to help the average worker. The average worker earns $40,000 a year and it’s the average working man and woman that we decided ought to be our (inaudible) priority and the government to cut their income tax rate and I…..

LAWS:

[inaudible] think it was a terrific thing and I think what you’ve done for self funded retirees and pensioners is all wonderful. I think what you’re doing for superannuation is nothing and I think that you should be doing something before somebody starts to really point the bone at what happens in parliamentary circles when it comes to superannuation.

TREASURER:

John if you’re saying that this government has got a great record in cutting taxes and it should continue to work at it I’ll agree.

LAWS:

If you want me to say that Peter I’ll say it. This government has a great record in cutting taxes and I want to keep them right at it.

TREASURER:

I appreciate it.

LAWS:

Nice to talk to you Peter. I know you’ve got to go on to other things and congratulations on the thing. I think it really in the main is good and is going to be good for Australia and that’s all that really matters.

TREASURER:

That’s what matters John.

LAWS:

Good to talk to you Peter.

TREASURER:

Bye.