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. 2001/075

TRANSCRIPT
of
HON. PETER COSTELLO MP
Treasurer

Address to the National Press Club, Canberra
Wednesday, 23 May 2001
1pm

E&OE

SUBJECTS: Questions and Answers

JOURNALIST:

Iain McDonald from Dow Jones Newswires. Treasurer, Reserve Bank Governor Ian MacFarlane said in his testimony a week ago that monetary policy could turn out to be easy enough meaning that maybe no further rate cuts are required. The Government is forecasting strong economic growth in the next fiscal year, do you think that rates are low enough to ensure that that growth pick up actually happens? And could you confirm that the Reserve Bank is going to contribute about $2.8 billion to the Government's Budget in the next fiscal year?

TREASURER:

Well, thank you for the first question. As you know I never comment on the future direction of monetary policy. But you're entitled to ask and I thank you for asking. In relation to Reserve Bank dividend, the dividend in 2001-2002 I expect to be of the order of about $2.8 billion. Which is not the record by any means. The dividend in 1999-2000 I think was $3.7. So in that particular year I think we booked 3 billion and held some money over. If you go back through in 1993 it was 3.2 billion but back in those days the Government was doubling up. It was taking interim and final dividends in the one year. So that's not an unusual dividend 2.8, certainly it was less than 2 years ago. But we booked to our Budget all of our dividends, we book dividends from the Reserve Bank, we book dividends from Telstra, we book dividends from other Government business entities. They all go into the bottom line and some years they're bigger and some years they're smaller. But once we know what our revenues are going to be then we decide on what our outlays are going to be. We make that consistent with a good bottom line. I think the bottom line this year of about $1.5 billion is right for an economy which this year is obviously going to grow below long term potential. But next year I would expect that the economy would strengthen. And certainly all of the indications that we have are that it will and I think people will be glad that it will.

JOURNALIST:

A major criticism of the Budget has been that it lacks vision. You have outlined in your speech today your intention to improve the competitiveness of Australia's business climate. If the Liberal Party did win a third term in office, what else would it seek to do and in particular what further economic reforms would you be looking at following on from tax reforms and financial market reforms?

TREASURER:

Well tax reforms, financial market reforms, welfare reforms, defence investment, environment investment, innovation, infrastructure investment I think are all important things. On the tax front, cuts in company tax, cuts in capital gains tax, abolition of financial institutions duty, abolition of stamp duties on shares, introduction of the Simplified Taxation System, introduction of the Uniform Capital Allowance system I think have all been significant and are all improvements in relation to business. So I think there's been a pretty fair agenda, there's a pretty fair agenda to go and I think I can confidently say to you that if the Liberal and National parties are re-elected we haven't run out of things to do and it's because we haven't run out of things to do, I think that we'll be asking the Australian public to re-elect us.

JOURNALIST:

Treasurer, Fran Kelly, 7:30 Report. Treasurer, small business hasn't been happy in the last 12 months. It's not much happier after your Budget according to some reports. It wanted action on compliance and complexity of paperwork, it didn't get it. It makes the point that if the sweetener in there for small business is the cut to the company tax rate it doesn't help a lot of them because 80% of businesses aren't incorporated. What is in there for small business and are you planning to give them some of what they want in terms of complexity of paperwork before the election.

TREASURER:

Well Fran can I say in relation to compliance costs we made a major statement on that in February. And you recall that what we did is we said that having had two instalments, GST instalments in, people need not do further quarterly reporting. That they can just pay the basis of the last instalment and move to an annual report. Since then we've had a third instalment in and if I asked you when it was you'd probably sort of guess because there didn't seem to be a great deal of trouble in relation to that third instalment. The third instalment in relation to the third quarter, the March quarter. And I took that as an indication actually that people were adjusting to the system, those that wanted to move to the new system had done so. In relation to small business of course the thing that is laid down in this Budget is the Simplified Taxation System in relation to income tax. Which will allow them to go on to cash accounting, to pool their assets, to write them off in a much simpler way and to do away with a lot of the trading stock rules. That's been something that small business has been after for years and it's finally coming on 1 July. Small business I think will also benefit from the fact that they can now get full input tax credits on cars and vehicles. Most small businesses would have a car or a delivery van, they might have a truck, they need no longer pay any tax. Which is a very dramatic reduction in their tax. But I think you shouldn't underestimate the reduction in company tax from 34 to 30% because for those that are not companies, I assume they'd be partnerships, they've had very significant capital gains tax cuts. If you're in small business and you're an individual you can roll your money into retirement capital gains tax-free, you can get a discount in relation to rollovers into other businesses and they have been big changes. But I guess if I were to name the thing that you could do most for small business and I think small business knows this, the best thing you can do for small business is to keep its interest rates low. Any small business person who lived through the nightmare of the late 80's early 90's on a 22% and 23% overdraft rate knows that lower interest rates are the most immediate, direct and beneficial thing that you can possibly do for them. And I make no apology for this, this is unashamedly a low interest rate Government. Our economic policy has been directed towards that and we now have near record low home mortgage rates, much lower overdraft rates, much bigger lending rates and I could say to small business I think if it were otherwise all of the tax stuff would disappear because it's just a juggernaut. High interest rates is just a juggernaut that effects small business in such a way that the best thing I think we can do is run an economy which will keep those interest rates down. And Fran a return to the policy of the past. We've been there, we know where it ends, the policy of the past, the big deficit, big debt, big borrowing policy. We know where it ends and we know where it ends for small business and I'd say to small business we cannot afford a return to the past.

JOURNALIST:

Jim Hanna from AAP, Treasurer. You said several times today that you can afford the package for retirees because I quote `we came in better than expected in the current financial year'. I was just wondering in what sense you were talking about given that both growth rates and your surplus were lower than your previous Budget's estimate and the mid-year reviews.

TREASURER:

Well we forecast for this year a Budget surplus of $2.8 billion, we think we'll come in at about $2.3 billion and that's after funding the one-off pension and after funding the self-funded retirees and the POW's out of this year. So if we hadn't had done that we would have come in substantially in excess of what we'd actually been budgeting for. So because we were coming in above our Budget forecast back in the May 2000 Budget, we can afford to make those investments and still come in where we did. That's the point that I was making. We had stronger revenues in 2000-2001 it's, the point I continually make, it's not GST. If GST revenues increase, that goes to the States. It could well be that the New Tax System has flushed a lot of people into the tax system that never paid tax before. And if it did it succeeded. We always made that point. And if some people are paying tax who never paid tax before, and because they're paying tax self-funded retirees can get a tax cut. I think that's good policy. If your honest taxpayer can get the benefit of that, or your honest pensioner can get the benefit of that I think it's good policy. So we think it's quite possible that those revenues were larger than expected because people who hadn't paid tax and should've are now paying it. And that's one of the reasons why pensioners and self-funded retirees can benefit, but you couldn't have done that if they'd all stayed out in the black economy. You could not have done that, you wouldn't have brought those people in and your pensioners wouldn't have had the benefit and your self-funded retirees wouldn't have had the tax cut. One of the benefits of doing the tax reform.

JOURNALIST:

Treasurer, Gemma Daly from Bloomberg. I'm just wondering, if you can tell us the biggest threats to the surpluses you've forecast into the future and also what specifically you're relying on to maintain them.

TREASURER:

Well the biggest threat to surpluses in the future would be a Labor Government of course. I don't think there's any doubt about that. That is a real threat. You know, I think their surpluses in the five years before I became Treasurer was a surplus of negative $10 billion, negative $13 billion, negative $17 billion, and on it went. When I say negative surplus, that's probably the way the Labor Party would talk about it - A negative surplus. Let me use the `D' word - deficit. So that's obviously the biggest threat. The second biggest threat, would be their Rollback policy of course because unless they're prepared to come out and announce the increases in income taxes, Rollback just drives the Budget into deficit. Now if you take them at their word and you say well they don't want to go back into deficit it means income tax rises. If you don't take them at their word and they don't want income tax rises it means deficit budgeting. It means one or the other. And by the way, you know, the Beazley line is oh well, I don't know if I can fund Rollback. He seems to have this idea that it's my job in life to produce large Budget surpluses to fund his policies. In other words he can't fund his policies, well we know that don't we. We know what he was like when he was a finance Minister so somehow we've got to do it for him. I tell you you can fund the abolition of GST. It can be done tomorrow. All you do is you abolish GST, introduce wholesale sales tax, hike all income tax rates and all capital gains tax rates. And if you don't think it's worth doing that you actually agree with us that tax reform was necessary because it was more important to move to GST and lower income tax than to keep wholesale sales tax and higher income tax. You can fund the abolition of GST tomorrow. You introduce one bill which says the GST act is abolished, you introduce another which says wholesale sales tax is re-enacted, and you introduce another which says the rates for average income earners go back to 43 cents in the dollar. You can do it. So the biggest risk, the biggest risk is bad policy. That is the biggest risk to future surpluses and you know, I urge all of you to do your best to make sure that doesn't happen. I'm doing my best.

JOURNALIST:

Louise Dodson, The Age, Treasurer. The petrol excise cut and abolition of indexation was the biggest, at $2.6 billion, was the biggest measure in the Budget, cut measure, tax expenditure measure. And I was just wondering if in hindsight you would have liked to have seen that used for another round of income tax cuts for people in the workforce rather than self-funded retirees? And are there any prospects down the track for that?

TREASURER:

No I wouldn't. The one and a half cent a litre reduction cost about $0.5 billion a year. The abolition of indexation doesn't cost so much in this financial year but in the fourth year of the forward estimates costs about $1.2 billion and rising thereafter. So you're quite right, that is a very substantial tax cut. I think that it was a necessary tax cut and I think the Australian public made it entirely clear that that was a tax cut which they thought was necessary. And I have no doubt after assessing public mood that the public was very strong on that point, very strong on that point. They wanted a reduction in petrol excise and we went a step further. We have now abolished indexation. That means that that 38 cents a litre won't rise. In fact without indexation the excise as a proportion of price should fall. You assume that price is going to go up so the tax as a proportion of price will fall over future years. And that will be a benefit to the Australian public. I think it's a benefit that the public is very sensitive about. The public does not think that it is in favour of petrol excise increases and nor are we. And that's why we cut it and that's why we abolished indexation and I don't think there could be any doubt about that.

JOURNALIST:

Treasurer, I was wondering if you could tell us whether or not it's the case that approximately 120,000 self-funded retirees under the age of 65 received no new benefit from the measures you announced yesterday?

TREASURER:

The measures that I announced in relation to the $20,000 tax-free threshold for self-funded retirees for singles and the $32,000 tax-free threshold for couples apply to people who are on pensions, aged pensions, which is men over 65 and women over 61½, or people of pensionable age which is men over 65, women over 61½ who are either self-funded or on some other benefit. So the tax-free threshold for the self-funded retiree and the aged pensioner of $20,000 applies to somebody who is of pensionable age. In this case the self-funded retiree who is over 65 for a man and 61 or 61½ for women. There is another tax-free threshold for those below that retirement age. It's not as generous. For individuals the tax-free threshold for singles is $15,970. We increased that I believe in May, and for couples $26,606. That's for people who are not of pensionable age. That's for people who are on income support pensions and are under 65 or under 61½ in the case of women.

JOURNALIST:

That was in the system already, is that right?

TREASURER:

Well we increased it I think in May as part of the New Tax System, yes. There were no additions to that in last night's Budget.

JOURNALIST:

[inaudible]

TREASURER:

Well the self-funded retiree below pensionable age had an increase as a result of the New Tax System. The self-funded retiree who is of pensionable age, which is 65 for men and 61½, got a new and additional benefit last night. For a single an increase in the tax-free threshold to $20,000 and for a couple an increase in the tax-free threshold to $32,000.

JOURNALIST:

Treasurer, you tell us that the $300 payment to pensioners is not because the GST compensation went wrong. If...[inaudible]...but you say that they deserve it. Could you tell us if it's not for the GST what do you mean by they deserve it and how do you then argue to others in the community who say well we deserve something too, that what you're doing for them is as good as getting $300?

TREASURER:

Well in relation to the New Tax System all pensions and income support were increased on 1 July by 4% and we have a commitment to maintain them above price rises, above the CPI by 2%. And the CPI takes into account the increase in prices from tax changes. They are above the CPI by 2% which would not have occurred if it were not for the New Tax System. And that was brought in at the time of the New Tax System. In relation to pensioners, as I said before, there is an additional $300 benefit for aged pensioners and aged part pensioners. Why is it $300? Because the Budget could afford it, it is a dividend for economic policy, and we thought that the aged pensioners were, and there are 2.2 million of them, were people who deserve to share in that benefit. It's not a compensation measure in relation to the New Tax System because that was done for all people on income support back on 1 July. It's a dividend from economic management. I said three things - the economy can benefit from it, the Budget can afford it, and they deserve it. And that's why we did it and we also did it because we were at the same time increasing the tax-free threshold for self-funded retirees. And the obvious point would have been made, why the tax break for those who are funding their own retirement and not a tax break for people that are on aged pensions. So we had to do that as a measure of equality between the two groups. We believe that you have to treat the two groups equally. We established that principle when we came to government. Don't forget when we came to government the self-funded retiree was penalised as compared to the pensioner. We restored justice, we've increased the thresholds, we've shared the dividends of economic management, we've cut taxes, we've made an investment in the future, and I think this is a Budget which lays down a program for building a better Australia. And I thank you for your time.