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 01/03/2005

Interview with Jon Faine
774 ABC

Tuesday, 1 March 2005
8.30 am

 

SUBJECTS: GST, land tax, coal exports, debt, trade, infrastructure, canal, Qantas

FAINE:

Mr Costello good morning

TREASURER:

Good morning Jon, good to be with you.

FAINE:

Are you feeling under siege?

TREASURER:

No, I am sitting here in my Malvern electorate office dealing with constituents.

FAINE:

Well you may want to deal with constituents instead of Peter Beattie, I am not sure if you caught all of AM this morning but here is just a little bit of what he said about you on AM on ABC Radio earlier this morning.

BRACKS:

This is a front on attack on democracy, that is what it is, forget about the institutions of the States, if we have parliamentary representation then that comes with it the opportunity and the responsibility to implement your programme without interference from another level of Government who wants to somehow arrogantly tell you what to do.

FAINE:

And that was Steve Bracks speaking on ABC TV’s Lateline last night. Peter Costello, are you trying to tell the States what to do?

TREASURER:

Well I think Steve Bracks said this was a front on attack on democracy, so I think he was what saying democracy was finished in Australia was he?

FAINE:

He is saying that your attempt to make the States more accountable on how they spend $35 billion of GST revenue is an attack on democracy and Peter Beattie says the same.

TREASURER:

Well of course it is ridiculous isn’t it? And it is so overstated you really wonder why he would say that. But let’s go back to the issue, is it a bad thing for States to be accountable for $35 billion? At the moment the State Governments get all of the revenue from GST. In this financial year it will be $35 billion, in Victoria’s case it will be $7,300 million and Victoria will get a $285 million windfall, that is money they are not entitled to under the old system of grants, just a windfall, over and above, that is just for one year. Now, my point is simply this, these are very large sums of money, the taxpayers of Victoria are entitled to know that they are being spent properly and they deserve a lot more information about where this surging State Government revenue is going to.

FAINE:

The taxpayers are entitled to that money but we can get it from our State Governments, why does the Commonwealth have to be the conduit for that?

TREASURER:

Well I don’t know that you can because one of the things Jon that the public supported when the GST was introduced was that as the GST revenues grew - and they are growing – that the States would cut other taxes. Now some have been cut and I had to fight tooth and nail with the States last year to get them to agree to cut their Bank Account Debits Tax which should be cut on 1 July of this year – Victoria will be one of the last to do that. But there is a whole lot of other taxes that haven’t been cut yet and some taxes that have been rising whilst the GST revenues have been rising and land tax in Victoria as we know has been rising and rising, even though the State has this new revenue base called GST.

FAINE:

But this is money you supply the States to deliver goods are services in particular State Government services of course like police and hospitals and the like to the citizens, it is not like they tuck it away in their pockets.

TREASURER:

Well that is my first point, that with the growing GST revenue which can meet State service bills, there is no excuse for increasing other taxes, in fact the whole idea is to gradually reduce and abolish a list of other taxes. But my second point is this. Every time there is a crisis in the hospitals or somewhere, you will quite often hear the Victorian Government say, ‘oh we don’t have enough money from Canberra.’ My point is this, they have more money from Canberra than they have ever had before, in 2004-05 it will $7, 321 million, that will be a $285 million windfall. The days of complaining that they can’t be held responsible and duck-shoving to Canberra are over.

FAINE:

It is not just about how much they get it is about whether you are trying now to control how they spend it as well. What is the point of having State Governments is you are going to try to run them?

TREASURER:

No I am saying they need to be accountable…

FAINE:

To whom? To the Commonwealth or to the voters at the next State election?

TREASURER:

…to the voters of Australia, they need to be held accountable…

FAINE:

But at the next State election they are accountable.

TREASURER:

…well hang on. They need to be accountable for the reduction of other State taxes, and they need to be accountable for the rises in other taxes which are unnecessary given the fact that they have growing GST revenues. The point I have made is that they need to be accountable. Now, the reaction that you just heard from Steve Bracks, that the Victorian Government being held accountable is the end of democracy as we know it, is a little over-pitched don’t you think?

FAINE:

Peter Beattie says this is a frustrated Treasurer who can’t get the power he wants in Canberra so he wants control of the States. It is a politically driven agenda designed to make Peter Costello Prime Minister and he is drunk on his own success with a Senate majority looming, he is running amok.

TREASURER:

Well Peter Costello says that State Governments need to account for $35 billion. And you get that kind of response. Don’t you think it is a little overblown? Don’t you think that it may actually indicate that they are a little bit sensitive on this point, Jon? Somebody comes out and says, this year you are getting $35 billion, that is a growing revenue, that is enough to fund your services, take responsibility and don’t raise other taxes, and you get a response like that. Doesn’t that indicate to you that there is a little bit of sensitivity here?

FAINE:

Are you interested in realigning the constitutional balance? In the past Liberal Governments have been the ones to stand up for the importance for de-centralising power, the importance of the States, balancing the central power of the Commonwealth. Now it seems you have swapped sides.

TREASURER:

Well you see, this is how the GST changed everything. Steve Bracks of course had no part in introducing it and didn’t assist. But once it was introduced it gave him a growing revenue, as I said, $7.3 billon and a big windfall this year. The whole idea of that was that if the State Governments had a growth revenue they would take more responsibility and more accountability. The old days of duck-shoving to Canberra are over. They have that growing revenue, it was the most generous offer, federalist offer since the Second World War. And what we have got to do now is we have got to hold State Governments accountable, they have got to be accountable for these very large sums of money, they have got to be accountable for the provision of services, and they have got to be accountable when they raise taxes in other areas.

FAINE:

Well that is the answer to a different question, the one I asked you Peter Costello is whether you had swapped sides on the constitutional debate? It used to be that the conservatives in Parliament supported State rights, it now seems that it is the Labor Party Premiers sticking up for State rights and the conservatives at the Commonwealth level who are trying to (inaudible) at it?

TREASURER:

No, my answer was in fact, I have put in place financial arrangements which gave the States a stronger revenue base than they have had since the Second World War.

FAINE:

Well they get the money, but have they got the power to control how it is spent, you are seeming to want that too?

TREASURER:

Well hang on, they get $7.3 billion and a $285 million windfall, money that didn’t exist under the other arrangements and my point is they have got to be accountable for it. It is enough to run their services, it is enough to keep their other taxes down and when you suggest that they should be held accountable they go into the old blame shoving game, oh it is all the fault of Canberra. Let me tell you, the game has changed Jon, it is a different world. The States have more revenue than they have ever had before but my point is you can’t take the revenue unless you take the accountability. This is the whole point. You want to take the revenue, you have got to put your hand up and say, we will take responsibility for the hospital system, we will take responsibility for our own State tax bases, we will behave in the dispensing of that money with utter accountability because it is such a large sum.

FAINE:

All of this is of course a lot of hot air unless you pass laws to try and compel the States to be accountable, are you prepared to go that far?

TREASURER:

Well I have said that they should be held accountable, that is what I have said and…

FAINE:

In what way? How do you (inaudible)?

TREASURER:

…well, by first of all, by outlining how the money is spent and by particularly holding the States to the abolition of the taxes that they agreed they would give up in return for the GST, that is all they have got to do.

FAINE:

What sanction do you threaten to impose if they don’t commit to the same agenda that you prescribed?

TREASURER:

Well I am not going into sanctions because…

FAINE:

(inaudible) powerless?

TREASURER:

…no, no, no, I think the reaction, the over the top reaction you have seen from some of the Premiers overnight, indicates the fact that when you get this information out to the public, they feel the pressure of public opinion and public opinion I think will be very powerful on the States.

FAINE:

So how do you plan to force the States to do what you say you want them to do?

TREASURER:

Well I plan to let the public know the amounts that they are now getting, the funds that are now flowing in and the taxes that we want to be abolished in response to that flush of funds.

FAINE:

And in Victoria is that the land tax?

TREASURER:

Well the land tax is, is a case point. You have got businesses in Victoria going out of business, closing because of land tax. The State Government won’t do anything to halt the rise of land tax, at the same time as they have got more GST revenue than ever before. This is a classic case, the public ought to know this. The State Government has more GST revenue than ever before, it has a huge windfall and yet it allows land tax to continue to go up and drive people out of business. Now where is the accountability?

FAINE:

Sixteen minutes to nine. Peter Costello, let’s slightly change tack and talk about the economy. The Reserve Bank Board is meeting as we speak and it is widely expected that there will be announced an increase in interest rates of of 1 per cent tomorrow. I know you don’t comment on and don’t anticipate interest rate changes, but can we talk about some of the economic settings behind it. There has been a 15.5 per cent increase in personal indebtedness in the last 12 months in Australia, credit card debt in particular. Something has to be done doesn’t it?

TREASURER:

Well actually credit has been slowing, the growth in credit has actually been slowing. It was in fact higher in 2004, so it has actually been slowing. Now, some of that would be credit card debt and I agree with you Jon, I would say to people credit card debt is not a good form of debt to carry. The interest rates on credit cards are very high. Some of it is people that have borrowed against property, their houses, and their houses are worth more than ever before and some people have taken the opportunity to borrow against it and of course the rates of borrowing against a mortgage are much lower. So you have got to look at the different forms of credit, you wouldn’t want to see huge rises in credit continuing for a very long period of time but there has been some slowing in recent months.

FAINE:

We have the second worst trade deficit on record, $2.7 billion now, driven by consumer demand for electronic goods, cars with lower tariffs, cars are more affordable than ever, people are borrowing money to buy all sorts of luxury items. Isn’t a rise in interest rates going to be a good thing if it slows down that debt fuelled spending binge?

TREASURER:

Well you have got to remember when you are looking at trading outcomes, in nominal dollars, yes it is the second largest in nominal dollars, but of course the GDP is the highest in nominal dollars it has ever been. When you have got a growing economy, every quarter it just becomes another record GDP. So the important thing is to look at it as a proportion, having said all of that I would like to see Australia’s trade improve.

FAINE:

Exports have been static now I think for eight months in a row, there has been no growth…

TREASURER:

Absolutely…

FAINE:

…isn’t that a structural problem?

TREASURER:

…absolutely. I would like to see Australia’s export performance lift and I have done a lot of talking about this recently. Our number one export in Australia is coal, our number one coal exporting port is up near Mackay, a place called Hay Point Dalrymple Bay. Last week when I met the coal miners to discuss the problems they have, 40 ships stood off that terminal waiting to load our number one export and you say exports are flat, yes. Well if you have got 40 ships on a daily basis that could be full with our number one export and sailing to China but they can’t be loaded because the port loader has not been built to actually fill them, this is the additional port loader, yes, you’ve got an export problem. And you’ve got a bottleneck. And this is one of the points that I made yesterday, much to Mr Beattie’s chagrin, I said wouldn’t it be nice if the Queensland Government had put in place arrangements for a new coal loader with some of the GST revenue windfall that they’ve had and that’s what really set him off yesterday.

FAINE:

Well likewise people like Richard Pratt from Visy Industries are saying that we need to start borrowing money to create infrastructure. The old paranoia about State-Commonwealth debt is now out of date, and in order to deal with the bottlenecks you’ve just described, we need to increase public debt. Do you go that far?

TREASURER:

Well you have to be very careful about bottlenecks. You know, people use this phrase bottleneck generically, oh there are bottlenecks. But you’ve got to actually get right down and see where these so-called bottlenecks are. I’ve identified Australia’s worst bottleneck. It’s at Dalrymple Bay, Hay Point, off Mackay, which is our number one coal loading facility for our number one export. That is a bottleneck. That actually could be fixed with several hundred million. The kind of windfall that the Queensland Government has for one year out of GST. If other people have identified other bottlenecks in Australia, you’ve got to look at them one by one. But I don’t think it’s right to just to say, oh, there are bottlenecks, so we’ll go into this massive spend. You’ve got to make sure you’ve actually identified a bottleneck and a solution and the mechanisms by which to fix it.

FAINE:

Do you agree though that the State and Commonwealth Governments could consider public borrowing again, large scale public borrowings for nation building infrastructure?

TREASURER:

I don’t think there’s a call for it at the Commonwealth level, no. Because the Commonwealth has already funded the largest road funding increase under the Auslink and we’ll do that off our budget, so there isn’t, no, there isn’t at the Commonwealth level.

FAINE:

And when you did do a recent nation building piece of infrastructure, that was the Darwin railway that turned into a complete white elephant and doesn’t pay its way.

TREASURER:

Well this is the point, Jon, without going into that, people say, let’s build big projects. Not every big project is an economic proposition. And somebody who says that we ought to go into debt and build big projects, may have good projects in mind or they may not, but you’ve got to discuss them one by one. We’ve just been through a West Australian election where it was proposed to build a canal for 3800 kilometres and it was put forward as a nation building project. Now, before I committed to building a 3800 kilometre canal, I’d want to know that your water wouldn’t evaporate, that the cost of water at the end of it would be more economic than other alternative sources of water. You don’t just say, oh, let’s build infrastructure, any infrastructure will do and the bigger the better. Some of these projects don’t have an economic return and if you spend money on something that doesn’t have an economic return, all you’ve done is blown the taxpayer's dollars.

FAINE:

That was your Liberal colleague who made that proposal, did it cost him the election?

TREASURER:

Well it was a big issue in the election, and as I say, you know, one day he might be right, one day a canal might deliver economic water supplies to Perth. But I can’t tell you, Jon, I haven’t done the analysis, I haven’t seen anybody who has done sufficient analysis. I’m just using that as an illustration to say, people who say borrow some money and build some infrastructure, if your project is a good one, and it adds to the economy, and I know one that would, Dalrymple Bay off Mackay, it would be good for the economy. If your project is a lemon, and uses taxpayers’ dollars, all you’ve done is take money out of people’s pockets, which could be used to stimulate the economy and put it to a bad economic use. I’m just making this point. There is infrastructure and there is infrastructure, and the chorus that you sometimes hear, let’s build something, doesn’t really matter where it is, can actually be a very bad economic decision.

FAINE:

Peter Costello, we’re just about to talk to Qantas about a new business plan which includes the prospect of axing 3000 jobs, do you mind if Qantas lay-off 3000 workers?

TREASURER:

Well of course I would. I don’t like to see any Australian company lay-off workers. Of course I would. Having said that, and I haven’t looked at the economics, Qantas has got to make decisions which keeps Qantas profitable because if Qantas becomes unprofitable, all the workers of Qantas will lose their jobs, as all the workers of Ansett lost their jobs. Now I don’t know the internal dynamics of this but nobody likes to see anybody lose a job.

FAINE:

Let alone a Minister in the Commonwealth Government. Should Alexander Downer be taking a week off to participate in a Grand Prix celebrity race?

TREASURER:

Well I hope he does enough practice to keep himself safe, Jon.

FAINE:

Did you get invited?

TREASURER:

I might have, I don’t know. I probably did.

FAINE:

If you did, you must have declined. Not interested?

TREASURER:

Well, it’s a bit busy at the moment.

FAINE:

Pre-Budget and the all the like.

TREASURER:

Oh yes, there’s a lot on.

FAINE:

I would have thought there’s a fair bit on for the Foreign Minister too, but apparently not.

TREASURER:

Well he might be on annual leave, you never know. We’ve all got to have annual leave. But I hope I can go down and have a look at some of it, but I won’t be driving. That’s probably good for the other drivers, Jon, if I was it would probably be more their safety more at risk than mine.

FAINE:

Thank you for your time this morning, Peter Costello. Thanks.

TREASURER:

Great to be with you, Jon.