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 10/05/2005

Interview with Kerry O’Brien
7.30 Report

Tuesday, 10 May 2005
8.15 pm

SUBJECTS: Budget

O’BRIEN:

Peter Costello, wall to wall tax cuts for at least the next two years. Is this the Budget framework designed to give Prime Minister Costello an election win in 2007?

TREASURER:

Well revenues have been strong for two reasons. One is there are more people…

O’BRIEN:

You didn’t even crack a smile then.

TREASURER:

…you and I are old codgers at this Kerry, revenues have been strong for two reasons. One is that there are more people in work than ever before so there are more people contributing to the tax base. Secondly, companies are more profitable than they have ever been and if we had not cut taxes the proportion of tax to the economy would have risen. It is not my policy to have a rise in tax in proportion to the economy but to keep it fairly constant and to try and cut it so we were in a position where I thought it was fair to return that to taxpayers given the fact that we have a Budget surplus and very low debt.

O’BRIEN:

Well there are those who are immediately going to say that if you are really this much awash in money, doesn’t that just confirm what so many have said that you are the highest taxing government in the history of this country?

TREASURER:

No because as you can see the tax to GDP ratio is around about 21.3 per cent which is certainly substantially lower than it was in 1996 and of course much, much lower than it was back in the 80s. So, what it shows you - and this is what people should get in their minds - is that if you can get more people into work, people pay lower taxes. Why? More people paying lower taxes can raise the same amount of money as fewer people paying higher taxes and this is a Budget about getting more people into work again. If we can bring that off with our Welfare to Work changes, this is the kind of dividend you get from good policy.

O’BRIEN:

The Reserve Bank still has its finger hovering over the interest rate button doesn’t it, and there are many and Ross Gittens just a few moments ago saying as far as they are concerned pumping this much money back into the economy is simply going to feed further interest rate increases.

TREASURER:

No of course it won’t. The Budget surplus this year is about 1 per cent of GDP. It will be the same next year, it will be the same the year after and the year after that. In fact, we will actually be tightening policy with our Future Fund. So what you are seeing here is no additional stimulus at all. The Budget surplus to GDP is the same as it has been, but let me make this point because the Reserve Bank Governor made the point himself – Australia is the envy of the world on fiscal policy. The Americans don’t talk about the size of surpluses, the British don’t talk about the size of surpluses, their budgets are in deep deficit, so…

O’BRIEN:

But we are not the envy of the world as far as growth is concerned anymore, are we? You were able to boast that we were one of the strongest growing countries in the world, you can’t say that anymore, in fact we are now about half the US growth rate.

TREASURER:

…no, a growth rate of 3 per cent will be certainly more than Japan or Europe and it will…

O’BRIEN:

It is at 2 per cent now.

TREASURER:

…well in this financial year, the forecast year, and actually I think it will probably be…

O’BRIEN:

Your forecasts are often as wrong as they are right these days.

TREASURER:

…well, Kerry, I think our forecasts are probably the best forecasts that you get on the Australian economy. You know - let me make the point that I was going to make about the Reserve Bank Governor - he said in evidence that when he goes around the world and speaks to other central bank governors they envy him. They were his words. In fact I was actually at the meeting where it happened and I think central bank governors out of Britain and the United States were looking at Australia thinking this is the kind of fiscal policy we only wish we could have.

O’BRIEN:

I notice in your Budget Speech where you report directly to Australians through the Parliament about your Budget, there is very little explanation of the Government’s broken promise, broken election promise on the Medicare Safety Net. That is the one where Tony Abbott swore blind before the election that the Government’s commitment was rock solid. That was his words ‘rock solid.’ There has rarely been a more blatant broken promise, has there?

TREASURER:

Well there was an explanation, I went straight to it in the speech…

O’BRIEN:

About two lines.

TREASURER:

…and I explained it, yes well, Kerry have a look at how big the Budget Papers are. They are about eight inches and I get 30 minutes to cover eight inches, Kerry, but I went straight to that one and I did explain it and I explained…

O’BRIEN:

You agree that it is one of the biggest and one of the most blatant broken promises?

TREASURER:

…this is what the Government proposed, we were unable to get it through the Senate, the Senate changed it. The policy that we put forward is affordable, the policy that the Senate put in place would have broken. Now, the outcome of all…

O’BRIEN:

But you said, having put it in place, you made a commitment that you were going to stick to it.

TREASURER:

…we said that we would stick to 80 per cent Medicare Safety Net. We have. The Labor Party wanted to abolish it. The other point I made in the Parliament Kerry, is at the last election, the contest on policy here wasn’t between which thresholds would apply. It was between whether or not there would be a Medicare Safety Net at all because the Labor Party wanted to abolish it in total, in its entirety.

O’BRIEN:

The Future Fund Mr Costello, according to your estimates, by the time you have sold Telstra, say four years from now, the Future Fund, assuming that the vast bulk of Telstra’s sale money goes there, the Future Fund will contain somewhere between $70 and $80 billion, maybe even more by 2008-09. A great deal of that will be invested on the Australian stock market. Who are the brains who will invest all these billions on behalf of taxpayers?

TREASURER:

We are going to have a board, I hope it will be eminent Australians, they will be first-class, top-rate people with experience in the area. I imagine that they will probably get people who will tender for bits of the portfolio, that is normally what happens in relation to these things. It won’t be invested by the Government. The Government will set it up but it will be an investment for the future and future Australians.

O’BRIEN:

And for instance, could the future fund buy a controlling interest in a major Australian company because with that sort of money at their disposal they would certainly have the firepower to do it?

TREASURER:

I doubt that they would want to get a controlling interest because this is an investment fund. They would be looking for passive investment, but certainly they will invest in Australian companies. They would invest I would imagine in bonds. What they would do is they would have a widespread portfolio. What is the object here? The object here is to so grow that investment that in 2020 when the ageing of the population hits Australia big time, that generation won’t have the debts of today and yesterday, they will be free of those debts. Let me tell you Kerry, they are going to have enough problems of their own in 2020 because they are going to have an ageing population without having to service the debts of yesterday and today and so we are going to give young people a go. The Future Fund is all about getting the debt monkey off future Australians.

O’BRIEN:

And you have, as you say, it is going to be managed by a statutory authority. It was only last month that the Prime Minister said he didn’t think it needed a statutory authority, he said he thought the Government could do it. How did you manage to beat him on that one?

TREASURER:

I think it is important that it be at arms length from the Government…

O’BRIEN:

So how did you persuade him on that?

TREASURER:

…well for two reasons, one, so that it makes good investments and isn’t influenced by politics. The second thing Kerry is we have got to think about protecting this Future Fund against the possibility of a future Labor Government. You could have a Labor Government elected and you have got to try and put in place measures that can stop a future Labor Government raiding it.

O’BRIEN:

If you were really interested in the future savings of Australians Mr Costello, why didn’t you consider renewing the previous Labor Governments commitment to 15 per cent compulsory superannuation because you know as well as I do that the existing superannuation contribution levels are nowhere near enough to guarantee Australians a reasonable retirement.

TREASURER:

Yes but who would pay that? Employers presumably?

O’BRIEN:

No contributions from the Government instead of handing back tax cuts (inaudible)?

TREASURER:

Well I will come to the contribution of the Government in a moment. But who would pay that? Presumably employers. If you said to the employers of Australia we are going to put wage costs up by 6 per cent for superannuation, you certainly wouldn’t have 28 year low unemployment.

O’BRIEN:

But the Government was going to make a contribution.

TREASURER:

You know what the Government did? The Government actually does make better contribution. It pay $1.50 for every dollar that a person puts into their superannuation if they are middle or low income earners. You have seen those advertisements - well if you are an ABC watcher you may not have seen the advertisements - but on other television stations there are advertisements with pigs and people putting money into piggy banks. That is $1.50 direct contribution for every person that put $1 into superannuation.

O’BRIEN:

We are out of time Mr Costello, thanks for talking with us.

TREASURER:

Great to be with you Kerry, thanks.