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 11/05/2005

Interview with Fran Kelly
Radio National

Wednesday, 11 May 2005
7.32 am

SUBJECTS: Budget

KELLY:

Peter Costello, welcome to Radio National Breakfast.

TREASURER:

Great to be with you Fran.

KELLY:

Treasurer, giving tax cuts to all. Is this the sort of Budget a Treasurer dreams about?

TREASURER:

Well, if you can cut the tax burden on Australian people it is the kind of thing you should do. And in a situation where the economy has been strong, the Budget bottom line is strong, in a situation where we are able to fund our services and still have a surplus – my view is that the taxpayers should be returned something by way of a tax cut. And after all it is their money.

KELLY:

Absolutely. Let’s take a look at how you’ve divvied up that money – there’s a big cut to the top thresholds, top tax thresholds – ends up people at the higher end of earnings will get $60 a week tax cut and $6 a week for those at the lower end. Why cut the pie that way?

TREASURER:

Well, it is not actually a cut to the threshold. What it is, is you increase the threshold so that people do not come on to the top rates until they are on a higher income. We increased that top threshold to $125,000 and that means that until you earn $125,000 in 1 July 2006 you won’t even bother with the top marginal tax rate.

KELLY:

That’s a massive jump in that threshold isn’t it?

TREASURER:

Absolutely.

KELLY:

I mean that’s where the big advantage comes to the higher paid.

TREASURER:

Well absolutely.

KELLY:

And of course people are complaining about that. Why cut the pie that way?

TREASURER:

Well, I do not know that people are complaining about it. I think for middle income earners, what it says to them, is you will not have to face the top marginal tax rate in Australia. You will not have to face it until you are on about three times average weekly earnings. It is by international standards about the right spot, our top rate cut in at too low a threshold in the past. It brings us more into line with our international competitors and it says to middle income earners in Australia, if you want to do some overtime, if you want to take a bit of extra work, you won’t be bothered with the top marginal tax rate in Australia any more.

KELLY:

You have tightened benefits for those hardest to shift off benefits – sole parents, people with disabilities, older workers – why didn’t you decide to spend more money on a tax incentive to get people off benefits and into work rather than penalising them by giving them a lower benefit? Why not make that cut, in the amount of tax they pay as they start to earn, more generous?

TREASURER:

Well we did cut taxes for people going into the workforce. The lowest tax rate is cut, it was 17 cents in the dollar, it will be cut to 15 cents in the dollar. We also changed the taper rate. The taper rate means that as you earn income you start losing benefit. We changed the taper rate so that you would not lose your benefit as fast.

KELLY:

Couldn’t you have been more generous there? You have cut it from 70 cents to 60 cents I think…

TREASURER:

Well, from memory it is about $700 million per annum. And, by the way, that cut in the taper does not just apply to new people going into work, it applies to existing people that are on the Newstart allowance. So these are very large sums. The tapers have been relaxed, the tax rate has been cut, more services have been put in place and the object is to get more people into work. Now why do we want to do that? Because more people in work paying lower tax can raise the same amount of money as fewer people in work paying higher tax. And if you can get more people into work then you are going to have a stronger economy.

KELLY:

Treasurer the big aim as you say of these cuts to the welfare benefits is to try and get more people into work and you are spending money on rehabilitation and on training places and childcare, but some of the people affected by these cuts - people with disabilities, older workers - are saying how are you going to convince employers to take us on? Who wants to employ someone over 50? As we have seen, plenty of employers won’t look at them. Who wants to employ someone with a bad back or someone who can only work school-age hours?

TREASURER:

Well, that is a fair point and I will come to that in a moment but let me make this first point – those people that are currently on the pension will not be affected. I just want to make that point really, really clear to those that are listening. What we are talking about is changing the rules for new applicants from July of 2006. So if you are on a Disability Support Pension you are not affected.

KELLY:

Sure, but the same question is going to apply for those new people on the benefits.

TREASURER:

Sure. And in relation to that, look, I do think it is important that we educate employers. We have wage assistance packages, we have rehabilitation services, we have training opportunities, we have job network providers that can sit down with people and look at them and tailor interviews to the areas where they may have skills. We are spending $2 billion building these services up. Let me make this point Fran, this is not actually going to save money in the short-term – it is going to cost money. The cost of the services is going to be much greater than the savings from people moving into work in the early years. It will break even after about eight years. So this is not some big plan to save money here, this is a plan to spend money.

KELLY:

Treasurer the big idea in this Budget is the Future Fund. How will it work and who will manage it?

TREASURER:

Well, the Future Fund will be an investment fund. It will have a statutory board, the board will comprise eminent Australians, the board will be responsible for managing the investment and trying to grow the funds to offset Commonwealth liabilities. We have liabilities at the moment which we have never provisioned for. Those liabilities will fall due just at a time when the population is ageing, just at a time when Australia moves into the crunch financial position in 2020, these liabilities are going to mature. And what we have done here, Fran, is not something for next year, it is not something for the next election, this is something for the decades. To put in place for the decades, a fund which will relieve future Australians of liabilities which they have not incurred themselves and which they should not have to pay.

KELLY:

Treasurer this is a Budget all about the future. The obvious question is how much is it about Peter Costello’s future? It looks like a pre-election Budget, there are sweeteners galore. Is this Peter Costello going out with a bang – your 10th and last Budget? Is that the idea?

TREASURER:

Well Fran, let me just make this point, you said it looks like a pre-election Budget. There is always a lot of cynicism in the press…

KELLY:

Well some people have been watching these Budgets for a long time Treasurer. There is a bit of a pattern to these things.

TREASURER:

No, well, and this broke the pattern. There is always cynicism in the press when it is the last Budget before an election and you cut tax. The press says, oh you are only doing it to get re-elected. You know, I wanted to break through all that cynicism. This is the first Budget after an election. So you cannot say it is being done to try and buy votes. No, this is being done, let me tell you, to give Australia a competitive taxation system, to fund future generations, to get more people into the workforce and to set us up for generations. That is what this Budget is all about.

KELLY:

Peter Costello thanks very much for joining us.

TREASURER:

Thanks Fran.