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 Alan Jones
2GB

Wednesday, 11 May 2005
7.20 am

 

SUBJECTS: Budget

JONES:

Treasurer good morning.

TREASURER:

Alan good to be with you.

JONES:

You too. First can I ask you this because there will be widespread recognition of the job that’s been done last night, but given that you have just had a thumping election victory, given that you are going to have control of the Senate, given that you have got very significant surpluses, are we going to see at any point a complete overhaul of an unreadable Tax Act and an unwielding tax system?

TREASURER:

Well that is partly why we did what we did last night Alan, because with the possibility now of getting legislation through the Senate which the Labor Party has blocked we could do things that frankly should have been done earlier. Abolishing the superannuation surcharge which I announced last night…

JONES:

That will be immediate won’t it?

TREASURER:

From 1 July, no further surcharge. That was one of the most complicated parts of the Tax Act. We have also increased thresholds so that 97 per cent of Australians won’t even have to bother with the top tax rate.

JONES:

But you understand don’t you, that once upon a time a tax cut was a big thing and it was a cause of significant excitement. But now today’s people think, well that is terrific and you will be given full credit for that. But we still have to pay tax on our petrol, tax on our cigarettes, tax on our grog, a GST, there are a whole raft of property taxes at state level, a whole raft of other taxes and so does the tax system need an overhaul? The Tax Act, you have never heard it, I have never heard it, no one can read it.

TREASURER:

Well, for most Australians there is no need to read it because most of the provisions of the Tax Act Alan relate to complicated business transactions, they don’t apply to ordinary wage and salary earners. For an ordinary wage and salary earner, tax is taken out when they are paid their income, they might have some tax on their interest and that is it. They don’t have to worry about trusts, they don’t have to worry about dividends, they don’t have to worry about international taxation – that is the kind of stuff that companies do. What they are interested in is the rates they will pay and the message out of last night’s Budget is that Australians, all Australians, are going to pay less tax. We are going to get a much more competitive income tax system, you won’t even have to worry about the top rate of income tax until you are over $125,000. Only 3 per cent of Australians have a taxable income of $125,000, so 97 per cent of Australians just completely drop out of that top tax rate.

JONES:

Just explain your philosophy because it does need explaining today. Supposing the bloke out there who is just - and I will just take it as a single person to start with – and he is on $50,000. So, he will get about $6 a week back, and the bloke on $100,000 will most probably get what, $60 a week back. Is this an incentive for people to better themselves, improve themselves, be more productive, earn more and so on?

TREASURER:

Absolutely, and if you are a middle income earner you won’t face a tax rate higher than 30 per cent. You can do overtime, you can do some extra hours, some people may even be able to get a part-time job. In addition you won’t pay a top rate above 30 per cent and…

JONES:

Until you get to $70,000.

TREASURER:

…until you get to $70,000 and that is to give people an incentive. Now, just to put that in context, 80 per cent of Australians are on incomes of $70,000 or less. Average weekly earnings in Australia are around about $40,000, so you will have that big, big incentive there.

JONES:

Did you consider raising the tax free threshold for the lower income earners, not for everybody, but for the lower income earners?

TREASURER:

I looked at those sorts of things over the years Alan. That actually is one of the areas where you get complications with tax free thresholds and then people do try and use them up through trusts, distribute money to various members of the family to take advantage, and I think actually high tax free thresholds do in fact complicate the taxation system.

JONES:

Is there a problem with your 42 and 47 cents staying in place even though you have increased very significantly the point at which you enter those two, while the company tax rate stays at 30 per cent. Because that is the most significant tax avoidance avenue, isn’t it?

TREASURER:

Well look, there is a lot of talk about that but I think much of it is overblown. The fact of the matter Alan is a company pays tax at 30 cents, when it distributes, then the difference between your individual tax rate and that company tax rate has to equalised. If you are below 30 cents, you get some money back. If you are above you have to pay the difference. But when the distribution occurs through a dividend the difference is made up. So a lot of people run around and say you know, talk as if this is some huge difficulty in the tax system, I don’t believe it is and I just say to some of those tax experts, I know it is not you, it is people that you will get you know, out of the business sector, I would just say to them, there aren’t that many countries around the world incidentally, that do equalise their corporate tax rate and their top marginal tax rate.

JONES:

Now I have got to say to you, I mean the story last night when you heard all of that sort of stuff you have to think holy Nelly, there are not too many people in this country would swap to be anywhere else, I mean…

TREASURER:

Oh look, Alan…

JONES:

…that is the overwhelming conclusion that you draw when you hear all of that.

TREASURER:

…well look, what I was trying to say last night is this is not an accident, it is not a fluke, some people say, oh Australia is just blessed by God, you know, it is just the country that is better than all of the others. It is not. We have to work at our future in this country Alan. This is the message – we have to work it out…

JONES:

Just on that working at your future, it is disturbing, isn’t it, that one in six Australians now depend exclusively on welfare, 3 in 10 get some, that is a hell of a thing. I mean you take last night $100 million from tax, you have got to give back $80 million in welfare, but I was reading where 60 per cent of sole parents who don’t have a job left school before year 10. Many have children with learning difficulties. Now who is going to employ them with all the best philosophy in the world?

TREASURER:

Well Alan, the unemployment rate today is the lowest it has been in 28 years, so your chances of getting a job today are better than they have been in the last 28 years. If there is ever going to be a time in Australia where we try and encourage people out of welfare and into work it is now. Now, you talk about the single parents, we want to encourage single parents when their kids go to school - not before their kids go to school, but when their kids go to school - to try and look for part-time work. That means we have to increase childcare places for them. Last night I announced 84,000 new outside of school hours childcare places for those parents…

JONES:

And will the lower socio-economic have priority in that?

TREASURER:

…well they are distributed, they run at schools.

JONES:

But I mean if there is a single parent and the child gets sick or on holidays, I mean, and do they pay for that or will it be subsidised?

TREASURER:

Oh it is a very small amount, it is what they call the full-care or after-care, generally at the local school, they will start it up at 7.30 am, you can drop the kids off at 7.30 am before school, you can pick them up after school, so it gives parents a longer working day if they have got transport arrangements. Now, you know, Alan let me make this point…

JONES:

People say though that in a wealthy country as we are, it is a bit hard to be tackling the vulnerable people like the single parents who often aren’t single of their own choice and often aren’t out of work by their own choice.

TREASURER:

…well look, I agree a lot of people aren’t single of their own choice, but let’s make this point Alan, there are a lot of single mothers that do work, a lot of them work full-time, many of them work part-time. This idea that a single mother can’t work, I actually think…

JONES:

So you are after the people that can work and refuse to or are offered a job and don’t take it, they are the people you are trying to…

TREASURER:

…well that is right. People who are able bodied, who are of working age, whose kids are at school, who will still get their family tax benefits, we are just saying to those people, if you are able bodied and the kids are at school during the day, wouldn’t it be a good idea to look for some part-time work. There are a lot of single mothers that do it, it is not as if it can’t be done in a modern society, Alan.

JONES:

Okay, Future Fund, not one, you didn’t mention the word water once last night. You know my views, I think it is the greatest crisis facing us. You did say that the Telstra sale money - about $33 billion - will go to a Future Fund. How do all of your National Party MPs go to the electorate today and tell them that Telstra will be sold, that the money will be locked up in a Future Fund. Who is going to invest that, who decides what the mandate for investment is and is there any chance of a major infrastructure programme out of the Future Fund to water Australia?

TREASURER:

Well, there will be an independent board, it will be governed by a statute, it will not be capable of being raided by politicians for their own pet projects Alan and I think that is important. I think the public of Australia would want to know that these big investments for the future won’t be turned to political advantage, that they will be turned to the national interest. Now, that fund will have a significant amount of money which it will be able to invest. It is quite possible that it could invest some of that money in some of the infrastructure projects that go on.

JONES:

Treasurer, it is coming up to 7.30 am, I will stay with the Treasurer because this is most probably the most important issue beyond income tax and welfare in the Budget, the Future Fund. So Treasurer come again, you are going to put $16 billion of your surpluses now into the fund and when Telstra is sold another $33 billion, if I could come back to my point, you are going to have to explain to people in the bush that that is going to be locked up, not to improve roads, schools, hospitals or water, but to pay generous pensions to retiring public servants.

TREASURER:

When you say it is going to be locked up, it is going to be invested and it could be invested in projects, you know, there are a lot of road building projects that are going on in Sydney at the moment as you know…

JONES:

Water projects?

TREASURER:

…well there are some, actually, and if somebody puts forward a project which offers some kind of security and look for investors and the arms length directors of the Future Fund believe it is a good investment for the money that they are holding, yes, of course they would be able to invest it.

JONES:

But see you come from the suburbs, I come from the bush. Now, not far up the highway, if you drive to Goulburn, there is a town, a community of 30,000 people in absolute disarray, they are almost completely out of water. The dam which supplies them, you could drive a car across it, they are not allowed anything outside, you can’t water a garden, that looks like the Gobi Desert. Do you think people in your Cabinet, when you sit around there understand the gravity of the water crisis especially when this country has a lot of water, we just don’t have it where it is needed and we need some of this money, unlock some of this money to try to water Australia.

TREASURER:

Well Alan, we do understand about Goulburn, we had a discussion about the water crisis in Australia yesterday. But let’s be frank about it Alan, look, the water crisis in Australia is principally caused by the lack of rainfall.

JONES:

We have got plenty of water, we have got plenty of water.

TREASURER:

Well hang on Alan, we are in one of the most severe droughts that we have ever had.

JONES:

But how do we quarantine ourselves from drought Peter? How do we quarantine ourselves so that we don’t go through this again?

TREASURER:

And…

JONES:

Do we build dams?

TREASURER:

Well I think we should…

JONES:

Do we pipe water?

TREASURER:

…well I think we should be building dams, yes of course I think we should be building dams.

JONES:

So who is going to apply to the Future Fund to say, we have got a terrific project here to build 15 dams, we want you to unlock some of this money. Now they will say, well hang on, it won’t get us 10 per cent which we can get somewhere else so there won’t be any money for it?

TREASURER:

Well as you know, the Federal Government is not in control of building dams, you know that Alan. But do I think more dams ought to be built? Yes I do. Do I think that the State Governments have misled their responsibility? Yes I do. Do I think that the Federal Government has to now start knocking some of these State Governments and talking to them about water? Yes I do. We have a $2 billion National Water Initiative which we are trying to get these States to sign up to, to get some kind of national sense in relation to them. It is out there at the moment, we can’t even sign them all up to it. So, Alan I think we have got to get those levels of Government cooperating in relation to the National Water Initiative, we have got to get much better property rights in relation to water. But I will make this one last point and it is this: that if it doesn’t rain, you are going to have a problem with water and we are living through a very, very severe drought at the moment…

JONES:

But what I am saying…

TREASURER:

…if I could break a drought I would Alan, I promise you that.

JONES:

…but the bank of water north of the tropic of Capricorn, we bring gas from the north of the tropic of Capricorn by pipes, that is a major thing, it is like the Snowy Mountains Scheme. Why don’t we at least investigate or put an initiative forward from the national Government to see how we can unlock the water reserves we have got in Western Australia and northern Australia to see whether we can’t flood the Murray Darling system and have that, it is going to cost money but we have got the money.

TREASURER:

Well let me make this point Alan, somebody did put forward a proposal to pipe water down in the last West Australian election…

JONES:

Oh yes that (inaudible) Barnett, I mean he gave two minutes thought to it…

TREASURER:

…well, he put it forward, didn’t he…

JONES:

…he did put it forward.

TREASURER:

…and I said at the time I thought it should be the subject of a full feasibility study, I thought it was well worth looking at. As it turned out that was taken to be critical of Barnett, I didn’t think it should have been. The other thing I think we are going to have to investigate in Australia is desalination. Desalination is quite possibly the future.

JONES:

But when? Tomorrow?

TREASURER:

Well tomorrow, yes, now, now, now, today, desalination. It has been looked at. The West Australian Government in fact has got a plan for a desalination plant. These Premiers who have got to be held responsible for something and they are responsible for water are looking at it as far as I know but I have brought down the Federal Budget, I am responsible for the national taxation system, the state of the federal budget, I take responsibility in relation to monetary policy, I have got an initiative in relation to welfare to work, I have got the biggest plan yet to try and put services to help people get back into work. We brought it down last night. This will be good for Australia’s economy, Australia’s economy, if it is strong, will be able to give us a better standard of life.

JONES:

Excellent, just one final point that I am going to make which is the first question I asked you. Given that you have had this thumping election victory and you are going to control the Senate and you have managed the economy - and you have got to be given full credit for an outstanding job, there are surpluses, you are giving some back - will we see though major reform because we now control both houses in a way which will set us up at a tax, infrastructure and health level for the future?

TREASURER:

Well the major reform that you are seeing began last night. We are revolutionising the way in which welfare and work interplay. We are cutting tax rates, we are abolishing superannuation surcharges, we are setting up the biggest investment fund in Australia’s history and we are putting in place the measures which will fund this country for 30 years.

JONES:

Okay, good to talk to you and thank you for your time.

TREASURER:

Thanks for being with you Alan.