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 John Laws
2UE

Wednesday, 11 May 2005
9.10 am

SUBJECTS: Budget

LAWS:

Treasurer, good morning.

TREASURER:

Good to be with you John.

LAWS:

Are you happy?

TREASURER:

Well, if you can balance your Budget, and if you can pay for the services that the country needs then I think it is advisable to try and cut tax as much as you can. We believe that if you can keep taxes lower, if you have the opportunity to do it, you should do it and we did it. And we did it last night.

LAWS:

It seems to have been pretty well received. You must be happy about that?

TREASURER:

Well, I think the reaction today has been positive and what we are saying in relation to the tax system is those on lower incomes get a lower rate and people won’t go on to the higher rates of tax until much higher thresholds and this means that for 80 per cent of Australians they won’t have a tax rate higher than 30 per cent. That is great and only 3 per cent of Australians will be on the top rate. Or turn it around, 97 per cent of Australians won’t be on the top rate.

LAWS:

That sounds better. But why the need for such extensive tax cuts hard on the heels of a pre-election spending spree? And you certainly had that.

TREASURER:

Well, the economy has been sound. Our Budget is balanced. You remember Labor left the country with $96 billion of Government debt…

LAWS:

Yes.

TREASURER:

…we have now reduced that by $90 billion. So we have got most of that debt out of the way. That has given us big interest savings because we do not have to pay interest on the Labor debt any more.

LAWS:

Yes. Tell me what was the interest on that?

TREASURER:

Well, we are saving now $5.7 billion a year in interest payments.

LAWS:

Wow. That’s a lot isn’t it.

TREASURER:

That is a lot of money. And as a consequence of that Australians do not have to pay taxes which are so high.

LAWS:

Okay. Speaking of interest rates, we have already had one interest rate rise here since you were re-elected. What’s the risk of another hike in the wake of this extra money going into the economy?

TREASURER:

I do not think the Budget will have any effect on interest rates. That is because the Budget is in surplus, and it is a strong surplus. So, the Government won’t be spending more money than it has. The Government will be saving money. What that means is if the Government is not borrowing it is not competing against others, it is not driving up interest rates. If the Government is saving, it is adding to the pool that others can borrow and it is driving down interest rates. So a surplus is good for low interest rates.

LAWS:

Okay. But $66 billion in pre-election spending, now another what? $80 billion in handouts. That’s a hell of a lot of extra money, a lot of activity in the economy.

TREASURER:

Well…

LAWS:

That could put pressure on inflation surely?

TREASURER:

When you talk about figures like that, we cut taxes by $14 billion last year and another $21 billion. Now some people say that is spending. It is not spending it is reducing the amount you collect in tax and it is tax cutting. Our Government stands for lower taxes.

LAWS:

Yeah. But it is extra money circulating isn’t it?

TREASURER:

Well, that is right. People get to keep more of what they earn. I do not think that is a bad thing John. I think that is a good thing.

LAWS:

Now if I have got a bundle of emails here as you would have guessed already, of similar tone to this one. I will only read part of it. The rich get richer and the poor get poorer. The same old story. That’s what this Budget is all about. More people earn between $30-50,000 so why only six lousy dollars what an insult. What’s that going to buy me? Certainly won’t pay off my mortgage when I get my extra $6. That is a fellow from Hervey Bay in Queensland. You are going to get a lot of people saying that. What’s your retort to that?

TREASURER:

We have cut tax for all Australians.

LAWS:

You think that’s, but that’s what they don’t understand. This…

TREASURER:

Yes we have cut tax for all Australians and for low income earners - cut the rate. Cut the rate of tax. And the fact of the matter is that people will get the opportunity to keep more of what they earn. And in fact for families around $30,000 or $40,000 the family benefits that the Government pays exceeds their tax liability. Now if you are paying a low amount of tax and that is cut it may look small in dollar terms but in percentage terms it is the lower income earners that get the largest percentage income tax cut.

LAWS:

Yeah but that’s…

TREASURER:

The reason it does not add up to so many dollars is they are not paying as much in income tax in the first place.

LAWS:

That’s right. Exactly right. Okay, well you’ve explained it. It is difficult for me to explain it because people don’t want to accept it but it’s true as far as percentage is concerned they’re doing okay.

TREASURER:

If you, you know, if you are paying $100 and you get $10 off that is a 10 per cent cut. If you are paying $1,000 then you get $100 off, that is a 10 per cent cut. It is the same but in nominal dollars the amounts are different. And the point is here that lower income earners are paying less tax, their tax is cut, it does not sound as great in nominal dollars but in percentage terms it is more.

LAWS:

Yeah. Well there you are. Why has the Disability Support Pension been able to increase by 25 per cent over the past few years? Have the guidelines for that been too lax?

TREASURER:

Well, I think they have, yes. Do you know John that we have 6.5 per cent of the Australian workforce on Disability Pension? Now 6.5 per cent of Australians are not disabled.

LAWS:

Well how have you allowed that to happen?

TREASURER:

Well, we did announce some changes two years ago. We put them to the Senate, the Labor Party blocked them. We have had another go in this Budget. The Labor Party will probably try and block them again, but after 30 June the Labor Party won’t be able to block legislation any more so we will be able to do something about it.

LAWS:

Okay, because I mean you have been there nine years.

TREASURER:

Oh yes, but John in fairness, I did announce a programme in relation to this maybe two or three years ago, and the legislation has never got through the Labor Party in the Senate.

LAWS:

Okay. Can you tell me what is going to happen to people who are now on some sort of disability allowance? Are they going to be reassessed?

TREASURER:

No, people who are currently on the pension will keep it. There will be no change for those that are currently on it.

LAWS:

Why not?

TREASURER:

Well, because we thought that it would be important to reassure people, those that are already on it and the important thing was to try and stop the growth in the future. And the rules will change so that if you are going to try and get on it after 1 July 2006, that is 1 July next year…

LAWS:

Yeah.

TREASURER:

…it will be harder to get on.

LAWS:

Okay, but we obviously have people on welfare that don’t deserve to be on welfare?

TREASURER:

Well John, I think the important thing is to stop the growth and as you know, it is very easy to scare people and we knew that Labor would run around and try and scare those on existing pensions so we thought the important thing was to be able to reassure them and get on with improving things in the future.

LAWS:

Yeah, but if they’re on a disability pension and as you’ve said yourself there are plenty who aren’t disabled, why should they continue to get the money? You are creating two classes of welfare.

TREASURER:

Well, what we are saying to everybody who has currently got a benefit, you keep it, but in the future in Australia the qualification to get that benefit will be tighter.

LAWS:

Okay. So you’re telling us really that all the people who are receiving a disability allowance now are fine, upstanding, honest individuals?

TREASURER:

Well, we are saying that they can be reassured because when we tried to change the qualifications a couple of years ago, the Labor Party went around and tried to scare the genuinely disabled, and there is no intention whatsoever to affect the genuinely disabled. So, to make that point clear we have just said that if you are on an existing benefit there will be no change. What we are doing is tightening eligibility for the future.

LAWS:

Okay. Is that fair to the taxpayer?

TREASURER:

Well, put it this way, if that enables us to get this system in place and to get it through the Parliament it will be a great improvement.

LAWS:

But after the end of June you will be able to get it through anyway no matter what you do?

TREASURER:

Yes. We should be able to and that will enable us to get a much better system in place for the future.

LAWS:

Yeah. But I am you know…

TREASURER:

You are saying to me, I know what you are saying to me, you are saying to me why don’t you go back through all of the past. You could do that. It would be very time consuming and it would involve a lot of reassessments and the political judgement I make is that our political opponent would manage to use that to scare the genuinely disabled. We do not want to scare the genuinely disabled. The cut through line there is to say that nobody who is on existing benefit will have their rules changed. The economic advantage is therefore to tighten things for the future.

LAWS:

Okay, even if they are dishonestly receiving a benefit?

TREASURER:

Well, if they have qualified, not if they are dishonest, oh no, I should be clear about this. If you are dishonest it is different. But if you have qualified under the criteria that have existed in the past you will keep the benefit. I am not saying you know if you are an absolute, if you have lied or something like that, that you stay on it. But if you have met, properly met the qualification which is incapable of being in 30 hours of award wages in a particular week then your entitlement will not change.

LAWS:

But you accept the criteria has been too lax anyway?

TREASURER:

It was too lax. And it will be tightened for the future.

LAWS:

It has jumped 25 per cent in recent years and speaking of increases – what about the single mother’s pensions? They are up by about 18 per cent?

TREASURER:

Yes. Yes. Well again, the funny thing is as unemployment has fallen, that is less people on unemployment benefit…

LAWS:

Yes.

TREASURER:

…numbers on disability and single pensions have increased. And if you are on the single pension or if you are on the disability pension you do not have to look for work. If you are on the unemployment benefit you do. And so, we think it is fair to support people who need income support but we also think it is fair that if you are able bodied and you receive income support, it is fair to other taxpayers that you have to look for work too.

LAWS:

Yeah. Well I don’t think you will find too many arguments there. But you have been encouraging mums to stay at home, now it appears you want shove them back into the workforce.

TREASURER:

Well John, let me say, the support for mums at home is Family Tax Benefits.

LAWS:

Yeah.

TREASURER:

If you are on a parenting payment, a Sole Parent Pension, that is in addition to those benefits, you get the Family Tax Benefit (A), the Family Tax Benefit (B), the Maternity Allowance, and the Single Parent’s Pension as well. And what we are saying is you will keep all the Family Tax Benefits but when your youngest child is six you should be encouraged to look for part-time work.

LAWS:

Okay but that Family Tax Benefit (B) that came in for stay at home mums didn’t it?

TREASURER:

That’s right.

LAWS:

So you…

TREASURER:

All stay at home mums. Some of those mothers will be on a Single Parent Pension as well and some of them won’t be. The ones that are either married or de facto do not get that Single Parents Pension because their partner is in work. So we are only talking about here about people who are not in work.

LAWS:

Okay. So what you’re saying to single mothers if you are capable of work…

TREASURER:

Part-time.

LAWS:

…and your child is in school…

TREASURER:

Yes.

LAWS:

…then you must get a job.

TREASURER:

You will be encouraged to look for part-time work, yes.

LAWS:

Well how will be they encouraged?

TREASURER:

Well, there will be more childcare so that they can get access to childcare services. There is the Job Network which will give them referrals. There will be training schemes if they need training and there will be people to help them with getting job ready.

LAWS:

Yeah well, most people would agree absolutely with what you are suggesting. But how do you encourage employers to hire them part-time? Are there that many part-time jobs available?

TREASURER:

Oh yes. The big increase in the Australian economy in recent years has been in part-time work – in retail, part-time work for carers – there has been a massive build-up in part-time work in the Australian economy over recent years and the unemployment rate at the moment, John, is the lowest it has been in 28 years. So if you are ever going to encourage more people to get into the workforce now is the time to do it.

LAWS:

Okay. How much are you going to punish these people if they don’t do as suggested?

TREASURER:

Well, if you are capable, if you are able bodied and you are capable of looking for work in the future, these reforms start on 1 July of next year. Then you will have all of that encouragement and your income support payment will be the same as for unemployed people.

LAWS:

So Newstart. So it will be about $77 a fortnight less?

TREASURER:

Well the Newstart is, there is two differences, it is a different rate and it has a work obligation attached to it.

LAWS:

Do you think that some single mothers have been rorting the system?

TREASURER:

Oh I would not say rorting the system but many single parents work you know John.

LAWS:

I know.

TREASURER:

Many of them work full-time, many of them work part-time. The idea that a single parent cannot work is wrong. A single parent in a modern society can work when their kids are at school and particularly, with increased childcare they ought to be encouraged to work.

LAWS:

There has been an argument in Parliament that changes to your super arrangements have created two classes of MP but I think you have created two classes of welfare.

TREASURER:

Well this quite commonly happens. When the rules in a particular area change then it is common to quarantine those people that were on the previous rules. It is quite common. We do this in the tax area all the time because if you change them for existing classes it will be said that it is a retrospective change. So it is quite common to quarantine them and to change eligibility in the future. It happens all the time in the Tax Act. It happens in relation to superannuation and it will happen in relation to welfare.

LAWS:

Okay, well I suppose we have to accept that. I think most people agree with what you are endeavouring to do.

TREASURER:

Well what we are trying to do John is this. If you have got more people in work paying less tax you can raise the same amount of money as you raise from fewer people in work paying more tax. So the more you get into work the lower tax burden can be for everybody and you will raise the same amount of money. So we want to spread the work around, get more people into work, raise the same amount of money and that will mean lower taxes for everybody.

LAWS:

Okay. We seem to have become the ATM of the South Pacific giving money away here, there and everywhere. A billion for Indonesia, $840 million for PNG and the Solomons, $511 million over four years for Iraq – you know, our commitment is a long way from over there isn’t it?

TREASURER:

Well these are substantial commitments. You know we have troops in Iraq and they are contributing to reconstruction. If you want to put troops into the field you have got to make sure they are properly trained and equipped.

LAWS:

And the point is we don’t want to.

TREASURER:

In relation to the Solomon Islands, that country was just cracking apart, and we believe that it is important to restore law and order in the Solomon Islands. Why? If you have got countries near you that are cracking apart with no law enforcement they can become havens for drug runners, they can become havens for terrorists – you do not want to have on your near borders countries that cannot maintain law and order and that is why we have been engaged in places like the Solomons and PNG.

LAWS:

Yeah. Well we’re certainly giving plenty away and yet we’ve got to tighten the rules on medicines for older Australians. How do you explain that to them?

TREASURER:

Well, you know, I would say that it is very much in Australia’s interests that there is law and order in Papua New Guinea and in the Solomon Islands. Can I say to you that Papua New Guinea is across a very narrow strait…

LAWS:

Very.

TREASURER:

…from Australia. Drug runners could easily go across that strait, illegal immigrants could easily come across that strait, you could have terrorists that could penetrate that strait and it is very much in Australia’s interests to try and help maintain law and order in Papua New Guinea.

LAWS:

Yeah well I mean I think a majority of elderly people listening would say their own health is of far greater importance given they have grown up here, paid taxes here, and yet millions go offshore while they pay more for their medicines. I don’t think that is fair.

TREASURER:

Well, when you say pay more for their medicines, at the moment, if you are a pensioner or a concession card holder you pay $4.60 for your medicine. That medicine might in fact cost $100 it might cost $1,000. Even if it costs $1,000 you pay $4.60. Now after you have bought 52 in a year they are free. What we are saying is over time that Safety Net will rise to 60. After 60 in a year they will be free. But remember this, you will only be paying $4.60 even if, suppose the medicine costs $100, you pay $4.60 and the taxpayer subsidy would be $95.40.

LAWS:

Yeah well we understand that. Tighter rules on prescriptions means they could end up paying more however. And yet we have got all this money for other countries.

TREASURER:

Well only in the sense that they have been getting free prescriptions after 52 in one year and over a period of years they will have to buy 60 before they become free.

LAWS:

Yeah, so they’re tighter.

TREASURER:

Well as I said, the number is going up over four years from 52 to 60.

LAWS:

Yes.

TREASURER:

But they will still be at $4.60.

LAWS:

You didn’t happen to see Michael Somare on television last night?

TREASURER:

No.

LAWS:

Being very unpleasant about Australia – allegedly giving him $840 million.

TREASURER:

I did not see it. I was otherwise engaged last night John.

LAWS:

Of course. How remiss of me.

TREASURER:

I had a certain event on last night.

LAWS:

Yes you did. I could not imagine you sitting back having a quiet drink and watching Sky News.

TREASURER:

I didn’t…

LAWS:

Okay, thank you very much Peter Costello.

TREASURER:

Great to be with you John. It is a pleasure always.

LAWS:

Thank you. That’s very nice of you.