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 16/05/2005

Interview with Steve Austin
ABC 4QR

Monday, 16 May 2005
8.40 am

 

SUBJECTS: Budget

AUSTIN:

Peter Costello, Federal Treasurer, welcome.

TREASURER:

Good to be with you Steve.

AUSTIN:

Why are you late?

TREASURER:

Well we had trouble getting here.

AUSTIN:

Maybe you need to give us some money for infrastructure and roads in Queensland?

TREASURER:

Well we have. The GST distribution to Queensland.

AUSTIN:

Record levels, what some $125 million.

TREASURER:

Yeah. $20.7 billion with a windfall of $595 million in 2005/06, Queensland gets more money out of the GST, a bigger windfall than any other State. All of the GST revenue you know, is divided between the States and Queensland gets the biggest windfall.

AUSTIN:

A couple, some questions from me, I want to try and stand back a little bit from the Budget announcement and drill down to what the people will be getting from pensions to work, the welfare to work programme. First of all, are we borrowing to consume? We have got a very healthy economy, but very high levels of household debt. Are we borrowing to consume?

TREASURER:

I think what has happened in Australia over recent years is that more people are in work than ever before. People feel confident. It is true that asset values have gone up. People’s house values have gone up, and a lot of people have drawn down equity loans. I have always said that ….

AUSTIN:

They don’t actually own it, they own the debt basically?

TREASURER:

No, no. Let us suppose you took out a $100,000 loan to buy a $200,000 house ten years ago. The bank says to you, you know that $200,000 house is now worth half a million, and offers you a loan. When you draw down the loan your equity is still greater than it was when you bought the house. But there has been a lot of draw down of equity, I think that is right. I have always said to people that it is important not to get yourself into too much debt, but having said that, if people feel confident, and if consumer spending is strong that does keep business stronger and it allows more people to get into work.

AUSTIN:

So we are borrowing to consume essentially, aren’t we?

TREASURER:

Well some people would be borrowing to consume. Other people are borrowing to invest.

AUSTIN:

Do we have the unusual situation of high, real unemployment, and skill shortages?

TREASURER:

Well no, unemployment is the lowest it has been in twenty-eight years in Australia.

AUSTIN:

That’s right. I played a speech by Evan Thornley before, who you know reasonably well actually.

TREASURER:

Yes. He is looking for Labor Party pre-selection in the Victorian ALP.

AUSTIN:

He is also a very successful businessman and entrepreneur, who has worked in Silicon Valley.

TREASURER:

I was listening to your programme. You did not mention that he is also looking for Labor Party pre-selection.

AUSTIN:

I didn’t mention it because I didn’t know it.

TREASURER:

Yeah.

AUSTIN:

But nevertheless he is a very successful businessman, who is a successful entrepreneur, the sort of person you are trying to encourage in Australia, the sort of person you are trying to support, and his observation is that one in six people in Australia live in a jobless household.

TREASURER:

Well that is because we have large numbers of people on disability support pensions, and large numbers of people on a single parent pension. In fact I think he made that point.

AUSTIN:

Yes.

TREASURER:

The numbers on both of those pensions has increased significantly. Unemployment has been falling. Unemployment is at a twenty-eight year low, but the number of people on those pensions is very high and, so this is the great structural reform, and this is what we started addressing in the Budget. How is it that we encourage people who have dropped out of the workforce onto pensions, if they are able-bodied, and able to work; how do we encourage them to move from welfare to work? And this Budget has a huge number of proposals including better rehabilitation, increased childcare, more support to try and encourage people to move out of welfare and into work. Your chances of getting a job today are better than they have been for twenty-eight years. So now is the time to start addressing those issues.

AUSTIN:

I want to (inaudible) welfare to work shortly, can you explain for me the fine point, what exactly is the working class these days. John Howard was asked this yesterday on Channel 10’s Meet the Pres., What do you regard as the working class?

TREASURER:

To me it is anybody who is an employee.

AUSTIN:

Anybody who is an employee?

TREASURER:

Basically. Anybody who is an employee derives their income from labour. You are working class?

AUSTIN:

I’m very working class then. I am an employee on a very short-term contract.

TREASURER:

Yeah, yeah, you would be working class. This idea that working class means you have a low income, there was a wonderful picture in The Australian …

AUSTIN:

What do you call a low income?

TREASURER:

Well, average wages, average wages in this country about $40-50,000….

AUSTIN:

People on low incomes?

TREASURER:

…I reckon you would be struggling on $40-50,000 in Australia if you were paying a mortgage and raising some kids. There was this picture in The Australian newspaper last week Steve, of steel workers at Wollongong in the steel mill, who would be your classic working class sort of guys, wearing the helmets, and coal and dust all over their faces, and sweating and from memory they were earning $80-90,000, and talking about the need for tax cuts. You can go and see operators in mines that are earning $100,000 or $120,000, you would have called them working class because they do heavy manual work, so that is not so much your income, it is more the duties that you do I think.

AUSTIN:

Your tax cuts seem to favour the wealthy, the upper class.

TREASURER:

Well not so Steve as I said. Here are steel workers in Wollongong …

AUSTIN:

Earning $90,000 a year …

TREASURER:

In a blast furnace, right, who are doing overtime, who are being forced onto the top rate of tax, they shouldn’t be. The whole object of these changes is to make sure that workers, particularly those that are doing overtime, do not have to pay the top rates of tax. Australia has been out of whack with the rest of the world here, you have got onto those top rates of tax too early. What we are now doing is kicking most of Australians out of that.

AUSTIN:

What do you regard as the middle class? Kim Beazley’s targeting in his Budget speech, tax cuts towards the middle class in particular.

TREASURER:

Well look, you know. I do not know, think, that is what he is targeting. It is the most confused, cobbled together proposal. On Tuesday he was against tax cuts. On Wednesday he was voting them down, and Thursday he discovered he wanted some himself. Really, it is not even worth going there. It is so confused.

AUSTIN:

It is worth going there. If you regard the working class as $40-50,000 a year, what do you regard as the middle class.

TREASURER:

Well, I regard the working class frankly as anyone who works as an employee. Working class can be just, easily be a steel worker in Wollongong, a truck driver in the Bowen Basin, a textile worker in Melbourne, as I said I think working class are people who derive their income from their labour, and I think to the degree you can, you should cut tax. Now in this Budget we cut tax for lower income earners by cutting their rate.

AUSTIN:

Yes you did.

TREASURER:

15 cents.

AUSTIN:

Not as much as you cut the higher rate.

TREASURER:

Well hang on, you are not paying as much tax. People say oh, you did not cut the tax by much, you cut it by a much larger percentage, because down the bottom of the tax scale you are not paying as much. Up the top you are paying a lot more. At the top you are paying forty-seven cents, if you want to put the Medicare levy, forty-eight and half cents of every dollar, and so what we have said is, the middle class should not have to worry about the top rate, we are going to increase the threshold for the top rate so that they do not have to pay it. Down the bottom we say we are going to cut your rates. And that is fair I think.

AUSTIN:

Let’s look at those steel workers you mentioned, and use them as an example for this. Where Australia is benefiting from a resources boom at the moment. In Queensland, in particular, is a major export point. I think ten per cent of the nations export comes from Queensland …

TREASURER:

Particularly coal.

AUSTIN:

How much longer will the resources boom go for? If it is one of the things that is giving us a healthy economy.

TREASURER:

Sure, you are right about that Steve.

AUSTIN:

And we are dependent on external sources?

TREASURER:

Japan is our number one export, and the big increase has been China. And …

AUSTIN:

It is rapacious in its consumption.

TREASURER:

Rapacious, absolutely rapacious, and that is great for Australia, because they want coal. From Western Australia, liquid natural gas, and iron ore. I hope that the Chinese economic growth goes for a long time, because it will be good for Australia. And I think it has got a bit to run yet.

AUSTIN:

How long? We are getting top dollar for our nations resource export, top dollar. It can’t stay that way forever. At some point it has got to come down.

TREASURER:

There are two reasons why it would come down. One is China’s economy could falter, it is possible. The other is what you will find is with this demand coming out of China, other countries will start developing mines and resources, and the world supply will pick up, so that our prices will come down.

AUSTIN:

(Inaudible)

TREASURER:

That is right. Peak countries like Brazil, maybe Indonesia, so you will not get that top dollar forever, but I am pretty confident that the Chinese economy has got a bit of growth left in it. I think it has got some years to go.

AUSTIN:

Why, is it true whether (inaudible) the second worst exporter in the OECD?

TREASURER:

What is true is that we are running a large current account deficit which means that the value of our imports compared to our exports has seen us in a trade deficit, that is quite true.

AUSTIN:

The answer is yes. We are the second worst exporter in …

TREASURER:

I can not say that. Well, exports is not really the way to measure it. It is your exports minus your imports, that is your current account, and that is too high in Australia, but that will change as those mineral exports continue to increase in volume, that will change over the years to come.

AUSTIN:

Can they increase much more? You have already complained about the (inaudible), they can’t really increase much more out of this place.

TREASURER:

Well take Dalrymple Bay. It is one of the worst examples, that is why I have focussed on it. It has taken two years to get a decision out of the Queensland Competition Authority on whether or not they can invest. Now they can invest, but now it will take two years to build. The answer to your question is yes, we can get more volume out of the Bowen Basin through Dalrymple Bay. The tragedy is, it was delayed two years through regulation …

AUSTIN:

It will be four, five years …

TREASURER:

Two years has passed, we now have got the decision. They can start investing. You should get increased capacity coming on line in two years time, but what a tragedy, when China was booming, when the world was short of coal, the Queensland Competition Authority and the argument over Dalrymple Bay delayed two years, two years of what could have been improved exports.

AUSTIN:

So by the time they get it built, it is likely that the peak of prices and income from resources will start to go down?

TREASURER:

It is possible. This is the point I kept on warning. I said that other countries are going to come into this game, and if Australia delays, we will miss it, I kept on saying that …

AUSTIN:

Well then OK, then the problem for you though is that will then start to trash out, or put pressure on inflation won’t it? It will work for our current account deficit and that will really put pressure on inflation.

TREASURER:

Look inflation in Australia is pretty low. It is about two and half per cent. It has been pretty low for most of the years I have been Treasurer. It is important that we keep it there, if we can keep inflation low we will keep interest rates low. We have a target now of two to three per cent, and we have been inside that target pretty much for most of the time I have been Treasurer.

AUSTIN:

And a couple of years from now it is not going to stay there is it?

TREASURER:

Well we are forecasting it will stay there over the Budget year, the next twelve months, and I can not see any reason after that why it should go outside the band.

AUSTIN:

It will (inaudible) resources prices will start to come down, won’t they, because of what you have already identified as increased competition from overseas.

TREASURER:

But resources prices coming down shouldn’t be inflationary.

AUSTIN:

Won’t it worsen our current account deficit?

TREASURER:

Well it should not be inflationary. What would make inflation take off is if we started paying ourselves wages we could not afford, or if the economy overheated. But I do not think that is going to happen Steve.

AUSTIN:

Is that why you are targeting people on pensions, disability support pensions and sole parenting, to try and take the pressure off wages?

TREASURER:

No …

AUSTIN:

Off wage costs? To try and get more (inaudible) of potential employees out there?

TREASURER:

You played that speech from Thornley before, and even though he is on the opposite side of politics, he made the point, and I agree with him, that the numbers on disability pensions has been increasing. Now, we think about 700,000 in Australia, which is about six and half per cent of the workforce. Has there been a mass outbreak of disability in Australia? Our health standards are better than they have ever been before. It is possible, and I think Labor agrees with this, that many people, instead of looking for work and going on unemployment benefits have gone onto disability pensions. Many people who could maybe work part-time, and when you see a figure like that you say to yourself, well, you have got to try and take some measures to encourage people into work. And my point is this, that unemployment is lower than it has been in 28 years, never been a better chance to get a job in the last 28 years, we ought to try and encourage and help people to get into the workforce.

AUSTIN:

Can you guarantee that no workers will be worse off under your plan of flexible wage agreement?

TREASURER:

Look Steve, you can always, in a modern society we get ten million people in work, you can always find a case somewhere. You know, can I give you an assurance that you could never find a case of one person in ten million, well I am not foolhardy enough to predict the future like that, but I will say this, I can give you this assurance that the Australian economy will be stronger, that overall wages will be higher, and that more people will be in work.

AUSTIN:

I would love to talk to you longer, but unfortunately you were late, so we will talk to you again another time.

TREASURER:

It has been a great pleasure to be with you. Thanks Steve.