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 03/08/2005

Doorstop Interview
Asian Development Bank, Sydney

Wednesday, 3 August 2005
11.45am

SUBJECTS: Interest rates, Telstra, NSW Government, taxes, Child Care rebate, Future Fund, Consumer Confidence

JOURNALIST:

Well Treasurer, the Reserve Bank kept interest rates on hold. Are you expecting a prolonged period of stable interest rates going forward?

TREASURER:

Well the decision today to keep interest rates on hold indicates that the economy is continuing to grow solidly but with low inflation. Because inflation is low, then our interest rates have been low and whilst inflation is kept low, they will be kept low. My impression is that with solid growth continuing into the future, providing that we can manage emerging issues, we should be able to keep inflation low in the future. That is consistent with giving people certainty in relation to investment and particularly business certainty in relation to growth. That is the way we would like to keep it.

JOURNALIST:

Is setting up a trust fund for rural Australia relating to the sale of Telstra one of those emerging issues?

TREASURER:

Well the point I make about any proposal for spending money is that it has to be consistent with national economic objectives and it has to be financially responsible. We didn’t get to a situation of balanced Budgets, low inflation and low interest rates by fluke but by hard work. If we give up the hard work now, then we can put those objectives at risk. So whatever is done in the policy area has to be consistent with national economic objectives, and that is my focus.

JOURNALIST:

But do you oppose a trust fund?

TREASURER:

Well as I said, these matters will be discussed inside the Government but the decision must be consistent with national economic objectives. Australia is not a country that just runs itself with endless resources. We have to make sure that we make good and financially responsible decisions and the pay-off for that is low inflation and low interest rates. If you give that game away, then you give away the benefits of good economic policy.

JOURNALIST:

The new Treasurer and Premier in this State has axed the vendor tax. Do you have a response to that and do you think he is defying you by not cutting stamp duties?

TREASURER:

Well he has cut a tax that should never have been introduced. Really, the vendor tax should never have been introduced and finally the New South Wales Labor Party has accepted the inevitable and gotten rid of something that should never have been introduced in the first place. So, better late then never, that is the first point. It was totally misconceived, it was introduced at a time when the market was cooling, it was unnecessary, it was counter-productive and it never raised the revenues that it was supposed to raise. Now, having gotten rid of a tax which should never have been introduced, what should the New South Wales Government do now? It should look at cutting the taxes which are replaced by the GST. That is what it should be doing. It should now turn its attention to stamp duty on mortgages which is going to be replaced by the GST by every other State and it is time that New South Wales accepted the inevitable in relation to that as well. Let’s not have another debacle like we had on the vendor tax where they take years to accept the inevitable. Let’s see the New South Wales Government continue with a new mood of realism by abolishing stamp duty on mortgages.

JOURNALIST:

Would you look to reforming the GST distribution if the new Premier looked towards abolishing some more of those taxes?

TREASURER:

No the taxes are to be abolished on the basis of GST which is paid to the New South Wales Government. A record funding, higher than ever before…

JOURNALIST:

But not a fair distribution, they say.

TREASURER:

…higher than ever before in the history of the Commonwealth.

JOURNALIST:

Is New South Wales holding back the Australian economy?

TREASURER:

Well New South Wales has been mismanaged badly under the Carr Government and as a consequence of that, that has held back the Australian economy, not to a large degree because the States have a more minor effect on economic policy but to a degree yes. If New South Wales were managed better then New South Wales growth would be higher and national growth would be higher. Now, I don’t want to overstate this, I don’t want to say that the State Government is the major determinant of economic policy in Australia, plainly it is not, but it has an influence and to the degree it has an influence it has been a negative one here in New South Wales.

JOURNALIST:

Treasurer do you think we have seen the peak in interest rates for now and could they be falling next year?

TREASURER:

I never talk about future movements in interest rates.

JOURNALIST:

Mr Costello, you suggested that assistance to the rural sector as a result following the sale of Telstra may pressure interest rates. I haven’t found any analyst, any market analyst who says that a $2 billion trust fund would have any implications for the interest rate outlook in this country, it would be insignificant.

TREASURER:

What I said was financial mismanagement would pressure interest rates and it will. And try asking every analyst in Australia, would financial mismanagement of the Australian economy pressure interest rates - the answer is yes.

JOURNALIST:

(inaudible)?

TREASURER:

No, hang on, hang on, you managed to ask them another question no doubt determining to get that particular answer. Could I suggest to you that a more accurate rendition of my comments would have got a more accurate answer?

JOURNALIST:

Well I asked them whether a $2 billion trust fund would put pressure on interest rates, $2 billion in spending, and they said no.

TREASURER:

Well that is a very interesting answer to an interesting question but let me direct you to what I said. Financial mismanagement in this country will put pressure on interest rates and for the last nine years we haven’t engaged in financial mismanagement and we are not going to start it in the next year. The reason we are not going to start financial mismanagement in this country is the consequence of that will be higher interest rates. A point I think that you would get a near 100 per cent approval rate to. It just shows you, if you want a particular answer, just think of a question and you will get there. Congratulations to the ABC on the issue.

JOURNALIST:

On the Future Fund, has the Government made any decisions on when it is going to appoint directors and have you approached any candidates?

TREASURER:

Well the Government will be introducing legislation in this next session of Parliament to establish the Future Fund. We will then be appointing directors once the fund is established and obviously, yes, we are considering possible appointees at the moment.

JOURNALIST:

Treasurer, the Child Care Rebate, is that going to continue to be paid on a delayed basis and never at the end of the financial year as suggested by The Australian this morning?

TREASURER:

It will be paid on tax returns as when it was announced in December of last year.

JOURNALIST:

So this year will be the only…?

TREASURER:

No, no, hang on, it will be paid on tax returns. Unfortunately The Australian’s story that there is some change is wrong. This was announced last year and is being delivered as announced and I regret to inform you that any suggestion that there has been a change in the policy from the way that it was announced last year is wrong.

JOURNALIST:

What about parents that do keep their records in order, can they claim for a rebate in the year that they pay the fees?

TREASURER:

The way in which you are going to claim a rebate on tax is on your tax return. This is the way you do claim rebates on taxes by the way. You know when you have self-education expenses you claim them on your tax return. Now, what happens in relation to childcare is the following. You pay childcare, at the end of the year you assess your eligibility for the childcare benefit. The childcare benefit reduces the net amount that you pay in relation to childcare. Once you have got the net amount you can claim that on the tax return and get a 30 per cent rebate. It is done in arrears. It is done in arrears because until such time as you have reconciled your childcare benefit you don’t know what your net amount is. Once you get your net amount you will claim it against your tax. Now, I have always said it will be done in arrears. It has to be done in arrears because until such time as you have had the reconciliation of the benefit, you don’t know what your net out of pocket is, therefore you can’t calculate the 30 per cent rebate on a net amount out of pocket. This is a point I made entirely clear when it was announced in December of last year, that is why there has been no change on that announcement.

JOURNALIST:

On IR Treasurer, there is a bit of confusion about what exactly the package will, the details of the package will be. Are you concerned that the kind of uncertainty might lead to it being watered down or implemented piecemeal?

TREASURER:

Well look, the Government has announced the direction that it intends to go and is now preparing a Bill to put that into legislative form. The Bill will be available in October and hopefully passed through the Parliament this year. Now it is true, until such time as you pass the fine print of the legislation you are going to have arguments about how the legislation applies to this situation or that situation, but I do believe that the direction of the policy is known.

JOURNALIST:

What do you think of (inaudible) Retail Sales figures yesterday?

TREASURER:

Well look, I think consumer confidence is still robust. I don’t see any evidence that there is gathering heat in relation to retail spending. It is quite possible that a big influence in the factors you saw was the bringing forward of sales and half yearly clearances, but we will get a better fix on that next month. Thanks very much.