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 28/10/2005

Interview with Mike Carlton
2UE

Friday, 28 October 2005
8.15 am

SUBJECTS: Sydney’s Cross City Tunnel, petrol prices, inflation, tax cuts, work related expenses, industrial relations

CARLTON:

Good morning, good to see you again.

TREASURER:

Good to be with you Mike.

CARLTON:

Did you come here on the Cross City Tunnel?

TREASURER:

No, I actually wanted to get on a road that works.

CARLTON:

You are a hard man.

TREASURER:

Well we came up the Pacific Highway so…

CARLTON:

It kind of works, it just costs a lot to get there.

TREASURER:

Well, normally when you build a new road it is in addition to the existing roads, it is not a replacement road in place of the others which get closed or restricted.

CARLTON:

Yes, it is a trifle odd.

TREASURER:

It is, I came down William Street the other night and I think it is going to have the widest footpaths in the world by the time it is finished.

CARLTON:

Oh, it is going to be the Champs Elyses by the time it is finished.

TREASURER:

Buenos Aires I think.

CARLTON:

Something like that. Yes, it has not been a triumph for the New South Wales Government.

TREASURER:

No, it doesn’t seem to be going that well, does it? You wouldn’t say it was a major public policy milestone.

CARLTON:

Not a coup, no. Let’s talk about your part of the world. Inflation, if we could start with that. It is nudging up around 3 per cent, is that just a spike from the surge in petrol prices or what?

TREASURER:

It is mainly petrol related. If you take out petrol, inflation is about 2.1 or 2.2…

CARLTON:

Which is in the target range.

TREASURER:

…which is in the target range. As we know petrol prices are incredibly high. In the September quarter they averaged in the capital cities of Australia $1.19 a litre. And you would have to say…

CARLTON:

It wouldn’t be that here, it would be more than that here.

TREASURER:

…well it is funny, they were quite low at the early part of the quarter in say, July, but by the end of the quarter they were quite high. You would have to say that they are probably higher than that on average still today, so there could still be a bit of inflation left in the petrol price for the next quarter. But for the purposes of economic policy, we really look at what is called core inflation. Whether or not volatile areas get back into the general economy is what you have been looking for.

CARLTON:

We are not talking about interest rate rises down the track or anything like that, do you think?

TREASURER:

Well, we have a target…

CARLTON:

It is not your decision.

TREASURER:

…well no, we have a target for inflation which is 2 to 3 per cent over the course of the cycle. We would be worried if petrol prices were taken by business as a reason to put up other prices, that is what we call a second round effect. I said to business the other day I would counsel very strongly against any business trying to get a price rise off the back of petrol prices.

CARLTON:

There is a lot of businesses that are going to say we have to, the cost of goods, the cost of transport is hitting us hard.

TREASURER:

Transport is a limited part of the economy and you have got to remember that there are other areas where prices are actually falling particularly computer equipment, technical equipment, those sorts of areas. So a business takes the whole, it takes price rises over here but price falls over there and I don’t think there is any reason for a big price increase.

CARLTON:

So you are going to try and talk them down then?

TREASURER:

I am going to counsel them strongly against it.

CARLTON:

And they can counsel you just as easily…

TREASURER:

Well on the ground…

CARLTON:

…(inaudible) pull your head in, can’t they?

TREASURER:

…oh, they can, on the grounds though Mike, that if business start putting up prices then that leads to increased inflation and that will be bad for the economy and bad for interest rates and bad for business, that is the most important thing.

CARLTON:

Alright, how about a tax cut? What about a tax cut? You can announce one now.

TREASURER:

Scoop.

CARLTON:

Absolutely.

TREASURER:

Well of course we cut taxes in May…

CARLTON:

Yes but since then you have had a $13 billion Budget surplus.

TREASURER:

…we have a second round also legislated to take place on 1 July next year, it is already legislated, 1 July of next year. So look, the important thing is to keep taxes as low as possible, keep the Budget balanced, fund our security…

CARLTON:

People like Malcolm Turnbull and some of your backbenchers are hammering you to cut income tax particularly at the top rate and you seem to be blind to their submissions.

TREASURER:

No, one of the important reforms that we put in place in this year’s Budget is we cut rates for everybody - for everybody - we cut the first rate to 15 per cent, so every body got that cut rate and in relation to the thresholds we increased the thresholds so that you only pay the top rate on your first dollar after $125,000 which was an important reform. Now, I have always said the important thing is to keep taxes as low as possible…

CARLTON:

Yes but that is a muddled statement, we all know that…

TREASURER:

Well, well, well…

CARLTON:

…that is muddled (inaudible) apple pie.

TREASURER:

…well let me say we cut taxes in the last three Budgets. Name another government in Australia that has cut taxes in the last three Budgets.

CARLTON:

Alright, okay.

TREASURER:

I could actually name one that has increased taxes…

CARLTON:

I am sure you could, who is it? Here?

TREASURER:

…yes.

CARLTON:

Yes, okay.

TREASURER:

In fact I could name several that have increased taxes. There aren’t that many that have cut taxes.

CARLTON:

Alright, the critical question that people are focussing on though is the big difference now between the top marginal rate at 47 per cent and the corporate rate which is a hell of a lot lower – 30 per cent – and the difference leads to tax evasion, everyone says that. And Turnbull’s argument and I think Labor was saying yesterday, you have got to close that gap.

TREASURER:

Look, if you can keep taxes low as I said you ought to and I am…

CARLTON:

But you have got the money to do it, you have got $13.5 billion sitting there.

TREASURER:

…but sometimes you can overstate this difference. The truth of the matter is if a company has income it pays tax of 30 cents. When it distributes that dividend, if your marginal tax rate is higher you pay the difference, if your marginal tax rate is lower, you claim back the difference. That is the way the system works…

CARLTON:

Yes, but…

TREASURER:

…the system is a company tax - without going into all of the technical details – is really withholding tax, they just take out 30 cents and then you make it up on the personal return.

CARLTON:

…oh yeah, rhubarb, rhubarb, rhubarb.

TREASURER:

With ice cream.

CARLTON:

…with ice cream. The argument is that if the top rate is high, 47 per cent, it leads to a lot of tax evasion, people become companies and they don’t pay the taxes they should be. Now, wouldn’t it be smarter…

TREASURER:

There is nothing wrong with becoming a company. This idea that if you become a company that is tax evasion, that is wrong. There is nothing wrong with becoming a company.

CARLTON:

…it is tax avoidance but you could cut…

TREASURER:

No it is not even tax avoidance.

CARLTON:

…you could cut the top tax rate and you know, it would only cost you a few billion. The idea is then you stimulate the economy and things hum along a bit.

TREASURER:

Cutting the top marginal tax rate is not that expensive.

CARLTON:

So are you attracted to the idea?

TREASURER:

Well let me tell you why it is not that expensive because there is not that many people that pay it.

CARLTON:

It is three per cent, it is about three per cent.

TREASURER:

But what I do believe is you can’t just do that, you have got to remember the other 97 per cent as well and we have got to be fair to everybody and if you are fair to everybody it costs a lot more.

CARLTON:

Geez, you are going around in circle, are you attracted to a tax cut next year or not, on top of the ones that are already in the pipeline?

TREASURER:

Well Mike, when we get to next year we will face these questions next year.

CARLTON:

Alright, what about streamlining work deductions? There is also talk about that, (inaudible) been suggested too that there is too much, I don’t know, room for fiddling there.

TREASURER:

No it hasn’t been said that there is too much room for fiddling. Some people say you shouldn’t get a work deduction. Now, let me tell you what they mean by that. They mean if you are in a job where you have to buy a uniform you shouldn’t be able to deduct the cost of the uniform from your income tax. It is all very well to say oh, we are against work deductions. Do you think a person that has to buy a uniform for their work should get a tax deduction or not?

CARLTON:

Absolutely and a great mass of voters will as well.

TREASURER:

I am sure they do.

CARLTON:

You would be committing suicide, politically, if you tried to pull that.

TREASURER:

So when I hear various Labor Party spokesmen, as I have, say we should get rid of work deductions, you know, let the word go forth from this time and this place. They are saying to everybody…

CARLTON:

That’s John F. Kennedy, isn’t it?

TREASURER:

…who is a nurse or a security guard or maybe they are working at a checkout, who has to have a particular uniform, have to buy it out of their own income, who is now entitled to deduct the cost of that, that you should have to buy it at your own cost and get no tax deduction. Let that be understood. And when you actually state it quite plainly it doesn’t seem to have the appeal that it does when you say quickly, get rid of work deductions.

CARLTON:

Do you want me to ask a long question so you can have a sip of your tea? You look very anxious.

TREASURER:

Let me ask you a question and you can give the answer and then I will have a sip of tea.

CARLTON:

Alright, I get asked, let me ask you this though, the industrial relations legislation, you haven’t said much about that, I haven’t heard a lot from you on that. Now what is the campaign, the advertising campaign costing?

TREASURER:

I couldn’t give you the precise figure…

CARLTON:

Isn’t that amazing? You don’t know, the Prime Minister doesn’t know, Kevin Andrews doesn’t know, (inaudible) what you like.

TREASURER:

Well there is a sum which has been appropriated to the Department and the Department would do the advertising.

CARLTON:

How much?

TREASURER:

I will try and find out if you like.

CARLTON:

Oh come on…

TREASURER:

I will ask Kevin, Kevin is going to be interviewed later.

CARLTON:

Kevin doesn’t have a clue. The Prime Minister says, well, we have got a certain amount. You don’t get the truth from them.

TREASURER:

We will catch him on the way in.

CARLTON:

Is this Fair Pay Commission going to maintain real wages so the people on the bottom of the ladder won’t lose their spending power?

TREASURER:

Yes, it is going to set the minimum according to the awards that currently apply. So the minimum will be as per the awards…

CARLTON:

But over time don’t you want the minimum wage to drift downwards so the theory is more people get more work if they are paid less?

TREASURER:

It is not that we want the minimum wage to drift down, no, it is that we want the complexity that is built into the awards to disappear so that it is easier to set terms and conditions. Not that the rates change but the complexity changes.

CARLTON:

Yes, but the theory is, is it not, that if the minimum wage drifts down people are earning maybe a little less per hour but more people get jobs, off welfare into jobs? I mean…

TREASURER:

No, that is not the object at all. The object is to have a minima but then to encourage agreement as much as possible without complexity. There is just too much complexity and it is to free up the system.

CARLTON:

Would you sign an Australian Workplace Agreement?

TREASURER:

Sure, if it had good terms and conditions.

CARLTON:

You have already got good terms but yours are protected by law, aren’t they?

TREASURER:

Well if I was entitled to I would. Do you sign a contract?

CARLTON:

I do, I do.

TREASURER:

I bet you do.

CARLTON:

But I have got a bit of bargaining power, I am not some 18-year-old kid fresh out of school who is terrified of his employer.

TREASURER:

I will swap.

CARLTON:

Alright.

TREASURER:

Want to swap contracts?

CARLTON:

I wouldn’t swap jobs, I wouldn’t swap jobs, I wouldn’t swap jobs in a fit, not in a million years. Almost out of time so I will ask you one last question, who is going to win the Melbourne Cup? Any thoughts on this?

TREASURER:

Is Makybe Diva running?

CARLTON:

We don’t know, probably, but quite possibly. We will know tomorrow.

TREASURER:

I don’t know a thing about racing but I know people who do and they tell me that if Makybe Diva runs, that is the one to watch.

CARLTON:

Okay.

TREASURER:

It is sort of Phar Lap re-visited, isn’t it?

CARLTON:

Different sex but apart from that, pretty much.

TREASURER:

Is that right, I didn’t know.

CARLTON:

Well you learn something everyday.

TREASURER:

Is that right?

CARLTON:

Absolutely.

TREASURER:

Good old Phar Lap.

CARLTON:

He was a bloke.

TREASURER:

Is that right?

CARLTON:

Yes. Good to talk to you.

TREASURER:

Good to be with you Mike.