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 25/11/2005

Interview with John Laws
2UE

Friday, 25 November 2005
9.30 am

SUBJECTS: Tax, interest rates, surplus

LAWS:

Treasurer good morning.

TREASURER:

Good morning, good to be with you John.

LAWS:

Good to talk to you Peter, when do we get them?

TREASURER:

You are talking about Christmas…

LAWS:

No.

TREASURER:

…25th of December.

LAWS:

I am talking about tax cuts.

TREASURER:

Well we introduced the last round of tax cuts on 1 July of this year and of course we have already legislated another round on 1 July of next year so there is quite a bit in the pipeline actually.

LAWS:

But can we expect any more than that?

TREASURER:

Well what I said yesterday was if we can fund health pressures, if we can meet defence pressures, if we can balance the budget and we have done all of those things and that leaves room to, then of course we would love to reduce tax and we have reduced tax in the 2003 budget, 2004 and 2005. So if we could do it next year, yes of course we would love to.

LAWS:

Okay, I know you won’t speculate on the size of the surplus itself, but if we do get tax cuts what would the average size of those be?

TREASURER:

Let me say, we are forecasting a surplus for this current financial year. And let me explain to people why it is important that we have a surplus budget. Where the Government has a surplus budget it is building up savings and where the Government is building up savings rather than borrowing, it is keeping down interest rates. So you wouldn’t do anybody a favour if you didn’t run a surplus budget because that would put pressure on interest rates and it would be of no assistance to Australians to say – I will give you a tax cut and the consequence of that will be you pay more on your mortgages – I don’t think they would thank you for that. So it is a question of making sure that you keep adding to Government savings – we have got to fund our health obligations, we have got to fund defence…

LAWS:

Well I imagine…

TREASURER:

…if we can do all of that we ought to keep tax rates as low as we can.

LAWS:

…yeah, well I accept that and I understand that many people would be prepared to sacrifice a tax cut if more money went into something like mental health or roads or health generally. I think a lot of people would be prepared to…

TREASURER:

Well you see, this is the point. You have got to hold everything in balance. We know that health costs just increase year after year. They increase year after year because our population is ageing, because new treatments are becoming available. So whatever you do next year you are going to be spending more on health. We have the challenge of terrorism and our response to that which has been extremely expensive. We want budget surpluses because that helps keep interest rates down. Now, if you can do all of those three things and reduce tax, well we would love to do so but let me tell you, these all big asks and it takes a lot of work and a lot of organisation to get ourselves into that position.

LAWS:

Yeah, if people only get a tax cut of say $10 a week, they will hardly be crowing, I mean given the price of petrol, the price of everything now.

TREASURER:

Well hopefully the price of petrol will come down, it is already coming down but I think the most important thing to people frankly is their mortgages. People will hardly thank you if interest rates went up and of course we are the Party of low interest rates so it is important that we keep interest rates down and a big part of that is running surplus budgets adding to savings. So, there are some people who run around and say, ‘oh well, you know, why don’t you give away your savings and you might be able to reduce taxes.’ Well let me tell you, no fun if your tax comes down $5 a week and your mortgage goes up $30 a week.

LAWS:

No, no fun in that at all. A lot of people also say – and I am a bit inclined to say the same thing – if you have got all of that surplus that means that your tax is too much.

TREASURER:

Well, look, as I said before, if you had a surplus that is that you are not spending more than you are raising, in fact what you are doing is you are repaying debt and we have now repaid nearly $90 billion of the Labor debt remember, and that has been a very big part of keeping pressure off interest rates. Let me make that point again. If the Government borrows money the Government is in the market driving interest rates up, if the Government saves money the Government is in the market driving interest rates down it is that simple.

LAWS:

This notion of slashing thousands of pages from the Tax Act, what kind of effect will that have, if any?

TREASURER:

It will make tax laws much simpler. There is a whole lot of sections in that Act which are never used. They are there, you know, you are reading the Act and you have got Section 1 and Section 2 and Section 3 and Section 3 is never used, it doesn’t apply to anything and Section 4 may never be used, it doesn’t apply to anything. I am not giving you real numbers here. So, an important simplification is if it isn’t used just get to rid of it, don’t leave it there, people don’t have to read it, they don’t have to wade through it, it makes it easier for tax practitioners. My view by the way is that probably very few taxpayers ever read Tax Acts so it is doesn’t worry them so much but it is certainly for accountants and lawyers and businesses and people who do look at the Tax Act, it is going to make things much simpler.

LAWS:

Yes, why would you ever have 8,000 pages in the Tax Act? I mean, how is that possible?

TREASURER:

Because what has happened over the years is as new situations have arisen, new laws have been made to cope with it and nobody has ever got around to abolishing old laws in relation to transactions that are long passed. It has taken us a while to identify all of these old laws that can be repealed – about two years…

LAWS:

Well I can understand that with 8,000 pages to go through.

TREASURER:

…and to get rid of 2,600 is the biggest legislative simplification that we have ever had. And by the way, this Act has been in place in various forms since 1936 so there have been Governments going back…

LAWS:

71 years.

TREASURER:

…as far as Curtin and Chifley and Menzies and Lyons that were adding to the Act without taking away so the fact that we have sat down in 2005 and worked out all of the redundant provisions and can get rid of 2,600, I think it is a good project actually. I notice that there has been very good response from business to it today.

LAWS:

Oh yes, well understandably they haven’t got to wade through all of that other stuff.

TREASURER:

Yep.

LAWS:

Will the surplus reach $14 billion?

TREASURER:

Look, one newspaper put out a story yesterday but I think the newspaper itself would concede it didn’t have the evidence to back it up.

LAWS:

Okay so it won’t reach $14 billion?

TREASURER:

Well you heard my answer.

LAWS:

I did, which indicates to me it won’t reach $14 billion.

TREASURER:

(Inaudible).

LAWS:

Have you got anybody working on this Budget with you in case you become Prime Minister before it is handed down?

TREASURER:

Well look, (inaudible) the Budget preparations start every year in November, it goes for six months you know, we have a short break over Christmas but it has already started and we are preparing all of these things and it keeps going right through to May.

LAWS:

Are you going to hand it down?

TREASURER:

John, I am preparing the Budget and everything is proceeding on track.

LAWS:

Okay. I hope you have a nice restful weekend Peter, it is good to talk to you as always.

TREASURER:

Thank you John, all the best.

LAWS:

Thank you very much.