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 05/04/2006

Interview with Jon Faine
774 ABC

Tuesday, 5 April 2006
8.30 am

SUBJECTS: Tax, Carer’s Allowance, IR reform, Cowra Abattoir, Medibank Private, Telstra, Uranium, Papua

TREASURER:

This is Peter Costello standing in for Jon Faine today. Jon was a bit late for work and he asked whether I could do his introduction and it is a great pleasure to do so, thank you Jon.

FAINE:

Can I head off now and you can interview yourself?

TREASURER:

Absolutely.

FAINE:

Well I was going to ask, do you think you pay more tax? Would you like to pass less? If you pay less tax the Government has less income to spend. How should Governments spend their money? Is it going where it needs to? Are we looking after the people who need to be looked after? And I was going to tell you that Peter Costello is shaping the next Federal Budget and grappling with these issues as we speak and he was going to join me in the studio this morning but instead I am joining him. We will also look at the Howard Government industrial relations reforms. Can an employer sack their workforce and re-hire them at lower wages? Is that what’s provided for under these laws? Should Medibank be sold off? Is Telstra’s service sale on hold? Uranium sales to China? Peter Costello, host of the morning show on 774 ABC Melbourne will ask me I suppose, if he is asking the questions and I will see if I can shackle up some answers on behalf of the Federal Treasurer. All that after the news headlines, Kate (inaudible).

News Headlines

FAINE:

With Peter Costello. Aren’t you going to do the traffic?

TREASURER:

Yes Jon, well I was coming in the Monash Freeway today and the Monash Freeway is very, very heavy. The West Gate is struggling, it will take you 46 minutes from there into town and the sun glare will slow you down over the bridge too. City exits are all sluggish and outbound on the West Gate Bridge it is slowed for road works with one lane closed. As I said earlier, the Monash is heavy up to Wellington Road and again at Blackburn Road, Burke Road and coming up to Punt Road. You are looking at 35 minutes into town. Outbound it is slow along Warrigal Road. The Eastern this morning, Jon, is taking 27 minutes from Springvale Road into Hoddle Street and you will slow down well before Burke Road, from Hoddle Street it is queued back to the Chandler Highway. The Tulla has the usual busy spots around Essendon Airport, large crowd wanting to get down to Windy Hill to see the Hall of Fame this morning and Dynon Road will take you 24 minutes. The Ring Road is pleasant, pretty much all over after two major crashes earlier heading clockwise, it is heavy from Boundary Road right through to Pascoe Vale Road and anti-clockwise you will find delays from Pascoe Vale Road to Tullamarine and heading up to Sunshine Avenue. I will have more for you at 9 am. Jon.

FAINE:

Thank you very much, Peter Hillary Costello. Hillary Harper, what do you think?

HILLARY:

Well that is it, I am out of here. Can I have your place in Canberra? Do you want to do a swap?

FAINE:

Yes well, under the new Industrial Relations reforms I think you should be very, very careful about these sorts of things. Thank you Hillary, Peter Costello taking over from everybody in the studio this morning. Well Peter Costello in fine form this morning, putting people out of work left, right and centre at the ABC, I don’t know if it is worth an extra $10 million to our allocation of funds in the Budget this year or not, Peter Costello?

TREASURER:

Well we could put you in charge of this year’s Budget, Jon, how do you think the ABC would go?

FAINE:

They would do considerably better than they have over the last few funding allocations.

TREASURER:

Salary rises for all morning presenters.

FAINE:

No, no, that is by no means the highest priority. I say this quite sincerely in fact, we will come to that perhaps as we go through a very, very long checklist of issues that you are dealing with more seriously this morning. The case for tax cuts is being prosecuted through various media outlets in particular the Government and the Opposition at loggerheads over it, surely the issue for ordinary Australians is un-arguable, they need some relief.

TREASURER:

Well, for most Australians their top marginal tax rate now is 30 per cent, that is for 80 per cent of Australians and of course for families with the Family Tax Benefit, families on average wages don’t pay any net tax. That is the Family Tax Benefit outweighs their tax liabilities. So, things have been directed toward helping families over recent years and we have made some strides and…

FAINE:

Some families have been helped and others have been left behind.

TREASURER:

…well middle income families have been helped.

FAINE:

And the lowest income (inaudible) community.

TREASURER:

I don’t think (inaudible) Jon, I don’t think so. Well in fact…

FAINE:

Well the studies show that, are you going to release the two reports? You have now got an OECD report and the Hendy-Warburton Report, are you going to release them so we can see what advice you have been given?

TREASURER:

Well the OECD report has been released, that was released in Paris by the OECD. The Hendy-Warburton Report is not yet printed and we will be releasing that, very interesting reading and I hope that it will shed a lot of light on the tax debate. The problem with the tax debate is that everybody has an axe to grind and they can pull out one particular area which happens to be their area and focus on that to the exclusion of others and the only way to look at a tax system is to look at it overall. You have got to take into account indirect taxes, direct taxes, business taxes, excises, property taxes, when you look at all of that overall compared to the developed world Australia is the eighth lowest taxed country of the 30 countries in the developed world and our expenditures are the second lowest of the 30 countries in the developed world. Now, that doesn’t mean that…

FAINE:

Do you say that by way of condemnation or praise?

TREASURER:

…I say that that makes us pretty competitive.

FAINE:

Would you like us to be lower taxing and lower (inaudible)…

TREASURER:

I would like us to maintain our position and if we could to improve it.

FAINE:

You would like to reduce the tax burden on average Australians?

TREASURER:

I think we ought to work at keeping where we are and improving, that is lowering tax burdens to GDP.

FAINE:

Most families, I have got absolutely no doubt, we could sample the audience, we could do whatever we wanted to, but we would all inevitably arrive at the some conclusion, families think they are paying more in tax than they have ever paid before and in particular small business thinks it is paying more tax than ever before and wealthier people are paying less tax than they have ever paid before.

TREASURER:

I don’t think that is right, Jon. Let’s take business, business has had its company tax rate cut from 36 per cent to 30 per cent. So, we know that it is paying less (inaudible).

FAINE:

On income tax.

TREASURER:

Now, what is in fact happening with business is business is more profitable than at any other time in Australian history, led by the big companies admittedly but we know this. The Australian corporate sector profit share to the economy is higher then ever recorded before. So, whilst they are making more on a lower rate they are still paying proportionately more if you know what I mean, but the proportion is less than it has been probably ever I think, at 30 cents.

FAINE:

You are going to struggle to convince people of that.

TREASURER:

I am talking about the corporate tax here, most people don’t pay the corporate tax of course. For individuals, again you have got to look at all of these things, but if you were a family on average wages, you know, $40,000 and $50,000 with two kids, by the time the Family Tax Benefit is paid to you, you don’t pay any tax at all.

FAINE:

Why do you think you have got the highest levels of household indebtedness the nation has ever seen?

TREASURER:

Because people have lived through an extraordinary property boom and because the value of their houses have gone up and it has been so easy to borrow against escalating house values people have done so and used the opportunity to probably engage in consumption which is stronger than we have experienced before.

FAINE:

Not just consumption, people are struggling to live off their wages too, I will put to you Peter Costello.

TREASURER:

Look Jon, I think people on average wages raising kids do it tough. I think raising kids these days is very, very tough and I don’t think anything is easy in the modern world. But I will also say to you that more people are in work than ever before, wages are higher than they have ever been before, that wages have increased in real terms over the last 10 years by about 16 per cent…

FAINE:

Not for everybody.

TREASURER:

…not for everybody, these are averages…

FAINE:

And you have got people being squeezed, people in particular sectors but you have also got some incredible inefficiencies, are you going to finally come to grips with some of the distortions in the tax system? Isn’t this a historic opportunity to deal for instance with some of the disincentives for work in particular, you lose money going back into the workforce if you are a dependent wife, I think is the phrase that is still used in the tax legislation, or a dependent spouse that is looking to go back into the workforce. It costs you money, you go backwards.

TREASURER:

You don’t go backwards, nobody goes backwards…

FAINE:

Well you do. When you pay childcare and you lose all of the subsidies and the like that the Government provides, you end up with nothing for going back to work.

TREASURER:

…we have a system at the moment where a mother who is staying at home and raising children particularly under 5 years old gets a Family Tax Benefit. As you go back into the workforce and as your income rises then that begins to taper off but it tapers off at a slower rate than the income test. So you don’t go backwards, but out of your income comes the tapering off of the welfare benefit. Why do we do that?

FAINE:

Peter Costello, ask any mother returning to the workforce the cost of childcare, the cost of working you know, your transport costs and all of the other things, uniform costs or whatever it might be, it is not worth it.

TREASURER:

Why do we do that? Well we do that because if you are in the workforce you shouldn’t be simultaneously receiving benefits otherwise you would have universal benefits Jon, which wouldn’t be income related and if you had that then the cost to the taxpayer of universal benefits would be much greater than a targeted benefits system which is the system that we apply in Australia. It is one of the reasons we keep spending to GDP so low. Do you know that spending to GDP in Australia is lower than the United States? Now, if you are not going to have income tests on benefits, and some people by the way are arguing that we should have even stricter benefits, these are the people who say you shouldn’t be paying these benefits, if we didn’t have those benefits then we would be paying a lot more and tax rates overall would be higher.

FAINE:

I want to do more than just talk about tax this morning, Peter Costello. But on welfare, in particular, and the poorest in the community, there was a story in one of the papers today that carers are not going to get the same benefits under recent reforms that they have been entitled to in the past, you are changing some of the rules about retrospectivity and who can get paid what, so how much caring they have been providing the disabled children, for instance. Mean and tricky comes back to mind suddenly when you read…

TREASURER:

No, not in the slightest, look…

FAINE:

…these are the most worthy people in the community…

TREASURER:

….absolutely, and in the last two Budgets we have had an increase in both Carer’s Allowance and Carer’s Pension, $600 and $1000. And we have actually increased those benefits in the last two Budgets because we believe these are such important people. So…

FAINE:

What is wrong with leaving the provisions as they are where at the discretion of the bureaucrat, if they have been for some years selflessly looking after a disabled child or parent or spouse, you offer them income assistance?

TREASURER:

No, what happens in relation to carers is that when you apply for the Carer’s Allowance you get it and it is backdated by the same amount that all benefits are backdated. But, you do not even get it from the day you apply. You get it from before, you can get it before the date you applied.

FAINE:

So, why limit it?

TREASURER:

The critical question is… well, how long should it be…

FAINE:

Well what was wrong with the status quo?

TREASURER:

The welfare system has a provision that all benefits can be backdated by statutory periods of time, which the Carer’s Allowance as I understand it is also following suit.

FAINE:

The link between the IR reforms and economic prosperity too. People borrow money against the equity in their homes because they feel secure in their jobs. You have just taken that away now, haven’t you?

TREASURER:

John, what makes people feel secure in their jobs is low unemployment. Unemployment today is the lowest it has been in 30 years. That is why people feel secure in their jobs. Because they know that (A) the employer, if the employer does not want them, is going to have more trouble filling that vacancy and (B) if they want to go somewhere else they are going to have a much better chance of getting a job.

FAINE:

But we all know that economic booms do not last forever and suddenly you think, gee, if the Chinese commodity trade dries up or something else happens, they can do what they like to me, now?

TREASURER:

I do not think Australia’s employment is dependent on commodity booms. I think you will actually find that it is a very small proportion of the Australian workforce that is employed in the mining industry or associated industry.

FAINE:

But either way the good times do not last forever. We know that when the markets are at historic highs and the like that does not go forever. So, suddenly you have the nagging doubt in the back of your mind.

TREASURER:

Well, the reason why unemployment is at a 30 year low is we have had continuous economic growth for over 10 years. The Americans have not done that, the Japanese have not done that, the French have not done that, the German’s have not done that and the Singaporean have not done that and the Hong Kong have not done it and Taiwan have not done it. You reel off every other country in the world, Australia has outstripped the world over the last 10 years, and continuous economic growth - not based on commodities - by the way. Commodities is a comparatively new development in the economy. Based on balanced Budgets, low interest rates, good structural policies, have delivered good outcomes. Now, John, if we give away good economic management, if we all decide that we have had enough of good economic management, give it away, you are right, the economy could turn down and people could lose their jobs. But I am not going to do that. Having worked so hard to get the Australian Budget out of deficit, to put us on a programme which this year will eliminate our debt, to lock in low inflation and keep interest rates low. They are the things that are going to give security for people in work.

FAINE:

But you do not think there is an economic sting in the IR tail?

TREASURER:

What I think about the IR changes is that, as time goes by people will realise that the changes are not as great or as frightening as its opponents, particularly the ACTU are making out, and the most important thing is to have a strong economy, and these will contribute to a strong economy and that is their best guarantee of a job.

FAINE:

Can you understand the new IR laws?

TREASURER:

Well, I know the broad policy, of course.

FAINE:

I am not sure anybody does understand the new IR laws. We yesterday had a battle between two of Melbourne’s leading IR lawyers, people who you probably worked with back in your days at the Melbourne Bar and they concede that they do not understand them, they do not know what they are going to mean, they do not know how they are going to be applied and how they will be affected.

TREASURER:

You always get to the situation where a new law comes down, that somebody takes the case and you know, they clarify the fine detail and that is what courts are all about and that is what judges are all about. But the statute draws the broad principles.

FAINE:

Well, there is some confusion, but does the law make it permissible for employers to sack their entire workforce and then re-offer them jobs at lower wages doing exactly the same work?

TREASURER:

Well, this has been the situation in relation to Cowra Abbatoir and I think that the outcome of that is that the parties are going to go back into discussions, that what the employer attempted to do was not the right thing.

FAINE:

Not the right thing, what does that mean? Was it against the law or within the law?

TREASURER:

Well John, I cannot sit here and give you a legal opinion on a case where I do not know all of the facts…

FAINE:

But you know the general outline and principles involved. Is this what the law was contemplating?

TREASURER:

No, this is not what the law was contemplating and that is why it has not occurred, because it was not what the law was contemplating. And I think under this law we now have a sensible outcome.

FAINE:

Well we have a sensible outcome because Kevin Andrews sent around the heavies.

TREASURER:

Well, you know that is one word for it John, another word for it is Public Servants whose obligation and paid duty is to investigate and ensure that people understand their rights and obligation.

FAINE:

Wouldn’t that be something the legislation should do?

TREASURER:

No, it should not happen behind closed doors, a case by case workforce by workforce basis. Since the dawn of the arbitration system there are always been inspectors. Always been there. Under the old system, under the system that started in 1904 there have always been inspectors.

FAINE:

But inspectors are not there to say what is legal or illegal.

TREASURER:

No, inspectors are there to receive complaints, to investigate those complaints and to ensure that people’s rights and obligations are understood. And that is what they did in this case.

FAINE:

It would be better, wouldn’t it, if the Government simply said No, this is not what should happen, this is not what the law provides for.

TREASURER:

Well the Government’s inspectors were able to go there, they were able to talk to the parties and we have got a sensible outcome. The system worked.

FAINE:

Is Medibank to be sold, or why shouldn’t it be demutualised as has happened with other similar bodies where the shareholders, in effect, the public get the benefit of the listing on the stock market?

TREASURER:

Well the Government’s attitude towards Medibank is that seeing as it is in competition with a whole lot of other privately owned organisations and seeing as those other private organisations seem to be able to offer good services at the same kind of prices, that there is no real reason why the Government has to own one of these funds, and that Medibank Private could be offered for sale. Now, there is a lot of water to flow under the bridge before that happens but that is the thinking of the Government in relation to that.

FAINE:

AMP demutualised, the NRMA in NSW demutualised, it is a way of unlocking the wealth to the benefit for the people who created it. What is wrong with that model for Medibank?

TREASURER:

Well, I am not going to go into all of the details…

FAINE:

What is wrong with the model?

TREASURER:

…all the details have not been worked out, but the position of the Government is that there is no reason why the Government has to own a particular fund and if the private sector can do this, as it obviously does with HPA and HBF and a whole lot of other funds, then as a matter of principle we should look at putting this on the same footing.

FAINE:

What is wrong with demutualising Medibank?

TREASURER:

Well, I am not going to go into it. Look, all of these things will be looked at John, and the Finance Minister, when he is in a position to do so, will announce the way forward.

FAINE:

The Telstra sale, T3 is not viable at these prices, is it?

TREASURER:

Well, put it this way, if Telstra had been privatised some years ago when the Government first wanted to do it, the taxpayer would have got a much bigger benefit.

FAINE:

That does not answer my question though.

TREASURER:

Well, anything is viable at any price. It is a question of price, John. Technically speaking anything is viable, it is just a question of price. You are asking me this question I think, given the fact that the price is so low, does that change things? No, it does not. But I am allowed to observe on the way through the taxpayer would have done far better at the price of several years ago. If you want to know who has lost the most amount of money in relation to this, the taxpayer. That is the bottom line, the taxpayer. The taxpayer has probably lost billions and billions and billions of dollars. We could have been employed in schools and hospitals and all sorts of other things.

FAINE:

If you are making that point on the way through, where are we going through to? Are you going to sell it at the moment or are you going to hold on?

TREASURER:

The position of the Government is this. That the 49 per cent is held by private people, 51 per cent is owned by the Government. We do not believe there is any reason why the Government should hold onto that 51 per cent and as it turns out it has been a shocking investment. Now we believe that we can offer that remaining offer at 51 per cent but we will not do it in a fire sale, we will only do it at a time when we can get reasonable value for the taxpayer and so you test the market, and if there is market for it, if you think it is a good return for the taxpayer, we will do it. If there is not a good return for the taxpayer John, we will not. We will hold.

FAINE:

Indefinitely?

TREASURER:

Well until such a time as there is a good return for the taxpayer.

FAINE:

Well, it is hard to know in non-specific timeframes what that might mean, but lets move on anyway. Uranium sales, it seems we are going to provide uranium to China and Taiwan if you can persuade State Governments to unlock some of the mines. Will you be comfortable about providing both sides in the standoff, which could be potentially, militarily, quite an ignition point, with uranium?

TREASURER:

Well, leave aside Taiwan for the moment because that seems to be a different case. In relation to China, China is a party to the non-proliferation treaty, we have had the Chinese Premier here in Australia. China has a huge appetite for energy, they want peaceful nuclear power and Australia is one of the great uranium producers of the world. So, if we can sell to China that is great for our Balance of Payments and it is great for Australia’s national income. Now, why wouldn’t you do it? You wouldn’t do it if you thought that….

FAINE:

If you did not trust them, it is as simple as that.

TREASURER:

…but China is part of the international treaty, subject to international supervision from the IAEA and this is subject to all of Australia’s safeguards, so we ought to do it.

FAINE:

They have got nuclear bombs already.

TREASURER:

Well they do, absolutely…

FAINE:

(inaudible) nuclear bombs because they have already got them.

TREASURER:

Absolutely, it was not built out of Australian uranium was it? What they need now is they need peaceful power plants for which they do need Australian uranium, and let me make this point, if we do not sell it to the Chinese, somebody else will.

FAINE:

Do you want a domestic nuclear power industry in Australia? Do you think we should have clean nuclear power too?

TREASURER:

I am not against John. I think in years to come when the focus comes on greenhouse gas, emissions from coal, people are going to come to the view that nuclear power is in many respects, better environmentally than coal fired power. And I think people will come to that view and at that point Australia will look at it but there is a price thing here. In Australia nuclear energy would be much more expensive than coal because Australia has huge resources of coal and we are using coal principally at the moment so I do not think nuclear power at the moment is commercially feasible.

FAINE:

But long term?

TREASURER:

But I can foresee a situation say in ten years, or twenty years, where people are going to say this is a cleaner alternative.

FAINE:

Is West Papua East Timor all over again?

TREASURER:

No.

FAINE:

Why not?

TREASURER:

Because West Papua has always been part of Indonesia.

FAINE:

What do you mean always?

TREASURER:

Ever since Indonesia has existed as an independent country West Papua has always been part of Indonesia…

FAINE:

The West Papuans think they have memories that go back a lot lot further than that.

TREASURER:

…whereas East Timor, of course, was not part of Indonesia…

FAINE:

That is the blink of a eye. Post World War Two, post colonial histories are a small part of what they think.

TREASURER:

Very important point, that East Timor was a Portuguese colony, was never part of Indonesia up until 1975 because as you know Indonesia had been a Dutch colony and the Dutch colony extended to West Papua and so West Papua was always part of Indonesia, East Timor was not…

FAINE:

But the Papua….

TREASURER:

…1975…

FAINE:

…ethnically, culturally, linguistically and in every other way do not consider themselves Indonesian. The Indonesian rule seems to be as brutal in West Papua as it was in East Timor.

TREASURER:

No, you have got to remember this. Indonesia is a diverse a nation of thousands of islands with different languages and different ethnic composition. That is the fact right throughout Indonesia. So you cannot say because there is an ethnic difference this somehow means it is not part of the country, and there are ethnic differences all over Indonesia and it is one country of which West Papua has always been part.

FAINE:

How far will we push our relationship with Indonesia whilst respecting our international treaty obligations for refugees and asylum seekers from West Papua?

TREASURER:

John, we are not trying to push our relationship with Indonesia. Indonesia is a valuable friend of Australia and a near neighbour and we have very common interests. Let’s make this point.

FAINE:

But we will keep accepting asylum seekers from West Papua.

TREASURER:

Let’s make this point. We have very common interests, we rely on Indonesia to help us with boat people, we rely on Indonesia to help us with the terrorist threat, we rely on Indonesia to help us with illegal fishing. We need Indonesia. Indonesia counts us a valuable ally and friend and no-one wants to push the relationship and believe me, it is in the interest of any Australian to push that relationship.

FAINE:

Essendon, top four, top eight, for 2006?

TREASURER:

Well, we are off to an early start but what is the phrase? It is a week by week proposition!

FAINE:

We have to get there sooner or later, didn’t we? Thank you Peter Costello.

TREASURER:

It is great to be with you.

FAINE:

…and great to see you on that side of the microphone, you should stay there in future. Peter Costello, Member for Higgins and Federal Treasurer, thank you for joining me.