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 09/05/2006

Interview with David Speers
Sky News

Tuesday, 9 May 2006

SUBJECTS: Budget 2006-07

SPEERS:

Thanks very much for joining us.

TREASURER:

Great to be with you.

SPEERS:

First on the tax cuts - $37 billion almost worth of tax cuts here – you are cutting the two top rates, is that so that next year, in an election year, you can do more for the battlers?

TREASURER:

Well we have cut the lower rates before, we cut the lowest rate in last year’s Budget from 17 cents to 15 so having cut the lower ones, now it was timely that we cut the upper ones and we have also moved the thresholds. And what that will mean is that for 80 per cent of Australians their top tax rate will be 30 cents or less and for 98 per cent of Australians they won’t even be on the top rate and the top rate is brought down to 45 cents anyway.

SPEERS:

You did move those top thresholds last year as you said, you have moved them again this year but if you look at the scales, those on the middle incomes - $40,000, $50,000, $60,000 a year – they are getting a tax cut worth about 3, 4, 5 per cent of the tax they pay, those on the very top end are getting 11 per cent. Is that fair?

TREASURER:

Well you have got to put this in context. We have been cutting tax now since 2000, there have been first tax cuts to lower income earners and now as I said at the upper end of the range, in percentage terms the biggest cuts have gone to the lowest earners - about 100 per cent - they don’t pay much tax, but we have cut it by 100 per cent. In percentage terms at the upper end you are quite right, about 11 per cent, but that is still one-tenth of the percentage tax cut that those at the lower end got. Now, having said all of that this is fair, this is equitable, but most importantly it puts a bit more incentive back into the tax system and this is the important point, brings us into line with OECD averages.

SPEERS:

You have called this tonight the most significant tax reforms since 2000. Peter Hendy, who is one of the authors of the report you commissioned on how we stack up to the rest of the world on tax, has called this tonight though ‘only a good start.’ Is it just a good start, are we going to see a bit more?

TREASURER:

Well this is the biggest income tax reform since 2000 and the biggest superannuation tax reform ever. And you put in a third leg of business tax reform for small business and depreciation, this is a huge tax reform plan. We haven’t seen anything like this for a very, very long time and if we can bring all of this off, and I think we will, this will be an improvement in the personal income tax system; the business taxation system; the superannuation taxation system and savings. That is a big plan.

SPEERS:

So all those business groups and economists who have been really arguing for tax reform, they are going to have to be satisfied with this?

TREASURER:

Well I think anyone who is interested in tax reform will say this is sweeping. I don’t think I saw anybody with a superannuation plan of anything of the dimension of this. This has I think exceeded everybody’s expectations and I hope that we can bring it off because in practice it will mean a very, very good superannuation system.

SPEERS:

Well just before we get to the super changes, I think it was talking to us last year this time you said that cutting that top rate would only benefit millionaires. Why is cutting the rate this year not just benefiting millionaires?

TREASURER:

Well cutting that rate will benefit everybody over $125,000 and…

SPEERS:

Including millionaires?

TREASURER:

…and if you are over $125,000, there would be a lot of people in that area of $130,000 or $150,000. Two cents in the dollar is a decent and responsible cut and most importantly brings us into line with international averages. When I saw that international report, it showed that we were 2 per cent above the average, we don’t want to be above the average, we are going to try and keep our tax system competitive and that is why we have cut it.

SPEERS:

Well the superannuation tax changes you announced, they are worth more than $6 billion, do you think though there is a danger that some people might take a lump sum when they retire, now they are not going to have to pay any tax when they actually take it out, blow the cash and then go on the pension at taxpayers expense?

TREASURER:

Well you can do that now. You can take a lump sum, blow it and go on the pension. But you would be silly to do so and I don’t think many people do. You know, let’s suppose you take a lump sum of $100,000 and blow it. What, in order to get on a pension of $12,000 a year?

SPEERS:

Well Treasurer, we also…

TREASURER:

I don’t think so.

SPEERS:

…heard a lot in the lead up to this Budget about it being family friendly. There are some extra more generous family benefits but on childcare can you take us through exactly how this will improve the childcare system.

TREASURER:

We are taking away the cap on places.

SPEERS:

This is only the family day care…

TREASURER:

Yes.

SPEERS:

…and the after school places…

TREASURER:

Yes.

SPEERS:

…there is about 100,000 of those that are currently not being met…

TREASURER:

Yes.

SPEERS:

…so how is removing that cap going to…

TREASURER:

Well any, if there is unmet places any person can set up a childcare service to meet them.

SPEERS:

Why aren’t they doing that?

TREASURER:

Well at the moment there are caps. You can only set them up if the Government allows it. This will now become a demand driven program. So if there is demand out there any eligible person - it might be the school; it might be the church; it might be the council - can set a child care facility up and will get Commonwealth funding. It is uncapped there is no limit. So whatever the demand is, as long as there is somebody willing to meet it, it will be met and it will be funded and it will attract Commonwealth funding.

SPEERS:

But as I said there is about 100,000 of these places that currently are not …

TREASURER:

Well if there are 100,000 people who want it and there are eligible people who are willing to provide it there will be 100,000 new places. It is a demand driven programme, it is not capped in any way.

SPEERS:

But surely the problem is people not being paid enough for these jobs in child care?

TREASURER:

The Commonwealth does not pay salaries. What we do is we pay the parent. We pay the parent a Child Care Benefit. Now somebody has to set it up, employ the staff. As I said it could be the private sector, it could be a church, it could be a council and the moment they set it up we will pay the parent the Child Care Benefit or the Child Care Rebate. So we are uncapping it and now it becomes a demand driven programme.

SPEERS:

One of the biggest complaints that families have at the moment is the pain they are feeling form high petrol prices. Have you done anything in this Budget to address that?

TREASURER:

Well, there is a package of family benefits and tax cuts.

 SPEERS:

But the petrol issue. You could have cut the petrol excise further?

TREASURER:

The petrol excise is 38 cents per litre. It was 38 cents a litre when the price was 90 cents and it is 38 cents per litre when it is $1.50. It was not excise that made the price go from 90 cents to $1.50, it is the world oil price. And as you yourself know the world oil price has gone from $US30 to about $US70. Unfortunately there are some things we cannot control. We cannot control the world oil price and unfortunately that means high prices at the bowser. We cannot fix that, it cannot be done. No country in the world has been able to do that. Not the Americans. Nobody. But what we can do is we can have a competitive tax system and we are getting that and we can have a good family benefits system - we are getting that. We can have a better superannuation system - we are getting that. And we can have investment in infrastructure and we are doing that.

 SPEERS:

This is Budget number eleven for you and I will not ask if there is going to be a number twelve because we know you will not answer that but can I ask you how Budget eleven compares to the ten that came before it?

TREASURER:

Well it is good when you are able to cut tax. I think that is good. If you can balance your Budget, repay debt and we have now got rid of Labor’s $96 billion debt. In net terms we have eliminated that. And return to the taxpayer that is what politics is all about.

SPEERS:

Are you happier with this budget than any of the others that came before?

TREASURER:

Let’s enact it first. I will be happier if it goes through the Parliament without all sorts of add-ons and additions. Then I’ll be happy.

SPEERS:

Well from what we have heard so far it looks like Labor will support it. Treasurer Peter Costello thank you very much.

TREASURER:

Thank you.