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 10/05/2006

Interview with John Laws
2UE

Wednesday, 10 May 2006
9.10 am

SUBJECTS: Budget 2006-07

LAWS:

Treasurer good morning.

TREASURER:

Good morning John, good to be with you.

LAWS:

Good to be with you. Still got the smile on your face?

TREASURER:

Oh well, another day full of challenges and we make the most of it. We are keeping the dream alive John.

LAWS:

Well that is what we have all got to do. There is no question that this is a big spending Budget, you are giving plenty back, but is it a fair Budget?

TREASURER:

I think so. We take the opportunity to reform income tax by cutting rates and moving thresholds and that gives more incentive into the income tax system. And then we do the biggest superannuation reform in decades and it really improves the attractiveness of superannuation so it says to people look, superannuation is a really good thing to invest in, put money in it because if you do put money in it and you take it out after 60, it will be tax free'.

LAWS:

So any money that anybody who is over 60 now takes out of their superannuation will not be taxed.

TREASURER:

Yes that is right. As long as they are in a taxed fund, and nearly all funds are taxed funds, these are fund where you have the contributions tax, and as I said nearly everybody is, so if it has been taxed at the contributions level in the fund then no tax on a lump sum, no tax on benefits when they come out.

LAWS:

Well you did something that I talked to you about doing and that was to lift the age where you were permissible to put money in your superannuation schemes from seventy to seventy-five.

TREASURER:

Yes. That was something you put to me. I said to you that I would go away and look at it. I went away I looked at it and I came to the conclusion that you were right. And so part of our reforms is to lift the ability to make those contributions to seventy-five and thank you for raising it with me.

LAWS:

Will this be now known as the Laws Amendment?

TREASURER:

The Laws Amendment to the Law!

LAWS:

Anyway, it is a good one. But I do not know why you could not just lift it all together because

TREASURER:

Oh well let's see how we go John, seventy-five is not bad.

LAWS:

Slowly, slowly.

TREASURER:

I was going to say don't tell me you are still going to be around there after 75.

LAWS:

You bet I am! You bet I am. You see, if a fellow of 80 wins the lottery he might want to put that in his super fund and he can't.

TREASURER:

Yes. Well, the thing is you have got to assume at some point that people will retire and the idea is that they live on their superannuation when they retire. Now, we used to ban you from making further contributions after 65, then I took it to 70, then you had a go at me, now I have taken it to 75, so we have made a lot of progress here. But there will have to be some limit, there will not be that many people, I would not think, in the workforce after seventy-five, John.

LAWS:

I'll be one of them. Kim Beazley's so called millions in the middle do not seem to have done all that well out of the tax cuts those earning between say $40,000-$60,000, what have you done to sweeten up the deal for that pretty big group of taxpayers?

TREASURER:

Sure, and they have all had the benefit of tax cuts which were announced in the Budget. All of those people right throughout that income range and, in addition to that, we have increased family payments because if you are raising a family on $40,000 or $60,000 the costs are a lot greater, so we have increased the family payments and you will have families that will be $30 and $40 a week better off in that range.

LAWS:

Now that is lot of money, I agree.

TREASURER:

You know, it will help, put it that way.

LAWS:

It sure will. The $10 a week tax cut however, for the average Aussie, is going to be more than gobbled up by the petrol spending and by increasing grocery bills and things.

TREASURER:

Sure well, this is a real problem, the petrol price is still high because the world oil price is high. We had hoped the world oil price would come off by now, unfortunately if has not. There is not much we can do about it. There are some people that think that Australia is self-sufficient in oil - we are not.

LAWS:

I know.

TREASURER:

We are massive importers of oil

LAWS:

And we have to continue to be.

TREASURER:

and mainly from the Middle East and like all of the countries that are importing oil from the Middle East Japan or America our prices have gone up. This is a world wide phenomena.

LAWS:

So if I am earning let's say $52,000 a year and I have got three kids, how much better off will I be?

TREASURER:

You will be, with three kids did you say?

LAWS:

Yes.

TREASURER:

You will be around $40 a week better off.

LAWS:

Well that is a lot of money. You are giving a lot away - $36 billion in tax cuts over the next four years. Wouldn't that be a recipe for fuelling inflation?

TREASURER:

I do not think so John. We are forecasting inflation to still be around 2 ¾ per cent and that is well within our target. Our target range is two to three per cent over the course of the cycle. So, if we can continue to grow the economy; if we can continue to lift productivity as these measures are designed too, I think we can keep inflation low. Now, what you will see with the petrol prices is you might see the CPI - the Consumer Price Index - go above three, but we are looking through the effect of petrol and we are looking at underlying inflation.

LAWS:

How can so many economists come up with such widely different projected surpluses?

TREASURER:

Well, it is just a bit of a guessing game these days and

LAWS:

Not by you I hope.

TREASURER:

no, no. But you have got to remember all these economists, they all work for companies

LAWS:

Yes.

TREASURER:

and they try and get themselves on the news so they can advertise their companies. You will notice one thing about these economists their always announced as Joe Blow from such and such a bank or Joe Blow from such and such consultancy, and of course, that is fair enough, they are trying to advertise their companies so they put out their projection and try and attract publicity for it.

LAWS:

Does that affect you?

TREASURER:

No. Look, they are entitled to it. It is a free market, but they are basically trying to get endorsements for their products and their companies and good luck to them. It is a free enterprise society.

LAWS:

Can you give us a bit of detail in relation to what you have done about child care?

TREASURER:

Yes, what we are doing in relation to childcare is we are uncapping the places. So the Government will not decide how many places are to be funded. The Government will just fund any place that is established by any eligible group it might be a private company, it might be a church group, it might be a council but if there is an unmet need and the council or the church group or whatever wants to set up a childcare centre, then it will attract Commonwealth funding. So the places will rise to meet the demand.

LAWS:

Yes, I asked you about this before but why won't you allow for people to pay for childcare out of pre-tax dollars?

TREASURER:

Because the Government gives a Child Care Benefit. We actually give a benefit to the parents or to the centre, which uses it to reduce the fee to the parents. So we do our assistance in a different way.

LAWS:

I see. Is it a more satisfactory way?

TREASURER:

I think so.

LAWS:

Okay. Some people are able to salary sacrifice their childcare costs, is that fair?

TREASURER:

Look, you would only be able to do it if you were not liable to fringe benefits tax. If the employer were paying for the childcare normally it would come under the fringe benefits tax system.

LAWS:

Okay. Now tell me a little bit, and I know you have probably got about a hundred other interviews to do, tell me a little bit about the money you have allocated to nation building - money set aside for highways.

TREASURER:

This is huge investment

LAWS:

A lot of money.

TREASURER:

huge investment. A 20 per cent increase in national highway. Now, we have got a plan to pull forward the dual carriageway of the Hume Highway from Melbourne to Sydney. It was going to be done by 2012, we are now going to try to do it by 2009. And that is Australia's busiest interstate highway. We have got a proposal to fund works on the Bruce Highway and flood works around Tully, which was affected by the cyclones up there in the early in part of the year. We have allocated further funding for the Pacific Highway

LAWS:

But not enough, not enough.

TREASURER:

Well, $160 million additional. The problem here is not lack of allocation, the problem actually is getting it out in contracts. I do not think you would be actually able to do more than that and we have a programme to fund that work but it can only go as fast as the design; the approval; the letting of the contracts and the construction works.

LAWS:

Okay, but you have only allocated the $160 million to the Pacific Highway, but $800 million to the Hume. How does that work?

TREASURER:

Well, because the Hume is ready to go, the alignments have been drawn, the plans have been approved, the construction is ready to move. In relation to the Pacific Highway it is going to take longer. You see, when you build all these highways you are getting approvals from land owners and planning approvals and alignments and you know, then you let your contracts and then you get your tenders and then the contract is entered and then they have got to get their equipment there, there are all of these delays. Now, we are going to continue to fund the Pacific Highway but you can only fund it at the pace that construction can be done.

LAWS:

Okay I accept that but does that mean next Budget there might be more money for the Pacific Highway?

TREASURER:

Well, let's see.

LAWS:

It is a long way away.

TREASURER:

It is a long way away.

LAWS:

Yes. It just seems odd to me that it is the most dangerous highway, probably in the world, it is a retched highway.

TREASURER:

Sure, and it is not a national highway, it is not like the Hume Highway which is a national highway, it is the Commonwealth Government responsibility. The Pacific Highway is not a national highway it is area where the New South Wales Government and the Commonwealth Government are both responsible and both responsible to put money in and we also cannot get in advance of the New South Wales for its share.

LAWS:

I see. Were you a bit embarrassed, was the Government a bit embarrassed by the riches over-taxing had provided? Is that why this Budget was so generous?

TREASURER:

Well, it is true that the company tax receipts were very strong. Companies in Australia are enormously profitable at the moment I am talking about the big companies here the banks. The profits the banks are making are unbelievable. The mining companies and the profit share of the Australian economy is higher now than it has ever been in Australian history. The consequence of that is even though we cut the company tax rate, company tax receipts are very strong. Now, where you have got strong company tax receipts, I think it is fair to share that with all Australians by cutting income taxes; so they are getting a dividend. People say well, what is in it for me with all these profitable companies', well one of the things that is actually in it for them is that they are beginning to share in tax reductions, which they need because of the strong profits in the economy. And, if you like, it is a bit of a dividend to all taxpayers out of strong company profits.

LAWS:

Okay, it is not infinite that once that is gone

TREASURER:

No, that is right

LAWS:

who do we rely on then?

TREASURER:

exactly right, and will they be as profitable as this for a couple of years, will they be as profitable as this for more, these are the judgements that you have got to make. Now, I have made a judgement, particularly in relation to mining which is very profitable at the moment, that we will start to see that unwind in a couple of years. I think you cannot expect this to go on forever and we have to factor that into our sums, and I have.

LAWS:

Okay, because we cannot rely on manufacturing, we cannot compete with China or India. So manufacturing is not going to prop us up, is it?

TREASURER:

Well manufacturing is being buffeted at the moment, particularly because the exchange rate is very high, John. The Australian dollar is very high and that means that it is hard for them to export. And our manufacturers will increasingly be looking to high value added manufactures, not mass produced low value. One of the things we are doing well at the moment is cars, very well.

LAWS:

Very well.

TREASURER:

Holden and Toyota and companies like that manufacturing cars for export. Now, that is much

LAWS:

I have to interrupt you here and say that Toyota are sponsors of mine. That is the law. I have to interrupt you and say Toyota are sponsors of mine because you mentioned the name Toyota

TREASURER:

Okay.

LAWS:

so I have done that, go on, sorry to interrupt you.

TREASURER:

they are doing well in export markets and this is higher value add. The mass manufacture of lower value add, say in textiles or clothing, is going to be much harder for Australian companies because Chinese companies can do runs of millions or tens of millions or hundreds of millions and if you can do an extra run of a million and sell that down in Australia where it effectively does not cost you very much, you have got economies of scale which an Australian will not have. But, we will do better in the higher value add of the manufacture. But I do acknowledge that it is harder for those Australian exporters with a strong Australian dollar.

LAWS:

Yes it makes it tougher.

TREASURER:

It makes it tougher because what a strong Australian dollar does is it makes their product more expensive in a foreign market.

LAWS:

That is right. Okay, it is good to talk to you, are you very happy with the way the Budget has been summed up today in the various newspapers around the country?

TREASURER:

I think it is reasonable John, I think some newspapers did better than othersit is reasonable.

LAWS:

It is good to talk to you because it is important, this being your last Budget.


TREASURER:

Well it is good to talk to you, and it is good to come back on your programme after you gave me the idea on superannuation, and I said to you I would think about it - I did and I did it.

LAWS:

Okay, I might have to keep chipping away at the childcare payments until next Budget.

TREASURER:

Oh, I do not think childcare will worry you for a while, John.

LAWS:

How do you know?

TREASURER:

Well, that is a scoop.

LAWS:

Good to talk to you Treasurer.

TREASURER:

See you.

LAWS:

Thank you very much indeed. Treasurer Peter Costello.