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 Harvey Deegan
6PR

Wednesday, 10 May 2006
10.35 am
(AEST)

SUBJECTS: Budget 2006-07

DEEGAN:

Good morning Treasurer.

TREASURER:

Good to be with you Harvey.

DEEGAN:

Indeed. Well the raw details of your eleventh Budget, I think they have been pretty well documented since you did deliver it last night, let's look at some of the possible outcomes. First up, some economists have at least saying the Budget won't do anything to take the heat out of an already hot economy and in fact will accelerate growth that will lead to higher inflation and inevitably then, higher interest rates.

TREASURER:

Well we are forecasting inflation will be 2 ¾ per cent through the year and that is quite consistent with the inflation targets that we have and the targets that I have set with the Reserve Bank board. We are very conscious of keeping costs down. Now, petrol obviously is affecting the consumer price index and we very much wish that it wasn't. But absent petrol, then inflation is moderate in the economy and we will keep it there.

DEEGAN:

Are we tied to higher petrol prices because of overseas influences or is there anything the Federal Government can do to keep a lid on petrol prices?

TREASURER:

Well no, this is set by overseas prices, Australia is not self-sufficient in oil, we import most of our oil and we import it from the Middle East and if the price goes up then we pay the increased price. I wish it wasn't the case but there are some things that no government in the world can control and there is no government in the world that controls the oil price.

DEEGAN:

Is there anything in the Budget then that would assist those trying to develop alternative fuels?

TREASURER:

Sure, well as oil becomes more expensive alternative fuels become much more competitive and we want to encourage them and we have actually got a target for alternative fuels and we are encouraging that with grants for production and for bio-diesel and the like, we recently took some steps which will get the ethanol industry as an additive into petrol back in business and these are good alternatives that are becoming quite commercial now and I would encourage people to look at them.

DEEGAN:

This would appear on the surface to be a classic pre-election Budget but we have already heard the Prime Minister saying he has got no plans to go to the polls early, how are you going to follow this one up next year at this time?

TREASURER:

Well this is a Budget which lays down long term reform, long term reform of the tax system, huge reform of superannuation, the biggest reform we have seen in superannuation for decades and the object is to set Australia up for better possibilities in the future. We have finally got the debt monkey off our back, we have repaid the Government debt in net terms so Labor's $96 billion has now been repaid, that gives us the opportunity to do things in the future and the biggest opportunity to set ourselves up for future growth and that is what we are focussing on in this particular Budget.

DEEGAN:

Now, apparently or definitely you can afford to lower taxes by the extent that you have or you will by the first of July, now does that mean then by implication that we have been generally overtaxed in the past?

TREASURER:

Well it means that if we hadn't have cut taxes then my view is we would be over-taxed that is why I have cut them. We have got our Budget in surplus, we have repaid the Labor debt, all of that has taken us ten years but from 1 July 2006, consistent with good economic policy I think we can cut taxes and that is why I have taken the decision that I have. There is no point in the Government raising more than it has to, to fund defence and security and stop illegal fishing and fund the health system and the aged care system and all of those other things. After we have done that if we can reduce taxes we should and we will and that we will do that on the first of July this year.

DEEGAN:

How will we compare with most other OECD countries because there is a line of thought that what you are doing now is merely bringing our tax rates into line with most of theirs?

TREASURER:

Well we are bringing down the top rate into line with the OECD, up until now our top rate has been about 2 per cent above the OECD average and that is why I am bringing it down so that we are not higher than the average. But our overall tax rates are more beneficial, we have the eighth lowest tax in the developed world so overall we are doing better than most of the other developed countries of the world but there was one area where we were lagging and that was our top marginal tax rate and that is why I have attended to that in this Budget. So that puts us on the average of the top rate and much better than the average as a lower taxing country.

DEEGAN:

So the high income earners should be most satisfied with what you have done but how does that leave the low income earners and probably the middle income earners by comparison?

TREASURER:

Well we have cut taxes for middle income earners as well

DEEGAN:

But by no where near as much.

TREASURER:

well, I am not sure that is right. What we have done is we have cut tax for middle income earners, middle income earners are not paying as much so you can't cut as much out of it but in percentage terms, in fact out of this Budget the biggest tax cuts go to the lowest income earners in percentage terms. Now, in dollar terms it is not as great because they are not paying nearly as much obviously, but in percentage terms the lowest income earners do the best and you now won't pay any tax if you are a low income earner until your income goes above $10,000. That is entirely new by the way and very, very welcome for the lowest income earners in the community.

DEEGAN:

All right, now we are enjoying an amazing I think you would have to call it, commodities boom, it has been on for a while now, now obviously the tax take from that must have made it easier for you to ease the pressure on income tax rates.

TREASURER:

Yes there is part of that here. Australian companies are more profitable than ever before, ever before in Australian history. I am talking about big companies here, the banks are making huge profits, the mining companies are making huge profits and so the tax that is collected from those companies has gone up and this has enabled us to cut taxes for individuals. People often say to you, where is the benefit to me from profitable companies? Well here is a benefit to people from profitable companies, the tax they pay can be used to reduce the tax that individuals pay so that individuals are paying less tax because we are getting more out of profitable companies.

DEEGAN:

Okay, we have got a listener, Pam, on the line wants to fire one at you Treasurer, if you don't mind

TREASURER:

Sure.

DEEGAN:

hello Pam.

CALLER:

Good morning.

TREASURER:

Good morning Pam.

CALLER:

Good morning Mr Costello. What has been done for the pensioner who is not lucky enough to have a super fund nest egg behind them?

TREASURER:

Well one of the things that we did for pensioners in 2005 was we introduced a utilities allowance of around $100 a year which is designed to help pensioners with the cost of gas and electricity and so on and that is an annual payment, that is going to go on year after year. But in this Budget I announced an additional payment. An additional payment of $102.80 before the 30 th of June in addition to the annual payment which will be of direct benefit to pensioners.

DEEGAN:

All right, thank you very much Pam, and we have got Michael wants to ask you a question as well. G'day Michael.

CALLER:

G'day Mr Treasurer, how is it going?

TREASURER:

Not too bad Michael, thanks.

CALLER:

Listen, I would like to know in this Budget, where do you actually step in and start reducing our debt? Because you know that our debt has gone out to roughly about half a trillion dollars and don't forget also we are booming at the moment because of China. Where do we start paying back this debt? When do we start making a profit?

TREASURER:

Well we have now paid back all government debt.

CALLER:

No that is not (inaudible), I am talking about the debt

TREASURER:

No, no, no, let me go through it. Michael, let me go through it for you. The Government doesn't owe a single dollar. When I became Treasurer we owed $96 billion and we now owe nothing. The Government, the taxpayer

CALLER:

(Inaudible).

DEEGAN:

Michael, you have asked a question, let the Treasurer answer it please.

TREASURER:

The Government, the taxpayer doesn't owe anything. We have completely and utterly repaid our debt. We don't owe a single dollar. Now, there are private companies that owe debts BHP would be a huge debtor, Westpac would be a huge borrower, the NAB, the Commonwealth Bank and sometimes you will hear the Labor Party say, they all owe a lot of money. Well they do but that is not the taxpayer and that is not the Australian Government, that's matters for the banks and the companies concerned.

DEEGAN:

Good on you Michael. Don, you have got a question on superannuation. Hello Don.

CALLER:

I do indeed. Good morning Mr Costello.

TREASURER:

Good morning Don.

CALLER:

This generous announcement you have made about superannuation being tax free is going to put a lot more money in the hands of the investment and financial planners and those people, and the is no legislation to protect the income earning assets of self-funded retirees. They are the people you want to keep off the welfare system. Now the financial advisers are going to get richer and the retirees are going to get poorer.

DEEGAN:

Okay, the Treasurer can answer that and then we will

TREASURER:

Well it depends who you put your superannuation savings with. There are some funds that don't have charges, there are some that do and they would say that is because they get a better return, but you don't need a financial adviser to get into superannuation. Most people who go into superannuation because they have their superannuation savings paid into a fund, have that done by the employer or done out of work and you don't need a financial adviser and can I say to you one of the reasons why people have been going to financial advisers is the end rules have been so complex. Once we sweep those away then I don't think you will need a financial adviser at the end of the superannuation chain either because you will know this one thing, that your superannuation will come out of the fund tax free.

DEEGAN:

Okay well we will take some more calls shortly. One I would like to ask you in response to one of the charities the St Vincent De Paul Society I would appreciate your response, I will just quote from the media release that has come out, The Society says the Budget doesn't help generate equality of opportunity and does not invest strategically in health, education and housing.'

TREASURER:

Well, this Budget invests more in health than any other Budget in Australian history and it funds more in education than any other previous Budget. A lot of people say well, you didn't mention these things in your speech but if you go through the back pages and you see the amounts that we are putting into health and education, it is more than ever before. Let me give you one fact, when we came to government back in 1996 we were paying $20 billion in health, today we are paying $48 billion double the health expenditure that we had.

DEEGAN:

Okay, what hope does the Budget hold for single parents trying to gain employment?

TREASURER:

Well the most, what is the best thing you can do for people gaining employment? Help them get a job and running a strong economy is the most important thing you can do to get people in work and that is what we are intending to do. There are also improvements in the tax and the welfare system which means that their position will be improved but the best thing that you can do for people is get them a job and that is what we are doing here. I heard you are going to have Mr Beazley on your programme after 10, why don't you ask him what the unemployment rate was when he was the Employment Minister and how single people trying to get work were faring back in those days. Ask him this question what is the unemployment rate today and what was it under you, Mr Beazley it would be an interesting answer.

DEEGAN:

Okay, I promise I will ask him. We will take one more call, I know you have got to go soon Treasurer. Mark, hello Mark.

CALLER:

Peter, question, I know that you framed the tax cuts for this Budget that are going to be in this financial year, are we still getting tax cuts from last Budget in this financial year coming as well?

TREASURER:

Well, you will get bigger tax cuts is the answer. We were going to have a round of tax cuts in this financial year but we have overtaken and increased them and so the tax cuts that you will be getting this financial year will be much larger than they would otherwise have been.

DEEGAN:

Okay thank you very much, Mark. I know that you have got to go, I just wanted to ask you one more thing, the idea to encourage us all to stay in the workforce well into our sixties and beyond, this is the decision to dump tax on super benefits for people after they turn sixty, I am keenly aware of this coming up to that myself so I cocked an ear especially to listen to that last night, but I wanted to put it to you this way, the Prime Minister is already in him mid-sixties, do you think your initiative might encourage Mr Howard to stay in his current job a little bit longer than perhaps you might like?

TREASURER:

Well look, it is up to everybody over sixty to make their decisions accordingly and it will be much better taxation treatment after 1 July of next year.

DEEGAN:

Okay, this might have the reverse effect that you would like.

TREASURER:

Thanks very much for your time, Harvey.

DEEGAN:

Good on you, thanks very much too.