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 16/11/06

Interview with Alan Jones
2GB

Thursday, 16 November 2006
7.15 am

SUBJECTS: G-20, energy prices, tax, infrastructure, Federalism

JONES:

Peter Costello good morning.

TREASURER:

Good morning Alan, good to be with you.

JONES:

Well thank you for your time. Do you determine the agenda?

TREASURER:

Well it is done in consultation with all of the members but because I am the Chairman I have a pretty big influence and one of the key issues that we have put on the agenda is the one that you just mentioned, resource security around the globe. When you put it on an international agenda you are dealing at a high level but as you explained, this is very relevant for the people of Australia because if we have a fight to lock up oil resources or if we don’t get enough investment in the oil producing areas of the world then demand is going to outstrip supply and we are going to have huge prices as we saw a couple of months ago, and that is going to affect every household in Australia.

JONES:

Well given that and given what you have just said, demand possibly outstripping supply at some point down the track, given that you have got the big ones – Saudi Arabia and Russia – is someone going to have the guts to say that perhaps we all collectively ought to start thinking about reducing our dependence on oil?

TREASURER:

I think that is also part of the response for countries like us, we are net oil importers. We have got to continue to reduce our reliance on oil, yes I agree with that.

JONES:

Rupert Murdoch made that valid point two nights ago that many of the profits go to fund terrorism.

TREASURER:

Well I think we have got to reduce our reliance but that is going to take a long time, and in the interim everybody drives cars and oil powers a lot of our industry, and in the interim what we have got to do is we have got to encourage the supply countries to lift supply, have more investment, because when you get a big country like China, 1.3 billion people, sucking up…

JONES:

A phenomenal demand.

TREASURER:

…the world’s oil production then that means that it affects the whole world price.

JONES:

We are playing in the big league here. I should say to your listeners. While Treasurer Costello is in Melbourne the APEC with the 20 leading economies in the world, the leaders of those economies, the APEC leaders from the Asia Pacific Economic Cooperation, that is leaders as opposed to the bankers to whom Peter Costello will be speaking, they will be meeting in Hanoi. Now, the flip side of this surely for both of you is greenhouse gas emissions. Will you be talking about that in relation to oil, fossil fuels?

TREASURER:

I am sure that this will be a topic for discussion because greenhouse gas emissions are also going to affect prices. And not just in Australia of course but prices around the world, and that is very much on everybody’s minds at the moment. When you bring an international summit in like this and you know these are the 20 most important countries of the world, 85 per cent of global production, and by the way in this league Alan, Australia is the smallest country. So we are the smallest country by population but with the Chairman of the Group of 20, the 20 biggest countries and economies of the world, when you bring them in it just give you an opportunity to raise all of these issues.

JONES:

So what are those issues, I am just wondering. So, would you be raising say, as the Australian Treasurer, the use of bio-fuels, ethanol, bio-diesel to reduce greenhouse gas emissions? Is there any sense in trying to get agreement from these people because the impact of toxic vehicle pollution in all of their cities is going to be damaging to the very issue you are trying to address, namely global warming, greenhouse gases and so on.

TREASURER:

Yes, and a lot of these countries by the way, are already going down this path. Some of them are quite substantially down this path and they are doing it at the national level. But there isn’t actually a big international market in bio-fuels. There is a big international market in oil so you have got exporters and you have got importers. There isn’t yet a big international market in bio-fuels. I would be interested to see people’s view on whether they think that will develop or whether in fact it will just be done at a national level. There is a huge international market in oil and this of course is why you have got to bring countries together…

JONES:

But as you say if China and India keep guzzling, I mean it is a finite resource, isn’t it? I mean, fuel flexible vehicles, isn’t that they way we have got to be asking people to think, to run on petrol and low to high blends of ethanol for example?

TREASURER:

Well I think that is one of the things that we will be doing in Australia, having blends. Another thing of course we are encouraging in Australia is LPG but at the end of the day we still have got a massive oil requirement. Our oil is coming out of the Middle East, nearly everybody’s oil is coming out of the Middle East, there is a bit coming out of Russia. It is coming out to Japan, it is coming out to China, it is coming out to India, it takes a left hand turn and goes to India and China, a right hand turn down to Australia, and the price is set basically by who is paying the most, and if you have got a country of 1.3 billion people like China and a country of 1 billion people in India and they are using more oil over and over and over again, year after year, decade after decade, you can see the pressure we are going to get on prices.

JONES:

That is right but as Rupert Murdoch – and he’s right – then the profit, if the demand is great, the profits are greater, the capacity to fund the kind of terrorism which we see originating in the Middle East continues on and on. So in the many ways it is self defeating and I ask you this because Thailand is an APEC member which is where the Prime Minister will be, and they have initiated a programme to produce ethanol domestically and have mandated the use of ethanol in petrol in an attempt to reduce health and toxic pollution risks and the dependence on oil. Should we be going in that mandated direction?

TREASURER:

Well, we of course have mandated cleaner petrol, you would find that the petrol standard in Australia would be much higher than Thailand with reductions in sulphur in particular. I don’t think we will go down the path of mandating, that is by law requiring people to use ethanol…

JONES:

Why did you give $400 million to the oil companies to provide cleaner petrol when they are internationally owned and making billions of dollars worth of profits? I think at my last look at the figures was about $14 billion in profit and yet the taxpayer here is giving them $400 million up until 2010 to produce a cleaner product. Isn’t that obligatory on doing business in this country?

TREASURER:

Well the object of that is that we have reduced the sulphur content to an extremely low amount. In order to produce that the cost of doing so would increase the price of petrol and so for the lead in period until the new mandate, the lower standard comes in, we are giving them assistance because otherwise the low sulphur would be more expensive than the high sulphur and people instead of using the low sulphur would be using the high sulphur and that would be a threat to health standards particularly in our streets and…

JONES:

But you see in 2005 the CSIRO study showed that new ethanol production technology can be introduced into Australia with the capacity to reduce CO2 emissions by more than 80 per cent on a litre of ethanol compared with a litre of petrol. I mean, it seems that we are not really pushing the barrow enough in that other direction.

TREASURER:

Oh Alan, we are. You will recall that there was a big newspaper campaign against ethanol blends which the Labor Party was pushing a couple of years ago. And what the Government has now done is…

JONES:

But that seems to have frightened the Government.

TREASURER:

…well it certainly frightened the consumer, there is no doubt about that because people started switching off ethanol blends. What the Government has now turned around and done is it has made it clear that this is a product which is usable, which is safe up to certain standards, we have required petrol stations to advertise that, there is a tax incentive in relation to ethanol, those blends are now coming in, people have the choice, the Government is making sure that its own fleet works off those blends, and we are actually trying to reverse all of that negative publicity to try and give people an adequate choice in relation to this and I think the evidence now is that there is a growing acceptance in the market. Now, these are for low blends because you have still got this question as to whether the manufacturers stand by higher blends but these are in relation to low blends and I think a lot of people are taking them up.

JONES:

Rupert Murdoch, coming back to him, has accused you in Adelaide yesterday of maintaining a high tax regime that is imposing a cap on the companies entrepreneurial spirit and crushing small business. He said Australia’s tax system is very, very unfair and ‘so onerous,’ and accused you of sitting on big fat Budget surpluses which should be used to give tax relief to small business.

TREASURER:

Well of course in this years Budget we introduced huge tax relief, not only in relation to individuals but the biggest tax cut we have ever had in relation to superannuation. We have abolished taxes on pensions and lump sums. And can I say in relation to small business, the company tax rate, Alan, in Australia is 30 cents in the dollar, it was 36, we cut it to 30. In America…

JONES:

It is 39.

TREASURER:

…it is 39. It is nearly a third higher. So if you want to compare the situation of a small business in Australia as opposed to America you would be doing much better here than you would be in America. By the way, there is another point. When a company pays a dividend in Australia it is franked, the tax is paid because the company has paid tax. In America the company pays tax and when the dividend is passed on it is not franked. The person who receives the dividend pays tax a second time. So, our company tax system and that is called full dividend imputation, not only has a lower company rate but you get a credit on the dividend which you don’t get in America. The company taxes in America are significantly higher than Australia.

JONES:

I have just got the Treasurer, Peter Costello, it is coming up to 7.30 am, I will just stay with him because this is an important issue. Rupert Murdoch, Treasurer though, is normally very well versed, he doesn’t speak off the top of his head. May he be referring to the aggregate of taxation? After all, if all we had to pay in this country was income tax and company tax, we most probably would not be complaining but we are paying everything else imaginable. There is a tax on everything that moves now whether it be at State, Local Government level or at Federal Government level. Is that not the global thing that he is talking about?

TREASURER:

Well I think that is right. I think that there are a lot of State taxes which we still haven’t abolished. You will recall when the GST came in, we got agreement with the States, the abolition of a whole lot of other taxes. Some of those have been abolished – Financial Institutions Duty, Debits Tax – but some of them, particularly in New South Wales, are still to be abolished. We finally got an agreement with New South Wales which will see most of them but not all of them abolished, around about 2011 from memory.

JONES:

I mean we have just been talking about a new homeowner. Now when you buy the new home the developer has to pass on to the new homeowner a massive infrastructure tax, in some instances $70,000 per home, more than the cost of putting in sewerage pipes and water connections. And that is designed presumably, to ask the homeowner to pay for parks and gardens and roads and schools and libraries which the homeowner thinks, well hell, everyone else is going to use these as well as me and it is putting the ownership of a home beyond my capacity.

TREASURER:

Well I think that is right. I think some of these development charges, land charges, land taxes, stamp duties are really putting home ownership much higher in value, in price I should say, then they should be. And for new homeowners in particular, these are crushing charges. Now, we have alerted the public to this, we had a housing summit which did a report for us in relation to this, it found that in New South Wales in particular, the cost of land development has gone through the roof and I have called on the State Government to start doing something about this, to address these problems, to get some of these charges off new home buyers because this is pushing up the cost of land in particular. It is not housing so much it is the cost of land which has been pushed up out of the reach of first home buyers in New South Wales.

JONES:

But see, given that when you provided as you must do, your forward estimates three years ago, those forward estimates of revenue to your Government were $47 billion less than what you eventually did collect. That is an awful lot of money, $47 billion. Now yesterday, Rupert Murdoch criticised this infrastructure deficit in Australia, he called for the Government and Telstra to invest in communications networks, he said our broadband services were a disgrace, he said $12 billion should be spent on high speed internet and communication links. I mean shouldn’t we have, you have (inaudible) rebuild Australia? Should we be issuing infrastructure bonds? Should our kids be educated in demountable classrooms? Should we still be fighting in 2006 over rebuilding the Pacific Highway? Should we have a mechanism to harvest water? Should we have a very fast train? I mean it seems to, I think that is the point he is making. Is the infrastructure being adequately serviced through the collection of these revenues?

TREASURER:

Well I think Alan you are right. Kids shouldn’t be in demountable classrooms. I don’t know why they are in Australia, in 2006. And by the way, it is not as if we have got a huge increase in kids, in children, like in my day when we were going to school. Remember we had this big fertility boom and the governments could say, we didn’t anticipate this, when actually as a proportion of the public kids are declining. So there is no reason why they should be in demountable classrooms. No reason at all.

JONES:

But we are still fighting over rebuilding the highway and do we need a very fast train?

TREASURER:

Well I think…

JONES:

Do we need mechanisms to harvest water if and when it runs? Now we have just had this week that High Court decision saying, well look, the Commonwealth does have constitutional power to run one unitary industrial relations system. Is the future for good government a future which says we have really got to rationalise government, there is too much of it, there is too much duplication, too much waste, we need a national approach to demountable classrooms, to very fast trains, to harvesting water and so on.

TREASURER:

Well I think you make a good point. I think that federalism has not served Australia well, I think that there is too much duplication, nearly all of those issues that you raised, you raised with me and it is fair enough, as a Commonwealth Minister and they are State services. You know, when you go through all of the things that you have just raised with me, where the State is falling behind, you raise with me, a Commonwealth Minister, failures in State services. Now, what does that tell you? It tells you that federalism is not serving these issues well. You might recall I called for a new approach to federalism earlier this year in fact at a lunch with Rupert Murdoch. And I think that when you look at education – a State responsibility – health – a State responsibility – road construction – a State responsibility – there is a lot of frustration, particularly in New South Wales.

JONES:

See well your theme, you are chairing this big and powerful meeting of the 20 of the world’s leading, the leading bankers of the 20 countries in the world and your theme is building and sustaining prosperity. Now, how do you build and sustain prosperity while all of these other things are in deficit and then energy and global warming are the two big issues I suppose that we worry about, jeopardising our prosperity. Is something significant going to come out of this?

TREASURER:

Well building and sustaining prosperity Alan, means ensuring that the world doesn’t go into recession. If the world goes into recession, America or India or China or these countries go into a recession, don’t think Australia will escape unscathed. These are the people that we trade with. These are the people that we sell to, these are the big economies of the world. If we have a significant recession around the world, whatever is happening in Australia we will be caught up in it. That is why we have an interest in making sure that the globe is stable, that energy markets are stable, that countries don’t fight over resources, that we can help countries that need to develop. And here is Australia with 0.3 per cent of the world’s population chairing the forum for the 20 significant countries of the world. It is a great feather in Australia’s cap.

JONES:

Absolutely.

TREASURER:

To have them here in Australia over this weekend I think puts Australia at the centre of global finance.

JONES:

Well make the most of the opportunities, I am sure you will. So thank you for talking to us.

TREASURER:

Thanks very much.

JONES:

And good luck.