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 15/10/2007

Interview
with
Steve Price
2UE

Monday, 15 October 2007
5.05 pm

SUBJECTS: Tax cuts, economic management

PRICE:

He sounded a bit nervous there, your counterpart. 

TREASURER:

Yes, I don’t think he really had a considered view on what should be done.  We have announced a very major tax reform which will reform Australia’s tax system over the next five years.  If Wayne Swan is interested in being internationally competitive, if he is interested in getting more people into the workforce he will just come out and support our tax package. 

PRICE:

Well it is interesting there was no ‘me too’ there, which is what we have come to expect over recent weeks from both Kevin Rudd and Wayne Swan?

TREASURER:

Yes he appeared to be flummoxed by it, but I would urge Kevin Rudd and Wayne Swan to adopt the Government’s tax package.  It has been very carefully thought through, it will cut taxes for every Australian. 

PRICE:

Is it responsible policy?

TREASURER:

It is responsible policy, it will get more people into the workforce, it will make our tax system more competitive and the consequences of all of that is that it is just a major reform for Australia’s future.  And you know, if they really are interested in good policy, they will be supporting the Coalition, the Liberal Party, Mr Howard and myself in relation to this. 

PRICE:

The economists or the economic experts today are saying, look, we accept that it won’t put the Budget into deficit and I think we are taking you at your word that you will keep 1 per cent of GDP as your surplus in subsequent Budgets.  Will it put pressure again on inflation and interest rates?  I mean, putting money back into people’s pockets, isn’t that encouraging them to spend?

TREASURER:

Well look, this has been carefully tailored and will take place over three years for that reason.  That is the first point.  The second point…

PRICE:

How does stretching it over three years make it non-inflationary?

TREASURER:

It is non-inflationary. 

PRICE:

How does it, how does stretching it over three years make it non-inflationary?

TREASURER:

Well you don’t do $34 billion in tax cuts just in one year.  That $34 billion is the cumulative effect over three years.  And the reason why you stagger it in that way is to make sure that you don’t put undue pressure in any one year.  The second thing is, by actually encouraging more people to come into the workforce, by saying to them, you won’t actually be required to pay tax until your income goes over $16,000.  You won’t actually be required to pay a higher rate of tax than 15 per cent until your income goes over $37,000.  You are actually encouraging people into the workforce.  By getting more people into the workforce you will be taking pressure off inflation because you will be adding to the number of workers, getting one of the big capacity constraints out of the way.  One of the problems that business has at the moment, Steve, is they are reporting in some parts of the country, not enough workers.  Not enough workers for the jobs.  And so by reforming the tax system and getting more workers, more people that want to get into the workforce, you are actually helping those businesses and building capacity. 

PRICE:

How long have you been working on this plan?

TREASURER:

I have been working on this for some time, some months and we have been very carefully costing it, we know that it is affordable, we know that it can be done.  It puts a great aspiration out there Steve, because the goal is in five years’ time, in five years’ time that the top tax rate in Australia will be 40 per cent and you won’t pay any tax until you earn over $20,000.  That is the goal we have set ourselves.  I have put down three steps which can get us within that goal, this would make Australia a very, very competitive tax jurisdiction. 

PRICE:

Obviously everything within the next six weeks has to be seen in the framework of the election.  I mean, you have delighted in Parliament of pointing out that Labor doesn’t have on its website or has not yet explained its tax policy.  So obviously you have designed to announce this on day one of the campaign to again highlight that fact.

TREASURER:

Well Labor has been very weak on tax.  You see, we have been reforming the tax system for quite some time.  You recall that we abolished the wholesale sales tax and introduced GST and Labor opposed it.  And we cut capital gains tax and we cut company tax and we started cutting income tax and Labor opposed it.  So Labor has a shocking record on tax and you are probably old enough like me Steve, to remember the last time Labor was in office and they promised tax cuts and took them away after the election.  So…

PRICE:

(inaudible) L-A-W.

TREASURER:

That is right, the famous L-A-W tax cut that disappeared.  So they have been very weak on tax, they haven’t had a policy.  Now we have put one out, Mr Swan doesn’t know what his view is.  We have thought about this carefully, we are the authors of tax reform in Australia and I would urge him to accept it. 

PRICE:

What is your ambition ultimately, for the top rate of tax in this country?

TREASURER:

Well my ambition is in five years’ time to have the top rate of tax at 40 per cent…

PRICE:

And where does that place us in the rest of the world?

TREASURER:

It places us or lower than most of the developed countries, about the same as Britain and America but lower than the average of most of the developed economies.  And my aim is to have only 2 per cent of Australians on that top tax rate. 

PRICE:

But you don’t want ultimately anyone to pay any tax on any earnings before $20,000?

TREASURER:

Low income earners, yes, I don’t want low income earners to pay any tax until they have gone above $20,000.

PRICE:

So your average wage earner on say, $50,000, which is probably not average these days, that would be a bit low but these cuts would see them what, about $33 a week better off?

TREASURER:

Yes.  For somebody on average wages…

PRICE:

Because that’s what people will do tomorrow, you know.  They will look through the scales…

TREASURER:

Oh absolutely…

PRICE:

…and say that is me, that is what I will get.

TREASURER:

And so they should.  A person on average earnings, $20 a week tax cut on 1 July next year, rising to $35 a week and for a family with someone on average earnings and Mum doing part-time work it is going to be a $30 a week tax cut rising to $50. 

PRICE:

A few of your critics already this afternoon say look, those few dollars in my pocket won’t make a huge difference.  When are these, when are governments going to look at the big infrastructure projects, when are they going to spend that money that they have got through the economic boom on great projects such as the Snowy Scheme that make Australia a great country again?

TREASURER:

Well bear in mind that the Federal Government, Steve, has got the biggest water plan going in Australia with our national water plan to take over the Murray-Darling Basin.  In terms of (inaudible), in terms of investment, that is greater than the Snowy River Scheme which was just part of the Murray System, this is for the whole Murray-Darling System.  Three or four States have now agreed – one is yet to agree – but once we get final agreement on that we are going to have huge investment going.

PRICE:

The other thing that upsets people is you know, petrol prices keep going up and it seems every time you go to the supermarket, your fruit and vegetable costs you more and people see these tax cuts and they say, great I need it, that would be good, but it is immediately going to be ripped out of my pocket because there seems to be no control over prices on those staples that I need every week. 

TREASURER:

Well I think you make a good point which is that people do feel under pressure from prices that are rising.  Now one of the things you can do to help them out is cut their tax so they have got more money in their pocket.  There is not much you can do about petrol prices rising if it is caused by overseas oil prices.  But what you can do is you can cut people’s tax, put a bit more back in their pocket so that they can cope with these cost of living increases. 

PRICE:

It is going to be a long six weeks.  The ad campaign has started last night, you are portraying Kevin Rudd and Wayne Swan as wearing L plates around their neck and Julia Gillard as being anti-business.  Is that the tone of the ad campaign that we are going to have over the next six weeks?

TREASURER:

Well that is the truth of the matter that Rudd and Swan have no economic expertise, people ought to know that before they put them in charge of the trillion dollar Australian economy.  They can’t help the truth, that is their problem and voters ought to know it. 

PRICE:

Appreciate your time.  Thanks. 

TREASURER:

Thanks very much Steve.