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 16/10/2007

Interview with Leon Byner
5AA

Tuesday, 16 October 2007
10.10 am

SUBJECTS: Tax cuts, pensions, broadband, TPA, water licences

BYNER:

Peter thanks for joining us this morning. 

TREASURER:

Good to be with you, Leon. 

BYNER:

Now Saul Eslake, one of the most respected economic commentators has said what I suppose won’t surprise many and that is that, as good as many people in business and others will suggest your tax cuts might be over the next few years, the fact is they will feed into more pressure on the Reserve Bank to put up interest rates.  What do you say to that?

TREASURER:

Well of course Leon, these tax cuts are fully costed and fully budgeted for and after they have been delivered our Budget will be one of the strongest in the world, stronger than America, Britain, France, Japan.  Really we will be one of the strongest budgets.  And the reason why we have carefully announced this tax plan to be delivered in three instalments is that we are very mindful of not creating too much pressure in the Australian economy but by delivering tax cuts we’ll be getting more people into the workforce, building Australia’s capacity and to that degree actually taking a bit of pressure off. 

BYNER:

So you believe that people will come out of unemployment benefits…

TREASURER:

Yes.

BYNER:

…people who might be considering going back to work, maybe they have made the decision that they would rather spend time doing other things…

TREASURER:

Yes.

BYNER:

…and so you think that these tax cuts will stimulate them to say: ‘I am going to go out and get a job.’ 

TREASURER:

Absolutely.  This is the whole idea of this tax plan.  We are saying to low income earners that in three years’ time you won’t have to pay a dollar in tax until you earn $16,000 or more.  So you can come into the workforce and you know, probably work a day a week without actually having any tax liability.  We are saying to working mothers who may be thinking of coming back into the workforce after the children go off to school or whatever, that you won’t be facing a tax rate which is higher than 15 cents in the dollar.  And they will get to keep a lot more.  And of course we will be saying to the higher income earners that the top rate of tax will be 42 cents and falling to 40 cents as part of our goal, and so you that you get to keep more of what you earn.  Now this is all designed and it is a radical, robust, important reform for the Australian economy, to build our capacity, to encourage more people to come into the workforce.  You know, Leon, that unemployment is now lower than it has been for 30 years and there are many businesses that say we need additional workers.  And building capacity by giving people incentive to join the workforce is a very big part of that.

BYNER:

All right but what of the fact that there is a very strong belief out there, irrespective of what you are saying today, that this could easily put pressure on interest rates and we could have a sixth interest rate increase?

TREASURER:

Well this is why this is fully costed, fully planned, this is why it is being done in instalments commencing from the income year beginning 1 July and this is why the Government has carefully structured it to build the economic capacity of the community.  Now, this is the most important plan for Australia’s economy.  This is absolutely essential.  And it is the only plan that is out there at the moment.  Although the Opposition said they had a tax plan, they won’t release it, it is pretty clear to me they haven’t got one and this is a blueprint to take Australia forward over the next five years. 

BYNER:

Australia though, does have the massive infrastructure need and a massive skill need and it is going to need federal monies to invest to do this.  And there are those who will say that as attractive as the tax cuts might be, a lot of people may be of the belief that instead of giving me $20 bucks a week or whatever the amount might be, spend it on infrastructure so that Australia can be greater and more competitive with other nations who are doing us in a bit because they are able to do things cheaper, not the least of which are reasons that 1) their labour costs are less and there is little occ health and safety, which come at a cost, of course. 

TREASURER:

Well infrastructure is important and we are investing record amounts in infrastructure and we will continue to do it.  But one of the issues of infrastructure of course is your economic infrastructure.  If you are competing against other countries that have lower tax systems than yours, then that is holding you back.  Making our economic infrastructure more competitive with a better tax system is a very important part of keeping Australia competitive.  Australia won’t be competitive if it doesn’t have a modern efficient taxation system.  If Australian business and Australian employees are held back by higher taxes than those in competing nations, this is an area where we do fall behind, and modernising our tax structure is a very important part of modernising our infrastructure.

BYNER:

What will the Government do, do you have any plans for aged and invalid pensioners who argue that they haven’t received a pay rise?

TREASURER:

Well can I say Leon, the pension is increased twice a year, and over the last eight years has been increased faster than prices – that is a provision that I have put in place – and bear in mind in the most recent Budget, we paid to age pensioners a $500 bonus – every age pensioner was sent a cheque for $500.  Now, I know you do it tough on a pension but no other government has ever paid a bonus to pensioners before of $500.  I don’t think any government has ever paid a bonus of anything to pensioners before.  And if we can keep our economy strong we ought to look at helping pensioners too which is what the Budget was all about. 

BYNER:

Mr Costello, I have got to bring up broadband because that is also an issue that comes up a hell of a lot.  Now, we have got a situation now where people in our civilised communities can be within cooee of the post office and may be even see it but they can’t get broadband unless they have a wireless connection.  How soon can it be before we can fix this and be truly competitive?  We were talking about being competitive and our broadband niche at the moment is not really all that competitive with many of the other OECD countries. 

TREASURER:

Well there are a couple of aspects here.  By the way being competitive in the future will involve having access to wireless broadband.  That is where it is going.  This is where broadband, if you want to be at the forefront you are going to have to have wireless coverage and this is actually moving on to the forefront now of broadband access.  Now, in addition to that, there are proposals from two of the carriers to build fibre to the node which will enhance broadband on-line, particularly in rural and regional areas.  The two competing consortiums are being evaluated as we speak, both of them want to do it, there is no point in rolling out two competing networks and as soon as the tender process is finished the winning tenderer will begin to roll that out to in particular rural and regional areas. 

BYNER:

One of the things that you did do which I thought was a good move is you finally gave some help to small and medium business who were having big monopolies undercut them.  You’ve made that much more difficult.  But I note that the Business Council and many other business interests are absolutely screaming blue hell.  If you were re-elected would you change your stance on this or are you going to stand firm?

TREASURER:

No, we are going to stand firm.  We enacted these changes which are designed to prevent businesses with power in the market, or substantial power, from undermining competitors.  We think competition is a good thing.  We want to keep as many competitors as possible in the market because it leads to lower prices for consumers.  Look, I know there has been some criticism of the changes that I have made but they will stand.  These are changes designed to enhance competition and whilst ever they enhance competition, they will stand.

BYNER:

What about a mandatory code of practice from the grower to the supermarket shelf where we get a very transparent picture of what is actually going on because you would know, I mean the Federal Government through taxpayer funds are trying to help the farmers but the farmers are getting screwed because they can’t even get a fair price for what they sell because they have got so few people with whom to go to if the person is trying to beating them down and says, well go somewhere else.

TREASURER:

That’s a good point and we are working on a code of conduct for horticulture, for example, particularly in relation to prices in markets and so on, because we think there have been some weaknesses there.  It is a good point.  It is something that can be improved and our code of practice will do that.

BYNER:

Well, I’m talking about the general thrust of groceries and fuel and so on where from the seller, that’s the gate price to the supermarket customer, there is complete transparency as to what is going on, because we are being told that the drought is going to force prices up, and yet the poor old farmer is not seeing it.  The customer is because they have got to pay the extra money.

TREASURER:

Sure, well the reason the farmer doesn’t see it is because of the drought the farmer’s produce is down.  He’s just not producing enough.  If he could produce it, he would be getting a good price.  The trouble with the drought is, it means he can’t produce it and because the production is down, the prices are going up in the supermarket.  I totally agree with you there. 

BYNER:

What about the water licences where you have got people coming in speculating, freezing out farmers from buying water to actually run their business?

TREASURER:

Yes, I think again in relation to water, it has got to be an open and a transparent market.  There are times…

BYNER:

(inaudible) at the moment.

TREASURER:

Yes that’s right.  There are times when somebody has got an entitlement to water and for one reason or another doesn’t want to take it up.  They should be entitled to sell that to somebody else who can make use of it and use it productively.  And I do think an open and transparent market in water is absolutely essential.  I agree with you on that.

BYNER:

So are you going to legislate to make this happen?  Because we’ve got these, at the moment you can’t actually find out who owns what.

TREASURER:

Yeah.  Well, look, a lot of this of course is run by the State Government and it is very hard for me to fix all of that.  But we have, under our Murray Darling Basin Plan, we have proposed in the Murray Darling Basin a national system and three of the States have agreed to it.  To its credit, South Australia is one of them.  One State won’t agree, that’s Victoria.  But once we get a national plan in the Murray Darling Basin, I think we can make the markets work much more efficiently.  One of the reasons Victoria won’t come in, is it doesn’t want its water trading system to be affected.

BYNER:

All right.  Let me ask you this.  Do you think that Labor, once having analysed your tax policy, they’ll match you?

TREASURER:

Well, I think Labor should support it.  This is something that is important for the future of our country.  It is going to get more people into the workforce. It is going to build our economy stronger and I can’t see any reason why Labor wouldn’t support it.  They claimed by the way that they had a tax policy, that it was all finished – Stephen Smith was saying that on Sky News, a Sky interview quite recently – and if they have a plan it should be out there today.  Let’s have a look at it.  If they don’t have a plan, then they should adopt ours.

BYNER:

All right.  Just quickly, Greg who’s a farmer, rang in and said that he is producing more than ever before but the prices aren’t getting back to the dairy farmers, which is what we talked about before, so you will as a matter of policy have a look at this during the election?

TREASURER:

Well, sure we will, but Leon, the point I am making is this.  One of the reasons why prices go up is that production falls.  I mean, if we are not producing as much wheat as we used to, and people want to buy wheat, the price goes up.  Now there are other markets where production hasn’t fallen, you wouldn’t expect prices to go up so much but I said to you that I think it is very important that we have transparency in these markets.

BYNER:

Peter Costello, thank you very much for coming on and explaining your tax policy.  It remains to be seen how it is received, but you are pretty certain are you that it won’t affect interest rates?

TREASURER:

Look Leon, this has been done as along term plan for Australia’s future and it is consistent with good economic policy and certainly it has been done with an eye to keeping the economy growing in a sustainable way.

BYNER:

Mr Costello, thank you.

TREASURER:

Thanks Leon.