MODERATOR:
Please welcome Peter Costello.
TREASURER:
To Ken and to members of the National Press Club thank you for this opportunity to be here today and to talk about the issues which are important when people go to cast their ballot on October the 9th in relation to economic management.
On October the 9th Australians will have a clear choice between a Government with a proven economic record, a Government with experience, a Government with a consistent policy which has yielded results over the last eight and a half years and an Opposition which does not have a clear policy, which does not have economic experience and which is defending a record in Government over thirteen years which pales very badly by comparison with the last eight and a half.
Australians will have a choice between a Government which has made significant improvements in the economic indicators and in living standards for the Australian public. If we look at where we were in 1996 and where we are now, things have improved considerably in the Australian economy. And it hasn't been an easy time. It has been a time of drought and SARS and terrorism and war. And it has been a time of Asian financial collapse and US recession. And almost alone of the developed economies of the world, Australia has continued to grow. And our growth has been strong. Our inflation has been low. Our interest rates have been low.
Under Labor inflation averaged 5.2 per cent, under this Government 2.4 per cent. 1.3 million new jobs have been created in the Australian economy since 1996. Under Labor, Budget deficits were 1½ per cent of GDP on average, under the Coalition they were surpluses, on average by ½ per cent.
Now Simon will try and tell you that the reason why the economy has been strong in the last eight and half years was all the good work that the Keating Government did before 1983. He leaves out of his story the recession that we had to have. He leaves out the high interest rates that took us into that recession. He leaves out the fact that since 1996 Labor has opposed many of the policies which have got us to where we now are.
When I signed an agreement with the Governor of the Reserve Bank to target inflation, Labor threatened to sue me, saying it was contrary to statute. When we determined to balance the Budget Labor opposed the savings measures which were required to get there. Labor opposed the big tax changes which took the taxes off our exports and replaced a whole host of indirect taxes. And promised to roll those tax changes back up until the last election.
Labor did some good things when it was in Government. It reduced tariffs. I have always given it credit for doing so. But Labor in Opposition has never supported our program for continuing tariff reductions. And even in this election the Labor Party says, if it is elected it will slow down the tariff reductions which this Government has already announced and already put in place.
In an effort to convince the Australian public during this election that Labor can be trusted Mr Latham has signed his big interest rate guarantee. A piece of cardboard which he says guarantees interest rates will be low under the Labor Party. I wish it were as easy as signing pieces of cardboard.
Economic management takes a bit more than that. It requires leadership, it requires taking the decisions against political opposition which will set the country up. It will require in the next term of Government industrial relations reform. It will require addressing the greatest challenge that we have, the demographic challenge which we outlined in the Intergenerational Report and now are putting in place practical steps to deal with. It will take improving our retirement savings systems. Not robbing in the way that Labor proposes but improving them with co-contribution schemes which will give people on middle and low income earnings the opportunity to save for their retirement. It will require the implementation of the Free Trade Agreement which this Government negotiated and has no regrets about negotiating. It will require water reform with a proposal which we have now put in place for a $2 billion water policy.
These are the challenges of the next term for the next Government. They are challenges which by reason of our record, our experience and our clear commitment, the Coalition Government can meet.
Now 15 days ago Labor released its so called Tax and Family Payments Policy. 15 days ago it could have submitted it for costing to the Departments of Treasury and Finance. It has refused to do so. The election is in 17 days time. Labor is holding back submitting that for independent costing because it knows it doesn't work.
I want to say to you that the tables that Labor published, allegedly showing that people were better off on a weekly basis, were rigged. They excluded significant benefits of $600 payment per annum per child from their calculations. They did that so they could mail out, as they are now mailing out, a claim to people that they were better off on a weekly basis. Mr Latham claimed on television last Sunday that on a weekly basis for 52 weeks you would be better off under Labor's policy but worse off at the end of the year. You would be in front for 52 weeks until the 52nd week clicked over at which point you would be worse as a whole for the year. Laurie Oakes said, George Orwell would be gob smacked, would be gob smacked. And I want to say to you those tables are not only rigged in respect of the $600 payment, they are also rigged in respect of Labor's working tax credit replacing the Low Income Tax Offset. The weekly tables show the benefit of the working tax credit but they don't take into account the abolition of the Low Income Tax Offset. Compare the weekly tables for a single person, no children, $25,000 with the annual tables. The tax tables are rigged like the family payments tables.
And today I am releasing a very extensive analysis of Labor's tax policy which also shows that Labor has failed to properly cost the low income tax offset. It has failed to allow in its costings for the fact that it is paid in arrears. It has failed to allow for the fact that even if you abolish it from 1 July 2005 it has to be paid in cash terms in arrears in the 2005-06 year and as a consequence a $700 million hole has opened up in relation to Labor's tax policy. This was a policy that was cobbled together. Hundreds of thousands of Australians will be worse off. It does nothing about Effective Marginal Tax Rates. It is not funded. It involves new taxes which are going to be increased. And overall they will be a burden on the Australian economy.
In this election there is a clear choice. It is a choice between a proven record of economic management and a proven policy and an untried record and an untried policy.
Economic management is important. It is counts and it matters. And in this election it is the Coalition that has the capacity to deliver. Thank you very much.
MODERATOR:
Thank you very much Peter Costello. Would you now welcome Simon Crean.
CREAN:
Thanks very much Ken.
Labor is ready to govern, to give our prosperity a purpose. We have a plan to take the financial pressure off Australian families and we have a plan to invest in and better secure our future.
All of our policies are fully costed and funded and our Budget pledge ensures that we will put downward pressure on interest rates.
Nine years ago John Howard promised to govern for all of us. He hasn't. And nothing demonstrates this more than the four out of five Australian taxpayers who missed out on a tax cut in their Budget. Missed out, whilst the Government has been collecting all time records of tax from the same hard working Australians.
Now the Howard Government's record speaks for itself on why families are hurting. The highest taxing Government in Australia's history has also cut services and moved us closer to a user pays society. More tax, more to see a doctor, more to educate the kids. It is why Australians constantly ask, if the economy is going so well, why am I missing out?
Now what Australia needs is a Government that will take the pressure off families today by providing real tax relief and restoring services. But in a way that also provides benefits into the future. Not just relief, but reform.
Labor's approach is built on the bedrock of disciplined budgeting, identifying savings to fund our investments not spending more but spending more wisely. And this underpins our Budget pledge which over the next term of Parliament commits us to Budget surpluses in each year and to reducing debt, to reducing revenue as a share of economy and to reducing expenditure as a share of the economy.
Everything we have done to date meets these tests.
But not so our opponents who are spending like drunken sailors. In just five months, the Budget period and since, the Government has embarked on a $60 billion pre-election spending spree. All of it unfunded. That's no way to run an $800 billion economy.
On our Budget pledge Labor has announced plans on tax, families, health and education. Labor's Tax and Family Package gives tax cuts to the four out of five taxpayers who missed out under Mr Howard. It guarantees the Budget cuts and it lifts the top threshold from $80,000 to $85,000 from the 1st of July 2006. It gives substantial benefits to all families. Up to $132 a week and on a weekly basis nine out of ten families who receive assistance are better off. It reforms the current ram shackled family payments system by fixing the debt trap, restoring incentive, rewarding people who want to work hard and by introducing two tax free thresholds for all families eligible for family benefits.
Labor's Tax and Family Payment delivers relief where it is needed most – to middle Australia. Take for example Fiona and her family from Townsville who I met last week. A single income family on $40,000 with two kids. They are $46 a week better off or nearly $1,200 per year better off. Another single income example of two kids of $50,000 per year, they are $85 a week better off or more than $3,000 a year better off. And if we want to look at the two income family example, a two income family with three kids, Dad earning $40,000, Mum on $20,000 we all know these examples in our electorates. They are $132 a week better off or almost $5,000 a year better off.
But beyond providing the financial relief, the dollars in the pocket if you like, Labor's plan is about solving problems. Of fixing the system. Fixing a system that works against people who do the right thing. Fixing it to restore incentives so that people are not punished when they work harder and try and get ahead. What the current system does is to consign too many people to a life of welfare dependence and entrenched poverty. By restoring services and getting the incentives right we will help people escape the poverty trap and realise their potential. There is nothing more Labor than that.
The respected Melbourne Institute has confirmed with its modelling that Labor's plan will encourage more Australians to move off welfare into work, boosting participation. That is good for the individual, it's good for the economy, importantly, it's good for our society.
We will further ease the pressure on Australian families by investing in our public hospitals, saving Medicare and restoring bulk billing, thus reducing the out of pocket expenses of Australian families. We will make the family Medicare card work, not force families onto their credit card.
And Labor will invest in our schools, our TAFEs and our universities, providing opportunity based on ability not ability to pay, creating a more innovative and adaptable workforce. Again financial relief but also reform.
Now our own Treasury Department tells us that boosting workforce participation is critical. Growth economists tell us that long term productivity and growth will require investment in education, skills and research. Labor has heeded that advice.
It is why our Tax and Family policy has been designed to boost participation in the workforce and it is why our education policy is also an investment to lift the economy onto a higher growth path.
It recognises early intervention is a good investment for both the individual and the economy and supports a life long learning approach to education and skills formation. Labor's economic framework is built around investing in the drivers of economic growth – lifting productivity, boosting participation, encouraging research and innovation, promoting strong competition and modernising our infrastructure.
It's what a successful business would do. It's what our Government must do. So Labor is offering a vision for the future because while our Government tells us that families have never had it so good, we believe they've been let down. Our tax and family policy objectives are clear. We need to fix a complex and an unfair system. A system of disincentives and debt. A system that is broken and at its core our policy rewards hard work. It supports families and it strengthens the nation, economically and socially. It's more, about more than just the next election because it is a plan for the future, 10, 20 years hence, but it builds the foundations now. It's about providing relief today and reform for the future. It's a fully costed and funded plan and Labor's vision is one that provides opportunity for all and in doing so restores aspiration to the Australian story. And we have a leader for the long haul to see it through. Thank you.
MODERATOR:
Thank you very much Simon Crean. We won't spring up and down to the lectern from this point on. We do have questions at this point and I have to say at the beginning that I'm confronted with a list a questions that we will not get through, even if all the people at the top of the list are very caring for their colleagues who are at the bottom half and restrict themselves a little. As you know each person who is asked a question has up to three minutes. They don't have to take three minutes to respond. It is directed to one person, the other has a minute to respond. If it is directed to each they have the three minute limit. So with that in mind and the number of questions on demand, let's start. The first one's from Ian McPhedran.
JOURNALIST:
Thanks Ken, I'll be brief. Mr Costello, you worked as a solicitor and barrister before you entered the Federal Parliament so you didn't really run anything either, not even a dodgy city council. Your claim that Mr Latham isn't qualified to run the economy suggests that only you and your ilk can learn on the job. Isn't that arrogant?
TREASURER:
Well Ian, you're right, I didn't run a dodgy municipal council and far from thinking that's a disqualification, I think that's rather a qualification. The point we make is this. Mark Latham has worked in politics all of his life. He hasn't worked in the private sector in a full-time job, so if you want to look at his record, you're entitled to look at the last political office where he was responsible for management and that's the Liverpool Council. Just as you're entitled to look at our record, you are entitled to look at his record. You see, Ian, anybody can say: we'll balance the budget, as Simon says. Anybody can say that we'll reduce expenditures. Anybody can go through the formulations, but if these things were so easy to do, why didn't Labor do them when they were in Government? Simon says: oh, we're fully committed to surplus budgets. The last budget that Labor did in 1995-96 they claimed was a surplus Budget. Whoops! Only missed by $10 billion. You can say all of these things and everybody will say these things in an effort to try and convince people that their policy is like our policy, but you're entitled to look at the record. You're entitled to judge people by their record.
And it's quite true when I was employed in the private sector I was dealing with all sorts of matters, wage cases, tax issues, corporate restructuring. It gave me a wide, commercial experience. And when I came into the Parliament I think I had a very consistent economic policy. The other point I'd make about Mr Latham is he's never had a consistent economic policy. Go back to the Hansard. He championed the progressive expenditure tax - read his book - he advocated it as an alternative to GST. Look at his speeches. He supported regional GST's where the rate would vary according to the geographical area in Australia. Now he's been in every economic fad that's going. There hasn't been a consistent economic policy so you're entitled to look at his record and when you do look at his record, I think it's very instructive. And we are quite happy to be judged on our record in Government against the previous Government or if you want to benchmark Australia during the last eight years against other countries, I think it also stacks up well.
MODERATOR:
Do you have a comment Simon?
CREAN:
Well I just make the point that the Prime Minister has made a virtue of changing his mind in relation certain issues and I think it rings a bit hollow to hark back as far as that. But I take the Treasurer on his point. I mean, judge people by their record. I want the Australian people to judge this Government by its record. The highest taxing Government in Australia's history. And it spends $60 billion from the Budget onwards and it still can't give a tax cut to four out of five Australians. And it can't fix a ramshackle system that really punishes people that want to get onto work. That's the record we've got to correct and Labor's got the plan to correct it.
MODERATOR:
Okay. The next question is from Andrew Fraser.
JOURNALIST:
Andrew Fraser, The Canberra Times, with a question for both. I put it to you that if you were truly serious about tax reform, returning surpluses to the Australian people, that you'd index the income tax thresholds?
MODERATOR:
Who wants to start? The Treasurer.
CREAN:
Two things. First of all we've said, and we've consistently said, that bracket creep should be returned to the Australian people. We've reserved the right to determine the best basis for that return, whether it be in tax cuts or services, and indeed in terms of our commitment over the last couple of years, our focus to date has been on the services side of it, Medicare and schools etcetera. I'm not in favour of the straight indexation approach because that assumes that what you've got is a fair tax system in the first place and I don't think we have. And I think with all the money that's being spent in this tax, in the Government's tax initiative, it spends $35 billion between tax and family payments, still can't fix the family tax benefit system in terms of the incentive, can only provide tax benefits for the top 20 per cent and I think we really missed out on a huge opportunity to reform the system. Now we have to live with what was there. That's the truth of it, but we've gone further.
And whilst we have passed, as we said we would, those initiatives of the Government, we've gone further. We've found savings to give the tax cuts for the people who have missed out. We've raised the top threshold in a sense because that would be smart to ensure that people, hard-working people never got into that top bracket. So our commitment is to restore and return bracket creep and when we're in office we returned more than bracket creep, but I think that what we've marked out here as an Opposition is a real commitment to reform, our family, our tax and family benefits system. It is very difficult to do it from Opposition, but this is the most comprehensive policy any opposition has every produced to correct a system that's been failing us, and I just want the chance to finish the job in Government.
MODERATOR:
Peter Costello.
TREASURER:
Well a couple of points. The first is, when this Government was elected the top marginal tax rate cut in at $50,000. That was under Simon's Government. From July of 2005, it will cut in at $80,000. Now if all we had done was index that $50,000 to CPI at 2 per cent per annum, the threshold for the top marginal tax rate today would be a lot lower than $80,000. That is, the income tax structure has been changed in a way which is better than bracket creep. That's the first point I make.
The second point I make is this. Simon says: oh, well we'll return bracket creep in tax cuts or spending. That's what he just said. Can I say to you, if you spend the money you're not returning bracket creep, you're keeping the money and spending it. This line that I hear coming out from the Labor Party, oh, we'll return bracket creep in spending. I'm sorry that's keeping bracket creep and spending it. That is not returning bracket creep. It is an absolute non secateur, non sequitur. It's a secateur too because it ought to be cut and pruned, pulled apart.
The third point I'll make because I assume I get three minutes to answer.
MODERATOR:
Yes.
TREASURER:
I'll just make another point. Simon has said on a number of occasions now, this is the highest taxing Government. That of course is false. Let me tell you when the highest taxing Government, who it was, it was Paul Keating in 1986-1987 when tax to GDP was 24.4 per cent. Now the way that Simon tries to manipulate those figures to get the current figures up to something around that level, but it's lower, is he adds in the GST and calls that a Commonwealth tax.
One problem, what he doesn't do, is he doesn't deduct the taxes that the GST replaced. He doesn't deduct from his analysis the revenue replacements, the gambling taxes, the financial institutions, the marketable securities, the accommodation taxes or the debits tax. So he says: you count as a Commonwealth tax what replaced State taxes like gambling tax. The effect of that is the States are shown to have a unilateral reduction of tax to GDP ratio because he counts the State replacements as Commonwealth but won't count the State taxes in the same analysis. And when you reconstitute those figures, even adding in, the tax to GDP ratio is not the highest in Australia, Mr Keating takes the record in 1986-1987.
MODERATOR:
The next question is from Gemma Daley.
JOURNALIST:
Same issue, different question. Treasurer, what's the detail of this plan to use the surplus to fund the super liability? Where do you see the money being invested? And to Simon, what is Labor's plan for the surpluses, to spend or save the surpluses?
MODERATOR:
Let's take that as the same question to each of you.
TREASURER:
Well, well the detail was in the policy which I announced the other day, which is this. When our Government was elected the Commonwealth net debt was $96 billion. The Commonwealth net debt has now been reduced by $73 billion. If you continued to run surpluses you could run down that net debt further. The question is, whether or not you believe it is important to have some debt out for financial management reasons and if you do, what you are then going to do with surpluses.
We announced two Budgets ago that if the Commonwealth got to a position where it believed that there was no reason to reduce net debt further, what it would try and do, what it would try and do would be to build an asset position to fund unfunded superannuation liability.
The reason we announced it two Budgets ago, and it was in the Budget Papers two Budgets ago, is that we did a review of Commonwealth Government securities which found that there ought to be in gross terms about $50 billion of Treasury bonds out there for financial management and pricing reasons.
So if you were going to keep a gross position out there and you were still running surpluses, you could either invest the money in the bank, where a lot of it is currently held or you could run an asset position. We've announced that we'll run an asset position to fund superannuation liabilities. We've announced that the private sector will be given the opportunity to manage that. We believe that it's sensible management because you should be able to get a better return of than the long-term bond rate. And the Commonwealth has something like about $80 billion of superannuation liabilities out there which it would be sensible to build an asset position against. We announced that in the policy which I released the other day. I think it will be a sensible way of engaging in financial management and it will be locking away a provision against liabilities which the taxpayer has incurred and will continue to incur under superannuation schemes.
I just want to make one point. We have also announced that we will be closing the PSS scheme. Labor opposes that, so that Labor will continue to run up unfunded liabilities under its policy and it did that because it wanted to use the money as one of the offsets against its tax policy.
MODERATOR:
Simon Crean.
CREAN:
Well, Ken you might recall that when I responded to the Treasurer's Budget back in May, one of the points I made there was that Governments should make provision to, for a fund to invest in the future. I said it was like superannuation for the nation. I said that there were a number of models that one could look at but suggested we needed to develop further the concept of the intergenerational fund. I didn't, I went straight back to Parliament that day and not only was Peter Costello ridiculing it, so was the Prime Minister. Ridiculing it, said it couldn't be done, the money wasn't there, dismissed it out of hand. So I am delighted that the Treasurer has come on board. Delighted that he has acknowledged the importance of this very important commitment to our future. Where I differ from the Treasurer, of course, is that from what I understand him to be saying he says that the purpose of the fund should be just for financial investments. I believe we should consider it beyond the financial investments, economic investments. Investments that benefit this nation, that stack up on a cost-benefit analysis and the governance of which is independently verified so that you take it away from this notion of the pork barrelling that has been so evident by this Government in this election with its $60 billion spending spree. Now I have a pretty simple sort of approach and that is to say that we have to develop a savings investment culture. We don't only have to do it in the context of the Budget, which is the reason that everything we've spent we've paid for, but we have to do it for our future. And what sense is it to simply use the money and put it in the bank and get a lesser return than if you invested it in something that is going to make a bigger return for the economy. But that is the test that has to be made. Does the economic benefit stack up and is that economic benefit verified by independent sources? So I am delighted that they've accepted the concept, the notion. What I want them to do is to pick up and work with us to take it further. But I tell you this, if you really want to see this issue addressed for the future you must elect a Labor Government because this was our idea, we are the only ones who believe in it and we are the only ones committed to doing something for the future of this nation through it.
MODERATOR:
Next question is from Lincoln Wright.
JOURNALIST:
Lincoln Wright, Sunday Herald Sun. Treasurer you regard yourself as an economic reformer of some credentials, why is it then that you criticise Labor's tax package for providing incentives for people to join the workforce and secondly, Simon, why is it that Labor has risked alienating people it needs to vote for them to win this election by providing negative incentives to low income families and sole parents?
TREASURER:
Well Lincoln can I make the first point that Labor has done nothing about Effective Marginal Tax Rates except make them worse. Now the thing about Labor is that they have introduced some new tapers, they have introduced a taper in relation to their so called tax guarantee and they have introduced a taper in response to their so called per family component. The consequences of that are that although Labor has actually moved around where these EMTRs apply they have actually worsened them.
For example a worker on $52,000 with two children and a wife in part-time work will have an Effective Marginal Tax Rate under Labor's policy of 61.5 percent. 31.5 per cent tax, 10 per cent working tax bonus taper, 20 per cent family payment taper. And further up the income scale Labor's Effective Marginal Tax Rates will go higher.
There is a very important point to bear in mind, Labor has not reduced Effective Marginal Tax Rate, just moved where they apply and increased them in respect of its working tax bonus.
Second point, Labor claims under the modelling of the Melbourne Institute that there will be this participation dividend, that around 75,000 people who are not currently working will go out and work. The largest single group that will go out and work it says is the stay-at-home, Mother or the sole parent.
Why does Labor say that they will increase their participation? Because Labor's policy make the stay at home mother worse off and the sole parent worse off. You see Labor wants to claim they're not worse off on one hand but their modeller participation, why, because you are stripping them of benefits, you are stripping them of the Family Tax Benefit so Labor's very policy and participation dividend is premised on forcing people into a worse off situation who are currently out of the labour market in order to get them to participate. Now look that is one way of forcing people to participate but it's another way of saying we are making families worse off, particularly the single income family and the single income family is going to suffer.
MODERATOR:
(inaudible) respond to that before your question?
JOURNALIST:
Well I think I was asked the question too, so it gives me three minutes rather than one.
MODERATOR:
Well you were after, well ok let's treat it that way.
CREAN:
Well I think it was a specific question to me at the end. What we have done to address the disincentives that are in the system now. The debt trap that families find themselves in, the cripplingly high Effective Marginal Tax Rates and we have set about correcting that. We have put incentive into the system by first of all giving a tax cut to all of those people who missed out. That is a positive incentive. That's acknowledged by the Melbourne Institute just as much as it acknowledged the dynamic effect of their tax cuts. So there is a positive effect in the first place. But the second positive effect is what we have done in consolidating this ramshackle Family Tax Benefit system into the one payment. What that has done is give significant benefits to middle Australia and I have gone through some of those examples. But you see what the Government wants to do is to just concentrate on sole parents and low income. When have you ever heard them do anything or express some concern about them in the past. The simple fact of the matter is, even on their best analysis and we don't accept it, on their best analysis, on their best analysis, three out of 10 families, only, are better off under John Howard which proves our point. People are much better off under us. But what we have said is, take it on a weekly basis. Why do we say take it on a weekly basis? It's because when families have to make the ends meet. It's when they have to find the money for the bills. They don't just sit there and accumulate at the end of the year. People have to find this pressure, this financial pressure week in, week out and I might say in terms of our package we presented both. We presented the weekly payments and we presented the annual payments, the same as Centrelink presents them now. Centrelink, when it talks about the weekly payments under their system, does not include the $600 lump sum so we've presented in the exactly the same way as Centrelink already projects their stuff.
My point is when you take it on a weekly basis when it's money in the pockets because people can't wait for the end of the year when they need the financial relief, we said let's take it away from an annual payment. Let's put it into a weekly payment when people need it and on that basis nine out of 10 families on a weekly basis, nine out of 10 families in receipt the Family Benefits on a weekly basis are better off under us and the families that are worse off, that do suffer, are those in the very higher income levels over $100,000 per year.
MODERATOR:
Fleur Anderson.
JOURNALIST:
Fleur Anderson from News Limited. This question is to Mr Crean. What is your response to this $700 million black hole that Mr Costello says he's found?
CREAN:
Well I am delighted that he has waited till today to give us this knock out blow that he has always told us. I mean I can remember the reports Peter Costello's just waiting to get his hands on Labor's package and rip it apart. Well we are still waiting and I think Treasurer when I see this document that you put out today you will be sadly disappointed because I think from what I understood you to be saying and the assumptions you've made, you're wrong. But let's wait and see the analysis. I am quite happy to wait and see that. I just love the circumstances in which he swaggers into the Parliament or swaggers out there to another Press Conference day in and day out and says I am going to knock the big hole. You know it's sort of like re-living the Paul Keating history. The Box Hill knock out.