TREASURER:
I will have some more to say in future weeks about the Labor announcement yesterday in relation to superannuation, which will show that it is poorly thought through and would represent poor public policy.
But I do want to highlight something this morning, which I think many journalists have not focussed on. Yesterday, in both his speech and in his policy, Mr Latham said that it was Labor’s commitment to ensure the aged pension at 25 per cent of male average weekly ordinary time earnings. The Government policy and the current legislation is for the pension to be 25 per cent of male total average weekly earnings. The average measure takes into account part-time and casual work. The average measure stands at an annualised basis at $46,678 a year. The measure that Mr Latham has committed the Labor Party to stands at $51,828 per year. The commitment which he gave was for an 11 per cent increase in the aged pension. That was a commitment that he gave in both his speech and in his policy, which would require Labor to fund another $8 billion if they are to make good on that commitment.
Now it is possible that he doesn’t know the difference between the two measures and both his policy and his speech was wrong. But if his policy and his speech was right, he has just opened a “super blooper” - $8 billion in unfunded pension commitments. Now the pensioners of Australia are entitled to know whether he was just wrong or whether he has entered into another expensive commitment. And many pensioners will think now that it is part of Labor’s official policy, he should make good on it. As I say, it is quite possible he doesn’t know the difference between the two measures.
But it is another indication of what I have always said about Labor and Mr Latham. He is policy weak. He hasn’t done the work and he doesn’t understand the issues. It is either incompetence or it is a very expensive promise which he has no ability to deliver on.
Now that is just in relation to pensions. That is what he said yesterday in relation to pensions. I will have a lot more to say about the superannuation policy in addition because the superannuation policy, to the extent that you can pin it down, is also unfunded. To the extent you can pin it down, because one of the promises that he was making yesterday was what he would do in twenty years time. This error, or false commitment, whichever way you want to characterise it, hasn’t lasted 24 hours. So it is a bit rich to start wondering what he would be doing in twenty years time.
JOURNALIST:
Is this $8 billion on top of the $5 billion?
TREASURER:
Yes it is.
JOURNALIST:
And is it $8 billion in one year Treasurer or is it over four years?
TREASURER:
I will be releasing the documentation in relation to that. If he meant what he said yesterday, which would require an 11 per cent increase in pensions, it is about $2 billion a year, or $8 billion over the forward estimates that he would have to find to fund his pensions, his aged pension commitment. Now in addition to that, his superannuation commitment is another $1.2 billion commitment which he said yesterday he couldn’t announce the funding of. Just to put it back on the record, when he first made that promise in relation to the superannuation contributions tax, to reduce from 15 to 13 per cent, he said he would fund it two ways. One is he would not allow the surcharge to be cut and the other is he would not allow freedom of choice in public sector superannuation. The Government has cut the surcharge and the Government is not proceeding with the freedom of choice. Both of those funding mechanisms have therefore disappeared, so the promise stands at a $1.2 billion unfunded promise on superannuation.
This is in addition, this is a commitment which he gave in both the speech and the policy which is an $8 billion commitment to increase aged pensions. It would also, as I say in the material I will be releasing today, would have implications as it flows into service pensions. If he wanted to move the test for service pensions from, the technical word is MTAWE, to AWOTE. But we don’t know whether he has that in mind as well.
JOURNALIST:
He does say over the long-term that contributions tax should go all together. Do you agree that that’s a good idea? Will you support him on that?
TREASURER:
Well, let me make a couple of points. The contributions tax was introduced by Paul Keating and the Labor Party. I was highly amused to see him saying yesterday that this is the worst tax Canberra has ever introduced. It was introduced in 1988 by Paul Keating and the Labor Party of which he was a member. Now, he then said well I will reduce it to 13 per cent but I can’t tell you how and I can’t tell you how it is funded. That is $1.2 billion across the forward estimates. And then as if that wasn’t enough he said in twenty years time, I will abolish it. Well, I don’t know how long Mr Latham is planning to hang around, but I would suggest to you that a politician that is making you a promise as to what he will do in twenty years time is not making much of a commitment.
JOURNALIST:
But it is more than the Government is promising isn’t it?
TREASURER:
Well we don’t enter into what we are going to do in twenty years time. We will be putting down commitments for the next election, for the next term which we can be judged on. Can I say this? If Australian politics has got the stage where people are going to be judged on what they are not going to do at the next term, or the term after that, or the four terms after that, but in their seventh term, I think it is a little far fetched.
JOURNALIST:
Mr Costello, is it appropriate for a Prime Ministerial Staffer to ring the Federal Police Commissioner and chastise him over the telephone if he expressed a view that is contrary to the Government?
TREASURER:
Look, I don’t know what happened in that telephone conversation, if it even occurred, so I can’t comment on that.
JOURNALIST:
Mr Costello, on a (inaudible) that you are not going to proceed with super choice, does that mean that you have abandoned it?
TREASURER:
No, we are proceeding with a measure to allow freedom of choice for people who are in accumulation funds. Separate to that, we had a policy which was for public servants, to allow public servants to move out of public sector schemes and into schemes of their choice which would be funded from the time they moved into it. Because it would be funded from the time they moved into it, it would have cost additional money. The Labor Party said they would not proceed with that policy and use the money for their contributions policy.
The Government has acknowledged the defeat in relation to that matter and is no longer proceeding with it, therefore the savings are not available to the Labor Party, it is a separate issue.
JOURNALIST:
Mr Costello, there is another fall in investor finance in January, should that ease Reserve Bank concerns about the unsustainable rise in household debt?
TREASURER:
Well, investor finance fell by 14.2 per cent in January, it still remains higher than it was a year ago, but it is the third successive fall in relation to investor finance. What that does, is it confirms the figures that we saw last Thursday in relation to owner occupied housing, and indicate that the property market is slowing. I said on Thursday, that we actually welcomed that, that the property market had been growing very, very fast, and we would welcome the fact that it now seems to plateau. And this is backed up by other data coming out, the housing market in relation to approvals, anecdotal material in relation to auction clearances, which indicates that there is some slowing, and we would actually welcome that.
JOURNALIST:
And the Reserve Bank, should it have cause for concern?
TREASURER:
I am sure the Reserve Bank does not need advice from me.
JOURNALIST:
(inaudible) the AMP survey this morning, the AMP has put out a survey today that has found a significant proportion of retirees live below the official poverty line, and more, that a lot of people aged 50-54 have less that $10,000 in their super. Are you aware of the survey?
TREASURER:
Well, I have made the point before that it is going to be very difficult to retire at the age of 50. I heard of that survey and it looked at people in retirement between 50 and 54. Now, if your average Australian is not going to join the workforce until they are say, 20 or maybe even 25, and retire at 50, that means they are going to have only 25 years in the workforce, and life expectancy tells us, that they would be expecting to live until 85. So, if you retire at 50, you are going to have 35 years in retirement and you have only had 25 years in the workforce to support 35 years in retirement. Now, logic tells you, it is going to be very, very hard to accumulate during 25 years of work, enough savings to look after yourself for 35 years of retirement. And that is why, when I announced government measures in relation to this, not in the last two weeks, but the week before, that is why I said we should encourage people to work through to 65, if need be, access their superannuation, so they can remain part-time in the workforce through to 65, but it is going to be very difficult for people to retire at 55, let alone 50.
JOURNALIST:
Can retirees expect an increase in aged care…
TREASURER:
Let me just say this, I have encouraged people to work through to the statutory retiring age, which is 65 for men and is being raised for women. That is what I have encouraged people to do. At the moment you can get your superannuation lump sum at 55, you can retire and get your lump sum at 55, but the point I am asking people to think about is working through to 65. And I have made this point, maybe not even full-time through to 65, but if you can remain doing part-time duties through to 65, we are going to introduce reforms which will allow you to access your superannuation, and I say to people, unless you are fantastically successful and a high income earner, it is going to be very hard to live 30 years in retirement if you have retired at 50 or 55.
JOURNALIST:
Can retirees expect an increase in aged care funding as part of the government’s response to the Hogan Report?
TREASURER:
Well look, we are working on all matters now, I am not going, I am not ruling in, I am not ruling out. We now go into this pre-budget period and that is what brings me to Canberra today, and we are not ruling measures in, we are not ruling measures out. Last question, I am sorry.
JOURNALIST:
Last Friday, the Prime Minister did say a big budget surplus was not necessary because government net debt is low. Does that mean we are going to see something that is fairly thin in May, in surplus?
TREASURER:
Look it is our aim to keep the Budget in surplus. We have done eight budgets now, six of them were surplus budgets and it is our aim to produce another one, and as for the rest, wait until budget night.
JOURNALIST:
Is that at risk if Ministers keep spending like they have been Treasurer?
TREASURER:
Let me assure you of this. We always work on good economic management. Let me tell you what would smash the Commonwealth finances, Mr Latham’s commitment, an $8 billion unfunded commitment in relation to pensions. Now, the best thing you could say, is he didn’t know what he was saying, in which case he will repudiate that commitment today, within 24 hours. If he doesn’t repudiate that commitment today, he has a major financial problem on his hands. Thanks.