Subjects: 2000-2001 Budget; assets sales; early elections; inflation rate; market commentators; Labor’s debt; bracket creep; East Timor levy; pensions; GST; Avonwood Homes
MITCHELL:
Prime Minister Mr Howard, good morning.
PRIME MINISTER:
Good morning Neil.
MITCHELL:
Is this Peter Costello’s last budget?
PRIME MINISTER:
I wouldn’t expect so. I think we will still be in Government in twelve months time and he will be bringing down the next budget and I have every confidence in him as Treasurer.
MITCHELL:
I keep hearing that maybe he has had enough?
PRIME MINISTER:
Peter is a very committed energetic Treasurer and Deputy Leader of the Party and I think he has got years and years of political service in him.
MITCHELL:
Does that also mean we won’t have an election in the next twelve months?
PRIME MINISTER:
Well, the normal time to have an election would be at the end of next year and unless there is a compelling reason, the Australian public doesn’t like the Government going earlier than their due time. They think there’s some suspicious, something fishy about governments that go early for no good reason and they mark them down and my experience is that if you go early without good reason, you often pay a price. Bob Hawke found that in 1984 I think Nick Greiner found it in NSW in 1991 and I think others have done the same thing.
MITCHELL:
How are you going to win it, whenever it is, how are you going to win on the basis on the back of an inflation rate of seven per cent?
PRIME MINISTER:
Well it won’t be an inflation rate of …
MITCHELL:
Oh well [inaudible] come out…
PRIME MINISTER:
No, no exactly. And it’s a one off spike and it won’t be. I am not conceding its going to be seven per cent. Look you have to….
MITCHELL:
That’s the estimate isn’t it?
PRIME MINISTER:
Well yeah but…
MITCHELL:
[inaudible]
PRIME MINISTER:
Well, but that’s not seven….yeah well it’s not.
MITCHELL:
[inaudible]
PRIME MINISTER:
Well hang on…well it’s not. Look Neil, I don’t disguise the fact that there will be a one off increase in the consumer price index as a result of the introduction of the GST. That is absolutely unavoidable. It’s been factored in, it’s understood. The important thing is whether it is on going. If you just have a spike and then it falls away to a more normal, ongoing level, no problem. No problem at all. If you don’t want that, then you don’t have a GST and we made up our mind a long time ago that this is a good time to have a GST. In fact the best time to have a GST introduced is at a time when on going inflation is quite low and that is the situation at the moment.
MITCHELL:
Okay, I think from watching the Treasurer and reading last night, he is saying we are in pretty good shape isn’t he?
PRIME MINISTER:
He is and we are.
MITCHELL:
Ok, so is the GST not threatening that and why do we need the GST if we are in good shape?
PRIME MINISTER:
Well, because it’s one of those long term reforms that Governments have to have the courage to introduce. Look you only, you only continue to be in good shape if you continue to do new things to strengthen you even further for the future. The worst thing that a Government can do is to have a few years of good government, get everything in order and then say, nothing more to do, rest on our laurels, won’t do any more reform, you quickly lose it. We live in a very competitive world. This is our fifth budget and in those five budgets, we will have repaid $50 billion from the $80 billion of debt run up by Mr Beazley in his last five years.
MITCHELL:
So why is the market reaction not good?
PRIME MINISTER:
Well..
MITCHELL:
The dollar went down….
PRIME MINISTER:
Well I am not going to talk about the level of the dollar.
MITCHELL:
Well I won’t ask about the level. What about the reaction, the reaction has been very critical…
PRIME MINISTER:
Well the reaction has been critical by some financial commentators..
MITCHELL:
And by the markets, …[inaudible]…
PRIME MINISTER:
Well I am not going to get in to the dollar.
MITCHELL:
You must be disappointed about it.
PRIME MINISTER:
Well I am not going to talk about the level of the currency but I am going to talk about the criticism that has been made by some financial commentators about the treatment of the proceeds of the spectrum auction. And can I say to those people that what we are doing on this occasion with these proceeds is exactly what Treasurers have done with that kind of transaction for the last fifty or sixty years.
MITCHELL:
Well they are saying its money out of thin air…[inaudible].. it’s a clever play on words…
PRIME MINISTER:
Well it’s not.
MITCHELL:
Well it is. I mean you were very lucky weren’t you.
PRIME MINISTER:
But it’s a question of whether it’s there or it’s not. I mean, do they really….
MITCHELL:
Of course it’s a question of how it’s accounted. I thought that you personally objected to asset sales being put in to revenue?
PRIME MINISTER:
Well yes we do.
MITCHELL:
Well why do this?
PRIME MINISTER:
Well this is, this is the sale of a non-financial asset. Hang on, Neil please. There are rules laid down by the Bureau of Statistics and the IMF for the treatment of these things and what we are doing with this is the same as how we treat the rent on a building owned by the Government. And if you get rent from a building, it goes into your bottom line. If you auction a spectrum, you put the proceeds of that in to your bottom line. That is not our decision. That was the advice that we were given by the Bureau of Statistics. We are following correct accounting procedures and accounting procedures that other western governments have followed. What I objected to and still object to is when Labor was in Government, they put the proceeds of the sale of Telstra (sic) into their bottom line. We don’t do that. If we had done that, we would have been, we would be have been even in a stronger position. It would have been argued that we are in a stronger position than we are now.
MITCHELL:
But morally what’s the difference of selling off a thin air asset, and I understand that you are following these procedures, but if you are selling off a thin air asset which gives you a surplus that you otherwise wouldn’t have had.
PRIME MINISTER:
But the moral thing Neil is whether you are going to get the money or not. What’s immoral is to pretend to the public that you are going to get something that you know you won’t.
MITCHELL:
You don’t know how much you are going to get do you?
PRIME MINISTER:
Well we do know using very conservative estimates that we will get at least what has been put in the budget and you know that a similar auction in Britain has realised tens and tens of billions of dollars. I don’t think anybody..
MITCHELL:
I accept you might may get more, you may get less..
PRIME MINISTER:
All I can tell you is that conservative estimates of the Treasury is that we will get at least what we have put in the budget. There is nothing immoral about housing money that you will actually receive. It would be immoral of us not to count it. I mean what are you arguing? That instead of counting this, we should tax people?
MITCHELL:
I am arguing that there’s a bit of smoke and mirrors….I put to you that the market obviously agree with that assessment…you say you won’t talk about it. The markets have made a judgment and it’s….
PRIME MINISTER:
No, no I’m… I’m sorry… I am saying Neil, I am saying I am not going to talk about the level of the dollar and you know there is a difference.
MITCHELL:
Well tell me about the markets. The markets have made a very tough assessment of this Budget…
PRIME MINISTER:
Well I am addressing the criticism of the inclusion of the proceeds of the spectrum. That is what I am addressing. And if people saying to me … what are they saying? Are they saying we should have just ignored it? And therefore to get a surplus we have to impose tax of $2.8 billion or cut spending by $2.8 billion? Are they seriously saying that this money should not have been included? That would be an unprecedentedly unreasonable thing for any government to do. Look, I mean I tell you what, they don’t like the fact that there is nothing else to criticise in this budget, so some of the commentators have seized on this.
MITCHELL:
Okay, can’t we take the commentators out of it.
PRIME MINISTER:
Well you raised their views.
MITCHELL:
Well, I did true. It’s not just commentators though. There is a market judgement.
PRIME MINISTER:
Yeah but I am, but when I talk about commentators I include the markets because Neil we now have a situation where every time there is an economic statistic, you flash to a dealing room and you get people whose experience with economic matters is pretty limited to financial markets, giving commentary on the economic outlook and they are the people I am talking about and they influence market reaction.
MITCHELL:
Is it not a reality - now I know you don’t like to talk about the dollar - and you won’t want to talk about interest rates either, but is it not a reality that is what happened with the dollar is going to put additional pressure on interest rates and our interest rate problem is going to be even more significant toward the end of the year?
PRIME MINISTER:
Well, you are right in saying I am not going to talk about the level of the dollar and I am not to make predictions about where interest rates are going but I can tell you that interest rates now, despite the recent increases, are much lower than they were four years ago. And I can also tell you that if you run a budget surplus, if you pay off $50 billion of $80 billion dollars of debt that you inherited from Mr Beazley, you have a far better chance of creating the circumstances where interest rates will stay lower than they might otherwise be.
MITCHELL:
Is this the real budget? Or will we have mini budget?
PRIME MINISTER:
No, we don’t have any plans for a mini budget. We have a tax reform package coming in on the first of July which is still the biggest game in town, economically and politically. And I think it is going to be hugely beneficial reform and I think in a few months time, people are going to look back and say what was all the fuss about. Eighty per cent of Australians will be on a top marginal rate of no more than thirty cents in the dollar. $12 billion dollars of personal tax cuts. Cheaper fuel, increased family benefits. All of these things are to come in what - 55 days.
MITCHELL:
Well I have was having a look at some of the tax figures as reported today. An example, $35 000 a year, $20 a week – tax cuts. $40,000 dollars a year, $27 a week. How does that compensate for six-and-half to seven per cent inflation?
PRIME MINISTER:
Well Neil, hang on Neil, you’ve seen many tables that show the position net after the GST and that is, you can’t count the inflation and the GST. The GST is temporarily the inflation spike. One and the same thing. You can’t count it twice. Fair go.
MITCHELL:
Fair enough, fair enough. All right. Well how does $20 a week on $35,000 compensate for six-and-a-half to seven per cent increase in prices?
PRIME MINISTER:
Well it depends upon the size of the family. All of those situations are situations where people are better off even after the GST.
MITCHELL:
Some duel income families get three dollars a week.
PRIME MINISTER:
Yes, but some of those duel income families’ tax position is better than the tax position of single income families. I mean we have given some additional help to single income families because their tax positions, because they don’t have two tax thresholds. I mean you get a couple that are earning together $50,000 a year, compared with a single person, single income earning $50,000 a year, the couple are better off because they have two tax-free thresholds.
MITCHELL:
Should you look, will you look at giving the pensioners more than four per cent?
PRIME MINISTER:
Well we believe that is more than, more than the compensation needed for the GST. I mean look…
MITCHELL:
Four and a half per cent prediction.
PRIME MINISTER:
Well no, we’re paying…
MITCHELL:
Isn’t it a four and a half per cent prediction inflation rate over the GST alone?
PRIME MINISTER:
No, no, no. The GST component of future inflation is estimated to be no more than 2.75 per cent.
MITCHELL:
I thought I read four and a half.
PRIME MINISTER:
No.
MITCHELL:
Ok, well does the four per cent compensate for the six and half to seven per cent inflation rate?
PRIME MINISTER:
But they’re getting, they’re getting the four per cent up front and then they will always be two per cent ahead of inflation thereafter. So they will always be ahead.
MITCHELL:
Ok, so they sort of pick up in the next year.
PRIME MINISTER:
Yes, they will always be ahead, yes.
MITCHELL:
Yeah, okay. Is the inflation dragon after this spike as you call it, is the inflation dragon still as dead as Peter Costello said it was?
PRIME MINISTER:
Well all of our indications are that it will be that in an ongoing sense inflation will be around the X, the GST component will be around two-and-a-half to two-and-three -quarter per cent. And that is very low. I believe inflation is under control. I believe that there will be a spike and I don’t disguise that and you will have a high CPI for the September quarter of this year and people should be ready for that and it’s entirely expected. It won’t be a bolt out of the blue or a shock to the system. Everybody will know it’s coming, but thereafter that it will decline and in a years time, it will be completely out of the system.
MITCHELL:
They have also got to expect to pay $300 million I think is the estimate of – early estimates were $500 - but now it’s three hundred million a year in petrol and tobacco excise. They have got to pay that too.
PRIME MINISTER:
Well, there are automatic indexation arrangements and that has all been built in to the package.
MITCHELL:
What about bracket creep. I mean there is an argument that $3 billion dollars of the tax cuts have gone already in bracket creep.
PRIME MINISTER:
Well bracket creep, of course, when you have a top rate of thirty cents in the dollar for eighty per cent of tax payers, bracket creep is a lot less evident than it is under the present scales. There are fewer steps…
MITCHELL:
But do you accept there is still three billion dollars gone already before they are even introduced.
PRIME MINISTER:
Well I don’t accept is gone because you only have bracket creep if people go in to higher income brackets. So they are earning more money.
MITCHELL:
But the $12 billion tax cuts become $9 billion because people go in to higher areas and have to pay more tax.
PRIME MINISTER:
Well I don’t… Neil, well look you can, you could abolish income tax altogether and everybody would be happy for a few days.
MITCHELL:
But it would be fairer to index it…
PRIME MINISTER:
I think it’s fairer, I think its actually fairer to have fewer steps in the rate scale and to have a top marginal rate of no more than thirty cents in the dollar for the overwhelming majority of taxpayers. I mean many of the people who would be in the top rate of thirty cents in the dollar are now on a top rate of forty-three cents in the dollar and that represents and you’re not talking here about wealthy people, you’re talking about people who earn $50,000 or less, they’re not wealthy - they’re middle Australia - and those people are going to be massively advantaged by these new tax sales.
MITCHELL:
$52 a week I read as an estimate is that right?
PRIME MINISTER:
Well it depends. It depends entirely on your income rate. But many of those people will be that much better off, yes.
MITCHELL:
We’ll take a call. Helen, go ahead please.
CALLER:
I’d just like to say we have just joined the health fund. I’ve been in the health fund for quite a while now and what I wanted to know is how come being in the health fund and you have to go to a private patient …. I had to have a x-ray the other week and it’s cost me $95 out of pocket.
PRIME MINISTER:
Well, that’s the gap and we are negotiating with the health funds arrangements whereby aggressively those gaps are eliminated. You do have a legitimate cause for complaint. Of course it would have cost you a lot more, you would have had a different kind of service if you hadn’t been in a health fund.
MITCHELL:
Is there a bit of a Kennett factor in this Budget in two ways. One, looking after the bush because the bush punished Jeff Kennett, and second, don’t leave a surplus for whoever follows you, spend it?
PRIME MINISTER:
Well there’s been no consciously driven behaviour in that… against that background but I’m quite proud of the fact that this budget does address the biggest single area of disadvantage suffered by country Australians and that is the relatively poorer quality of their health services. And I made up my mind months ago that the area that we really had to address in the bush first and foremost is the inadequacy of health services because it’s so basic and everybody’s entitled to it. I mean, all the things we say about equality of opportunity in this country have got to mean that just because you live in a remote area, you shouldn’t be denied access to affordable health services and I wanted to deliver improvement in a big way and I’m very proud that this budget has done that. It’s done it in a very big way and targeting something that country people have complained about to me and to others for a long time. I heard it earlier this year when I went around, I heard it when I’ve visited rural areas of Victoria and rural areas of all parts of the country. So yes we are unashamedly addressing an area of need in the bush and I’m very proud that it’s been described in those terms by some of the papers.
MITCHELL:
Another area which affects the rural areas to a course is road funding. Now the figures as I look at them, Victoria’s paying around about 25% of road tax and getting back 15% of the funding.
PRIME MINISTER:
Well, look the figures vary because the needs vary a bit across the country. The roads are a little better in some parts of Australia than others. Victoria, because of the size of the State and the investment that was made in earlier years has not quite as great a need in some areas as other parts of Australia, in other areas it does. Road funding overwhelmingly of course is the responsibility of States and local Governments and even more so under the GST because they’ll have a lot more money.
MITCHELL:
We’ll take another call. Ron go ahead please.
CALLER:
Now I can’t understand the statement you made before that when you get a tax cut it puts you into a higher tax bracket. You get a gross amount, let’s say you get fifty grand and you’re taxed ten thousand dollars, you’ve got forty to play with, if you’re taxed five grand, you’ve got forty five to play with.
MITCHELL:
No the tax cuts doesn’t put you in the higher tax bracket . . .
PRIME MINISTER:
No I didn’t say that. What I said is a higher tax, if your income goes up you run the risk of going into a higher tax bracket, that’s called bracket creep but what I said in relation to bracket creep was that we have reduced the number of steps in the rates scale and we’ve got a stock marginal rate of 30 cents in the dollar for everybody up to fifty grand a year and a lot of those people are now on 43 cents in the dollar, they will be after the first of July on 30 cents in the dollar, that was the point.
MITCHELL:
Dennis, go ahead please.
CALLER:
Mr Howard. First I’m a big fan of yours but this single income with one child, you know, what you’re saying that they’ll earn, I’m on a small wage.
PRIME MINISTER:
What’s your income?
CALLER:
Say it’s $44. But I’ve got seven children. Where does that help out. I mean I’ve got to do two jobs and recently had a stroke and I had to get over that and I’ve got to go back to work to support my family.
PRIME MINISTER:
Well, it will help. I think – seven children, you deserve a lot of praise for the responsibility you carry, but you will get increased family benefits as well as of course the lower level of tax. I mean I would need to sit down and get all of your financial circumstances to precisely work it out but there are, not only are there tax cuts to somebody in your position but there are also increases in family benefits. So I think when you add it all up your position will be a lot better. Whether it’s enough, look I - with seven children, that is a very heavy responsibility and I’m sorry to hear about your illness and I admire you very much for what you’re doing and I’d need to have a few more details before I could give you an exact figure.
MITCHELL:
Dennis we will have the Tax Department here tomorrow if you want to go through some of those things with them. Mr Howard I suppose it’s not sort of the sexiest budget in history is it?
PRIME MINISTER:
Well I guess it’s in the long run to be judged on the contribution it makes to the country. When you have a bit of speculation before a budget comes out and some of that speculation turns out to be accurate, I guess there’s always a bit of a let down but what really matters is the contribution it makes to the economy. As I say in five years Mr Beazley, you add up $80 billion in debt and we will have repayed fifty of that eighty billion at the completion of this budget. Now that may not be sexy but I’ll tell you what it’s solid and it does a lot for the long term credit worthiness of Australia.
MITCHELL:
What do you think of the reaction to it?
PRIME MINISTER:
I’m not fazed by the reaction of some financial commentators. I think the public will see it as an honest budget, they’ll see it as a budget that sensibly does not proceed with the East Timor levy. If we’d have kept that levy on, we wouldn’t have been attacked this morning by the Labor Party and the commentators about the spectrum sale, they’d have been saying hang on, they had all the money in the world and they still kept the Timor levy, all they’re interested in is increasing tax.
MITCHELL:
Was that a deliberate leak by the way?
PRIME MINISTER:
No. Absolutely not.
MITCHELL:
You must be very cross about that?
PRIME MINISTER:
Well I am and I would have preferred that not to have been the subject of speculation. There would have therefore been an element of surprise and that might have added the sex appeal which you are speaking of! You know sex appeal is often tied up with surprise, so let’s understand that. But in the end whether it’s the sex appeal or whatever, what really matter is whether it makes a solid contribution to the economic strength of the country and I believe it will, as I believe tax reform will.
MITCHELL:
Presumably there were a few official leaks in there though because we got most of it before budget?
PRIME MINISTER:
Well no. A lot of people in the concluding days before a budget is delivered, a lot of people in the system have to have access to information but we did not set out to leak any of that information but it’s always difficult in some of the areas to keep all of the details under wraps. But of course I was disappointed about the East Timor levy being the subject of speculation because it did take away that element of surprise, but in the long run what matters is the decision, rather than when people though it might be delivered.
MITCHELL:
Can I just ask you quickly. I suppose it’s a related matter but it came up yesterday several times in the program and in fact the Premier, Mr Bracks is going to write to you about it. Avonwood Homes as you would probably be aware has hit the wall here in Victoria leaving a lot of people in the position with, they won’t get their houses which they should of got until after the GST is introduced. Now can they be exempted from the GST?
PRIME MINISTER:
No I don’t think they can but I mean. Can I just say, with great respect, whenever there is a problem the State Premier always writes to the Prime Minister and says you fix it . . .
MITCHELL:
But it is your GST.
PRIME MINISTER:
But that didn’t cause the company to go broke, it hasn’t been introduced yet.
MITCHELL:
But these unfortunate people . . .
PRIME MINISTER:
Yeah I know . . .
MITCHELL:
. . . that otherwise wouldn’t be paying a GST have suddenly got to pay it.
PRIME MINISTER:
Just hang on. I mean you’ve got a situation where a building company has gone into financial difficulty in Victoria and immediately the Victorian Premier is trying to shift the responsibility onto us. I mean why has the company gone broke, has it got anything to do with the laws of Victoria, has it got anything to do with the change in industrial relations climate since Mr Bracks became the Premier? I mean I don’t know, maybe it has, maybe it hasn’t. I mean Mr Bracks will write to me, State Premiers always do when they want to shift blame. When anything good happens well it’s all due to their brilliant economic and political management. Now, of course I will have a look at it and I’m very sympathetic to the people who have been left in a financial predicament. Now, but I can’t automatically grant exemptions to the GST. In any event, it’s Mr Bracks’ GST after the first of July, it’s his money, none of it comes to us. So what Mr Bracks is really saying is that the Victorian Treasury... is he saying the Victorian Treasury will . . .
MITCHELL:
People are going to have to pay the GST that they wouldn’t have had to and some of them as a result can’t afford their houses.
PRIME MINISTER:
Well Neil, I will like anything that is put to me by Premiers, will look at it, but as an automatic assumption that when something goes wrong as far as State Premiers are concerned, it’s got to be dealt with by the Federal Government. Now I will have a look at it.
But can I just correct one thing. I did say earlier that when Labor was in Government, it put the proceeds of the sale of Telstra into the bottom line. What I meant was the proceeds of the sale of the Commonwealth Bank, they didn’t sell Telstra but they did sell the Commonwealth Bank.
MITCHELL:
Mr Howard thank you for your time.
[ends]