Peter Costello

Media Transcripts

Labor's tax policy costing black hole, Charter of Budget Honesty - Press Conference, Parliament House, Canberra

TRANSCRIPT

THE HON PETER COSTELLO MP
TREASURER

Press Conference
Parliament House, Canberra

Wednesday, 22 September 2004
3.00 pm

 

SUBJECTS: Labor's tax policy costing black hole, Charter of Budget Honesty

TREASURER:

Fifteen days ago Mr Latham released a tax policy and for the last fifteen days the Government has been calling on him to have it independently costed.

The Federal election is now 17 days away and he has steadfastly refused to have his policy costed and hidden it from independent costing under the Charter of Budget Honesty because the policy doesn't add up. The policy contains costing errors and the policy contains behavioural or second round effects which are not generally allowed by The Treasury.

The most serious costing error is Labor's treatment of the Low Income Tax Offset. The Low Income Tax Offset is an offset of $235 per annum available to low income earners. Labor wants to abolish it and introduce something called the Working Tax Credit. The Working Tax Credit is $416, Working Tax Bonus I should say. The Working Tax Bonus is $416 per annum.

In Labor's costings on page one of their Tax and Better Family Plan, Labor nets the cost off the Low Income Tax Offset. It nets that cost off in 2005-2006. But the Low Income Tax Offset which is paid in 2005-2006 is an offset in respect of the current financial year. It is paid in arrears. It is paid by way of a tax refund. So if people are entitled to receive the Low Income Tax Offset in respect of the current financial year, under Labor's policy there is a $700 million hole in its costing. Labor can go the other way of course and say, there is no hole in the costing we just intended to abolish the entitlement in respect of the current year. If that is the case, that means that 3.5 million Australians who are entitled to, and are expecting to receive a Low Income Tax Offset in respect of the 2004-05 years will retrospectively have that taken away.

But they can't claim a saving for abolishing it in respect of 2005-06 unless they are going to take away a current entitlement in the 2004-05 year which would leave 3.5 million Australians worse off. Since their policy says that they did not intend to abolish it from 1 July 2004, one can only conclude that Labor intends to abolish this Low Income Tax Offset from 1 July 2005. They have made an error in their costings of $700 million. They have netted off the cost of an entitlement which will have to be paid if they are elected, and implement their policy.

In addition to that there are other errors in Labor's policy. There is the error of the reversal of the Government's measure to allow small business with annual turnovers of $50,000 or less to do so on an annual basis. Labor claims a cash saving from that in 2005-06. If Labor is successful and introduces that, that cash saving will be in 2004-05 and will not be available to fund its policy in 2005-06.

In addition to those errors there are other supposed savings that Labor claims to fund its policy. One is an overestimated revenue from ATO compliance activity which is outside the benchmarks that the Treasury has allowed in recent Budgets. The second is the so called participation dividend based on the so called Melbourne Institute Report which Labor claims will deliver $1.2 billion.

Now this analysis which I have released today, extensively reviews that so called participation dividend. So called participation dividends are not allowed by Treasury in respect of tax changes. They were not allowed in respect of the Budget. They were not allowed in respect of Family Tax Payments. In addition to that the analysis has been seriously selective. The Melbourne Institute has apparently modelled the participation benefit on changes on one side of the equation but left out corresponding tax rises from its analysis, based it on outdated data, left out the fact that in some upper, middle and upper income areas Effective Marginal Tax Rates increase under the Labor Party policy.

Now this policy should be submitted to Finance and Treasury. Finance and Treasury will be entitled to determine whether there is a so called dividend. It could have been submitted 15 days ago. The election is in 17 days. Mr Latham should have his policy independently costed. This policy has serious costing errors. This policy has non existent participation dividends. This policy is underfunded or alternatively this policy could make 3.5 million additional Australians worse off because it takes away from them the Low Income Tax Offset in respect of the 2004-05 financial year.

The people of Australia are entitled to know from the independent agencies what the effect of these policies are. The provision exists and Mr Latham should take it up immediately.

JOURNALIST:

Who has done this costing for you Treasurer?

TREASURER:

We have done it ourselves. That's our costing.

JOURNALIST:

Within your office?

TREASURER:

With assistance from other offices, yes.

JOURNALIST:

With any outside help or consultancy firms?

TREASURER:

No.

JOURNALIST:

Mr Costello, the $2.7 billion underfunding is that on an underlying cash basis or…?

TREASURER:

Yes, this is all on a cash basis.

JOURNALIST:

(inaudible) make any difference if it's on an underlying fiscal balance?

TREASURER:

Well I haven't done it on a fiscal balance because Labor's costings are on a cash basis. So I have done a cash analysis.

JOURNALIST:

So you had no help from any Commonwealth Government Departments in undertaking this…?

TREASURER:

No because the Commonwealth Government Departments will independently cost this policy when it's put in.

JOURNALIST:

(inaudible)

TREASURER:

Why, you know, let me ask rhetorically, why can't it be put in for costing? This was released 15 days ago. We have lost 15 days. This election is in 17 days time. Why hasn't this been put in for costing? I have been waiting every one of those 15 days for Labor to have the independent scrutiny.

JOURNALIST:

Mr Costello you used behavioural dividends in both the GST, introducing ANTS and the Ralph Reforms on Capital Gains. Why can't Labor use them for its tax policy?

TREASURER:

We did not have employment dividends.

JOURNALIST:

There were growth dividends…

TREASURER:

There were growth dividends…

JOURNALIST:

(inaudible) modelling?

TREASURER:

…in relation to the economy under A New Tax System. We have not used employment dividends. We did not use it in relation to income tax changes or Family Payment changes in 2003-04 or 2004-05. We have not used employment dividends.

Why? Because The Treasury wouldn't allow it. Now you don't have to take my word for it. It can be put into The Treasury and we will see if The Treasury will allow it in respect of Mr Latham's policy. Now this is the point here, there is an independent arbiter that can look at this.

The other thing I would like to show you, the other thing I would like to show you is of course, even on its own terms this so called participation dividend is exceptionally shaky. One, because it only models one side of the equation as we say in our document here. It doesn't take into account the other tax increases like the tariff increases, the increases in the superannuation surcharge. It relies on, as we say in this document, and I would ask you to read it in its entirety, it relies on outdated employment figures going back to 2001. It relies on Labour Market data of 2001 for an employment dividend in 2005-06 and 2007-08.

And of course it is notoriously selective, because the Melbourne Institute wasn't allowed to look at other changes in Labor policy that will undoubtedly affect participation. The greatest being workplace relations. Labor said, look at this narrow area, exclude the totality of this policy and exclude any other policy and try and work out for us how that will lead to a participation dividend.

JOURNALIST:

Treasurer has Treasury told you that they will reject Labor's tax policy with this participation dividend?

TREASURER:

No. Treasury will make its own decision.

JOURNALIST:

But you said it then they will not allow behavioural…

TREASURER:

Well, they have never allowed it to date. They have never allowed it for the Government.

JOURNALIST:

Isn't growth a behavioural model?

TREASURER:

Look, we introduced in our recent Budget $14 billion worth of tax cuts. And you know what we claimed for participation dividend? Nothing. Because Treasury in its, it says it, it says it in here in the Charter of Budget Honesty. It doesn't allow costing in relation to policies as second round effects. Because they are notoriously unreliable and you can only come to the conclusion if you know all of the policies that are going to be implemented.  You know, how could you possibly say if you are Labor, we introduced this Family Tax Policy, that will put 70,000 people in work and that will pay for this policy, but don't look at our Industrial Relations Policy because if we implement that, that might put 150,000 people out of work? That is what they cordoned off. And of course if that puts 150,000 people out of work there is going to be no participation dividend.

Now, you know, here we are, we have a situation in this Election where these issues can be resolved in accordance with standard practice and they can be resolved under the Charter of Budget Honesty. It could have been resolved 15 days ago. All I am saying to you is that Labor is letting the days click down, hoping that they can stick this in too late for the Treasury to analyse it, and too late for the public to have the facts. This is what happened in 1998, this is what happened in 2001, where the policies were going in on the Thursday night before the election so they couldn't come back in time. Now, 15 days have elapsed and there is no reason whatsoever why this policy could not have been submitted in the last 15 days.

JOURNALIST:

Treasurer, if Treasury is allowed to cost Labor's tax package and it finds a hole that is less than $2.7 million, does that undermine your credibility?

TREASURER:

Look, Labor has got questions to answer about its tax policy. Our tax policy is fully costed. Our policy is out there. Our policies are in with the Charter of Budget Honesty. You know, the question here is, why aren't the Labor Party policies.

JOURNALIST:

But do you hang your reputation, do you hang your reputation as an economic modeller on these documents you have provided us with today?

TREASURER:

No, I hang my reputation on the independent costings of Treasury and Finance and I say, let's get an independent assessment. Now I have been saying that Labor has to answer these questions for the last 15 days - Labor hasn't answered them. There is one way they can be answered.

JOURNALIST:

Do you stand by the accuracy of the figures that you have presented in this document here?

TREASURER:

These figures are accurate…

JOURNALIST:

Treasurer…

TREASURER:

…and they turn on assumptions and policies, but you know, what I am saying to you is that we don't have to have an argument about this, this can all be resolved – it could have been resolved 15 days ago. Let me ask you the question again, what is Mr Latham's reason for not submitting this policy 15 days ago?

JOURNALIST:

Mr Costello, this is, the $700 million that seems to be the strongest of the costings, these costing errors that you have talked about, that is a bit less than half what the Government's promised to spend on new Medicare measures during the election campaign which it isn't funding. Why is it OK for the Government to keep making un-funded election promises while bashing Labor about its head about its economic credentials?

TREASURER:

Well it is funded.

JOURNALIST:

How?

TREASURER:

It was in the PEFO.

JOURNALIST:

That doesn't mean it is funded…

TREASURER:

Yes it does, it means that it is in the bottom line.

JOURNALIST:

…it doesn't mean you have got offsetting savings.

TREASURER:

No, it means that it is fully funded and it is in the Budget bottom line.

JOURNALIST:

Mr Crean probably says quite rightly that you are spending like drunken sailors, I mean they are at least offsetting some of their savings, offsetting some of their spending with savings…

TREASURER:

Well I don't think they are.

JOURNALIST:

…well, but you are not even attempting to do it, you are attacking them for not…

TREASURER:

No I am attacking them because their policy indicates that they are not going to pay the low income tax offset in 2005-06 which people are entitled to in respect of the current year. That is what it indicates. Now, they have not told anybody that that is what they plan.

JOURNALIST:

So, it would be OK for them to say, oh no, that is what we are going to do and we will just reduce the surplus by that much.

TREASURER:

So, it would be OK for them to say, yes we are taking away the low income tax offset from people who are entitled to it in 2004-05 and that every person that is entitled to it as a consequence is going to be $235 worse off as a consequence. But you see what the Labor Party is trying to do is it is trying to tell you that everybody is going to be better off whilst hiding what they are taking away from them. This is the point, this is why you analyse policies. You know, they are, as we speak, in the marginal seats, the Labor Party is mailing out how everybody is a weekly winner on the basis of rigged tables. As we speak people are receiving letters in their letterboxes from the Labor Party, telling them how every week they are going to be better off. The trouble is, the figures are rigged.

JOURNALIST:

Treasurer, I am a bit confused, you say these figures are accurate, but you haven't used Treasury, but you are saying that Labor's are inaccurate for the same reason.

TREASURER:

Well Labor's figures are inaccurate and if Labor wants to have its figures verified there is a very easy way of doing it, submit its policy. I mean my policies are submitted to the Treasury, they are accurate. The Treasury determines whether or not they are accurate. Now Labor can do what we do. It can put them into the Treasury and I am saying that until such time as they put them into the Treasury and until such time as they have them analysed, nobody can believe the Labor policy. And I am asking you this question: why is it after 15 days that they won't do this? And I am saying that this is a dodgy document which relies on participation dividends, which relies on so-called tax dividends, which doesn't adequately account for the low income tax offset, which doesn't adequately account for the GST decision that we made in the last election – it is a dodgy document. The whole thing is dodgy. The tables are dodgy, the costings are dodgy, the participation dividends are dodgy and whilst we speak, the Labor Party is out direct mailing people claiming it has all of these benefits.

JOURNALIST:

Treasurer you have been very critical of Labor's welfare to work incentive saying that in effect it is just punishing poorer families, single income families, what will the Howard-Costello Government do in its fourth term if they are re-elected to create more incentives to get more people into the workforce and out of welfare?

TREASURER:

It is not just low income families, it is middle income and upper income, single income families that are worse-off too. You know, I keep harping on about the low income ones because you know, it beggars belief that you would want to take money off a family on $35,000 with three kids, but it is not just $35,000, they take it off families where their total family income is at $80,000 too. It's not just low income earners. The reason why Labor's policy takes money off single income families is that under the Government's policy where you have a single income, that is, where Mum is at home looking after the kids usually, you get Family Tax Benefit B - that is being abolished. And the reason you get further and further penalised by the Labor Party as the number of your children increases, they take away $600 per annum per child. But it is not just the low income earners, this is the point that I want to make, it is upper and middle income earners as well.

JOURNALIST:

But what are you going to do about welfare to work…

TREASURER:

Well I am going to hopefully defeat Labor's policy, which will make sure that all of those people are going to be hundreds of dollars a year better off.

JOURNALIST:

So you are not going to give them active incentives to get into the workforce?

TREASURER:

Well we announced in the Budget a whole lot of measures that gave them active incentives. We announced the moratorium in relation to families receiving FTB B that are returning to work. We changed the taper rates. We introduced intensive assistance in relation to sole parents. We have a whole range of measures. The one measure that we are not going to do is actually go down and say to parents give us back $500. Let me ask you this question: single income family, Mum is at home looking after three kids, Dad is earning $35,000, we are feeding three kids, Labor's policy is to take money away from them. It is not because they are not working, because Dad is out in the workforce, it is because they are low income earners. It is not a very fair policy and to try and dress up huge numbers of losers like that and say, oh well, actually you know, this is a good thing because it will force Mums out of home and into the workforce, it's putting a bit of a gloss on it. A very big part of it, let me say, you know, making a virtue out of an absolute catastrophe I would have thought. You know, their policy makes those people worse-off and they say, oh that is actually good because if we make them worse off we will scare Mum out of the home and into the workforce. Thank you all very much. Thanks.

 

22 Sep 2004

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