Peter Costello

Media Transcripts

Budget

 

Transcript No. 2000/50

 

TRANSCRIPT

of

Hon. Peter Costello MP

 

Radio 2UE with John Laws
Wednesday, 10 May 2000
9.05 am

SUBJECTS: Budget

LAWS:

Peter Costello, our Treasurer, is in our Canberra studio. Good morning Treasurer.

TREASURER:

Good morning John.

LAWS:

Are you happy with the reaction to the Budget?

TREASURER:

I think it’s been pretty positive. I think, particularly in regional Australia, people have been worried about health services saying, well, this is a really good concrete targetted package which is going to make a difference. And that’s what we intend to do, real, on the ground, practical help, more doctors, better services, and I think the reaction to that has been very good.

LAWS:

Yes. Why did it take so long, is a question I’m getting put to me?

TREASURER:

Well, we’ve got a number of measures in there. The first thing is to get more doctors into country areas. Do you know that there are 1,000 people for a doctor in the metropolitan area, but 1,500 per doctor outside the metropolitan area? So, in the short term what we’re going to do is, we’re going to make sure every Australian medical school has a training facility in regional Australia. So the students go out to train in regional Australia, and deliver services while they’re there. The second thing we’re going to do is, we’re going to increase the number of medical places by 100 to students who are prepared to sign a bond, that once they’re qualified they practise for at least six years in the regional area. We’ll pay them $20,000 as a scholarship while they’re training, they won’t be able to practise anywhere else if they enter into that bond, and this will deliver more doctors into rural and regional Australia

LAWS:

I think it’s, I think all of that is terrific, but the question was, why did it take so long?

TREASURER:

Oh, why did it take so long to get this package? Well, you know John, the good news is the package has come. The second thing is, of course, we have been repairing the Budget over the last four years. We’ve got the interest bills down, as we pay off Labor’s debt we get the interest bills down. And as we’re paying less in interest payments, that means it frees up more money for higher priorities.

LAWS:

So, it took so long because prior to this there were higher priorities?

TREASURER:

No, it took so long because prior to this we were paying very large interest bills. Look, when we came to office Labor had run up 80,000 millions of dollars of Commonwealth debt. And the first call on any Budget was 9,000 million dollars just to pay the interest bill. We just had to pay 9,000 million dollars in interest on that debt. What we’ve done over the last four years is, we got the Budget back into surplus, we’re starting to repay Labor’s debt, and we’re now saving about $3 billion a year on that original cost. And as we save on the interest bills, we’re getting the mortgage down, we’ve got money for higher priorities.

LAWS:

Okay, what do you classify as a middle income earner?

TREASURER:

We think anybody earning up to $50,000 is a middle income earner who shouldn’t be on a tax rate above 30 per cent.

LAWS:

$50,000, $60,000 would you say?

TREASURER:

Well, the new tax rates that we’re introducing mean that anybody earning up to $50,000 pays no higher than 30 per cent. At the moment you pay 43 per cent income tax, we’re dropping that, that top marginal rate for the middle income earner, from 43 to 30, 13 per cent off your income tax top marginal rate.

LAWS:

What’s in the Budget for them given their mortgages are up a full per cent in the space of six months? I mean, that’s knocked them about tremendously.

TREASURER:

What’s in the Budget for them? Well, the largest income tax cut in Australian history. 52 days to go. 52 days to the largest income tax cut in Australian history. Those middle income earners, people on average earnings can be paying the top marginal rate of 43 per cent, it comes down to 30. Every taxpayer gets an income tax cut on 1 July. All rates are affected, everybody paying tax gets an income tax cut, and that’s the benefit. And what’s more, this isn’t just some vague promise . . .

LAWS:

Oh no, no . . .

TREASURER:

. . . 52 days and it comes into effect . . .

LAWS:

. . . it’s L-A-W law.

TREASURER:

. . . and this Budget delivers it. Well, remember the L-A-W, the last time people were talking about income tax cuts was back in 1993 . . .

LAWS:

When it was L-A-W law.

TREASURER:

. . . Keating put it into L-A-W law, he brought down a Budget and he said, the L-A-W. law was a big F-R-A-U-D, now . . .

LAWS:

It never happened.

TREASURER:

. . . never happened. Now, we have budgeted for this, and it’s 52 days and counting. And on 1 July every Australian taxpayer gets an income tax cut.

LAWS:

Those middle income earners, however, in fact everybody, are going to be paying higher prices, and they also will be paying higher interest rates, won’t they? And just back to your paying off the overseas debt. That’s going to be more difficult to pay off so long as the dollar drops, irrespective of what the previous Government did.

TREASURER:

It’s the Government debt that we’re trying to pay off, that’s the money that the Government owes. When the Government . . .

LAWS:

Yes, but the lower the dollar, the more difficult it’s going to be to pay off.

TREASURER:

Oh, not, it doesn’t really affect it in relation to the Government so much. When the Government makes a deficit, that is, it spends more than it has, it has to borrow . . .

LAWS:

(inaudible) but surely it would affect for any foreign debt, must?

TREASURER:

I’m talking about Government debt here. When people talk about foreign debt John, they generally talk about money that is owed by the private sector and the Government combined. Let me just go through it. When the Government runs a deficit, that is, it spends more than it has, it goes out and it issues bonds, it raises money it borrows. In Australia we borrow on domestic markets. When a Government makes a surplus, that is, it spends less than it has, what you do with that surplus is you put it in the bank. And in the bank, if you don’t owe anything, it’s an asset. In the bank, if you owe something, it comes off your mortgage. Okay . . .

LAWS:

Yes.

TREASURER:

. . . and what we’ve been doing after we balanced the Budget when we were first elected, every time we run a surplus we pay off some of Labor’s debt. After five Budgets we’ll have paid off $50 billion

LAWS:

Out of that 80 . . .

TREASURER:

. . . out of that $80 billion of debt. And that saves us on the interest bills, and as the interest bills come down, then we go and spend on higher priorities.

LAWS:

Okay. Just back to the middle income earner, I know you’ll disagree, but Kim Beazley is arguing the benefits of the income tax cuts are going to be wiped out within two years. I think it’s a bit hard to argue when you’re faced with higher prices and with higher interest rates, isn’t it?

TREASURER:

Well, I don’t think he’d know what he’s arguing. Beazley, of course, was part of the L-A-W, and when he promised income tax cuts they took them away before they applied, not for one day, not for one dollar as I say. And I think he’s a bit embarrassed that this is a Government that not only is delivering on its income tax cuts, but, somebody said to me this morning, that this has got to be the only Government in Australian history that actually abolished a tax before it took effect on the Timor levy. The Timor levy, as you know, was due to be introduced on 1 July, it was to pay for the magnificent contribution of Australian troops in East Timor, and it was to apply for a year, and it was to keep the Budget in surplus. When it became clear that we could manage that defence commitment in East Timor and keep the Budget in surplus without it, we decided we wouldn’t proceed with that levy. And on 1 July it’s a levy that never will come into effect. Not for a day and not for a dollar.

LAWS:

Yes, well that’s got to be a first in world history, hasn’t it . . .

TREASURER:

I think it has.

LAWS:

. . . the Government taking away a tax before it even introduces it.

TREASURER:

I think somebody said in the Daily Telegraph, that back in the Labor days they used to promise tax cuts and then not deliver, in the Coalition days they used to promise levies and then not deliver. They abolish taxes before they’re even introduced.

LAWS:

In 1997 you’d forecast a surplus this financial year of $10.7 billion, given a period of strong economic growth, where’s that money gone?

TREASURER:

Income tax cuts.

LAWS:

Well, yes. Surely a couple of billion on GST concessions?

TREASURER:

Yes, the Senate wouldn’t pass our package, as you know . . .

LAWS:

Yes, so what did the Democrats cost you?

TREASURER:

About $1.8 billion, well, when you say the Democrats, let’s be fair, the irresponsible person in this story is not Meg Lees. The irresponsible person in this story is Kim Beazley and the Labor Party. They voted against everything that we were elected to do. And because they were voting against everything that we were elected to do, then we could only get measures through the Senate with Democrat assistance. The Democrats punched a $1,800 million hole in our package. If you ask me, would the package have been better without it? Of course it would’ve been. I think everybody’s now realising that, but there we go. Beazley was irresponsible, and we could only get legislation through the Senate with Democrat support. It punched a hole through and it cost the Budget money.

LAWS:

What did East Timor cost, it must’ve cost a billion?

TREASURER:

East Timor cost about a billion in the first year, and about, it’ll, we’re still in East Timor as you know. Australian troops will be there for some time. The cost will come off a little, we think about $900 million per year to support the Australian troops in East Timor.

LAWS:

Can I put this to you? The Opposition will argue that every cent that you’ve saved is going to be spent easing the pain of the GST. Labor used to be ridiculed for a surplus like this, what’s suddenly changed? You fellas used to give Labor hell over this.

TREASURER:

Well, Labor never produced surplus like this. Labor, you know, in the last five years . . .

LAWS:

Any sort would’ve done for them to be ridiculed.

TREASURER:

Well, we might have actually given them a little bit of credit, if in the last five years, they produced surpluses. Not only did they not produce surpluses John, give me this point. When you added up the deficits, I think it was something like a $10 billion deficit, a $17 billion deficit, a $17 billion deficit, a $13 billion deficit, and a $10 billion deficit, and $80 billion, check my figures, but $80 billion over five years. I know over the last three years it was $17 billion in the red, $13 billion in the red, $10 billion in the red . . .

LAWS:

And you got 80?

TREASURER:

. . . and when you accumulated it over five years, when you added up all the deficits over five years it was 80,000 millions of dollars. Now, we then said, well, hang on, we’ll get the Budget back in balance so we won’t be running up any more debt. And then when we started producing surpluses, what are we going to do? Well, we’ll start paying off that debt. We’re going to get rid of Labor’s debt . . .

LAWS:

Yes, well you got rid of (inaudible) . . .

TREASURER:

. . . we’re 5/8 of the way there . . .

LAWS:

. . . which is commendable, nobody could argue with that.

TREASURER:

No. Well, nobody could argue with the fact that, not only did we not run up further debts, that’s the first point, but when we got the Budget back into balance we started paying down Labor’s debt. If I were becoming Treasurer today, rather than five Budgets ago, I’d be carrying a debt $50 billion less, and I would be thanking my predecessor. But we came in and there it was John, the debts don’t go away. When the Governments run debts they don’t go away. You’ve got to repay them to get rid of them.

LAWS:

Well, everybody does. Labor was always ridiculed for its reliance on asset sales. Don’t you deserve the same ridicule?

TREASURER:

No. The Labor Party sold off the Commonwealth Bank, spent the money, was still in deficit and went out and borrowed more, that’s what it was ridiculed for.

LAWS:

I see, but . . .

TREASURER:

Whilst it was producing those deficits it was selling assets. So it sold an asset, spent the money, still couldn’t balance the Budget and borrowed more. What we do is, we try and, when we have an asset sale like Telstra, we don’t even spend it, we don’t spend a dollar. We just put it in the bank and we retire our debt.

LAWS:

Yes, but you still sold an asset.

TREASURER:

Telstra?

LAWS:

Yes.

TREASURER:

Well, we did. We sold shares in Telstra, but we didn’t spend the money. What we did with that money was we put it in the bank and reduced Australia’s liabilities. That’s what you ought to do with those asset sales.

LAWS:

If you retire a debt, there’s no money left in the bank, is there?

TREASURER:

Well, let’s suppose you and I owe the bank $80.

LAWS:

Big spender.

TREASURER:

Okay.

LAWS:

Yes.

TREASURER:

$80, and we sell an asset, we could go and spend the money, in which case we’d still owe the bank $80, or we could take that asset and we could, suppose we sold it for $50, we could pay off $50 of debt. At the end of the day, we haven’t got the asset, but our debt’s only $30. That’s what we do, except we just put a billion after the 80.

LAWS:

Yes, but you and I . . .

TREASURER:

Now, what’s wrong is, and this was a Labor theory, you start off with $80, you sell the assets, you spend that and you say, ‘oh, better borrow some more as well’, and you put your debt up to $90. So their theory was sell an asset, you spend the proceeds and then because you still want to keep spending up, go and borrow some more as well. So at the end of the day you’ve got a higher debt and no asset.

LAWS:

I would think that the rich people, the people around the place are very happy about the dumping of the East Timor tax ‘cause it was going to knock them about a bit. And as much as I appreciate your generosity, can we really afford to dump that, I mean there was a lot of money there, wasn’t there?

TREASURER:

There was about $900 million. That was about the cost of the East Timor engagement, which was about $900 million per annum. It was only to cover us for one year. John, I think this is a basic principle. We said to the Australian people when we went into East Timor, the first point is this, Australian troops are going to lack for nothing, that’s the first point. We’re not going to put soldiers into the field unless they have everything they need to do their job. And we said that will cost us $900 million additional. We also said, well, if we just pay $900 million that would drive the Budget into deficit, and we don’t want the Budget in deficit. So what we’ll have is for one year, a revenue raising levy of $900 million. When it became clear, John, we could pay for East Timor and keep the Budget in surplus without the levy, people said, ‘oh, why didn’t you bag the levy anyway, why don’t take it and spend it on something else’. I didn’t think that was right. We told the Australian people the purpose of that levy was East Timor, and it was necessary to keep the Budget in surplus. If we can keep the Budget in surplus without it, we owed it to the Australian people to say that levy will come off. This is a point of trust with the Australian people. And a lot of people run around and say, ‘oh, yeah the money, you know, they wouldn’t have noticed, keep the levy, spend it on something else’. That wouldn’t have been right.

LAWS:

But, it was broadly accepted, wasn’t it?

TREASURER:

It was broadly accepted. It was broadly accepted. And if I may say so, and a lot of people have said to me, ‘ah, you wouldn’t have had any pain if you’d kept the money’, but I say this, it wouldn’t have been right John. It wouldn’t have been right to get the trust of the Australian people for a levy on the grounds that it was needed for East Timor to keep the Budget in surplus and have East Timor paid for and the Budget and surplus without it and say I’ll keep it. It wouldn’t have been right, John. And we wanted to keep trust with the Australian people on this issue.

LAWS:

The Australian dollar dipped to a new 20 month low overnight. Markets viewing the surplus as precarious I imagine. The pressure obviously remains on interest rates, doesn’t it?

TREASURER:

Well, the world interest rates have gone up and Australia has followed them by 1 per cent over recent months, which is what they’ve moved in Europe and in America. I actually think that in relation to our economy, we have our economy on a pretty firm footing. A 3- per cent growth, we’ve got low inflation, we’ve got a Budget in surplus. We’re repaying Labor’s debt. I think fiscal policy is good in this country. Let me give you one figure…

LAWS:

Could I just say this to you? You talk about other economies, it would appear to me that their economies are booming. I mean last Friday’s employment figures in the US showed the lowest job rate in an age, under 4 per cent and everybody’s sailing along pretty well. But there’s already evidence that our economy is slowing, so isn’t the pressure still on interest rates?

TREASURER:

No. I agree with you that the US economy appears to be kicking up.

LAWS:

Yeah.

TREASURER:

I agree with that. The Australian economy grew faster than America for the last 2-2 years. Now it looks as if the Americans will equal us and their growth may exceed ours.

LAWS:

Okay, well if they keep running hot, they may well increase interest rates.

TREASURER:

They may well.

LAWS:

And if that happens, it puts pressure on us, doesn’t it?

TREASURER:

Not necessarily because interest rates in Australia are set with a view to the Australian economy as well. And what we are doing in Australia is we are trying to ensure that we keep inflation under control. Now, I don’t want to give any statement on the future direction of interest rates, but I do agree with your observation that the US economy is strengthening. That is actually, as I keep on saying, not a bad thing for Australia. If world growth picks up, then we will get more for our exports, our export growth will be stronger and that will actually keep our economy stronger than it would have been. So, don’t think that strong world growth is a bad thing for Australia. Strong world growth is a good thing for Australia.

LAWS:

But the Reserve Bank’s already admitted that it’s tried to prop up the dollar, so it must be keeping an eye on what’s happening elsewhere.

TREASURER:

Well, can I say John, the Bank publishes a statement of the reasons why it sets interest rate policy. And you have to read those reasons very carefully and in its most recent statement, the Bank referred to a number of factors, both domestic and international.

LAWS:

Let’s have a look at excise duty, ignoring fuel for a moment. The excise will take a jump from $2.7 billion to $6.8 billion. That’s a big whack considering the GST was meant to streamline the indirect tax system, isn’t it?

TREASURER:

Well it will depend, I don’t know which excises you’re talking about there, but if you are talking about beer excise, is that what you’re talking about?

LAWS:

Yeah. Yeah.

TREASURER:

What is happening in relation to beer is, beer has currently got a 37 per cent wholesale sales tax which is being abolished, and a 10 per cent GST. So when you abolish wholesale sales tax, 37 per cent, and you put in place a 10 per cent GST, it’s being taxed dramatically less.

LAWS:

Yeah, we’re talking about beer and cigarettes.

TREASURER:

I’m coming to beer now. So what we’ve said is, we would adjust the excise rate so that the price of packaged beer moved by 1.9 per cent which is the overall price impact with the tax package. And the new excise rates were announced to accomplish that last night, but you’ve got to look at both the excise rate and the wholesale sales tax to get a picture of the overall taxation in relation to beer.

LAWS:

But the excise on cigarettes, and include fuel, is all linked to inflation. Now given inflation jumps with the introduction of the GST, and it will, won’t it, haven’t you already locked yourself into a significant growth tax there?

TREASURER:

Excise on cigarettes has gone up. That went up in November of last year.

LAWS:

But if inflation goes up, it’ll go up more.

TREASURER:

Yeah, you’ve got to really treat them independently and separately, but let me just come to cigarettes now. We moved to a different way of taxing cigarettes, we moved to an excise per stick, per cigarette. Prior to that it was actually an excise on tobacco weights. And we did that at the urging really of the medical profession, which thought that those lightweight cigarettes which young people take up were being undertaxed. We were the only country in the world which was producing them and they thought that they should be taxed on an equivalent basis. And that was the way in which we move the excise in relation to cigarettes in November of last year.

LAWS:

Yeah, but the fact would remain that given we will have an inflation jump, and we will won’t we after the introduction of the GST, that means cigarettes will go up again, fuel will go up again, and alcohol will go up again.

TREASURER:

Excise is actually a dollar amount. It’s not a percentage.

LAWS:

But it is tied to inflation, isn’t it?

TREASURER:

As prices go up, if you didn’t index them, the excise as a proportion of the value would fall. And the Labor Party under, I think it was Mr Keating actually, introduced indexation so that the excise which is the cent or the dollar amount, rises in proportion to the product rising. We’ve supported that, that’s been in place now I would think for well over a decade.

LAWS:

Yeah. But even though he introduced it, you didn’t drop it?

TREASURER:

Oh no, nor did we say we would. We actually have never said that it was the wrong idea. We actually admitted, well you know, our view was that where you have an actual dollar amount, that it should follow prices and it should be indexed. What we have done though is we have cut excise from 1 July in relation to diesel and transport costs which has never been done before.

LAWS:

Oh yeah.

TREASURER:

You know that in the trucking industry that the diesel excise of 44 cents a litre, and we’re cutting it back to 20 by 24 cents a litre.

LAWS:

I think it also has to be remembered that never in the last decade has inflation been subjected to such a big jump. I mean it’s going to be a big jump.

TREASURER:

I would say probably never in the last decade has inflation been so low.

LAWS:

That’s right, but never has it been about to face such a big jump.

TREASURER:

John, in the 1980s, when under a Labor government, inflation was 8 per cent per annum. 8 per cent on 8 per cent on 8 per cent on 8 per cent on 8 per cent for 10 years. So, when you talk about a 2 per cent underlying inflation rate with a one-off 2- percentage, a one-off 2- percentage which would bring it into the 5’s as a result solely of tax change. In fact, that would be lower than it was in any one year during Labor administration, during the 1980s.

LAWS:

Yes that’s right, certainly lower. We’re not talking about the height, we’re talking about the fact that there is going to be a predictable jump, and it’s a pretty big jump. Anyway, anyway let’s leave that. But just back to the beer for a moment or two. You’re standing firm on the price of beer over the counter. Packaged beer rises by, as you said, 1.9 per cent, yet a middy at the bar goes up by 9 per cent, bit over, 9 per cent I think.

TREASURER:

We think the middy at the bar should move by around about 7 per cent. And the reason for that is that with goods and services tax, you tax the value of the final product. Now with a middy over the bar, you need premises, you need someone to pour it, you need glasses, you need washing of glasses, all those additional costs are put in.

LAWS:

So it’s the service component, but…

TREASURER:

The service component that’s taxed. The idea of a goods and services tax if I may say so.

LAWS:

Absolutely, and I understand that. The industry claims however that the service component accounts for about per cent.

TREASURER:

Well the reason why a packaged beer moves by 1.9 per cent and the same excise rate moves beer across the bar by 7 per cent, is the difference between a packaged beer and a beer across the bar, which is the served component including the premises and the labour and everything else.

LAWS:

But you still need the premises and labour to serve a carton of beer. You still need premises and labour in a bottle shop.

TREASURER:

But it’s very much less. If you go into a bottle shop or go into a supermarket, you go in and you buy, I don’t know about you John, but you go in and you buy 24 stubbies or whatever it is, and you go home and you serve yourself and you wash you own glass and all the rest of it.

LAWS:

Yeah, that’s the point. But you still require the premises and you still require people working in them or . . .

TREASURER:

Yeah, you will, yeah you don’t require dedicated premises. It might be …

LAWS:

Yes you do.

TREASURER:

Well it might be in a supermarket. They have sections.

LAWS:

It’s a dedicated area, somebody’s got to be there running it.

TREASURER:

And in a bar you’ve got to have a licenced premises and wash and tanks, and all the rest of it. But the point about all of this, is, and you know, I know the brewers are fighting a pretty strong campaign. Everybody has got more money to spend. That’s the whole point. The whole point of tax reform, John, is to tax people when they spend and give them more money to spend.

LAWS:

Well I understand that. Peter, I understand that.

TREASURER:

What the brewers want to say is oh well, they’ll be taxed with their draught beer at the counter and they want to stop there. What they don’t want to take into account is that, what does the Government do with all this money? It cuts income taxes. So your average family man, you know with two kids has $50 a week more a week to spend. They only want to look at one side of the equation.

LAWS:

Well that’s right but I’m not talking on behalf of the brewers. I’m talking on behalf of the publicans and you say that now they’re going to go and buy their beer and take it home and that’s exactly what they will do. So what’s going to happen . . .

TREASURER:

A lot of people do that already by the way. And, as I understand it, 70 or 80 per cent of beer sales in Australia are packaged.

LAWS:

Yeah I talked to a publican in a small country town and I know that you’re now concerned about what's going on in rural areas of Australia. Well he might as well just transform himself into a bottleshop, because the packaged beer only rises by 1.9 per cent, you say 7 for beer over the counter. It seems to me a lot of people are saying 9, but whatever it is, it is certainly more. So what’s going to happen to over the bar trade in little country towns where they’re battling anyway?

TREASURER:

Well, I think that people who’ve got more money to spend, will be, if they enjoy a beer over a bar, will continue to enjoy a beer over the bar and, what’s more, they’ll have more money in their pockets to pay for it and after they’ve paid for any price increases, they drink the same number of beers they’ll take home more money, because even after paying for price increases their income tax cuts will put more money in their pocket. You see they, they don’t want to take, you see from a brewer’s point of view or a hotelier’s point of view, they don’t actually look at how much people have in their pockets. You see, they only see one side of the equation, but you and I, we’ve got to look at both sides of the equation . . .

LAWS:

What about that higher . . .

TREASURER:

. . . When we look at it from both sides of the equation, people will have more money to spend.

LAWS:

What about their higher mortgages, Peter?

TREASURER:

Well, John as I say, these people, everybody who’s paying income tax or even if you happen to be a pensioner, are getting income tax cuts and price rises, pension rises I should say. And the whole idea of this is to give people more disposable income so that some prices will go down, some prices will stay the same, some prices like a beer in a bar will go up. But at the end of the day you’ve got more money, you’ve got the power, you decide where you want to spend it and you’ve got more money to spend.

LAWS:

Okay. You understand that I support the GST, I think that it was exactly what was needed, but I’m simply putting questions to you that will effect people that we may not have thought about. I mean, I wouldn’t have thought about the country publican until a sweet lady from the country called me one pub, one town, and she believed she was going to suffer. But time will tell. There’s a significant amount of spending in rural areas which makes us all very happy, but some are arguing it’s not enough. Are you keeping your powder dry for the next election?

TREASURER:

Oh no. These are targetted, practical measures. Look, people, some people say ‘oh you know, announce more money’. Our view is this. Real, practical, on the ground, make a difference in a defined area. What’s the problem? The problem is the lack of doctors and medical services. Let’s fix that problem. Better than just promising vague dollars on programs which, which are never going to make a difference. Practical, on the ground, real, tangible benefits in a defined area with a program which is targeted for results and that’s what this Budget does.

LAWS:

Have you kept some money aside for the next election for rural areas?

TREASURER:

No, look, we budget each year for a responsible economic policy. We’ve budgeted this year for a responsible economic policy with moderate but focused and targeted initiatives and next year we’ll do the same.

LAWS:

Okay. You talk about what we lack in rural areas. You missed out one, I think, fairly important thing and I think that’s water. We haven’t built a new dam in 16 years, when are we going to do that? There’s seven times more water in the gulf country than in the Murray – Darling Basin and it goes to waste.

TREASURER:

I don’t know that that’s right that we haven’t built a dam in 16 years. I know of a few dams that have been built …

LAWS:

In 16 years in Australia…

TREASURER:

I don’t know which area you’re talking about. Are you talking about New South Wales?

LAWS:

This statement was made by Bob Katter and given his love of and relation to the land, he mightn’t be too crazy about you at the moment.

TREASURER:

Did he say that we haven’t built a dam anywhere in Australia in 16 years?

LAWS:

Well obviously he means a dam of substantial proportion, I mean I’ve built a few on my property but apart from that.

TREASURER:

Well, I know of a few that are under construction or are on the boards. I’d, before I commented on Bob’s proposition I’d want to get some pretty firm facts on that.

LAWS:

Okay, well I’d like to do the same thing and maybe we can discuss it again. Finally, cause I know you’ve got a hell of day in front of you. I had a visually impaired man ring yesterday, and this might seem trivial, I don’t think it is, the cost of dog food for his guide dog is now going to rise and rise significantly because the sales tax from which he was exempt has been abolished. But he is still forced to pay the GST. Now it might seem trivial, but I think it’s tremendously important as there would be a lot of people in this country in exactly the same boat.

TREASURER:

Well I don’t think it will rise considerably….

LAWS:

It will, we worked it out yesterday.

TREASURER:

Oh well, we’ll have a look at that, if you’d like us to, but even in relation to dog food, wholesale sales tax is embedded in dog food. He’s paying embedded wholesale sales taxes in his dog food.

LAWS:

We, we, he gave us the details yesterday. And in fact the man who merchandises the dog food has already put the price up and then its going to go up again another 10 per cent.

TREASURER:

Well, hang on, if he’s already put the price up, he couldn’t have put it up as a consequence of GST because GST isn’t even applying at the moment.

LAWS:

No, but that’s the story, but that’s what happened, he’s done that.

TREASURER:

Well, if he’s put it up and he says it was related to GST, then your listener could ask the Australian Competition and Consumer Commission to have a look at it.

LAWS:

Let me just tell you the story very quickly. He used to buy his dog food from the vet or the pet shop. And a 4.5 kilo bag of this particular dog food cost him $33.90. But with his tax exemption it came down to $27 or $28, 22 per cent or whatever it was. Last time he went to buy a bag he handed over the tax exemption certificate and he was told he didn’t need that any more because there was no longer a sales tax on the dog food. But he was then charged $33.90. So then he said well if there’s no sales tax why is it so expensive? And they just said there’d been a price increase of 20 per cent. He rang the ACCC and he was told by them that there was nothing that they could do. But I would like to talk to Professor Fels about it.

TREASURER:

Well why don’t we get him on about it? Because there’s, nothings changed on sales tax, sales tax is going to be abolished on 1 July, but for the next 52 days it’s still there.

LAWS:

It should be.

TREASURER:

So that can’t be right if they said to him there was no sales tax. That couldn’t be right as the first proposition, so . . .

LAWS:

Well if he continues to buy this brand of dog food, and I think he will, instead of paying 27 or 28, he’s going to pay 36 or 37, that’s $10 a bag difference.

TREASURER:

Well obviously there's been a price rise there. Now we need to get to the bottom of what it is, but I can say to you it’s got nothing to do with sales tax or GST because sales tax still applies and GST doesn’t apply and nothing changes on that until 1 July and if he bought it last week or whatever, he bought it under the same system as he’s been buying it under for years. So you’d need to get to the bottom of that. If you like, you could send me a letter and I’ll pass it on to Professor Fels.

LAWS:

Okay, would you do that because I think its…

TREASURER:

But could you send me a letter about it or get your listener to send me a letter about it, and, what was his name?

LAWS:

His name was Michael.

TREASURER:

Michael. He should say in his letter, I’m the Michael that was on the Laws program. And I’ll refer it down there.

LAWS:

Okay, because there are many people who will be affected in the same way and if they’re suddenly going to have to pay $10 more for the dog food and they require the dog, couldn’t some exemption be available to blind people surely?

TREASURER:

Well let’s just look at what this is, because I’m pretty sure and I can tell you that it’s not related to tax changes if it happened in the last week or so.

LAWS:

No, but if there has been a price rise of 20 per cent, it then will be affected by tax changes radically.

TREASURER:

Well, who knows what that price rise is. It could be one of a thousand reasons. It could be, well who knows, we shouldn’t speculate, it could be on inputs, it could be on profit margins, it could be on anything and the best thing for us to do John, is to have a look at it.

LAWS:

Yeah, okay Peter I would appreciate it. It’s been terrific to talk to you, as I said I know you’re in for a busy day. It would seem that the majority of commentators accept and like the Budget. Most of the newspaper headlines are okay. I hope it remains that way.

TREASURER:

Thank you very much John.

LAWS:

And thanks for your time.

TREASURER:

Okay bye.

LAWS:

Our Treasurer, Peter Costello.

10 May 2000

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