11 March 1996 - 3 December 2007
Interview with Kerry O’Brien
Monday, 29 August 2005
SUBJECTS: Tax, leadership
Peter Costello, given the headlines of the last few days on tax, I wonder can
you just clarify whether you and the Prime Minister are in step on whether you
believe that the top income tax rate is too high.
Well, if we could make it lower, I'd support that. Yes, of course I would.
But can you make it lower?
Well, that's the critical question. Asking me whether I'd like lower tax rates
- asking a Liberal whether they'd like lower tax rates is like asking a farmer
whether he'd like rain. The answer is 'yes'.
What's drawn everyone's attention, of course, is the high, the highest tax
rate. Mr Howard said last Thursday and again on Friday that he believed the
top income tax rate of 47 per cent was too high. Do you believe that the top
tax rate of 47 per cent is too high?
And if we could make it lower, of course, yes of course I'd love to see it lower. In fact, but I wouldn't just restrict myself to the top rate, by the way. I'd say of all rates, of course we'd like to see all rates as low as is consistent with good budget policy, low interest rates and decent expenditures.
But in the interview last Thursday night, Mr Howard quite specifically singled
out the top tax rate.
And my view is if you could have a lower top tax rate of course we'd love to
have that in Australia - of course we would.
But he says he wants to see that now. Do you want to see that?
Look, what will govern how far we can reduce tax rates - what will govern it
is this - can we balance our budget? Can we restrain our expenditures? Can we
keep interest rates low? Will our economy continue to grow? Now, if you can
put all of those things together, tax rates should be as low as is consistent
with those outcomes.
But philosophically, if you've got a choice of raising the top threshold so
higher income earners pay less tax or lowering the top rate, does it matter
to you which way you go?
Well, it becomes a political question, Kerry. Let me say, in this year's budget, we pushed the threshold up so that, from 1 July next year, you won't pay the top rate until you earn a dollar over $125,000. Now, that was defeated by the Senate. Kim Beazley said because it gave $90 a week tax cut to somebody on $125,000, he said it was unfair and unAustralian. It was defeated twice in the Senate. Now, we finally got that through earlier this month on one vote in the Senate, and all of this is just a question of what is achievable, what can you do? It was hard enough to get the threshold increased, Kerry, without trying to do more ambitious things in the last parliament.
But at the National Press Club speech you gave, the Budget speech in May, you
were quite dismissive of the idea of delivering big tax cuts, as you put it,
to millionaires - you gave the example of the millionaire who would get a tax
cut of $4,500 under your budget cuts, with your movement in the threshold -
the same as a person, as you said, earning $125,000. But if you cut the top
rate, that same millionaire, you said, might get a tax cut of $45,000. And you
seemed to deplore that idea.
Because I wanted to give tax cuts to everybody. The tax cuts which we introduced on 1 July are for everybody. The truth of the matter is, Kerry, there is so much money for tax cuts, right - $22 billion in this Budget. If you put $22 billion on everybody over $125,000, you get a big tax cut but if you want people on 10, 20, 30, 40, 50,000 to get a tax cut, you have got to share these things around. Let me tell you this - when our tax changes take effect, only 3 per cent of Australians will pay 47 cents in the dollar, and that doesn't mean they pay 47 cents in the dollar on their first 125,000. It's on each dollar after their first 125,000. Am I interested in them? Yes, but let me tell you, I'm very interested in the 97 per cent that don't pay the top rate as well.
But in May, it seemed that you were philosophically driven towards the thresholds,
too, because you said to the Press Club you preferred moving the tax threshold
because it produced fair cuts - you stressed the word 'fair'...
And gave everyone a tax cut.
...but also capped rates. Now, if you cut the top tax rate, it's not a capped rate, is it?
Sure, and of course, what was the political attack on us, Kerry? The political
attack on us was it was wrong to give $90 a week. That's the political attack
we had to weather. We were defeated twice in the Senate. We only scraped home
in August. My political judgment tells me, if we'd have done anything other,
we would have got an even worse reception.
It seems then that you're saying that you're governed in your policy making
by the politics of whether you're going to get whacked by the other side rather
than by what's right.
No, the politics of whether you can enact it or not.
Your backbench colleague Malcolm Turnbull has also gone to great lengths on
this issue of tax rates modelling 279 options for cutting the top rate and broadening
the base. And he says Australia's high-income tax rates, he calls them 'high',
"their high income tax rates encourage tax avoidance and income splitting,
discourage hard work and cause people to leave the country." He says, "they
discriminate against salary earners in favour of those operating companies."
Well, some of that would be right and some of it's not.
Which part isn't?
Well, you know, let me make this point. When you hear people talk about broadening
the base, what they're actually talking about is increasing taxes in some areas.
The immediate question you ask somebody who wants to broaden the base is, who's
going to pay more under that proposal? And that's why, when you see these options,
they've got to be very specific before you can actually assess who comes out
in front and who comes out behind.
Okay. Of course, every issue where there appears to be some difference between you and the Prime Minister is always going to be seen these days in the prism of leadership particularly as we move into next year, Mr Costello. It's not just journalists who are counting down to crunch time, is it, it's your colleagues as well?
Well, people can see these issues within that paradigm but I don't myself. This is the way I look at it. We did a budget, we cut taxes by $22 billion. We were defeated twice in the Senate. We finally got it through. Some of it's not yet come into effect. And if the opportunity arises to do more, why wouldn't you? Would I like lower tax in this country? Of course. Now, the only caveat I'll put on that is I'm not going to do anything to put interest rates up. I'm not going to drive the Budget into deficit. I'm not going to do anything that would reduce health care for Australians or protect the vulnerable. And I want to look after the 97 per cent as well as the 3 per cent. But you know, within that, if more becomes achievable, why not?
I guess the leadership question now is if Mr Howard makes clear by early next
year that he intends to stay on and contest the next election, will you have
the ticker to challenge him or move to the back bench?
Well, Kerry the issues of next year will be taken care of in good time. Let
me assure you, and I'm not going to hypotheticals, I'm not going to speculate
in relation to this - very focused on giving good economic outcomes to the Australian
Well then, this isn't a hypothetical question. Is it true that you told Mr
Howard when you met him in his Sydney office after his comments on leadership
in Greece that you were no longer prepared to wait indefinitely for him to leave
We had a long conversation. I don't recall particular words.
I think you'd recall if you told him words to the effect of that.
Even if I did, Kerry, the lovely thing is it was a conversation between him
and me, and I want to encourage him and me to have frank and open exchanges,
and we do have them, that's why I don't talk about them on national TV.
But it's interesting that you haven't rushed to deny that because that would
be very significant if you said that to him.
I haven't confirmed and I haven't denied. To be frank, you put to me what was in a conversation a long time ago. I mean, I could rack my brains and try and think...
I think you'd remember that if you said it.
...or Kerry, I could say to you, which is my general principle, that we have
lots of discussions about lots of confidential things and the day I start disclosing
them to 7.30 Report is a good day for you, but it's probably a bad day for our
Peter Costello, thanks for talking with us.