Transcript No. 99/03

Hon Peter Costello MP

11AM

Monday, 1 February 1999

11.00 am

E&EO

SUBJECTS: Employment, tax reform

DADDO:

Now to breaking news in Canberra. Just moments ago Federal Treasurer, Peter Costello, held a media conference announcing the Governments belief they can achieve a 4 or 5 per cent unemployment level. Peter Costello joins us now from Canberra. Good morning to you. Is this a target for the Government?

No, the point that Ive been making, Andrew, is that if you want to get more jobs in Australia and weve had pretty good experience in the last three years, I think 400,000 new jobs since the Government came to office. Weve got to work on four things. Weve got to work on economic growth. Weve got to work on improved industrial relations. Weve got to have a better tax system and weve got to improve the interaction and operation of welfare in the country. And the degree to which we can make progress on those things is the degree at which we can make progress on unemployment. The more progress on each of those things, the more employment opportunities well get. And of course, from my point of view the one that we could really progress at the moment would be tax reform. Weve got some legislation in the Senate and the sooner we get on and pass that the sooner well get the benefits of it.

So if you improve those four areas that you just stated, will, you should be able to get the unemployment level to 4 or 5 per cent.

The degree to which you make the progress, now, you see, if the Senate holds back tax reform, that means you wont make the progress that, on the economy generally, and on jobs, that you could otherwise make. The degree to which we dont go after high growth and low interest rates will hold us back accordingly. Its a bit like a race: the more hurdles you put in the way, the longer its going to take to get to the finish line.

So let me ask you again, is it, are you planning to get unemployment to 5 per cent. Well you, I mean, the Government must have a target for unemployment.

No, the Government believes that we should have the lowest unemployment rate possible

Well, yes, you wouldnt say a target of 10 per cent, for instance, so you know, obviously

well, in the current climate thats about 7 per cent, which is the lowest its been this decade. I think we should give credit where its due to the Government to have the lowest record this decade at 7 per cent is better than having the highest. But the point I want to make is this, that anyone who thinks that you can make progress without doing the hard policy is misleading people. The hard policy, balanced budgets and low inflation, and low interest rates and economic growth and now importantly, tax reform.

Mr Crean would say that with tax reform, and the proposed tax reform, that he actually has evidence that hell give to the GST inquiry saying that it wont actually create jobs but take jobs away.

Well I think this is where Labor could make a positive contribution. I think, you know, I heard Mr Crean today talking about how he thinks we should be more bipartisan

Yes I heard that as well. It was interesting.

And it was interesting. And heres a great challenge for him. I think if Labor could get bipartisan on tax reform, we would be prepared to say, look, OK the Government did the hard yards but if Labor was prepared to support it, this is something that both sides of politics could take credit for. And you have to give credit where its due. Back in the 80s Labor was in favour of tax reform. Now, they went to the last election opposing tax reform, but I dont think theres any reason why they couldnt now say, well, look, we accept the verdict of the election and well do this for the country. And if we got tax reform a big part of it is reducing income tax rates and thats what Im concerned about. Weve got a Bill in Parliament now to get lower income taxes. Id like to see that Bill go through because if we can lower income taxes and improve welfare benefits, thats a big part of the interaction between tax and welfare that I was talking about which will help jobs.

OK, well if the Opposition and the Democrats try to change the tax package in the Senate, will low and middle income earners lose their tax cuts, which you say are an important part of the GST.

Well, thats right. You see, if, you know, everybody talks about the GST but dont forget this, that part of tax reform is lower income tax rates. And if they defeat that people are going to be paying higher income taxes and part of tax reform is increasing family benefits. At the moment your family benefits are taken away 50 cents for every extra dollar you earn. And what were saying is thats too harsh. It should be 30 per cent so that people have incentive to work harder which will create more jobs. So, when you get to income tax cuts and welfare benefits, all part of tax reform altogether, unless we can get those things through we cant get the kind of better policies which are going to create a stronger economy and more jobs.

So if the Bill isnt passed the way that the Government would like to see it passed then tax cuts will go?

Well, lets make this entirely clear. The people that are opposing tax reform are opposing income tax cuts. Thats a very big part of it and what the Government wants to see is lower income taxes so people have got more money to spend, so you get a stronger economy, and if you improve income taxes and their interaction with family benefits you can give more incentive to work as well.

OK, so the answer is that if they dont put it through the way youd like to see it, tax cuts are in danger?

Well, if they dont pass the tax cuts, nobody gets them. Youve got to get legislation through the Parliament to actually receive the tax cuts. And as they hold up the legislation, they are holding up the tax cuts which people I think want and deserve.

OK, just speaking of tax, the ATO, the head of the Tax Office, Michael Carmody, said on the weekend that potentially, in the changeover to the GST youre going to lose billions of dollars in tax avoidance schemes.

Well, weve got very tight anti-avoidance mechanisms as part of this and the great thing about GST of course is it picks up the black economy. As you know, everybody has got to spend and if you have a GST even the people that can put their income offshore and so on are going to be paying taxes they spend. So, its a much better designed tax and we have alongside with it some very anti, strong anti-avoidance techniques which is going to make a fairer tax system.

OK, I think hes actually concerned about deferral schemes in the lead up to it. So any plans for that?

Well, I think one of the points that he was making, as I read his remarks, was that youre going to have to have good, strong anti-avoidance legislation which is very much a part of it. But its also a question of design. If I can put it this way: you can try and hot up an old model car, but if its not a modern design it wont go that fast.

I think therell be some EH owners wholl disagree with you on that one.

Well, you could get your EH going as fast as possible, Andrew, with a twin overhead cam, but youll never beat a Porsche if the Porsche has got the better design. And if you want the good design, the GST design, youll be making sure that youll be picking up a lot of that avoidance which a slower old model, no matter how its souped-up, is going to miss out on.

Alright, well well watch it all with interest and in earnest. Thank you very much for your time this morning.

Good on you Andrew. Thanks.

Peter Costello there.

Ends