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15 May, Budget
May 15, 1998
Superannuation and Family Law
May 19, 1998
15 May, Budget
May 15, 1998
Superannuation and Family Law
May 19, 1998

18 May, Budget, tax reform

Transcript No. 24

Hon Peter Costello MP

Address to the Griffith/Moreton Electorate Lunch

Monday 18 May 1998
1.15 pm

SUBJECTS: Budget, tax reform


Thank you for that welcome Gary and can I say to my colleague, David Jull, what a pleasure it is to see you here. To Bob Tucker. And we’re of course here at the home of the Broncos and what a pleasure it is for me to have two young broncos, Graeme McDougall and Gary Hardgrave who are representing this area in the Federal Parliament. Two of our Members that came in in the great 1996 landslide and two Members who we want to see going back to Canberra after the next election. And I want to say to you that their contribution in Canberra has been very significant and I believe it will grow as you give them support and as the Government’s agenda begins to take shape over the remainder of this term and the beginning of next.

When we were elected at the beginning of 1996 in one of the great turning points of Australian political history we thought it was important that we actually looked down and we started to think long term. WE thought it was important that we started to set out some markers for ourselves. You couldn’t undo 13 years of Keatingism in 13 months. You weren’t going to be able to change around a financial position which had deteriorated as badly as it had in a short period of time. But the important thing in March of 1996 was to start. And to start doing hard yards. And the first thing that we said when we came to office was that a Government that was running a $10.3 billion deficit on an annual basis had to stop and turn around. And we laid out a marker. We said in our first term of Government we want to get the Government living within its means. We want to have a Budget back in surplus.

And the second marker that we laid out was we said a Government which was carrying, as Gary said, $96 billion, 96 thousands of millions of dollars, and adding to it at the rate of $10 billion a year, we had to put it on a path where we could first stabilise that debt and then start repaying it. And we said within five years we want to stabilise and then halve the debt to the economy ratio. And when I got the opportunity to deliver Australia’s Budget last Tuesday I took the opportunity to paint a picture of where we’d been, the goals that we’d, set to measure out progress and to throw forward to where we wanted to go.

The first thing was: how had we gone in relation to our goal to get Australia back in the black. Well, we’d said we could get Australia back in the black and we projected a $1.6 billion surplus. We made it and we beat it. This year Australia, the Australian Government, will live within its means. And it will live within its means not because we raise taxes – for the third year in a row there was no increase in income taxes, no increases in company taxes, no increase in the wholesale sales tax, no increase in the petrol excise. This could be one of the few governments in post war history that can say for three years it never increased any of those taxes. We did it by doing the hard part of the Budget, by getting Commonwealth Government spending under control. Do you know, that when Jocelyn Newman, the Social Security Minister, decided to instruct her Department to actually clamp down on people who were getting entitlements to which they were not entitled, and when the Social Security Department started making people prove their entitlements or repay their money, do you know that the Commonwealth Government saved $28 million a week. $28 million a week. Asking people who had taken entitlements to pay them back. But that hadn’t happened under 13 years of Labor. Do you know that we were able, just with measures like that, by taking the good housekeeping approach to Government, we were able to take Australia from a loss position and put it back in the black.

And a lot of people say to me well Treasurer if you’re back in the black why don’t you spend some of that money? What good’s a $2.7 billion surplus unless you spend it? And it’s very important to explain to people all a surplus means is this year we’re not going backwards. But those accumulated debts in the last five budgets of Labor, accumulated debts of 80 thousand million dollars, they don’t disappear. They’re still there. We still owe them. We still have to collect taxes to service them. A surplus of $2.7 billion just means we’ve got $2.7 billion to bring down our debt. It’s a bit like your credit card. If you don’t make your monthly payments on the credit card then all you do is increase the amount outstanding. If after eight years you finally get yourself to a position where you do make the monthly credit card payment, the outstanding amount hasn’t gone away. It’s still there. It’s just that in that month you’re not making it greater. And in this year we’re not making it greater. And in this year, instead of running up debt, we’ll be retiring debt.

When the Treasury came to me with their financing statement in the Budget they said to me Treasurer, this year we’ll have a net negative financing requirement. And I said, oh, that’s interesting. A net negative financing requirement. What’s a net negative financing requirement? They said well that’s when your net financing is negative. I said oh, that’s interesting. Let’s just think about this for a moment. What is a net financing requirement that’s negative? And they said, oohhh. And I said how about this word: repayment. And they said gee we’ve never used that word in a Commonwealth Budget. Repayment. Repayment. Words that Labor couldn’t and didn’t use. So we made our first goal and now we start on the second.

The second goal is to start breaking the back of Labor’s debt. And breaking the back of Labor’s debt gives us opportunity. The opportunity it gives us is this: once we break the back of Labor’s debt, we won’t have to raise $8 billion in taxes to pay our interest bill. We can raise $8 billion in taxes to buy schools and health and education. Or, we can start raising less in taxes because we’ll have taken the yoke of debt and we’ll have smashed it. We can smash the Keating/Beazley/Labor legacy.


Rub it out. And give Australia opportunity that it would not have had otherwise. And the opportunity is better services and lower taxes. And let me make this point. This is a pro youth policy. This is a pro youth policy. One of the tricks that governments got into in the 60s and the 70s and the 80s in this country and indeed around the world, was to tell the public that they could take a standard of living higher than they were willing to pay for and finance it out of debts. Debts which current generations wouldn’t have to service, but future generations would.

And you know why government loved a policy like that? Because future generations don’t vote. It was a technique of stealing from the future for a lifestyle of today. To lavish on the people who vote today at the expense of those who will vote tomorrow.

The Keating/Beazley/Labor deficit strategy was the most anti-youth strategy you could possibly imagine. It was a strategy to reduce opportunity for future Australians. And we want to give opportunity for future Australians.

That’s the first thing that we said. We want to get Australia paying its way and we want to give opportunity for younger, future Australians.

The second thing is that we knew as we confronted an economic environment which was as tough as we’ve seen, it was important that we attend to fundamentals. You know, for the last 25 years the one thing you could always say about the Asian region, regardless of what was happening in Europe, or America, or Australia, that the Asian region would be the fastest growing area of the world and would pull Australia in its wake.

One of the reasons why Keating spent so much time trying to tell Australians that they were part of Asia and tell the world was it was seen as a benign environment. If we were part of Asia we would be part of the fastest growing area in the world. We would get growth which we wouldn’t otherwise get. And for the first time in 25 years that’s all changed. Asia, far from being an engine for Australian growth, will now be a brake on Australian growth. Even when Australia was in recession in 1990/91, Asia was growing at eight and 10 per cent.

We look out into the Asian region today, not an area of great growth, but an area of uncertainty and turmoil and difficulty. And the message for Australia was, at a time like this, to strengthen the foundations.

I’ve got a four year old daughter and I had the opportunity of reading her the story of three little pigs – about the house made of straw and the house made of sticks and the house made of bricks. And the wolf can blow down the house made of straw and the wolf can blow down the house made of sticks, but when he comes to the house made of bricks he huffs and he puffs, and he huffs and he puffs, but he can’t blow that house down. Strengthening the Australian economy is all about taking a house made of straw and turning it into a house made of sticks and taking a house made of sticks and making it a house of bricks. So that when the regional turbulence huffs and it puffs, the foundations will be strong. That’s what we want, strong foundations. And we have some very strong foundations in this country. We have inflation at 1.5 per cent, or in consumer price terms, zero or negative. The best since it’s been since 1963. As I like to say, the lowest inflation since a band called The Beatles came out of Liverpool singing Twist and Shout. Low inflation has meant that we can have lower interest rates in Australia. The lowest home mortgage rates since 1969. Since Neil Armstrong walked on the moon and said one small step for man, one giant leap for mankind. And low interest rates have been good for business. The best employment results since 1990. Since Paul Keating said this was the recession we had to have. Low inflation, low interest rates, good employment outcomes, a Budget going into the black and the debt burden reducing by half. Strengthening the Australian economy and it couldn’t have been more important than now. It could not have been more important than now.


And the message that I have in relation to the macro economy is that having run the first leg to get back into the black, being well advanced on the second leg to reduce debt by half, now is not the time to turn around or to stop or to flag or to fail. Now is the time to keep delivering good economic policy. Our opportunities depend on it. As we look out into our region, which is full of turbulence at the moment, and we see an Australian economy which is growing and could well be the strongest growth in the region in 1998, we ought to be thinking – and we are already thinking – how do we want to come out of this turbulence? Where do we want Australia to be positioned? This will be a time of tremendous opportunity for us.

The lessons are clear. A strong financial system, good corporate law, a good Court system, social stability, good skills and languages. Australia, the business centre of the region. We ought to be thinking now through this turbulence to the objectives for our country as we come out the other side. We ought to be picking up the pace. Stealing the competitive advantage. Opening up the horizons. Giving opportunity for our young people. Creating an environment for business to thrive. And that’s what our Government is all about. When you think back over the last two years in relation to the small business sector, interest rates, overdraft interest rates at 7.7 per cent. According to the Reserve Bank, the lowest since they kept records for the last 33 years. Keating and Beazley had small business overdraft interest rates and 20.5 per cent. In fact it makes you wonder how any small business survived.

In fact I think we ought to sort of have a competition and give out sort of a medal of honour – “I survived the Keating/Beazley interest rates of 20.5 per cent in 1989/90”.

Capital gains tax rollover relief, so that small businesses that sell one business to buy another don’t pay capital gains tax, you can roll it over. Rollover relief for retirement for small business. Small business people that sell their business to retire – capital gains tax rollover relief. The provisional tax uplift factor in the coming year will be 5 per cent. When we came into Government it was 8 per cent. And a couple of years before that, 10 per cent. Do you know it was even in double figures, Labor had the provisional tax uplift factor in double figures whilst Australia was in recession. That is, the economy was going backwards and they were still assessing people for provisional tax as if their incomes were rising 10 and 12 per cent. True story. Strange but true. Grisly, horrific, but true.

One of the things that our Government had to deal with and had to put in place. So, lots of opportunities there for small business. But can we take it further? The answer is yes, we have to take it further. We have to take it further. There’s still unfinished business for the Australian economy. There’s still unfinished business for this Government. There’s still opportunity for our country. There’s still imperatives for our business. There’s still lost employment that we can make an assault on.

And so we look out on some great challenges. It’s been a great challenge, turning around the finances of the country to get ourselves standing tall, back in the black after eight years. But there are some greater challenges too. Reforming our tax system is one of them. I understand how Gary felt when he brought all those shreddings down to my office in Canberra – which we’ve now made into a mattress Gary, and thank you very much.

And I was at a breakfast in Melbourne last week when an accountant got up and asked me about the Government’s policy on Section 160ZZS of the Income Tax Assessment Act. And I know that people in shopping centres all over Brisbane today will be worrying about Section 160ZZS of the Income Tax Assessment Act. But I took the opportunity to point out to him, just doesn’t it say a lot about the Tax Act. They wrote Section 160, and then they wrote 160A, 160B, 160C, 160D, 160E, and when they got right up to z they came back and they did 160AA, 160AB, 160AC, 160AD, and they got up to Section 160AZ.


And somehow out of all that you got Section 160ZZS, which I’m thinking of actually enshrining as a testament to why we need tax reform in this country. Why do we need tax reform in Australia? I’ll tell you why. Section 160ZZS.

And that’s just what it’s named let alone what it means.

Why do we need tax reform in this country? I’ll tell you why, because everybody else has their exports going out on world markets with a full credit for taxes that have been paid in production and we don’t. So when the ships take Australia’s exports out, first of all they’ve got to get them out through the docks, and then when they take them out on the high seas they’re running handicapped. Not just by inefficient docks, but by the fact that all of those taxes on their inputs are sailing out with the products to compete in world markets against other advanced economies that are giving full rebate for inputs. That’s the great advantage of a value added tax or a GST – you can give the exporters the benefits back.

Now I know when we come to tax reform the Labor Party is going to mount a scare campaign and that means lots of pictures of Gareth Evans in the papers. But I say this: this is something which is worth it for our country. I don’t think I’ve ever seen such a negative Opposition. It’s an Opposition that wants to get into government to stop things. Normally an Opposition wants to get into government to do things. But this is an Opposition that solely wants to get there to stop things. To stop waterfront reform. To stop tax reform. To stop help for exporters. To stop good financial management. Totally negative. Twisting and turning because they have no coherent view of where they want to take Australia. Where does Beazley want to take Australia except backwards?

First of all he said the budget wasn’t in deficit and then it was. First of all he said that it was Treasury’s fault and then he said that Treasury fixed it. First of all he said if he was elected he’d let tax reform through and now he says he won’t. He twists, he turns – he has more twists than Chubby Checker. As he changes his position the only continuum position of the Australian Labor Party is they want to get into office to stop things – a completely negative view of Australian politics. Well I’ll tell you something, our Government wants to do things. We want to reform Australia’s waterfront. We want to deliver good economic policy. We want to improve Australia’s taxation system. We want to increase job opportunities. We want to keep inflation low. We want to make sure that homebuyers continue to receive the benefits that they’re currently getting from low home mortgage rates and we want to deliver more in relation to helping small business.

This is an anchor. This Budget is an anchor part of our economic program, but the work is not finished. The work is now in full swing. The work program is ambitious. And with your help and with the support of Members like Graeme and Gary, this is a work program which will be accomplished.

Thank you very much for your time.



Peter Janssen (inaudible).



Sure, well, let me say, I’m not going to start now, even though our friends in the media would like me to do so, saying what items we propose to put into tax reform and those items that we don’t. But there was a statement recently I think in relation to broad based indirect tax, value added tax, GST, whatever you want to call it, about the nature of the coverage. And I think it would be wrong to say that the ACOSS has said that it should be a narrower coverage. I think some constituent members of ACOSS may have said that but not the ACOSS itself. I think the ACOSS has made it plain that it thinks a broad base is a good idea and at the same time it wants to see changes in relation to other parts of the tax system, particularly in relation to income taxes. The one thing I will say is this: what’s wrong with the current indirect tax base is that you’ve got a narrow range of goods and you’ve got at least five or six different rates – 0, 12, 22, 32, you’ve got 47, you’ve got 26. And one of the complications of this is trying to work out whether a category of good comes in this tax rate or that tax rate. Huge classification problems. And all of the incentive in the current taxation system is to try and move yourself out of the base to escape a 22 or a 32 per cent rate and get into a zero rate. We’d have a much better designed tax system if we had a broader base with lower rates. This is the point you’ve got to bear in mind: the broader the base, the lower the rate. You know, if a piece of paper has a narrow base to get the same area you’re going to have to make it taller. But if you broaden the base, with the same area you can have a lower rate, and it’s a much better design, because instead of having incentive to try and engage in all this reclassification, everything bears the same rate, everything’s in, and it’s a much lower rate. You actually can avoid a lot of complexity and you actually avoid a lot of distortions which arise from the classification provisions. So anybody anywhere in the world will tell you whether it’s the indirect tax system, whether it’s a personal income tax system, whether it’s a business income tax system – broad base, low rate. That would be the best kind of design. And there are three elements to the taxation system, the indirect tax system, the personal income tax system, the business income tax system. I call it the ITS, the PITS and the BITS. And the principle is the same, whether you’re talking about ITS, PITS or BITS. The broader the base, the lower the rate. And if you’ve got broad bases and lower rates, you get rid of a lot of complexity and the whole incentive becomes the economic value of the transaction rather than its tax classification.


Fazal Dean: … (inaudible) … to help start better industry, regear for the future and get the whole country moving better and faster. That’s one question. The other one is, in relation to our industry in earthmoving where we used to have a fuel rebate and that was taken away in the Keating/Labor parliamentary time. Why should earthmoving equipment pay full tax when in the fuel tax it covers for road tax etc, why should earthmoving industry have to pay those charges?


Well, the diesel fuel rebate scheme operates in relation to primary production and mining. And again you get all these arguments about what constitutes primary production and what constitutes mining. Does quarrying constitute mining for example? Does moving salt constitute mining? You get into enormous classification problems which keeps our friends in the legal and accounting professions going. I mean you wouldn’t want to cut them out of business would you? You earthmovers you. So I’m not aware of the precise change that the Keating Government made although I’m willing to agree with your conclusion which I took to be that if Keating made it it must have been bad. The investment allowance is something that was introduced over a short period of time and again we got into a lot of argument about this as to whether or not we could extend it. We actually got into a situation where the Labor Party was voting against that in the Parliament. I think allowances can be good at times when you want to stimulate capital expenditures. Capital expenditure in the Australian economy at the moment is pretty decent however and all I would say is that we can look at that in the context of overall tax reform. But I don’t think I’d do it as a one off measure.



I think one of your most telling comments in your speech was that this was a Budget for the youth and the fact that you’re trying to reduce the ongoing debt, the theft from future generations, that was alluded to very briefly in the previous election campaign, 96. As a person who’s out there I would suggest that that message is lost. It’s one that will be lost very easily during the Labor scare campaigns, don’t change anything. But I think it’s very important that you get it through on the, in all your campaigns, all your speeches and not all the press report what’s heard today, they just pick the headlines. It’s something you should focus on because the youth are your future as well as ours.


Look, I feel very strongly about this. If the Government’s got a $90 billion debt what that means is it has to raise $9,000,000,000 in taxes before it spends one dollar on a road or an aged pension or a family allowance or a hospital or a school. And future generations would be asked to pay 9 thousand million dollars of taxes not for anything that they would enjoy. But the price of the Keating/Beazley Labor years. (tape turns over). Now I think it was the Romans who first introduced a law about 2,000 years ago that said children couldn’t inherit their parents debts. But when it comes to Governments you sure can. And you sure were. If we were really worrying about our young people and their future we’d be wanting to pass on to them a better outlook, rather than a worse one. The opportunity for freedom rather than the shackles of debt. And I often say to people, and it’s important that you get this fixed in your mind, don’t ever think that deficit financing, Government deficit financing is compassionate. A lot of people run around and say, oh, well, you know if we spend more on this and we spend more on that, that’s compassionate. Right. It is the most selfish policy. Because all it’s saying is we want to spend more than we are prepared to pay and we’ll tickle the bill down the generations. It’s generational selfishness that. One of the changes that we’ve introduced with our Charter of Budget Honesty, which is now law, is to require governments to report on the intergenerational effect of their policies. Because we want to cut future Australians in. We want to put them in the frame. They don’t have a vote. Some of them aren’t born yet. But every five years we want to put them on the frame and say hey, guys, what about them. What are we going to do for them? And I think this is really consistent with the notion of the Aussie fair go. What is the Aussie fair go when you think about it. The fair go was that anybody in this country, regardless of where you came from, what your language was, anybody in this country could come to this country and could try and make it. That’s what the Aussie fair go was all about. And that’s how most of us came to be here. Well I want to say the Aussie fair go for the future too and let’s put them on the frame, cut them into the equation and give them a go. And this is pro youth.