25 June 1998, A Current Affair with Ray Martin

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25 June 1998, A Current Affair with Ray Martin

Transcript No. 34

Hon Peter Costello MP

A Current Affair with Ray Martin

Thursday, 25 June 1998


SUBJECTS: Tax reform


…..well I don’t know when the election is Ray, the Prime

Minister calls the election, I’m working to finish tax, it depends

how long he gives me.


But Peter, this is something, as you say, why be so coy, why not just

tell us now what it is?


There’s nothing coy about it. I can tell you the broad principles

that we’ve decided on.


What’s the rate going to be?


Well I can tell you the broad principles. The broad principles are

to reduce income taxes because average earners are now paying 43 cents

in the dollar on each extra dollar they earn and pretty soon they

are going to be paying 48 . To reform the interplay between tax and

social security because a lot of your viewers, if they start earning

an extra dollar not only do they pay tax but they lose family allowances,

they lose Austudy benefits; to improve the business tax and to rationalise

indirect tax.


But we come back again to that fact that if you’ve worked all

this time, if it’s so important, if it’s the biggest thing

that we’ve ever seen in tax in Australia, why not give it, why

not put it out there, why not simply say here it is all if you don’t

like it then you can reject it.


Well we will.


But what two weeks in the middle of a hectic election campaign?


No I didn’t say in two weeks. I said that there’d be ample

time to look at it and that’s what we intend to do and we will.

But there’s no point, Ray, in running off half cocked and putting

something out now until you’ve actually thoroughly consulted.

We set up a committee, we asked that committee to consult, we got

630 submissions from interest groups, I am now speaking to each and

every one of them, each and every one of them wants me to take into

account their submissions. So we have got to do this properly and



One presumes though that rents, health, education, pensioners are

going to be exempt?


Well one can presume many things and I get asked these questions will

you rule in or rule out, and I’m not ruling things in or ruling

things out, but I can tell you this, our Government wants a better

health system and a better education system.


Don’t we all.


As well as a better tax system so we will be bearing that thoroughly

in mind Ray.


But see, with respect, I mean you’re playing a politician now.

If it’s that important as it is to us all, if we all agree that

we need tax reform of some kind, and everyone seems to agree, why

not simply say this our proposal, here’s a couple of months to

have a look at it, tell us where we’re wrong and we’ll go



But you see we can’t get people to agree on the need to tax reform.


Everyone agrees don’t they, who disagrees?




No they want tax reform they just don’t want GST.


No they are opposed to tax reform. They are opposed to reforming indirect

tax and they are opposed to reforming income tax, which you can’t

reform unless you reform indirect tax as part of it. We are now in

a situation where one of the major parties in Australian is opposing

tax reform, that makes our task more difficult. We are not….


I don’t think that’s accurate, is it?


We are not going to give it away Ray, we are going to go forward with

it and we are going to explain the need for tax reform and the answers

to it.


When a politician promises the tax rate will be set in concrete, as

you’ve done, why shouldn’t we laugh?


Because if you know what the rate is and it’s fixed with mechanisms

that allow the public to guard it, the public will be the guardian

of those tax rates.


But L.A.W., law, no child will live in poverty in 1990, never ever

a GST.


Well L.A.W. law Paul Keating.


How about never ever a GST, John Howard?


You can hardly hold me responsible for Mr Keating.…


How about John Howard, never ever a GST, now we’ve got a GST?


Ray let me put this in context, at the moment we have goods taxed,

right, we have a goods tax that has rates of 12, 22, 32 and some rates

in 40. They are increased all the time, one of the reason why they

get increased all the time, and they were last increased, after the

1993 election when Mr Keating said no GST, is that people don’t

know what the rates are and they don’t know what goods they’re

on. If you have a general rate which everybody knows you can’t

increase it without the whole of the Australian public knowing it

and that is one of the great protections about a broad based indirect



But you are an honest man, I mean you can’t possibly guarantee

that we are going to have a fixed rate, we’ll have a different

Treasurer, a different Prime Minister, maybe a different government

down the track, how can you guarantee?


Well I’m talking about making this so up front and making it

so transparent that it won’t be increased unless the people of

Australia somehow have a big turn around which I could not possibly



But Peter Governments….


I’m talking about setting this once for all, once for all amendment

to the income tax and indirect tax system.


Governments before you of different persuasion and your persuasion

have promised things and not kept their promises, why should we believe

them today?


But Ray let me put it to you like this. If you say that politicians

are going to increase tax, they are going to increase the current

taxes, why would a new tax system make it worse. In fact my point

is that it will make it better. You see you’re not talking about

tax reform A or tax reform B, you’re talking about tax reform

A or the current system. The one thing that we know about the current

system and you’ve criticised it, quite rightly, is under the

current system rates always increase. Now I say if you have a transparent

rate which everybody knows about, if it’s broad based and it’s

at the single rate, then the public becomes the great policeman against

rising taxes.


Now you know that in fact the people say the buggers always promise

us we are going to be better off and they get us coming and going,

in fact they promise it’s going to be better and it never is.


Well let me ask you this question, do you think that the public needs

income tax relief?.


I think the public needs tax reform.


I do and that’s why I am going after this. I’m going after

this because I want to make things better for average wage earners,

I want to make it better for low wage earners who are being penalised

double and Ray if we don’t do this now the tax system is not

going to improve, it’s going to get far, far worse. My message

is this if we don’t reform the tax system it’s just going

to inevitably break down and it won’t be serving Australia’s



Now someone like Dick Smith has no axe to grind, he’s a very

successful businessman, he says under GST that the rich will get richer

and the poor will get poorer.


I don’t agree with him obviously, I don’t know why he says

that. But one of the things about broad based indirect tax because

it’s fair to everybody, rich people who consume expensive services

will start paying a much fairer share of tax.


But if I buy a second hand car I’m not a rich person, if I buy

a second hand car it’s going to be whatever your rate is 10 per

cent, 12 per cent, if I buy a Mercedes it’s going to be the same

thing, aren’t I worse off?


Well at the moment if you buy a car you’re paying 22 per cent,

the average….


The second hand car I’m paying nothing.


Yeah but it feeds into the second hand market as well.


But if I buy a Mercedes I’m paying 32 per cent, so I’m…..


So you can fix the problem of Mercedes, if you want to fix the problem

of Mercedes but let me make this point. At the moment the battling

Aussie family when it buys its car pays 22 per cent. 22 per cent on

cars, now wouldn’t it be fairer if the tax on cars was reduced.

At the moment if you buy an aeroplane you pay no tax, wouldn’t

it be fairer if that tax was applied to aeroplanes. Why tax cars and

not aeroplanes.


But at the moment the battling family doesn’t buy a new car,

the battling family buys a second hand car and pays no tax, what you

want to do is put 10 or 12 per cent on it.


I can tell you what the battling family doesn’t buy an aeroplane

either, they could buy much cheaper transport, much cheaper tax transport

if they bought an aeroplane rather than a car at the moment.


Peter I sat in this studio here with Gerry Harvey from Harvey Norman,

who is a super salesman, he said he’s in favour of GST but he

said even he couldn’t sell it to Australia.


Well we’d certainly like Gerry’s help, Gerry’s right

about the economic point, we’ve got to get this country moving,

we’ve got to give ordinary income earners a tax break and that’s

the most important part of this. And Gerry knows that what’s

right in public life isn’t necessarily easy but that doesn’t

make it any less important Ray, it makes it more important, don’t

you think?


Can I suggest that given what’s happened in Queensland election,

and other by-elections in recent times, that perhaps it’s the

worst time to try and sell something like GST because the public just

doesn’t trust politicians?


There’s, look it’s always hard to reform and improve things

but let me say this Ray, if we don’t reform the tax system, let

me tell you what’s going to happen. Pensions and the health system

is going to be increasingly squeezed, wholesale sales tax rates, which

are on a narrow base, are going to go higher and higher and average

income earners are going to start paying 50 cents in the dollar on

every extra dollar they earn. Do you want to see an Australia like

that or would you prefer to improve our tax system, secure the benefits

of good social services, have fair indirect tax and give battling

income tax earners a go, that’s my alternative.


Now you know what they are saying, don’t you, as you’ve

said that they’re saying we’ve heard it before, they always

say that, we want to improve Australia.


I don’t think we’ve seen genuine tax reform, the last time

they saw an income tax system like this introduced was in the 1930s

and don’t you think that it’s time in the year 2000 that

we step forward from the 1930s.


Can I ask you, I have to ask this, I mean is a child’s birthday

cake going to cost more or less?


Well we’ll have plenty of time to go through all of these discussions

Ray and I promise you…


I suspect we won’t though you see because you’re not going

to tell us until you announce an election and then you have a couple

of weeks.


You know the funny thing is this Ray you say on the one hand that

we are not going to have time to discuss things like this and on the

other hand you make it clear that we’ve been thinking, these

things have been in the ether for 3 or 4 or 5 years.


But we don’t have any facts, we don’t know what the rate

is, we don’t know whether you are going to exempt pensioners.


We do because they…


Well you do.


Things like the birthday cake don’t turn on rates, do they. They

turn on the principle and you’re asking me about the principle

and the principle is the right principle. The right principle is this,

rather than try and pick and choose, you should just have uniform

rate, everybody knows what it is and we should be reducing income



Are you prepared to go to the wall over this, there is no back down,

there is no negotiation, no compromise, you’re going ahead?


Oh look the Prime Minister, the Government, the members of the Liberal

and National parties are all committed to tax reform, they are committed

to tax reform because there is no alternative. If we don’t do

tax reform people are just going to pay higher and higher income taxes,

businesses are going to be penalised and we won’t get the kind

of economic growth that we need in this country.


Well members of your party and of your Coalition say to me if you

go ahead with the GST, if you go ahead with selling off Telstra, that

that’s suicide, you are going to lose the bush.


Well I don’t know what people say to you but I can say this Ray,

we’ve had full party room discussion everybody was entitled to

speak and nobody put that proposition, in fact..


Nobody put the proposition, nobody?


Nobody put that proposition, nearly everybody said, on the contrary,

the important thing is to continue to argue changes which will improve

peoples’ lives. And if we continue to argue the changes that

will improve peoples’ lives that gives us a strong base for continuing



Peter Costello I wish you well.


Thank you very much Ray.


Thank you.