Transcript No. 61

Hon Peter Costello MP

2BL with Philip Clark

Friday, 6 November 1998

8.30 am

SUBJECTS: Banks, tax reform, Olympics

CLARK:

Welcome to the Treasurer of Australia, Mr Peter Costello. Mr Costello good morning.

Good morning, thanks very much.

What’s got up Don Argus’ nose, he thinks the four bank policy in Australia should be demolished so that NAB share price can improve, is that it?

Oh I think that’s been NABs view for a while. As you know at the moment our policy is that we will not allow mergers between the four big banks; that’s NAB, ANZ, Commonwealth and Westpac unless we were satisfied that this would enhance competition and give a better deal for consumers. Now we announced that in response to the Wallis inquiry sometime last year, we’ve been monitoring events since then. There has been some improvement in competition particularly in the home lending market. We’ve seen rates come down a bit in relation to the overdraft market, you can get very low overdraft interest rates but we are monitoring the situation. And some of the banks, probably NAB is the first amongst them, thinks that the ban on the mergers should come off and Mr Argus makes comments to that effect from time to time.

Yeah I see Mr Wallis this morning though appears to be supporting Mr Argus’ suggestions as well though, that the four bank policy preventing any further mergers should be relaxed. I know you’ve been thinking about it for a while, when might we see some conclusion to that thinking?

Well Mr Wallis has always been of that view of course. He recommended that we not have a prohibition on mergers that was Government policy. It’s the one area of his inquiry that we disagreed with and the thinking behind that was that if you have two of those big four merge, then presumably the other two would merge and you would from four big banks down to two. And we weren’t satisfied that this would enhance consumer benefit and competition. Now the point I made at the time was that you are going to get increased competition, I think, in banking and financial services from new entrants in particular. See what changed the home lending market was when you got what we call the mortgage originators coming into the market, your Aussie Home Loans, you’ve got your RAMS, these sorts of people came in took on the banks and provided new competition. In the last year we’ve given out new banking licences, one to the AMP and it is quite possible that you could see the AMP developing as a major banking type institution. And if you get those new entrants coming in, if you can be satisfied that there’s new competition, then we’ll look at it at that point.

But for the moment we’re not proposing a change?

For the moment the policy still stands and the policy is that unless we’re convinced that consumers will benefit and that competition will be enhanced, we’re not going to be allowing any of the big four to merge with each other. They can merge with other people, Westpac merged with the Bank of Melbourne recently but not with each other.

I spoke a few days ago to the head of the Commonwealth Bank, David Murray, and we were discussing the issue of bank closures which is a real community issue, particularly in rural and regional Australia. But increasingly in some parts of suburban Australia too, in the cities where people are seeing services on high streets decline and they see evidence of this in the way of bank closures. Now Mr Murray told me that there’d be more bank closures, that people had to get used to a newer banking environment but he was mindful of people’s concerns. To what extent should banks have community service obligations and to what extent should Governments ensure they have by legislating they carry out those obligations?

Well I’m not sure that a Government can legislate you know for a branch here and a branch there any more than we could legislate for a milkbar here and a milkbar there or any other ……

But you’ve done it with Telstra though, why not do it with banks?

Well with Telstra we required service commitments, that is that your phone would be connected within so much time.

And certain levels of service too.

That’s true, that’s true. But I do think that banks do have obligations and I was going to go on and make this point, I think the banks have lifted their game quite a bit in the last three months or so. The ANZ announced pretty recently it wasn’t going to close any more country branches. I noticed that Westpac had an initiative to bring new banking services I think through post offices into rural and regional areas. And I think that the banks are starting to realise, from their own point of view, it’s just much better business for them to make sure that they don’t forget about rural and regional Australia.

Well there’ll be fewer branches won’t there, I mean Mr Murray said look if you look at the Australian banking system we are over branched internationally, there’s no doubt there’ll be fewer branches?

Yeah but my point is that I’m not here to run the banks. I don’t manage the banks, I don’t say where they’re going to have branches or so on.

But you could legislate al la Telstra to make sure that they run a certain level of community service.

But what I am going to do is I’m going to ensure that we have a banking policy that gets the lowest interest rates to consumers. And give credit where credit’s due; home mortgage rates now are lower than they have been in the last 30 years, the overdraft rate as low as it has ever been recorded in Australia. And I’m going to encourage the banks, because I think it’s good for their business and what’s more I think it’s good for rural and regional Australia, to keep their services up. Now banking is changing as Mr Murray said, 20 or 30 years ago we didn’t know about EFTPOS, we didn’t know about telephone banking. Plainly more and more of that – we didn’t know about credit cards – plainly more and more of that is going to come so the nature of banking will change and they will manage their business. But I want to make this point, and I do draw this line, that the banks must remember their obligations particularly in rural and regional Australia and I think there are some welcome signs.

But we won’t be legislating to make sure that they toe the line on those obligations?

We are not going to be introducing legislation to designate where branches should be or numbers of branches or anything like that.

Alright can we turn to the GST, the other issue which I’m sure rarely leaves your desk these days. I noticed today the Democrats and, or Meg Lees and certainly Brian Harridine, a crucial vote in the Senate, are suggesting that perhaps a limited standing committee Senate inquiry into the GST could well be undertaken and concluded in time for a vote before the end of July next year, which is your preference. Will you buy that?

Well our position is that we think that the ins and outs of this have already been fully debated. We knew before the election that if you had an obstructionist Labor Party, as it was pretty clear you did, that if we were to go to the people, get endorsement for a policy and get it into law, we would have to put it out before the election. Because a lot of people said to us, don’t forget this, a lot of people said to us why do you talk about this before the election, why don’t you just do it after the election. We said well if we talk about it before the election, we put it out there, if the public votes, then if we are re-elected we have to the right to introduce it. That is our position. You have never seen an issue which has been debated more thoroughly in Australia than this. And not just in this election by the way, in 1993 with Fightback!, in 1985 with the Keating proposals, this issue has been debated more than any other tax or economic issue. And what 8 million Australians were asked to cast a vote and they did and they voted for it. Now if elections mean anything in this country, we think an election means that a Government elected to do something has the right to do something. And I make this point to the Democrats, they used to say keep the bastards honest. That’s all we ask, just keep us honest to what we promised before the election.

Alright the position which you have just stated has been stated almost continuously since the day of the election and….

Since long before, since long before.

Many might agree with it. Can I put this to you though that many would say well look yes that may be true it has been debated continuously but the degree of information on which the debate has been based has been limited and to this extent we do not yet know, well, the affect of the GST on low income earners in particular. There is Treasury modelling of this which you have and you’ve seen but you’ve not made public. One of the things that the inquiry would do is at least get a chance for that modelling which exists, and which you haven’t made public, to be public.

Well, there are two issues here, and if I can just carefully explain it. We have publicly released the most accurate kind of modelling you can do on this, which is modelling on the consumer price index. And we have produced papers saying why that is the most accurate kind of modelling. You can do another kind of modelling, and the technical explanation for it is, HES modelling, it’s called the Household Expenditure Statement, instead of modelling price effects on the Consumer Price Index, you model them off another survey, which is called the Household Expenditure Survey. We did modelling on that to make sure, as we said during the election, that nobody would be worse off. And modelling under that proves that nobody would be worse off once you increase pensions by four per cent. Now I am quite happy to release that modelling, and in fact I intend…

But you will release it, you will release it….

Oh yes. I intend to release next week in the Parliament modelling along the Household Expenditure Statement because it will kill once and for all the false claim that’s being made…..

So why have you sat on it for so long?

…..that it will kill once and for all the claim that’s being made that under the Household Expenditure Survey the poor will be worse off, that the Household Expenditure Survey will show with a four per cent increase in pensions, pensioners will be better off under a GST with a four per cent increase, in fact they will get real increases in incomes. Now you say why didn’t you release it? We didn’t release it because it is not the accurate modelling, it is not the accurate modelling, we released the accurate modelling. But if people say, well look why don’t you do it according to another theory, which is non-accurate, because you will get a different result. I intend to release information which will show you get no different result, in fact, in fact, it will completely pierce the false argument that was put around during the election campaign by Labor and others.

Why not release it today? What’s the …..

Well I think the right thing to do is, much and all as I would sort of like to do it here in the studio, I think the right thing to do is to release it in Parliament, and you know, Parliament is resuming, and it has always been my intention as soon as the Parliament goes back to put these documents out there, and I think that’s the right way to do it. Once you do it in the Parliament they’re public documents, people can look at them. But let me make the point, it should be no surprise that modelling Household Expenditure shows people are better off, because if it were the reverse, somebody else would have done it. And I fully expected that other people would do it. Somebody else would have done it. Now, the Democrats and the Labor Party never took the trouble to actually do it incidentally, they just went around and asserted that if you did do it, it would show that people were worse off.

It doesn’t, in fact it shows with a four per cent increase in pensions, pensioners are better off under a GST system. Which is one of the reasons why we’ve engaged in this tax reform because you can actually help people on lower incomes as well as people on middle incomes.

Seventeen and a half to nine, my guest is the Treasurer, Mr Peter Costello. If you are forced to exclude food, books and I don’t know, holidays booked off shore, some of the things that have been raised. What’s the extent of the hole going to be?

Well billions. You might as well not do it.

Basically if you don’t get the lot you are not interested in doing it?

At the moment we’ve got a wholesale sales tax, which taxes practically everything, except a few of the things that you mentioned. If you have a GST without those things, you are hardly different from your current tax system. You are back into an indirect tax system, riddled with exemptions, different rates, anti-business, you are not generating revenue to pay for your social security, you are basically saying, well, we are right back in the 1930’s tax model. And you see can I…

Yeah OK, put it this way if you release as you say you will now, you’ve just said now that you will release this other modelling, that will be released next week in the Parliament. You’ve been offered the chance now by the Senate, to satisfy the Senate as well, and still have a vote by the end of July, what’s the problem?

Well, you say to satisfy the Senate, and of course we want to satisfy the Senate.

But you will, because the issue is Senator Harridine’s vote, and Senator Harridine would presumably be happy with the ..inaudible…

Can I make a bigger point, isn’t it more important to satisfy the Australian people. You know, we feel we did in the election. We asked the Australian people to vote this issue, and they voted it. Now with all due respect to some of those Senators, some of those Senators were last elected in 1993. They weren’t elected in this last election, they weren’t even elected in the one before that. Some of them were last elected in 1993, that is my first point. My second point is, those Labor Senators that were elected in 1993, were elected on the Keating platform, which was, that if the Liberals won the election, the 1993 election, Labor would vote for GST. They were elected in 1993 as Senators on a platform of legislating a GST if the Liberal Party won the election.

Now, what are we, six years after they were elected on that platform, these Senators want to say, regardless of the outcome of the Australian people, we are entitled to change our position and now vote against it. Now, as I said before, of course I want to satisfy the Senators, but more important than satisfying the Senators, I think, is satisfying the Australian public, which we feel we did. How long ago was the election, the 3^rd of October.

You wouldn’t be the first Treasurer to feel some frustration with the somewhat moveable position of the Senate.

But I make this point. In the past the Senate has always given Treasurers trouble because Treasurers wanted to break their promises. Now we are getting trouble because we want to keep them.

Can I ask you about the Olympics and GST. Jackie Kelly, the Sports Minister, says, or appeared to be making noises that there would be some, at least discussion, Jacque Robb, the IOC representative certainly wants the issue cleared up. Is there going to be a concession for SOCOG from the GST for the purpose of the year 2000 Olympics?

There are a lot of different issues in here. And if I can separate them out. There is one – what happens to the tourists, and then there is two – what happens to SOCOG itself. Can I make the point in relation to tourists, as I have continuously.

They will be paying.

Too right they’ll be paying.

Well I think we would accept that, but in relation to SOCOG’s budget.

Well I don’t think everybody does. I don’t think everybody does. You see my point is this, if Australians go to Olympics overseas, they go to Europe and they pay value added taxes, on their food and their accommodation.

Sure, but what about SOCOG and its budget?

If you go to, if you went to Atlanta you pay services taxes, if you go to Athens. Now, what I am saying, you are going to have a lot of American, wealthy American tourists, or others, coming into this country. Don’t you think they should be paying taxes to Australia, just as Australians pay taxes to them.

What about SOCOG’s budget though.

Then you’ve got SOCOG. Now in relation to SOCOG, the rules that will apply to SOCOG are the rules that will apply to everybody else. Where they have entered into contracts before the implementation of the tax, and the transitional provisions, the tax doesn’t apply. Where they enter into contracts after the introduction of the tax, the tax does apply. Where they enter into contracts with foreigners for exports, however defined, exports of goods or services, the tax won’t apply to the exports. But the rules that will apply to SOCOG, will be the rules that will apply to the Rugby League, and the AFL, the Australian Ballet and the Australian Opera, and every other institution. You just can’t start making one set of rules for one organisation and a different set of rules for others.

Alright. No special case?

Well you see, the truth of the matter is, if SOCOG registers as a business, all it does is passes on the tax, in any event, it does not affect its budget, so, let me make this point, we are quite prepared to sit down with SOCOG and its officials. I think we did about a week ago I think we allayed some of their fears. We are talking to them and we can allay further fears. But the basic principle is going to be that the rules for SOCOG are the rules for the AFL, the Rugby League, the Rugby Union, the Australian Ballet, the Australian Opera, same sorts of rules.

Mr Costello good to talk with you.

Great to be here.

Thank you.

Thanks very much.