Transcript No. 52

Hon Peter Costello MP

2UE with Alan Jones

Wednesday, 19 August 1998

12.30 pm

SUBJECTS: Tax reform

JONES:

……the 32 per cent tax is going to come off then and a 10 per cent tax will be added. I would have thought that is going to put us a fair bit in front. But then while we are being told about all of the things that are going to go up we don’t read that the 22 per cent tax on motor vehicles is going to be removed, which I would have thought would have been a pretty significant saving. And that 22 per cent tax will also offer a whole raft of things that we are forced to buy; tyres, batteries, oil for your car, stationery which we have to buy for the kids to go to school, pens, wheel barrows if you are a gardener, swimming pool if you have a spare few bob to spare, all the toys that Grandma buys for the kids for Christmas, detergents, soaps, soap powder, cosmetics, toilet paper, I presume we all need a bit of that. These all have to 22 per cent chopped off and a 10 per cent GST added.

So surely to God there are also going to be some significant savings. 22 per cent will also go off the price of toothpaste, soap, lawn mowers, handbags, soft drinks, greeting cards, wrapping paper at Christmas time, umbrellas when it’s wet, pet food. One of the problems we have face, surely, is that we have been taxed to the eye balls in the past and not known about it. And these dishonest, indirect taxes that we can’t see, don’t suspect and are unaware of have been hammering away at our purchasing power for years. Well that’s one of the problems that the Treasurer has to hammer away across because there is a perception out there that the package means 10 per cent is going to be added onto everything. So I thought we’d seek the Treasurer’s clarification of this and he’s on the line.

Good afternoon Treasurer.

Good afternoon Alan.

Is that a problem that you face?

Oh look one of the problems is that people don’t know the taxes that they are paying. As you said this morning I got up and you know you go into the bathroom, all of your toothpastes are subject to 22 per cent. You go into your kitchen your stove is subject to 22 per cent, you go to your toaster, your toaster is subject to 32 per cent. People are paying taxes every day with every transaction that they do, Alan, and what they don’t know….

Ice cream, orange juice, biscuits?

Biscuits, your soft drinks, all of these sorts of things, the one good thing about taking out all of those wholesale sales tax, and the wholesale sales tax that people are currently paying is 12, 22, 32, some up in the 40s and having one single rate, is at least it is honest and decent enough so that people know what it is.

And you’re not hiding the fact that some things are going to be dearer?

Some things will go up, you will expect in relation to some items small increases and other things will fall but the overall price effect is 1.9 per cent.

Yes, I think it is fair to say that differential it seems to me on the figures that I’ve done that where it is the 12 per cent wholesale sales tax and that is removed, the 10 per cent GST will make those products dearer, slightly dearer. And of course there is a raft of products on which we currently pay no sales tax at all so they also will be dearer but it’s round abouts and swings, isn’t it?

We’ve done some very extensive economic analysis on this and the overall increase in prices is

1.9 per cent, that’s going to be the increase in the consumer price index. Some things go up, some things come down. But what people don’t realise, of course is, this is a tax reform not just to get rid of wholesale sales tax but this is a tax reform to get rid of nine other taxes as well, including the financial institutions duty that people are paying on their bank accounts, and the bank account debits taxes, and bed taxes and stamps duties. And you’ve got to take all of the cost….

Now just take that one, stamp duty on your mortgage, that is a fair whack, isn’t it?

It’s a fair whack, at the moment when you take out a mortgage from the bank the Government makes you pay a stamp duty just for the privilege of borrowing from the bank, that’s going to be abolished. If you had….

And it’s only abolished because in fact you’ve raised money via a GST?

Well that’s right, it is going to be abolished because if we introduce a fair tax system with one overall rate, we can get rid of all of these hidden taxes. Now another example, of course, is if you happen to buy Telstra shares, you pay stamp duties on the privilege of buying these shares. All of those stamp duties are going to be abolished. But let’s take a big one for rural and regional Australia, at the moment everything that goes into rural and regional Australia, Alan, is taxed because there’s a Federal excise on diesel. The full Federal excise on diesel is 43 cents a litre, that means that every time a truck goes into a small country town in rural Australia, 43 cents a litre tax, anything that’s on that truck, even if it’s food. If there is food going into or out of regional Australia on a truck…

Transport is an enormous cost involved in the price of the food.

Now one of the reasons why people say why are things more expensive in the rural areas, well that is one of the reasons. You’ve got to take them down the road and at 43 cents a litre of diesel. Now we are going to introduce a system to cash out 25 cents of that, bring it back to 18 cents a litre. More than half the Federal excise which applies to diesel. Now what does that do? That has the effect of halving the cost of getting things by road in and out of rural and regional Australia. All of that tax comes off, you see, even in relation to those things that don’t bear wholesale sales tax. Once you take the transport cost off….

Absolutely enormous.

It’s an enormous benefit….

So that’s part of the reform, then of course because of that, in which people don’t understand, I mean you can’t have one without the other. So because then of the GST, let’s just take one example if you would, because I’m sure you’ve got the figures in your head, just supposing as a mum and dad listening to us and they’ve got three children. Mum stays at home because two of the kids are under five, one of them is eight, okay dad’s one forty grand a year. Right now, the tax free threshold, just take us through that will you, just repeating for my listeners, this is a mum and dad, dad is on forty grand, mum’s at home, she’s got to be a home because she has got two kids under five, one of them is eight, so there’s three children. Now you’ve changed the tax free threshold limits, just take us through that?

Well the first thing that we have done is that every wage and salary earner, we increase that tax free threshold to $6,000, that means that every single person can earn up to $6,000 without paying a dollar of tax. The second thing we do is for a family where they have one child under five and, this is for a single income family because they’ve got one child under five, mum’s looking after the child for example, we have doubled the tax free threshold so that they get another $5,000.

So there are two under five here, so they get two $5,000’s?

No it’s just the single income family gets $5,000…

Just one five.

Children…

Yeah.

We have again doubled the tax free threshold so that there is a $2,000 tax free threshold for each child and that family you gave me the example of there were three children, I think.

Yes, yes.

So three children, $2,000 each, $6,000. So for that family….

And just come back to me, she’s got two under five, does she get the under five once or twice?

You only have to have one child under five to qualify.

Oh right so that is one child under five, no matter how many under five, you get five grand and you get three 2,000 for each of the three which is six.

So let’s take that family, there’s 6,000 on dad’s income tax free, another 5,000 tax free threshold ….

Because one child is under five, yeah.

Then they have got three kids, there’s another 6,000 for three kids tax free threshold, that family would have a tax free threshold of $17,000…

Before they start paying any tax at all?

They don’t pay one cent of tax on the first $17,000 that they earn. Now, I mean, why have we done this? We’ve done this to try and help families …..

And as I speak to you today they start paying tax after $5,400.

$5,400.

Yeah, let people think about that and we’ll take a break. I am speaking to Treasurer Costello, just in order the clarify some of the things that you’ve written to me about. We’ll be back after the break.

Back with Treasurer Peter Costello. Now yesterday the Prime Minister got into allegedly, quote unquote some strife because he said that rent would be GST free. And then the argument was mounted oh well hang on a minute if someone fixes the stove inside, the fixing of the stove will cope a GST, so therefore the rent is going to be put up? Don’t you feel that there’s a bit of nit picking going on here?

You know what gets me about this Alan, is that nobody ever asked the Prime Minister or me to explain the current tax system. I can tell you the current tax system is about five times more complicated than the new tax system. But because nobody can understand it, they don’t even ask us.

They don’t know enough to be able to ask a question.

Alan they’ve given up, the current system is so complicated they’ve even given up trying to understand it. Nobody says, you don’t here Kim Beazley running around saying well look nobody understands the current system, we ought to get rid of it. But then they say oh well if you can pick up a technical error on what a new tax system starting in July of 2000 is, oh that is a big point against the new tax system. Let me tell you the new tax system is going to be much simpler than the current tax system.

Well I mean the classic case of that is surely in 1993 when the electorate was promised L.A.W. law tax cuts and the announcement was made that they couldn’t afford to go ahead with them but then under the cover of night, I think midnight it was all of the indirect taxes went up, no one knew they went up, no one cried for compensation for the fact that they went up because they didn’t know that were paying more.

Well, that’s the other point that strikes me as pretty silly in the current debate. Everyone says, oh well look, what is the mechanism for preventing GST go up and I say, well look you’ve got to get the agreement of six State governments, two Territories, the House of Representatives and the Australian Senate. Given the fact that it’s almost impossible to legislate…

To get that lot to agree on anything.

…inaudible..

Absolutely.

…(inaudible)…going up. And they say, oh but things might change. Let me put it the other way. What guarantees people against price rises in the wholesale sales tax, the tax that the Labor Party is fighting to keep?

Okay. Well let me take that point up with you because that’s another source of a lot of correspondence. How can you guarantee to all those consumers out there that when you institute the GST in lieu of the 12, 22 and 32, that the 12, 22 and 32 per cent will automatically come off?

Well the Bill, the law that introduces the GST will repeal all wholesale sales taxes. It’s…

But that won’t stop me, that won’t stop me from actually saying, oh, well this is the wholesale price, there’s no tax in that. My wholesale price was really $100 before, but my wholesale price now is $112, that’s my wholesale price.

Well then we’ve got a thing called the Australian Competition and Consumer Commission run by Professor Alan Fels.

There will be a little police force out there.

Now his job is to make sure that there are fair trading and competitive marketing going on.

Right, he’ll go round with whips and baseball bats and get after us all will he?

I don’t know that he’ll go to that extent.

Right.

And with $10 million fines Alan…

Yes, it’s a fair disincentive to sort of…

If you are found to be in breach of the Trade Practices Act and he’s going to have special surveillance powers leading up to and after the introduction of this system. If you are found to be in breach of that Act because you have been unfairly trading or making misleading comments or trying to price rise under tax changes, if you are in breach of that Act, you can be sued and fined $10 million.

Okay. Take pensioners, because that’s a source also of concern, primarily because it isn’t that straight forward to understand. Can we just go through the pensioner story a little?

Sure. As I said earlier when you replace all these current hidden taxes and introduce a 10 per cent GST, prices will move about 1.9 per cent. That’s the figure, that’s the net overall consumer price index movement of 1.9 per cent. So in relation to pensioners to make sure that pensioners are better off, we’ve announced a whole raft of measures, the first is a 4 per cent increase in the pension.

That was an immediate one-off 4 per cent?

In advance of any price increases, before prices have moved, before the new tax system has affected prices, pensions go up 4 per cent.

And then the 1 per cent, is that just for the aged pension or all pensions?

No, no, that’s for all pensions.

All pensions will then go up 1 per cent every year.

We maintain them 1 per cent in advance of the consumer price index thereafter.

Okay, just let us take that again, because I am sure people don’t understand this. So if the program comes to pass, if you’re elected and this comes into place, there will be an immediate 4 per cent increase in all pensions to compensate for the one-off price increases, but then all pensions after that…

The important point is, before any price increase in July of 2000, before the tax system has taken affect, a 4 per cent increase in pensions. And then what we say is this, we guarantee that the pensions will be held 1 per cent in advance of the consumer price index.

So in other words if the price increase of the GST causes inflationary development, the pension won’t just go up by the inflationary value to which it’s automatically indexed but inflation plus 1 per cent.

1 per cent in advance. So that if inflation were to go up, for example, 5 per cent, the pension will be up 6. If inflation were to go up 6, the pension would be up 7. So that the pension will be maintained 1 per cent in advance of the consumer price index.

Right.

The second thing is, for the aged pensioners there’s an up to $1000 which will be paid to them in a lump sum to compensate them for their savings. So we say if you have savings, you want to cope with price rises, you will be eligible for up to $1000. That’s the second thing.

The third thing we say is that we are going to increase the tax rebate for pensioners. At the moment if you happen to be a pensioner and you earn some additional income, you can get a tax rebate. You don’t have to pay tax on that income. We are going to increase that by $250, $250 off tax of any pensioner-earned income, $350 for pensioners.

The fourth thing we are going to do, is we are going to cut the taper rate. At the moment if a pensioner has private income, for every dollar of private income above the test they lose 50 cents. We’re going to cut that to 40 cents, so that for every extra dollar that they have, it might be interest in the bank or whatever, they only lose 40 cents.

The fifth thing we are going to do Alan is we are going to introduce as from 1 January as part of this package a 30 per cent rebate on private health insurance. Now what that means is that anybody, but particularly for pensioners and older Australians who tend to take out private health insurance more than the young, if you take out a private health insurance premium, you’re going to get 30 per cent of that premium back.

Right, and then on top of that of course, which we have to say to be fair, once you take off the 22 per cents and the 32 per cents of indirect taxes, things like your shaving cream and your soap and your sheets and your blankets and your garbage bins and your pet foods should be cheaper.

Should be cheaper. And the other part about this, just to remind people of of course because older people are particularly interested, is that health will be GST free and their medicines and their pharmacies and in fact if anything that should make many of those services cheaper than they are now.

One thing before you go. There is a GST hotline, that’s the final point of complaint. I’ve had a lot of complaints about that because the people taking the call don’t know anything about the GST and they’re really only taking names and sending out packages and they aren’t even arriving on time, do you think there is a need to have a hotline which actually can explain some of these details or is that too much?

Well I think so. It’s hard to get people, you know, when you set up these hotlines, you’ve got to recruit people and it takes a while to train them. But you see Alan I’m finding there’s an incredible thirst for information.

Yes.

And that’s why we set this hotline up.

So the hotline gives you a package?

A lot of the press, you know, have criticised the Government for actually setting it up, but I can tell you I am being inundated by calls and people say, look, you’re the Government, you set up the hotline, you get this information out. Now what they do…

In what timeframe can you get it out? People have been saying to me that it hasn’t arrived with great rapidity.

Well look you ring in if you’ve got a query, they’ll post you out some stuff. It’s supposed to get there I think in about two or three days, but you can follow it up. But in order to try and get this under control, we’re going to have a booklet, which is going to be mailed out to houses throughout Australia in the next week, so people should watch their letterboxes. In the next week there will be a booklet, which is going to explain the effect of all of this. And the other thing I would say too, is check your newspapers because there are ads running in the newspapers at the moment that try to explain the system as well.

And analyse your own particular predicament. Thank you for your time Treasurer and I hope that we can talk again by way of clarification, the job primarily is to enable you to let people know what the message is because in the terms of reform, we’ve got to see where peoples advantage and interest best lie.

I agree with that Alan. The only other thing I’d say too is, remember at the end of the day this is all about a fairer tax system for a new century. This is a tax system to come into effect in July 2000. There’s plenty of time for people to come to grips with it. But the one thing I will say is we don’t have much time to fix the current tax system.

Only until about October 17 apparently.

Well the current tax system is not working and to particularly to older people…

You missed my point Treasurer. Only until about October 17 apparently.

I kept on talking Alan.

So we’re not going to have an election to July 2000 are we?

Well what I’m saying is July 2000 is the start up date. But we’ve got to start now to get that new tax system. If we don’t start now, you won’t have a new tax system for a new century and far from talking about new tax systems, we’ll be wondering how we can possibly pay for social services on a tax system that is breaking down and due for collapse sometime in the next decade.

Absolutely. Good to talk to you. Thank you for your time. We’ll talk again soon.

Thank you very much Alan.

Treasurer Peter Costello.