Transcript No. 41

‘PM’ Program, ABC Radio with Matt Peacock (Pre-recorded)

13 August 1998

SUBJECT: Tax Reform Plan

Treasurer, this new package, in effect you’re saying it’s the States’

GST , that’s a little bit cute isn’t it? You’re giving…

It’s a reordering of Commonwealth/State financial relations. The States have said

for some time they wanted access to growth revenue. This provides it. It means that they

have growing revenues. They’re not reliant on Commonwealth Government grants.

They’re abolished as a consequence. That allows us to abolish wholesale sales tax and

reduce income tax rates, which I think is great for middle income earners.

Well now that’s the point of course, you’re financing these income tax

(cuts), some of which are quite substantial, pretty generous ones, 43 per cent goes down

to 30 per cent for example, but you’re doing that separate from the GST. Where are

you getting the money from?

Well the broadbased GST brings in revenue that isn’t brought in by the wholesale

sales tax at the moment. It also brings in a lot of money from the cash economy and it

also enables the Tax Office to improve the company tax arrangements so there will be less

cheating there. We tightened down in relation to trusts and some of those areas where we

think people have been getting unfair advantages and as a result of that we’re able

to dramatically reduce income tax rates for middle income earners.

And you’re raiding the surplus as well. Is that correct?

Well the budget will be in surplus right across the forward estimates. Having got the

budget into surplus we’re going to keep it there. And we’ve still got our debt

reduction program on track. But as I said, I think earlier this week, when your budget is

in surplus, when you have a debt reduction plan on track, then you can give tax relief.

And this is about tax relief. The average income earner in Australia, who’s on about

$38,000 per annum currently is taxed at 43 cents in the dollar. We’re going to drop

that to 30 cents in the dollar and that means for 81 per cent of Australian wage earners,

they’re not going to pay more than 30 cents in the dollar tax. So if you want to do

some overtime, if you get a promotion, the rate of tax that you’ll face is 30 per

cent, less than a third. That’s where income tax rates should be.

Now you’re doing all that separate from the GST. What’s to stop Labor from

doing the same thing without a GST?

Well if Labor wanted to do the same thing they could have done it in any one of their

last 13 years of government.

But they still could, could they not? Without a GST?

Well the Labor Party can’t do the following. It can’t fix Commonwealth/State

financial relations. It can’t fix the interplay between income tax and social

security. We revamped the whole social security system here as well. Because they

won’t introduce a broadbased indirect tax, they can’t crack down on the cash

economy. They can’t get the improved compliance in relation to income and company tax

that comes from our terrific reforms in relation to the Australian business number. They

can’t do any of those things. And this integrated package makes it possible for us to

help families and dramatically reduce income tax rates.

And how can you guarantee that this won’t, this rate won’t change? I mean

you’re passing a law in Federal Parliament, why can’t you rescind that law in

Federal Parliament, particularly in an election climate where you’re probably likely

to have as equally a hostile Senate the next time?

But you see if the rate is set by unanimous agreement between six States and two

Territories, any one State can veto it. You’ve got to get eight Premiers effectively

in a room and get an unanimous agreement.

Isn’t it still the Federal Senate though that makes the final decision?

And then it has to be legislated in addition through the House of Reps and the Senate.

Now this is the best protection that you’ll ever get against a tax rise. Eight

Premiers in unanimous agreement, plus the House of Representatives, plus the Australian

Senate before the rate can go up. Now at the moment of course what stops the wholesale

sales tax rate going up? Nothing. This is a fantastic mechanism for making sure that the

rate once struck is locked in.

And the final question. Everyone’s a winner, who’s the losers?

Well people who are operating in the cash economy are going to be losers because

they’re going to be brought into the tax system. People who’ve been operating

fancy tax avoidance mechanisms will be brought in and pay a fairer share. Tourists who are

coming into Australia are going to pay a share towards tax here in Australia. And that

means the tax burden on decent hard working honest Australians can be reduced and it

should be.

And is it the end of the family trusts, the sort of Senator Parer trusts?

Well it’s a mechanism which will make it much harder for people to use complicated

trust mechanisms to reduce their just tax liabilities. What we want is lower rates and

everyone paying them and that means tax relief for everybody.

Treasurer, thanks for joining us.

Thank you Matt.