CORDEAUX:

….it’s now likely Australia could be heading for a recession following the Asian economic crisis, that’s according to a survey of the nation’s leading economists, what do they know however. The man who does have his finger on the pulse is the Treasurer of Australia, Peter Costello. Good morning Peter how are you?

Good morning Jeremy, I’m well and you?

I’m fine, what do you say about that, do you find those, do you believe we’re teetering on the brink of a recession?

Oh no look I think that was some kind of survey from, as far as I could see, academics and others, it is true that there has been a serious downturn in Asia and that will effect the Australian economy. In fact most of Asia is now in recession but the Australian economy has been remarkably strong in the last quarter and probably the fastest growing economy amongst developed nations in the world. And whilst Asia will affect it and it will make it harder for Australia in the future the fact that we are coming into it with strong growth means that we’ll be able to withstand it.

Well we’re sure affected, as seen with the Australian dollar decline, which you’ve valiantly tried to talk up, many say that you shouldn’t have done that, in retrospect what do you think?

I don’t try and talk a particular level for the Australian dollar but what you are referring to, is I make the points as I always do, that the currency should be based on fundamentals. Those fundamentals are things like the inflation rate and the growth rate and they have been very strong in Australia. Now it is true, that in an international world where there’s a lot of volatility particularly in relation to the Yen, the Japanese currency which of course is the largest currency in the Asian region, other countries can get caught up in it. But my point has always been that when you are looking at the Australian dollar it’s the Australian fundamentals that are important.

Now to the job of selling tax, I don’t like to call it reform because people think of reform and they may not be winners out of that reform, what you’re really doing is talking about tax relief, which is something I reckon that we’d all support. The thing that comes up on this programme more often than not is the confusion about the layers of existing wholesale sales tax and what not and people image, people’s worry, is that you are just going to lump a GST right in on top of those existing taxes.

Well that is not the point at all. The point is to abolish wholesale sales tax. We have a wholesale sales tax out there at the moment which is taxing virtually all goods at different rates which we want to abolish, just completely abolish. Now if you are going to get rid off that unfair and complex tax, people say what are you going to put in its place and we say you should just have one rate, everybody knows it and it applies by and large across the board. But this is not a plan for a new tax, this is a plan to abolish old taxes and replace one of them. And that will fix up our indirect tax system, which will be good, but the other part of all of this is we’ve got to start fixing up the income tax system. The thing that is worrying me is that average income earners are just paying higher and higher tax rates and if we don’t fix the income tax system now, and bear this in mind we’re talking about reform now, but by the time you get the legislation into the Parliament and through the Parliament, it’s probably going to be the year 2000 before you can get any substantive change. If we don’t start doing that now you are going to pretty soon have average earners that are paying $1 in $2 of any extra money that they earn in tax, and this will be a terrible situation Jeremy. There are people today that already say, oh it’s not worth my while to go and earn money because tax rates are so high. Now what sort of a country would it be if people were afraid to work because of high tax rates.

Absolutely, where’s the incentive to try when you tax initiative, enterprise and energy, when you should be taxing consumption, yet it is such a simple thing, why is it so difficult to get the message across?

Well I think people are always worried about change and they say things might not be good at the moment, but we don’t know about change, we don’t know how it’s going to work out. And this is what’s been going on in Australia now for 10, 15 years, both sides of politics by the way have supported tax reform. Labor used to support it, they don’t now but they used to and if people are saying oh well, we are frightened about change, but the point I make is this, don’t think the tax system is going to stay as it is. If we don’t reform it, it changes day by day, and the way it changes is as follows. People get kicked into higher and higher income tax brackets. The wholesale sales tax will have to keep going up because the base keeps shrinking. You see, this is a tax system which is in decline, some say terminal decline, and unless we reform it then things are going to get much worse, not better. And so we have to take the bull by the horns and reform this and make sure it’s fairer for everybody.

The other thing that is said is, oh yeah well okay let’s say you get rid of all of those wholesale sales taxes, that’s fine and you put on a 10 per cent, well what about services, services aren’t taxed at the moment, explain that?

Well some services are taxed and increasingly some governments are directly taxing that through things like bed taxes but they are all taxed through their inputs of course. All services use goods to deliver their services and every time they buy a good which they use in their service that is taxed. So it’s not right to say that services aren’t taxed, all of their inputs are taxed, all of their goods inputs are taxed and some of their outputs are directly taxed even as it is. What services don’t do is they don’t have the advantage of a fair and efficient taxation system.

Now they are saying this morning that there might be a one off payment of compensation to those people disadvantaged through a GST, is that likely?

I think this is a fair point and we’re very mindful of this, that if you find certain groups in the community who are disadvantaged it’s pretty straight forward to compensate them actually.

But a one-off compensation instead of a continuing compensation, would that be fair?

Well it depends how much the one-off is, doesn’t it.

What do you think that might be?

Well I’m sort of looking at all of these things at the moment but I do want to make the point, and I’ve always made this point, particularly for people like aged pensioners and so on who don’t pay tax and so if you reduced income tax they may not get the advantage of it. I think it is fair that they be given compensation and the aged in our community are a group that we are particularly mindful of, if you recall in the last Budget we introduced that Commonwealth Seniors Health Card for self funded retirees who hadn’t been getting access to it before and that was because we wanted to recognise the efforts of the self funded retirees and to help them with their pharmaceutical costs. So we’re particularly mindful of the aged and particularly in relation to those people that are aged pensioners, I’m very mindful of the need to treat them fairly and they will be, they’ll be treated very fairly under this.

Treasurer how soon before you put this on the table and we can all have a look at it?

Well we’re in Parliament this week and we’ve got to finish Parliament and we’re wrapping up final consultations with welfare groups, business groups in the next week or so and then hopefully we will be wrapping up our tax plans after that. So there’s a bit of work to go, but you know it’s like the footy season, the end is now is sight Jeremy, and I congratulate the Adelaide Crows on a good win on the weekend.

I’m sure they’d appreciate the words.

Well it damn near killed me because I tipped Sydney but there you go, congratulations to all you Crows fans there in Adelaide.

The other thing about getting rid of the taxes and making it simpler, the cost of a goods and services tax would be embedded in prices rather than identified separately, did you say that, is that true?

The point I’m making – a lot of people say, oh is value added tax or GST like America, because they’ve got experience in America where you have got a price on an item and you go up to the cash register and although the item says $10, by the time they ring it up on the cash register it’s more than $10.

But wouldn’t that be better to be able to see on the docket how much goes to the Government and how much goes to the store keeper?

Yeah but it is a different thing, you see that’s what’s called – America has what’s called a retail sales tax – where they ring up additional tax at the cash register, value added tax doesn’t work like that, value added tax is applied through the process and so that the price at the end is the inclusive price so that you don’t have the disturbance of actually having an additional amount rung up at the cash register, the price that you see on the supermarket item is the price that you pay at the cash register.

Now apart from doing a deal with the states, that you’d obviously have to do to distribute the money, does it mean that fringe benefits tax goes, capital gains tax goes, payroll tax goes, all of those other taxes?

This is one of the things that we are discussing with the States because the States have a lot of complicated taxes at the moment, the States….

FID and BAD and stuff like that are just awful.

FID, BAD you know they are the taxes when you get your cheque statement at the end of the month, you might be like me, the amount in the cheque book never meets up to what’s on the cheque statement and that’s because you’ve got all those taxes that have been taken out. So the States have said quite rightly in my view well, if you are going to reform tax in Australia don’t forget us and help us reform some of our taxes, FID, BAD, stamp duties, payroll taxes which you mentioned. And we are talking to the States about that. If we can get reform both at the Federal and the State level so much the better. This could be the biggest tax reform we’ve ever had.

We’ll I’d be amazed if you came out with something like a 10 per cent GST and a 30 per cent corporate, 30 per cent personal level of taxes as the highest level, it would be impossible not to be able to sell that?

Well there will always be people that will complain of course, and you’ve got to make sure you do your sums, but, and I’m not saying that you could get those particular levels, but the general principal is right. Let’s get rid of the current indirect tax system, let’s reduce income taxes, let’s be fair to people that are on aged pensions and so on. This is big reform, this is good for the country, good for jobs, good for exports, good for earnings.

Not only big but vital, absolutely vital.

Vital for the country look if we sit around and just say that this 1930s tax system which is falling apart is just going to be left in place until the whole system breaks, we’ll be the people that lose Australians will be the people that lose from having a second rate tax system, we won’t be the winners.

I see I think it was the Age I can’t quite remember but it was said that the Treasurer, Mr Costello, has all but offered an open challenge to the Prime Minister on leadership, I take it that this is over the One Nation stand, or your stand which is a bit firmer on preferences given or denied One Nation. What did you think when you read that, that’s how it’s being interpreted?

Well I’m not sure if they were the precise words, but when I did read it, I thought it was a bit of a beat up because look, everybody knows my view on One Nation is, that it doesn’t have any answers for Australia’s problems. And what’s more I think that its philosophy will set people against each other and it will lead to a lot of conflict.

Yeah but I just wonder as a politician when you sort of see if she has tested the water in Queensland, which I believe she has and the country has seemed to have moved to the Right, why not respond to that politically if that is what people want, if that’s what people are sensing the country needs at the moment, why not respond to that?

Well it depends what people want you see, I very carefully had a look at what they were saying on economic issues and the first thing they said is they wanted to print money. Now I can tell you what printing money does, printing money leads to hyper inflation as it always has wherever its been tried.

Well Gough Whitlam was the last one to do it back in ’73 I think.

Gough Whitlam or do you want to go back to Latin America in the 1970s or do you want to go back to Germany in the 1920s. Printing money as a solution to the nation’s ills will just destroy the savings.

That’s dumb but..

That is dumb, now who would possibly adopt a policy like that.

Well the other things like land rights have a referendum on land rights and find out really what Australia is thinking and make sure that when migrants come to Australia they can speak English, I mean this strikes a very acceptable chord with Australia.

Well look some of the things that worry people, the Government has already dealt with, for example in relation to immigration this Government, the Howard Government, introduced a policy which said that you had to be in Australia for two years before you could claim social welfare benefits. Now we were opposed on that issue by Labor and the Democrats but to hear people come around now and say oh the Government should be tougher on welfare benefits for immigrants, this Government put a promise to the Australian people before the last election and we implemented it. We’ve dealt with that particular issue, now there may be people that don’t know it, but we thought it was fair if you come into Australia, you should have a period where either your family supports you or you go into the workforce and pay some tax before you’re entitled to welfare benefits.

Yep, yep.

And by the way the first time we put this into the Parliament it was rejected by Labor and the Democrats in the Senate.

Well it wouldn’t have been rejected in the court of public opinion I don’t think.

And that’s precisely right, the court of public opinion was such that when we went back a second time we were able to introduce it. Now I think that it is right to deal with these areas of legitimate concern and this Government has really been very active in dealing with them.

Treasurer do you happen to know if the Prime Minister has done a deal or any closer to doing a deal with Senator Harradine over Wik?

I have just been speaking with the Prime Minister this morning and he has been working exceptionally hard on this I can tell you. He flew back from Queensland on Friday to meet Senator Harradine on the weekend, he then had to go up to Sydney, he came back last night, I was in touch with him last night, I’ve seen him this morning. He is meeting again with Senator Harradine this morning and we’ve got a Cabinet meeting all morning, he is working exceptionally hard to try and work out and see if Senator Harradine has moved his position and whether there is any common ground.

There is no agreement at the moment but they will be resuming their talks this morning and you know the Prime Minister I can tell you, will ensure that there is no stone left unturned in seeing if there is some common ground with Senator Harradine.

Treasurer thank you for your time, I appreciate it.

Thanks very much Jeremy, great to be here.