Transcript No. 99/85

TRANSCRIPT OF

The Hon Peter Costello MP

TREASURER

AM

Friday, 12 November 1999

8.05 am

E&OE

SUBJECT: Business Tax Reform, anit-avoidance measures

Well as I mentioned, the Treasurer Peter Costello is in our Sydney studios. He’s

speaking to Fiona Reynolds.

Treasurer, small business and rural Australia is pretty angry. The Farmers’

Federation is accusing the Government of engaging in clandestine discussions with the big

end of town. Have you been ignoring small and medium sized businesses?

Well, I think Fiona, if we go through all of the matters that we’ve heard, they

are all properly covered already. The first thing in relation to farmers of course, is

that there’s no new announcement in here on trusts. And I think Mr Donges

acknowledged that. He wants changes in relation to what was announced before the election,

so that’s not really part of this announcement at all. The second criticism I heard,

I think from the Master Builders’, was that contractors would be put out of the

building industry. That’s not the case. It’s not the case that everybody who

does 80 per cent of their work for one contractor will pay PAYE tax. It will only be the

case if you do 80 per cent for one person and you aren’t operating as a business. You

know, you’re not out there holding yourself open to the world, and advertising your

wares, and bringing your materials and everything else. So, that’s easily covered

off.

So are their concerns unjustified?

Well, the measure is not directed at the bona fide contractor. If you are a bona fide

contractor, the measure recognises that. What the measure is directed at is the people who

are in fact employees who have interposed a company or a trust to try and get a company

taxation rate, and if you’ve done that and you are really an employee, you’re

not holding yourself out in a business, then if you have done that and you are an employee

you should be paying PAYE tax. So that’s not really a problem.

How can you say the business tax reforms are revenue neutral in the face of evidence we

heard yesterday to the contrary from economists?

Well as you see, the costings are all put out and the costings are clearly revenue

neutral. In fact, probably mildly revenue positive over the course of the four years.

But economists said yesterday, that your research is out of date.

Well, you’ll hear the up-to-date evidence as this inquiry goes on. You had, I

think, one person from the US which came in and put certain submissions yesterday. But the

figures we rely on are not one study from the US. The figures that were relied upon are

all of the studies taken together, and the official US figures. And I make this point in

relation to capital gains tax. You had one of these US academics there yesterday, the US

Government taxes capital gains at 20 per cent. We have a 48  per cent

rate. One of the reasons why they do that is they want to attract investment and jobs. And

I’ll make no bones about this. We want to attract investment and jobs into this

country as well, and that’s why we’re reforming capital gains tax. Now, in

relation to the other measures, let me make this point. We have a very complicated capital

gains tax system in this country. You’ve got to index your cost base year by year and

average it, and then you pay top marginal rates. We are getting rid of indexation, we are

getting rid of averaging. If that was all you did and you left those rates at their

current levels, that would put up effective capital gains tax rates. So, if you want to

simplify by getting rid of indexation and averaging you’ve got to reduce rates,

because otherwise you will be putting up effective rates. Now this is a fair trade off. It

gets us back in the international game. We will still be slightly higher than the US. We

will be lower than the UK. This is all about creating jobs and new investment

opportunities.

The Democrats say, that a third stage of tax avoidance measures might be needed to

ensure that the package is fully funded. If that’s what it takes to get their support

in the Senate, will you do that?

Well, there’s a lot in this for the Democrats. And once you accept the point on

capital gains, which is the point that Senator Lees just raised – that you can’t

abolish indexation and averaging without cutting rates – once you accept that point

there’s an awful lot in this for the Democrats, including these measures which make

employees pay PAYE tax. A matter that they themselves have raised. Now those measures are

only going to go through if the tax cuts go through. Now this is a whole package.

We’re not going to come out of this increasing taxes. What we’re going to come

out of this is, broadening the base and reducing the taxes. So, if we can get agreement

with the Democrats on the capital gains tax rate reduction, we are prepared to help in

relation to other measures that we’ve announced and the package can sail through. I

think this would be a good package and what a great thing to do it before Christmas. Can I

make this point . . .

Treasurer . . .

. . . I make this point. It has to be done before Christmas because many of these

measures are already operating, announced to operate and people are already taking

decisions, and the law has got to catch up with the commercial reality.

Treasurer, thank you very much

Thank you very much.