Transcript No. 99/28

Hon Peter Costello MP

Doorstop Interview

Treasury Place, Melbourne

Wednesday, 21 April 1999

1:00 pm

SUBJECTS: Tax reform

TREASURER:

Well the proposal by the Australian Democrats yesterday to introduce enormous

compliance costs for all supermarkets, all bakeries, all milkbars is a proposal for

nightmare on Main Street. You’d be in a milkbar and if you sold bread and butter it

would be tax free, but if you put butter on the bread it would be taxable. You’d have

sandwich counters where they’d say, here’s the bread, here’s the butter you

go make your own sandwich because if we put the butter on the bread it suddenly becomes

taxable. You’d have a situation where spaghetti sold in a tin would be tax free, if

they put it in a plastic container it would become taxable. You’d have a situation

where you’ve got raisin bread, presumably is not taxable but the hot cross bun is. So

you get a situation where hot chicken is taxable and cold chicken is not.

What the Democrats want the Government to do, if this were accepted, would be to hire

tax inspectors to go around putting thermometers into chickens. You really want a tax

system where we’re employing people sticking thermometers into chickens to try and

run a tax system – it’s nightmare on Main Street. It is not real life.

They’ve made it to try and sort of get some brownie points. It won’t work and I

think now is the time for some sensible tax reform. And we ought to get on with real tax

reform which is taking complexity out of the system rather than putting it in.

Treasurer, what’s your reaction then to Brian Harradine’s statement this

morning.

I saw Senator Harradine’s comments this morning. He’s raised a number of

questions and we’ll look at the issues that he’s raised because I think there

are answers to nearly all of them.

(inaudible) compensation is not good enough?

Well, he sort of raises points about making sure that lower income earners are better

off and there are answers on all these points. And we’ll go through all of the points

that he’s raised now and we’ll get him the answers. And I think, properly

understood, we can satisfy many of the concerns that he’s raised.

Without changing the package at all?

I think so, yes. Because the package does provide for low-income earners and pensioners

to have increases in their pensions. And it does provide tax cuts for those that are less

well off. And it does provide savings bonuses for pensioners and self-funded retirees. And

it does provide benefits for families which cuts their income taxes. So I think there are

answers to those concerns and we’ll go through the concerns and we’ll get

answers to him. I’ve always said that we’re quite happy to explain the package

to the Senators, those Senators that are prepared to look at it in good faith. And I think

that Senator Harradine is looking at it in good faith, unlike the Democrat position which

really is a recipe for, well, a nightmare. A small business nightmare.

He specifically mentioned jobs in Tasmania, that he demands that the situation is

fixed. Can you tell us what you would do to ease his concerns over jobs in Tasmania?

Well, you know I think part of creating employment in Tasmania is like creating

employment in Australia generally. It’s running a strong economy with a budget in

balance and low interest rates and helping exporters. And one of the points I’d make

about tax reform is this is being done for the benefit of exporters. Tasmanian exporters

who are currently paying taxes under the new tax system will have all those taxes taken

out of their products. That will give a boost for Tasmanian businesses and a boost for

Tasmanian jobs.

What would you call upon the Democrats to do now?

Well I think they’ve, I think what the Democrats really wanted to do was to try

and get some publicity for a separate position. And you know, they’ve made this, it

wasn’t a good idea and I would call on them now, they’ve made their point, and I

would call on them now to sit down and now start supporting real tax reform. This is a

bird with no feathers that won’t fly, this idea. In fact under the Democrat package

if it’s an uncooked, feathered bird it won’t be taxable, but if you cook it it

will be.

Does their support become more pivotal now that Senator Harradine has voiced his

concerns? They’re quite an extensive list of concerns it would seem.

Look, Senator Harradine has raised a whole lot of issues about tax reform to which the

Government has already anticipated and provided answers. And so we’re quite happy to

sit down with Senator Harradine and explain how these things can be met. I think, you

know, one of the things that Senator Harradine says is, how are you going to lock in the

GST rate? Well, this is the most locked in rate of any tax in Commonwealth history. This

is a rate that to be changed requires six states, two territories, Commonwealth

Government, House of Reps and a Senate. It replaces a wholesale sales tax rate which needs

the agreement of no state, no territory, which can be changed in violation of promises to

the Australian people as it last was in 1993. Don’t forget this, the Senate increased

wholesale sales tax rates in 1993 after Keating and Labor had promised they would never

raise them. Now you can increase a wholesale sales tax rate tomorrow, which is why Labor

loves it. They love this wholesale sales tax. Sneaky, susceptible to being increased,

requires the agreement of no other government. We are replacing that with a broadbased

goods and services tax. We’ve got an agreement between six states, two territories

and the Commonwealth as to the terms and conditions under which it can be changed and

it’s the most locked in rate in Australian history.

Federal backbencher, Tony Lawler, has said that the Government can increase

compensation because the economy is doing so well. Do you agree?

Well, look I don’t know what he said so I won’t comment on what he may or may

not have said. But, I make two points. One is the Australian economy is doing well,

that’s true. But one of the reasons why it is doing well is that this is a Government

that took a $10 billion Budget deficit, put the Budget back into surplus, got inflation

low, brought down interest rates and kept economic growth moving in the face of the Asian

financial crisis. Now, people sit around and say, I’ll spend more money here, more

money there. These are all recipes for putting the Budget back into deficit and we do not

want to put the Budget back into deficit. You put the Budget back into deficit, don’t

think you’re going to be helping people from struggle town. What you’ll be doing

to the people from struggle town is increasing the costs of their mortgages. You’ll

be increasing the costs on business. There’ll be fewer job opportunities. And to go

around spending money that will put all of that at risk is basically to threaten the

benefits that good economic policy has delivered to struggle town over the last three

years.

How much time have you got Treasurer, considering that Senator Harradine says he needs

more time to be convinced of the GST plan?

Well look, the Senate’s sitting all this week and all next week. You know, I think

we should be able to just keep this debate rolling and people who’ve got amendments

should be in a position to move them. And there is no reason why we have to wait until May

or June to vote on the Government’s package. I think we should be trying to vote on

it as soon as possible. You know, it’s not as if this is rushed. This debate has been

going on in Australia for 15 years. We then put out a policy in August of last year, we

debated it right through a Federal election, we put legislation into the Parliament in

December. They had four committees sit for four months, sixteen months of taxpayer

inquiry. This has been the most raked over issue in Australian politics in the last two to

three decades. And what we really need now is we need to get on, what we need to do is to

get on and get the reforms behind us and Australia needs to move on. I think the public is

saying to the Senate, come on, lets move on, lets get some action. Now we could sit around

for another fifteen years at this rate and you know, you’ll still be going over and

over the same arguments. I think what we need now is sort of, decisive action. That’s

what the Government intends to do.

Should Senator Harradine have voiced his concerns earlier then?

Look, I make this point, I always do, I’m always willing to speak to Senator

Harradine. I believe that if he has legitimate concerns I take them seriously and

we’ll give him legitimate answers.

Thank you.