Transcript No. 99/27

Hon Peter Costello MP

Interview with John Laws, 2UE

Tuesday, 20 April 1999

9:10am

SUBJECTS: Tax reform

TREASURER:

Its great to be alive on a beautiful day.

It certainly is a beautiful day and you look very well and Im surprised that you do given the tossing and turning that must be going on in the Costello household over the GST.

Well its, its been a long debate, hasnt it? We had an election on it, we argued it through the election, we put together the legislation, we put it through the House of Representatives, weve been trying to get the Senate to vote on it and, Im frustrated I think, that its taking so long, but our determination continues.

The political pundits, and Im not one of them, are saying that this week is the beginning of the end game for the tax reform package. Surely the end game relies on you making Brian Harradine happy, doesnt it?

Well if the Labor Party opposes, continues to vote against tax reform and the Democrats put unsustainable conditions, then it will get down to whether or not the independents support tax reform. To get tax reform in this country youve got to get a majority in the Senate and that could only be done with the Independents Senator Colston and Senator, Senator Harradine. But you see theres a lot of people say oh well its a terrible situation that Brian Harradine determines the future of Australia. But he wouldnt be in that position if the Labor Party werent voting against all reforms.

Just bare that in mind, its only because they vote against all reform that he has the deciding vote.

Yeah, but, but that, thats their prerogative and his I imagine. People are just frustrated because of his ten thousand votes or whatever it was.

Well people are frustrated and the Governments frustrated. Were frustrated by the fact that we put out a policy. All were trying to do is implement the policy we were elected to do. Its a funny situation in Australia.

But, but people constantly say that you got less than 50 percent of the vote so you really dont have the mandate that you might like to think you have.

Well you know the Government is elected to be a Government and to run things. And I feel frustrated because as the Treasurer its my job to run a tax system and yet people like the Democrats say they want to design the tax system. They will never have to run it, never. They dont purport to run it. Theyll never form a Government and, and yet Im supposed to run the tax system. Anybody whos been involved in looking at the Australian tax system knows how terrible it is. I think everybody agrees the tax system is terrible and yet we face this impasse in trying to reform it.

So is your major problem Brian Harradine?

I dont regard him as a problem. I regard Brian as somebody whose position is still open and therefore somebody that were having, I hope, constructive discussions with.

Tell me this, how do you get on with him? Do you like him?

I respect him. I think Brian has certain views which hes well known for and I respect those views. I dont agree with all of them but I respect them and I try and engage in constructive dialogue with him.

The heart of the concerns that Brian Harradine and the Democrats have is their perception that literally tens of thousands of Australians are going to fall outside that compensation net of yours. Are you totally stuck on that, not going to move an inch on that?

Well, weve been through it, with all of the best advice that is available to the Government which could identify no group of losers and thats the policy weve put out. The Labor Party commissioned its own researchers, the Labor Party and the Democrats and the Senate Committee, they went through it, they came to the same conclusions.

Well why are they saying that they didnt?

Well, well, they are saying theyre going to vote against tax reform because they oppose tax reform. They say we took this position to the last election, we opposed in the last election, were going to vote against it.

Yeah.

Thats the Labor Partys position.

But, but the Democrats are saying it on the grounds that Brian Harradine is saying hes going to oppose it on the grounds that thousands of Australians will fall outside that compensation net.

Well the Democrats I noticed this morning, I think a week ago they were saying there were one million losers and somebody said this morning they upped, they upped, the body count to five million. I mean think of a number, double it, add three and put it out into the media. They didnt think they were getting enough publicity with the previous claim so double it, add two, multiply by four; you know those games you used to play when you were a kid, that, thats about, thats the science of it.

So, so youre saying the Democrats are lying?

Im saying that they are exaggerating, that they are politically inflaming and that they are making false claims to try and justify a wrong political position.

Well isnt that lying?

Well, you, you call it what you like, but theyre making false claims to justify a political position.

What about this new Democrat plan for removing the GST on basic food only and what about, is it John Tierney saying that a compromise is already being worked on anyway?

Im not sure precisely what he said, but whatever he said, the Governments position is that since weve crafted the package as a whole and ensured protection for low income earners, its that package which we were elected on that were putting to the Senate. In relation to exempting basic food, well, you know weve been through this argument a thousand times, but let me just give you one example. The Democrats say oh well you can tax takeaway food, but not basic food. So you say whats Kentucky Fried Chicken? Well they say well thats obviously takeaway food. Well whats a cooked chicken in a supermarket, is that takeaway or is that basic?

I would think anything thats cooked is takeaway, wouldnt you?

Well they say thats takeaway.

Okay.

Well what if you cook a chicken in the supermarket and then let it cool? And its bought cool for reheating at home. Is that takeaway or basic?

Well thats where the problems lie.

And, and they say, they generally say, well if its cool it must be basic, not takeaway; if its hot, its takeaway. So in some countries that have that distinction, you know what they do? They get tax inspectors walk around with thermometers sticking them into chickens to see what temperature it is to determine whether or not its taxable.

Well wouldnt it be simple then to say if its cooked its taxable. Even if its cooked and cooled down.

What if its cooked and cooled?

Still cooked.

What about coleslaw?

Still cooked.

Coleslaw would be cooked food in takeaway, but if you bought the cabbage separately it wouldnt be.

Thats right. If you went home because youd paid tax on your mayonnaise.

Its an unbelievable situation. So, so well have tax inspectors wandering round with thermometers, well have people wandering through ..

No, no. no.

supermarkets looking as to whether or not the food has been processed. Youve got, then youve got the argument about what is snack and what is food. Is a donut a snack or is it food?

Well its a snack.

Well in Canada they said if you were buying less than six

And its cooked.

Well in Canada they said if you were buying less than six it would be a snack but if you buy more than six its a meal and its food.

But we have a brighter Treasurer than the Canadians, dont we?

Yes. And a brighter Treasurer says in accordance with international practice the better thing is just to apply the tax regime across the board. You dont have armies of inspectors, you dont have these stupid demarcation and classification disputes and you get on with cutting peoples income taxes and giving them higher pensions. Which all the international experience says is the way to go.

Well why is there then this ongoing concern that there are going to be literally tens of thousands of people, I think were up to 4.9 or 5 million as you said.

Five million now theyve got it up to.

Yeah.

Theres only 18 million in the country by the way.

Well what about those people? Are they, is this simply all fabricated and theyre not going to be hurt?

Well, well theyre making it up. I mean they, they, they have a position, its a bad position. They set up these Senate Committee inquiries, they got no support at all from any of the economic analysis. They obviously decided that scaring one million people wasnt enough, they upped it over night to five million and theyre trying to justify a political position.

Is there any room for any sort of deal with the Democrats. Cause if you got that then you wouldnt have to be concerned about Brian Harradine and Mal Colston, would you?

Well not if theyre going to you know, if you exclude food and I think that costs 5 billion dollars. Theyre talking about another five billion dollars of compensation I think. Let me make this clear, to do that would be to put the budget in deficit, would be to risk Australias prospects, it could put pressure on interest rates and the economic consequences of that for Australia would be very bad.

Could I just ask you this. Thats so. All of that is very honorable and very Treasurer like, but what about putting people into poverty?

Well thats why were actually changing the tax system. Can I remind you where all this started. This, this started when people from the tax side and from the welfare side sat down and said in this country what are we going to do to be able to sustain pensions and hospital care for an aging population on a declining tax base? And the conclusion was you had to broaden the tax base. Cause if you didnt broaden the tax base youre not going to be arguing in the future about how much to pay in pensions. Youre going to be arguing about whether or not your cheques are going to be cashable.

Yeah.

And we sat down and we did this so that we could sustain in 2010, 2020, 2030 our social welfare obligations.

Well given all this and given that Brian, do you consider Brian Harradine to be an intelligent man?

Yes.

Well if you consider him to be an intelligent man, why would he make a comment that you consider to be unintelligent?

Well like, like anybody Brian is, is a Senator who has a political base. Hes got to be careful about his political base. I mean Brians not trying to run a tax system and hes not responsible for the overall economy. So what weve got to do is weve got to explain some of these consequences, not only to him but to the public at large. We dont have much margin for error.

I dont want to single out Brian Harradine, but given that you do think hes an intelligent man and given that you do respect his point of view and given that one would think that his prime concern would be Australia, not just a portion of Australia, but all Australia. Why cant he see the validity in your total package?

Well I hope that he will. But as you say he represents Tasmania. I dont, I think its important that some of these Senators do get a national perspective by the way.

Do you think he doesnt have a national perspective?

Well, well let, let me put this, this fact to you. The Commonwealth Government, six States and two Territories have signed a unanimous agreement for tax reform and that agreement includes Premier Carr, Labor; Premier Beattie, Labor; Premier Bacon, Labor. Now the reason the Senate exists was to represent the States. Thats why its is there. Thats why its in the Constitution. Every State is now in agreement, six States, two Territories, the Commonwealth. Ive never seen an agreement like this before, well since Ive been Treasurer and I dont think Ive seen it in the last couple of decades.

So what it means is Mr Bacons approval goes for nothing.

Well, and yet a Tasmanian Senator will go to Canberra, supposedly to represent Tasmania, when their Government has agreed to tax reform and what vote against it?

Well it seems that thats the case.

Well, well youve got to ask yourself dont you. I mean, if these Senators are really trying to represent States positions, or alternatively, as I think they should national positions, a national agreement. You know six States, two territories, one Commonwealth, nine Governments for tax reform. The one shot weve got. Weve been trying to do this since, since Labor supported tax reform in 1985.

86, yeah.

85, 86 okay. What fifteen years ago. We stand on the, on the eve of a new century, weve been at this for fifteen years and what do they say back to the past? Six States, two Territories, one Commonwealth Government and, and a Senate supposedly there to represent the States. The opportunity we have for the next decade to secure the tax base for the century and what they say for Party, petty, political, partisan, opportunistic reasons were going to miss that opportunity.

Are they the reasons behind Brian Harradines attitude? Disinclination I think.

Well you know Im, Im still talking to Senator Harradine and Ill go talking to Senator Harradine until the vote is taken. And Senator Colston for that matter.

Have you already spoken to Senator Colston?

Yes I have.

Whats his attitude?

Well I spoke to him last week and he had a claim on behalf of Queensland for some additional compensation. We had a discussion about it.

Isnt this a form of bribery?

Well we had a discussion about it, I didnt think the claim was justified but I thought there was some merit in it and as a result of his representations we agreed to allow some additional funding to Queensland. Not the full amount, not even half, but some.

But is that proper?

Well..

I mean is it proper for either of you, is it proper for you?

Well I wouldnt have done it if I didnt think there was some, there was some merit in it. I didnt think that the thing was right, but there was some merit and you could argue the case and he argued the case and,and as a result of that, some part of the claim was allowed. But youre quite right at the end of the day who represents the national interest here? We are a nation, who represents the national interest and thats what the Commonwealth Governments for John, were here to represent the national interest, we are trying to do this in the interests of the nation.

Well thats what I would have thought. But I mean to the ordinary simple man, and youre talking to one, when somebody like Brian Harradine says, or Mal Colston and he was quoted last night as saying that like Brian Harradine he wouldnt come cheaply, that, that is tantamount to extortion. Ill do what you want me to do if youll give me X amount of dollars.

Well the way that we deal with that is we listen to the arguments and if theres a fair argument well give it, but if theres not a fair argument and a lot of people that are putting unfair arguments were not going to agree. We cant agree. Were here for the nation and bare this in mind when, when people say I want money for this, this, this, this and this, its only tax payers money. I mean to give money for this, this, this and this means to take it from him, her, that one and the other one. And him, her, that one and the other one deserve to be considered in this process as well. Now when they say I want money for this, this, this and this and the consequence could be to drive the budget into deficit, to slow growth, to deny young people jobs, to put up interest rates on homebuyers, somebodys got to stand up and say in the national interest this is not good for Australia. And thats our job and thats what were doing.

Do you, do you believe that Brian Harradine is a moral man?

Look I think that hes, I respect that he has very deep convictions, moral convictions and religious convictions.

Well, is it moral, and Im not suggesting he is going to do this, but he might, that he has a very strong belief about five million or four million or one million or tens of thousands of Australians falling outside the compensation net. And he believes on moral grounds this is not the way to treat poor people in Australia. And suddenly you say, well Ill give your state more money, and suddenly his moral point of view changes. Is that what would happen?

..inaudible.wouldnt it. But I havent heard him actually say that.

Well for what other reason..

Well I havent heard him say that. You know, weve had some discussions about tax generally and I havent heard him say that.

Who have you heard say it?

Well, thats what the Democrats say basically. They say, you know, we want money here, here, here, here and there and we dont care if its going to drive the Budget into deficit, were the Democrats this will make us popular, this will get us more votes, so we wont vote for it until you give that money. Now, to that I say, you havent got an argument, its not in the national interest, whats more Democrats said they would get elected to keep the Government honest. And their whole argument now is we should be breaking our promises not keeping them. What an extraordinary position.

What about Mal Colston, I mean, from what he said and he was quoted as saying “like Senator Harradine he will not come cheaply”, if that means what I think it means, all youve got to do is throw him a bundle of money and youve got him in the bag, you dont have to worry about Brian.

Well, you know, I dont know what he meant by that. But I say again, if there is a legitimate claim, which we evaluate, and it is a legitimate claim, we would deal with it. But we cant give money to illegitimate claims. That would be wrong.

What does Mr Colston want?

Well, I dont know. The only thing he did want last week, was he wanted the claim of Queensland to be considered. And I considered it. It wasnt 100 per cent justified, but it was partially justified. And as a result we were able to make a partial move in that direction. And also the Queensland Government acknowledged that, and its a Labor Government. I mean, heres, let me just put this point before you, heres Premier Beattie, who signed an agreement, which is good for his State.

Yeah, but thats the point you make about Tasmania, and I agree with you.

How many votes is he securing in the Senate to get this good deal for Queensland.

The point is, it would appear that Mal Colston, for example, is not concerned about the national view of this thing, he is concerned only about the Queensland view, which to a degree is understandable. But in the end tax reform is going to effect the entire whole country.

It involves the nation. And I think youve got to have a national perspective on this. At the end of the day, somebody is responsible for governing the country, and its the duly elected Government. And at the end of the day if the duly elected Government goes to the electorate, asks for an endorsement of a policy and receives it. In my view, the duly elected Government should introduce it and should be capable of introducing it.

You, well of course when you were elected you understood that it was possible that you wouldnt be able to introduce it. Because you were aware of the existence of the Senate.

I didnt think that six months after a Federal election, Labor would be so bloody minded. Their position now as far as I can tell, is they will do anything to defeat tax reform..

But why arent you saying that..

.but let me finish this point, but if they ever get elected they will take advantage of it.

I have very little doubt of that. They wanted to do it in 1986.

Now, what they say is, if we get elected by the way were not going to try and repeal it, oh no no, if we get elected we will take advantage of tax reform, probably claim credit for it. Were just going to make it as hard as possible for you to do it. It was like when we got into office and the Budget was in deficit, and interest rates were high, and Australia was falling into debt. We said the Budget has to go into surplus. And we put all these measures up to the Senate, the Labor Party voted against all of them, fortunately we prevailed. We balanced the Budget, interest rates came down, we withstood the Asian financial crises. And then the Labor Party turned around and said, oh were now in favour of balanced budgets you do all the work, do all the work and if you succeed well well take advantage of it. Now you see..

They are politicians Peter, they are politicians. If the boot were on the other foot it would be likely the same thing.

Well, thats not the case. In fact, you know, if you go back to 1985/86 when Labor was trying to reform the tax system, the Coalition actually supported their efforts in the end.

Option C.

In the end it wasnt because the Coalition opposed tax reform that it was defeated, you recall it was the ACTU that did-in the Labor Government.

Youve set a deadline of June 30, that gives you, what’s it April 20, so that gives you two and a half months or there abouts to get this thing through.

We dont have to wait until June 30 by the way.

No, I can tell you dont want to. April 21^st would suit you better.

Well, I dont know if the people, the people of Australia, I think, you know, theyve had an election, this arguments been going on for 15 years. I think the people of Australia say look just get on and do it will you, just get over with it.

Now, the Senates got a whole week this week, its got a whole week next week. You know, I think we should be trying to aim to get this debate on and the vote as quickly as possible. I dont even know why we had to wait until now to have this vote.

Is your biggest fear that this debate will drag into July, and then youll have no alternative then to do a deal with the Democrats to get it through the Senate.

If you drag this into July you probably wont be able to get the tax system up and running in the year 2000. At the very outset of this we said youve got to get the legislation through and then you need 12 months to educate people and prepare Australia. Weve got a start date of 1 July 2000. If we dont have the legislation in place by 1 July 1999, 1 July this year, then it will be very hard if not impossible to get it started by July 2000.

So that is your biggest concern?

Thats my biggest concern. And if you dont start this in July 2000, well you know, you would be imperiling the smooth functioning of the new tax system, in my view.

So what, if you dont get it through by June 30, what options have you got? Dump it or make some concessions?

Well, Im not looking at those options at the moment. I think there is only one option, which is to pass tax reform and to get the new tax system. The alternative to me is pretty unthinkable. What do you think is going to be happening in this country in fifteen years time, there will be somebody sitting here saying, oh John we need to reform the tax system.

Well they probably would be. Believe me, you know I support a GST.

I know you do. But what kind of a country would we be, here we are, we have been through a huge financial crises in Asia. Because the Government took some tough, not popular, but tough economic decisions we weathered it. We are one of the strongest growing countries in the world, we have an opportunity to make our future. I think Australia could be on the eve of something really special, in the next ten and twenty years, this could be a really special country, with opportunities to realise that we havent seen in a generation.

Why would Brian Harradine want to stop that?

Well, I just think we have to explain it to some of these Senators the importance of taking the opportunity.

But havent you explained it to them?

Well, you know, they all sort of get bogged down in the small picture. I guess the thing Id like to say is lets not get bogged down in the small picture. Id say to these Senators, lets think about the big picture for our country, lets think about what we can do for our country, and lets think about tax reform.

But thats why you got elected, because you said all of those things.

And lets get it back onto the big issues of life.

I mean, if theyre not aware of that by now, theyre never going to be aware it. And if you have petty minded people, it would appear you might be surrounded by some petty minded petty, or certainly some very stubborn people or should it be some be people who are inclined to what I would simply call blackmail, you are going to have all sorts of problems. So even though you dont want to look at either alternative that I suggested, there is a possibility that you might have to. If you dont get it through, what do you do, dump it or concede?

Well look, if that eventuality happens we will face it at the time, but we are not going to face it now. We are going to plough every waking moment into succeeding on tax reform. We cant do anything else John.

I think its very clever incidentally the way you never refer to it as a GST. I think youve trained yourself very well.

Well, you know, people say this is all about GST. GST is part of it. GST replaces ten other taxes abolished, which they never talk about, wholesale sales tax, financial institutions duty, bank account debits taxes, bed taxes, thats one part of it. The second part of it, reducing income taxes. Thats a real big part of it. Because when we started out, I thought it was wrong, as the situation is now occurring in Australia, where people on average earnings can pay half, half of what they earn

Yeah, well thats ridiculous.

.in tax. So we are trying to reduce income tax.

OK, so dont sensitive people and morally basically good people, like Brian Harradine understand that the average Joe shouldnt be giving half of his money to you.

I hope so.

Can you understand why he wouldnt think that way?

Well, I cant understand it. Because, you know, I have lived with this, and because I have lived with it and worked on it and tried to improve it, I think it is pretty clear. But we will go on explaining it.

What about Mal Colston. Whats his real motive?

Well, I hope its the national interest. But, I cant peer into peoples souls John.

Cant Treasurers do that?

No. They cant. They peer into bank balances.

They certainly do that. Well Treasurer thank you very much for you time, as usual terrific to talk to you.

Great to be here.

And Ill look forward to talking to you again soon.

Good on you. Bye.