Transcript No. 2000/02

TRANSCRIPT OF

TREASURER

First, fresh back from holidays, having walked into the middle of a GST firestorm, the

Federal Treasurer, Mr Peter Costello. Good morning.

Good morning Neil.

Now, is it correct there’s a possibility of legal action being taken against the

Federal Government over the GST on tampons?

Well I read that, I think it was one of the State Labor Governments said that they were

going to take some legal action. But I read it in the paper, they said that they’d

written to me, I haven’t seen the letter as yet.

What would be your response to it?

Well, they can take any legal action they want. No doubt their taxpayers will pay for

it and the Commonwealth taxpayers will pay for the defence, and I have no doubt that the

Commonwealth’s on very strong ground.

So you think it would stand up?

Yes, and at the end of the day taxpayers’ money would have been spent and then

they’ll probably ask for their share of the GST proceeds to actually fund their court

action.

What does it feel like, being at war with 51 per cent of the population?

Well I don’t feel at war with anybody. We’re introducing a new tax system in

Australia which is going to give us a modern taxation system which is going to cut income

tax. We’ve already cut capital gains tax, we’re going to have a new way of

funding State Governments. And bear this in mind, all of the GST revenue goes to the

States. So, you know, Tasmania might sort of try and do a stunt by suing the Commonwealth

over the GST, and who is going to be the beneficiary of GST revenues? Well Tasmania,

Victoria, New South Wales, Queensland, Western Australia. Why? Because we wanted to make

sure that the States had sources of revenue which would provide the essential decent

public services.

I think we understand that, but you must agree that this is in a state of considerable

confusion now. I mean even your own Ministers didn’t understand it when you were on

holidays did they?

Well, can I say just your first point that people do understand it. I don’t think

people do understand that all of the revenues go to the States. Because here we are trying

to put this tax system in place to fund State services, all of the revenues. And bear this

in mind, it’s being done pursuant to an agreement between the Commonwealth and six

States and two Territories. That’s the first point that I made, and it’s to fund

the decent social services, like the health system, like the police, like the schools and

everything else. And that’s one of the main reasons why we’re doing it.

Okay, but do you accept that there is a degree of confusion, trepidation, nervousness

arising round the GST now?

Oh look, I’ve dealt with many, many tax changes now. I’ve been Treasurer for

about four years and we’ve had many, many tax changes. I’ve never seen a tax

change yet that didn’t have teething problems and obviously this is a large tax

change and I made the point the other day, there will be teething problems.

But Mr Costello, if the Deputy Prime Minister and the Minister for Financial Services

don’t understand it, what hope is there for the Australian public?

Well, you know I read what they said and I think they were given a pretty hard time

actually. You had to do a pretty careful word analysis, I think that’s what the press

was actually doing, and …

Mr Hockey didn’t know the sales tax on a can of Coke, for example. It was like

John Hewson’s cake.

Well, he in relation to wholesale sales tax, he made a slip of the tongue, but hang on,

Neil, that’s the old system, that’s not the new system by the way. And I noticed

by the way that Mr Crean then went on the radio to make hay while the sun shone and he

couldn’t explain the wholesale sales tax system either, which is the current system.

I must say I’ve been administering the wholesale sales tax system for the last four

years, that’s the current system, and I probably know more about it than most. But I

couldn’t explain the full ramifications of wholesale sales tax to you.

Okay, no more changes – is that the bottom line? Nothing else will change in the

GST?

Well, the legislation has been thoroughly worked over, it’s been agreed with the

Australian Democrats, it’s now in place and I think the important thing is to give

people certainty so…

So no more changes?

Changes aren’t going to help with that certainty.

Does that mean no more changes?

Well, it does mean that we’re not changing the legislation, that we’ve got it

right. As you implement these things there have to be further rulings, they’re just

rulings as to how the Tax Office applies the concepts, but we’re not changing the

legislation.

Well your own backbench is getting very edgy about the tampon tax. Is the tampon tax

likely to be changed? The Democrats are saying they’ll rethink it. What if the

Democrats and your backbench say you can’t have a tax on sanitary products?

No, we’re not changing the situation. Can I just say there’s no law in place

that says, specifically names a tampon…

No, it’s all in the rulings isn’t it from the Tax Office?

No, no it’s not. The law says that there is a flat 10 per cent tax on goods and

services, and tampons, as they are a good, are covered by that law. People are talking

about it as if the Parliament has sat down and passed some specific law that says there

shall be a tax on a tampon.

Well, what about toilet paper?

Well again, there’s no specific mention of toilet paper.

But there’s no tax on it is there?

Yes there is.

There is.

Well what about the exemptions? Where do you spell out the exemptions?

Well, what the law says is there shall be ten per cent tax on goods and services.

Anything that’s a good, which is toilet paper or toothpaste, or toothbrush or tampon,

is, as a consequence, taxed. Now at some point there are carve outs.

What do you mean “carve outs”? Exemptions?

Yes.

Okay. Who decides that?

And that’s also all been set in the legislation. The point I’ve been making

all along is what gives tax complexity…

But that’s the point, Mr Costello.

…is the carve out. Now…

Now that’s the point, Mr Costello. If there’s going to be exemptions you can

do it. If you want tampons exempt, you can exempt them.

The point I’m making is every time you have an exemption or a carve out you add to

the complexity. That’s how we got to the current situation with wholesale sales tax.

You had pages and pages of exemptions that then had to be litigated through the courts. So

this is an entirely different way of taxing. This just says, look we’ll just put a

broad-based tax at a lower rate on practically all goods and services and then what you do

with the revenue after you’ve funded the decent social services, is you cut taxes,

you raise benefits, you increase pensions so that people have more money to spend to cope

with any price rise.

So is there no prospect of exemptions for sanitary products?

Look, I’ve said, the Prime Minister has said, that this matter has been looked at

in the context of the broad-based goods and services which should apply to all goods as it

currently does, we won’t be changing that. And because you have a broad base of 10

per cent on all goods – that covers anything that is a good, including tampons or toilet

paper, or toothpaste, or toothbrushes or any of those sorts of things.

What about nappies, disposable nappies?

And nappies as well. Anything that’s…

They cop a tax do they?

Anything that’s a good, the law just says we have a 10 per cent flat rate on

goods. So moving away from a system, and this is the current system at the moment…

So there is 10 per cent on nappies is there?

On nappies, it’s a good. You’re moving away from the situation at the moment

where you go into the legislation, you specify goods and then you define them. We’ve

got pages and pages trying to define goods. Now let me give you an example.

Mr Howard did say yesterday that there would be more detail, the detail would be

released. We keep hearing there is devil in the detail and he said it would be released, I

got the impression, reasonably soon. When will that detail be released?

Well if, I think I understand the question. He was asked yesterday about local

government and government services, and there is going to be a list of government services

just to clarify those which are services for a fee as opposed to those which are taxes.

And we’ve been consulting with the States in relation to that and we expect to be in

a position to circulate that shortly. But, can I make this point? It requires the

agreement of all of the States as well. We have a Ministerial Council now which looks at

all of these things and gets agreement with the States and that’s only perfectly

right and proper because the States get all of the revenue. At the end of the day, on 1

July you know who gets the revenue from the GST? Mr Bracks, Premier Bracks.

Okay, I’ll ask him, he’ll be here at 9, I’ll ask him about it. But

I’m interested in the (inaudible) there will be no changes for goods of any sort.

They’re all locked in?

The law which currently applies a uniform low rate of 10 per cent to goods which is on

the statute and covers all of the things that we’ve been discussing is not going to

be altered, because the whole idea is to have a broad base with a low rate, to use that to

fund the essential services and then to cut income taxes and lift benefits so people have

more money to spend.

So even if the Democrats want to change it there won’t be change?

Well we actually have already negotiated with the Democrats on this and they

didn’t ask for it to be changed.

No, but they’re re-thinking it now.

Well, I don’t know that they are. I mean I listened to…

Meg Lees says they are.

Well I listened to Senator Lees on the weekend and I thought she was pretty sensible on

all these sorts of things. And you know, the idea at the moment is to settle down the

legislation it’s broad-based, it’s a low rate, that’s what gives it

simplicity. I make this point again. Every time you go for an exemption you get into a

complication. I argued this in relation to food. You can recall I was arguing all the way

through the tax debate that you should have food included as a good. And people said, Oh

well that sounds a big hard line, and all the rest of it. And then, of course, once the

Democrats forced us to exempt food then we got into all of those definitional arguments

again…

Sure, about chickens and things.

And you lose the simplicity. The best way of designing it, and this is all the

international experience, is to have a broad base with a low rate, and then to put money

back into people’s pockets so they’ve got more money to spend.

But you haven’t got it, you haven’t got the broad base you wanted which is

why these anomalies keep coming up. There’s another one raised today, eczema

ointment, for heaven’s sake, cops a 10 per cent GST. Now why would that happen? And

that’s got to be an anomaly.

No, the whole idea, Neil, of goods and services tax and there are 150 countries in the

world that do this, including France, Germany, Ireland, Japan, Singapore, New Zealand,

Canada – the whole idea of it is that you have broad coverage on goods and services, you

collect tax as people spend and then with that you put more money back into the pockets so

that people have more to spend. That’s the whole idea. Now this wasn’t dreamed

up in Australia. There are over 150 countries in the world that do it, recommended by the

International Monetary Fund…

I understand that, but I’m worried about Australia and I’m worried about

anomalies that are coming up and you’re saying now that if an anomaly exists you

won’t change it.

The only way to prevent anomalies is to have a broad base.

But you haven’t got it, you’ve got exemptions in there.

It’s the exemption that creates the anomaly if I may say so, and by giving further

exemptions all you do, is you then lead to further anomalies. Now you said before

you’ve got Mr Bracks coming in at 9 o’clock, he’s going off to Davos. Now

he should get up at Davos and ask a question. He should say how many of the countries

represented here at Davos have wholesales sales tax?

Well I’ll ask him about that. [Advertising break]

Mr Costello, I mean I make the point that I think that potentially you are at war with

51 per cent of the population. I think that potentially you are at war with a section of

the aged population too. Is it correct that rental leases in retirement homes will be

subject to the GST?

Well, the rule that we’re applying in relation to housing generally is that rents

are not subject to GST.

But I’m told that it’s being considered commercial residential, which is a 5

per cent of the GST.

No, commercial residential is a totally different situation.

So it won’t apply to retirement homes.

Well let me go through it. Commercial residential, that’s where full GST applies

and that’s where a business is the lessee, and the business claims it all back.

That’s why it applies because the business can claim it all back.

So if people enter a retirement home, one of those units and they’re in a

long-term lease obviously, there is no GST for them to pay?

If it’s private residential, it’s an individual person that’s paying a

rent, there’s no GST on the rent. The landlord is what’s called ‘input

taxed’, they don’t get to claim back their tax credits, but there’s no GST

on the rent.

Are you aware the Tax Department was due to give a ruling on that in December and still

hasn’t?

Well, I’m not sure where its rulings are, but I’m just telling you what the

policy accomplishes and the way the legislation’s been framed.

Okay, so unequivocally there’s no GST on retirement homes?

Private residential rents are input taxed, that is, there is no GST on the rent.

And is a retirement home private residential or commercial residential?

If it’s an individual, if it’s a person…

Well it’s usually a retired couple.

That’s right, it’s a private rent.

You see Labor Party’s figures have improved in the polls?

Oh yes, I read the polls.

Is this the GST?

Look, it’s a funny month January, I think there are a lot of issues around and no

doubt all issues contribute. But I don’t think that there’s much value in

following these things from week to week. We look at them over a long period of time.

What about over the long period? Does it make the next election for you more difficult

the way this is going?

Oh Neil, look at the last election we put forward a bold tax reform plan to reform

Australia’s taxation system. We won the election.

Yet it’s a different plan now. It’s changed.

No, I’m sorry it’s not.

Oh. You fought to keep the old one.

Now, well hang on, hang on. What are we putting in place?

You’re putting in a mishmash.

Now hang on. The largest personal income tax cuts in Australian history, 1 July, a new

system of commonwealth-state relations, a growth revenue for the states, increases in all

family allowance benefits, abolition of wholesale sales tax, reduction in diesel freight

for people in country Australia, and the introduction of a goods and services tax of which

there has been one substantive change, which incidentally probably most people, although

it’s led to some complexity, most people would probably think was a better idea, that

is, food has been exempted. Now I think we said at the time, 90 per cent of the plan

endorsed at the election has been legislated. It’s true we didn’t get 100 per

cent, but we got 90 per cent. That means there is a little bit more complexity,

particularly in the area of food as a result of the agreement with the Democrats. But the

big plan is still there – lower income taxes, a new way of funding state services. I said

before earlier, I mean if Mr Bracks goes to Davos and he gets up at that function and he

says, hands up those countries represented here that have a wholesale sales tax. And he

will put his own hand up, and unless there is somebody there from Botswana, Swaziland, or

the Solomon Islands, the room will be vacant. If he says, hands up those countries that

have got a GST or a value-added tax…

You’re right back into the sales argument.

Prime Minister Blair’s hand will go up.

Back at work,…

President Jacques Chirac’s hand will go up, Mr Schroder from Germany will go up,

the Japanese Prime Minister will go up, the Singaporean Minister will go up…

Is this the line for the next six months?

Well I just find this incredible, this view that 150 countries in the world…

People don’t worry about Botswana, they worry about what they’re paying for

tampons or rentals, or the rest of it.

Yes, but people also worry about, are we going to have a tax system which, through the

course of the 21^st century, can guarantee us good schools, good hospitals and

police on the beat.

You’re supposed to make it easier, it’s more complex. We’ve got the Tax

Office waiting on rulings from the Tax Office on every second thing.

And if you don’t modernise the taxation system, if you have an indirect tax on a

shrinking base, let me tell you what will happen. It will happen as sure as night follows

day. You won’t be able to pay for your health care, you won’t be able to pay for

your police care, you won’t to be able to pay for education. Have you ever wondered

why it was that all of the Labor Party Premiers signed up to this deal? I’ll tell you

why, because it’s the one basis on which you can fund on-going State services.

Mr Bracks has just arrived now, I’ll have a word to him about exactly that in a

moment. Can I ask you about something else, a couple of other things? Bank fees seem to be

sneaking up. I see the Commonwealth announcing something today, the National had a go and

then backed off. Are you worried about that?

Look, I actually do keep an eye on bank fees because I know that people are worried

about the services that banks provide, and I’ve got a lot of personal experience with

that myself, and I do. And I noticed that when the National reconsidered it came to the

view that it shouldn’t be going ahead with what it announced. And I think the best

pressure on banks actually is consumer pressure. And I always say this, if your bank puts

up your fees and reduces its services, try another bank or go to a building society or go

to a mortgage originator and use consumer pressure on them.

Okay, a couple of other things, BHP dispute. Is this possibly another waterfront

dispute? It’s got a very nasty feel to it.

Well it’s obviously a big issue. I hope it isn’t widened and I certainly hope

it doesn’t go international, I saw some suggestion, and I hope that sanity prevails.

Look the only way you’ll keep these companies going is if they remain competitive and

they can continue to provide jobs to their people.

Interest rates. I see predictions of a likely increase of one per cent this year at

least.

I can never say anything about interest rates because as you know that can set off the

markets. But I will make this point, the Australian economy has been pretty strong over

the last year. We were the country in Asia that beat the Asian financial crisis. I think

there’ve been, since the Government was elected, over 600,000 new jobs created, very

strong employment growth in December and in international terms our economy is seen as one

of the strongest. Probably us and the U.S. are seen as the two strong economies of the

world.

Getting too strong? Sounds like an argument for increased interest rates?

Well look, I like a strong economy because it provides jobs for our people. We’ve

got to watch inflation, we’ve got to make sure that our wages are kept in line, that

we keep inflation low, and that’s the best way of ensuring that we have an economic

recovery which rolls on. We’ve had four good years of economic growth and, you know,

if we have another four good years I think we’d be in a position where every

Australian who wanted a job could find one.

And just finally, this trouble in the aviation industry. Does this have economic

implications? It seems to be bedlam.

Yes, it will. Look, it’s very difficult for the operators, it will have an effect

on their businesses and it will have an effect on the economy generally. And I just hope

that the experts can fix it up. This is a matter for the experts, the technical experts,

and I just hope that they can get it together as quickly as possible.

The potential?

It will have some serious economic consequences, particularly for aviation companies.

Mr Costello, thank you for your time. I still think you’re going to have a lot of

women queued up shouting at you.

Well I also didn’t get the chance to comment on the The Sun story

yesterday, which I know you mentioned on air. That wasn’t right. And I noticed that The

Sun has admitted that this morning.

Well, it wasn’t entirely wrong, (inaudible) over the Tax Department.

Well look, it wasn’t right and I see that The Sun has more or less had the

decency to say that this morning. I’m just sorry that they ran it on their front page

yesterday.

Can I ask you a quick personal question? Have you taken your wife’s advice on this

issue?

Look, I get advice from my wife on lots of issues but I don’t disclose it because

people might figure out she’s cleverer than me.

Maybe she’s not entirely supportive too.

Oh no, I think she votes the right way.

Thank you very much for your time.