Transcript No. 2001/001

SUBJECTS: CPI, Economy, GST, Woodside Petroleum

TREASURER:

Today’s Consumer Price Index shows a 0.3 per cent increase for the December

quarter, lower than expectations taking the annual CPI increase to 5.8 per cent. Now

taking out from that annual rate of 5.8 per cent the one-off factors, such as the

introduction of The New Tax System, which we believe added a little less than 3 per

cent, and also extracting the effect of higher world oil prices, it looks as if the CPI on

an ongoing basis is down around a very low 2 per cent, which is the bottom part of the

target, the inflation target, which has been set by the Government and the Reserve Bank.

The exceptionally low 0.3 per cent, notwithstanding the contribution from higher oil

prices, appears to have come about because of the savings from The New Tax System

which are now starting to flow in and detract from consumer prices. That is The New Tax

System is now in this quarter and will in following quarters mean that the consumer

price index is lower than it would have been had we not reformed the tax system, because

the savings from wholesale sales taxes are now flowing through and when we get to July we

will be abolishing Financial Institutions Duty which will also start detracting from the

consumer price index. From an interest rate point of view, what we look at is we look at

the ongoing rate of inflation, we abstract those one-off factors, and I’ve said after

doing that the consumer price index is around about 2 per cent. In relation to petrol

excise, notwithstanding all of the prognostications and false figures that were put out by

Mr Beazley, who will obviously be very disappointed by today’s low consumer price

index, the effect of the excise adjustment will be 1.5 cents. All this talk that he has

been going on about 2-3 cents, the excise adjustment on the basis of these low CPI figures

will be 1.5 cents, and from now on the effect of The New Tax System, as I said,

will detract from the CPI and detract from excise adjustments.

Now, Mr Beazley’s made a lot of contradictory claims in the last couple of days,

but if he’s really against excise adjustments, if he is, notwithstanding that they

were introduced on his votes – he voted for them when they were introduced when the Labor

Party introduced biannual excise adjustments back in 1983 – he would today be pledging to

reverse them. And the question for Mr Beazley today at the National Press Club is, if he

were elected will he pledge to reverse this and take 1 cents off the excise? And if he

will, will he also pledge to keep the Government’s $400 million road funding package

which it pays for in place? And if he is going to keep that in place, how is he going to

reduce his tax take, keep his spending up, and deliver a surplus which is consistent with

low interest rates? It is just a policy lazy response from the Labor Party to say that

they are against it, without pledging to reverse it and telling us how much, when, how

they are going to pay for it, and how they are going to keep that consistent with good

economic management.

Aside from Mr Beazley and the Labor Party, I think that most Australians will be

pleased today that Consumer Price pressures are as low as they were in the December

quarter, that is consistent with good economic management and good fundamental objectives

which this Government has put in place over a long period of time.

Mr Costello, the Dun and Bradstreet warning seems to be at odds completely with that.

How can they be so wrong?

Well, Dun and Bradstreet have, of course, predicted recessions before. The last time

they predicted a recession, they said there would be a recession in 1999 when the economy

grew by 5 per cent and Australia was the fastest growing economy in the developed world.

So, you’ve got to put this in mind, Dun and Bradstreet regularly forecast recessions,

they do it on a more or less annual basis and I suppose they work on the principle that if

you do it for every year one year you’ll get it right. Can I also say that one of the

difficulties for business, one of the difficulties for business, I think, is that the

Australian economy is now so competitive it is hard for businesses to lift prices. This is

the flip side of the low inflation. Low inflation is good for consumers, because it means

that consumers aren’t facing price increases. But if you happen to be in business it

makes it very hard for you to get a price increase and it makes it, from a business point

of view, much harder. Let me give you an example, one of the reasons why the CPI today is

low is that milk prices fell, milk prices fell by 3 per cent, that is they actually

detracted from consumer prices. Now, that’s great if you are a milk drinker, if you

are a family buying milk. If you happen to be in the business of producing milk what that

actually means is that your prices have gone down. And, I think, one of the difficulties

that businesses are actually facing is that the economy is so competitive, price rises are

now so restrained it is difficult for businesses to get price rises and keep their profits

up. But that is because the consumers are now getting the benefit.

Treasurer, there have been some complaints this morning from cultural organisations who

were told they had to pay the GST and dutifully collected it, and now had to return it to

the consumer. They’re calling it an administrative nightmare and Ray Regan from the

Tax Agents Association says that it will deliver the Government with a windfall than it

wasn’t entitled to. What’s your reaction to those claims?

Well, they were not misadvised at all. The law always was that for those charitable or

cultural organisations that are selling a service or a product at a certain percentage of

the cost – it was changed by the Senate – they’re not liable for the GST, and it was

up to the organisations themselves depending on their price structure, whether they came

within the law or not. Now, it looks as if some of the organisations have gone back

through their prices, taken the view that they can take themselves outside of the GST. And

if they can do that and they are not liable for GST, the money should go back to the

consumer, not to the Government. The money is the consumers and the Government

wouldn’t be entitled to the GST if it wasn’t chargeable, it shouldn’t have

been charged to the consumer and the consumer would be entitled to get it back.

No faults in relation to the Tax Office?

Well, the law hasn’t changed. The law was changed by the Senate but it has been

the same law since 1 July and the law was that if you were charging less than, I think, 75

per cent of cost, you weren’t liable. It was up to the organisations to determine

whether they were charging at 75 per cent of cost. It varies from organisation to

organisation and if they have either changed their prices or take a different view they

aren’t liable. Never were liable.

Treasurer, what happens if they had already paid the funds, if they’d paid their

Business Activity Statement to the Government. Does the Government give the money back to

the organisation?

If they’re not liable they can claim refunds. But the refund can either go to the

organisation, but I think the fairer thing would be to the consumer. And the consumers

might say, well we are quite happy to have it as a donation, but if a consumer says, well

we were charged and we shouldn’t have been charged, I think the consumers are

entitled their money back.

What about the cases of tourists…..

This is not a new thing. It happens every day in relation to income tax. Let’s

suppose somebody overpays their income tax, they have money deducted throughout the year

from their income and then they go out of work, so it was deducted at too high a rate, you

claim it back. And if an organisation has not been liable it can claim the money back.

Some of these organisations say that they were directed by the Tax Office that they

were liable to pay the GST, and they then set about claiming it from their customers.

Well, if they have written advice from the Australian Taxation Office to that effect

than they should make it available to the Tax Office. But I’m not aware that any of

them have said they have written advice, but if they have that’s fair enough, they

should go to the Taxation Office and they should ask for a clarification of that written

advice. But the point I am making is this, the law hasn’t changed. The law was always

the same, it got amended in the Senate before 1 July. And the law was that if you were

charging at 75 per cent or less of cost you were considered to be charitable, rendering a

charitable service and you weren’t liable. That has always been the case, it’s

always been the case. Now, as I say, I’m not aware that any of them say they were

advised by the Tax Office to the contrary, but if they were and they’ve got the

advice and they produce it to the Tax Office I’m sure they will be able to get their

refunds. But, let me go a step further, I don’t think it is right that the

organisations keep the money, if that is the case. It should go to the consumer.

Is it right that the Government keeps the money?

No. As I’ve said, if the money is not payable than it should be refunded.

But how can you retract GST paid by somebody who, say, went to the Melbourne Festival

six months ago who now has to produce a ticket so they can get a refund?

No. No, the organisation, if it’s the Melbourne Festival, the Melbourne Festival

can apply for the refund. The Melbourne Festival if it’s paid money it is not liable

for can get the money back, it can apply for the refund…..

But how does it give it back…..

Now, I’m saying, what it ought to do is if it really thinks that that is the case

it ought to then refund it to the patrons, or at least say to the patrons would you like,

in lieu of a refund, to consider it as a donation. That would be my commonsensical way of

getting out of it. But this is not a new problem. This happens in relation to matters

every day. There are taxpayers that overpay liabilities to the Commissioner. It happens

every day in relation to income tax and they apply for a refund. This is not something

that is unique in this area of tax law. It applies in relation to financial institutions

duty, income tax, company tax, any other areas…..

If the law hasn’t changed, why are some of these groups then saying that they are

still waiting on a tax ruling?

No. The law is, and this is (inaudible), if you render a service for 75 per cent or

less of cost then you are not liable. That is the law to keep charities out of the GST.

That was amended by the Senate but it was in place from 1 July. I think the issue that

many of them are looking at is whether or not they are charging 75 per cent of costs.

That’s probably what they are now reconsidering. And they might be, in fact, changing

their admission to take advantage of that, and that is a matter that only they can

determine. But that is what the law is. The law has always been put on that basis and it

is up to you to determine what your cost structure is.

Is that applicable also to groups like, bodies like the zoos, for example, the

Melbourne Zoo or the Werribee Zoo?

It is applicable to the non-profit or the charitable where it’s not operating on a

commercial basis, that is, it is not out to make a profit. And it’s not out to make a

profit if it’s charging below cost.

Do you feel the Tax Office may have failed to explain the obligations of these

organisations clearly enough?

Well, if you, you’ve said, I think, that they have written advice from the Tax

Office to the contrary, and if they do have that written advice I for one would be very

pleased to see it, because I would then go back to the Tax Office on their behalf and ask

for an explanation. So I would say to any of the organisations, if they’ve told you

that they have written advice to that effect, certainly produce it, I will certainly

follow it up with the Tax Office. But I don’t think that Tax Office would need any

encouragement, if it were wrong advice they would be giving a refund. But, I think, from a

Tax Office’s point of view I don’t think they say they have given any such

written advice. But it is easily solved. It can be produced or otherwise.

The National Australia Bank is forecasting GDP growth at 3 per cent this year. Is the

Government going to maintain its 4 per cent forecast, which is looking increasingly

optimistic given market forecasts?

I think the NAB actually in the current year was forecasting….

The financial year was 3 per cent…. 

No. I think that NAB was forecasting in the year 2000 higher than 3… let me see if

I’ve got it… with a slowing economy next year.

Well, for 2000-2001 it’s 3 per cent and for 2001 calendar it is 2.5 per cent.

And that is really consistent with what the Government has put forward, which is that

we are forecasting a slowing economy in 2001. Slowing from the peak levels that we had in

1999 and 2000, and I think we had in our Mid-Year Review 3 in 2001. But we’ll have

a look at updating that in the Budget.

Is that calendar 2001?

Financial year 2001.

So how do you find businesses dealing with the GST now, generally? Their business

statements?

Well, look, I think, that there are some businesses that obviously are still having

difficulties. But I think that the majority of businesses have actually said in surveys

that they have been able to cope with the system. I notice that the Dun and Bradstreet

survey of yesterday asked this question, how comfortable is your company with the new tax

system? 67 per cent said reasonably comfortable, 29 per cent said extremely comfortable,

and 5 per cent said not comfortable. So, you know, that’s an overwhelming majority

said they were either reasonably or extremely comfortable and there are still 5 per cent

that said they were not comfortable. I think it’s the nature of things to always go

and try and find the 5 per cent, it is the nature of public debate. But, I think, for the

majority of companies they are now coping pretty well. We want to help all business, even

the 5 per cent. And we are making available people from the Tax Office to go and see them

and to help them, and if any of those businesses do have difficulties I would urge them to

take advantage of that.

Mr Costello, can I ask about the Shell bid for Woodside. (inaudible) the Government has

extended that consideration for up to 90 days. Is there a concern that this bid isn’t

going to be in the national interest?

The bid will be approved if it’s in the national interest, and if it’s not it

won’t be.

Why has it been extended?

Because we are considering what is in the national interest.

Why do you need that extra time?

We need the time to actually consider all of the issues that are material to the

national interest and when we’ve determined all those matters we will make an

announcement. The bid will be approved if it is in the national interest and it won’t

be if it’s not.

Would you be prepared to impose some conditions?

When we make decisions on foreign investment sometimes we approve them unconditionally,

sometimes we won’t approve them, and sometimes we approve them with conditions. And

when we make the announcement you’ll see what’s what.

Following the inflation figures, what do you think the prospects are like for an

interest rate cut in early February?

Well, I don’t comment on the future direction of interest rates, as you know, but

this is a very low CPI number, this is 0.3 per cent. And that’s even allowing for the

increase in world oil prices in December. And we think that the inflation rate, at this

stage of the economic cycle, is around about 2 per cent, that is low inflation. That is

consistent with the Government’s economic management. And I think people will, I

think all people, with the possible exception of the Labor Party which will be

disappointed that there is low inflation in Australia and disappointed that they got it

wrong again on excise, I think all people in Australia will be pleased with that outcome.

Should the Reserve Bank at least consider an interest rate cut?

Well, the Reserve Bank always does its duty in accordance with its statute.

Would you say that economic conditions are right for an interest rate cut?

I think the picture of the Australian economy is the economy is slowing as we forecast

that it would. It is still growing at rates which years ago we would have thought were

exceptionally high, 3 per cent plus growth. In years gone by it wasn’t even thought

that the Australian economy could grow much faster than that. On a very low inflation

rate, with a low interest rate regime and a tax system which is now being bedded down, and

is actually now starting to detract from consumer prices. That is what is actually

happening now. Now, you don’t want to give all of that away, and say, well the hard

work has been done, now we can bring the saboteurs back, the Labor Party. Now, that the

Coalition has done the hard work we can bring them back, you don’t want to say that

because economic management is a very difficult thing and it can’t be trusted to

Labor and Beazley and Crean. Imagine where we would be if they were still running their

$10 billion deficits. So that is the reason why we’ve got to continue on with good

economic management.

What about the prospects of a recession?

Well, the Government has forecast continuing growth in the economy, as has the IMF, as

has the OECD, as has nearly all of the private sector. And I’m not aware of any

significant economic forecaster who’s forecasting negative growth. I’m not aware

of that. So, you know, there are some people that take the view that if you forecast it

every year you’ll get it right sooner or later. I’m not aware of any of the

major forecasters forecasting negative growth and we’re certainly not, I can assure

you of that.

Good figures for you going into an election?

Look, all the way through the debate about The New Tax System what was the Labor

Party’s attack on us? That inflation was going to be higher than we forecast. And

then the first quarter comes out and the inflation in the first quarter effect is below 3,

below what we said it would be. We go to the second quarter and it is actually starting to

detract, it’s at 0.3 per cent. And they have been going on about this indexation

factor which is 1 cents, which is 1 cents, they got it wrong again. And what it

shows is that The New Tax System is now not increasing costs, but from here on

decreasing them, detracting from consumer prices because the economy is getting more

competitive. And, I think, you know, with the exception of the Labor Party, which will be

very disappointed by today, Australians are going to welcome the fact that price rises are

being contained. This is a low inflation economy and it is one of the low inflation

economies of the western world. Thank you.