Press Conference

Parliament House, Canberra

Friday, 30 March 2007

2.30 pm

SUBJECTS: States reluctance to cut tax

TREASURER:

Well if I can hand out the Statement of Estimated payments.   Today’s Ministerial Council between State Treasurers’ and the Federal Treasurer have agreed to the payment of $41.8 billion of GST revenue in 2007-2008.  Included in that $41.8 or $41.9 billion of GST revenue is a windfall for the States of $3.3 billion.  Every State is better off, every State will receive more than the guaranteed amount. 

The States have agreed on a timetable for the abolition of most of the taxes which were identified for abolition under the Intergovernmental Agreement.  That timetable runs out as late as 2010- 2011.  Whilst the Commonwealth would of liked to have seen that happen earlier we are pleased that we have an agreement. 

There is still one additional tax identified in the Intergovernmental Agreement which should be abolished.  Today I asked the State Governments to abolish Stamp Duty on business real property conveyances, and if these States were to do that they have sufficient head room under the bonus or windfall that they are currently getting from the GST. 

Indeed, I indicated to the States that there is clear room to do that in 2007-08.  Whilst they have a revenue gain, a windfall of $3.3 billion, the cost of abolishing that tax would be $2.3 billion in 2008-09, they have a windfall of $4.5 billion the cost of abolishing that tax would be $2.4 billion for 2009-10, they have a windfall of $4.9 billion the cost of tax abolition in that year would be $2.5 billion.  So there is plenty of room to do it.

None of the States have agreed to the abolition of that tax.  The Commonwealth made two offers.  First we offered to put them on a timetable for the abolition of that tax after 2010.  Secondly we indicated we would accept the abolition of that tax in instalments.  And, in response to the States themselves, at least some of the States, they asked whether they could put forward a proposal for the abolition of some other tax in its place.  I indicated to the States that the Commonwealth would be flexible.  That if the States were to put forward the abolition of $2.5 billion of other taxes, that we would be perfectly prepared to speak to them about that, and to entertain such an offer.  And I hope that some of the States will come forward with that offer and we will deal with them on an individual basis.

Can I say that as far as the Commonwealth is concerned, we are standing for the Australian taxpayer.  The Australian taxpayer was promised, that in return for the introduction of GST, ten State taxes would be abolished and as far as we are concerned they will be abolished.  We will ask most States to ensure that they cut taxes, there is nothing wrong with cutting taxes.  If they do it, the public will welcome it, it will be good for the economy and they clearly have room to do it.  

Unfortunately, the States would not agree to cut taxes.  Not even the taxes that have been identified as part of the GST deal.  As far as the Commonwealth is concerned we will not give up, we will not let the taxpayer down, we will continue to insist on this and we will now negotiate with individual States on any counter offer that they bring forward.

JOURNALIST:

Treasurer, wouldn’t abolishing conveyancing on business property put buyers of investment housing at a tax advantage to other home buyers?

TREASURER:

No, it wouldn’t, because we are talking about business properties and you have got to bear in mind that business properties are in the capital gains tax mix.  So they are taxable, whereas the individual home owner doesn’t have a house that is taxable. 

JOURNALIST:

What were the other taxes that you said you might want to entertain as an alternative tax cut?

TREASURER:

Well, I said that if the States were to say, well look we realise we should abolish that tax, the abolition of that tax would be around $2.4 billion, we will offer to take $2.4 billion of stamp duty off residential housing, we would be perfectly happy to entertain that.  So if they said and it comes back to the last question, we think there is a bigger economic benefit in taking the $2.4 billion off residential housing rather than business property we would be very happy to consider that.  And at least one of the States indicated that they might be prepared to talk.  Now, I would encourage the States to meet the agreement but the important thing here is the cut in taxes.  If they want to come to us and say we will go ahead with the cutting taxes, we will do the $2.4 billion but we will do it on the residential property market rather than on the business property market, we would be very, very happy to discuss that with them.

JOURNALIST:

Which State was the prepared to talk?

TREASURER:

Well, I should say to you that because they are all Labor States and the bulk of the Labor States don’t want anybody to break, there was a lot of pressure on the individual State concerned and so I won’t go into that. 

JOURNALIST:

The New South Wales Treasurer was unable to make it today.  Do you accept that he was detained elsewhere and is that an indication of New South Wales’ readiness to follow through with more tax cuts?

TREASURER:

Well I understand that he has been sworn in as a Minister and I accept that, the head of the New South Wales Treasury attended in his place and made a useful contribution, I would be very happy to discuss these matters with New South Wales. 

JOURNALIST:

Treasurer, you have put the onus on the States to start cutting taxes more because of the windfall gain coming through, is there an onus on you to deliver tax reform, tax cuts given the windfall gains you are getting especially out of the resources boom and mining in the upcoming Budget?

TREASURER:

Well we cut tax by $36 billion last Budget.  $36 billion in income tax cuts over the forward estimates and as I said to the States it is not a hard thing to do, nobody is going to complain if you do it, it will be well received and it will good for the economy.  And I recommended to them that they try tax cuts, try abolition of taxes.  We also announced the abolition of a tax in last years Budget which is still to take effect and will take effect on the 1st of July and that is the abolition of tax on superannuation payments for people who are over 60.  That is complete abolition of that tax and that will take effect on the 1st of July, I think that will be positive too.  So, where you can cut tax and this is part of economic management, you should do so.  That is why we cut tax in 2000, 2003, 2004, 2005, 2006. 

JOURNALIST:

So you think there will be some room for maybe even modest tax cuts in the May Budget?

TREASURER:

Well as I said, in last years’ Budget we cut tax by $36 billion, we have got another tax cut still to take effect announced in last years’ Budget, but still to take effect.  My view has been and this is what we have followed since the year 2000, that if you can balance your Budget, pay for your services, pay off debt – and we have now paid off Labor debt – and reduce taxes, that is what you should aim for. 

JOURNALIST:

Is your goal only to balance the Budget or would you like a surplus?  You have spoken in the past of, at the Mid-Year Economic Review of having a surplus of 1 per cent or something, or are you now looking only at balancing the Budget?

TREASURER:

Well when I say balance the Budget, what I mean is make sure that you live within you means and living within your means, means that you are saving rather than borrowing, I think it is important that there be some decent saving from the Government, I won’t go into the amounts today.

JOURNALIST:

Treasurer, the States say that what the Commonwealth has given them with GST gets taken away in SPPs, in aggregates they are no better off now than they were ten years ago, do you accept that argument?

TREASURER:

No, and I don’t think the States say that because Western Australia is charged with reporting to the Ministerial Council on SPPs and Western Australia reported to the Council on their findings that there have been real increases in SPPs.  That is, the States do not maintain they have been cut in SPPs.  The States found and reported and it was accepted that they have had real increases.

JOURNALIST:

And is that just real increase in the one year…

TREASURER:

No, this is right across the period since 1996.

JOURNALIST:

Do you know what the dimension of that is?

TREASURER:

I can get my staff to give it to you, if you like.  Quite significant, actually. 

JOURNALIST:

Treasurer…

TREASURER:

And real per capita, too. 

JOURNALIST:

…can I ask you about Kevin Rudd’s Climate Change Summit tomorrow, he has managed to attract like more than 100 participants, an impressive line-up of representatives from the business community, does it concern you that business, the business world and the corporate world is taking Kevin Rudd so seriously?

TREASURER:

Look, I think business will want to make sure that they look after their business and they are aware of the policies of what could be an alternative government.  Of course they are going to want to do that.  But I think you will find if you speak with business, the thing they worry most about with Mr Rudd is he is an inexperienced leader who wants to turns the clock back on industrial relations and will be a risk to the economy.  And I think if you speak to business you will find that that is a pretty uniform view. 

JOURNALIST:

But this Climate Change Summit looks like the kind of thing the Government would maybe organise. 

TREASURER:

Well the Government has organised a business working party for example, on emissions trading scheme.  We have actually organised these things and we have had business involved in them. 

JOURNALIST:

Do you think he is looking like a Prime Minister?

TREASURER:

Well you see, here is a very interesting question for Mr Rudd.  Today eight Labor States and Territories refused to cut taxes and in the room there was one person sticking up for the taxpayer and that was me.  Now imagine if an inexperienced leader like Mr Rudd was there to do the bidding of the States, they would walk all over him.  They would walk all over him for money, they would walk all over him for higher taxes.  That is the absence of checks and balances in our system.  At least there was one person in there today arguing for tax relief, arguing that the GST deal be implemented and whilst I am around and whilst the Coalition Government is around people can be sure there will be someone in their corner. 

JOURNALIST:

Kevin Rudd today has said, I think he was (inaudible) about an increase in GST (inaudible), a part from that risk that you mentioned, is there any other risk about Kevin Rudd and his economic credentials?

TREASURER:

Well I don’t think Mr Rudd has the experience of economic management.  He has worked as a state public servant and when you see him deal with State Premiers, he is an easy pushover.  The West Australian Government pushed him over on royalties, I don’t think he knew what he was agreeing to.  You saw in relation to the promise for the Gold Coast that somebody pushed him over for $2 billion which I think he has now decided he won’t honour, and when he is asked today should the States abolish the taxes which are part of the GST deal, he can’t stand up to the States.  Kevin Rudd should have said today, I am on the side of the taxpayer.  The State Governments should abolish those taxes.  But you saw even again today he sided with the Labor States, that is because he needs the Labor States and that is the risk of Kevin Rudd. 

JOURNALIST:

Mr Costello…

TREASURER:

I had better make this the last question. 

JOURNALIST:

…were competition payments or payments under the national reform agenda discussed today?

TREASURER:

No, they are matters that will come up at COAG.

JOURNALIST:

And (inaudible) the Treasurers have been talking climate change, was that included in today’s agenda at all?

TREASURER:

Yes, we had a discussion on climate change and I said to the States that if they wanted to put some matters to the Commonwealth Government we would gladly receive it.  But I told them that we have already got in place an emissions trading task force and a low emission technology demonstration fund, our announcement in relation to reforestation in the Third World and we are already working through the Australian Greenhouse Office with the business challenge.  So I brought them up to date with all of the things that we are doing but I said to them that if they wanted to put anything further into it we would be happy to receive it. 

JOURNALIST:

Does that kind of put some kind of an emissions trading…?

TREASURER:

No, I had the feeling that they were probably trying to help Kevin Rudd with his summit tomorrow because they didn’t have anything substantive to raise.  But they obviously thought they should raise it and I assume that this was the quid pro quo that if Kevin supported them on keeping their taxes that they would raise greenhouse issues.  But they didn’t have anything substantive to put but I did say to them if we are happy to work together in relation to this then if they do have matters that they want to put, we would be very happy to receive them. 

JOURNALIST:

Treasurer, just on the ACT…

TREASURER:

This really must be the last, I have really got to catch a plane. 

JOURNALIST:

…on the ACT, you have been critical on their impost on infrastructure (inaudible) which has come (inaudible) did you discuss that today?

TREASURER:

Didn’t raise that today, no, but you have heard my comments on that (inaudible).