Transcript No. 53

Hon Peter Costello MP
and Michael Raper, ACOSS

A Current Affair with Ray Martin

Wednesday, 19 August 1998

pm

SUBJECTS: Tax reform

MARTIN:

Thank you both for your time. Can I start with you Michael. Is this tax package better than the current tax system.

I don’t think it is overall, because we need tax reform in Australia, there’s no doubt about that and ACOSS has gone down that path. We’ve said we’re prepared to look at a broadening of the consumption tax base. We want a fairer income tax system. We’re still going to have loopholes and shelters in this system. We’re going to have a much greater reliance on consumption tax. We are going to have a better State/Federal financial relations system and we’re probably going to have some improvements in the family assistance area. But when you weigh it all up and you look at what’s at stake for low income earners, which is how we judge it, they’re going to be worse off, we feel, under this package. And that’s why we have to reject it as unfair because it’s unbalanced and it’s unsustainable in the end.

So let me clear that up, you believe that if nothing changed the system we’ve got right now, that battlers would be better off?

Look, if nothing changed, certainly we would have problems. We are committed to tax reform, genuine tax reform. ACOSS believes that it needs to happen certainly.

But not this one.

But not this one, that’s right. It makes some improvements. It goes some of the way. It puts some foundations, we need to build on those. But it’s got very many risks, very many risks about whether or not the compensation for instance is too much, in the sense that we’re relying too much on compensation, this package requires too much compensation, so it’s bad by design. And then of course the figures about how they’ve got to the compensation, those figures are questionable in our view. That they’ve got an unsound methodology.

So you say the Government figures are not credible.

Well the methodology behind that is very, very questionable. They are in fact basing this on income when in fact it should be based on expenditure, household expenditure patterns. They are saying that the price impact is going to be 1.9 per cent. We query that. They’re saying that the expenditure patterns and the impact of this GST is going to be exactly the same on a pensioner family as it is on a millionaire family. We query that. The onus is on the Government to put forward a set of figures which, first of all, don’t require so much compensation. And then, secondly, that actually makes sure the compensation is genuine, it covers the task for everybody, and not just for some on an average basis.

Peter Costello, your figures, the Government figures, are not credible?

Well of course they are Ray, and Michael’s been offered the opportunity for briefing after briefing. It’s still open to him. He knows that this is the way these figures are always done. He knows that pensions are always indexed to the consumer price index. Always have been. Always will be. So it’s not really good enough to try and say the consumer price index is not good enough for this purpose but it is for every other purpose. But let’s come back to the opening question. Is this better than the current system? Of course it is. Michael knows that. Michael knows that if he sticks with the current system, what he will get is precisely what he got last time, all of the wholesale sales tax rates will increase.

But hang on, it’s not you’re telling him that, you’ve just heard him say it isn’t.

No he didn’t. He hedged.

No, he said that battlers are better off.

He wasn’t entirely sure because he knows this. He knows that if he sticks with the current system, all of the wholesale sales tax rates will increase as they did last time. He knows that ordinary average earners will go into higher and higher tax brackets and he knows that when wholesale sales tax rates increase there won’t be any compensation. Now Michael said well, look, this must be a bad package because it’s got compensation. What, a bad package because pensions are going up 4 per cent? A bad package because aged pensioners can get up to $1,000? A bad package because older Australians can get 30 per cent back on their private health insurance rebate?

You’re shaking your head Michael.

These are terrific advances for pensioners and for aged Australians and to say that compensation is a bad thing is not right. Compensation, increases in pensions are good things. That’s what the Government is delivering.

Michael?

Yes, it’s a bad package because it requires too much compensation because there is a $6 billion increase in the amount of money being raised from consumption tax, and that money is being used to fund income tax cuts. It’s a bad package because it also has food in the consumption tax. It requires too much compensation for those two reasons, and then the compensation is questionable.

But presumably you were part of this reform package, process rather, you spoke to the Government over the last year or so. Did you voice these fears? Have they listened?

Of course we voiced these fears. I have to say the Government, we had good access to the Treasurer, the Prime Minister. We spoke to them a number of times. Our response today is transparent, it’s very obvious. They knew exactly how we’d be responding if there was an increase in the overall burden of consumption tax. If there was an unfair or doubtful raid on the surplus. Now we’ve said that you should be using some of the surplus, yes, that you can attribute to bracket creep. But they’ve gone further into the surplus to fund this package of income tax cuts and the income tax cuts go 50 per cent to individuals and families earning more than $60,000. Now that’s questionable.

Can I just ask specifically, so Michael would you be happy if the Government, if there was no GST on food for example?

We have said certainly that, and this is where the Government has achieved something, they have taken health out of it, they’ve taken education out, community and welfare services, mostly, just some definitional issues there. And we’ve said food has to too because food counts for some 30-40 per cent of all the expenditure of low income families and you’ve got to look at it, expenditure as I said, not income.

Well Peter Costello, can food be exempted at this stage?

No because food is currently part of a broad based indirect tax, it has to be. Let me make this point Ray, high income earners spend 2.8 times more on food, including restaurants, than low income earners. If you took food out, it would be an enormous advantage to high income earners, particularly those that eat in restaurants where food costs more. It’s a basic equity matter to have food part of a broad based indirect tax, that’s the first point. Let me make the second point in relation to income taxes. Michael says, oh well, you’re cutting income tax rates. Yes we are. We make no apology for that because average earners in Australia shouldn’t be paying 43 cents in the dollar. It’s only right that they pay no more than 30 per cent and we are in favour of that. The third thing Michael says is he says oh, well, perhaps you should have broadened the income tax base. Let me make this point, this is the first package that has ever dealt with the issue of trusts, nobody has ever done that before, nobody has ever made the decision that we’ve made as part of this package. But Michael wanted us to go further. He suggested that we should put capital gains tax on the family house, he suggests that we should reduce the benefits of superannuation. I must say to you and your viewers, the Liberal/National Party will never put a capital gains tax on the house. We are not going to reduce people’s superannuation savings and as a consequence of that if he says that’s unfair we’ll have to bear it, but we won’t be doing that.

Michael you’ve said that you believe the rich under this system, package, the rich are getting richer, the poor are getting poorer.

Well I haven’t actually said that but I said certainly the tax cuts are going to those at the higher end of the scale much more than to the lower end of the scale. The only way to look at the tax cuts is not according to dollars per week but as the income tax cuts as a percentage of taxable income. And in our material that we released today it’s quite clear that those at the top end of the scale are doing much better out of those tax cuts. Can I also say in response to the Treasurer’s point about food. It’s not a question of how many dollars a week a person spends on food. Of course high income earners spend more per week in restaurants and the like. The equity question, and we don’t need the Treasurer to tell us what’s good in relation to equity, I mean that’s exactly where ACOSS comes from – looking after the interests of low income people. What you have to look and I think he knows this is what per cent of the budget, the expenditure each week of a low income family, is spent on food and rent, and they are very high. It’s 30-40 per cent on food. And that’s why food is so special, why food should not be included in a GST.

Let me ask the question again that I asked a moment ago. Would you be happy if the GST was taken off food? Would that placate you?

In relation to the consumption tax reforms we would certainly be a whole lot happier. We have said the other things should be zero rated and subject to a few definitional issues, food is the only other thing that we have said. But we have also indicated don’t forget that the revenue that you get from your consumption tax should not be used to fund your tax cuts. In other words there shouldn’t be what’s called a tax mix switch. And that’s been very clear our position all along. We’ve been very clear on that. The budget papers, or sorry these papers, the tax reform papers, acknowledge that there’s a six billion dollar increase in the overall level of consumption tax and low income earners bear the burden of that, and low income earners are at great risk because of that.

Well Treasurer are battling families, are pensioners, are students worse off?

Much better off.

Much … you can’t both be right.

No, Michael will concede this point, four per cent increase in pensions. You don’t get that under the current system.

Is that a …

A 1.5 per cent real increase.

That’s the question. That is the question.

Let me go on Ray and when Michael talks about broadening the income tax base let’s be clear he wants a capital gains tax on the family house. That’s one of the requests of his that we rejected. Now let me ask you …

The top one per cent …

Let me ask you, how would you help people by putting a capital gains tax on their house? What good is that going to do? How is that fair? How would you help people if you reduced their superannuation payments even more. This is the Government that evened up the superannuation … no Michael, no seriously …

Well he says that’s not his position, Peter.

No hang on, Michael, …

You know that we’ve got a whole ….

Isn’t it true that this Government put a superannuation surcharge. Weren’t we the first Government that did it …

And we welcomed that, you know …

And you welcomed it.

And you know that we’ve got a whole plan for superannuation and savings that says that a person on $60,000 gets three times as much support from our system at the moment through tax concessions and support, as a person on $20,000 …

But I think you should be …

We don’t want to use up that money we want to redirect that money.

You should be honest about this and you should say that you want to reduce the benefits of superannuation.

Inaudible

You know that ours was the first Government that actually introduced a superannuation surcharge …

Alright, we can be very … inaudible …

… very important point. We were opposed by the Labor Party because we evened up the ground on superannuation. Michael recognises that and he says that that was right. How much further can you go when you’ve increased that superannuation surcharge unless you tax it at marginal tax rates, you cannot go any further, Michael.

Can I go back to pensioners, Michael. Four per cent, is that enough on your figures to compensate a pensioner.

Well, as I said, that’s the whole question isn’t it. We don’t know, and it’s up to the Treasurer to be able to satisfy people that the figures that they have produced in this document are accurate. They’re saying that the price effect will be 1.9 per cent. Now we know that that’s not the case if you look at expenditure. We know too that the Fightback package, which also calculated compensation, did not use the methodology that they’ve got in this package. It looked at expenditure, household expenditure. We also know that a pensioner family doesn’t have an expenditure pattern the same as a millionaire family, they are spending much more, often than they’re actually receiving. So it’s going to be much higher than that and we want figures and we would like to take up the Treasurer’s offer, certainly, to give assistance on that and do some more modelling and we would like to see what is the impact if you model expenditure.

Well Treasurer, can you guarantee to pensioners that they’re not going to be worse off? Can you guarantee?

Yes of course. Of course.

You can guarantee:

There’s no doubt about that. There’s a four per cent increase in pensions. And let me go one step further, pensioners will have a 1.5 per cent increase in excess of the consumer price index. Now if this package is not accepted you don’t go 1.5 per cent in front of the consumer price index, you go in line with the consumer price index. There is no doubt, not a shadow of a doubt. And in all of the work that Michael has done and put out today he’s been unable to find one case of a way in which a pensioner would be worse off.

Is that true?

We have not produced a set of figures like in the Government’s tax reform package which looks at each type of family and says dollars per week in the hand. But we could have produced a set of figures and we would have had as many ifs in them as the Treasurer. If the surplus isn’t there when they come to actually, you know in the year 2000/2001 to fund the tax cuts what will happen? If the growth rate isn’t 3.5 per cent, which nobody really believes. If the price impact is more than 1.9 per cent. If pensioners in fact spend much more than they actually receive in income, and we know that is the case. We could have built in a whole lot of assumptions and come up with a set of figures which would have shown that people are losers. The point is not us to produce those set of figures. The point is for the Treasurer to be able to satisfy people that they’re, first of all that they don’t need so much compensation, because that’s wrong by design. Take out the tax mix switch. Take out the $6 billion extra in compensation, in consumption tax. That’s the first thing. And then produce a set of figures that aren’t based on such heroic assumptions and such questionable methodology.

Ray, let me make a couple of points. First of all he couldn’t and he didn’t, he hasn’t produced one example. He says well I didn’t for various reasons but if he could have he would have and he didn’t. ACOSS has not produced one example, not one example of a person that’s worse off. The second point I want to make is in relation to the surplus. ACOSS says that it’s worried about the surplus. Let me make this point. This Government built the surplus. This Government …

They built the surplus but on, largely on cuts to expenditure from low income earners. We were told we needed the medicine for the good of the economy

Let me finish my point, Michael.

We were told we needed the medicine for the good of the country

Michael is it not true that this Government …

.. and now it’s going back in tax cuts

Is it not true that this Government built the surplus

… on the backs of low income earners

Thank you. Is it not true that this Government came into office when the Budget was $10.3 billion in deficit and it built the surplus? Now with all due respect, the Government’s credentials in relation to macroeconomic management, in relation to the surplus, is unquestioned and I think that the Government does have some credibility in relation to the surplus. If it hadn’t have been for this Government it would not have existed and this Government has said quite rightly, when you’ve got the Budget back in the black, when you’ve got your debt coming under control, it’s time to help families. And we make no apology for that. We’re helping families. We’re helping average income earners.

A quick and quiet response to that if I could. A large part of that surplus has been achieved by cutting expenditure, the Government admits it. From legal aid, from child care, from pensions, from unemployed people, from employment services …

From the superannuation surcharge. Why don’t you say it

Some of it. Some of it.

No there was, the biggest single measure was the superannuation surcharge and the R&D syndicates, and the trading in franking credits, and the dividend streaming. I think you ought to be honest that this Government actually took the strong measures against tax avoidance that was going on.

Treasurer, it’s your figure that the expenditure cuts were $7 billion and the biggest expenditure was $1.8 billion from labour market programs to help unemployed people.

Inaudible

We were told we need it for the good of the country

… biggest was … superannuation surcharge

Now we find it’s there, that surplus is there, to provide tax cuts to high income earners. We don’t think that’s fair.

Well, let me finish by saying this Ray. If you think that somebody on $38,000 with a wife and two kids is a high income earner, so be it. But I say somebody on $38,000 with a wife and two kids is an average income earner and is paying 43 cents in the dollar is not a high income earner. And I say if that person can be given a top marginal tax rate of 30 per cent, that’s what they deserve. I make no apology for it. They are your average Australian wage earner and they shouldn’t be paying more than 30 cents in the dollar and that’s what the new tax system does.

I take it you’re not calling them a high income earner?

No we’re not. Of course we’re not calling those high income earners. What we’re saying is that 50 per cent of all the tax cuts goes to individuals and families earning more than $60,000.

Can I ask you just finally, Kim Beazley is going to offer tax cuts without a GST. Is that preferable?

We’ve said that we will weigh up the Opposition’s package next week in the same way, against the same tests, as we’ve weighed up the Government’s package and we’ll make a full and complete disclosure or analysis in the same way, in the same honest and objective and fair way as we have with the Government’s package.

Alright, Peter Costello, a final question. Was ACOSS’ support essential, critical, to your sales campaign?

Oh look ACOSS has opposed tax reform before. If ACOSS opposes tax reform again it wouldn’t be unexpected. But I think what ACOSS should be doing is it should be giving credit to the Government for what it’s done. No other Government addressed superannuation. No other Government addressed the R&D syndicates. No other Government has addressed the trusts. It’s true, we won’t put capital gains tax on houses. But I don’t think average Australians want capital gains taxes on houses. This is a package that delivers to average income earners and it’s going to give them a new tax system which they deserve.

Alright and you disagree, you don’t think it is.

I don’t think so, no. It could be improved. There are good things in this package and in this, we didn’t draw them out so much in this interview. But there are good things and we acknowledge that and they should be built on. But there are some big fundamental flaws and they should be removed.

Michael Raper thank you for your time. Peter Costello thank you for your time.