Transcript No. 69

Hon Peter Costello MP

Fran Kelly, ABC Radio National

Thursday, 3 December 1998

7.45 am

E&OE

SUBJECTS: Interest rates, economy, GST, ATO staff

KELLY:

Treasurer, the Prime Minister called it a golden day, is this as good as it gets

from an Australian Treasurer’s point of view?

I don’t want to use that phrase but it all came together. We had an interest

rate cut, that’s a result of strong policy over the last couple of years. We had

strong growth indicating that Australia was withstanding the Asian onslaught and we

introduced tax bills which will provide the biggest reform to the Australian taxation

system since the Federation. It’s one of those days where it all came together and

you just saw on one day just a conjunction of events which I think is a reward for past

effort and an investment in future effort.

I want to come to the GST legislation obviously, but if we can talk about the

conjunction of events today. It’s a fairly bizarre one in a sense, a rate cut and

strong growth figures on the same day. A rate cut is normally designed to stimulate the

economy, is there a danger the Australian economy could over-heat here?

Well I don’t think so. We all know that, where as we’ve had fantastic

growth and I pay tribute to Australia’s exporters in keeping growth up, we won’t

be sustaining 5 per cent growth through the course of next year. And if you like your rate

cut is looking down 12 months, 18 months, saying

12 months time we expect things to be a little more troublesome, the world is going

weaker, this will impact on Australia. So let’s have a forward looking monetary

policy, let’s look out for 12 months and that’s really the thinking behind the

rate cut.

We won’t be sustaining a 5 per cent growth rate, where do you put it though,

higher than the 2.75 that’s forecast?

Before the election we said 2 -, you would have to say after today’s results

that if anything you could revise that up, we haven’t revised that up. But I said

earlier today that there would be an upside risk, at 2 -, however, we would still be the

probably the, outside of China anyway, the strongest growing economy in Asia. Nearly all

of Asia is in recession, we would still be growing faster than Europe and America. So it

puts us leading the world pack even at those levels.

The markets, the Australian markets have already factored in another quarter of a

per cent rate cut in the first quarter of next year, will that be necessary?

Well I am not going to talk about the future direction of interest rates. But

you’re looking into next year coming off growth, we’ve had good employment

growth over the last three months, you’ve got inflation low, we’re still within

our target band there but you know how low can interest rates go. An official rate of 4

and 4.75, we close the decade with an official rate at 4 -, you know what we opened it

with, the beginning of the 1990s, 17 per cent. That’s a long way to come.

You mentioned the employment rate, employment’s a lag indicator, 5 per cent

growth now in the context of this Asian economic crisis, where do you predict, or do you

predict, there will be, we will actually see a fall in the unemployment rate, a

considerable fall in the unemployment rate in the months ahead?

I think employment will continue to grow and I think the employment situation into

the early part of next year will continue to strengthen, all the job vacancies are

indicating that. With about half the world in recession you won’t sustain 5 per cent

growth throughout the course of 1999 so you would expect that the strong employment growth

that we are seeing now will probably plateau I’d say over the course of 1999.

Let’s move to the GST, I guess the obvious question flowing from all of this

good news today is that if things are going so well, the domestic economy’s

performing so strongly, why do we need to change the tax system you’ve always argued

that if the system, the tax system’s broke, is it broke if we’re performing so

strongly?

Yeah, the thing I’ve always said about tax reform is the Australian taxation

system will last this year and next year and it might even last the year after that. But I

can tell you this it won’t be going in 5 years time and it won’t be going in 10

years time. And now is the time to make in investment in the future. The Australian

taxation system is based on outmoded concepts and is leaking and hemorrhaging and it will

break. We won’t be able to afford decent social services in 5 or 10 years time if we

don’t have a decent tax base.

Well you say it’s unsustainable, Kim Beazley makes that the point today that

the three strongest performing APEC economies are Australia, China and the US. None of

those three economies have a GST, what can we take from that?

Those other two economies don’t have a wholesale sales tax.

Not but they don’t have a GST.

The US has services tax, Mr Beazley never tell you that.

It has retail taxes across some States.

The US has services taxes, I think in over 40 of the 50 States and it’s done

at the State level, he never tells you that. But the real point to Mr Beazley is this:

during the election campaign he said with the Asian crisis and a weak economy it

wasn’t the time to reform the tax system. Now he says with a strong economy it

isn’t time to reform a tax system. He’s just against reform. Now Mr Beazley,

back in the 1985 when he had leadership, when Mr Keating was giving leadership to the

Labor Party, supported tax reform. He ought to think about those days and I think he ought

to find the leadership to come out and support tax reform.

The charitable sector is happy with some of the changes you’ve announced today

to the implications of the GST for their sector. One improvement is that commercial

charitable sector….commercial activities will be GST-free now if they’re

provided at less than 50 per cent of the normal market price. How will you police that,

how will you determine the market price for such a range of goods and check that

they’re not over-charging?

Well we’re basically saying if they want to go into commercial businesses

against commercial operations they’ll have to have the same tax treatment. If

they’re not, if it’s the soup kitchen where they sell their soup for 20 cents,

which is not a market value, they’re designed to be out of the system. And by and

large these situations will be self policing but if somebody tries to take advantage of it

there will be, the Tax Commissioner will look at it.

And just finally Treasurer an unrelated issue, the letterbombs that have been

around the country today. Many of those addressed to employees of the Tax Office,

obviously an area that you’re responsible for, are you concerned about the welfare of

these employees?

Yes I am and I know that the Tax Office has issued warnings and I endorse those

warnings and I say to the many officers in the Australian Taxation Office, it’s a

tough job and not always a popular job and at a time like this an extremely stressful job.

And their safety is our paramount concern and we recognise the stress that they’re

under and we ask them to take all reasonable steps to look after their families. They are

doing a public service and they don’t deserve this kind of stress and worry.

Treasurer thanks for your time.