Transcript No. 99/68

Massive changes to the taxation system confront all Australians today whether they can

comprehend them all is highly problematic. To try and make some comprehension out of all

this, the Treasurer is on the line in Canberra. Treasurer good morning.

TREASURER:

Good morning Alan.

JONES:

Treasurer can I just begin with something you may not want to talk about, but the

Victorian election. Jeff Kennett is now most probably dead in the water, you’re a

Victorian. What is happening in Victorian politics, everyone is asking?

TREASURER:

Well at this stage they’re still counting. It looks as if the Independents will

hold the balance of power and if the Independents hold the balance of power nobody will be

governing in their own right. And that will be a terribly heavy blow of course for Mr

Kennett, who, in my view has done an extremely good job over the last four years or so.

And Victoria may well be in for a lot of instability as a consequence of that. Now, they

are still counting, it is possible that he could still get a majority but it’s

looking a little unlikely.

JONES:

Is this a consequence of unexplained reform?

TREASURER:

Look I think there’s a number of factors that will go into it. It was a difficult

campaign, there were some disquiet I think in some of the rural seats that the Government

was seen to be too Melbourne centric, and a combination I think, of a Government that had

been in office nearly eight years, and people like a change.

JONES:

Now why I’m asking you that is just now as you speak and people are thinking tax

and they’re thinking well there’s already a Tax Act of over 5,000 pages that

I’ve never ready, noone’s ever read, Peter Costello’s never read. It’s

unreadable and unintelligible, there’s a massive GST program that’s going to

overtake us and all this is before July 1. There’s now 800 pages of Ralph Report

which is a massive read in itself. We’ve got to go on making a quid along the way and

we’ve got this dreadful millennium bug and people are thinking, I just don’t

think I can cope with all this.

TREASURER:

Well I think that’s right. And that’s why we’ve got to get the number

pages of the Tax Act down. That’s what we’re working on right at this moment.

But I think particularly if you’re in small business today this is a great day,

because what we announced yesterday for small business is a cut in their company tax

rates, the ability to right off expenses up to $1000, the opportunity to get rid of record

keeping in relation to plant and equipment and cuts in their capital gains tax. And I

think small business today will be saying this is probably one of the brightest days that

we’ve had in relation to the tax system. And if you’re in small business today,

you know that you will have the opportunity when you sell your business to either roll it

over capital gains tax free, or, if you want to sell it only 25 per cent of it will be

subject to capital gains tax as an individual or if you keep it for 15 years you

won’t be subject to capital gains tax out at all. So in that situation all of that

complex capital gains tax just goes.

JONES:

Right. But do you still (inaudible) trying to steer his way through the GST as well.

Had there been no exemptions which is what you took to the election, he’d most

probably be feeling a little bit better.

TREASURER:

Oh that’s right.

JONES:

Now it’s a minefield for him.

TREASURER:

Well that’s right look, the policy we had on GST was a simple well designed

policy. By the time it got into the Senate, as you know, the Senate wouldn’t vote for

it and it had to be compromised. The compromise was second best. It was second best.

I’ve never made any pretence about that. I wish that the Government had been able to

implement the policy it was elected on. The Labor Party through obstructionism prevented

it. Okay, that will lead to a bit more complexity and I regret the actions that they took.

But today is a much happier day because we’ve got great benefits for small business

today.

JONES:

Let’s just have a look, let’s just have a look at….

TREASURER:

We’ve just got to make sure we get them through the Senate of course.

JONES:

Let’s just have a look at the capital gains tax in lingo that my listeners can

understand, because everyone has a little bit of a sneaking involvement in capital gains

tax. They save and they’ve got their negatively geared property and whatever. Now

pre, can we keep it simple, pre 1985 goes on and there’s no capital gains tax.

TREASURER:

No capital gains. Never has been, won’t be.

JONES:

Right, but as you know the electorate is fairly conservative out there. So they’re

not in the business by and large of buying and selling and buying and selling.

They’ve bought the little place at Whale Beach or wherever for $250,000. Now

they’ve hung on to it for 10 years and it’s sold for $600,000. Under the system

until this new system, they would have then indexed the $250,000 for those last 10 years

and most probably there wouldn’t have been much on which they would have been paying

capital gains tax albeit at the higher rate. Now you’re saying that person sells for,

from $250,000 to $650,000, $400,000 they’ll pay tax on all of that, but at half, am I

not right, at about half the highest marginal rate.

TREASURER:

No at half their rate.

JONES:

Yeah, so they’ll be paying more capital gains tax than they were before?

TREASURER:

Oh no, no way.

JONES:

Yes they will.

TREASURER:

If they’re on the top rate instead of paying tax on the real appreciation at 48

per cent, they’ll pay tax on the difference between the …

JONES:

Sure but they’ll pay on the lot.

TREASURER:

At 24 per cent.

JONES:

But they’ll pay on the whole difference.

TREASURER:

But you’ve given yourself a very generous indexation there Alan.

JONES:

Well in some instances we’re not always going to have, Peter, inflation at 2 per

cent are we?

TREASURER:

Well the last couple of year’s inflation’s actually been negative.

JONES:

Sure but you think of the bloke who bought in 86 and 87.

TREASURER:

In order to cope for those situations we’ve given them the option of keeping all

the indexation. We’ve given them an option here. If it works out in such a way that

the indexation is of huge benefit to them they can keep the indexation, which has been

acquired up till the end of September and they can pay full rate on the difference between

that and the indexed base. So they’ve got the option.

Hang on, hang on, go again, go again.

TREASURER:

Okay.

JONES:

So …. the general proposal is we now pay capital gains tax on the nominal

difference, that is, the difference between buying and between selling at half your

marginal tax rate.

TREASURER:

That’s right.

JONES:

Okay. But if you then had bought a lot earlier in 1986, you can in fact keep the

indexation of that property, the value of it up until September 30 this year.

TREASURER:

That’s right.

JONES:

And then the difference between what that is at September 30 and what you sell for in

2002, you’ll pay tax on at what? The marginal rate?

TREASURER:

At the current rate, the current rate.

JONES:

At the current marginal rate?

TREASURER:

That’s right. If it works out better for you that way you can have that option. We

don’t think it will, by the way, and you’d have to have a pretty unusual example

but if in the example, you gave it worked out better that way, the taxpayer can elect to

have that treatment.

JONES:

Okay just on something that gets a bit complicated, but accelerated depreciation is

very important for manufacturing industries and mining industries. I mean, Richard Court

has had plenty to say about all of that and I notice that even the conclusions that have

been drawn by your Ralph Report itself on that, indicate that this is just a question of

judgment as to whether this will be better off. Can I just share with you, he says, Ralph

says, the volume of capital intensive investment is likely to be lower than would

otherwise be the case, reflecting the net disadvantage to such investments from the

accelerated depreciation/company tax rate trade-off. Converse is the volume of less

capital intensive investments, likely to be higher. And he says the decision as to which

measure will deliver strongest growth is crucial and will have a significant influence on

the future shape of the Australian economy, it’s essentially a judgment call. Have

you made the right judgment? I mean if in terms of a manufacturing industry that’s in

trouble, I mining industry that’s certain in terms of international prices is in

strife.

TREASURER:

Oh of course we have made the right judgment. We looked at it very carefully and in

fact it’s the judgement that Ralph himself made, and an old miner. And one of the

important things to bear in mind here is that this is business tax reform coming on the

end of indirect tax reform. One of the reasons why we introduced indirect tax reform, the

GST, was the great beneficiaries of industries, mining and manufacturing. They get

enormous benefits out of the GST and I’ll explain why. At the moment all of the

indirect tax in Australia is weighted on manufacturing. We have a goods tax. That’s

manufacturing and the normal rate as you know is about 22 per cent. What we did by

broadening the base to goods and services was that we were able to reduce that to 10 per

cent. So manufacturing was a huge winner out of GST as was mining. Mining as an industry

JONES:

Well let me ask you this Peter, look in the ‘Tele’ today, and of course

there’s any number of interpretations, it’s done a little chart which has sought

to simplify it, The Daily Telegraph, and it says how the Ralph Report affects your

industry. And it’s got agriculture, forestry, fishing, mining, manufacturing,

electricity, construction, wholesale trade, retail trade, transport, finance, property,

education and so on. It says this is what you’ll pay now under the GST, this is what

you’ll be under Ralph, this is the total and this is whether you’ll be a winner

or a loser and there are only four winners.

TREASURER:

Well, if you see the, I haven’t got the ‘Tele’ in front of me, but if

you see the modelling that we’ve done, the biggest winner out of total tax reform,

that’s indirect tax reform and business tax reform, is mining.

JONES:

It says mining, mining down is a $186 million loser.

TREASURER:

And, yes, but only because it’s been billion dollar winners under indirect tax.

That’s the point I’m making. Mining was the biggest single winner under indirect

tax, output actually increasing by 7 per cent. So you’ve got to take into account the

billions of dollars of wins under indirect tax before you have a very minor readjustment

in relation to business.

JONES:

But hang on, what you’ve got to take into consideration is as the Treasurer

you’re presiding over unconscionable levels of debt and mining is a significant

export component that can retire some of that debt. We should be providing every

encouragement to mining.

TREASURER:

Quite right. And what does the GST do Alan? It takes all tax off exports. Every single

dollar off exports. Which makes mining the industry which gets the single greatest benefit

from indirect tax reform. That’s why we did it. We have been carrying a situation and

to this day Alan, to this day, we carry a situation in this country where we tax our

exports. We were about the only country in the world that did it. And we have legislation

through the Parliament now, from 1 July next year to take every dollar of tax out of

exports, the biggest winner, mining.

JONES:

Why does Richard Court say that he had billions of dollars of projects in the pipeline

which will be severely affected if the accelerated depreciation advantages are taken away?

TREASURER:

Well, look, I think Richard is making a political point and I think Richard …

JONES:

You’ve conceded that mining is a loser on the back of significant wins in the

past.

TREASURER:

If Richard fully understood the Report he would see not only is mining the greatest

single winner out of overall tax reform, but unless we do these reforms what he, what I

don’t think he has factored in, miners will be paying high company tax rates, they

won’t be getting black hole expenditures, they don’t get write-offs for native

title expenses, they won’t be getting write-offs for pre-mine operations and there

will be a whole host of benefits which they are currently denied and will be denied for

decades. Now to focus on one item of the Report and say, oh we’ll take everything

else as a given and focus on one item is not a proper understanding of the Report.

JONES:

OK you said last night, I saw you on television saying that one of the spin-offs to the

future will be levels of unemployment. Isn’t it ludicrous that when you’ve got

any level of unemployment you have a tax on every employer who gives someone a job, and

it’s called payroll tax.

TREASURER:

Well I’ve never been a great supporter of payroll tax and payroll tax is a State

tax, as you know.

JONES:

But GST was meant to relieve these State taxes.

TREASURER:

Well hang on, what the Commonwealth has done is, it’s given every State a

guaranteed growth revenue, the best growth revenue, 10 per cent of the goods and services

produced in the country, so States now have regular sources of income and it’s really

now up to the States. They have regular sources of taxation, I don’t apply a payroll

tax. It’s not a Commonwealth tax. And I imagine down the track, who’s to tell

when, as their revenues grow, they’ll be able to reduce those payroll taxes, I hope

they do.

JONES:

Let’s talk about revenues, because an officer from, and I won’t name him

here, but an officer from the Tax Office said on the 28^th of October 1996

publicly: “Australia has one of the highest levels of foreign ownership in the

industrialised world”. Then he went on to say and they “are paying little or no

tax”. I mean it’s estimated that up to $100 billion a year goes out of this

country in profits every year, foreign companies paying little or no tax at all. Why are

we so sympathetic to that predicament?

TREASURER:

Well we have a lot of tax concessions that companies can use to minimise tax. One of

them you’ve just highlighted, accelerated depreciation. And a foreign company can

make use of accelerated depreciation …

JONES:

But we don’t tax them at the same level as Japan does for example.

TREASURER:

Well, no if you have accelerated depreciation, the tax law says that your taxable

income is lower than your actual income and it’s concessions in the tax law which

companies can take advantage of to get their rate of tax down. Now, one of the things

we’re trying to do in this whole report is to take out some of these concessions so

everybody pays more and pays more at a lower, to fund a lower rate.

JONES:

Look, I know you’ve got to go, we could talk about these things forever, can I

just pose one point to you. I have a letter from a 95 year old woman who lives in a

nursing home, 95 Peter, 95. She’s got a 71 year old son who’s crippled, no legs.

Because she actually has kept the house for him to live in, she is denied certain pension

entitlements and everyone from Jocelyn Newman down says this is the way it is, these are

the rules. Don’t we have some flexibility to treat people in special circumstances

differently? A 95 year old woman has had her pension entitlements like reductions in rent

and telephone and those sorts of things taken away from her because she actually has kept

her home for her 71 year old crippled son to live in and Joe Hockey the Member says we

can’t do anything Bob Hawke did this. Jocelyn Newman says these are the rules.

TREASURER:

Well look Alan, I have every sympathy with the case that you’ve outlined. I

don’t know the

details …

JONES:

Well if I gave you the details would someone, would you read the letter …

TREASURER:

I’ll read the letter, you know I don’t run the social security system …

JONES:

You run the tax, Pete.

TREASURER:

… but I promise you I will read the letter and I’ll make inquiries to find

out what it is.

JONES:

I’ll give it to you today.

TREASURER:

It will be a great pleasure.

JONES:

Righto Peter.

TREASURER:

Good on you, thanks.