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The New Business Tax System
September 21, 1999
Address to the World Economic Forum Dinner
September 23, 1999
The New Business Tax System
September 21, 1999
Address to the World Economic Forum Dinner
September 23, 1999

Business Tax Reform

Transcript No. 99/72





Interview with Fran Kelly

Radio National

Wednesday, 22 September 1999

7.35 am

SUBJECTS: Business Tax Reform



Federal Treasurer Peter Costello’s business tax package has been greeted

positively by the business and investment community, while others are sceptical.

Australia’s welfare lobby says the changes to the capital gains tax are illogically

generous to our wealthy. And the Democrats and Labor claim the sums don’t add up,

demanding more answers from the Government before they’ll give it their approval.

Fran Kelly is in our Canberra studio with the Treasurer now. Briefly Fran, what’s

needed do you think to convince Opposition forces to support this?



Well Geraldine on first blush not much. The opening noises from both the Democrats and

Labor towards this package were very positive. Though you have to say that the Treasurer

did make it pretty clear yesterday that he’s more interested in talking to the

Democrats on this than he is to Labor, which perhaps would be a bit of a surprise for some

because you would expect the Democrats to be harder to please on this business tax agenda

than the Opposition. But I think the Treasurer is trying to make a political point here

and not invite Labor in from the cold if he can help it. Both parties are concerned at the

sums in this package though. They say on current information it’s not revenue

neutral, which was the benchmark laid down for business tax by the Treasurer. And both

sides want more detail on the elements put off to stage two of this package, the tax

avoidance measures in particular. Within that though, both Labor and the Democrats say

there is a basis for agreement here, which is a big jumpstart on where the Treasurer was

at at this stage of the GST tax package, so you have to presume he’s feeling chirpier

than he was this time nine months ago. Anyway Peter Costello joins us now, Treasurer good




Good morning Fran.



Treasurer both the Democrats and Labor like a lot of what they see but not all of it.

Is there room to negotiate on this, will you give some ground on elements of this?



Well, I think it’s far too early to talk about giving ground. Giving ground on




Well, they’ve laid out a few things that they’re not …



Nobody has yet said that they disagree with any of it. We had an inquiry that lasted 12

months. We had 370 submissions. We had focus groups and the Government’s made an

announcement of tax policy. Now can I just say Fran, normally, in normal rules when

Government’s announce tax policy, and tax laws originate in the House of

Representatives, they’re money Bills, they’re enacted. It’s only in the

last 12 months we’ve had this sort of belief that tax laws have to be negotiated.



But these are the biggest tax changes in decades.



Well, the trouble with negotiating changes is you can open up a lot of loopholes,

particularly when you’re trying to simplify. Now I think actually we’re in a

pretty positive state. I think the Democrats have been positive on tax reform and I think

they were generally sympathetic. Labor knows that if it’s to be relevant this time,

it has to support tax reform so, you know, the heat is right on them to be responsible

because it was their irresponsibility that marginalised them last time. So I think

we’re in a pretty positive state.



Well both Labor and the Democrats have made positive noises, you’re right, about

this tax reform package. Both say they want to talk further with you. You made it pretty

clear yesterday that you’d prefer to deal with the Democrats on this rather than

Labor, in your words because the Democrats have been positive on tax. Would you like to

see Labor cut out of this tax reform negotiation as well, even though Simon Crean has said

repeatedly that he is prepared to give bipartisan support if he can just talk around a few





I’d like to see Labor cut themselves in. And the way to cut themselves in is to

support the package. And then Labor would be able to say to the business community, we

Labor, supported the biggest tax reform of business tax in Australia’s history. And I

think they’d get some brownie points. But, that’s up to them. I can’t make

them be positive. The one thing I know …



But isn’t it, with your tax package isn’t it worth negotiating with the

parties who are on side to get this through the Senate.



Negotiating what?



Well, for instance both sides …



Normally what happens when the Government announces a tax policy is that an Opposition

gives it bipartisan support because they recognise that Governments have to enact these

packages and particularly where it’s got such strong endorsement from business they

have a motivation. Now, I would welcome that and you know I hope they do that, they

haven’t ruled that out. But, it’s up to them.



Well, both parties say that your package as it stands doesn’t pay for itself. Now,

it was your insistence that this business package be revenue neutral. Will you guarantee

that it will be?



Well the costings that I’ve put out clearly show that it pays for itself. It pays

for itself completely in the two years in which we’re now looking at budgeting –

this year and next year. And over the rest of the forward estimates the full package is

also balancing out.



But in 2001 as it stands on your figurings, I think, it’s $1.5 billion in the red

and then you’re saying in your package that stage two changes, which will be

tightening up of tax avoidance, loopholes and things like that, will bring it up to the

mark. But the details of those tax avoidance measures aren’t there yet.



No but they haven’t been drawn. I mean the reason why we announced that we were in

favour of a principle is we think the principle’s right. These are not tax avoidance

schemes by the way. These are lawful schemes.



But people are using them necessarily perhaps?



Well, the argument is, and I agree with it, that there is in some of this activity,

activity that crosses the mark, it’s not unlawful, but it requires a tightening. Now

we are in favour of the tightening. What we’re saying is it’s easier said than

done and there’ll have to be a lot of work and a lot of discussion before we can draw

the fine line. Once we’ve drawn the fine line we’re in favour of the principle.

That’s why I’ve got them in the measures there.



But absolutely but that, a lot of work and careful drafting done, shouldn’t that

be done before the Government asks the Senate to sign off on this package because …



Well, we’re doing that now. I mean what would we be asking the Senate to sign off

on. We can’t yet draw that line. I mean we have to actually produce a proposal which

draws that line. And what we’re saying is we fully intend to do it. I can’t tell

you today what the line is. Nor can Ralph. So what we’ve said is the principle’s

right but until such time as we can put the detail on it, we can’t put it into the

Senate. Now, I mean, these are not big points, if I may say so I think, you know,

somebody’s gone through and said, in the Opposition, somebody’s gone through and

said gee this is a great package, we’ve got to find something negative to say. And so

I think, you know I can understand why they seized on this particular point, but it’s

not a big point. I mean, here we are, Fran, the biggest overhaul in business taxation

ever, reducing company tax rates, changing depreciation, whole new taxation system for

small business, big change for capital gains tax, changes on mergers and rollover relief.

These are very, very small points.



Well one of the big points, and one of the big things in here, is that individual

investors will benefit from the changes to the capital gains tax regime, but people are

asking today why such a broad measure. Why give wealthy Australians on the top marginal

tax rate of 48 cents in the dollar an opportunity to halve their tax bill by spending on

things like property and shares? What will that do to make us more internationally




Well, the first point is where we start on this is that we have the highest capital

gains tax rates in the world. About double those of the UK and the US. And so plainly

there’s a need for reform. And we have a proposal here which would reduce our rates

to the level of Britain and America but still remain progressive incidentally. This is

quite a unique proposal and I’d say this to the welfare lobby. Still progressive. If

you happen to be a low income earner, you’re capital gains tax rate is zero. If you

happen to be a middle income earner you’re capital gains tax rate will be 15 per




That’s if you’ve got enough money to invest to make capital gains.



Well, Fran, you know, this is the second highest share owning country in the world and

I think we’d all be, we wouldn’t be surprised to know the number of mums and

dads who have got a Telstra share or an AMP share or a National Mutual share or a Coles

Myer share, because, you know, they get discounts. Now, are those people, incidentally,

out there indexing their cost base on a yearly basis? Are they aware of averaging rules?

Of course they’re not. So what we’re saying is all that complexity goes, and

that’s complexity that advantages a taxpayer. All of that complexity goes. And in

return what the taxpayer gets is a halving of their marginal rate. Still a progressive

rate if I may say so.



Well Treasurer we’re out of time but it’s nice to be back in the tax debate

again. Thank you very much.



It is. Thanks very much.