Transcript No. 2000/33

TRANSCRIPT OF

TREASURER

On the line is the Federal Treasurer Peter Costello. Good morning.

Good morning Neil.

Common sense, Treasurer?

I think so. This measure came from recommendations from John Ralph you will recall, and

we said after accepting the Ralph report that we’d be consulting on this issue.

We’ve consulted very, very widely and particularly in the construction industry,

we’ve now got a legislative test which will mean if you’re a genuine contractor,

you know, you’re working as a carpenter, or a plumber, or electrician, or whatever,

you’ll just be considered to be in business and life will go on as normal.

Terrific. Why did we have to go through all this nonsense about the 80%? Do you drop

the 80% rule I assume?

No, we haven’t dropped the 80% rule for people who aren’t in business . . .

But how do I determine people who are in . . .

Well, that’s where we’ve been consulting, you see. Because what you’re

trying to guard against is the person who has been an employee and suddenly says one day,

I’m not an employee anymore, I’m in business, I only work for one person, it

just happens to be my employer, and therefore I don’t have to pay income tax on my

personal service.

Sure but we know that’s what it was after but as you and I discussed last year and

as many people raised, it was running the risk, it was going to trap a lot of genuine

sub-contractors and self-employed people.

That’s right, and that’s what we’ve been consulting about. How do you

make sure that person pays the tax they should be paying and always have been paying,

whilst protecting the genuine independent contractor? And we’ve now got a test that

says, if you’re a genuine independent contractor you’re considered to be in

business, but if you’re somebody who only ever works for the one person, you

don’t accept responsibility for the job, you’re not paid by the job, you

don’t have an office, you don’t have any employees . . .

Okay, well you have to meet one of several criteria, is that right?

One of four tests.

And what are those four tests? One, having a business premises, is that one . . .

If you’ve got a business premises you’re recognised as being in business.

You have two or more clients.

If you have two or more clients you’re recognised as being in business.

You have the tools of trade, like a laptop or a hammer.

If you are an independent contractor, that is, you’re paid by the job, have your

own tools of trade, if there are any, and accept liability for rectification, that’s

the third test.

Yes, and the final one?

And the fourth test is if you employ someone.

So you’ve only got to meet one of those?

You’ve only go to meet one of those tests. And these are tests designed to

distinguish between people who genuinely are in business and people who aren’t. And

once you apply these tests, and we’ve consulted very widely on them, people who are

carpenters, electricians, plumbers, will be recognised as in business. We’ve also

made another provision which says, that anybody in the prescribed payment system, because

most of these people are already in the prescribed payment system, will be automatically

recognised through a transitional period of two years, and if they want to they can then

get a final determination down the track.

So where does the 80% rule cut in?

Well the 80% rule is a test of whether or not you’ve got two or more clients. If

you’re only working for one person all the time you wouldn’t have two or more

clients, and then the question becomes, oh well, how much work do you have to do for a

second client, and if you do up to 20% of your work for the second client you’re

recognised as having more than one client.

Well what if you do 90% for one and 10% for the other?

Well you’d have to, at that point, bring yourself within another one of the

tests…

Such as having a laptop or a hammer.

Either the tools of trade test, or the business premise test, or the employment test,

one of those two.

That really makes the 80% irrelevant doesn’t it?

Oh look . . .

I mean, anybody with a mobile phone would qualify here.

The good thing about the 80% test is, for people who have more than one client, you

know, and that means they do work for a second client up to 20% of their time, it means

they don’t even have to worry about anything else, it’s just an automatic test

to get people out of the system. So, that’s the gateway if you like, and you only

start worrying about these other matters if you don’t come within that.

Well, is all this really going to change anything? Are you going to find anybody now

paying PAYE instead of company tax?

What we’ve go to do is we’ve got to be careful that people who really are

employees and have been traditionally recognised as employees, aren’t able to just

say, well, tomorrow I’m a company and walk out of the . . .

No, I understand that, but is this really going to change that?

. . . and, look we’ve got four tests there that are designed to protect against

that. They’re better than any of the tests we’ve had in the past. What’s

happened in the past is that the Tax Commissioner has had to prosecute individuals one by

one on this basis. There’s been no guidance, all we’re trying to do, and

we’re doing it for the first time, is put into the Act some rules. And people can get

a determination, so, if they’re in doubt they can get a determination, they’ll

know what their position is.

Mr. Costello I listened this morning to an interview you and I had late last year about

this, and you were sure it was right then. You were sure you had the right system. You

said, I was wrong when I criticised it.

No, what I said last year was, that we were always going to consult on the precise

tests . . .

Yes, but I . . .

. . . following what John Ralph recommended, and I think I would have said to you then

that we were quite happy to consult, we have consulted, and I think it’s been a good

outcome.

It was the 15^th of November and you were strongly defending this whole

system, which has now changed significantly. I’d argue.

No, well look, we can go over it Neil.

There’s no point.

What (inaudible) . . .

You know how angry people were about this.

No.

You do know how angry, I mean, I even raised it with the Prime Minister. I said, this

is another assets test . . .

Yes.

. . .and you’ve changed it.

What happened was that John Ralph recommended, as part of his Business Tax Review, to

cut company tax and cut capital gains tax, which we’ve already done. But we’d

have to stop people who are really employees getting into the business tax system. And we

accepted his recommendation. He said, you have to draw the test so the genuine contractors

weren’t caught up in it. We’ve said, we accept it in principle, we’ve been

consulting ever since, the detail of the legislation will ensure that genuine contractors

aren’t caught up in it, and that was always our intention, and John Ralph’s too.

Okay, just a few calls coming through. Question. You talk about business premises being

one criteria. Do you have a business premises? Is a home office a business premises?

It would have to be, it can’t be your home, it has to be a separate business

premises.

What if you’ve got an office within your home?

No it can’t be your home, it has to be a separate business premise.

What if it’s a bungalow out the back of your home?

Well that could well be a separate business premise.

PAYE employees can salary package a computer at the moment as part of the job, does

that mean they meet the criteria to become a self-employed person?

No, because they’re PAYE employees, and if they’re PAYE employees they have

to pay PAYE tax.

Okay this went to the Party room yesterday?

This is legislation which I’m actually introducing today.

Oh good.

Yes.

Good. Congratulations some common sense.

Thanks very much Neil.

I’m pleased. I wonder if I could ask about common sense on something else. Diesel

. . .

This is always dangerous.

This diesel system, the diesel fuel grants confuse me. I mean, you take goods to Melton

or Sunbury and you can claim the diesel fuel grant, you go to Geelong and you can’t.

I know it’s not strictly your area, but I’m sure you’re aware of it.

Well, let’s go back one step, if we can. As part of tax reform, the Government

announced that on diesel for trucks the excise would be reduced from 44 cents to 20. And

the idea of that was to make transport cheaper out to country and regional areas, and

indeed in the cities for that matter.

Yes.

As you know the Labor Party voted against our tax plan, and we were forced to

compromise with the Democrats to get it through the Parliament, and the Democrats took the

view that there should be full excise in city areas on environmental grounds.

Yes.

Now I don’t agree with that. I actually think we should be cutting transport costs

for everything. That was the policy we put to the electorate, and it was the policy we

were voted in on. But the Parliament refused to enact our policy. It enacted a different

one, which said, that you could get it if you were in regional or rural areas, but you

couldn’t get it in city areas. Then once you introduce these things, then you get

into definitional problems. Well, what was the difference between a city area and a

country area, and we’ve done the best we can . . .

So it’s going to be messy anyway, isn’t it?

Well, that’s right. Melbourne, obviously, is a city area, and Geelong is

considered a city area, and outside Melbourne and Geelong everybody else will get it. Now,

the good news for that is if you happen to live in Ballarat or Bendigo, or if you happen

to…

What if I drive from Melbourne to Geelong? It means that part of the distance I’m

getting the fuel deal, and part of the distance I’m not?

Well, you won’t be getting the deal between Melbourne and Geelong . . .

What about when I enter the outskirts of Geelong?

No, because Melbourne and Geelong are excluded . . .

(inaudible)

. . . and I consider that unfortunate.

And the road in between is excluded, isn’t it?

That’s right, I consider that unfortunate, but…

But I go to Sunbury, I get it.

Well if Sunbury is considered a non-metropolitan area. Now look Neil . . .

What’s Geelong?

Well . . .

I take your point. I mean . . .

Neil, the point is this. Do I think this is an optimal outcome? No. Did we want to do

this? No. Were we elected on this basis? No. But if the Labor party is going to vote

against every sensible proposal, then that’s the way these things come out. The good

thing is we’ve been able to preserve the benefit for people in regional Victoria. We

could have given an additional benefit to people in metropolitan Melbourne and in Geelong.

But there you go, you win an election, you put a policy out, and if you have an

obstructionist opposition you’re not entitled to put it into practice.

Okay, thank you for talking to us. I hope when your petrol plan comes through it’s

a bit more detailed. When will we have that?

The petrol plan, believe me, if my petrol plan can be enacted, the Government’s

petrol plan can be enacted without the Labor Party opposing it, and forced into

compromise, it will be a very simple plan. It’s another one of these situations where

the Government ought to be able to put in place what it’s put to the electorate to

ensure that it’s simple and tight and of benefit to regional Victoria.

Well, good luck in getting it up.

Thanks Neil.

Thank you very much. The Federal Treasurer Peter Costello.