Transcript No. 99/42

Hon Peter Costello MP

Doorstop

Tuesday, 1 June 1999

12.15 pm

SUBJECTS: Current Account Deficit, Tax Package

TREASURER:

Well, today’s current account deficit showing a deficit of $8.9 billion for the

quarter is consistent with the Government’s forecasts. The Government has been

forecasting as I said yesterday, a current account on a quarterly basis of the order of 6,

this is about 6 per cent, averaging over the course of the year to 5 per cent. And in

fact the year-to-date on the current account deficit of about $23 billion indicates that

we’re forecasting about $9 billion for the next quarter to come in on the forecast.

Having said that, there is no room for complacency in relation to the current account

deficit. One of the reasons why this Government has made such an effort to put the

Australian Budget into surplus and has a debt reduction programme is to make sure that the

public sector of Australia is not drawing down on savings in any respect whatsoever, so

that the current account deficit is totally as a result of private sector trading. The

Government is not contributing one dollar, in fact the Government is putting savings back

into the economy. And in relation to that current account deficit you would expect at a

time when your domestic economy is strong and your export opportunities are weak because

of a downturn in the rest of the world, you would expect pressure on your current account

deficit. We are not complacent about it, but it is in line with the forecasts and it

underscores again the importance of a strong Budget position and the importance of keeping

economic reform going in this country. If we are growing faster than the world,

there’s not much we can do about the world, we have got to make sure that we have

good economic indicators in place to retain confidence.

Is your tax package economically efficient, Mr Costello?

Well, the tax package that the Government is introducing is miles in front of the

current tax system, miles in front of it. Much more efficient than the current wholesale

sales tax regime, which has multiple rates and multiple classifications. The thing about

the Government’s broad-based indirect tax is there’s one rate. Now, you have

classification problems as to whether you’re at zero or 10, but you don’t have

classification problems as to whether you’re at zero, 12, 22, 32, 37, 41, 45. So that

takes the classification down to about a fifth. You then have a broad base which excludes

things like health, education, childcare, charities, religion and fresh foods. But you

don’t have the classification of the myriads of things that you have under wholesale

sales tax, like detergents, and toothbrushes, and toothpastes and all of those sorts of

thousands of classification issues under the current tax system.

Treasurer, it seems that the Democrats don’t have a sense of humour when it comes

to birthday cakes.

Well, you know, we have made the offer to the Democrats to consult on design

principles, that is going on at the moment. We’ve always made this point, that you

have to have legislation in place by the 30^th of June. Why? To have 12 months

to get business ready. I’ve always made this point, I think to all of the assorted

press gallery, you’re going to need 12 months to ensure that there is a full and

proper explanation. Once we get the legislation through by the 30^th of June we

have 12 months, 12 months to ensure that businesses are fully briefed up on the system.

You won’t brief people on a new tax system overnight. We always built into our tax

plan 12 months to do that.

What are you going to do for retailers that have problems with the new classification,

you know the people that sell fresh food and also other groceries that are taxed?

Well, let me make this point. When you talk about complexity bear this in mind, nothing

has changed for hardware and department stores and accountants and lawyers and farmers and

tourism and training. There’s one area and one area alone of the economy where

something is changed, and that is where people are selling processed food alongside fresh

food. That’s the one area where there is a change and the Government will ensure that

in that area, people are selling different lines of food from the same store, the

Government will ensure that they will be well briefed, that they have systems, that there

is a full consultation process, and in that one area the Government will ensure that

business has assistance.

The Democrats this morning, notably Meg Lees, has called for a nationally mandated

recipe for bread to be legislated by the Federal Parliament. Do you support that?

Well look, the amendments that the Democrats have put forward in the Senate have a

definition. And we have said consistently that we would consult with the Democrats if they

want assistance, but it would retain true to their design principles. It’s always

been our position. We stand ready to consult. If they want assistance in tightening some

of these definitions we’ll do it, but we have undertaken to maintain the integrity of

their design principles.

Are our tax laws going to read like a recipe book, Mr Costello?

Well our tax laws do read like a recipe book. At the moment, can I tell you, at the

moment; our tax laws read like recipe books. Not just recipe books for a rate of nought

and 10 per cent, recipe books for nought, 12, 22, 32, 37, 41, 45. The thing I’m

always amazed about is nobody has ever asked me in my life to explain why under current

Australian law toothpaste is taxed and toothbrushes aren’t. And I’ve asked

everybody in the Australian Taxation Office, I’ve asked for a definition of

toothpaste. We’ve got definitions of toothpaste by the way, which currently apply in

Australian law. And we have this multiple system, multiple rate, multiple classification,

multiple recipe system at the moment, which we are significantly reducing in complexity.

Now, if you want to take something out of a broad based tax you have to define it. But,

without the myriad of exemptions, the thousands of exemptions and multiple rates, I can

assure you it is much easier than the current law. I mean, why don’t we ask the

Australian Labor Party? Why do they support a system that taxes toothpaste and not

toothbrushes? What’s the difference?

But isn’t the fundamental difference this time, Mr Costello, that retailers have

to work out what’s exempt and what’s not as opposed to wholesalers as it is

under the WST? So many more people have to do that, that’s why it’s more

complicated?

Well as I said, you know, there’s one area of retail that’s affected by this.

Go down your strip shopping centre, who’s affected by this? Your hairdresser, no;

your hardware store, no they’re not affected; your dressmaker, no; your butcher, no;

your greengrocer, no. Who’s actually affected? Well, your Coles and Woolies, but your

Coles and Woolies are pretty big operations you know, and they’ve got practically

everything that’s bar-coded. The only people that will be affected by this are people

that are selling fresh foods alongside processed foods in that particular area. And they

can be easily identified and we will have an explanation for them. Now, you know, you can

make points about complexity, but can I tell you this, those stores would have much more

trouble with the complexity of a fringe benefits tax . . .

Treasurer, do you think there’ll be . . .

. . . those stores, can I tell you this, have much more complexity on a capital gains

tax. I mean, you go down, you find a milkbar owner and ask the milkbar owner to explain to

you the gross-up rate under the FBT – a Labor introduced tax. The Labor Party running

around saying, well I can’t explain the gross-up rate in a milkbar so we better

abolish the fringe benefits tax. Go around to the milkbar owner, just incidentally, and

say, when you dispose under a higher purchase agreement, your cash register, could you

please explain to me how you valued the residual and how you bring that back into your

accounts for the unused depreciation. Now you go and ask them and they’ll say to you,

oh gee, I don’t know. Anybody out there arguing, by the way, that the taxation

treatment of residuals under hire purchase should be abolished? No, no the Labor

Party’s not out arguing that. This is a total political stunt by the Labor Party. Let

me tell you what’s happening here. The Labor Party is irrelevant to Australian

politics and they are trying to get relevance by attacking the Australian Democrats. I

mean, their sole relevance here is the extent, as they see it, to which they can get the

Australian Democrats out of constructive involvement in political debate. Why? Let me tell

you. If the Australian Democrats are constructively involved in political debate,

who’s left out? Labor, no where to go.

(inaudible) simplify what the Democrats have proposed?

Well look, we have said that we would consult with them on the design principles. And

if they want us to help in some of those definitions, we will. But we have also undertaken

to them that we will be true to their design principles. And I made the point last night,

there’s a very obvious reason for that. If the amendments are not to their

satisfaction they won’t clear the Senate, so . . .

So it’s basically their legislations?

Well, it’s basically their design principles. Now if . . .

(inaudible) your package?

Well of course it’s our package. Let me tell you, what’s the package here . .

.

Meg Lees wants you to help . . .

Hang on, hang on.

. . . her sell her design.

Hang on, hang on. What’s the package here? The package here is $12 billion of

income tax cuts, $2 billion of new family allowances, an abolition of the wholesale sales

tax, an abolition of stamp duties on shares, staged abolition of financial institutions

duties and bank account debits taxes, a new growth tax for the Commonwealth and the

States, a broad-based indirect tax which applies right across services, and in one area of

goods, one area of goods, you have a carve out. Now, when I said that carve out and the

other matters in relation to diesel, represented a 15 per cent change on the package, that

means that this is a package; 85 per cent of which the Government will be able to enact.

Would I have liked 100 per cent? I’ll be frank with you, I would’ve liked 100

per cent. But 85 per cent beats zero per cent. Now if I can say, you can focus on the hole

or you can focus on the doughnut . . .

But it’s still not . . .

. . . and I’d urge you to focus on the doughnut.