Transcript No. 55

Hon Peter Costello MP

Doorstop interview

Thursday, 20 August 1998

12.30 pm

SUBJECTS: Nursing homes, tax reform, OECD

TREASURER:

I just want respond to some questions that have been raised this morning in relation to nursing homes and make two points. First of all that increases in pensions will be guaranteed, 4 per cent increase. The Government will take the measures to ensure that pensioners and nursing homes do have full 4 per cent increase in relation to their fees. The second point I make, and it would be worthwhile asking the nursing homes about this, of course, is you would expect nursing home fees to fall. Under a system where nursing homes are GST free they will get back every single dollar of tax that they currently pay which they don’t get back at the moment. So the more interesting question I think for the nursing homes is to ask them to carefully assess the additional benefits that they will be getting and see whether or not fees can reduce. But in the event that they don’t pass on fee reductions, the Government will be ensuring that fees will not rise against pensioners in nursing homes.

So you can guarantee that they’ll have more than that 98 cents a week?

They will have full 4 per cent and we’ll ensure that the fees are not rising against them to try and swallow that up.

How will you ensure the fees won’t go up?

Well you can do it by several mechanisms. As I said fees actually ought to be coming down.

What are those mechanisms Mr Costello?

Well the Government actually sets the level in relation to fees, the Government will be….

So your happy that you can change that 85 per cent level?

We’ve said that we’ll be ensuring that whatever steps are required that the pensioners won’t be worse off, it can be done in many ways and it will be done in relation to the fees. But as I said earlier I’d be much more interested, and quite happy to sit down with the nursing home sector and work out the extent to which fees should fall, let me make this clear: nursing home fees should fall under a GST. Because at the moment in relation to nursing homes, the nursing home proprietors are actually paying tax on many items that are going into those nursing homes. Every single dollar of tax that is paid will be rebated in full, so it’s not really a question of asking whether fees would go up, it’s a question of asking whether or not they can came down.

Will you take action against nursing homes if they don’t lower their fees?

Well we want to, at this stage, have a chat with the industry because I’m out sure that they actually understand this point. But as I’ve said in relation to all sectors of the economy, it’s not just nursing homes by the way, when tax changes come in we want to make sure that the full price reduction is passed onto consumers, not just nursing homes. We’ve said that in relation to all of the other areas of the economy where taxes are going to fall and I’m not proposing to quarantine any area from that, so we’ll have a chat to the nursing home proprietors about that.

But they already argue the subsidies they get from the Government aren’t enough, it’s unlikely that they’re going to lower their spending?

Well that’s another argument, it’s an argument about expenditures, isn’t it?

Well your Treasury hotline yesterday didn’t seem to think there was much of a problem when John Perron of our newspaper asked about this, what’s changed in the last 24 hours?

Well George you should always come to me for the answers. Now, you know, I know George that in the lead up to the announcement of the package you ran many false front pages but you should always come to us for the answers.

Why weren’t these arrangements you’re foreshadowing today included specifically or referred to specifically in the original package.

Because if nursing homes are GST free, as we say in the package, anything that is GST free your prices should actually fall. Now I think if the check had been made, if there’d been any doubt, that could have been worked out. But let me explain what GST free means because it applies to health, it applies to education, it applies to nursing homes. What it means is that there is no GST on the service and the supplier gets every single dollar of tax back. Now what that means is at the moment, where as they are paying tax on many items that they buy and that has to be factored into their price, under a GST system every single dollar that they pay on an input, something they buy, is given back to them. So if you’re getting every single dollar back on everything you’re buying, and there’s no liability to add it to your supply, the price should actually fall. It’s the same for education, it’s the same for health, it’s the same in relation to nursing homes and it’s the same for exports. This is the point we continue to make in relation to exports, I think it’s important to understand the mechanism, exports are GST free. What that means is that all of the taxes that are currently being paid by exporters, and they are factoring into their price, you get back under a GST system. That’s why exporters will get that $4.5 billion benefit that we talked about.

Pensioners in State housing loose 20 per cent of their GST pension increase, can you do a similar thing for them?

Well look I know that there’s a lot of claims that are being made and you know for various reasons people are trying to make claims here, there and everywhere. We are responding to all of the questions that arise and I’m responding in relation to nursing homes, they’ll be better off, I’m responding in relation to pensioners and ACOSS. And I can assure you under a new tax system Australia will be better off and that’s the important point.

Inaudible.

Pardon.

Aren’t a lot of their inputs untaxed at the moment?

Some of them are Tim, that’s the point I make. In relation to some of their purchases at the moment they can get exemptions but not every single one of them. You can’t get every single dollar back, you can’t get every single dollar back in relation to fuel for example, you can’t get every single dollar back in relation to all of their purchases. Now I’m not putting quantities on that but there are in relation to all of these institutions, there are taxes that are actually, they are paying at the moment which they are not getting back and where they are GST free they do. And as the booklet says, and I’ve been at pains to point out time and time again, under a system of GST if you are GST free, if anything prices should fall. Now the extent to which they fall depends on the extent to which they are utilising current exemptions and it depends on the extent to which the purchases that they are buying are either exempt or subject to wholesale sales tax. But the outcome of this is if you are GST free prices should fall, that’s health, education, nursing homes.

Treasurer what’s your reaction to the fact that the churches are coming out against a GST being proposed on food?

Well look the argument’s been around for a long time. What I say is this: if you exempted food from the new tax system; first of all the best and biggest benefits go to higher income earners. Higher income earners spend 2.8 times more on food, including restaurants, than 2.8 more,

280 per cent more.

………percentage of there income?

Well hang on, I’m trying to give a grab please to Mr Middleton who is a colleague of yours, so before……let me go back, he’s trying to get a grab for his news so we’ll go back and we’ll start again.

We just want an answer.

Karen.

Inaudible.

Hang on, hang on, I’m answering Mr Middleton’s question. If you were to leave food outside the tax system first of all you would be giving a bigger benefit to higher income earners who spend

2.8 times more on food including restaurant meals, that’s the first point. The second point, the second point is that if you did that you would be in extreme classification difficulty.

All of the experience shows that once you start trying to define what is food, what is not food, what is pre-cooked food, what is raw food, you get back into all of the complexity that we are trying to get this tax system out of. And the third thing, of course, is that people who argue that are in fact, if they are arguing for broad based indirect tax reform are arguing for higher rates because that is what follows. As I’ve always said in relation to indirect tax the broader the base, the lower the rate. The people who want narrower bases are the people who must be arguing for higher rates, that’s the way that it always works out.

…..the OECD today, Mr Costello, says that in 18 out of 23 OECD countries they do have lower or zero rates for essentials like food?

And the OECD also argues that one, you should have broad based indirect tax and the broader the base, the better.

Inaudible.

Hang on, hang on,….well one of the conclusions of the OECD reports is that those system do not work as well, do not work as well as broader based systems because you go right back into all of the classifications. What’s food, is orange juice food, is milk food, you get into all of these classification difficulties. In some countries they say food at a particular temperature is cooked food and bears a different rate to food at another temperature. Now if you want tax inspectors going around with little thermometers putting them into your pies, putting them into you chickens, trying to determine what the temperature is to try and work out what the tax rate is, you can do that. But you’re going to have tax inspectors in every take away store and supermarket trying to enforce those rules. A much better way of running a tax system is to have a broad base, to have lower rates, to give people more of their income to take home so that they can choose and the tax is collected when people spend.

Thanks.