Transcript No. 54

Hon Peter Costello MP

Doorstop interview

Wednesday, 19 August 1998

1.15 pm

SUBJECTS: Tax reform

TREASURER:

ACOSS has made some comments, some right, some not right. ACOSS has been unable to find any person that would be disadvantaged by these tax reform proposals. And, of course, that’s because the Government has extensively considered these matters and ensured that, particularly those on pensions, will be better off as a result of tax changes. Even though you get price impacts of 1.9 per cent, a 4 per cent increase in everybody’s pension, plus for aged pensioners up to $1,000 for their savings, plus an increase in the rebate which cuts them out of taxation, $250 for singles plus access to private health insurance means pensioners, of course, will be much better off under the new tax system.

Now ACOSS makes the point here that they’d like to do further work, we’ve offered to help them with their figures and the Government is sure that in helping them with their figures some of the other issues that they have raised can be answered.

Do you see it as a blow that the welfare lobby has come out in opposition to the package, does it hamper your attempts to sell it?

No because the welfare lobby has been unable to actually point to anyone who’s worse off, this is the most significant thing. ACOSS has been studying this since Thursday of last week and has not been able to identify anybody that would be worse off as a result of the new tax system and that indicates, as we’ve said, that there are proper measures in place to ensure that aged pensioners and people that are reliant on benefits actually come off better off. Now I make the point that ACOSS, of course, have put forward a number of proposals which the Government will not accept. ACOSS wants capital gains tax on the family home, let me make it clear the Liberal and National parties will never put a capital gains tax on the home. ACOSS has asked for superannuation to be made less attractive. Let me make it clear although we have moved to make superannuation fairer, we will always ensure that people taking out superannuation get tax benefits. We have made sure that families are protected in this package and we will not be introducing things such as capital gains taxes which will leave them worse off. But having allowed for all of that at the end of the day you have a tax package which the welfare lobby is basically being forced to admit doesn’t leave anybody worse off.

Mr Costello do you acknowledge that millionaires spend their income in a different way from pensioners?

Well see this is one of the points that ACOSS gets wrongly in relation to its analysis. The top 20 per cent of income earners spend 2.8 times more money on food than the bottom 20 per cent, 2.8 times more on food. So if there were no GST on food, the biggest beneficiaries would be the rich. It’s one of the reasons why we’ve made sure that it is an even tax right across the board at 10 per cent. If we didn’t do that you would be giving 2.8 times the benefit to top income earners that you’re currently giving to low income earners. I don’t think ACOSS has understood that point well, they haven’t actually understood the fact that including restaurant meals, it’s in fact high income earners that spend much more on food, and restaurants than low income earners. And that’s why as a measure of fairness it is right to have a broad based GST.

Okay well ACOSS disagree with that, do you expect that………

No, no it’s not a question of disagreeing with it, that is a fact, that is an objective fact as has been found, you can’t disagree with it, that is the case. What they haven’t closely analysed is the fact that the top income earners spend 2.8 times more on food including restaurants than the bottom 20 per cent of income earners. The conclusion of that is that if you cut food out of GST the big winners are high income earners, particularly those that eat regularly at restaurants. And the more expensive the restaurant, make this clear, the more expensive the restaurant, the bigger the benefit if you took food out of GST.

Is it true that most of the benefits will go to people with incomes over $60,000 a year?

No, again this is a misreading. As I said before we are quite happy to sit down with ACOSS and show them where they have misinterpreted, there are a number of misinterpretations. But the fact of the matter is under the proposals that, as I said in today’s Age I believe it was, that from July 2000 something like 58 per cent of income tax will be paid by the top 1/5 income earners, as compared to something like 57 under the current arrangements. So what the means is that income earners will be paying proportionately the most income tax. But it is true that the biggest beneficiaries are people on average weekly earnings. The great beneficiaries out of the income tax change which the Government has announced are average income earners, average income earners, about $38,000, are currently on a 43 per cent marginal rate, this package takes them down to 30.

Is there any circumstance in which you would consider exempting food from the GST?

No, because if you started pulling apart the broad based indirect tax, the first thing you do is you advantage the high income earner. The high income earner spends, including restaurant meals, 2.8 times more on food than a low income earner. So that would be an enormous benefit to a high income earner so you wouldn’t do it for that reason. The second thing, of course, is once you start pulling apart tax reform you’re right back to where you are now. All you’ll have to do is increase income tax rates. This is the Labor policy, remember the Labor policy is to have higher income taxes because they won’t reform the indirect tax system, you would be right back to where you are now. You’ve got an average income earner today whose paying 43 cents in the dollar and for that income earner, it’s just going to go higher. Now if you believe as we do that people should have more incentive to work, that average income earners shouldn’t face income tax rates which are more than 30 per cent, you’ve got to reform your indirect tax system, and in relation to indirect tax you’ve heard me say a thousand times I think, the broader the base, the lower the rate. Once you want to start narrowing the base, once you want to start narrowing the base, the higher the rate is going to go. Over and over and over again.

Treasurer this is I think your fourth appearance to speak in favour of the tax package. Do you expect to take a higher profile in selling the package in future?

Well I doubt it would be possible to take a higher profile with all the media that I’ve done over the last 3 or 4 days.

Mr Costello, you say that you gave ACOSS a full opportunity for a briefing, but they say that they only got the information at five or six o’clock last night when the Government knew that they would be releasing their report this morning.

Well, I think you should go back and ask them because they were briefed on the day that the package was released.

So are you saying now that they will have full opportunity …

No, no hang on. ACOSS was first briefed on the day the package was released, Thursday of last week, they were offered a briefing then, and given one, and another in the lock-up and more yesterday and I don’t think that there’s been any shortage of opportunity for them to take it up.

They say now they want a briefing, when can they have one?

Well they could have had one yesterday.

… inaudible … sell the package …

Well I didn’t say that the welfare sector is against tax reform. You see the important thing is this. Anybody who is serious about people who are reliant on social security in this country will support tax reform. I’ll tell you why, if you don’t have a decent tax base you won’t have decent social security. ACOSS knows that, but if you want to say that you’re in favour of paying decent social security, you’ve got to be in favour of a decent tax system because if we don’t have a broad-based tax system in years to come, we won’t be having an argument about levels of benefits, there just won’t be the revenues to pay them. There will not be the revenues to pay. That’s the first point.

The second point is this, and I think with the serious thinkers of ACOSS will remember this, the last time they opposed tax reform where did it lead? It led to an increase in every rate of wholesale sales tax without compensation, and it led to the abolition of income tax reductions. I make this point that’s where it will lead again. That’s where it will lead again. If you oppose tax reform all you will get from Labor after the next election is increased wholesale sales tax rates, higher income taxes and no compensation. Now I think that the serious thinkers in ACOSS realise that. No decent social security without a decent tax base … (inaudible). I think the serious thinkers in ACOSS realise that …inaudible…

… going to take a long time to sell this package.

I think that there will be some people that, who will have been able to look at the package and work it out pretty quickly. I think if you’re a family you can look at it and recognise the benefits for families, I think for others it’s going to be a question of taking some time. There will be a household leaflet coming round this week, I hope. There’s newspaper advertising that’s going on and I think some people will want some time to look at it. But let me make this point. I think it’s an important point. You’re talking about changing Australia’s tax system. We’ve got a 1930s tax system and we want to make it a tax system for the 21^st Century. That’s a big change. People want to look at it. But don’t forget also that we are trying to get out of a complex system. People say, oh, well gee it might be hard to understand tax reform but I say to them it’s even harder to understand the current system.

The reason why people don’t even try and understand the current system is that it is so complex that it is bigger than they are, that it is falling apart. That the only people who know how to operate the current tax system are people who can afford expensive accountants and lawyers. And incidentally that’s one of the main reasons why we should be changing, so that average income earners can get a better go.

…legislation through Parliament by the first half of next year. Doesn’t that effectively rule out a poll next year?

Well I’m not ruling in or ruling out polls, all I want is a new, I want a new tax system as soon as we can get it. Look, a new tax system for the new century. Let me ask you this question. Are we today relying on any of the other models of the 1930s? Are you still driving around in a T-model Ford? No you’re not because things have advanced. Are you still trying to operate with a 1930s stove in your kitchen? No you’re not. Are you still trying to listen to the kind of entertainment that came through the old wirelesses in the 1930s? No you’re not. What makes you think that a tax system which is as old and as out of date as all of the appliances that you’ve now ditched to work in the 21^st Century. It can’t. And it ought to be modernised in precisely the same way they were.

Thanks.