Transcript No. 50

Hon Peter Costello MP

Doorstop Interview

Tuesday, 11 August 1998

2.15 pm

SUBJECTS: Business taxes, Asia

TREASURER:

I just want to welcome the release of the Productivity Commission report today on indirect taxes and the affect that they have on business in Australia. One of the key findings of the Productivity Commission report is that many businesses just don’t even know that they are paying tax on business inputs and they are paying taxes on taxes. And as a result of the modelling which has been done in relation to this report it finds that wholesale sales taxes and petrol excise, even a petrol excise of 4 cents a litre, add to manufacturing costs by about $6 billion and to the economy as a whole about $22 billion. Now the interesting part about this research is that our current indirect system, which imposes costs on business inputs, costs Australia jobs, that if you want to help Australian jobs, and you want to boost Australian exports, the best thing you can do is have a tax system which gives those input taxes back, that cashes them back to business, that makes it easier for our exporters to compete on international markets, which makes it easier for business to grow, which is a pro-jobs policy. And the important thing about tax reform particularly getting rid of those indirect taxes, it is pro-jobs, it’s good for the economy and it’s good for creating jobs.

Mr Costello if you were to introduce such a system how many jobs would be created after one year of it being fully operational?

The report of the Productivity Commission, which is an independent report and you’ve got to bear in mind the model that it used it was a model of taking out wholesale sales tax and rebating 4 cents a litre, it said that if you took those costs out you could boost the economy by $22 billion. That’s a pretty big boost and that’s an awful lot of jobs. Now I am not putting a figure on it but I can tell you that tax reform is pro-growth, pro-economic development and pro-jobs. That’s the point that comes out of this finding today.

Mr Costello isn’t this an argument seeking for removing all taxes on business?

Well it is, it’s an argument for removing input taxes on business, quite so.

Even company tax?

No, no this is a modelling in relation to taxes on business inputs, that was the modelling in relation to business inputs, not company tax which is profitability after you’ve had sales. This is an argument in relation to taxes on business inputs. As the Productivity Commission itself found, there are many businesses that don’t even know that they are paying them and if you take taxes off business inputs you boost the economy.

Wouldn’t the arguments be the same for removing payroll tax?

Well payroll tax is another tax which applies to businesses and of course in relation to that you could also model effects but this is a model in relation to the wholesale sales tax and in relation to petrol excise. And I think the Productivity Commission makes the point that all of those countries, which just happen to be nearly all of the developed world, in fact nearly all of the world, that

cash-back business inputs are giving their exporters and businesses opportunities that we aren’t.

Will fuel excise be part of the reforms announced on Thursday?

Well I’m not going into what will be announced on Thursday.

Why did you ask for a report on these taxes specifically?

I asked the Productivity Commission earlier this year to look at the effect of Commonwealth indirect taxes, Commonwealth indirect taxes on business. These are the Commonwealth indirect taxes that apply to business and the Productivity Commission has done an independent research job.

But didn’t the model that was used was a 5 per cent GST, the model that was used to look at what could replace the existing taxes was a 5 per cent GST, isn’t the relevance of that…….

That’s not the finding that I’ve referred to. The finding that I’ve referred to is the effect of WST, 4 cents a litre. That’s the finding that I’ve referred to and as I have said quite clearly you’ve got to state very carefully what the presumptions were. The Productivity Commission went on and did other models in relation to New Zealand and other rates and you can look at that and you can take the lessons for what they are worth. The lessons are incidentally that value added taxes and cashing back business inputs is good for the economy.

Why did you choose 4 cents a litre?

I didn’t choose 4 cents a litre, the Productivity Commission chose 4 cents a litre. I can assure you that the Productivity Commission has not seen the Government’s tax package.

Will you guarantee that unemployment will fall under your tax reforms?

You can say this, that under a better tax system you’ll get more jobs than you’ll get under the current one. Now unemployment depends on numbers of factors: it depends on growth in the economy; it depends on growth in our trading partners; it depends on interest rates; it depends on good Budget outcomes. It depends on a whole number of factors which will govern unemployment, but all other things being equal under a better tax system which reimburses business for their tax inputs, you will get more employment than you will under the current Australian tax system.

Under a GST wouldn’t this $22 billion of taxes just be passed onto consumers?

No because that’s the cost on industry, read the report. That’s not the revenue take, that’s the cost on industry, that’s the compounding of the tax on tax issue, and that’s the very point that the Productivity Commission makes. That’s not $22 billion of revenue that’s collected from those taxes, the revenue which is collected is significantly less. That’s the compounding effect of the cost on the economy and that’s the significance of the research finding.

Mr Costello…(inaudible)… that exports should be free of sales tax, why should Australians pay more tax so that foreigners can buy cheaper Australian goods?

Because trade is good for Australia.

Mr Costello there are warnings from London today or overnight that Australia is heading for a recession and that there’ll be 1 per cent growth next year, are we fireproofed from Asia?

Well, I think as I said yesterday, we are probably the only growing economy in Asia at the moment, with the possible exception of China. But go through it. Japan – growth minus 5 per cent, Hong Kong – recession, Singapore – Prime Minister’s talking about recession, Malaysia, Indonesia, Thailand, Korea. All through the 80s and 90s, this is a very important point, all through the 80s and 90s the one thing that Australian policy makers could always count on was growth in Asia. Now, when Keating and Labor had Australia in recession that was notwithstanding 10 per cent growth in Asia. Where would they have been with an Asia in recession? Where would have Australian been if we were still running a $10 billion deficit, if we still had growing Commonwealth debt, if we’d been unable to reduce interest rates? Now the Labor Party sat around and said, two years ago, you didn’t need to balance Budget, you didn’t need to reduce Australian Government debt, it wasn’t necessary to have a new agreement with the Reserve Bank to keep inflation down and reduce interest rates. Where would we have been if those policy prescriptions had been followed? Now this is a Government that sat down two years ago and said we couldn’t rely on other peoples’ luck that we had to make some good strong decisions and we did and that was right, that was a good thing to do.

Thanks.