Transcript No. 99/06

Hon Peter Costello MP

Doorstop Interview

Monday 15 February 1999

4.45 pm

E&EO

SUBJECTS: Democrats, tax reform package, business tax

I just want to comment on the Senates progress in debating and hopefully passing the Governments legislation to establish a new tax system in Australia. The Senate has set up four committees to inquire into this legislation. Those committees were set up in December of last year when the legislation was produced and they have until the 19^th April to report, so thats January, February, March, April four months, four committees. That is over a week of Senate.over a year of Senate hearings four committees at four months which in total means well over 52 weeks of Senate inquiry into the Governments new tax system. Now, the longest Senate inquiries in history hitherto, have been euthanasia 17 weeks, and Telstra 16 weeks. The Governments new tax system over 52 weeks. Thats just an inquiry. The Government then said that if the Senate committees reported on the 19^th of April we would rearrange Parliamentary sittings so that there would be two weeks set aside for debate from the 19^th of April and a total of six weeks Senate debate before the 30^th June. Now, this allows again for the longest Senate debate in Australian Federal history. So any suggestion that the Senate will not be in a position to finally deliberate on these bills by the 30^th of June ignores the fact that we have provided for the longest Senate investigation in history and the longest Senate debate in history. Now, thats given even the fact that this matter was debated before the Australian people, who decided the issue on the 3^rd of October, the Government produced the legislation within two months and weve given the Senate over a year of investigation and over six weeks of debate to make a decision. And I dont think the decisions that hard myself because I think the Senate should take the view that it will hold the Government to its election promise. I want to make this point, the Government asks for nothing more and nothing less than to be held to what it promised the Australian people.

And if Senators want to keep a Government honest they will vote for that legislation. Its Senators trying to make a Government break its election promises that will be voting against it. Now, youve seen in relation to the inquiry, whats obviously giving some Senators problem, is that the case for excluding food from the GST has obviously collapsed. There is no credible economic support for it. The broadening of the indirect tax base should be passed and we should get on to reducing income tax rates. Which is what the Australian people really want.

Mr Costello back in November when the Inquiries were set up did you get a guarantee from the Democrats that they would vote by 30 June?

Well, all of our discussions were premised on the fact that this matter would be decided by the Senate by the 30^th of June. Thats why we agreed to the 19^th of April reporting date. Thats why we set two weeks of debate from the 19^th of April. Special Senate sittings, Senate only. Two weeks of debate from the 19^th of April to debate it. Because it was inconceivable that you wouldnt be able to determine and finally deliberate on these bills by the 30^th June.

So theyre welching on a deal?

Look, I say now, it is inconceivable that the Senate could not be in a position to finally deliberate by the 30^th of June. And the whole Parliamentary year, the whole Parliamentary year was diarised and structured to enable them to do that.

Meg Lees is now casting doubt on the June 30 timeframe and says there was no guarantee given by the Democrats to the Government.

But, but what are we now . . .

It was an assumption made by the Government . . .

. . . we are, we are the 15^th of April now, arent we right? The Senates had these bills now for January, February two months and theyve got another four months to go. Now, why would you conceivably be saying now you cant do it in the next four months. Whats changed? The only thing thats changed is something that should make it easier for them and that is the case for excluding food has collapsed. Its been a fair inquiry, the case collapsed. They should accept the verdict and they should now say that they will pass the legislation.

Do you think that Senator Lees is holding out simply because the Democrats will get the balance of power after that date?

Well, I dont, I dont know what the Democrats are doing, frankly. Because I make the point, its the 15^th of February now, there is time for over fifty weeks of Senate inquiry, the longest in Australian Federal history. There is time for over six weeks of Senate debate, the longest in Australian Federal history, on an issue thats been before the Australian people one way or another for the last donkeys years and for a matter that was decided at a Federal election, called on the 3^rd of October. So, I cant understand why youd be saying now that youre not in a position to determine this issue.

But the Democrats say Mr Costello, that there really is no case for taxing food when the evidence by Dr Murphy basically says in terms of the welfare gain its line ball. You know, its $600 million roughly.

Well, let me go through that because I saw a press release that they put out today from Peter Dixon, right, showing that the welfare gains go negative if you take food out, right. Three times worse result on welfare gains. Thats what Dixon said . . .

. . . but the bigger welfare gains . . .

. . . hang on, hang on, hang on. On Murphy they said, out of $600 million Murphy thought on his model, there might be $9 million difference right? Now let me take you to what Murphy actually said in relation to that, and I think its very important that we stick to the evidence here isnt it? Murphy said, chapter seven, possible variations to ANTS, he noted this change right, and he said this: “a reasonable preliminary conclusion is that making food GST free would have a neutral to slightly negative effect on the efficiency”. So he says, when you take efficiency gains in, that $9 million out of $600 million would reverse. Now lets go through the evidence. Professor Harding, the person that was thought to be on the side of the welfare groups, what does Professor Harding say food in. What did Professor Neil Warren say food in. What did Professor Dixon say he says better welfare results with food in. And what does Chris Murphy say he says after you take into account the efficiency gains, food in. So Professor Harding, Professor Warren, Professor Dixon, Professor Murphy. How long have we got to go through? There is not one of the persons that the Senate has called, and dont forget I dont run the Senate committee, the Labor Party runs the Senate committee theres not one of the economic modellers that the Senate has called, that has called for food to be excluded. Now let me make another point . . .

Professor Harding and Neil Warren have been commissioned to do new research for the Senate committee.

Oh, okay well maybe they will, ok so if we didnt like the conclusion we got to, which was that food should be in, well ask them to do more which is what they did with Murphy by the way. Didnt like Murphys finding that the tax system would create jobs so they asked him to remodel on a different assumption. Now how . . .

. . . but (Inaudible)

. . . now let, now let me go, let me go. Hang on I . .

. . . find no difference . . .

. . . Im going to make, Im going to make two extra points. Well, its interesting isnt it, that you say no difference? That wasnt . . .

. . . $10 million in welfare . . .

. . . hang on, hang on, but even if its no different . . .

. . . in an economy of $500 billion is basically bugger all.

. . . alright, even if its no difference, thats not the Democrat argument. The Democrat argument is consumers would be big winners, right. So if its no difference their argument has collapsed, right. That was their argument, media release 10^th of February. And I make two other points. The first is this: that ACOSS has also been running this line, ACOSS has now had, I think, three, maybe four attempts to look at this and the most recent ACOSS submission, including the Melbourne Institute found that they could identify no class of person worse off as a result of the Governments tax changes. And then ACOSS again said, after failing to come up with the person, perhaps more research is needed. Now we had four, still hadnt found it, so ACOSS says oh, it must be out there, lets do a fifth. Thats the first point. The second point is this: if you are going to blow a $5 billion hole through the Governments tax changes, you would think you would be obliged to tell us where you get the additional $5 billion from to make it up, so we can model the economic effects of that. Doesnt it strike you as strange that although these people say we would like to blow a $5 billion hole there, and that will only be neutral in its effect, they dont tell us where the $5 billion comes from so we can model the negative effects of that.

Well ACOSS . . .

Thatd be very, very interesting to know.

No, but ACOSS talks about remodelling the income tax cuts.

. . . Ahh, well okay

. . . increasing from 30 to 32 or 34 depending on (inaudible) . . .

. . . precisely right . . .

. . . and similarly with the Democrats.

. . . precisely right . . .

. . . and they say . . .

. . . no, no, no they dont.

. . . well no, the Democrats . . .

. . . Im sorry . . .

. . . no the Democrats.

. . . Im sorry . . .

. . . the Democrats say that you slug high income earners with a higher rate of marginal tax than what you are proposing and that would help pay for the removal from food from the GST.

Oh okay, well let, lets take the Democrats. This is important because they said on Sunday, you recall, that all the tax cuts up to $75,000 should be kept and then they came out today and said that was an error and I accept that, that was an error. They didnt give their new scale today did they? They havent given us a new scale. All theyve told us . . .

Well presumably they will in their report..

. . . well all theyve told us is what their scale isnt. Thats the first point. Lets go to ACOSS. What is ACOSS, what is ACOSS recommending? It is an important point, the public of Australia ought to know this. ACOSS is now recommending an increase in marginal tax rates for every average Australian earner. They dont say how much, it can either be 32 or 34, but thats what the arguments now got down to. Weve got no evidence against food but, because we have this political position which we maintain in the face of the evidence, wed like to increase income tax rates. Now, I say this, the Government went to the Australian people, and it put out an income tax scale, it said 30 per cent between $20,000 and $50,000. Do you think that the people of Australia should have that promise broken to them, that they should have higher income tax rates, when there is no evidence to back the proposition thats been put? Look I mean . . .

(inaudible) ACOSS say tax cuts, not, just not as big as your tax cuts?

Well, ACOSS is saying, when we said to the Australian people vote for us – well have a 30 per cent rate between $20,000 and $50,000, theyre saying we should break that promise.

(inaudible)

Im, Im, no Im, look let me make this clear what Im saying, Im saying this the case for excluding food from the GST base has collapsed – right.

How do you say the . . .

The Governments, hang on . . .

. . . (inaudible) changed at all?

No Murphy, Murphy the preferred modeller of choice of the Labor Party says in . . .

(inaudible) reduce the efficiency of ANTS.

. . . well thats right . . .

. . . for ..(inaudible)

. . . hang on, no, no, no he says it would go negative. He says, he says the welfare gain would be minus $30 million with food in right and minus $90 million, three times worse with food out, so it goes negative, the welfare gain.

Treasurer, . . .

I think its very important you look at that.

Will the Senate get a chance to have a look at the business tax changes before they vote on the package itself?

Well, the Governments always said that the business tax changes are going to be revenue neutral right. So, what the Senate can do, in full faith and confidence, is it can know that this package which is totally affordable as presented by the Government, not with a $5 billion hole, but totally affordable as presented by the Government can be confidently enacted and the business changes which will arise out of the progress we are making on the Ralph Report will go ahead thereafter, but revenue neutral. That is, that is, that is that this package is not being asked to fund the business changes, the business changes will fund themselves, and it also means by the way, you cant draw forward additional taxation from the business changes in relation to this package. Weve been very clear about that and thats why they stand the way they do.

Mr Costello ACOSS and the Democrats have said that they wont budge on food, regardless of your arguments, because both groups have said they dont trust the Government in terms of compensation. They dont trust Governments not to cut back compensation in future Budgets, and if there was to be an increase in the GST rate, which I know you say wont happen, but if it was to happen, compensation wouldnt be increased. Can you make any guarantees that compensation will always be maintained in line with the GST?

Of course I can, because the compensation is in legislation.

So youll guarantee that compensation will be..

Hang on. I will guarantee the compensation, and what’s more, let me make this point, how can compensation which is in legislation be taken away. No Government is going to control the Senate in the future. I mean, this idea that some future Government could walk into the Senate and pull apart compensation, when you need a majority of opposition parties in the Senate, is silliness. The compensation is enshrined in legislation, its enshrined in rates for pensions, it is enshrined in the social security legislation. It can no more be pulled out than you can get a hostile majority to vote, to vote against it. And you wont get that hostile majority. Now, lets also take the rate. This has got to be the most entrenched tax rate in Australian history. And the idea that again through an opposing Senate, without getting the agreement of every single State and Territory Government, one of whom is bound to be going to an election, that you could go into the Senate and increase the rate is sheer hypothetical madness. Let me tell you what is a risk. What is a risk is if you leave the wholesale sales tax rates in place, you will find the base extended, class by class, when nobody is watching. That has been the experience, you dont even have to increase the rates with wholesale sales tax, you can extend the wholesale sales tax base class by class, and thats whats happened over a long period of time and there is no prevention in relation to that, and that is the real risk that people run.

Ends.