Transcript No. 99/05

Hon Peter Costello MP

Doorstop Interview

Treasury Place, Melbourne

Thursday, 4 February 1999

12.30 pm

E&EO

SUBJECTS: Senate inquiry on tax reform, ACOSS, retail trade

TREASURER:

When the Government decided to reform the Australian taxation system, we also decided to take the opportunity to reform the welfare system as well and particularly to improve the benefits for people on family allowances and pensions. Theres been a lot of talk about whether or not people on pensions or low incomes would be better off as a result of tax reform. The Governments CPI analysis showed that they would. The Governments Household Expenditure Survey showed that they would. And research which has been commissioned by ACOSS, and released today to the Senate Inquiry, unequivocally shows that people on pensions will be better off as a result of the Governments tax and welfare changes.

Now ACOSS has had several goes at trying to produce modelling which would show that pensioners would be worse off and in the research which they have presented to the Senate Committee today, which is about the third or the fourth attempt at this, unequivocally shows that the price impact for pensioners is less than the 4 per cent increase that the Government is going to apply to pensions. Now what this means is the CPI showed theyd be better off, Household Expenditure Survey showed theyd be better off, Melbourne Institute showed theyd be better off. Now ACOSSs own figures, on the most optimistic assumptions, show that pensioners and low income earners will be better off under the changes that the Government proposes to the tax and welfare system. And I say to ACOSS that I think it is time now that they accept, the results are in. And the results show that low income earners will be better off under the Governments new tax and welfare system.

Then what was the Federal Opposition Leader on about this morning?

Well who knows what hes on about. I dont think he knows what hes on about. But, you know, here you have it, this is the ACOSS research, and the ACOSS said that they were going to the Melbourne Institute to model the price effects for low income household groups aged pensioners, couples, singles, couples with children. Now remember that all pensioners are getting a 4 per cent increase in their pension. The income and the assets and the taper rates are all being improved. And when you actually model the effect, low income earners are better off under the Governments tax changes and welfare changes. Now, what I say to ACOSS is: I think its now time that they accepted their own research; that they accept the position that low income earners will be better off under the Governments income tax and social security changes and that the package is implemented as the Government said it would do.

Whats your response to Professor Dixons prediction of massive job losses if the GST is introduced?

What Professor Dixon has said, and I think its important that you focus on it, Professor Dixon said that when he made his modelling on his own model, employment would rise by 30,000 jobs. Thats what he said. The Senate Committee then said to him, well, why dont you assume that after people get a tax cut and higher disposable income, they then go out and seek wage rises. And he said, oh, well if assume that notwithstanding theyve got more money in their pocket and theyre better off, if you assume that they then go and seek wage rises, you can show that employment would have a negative effect. But let me ask you: I mean, what basis would there be to say, after youve cut everybodys taxes, after theyve got more money in their pocket, after theyre better off, theyre then going to go and seek a wage increase. It doesnt stand to reason. The whole idea of an income tax cut is if you cut income taxes, people have more after tax income, are able to buy more, they dont need wage increases. The one thing that this research does actually confirm to you, by the way, and the Senate ought to keep this in mind, is they shouldnt be playing around with the Governments income tax cuts. Because income tax cuts are a very important part of this package. Thats what allows wage and salary earners to be better off. And thats what means that they dont have to go and seek wage rises.

Professor Dixon would like to see the Treasury modelling, released in the interests of fair debate. Would you be prepared to do that, to clear this up?

All of the Treasury work has been released. Its been tabled in the Parliament. All of the Household Expenditure Survey analysis. The analysis that went into the policy, its been released. Its there on the table.

But hes saying that Treasury has yet to make the case that the system is so broke that it needs fixing with a GST, the evidence isnt there.

Well Ill make the case. I mean, I run the Australian taxation system and its broken. Every single Budget we have to announce new revenue measures. We have to change rates and bases because this is a tax system thats breaking. I know its broken. The Government knows its broken. The Tax Commissioner knows its broken. And whats more, the Australian public knows its broken. Try going to the Australian public and telling them that they have a great tax system. There is nobody in Australia that believes the Australian taxation system is working and research after research shows us that. Your average Australian, when theyre told by Professor Dixon that theres nothing wrong with the tax system is going to say what kind of a planet does he live on?

But Professor Dixons argument is that indirect taxes will rise at the same rate as GDP and that that will be enough to cover future needs. You just refute that?

It cant. If your income tax base is a declining proportion of your economy, the only way your revenue can keep up with your economy is by increasing rates. Now, lets remember all this, the Labor Party increased every single rate of wholesale sales tax in 1993 because thats the only way you can keep your revenues up on a declining base. Now let me make this point: when the Labor Party increased every single rate of indirect tax, did they model the effect on employment? Did they give an income tax cut? Did they increase a pension? I mean, this tax plan is the first tax plan in Australian history where youve had full compensation, income tax reductions, where it has unequivocal benefits for the Australian economy, where it has been modelled by everybody. It has had a level of scrutiny which has been unheard of before. And all of the results come out and say its a good thing for the economy, and what does the Labor Party do?

Would the Coalition have won the last election if the kind of scrutiny that the package is getting now had been carried out before the election?

Well, we had much greater scrutiny before the election. I mean, all this scrutiny has done is confirm 30,000 new jobs. What ACOSS has confirmed is pensioners are better off. I mean, there it is. The Australian Council of Social Service: pensioners are better off. I mean before the election we had to actually fight, we had to fight lies, and we still managed to win the election. So were not afraid of modelling which shows that all of the lies, and you recall the lies that were put out by the Labor Party – that low income earners would be worse off. Now that the facts come in, from ACOSS, not from me, from ACOSS, that low income earners are better off, all that proves is that the increased scrutiny shows how much this is needed for Australia.

Mr Costello did you address the effect of the GST on surf life saving clubs, theyve expressed concerns that their activities and (inaudible) curtailed by the additional expenditure required.

No, the Government has said that in relation to all charities theyre GST free, that is theyre in a better position, in a better position, than they are in the current tax laws. They pay no indirect tax. Under current tax laws they can pay indirect tax. They pay indirect tax in relation to vehicles and petrols which they will get relieved from under the Governments situation. So charities are big winners, theyre actually much better off.

Mr Costello the retail sales data released today appeared to show a pretty substantial drop off in spending in December. Can we believe those figures?

Well, look, the retail trade figures today showed a downturn in the month of December but a rise over the course of the year, and as you know retail has been exceptionally strong. I think the truth of the matter is that retail is strong and will continue to be strong. Youll get these monthly bounce-arounds, but I think its more important to keep the trend-line in perspective because all of the anecdotal evidence coming back to me suggests that retail is still trending stronger.

Now theres been criticism that the Treasury hasnt released its economic model on the GST. Are you going to instruct them to do that?

We have released all of the modelling weve done.

Therell be no more modelling release?

No, no, no weve released it. Its released. It was released in the Parliament by me. Its there.

The Senate Committee said, well indicated yesterday it might try to get Treasury officials up in front of it to ask more questions about whether the system is broke or not. Do you think thats a good idea?

Well, I think thereve been in there already for days if not weeks, if not months. I mean the trouble is that they keep on asking the questions and the questions keep on being damaging to Labor. Let me ask you this question: what is the Labor Party policy on tax? Apart from saying they oppose everything, whats their idea? I mean what practical tax policy is out there from these people who just want to stop, just want to be negative? I mean, what is stopping and being negative and complaining and, whats that doing for our country? I mean, you got to ask yourself, why would you want to be in public life as a Beazley when all you want to do is stop. I think its time for him to sort of be a little bit brave and say that its time for tax reform and he wont try and stop Australia moving forward.

Ends