Interview with Jon Faine

8.50 am

SUBJECTS: Economy, Managed Investment Schemes

FAINE:

Mr Costello good morning.

TREASURER:

Good morning Jon, good to be with you.

FAINE:

We have been talking prosperity this morning and it seems, well there is a lot of people struggling, it is a question of how equally divided up the spoils of the boom have become. 

TREASURER:

Well Jon there are more people in work than ever before in Australian history.  Now, you are quite right, there are differing wage levels for different jobs, but overall, wages are higher than they have been at any time over the last decade so more people in work earning on average more wages means that more families do have the means to cope.  Now, that doesn’t mean that people wouldn’t like wage increases and it doesn’t mean that those outside of the workforce who aren’t receiving wages feel that they are missing out, but we can say, on average, wages are higher and of course there are 2 million more jobs than there were 10 years ago.

FAINE:

To put it fairly bluntly, the rich are getting richer, the poor are getting poorer and the gap is getting wider. 

TREASURER:

No, that is not right Jon, every study shows that the rich are getting richer and the poor are getting richer. 

FAINE:

Is the gap staying wide?

TREASURER:

Well the poor are getting richer, that is the way it is measured by the Australian Bureau of Statistics.  The 10 per cent of the lowest incomes have actually increased their real income, either through pensions or through wages over the last decade.  Now, it is true that the top 10 per cent may have increased their incomes by a lot more, but there is no doubt about it and every study has in fact showed it, that in Australia the bottom 10 per cent have higher real incomes today than they did 10 years ago. 

FAINE:

Managed Investment Schemes have been a feature of agribusiness in Australia now for many years and just last week you took the decision to basically abolish them for non-forestry investment which caused a panic through rural Australia, are you going to review your decision or change it?

TREASURER:

Jon, I think it is important to be precise here because it is in the tax area.  What happens with a Managed Investment Scheme is you get an immediate deduction for your investment.  You put some money into a scheme, you can claim that as a tax deduction.  The law allows you to do that if you are considered to be carrying on a business, but we have had indications that the Tax Office has now reconsidered this position, not the Government, but the Tax Office has now reconsidered this position.  And there is a view in the Tax Office that if you put money into a Managed Investment Scheme it is a capital investment.  Just like if you bought a share Jon, it wouldn’t give you a tax deduction for the purchase price of a share because that is a capital sum. 

FAINE:

But Cabinet last week, not the Tax Office, decided to scrap up-front tax deductions as of July 1 coming up.

TREASURER:

No, that is not right, Jon, that is the point.  What the Cabinet said was that we noted the Commissioner of Taxation’s decision and we were quite prepared to let the industry take the Commissioner on in a test case.  If the industry won the test case then of course the immediate upfront deductibility would continue. 

FAINE:

Why leave it to the courts, why not just be decisive and say we either do or don’t think these are a good thing for the nation?

TREASURER:

Because these things occur under the current tax law, it is a question of interpretation as to what the current tax law means.  Now, there were some people who say precisely that: forget what the current tax law is, why not introduce a new tax law to validate all of these schemes.  That is going a step further and that is the request that the industry has now put.

FAINE:

Or at least at the very worst a phase out rather than a sudden end. 

TREASURER:

Well nobody is talking about a sudden end.

FAINE:

Well the industry thinks they are. 

TREASURER:

Well let me say, even if the Tax Office took this on, everybody who is currently in a scheme would continue and everybody who wants to go into a scheme between now and the 30th of June would be entitled to do so. 

FAINE:

But we heard yesterday from a nursery that has already laid off 20 people growing olive trees for schemes that they thought they would be able to get into in the next financial year that are now being cancelled. 

TREASURER:

Well that is what I mean, it is not cutting off anything that anybody is into, it may be cutting off the opportunity to get into further schemes in the 2008 year.

FAINE:

Time is nearly defeating us Peter Costello, are you going to review your decision?

TREASURER:

Well as I say, there are discussions going on with the Tax Office to see whether or not they can find a suitable test case.  When and if these matters all go to the court we will be advised by the Tax Office on the procedures and what the likelihood of the challenge is going to be.

FAINE:

Well there is a lot of people and a lot of money waiting on those announcements.  Thank you for your time this morning, I am grateful and I hope we have another opportunity to chat soon.