GST, Australian dollar, Telstra

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Consumer Price Index – December Quarter 1999
January 28, 2000
GST, Telstra, Interest rates
February 1, 2000
Consumer Price Index – December Quarter 1999
January 28, 2000
GST, Telstra, Interest rates
February 1, 2000

GST, Australian dollar, Telstra


Transcript No. 2000/05


The Hon Peter Costello MP




12.15 pm

Monday 31 January 2000

SUBJECT: GST, Australian dollar, Telstra


Well, on Thursday I wrote to the States and Territories with a draft list of those

Commonwealth, State and other level of Government taxes and charges which would not be

subject to GST. At the request of the States, they asked me not to release it publicly and

I respected their request. It is plain that over the weekend some kind of garbled message

arising from one of the States or Territories, I know not which, has got out and as a

result in some of the papers today, the News Limited tabloids, we’ve got some

erroneous stories. So, in the circumstances I am releasing, as I wanted to do in the

outset, the full draft determination. And that’s it there. And this is the full draft

determination of all those taxes and charges that are not subject to GST. Repeat, are not

subject to GST. So any Commonwealth, State or other charge that is listed in this draft

determination is not subject to GST. The list, which as you can see, is quite extensive,

has been posted on the website and is now available on the Treasury website. Can I make it

clear how the list was arrived at? The Commonwealth, of course, had its list of those

taxes and charges which should not be subject to GST and the States were asked for their

lists. So those ones that are on this list are on as a result of the States asking that

they be exempted. And if they’re not on the list and are subject to GST, that’s

because the States believe that that is the appropriate treatment. I make this point too.

That all of the revenue from GST goes to the States. So, if there is any State that did

not want something to be subject to GST it could, by agreement, get it on the list, it

would not be subject to GST. As a consequence the State would not get the GST component in

respect of that tax or that charge. I make this entirely clear, that because GST revenue

goes to the States, the States have to be consulted on the base. And the base has to be

set by agreement between the Commonwealth, six States and two Territories. This list has

been prepared at the behest principally of the States. The Commonwealth has accepted their

recommendations. It has been sent back to the States for their formal approval. And if the

States sign off on it, as I hope they do, then I will publish it as a final determination.

Now the garbled account which was carried in some of the News Limited tabloids this

morning was wrong in suggesting that drivers licences or pet registration would be subject

to GST. They will not be. They are on this draft determination. And the principle

that’s been followed in drawing this up has been the principle, as has been explained

all along, that if something is a tax or a regulatory charge it is not subject to GST. If

it is a fee for service, particularly if it is a fee for service in those areas where a

government is competing with the private sector which would be subject to GST, generally

it is included. So, local government rates are not subject to GST, drainage, water, pet

registration, motor vehicle licences, any of those sorts of things. The things that are,

as I say in the press release, where you are charged a fee for a service, for example, in

relation to inspection and testing of these or using public land or something of that

particular nature. Now, I stress that this is the draft determination which has been drawn

after extensive consultation between the States and the Territories. I sent it out on

Thursday night, they would have had it on Friday. I hope they will be in a position to

sign off on it shortly. And if that is the case then I will be issuing it as a final

determination by agreement between all of the respective Governments concerned. Thank you.

Any questions?


Can we ask you a question about the Australian dollar?


Yes, you can. Yes. I’ll come to the dollar. Does anybody want to ask any questions

about that first and if not we’ll close that subject and we’ll go to the dollar.

Any questions about that? Yes?


In relation to fees for services, is it presumed from that, that those fees are only to

cover the cost of the service and that fee is in no way a form of revenue for the States?


Where a State is providing a service for a fee, and I suppose the classic example is

the swimming pool example, just in the same way as with a private swimming pool, you know,

a private operator provides the right to use the pool for a fee, the Government provides

the right to use the pool for a fee. Where it is actually providing something for a fee,

it is supplying a service and GST applies. And the State Governments are going to get the

benefit of the removal of all embedded taxes and transactional taxes and so on. Where it

is a fine, it’s actually a fine. You are not getting anything for a fine, it’s a

law enforcement mechanism and that is not subject to a GST. Where it is a regulatory

thing, like the issue of a motor vehicle licence or like freedom of information or

something of that nature, then it is on this determination and it is not subject to GST.

That’s the basic principle. If there was any doubt about it, we’ve said, well

we’d specify all of those things that are out, and they’re all listed here. You

won’t find, as I say in the press release, listed there straight fines and penalties

because they didn’t even require listing. This list is only basically to draw the

difference between things that are considered charges for service and taxes.


So in the example of the swimming pool, if the fee charged for entrance to the public

swimming pool was such that the swimming pool was turning a handsome profit and that

handsome profit was going to government coffers, would the GST now on that core entrance

fee, that’s now additional revenue in the State coffers as well?


Well, the GST applies to the admission fee. The admission fee may rise or it may fall.

You’ve got to remember, there are a lot of taxes and charges that would currently

apply to that service that are being abolished. But let’s suppose there was a GST

component of that admission, well, the revenue of the GST goes to the State government,

goes back to the State government. And I make this point, that, you know, some of the

State governments are trying to play ducks and drakes on this. On the one hand, you know,

they say, we want all of the money from the GST. And on the other hand they’ll go out

and they’ll tell you that they’re really against the imposition of GST. All

revenue from GST goes to Premier Beattie, Premier Carr, Premier Bracks, the Premier of

Tasmania Mr Bacon. You know, here we are engaging in major tax reform, the Commonwealth,

on behalf of the States. So if you ever hear any of these State Premiers out there

complaining, just remember this. They speak with forked tongue. Because one fork is

complaining whilst the other is lapping the revenues. And just remember that when you look

at the taxation consequences. Now, if there are no more questions about that I’ll

come to the dollar.


Well, it took a bit of a beating on Friday night, apparently at the hands of hedge

funds. It’s recovered a little this morning but, I’m just wondering where it is

sitting at now, I think maybe still under $US 0.63 thereabouts, is that fair value or how

do you respond to that?


Well look, the first point I make is this. I don’t actually comment on the value

of the dollar. I don’t seek to influence its value. Because I think in the long term,

in the long term, its value is set by economic fundamentals. Now in the short term, I made

this point during the Asian financial crisis back in 1998 in particular, that people take

positions hoping for short-term profit, but over the long term they can’t hold those

positions. What’s happened in relation to the dollar is really international events.

You had a very strong US growth figure, Friday our time. It is widely believed – this is

not my view, I’m not putting my view – but it is widely believed in the

financial markets that the Fed, the US Fed may be raising interest rates. Australian

interest rates are lower than US interest rates. And people thought that if a large gap

opened up they would take a position accordingly. Now, there are all sorts of

“ifs” in that equation. The “ifs” are, if the Fed, if the Reserve, if

the gap, if the gap is Y or X, and they’ve all taken positions, whether they’re

right or whether they’re wrong time will tell you. But the point I make is, that what

was influencing that, was international events. And I make the same point that I made

after the lower than expected Consumer Price Index was released here in Australia. That

the Australian economy is growing strongly on low inflation. The talk in relation to

interest rates relates to international events. And the big change is the international

environment. Having come through the Asian financial crisis, it now appears as if Asia is

growing again and the world economy will be stronger. So, it’s not that things have

changed so much in Australia. It is that people are now taking a different view of

international economic events. And I think that’s what is on people’s minds as

they look at these sorts of issues. Now, we also go on to say, that a stronger world

economy is in fact a good thing for Australia. We want a stronger world economy. And in

due course, a stronger world economy will be good for our exports, that’ll be good

for our economy, and that’ll be a good thing.


The dollar fall follows the Prime Minister’s comments on interest rates. Is there

a link?


No. As I said, I think most of the activity in relation to the dollar is international

events. And the international event that obviously influenced sentiment on Friday was the

US growth figure, the US growth figure. And it was stronger then expected, and as I said,

people started taking positions. Now, whether they’re right or whether they’re

wrong, time will tell. I’m not putting my view forward because I studiously refrain

from putting a view on currency value or interest rate policy. I’m just observing

that they were international events that had an effect.


Treasurer, the issue of Telstra. The Prime Minister’s obviously out bush at the

moment, there seems to be obviously the strong link of selling off the rest of Telstra and

infrastructure spending in the bush. Is that the only way the bush is going to see some of

this infrastructure spending if the Government goes ahead with, or is allowed to go ahead

with this further sale?


Look, I think anyone who wants to see better infrastructure in Australia will support

the sale of the remaining equity in Telstra. Because with the sale of that equity we can

clear all Government debt

. . .




. . . and we then have the opportunity to build better infrastructure. But if the

Government continues to carry debt, and remember this, we inherited a huge amount of debt

when our Government came to office in 1996. The first part of peoples taxes go in paying

the interest bill on Government debt. Now, if we didn’t have to pay the interest bill

on Labor’s debt, if we could clear Labor’s debt, then our taxes can go off on

new hospitals and new roads and new infrastructure. But at the moment it’s got to go

off on servicing past debt. So, the great thing about selling Telstra is we can clear

debt, we can earmark people’s taxes for new ventures in the future and that’ll

be a great thing for city and country alike.


So it has to be wiped clean basically, before we can move on big projects?


Well, you know, we’re seeing some of the benefits in retiring debt. We’ve

already seen some benefits in infrastructure out of Telstra in relation to the Murray

Darling Basin, in relation to our Natural Heritage Fund, and I think clearing debt will

clear funds for other exciting developments. Thanks.