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Determination Of Taxes, Fees and Charges not Subject to GST
January 31, 2000
Interest rates, Economy, Petrol excise
February 2, 2000
Determination Of Taxes, Fees and Charges not Subject to GST
January 31, 2000
Interest rates, Economy, Petrol excise
February 2, 2000

GST, Telstra, Interest rates


Transcript No. 2000/06


The Hon Peter Costello MP



Andrew Lofthouse and Cathy Border

12.05 pm (AEST)

Tuesday, 1 February 2000

SUBJECT: GST, Telstra, Interest rates


Peter Costello, good morning.


Good morning Andrew.


Some of your Ministerial colleagues have demonstrated, at best, a bit of a shaky grasp

of the GST, do you think you’ll have to be prepared for more damage control in the

coming months?


Oh look, I think the educational process will go on. And I think it’s important,

particularly for businesses, that we’re able to make sure that they’re easily

accommodated into the tax changes, but that’s nothing out of the ordinary. Whenever

we change tax laws you have this educational process. Tax seems to be, generally, a

complicated area. Income tax is probably the most complicated area of all of them. But

it’s a fact of life that you need these taxes if you’re going to have hospitals,

and schools, and roads, and all of the things that we in a decent society want.


There are bound to be more demands for exemptions though, aren’t there?


Well look, people will always mount demands for favourable tax treatment of one kind or

another, but the truth of the matter is that the more exemptions you grant the more

complicated things become. Now we have a situation at the moment where we are taxing some

goods at 12 per cent, and some at 22 per cent, and some at 32 per cent, and some at 47 per

cent and some at 41 per cent, and this system grew up with exemptions and different

coverages and different classifications and it’s led to enormous complexity. Now, you

want to get away from that. What the Government has said is, you just should have one rate

which is 10 per cent, you should apply it broadly, and with the money that’s raised

from that, what we’re going to do is increase pensions and cut income taxes so that

people have more money in their pocket. That’s the best way, really, of running a tax

system. It’s the overseas experience. I think there are about 150 countries in the

world now that either have a GST or a value added tax, and Australia’s really moving

into line with international practice.


Is the other concern about further exemptions the pressure that that might put on the

10 per cent limit?


It’s not that because the 10 per cent limit is fixed by an agreement between six

States, two Territories and the Commonwealth, so that will never move . .


So Treasurer, this is it, is it, you’ve got it right this time, there will be no

further exemptions?


. . . but in relation to exemptions, as I said earlier, the more exemptions you have

the more complex it gets. And that’s why the Government hasn’t changed on any of

the exemptions really since the policy was announced.


Your colleagues, some of your Ministerial colleagues, I’m thinking of Joe Hockey

in particular, have had some trouble grasping the GST. If your own colleagues are having

trouble, surely there’s going to be widespread confusion for some time to come?


Well, I don’t think so. From the consumers point of view it’s simple, I mean,

consumers, as they do now, will pay taxes which are embedded in the price of the goods,

and they pay the price they see on the supermarket shelf or whatever and life goes on as

normal . . .


Do you really think it’s simple, I mean, as soon as we mentioned the fact that we

had you on this morning our phones have just gone berserk with people with question after



Well, whenever you change tax you have complexity. As somebody who runs the tax system,

for example, changes in relation to capital gains tax are three or four times more

complicated than this. Income tax is much more complicated. I’ve never heard anybody

argue, for example, that we should abolish income tax because it’s too complex.

Fringe benefits tax is probably the most complicated tax there is in Australia. And the

thing about taxes is that nobody particularly likes paying taxes, but if we’re going

to defend our country, and if we’re going to have schools, and hospitals, and roads,

you need to have a tax system. And this is just ensuring that we have sufficient money for

the State Governments to provide schooling, health and education.


Can we quickly put a few questions to you that our callers would like answers to, be it

a ‘yes’ or ‘no’, will there be a GST on used cars?


Well, the situation in relation to cars is that, of course, cars are currently taxed,

currently taxed at 22 per cent, so the tax on cars actually falls to 10 per cent. If

it’s a private sale, people don’t come into the tax system. But if it’s a

dealer, or it’s a business of some kind or another, they’re liable for the 10

per cent, rather than in relation to new cars the 22 per cent which they’re currently



Treasurer, had a letter from the Physical Disabilities Council of Queensland about

repairs to hearing aids, and the Tax Office had given them a ruling that repairs to

hearing aids that weren’t under warranty would be subject to GST, is that the case?


Well, I don’t know which ruling they’re relying on, but if the Tax Office has

given them the ruling, then the Tax Office would have carefully considered the area. One

of the things that we’ve said for all of these queries is, that the Tax Office is

going to turn them around within five days and give people individual and specific

rulings, lest there is any doubt. Nothing new about this, incidentally. The Tax Office

gives rulings probably every day of the week on income tax. It’s been difficult to

give rulings on wholesale sales tax because that’s the tax we’re abolishing.

Because that is so complicated, most of the areas there are now going to the courts.

It’s become very, very difficult. But one of the things that we’ve said from the

Tax Office point of view is, that if there are areas where people want absolute surety,

they’ll be able to turn them around in five days, that will give people absolute

surety. The thing to remember at the end of the day though, is, we’re abolishing the

current taxes on goods, the wholesale sales taxes. We’re abolishing a lot of

financial taxes. But the most important thing is, we are cutting income taxes so that

everybody has more money in their pocket. And we are increasing pensions so that

pensioners have more money to cope with the price rises if there are some.


Treasurer, we appreciate the fact you’ve made yourself available today and I know

the Tax Office has now launched that service promising to answer specific GST questions

from business within five days, but as I mentioned earlier, we are just getting call after

call wondering how the GST specifically applies to people. Would you be available to come

back and take calls from people, to directly answer them?


Oh well, I take calls every day and I’m more than happy to do that. But obviously,

where people want particular rulings in relation to their business, one of the things

we’ve set up because I can’t give out tax rulings, obviously, that can only be

done by the Tax Office, is that we’re giving out the, we’re getting the Tax

Office to give out these rulings with the five day turnaround. And that’s the proper

way to do it and that gives people the surety of knowing that the Tax Office has looked at

individual transactions and given a specific ruling.


So Treasurer, are you saying that there are a number of these instances where you

yourself aren’t sure of what the specific rulings will be on particular items or



No, the policy and the legislation is set, and the policy’s been set by the

Government. But, people often say, I have a particular kind of transaction, and

you’ve got to actually look at a particular type of transaction sometimes to apply

the policy to it. There’s nothing new about this. I think we all know the concept of

income tax, don’t we, that you pay tax on your income when you earn. But people will

come along and they’ll say, I have a contract, I don’t know whether the money

coming in under that contract is income or not, and they go to the Tax Office, the Tax

Office has to look at the underlying transaction and say whether it is income or not. This

is a normal process that we apply in relation to all areas of Government taxation, we

apply it in relation to income tax . . .


But Treasurer . . .


. . . capital gains tax . . .


. . . it seems as . . .


. . . wholesale sales tax . . .


Treasurer, it seems as though that . . .


. . . to goods and services . . .


. . . it seems as though the goal posts move in some cases though. For example, I

mentioned the hearing aid repairs where, not specifically hearing aids, but a whole range

of equipment and goods that are provided, that are sold tax-free to people with

disabilities are then going to be subject to a GST which is across a whole range of things

which people have not been expecting.


Oh well, nothing’s changed in that particular area. The policy has always been

clear in that particular area, that the medical appliances and the like are not taxable.

As things change, you know, people say, oh a new product has come on the market, is that a

medical appliance, and I suppose you’ve got to sit down and you’ve got to decide

that. But, there’s nothing different about that, we’re doing all of that at the

moment. Under wholesale sales tax we have whole teams of people in Canberra who we sit

down and they inspect all of these goods. And we’ll be getting rid of a lot of that

complexity which currently exists because at the moment we have teams of people who have

to sit in Canberra and inspect all of these things and make rulings. Not only do they have

to make rulings as to the nature of the good, but then they have to decide under the

current law whether it’s taxed at 0, 12, 22, 32, 41, 47 per cent. So, one of the good

things about having a flat rate is you don’t have all of that complexity of the

different rates.


A universal criticism of the GST has been that because it’s a tax on spending it

actually impacts greatest on those least able to save. Has your need to reduce or soften

that impact actually made it more complex for Australia?


Well you see, one of the great things about this is, it actually encourages saving. At

the moment, as you know, we tax people on their earnings very highly, and if you save some

money and you put your money in the bank and you earn some interest, we tax people very

highly on the interest they earn on their savings. People on average incomes in Australia

at the moment can pay 43 per cent more on any interest that they earn, any extra dollar

that they earn, and that’s why the Government’s dramatically reducing income tax

rates down to 30 per cent. So that if you do actually save, you’ll get to keep more

of your saving and that’s why it’s actually good economically to reduce taxes on

income and saving, to encourage saving and to collect more of your taxes as people

consume. Now, if you turn it around the other way, you know, people who consume more, you

know, the people who lead the lifestyle of the luxury yacht and the expensive car and the

restaurant meal, naturally they’re going to pay more in tax because they’ll be

spending more and that’s only fair.


Treasurer, time is getting away from us, a few quick ones if we could? Your comments

regarding infrastructure improvements and the continued sell-off of Telstra has drawn a

scathing response from the Queensland Farmers’ Federation. Richard Armstrong , their

President, saying, that you’re showing utter contempt for rural and regional



Oh well, he’s obviously entitled to his position, but the fact of the matter is

that 49 per cent of Telstra has been sold, and I think there are now something like two

million Australians that currently have shares in Telstra, including a whole lot of people

who’ve never owned a share before in their lives. And I think those two million

Australians are very glad to invest in Telstra.


But we’ve got John Howard in the bush trying to woo the bush vote at the moment,

and here we have a leading farming group saying, the bush has no future under a

Liberal-led Coalition.


Well, I haven’t seen those comments, but can I say . . .


That’s what they say.


. . . can I say, two million Australians having a share in Telstra. And I warrant to

you a lot of those people live in rural and regional Australia as well, and they love the

opportunity to get an investment in Telstra. Now if the Government locks up taxpayers

money in Telstra, that just means we’ve got less money for roads, and hospitals, and

schools. But if you’d rather not lock your money up in the telecommunications company

then the Government has more money for roads and hospitals and schools, and I think

I’d rather invest the taxpayers dollars in that sort of infrastructure then . . .


So no need to be worried about the Farmers’ Federation and their concerns?


Well look, I haven’t seen the particular comments, but, you know, obviously people

have different views. The Labor Party is, although it was quite happy to sell Qantas, the

Commonwealth Bank, it says we should invest in telecommunications companies. I actually

think that, you know, your taxpayers’ dollars would be better spent in basic social

infrastructure rather than telecommunications companies.


But Treasurer, if the National Party stirs up the Telstra sale issue and there are

hiccups on the GST details, that could ultimately be costly for the Government,

couldn’t it?


Oh look, if, you know, people stir up trouble, there’s no Government that would

say, it likes people stirring up trouble. But I think from the farming point, you go back

to the farmers, most farm product is exported, and at the moment under our current tax

system, taxes are built into those exports. Now, the one great advantage for the farmers

of Australia under a new tax system is that all exports are tax free. They are great –

anyone who is an exporter, and most farming products are exported – is a great winner

under tax reform, because their exports go out of this country, like everybody else in the

world is doing tax-free. We must be one of the few countries in the world at the moment

that taxes our export products with embedded wholesale sales tax. Everybody else

who’s got a value added tax or a GST is getting their products out of their country

tax free and why, Australia would be the biggest mug in the world if we let everybody else

do it and we failed to reform our taxation system to give our farmers those same benefits.


A final quick one if we may? The Reserve Bank considering interest rates, what are you

expecting to happen?


I never comment on the future movement of interest rates because, you know, obviously,

I might influence sentiment. So it’s something I have to studiously be careful not to

influence one way or the other.


Well I do hope we can have you back to speak to some Queenslanders about GST, we look

forward to that.


It’s always a great pleasure, if I may say so. Thank you very much for your time.


The Federal Treasurer, Peter Costello, joining us.