GST, Ticketing, rent, business costs, motor vehicles, interest rates

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February 16, 2000
Beazley Concedes On GST
February 18, 2000

GST, Ticketing, rent, business costs, motor vehicles, interest rates


Transcript No. 2000/17


The Hon Peter Costello MP


Stan Zemanek 2GB

Thursday, 17 February 2000

at 9.40 am

SUBJECT: GST, Ticketing, rent, business costs, motor vehicles,

interest rates


How are you enjoying yourself now that Parliament has resumed?


Oh well, it’s good to be back and it’s going to be a very busy period for me

personally, because I’ve now started doing the Budget. The Budget will be brought

down in about 3 months and it takes us about 3 months to put it all together. And of

course, we’re implementing tax reform as well, so, it’s a very busy period.


Simon Crean produced some kids clothing in Parliament yesterday which had dual price

tickets showing the pre-GST price and the price after a full 10 per cent GST increase.

What can be done to stop retailers using the GST as a marketing ploy?


Well, this has actually been quite a good, an instructive way in which it’s been

handled by the ACCC. What happened was that the ACCC on the 11th of January had

received complaints about Big W in relation to that 10 per cent price increase. It

requested information and on the 2nd of February requested that the tickets be

withdrawn. Now, as I understand it, Big W did actually agree to withdraw that earlier on

this week, but they issued a press statement confirming that last night, and said that

they would be taking those dual pricing tickets off and that it would be completed as soon

as it could be physically done. Now . . .


How were they allowed to do it in the first place?


Well, I mean, in a shop, management just really gives orders to employees on what to

do. And it wasn’t until some consumer had actually rung into the ACCC, that it

alerted the ACCC. That was on the 11th of January. The ACCC runs a thing called

the price exploitation hotline. And just let me say, the ACCC is an independent statutory

agency which is headed by Professor Fels, I think he’s pretty well known. They have a

price exploitation hotline that you can ring in and make a complaint. If they think that

somebody is trying to take advantage of tax changes to increase prices, they request an

explanation. They did that in relation to Big W on the 11th of January, and as

a result they requested that these tickets be withdrawn on the 2nd of February.


Okay, we had Mr Crean on the programme a few weeks ago, he asked the question of you,

does Mr Costello stand by his promise that no price will rise by more than 10 per cent?


By more than 10 per cent? Yes, of course we do. We said, that with the introduction of

GST, which is a 10 per cent tax, and the abolition of all existing taxes – wholesale

sales tax, direct wholesales sales taxes and embedded wholesale sales taxes, and things

like bed taxes and other taxes – then the price change as a result of tax will not be more

than 10 per cent.


So you guarantee that there will not be any increase of more than 10 per cent?


Well, there’ll be increases caused by other factors. For example, people, I saw Mr

Crean, you know, out saying yesterday, petrol might rise. Petrol might rise because world

oil prices are going up.


But you made a promise though in relation to GST, that no price will rise by more than

10 per cent.


As a result of the tax changes, that’s right. I’m just making the point, that

when you come to prices, obviously, there’s all sorts of other things that govern

prices, for example, in relation to petrol, world oil prices. Now, GST is not affecting

world oil prices, but as a result of the tax changes there won’t be price rises in

excess of 10 per cent and that’s why we have the ACCC. Where some price rise moves as

a consequence, and people claim it’s as a result of tax, the ACCC goes out and it

asks for an explanation.


Okay, Democrats leader Meg Lees, is putting a lot of pressure on the Government to

exempt tampons from the GST. The Democrats claim to have 10,000 signatures on a petition

supporting them, and apparently – of women agree with the party on this issue. Are you

going to be changing your mind on this or is it going to stand? Are we going to have GST

taken off tampons?


No. The Government said that the policy stands. And can I say, that when this was

negotiated through the Senate with the Democrats, the Democrats did not ask at that point

for an exemption. They asked, and they forced the Government to change its policy in some

respects, but it was not changed, nor did they ask for it to be changed, in respect of

tampons. Now, the view of the Government, and this is the way we’ve always put tax

reform is, the best and the simplest way to have tax reform is to have a broad tax across

all goods and then cut income taxes so that people have more money in their pockets to pay

for any price rises.


But women say that this is a health issue, and on a lot of health products there is now

no GST.


Well, let me say at the outset, that it’s said that this is an essential product,

and I don’t for a moment say that it’s not an essential product. But what

we’re trying to get away from in the tax system is classifying goods according to

whether they’re essential or non-essential. What we’re saying, because

that’s how we got into the complexity of wholesale sales tax. At the moment Stan, we

try and classify every good in the country, and some of them we say will be 12, some will

be 22, some will be 32, there are some at 41, there are some at 47 per cent tax. And we

have teams of public servants that just sit down and classify goods and we have to

litigate through the courts the definitions of all of those goods. And to get away from

that we just said, well look, let’s get rid of 12, 22, 32, 41, 47 per cent tax rates,

let’s just have one broad 10 per cent across everything. And with the money

that’s raised cut income taxes and increase family allowances so people have more

money if there are price rises. Now, the outcome of this Stan, is that there are some

prices will go down, some prices will go up a little bit, and some prices will go up more,

but not beyond 10 per cent. But I can guarantee this, families will have much more money

in their pay packets. For the average family with two children on a $40,000 income,

they’re something like $47 a week better off with tax cuts and increases in family

allowances. That is, they have $47 extra a week to spend.


Okay Mr Costello, just at the start of the interview you said, prices because of the

GST will not rise above 10 per cent, but now in that last statement you said, that some

prices will go above the 10 per cent.


No, I said, not more than 10 per cent. I said, there’s some prices will go down,

some prices will go up a little bit, and some prices will go up more, but not beyond 10

per cent.


Alright. Now, there’s a lot of things we want to get through this morning so

we’ll just be very brief with these. There is some concern over rents rising under

the GST. Even though rents are exempt, it’s feared some landlords might increase the

rents if they don’t have a business number, and if they don’t have that business

number apparently there is no way that they can be prosecuted, is that correct?


No, we’ve ensured that the ACCC has its full powers and where additional powers

are needed we’ve asked for the States, and this is a Constitutional point, for the

States to also refer their pricing powers to the ACCC so it can monitor those situations.

I understand that every State, with the exception of Queensland, has at the moment agreed

to do that, so that when those States refer their powers to the ACCC it will have powers

in respect of those matters as well.


Alright. We’ve had an accountant by the name of Jack Rosen from Rosen (inaudible)

and company fax us in a question to you. He says here, apparently he’s already raised

with the Prime Minister about all this, is the cost of implementing the GST for

businesses. He says here, small business get a $200 voucher to help them cover the cost of

implementing the GST, but an independent report by Ernst & Young estimates that

businesses in New South Wales will have to spend up to $20,000 each to comply with the

GST. Now we hear that Woolworths expects to spend around $32 million after tax on

preparing for the introduction of the GST, Coles Myer $54 million, David Jones $18

million. They say the money’s going to be spent on things like staff training,

information technology upgrades and re-pricing of lines, and they still only get the $200

voucher. And you can’t tell me that those costs won’t be passed onto consumers.

Will businesses get anymore than the $200 voucher?


Well, I’ve actually seen that report of Ernst & Young because I think it was

the one that Bob Carr released to try and make some kind of political point. In fact,

looking at that report, it actually found that most of the costs, when people thought that

they had to acquire new equipment, were overstated. Now, in addition to the $200 voucher,

what the Government has announced is, if anyone wants to take the opportunity to upgrade

their software they get immediate tax deductibility. That’s $175 million of benefits,

$175 million . . .


When you’re saying a tax deductibility, are we talking about 100 per cent tax



100 per cent tax deductibility if you decide to upgrade before 1 July, and the value of

that is $175 million. So any business that says, well look, I want to upgrade, normally if

you went out and you’re a business, you would buy a capital item, you have to

depreciate it over years, we’ve said you can get immediate tax deductibility.

We’ve costed that as $175 million of tax benefits to business. And in addition to

that, we’ve been running start-up assistance for businesses of $500 million, $500

million, which is being distributed directly to business associations for training and

seminars and is being used to educate people. So, if you put that together that’s

$675 million of assistance in relation to getting ready for the new tax system.


Alright, that tax deduction then, is that going to be for money spent on things like

staff training, information technology upgrades, re-pricing of lines, will they get a tax

deduction for that cost?


Any software or hardware that they buy, it doesn’t have to be exclusively for tax

compliance, it might have other purposes as well, but it’s got to have an element of

being done for that, they get immediate deductibility. In relation to training and the

like, can I say, the first thing for small business is you can get a lot of free training

because all industry associations that have sought funds and have been given them are

conducting training seminars, you can get it through your industry association, if

you’re a farmer or if you’re in one of the Chambers of Commerce. The Tax Office

has been running its own training seminars which are free and we’ve had, I forget the

numbers, but tens if not hundreds of thousands of people through them. We’ve now

introduced an assistance line. We have a five-day ruling turnaround for business if you

want a ruling out of the Tax Office, and we’re about to set up a new programme. If

all of that isn’t appropriate you can actually ask for someone to come out and help



There’s 900,000 small businesses in this country, how the hell are 900,000 small

businesses going to take advantage of all those services?


Well, as I said, I think we’ve had tens if not hundreds of thousands through

training seminars already. We’ve had several million hits on our website, we’re

distributing $500 million worth of assistance, we’re giving immediate tax

deductibility, and I think at the end of this it’ll be the most extensive education

campaign in Australian history.


Alright, there’s been a lot of confusion about rounding up prices, what are the



Well the rules is that, Mr Hockey has said and as Professor Fels has said, ten is ten

is ten I think. There is not to be rounding up above 10 per cent. And can I say…


But okay, just let’s say we rounded up to say 97 cents. Where do you go from

there, do you take it back to 95 or do you take it up to $1?


Well, well, Stan, there are two issues in here. One is the issue of payments and you

might recall that some time ago the Labor government, I think it was Mr Crean actually,

abolished 1 and 2 cent pieces and said if you’re actually paying cash and you had an

odd number you’d go to the nearest 5. Nothing has changed in respect of that. That

was introduced by the Labor Party some time ago.


Okay, so then you’re saying then, if it’s rounded up to 97 cents you take it

to $1?


But I’m saying that, I’m not talking about that situation, I’m talking

about price increases as a result of tax. And since it can’t be more than 10 per

cent, it can’t be rounded. The price increase can’t be rounded above 10 per

cent. In fact, Stan, we’re actually looking for people to go less than 10 per cent

and in many cases to go negative, that is, to bring prices down.


Okay. Initially we were told that beer prices would rise by 1.9 per cent. Now a

Treasury official has revealed that the price of a glass of beer will go up by about 7 per

cent. Can you understand that people are going to be skeptical about other promises on

price increases?


No. What we said was that the price of packaged beer would move 1.9 per cent, which it

will. That is, packaged beer, it’ll be working off the standard of two dozen

stubbies. The excise rate has been set in such a way that that will move 1.9 per cent.


But a glass of beer will go up 7 per cent.


The Treasury official was asked about the service of a glass of beer, and as you and I

know, with the service of a glass of beer you pay more because there is a service element

in that glass of beer and the service element is taxed and he was talking about the

service of a glass of beer which we always made clear was different. That the 1.9 per cent

was applied to packaged beer.


All right. What happens when a bartender takes the top off a bottle of beer and pours

it into a glass for you? Isn’t that service as well?


Well, what, I don’t know what he charges to do that.


Well, I mean if you’re going to charge, and bottled beer, packaged beer is only

going to rise by 1.9 per cent and he takes the top off the bottle and pours and

that’s been done at my club for many, many years. So you’re saying then

it’s going to be cheaper then for clubs to say, okay, get a bottle of beer, open it

up, we’re only going to have a 1.9 per cent rise. If you service it through the taps,

it’s going to be a 7 per cent rise.


Well, it’s always been the case that packaged beer has been cheaper.


But under your tax regime, by doing that, by just taking the bottle, the top off the

bottle, is going to be a lot cheaper than serving it through the taps.


No. What we’re saying is, as is the case now, packaged beer to my knowledge and

you know I’m sort of only speaking from my own anecdotal knowledge in relation to

beer drinking. Packaged beer has always been cheaper than a beer at the bar for the same

volume as far as I know. And the price of the beer itself is being moved 1.9 per cent.

Now, because the service charge at the moment in relation to the beer across the counter

is higher, because the price has always been higher than when you apply the tax to the

price because that’s higher, the price moves by the greater amount. But as I said

earlier, the promise that the Government made was that the excise rate, and this is all

you can do, because people charge different amounts for service. You know you might get

charged more in a restaurant than in a bar as far as I know for a beer. The tax works off

the price, and we said that we would move the price in relation to the standard packaged

product by 1.9 per cent and that’s what will happen.


Okay, there’s been a lot of discussion about new cars, used cars and we’ve

actually got a car dealer on the line, well it’s Frank Perrin (ph.sp) from Trident

(ph.sp) Ford. Frank you wanted to ask the Treasurer a question?




Okay, go ahead.


Peter, it’s Frank Perrin, we’ve met before.


Hello Frank, how are you?


Very well thank you. Look the part, there’s a bit of a fear I suppose amongst the

manufacturers that there is going to be a bit of a buyers strike from the part that cars

are going to be much cheaper between, I suppose on the first of July for a start. And that

clients are going to wait for the, you know, up to three months I suppose, before they

come out. What’s the implications on the fleet, from that part, the big fleet

companies with the tax credits?


Well, what we’ve said, for the ordinary consumer, let me just go through it bit by

bit. For the ordinary consumer as you know, they’re currently taxed 22 per cent

wholesale on, for a car.




And for the ordinary consumer we’re going to add a 10 per cent value added tax or

GST so you would expect the price to come down. In relation to business, people actually

buy cars for their business, like any other business, when you buy cars for your business;

you will get an input tax credit on that car. So you will get the 10 per cent back. So for

a business, not only is the 22 per cent wholesale sales tax abolished but the 10 per cent

GST is fully refundable. So to a business the car becomes cheaper again. Now there was a

fear that if you introduced that immediately on 1 July, the price of cars would drop so

dramatically for businesses that there could be a big buyers strike. So what we decided to

do was, we decided to phase in, in relation to cars, that input tax credit. So in the

first year you wouldn’t get the input tax credit, so what business would get, is

they’d get the ordinary fall that the consumer got and then you would phase in the

half credit to full credit, so that you would stagger the benefits to businesses in

relation to those price falls.


Can I just interrupt there Frank. Mr Costello, you’re talking about a downfall in

the sales with motor cars. But since ’98, 1998-99, there has been some dramatic falls

in car sales, like July 98-99 there was a 7 per cent fall, August a 3.4 per cent fall,

September an 8.3 per cent fall, October 6.7 per cent fall and then in November-December

the car yards or the car manufacturers had to give huge discounts to keep the sales up.

All because of the implication of the GST.


All because there’s an expectation of prices falling. Let me make the point at the

beginning Stan. There is an expectation that car prices will fall, right. Now you know, if

you listen to all the argument about tax you would have thought that all prices were going

up. Here is evidence of a price that’s coming down. People are saying that prices are

going up that’s a bad thing and now the argument is…


But the sales have come down dramatically though?


I’ll come to sales in a moment. Now the argument has been put that if prices are

coming down that’s also a bad thing because it might be a bad thing for dealers, but

I think it’s a good thing for consumers.


But the dealers have got to hire people, salesmen, car cleaners, you name it,

they’ve got to hire the people and if the sales are coming down as dramatically as

what I’ve just instigated (sic) then obviously they’ve got to put people off.


Well, now let me come to the sales point, because we monitor it pretty closely to see

what’s happening in relation to sales. And in the year to date and to the end of

January, it is true that sales are lower than they were in relation to 1999 of last year.

Last year, 1999, was the all-time Australian record, so they were lower than the all-time

Australian record, but they were actually higher than 1998, which had previously been the

second highest on record. So the sales have dropped off the all-time record, but they were

still higher than 1998. Now we monitor this very carefully to see if there’s any

great disruption. I know sales are down on 1999, but that was the all-time record. You

can’t have all-time records, well you wouldn’t expect all-time records year

after year and it was higher than in 1998. And the point I would make of course is, after

1 July which, let’s think about that, it’s about 4 months away, is it?


Ahh umm.


March, April, May…


You’re the Treasurer, you’re supposed to count up.


Four and a bit months away, the taxes on cars are cut forever, forever. So if I was in

the car business, from 1 July my taxes are cut forever. My prices respond accordingly

forever, and the car manufacturing industry gets the biggest bonus that it’s ever had

in its history.


So what you’re saying is short term pain, long term gain.


Well, there’ll be some short term, there’ll be some short term effects but,

you know, keep them in perspective. Lower than the all time record but higher than the

second all time record. And there’ll be benefits forever.


OK. Alright there’s been a lot of talk about whether retailers are going to be

able to show the price of products before and after the GST on receipts and I get a lot of

calls to this radio program saying, you know, how do we know how much the price is going

to go up? Are retailers going to be able to show the GST on retail figures, are they being

forced to, is there legislation going through, or is it up to the retailer?


Well they’re not being forced to.


Why not?


Well because they’ve never been forced in the past to actually itemise out tax

components in their prices.


But in Canada though an amount of the GST charged on the good is clearly visible on all

sales receipts and I’ve seen it in the United States as well.


Yes, well, United States has I think probably the worst system of all. In the United

States as you know you go to the counter and you buy something, it might be 80 cents, you

go up to the till and they say the price is 92 …


But it does …


… you’ve got 80 cents in your pocket and you can’t actually buy it.


Yes but the point I’m trying to make is though it’s clearly visible there on

the receipt, why can’t we have that system here in Australia?


Well because we’ve never had that system here in Australia Stan.


We’ve never had the GST before either.


Hang on, you’ve gone into a shop have you not, and I can’t remember which

one, we tax toothpaste but not toothbrushes I think, or maybe we tax toothbrushes but not

toothpaste, I mean the wholesale sales tax system is so complicated I can’t remember.

And as you recall Mr Crean couldn’t explain his wholesale sales tax system when he

was on your program. But you’ve never, when you’ve bought your toothpaste, had

the price of the toothpaste and the wholesale sales tax have you?


No we haven’t but the point is though, here we are in the year 2000, we’ve

got a brand new tax, and we’ve got a mass confusion out there. Surely to goodness

this is one way of alleviating the confusion.


Well what you know of course is that it’s a 10 per cent tax so that’s the

price, that’s the component that’s in the price.


Yes but if the price has gone up, if the price has gone up, excuse me, if the price has

gone up and it’s gone up substantially, how does the customer know how much has the

actual product gone up and how much has been attributed to the GST?


Well, you’ve also got this other situation of course, is where the price has come

down. We’re not, you know we were talking before about cars …


But isn’t that going to be better for you if people see that the price has come



Well that’s right and what they know is that the final price, which is what

they’re interested in, has come down. You asked me about dual tickets before and

let’s go to the Big W situation. They’ve now withdrawn them. But Big W, I think

mainly as a marketing tool was saying oh if you buy this now it will be cheaper than if

you buy it after 1 July. Well, what Big W wasn’t doing and I think they would have

been giving a more complete picture, is they weren’t actually advertising if you

bought this now it will be more expensive because the price of this item is coming down

after 1 July. They weren’t advertising in relation to those products were they?

Because I’ll tell you why. Retailers have no incentive to advertise price falls. We

were just talking about cars before weren’t we?


That’s right.


You were making the point oh people, the dealers, they don’t really want to

advertise price falls, why, because people might hold off the purchase. But they’ve

got every incentive to advertise price rises because that will bring forward a purchase.

Now I think that if the retailers were really trying to give an honest picture they would

be advertising not just those items that will have price rises but those items that will

have price falls. I haven’t met any retailers who are actually doing that, for very

obvious reasons, and I think if they were going to do that sort of ticketing arrangement

they would have to have that in relation to all products so as to give an honest and

appropriate and full picture.


OK, now Mr, one last question because I know you’ve got to go to a meeting and I

really appreciate the time that you’ve given us this morning. Consumer confidence has

fallen nine per cent this month, the biggest fall in five years, it looks like the Reserve

Bank’s half per cent interest rate hike might have been too much. Do you agree with

that or disagree with it?


Stan, I can’t comment on interest rate movements because, as the Treasurer …


But it’s in the past though.


As the Treasurer, I mean I can influence sentiment and I can influence future movements

and I can influence markets and the Bank is an independent Bank and I like to respect

that. But let me make some points about that consumer sentiment. The consumer sentiment

came off somewhat, and you look at it and you say well that might be related to interest

rates. And we’ve seen that bounce around in relation to interest rates in the past

and recover pretty quickly. But the Westpac Bank actually publishes that, and you’ll

recall it was the Westpac Bank that was saying, oh well, we think interest rates are going

to go up one and a half per cent by the end of June and I notice that the bloke that had

put out that forecast, when he released the consumer sentiment survey yesterday, said he

was now casting doubt on his own forecast. So there was a lot of confusion, you know a lot

being written a couple of weeks ago about this bloke’s forecasts.


But there’s a lot of confusion everywhere and do you agree that there is too much

confusion with only four and a half months away?


Well, I’m talking now about interest rates.


But I’m talking about just in general though. I mean we seem to have confusion

right across the board don’t we.


Well look I’m talking about interest rates here, which is not related to the GST



No I understand that, but …


And I was just making the point, and I think I said it at the time, that some of these

bank economists, they have the luxury of making forecasts on a weekly basis and if you put

out 52 forecasts you’re bound to get one of them right and I’m just remarking

that the guy that had the biggest forecast is now casting doubt on his own forecast. So he

may be seeing a silver lining in that consumer sentiment survey.


Mr Costello, we’ve kept you too long already. I thank you for your time this

morning and I really do appreciate it and we’ll certainly talk again.


Thanks very much Stan.


Thank you, there he is, the Treasurer of Australia, Peter Costello.