International Taxation Arrangements Discussion Paper; Democrats; Pharmaceutical Benefits Scheme; Stem Cell Debate; Housing Market; Economy; Productivity Commission Report

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Productivity Commission Report on Prices Surveillance Act 1983
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Productivity Commission Report on Prices Surveillance Act 1983
August 20, 2002
Reform of Credit Card Schemes
August 27, 2002

International Taxation Arrangements Discussion Paper; Democrats; Pharmaceutical Benefits Scheme; Stem Cell Debate; Housing Market; Economy; Productivity Commission Report


Press Conference
Thursday, 22 August 2002
12.15 pm
Parliament House, Canberra


SUBJECTS: International Taxation Arrangements Discussion Paper; Democrats;

Pharmaceutical Benefits Scheme; Stem Cell Debate; Housing Market; Economy; Productivity

Commission Report.


I am releasing today the Consultation Paper on reviewing Australia’s International

Taxation Arrangements which implements the Government’s policy before the last

election to review Australia’s International Tax Arrangements and to ensure

that Australia has an internationally competitive tax situation.

This builds on the changes which the Government has already put in place reducing

company tax from 36 cents to 30 cents in the dollar, abolishing wholesale sales

taxes with goods and services tax, which took taxes off exports, reforming capital

gains tax including introducing rollover provisions and negotiating a new double

taxation agreement with the United States in late 2001.

It is important that Australia’s international tax arrangements make it possible

for Australian companies to grow and to invest in a way which will help those

companies grow and generate profit which comes back through the Australian taxation

system. And it is important that we have in place arrangements which will help

them to grow whilst maintaining the integrity of our own taxation system.

Some of the issues raised in this consultation paper include how to handle

tax which is paid in another jurisdiction, whether or not there should be credits

for dividend withholding taxes that are paid by Australian companies overseas,

a recommendation that was made by the Ralph Committee. We also look at improving

Australia’s attractiveness as a location for regional businesses. We look at

enhancing our opportunities as a global financial centre and dealing with things

like controlled foreign companies and foreign investment funds.

What I am proposing is that consultation on this document be handled by the

Board of Taxation. The Board of Taxation was something that the Government set

up in the last term of Parliament. Business have an opportunity, and anyone

else, have an opportunity to put written submissions to the Board by the 31st

of October 2002 so that the Board can report to the Government and the Government

can prepare legislation for next year.

Making Australia an internationally competitive tax system is all about giving

Australian companies the opportunity to grow, making Australian jobs available

in those companies, making Australia a better place for investment, building

our economy and the opportunities for our young people. It is an important arm

of taxation policy, and this consultation paper will kick off a very valuable

debate on the issue for the Government.


Treasurer do you have any net costs or net benefit perhaps to the tax situation

in Australia?


I think the net benefit will be if we can encourage regional headquarters and

promote Australia as a financial centre. And also if Australian companies were

able to grow, I think that will be the net benefit for Australia.


That would outweigh any tax loss, tax revenue loss?


Well, we are not putting any dollars on this, this is a matter for consultation.

Once the consultation has been completed and recommendations have been made,

the Government will make its decision.


Treasurer just when you mention dollars are you still planning to make this

a revenue neutral, whatever the outcome of the negotiations will (inaudible)

revenue neutral or (inaudible) at some cost?


Well, this is in the context of the overall business tax reform. And in the

overall business tax reform we made allowances for some of these measures already.

For example the recommendation of the Ralph Committee for credits for dividend

withholding taxes. So it will be done within the context of the overall parameters

but some allowance has already been made within those parameters for some of

these changes.


In this paper you discuss an international trend away from dividend imputation.

Can you see the way where dividend imputation will be removed from the Australian



I doubt that we would move away from dividend imputation. It is so much a feature

of the Australian taxation system and it is understood particularly by Australian

shareholders. I note that some other companies – some other countries, have

done that. But I do not see Australia moving away from that because it is so

firmly fixed in our landscape and I think it is very much one of the reasons

why Australian investors like equities and in fact we have enhanced the dividend

imputation system in Australia in recent years. All we do in this paper is we

note that other companies do not do it. But I think it is a very welcome feature

of the Australian taxation system.


In terms of modernising the treaty network which countries do you see as a



Well, we have just modernised the treaty network with the United States and

our next priority will be the UK. We are in negotiations with the UK at the

moment. And there was also an announcement when the Prime Minister was recently

in Germany to bring the Australia-German Double Tax Agreement up to the front

row for negotiations as well.


Will you be speaking to companies that have already moved offshore like James

Hardie, about where they found the biggest problems in the tax system?


We have already spoken to James Hardie. We do not think that James Hardie’s

decision was motivated by the Australian taxation system. We think it was motivated

by the American taxation system that they wanted to take opportunities to minimise

American tax and there was an opportunity under a Dutch provision for those

that located in Holland to get concessions in relation to American tax. And

that seemed to be the principal motivation behind James Hardie. But having said

that, I do not want to see Australians companies leave Australia. I want Australian

companies to grow and remain headquartered in Australia. And I want them to

be internationally competitive and that is a big part of driving the review

of international tax arrangements.


In relation to the structure adopted by James Hardie, can you see the way for

conduit arrangements, conduit entities to be available to corporate groups within



Well, where, one of the things that this paper raises is the question of conduit

income. And we have discussed the issue in this paper, we will be interested

to see what the feedback is.


Mr Costello, can I just ask you about something else? What is your take on

events in the Democrats in the last 24 hours?


When the Democrats were established they were established by Don Chipp who

had been a lifelong member of the Liberal Party and a Liberal MP. And the reason

that the Democrats were founded was to be the centrist party in between the

Coalition and the Labor Party, to exercise a balance of power, to scrutinise

legislation, to improve legislation by all means, but essentially to give the

Government the right to introduce platforms, subject to that Senate scrutiny.

Now I think what has happened over the years is that you have had increasingly

single issue activists join the Australian Democrats and seek to use it as a

vehicle for their issues, whatever it be. And, I think the argument that is

going on in the Democrats is, are we Australian Democrats, as the founder laid

down a balance of power party, or are we an activist party on the left, rivalling

the Greens? Now, I think that is the big argument that the Democrats have got

to go through. I think if they want to go out and try and `outGreen the Greens’,

that that will be very difficult for them. I think their best days were when

they were founded and when they exercised that balance of power scrutiny role

in the Senate. And I thought that the opportunity was there to do that in relation

to this Budget, opportunity to let the Government get on with governing, scrutinise

our legislation, but essentially allow the Government to bring down its Budget.

And I think because they were going through this difficulty at the time they

didn’t get round to exercising that role, and perhaps they have been a bit spooked

by the rise of the Greens in the last election. But this is something that the

Democrats will have to work out. I think there is a role for a constructive

Senate Party that wants to scrutinise legislation and will allow the Government

to get on with its mandate. Whether there are enough Democrats that also take

that view, I don’t know.


…the Party Room (inaudible) yesterday, are you encouraged to believe that

the Budget measures (inaudible) might be approved under Aden Ridgeway’s temporary



I don’t know how this will alter things. In the discussion that I had with

the Democrats over the Budget measures I think the attitude was that yes, we

can see the sense and the logic, and yes, we know why you are doing this but

we also have our Party membership which is a lot less responsible on these issues

which might punish us if we did the right thing. Now, if there are Democrats

that really do believe in that balance of power view in the Senate, and really

believe in the old Chipp vision of why the Democrats were founded, it may be

possible to get a more constructive Senate. And I hope that is the case, but

I think it is just far too early to say at the moment.


(inaudible) our membership wouldn’t agree, is that (inaudible)?


Nobody said to me, for example, as you know we tried to raise the co-payment

for taxpayers’ subsidised pharmaceutical benefits from $3.60 to $4.60, nobody

said to me that was wrong, you know, that somehow $4.60 was outside the ballpark.

Nobody said that there was a policy objection to this, it was that our Party

won’t live with it for one reason or another. Mind you, it is not a lot different

to the Labor Party. The Labor Party also said it is not wrong, and the Labor

Party says that if they actually introduced this co-payment they’d increase

it. The Labor Party view is we’ll just be opportunist and try and make trouble

for the Government. But nobody has ever actually said to me that the Pharmaceutical

Benefits Scheme, which is the fastest growing area of Commonwealth expenditure,

can be fixed without addressing the co-payment. There is no other alternative

plan that is running on that issue, and during our discussions nobody ever put

one forward. The Labor Party attitude was, yes we know it’s right but we’re

politically opportunist and we’ll try and make trouble. The Democrats view was

yes, we see what you’re on about but our Party won’t wear it. But I never came

across a cogent policy reason against it.


Treasurer, will you be speaking in the Second Reading Speech on Stem Cell Debate?


I hope so.




Well, I am on the record as saying that I am opposed to human cloning, absolutely.

And I am opposed to creating embryos for the purpose of research. But also,

in those circumstances where couples do not need embryos which were created

for the purpose of their IVF, and who wish with their consent to make them available

for medical research, I would allow it in the interests of medical research

where the alternative is the destruction of the embryo.


Yesterday the RBA Governor said that the housing sector in capital cities is

going to be headed for a shake-out. Do you think that there are serious concerns

in that area for Australian homeowners?


Well, they are two different issues, aren’t they. Home owners are generally

in homes and I think what the Governor was referring to was inner city developments

particularly in relation to apartments and flats. So, I think they are different

issues. What happens in relation to the prices of apartments and flats will

principally depend on the laws of supply and demand and at some point, where

supply outstrips demand that will affect price. And something to always bear

in mind, that when you are making an investment the laws of supply and demand

still apply. I am not going to make a prediction about when that will happen

or to what degree, but it stands to reason, doesn’t it, that if more units and

flats have been constructed than there are willing buyers, that will affect

price at some point.


Treasurer, Mr Macfarlane said he would like to see, or (inaudible), like to

see interest rates at a more normal level. Do you agree with that?


I never comment on future movements of interest rates.


Do you agree with the Governor’s general up-beat assessment in the outlook

for the domestic economy?


We will get our June Quarter in a week or two’s time and it will give us an

indication of what happened in the June Quarter. But looking at the GDP figures,

4.2 per cent through the year to the March Quarter. Strongest growing economy

amongst the developed nations, in the face of the US recession, flat European

growth, reverses in Asia, the Australian economy has been very strong. But international

developments have been very rocky over the last couple of months and at some

point you would expect the stock market volatility to feed back into US consumer

and business confidence, and I think most people now agree that the US recovery

is not going to be as fast or as strong as people were predicting earlier in

the year, and that will affect world growth. And effects of world growth affect

Australian exports. So, we are watching developments internationally which obviously

will have an effect on our economy, but our economy, having said all of that,

is still the strongest of the major industrialised economies of the world, not

immune from international developments but still the strongest of the ones that

we normally compare ourselves to.


Treasurer, you said that might manifest itself in lower exports for us, does

that mean our dollar’s heading lower?


Oh, I am not going to comment on the movement in the exchange rate.


Are you confident that the economic growth was around 4 per cent annualised

in the June Quarter?


Well, 4.2 per cent I think, for the March Quarter through the year. We will

get the June Quarter at the beginning of September and we will have a look at

it then.


… (inaudible) the National Access regime which the Productivity Commission

gave the report in December (inaudible). What’s the delay in (inaudible) response

on that?


I think the delay is that when it was listed for Cabinet, Cabinet didn’t get

to it because the Business List exceeded the amount of time that was available

to the meeting. So it is on the Cabinet List, and when Cabinet gets through

the current business, it gets through items one to five and hits item six, it

will be reached, Sid.


What were they again?


Items one to five? From memory they were, oh, I’ve forgotten.

Thank you very much.