Transcript No. 99/18

Hon Peter Costello MP

Interview with John Laws, 2UE

Wednesday, 17 March 1999

9.35 am

E&EO

SUBJECTS: Taxation – motor vehicle industry

LAWS:

Here’s what we don’t need. It seems there’s, I think, I hope, some

sort of drafting mistake in the GST legislation which could see taxpayers slugged all the

way down the line for manufactured goods. It’s the sort of mistake which could

inadvertently turn the goods and services tax into what is known in other parts of the

world as a VAT – a value added tax – and destroy many of the gains made in tax

reform. We’re indebted to the automotive industry for spotting the error and I’m

assuming it is an error and I think the Treasury people will be told by the Treasurer to

fix it. I hope so. We have the Treasurer on the line. Good morning Treasurer.

Good morning John, how are you.

Pretty good, Peter. Good to talk to you, I haven’t talked to you for a long,

long time.

No, it’s great to catch up.

Yes. Well I just thought this was a good excuse. My dear friend Conomos from

Toyota, the Senior Vice President of Toyota, John Conomos, raised the possibility of this

GST turning into a VAT as far as motor car manufacturers were concerned and he said he was

deeply concerned that multiple taxation of manufactured goods would lead to big cost

increases for the consumer in the end. Is that some sort of mistake?

No, there’s no mistake and really I think John has got his wires crossed here.

Because the final price of the car bears a 10 per cent tax, only one, 10 per cent, as

opposed to the current situation where the final price of the car bears a 22 per cent

wholesale sales tax. So cars become cheaper. And all the motor car manufacturers know

that. And I take it that John’s been misquoted because I don’t think he could

have misunderstood the situation.

Well, I would have doubted, that’s why I accepted it without calling him, and

called you.

Yes, well I was pretty surprised to see the story and you know I hope that

he’s been misquoted because I don’t think he could have misunderstood things in

that way. But the truth of the matter is that the way in which the GST operates is that

the final price bears a 10 per cent tax and that you abolish all the current taxes. Now

because a car currently has a 22 per cent wholesale sales tax, when you abolish that and

you apply a final 10 per cent, the car actually becomes cheaper. We think about $3,000 on

your standard car. So, I’ll get somebody in touch with Toyota today to straighten

them out. But if the Financial Review has beaten up the story it would be worth them

correcting the record I think.

Yes, so it doesn’t mean that every item used in every vehicle would be taxed

along the line?

No. What happens is that as it moves through the line the, everybody who buys it

gets a credit for all the tax that’s been paid, so that by the time you get a credit

for all the tax that’s been paid the final price bears the 10 per cent. The motor car

manufacturers know this because in fact they’ve been to see me. They’ve got a

bigger concern than this. Their concern is that the prices will go down and they

don’t want people to stop buying. So they know very well that prices will go down.

Yes. So if the prices are going to go down, that was something else I was going to ask

you, and we know that we’re going to get the GST providing it’s alright with Mr

Harradine, the real Prime Minister, do you think that there will be a downturn in the

purchase of motor vehicles because people, particularly fleet buyers will say, well,

we’ll just hang off?

Well, look that’s one thing that’s been raised with me and I’ve said

we’ll keep the situation under review but the reason I raise it is that the motor car

manufacturers’ bigger concern is that prices will go down, not that prices will go

up, which is why I was surprised to see the comments in the paper. Now, I don’t think

there should be. As we know, motor car sales have been at record levels in the last year

and I don’t know if you can sustain them at all time record levels in any event. But

we have said that we’ll keep an eye on the situation.

OK. If it does appear that fleet buyers and even your Departments, your Government

Departments say, well, hang on, we’ll save some money here – and I’m sure

you would want to save us money if you possibly could – we’ll hold off before we

buy our fleet, what can you do to rectify that?

Well, we’ve got a staged introduction. Because the price of cars falls, for

fleet buyers we’ve got a staged introduction which stages the fall in price over a

period of three years. Now most people that buy fleets turn them over in two years.

Two, yes.

So that you’d be mad if you waited three or four years to get the full

benefit. You get a bit of a benefit in the first year, a bit more in the second year, a

bit more in the third year and that’s why we’ve got a staged introduction.

OK. I’ll try and get in touch with John Conomos. In fact we’ve tried to

get in touch with him, he’s in a meeting. But I’ll let him hear what you said

Peter.

Sure. We’ll try and get in touch with him too John because I think

there’s no need for him to be concerned, as I said, it may well be that he’s

been misreported.

Yes, well let’s hope he has because otherwise he does have his wires crossed,

which I’ve got to say would, in his case, be very unlikely. But we’ll sort it

out during the morning.

Pleasure to talk to you John.

Good to talk to you Peter and I hope I see you soon.

OK.

Bye. Peter Costello, Treasurer of Australia.