Interview with Jon Faine 3LO: Sydney Airport, Drugs in sport, Tax Reform

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When Labor is Having a Bad Week
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Interview with Jon Faine 3LO: Sydney Airport, Drugs in sport, Tax Reform

Transcript No. 2000/76




Acting Prime Minister



Interview with Jon Faine


Friday, 7 July 2000

8.30 am

SUBJECTS: Sydney Airport, Drugs in sport, Tax Reform


Peter Costello, the Member for Higgins in the Federal Parliament, the Federal

Treasurer, and at the moment the Acting Prime Minister. Good morning to you Peter




Good morning Jon.



First of all, you fly in and out of Sydney Airport all the time, you’ve heard the

reports this morning of the problems with power supply yesterday, loss of communications,

a disastrous situation potentially, what do you do about it?



Well, obviously it’s an incident which everyone regrets, and it’s a serious

incident, and we’ll be getting reports on all of the safety issues that were

involved. Can I say, nothing’s more important than the safety of the passengers, and

the integrity of the system. We have a good regulatory body, which is charged with

ensuring that that occurs, and I’m sure that we’ll get a full report, and the

steps that are required are put in place to prevent any reoccurrence.



Well, how can you be sure of that, and how good is the regulatory body? I’m sure

if we’d asked you yesterday, you would have said something like this couldn’t

happen. It has happened, what do you do?



Well, you get a full report, that’s the first thing you do. You ask the regulatory

body to go through all of the incidents, all of the checks, see if there are any

weaknesses in the system, make sure that if there are that they’re attended to. But I

haven’t got the report yet, and I imagine that the relevant Minister will be in the

process of getting that.



When are you flying into Sydney next?



I flew out yesterday.



When do you fly in next?



Probably some time next week.



Are you going to be gripping the armrest a little more tightly than last time?



Well, I’m sure that gripping the arm rest won’t make a difference Jon.

We’ll try and do something more substantive than that.



Werner Reiterer, the Australian discuss champion, has released a book which makes

startling allegations of widespread illegal drug use in the ranks of Australian athletes.

He yesterday met with the Australian Olympic Committee, and would seem to have, despite

sullying the reputation of a generation of Australian athletes, he would seem to have now

decided that there is nothing that

needs to be pursued, and the Australian Olympic Committee have cancelled the inquiry

they were going to conduct. As Acting Prime Minister, are you happy with that current

state of affairs? No inquiry?



The first thing I’d say from the Government’s point of view is, we want clean

Olympics, and clean Australian athletics. And we have put a lot of work into ensuring that

there’s a sports drug agency, which can monitor that, and police it, and make sure it

happens. Can I say as an outsider, just following through the press the events of that

book, that I thought there was something in the response of a lot of Australian athletes

yesterday. And I saw them through the press saying, they felt that this had put a pall

over them, and they were entitled to be cleared. And that’s the point I make. All

Australian athletes are entitled to be cleared. If there is any allegation against any one

person, I think that information should be given, if only to clear the 99.99 per cent of

the remaining Australian athletes.



So you want an inquiry, you think they should go ahead?



Well, I think that the allegation having been made, they should either be withdrawn,

that is that the author should say, I overstated the position, or I was wrong, or

whatever, they ought to be withdrawn, or they ought to be investigated. I think it’s

a bit unsatisfactory for a lot of the athletes that they still seem to be partially on the

record at least, and they haven’t had their names cleared.



I feel as if we’re being treated like idiots by the Olympics authorities. Mr

Reiterer, to add insult to injury, has been appointed as an unpaid I say, but still

appointed as anti-drugs Ambassador for the Australian Olympic movement.



Well, the perspective I have on this is, Mr Reiterer has said that there are some

people that have broken the rules. Now, it could be that that was overstated. It could be

that an editor belted it up into a bigger story than was the case, and if it’s not

the case it should be withdrawn. But, unless it’s withdrawn then a lot of honest

Australian athletes will say, by implication, people start being suspicious of us. So, I

think it’s one of these situations where it ought to either be backed up, or it ought

to be completely withdrawn.



What about that notion of rewarding somebody by giving them an unpaid position, albeit

unpaid, but still giving them some credibility after they’ve gone ahead and made

those sorts of . . .



I . . .



. . . allegations . . .



. . . I . . .



. . . and then won’t substantiate them.



. . . I don’t know how it happens. And because I don’t know the detail, I

don’t want to comment on how that was done. But, I think, I do agree with you. You

either go ahead with your allegation, or you withdraw. I don’t think it’s

satisfactory just to say, well, it was true, but I’m not going to actually go any

further. Because whilst that’s on the record, and a lot of people, and I saw

athletes, swimming coaches, just on the television last night saying, hey, an

allegation’s been made, there are people may well think it was us, it wasn’t us,

we deserve the chance to have our names cleared, we would like a statement that it was

never us, it was never our sport, it was never anybody that the public knows to be one of

our athletes or swimmers, and I think they’re entitled to that.



There’s an old phrase that’s used in politics, it’s better to have

someone inside the tent peeing out, than outside the tent peeing in. It would seem that

they’ve followed that, that the Olympic Committee did.



Who knows what motivated them. And as I say, because I don’t know, I’m just

not going to comment on it. But I do feel that the 99.9 per cent of Australian athletes

who are clean and always have been, deserve that to be entirely on the record.



8.38am, on 774 ABC Melbourne with Acting Prime Minister Peter Costello. To turn to the

new tax system, Peter Costello, the general assessment is that things have gone far better

than expected. Why didn’t you expect it to go this well? Were you not confident in

the system after all?



Well, I was conscious of the fact that we were changing a tax system which had been in

place for 70 years, and you don’t create a tax system overnight. And I’d still

make this point. Jon, I think there are going to be teething problems, you know, there are

going to be issues and questions that come up, they’ll come up on a daily basis, and

we’ll have to deal with them, we’ve got our hotlines open, we have to give

answers. And I wouldn’t say for a moment, there’s never going to be a question

about the new tax system, there will be, because I administered the old one. I know 70

years after the event we still couldn’t figure out half of what the old one meant.

But, to come to your question, I think the hysteria that had been whipped up in some

sections of the press, by the Opposition, it created the view that on the 1st

of July the world as we knew it would come to an end. There’d been predictions of

hostility and aggravation toward shop assistants, you know, that they were going to be

under attack. There’d been predictions that, you know, pensioners would be thrown out

of their homes. There’d been predictions that there’d be mass unemployment. All

of which were false. And when last Saturday passed, almost without incident, people said,

good heavens.



There are problems, I’ll raise some with you in a moment. But what do you mean,

that you couldn’t figure out half of the old tax system? You were in charge of

administering it.



I couldn’t tell you the ins and outs of the applicability of capital gains tax. I

couldn’t tell you the ins and outs of classifications under wholesale sales tax. To

this day I couldn’t.



Then why don’t you fix those problems . . .



Well, we . . .



. . . you’re in charge.



. . . well we abolished the wholesale sales tax, that’s the way we fixed it . . .



Capital gains tax, no one understands superannuation.



Capital gains tax – I have in mind a recent High Court case where 7 judges of the

High Court looked at these provisions and came to about four different conclusions as to

what they actually meant. So . . .



But that’s a system you’re in charge of administering. Superannuation is so

complex (inaudible) . .



Well, let me go on to capital gains tax. Look, I neither introduced capital gains tax,

nor did I draw the legislation, nor am I in charge of interpreting it. I am reforming

capital gains tax. I cut it in half and I simplified it dramatically from September of

last year. But, you asked me how an intricate applicability of capital gains tax might

apply to a surrendered right, and no more than 7 High Court judges, and about 3 Federal

Court judges, and about 148 politicians could all have different views on that.



You are, at the moment, dealing with a situation with family welfare payments in

turmoil. People who are getting letters telling them about changes to their entitlements

are finding out in many, many cases, estimates vary as to whether it’s thousands,

tens of thousands, or even hundreds of thousands of cases, that they’re entitled to

less by way of family assistance under your new tax system than before. They are flooding

the call centres wanting to clarify their rights and entitlements, and they’re

getting very angry.



Well, they’re not entitled to less. Let me go through it. The benefit which you

get for having a dependent child has been increased. The benefit that you have for being a

single income family with dependent children has increased. The income tests have been

extended. And the asset tests have been increased. What happens in these cases Jon, is

that in order to assist somebody’s benefit, they have to disclose to you their income

and assets. And there are many occasions in which people either don’t know or change

their income or their assets. So your entitlement changes according to your own

circumstances which have to be disclosed by you. Many people have legitimate inquiries

about how it applies to them. But the benefits are very clear and very certain, enshrined

in legislation, and they increase.



Anne doesn’t want her surname mentioned. I live in a Liberal blue ribbon seat, I

have always voted Liberal. My husband and I are both university graduates. My

husband’s just started his own business. Ten years ago I was earning $50,000 a year.

I’ve given up my job to be a Mum. My family assistance from Centrelink has gone down

from $218 to $185. My parenting payment has gone up, but I’m out of pocket by $20.82

a fortnight. I will never vote Liberal again.



Well, if you want to give that to me, or take the name off it, I’ll go through it.

Because, Anne, like anybody else, on the same income, if she had the same income under the

old system and under the new system, her benefits will go up, because they have been

legislated to go up. Now . . .



And that means Anne now rings Centrelink, joins this . . .



Well . . .



. . . impossible queue and tries to find out how . . .



. . . Jon . . .



. . . it can be that you’re telling her it’ll go up, when Centrelink have

told her it’s going down.



No, no, because I said there are two things. There’s the legislated increases in

benefits, and they apply according to your disclosure of your income or assets. This is

not a new thing. Under the old tax system, under the old family welfare system, as your

income or your assets went up, your benefits came down. That never changed, except we made

the tests more generous and we put up the allowances. So, in every one of these cases,

you’ve got to know what the persons income and assets are as they have disclosed

them. Because, if they are the same, their benefits go up. Now, you say, oh, they’re

flooding the call lines . . .



Well, you’ve put thousands of extra people on at the ACCC and the Tax Office to

deal with the flood, but in fact it seems that the pressure point is somewhere else.



Well, let’s go through this. I forget when pensions came into Australia, I think

it was some time in the twenties or the thirties. And family assistance, I think, started

off with the Menzies Government and child endowment. In my experience Jon, everyday since

Bob Menzies, and everyday since the 1920’s and the 1930’s, there’ve been

questions about entitlements to pensions and family assistance. Every single day. And

nothing has changed. The only thing that changed on 1 July, was that we increased the

levels of all benefits. Now people have still got the same inquiries that they had last

week, or the week before, or five years ago, or ten years ago, or twenty years ago. The

tendency today is to wrap it all up and say, because we had this big event on 1 July,

namely the introduction of the tax system, these inquiries must now be related to the

taxing system. These inquiries have always been there, will always be there, as long as

you have a means and assets tested welfare system.



You promised us a simple new tax system. Is it simple?



Oh, it’s much simpler than the one it replaced, oh yes. The one it replaced was

wholesale sales tax. And as you know, you had to classify every good in the economy to

determine whether it was taxed at 0, 12, 22, 32, 37, 41 or 45 per cent. Those were the

rates – 0, 12, 22, 32, 41, 37, 45. And you know, we had thousands of people sitting

down classifying. Now with a broad-based goods and services tax, subject to a limited

number of exemptions, everything is taxed at one rate, and that’s 10 per cent.



The Business Activity Statement, I’ve had a look at it, it’s a nightmare. I

have to fill one in for the business that I’m involved in. I’m not looking

forward to it. I’ve not yet met anyone who is looking forward to it. The explanatory

booklet is 140, how many pages long? 147 pages of an explanatory booklet.



Which you don’t have to read Jon, unless you’re dealing in luxury car tax or

wine (inaudible) . . .



Well, I’m going to have to read all of it.



. . . well, you know, I know it sounds a good figure. You know, this is the kind of

thing, you get the accounts, 140 pages, better come down and see us. If you actually look

at it, you’ll find that quite a lot of that is in luxury car tax, which you

presumably don’t remit . . .



But . . .



. . . wine equalisation tax, which you presumably don’t remit.






There’ll be instructions in relation to other taxes like, group tax, and PPS,

which you’re presumably also not in. If the only thing that you do in your company is

you sell, presumably, services, you sell your services, or somebody’s services, I

don’t know, you presumably sell services, you’re liable for the GST on those

sales, and you get a credit for anything you bought in it.



The record . . .



I’ll, I’ll . . .






. . . I’ll, sit down and I’ll do it for you if you like.



I’d rather not, thank you. (inaudible) . . .



(inaudible) your entitlement.



The records that every small business in Australia now has to keep are: receipts for

supplies, cash register totals, deposit books, bank statements, acquisition and other

expenses, invoices statements for acquisitions, receipts from small cash acquisitions from

petty cash – every one of them…






…cheque butts, log books, wage records, worker payment records, employment

declarations, pay as you go employee payment books, superannuation records, and you

promised a (inaudible) tax system.



Give me the list. Give me the list. Because I’ll tell you, under the current tax

law, employers have to keep receipts for supplies, cash register totals, and acquisitions

including expense payment records…



But to claim their input credits…



…wage (inaudible). No, no hang on. No, no…









To claim your input credits you need every document . . .



No, no, hang on, can I…



…contributes to your cost base.



No you don’t. What you’re reading out now is a list of everything you have to

keep for company tax. Every one of those things you have to keep now for paying your

company or your income tax.



You have to separately identify on the tax invoices from all of your suppliers the

contribution of the GST on your inputs. It’s an absolute nightmare.



No you don’t. No. All those things you just read out are the requirements that you

currently have to keep for company tax or if you are not a company, income tax. You know

that. You have to keep all of your supplies, and all of your invoices and everything else.

The only thing that you do in relation to the GST is you take those records which will now

disclose your turnover both ways, and you’ve got a liability for one eleventh on your

sales and you’ve got a credit for one eleventh on your purchases.



But if I’m asked to verify my inputs I have to identify and itemise where those

inputs have come from. I’ve got to show a paper trail.



Well if you are asked to verify your company tax or your income tax, John, you are

asked to show a receipt for every expense you’ve claimed. You know that. That’s

substantiation. That’s been the tax law in relation to company and income tax, well

for at least the last decade or more. All you do in relation to this is you take the

records, if a company is keeping it’s records and it should have been, I admit there

have been many companies that haven’t in the past kept their records, and

they’re in a different category, and I’ll come to them in a moment. But you take

those records and you can use those records in relation to GST.



10 minutes to 9. The first business activity statement in October’s going to be

hard enough for small business but in January after their quiet period after the Christmas

expenses of holidays and so on have all also been taken, they are going to have to come up

with their second quarterly contribution to the Government’s tax collection exercise.

Then I got a shock and you must too, they’ve got signs on the windows saying another

John Howard or Peter Costello tax collection office. In January they are going to go

through some horrendous cash flow problems.



Well, I want to make a serious point on this because I think it is important.

Businesses at the moment that are charging GST are getting a cash flow advantage, right,

because they are selling their good or their service with GST.



And they must learn to manage…



That’s the point, that’s the point I’m going to make.



Many, you know that many won’t.



Well, well hang on. That’s the point I’m going to make. I’m going to now

remind businesses that it is important to manage it. And I think a lot of business will

say you know this month or next month – gee we’ve got much more money in the

till than we’ve had before. This is great. Now they can take advantage of that cash

flow. But they’ve got to remember at the end of the quarter that that has to be

remitted. Now I’m going to give one practical suggestion that many small businesses

might find appropriate. You can go to banks and you can set up an offset account. And into

that offset account you can pay the GST which you’re collecting. And it’s held

in the offset account as an offset against your overdraft. So that it reduces your

overdraft and it reduces your interest bill. You get the saving on interest of the value

of that cash flow. But you’re also separately keeping that money in an offset account

so that when the quarterly statement comes, you’ve got the money to pay the GST. And

I would urge a lot of small businesses to have a look at those offset accounts.



Like the Christmas Club used to be.






Is that the idea?



Yes. Yes, I used to do that when I was self-employed. I used to you know, set up a

separate account and you pay, what was the amount of your income tax into that account so

that you knew at the end of the year you had it. Otherwise the tendency is . . .



You get the bank statement and you think whoopee.



. . . you think you’ve got much more money than you have. You go out and spend it

and a lot of people find when the tax assessment comes around they’ve had trouble. So

look at the offset account. You can get the advantage of the GST, the cash flow advantage

of the GST whilst being sure that at the end of the quarter you have your liabilities




One of the things I’ve noticed is that some larger businesses are going to say

we’re going to absorb the cost of the GST. You’ve noticed that. What

they’re doing is, they’re using their market share and their deep pockets to

squeeze small business when it’s at it’s most vulnerable. They’re saying we

can absorb some of the costs of the New Tax System, down the road we know they can’t.

We’ll hit them at the time when they are most vulnerable and our prices will be

effectively lower than the small business that has to pass everything on.



Well, I’m not going to complain about businesses that are cutting prices because

that’s basically what’s happening.



But what about being a champion for small business?



Well, lets give an example. Lets suppose a business is selling something today for

$200. And let’s leave aside the fact for the moment, just for the sake of a simple

example, the cost savings. It could go from $200 and put up it’s price to $220 or

something so that includes the GST or it could stay at $200. What it’s effectively

done is it has dropped its price if it stays at $200. It has dropped it to you know $185

or $190.



But with a greater capacity…



And it absorbed, and it’s still liable to pay the GST but it’s actually

dropped its price so that the price plus tax is the same. Now who gets the benefit of

that? The consumer.



But the problem surely, Peter Costello, is that with the compliance costs, the cash

flow problems, the lack of expertise in small business and the capacity of big business to

absorb all of this, there are many, many small businesses in suburban shopping centres

around Australia that are struggling to survive your new tax system.



Well hang on. It’s, what’s actually in that example caused the problem as you

see it is somebody has dropped his price.






Right. Now I’m a Treasurer. I’m never going to complain about stores that

drop their prices. Leave aside the New Tax System. Your same complaint would have existed

would it not? Let’s suppose the world hadn’t changed on 1 July. There was no New

Tax System and there was a shopkeeper somewhere John that decided to drop his price. I

wouldn’t complain about that, but his competitor might. A competitor is always at

risk if somebody’s going to drop their price. Now from a consumer’s point of

view and I look at it from a consumer’s point of view, I’m never going to

complain nor are consumers if there is a business somewhere that drops their price. In

fact you know what we hope as consumers. We hope that if they drop their price, their

competitors drop their price too.



Whether they can afford it or not?



Well they won’t drop it if they can’t afford it. But I must say from a

consumer’s point of view, if competition leads to price reductions, that’s a

good thing.



New South Wales Treasurer Michael Egan says you’re full of humbug this morning on

the radio. And he says that the States are not going to get any GST benefit for as long as

7 years in NSW case. And you’re going around misleading people by saying the States

will be better off.



Well nice try Michael.



Was that the only answer?



Well he knows that the States will be better off. He knows that one, no State will be

worse off. And two, every State will be better off. Some will be better off quicker. I

think Queensland is better off after two years. In NSW on current estimates he is better

off in I think 2006-2007. And if the GST were to raise more revenue than forecast because

lets say economic growth is stronger, he’ll be better off sooner. But what’s he

complaining about. Can’t be worse off and he’s guaranteed to be better off. And

the proof’s this John, has it ever struck you that there is no State, no Labor State

in Australia that is now demanding the GST system be repealed. Has it ever struck you

strange that there is no Labor State that is saying we’d like to get out of the GST

system and go back to financial assistance grants? There’s been a deafening silence

out there hasn’t there. You know why, because they’re guaranteed they can be no

worse off and eventually in Mr Egan’s terms he says by 2006 they are guaranteed to be

better off. Now I tell you this John, I have carried the whole weight of introducing a GST

and the sole beneficiaries in revenue terms are Premiers Bracks, Carr, Treasurer Egan,

Premier Beattie. I didn’t see them out on the barricades defending this system from

which they profit.



Are you going to go easy on further business tax reform? Are you going to say all right

we’re all suffering from tax reform fatigue now the stress has been so great and we

won’t go ahead with the Ralph reforms.



Well a number of the Ralph reforms we’ve already put into place as you know

company tax was cut on 1 July and Capital Gains Tax was cut in September last year.



Are we suffering from reform fatigue?



Well there are some further things to be done. Particularly simplifying business

taxation. And hand in hand, in partnership with business we’re going to move down

that path.



So you’ll continue with reform.



Well consulting business, yes. Bringing them in…



But about the stress factor though. The stress factor in the community is phenomenal.



Well as I said, we’ve done a lot of reforms. There are further reforms and I have

said that in consultation with business we don’t want to go too far, but in consultation

with business we’ll continue to work our way through those.



Last time we spoke you said you’d get the GST out of the way and then you’d

be prepared to look at other things – topics such as reconciliation, the republic and

Peter Costello fleshing out his personality as a rounded politician and the heir apparent

to the Prime Ministership. Are we going to see that now?



Oh look I hope that once this is bedded down we can return to other political issues.

Yes I do Jon actually. This has taken now 3 years of my life. We started writing this

policy in August of 1997. We put the policy out in August of 1998. We put the legislation

into Parliament in December 1998, we passed it in June 1999 and we introduced it in July

2000. It’s not over yet but hopefully we can get back to other issues.



Thank you for your time this morning.



Thanks John.



The Acting Prime Minister and Federal Treasurer, Peter Costello.