TRANSCRIPT

of

THE HON PETER COSTELLO MP

Treasurer

Interview with Liam Bartlett (6WF Perth)

Perth

Thursday, 18 May 2000

9.00 am

BARTLETT:

We are blessed this morning with a visit by the Federal Treasurer Peter

Costello. Treasurer, good morning.

TREASURER:

Good morning Liam.

BARTLETT:

Look, I know you dont want to talk about interest rates, but when do

you think well have to punch a hole in the dollar and call it a peso?

TREASURER:

Well, the dollar is influenced by a lot of factors. And at the moment

one of the main influences on it is the strong US dollar. We were growing

faster than the United States economy in 1997, 1998, 1999, and the US

economy has kicked up a gear. And theres obviously concern in the United

States about strong growth, whether its sustainable, about the level

of the stock markets, and the authorities are trying to pull that economy

back with interest rate rises.

BARTLETT:

But how much stronger is it than our economy, because we are getting

creamed?

TREASURER:

Well, our growth at the moment is about 4 per cent, and the US economy

is probably growing at about 5 per cent, thats what the last figures

showed in the US, and one before that was even stronger. But the US stock

markets are much higher, have risen much more than ours, the Dow Jones

in New York, and the NASDAQ. And the Chairman of the Federal Reserve in

the United States, when the Dow hit 7,000, warned of irrational exuberance,

and its now what, nearly 11. And theyre obviously concerned about it,

so theyre raising interest rates to try and pull the US economy back.

Well, as you raise US interest rates, theres a flight of money into the

US dollar, and its rising not just against the $A, but against the pound,

and the Euro, and the Deutschmark, and . . .

BARTLETT:

Oh sure, but we dont live there, do we? I mean, are you worried about

irrational depression for the Australian dollar, I mean, how low can we

go?

TREASURER:

Well . . .

BARTLETT:

Or do you just, sort of, run around looking at the positive side of things

thinking well . . .

TREASURER:

No, no . . .

BARTLETT:

. . . its positive for exports?

TREASURER:

. . . no. Look, during the Asian financial crisis our dollar devalued

considerably, that proved to be very good for exports. At the moment the

dollar has devalued against the US dollar, and its, the big part of the

story as I said is the fact that the US dollar is rising. Now, we watch

the exchange rate, and we take a very keen interest in it. Were not targetting

a particular rate, but we watch it, and what will happen at some point

is that the US economy will slow and the US dollar will come off. And

when that happens, the currency which are measuring themselves against

the US dollar will all come back.

BARTLETT:

Meantime, of course, it will effect our interest rate one way or the

other. I wanted to ask you how much interest rate flexibility is built

into your Budget?

TREASURER:

Well, we actually in a Budget dont have a particular interest rate target.

In a Budget what we do is, we have a growth target, and interest rates

effect your growth one way or another. If interest rates go up exceptionally

highly, you will put an economy into recession, which is what happened

in 1989/1990 when Keating got his interest rates up at around 17 per cent

for home mortgage rates.

BARTLETT:

Precisely my point, so how much flexibility will you have?

TREASURER:

Well, the home mortgage rate is now 7.8, which is the lowest its been

under, apart from our own Government, its the lowest its been since

1973. But people forget that. A 7.8 per cent interest rate is, by Australian

standards, one of the lowest weve had in 30 years. So . . .

BARTLETT:

Let me ask you the question another way. Should they continue to rise

domestically, interest rates, for the next 6 months, will that effect

your bottom line?

TREASURER:

No. what effects our bottom line in a Budget is the strength of the economy.

Because its the strength of the real economy which determines the revenues

that youre getting out of income tax or company tax, or the level of

unemployed people. Look, let me give you one indicator as to what effects

your bottom line. The number of people out of work effects your bottom

line. If there are more people out of work and youre paying more unemployment

benefits, youve got higher expenses. So, you make an assumption as to

employment. Now . . .

BARTLETT:

Which comes back to growth?

TREASURER:

Which comes back to growth and . . .

BARTLETT:

So lets come back to the original question.

TREASURER:

. . . so, lets come back to growth and employment. Employment in Australia

is very strong. Weve had 700,000 new jobs in the last four years since

the Government was elected. We expect employment to continue to grow.

Now theres every reason, regardless of whats happening on the foreign

exchange markets or the foreign equity markets, to believe that the Australian

economy is going to continue to grow and create jobs. And thats what

is factored into the Budget, the growth employment job forecasts.

BARTLETT:

Okay, so when do you get worried, when do you start to get worried about

interest rates?

TREASURER:

Well, our policy is always to have the lowest interest rates possible.

And at the moment we have a home mortgage rate of 7.8 per cent. Now, its

true that a year ago that home mortgage rate was 1.25 per cent lower,

which is about 6 per cent, which was the lowest weve had since the

sixties. Even at 7.8, leaving aside the last year, its the lowest since

1973. By Australian standards, a high interest rate is like we had in

the early nineties, 17 per cent . . .

BARTLETT:

Its a shame that theyve started to eat into the projected benefits

though from the GST package, isnt it?

TREASURER:

Well, I dont think you can run together tax policy and interest rate

policy . . .

BARTLETT:

Well, householders do . . .

TREASURER:

Well . . .

BARTLETT:

. . . it all has to come out of the same piggy bank.

TREASURER:

. . . well, let me go through it, because I think its an important point

here. When youre looking at the value of a tax cut, youve got to look

at your position, tax position before the tax cut and your tax position

after the tax cut. That tells you whether or not youre getting a tax

cut. When youre looking at interest rates, youve got to go off a base.

You know, if you want to know how the interest rate has effected you,

what do you determine as your base year? If you want to determine when

this Government was elected, for example, as your base year when the home

mortgage interest rate was 10 per cent, the average family is $2800

a year better off. It all depends on the base year. Now some people say,

well, take the lowest base year that weve had post-war in relation to

interest rates and feed it into a tax cut, and try and work out what the

overall position is . . .

BARTLETT:

Do you reckon the average householder gets their account from the bank,

looks at the mortgage and says, hey, check this out, this is still 2 percentage

points lower than when this Government was elected . . .

TREASURER:

Well its . . .

BARTLETT:

. . . do you . . .

TREASURER:

. . . its 3 actually . . .

BARTLETT:

. . . you really think, you really think that they . . .

TREASURER:

. . . Im not saying that they do it, but it is actually 3 . . .

BARTLETT:

Let me . . .

TREASURER:

. . . 3 per cent lower than when the Government was elected. But, the

point Im making is this. If you want to assess the value of a tax cut,

what you should be doing is you should be looking at the taxes you paid

on the 30^th of June, and the taxes youll be paying on 1 July,

which will show you that youve just had the largest income tax cut in

Australian history. Thats whats going to happen on 1 July.

BARTLETT:

Lets talk about that for a moment, well go to the phones in a second,

Ill just ask you some questions about the GST. You have said, every Australian

worker, every Australian worker will get an income tax cut from July the

1^st. Is that true or false?

TREASURER:

Every Australian worker whos paying income tax gets a tax cut from 1

July, absolutely true.

BARTLETT:

The claim today is that 80,000 low-income earners will not receive tax

cuts or an increase in social benefits.

TREASURER:

The claim today, which was made by, I believe one George Megalogenis

in the Australian . . .

BARTLETT:

Well it doesnt matter who its made by.

TREASURER:

Well, Ill answer him . . .

BARTLETT:

Okay, good.

TREASURER:

. . . because I think hes making the claim.

BARTLETT:

Yes.

TREASURER:

I think his point was this. If youre not paying income tax, you cant

get an income tax cut. I think thats his point. Well, George, you know,

good point George, if youre not paying income tax, you cant cut that

persons income tax. Thats quite right George, if youre not paying any,

you cant get a cut. What we say is, everybody who is paying income tax

gets a cut. Now, its really just a linguistic little trick that George

Megalogenis tried to pull in The Australian today . . .

BARTLETT:

So when the GST ads say that the tax cuts immediately put extra money

in the pay packets of every Australian, you stand by that?

TREASURER:

Every Australian who is paying income tax gets a cut. George Megalogenis

says, oh, Ive thought of this little linguistic trick, youre not paying

any income tax, you cant get a cut. Well, good on you George, thank you,

youve no doubt been working on that little trick for 24 hours, but it

doesnt change the reality. Every person that pays income tax gets a cut

because every income taxpayer has either a threshold change or a rate

change.

BARTLETT:

Treasurer, $350, what is it, $353 million, thats the latest figure that

weve been using, which hasnt been disputed. $353 million for GST advertising

and information, you cant be completely comfortable with that, can you?

TREASURER:

Oh, I think that includes $170 million which has been given to organisations

to help their members understand their tax reporting obligations. Thats

not all advertising . . .

BARTLETT:

Well are you completely comfortable . . .

TREASURER:

. . . and . . .

BARTLETT:

. . . with that total figure?

TREASURER:

Well, lets take the $170 million, thats the lions share of it, which

doesnt go on advertising at all, which was given out to organisations

like the housing industry, it was given out to organisations like the

Farmers Federation, to conduct training seminars for their members. Now,

the feedback I get everywhere I go is, people want more information. People

want more information. This wasnt spent on advertising, it was given

to the industry groups to try and explain to their members so they can

comply with their tax obligations. I think its money well spent. And

as I actually listen to the community and business, theyre not wanting

less information, theyre wanting more.

BARTLETT:

Well, how much information are we seeing in the current range of ads

with the people being chained up?

TREASURER:

Well, I think youre seeing some very good information, because . . .

BARTLETT:

Youre not serious, are you?

TREASURER:

. . . people are getting income tax cuts on 1 July, do you know what

your income tax cut is?

BARTLETT:

No I dont.

TREASURER:

Well, see thats the point I get from . . .

BARTLETT:

No, but I dont know because I havent bothered to look.

TREASURER:

Well, thats the point Im getting from everybody. They say, well, whats

my income tax going to be? These people on 1 July . . .

BARTLETT:

But I dont . . .

TREASURER:

. . . are going to look at their pay packets, and theyve got to make

sure that their employer has passed on the full income tax cut to them.

And what were actually trying to tell them is, if this is what your salary

is, and this is the new rate, this is the income tax cut you should be

looking for. Theres another . . .

BARTLETT:

Hang on, hang on. Seeing as you personalised it, Ill tell you why. In

my particular case, I will take that as a responsibility to go and look

for myself and find out. I dont want to pay, and I dont want you to

pay on my behalf, millions of dollars for glossy TV ads to advertise the

GST.

TREASURER:

Well hang on, no, no, its giving information on all of the tax changes,

not just GST, income tax cuts. Let me give you another example . . .

BARTLETT:

How much information do you really think is in that . . .

TREASURER:

Oh . . .

BARTLETT:

. . . TV ad thats running now?

TREASURER:

. . . extraordinary. Extraordinary information. Let me give you another

example. On 1 July . . .

BARTLETT:

You say that with a straight face.

TREASURER:

Well, its the truth. On 1 July, all family allowances go up. Right.

People have got to know what increases in family allowance they get. Now,

theres one increase for families that have a child under 5, single income

families with a child under five. Theres another if youre a dual income

family and you dont have a child under five . . .

BARTLETT:

The TV ads say that, do they?

TREASURER:

They actually tell you what the family assistance changes are. Youve

got to make sure that you get them. Theres another ad, I dont know .

. .

BARTLETT:

(inaudible) different ads.

TREASURER:

. . . if you have seen this, is the self-funded retirees who are going

to get a savings bonus. A lot of self-funded retirees – I come across

this all the time – they say, whats in this for us? And I say, look,

youre eligible for a payment up to $3,000 from 1 July. And people say,

I never knew about that. And its just a question of making sure that

people get their full entitlements.

BARTLETT:

But, the way were spending the money, at the rate were spending the

money, you couldve given them all just about double their bonus for self-funded

retirees and spent nothing on advertising.

TREASURER:

Well hang on . . .

BARTLETT:

Thats an enormous amount of money.

TREASURER:

. . . hang on, lets get this in perspective. The tax cuts are $12 billion,

12 thousands of millions of dollars. And the family assistance is $2.4

billion, 2,400 millions of dollars. And the advertising campaign is not

thousands of millions of dollars, its most probably tens of millions

of dollars.

BARTLETT:

Well, based on your figures, its about what, $180 million . . .

TREASURER:

Well . . .

BARTLETT:

. . . leaving out the $170 million youre talking about for the packages.

TREASURER:

. . . well, if I go through it again, thats not all actually for GST.

That is a four year figure for a start. The Labor Party multiplies by

four, over four years. Thats number one. Number two, some of that is

related to the Pay As You Go business taxation system, some of its related

to the Australian Business Number, taxation system. So thats not even

the figure thats related to individuals.

BARTLETT:

Do you know how much we paid Joe Cocker for the right to his song?

TREASURER:

No, I didnt negotiate that, no.

BARTLETT:

Treasurer, well take some calls if you dont mind? You can slap those

headphones on for us. Lets talk to Jack first up. Hello Jack.

CALLER:

Yes. My question is regarding the one-off payments for the self-funded,

well not self-funded, but the retirees, $1,000.

TREASURER:

Yes.

CALLER:

If your savings from interest or investments amount to $1,000, you get

the $1,000.

TREASURER:

Thats if youre an aged pensioner Jack. There are two schemes. There

is one for pensioners where you can qualify for a bonus up to $1,000.

And theres another for the self-funded retiree, the person whos not

on a pension, who can qualify for another $2,000.

CALLER:

My question relates to a friend of ours who has brought up five children

on her own. Her savings wouldnt amount to $100, and thats all shell

get. Dollar for dollar, $100, and I think its very unfair.

TREASURER:

If shes a pensioner, and I assume she is if . . .

CALLER:

Yes, full pensioner.

TREASURER:

Full pensioner. The benefits that pensioners get is that theyre actually

getting a 4 per cent rise in the pension. And thats coming on 1 July,

a 4 per cent increase in the pension, so that pensioners have their pensions

increased. And for pensioners the main benefit is the increase in pension.

They then get, if they have some private savings, an additional benefit

in relation to the private savings. But because a pensioner gets an increase

in pension, they dont actually get the full savings benefits because

theyre deemed to be relying on the pensions.

BARTLETT:

Alright. Thanks Jack. Hello David.

CALLLER:

Treasurer, I got my little booklet in the mail the other day, The New

Tax System Essentials. I wish the Australians werent so pessimistic.

I wish they would give this GST a go and get behind the Government for

a change. But the thing I think is where youre going to get yourself

into trouble is all these exemptions. I think if youre going to have

a tax, you should have it on absolutely everything. Like, on page 3, the

food that is GST-free, the list is twice as long as the food that is subject

to GST.

TREASURER:

Yes. Well thats a fair point David. Look . . .

CALLER:

Anyway . . .

TREASURER:

Can I just make this comment. A value added tax or a GST, its the same

thing, is in place really throughout the world now, you know France, Germany,

Britain, Japan, Singapore, Canada, New Zealand. And Australia has come

to this very late. Weve lagged the rest of the world that have all moved

into this modernised tax system. One of the lessons that weve learnt

with the experience, particularly in Europe, is precisely what youve

just said, that the broader the base, the more simple it is. And that,

of course, was the policy which the Government took to the election. We

said, you know, the more exemptions you have, the greater the complexity

grows. As you know, when we introduced the legislation into the Parliament,

Labor refused to accept the Governments mandate at the last election

and voted against everything, so, we were then at the mercy of the Senate,

which increased exemptions, and therefore increased complexities. No point

going back over it now, weve got to live with those exemptions that were

forced in the Senate.

BARTLETT:

Weve had quite a few calls to the programme, in fact, we get them on

a regular basis about people wanting to know exactly what theyll see

when they get to the checkout after the 1^st of July. Is it,

can you clear this up once and for all, is it law that all GST components

will be shown?

TREASURER:

On the price, thats right. So that the price that you see on the cash

register is the price you have to pay, right. So, were not going to have

a situation where they ring up on the cash register and then say, oh,

by the way theres an additional tax burden. The price that you see on

the cash register is the price that you have to pay, and it includes all

taxes . . .

BARTLETT:

Thats inclusive of GST?

TREASURER:

. . . includes all taxes . . .

BARTLETT:

So, so . . .

TREASURER:

. . . just as at the moment . . .

BARTLETT:

. . . it will be exactly the same as the current system, whereby . .

.

TREASURER:

Thats right.

BARTLETT:

. . . certain items will be effected . . .

TREASURER:

Thats right.

BARTLETT:

. . . and certain items . . .

TREASURER:

Thats right, because we didnt want a situation where, youve probably

had this experience in the United States, you roll up to the cash register,

if you take something off the shelf, its, sort of, if it says its 80

cents, you roll up to the cash register and they say, thatll be 98 cents

please. And you say, how come? And they say, oh well, thats the pre-tax

price, and at the cash register, you know, this is the post-tax price.

So, at the cash register its got to show you the tax inclusive price,

so what you see is what you pay. Thats the system at the moment, as you

know . . .

BARTLETT:

But doesnt that Treasurer, doesnt that make a mockery out of, keep

coming back once again to these multi-million dollars worth of advertising,

about the stance that youve taken, about getting rid of this terrible

tax system that we have because its all about hidden taxes, hidden wholesales

taxes, and we dont know were paying this, this and this on a range of

items. I mean, itll be exactly the same.

TREASURER:

No, I dont think theres anybody in Australia thats under any misapprehension

that theyll be paying GST from 1 July. I think thats pretty obvious,

and everybody knows its 10 per cent . . .

BARTLETT:

Well, were not under any apprehension at the moment that we pay tax

on certain items either, are we?

TREASURER:

Well, the trouble at the moment is, what you dont know is some of those

items are taxed at 12, some at 22, some at 32, some at 37, some at 46,

and some at zero. And thats what you dont know at the moment, its hidden

in the price.

BARTLETT:

Well, we still wont know when we pick up our till slip at the grocery

store exactly what items have been taxed and what havent.

TREASURER:

What you know is that those items that have been taxed under a GST have

been taxed at 10 per cent. I think the whole of Australia knows that,

thats pretty obvious.

BARTLETT:

You dont see any inconsistency then?

TREASURER:

None whatsoever. And why did we have a tax increase of price, for the

reason I just put to you. So that people know, what you see on the cash

register is what youre paying. When you go into your supermarket on 1

July, youll pay the same prices. Some things will have gone up, some

things will have gone down, some things will be the same. And I think

Woolworths estimated that on $100 of purchase, if your weekly bill was

$100, I think they said they estimated that the price after 1 July would

be $100.80, I think, something like that.

BARTLETT:

Graham, good morning.

CALLER:

Yes, good morning Mr Costello.

TREASURER:

Hello Graham.

CALLLER:

I have a couple of points Id like to raise. I applied for my companys

ABN before Christmas last year. After waiting three months, and still

having not had the courtesy of a reply, I wrote to you, to Peter Reith

who had the effrontery to threaten small businesses like mine with dire

consequences if we didnt register, and to Peter Carmody, head of the

Tax Office, only then did we get our ABN. But your service hasnt improved.

On the 27^th of last month, I sent a detailed inquiry to your

reply in five email service. For those not aware, this service is where

the tax guarantees are replied in five days of an inquiry. 21 days later,

21 days later no acknowledgement and no reply.

TREASURER:

Yes, and . . .

CALLER:

Well . . .

TREASURER:

. . . whats the question?

CALLER:

. . . the question is, I need some information on how to run my business

. . .

TREASURER:

Sure. Well . . .

CALLER:

. . . in respect of GST, and you wont provide it.

TREASURER:

Okay, well, whats the name of your, if youd like to give me the name

of your business, well give you an answer within five days. Ill get

onto the Tax Commissioner . . .

CALLER:

. . . but why . . .

TREASURER:

. . . and make sure we send it out.

CALLER:

. . . why have we not had a reply in five days?

TREASURER:

Well . . .

CALLER:

You advertised this as a guaranteed service.

TREASURER:

Well, look I cant tell you why youve not had a reply in five days because,

you know, I dont do the replies myself. But, alright . . .

CALLER:

(inaudible) . . .

TREASURER:

. . . but having raised it, if youd like to give us the name of your

company, and the question off air, Ill get on to the Tax Office and well

make sure that you do have a reply within the next five days. So hang

on the line and well get the name of your company.

CALLER:

Ive got a second question for you.

BARTLETT:

Just quickly Graham.

CALLER:

Just on the paltry $200 assistance you provide for business to implement

their GST. I personally have spent a half day at a seminar, my bookkeeper

has spent a half day at a seminar, we still have to attend a course on

our accounting software, we spent at least 10 hours reading the literature

weve got, and all you offer us is a paltry $200. $2,000 would be far

more appropriate to cover our real costs.

TREASURER:

Well, Liam here has just been complaining about the amount of $170 million

which we gave to organisations to provide those services. And I must actually

agree with you. Whenever I actually talk to the public about these sorts

of things, they say, wed like more information, not less. We put $170

million into organisations that could deliver this kind of assistance.

Youre referring to the fact that everybody gets a voucher for $200, which

is another part of the assistance to help them. And that $200 can actually

buy a new accounting system with people like MYOB, Ive noticed theyre

offering new accounting systems for the $200. Can I also say that there

is full tax deductibility for any person that upgrades their software

as a consequence of moving to the New Tax System, immediate expensing,

thats worth another $375 million in tax advices. And I think that the

Governments put together a package to try and help businesses as much

as possible. Can I make this point. Whenever there have been tax changes

in the past, the Governments never offered any assistance at all. And

one of the reasons were spending the money on this, and weve been criticised

for spending too much money, is to try and help businesses in that situation.

BARTLETT:

Alright Graham, Ill stick you back to Deb and we can grab those details

from you. Treasurer, I know youve got to go. Can you just help me out

here? We seem to be getting different messages. New Zealands experience,

when they introduced their version of the GST, was up to 25 per cent of

small businesses going to the wall in the first 12 months. Some analysts

here, some chartered accounting firms predict about 5 per cent for us.

What do you think?

TREASURER:

I dont think anybody will go to the wall as a consequence of GST. I

think there are businesses that are getting into difficulty for all sorts

of reasons. You know, it may be that sales are down, it may be that markets

have changed, and businesses will rise and fall as they always have. But

I dont think that there will be businesses that will flounder because

of GST. The GST really is just a new way of replacing wholesale sales

tax, and at the same time were cutting company taxes. So, I dont think

thats a problem in that particular change. And I think the converse might

be true actually. As we move to a GST system and people upgrade their

accounting records and the rest, I think that therell be a productivity

improvement in many businesses which might come about as a result.

BARTLETT:

You cant see any downside?

TREASURER:

Not as a consequence of GST. Look, there are going to be challenges in

the economic environment because of markets and sales, and economic development,

and all the rest. And I have no doubt that tax changes will be blamed.

Let me give you one example. There was a building company I saw the other

day that said it had got into trouble because of GST. Why? Because of

the GST, house building had boomed, and because house building had boomed

it had got into trouble. Now, its a very funny situation where you blame

a strong market for bringing you undone. Im sure youll see lots of people

say that this, or that, or the other was caused by tax change. But at

the end of the day, the tax change itself is not going to determine the

outcome for these businesses. Its going to be the general economic climate,

and sales, and all of those other factors that go into business operations.

BARTLETT:

Right. Good to talk to you today. Thanks for your time.

TREASURER:

Great to be here Liam. Thanks very much.