Transcript No. 99/89

TRANSCRIPT OF

The Hon Peter Costello MP

TREASURER

Interview with Matt Peacock (AM)

Wednesday, 24 November 1999

8.00 am

SUBJECT: Defence – East Timor Levy, Business Tax

Good morning Treasurer. Explain this thimble and pea trick.

Look, I think when people saw on their television screens the human tragedy and

suffering in East Timor, people that were being transported whose homes were being burnt;

there was an overwhelming support for Australian troops as part of a UN force to go and

save lives and restore order. Now if you are going to put three battalions into East

Timor, and you’re going to rotate them, you need to bring another two battalions up

to full operational capacity. They are to rotate the troops after the troops have done

their tour of duty. Now, if you’re going to put an additional two extra battalions

into the operational capacity of the Australian Defence Force, it costs a billion dollars.

And if it costs a billion dollars, you’ve got to raise it. It’s that simple. A

billion dollars to raise two battalions doesn’t just materialise out of the air.

And the Prime Minister says cuts to health, education and welfare are out of the

question, it would be unfair.

Well, you could have taken a billion dollars out of peoples’ pensions, or a

billion dollars out of schools, we don’t think that’s right.

Why not? It’s happened before.

Well, because I think those services are now being delivered at a very economical rate,

and I’m not sure that there is a billion dollars to cut. In fact I’m sure there

isn’t.

So I assume those sort of cuts are quarantined for the time being, for how long?

So if you want to support the troops in East Timor, you’ve got to have a billion

dollars. And I think this is a very fair way of doing it. And I think most Australians

would take the view that Australia did the right thing. If we didn’t send those

battalions, and we didn’t incur the cost of $1 billion, this wouldn’t be

happening. And I know people don’t like it, but I think the view will be that it was

the right, decent, humanitarian thing to do.

And this is strictly a one-off thing is it, just for one year?

The financial situation is that we’re carrying a billion this year, we can carry

that on the Budget. Next year we’ll have to separately raise the money, and the year

after we should be able to carry it on the Budget again.

So if it is just a one year thing, I mean, Meg Lees says she thinks you’re still

going to be in deficit next year, what with the other expenditures, the tax concessions

etc. It makes your pledge to crack down on tax avoidance even more severe doesn’t it?

Absolutely. And it also makes it very imperative for us to pass our business tax

reforms, because passing the business tax reforms, raises in net terms $700 million next

year. If the business tax reforms aren’t passed, if that’s defeated in the

Senate, then you’d have to, you’d be $700 million down. So it makes the passing

of business tax absolutely essential. And the big part of that is some crack downs as you

know, and in return some reductions in rates on companies and capital gains.

So no room for any compromise with the farmers for example on trusts?

Well, the policy that we announced in relation to trusts, we’ve been explaining

now I think since August of 1998, that’s when it was released. We went to an election

on it, and, I think, properly understood, it’s a very fair policy.

Now, you had talks with Meg Lees last night on this business tax proposition. As I

understand it they want some changes made to the capital gains tax regime. I mean, how did

these talks go?

Oh we’re pretty close I think. The Democrats have indicated that they are prepared

to pass the legislation before Christmas, and if we can get an agreement – and that’s

the critical thing – we’ve got to have this legislation passed before Christmas. The

Labor Party, as you know, keep saying it’s in favour of business tax reform, but it

can’t make a decision, and it’s talking about putting it off til next year. This

can’t wait til next year because we’ve announced changes, we have to legislate

them to clear up the uncertainty, and the Democrats have indicated if we can come to an

agreement then we can pass it before Christmas.

So you are prepared to adjust the impact of the capital gains tax….?

Well, we’re not prepared to compromise on the integrity of the package, but there

are some small things that the Democrats have asked for that we’re looking at, and

one or two other things that we’re currently thinking about.

No suggestion about the areas that you’re looking at?

Well, if things go well, we might have an announcement pretty early.

What this week?

Oh yes.

You’re meeting with Simon Crean of course, he must be feeling left out, but I

mean, his not arguing that you change the details, he’s just saying put your whole

package on the table and they might pass it straight away.

It’s on the table.

Well, what about the avoidance things. We haven’t seen them.

It’s on the table. It’s totally announced. Labor’s position as far as I

could tell when we last met was that if the Government announced that it would move in the

area of contractors, and non-commercial losses, it would support the policy. We announced

that on the 11^th of November.

But they want to see the letter of the legislation.

The letter of the legislation is all explained in the policy which has been announced,

as is always the case in tax. Now, what I think the trouble is….

Trust us.

No no, it’s all explained, it’s all set out. It’s all detailed.

It’s detailed in much more detail than any normal Budget or tax measure. No, what

there having trouble doing is making a decision. Now, you saw yesterday there is obviously

division in the caucus. Mr Latham tried to roll Mr Beazley and Mr Crean on the issue, and

it looks as if they have one the day for the moment. Now, if they can announce a position,

they can, you know get back into positive, constructive work. But you’ve got to have

leadership to make a decision, you’ve got to have a policy. And you know, the

debate’s resuming this morning. If they can announce a position this morning they can

still be in this, but if they leave it to later in this week, I think it might be over.

Now business says this Medicare Levy will put a squeeze on economic activity.

What’s your response to their complaint?

Look, it’s 0.5 per cent above $50,000 and 1 per cent above $100,000, and bear this

in mind, that those people are all getting income tax cuts anyway on 1 July. So, I mean,

everything has an effect, but I think the effect is quite small.

Peter Costello thanks for joining us.

Thank you.