Transcript No. 2000/72

TRANSCRIPT

Treasurer

But first up today, the new tax system. We’re joined now by Federal Treasurer,

Peter Costello. Good morning Mr Costello.

TREASURER:

Good morning Paul, how are you?

MURRAY:

Very well, thank you sir. How has Australia accepted the new system?

TREASURER:

I think it’s gone pretty well actually. Everybody had been saying that this is the

biggest change in Australian history, and it was. And I think many people were expecting

huge glitches and I can report to you from all of our evidence and from the Commissioner

of Taxation, from the Australian Competition Commission, that it seems to have gone

without any major hiccups. You know, the Labor Party said that there would be rioting in

the streets and shop assistants would be attacked. No evidence of any of that kind of

thing. The sun came up and the sky didn’t fall in. So all in all, as well as anyone

would have expected.

MURRAY:

Did you honestly think it would go so smoothly?

TREASURER:

Well, Paul a hundred and fifty countries in the world have done this and I never

accepted the argument that we couldn’t. The argument, somehow, they could do it in

France and Britain and Germany and Canada and Japan and Singapore and everywhere, but we

couldn’t do it in Australia. I never accepted that argument. I knew we were going to

have trouble, because various people were trying to create an attitude of hysteria, but

they weren’t successful. And we’ve done it and we’re now part of modern

taxation practice and it will be good for the country.

MURRAY:

Now, retailers around the country have reported very quiet trading over the weekend.

Are you worried about any form of a buyers’ strike that might happen. People sitting

back and waiting to see?

TREASURER:

All the evidence from overseas is that you generally get a build up in retail trade

before the tax change comes in, and then you get a fall away before it picks up. We never

really had frenzied buying like they did in some countries – Japan and Canada in

particular – they had really frenzied buying before they brought in GST. So because it

didn’t go up as high as some of those countries, it won’t come down. The other

different thing in Australia, is, that people are going to be getting large income tax

cuts. So I think what people will do is, they’ll sit back for a while, they’ll

assess prices, they’ll wait to see what’s in their pay packet, I think

they’re going to get a pleasant surprise that they are going to get much more money

to take home per week and then they’ll return to the shops again. What we call the

compulsory spending won’t change, you know the spending on milk and bread and all

that kind of thing, and in fact that will probably be cheaper, people will probably notice

maybe about a dollar in a hundred cheaper. It’s the discretionary spending that tends

to fall off, but I’d expect people will assess their pay packets and start returning

to the market.

MURRAY:

Because the economy is pretty precariously poised at the moment isn’t it, between

growth and interest rates. You wouldn’t want any sort of stagnation in the economy in

this next six months?

TREASURER:

No. We wouldn’t want any overheating either. The economy is always a delicate

balance. You don’t want it to go down because that would mean that we wouldn’t

create as many jobs as we have the capacity to, you wouldn’t want it to overheat,

because if it was overheating then you have to slow it down. So, it’s always a

delicate balance. You’ll get a one-off change in prices, we’ve always said that,

but the important thing is to look through the one-off change and to keep ongoing

inflation low, which we can do. As long as people understand there is no point in having

wage increases because tax has been cut on the same wage, you are going to take home more

money, you’re going to be better off, so there’s no grounds on which to go out

and seek wage rises.

MURRAY:

But the ACTU has already flagged that they are going to have a go at that aren’t

they? There is a built in one-off inflationary level out of the GST, I forget the figure

now it is something like 3.5 per cent isn’t it or something like that, I mean…..

TREASURER:

Well over the long term………

MURRAY:

…that gets washed out of the system. But in this year, there’s an

inflationary effect isn’t there, that gets washed out next year and the ACTU says

they will use this to make a claim for a wage increase?

TREASURER:

Well there is no basis for it. As I said you get a one-off rise in prices but it is not

ongoing, and you get an ongoing tax cut. And the tax cut gives you more money to spend,

you’ve got more money to spend on price rises and more money in your pay packet, even

after price rises. So there is no reason to go out on wage claims, and provided people are

responsible and I think people are going to get a pleasant surprise when they see their

pay packets. Families are going to get increased family assistance too as you know, so

those family allowance payments are going to be increased, they’ll find that

they’ve got more money to spend.

MURRAY:

Treasurer where does reform go to now? Payroll tax, the abolition of payroll tax was

part of John Hewson’s Fightback, it got dropped from proposals that you and Mr Howard

have brought forward. It’s accepted as one of the biggest drags on employment and it

is a State tax. Is there any change we are going to get rid of that out of the system?

TREASURER:

Well, this is now fairly in the courts of the States. I didn’t mean to make a pun

there.

MURRAY:

..(inaudible)

TREASURER:

This is in the ballpark of the States. As you know all of the revenue from GST goes to

the States. In fact today, I am going to authorise the first payment to State governments

under the new tax system, which will be paid tomorrow. And they now get revenue, 10 per

cent of the goods and services consumed in Australia. Now, as that revenue builds

they’ve got a growing source of revenue and they can do one of two things, or both.

They can improve their services out of that revenue, and we want to see the money spent

wisely and well, on police and schools and the roads and the hospitals. Second is, down

the track, as the revenues build they could even look at cutting their own taxes. So the

whole argument has changed.

The argument five years ago, was even though payroll tax was a State tax, the

Commonwealth had to give the States the money to abolish it. Now the Commonwealth has

given the States the revenue base and they make their own decisions now, they’re

responsible for their own decisions, those States that use the revenue as it grows over

the years to reduce tax, no doubt will get better business opportunities.

MURRAY:

You said, ..(inaudible) a remarkable thing I saw you say on the television news last

night. You were talking about Mr Beazley being a possible Prime Minister and needing to

say what he would do with the GST. What did you mean by that?

TREASURER:

Well, I meant this. There has been an attitude over the last couple of years, that oh

well, you know, we don’t have to scrutinise Kim, you know, he is only an Opposition

Leader, and he’s not strong on economic policy and so we should judge him by a lower

standard. The point I’m making is that you should judge Kim Beazley, by the same

standard that you judge me or John Howard. That is, he is putting himself forward as an

alternative Prime Minister, he’s got to start understanding about tax and the

economy. He could, if he has his way, he could be running the economy and we are entitled

to know what he would do about it. Now, we’ve just had the biggest tax change in

Australian history. It came in on Saturday. He now says he wants to keep the GST, after

campaigning against it all these years he’s changed position, he now wants to keep

it. But he says he will amend it. Well, we are now entitled just as this Government has to

say what it will apply to and how much money it will raise and what income tax it will pay

for, he’s got to say what he wants it to apply to and how much money it will raise

and how much he intends to put up income taxes to pay for it. He’s got to be put

under the same scrutiny as Mr Howard and me. That’s the point I’m making.

MURRAY:

There wasn’t an element of defeatism in that comment, that you’re going to

get a hiding at the next election because of the GST and we need to find out what Kim

Beazley’s going to do?

TREASURER:

Oh no. It is to make sure that he gets the same scrutiny as we get so that it is an

even contest at the next election. See, a lot of people say, oh well, you can’t

expect, and I think Kim sort of puts this view, he says you can’t expect me to have a

view on tax and the economy. Well, why not? I mean, he’s been formerly a Deputy Prime

Minister, he’s been a Finance Minister, he ought to know these things. He wants to

run the Australian economy. You know, we are entitled to have him put under the same

scrutiny as we’re put under. We don’t wonder around Australia saying, oh I

can’t tell you what the GST will apply to, can’t tell you how much it will

raise, can’t tell you what our income tax rates are. We’ve told you all of those

things, we’ve brought it in against massive opposition. Now, tonight he’s going

to make a big speech, he should say, now that he’s in favour of GST, he ought to say

where he would change it, how much it would cost, and how much he is going to raise the

income tax rates to pay for it.

MURRAY:

Just finally Mr Costello, you’ve got pretty good political instincts, and

they’re usually right on the edge at all times. How do you think the Australian

people are going to judge you for this big change?

TREASURER:

Well, I hope as they see their income tax changes they’ll say, well, it was a hard

struggle and these guys were fighting the whingers and the knockers but we’ll give

them points for leading and being strong. And I’ll make this prediction, in five

months, in five years, in fifteen years nobody is ever going to repeal goods and services

tax, that when we look back in fifteen years time at this argument which took place on 1

July 2000, we’ll see it in the light that we now see the change to decimal currency.

When we changed to decimal currency in 1966, every price changed. People had to get used

to a new system. Nobody would ever think of going back today to pounds, shillings and

pence. Nobody will ever think of going back to wholesale sales tax. It had to be done for

the future of Australia and they’ll look back and they’ll say, we’re glad

somebody had the courage and the determination to do it.

MURRAY:

Thanks for your time this morning Mr Costello.

TREASURER:

Thanks very much Paul.