Transcript No. 2001/100

TRANSCRIPT
of
HON PETER COSTELLO MP
Treasurer

DOORSTOP
Melbourne
Wednesday, 25 July 2001
12 noon

SUBJECTS: June Quarter CPI

TREASURER:

Today’s increase in the Consumer Price Index of 0.8 per cent for the June quarter shows that inflationary tendencies in the Australian economy are well in check. The quarter is lower than the March quarter which was about 1.1 per cent. It appears as if the major influences on prices for the June quarter are in relation to petrol, which rose in the first two months of the quarter but came off a bit in June. There are still high prices in relation to meat and that is no doubt a consequence of foot and mouth. Meat prices have gone up quite considerably in Australia. Fruit and vegetables came off a bit after a very large rise due to flooding in the March quarter. But a quarterly outcome of 0.8 per cent and an annual outcome of 6 per cent, which was forecast in the Budget, and includes the one-off effect of the new tax system, is in line with expectations. It shows that inflationary measures are still in check in the Australian economy and is consistent with continuing growth and low inflation which is good for the Australian economy.

JOURNALIST:

So does this further reinforce what you’ve been saying all along about the one-off impact of the GST?

TREASURER:

Tax reform has now washed entirely through the system. We are now back to a 0.8 per cent for the quarter. Except to say that in the next quarter, the September quarter, you will actually have tax reforms detracting from the Consumer Price Index.

The abolition of Financial Institutions Duty, for example, on 1 July will feed in and will actually give off a one-off detraction in the September quarter. So price increases have certainly washed completely through the system. We now have some price falls which will wash into the system, particularly in relation to Financial Institutions Duty. But, all in all, the tax changes have washed through the economy as expected and as forecast, and the actual outcome for the 12 months was bang on the forecast of 6 per cent.

JOURNALIST:

Are you unhappy about the decision of James Hardie to move offshore, to go offshore?

TREASURER:

James Hardie has been offshore for a long time. And I think that something like 85 per cent of its income comes from the United States. So it has been deriving most of its income from the United States for a very long period of time. As you expect, in relation to a building company, the United States is a much bigger market. But the bulk of shares in James Hardie are still held by Australians. If a company can develop overseas markets and return dividends to Australians, that is a good thing for Australians. But the company, of course, is going to derive more income in bigger markets, and the United States is going to be a much bigger market. Returning that income to Australians in the form of dividends gives them an opportunity to share in the larger markets of overseas.

JOURNALIST:

Do you think there is any way you could rearrange tax arrangements?

TREASURER:

Yes, we have to continue to work on tax arrangements. And 4 weeks ago we cut company tax for that very reason – to make Australia a better base for companies. We couldn’t have done it without tax reform. If the Labor Party had had its way and defeated tax reform, then the company tax rate would still be at 36. We have managed to get it down to 30 per cent. And I’ll make this point, that anybody who tells you they are going to rollback the GST, better tell you the other side of the equation – they will roll up company tax and income tax. And that is just going to make it harder to do business in Australia. This is an example of why we have to reform our taxation system, because if we don’t our company taxes will get uncompetitive. We have now got it down to 30 per cent. But imagine where we would be if it was still up at 36. And anybody who says to you that they want to rollback GST and put up company tax and income tax again, better tell you what that is going to mean in terms of jobs – less jobs for Australians.

JOURNALIST:

But how do you plan to make it even more attractive?

TREASURER:

Well, we continue on with our tax reforms. We abolished the Financial Institutions Duty 4 weeks ago which means that companies now in Australia don’t have to pay tax for putting money into their bank accounts. And then we are going to roll on and we are going to abolish under our tax reform proposals the Bank Account Debits taxes, so that companies won’t have to be paying taxes when they take money out of their bank accounts. So this is the continuing process of taxation reform.

JOURNALIST:

How do you view all this. Are you looking at any particular measures to discourage other companies from following suit?

TREASURER:

Oh one of the things that we are doing as we speak is we are seeking to re-negotiate our taxation agreement with the United States. Because one of the factors that is making it difficult for Australian companies to get American income back into Australia is the level of dividend withholding tax that the Americans put on money leaving their country. You see you have got, Hardie derives most of its income in America. When it comes to remit that income from America back into Australia the Americans tax it with a dividend withholding tax. We are negotiating with the Americans to reduce their tax on American income repatriated back to Australia. And that would be a very positive move. We have had two rounds with the Americans in Washington I think, our people are negotiating very hard, the Americans are very hard negotiators.

JOURNALIST:

(Inaudible)

TREASURER:

But we are, but we are working very hard on that.

JOURNALIST:

Would you be concerned if other companies followed suit?

TREASURER:

Well, obviously I want to get…if you want Australian companies to grow and be profitable you have to get a good taxation regime. Part of it, as I said, is double tax agreements, part of it is dropping company tax. Why do you think we went to all this effort of dropping the company tax from 36 to 30 per cent? To make Australia a better base for companies. Now let me make this point. If Labor had had its way and defeated GST the company tax would be 6 per cent higher today than it is, and Financial Institutions would be charged on every company, and there would be no prospect of abolishing Bank Accounts Debits taxes. Now, what I can say to you is, having fought for tax reform we have come a long way. But I want to say to people, this is an illustration of how we have got to keep on going. What’s the worst possible thing that you could do in this environment? Rollback. Roll back GST, roll up company tax, roll on Financial Institutions Duty, roll on higher income taxes. We have fought and struggled every step of the way. We have made enormous progress, but we have got to keep going. I say to people, I say to the people of Australia, we have made some great strides but we can’t go back. You know, this is an example of why you can’t go back to the dark days of Beazley and Creanism.

JOURNALIST:

Is the Chamber of Commerce being alarmist when it says there is a string of other companies which will follow James Hardie if the tax arrangements aren’t changed?

TREASURER:

I don’t know what they have said.

JOURNALIST:

They have said that they can name a handful of other companies which would do the same thing.

TREASURER:

Well, I can’t comment on what the Chamber of Commerce has said because I haven’t seen it.

JOURNALIST:

What is the main stumbling block in the negotiations with the United States?

TREASURER:

Well the Americans don’t want to reduce their tax rate on Australian…the Americans obviously don’t want to reduce their tax rates on American income earned by Australian companies. This is income earned in America, American income by an Australian company. So an Australian company makes American income and it wants to bring it back to Australia. The Americans have a higher tax rate, taxation rate on it. Why don’t they want to drop it? Well obviously they don’t want to drop their tax rates on American income earned by Australian companies.

JOURNALIST:

How much of a drop are you asking for?

TREASURER:

And, we are asking for a significant drop, and that is why…

JOURNALIST:

Down to 5 per cent?

TREASURER:

…that is why we are negotiating it at the moment. And we are doing everything we can to negotiate lower American taxation rates on American income of Australian companies. Just as we are doing everything to negotiate lower Australian taxes on the income…Australian income of Australian companies. And I make this point, today the company tax rate in Australia is 30 per cent. Thirteen months ago it was 36. Where would we have been now if we hadn’t have reduced that? Where would we have been if the Labor Party had opposed tax reform? Now the only thing I say is we have made good progress and we have got to continue to work on further progress. But whatever you do don’t roll backwards.

JOURNALIST:

Treasurer, Sing-Tel’s bid for Optus….

TREASURER:

Last question.

JOURNALIST:

…when do you expect a decision on that? Have you a recommendation from FIRB?

TREASURER:

I’ll announce a decision once I’ve made it.

Thanks.