TRANSCRIPT
THE HON PETER COSTELLO MP
Treasurer

Interview with Alan Jones

2GB

Tuesday, 13 April 2004

7.15 am

SUBJECTS: Labor’s land taxes; stamp duty; capital gains tax; negative

gearing; Iraq

JONES:

Treasurer Costello is on the line, Peter Costello good morning.

TREASURER:

Good morning Alan.

JONES:

Can you understand how people feel when they have bought an investment property to in many ways secure their retirement, and now all the rules look like changing?

TREASURER:

Absolutely. I think what has happened in this recent statement from Mr Carr and Mr Egan has changed the rules enormously, and I heard your introduction, it has got nothing to do with cooling the property market, it is all about raising additional revenue. I think they were quite clear about that. I think the thing that would worry people the most is that you buy a property, you pay stamp duty on the whole price, and now you sell the property, you pay stamp duty on the whole price. Same property, you have paid stamp duty on it twice, both buying and selling.

JONES:

Why then would people put their money into property when they don’t have to do that for example if they buy shares, and if they don’t put their money into property does this foreshadow, perhaps a crisis in rental accommodation down the track?

TREASURER:

Well, there is no stamp duty when you buy or sell shares, and that is part of the reform process that we have put in place, and that was part of the arrangement when we introduced GST that that stamp duty would be abolished. Now, what the Carr Government has done is that it has introduced new stamp duties on property. There was always a stamp duty when you bought, but now there is a stamp duty when you sell, and as I said earlier, you have already paid a stamp duty on the whole property when you bought it, on the whole price, now you are going to pay a stamp duty when you sell it. Same property, you pay the stamp duty twice.

JONES:

The previous recommendations by the Productivity Commission were to slash stamp duty for first home owners, and extend land tax to owner occupiers. Now, the Carr Government seems to have done that, do they get brownie points for that?

TREASURER:

The one thing I think that was positive was when they reduced stamp duty for first home buyers up to $500,000. Now we have been pushing them for a long time to do this, and that is a positive move, so I think it is fair to give credit where credit is due. What nobody foresaw was that they would then sneakily introduce another stamp duty to actually claw all of that revenue back. Now, they didn’t need a new stamp duty to claw the revenue back Alan, because as you and I know, the value of properties in New South Wales has been rising phenomenally…

JONES:

Correct.

TREASURER:

…over the last eight or nine years. By keeping the rates where they were, and sitting on the growth of properties of ten, sometimes 20 per cent per annum, they had a huge windfall, that was more than enough…

JONES:

They still have that windfall now with land value. By broadening the land tax base, all they have to do is to see land values escalate, and they will just have a mint of money at their disposal.

TREASURER:

…that is right…

JONES:

Because that is not, there is no cap on it, is there?

TREASURER:

…they already had a huge windfall, and that windfall was more than enough, much more than enough…

JONES:

$4.8 billion, they got more than they budgeted for.

TREASURER:

…yes, to fund that exemption, so…

JONES:

So, other property owners listening to you out there, that are not first home buyers, who didn’t get a first home owners grant, who had to pay stamp duty, whereas up to $500,000 is exempt, they bought at higher interest rates, they are now being bashed up with a 2 per cent property tax if they sell their investment property.

TREASURER:

…on their investment property, that is absolutely right. And there was no need for a new tax, this is my point, to fund that exemption for first home buyers, because they were sitting on a huge windfall in the first place, a huge windfall.

JONES:

Right, well now, then they swallowed, those same investors swallowed heavily yesterday when they learnt that the Productivity Commissioner tried to tell you that current tax breaks for owners of investment properties are overly generous.

TREASURER:

Well, forget what the Productivity Commission is alleged or not alleged to have said, we are the Government which cut capital gains tax for individuals in half, and that will not change.

JONES:

Right so you, let me just say that again, so when an investor sells a property, they pay capital gains tax on only half of the profits…

TREASURER:

That is right.

JONES:

…you will not be changing that?

TREASURER:

That is right, we are not changing that, not for a moment, we introduced that. Before our Government came in, this is the Commonwealth Government, you paid capital gains tax at your marginal rate, what we said is that you will only pay capital gains tax at half the rate. We introduced that, that was not a law before our Government came into power, we introduced that around about 2000…

JONES:

As an incentive for people to invest and provide for themselves.

TREASURER:

…absolutely.

JONES:

Now, what about the principles about negative gearing. I mean, I don’t know why we call it negative gearing because the rules that apply to how property is an investment apply to other investments, don’t they?

TREASURER:

Well, I have said this over and over again, if you borrow to fund an investment, whether you are…

JONES:

An ice cream shop, yes.

TREASURER:

…or whether you are buying a shop, or whether you are setting a, borrowing let’s say to buy a truck to go into the courier business, or to go into the trucking business, of if you borrow to go into the business of owning and renting properties, the cost of your borrowing is deductible against your income. Now that, some people call that negative gearing, you can call it the cost of borrowing or the cost of doing business, and that will not be changing either.

JONES:

Right, so you will not be changing that at all?

TREASURER:

No, not in the slightest, I have made that absolutely clear. I don’t know why people would think to the contrary.

JONES:

Will you be releasing this Productivity Commission report?

TREASURER:

Well, they have already released a discussion paper, and that is all out there on the record, anybody who wants to go and have a look at it, can have a look at it…

JONES:

But you are not about to tamper with capital gains tax or negative gearing?

TREASURER:

…not in the slightest.

JONES:

Good on you.

TREASURER:

We actually halved the capital gains tax. Why would I change it after going through all of the effort at having to get through that Labor dominated Senate, the halving of the capital gains tax, you don’t think I would turn around in a moment and try and increase again, we are about decreasing.

JONES:

But I mean the poor coot out there trying to provide for his retirement, have a bit of a nest egg does feel under siege, you can understand that, can’t you?

TREASURER:

Well, he is under siege, he is right to feel under siege.

JONES:

And I thought that when the, they think that when the GST was introduced, it was to reduce State taxes, here you have now got a Government in New South Wales increasing those taxes.

TREASURER:

Absolutely, when the GST was introduced, we got a commitment from the State Government that with the proceeds of the GST revenues they would start abolishing taxes. Now, Bob Carr is going to get $9,438 millions of dollars of GST. That is how much he is going to get, $9,438 millions of dollars, he is going to get additional monies in revenue assistance and specific purpose grants, he is going to get $188 million more next year than he got this year from the Commonwealth Government, and yet he is introducing new taxes.

JONES:

Yes, I am just looking at those figures as you were speaking, I mean they started with $7.2 billion in the year 2001, that has gone up to $9.08 billion in two years.

TREASURER:

In 2002-03, this year $9438, next year $9549, I mean, you know, it goes up every year, that is the GST money they get, and then they specific purpose payments for hospitals and schools, overall they are going to get an extra $188 million. Now, for all of the palaver that they go on with, New South Wales will get more money from the Commonwealth, they are then sitting on this absolute stamp duty windfall out of…

JONES:

Now, a land tax windfall by broadening the land tax base, if land values go up they can collect what ever they like.

TREASURER:

…that is right, and then just for the dessert and the icing on the cake, they said to the property investors, well now we will broaden the land tax and we will introduce an entirely new tax at 2 per cent on investment. Now Alan, you don’t have to be a genius to work out that property values in Sydney and New South Wales have been escalating year after year, the stamp duty rates have been reaping the windfall. You would have thought that some of that windfall could be returned with tax reductions, somewhat in the sense that for first home owners, the threshold was raised to $500 thousand, but it was paid for with an entirely new tax.

JONES:

Absolutely.

TREASURER:

And you know, I keep on saying to people that nobody told the voters of New South Wales before the last State election that this new tax was going to be coming in if Mr Carr was re-elected. Nobody told them that. Now, you ought to tuck this away and you ought to remember that is what Mr Carr did after he got elected, and you ought to be thinking to yourself in relation to Mr Latham, which are the taxes that he has got in mind?

JONES:

Just on Iraq, and I will be looking at this later in the week I will just say to my listeners, but it seems now that the anti-Bush, anti-Howard element within the media, and there is a lot of them, want to make comparisons between Iraq and Vietnam, I quoted earlier today, an academic who said yesterday that such comparisons quote “do not stand up to serious analysis, they signify either wishful thinking by an obsessively anti-American faction of politicians, journalists and academics, or a dismal ignorance of history.” What do you make of the direction that the debate is taking?

TREASURER:

Well, look there are people that opposed the Coalition involvement in Iraq from the outset, that is their entitlement, and they will argue against it on various grounds. I believe that what we did was right, I believe that what the Coalition did was right, I think Iraq is an infinitely better place today than it was under the brutal dictatorship of Saddam Hussein. Now, you don’t create a fully-fledged functioning society, respecting law and order overnight, it will take time, everybody knows that, and that is why it is important that Coalition allies stay engaged. If the world were to walk away from Iraq now, and leave it with no functioning government and no system of law and order, the great risk is it will become a haven for hostage taking, for terrorism, that it will be lawless, and that the poor Iraqis who have been persecuted by that dictatorship for so long will not get the better life and the better opportunities that they deserve.

JONES:

It is interesting to see Japan’s response isn’t it? I mean the Japanese, the subject of kidnapping there, were merely civilians working on aid and reconstruction, I understand one of them was a peace activist opposed to the war…

TREASURER:

Yes.

JONES:

… and yet Japan has demonstrated that it will not waver from its commitment to helping achieve peace in Iraq, it is supporting the Coalition in Iraq. Now it raises very significant questions as to if Japan, if that is the attitude of Japan, Australian people must wonder what the attitude of Australian leadership would be, should say, Mark Latham be in charge.

TREASURER:

Well, our view is that whenever you show weakness to terrorism, you just invite a worse situation, you don’t actually solve a situation. Now, that is why our view is that the Australian Government has to send a strong message, that if you take hostages, it is not going to advance your political cause; if you threaten Australia with terrorist acts, we will do everything we can to defend our people; but you have got to be very careful when you are dealing with terrorists, you don’t ever want to send them a message that terrorism pays, because rather than getting your peace, all that does is buy you more terrorism.

JONES:

Is there another issue here though, where you talk about, Mark Latham talks about preferring to withdraw into ourselves and get out of the international world that is supposedly none of our business, but at the same time wanting to be economically committed to a globalised world, how do you reconcile those two things? How can you live economically in the same world you want to withdraw from strategically?

TREASURER:

I don’t think you can withdraw from the world. With global communications, with transport, with information that flows across borders, you can’t withdraw in an economic sense, and you can’t withdraw in a strategic sense. Now, we as a country have been subjected to terrorism, some 88 our fellow citizens were blown up in Bali, and that wasn’t even Australia, and what that tells you is that Australians can be at risk, not just in Australia but in other countries as well, and the fight against terrorism is a global fight, you cannot withdraw from it. The only way you can deal with terrorists, is if you deal with them in their bases, because your people can be at risk anywhere around the world, as long as Australians travel and as long as they are tourists, as long as they are aid workers, as long as they are engaged in business, they will be at risk, and the idea that you can withdraw to Australia and protect your people is not something that will work in the modern world.

JONES:

Good to talk to you, thank you for your time.

TREASURER:

Good to speak to you Alan.