TRANSCRIPT

THE HON PETER COSTELLO MP
TREASURER

Press Conference
Parliament House, Canberra

Tuesday, 21 December 2004

11.00 am

 

SUBJECTS: Mid-Year Economic and Fiscal Outlook, Competition Policy, Tax,

China, Oil, Childcare, Telstra, Future Fund, Inflation, Prime Minister, Trades,

GST, NSW Vendor Tax, WMC/Xstrata

TREASURER:

Today the Australian Government releases its Mid-Year Economic and Fiscal Outlook

for 2004-2005 and it shows that the Australian Budget remains in a very strong

position.

It also forecasts strong growth, although moderating growth in 2004-2005. Forecasts

for growth in 2004-05 have been revised to 3 per cent, solid growth, but moderate,

more moderate than was forecast at Budget time.

Forecasts for growth in 2005-06 have been revised to 3 per cent. Again, very

solid growth, but a forecast less than was the case at the time of the Pre-Election

Fiscal Outlook prepared by The Treasury.

Employment growth is expected to remain robust and the unemployment rate to

continue at the kind of low levels that we are currently seeing. These are levels

of unemployment which are the lowest in 27 years.

The Government believes that the housing market is cooling and that there will

be a relatively mild decline in housing investment. Provided that the adjustment

in the housing market continues in the kind of mild way that we have seen to

date this could actually turn to a positive for the Australian economy. The

risks on the external front are high oil prices, they have come down a little

bit since the extreme highs that we saw say a month ago but are still by historical

terms quite high. And we face the risk of a rapid realignment of world currency

movements, particularly the decline of the US dollar, which is forcing the Australian

dollar higher and making life tougher for our exports.

In fact the reason why we have revised growth down is principally because of

the detraction from net exports. Although prices are good, volumes have not

increased to the extent that we would hope although we see them increasing through

2005. And we see extremely strong investment going on in the mining sector where

Australian products such as iron ore, coal in particular, are booming in price

terms and in market terms. And that increased investment should give the capacity

for lifting exports through 2005.

The Government is forecasting a Budget surplus in cash terms of $6.2 billion

in the current financial year with solid surpluses right across the forward

estimates. This contrasts with other advanced industrial economies such as the

United States, Japan and Europe which are all forecasting very substantial budget

deficits in 2005-2006 as chart 1 on page 2 of the Mid-Year Review indicates.

In relation to the fiscal position, the improved fiscal position has been essentially

driven by strong revenues, principally coming out of strong company profits

and increased employment. That is, while the Government has been reducing income

tax take by increasing thresholds – as we did on 1 July, and as we will do again

on 1 July 2005 – revenues have still been strong and the reason for that is

more people are in work than expected. Unemployment is at 27 year lows. Whilst

we were forecasting back at Budget time that the unemployment rate would be

around 5 per cent, as you know it is about 5 at the moment. So unemployment

has actually been lower, more people have been in work. As I said on the basis

of the last labour force figures in the last year 180,000 people moved into

full-time work in Australia over the last 12 months. And in addition to that

company profits have been very strong – for exporters they have been extremely

strong because prices have been good and the profit share to the Australian

economy is as high as it has ever been in Australian history.

So we have this picture of an economy where more people are in work than ever

before, the company profit share is as high as it has ever been, but we have

disappointing export growth in volume terms – partly I believe because of under-investment

in the mid to late 90s, partly because we have seen bottlenecks emerge particularly

in some of the ports on the east coast of Australia. And some of the newspapers

have been covering that. But as that investment swings back and bottlenecks

are dealt with, we should see export volumes rise in 2005-2006.

The consequence of this has been that the Government will be able to retire

more debt than was expected at Budget time. And we expect that net debt will

fall to around $19 billion by 2004-05, that is by the close of this financial

year, which will mean that since the election of the Coalition Government in

1996, net debt will have fallen by $76 billion. And Australia will have one

of the lowest debt to GDP ratios in the world, certainly outperforming the US,

Japan, Europe and the other major industrialised economies.

The good news is that the growth in employment of course has not only led to

continuing strong revenues but it has reduced expenses, and that expenses on

unemployment benefits have been lower than they were forecast at the time of

the Budget.

So, in a context of solid but moderating growth, the financial position of

the Commonwealth remains very strong.

I just take briefly this opportunity to highlight two other releases that I

am issuing today. The first is the GST estimates which are contained in this

Mid-Year Review. I have got a separate release which is setting them out. But

the forward estimates of GST for the current financial year 2004-05, 05-06,

06-07 and 07-08 show that every state is now in a windfall position over and

above the Guaranteed Minimum Amount.

In 2004-05 New South Wales will receive a windfall of $195 million, Victoria

$285 million. And those windfalls will continue right across the forward estimates.

The total windfall to the states in 2004-05 will be $1.9 billion, in 05-06

$1.5 billion, in 06-07 $2.2 billion and in 07-08 $3.1 billion.

Now let me underline this point, that is the windfall, that is the windfall

over and above a growing amount. And as you can see the amounts there are growing

year by year. And the windfall over and above the growing amount is growing

year by year, so that for example New South Wales under the old system was guaranteed

$9.7 billion, in fact it will receive a $195 million windfall.

The final release which I am taking the opportunity to put out today because

the figures for all of these are contained in the Mid-Year Review, is the National

Competition Policy payments to the states and territories. This is in addition

to the GST revenue, the states and the territories receive National Competition

Payments. The Government has accepted the recommendations of the National Competition

Council. It will be paying in 2004-05 a total of $777 million to the states

and territories. Victoria, Tasmania and the ACT were the star performers in

terms of competition. They have received the maximum amounts. Some of the other

states which had suspensions in previous years have attended to matters and

received payments of their suspensions and as you can read there there’s

some other states that have ongoing suspensions and deductions. Although I would

point out to you that the amounts involved in suspension or deductions are quite

small and certainly are far less than the windfall that each state is getting

out of its GST revenue.

So, no doubt you will hear complaints from some of the states. The complaints

ought to be looked at in this light our bonus, large as it is, could still have

been larger – and I think it is important to see it in that context.

But overall, as I said, the economy is not without its challenges. We have

to cope with the oil price, the exchange rate, the changing on the housing cycle

and the export situation, but I think careful management will be required to

see those challenges in 2005 and 2006.

JOURNALIST:

Treasurer, every time there is a new estimate for revenue it goes up substantially.

This is presenting a fairly compelling case for further tax relief isn’t

it?

TREASURER:

Well we cut taxes on 1 July 2004. We are going to cut them again on 1 July

2005. Now this is a very important point, people are paying less tax but more

people are paying tax. This is the important point here. When you get 180,000

new people paying tax, even though the tax rates are lower, you get more tax.

And what is more, you pay less in unemployment benefits. This is the kind of

return you get from good economic policy. And long may it continue.

JOURNALIST:

What about the people earning less than $52,000 a year? Will you give some

consideration to further tax cuts for them?

TREASURER:

Well over the course of, what since 2000, we have cut tax rates, changed thresholds,

we have increased for seniors the tax offset, we have increased family payments

by $600 per annum, we have increased the childcare rebate a 30 per cent reduction

for those families that are paying tax. The best way of actually delivering

returns to lower income earners, particularly families, is through family assistance.

You see they don’t pay that much tax. The point I used to keep stressing

with the Opposition, for many of these families they are not paying tax. So

you can’t cut their tax. The best way of delivering them returns is to

increase their family tax payments, which we did with the $600 payment. By the

way, a real payment. Something that actually exists.

JOURNALIST:

Do you agree with your Deputy Secretary of the Treasury, Martin Parkinson,

when he says Australia is undergoing a historic shift away from manufacturing

and towards mining?

TREASURER:

Look I think a historic shift has taken place in this sense that Australia

will not be in the business of low cost mass manufacture in the future. Because

low cost mass manufacture is increasingly moving to China. This is not just

Australia it is the world’s low cost mass manufacture – from Europe, from

America even from South East Asia is moving to China. And incidentally probably

even moving in China, moving from coastal China to inland China. There is a

whole global readjustment going on at the moment. So where will Australia find

its manufactured place? In higher value add and specialty markets. Let me give

you one example – what has been the great success story of Australian

manufactures in the last five years? Autos. Now exporting particularly into

the Middle East but now exporting – Holden. So it is not that we won’t

be doing manufactures, it is that we will have to be doing higher value add,

specialty and niche manufactures. Australia is not going to be in the business

of the mass manufacture of global products that can be manufactured anywhere

and will gravitate to the cheaper places. So for our manufacturers we’ve

got to find speciality, niche and higher value add. Now, let me turn to the

other side. Resources will be a strong seat for Australia, I believe, because

the people that are going to be doing these mass manufactures and principally

China are going to need energy, and commodities and we have both. And frankly

if you can sell your energy and your commodities at prices that may increase

and buy back your mass manufactures at prices that have been decreasing, that

gives you a wonderful opportunity.

JOURNALIST:

Sounds like a fairly compelling case for a free-trade agreement with China?

TREASURER:

Well I tell you what, it’s a compelling case for lower tariffs, as we

have put in place in the auto industry and as we have in place for the textiles,

clothing and footwear industry. But I’ll tell you this, if Australia can

hitch itself to the emergence of the industrial giant in China, we’ll

be a much better country for it.

JOURNALIST:

Do you support an FTA with China?

TREASURER:

Well, look you’ve got these interesting legal questions, haven’t

you as to whether China is a market economy. One day it will be. But, …

JOURNALIST:

(inaudible)

TREASURER:

…But you’ve got these interesting questions. In the context of

the Mid Year Economic Review, I’m not going to pontificate on that. Sorry,

yes.

JOURNALIST:

Treasurer, you are talking about higher oil prices remaining a risk, and just

looking at the revenue from the various oil and petroleum products, do you think

that there’s been a big increase? Do you think that perhaps it is worth

looking at a cap on the amount of tax collected from oil and petroleum just

over this current high prices?

TREASURER:

Well let me take you to table 7, on page 18. Income tax withholding, that’s

what we used to call PAYE tax, up 1.5 per cent. Gross income tax withholding,

that’s unincorporated businesses and the like, farmers would be in there.

That’s really a measure of profitability, up 8.9 per cent. Superannuation

more or less down. Now, you’ve looked at the petroleum resource rent tax

and you’ve said well, it’s up 41 per cent. It’s true. But

the amounts involved are quite small, $460 million. It’s a large percentage

increase but on a small base. Now, why is that? That is because oil companies

are more profitable. It’s quite right. Oil companies are more profitable

when the oil price goes up. But a large proportion of that is exported and the

sums that the involved in that are not the sums that the consumer is paying,

what the consumer pays is excise, 38 cents a litre, which this Government reduced

and capped in 2000, in 2000. So, you know, if you say we’ve been having

2-2 per cent inflation since 2000, you know, that’s in real terms, in

real terms a drop of about 10 per cent. Let me make this point. The excise doesn’t

go up as the price goes up. It’s 38 cents a litre. The Commonwealth which

charges excise does not get any more money as the price goes up. It doesn’t

change. In fact, it’s falling in real terms.

JOURNALIST:

Mr Costello, during the election campaign you appeared on the Neil Mitchell

program in the closing stages of the election, and you were asked in relation

to the childcare 30per cent rebate, is it capped, by Neil Mitchell and you

replied, ‘No, it is a 30 per cent rebate on your tax’. Have you

misled voters and do you think that you owe anyone an apology who was confused

by that political statement.

TREASURER:

Well, a $4,000 cap would cover 51 weeks a year at $60.00 a day, when you getting

no childcare benefit. You would have to be an extremely unusual case to have

more than $4,000. I read in one newspaper today that this would save money.

Completely wrong.

JOURNALIST:

Would you be an unusual case (inaudible) there are many places in Sydney that

pay $85.00 a day.

TREASURER:

No. Hang on, well $85.00 a day less childcare benefit. Let me make this point,

whatever you pay, you take the childcare benefit off it and it’s only

the cost less your benefit that you’re out of pocket. In an approved centre,

which you claim 30 per cent off your tax. Now we set that cap at a level that

very, very few people outside those that might be trying to hire a private nanny,

and this is not designed to cover a private nanny, and this is not designed

to cover a private nanny might be paying. And the costings do not show any savings

from that measure, any savings from that measure. Now I just say that because

there was some suggestion in some of the press that there was a savings from

that measure. There are not savings from that measure. But what we don’t

want, is we don’t want a childcare centre which is currently charging

$50.00 or $60.00 a day to say, we will put our price up to $85.00 because no

one will pay a dollar extra. That’s what we don’t want. I want to

make this absolutely clear, the childcare rebate is for mothers, not for large

corporations that want to get into the business of childcare.

JOURNALIST:

Sorry, sorry. Can I just ask you about your prediction that net debt will be

reduced to $19 billion…

TREASURER:

My goodness, what is that?

JOURNALIST:

You are on film.

JOURNALIST:

Thank you, thank you I like it.

TREASURER:

Who’s running that thing up there?

JOURNALIST:

I’m not going to stretch it.

JOURNALIST:

Big brother is working today.

JOURNALIST:

Just on the prediction that …

TREASURER:

If I get put on the set of Big Brother, I don’t want to live with all

of you.

JOURNALIST:

Just on the prediction that net debt will be reduced to $19 billion, I was

just wondering what the ramifications are for the Telstra sale, given that we

are expecting to get something in the order of $30 billion, and you have said

that all the money will be used to retire debt. What is going to happen to the

excess, or is that $30 billion already factored into the Budget?

TREASURER:

Well I announced during the election campaign that we are going to keep a gross

holding of bonds, and that we would establish the Future Fund to start funding

superannuation liabilities that the Commonwealth currently owes. What the Commonwealth

does for public servants that might have been employed forty years ago, when

they retire they are guaranteed an annual income, and we just take that out

of revenue on an annual basis, and we pay them until they are dead. Now if you

were to crystallise that liability and say that we will set up a fund to meet

all of those liabilities, you would have to have a fund of about eighty or ninety

billion.

Now the reality is that they are all not going to retire at once and all going

to have to be paid at once. But that is the way these actuaries do these things.

So what I have said is that we should start moving towards funding some of these

liabilities. And these are not liabilities that have accrued under this Government.

Some of these public servants could have started their employment in the public

service in the 1950s, and worked 40 years and retired in the nineties and they

might be 60 years, but the Commonwealth will pick up the liability until their

death which could be another 20 years. So these are not liabilities that have

accrued under this Government, they are liabilities that have accrued under

successive Commonwealth Governments.

Now, I have said that one of the things that we should try and do is start

moving towards funding those Commonwealth liabilities. The first thing we have

got to do by the way, is we are not going to allow new entry to this scheme

and all newcomers are going onto a fully funded scheme, right?

So, the problem is not going to deteriorate as it were, so we have ruled off

the books. And then I have said what we should try and do is we should try and

move to putting aside provision for funding that liability and that will relieve

future generations of that liability. It is a very pro-generational thing. So

the future fund will be in a position to grow an asset position which it can

match up with that liability position. We can keep the bond market going and

the future fund would certainly be in a position to receive proceeds if you

had a problem receiving proceeds which I think is a very long answer to the

implication of your question.

JOURNALIST:

(inaudible) child care (inaudible) that you said that there wasn’t a

savings but MYEFO says that the cost of that policy is $585 million in the forward

estimates. During the election campaign Treasury came out and said that is $980

million, how is that not a saving?

TREASURER:

Because the outward years are not included in that.

JOURNALIST:

(inaudible) forward estimates still costing less.

TREASURER:

No, let me say, the child care rebate is costing more. It is costing $140 million

more. Let’s get this point clear, because women are going to get a rebate

from 1 July to the 31^st of December which they were never promised.

Instead of it costing $140 million for six months it is going to cost $280 million

for 12 months. Let’s get this absolutely clear. The Government has backdated

it and it is going to cost more. Now, let’s come to how you actually claim

this. You can only claim this after you have received your child care benefit,

I have said this before. You claim your child care benefit, you deduct that

off your fees, it is 30 per cent of your out-of-pocket. You can’t actually

calculate 30 per cent of your out-of-pocket until after you have received your

child care benefit. People won’t receive their child care benefit until

after they have put in their tax return, so you can’t fix the amount of

the rebate until you have had that tax return. Now, you could ask people to

estimate and you will run into the top-up and under-payment problems. So what

the Government has decided is there is not going to be any top-up or any under-payment

problems, it is going to be a fixed amount, it is going to be more, it is going

to be $140 million more.

JOURNALIST:

Treasurer the Reserve Bank hasn’t dismissed an interest rate increase

and in today’s outlook the forecast for inflation for this financial year

is slightly higher than at the Budget. Would you agree with the Reserve Bank’s

view that (inaudible) an interest rate increase earlier next year?

TREASURER:

Well, the Budget forecast, the year average consumer price index was 2 per

cent, the MYEFO year average forecast is for 2 . Now, the agreement which we

have with the Reserve Bank is two to three per cent over the course of the cycle

so whether it is 2 or it is 2 it is still well within the band. Now, I don’t

believe that we are seeing the emergence of inflationary pressures in the economy,

but we have to be careful. I have said, what would be the greatest risk to inflationary

pressures in the economy, well wages would be. We are now at an unemployment

rate of the lowest in 27 years. If people say, well gee, we can go out and have

wage claims of five or six or seven per cent, that would threaten the inflation

outlook and so I have said, we have to keep our wages demands contained because

that will keep inflation low and that is consistent with our interest rate regime

and in addition to that it is consistent with continuing low unemployment. In

that past in Australia when we have been in the territory of low unemployment,

one of the things that has always undermined that has been wage demands. Now

in the past we had a worse industrial relations system which we have improved

but we need to be vigilant on that front.

JOURNALIST:

Mr Costello the revenue growth is expected to continue at a rate of about five

or six per cent a year, you are obviously expecting a river of corporate tax

revenue to keep on rolling, is that not a little bit optimistic over the course

of the next four years given the kind of risks that are out there?

TREASURER:

Well I like to see healthy companies in Australia and you know, I have always

argued the case that good company profits is good for the economy. Why? It creates

more jobs also it underpins revenue. So, you talk about, what was it, the, what

did you call it?

JOURNALIST:

The river of corporate tax revenue.

TREASURER:

The river of corporate tax revenue, I just hope the river of corporate profits

continues and it is my aim to keep Australia a good place for companies to trade.

JOURNALIST:

Is that a little optimistic?

TREASURER:

Look, you sit down when you are doing a Budget and you try and analyse the

risks, you try and analyse behaviour and you make a forecast. Now, what are

the risks? I have told you what I think the risks are. We have got to make sure

that we manage the housing cycle, we have got the risk of oil prices, we have

got the difficulty of the exchange rate. You know, it would be a risk if wages

started to get out of line with productivity. And then after you have analysed

those risks and you have analysed the state of the current economy, you have

got to make a forecast. Now, what is the up-side for corporate Australia? Well

let me tell you. For our resource companies, a demand like we haven’t

seen for a long time. For our agricultural producers, normal climatic conditions

we hope, right. No hundred year drought. For our other companies, strong consumer

sentiment, right, which means that people are quite confident, they are buying

their products, they are out there in the supermarkets as we speak buying Christmas

presents. Low interest rates, a reduced corporate tax rate, I hope an improved

industrial relations system. So you look at those risks, you look at those advantages

and you make a forecast. Now, this forecast I believe, is the best forecast

available. Now, you are quite right, it is possible for things to come out of

no where. Let’s take SARS. Before SARS happened who had ever heard of

SARS and what it would do to our tourism industry. Before it happened who had

ever anticipate September the 11^th terrorist attack? But even those

shocks we managed to get through and there might be some shock out there that

we can’t even contemplate at the moment and if there is we will have to

deal with it when it arises but all I can tell you is these are the best forecasts

available at the present time.

JOURNALIST:

Treasurer speaking…

TREASURER:

Sorry, Mr Lewis.

JOURNALIST:

…Treasurer, speaking of forecasts, do you share Jeff Kennett’s

view that Prime Minister Howard maybe just at the mid-point of his career?

TREASURER:

Well look, I am not going into prognostications except to say this and I have

said it over and over again. It is a tremendous achievement to be the second

longest serving Prime Minister in Australian history, it is a stellar performance

to have won four elections, nobody can ever take that away from you, ever, and

I just congratulate the Prime Minister on the last nine, is it nine? Nine years.

JOURNALIST:

Almost.

TREASURER:

The last nine years and he deserves a day off with his family and I hope he

has a happy one.

JOURNALIST:

What do you think his legacy is?

TREASURER:

Well, it is a little too early to start talking about legacies.

JOURNALIST:

Well what do you think his career achievements have been during his…

TREASURER:

Look, I could go through a whole lot, but I will tell you this, winning four

elections is something that only two other political leaders have done in Australian

history so that puts you in a pretty select company and you know, they have

been tough elections, they have been tough elections I think, I have lived through

them all.

JOURNALIST:

Treasurer…

TREASURER:

Let me go, one, two, three and then we will finish.

JOURNALIST:

…Treasurer you were talking about wage pressures being a bit of an issue,

there have been advertisements in the papers for electricians and plumbers in

rural areas for packages of $100 thousand a year. What sort of advice would

you give to, first of all employers who are under this pressure to get tradespeople

who are in such short demand and also what do you say to the people who would

like those jobs?

TREASURER:

I think there are fantastic trade opportunities going at the moment and I would

say to kids that are finishing school, think about getting into a trade, you

will get a job, you will have a great opportunity I think, even to start your

own business and you will find that the monetary rewards will quite probably

out pace anything you will get in a desk job so think about it very, very carefully

and we need more tradesmen and women today and we want a situation where it

is highly prized and highly valued. You see, it is a funny thing isn’t

it, the market is now highly prizing and highly valuing it and perhaps it is

just time that the expectations of schools and other purveyors of political

opinion value it as highly.

JOURNALIST:

Treasurer…

TREASURER:

Sorry, this is really the last, one, two, three.

JOURNALIST:

Mr Costello in relation to Telstra once again, do you think two issues need

to be on the table as far as the privatisation goes, one the level, the current

level of foreign investment and two any potential changes the Government may

have to make to the competition law in order to ensure that a privatised Telstra

doesn’t abused its market power once the Government loses its majority

of shareholding?

TREASURER:

Well can I say this by the way, the idea that somehow because the Government

has a majority ownership that is stopping the company from abusing its market

power, I don’t agree with that at all. In fact I would actually say if

the Government has a majority ownership and is also the regulator, that the

Government is probably much more inclined to let it abuse its position. You

see what I mean? The assumption in your question is somehow our ownership makes

Telstra a better, a fairer competitor. I actually think one of the strongest

reasons for privatisation is that whilst this organisation is owned by the Government

the tendency is always to allow it to be an unfair competitor. Why? Because

we maximise our value. The strongest reason for Telstra privatisation is the

Government is now in a serious conflict of interest. We are writing the rules

and owning the largest player. You know, you wouldn’t let the owners of

other companies write the rules on which their companies competed and yet the

owner of this company is allowed to write the rules on which its corporation

competes. And so, you know, I would say the privatisation of Telstra is likely

to lead to a better, more pro-competitive outcome rather than a worse one.

JOURNALIST:

And foreign investment?

TREASURER:

Well our policy is settled on foreign investment and I believe it is right.

JOURNALIST:

Treasurer, do you…

TREASURER:

Now, yes.

JOURNALIST:

…you said it is important to place the cap on the 30 per cent child care

rebate because you don’t want child care providers to gobble up the benefit

of it, why not adopt the same principle for the private health insurance rebate

and put a cap on that because private health funds and have been hiking fees

six and seven per cent a year?

TREASURER:

Well, I think we set their fess don’t we? I think we – the Government

– or some committee of the Government actually sets the fees of private health

insurance. I think there is actually Government control of those fees.

JOURNALIST:

Treasurer…

TREASURER:

So it they are very directly controlled, very, very directly controlled.

JOURNALIST:

You said the States are getting a big GST windfall, should we expect better

services or tax relief and also I want to ask you if you are looking forward

to yet another Budget?

TREASURER:

Well thank you Louise, but I have just done a mid-year review so I am thinking

about Christmas as from tonight. Look, the truth of the matter is that the States

are receiving a GST windfall and in addition to that the States have received

the proceeds of large increases in land values. Because a large proportion of

their own source revenue comes from land taxes and stamp duties. And I didn’t

notice too many of them adjusting the thresholds as the property market moved

up. So the States have had a pretty good run. Now, I believe therefore, that

there is no excuse for saying that we can not properly fund services, because

they can. But I would not want to see all of the GST revenue devoted to expenditures.

The GST revenue is to fund tax abolition. Now, it has already funded a reduction

in gaming tax, the abolition of Bed Tax, the abolition of stamp duties on shares,

the abolition of Financial Institutions Duty. On 1 July, it has got to fund

the abolition of Bank Account Debits tax. But there is also out there a huge

range of other taxes that have to be abolished. There is stamp duty on commercial

conveyances, stamp duties on mortgages, stamp duties on leases. Now, you have

got to remember the reason why we introduced the GST and the reason why the

GST goes to the States, is so that the States would use that revenue base to

abolish these other inefficient indirect taxes and we will be keeping…last

March, I had to fight with some of the States, not all of them, some of the

States, to get the abolition of the Bank Account Debits tax which is going to

happen on 1 July 2005, and this March, I will be pushing that tax reduction

agenda. We did not introduce the GST so the States could hang on to all of those

taxes and get the GST. As the GST revenues grow that has to be delivered back

in the abolition of further State taxes…..

JOURNALIST:

…(inaudible) force the States to do that, Treasurer, is that (inaudible)…

TREASURER:

…in your usual way Mr Lewis, Sir, you have got an extra question, so

this is the very, very last one. There is scope…

JOURNALIST:

…(inaudible)…As an addendum to Louise’s question.

JOURNALIST:

A supplementary!

TREASURER:

…you’re a footnote to Louise Dodson. The scope is? What are you talking

about? Here is the windfall, let me make this point, they’re all in a

windfall position in 2004-05. You will notice for many of them their in a lessor

windfall position than 2005-06, why? Because the Bank Accounts Debits tax is

abolished in 2005-06 so the GST rises to fund all the revenue that they would

have got from the Bank Accounts Debits tax and still produces a windfall. Now

these windfalls in the out years are to be directed towards the abolition of

other taxes and I have not said that they have to abolish them in such a way

that they go back below the Guaranteed Amount, but their windfalls should be

funding the abolition of those taxes, that is the idea and that table shows

that there is plenty of room for them to do that.

JOURNALIST:

(inaudible).

TREASURER:

Well we got it all listed in the Intergovernmental Agreement. You know, I went

through the ones that have been done and then there is no chronology on the

next level, the next level are stamp duties on commercial conveyances, stamp

duties on mortgages, stamp duties non-marketable securities which is things

like leases, I think. And so that is the discussion that we have got to have,

which of those we start pulling out now and prioritising for abolition.

JOURNALIST:

What about Mr Egan’s Capital Gains Tax?

TREASURER:

Well you know, here we have a situation where the property market has started

to cool. You know every indicator starts telling you this. Building approvals

start telling you this. Credit starts telling you this. Auction volume starts

telling you this. Auction clearances start telling you this. Measures of prices

start telling you this and into this situation somebody wanders in and says

‘I would like to apply a new tax on the sale of a property’. Blunders

in to a cooling market, with a new tax. Now what do you think the effect of

that will be? Well the effect of that will be, just to amplify the down turn.

Should you be surprised that it is not raising the forecast revenue, no of course

you should not be. Because taxes like that will have behavioural consequences

and behavioural consequences will amplify the problem that that Government was

running into. Now, talk about traps for young players. We have a cooling housing

market and you decide to put an exit tax on.

Now the only thing I will say, is if there where a rush for the door, it would

cool even further and what will the consequences of that be. The consequences

of that will be that rather the raising additional money could not, may not

meet their expectations and they may actually dampen other sources of revenue

which were the entry taxes, the stamp duties and the land taxes. So…

JOURNALIST:

Treasurer, an addendum to Alan Wood’s question…

TREASURER:

This is really the last…

JOURNALIST:

Whether you have got any view on the National Interest argument that has been

put by some businessmen regarding Xstrata’s bid for WMC?

TREASURER:

Look can I say this. The National Interest argument is something that the FIRB

deals with and ultimately the decision is made by the Treasurer. It is very

important that it be done – that decision and that process be – done in a way

which is immune from legal challenge, right, because large sums of money turn

on this and we have had experience where major players want to litigate. And

so I have taken the view in order to ensure is what is done, is done in a legally

defensible way, that we’ll do these thing by the book. That is, if an

application is put in, it will be dealt with as commercial-in-confidence, it

will be carefully considered and a decision will be made. So anybody else is

entitled to put their views out there, that is what happens, but because I am

the decision maker, I am not entitled to put views out there or to enter into

the debate because the things that you say are written down and later used in

evidence against you and I want to make sure that the whole thing is done perfectly

properly and immune from legal challenge. Thank you all very much.

JOURNALIST:

Thank you Treasurer.

TREASURER:

Merry Christmas to you all.

JOURNALIST:

Are you taking a break?

TREASURER:

Yes I am, thank you all very much. Go home and show a little bit of love…