Ministerial Council Meeting; abolition of Bank Accounts Debits tax; distribution of GST to the States; review of CGC methodology; review of stamp duties; special purpose payments – Doorstop Interview, Parliament House, Canberra

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Ministerial Council Meeting; abolition of Bank Accounts Debits tax; distribution of GST to the States; review of CGC methodology; review of stamp duties; special purpose payments – Doorstop Interview, Parliament House, Canberra


Doorstop Interview

Ministerial Entrance

Parliament House, Canberra

Friday, 26 March 2004

2.15 pm

SUBJECTS: Ministerial Council Meeting; abolition of Bank Accounts

Debits tax; distribution of GST to the States; review of CGC methodology; review

of stamp duties; special purpose payments


The Commonwealth State Ministerial Council on Financial Relations has today

agreed that every State Government will abolish the Bank Account Debits tax

by 1 July 2005. The Bank Account Debits tax is the tax that is charged when

you take money out of a cheque account. The abolition of the Bank Account Debits

tax will save Australian taxpayers $1 billion. Every person that has a cheque

account, every small business that has an account will be a winner, and the

abolition of the Bank Account Debits tax will be funded by the growing GST revenue,

which is being received by all of the States and the Territories. The reforms

from the Government’s tax reform of 2000 keep rolling on, and by 1 July

another tax will be abolished. We have also agreed with the States today to

set up terms of reference for the abolition of further stamp duties which will

occur in an orderly way after the abolition of the Bank Account Debits tax on

1 July 2005.

In the next financial year the six States and two Territories will receive

$34 billion in GST revenue. Every single dollar of GST revenue is received in

the State capitals of Melbourne, Sydney, Brisbane, Adelaide, Perth, Hobart,

in the ACT and in the Northern Territory. The Commonwealth Government does not

receive a dollar of GST revenue. That sum of $34 billion includes a windfall

to the States over and above the previous financial arrangements and the windfall

in 2004-2005 will be nearly a billion dollars, nearly a billion dollars.

Now the States of course argue between themselves as to what amounts that

they should get, but the Ministerial Council has overwhelmingly accepted the

recommendation of the Commonwealth Grants Commission, and independent arbiter

in relation to relativities. All of the States and the Territories with the

exception of New South Wales and Victoria, accepted the recommendation of the

Commonwealth Grants Commission. That being the case, the Commonwealth will abide

as it has in previous years, by the recommendations of the independent arbiter.

But I want to make this point. This is an argument between States, between Labor

State Governments, as to what shares of the GST revenue they get. Between them

they get 100 per cent, every last dollar of GST revenue and between them they

will share in a windfall next year of nearly a billion dollars over and above

what would have been the case in the old arrangements.


Michael Egan said that he feels like he wants to ‘slit his wrists’

over of the result of the allocation, do you have any sympathy for him or New

South Wales?


Well, I would advise him not to slit his wrists. Michael has been around for

a while and I always look forward to his company. Michael is a bit dramatic

you know.


Treasurer do you think the review of the Commonwealth Grants Commission that

was agreed to is going to result in any substantive changes to the formula,

or is it just going to be tinkering around the edges?


Well, what the States did not agree on is re-opening the question of equalisation.

There was a very strong opposition to that, so as a fallback what they have

agreed on, is they have agreed on doing some work on things like simplification

and better information. But there was no agreement at all to re-open the principle

of equalisation. The principle of equalisation is that you distribute the revenue

so as to try and provide to every Australian, regardless of the State they live

in, a basic standard of service. That is the principle of equalisation. So that

regardless of whether you are in a popular State or a small State, regardless

of whether you are in a concentrated State or a decentralised state, the idea

is that if you are an Australian citizen, you should get a basic service from

Government in respect of health, transport, education. The States will not re-open

that principle, New South Wales might, but the balance of the States will not

re-open that principle. What they did agree to, was that they said that they

would do some work to try and look at simplifying the way in which the Commonwealth

Grants Commission reports, and we support them in that. Our view has always

been this: that if the States between themselves agree on a new formula, the

Commonwealth will abide by it, but in the interim, we will go with the umpire.

This is not an argument between the Commonwealth and the States, this is an

argument between eight Labor States and Territories, as to who gets the most

of the GST, a tax which they actually opposed the introduction of.


Mr Costello, why did you accept a majority view amongst the States, rather

than unanimity?


Well I did accept a majority view.


Yes I asked why, rather than insisting on unanimity?


Well, if I can’t get unanimity…let me make this point. A majority

of the States and Territories support the current system. If the current system

were to be changed, there would be the interesting question as to whether you

would need a majority or a unanimous. But that never arose, they couldn’t

even get a majority to change the current system. So, in future years you may

have to face that question as to whether you need a majority or unanimous. But

that didn’t even arise.


Treasurer, the States are concerned that special purpose payments are not

keeping pace with actual costs in areas like healthcare. What is your response

to that concern?


Special purpose payments are increasing in real terms, that is over and above

inflation they are increasing. Healthcare agreements in real terms, the money

that is being provided is increasing by 17 per cent, that is over and above

inflation. Now, how many ways can you skin a cat? Here is six States and two

Territories, who are sharing between them $34 billion of GST revenue, a 17 per

cent increase in health funding and what do they say? They want more money.

Well, I am standing up for Australian taxpayers here. If the States had their

way, I have no doubt that they would be claiming more money for everything.

There is only one person today, that was pushing for tax reductions, and it

wasn’t any of the eight Labor States or Territories, and what we have

got out of today, is that some of that GST revenue will be used to abolish the

Bank Account Debits tax.


Would you look again at some of the strings that are being attached to those

payments to make them easier?




Mr Costello, when would you like to see all the business state stamp duties



As soon as possible. Next one, 1 July 2005 and at next year’s conference,

we will be applying the pressure to reduce more stamp duty. You see what has

happened is this, as the GST revenue has grown, in the next year they will have

nearly $1 billion distributed, sorry in the current financial year, 2004-05,

nearly $1 billion of windfall. The year after, even bigger, and so we have said

that in the year after, some of that windfall has got to be applied to the abolition

of the Bank Account Debits tax. We got an agreement.

But some of that windfall must also be applied to the abolition of other stamp

duties and we are going to keep the pressure on these States. That now that

they have the GST revenue, now that it is in, now that it is growing, some of

this money will go into better services, but some of it has to be applied to

tax reductions.


Treasurer, Professor Neil Warren said that one way to persuade the States

to scrap inefficient State terms would be to increase the rate of the GST, do

you see any merit in that option?


The Commonwealth Government, whilst it is a Liberal Government, will not agree

to an increase in the rate of GST. The GST rate can only be increased by the

unanimous agreement of eight States and Territories in the Commonwealth. You

now have eight Labor States and Territories. If you had a Labor Commonwealth

Government, you could have an increase in the GST rate. Whilst you have a Liberal

Commonwealth Government, there will be no increase in the GST rate.


Mr Costello, would you think there is any sense in the argument that the overall

funding formula was too prescriptive, too complicated and needs a sort of fundamental



Well, I said earlier that I believe that simplification would be a good thing,

yes, I did, and I am supporting moves to simplify it. What will not be re-opened

because the majority of the States are ferociously against it, is the question

of equalisation. That will not be re-opened, whether or not there should be

equalisation between Australia will not be re-opened. But within the equalisation

requirement, if there can be further transparency and simplification, I do agree

with it, yes I do.


Should the Commonwealth take over public hospitals if the States are not happy

with the funding they get?


Look, the States are well and adequately funded and if we are to have State

governments, they do have to have duties. If you had a State Government that

wasn’t responsible for economic policy or tax or defence or foreign affairs

or even health, what would it be doing? If we have State Governments, they do

have to be responsible for certain things, and what they are responsible for

in Australia is the health system, the government education system and the transport

system. And may I say, to discharge their duties, they have the GST revenue,

which the Commonwealth put in place. You know the GST revenue is now employing

every teacher in every classroom, in every school, in Australia. It is now paying

for every policeman, on the beat in every State in Australia and it is being

received in its entirety by the six State and two Territory governments. Sorry

last question.


You say you are sticking up for taxpayers, etc, but how reasonable is it for

the Federal Government to sit back and say it is a State government argument

when Victorian and New South Wales taxpayers are subsidising others, more and



Well, since the dawn of Federation, and this was the basis of Federation,

it was agreed that if the six States came into the federation that they would

equalise between themselves. If you don’t want to equalise between the

States, you could reverse Federation, but this idea that equalisation is somehow

new, or unexpected, that was what the federal compact was all about, that was

what happened in 1901. If States wanted to go it alone and be self sufficient,

they wouldn’t have federated. They came into a Federation in 1901, that

meant that there would be equalisation between the States, because we are all

Australians. The principle has been in place since 1901, the equalisation has

been applied by the Commonwealth Grants Commission since 1933. You can complain

about the way in which it does its work, and I think it should be done in a

simple and a transparent way, but if you don’t believe that all parts

of Australia should be looked after, you really don’t believe in Federation

and it is now 103 years too late to re-visit that issue.

Thank you.