Power crisis, GST, petrol excise

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February 3, 2000
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February 8, 2000
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February 3, 2000
Tax Reform and Rural and Regional Australia
February 8, 2000

Power crisis, GST, petrol excise


Transcript No. 2000/10


The Hon Peter Costello MP


Interview with Ben Knight

ABC Statewide Morning

Friday, 4 February 2000

9.10 am

SUBJECT: Power crisis, GST, petrol excise


The Treasurer, Peter Costello, my guest in the studio this morning. Welcome.


Thank you very much, great to be here.


It’s good to have you along. We’ll be talking about petrol in a moment, but I

wanted to start off on the issue of the power crisis that’s happening in Victoria at

the moment. First of all, just a few words from the Premier, Steve Bracks, speaking a few

moments ago on ABC Radio.


Well look, I’ve indicated, I’m indicating today that I want this matter

settled and resolved. That’s the matter to do with Yallourn, which is one part of the

problem. I want that resolved by Sunday night, if it’s not we’ll look at, of

course the State legislation. State legislation which was not available to us previously

John, because it can only be effectively triggered when it comes to this, regrettably. We

had no power previously over industrial relations legislation because we had no recourse

to a State system. Nevertheless, we’ve sought the goodwill of both parties and have a

mediator, and at least that’s one good step, they’re agreeing on who should

mediate and try and resolve the matter.


The Premier, Steve Bracks, speaking on ABC radio just a few moments ago. Mr Costello,

this is the Federal Government’s problem, isn’t it?


Well, it’s Victoria’s problem, that union disputes down in the La Trobe

Valley have been going on so long and are now leading to critical power shortages. I hear

Mr Bracks say, he wants it finished by Sunday. It’s a pretty late start to the events

to start operating now to try and resolve it. And as he said, he can resolve it,

incidentally . . .


But only after it reaches this point?


No, he’s got emergency services legislation, that’s what he’s referring

to. And from memory, I’m going by recollection now, you’ll recall when the

unions were threatening the Newport power station, I think that’s when the emergency

services legislation comes in. That Government has emergency services legislation and it

empowers it to take emergency action where critical supplies are affected. And he’s

saying, oh, he won’t do anything until Sunday, but he’s had that power all



Is it up to the State Government though under a Federal industrial relations system?


Well, he has the power to protect the citizens of Victoria. That’s legislation in

place which any State Government would want and would need. And I heard the call from the

Victorian Farmers’ Federation that it be used. He has that power available to him

now. He’s also trying to mediate with one of his ex-Labor minister’s Neil Pope,

we’ll see how that goes. But did I hear rightly, that this has been going on for

eight weeks?


Something like that.


Oh well, it’s pretty late in the day for intervention, but let’s just hope

for the sake of Victoria it can be fixed.


True. But Peter Reith is one of those who over the last eight weeks has been calling on

the State Government to get involved. Where has the Federal Government been?


Well, the State Government has got involved. I mean, Mr Bracks was in Davos, and he

might say, well, you know, he couldn’t do anything until he got back from Davos, but

there are some other people around and he could have if he’d wanted to, got involved

a bit earlier. Now, he’s saying he’s called a deadline for Sunday night, all I

say, he’s got the powers and the faster he works on it the better it’ll be for



So would you say that having shifted Victoria’s industrial relations system to the

Federal system is working?


Well there are two separate issues here. One, of course, is the industrial relations

issue and who has jurisdictions over that. The second issue is the protection of the

public. Now, you said before, I don’t know if it’s right, but you said before

you’d had a report that there were people on dialysis machines who got five minutes

warning that they could lose their power. Let’s suppose that’s true, right.

That’s not an industrial dispute, that is a life threatening, public problem. And to

cope with that you have a thing called emergency services which is designed, regardless of

industrial disputes, to get power going so that people, you know, don’t have their

dialysis machines switched off. Now again, I’ve never heard that this morning until I

heard it from you. I’m not saying it is the case, I’m saying, if that were the

case, or if things like this were happening, that’s, I would have thought, an

emergency situation.


All right. We’ll be coming back to the subject of petrol in a moment with the

Treasurer, Peter Costello. You’re listening to ABC Victoria. And we’ll be off to

the weather bureau also shortly. Well of course, the subject of the GST is the one

that’s about to roll along and there’s still a lot of confusion out there,

people still struggling to find out exactly how it’s all going to happen. Do you

believe that members of your own Government have got the ability, the information to be

able to pass that on, because that’s where most people are looking.


I think they’ve got the information, sure. And it’s not just the members of

the Government, I think at this stage people are more looking to the Tax Office, because

the Tax Office, of course, is going to be administering that.


Well, I must say that I’ve made about half a dozen approaches to the Tax Office

and have been unsuccessful each time.


What, to get someone on your programme?




I’ll get someone on your programme.


Thank you.


Alright, when would you like them?


Oh, next week would be nice.


I’ll have someone on your programme next week from the Tax Office. There you go,

that’ll be no problem. But they’ve got to work harder at it and we’ll get

somebody on to the programme next week to do that. You know, one of the things, I think,

is that everybody’s, sort of, trying to think of everybody else’s problem. As

the guy that’s, sort of, regarded as the expert implementing this a fellow called

Chris Jordan said, he said, for 95 per cent of businesses, 100 per cent of the questions

that are now being asked are not relevant. For most businesses that are inside the system

all you do is, you say quarterly, well, my sales were X and I’ve got 10 per cent tax

on that, my purchases were Y and I’ve paid 10 per cent tax on that, I remit the



But it’s what it applies to and what it doesn’t that’s going to be the



Well, that’s the whole point – what it applies to and what it doesn’t.

Now, I was asked, for example, this morning, about long-term rents and caravan parks. An

interesting question if you happen to run a caravan park. How many people in Australia run

caravan parks, I mean, amongst your listeners there would be some, but I imagine most of

your listeners would be in regional businesses or farming businesses where they’re

totally inside the system. They don’t have to worry about esoteric questions like

applying GST to long-term rentals in caravan parks. They might hear a lot of discussion

about it on the radio and they say, that sounds complicated, but it’s not for them.

And I think with a lot of these questions, you know, they concern small parts of industry

and for 95 per cent of industry it’s not their problem and it’s not their

complication. And I would say to the small businesses in particular, the important thing

now is to get your number, get the activity statement which has to be filled in quarterly.

You’ll see that for a business inside the system it requires essentially to know

three things – your sales, your purchases and the difference.


Treasurer, have a sip of coffee. We’re going to go to the weather bureau right now

and we’ll be back in a moment to talk about petrol.



The Federal Treasurer, Peter Costello, is with me in the studio this morning. And

turning to the subject of petrol, there has been a recent increase in fuel excise, that is

because excise is linked to CPI, is it about time that that system was changed?


Well, just to put this in context because, you know, I read in the Herald Sun, shock,

horror, petrol excise went up by 0.7 cents, and people confuse that with what happened on

the same day, namely the oil companies or the distributors or the retailers or maybe all

three, put up petrol 10 cents a litre  . .


Which, of course, contributes to CPI which means that the tax goes up.


Well, it depends how long it’s there. But let’s put this in perspective. The

market moved 10 cents a litre and I noticed there were a lot of people out there including

some of the auto clubs saying, oh, you know, isn’t it terrible the excise went up 0.7

cents. A 0.7 cents excise didn’t move petrol prices 10 cents a litre. What moves

petrol prices is two factors. Either the world price of oil, which throughout most of this

part of the year, the early part, the last six months was going up or competition in the

industry. And I think two days ago it was competition in the industry and then all of a

sudden we allowed the prices to go up 10 cents.


The margins are that tight in the petrol industry though, that why is it necessary to

link the fuel excise to CPI. I mean it’s effectively a way of giving you a tax

increase once or twice a year.


We link, in Australia today we link most things to the CPI. Let’s take pensions

for example, why do we link pensions to the CPI? Well, we link pensions to the CPI simply

because if prices are going up the pension is not increasing in value, if it follows the

CPI it’s maintaining its value. On the other side of the equation, why do you link

excise to the CPI? Because the excise as it moves up with the CPI, assuming petrol moves

in line with the CPI, just maintains the same proportion. And, you know, this was the

system that was introduced by the Hawke Government in 1983, 18 years ago, it wasn’t

introduced by me. But what it does is it maintains the proportion of tax to the price,

just as with a pension you maintain the pension to the price. I mean, I don’t think

anybody would say for example, that we should abolish indexing pensions. Now if you use

this argument. I hear the automobile clubs argue it all the time, oh if you put up excise,

you know, it’s actually sort of, you know, a terrible thing. I mean, and they say,

oh, it’s a big increase. People say it’s a big increase to maintain pensions to

the CPI. I don’t see it as a big increase at all, I just see it as maintaining the

proportionate value.


What is the reasoning for linking this particular excise to CPI, I mean, you get what,

$15 billion a year?


Because it’s not a percentage. There’s another way you could do it. You could

say, like you do with income tax, that the tax rate is X per cent, right, and then as the

price went up the tax proportion would maintain. But this is not a percentage, this is

actually a cent amount, so that if you held the cent amount and the price went up, your

proportion is decreasing all the time . . .


You would then have to justify your tax increases.


Well, I’ve got no trouble justifying tax increases because one of the things

we’re doing at the moment is reducing taxes. I mean, let me just remind your rural

viewers, listeners, we cut capital gains tax in half last year, for farmers that hold onto

an asset like a farm or a property for 15 years or more and sell it when they’re

going to retire, they’re moving to their homes, there is no capital gains tax on the

sale of that asset. That’s the first time that this has been done. This is the first

reduction in Capital Gains Tax that we’ve had since the notorious capital gains tax

came in in 1985. So, we’re actually dramatically reducing taxes in some areas,

capital gains tax, rollovers, income taxes, diesel excises we’re reducing from 43

cents down to 20 cents for business . . .


But the promise to reduce tax . . .




. . . on fuel is going to be a very difficult one to keep, isn’t it? The promise

to reduce the cost of fuel to the consumer is going to be very difficult to keep?


Well, I’m not sure what promise you’re referring to. Let me tell you what our

promises are in relation to fuel. Our promises are this. The diesel excise is 43 cents

we’re going to cut to 20 cents for all heavy transport, right, which is going to make

transport to rural areas cheaper. Is that going to be hard to keep? Well, it’s going

to deliver hundreds of millions of dollars of benefit to rural and regional Victoria, but

we’re going to keep it. In fact it’s in legislation.


That’s diesel?


That’s diesel. Yes, that’s diesel. It’s the first diesel cut, I think

probably ever in Australian history, and that is going to be kept in full.


Unleaded motor fuel?


Now, in relation to petrol let me tell you what we’re going to do. At the time GST

comes in we’re going to cut the excise to equalise the price back. This has the

effect of meaning that anybody that uses petrol in a business gets a 10 per cent reduction

in their price, because businesses get all the GST inputs back. For the consumer, the idea

is that the GST, once you drop the excise, that the GST equalises back. Now, there are no

additional bells or whistles, that’s the commitment and that’s what we’re

going to do in full.


We’ll leave it there, we’re out of time but it’s been good to have you

in this morning.


Great pleasure.


The Treasurer, Peter Costello.