Press Conference: Tax Reform, Trade

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July 3, 2000
Appointment of Australian Statistician
June 29, 2000
Interview with Paul Murray, 6PR: GST
July 3, 2000

Press Conference: Tax Reform, Trade

Transcript No. 2000/68





Press Conference

Friday, 30 June 2000

1.15 pm

SUBJECTS: Tax Reform, Trade


Tonight we sweep away the tax system of the 1930s and move Australia forward. From 1

July Australia will have a new tax system. The wholesale sales tax, the discredited

wholesale sales tax which is now practiced in very few places in the world will be swept

away. It will be abolished at midnight and Australia will have a broad based goods and

services tax. On 1 July, we will have the largest tax cuts ever in Australian history. On

1 July, family assistance will be increased. From 1 July the company tax rate will fall

from 36 to 34 and in a year’s time further to 30 per cent. And in addition to that

the Government continues to build on its new business taxation system with measures passed

as recently as this morning on the deductibility of non commercial losses, measures to

protect the tax base and prevent people walking out to PAYE arrangements and that

complements the changes put in place from September of last year of massive cuts in

capital gains tax. For individuals capital gains tax was cut in half from September of

last year. We’ve been talking over the last couple of weeks that tax reform was

necessary because we shouldn’t hold Australia back. Tax reform becomes a reality

tomorrow because we want to move Australia forward. That’s the big change. Over the

last months we’ve been saying we don’t want to hold Australia back and now as

from tomorrow we have the chance to move Australia forward. For our exporters and our

manufacturers and to ensure decent social standards and to make this a competitive

economy. And I think that when we look back on the history of tax policy and economic

policy in this country the date of 1 July 2000 will become the most significant date in

100 years of the federation for tax policy. Some of the biggest decisions we’ve had

in this country to take effect from tomorrow. We look forward to the opportunities that

they will bring. Questions?



A lot of small businesses are saying that they think that after tonight, business will,

spending will contract for at least a couple of months because of GST. Do you think

that’s right?



Look I don’t think that’s the point that’s being made. A lot of people

have made the point, and there’s been international experience of this, that before a

goods and services tax or value added tax is introduced you will normally get a big pick

up in expenditures. That’s been the case in New Zealand, Canada, Japan, all of the

countries that have introduced goods and services tax or value added tax and you then have

a drop back as people attempt to beat price rises. We haven’t seen such a big pick up

in Australia. We don’t have the retail figures out yet for June although there were

some trade figures out today which may indicate there was a bit of a buying by businesses.

But we haven’t seen the kind of frenzy that has accompanied this in other countries.

I think one of the reasons why, is that it’s a low rate, and we’re abolishing

wholesale sales tax so you haven’t seen a frenzy of buying in the lead up to these

particular taxation changes and I think consequently you won’t see the drop off to

the same extent that you’ve seen in some of the other countries.



What do you say to the small businesses who say they’ve had to close because of

the complexities of the GST (inaudible)?



Well, I don’t, for a company which is currently keeping records, then the

introduction of the new taxation system will actually reduce the amount of record keeping.

Because not only are we reforming indirect tax but we are bringing together on the

Business Activity Statement, 11 different reporting systems into one. On the one statement

they can do their company tax, their GST, they can do PAYE, they can do withholding taxes

if they have them under the PPS system, the RPS Reportable Payments System. And on one

form you can do all of that. Now there are some businesses I think that have not kept

records in the past and they will have to now start keeping those records. Because the

days of easily operating in the black economy are also coming to an end. From 1 July with

the Australian Business Number and the GST system, we are going to reach out and bring a

whole lot of businesses that have previously been in a black economy into the real

economy. And I think it’s only fair to other taxpayers.



Do you think they’re really going to be able to keep out of the black economy that

way? I mean isn’t it easy to do some mutual agreement that some businesses and some

consumers will continue to operate under?



There are two ways the new tax system attacks the black economy. The first is with a

goods and services tax, anybody who’s in the black economy pays tax when they buy

their supplies. Whether they are buying electricity or their gas or their products, there

is a tax liability. And if they don’t come in and register they can’t claim the

tax they’ve paid on those inputs back. So there is a real big incentive for them to

come into the system, otherwise they’re going to pay tax on all their inputs.

That’s the first one. The second one is with the introduction of the Australian

Business Number if you don’t have an Australian Business Number in business, then all

of your suppliers and your customers your business customers, have to withhold 48.5 per

cent of payment. So you have a real incentive to come in because if you don’t,

you’re paying tax at the top marginal individual rate of 48.5 per cent.



Why are you letting people apply for ABN numbers without putting forward their tax file

numbers? Aren’t you letting tax cheats get into the system?



Well the Australian Business Number is not for individuals. It is for businesses. And

it’s the business that has to have it. The tax file number in relation to

individuals. And we thought that we would get 2.1 million registrations for Australian

Business Numbers, that was the estimate that we put at the beginning of the taxation

process. We’ve now got 2.9 million applications. So what’s that, 0.8 on 2.1,

that’s above a 30 per cent overachievement. In relation to GST registrations we

thought that there would be 1.4 (million) businesses applying for registration for the

GST. We’ve got 1.9, which again is something like a 30 or 40 per cent

overachievement. So what you could say to this, is, already we are seeing people coming in

from the black economy in relation to the registration for the Australian Business Number

and in relation to GST. That’s good for honest taxpayers. One of the reasons why we

can cut income taxes and help wage and salary earners, one of the main reasons why we can

cut the income tax burden is by getting people to pay their fair share, including those

that have been in the black economy.



You mentioned gas prices a moment ago. The Victorian Regulator General yesterday that

one gas company increased its prices by more than 10 per cent, just over 10 per cent?



It can’t increase its prices by 10 per cent as a result of tax changes, no way

known, no way known.






Well, no, no business can increase its prices by more than 10 per cent as a result of

tax changes. Now there are businesses that increase their prices maybe because supplies

are more expensive or maybe they are doing a new capital investment, or because they were

going to increase their price anyway. But you cannot increase your price by more than 10

per cent as a consequence of tax changes and I don’t know what the Regulator General

said, but the Regulator General of Victoria doesn’t have the power to authorise such

a thing. Such a thing is clearly regarded as contrary to the Federal law, price

exploitation, and would bring upon any company which sought to do that, an investigation

from the Australian Competition and Consumer Commission which takes precedent over the

State Regulator.



What’s your response to Westpac’s decision to go ahead with a 10 per cent

rise in some business bank fees? (Inaudible)



Well, I think what Westpac ought to do, is it ought to wait until it’s had its

discussions with the Australian Competition Consumer Commission. The matter has been

referred to the ACCC to have a look at. If Westpac is confident of its position I would

imagine it would await the outcome. And if the ACCC finds against it, if it does, I’m

not saying it will, but if it does, then there’d be some pretty hefty penalties –

another reason why I think they’d be wise to await the ACCC’s deliberations.



Treasurer, just on today’s trade figures (inaudible)?



The trade figures for May of $1.5 billion indicated a much larger deficit, and, in

relation to last month. This was primarily a consequence of very strong growth in imports

of around 11 per cent. The good part of those import figures were that the large rises

were principally in capital goods 9.5 per cent, and intermediate goods of 18.7 per cent.

And that is consistent with a strong business investment environment. There is also

evidence that in relation to those figures that fuels were a large part and one would

expect that that is a consequence of the increase in the oil price as well as currency

depreciation. As I also mentioned earlier, it may well be in these figures, that retailers

or wholesalers were buying up big in May in anticipation of a consumer boom in May and

June. I said earlier, I don’t think we’ve seen the kind of boom in May and June

that occurred in other countries. There’s a lot of international experience with the

introduction of GST, this was particularly strong in Japan, New Zealand and Canada when

they introduced a GST. Although I also make this caveat as I did earlier we haven’t

got the retail figures in yet for June, but I’m just giving you my anecdotal

impression. But importers, retailers certainly would’ve been within their rights to

expect that there was one, and I think that’s certainly been a contribution in

relation to the May trade figures. The May trade figures are consistent with what we

believe will be the outcome in this financial year, which is a current account of $33.5

billion, or 5 per cent, but with that falling into 2000 / 2001.



How long will it be before we can reasonably tell how smooth the transition to the GST

has been?



Well, if the Labor Party is right there should be mass rioting tomorrow. And if

there’s no mass rioting tomorrow, I think then things have been reasonably

successful. Don’t forget the Labor Party’s been telling us for three years that

this is the worst thing you could ever do to an economy, notwithstanding the fact that

Japan and Canada and New Zealand and Singapore and England and France and Germany have all

introduced GSTs. So I, if I were Kim Beazley and, you know, there was no mass rioting in

capital cities tomorrow, then I’d be concerned that all those prognostications were

wrong, and that the tax reform had gone smoothly. Our view has always been a much more

balanced view. Our view has been this – that Australia has to modernise its taxation

system, that there will be some dislocation in the course of that. But after the

dislocation has moved on, life will resume as normal, people will wonder what the argument

was about. I make this prediction. In the years ahead, people are going to look back about

the argument on GST in much the same way as we now look back on the argument about decimal

currency. When decimal currency came in, there were a lot of people resistant to change

who said, what’s wrong with the pound and the shilling and the pence? And yet as we

moved through that, we adopted decimal currency and no one would now think of going back.

It’s the same in relation to goods and services tax. There will be dislocation. And

reactionary forces like the Labor Party will try and feed off change. But in the years to

come, nobody in Australia is going to say we ought to go back to wholesale sales tax,

because this is inevitable progress. No more than people now say, go back to the pound,

shilling and the pence, will they say, go back to the wholesale sales tax. And when

Australia leaves the ranks of countries that have a wholesale sales tax tonight, it will

leave Swaziland as the only other country in the world with wholesale sales tax. So, we

will move through this and we will look back and we will say, what was all of that

argument about. And I must say to you, the argument, unfortunately, was essentially

political opportunism. Decimal currency was easier because it had bipartisan support in

the national interest. This would’ve been easier if there’d been bipartisan

support in the national interest. But we will look back, this change will be seen in

retrospect as something that was necessary, worth doing. And we will be entitled to ask

ourselves why it was that there were political opportunists who tried to make it so

difficult. And I think we should always remember that of the Labor Party. We should never

forget this, because they’re going to change their position. On Sunday they’re

going to say, oh, we always were in favour of GST, we’re going to keep it, we were

just opposed to the implementation. Let’s put this on the record. I want this on the

record now. Even today, on the 30th of June the Australian Labor Party believe

that a wholesale sales tax on a narrow goods at a high rate was preferable to a

broad-based goods and services tax. Even today on the 30th of June, the Labor

Party believed income tax rates should be high. Even today on the 30th of June,

the Labor Party was opposing family assistance. Let’s put this on the record. They

were opposed in principal to tax reform. They were not just opposed to its implementation.

They were one of the most reactionary political forces in the developed world. And that

ought to be on the record, because when we look back people are going to say, why was it,

how was it, that there was so much fuss about this change, which was necessary and

inevitable? And the answer will be, political opportunism.



Are you going to the football tomorrow, Mr Costello?



I’m working tomorrow, unfortunately. I’m working with a heavy round of media

commitments . . .



You’re not dodging the football?



Oh no. Football is one of my great loves in life, and if I had a day off I’d be

there, I can assure you . . .



You’re not . . .



. . . I’d much . . .






. . . I’d much rather be at the football than working, I can assure you of that.

Thanks very much.