Transcript No. 99/84

TRANSCRIPT OF

The Hon Peter Costello MP

TREASURER

Radio National with Fran Kelly

Friday, 12 November 1999

7.35 am

E&OE

SUBJECT: Business Tax Reform, anit-avoidance measures

Peter Costello, the Democrats say, even with your new Stage 2 tax avoidance measures

your business tax package is not revenue neutral and therefore can’t be supported in

its current form. Do you concede there is at least a question mark over some of the

revenue estimates in your package?

No, not at all. The costings which were released yesterday shows that not only is it

neutral but probably overall has a slight increase in revenue, particularly if you move

down to big structural reform of the tax system. But I make this point. As the

introduction said, there’s right across the headlines this morning, headlines saying,

that the Government is taking a very hard line on tax minimisation and tax avoidance. And

yet the Democrats according to the introduction, say more should be done. So I would say

to the small business community and the farming community, we are very much in the centre

of this debate. The pressure that’s coming out of the Senate is much more extreme.

And the best way in which business tax will be accomplished is as recommended by the Ralph

inquiry, that we broaden the base which are what the measures that are in the paper this

morning are about, and we lower the rates. And to the Democrats, you’ve got to bear

this in mind, that the only point about broadening the base is to lower the rates. You

can’t have genuine tax reform if you broaden the base and increase the rates.

And yet one of the consultants to the Ralph Committee who was speaking to the Senate

inquiry yesterday was critical of your capital gains tax changes and the costings

surrounding that. He said, that those changes would increase tax avoidance and there could

be a potential leakage to Government revenue from this measure, there could be a hundreds

of millions of dollars loss rather than the hundreds of million dollar stimulus that you

calculate.

Well look, you’re going to get all sorts of people coming through this inquiry

with all sorts of views. But at the end of the day what we did is we relied on the

overseas research . . .

And yet someone speaking on that overseas research again to the Committee yesterday,

someone from the US said the research it was based on was out of date, irrelevant and not

very good in the first place.

Well, she of course, I think, relied on one of the papers, but what we relied on, was

all of them. First, second, what we did of course is we relied on the official US figures

which she was not relying on either. Thirdly we adapted them to Australian conditions. Now

you can’t expect somebody in the US to be doing that. Fourthly we ran them through a

high level inquiry with Mr John Ralph and his colleagues. And fifthly, we backed them up

with our own research. Now let me make this point about capital gains tax, this is very

important. We have probably the most complicated capital gains tax system in the world.

It’s a capital gains that works on cost base indexation and averaging. What we are

saying as part of simplifying it is to abolish indexation and averaging. On their own, if

you did that, that would increase effective rates. And then we say, halve the rate. So as

a trade off for the simplification, you halve the rate which brings rates overall down. If

you don’t halve the rate and you just abolish indexation and averaging, what you

would be doing would be putting up the effective level of capital gains tax. That’s

why that whole thing goes hand in hand. You either take it all or you don’t do it at

all. Now, I make one other point in relation to the US. You can argue a lot about the US

research on this. But at the end of the day, the US Government is operating a 20 per cent

capital gains tax regime. Whatever any US tax investigator or academic says, they operate

a 20 per cent capital gains tax regime. It is less than half the Australian regime. It is

one of the reasons why they’ve had growth and jobs. And the growth and the jobs is

what we’re aiming for here.

Okay. Well, Senator Murray said yesterday, that he was confident that this package

would nevertheless go through the Senate before Christmas in a modified form. Will you

allow any modifications to the package as it’s currently proposed?

Well, I think the package as it’s currently proposed is well balanced. And

it’s not as if you can take bits out and add bits on. This is where you get into

extreme complication. Now, we saw this in relation to the indirect tax changes, what

seemed like a good idea led to a lot more complication. Now one of the best things about

this is its simplification and it all goes . . .

But you did end up modifying the first, the ANTS package, will you consider modifying

this one to get it through?

Well hang on. Our ANTS package was defeated in the Senate and only went through when it

had changes which were induced by the minor party in the Senate. Now, with all of the

conditions that have been put down, they are now fulfilled. We’ve had a 12 month

inquiry. We’ve actually had some negotiations with both the Opposition and the

Democrats. Look, here is an opportunity for Labor to get relevant again. The Labor Party

said, that if the Government took a hard line on things like independent contractors it

would be prepared to support this package. Now, the acid’s on them, isn’t it?

Are they going to become relevant or not?

Well they have a few other riders on their support, I think, too. But the question is

today, both parties, Labor and the Democrats are saying, this package isn’t revenue

neutral, it would need some change in order to get their support. Will you countenance any

change?

Well, I hope that the small business community and the farmers hear that message

because what the Labor Party and the Democrats are saying, is they want to take more

money, more money out of small business and the farmers. Here am I, I’ve laid down

fair measures and quite tough measures, but what they’ve got to hear is this message

out of the Senate. The Senate is taking a pretty hard line on this, they want more tax

from small business and farmers. The Government’s trying to protect them.

Treasurer, thanks for your time.

Thank you.