Residential Rents, Caravans, Tax Reform, Democrats, Labor Party

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Residential Rents, Caravans, Tax Reform, Democrats, Labor Party


Transcript No. 2000/63





Interview with Alexandra Kirk


Wednesday, 21 June 2000

8.00 am


SUBJECTS: Residential Rents, Caravans, Tax Reform, Democrats,

Labor Party,


First though, the Federal Governments relationship with its GST partner

the Democrats, appears to be in tatters. Democrats leader Meg Lees has

accused the Government of covering up independent research showing that

the immediate impact of the GST will hurt caravan park and boarding house

residents. The same research also found that residential rents will rise

by more than twice the amount forecast by the Government. Senator Lees

is now proposing the concessional rent hike for caravan park residents

should be halved. The Treasurer Peter Costello has joined us in our Canberra

studios, hes speaking to Alexandra Kirk.


Mr Costello, good morning.


Good morning.


Youve just quelled a potential revolt on caravan parks from the National

Party. It now appears youve alienated your GST fellow travellers, the

Democrats. Has the Government dudded them?


Oh no. And Id like the opportunity to go through the figures because

this is . . .


But in terms of concealing the . . .


. . . this is . . .


. . . the report?


. . . no, no, this is one of these areas where you have to be very precise

with the figures because youre talking about very small amounts. There

are two issues here. One is boarding houses and caravan parks, and the

other is private rents. Private rents have always been input taxed. In

fact all the argument over the last couple of days is that you should

move caravan parks and boarding houses exclusively to that treatment.

Now, what your introducer said was, he said that some research by Mr Murphy

indicated . . .


Commissioned by the Government . . .


. . . indicated that rents would rise by 4.7 per cent over the long term.

Right. Now, 4.7 per cent on a $200 a week rent is by my calculation $9.40.

Correct? What the Government believes, is that post the Senate changes,

that the affect on a $200 rent would be around $7. Its a difference of

about $2.40 out of a $200 rent.


Are you saying that doesnt matter?


No, no. Let me say why, first of all, I say its $7. After the changes

that were put in place by the Senate, youll recall GST was taken off

food. One of the consequences was the abolition of indirect taxes was

delayed – Bank Account Debits taxes, stamp duties on mortgages. So now

if youre an owner of rent and the money gets paid to the agent, and the

agent pays it to the owner, a Bank Account Debits tax applies. When the

owner pays a repairman, Bank Account Debits tax applies. When the owner

takes out a mortgage, stamp duty applies.


So youre saying youre blaming the Democrats . . .


No, no Im not. Im saying the tax changes, which mean that stamp duties

on mortgages and Bank Accounts Debit taxes stay, increase that rent by

about $2 out of $200 . . .


As a result of the deal with the Democrats?


As a result of tax changes which were put in place in the Senate. Okay.

And let me just make that point there. Whilst food became cheaper, most

other things became more expensive as a consequence of those changes because

the trade-off for exempting food from GST was to keep financial taxes.

So while . . .


So do you think that (inaudible) . . .


. . . just let me finish this point. While your fruit and vegetables

became 5 per cent cheaper, right, you got an extra $2 in $200 on your

rents. Now the remaining difference, the $2.40 difference between the

Government and Mr Murphy is partly explained by the fact that in Mr Murphys

model he hasnt got a margin treatment on land. And I think if you asked

Mr Murphy to put a margin treatment, which is the actual taxation treatment

on land, it comes down by about $1.50, $1.60. Which means that the difference

between his model and the Government model is 80 cents in a $200 a week

rent in a few years time.


Are you saying that the Econtech model then is wrong, that it wont turn

out to be like that?


Im saying if you put the margin treatment in the Econtech model, the

difference is 80 cents in a $200 a week rent in a few years time. Now,

let me just put the other side of this. If you were paying the $200 rent,

and lets suppose it went up to $210 in a few years time, rather than

$209.20, right, which is the 80 cent difference that the models are now

showing, and youre an average family, you have $50 a week extra to cope

with those rent increases. I was speaking to someone from the foreign

press yesterday who said, what they couldnt believe about the debate

in Australia, was the unbelievable focus, and here we are on the national

affairs programme, you know, talking about the difference in a modelling

on a $200 rent of 80 cents in a few years time . . .


So if you dont . . .


. . . and the other side of the equation, a $50 a week income tax cut

and family increase, which will more than outweigh any price rises, is

completely left out of the equation.


So are the Democrats getting angry about nothing?


No. The Democrats are on another point. Theyre on the point of caravan

parks and boarding houses. I just went through the rents, the private

rents . . .


So do you think the Democrats are refusing to take responsibility for

the deal that they made with you because they may be getting nervous,

just like a lot of other people, just before the GST comes in?


No. I think – the fact is legislation has consequences. And when food

was made cheaper, one of the trade-offs was that you had . . .




. . . well, that was, I think, most people say a good thing, wouldnt

they? One of the consequences of that, just as your food prices fell,

because you kept Bank Accounts Debits taxes and stamp duties and Financial

Institutions Duty, other items went up marginally. But, heres the point,

overall, a persons expenditure when you took into account the fall on

food, the changes on rent, overall a persons expenditure didnt go any

higher, and all of the income tax cuts and family assistance more than

outweigh all of the price increases. So, whichever cameo you do, people

are still better off.


And if its proven later that youre wrong, what are you going to do

then for the more than 1 million Australian renters?


Well, the thing about it is, you look at this research, you look at our

research which throughout this has been the most accurate research . .



So you say.


. . . and its always shown that people would be ahead. I just make .

. .


And if theyre not?


. . . one other last point because I didnt finish about, the Democrats

are on about boarding houses and caravan parks, right. The Labor Party,

by the way, the whole of their argument this week is to treat boarding

houses and caravan parks like residential rents. And yesterday, shock

horror, they said that residential rents would rise more than the concessional

half-GST treatment. That is, they have been all this time trying to push

caravan park owners and boarding houses into a treatment which on this

modelling, if they want to accept this modelling, wouldnt make them better

off, it would make them worse off.


But the bottom line is, you have to deal here with the Democrats who

were your partners in the GST deal, theyre now pretty angry and cheesed

off. Will you agree to their demands?


Look, their demands are in – we now have in the Senate two demands. We

have the Democrats who want to keep the option for caravan park owners

and boarding houses to have a concessional GST, and we have the Labor

Party which wants them to be treated the same as residential rents, even

though they now say residential rents arent that good. That will go onto

the floor of the Senate, they will move their amendment. But I want to

make this point . . .


Youve been talking to the Democrats . . .


Sure, sure.


. . . and are you willing to meet their demands?


Oh no. Were going to try and get the best outcome for people here .

. .


Does that mean . . .


. . . and legislation has consequences. If the legislation is amended

again, lets make this point, it has consequences. You were just saying

to me, you walk away from what the Senate does. I cant, I have to implement

it. Let me raise one point, and I dont think people have thought about

this. You know, I said at the time, it was a simple idea to exclude food

from GST, but food was a hard thing to define. Let me make this point.

If youre going to try and have different treatments on boarding houses

to private hotels, youre going to go right back into all of those definitional

issues. When does a boarding house stop, and when does a private hotel

start? Now, I make the point again. These amendments have consequences.

The people who . . .


So no deal?


. . . the people who move them have got to think about them very carefully.

At the end of the day, Ill get stuck with having to implement it, but

I want to be able to say the reasons why I think these are not good ideas.

You are right back into all of that definitional issue again. It is not

as simple as it sounds in theory. Ive got a bit of experience with this

stuff now. I said it in relation to previous amendments, Ill say it in

relation to these ones. The Government proposals are the simplest and

the fairest.


Is that no deal with the Democrats then?


Well, this is, well wait and see what best outcome we can get from the

Senate. Ive put my arguments to Senator Lees, shes got her amendments.

Kim Beazleys got his. At the end of the day I have to implement what

comes out. And as somebody whos got some experience, can I say this:

what the Governments put would get the best outcome. And with a $50 a

week for the average family reduction in tax and increase in family allowance,

a rent increase of $8 or $10 is affordable. And at the end of that, after

all of the price changes are taken into effect, families are better off.


Peter Costello, thanks very much.