Transcript No. 99/10

Hon Peter Costello MP

Radio Interview

Monday, 1 March 1999

Interview with Jeremy Cordeaux 5DN

9.00 am

E&EO

SUBJECTS: Senate Inquiry, Ralph Report, Company Tax, Tax Reform and Drugs

CORDEAUX:

Now Adelaide is going to see a very interesting week in Federal politics as Ministers arrive for tomorrows Cabinet meeting. The Treasurer, Peter Costello, is arriving a little bit earlier than that on the telephone. Hello Treasurer, how are you?

Hello Jeremy, Im well thanks.

Have you got any feedback yet from the roadshow, the tax roadshow that was doing a lot of listening around the country recently?

Well, I, I follow it. Youve got to remember that this is a partisan Senate inquiry. Its chaired by the Labor Party and theyre trying to use it of course, to defeat tax reform. So I dont take what, what they say as, all that seriously, but from the people who come in and the concerns that are listed Im able to actually provide more information and Im finding that quite a useful process.

Now what do you think of the, the Ralph Report, the business tax?

I think its a good report. You know, what weve got now in Australia is, weve got a proposal to reform indirect tax. Were going to abolish all of those indirect taxes and the wholesale sales tax and have one low-based GST.

Bravo.

Weve got a proposal to reduce income taxes and if the Senate will pass our tax reform we can get a top income tax rate of 30 per cent for 81 per cent of Australian taxpayers, which is great. And were also reforming Commonwealth State relations because, as you know, all of the revenue from GST goes to State governments. None of it goes to Canberra, none of it. It all goes to State governments so they can run their essential services. And then the fourth leg would be if we could reform business taxation and get a more competitive tax regime, and the Ralph Report identified some of the ways we could do that. So, were now having a public discussion about business reform and when we get the other reforms through the Senate, you know, when the obstruction stops and we get, hopefully, income tax reductions and the other through the Senate then we can turn to business tax.

Federal Government, I, I understand you plan as part of this business tax reform to scrap the accelerated depreciation as part of that reform. Do you, do you anticipate a lot of trouble trying to get that through?

Well, one of the points that the Ralph Review has made is, if instead of having concessions for particular people you have an even tax system, you can have lower rates. And not everybody can take the benefit of accelerated depreciation but everybody could take the benefit of a lower company tax rate and Ralph has put forward a proposal as to how you could do that switch and that would give the benefit of lower rates to everybody. And that of course would also make Australia a very competitive place to do business which would be good for jobs. So, its one of the things weve got out there for discussion at the moment.

Well, you and I have had the discussion before that it would be an absolute revolution, I, I cant begin to imagine how, how fast this country would forge forward if we had a thirty, thirty, ten plan. Thirty per cent personal tax, thirty per cent business tax and a ten per cent GST.

Well, I think thats right. Look, at the moment in, you know, the Asia Pacific region, country after country has fallen over into recession Hong Kong, Singapore, Japan all of these countries in recession. The last year Australia was the strong powerhouse economy in the Asian region. Now, I think if we use this opportunity to do tax reform, make Australia have the lowest corporate tax rate in the region, with the possible exception of Hong Kong, but outside of that the lowest corporate tax rate in the region. And if people will want to bring their businesses down here, its a growing economy Australia, a lot of people skills, weve survived the Asian financial crisis, our financial institutions are good, our stock markets performed well and if we have a competitive tax regime thisll become a great business centre and that means a great jobs centre. If you want to create long lasting, ongoing jobs you need long lasting, ongoing strong businesses to sustain them.

Couldnt agree more. The Prime Minister has warned that Australias boom economy, Im just quoting this, Australias boom economy could not last forever in the wake of figures predicting a sharp contraction of business investment. Does that, does that contraction of business investment worry you?

Well, as we came through the last, the last year, 1998, Australian growth rates were really the highest in the developed world which was, I think, attributed to our exporters and the Australian economy and the result of low interest rates. For 1999 I dont think we will be the fastest growing economy in the world. In fact we put out some, some forecasts saying that our growth rates are going to be closer to three per cent than the current five per cent. So things will slow down. Even at three per cent, of course, if we could manage three per cent growth through an Asian recession that would be a fantastic result. But, you, you cant defy gravity forever and I dont think, and I said this at the time, we wouldnt sustain five per cent growth throughout the course of 1999. I think there will be a bit of a, a slowdown but, as Asia turns coming back into the year 2000 I would expect things to, to, to pick up again. The important thing is to keep good economic policy flowing. If we hadnt, if we hadnt put the budget back into surplus and reduced interest rates, we in Australia would probably be following Asia now, which as I said, almost all, all in recession. We, we, we balanced the budget, we kept inflation low, weve reduced interest rates and put money in peoples pockets, the economy has performed well in, in 1998. I think it will perform well in 1999. But, you wont, you wont be the fastest growing economy in the world, I wouldnt think, in 1999.

Well, growth is close enough to 5 per cent at the moment isnt it?

Yes, yes. Well the last set of National Accounts we had showed growth at 5 per cent, which, as I said, was the fastest in the developed world. It was faster than the United States and Germany and France and England, and faster than the OECD. And, you know, to have been in Asia and to have grown at the pace we were growing was, somebody said, probably you know one of the great economic performances of the world. But, you know, even if growth comes back a bit and its closer to 3, a 3 per cent growth rate in the midst of an Asian recession and a Japanese potential depression will be an astoundingly good result.

Yes, with 5 per cent growth Im surprised were not knocking more holes in unemployment.

Well unemployment, this is an interesting point, unemployment of course is the best its been in Australia for a decade. The fast growth rates did increase job creation. I think in the last three years weve had 400,000 new jobs in Australia. Thats quite a lot you know, 400,000, and the unemployment rate is now down at 7 per cent which is too high but its the lowest its been for a decade, the lowest for the decade of the 1990s. So economic growth was making inroads into unemployment and creating new jobs. What were thinking now is if were to take job generation a new step weve got to engage in some big structural reforms of the economy and of course tax reform is one of them. You cant sit around and just say well well do nothing and hope the jobs appear. Youve got to work on your tax system. As I said making Australia the centre for business in Asia would be a great start.

Now, it would seem to me, you dont even have to read between the lines really, that the Democrats are setting this Senate rejection up well and truly. Theyre not going to pass it are they?

Well theyre trying to sort of make themselves relevant to the game. Its all politics. You know, the Democrats are saying well, you know, we want to make ourselves the balance of power. We want to write ourselves into the script. Which is all very well, but you see, the Democrats will never have to run a tax system. Theyll never form a government. There will never be a Democrat Treasurer. And its all very well for them to say well look well try and get as many votes as we can by amending the tax package here, there and everywhere, but a tax package is a design. You try and design it so that if youre taking more tax from one area, youre alleviating it in another. If youve got to do a reform in one area you balance it with compensation in other areas. We took the chance to sit down and redesign the whole lot. Now, if the design is accepted, it works. But if people want to fiddle with the design and put amendments here and loopholes there, which smart tax avoiders can drive their way through; if they want to take revenue off here and put extra burdens off there you can ruin the whole design. Thats how we got the current Tax Act. You know we started off in 1936 and we put a little bit here and a little bit there and a little bit there and it went on and on and the Tax Act became a complicated maze. Now, we sat down before the last election and said if were ever going to re-draw this, youve got to re-draw it as an overall design. Well go to the Australian public, well give the public the chance to vote on it, and if the public votes for tax reform then well be able to introduce a whole new design. Now, the Democrats come along and say oh, we dont like this part, we dont like that part, we want to re-draw that part. Well never have the responsibility of running it

Sure.

The Democrats.

Can you get it through?

Well, you see Im still in there pitching. Its a funny argument this one Jeremy because all were asking is to implement what we promised.

Thats right, you got a mandate to do it.

This is a classic case of all a Government wants to do is to put into law its policy. This is one of those cases where a Government wants to put into law 100 per cent of its policy and the Senate is saying we wont let you keep your promises.

So, hows Senator Harradine on this.

Well I think Senator Harradine, so far, has shown that hes got a bit more of an open mind than the Democrats, that, you know he recognises that the Government has to govern and its the Government that has to run the tax system, and its the Government that put its policy out

Yes

So I think hes shown a bit more of an open mind so far.

No, Im not suggesting that youve done any deal but I do see that youre looking at this phone sex issue which is something hes pretty hot on.

TREASURER:

Well as you know we dont do deals, but you know phone sex is something youve got to look at on its own merits and I think the Communications Minister, Senator Alstons had quite a bit to say about that over the years. Hes worried about, I think hes particularly worried about the Internet and some of the controls on the Internet and weve got to make sure that we have good administration in that area too.

On another issue, I see the Federal Government risks a huge class action from Telstras million plus shareholders if the Senate blocks the full sale of the carrier this month. That could be pretty serious.

Well it could be. You know, its all very well for the Senate to say, oh well, look, you know well sit around here and well try and get votes for ourselves, but the world of commerce has to move on. Now lets take tax. There are businesses now that are entering into contracts which will be performed after July 2000. Right. Thats not far away, its a little over a year away. They are entering into those contracts on the basis of what the Government has said the tax system will be. So the Senate comes along and says well we wont let the tax system be that. Theyre putting in a difficult position all those businesses that now have to make decisions. Its all very well to say oh well, you know, well cut and paste the tax system, but there are people entering into decisions now that have to know what the tax system will be in July 2000.

Sure.

And theyre entitled to say, well the tax system will be as the Government said it would, as the legislation before the Parliament provided. Theyre entitled to do that. Its the same in relation to Telstra. There are people that are buying and selling shares. Telstra is making commercial decisions and to say that, you know, these sorts of things can be knocked around at the last minute is to open up all sorts of legal possibilities as you said.

Just quickly, I see that KPMGs Centre for Consumer Behaviour have said that, have noticed that people are, ahead of the GST, already changing their purchasing and spending habits, which is pretty interesting.

Well of course they are. You see, a lot of people, and I dont blame them at all, that are saying well when the new tax system comes in some things are going to fall in price and you know they might say alright well well wait until the new tax system comes in. There are businesses now that are entering into contracts, for example, lets take computers, computers under the new tax system will be cheaper, so a business might be entering into a contract now for a computer in 18 months time. Theyve got to decide what the price will be. Now, you know, the Senators say oh well, you know, well cut and paste the tax system, but there are thousands of contracts that will be out there

Sure.

And the more this goes on, the longer this goes on, they say, well, the longer the Senate is saying oh well well cut and paste, dont worry about this, well change it, the harder its going to be for people entering into these commercial contracts. If you have that, thats going to have a confidence effect, its not good for the economy, what we need is we need certainty.

Yes.

So that people can make decisions.

You cant, no of course you cant flick the Senate, but perhaps you could lock them in there, perhaps you could put something in their drinking water. I mean I dont know, but you must be enormously frustrated by all of this.

Well I think the thing can be easily resolved myself because the Democrats say elect us to keep the bastards honest.

Very quickly Treasurer.

Thats all were asking them to do.

Yes, well thats what theyre supposed to be there for, keeping you honest and keeping you up to your promises. Yes, absolutely. Just quickly, do you share the Prime Ministers position on drug trials?

Well, what the Prime Minister said is that hes going to have a meeting with the State Premiers to discuss this and hes indicated he is going to do whatever is necessary to protect our young people and I thoroughly support him in that.

Good to talk to you sir.

OK, thanks Jeremy.

Have a great day. Treasurer Peter Costello.