Press Conference

Parliament House, Canberra

Thursday, 29 March 2007

9.35 am

SUBJECTS: State plans to lift GST

TREASURER:

This morning we have learned that the State Premiers have commissioned a report, a report which the Commonwealth has not seen, recommending an increase in GST.  And why wouldn’t the Labor States want an increase in the GST rate, after all, all GST goes to State Governments.  Under the Intergovernmental Agreement which has been enacted, GST can only increase with the unanimous agreement of all the States and the Commonwealth Government.  The Commonwealth Government does not agree to an increase in the GST. 

We, the Coalition, will not agree to an increase in the GST and we have the ability to veto any demand by the eight States and Territories.  Of course, if Kevin Rudd is elected, if Labor forms Government federally, along with Labor Governments in all of the States and Territories they will be able to get unanimous agreement for an increase in the GST rate, there will be no checks and balances.  Wall to wall Labor raises the possibility that the eight Labor States and Territories will get an agreement from Kevin Rudd for an increase in the GST rate.  Mr Rudd may well say he doesn’t want to agree, but the risk is that he will be put under pressure by the State Premiers, the State Labor machines and they will demand that he agrees to an increase.  If he agrees to an increase the GST rate can be increased.

I have been saying for some time now that whenever State Labor Governments make a demand on Mr Rudd, he bends over backwards to accommodate, whether it be in relation to royalty streams in Western Australia, whether it be in relation to the demands recently on the Gold Coast for a $2 billion infrastructure package, whether it be in relation to industrial relations, his whole background as a State public servant means that when Premiers demand things he is an easy target.  Being inexperienced and facing eight Labor State Premiers and Chief Ministers I have no doubt they will be able to exercise significant influence on him if they demanded an increase in the GST rate.  And they have the ability if they get his agreement to have that rate increased. 

Now, I want to stress that the Commonwealth has not been shown this report.  We did not know that this report was being done.  But, we find it highly interesting that the report apparently recommends an increase in the GST rate.  This comes on the eve of an Intergovernmental meeting with State Premiers, State Treasurers I should say, who are still refusing to abolish all of the taxes listed in the Intergovernmental Agreement for abolition as part of the original GST deal.  So we have had to fight every step of the way and we still haven’t got all of the taxes abolished, that they agreed to abolish in return for the GST, and we now find that they are working up a report to increase the GST rate.  We the Coalition Government will not agree but the risk is wall to wall Labor with eight Labor Premiers and Chief Ministers working over an inexperienced Kevin Rudd, Mr Rudd will give in, and that is a very, very real risk with the election of a Federal Labor Government.

JOURNALIST:

Mr Costello, Mr Costa has issued a statement or a media release saying that he would not support an increase in the GST, he has already done that this morning.

TREASURER:

Well, why did they commission this report?  They commissioned this report, they paid for this report, they have not shown the Commonwealth this report, this is the first I have heard about it in today’s paper.  And from what I read this report raises the prospect of increasing the GST.  Why was the report commissioned?

JOURNALIST:

But doesn’t this report also rely on the findings of Warburton-Hendy, your Government backed report?

TREASURER:

Well we did a report into Australia’s tax system, we benchmarked our tax system against international tax systems and that report is out there for all to see.  And in the wake of that, in last years’ Budget you will recall that the Government cut income tax.   Cut income tax.  But this Government is not going to increase GST.  Under no circumstances.  And think about it for a moment – who has motivation to increase the GST?  State Governments.  Because all GST revenue goes to a State Government.  That is why they want to increase the GST.  They have all got spending problems on their hands.  They have got maladministration – whether it is Queensland hospitals or Sydney’s buses or Melbourne’s trains – they all want more revenue, they are refusing to cut the indirect taxes which were part of the original GST deal, and now we find they have commissioned a report which we have not seen which raises the prospect of raising the GST.  Now, I expect before the Federal Election Mr Rudd will say he is not in favour of an increase in the GST rate – why wouldn’t he?  He wants to get elected.  But the risk is this – after the election, with eight Premiers and Chief Ministers who all have an incentive for increasing the GST rate, they will start influencing and bear down on an inexperienced leader, and I don’t think he will be able to withstand their pressure. 

JOURNALIST:

Are you of the view that the GST should never ever be lifted, that it should remain at this level in perpetuity – and if so, why and what if the States, for example, are prepared to abolish other taxes in exchange for lifting rates?

TREASURER:

There is no need at all for the GST to increase.  I introduced it at a rate of ten per cent.  I have maintained a veto on any increase.  And there is no reason whatsoever to increase it.  It is providing windfall year after year to State Governments and if you increase the rate all you will do is provide bigger windfalls year after year to State Governments.   There is no need to increase the GST.  Now you say, ‘Oh, the States might say if they got more GST they might abolish some other taxes’.  I have got to say to you, their record of abolishing taxes in return for the ten per cent GST is not good.  You know, we can’t get them to abolish all of the taxes they agreed to abolish in return for a ten per cent GST so anyone who bought an undertaking from the States that if you gave them more they would do better would be buying false hope. 

JOURNALIST:

Treasurer, the States agreed to review the taxes not abolish them, but anyway, they can talk to…

TREASURER:

No, no, I do well know actually because I actually negotiated the agreement – one thing I do know very well is the introduction of the GST because I did it and none of the State Treasurers who are there now were actually part of it, and the agreement was the abolition of all of those taxes upon the introduction of the GST.  Now, what happened if you recall…

JOURNALIST:

It’s in writing, (inaudible) there is not much point in (inaudible)…

TREASURER:

…alright, if The Age wants to let me answer the question I will answer the question.  What happened was that when the legislation went into the Senate, as you know, the Senate would not pass the base – the entire base.  And so the agreement I then negotiated with the States was – because the amount of GST would gross lower – we would have the first tranche which would be abolished immediately and the second tranche, which would be reviewed in 2005, for abolition as soon as the base had got up to expectations.   The base has now exceeded expectations and they will not abolish the second tranche.

JOURNALIST:

Are you saying that that was like an unwritten understanding you had with the then Treasurers?

TREASURER:

It was clear to everybody that was there at the time.  I was there at the time, I do not think any of the current State Treasurers were there.  We did not introduce GST to add to the number of taxes.  We introduced GST to abolish other taxes.   The Commonwealth pledged that it would abolish wholesale sales tax – which it did.  The States were going to abolish all of their taxes immediately.  It was only when the Senate would not pass the original base that we did not know how the GST would rise, that we said we would review it in 2005, knowing that if the GST had increased by 2005 to expectations to allow the abolition of those taxes that we would do so. 

JOURNALIST:

Mr Costello, the Clerk in the Senate, Harry Evans says that the (inaudible) the only way the GST can be raised is if you have a majority in both houses of Parliament, you are the only party that can do that.

TREASURER:

Well Mr Rudd can do it if he gets elected, of course he can.

JOURNALIST:

You are saying that Labor would have a majority in the Senate.

TREASURER:

Hang on, you say we are the only party that can do it, if we agreed with the States and we introduced legislation?  But we don’t agree with the States and we won’t introduced legislation.  Now, if another party becomes government, if Kevin Rudd becomes Prime Minister, if eight State Premiers and Chief Ministers want an increase in the GST, that is the risk.  An inexperienced Prime Minister beholden to eight State Premiers and Chief Ministers with a majority in the Parliament, of course he can increase the GST. 

JOURNALIST:

But the States requirement is federal legislation, isn’t it?

TREASURER:

Oh look, it requires federal legislation and State agreement.

JOURNALIST:

(inaudible) the majority to change the rate, he would have the majority to abolish the State (inaudible), wouldn’t he?

TREASURER:

If you want to increase the GST and you have the agreement of all of the States and you have the numbers to pass the legislation in the House of Representatives and the Senate, you can increase it, yes you can, absolutely right.  We at the moment have a majority in the House of Representatives and the Senate.  We are not going to introduce legislation.  We won’t increase it.  And by the way we have no motivation to increase it because all of the money would go to a State Government, let’s be clear about this.  So, why would you do it?  Why would a Commonwealth Government do it?  They would only do it in order to deliver more revenues to State Governments.  Why would the State Premiers want it?  Because they would be the recipients of more revenue. 

JOURNALIST:

(inaudible) given the dilapidated state of State infrastructure, is there a case in your mind for expanding State revenues or is this just a case of they should do better with what they have got?

TREASURER:

I think they should do much better than they are doing.  When you look at the state of Queensland hospitals or Sydney’s buses or Victoria’s trains, when you look at the fact that they are being mismanaged to the extent that they are, what this tells you is it is not a money problem, it is a management problem. 

JOURNALIST:

Mr Costello, you say there is no intention to lift the rate, is there any case for broadening its base?

TREASURER:

No.  And why would you?  Let me tell you this, on the current base, on the current rate it is delivering windfalls to the States year after year.  Now, it is estimated that in 2006-07 the States will get $39.3 billion, in 07-08 $41.9 billion, in 08-09 $44.4 billion, in 09-10 $46.6 billion.  So on the current base, on the current rate it is delivering revenue gains year after year.  Now, why would you expand the base or increase the rates accept to deliver even bigger windfalls to State Governments. 

JOURNALIST:

You wanted to put the GST on food, why is that such a bad idea now?

TREASURER:

Well we were defeated in the Senate in putting that in place.  That is the reason why the State taxes haven’t all been fully abolished.  And having fought as hard as we did to get this current base in place in 2000 I am not going to change it.

JOURNALIST:

(inaudible) you have the majority in both houses of Parliament now, you could push that through tomorrow.

TREASURER:

Well why would I?

JOURNALIST:

Well you say you did, you wanted to eight years ago, why don’t you want to now?

TREASURER:

Because we have been through all of the transition, we have bedded down the system now.  I am not about to change it now and the only motivation to change it again now would be to deliver more money to State Governments and why would we do that?

JOURNALIST:

Treasurer, do you see the irony in the fact that you are running a scare campaign in GST against Labor?

TREASURER:

I am not running a scare campaign.  I read in the newspapers today, not me, in the newspapers today that the Labor Premiers have commissioned a high level report which I haven’t seen, raising the prospect of increasing GST.  Now, I haven’t seen that report.  I didn’t know it was being done but I read in the newspapers that it has been done and we are trying to get a copy of it, incidentally.  I would be very interested to see it.  Now, I know why the Premiers would want an increase in GST – because they get all of the revenue.  It doesn’t take two and two to figure out why they want an increase in GST, does it?  So there is one reason why the GST rate hasn’t been increased and won’t be increased because this Federal Government won’t agree to it.  But I can’t speak for a Labor Federal Government.  A Labor Federal Government under the influence of eight State Premiers and Chief Ministers with an inexperienced leader will be a risk.  There will be no checks and there will be no balances. 

JOURNALIST:

(inaudible). 

TREASURER:

Sorry, two last questions. 

JOURNALIST:

You said in the House yesterday that Treasury had questions about the assumptions behind Nicholas Stern’s modelling of the economic impact of climate change.  Have you had a chance to raise those with Mr Stern, Sir Nicholas, and how much in error do you think the headline numbers out of that modelling may be?

TREASURER:

Look, I had a meeting with Nick Stern yesterday, we discussed the issue generally.  In the House yesterday I made the point that there are economists that think that the discount rate that he used was too generous and of course if you use different discount rates over a 50 year period, you get very different results.  Now, he would say – and I would agree with him – that whatever discount rate you use global warming is a big problem and I agree with him.  Whatever discount rate you use, but if you used a different discount rate you would get different economics effects. 

JOURNALIST:

So what would Treasury see as a more realistic number?

TREASURER:

Well these are very, very open to interpretation.  I think the discount rate that he used was 1.4 from memory.  Now, some people would say a discount rate of you know, the long term or 30 year bond rate might be more appropriate.  Now you can have arguments about those things and over a 50 year period it leads to very different results.  That is the point I am making.  But he would say and I would agree with him, that whether you do it on 1.4 or whether you do it on something else, it will have an economic effect.  There is no doubt about that and I don’t question that for a moment.  I am just saying that there is a lot of academic debate about the actual numbers.  I am sorry, last question. 

JOURNALIST:

I was just going to say before this press conference, this morning Federal Labor did rule out an increase on…

TREASURER:

I am sure they would.

JOURNALIST:

…and along with other State Treasurers, how is this not then a scare campaign?

TREASURER:

I am sure they will rule out any increases before the election because they want to get elected but my point is this, why did the Premiers commission this report?  That is because they want more revenue.  An increase in the GST will deliver more revenue to eight Labor States and Territories and they only need one last piece of the jigsaw and it is a Federal Government that will agree.  An inexperienced leader who has a history at rolling over to State demands is their best chance – wall to wall Labor, six States, two Territories and Federally – is the best chance that Labor will ever get to increase the GST rate.  Thanks.