Transcript No. 99/43

Hon Peter Costello MP

Radio Interview with Neil Mitchell

3AW

Wednesday, 2 June 1999

8.30 am

SUBJECTS: Tax Package

MITCHELL:

On the line in our Canberra studio the Federal Treasurer, Mr Peter Costello. Good

morning.

Good morning Neil, how are you?

I’m okay. Did you have toast for breakfast?

No I didn’t actually.

What sort of bread do you like?

Well I’m actually a plain white bread man myself.

Well you’re the only who’ll be catered for. This is racist bread, I mean, if

we’re going to have a bread recipe in legislation is it going to cover Lebanese

bread, Turkish bread, all sorts of bread?

Well, you know, you’ve got the wrong person here because I probably eat all of the

politically incorrect things. You know, I’m white bread and vegemite for breakfast.

Will we really have to have legislation for bread, a recipe for bread?

No, look I think you’ve got to put this in context. That bread which is considered

a staple and essential for life will not be taxable. Whereas cakes and confectionary will

be. Somebody’s going to say well where do you draw the line between bread and cakes,

and you’ll have to draw a line. It’s not a question of telling people what kind

of bread they’ve got to eat or anything like that. You’ve just got to draw a

line between where does a cake stop and where does a bread start.

Well what about when you put cheese on the bread roll on top or sesame seeds or poppy

seeds?

Well that’s one of the things you do. But you see Neil, this is not terribly

unusual. I’m administering a Sales Tax Act at the moment which has one rate for

brooms and another rate for rakes.

Yes, but that’s the point. You were going to get rid of that, you . . .

Well I am getting rid of that. I am getting rid of that.

Is it simplifying things?

Of course it is because . . .

What, when we’re going to argue about when there’s cheese on top of a bread

roll and put it into legislation, a recipe for bread, that’s simplifying things?

Well, we argue about, all about that at the moment because we have definitions of

confectionary and biscuits. But what you won’t be arguing about is all goods other

than food. At the moment I have to argue a broom which is taxable at 12 per cent and a

rake which is taxable at 22 per cent. So we’ve got a definition of a broom as opposed

to a definition of a rake.

But sure, the old system’s messy and sloppy . . .

Well the old system . . .

. . . this one doesn’t look any better.

No, the old system is five times worse than this one. Let me make that point. First of

all because the old system has five different rates. Under this you only have one rate so

you cut five rates to one which means that you’ve got 1/5 of the complexity.

But Treasurer, not more than 24 hours ago you were mocking it yourself with the John

Howard cake.

I was, look I gave the definition of a cake, I knew the . . .

You’re not serious?

Well, I knew that the journalist would ask me so I decided I might as well give it,

which I faithfully did. But, you know, this is not new. You know, at the moment I’ve

got to administer a definition of a movable toilet seat. That’s what’s currently

in the Sales Tax Act, because if it’s a movable toilet seat it has a particular rate,

if it’s a vinyl floor tile it has another rate. I’ve got this big act which has

five rates and classifies everything.

What is a movable toilet seat?

I don’t know. It’s . . .

I’m glad.

TREASURER:

Well, it’s a toilet seat that somehow moves.

Look, I see what you’re saying. The system as it exists is awful. I suggest that

you are putting into place here a system which is not a great deal better . . .

No.

. . . if we’re going to argue about if you don’t tax cough medicine but you

do tax cough lollies; you don’t tax condoms but you do tax bandaids; you don’t

tax this sort of bread, you do tax that sort of bread; cut up chicken, whole chicken. It

makes a mockery of simplified tax.

Well, you’re referring to food and in food it is true we will have to draw lines.

And the reason we’ll have to draw lines is the Government has decided that tax will

not apply to basic staples. And I think, but incidentally . . .

Alright, let’s apply to other things, pharmaceuticals, the diesel rebate,

that’s a hell of a mess . . .

Can I make this point. Incidentally, the public takes that view, I mean the publics

view, by the way, as measured in opinion polls is that you shouldn’t have taxes on

basic foods. Now, once you accept that principle, the Government accepts that principle,

you’ve got to define it, now you get into definitions. But the point I keep making is

this, don’t think that definitions are new in the tax act. I’ve got five

different rates classifying nearly every good at the moment. I get that down to one, I

apply one rate right across the board in relation to goods except for food. So, the level

of classification and rate is dramatically reduced.

Mr Costello, we can’t get away from the point that you are defending here a system

that you said yourself was unfair and unworkable.

Look, I argued and I make no bones about this, I argued if I had my way from the outset

that we should avoid classifications. I don’t run away from that I argued it . . .

Well is this system unfair and unworkable?

But, let me make this point. You cannot get tax reform through the Australian Senate

without making some modifications. Senate, you can’t pass the law in this country

without the approval of the Senate. And we have agreed with the Senate that in this area

we will exempt basic foods. Now, we know that leads to classifications. But it means that

we can get rid of five multiple rates. It means that we can get rid of classifications in

areas other than food.

Is this system as you described it before the negotiations, still unfair and

unworkable?

No, the overall tax package is fair and very workable.

What’s changed?

No. I made the point at the outset and I don’t run away from this, that I

would’ve preferred a system where you had a universal application.

You said more, you said, this very system that we’re talking about now was unfair

and unworkable.

I was arguing against having classifications, alright, I lost the argument. The

Australian . . .

You said it was unfair and unworkable . . .

Hang on . . .

. . . is it?

Hang on. The Australian Senate didn’t agree with me. I raised all of these

problems and in order to get tax reform, including reducing income tax rates, we have to

take these classifications in relation to food and we can make them work. Of course we can

make them work. We can make them work because we are working a current system which is

infinitely more unworkable than this one.

But that isn’t all you’ve had to cop, food, you’ve had to cop changes to

the tax rates and the tax relief, or tax reform as you want to call it. You’ve had to

cop some changes in pharmaceuticals, you’ve had to cop changes to the diesel fuel

rebate. Now talk about confusing, if I live over a certain line I get it, if I live on the

other side I don’t. I mean, how on earth is that going to work?

I don’t think it’s confusing at the moment. At the moment if you use . . .

Well, hang on . . .

Hang on. Let me just explain. At the moment if you use diesel off-road you get a full

rebate. And we administer a system between off-road and on-road with oodles of

classification as to what is off-road and on-road. What we are saying in relation to that

on-road which currently gets no rebate, you will get a rebate which will reduce transport

costs for 20 tonne trucks and you’ll get a rebate in rural and regional Australia.

Yes, but what’s rural and regional Australia? Do I have to move my business to get

it?

No.

If I move from, the case the transport workers is using is say you’ve moved from

Laverton down the road a bit, suddenly you’re getting a rebate . . .

Well . . .

. . . making exactly the same trip.

Well, you’ve asked me what’s rural and regional Australia. I mean, rural and

regional Australia is defined as anything outside the main capital cities . . .

How far?

. . . and the main conurbations.

How far? Where’s the capital city end?

Well, the capital cities are, if you’re over 20 tonnes you get it everywhere. But

if you’re transporting outside capital cities, if you’re going out into rural

and regional Australia you’ll also get it. But . . .

But it is relevant where you are based too?

It’s where you’re operating. But Neil, I mean . . .

Well, I’ll just move out of town and get the rebate.

But where are you operating? It does matter . . .

Well, I might be operating in Laverton, I move 10 km down the road and I get it.

It doesn’t matter where you’re sleeping at night. If you’re running your

trucks around the city you won’t be getting the rebate. And that’s been done for

environmental reasons to keep down diesel emissions in the cities. If you’re running

between the cities or your on long haul or you’re going out to rural and regional

Australia where the problems with diesel emissions are not as great, you will get it. I

mean . . .

Is that finalised, the diesel rebate is finalised?

Oh yes.

What was the Democrats (inaudible). They say you haven’t worked that out yet.

But, can I say, you know . . .

But is it finalised or not?

Well, it is finalised. It’s finalised on the grounds that if you are operating a

20 tonne truck, a long haul . . .

Senator Allison said this morning, it’s not finalised and you’ve got to work

out the detail.

. . . a long haul, hang on, a long haul truck. You get it if you’re operating in

rural and regional Australia, you get it. Now, I don’t know what Senator Allison this

morning said . . .

She said that it’s up to you to sort out the detail.

. . . but, if she was referring to the actual way in which the system will be policed,

well that will still be announced. But that will be the law, the law is finally settled, I

mean there is no doubt to where it applies to.

Well the Transport Workers’ Union are threatening a strike over it. They say

it’s politics gone mad again . . .

Well . . .

. . . what’s your reaction?

Well, what the Transport Workers’ Union an affiliated union to the Australian

Labor Party, which is now completely irrelevant because it’s been dealt . . .

It doesn’t mean . . .

. . . hang on.

. . .they haven’t got a point.

. . . hang on, which has been dealt out of tax reform, right. Which never seemed to

worry about any complexity when they had five rates and multiple classifications and have

now discovered this point. And who are now ringing Democrat offices pretending to be

Democrats to try and get the Democrats to vote against tax reform.

Well, all of that is irrelevant to the point they are making, where they say it is

unworkable in an industry they know and understand . . .

I think it’s . . .

. . . it is unworkable.

I think it’s very relevant to the point as to bonafides of who’s making

complaints and why. Now . . .

Is the detail sorted out on everything? Have we got all the detail on food, on

pharmaceuticals, on the diesel rebate?

The detail’s been sorted out in relation to diesel. It’s been sorted out in

relation to pharmaceuticals. In relation to food as I’ve said, the principles have

been agreed and we are consulting on the drafting, the drafting will be moved in the

Parliament. But see, Neil can I make this point, I’ve been administering the tax

system for four years. Can I tell you, there are much more complicated parts of the Tax

Act than this. I mean, explain to me the gross-up factor under fringe benefits tax.

But this is the system you were going to fix . . .

Hang on, explain . . .

No, no. No, no, this is the system you were going to fix.

And we do. We take out five rates and we have one. That is 1/5 of the complexity at the

moment. Not only do you have to do your classifications, but once you’ve done your

classifications you’ve got to work out whether it’s 12 per cent, 22 per cent, 32

per cent, 41 per cent, 37 per cent or 45 per cent. Now, under this all goods with the

exception of food are at 10 per cent. And then for food you’ve got to work out

whether it’s 0 or 10.

Mr Costello, I sometimes wonder, I mean do you, how you can enjoy being a politician. I

mean it’s only a couple of weeks ago really, you sat in this studio with me and

talked about the chicken. You talked about the chicken and you mocked the system which

would differentiate between food. You said it was unfair and unworkable. Now, alright

you’ve been forced into it by political necessity, but you now try to defend it . . .

Well . . .

. . . I mean what does it do to your credibility?

Hang on Neil. I make no bones about it. I argued for a particular tax system which

could’ve avoided some of these classifications . . .

Well you . . .

Hang on, hang on . . .

. . . you ridiculed this very system . . .

Hang on, Neil . . .

. . . you said it was unfair and unworkable.

I argued for a classification system which would have made this unnecessary. I was

defeated. I mean the Australian Senate would not pass that legislation . . .

But now you’re out selling it because Meg Lees pulls the strings.

No. What should we do? Should we say because the Australian Senate has voted down the

legislation or won’t pass the legislation without these classifications issues, we

should walk away from tax reform? I mean, what would you want us to do? To spit the dummy

and say well we can only get an 85 per cent tax reform, rather than 100 per cent, so

we’ll have nothing. I mean, I’ve said, I’ve said from the outset, if

it’s a choice between 85 per cent and nothing I’ll take 85 per cent. Would I

have like 100? Yes I would, of course I would. And I argued for a 100 and we won an

election, but you just can’t get that through the Australian Senate.

Is the deal done? I mean how much fiddling has to go on now and could that possibly

jeopardise the deal with the Democrats? And even yesterday we had Senator Lees, no it was

the night before, threaten to walk out because she didn’t think you were selling it

hard enough. Now, how fragile is it if she is going to that?

Oh it’s not fragile. The deal is done.

But she just threatened to walk out didn’t she?

Well, I don’t know that she did actually I think……

She took a shot across your bows.

Hang on, does she say she threatened to walk out, I don’t know that she did.

That’s what she said to me yesterday. Yeah.

Well, I’ll look at the transcript because….

It was a shot across the bows, she said.

OK, but that’s very different isn’t it to threatening to walk out.

No, no she threatened to walk out the previous day and she confirmed that to me and

said it was a shot across your bows personally and she left here and went and rang you and

talked to you about it.

Well, she didn’t leave there and ring me at all.

Didn’t she ring you at midday yesterday?

No, she did not.

What time?

I rang her.

What time?

I had left messages for her the day before and she finally got back to me in response

to those messages.

She rang you back.

She rang me back because I asked her to call.

What did she say? That you’ve got to get out there and sell it.

No, she didn’t actually, she said we were consulting about the amendments, and how

they would be drawn.

So she didn’t object to the way you were mocking it?

No, she did not.

Didn’t object to the way you were selling it?

No.

Didn’t ask you to sell it harder?

No.

Will you sell it harder now?

What we did was what we agreed on. We consulted on the amendments. We’ve got a

process going at the moment on drawing the amendments in line with the principles, we had

a discussion about that, how it will be drawn, the principles and I must say it was a very

pleasant conversation.

Good. Do you think we need an advertising campaign ..inaudible?

Oh yes, we do.

When?

Because Neil, you know, when tax reform started off in this country two years ago, I

always made the point you had to pass your legislation by the 30th June this year, because

it would take 12 months from the passing of the legislation to the practical

implementation. That is still the case. And that 12 months gives everybody opportunity to

acquaint themselves with the new system, to get their systems up and running and the

Government will explain it in the 12 months. I mean, at the moment all we’re dealing

with is the legislation.

Sure. Will there be more money for compliance as well?

Nobody has to operate this system until 12 months from the 30^th June. Now, I

know people are running around saying oh how am I going to do this, how are they going to

do that. It’s 12 months for everybody to be acquainted with the new system before

anything happens.

And nothings going to change in that 12 months?

Well, you know, if the current tax system continues, I mean….

This package will not change in the next year?

No this package comes into affect as a complete package with income tax cuts, increased

family allowances, the abolition of some indirect taxes….

Will there be more money for compliance costs?

…the total abolition of wholesale sales tax and a replacement with GST on 1 July

2000.

Will there be more money for compliance costs?

There’s $500 million, which has been….

Yeah, but it is now far more complex than when that was written…..

Look, when you say that, if you are selling bicycles nothing has changed, and if you

are selling in a department store nothing has changed, and if you are selling in a

hardware store nothing has changed, if you are a hairdresser nothing has changed…..

If you are in the food industry it’s a nightmare.

The only area that has changed is in the food industry where you are selling fresh

foods along with process foods. A very small part…

Sure. Will there be more money there? Will there be more….

Well, let me say there is more than enough in the $500 million, $500 million to deal

with it.

Mr Costello how long will the debits tax stay?

Till 2005.

Is that guaranteed?

Well, we’ll have to sign the States up to that time frame, but I believe that they

will be in a position to do it by then at least.

Is it correct that takes $5 billion out between now and 2005?

The debits tax is about a billion a year. And that goes to funding for the taking out

of food. Look, let me make this point…

Is it a possibility it won’t come off in 2005?

No I don’t believe so. The fact that food is excluded from GST means that $3

billion less tax is collected. What it means is that basic foods become cheaper. When you

go into a supermarket under the new tax system, your bread and your meat and your

vegetables are cheaper than they are today. Now, you’ve got to make up that revenue

in some form or fashion, what that means is that the bank account debits tax, that’s

the one you see in your bank account, will stay, some of the income tax cuts have been

changed at the upper end, and that’s what funds the package.

Now, let’s get to that upper end. What do you consider is the sort of annual

earnings of middle Australians?

Well, middle average earnings in Australia is about $40,000.

OK. Why should anybody on average earnings look to improve there situation when you are

still allowing such a high tax rate at a low level, $60,000, the average middle

Australian.

Well, average earners at the moment are on a 43 cent marginal tax rate, and we’re

dropping it to 30 cents.

You’re giving them back what you’ve taken from bracket creep, but they are

going to lose it just about by the time it’s introduced through more bracket creep.

Hang on. Let me make two points here, you are dropping the rate from 43 to 30, which is

what about a 25 per cent rate cut, right….

What about over $60,000 which isn’t a fortune?

Now, the second thing is, you say bracket creep, do you know what the inflation rate in

Australia is?

Bracket creep isn’t just related to inflation though.

Of course it is.

Not only inflation.

Well, hang on, you’ve got inflation of 1 per cent in Australia….

I’m talking about people who go and work extra hours to get extra money, and

people who try and get promotion to get more money in their kick, and you’re going to

tax them.

Well, hang on, hang on Neil. I am going to reduce their taxes. At the moment…

Not over $60,000, and that’s the point, it is not a fortune, $60,000. These are

what people aim for, it is the ambition and the hopes of middle Australia that you’re

attacking.

I’m attacking?

Yes.

Well, Neil…..

You are making them pay the BAD tax, you’re making them pay a GST and you are

giving them no genuine tax reform.

Hang on Neil, I am the one that’s been arguing for income tax cuts….

You’re the one who is now selling this package, I agree your previous package was

better, but this one is not.

Now, hang on, I rolled up income tax cuts for that group to the Australian Senate and

it’s been defeated by Labor.

OK. Well are you going to tell me the proposition now, that is now before us, really

helps middle Australia?

Well, we can manage to do and what we are doing now is that we are cutting the marginal

income tax rate to $30,000, 30 per cent for everybody up to $50,000. Now, if you happen to

be on $60,000 or $70,000 you get the benefit of that. I mean, if you’re on

$60,000…..

But you lose half of every extra dollar you make. Half of every extra dollar you make.

Hang on, but let me just explain, the person on $60,000 or $70,000 still gets a tax

cut. At the moment the person on $60,000 or $70,000 when they go above $38,000 is paying

43, they will be paying 30, they get the benefit of the income tax cuts all the way up to

$60,000.

Do you think business tax reform is still a realistic possibility with the attitude of

the Democrats?

Well, I hope so.

They want a 20 per cent minimum business tax, is that realistic?

Well, I’m still pushing business tax reform.

Is a 20 per cent minimum business tax realistic?

They, it is not something that I’ve ever supported. They asked for it to be

referred to the Ralph Review, that is a business review. It is looking at business taxes,

and if Ralph recommends it we’ll look at it, but if Ralph doesn’t recommend it

well I imagine it won’t be on the agenda.

What about targeting contractors, they want to target contractors. Is that on the

agenda?

Well, the Ralph Review is again looking at that, and if Ralph recommends it we’ll

have a look at it.

You must feel up against it though, trying to get business reform through negotiations

with a party which has been dedicated to attacking business.

Well, you see, it is unfair to blame the Democrats because the real people that are

stopping reform in this country is Labor. If Labor wasn’t voting against income tax

cuts, then the Democrats wouldn’t have the balance of power. If Labor were not

opposing taxation reform the Democrats votes would not be determining some of these

issues. I mean, it is all very convenient to run around and say oh well, you are up

against it with the Democrats. Let’s make this point, let’s make this point, the

Australian Labor Party votes against everything in the Parliament, if it wasn’t

voting against everything in the Parliament the Democrats wouldn’t have the balance

of power.

Thank you very much for your time. Have we got the answer to the bag of lettuce that

Simon Crean was waving around in the Parliament?

We’ve had the answer on that for days.

What is it?

But the reason why we don’t engage is these questions are just asked as stunts as

you know and if you want to waste the time of the Parliament in relation to that I think

the Parliament has bigger things to do. Today Neil, the national accounts are coming out,

and it’s going to give a snap shot of the economy and how the economy has grown.

Yesterday we had the trade figures….

They weren’t all that flash were they, the trade figures?

Well, but you see does the time of the Parliament taken on the trade, on the jobs, on

the national accounts, no, no you’ve got an Opposition that runs around with little

bags of lettuce.

How…..

Do you consider that serious politics? I don’t.

How serious, how fragile is the economic situation at the moment, those current account

figures are pretty ordinary. We are now in this position of at least more confusion than

there was on tax reform, which we were told was going to lead us into the new century. How

fragile is our economic position?

Well, we’ll get our national accounts today. The Australian economy has been,

probably along with the US, the best performing economy in the world. If you are running a

strong economy at a time when export prices are the lowest in thirty years, you’ll

get pressure on trade. There is nothing you can do about that. I mean, we can’t

engineer a recovery in Japan or in Malaysia or Indonesia, but what we can do is we can run

a strong domestic economy, and that requires two things. One is a good budget position and

we’ve got this budget back in surplus and we’re going to keep it there. And the

second thing is that you’ve got to continue the economic reform, it was the reform of

four years ago…..

And the third thing use to be tax reform.

…that made Australia strong today, and its the reform of today, that will make it

strong again in the future.

And we need tax reform as well.

And we need tax reform.

Is this good enough?

Well, Neil…..

Is it, because I know this is all you can deliver, but is it good enough?

This is 85 per cent compared to the current tax system.

That might mean we’ve got an 85 per cent economy?

Well, you know, it means that our performance will improve 85 per cent on what it

currently is. We could have done better if we’d had 100 per cent tax reform, but 85

per cent sure beats zero, and I’ll take it any day.

I appreciate your time. What are you going to have for lunch? Bread.

Well, I told you that I am politically incorrect so, I think, probably a hamburger and

chips for lunch today.

Careful the TV cameras will be there. Thank you for your time.

Thanks very much.