A New Tax System
June 28, 1999Australian Competition and Consumer Commission Appointment
June 30, 1999
Transcript No. 99/49 Treasurer Hon Peter Costello MP AM with Matt Peacock Tuesday, 29 June 1999 8.00 am
SUBJECT: Tax Reform, Business Tax CAVE: Anybody who watched ABC televisions 7.30 Report last night would know its impossible to remove the grin from Treasurer Peter Costellos face. In fact Mr Costello was observed whistling and humming his way through the Canberra Press Gallery after the Senate finally passed the Governments GST Bill. From July 1 next year the nation will have a new tax system, the culmination of the 25 year tax dream of Prime Minister John Howard. The Treasurer has joined us in our Canberra studio this morning and hes speaking to our Chief Political Correspondent, Matt Peacock.
PEACOCK: Mr Costello, youve still got the smile on your face, was it a hard battle, ever a time that you felt that it wasnt worth it, that youd walk away from it and keep your surplus intact?
TREASURER: It was hard in the sense that for 25 years now people have been trying to reform the tax system. Labor had a go at it in 1985, John Hewson had a go at it in 1993 and I pay tribute to John Howard who just really wouldnt let up and was convinced that this had to be done in the national interest and showed incredible consistency of leadership on the issue. And from my own part for the last two years it has been the most mammoth undertaking and even winning an election proved not enough in the end, but . . .
PEACOCK: Youve still got a few more yards yet
TREASURER: . . . we want to pay tribute to the Democrats who were part of the great reform issue of this particular period, Meg Lees and Andrew Murray who saw the national interest and joined it. And we did it for Australian families and for people who rely on social services to make sure that we have a tax base which is growing in proportion to the economy so that this will be a country that in the future can pay its pensions and its hospitals and its roads.
PEACOCK: Now one of your colleagues said to me yesterday that Brian Harradine had actually done you a favour, that you would have lost if you had taken a tax on all food to the next election. How much more marketable do you think this new Democrat package is?
TREASURER: Well, there are a lot of people that were of the view that you shouldnt have a goods and services tax on food. And I think from the publics point of view, what they will see as a consequence of this arrangement is, they will see most fresh foods become cheaper. Theyll actually become cheaper because there are embedded taxes at the moment in food. We were looking at it from the point of view of compliance costs of course and we were trying to design a tax system that had less compliance cost. So, I think from the publics point of view, theyll be quite pleased with the amendment. In the circumstances we thought it was better to have that amendment than not have tax reform and I think thats a decision that was the right decision. I pay tribute to the Prime Minister and to Meg Lees and all that were involved in it.
PEACOCK: But essentially, jokes about cooked chooks and uncooked chooks aside, itll be a more palateable tax for the public do you think?
TREASURER: Well, in this respect the public will go into a shop and it will buy a good, which in the case of food will be cheaper. The public doesnt worry about compliance costs, no more than they worry about the wholesale sales taxes currently embedded in the prices. So from their point of view theyre not going to be worried about all of these classifications. There will be classifications for people that are in the mixed food business, but only in that small area. It wont effect a butcher for example, whos selling all of their food GST-free, or a green grocer, and it wont effect a clothes shop, or a department store or an electrical store . . PEACOCK: And what about the butcher or the green grocer that sells a few soft drinks and chewing gum on the side, kind of thing?
TREASURER: Well, I dont think youll get that kind of situation. There might be butchers that do that but butchers, to my way of thinking, sell meat and if theyre selling meat they wont come into the GST system, so itll be GST-free. Youre only talking about those people that are in mixed food business.
PEACOCK: And what happens there?
TREASURER: Well, in relation to those people, theyll either work out which stock is subject to GST and which isnt, or I expect that well be able to help them with some rulings thatll make their compliance costs as minimal as possible.
PEACOCK: And then what will happen, the Tax Office will set a different rate for them?
TREASURER: Oh well, were not going into that now, Ive made the point that the Tax Office can do that kind of thing, in fact does do it in relation to income tax.
PEACOCK: And is that the way youre thinking?
TREASURER: Well, we do it in relation to income tax. The truth of the matter at the moment, is, the Tax Office does not set down and look at every single entry and receipt you make for a work related expense. It issues guidelines on whats acceptable and you either know those guidelines or your accountant tells them and you are able to comply with it. But, Ive never heard anybody say, by the way, that because its complicated to claim a work related expense we should do away with income tax. Ive never heard anybody argue that proposition. Ive heard this, sort of, stupid proposition that because in one small area youre going to have to allocate between GST-free and non GST-free you should do away with a GST. If that were a valid argument there would be no taxes and maybe the opponents do want no taxes. No company taxes, no wholesale sales taxes, no income taxes, no FBT, no nothing.
PEACOCK: In those shops theyll be given a differential rate, theyll be given a slightly lower rate if . . .
TREASURER: Look, its one of the . . .
PEACOCK: But if it can be lower for them, why cant the rate be varied . . .
TREASURER: Its one of the ideas . . .
PEACOCK: . . . across the board?
TREASURER: . . . the other idea is that people can work out the percentage of their sales that are subject to GST and if it says 70 per cent they can apply the GST to 70 per cent of sales.
PEACOCK: Now the 10 per cent rate was going to be locked in concrete, but if its not locked in concrete for these mixed shops then doesnt that imply that it can be changed for other things.
TREASURER: The rate cant be varied, cannot be varied.
PEACOCK: Okay, now next week . . .
TREASURER: Subject to the agreement of six States, two Territories, the House of Representatives and the Senate. And if you have the view that the . . .
PEACOCK: And what about the High Court, by the way?
TREASURER: . . . if you have the view that the Senate, even on the request, unanimous request of six Premiers, two Chief Ministers and the House of Representatives, youve seen how hard it is to get something through the Senate.
PEACOCK: Youre not worried about a High Court challenge as the Oppositions threatened?
TREASURER: Oh well, good luck to them. And I hope they use Labor Party funds to do it.
PEACOCK: Now if the price of a new car, or a video, or a stereo doesnt drop for me by next week should I be ringing up Alan Fels?
TREASURER: Not next week, you shouldnt be. But in relation to those items that are at the 32 per cent rate, which doesnt include cars, once the Bill is given Royal Assent after a time period thats going to come down to 22 per cent. So you should see those prices falling pretty quickly and then youll see further price falls on 1 July 2000. And youll know when to go out and spend Matt, because your take home pay in the week of 1 July 2000 will be greater than it is now. Youll be getting tax cuts.
PEACOCK: Well thats it, the Democrats say, of course, that the rich are going to miss out on those tax cuts. How much do you think, if at all, this package might reverse the trend that even some of your colleagues have expressed concern about, about the rich getting richer and the poor getting poorer?
TREASURER: Well, what this package is targetted at is families, Ill make no bones about it. The biggest beneficiaries are families with children. Because its not just income tax cuts that theyre going to be getting, theyre going to be getting increases in family allowances as well. So, families, your middle income Australian family, a family thats in the $30,000, $40,000, $50,000 bracket with two or three kids are going to be substantial beneficiaries. And we make no bones about this, we said this was going to be a family package and thats why we have those benefits going to families with children. And its an investment in our future, you know, children.
PEACOCK: Just quickly on corporate tax, the Democrats still want a minimum tax rate. Ralph seems to have rejected that and theyre suggesting that a 30 per cent corporate tax rate might be too expensive, you might want to hang on to accelerated depreciation. How optimistic are you about your negotiations there?
TREASURER: Well, I dont think that Senator Lees was properly reported in the Financial Review and I think she made that point herself. So well continue discussions with her. But Matt, I guess two years ago nobody wouldve said you could reform the indirect tax system in Australia, or the income tax system, or Commonwealth-State relations, or family allowances. Gee, it was hard, but we now stand on the threshold of doing it. Why would you give up on business tax now? I firmly believe that weve got to reform business tax to build Australias economy and create jobs. And Im going to be running as hard in that race as I was running in this race. I promise you.
PEACOCK: Mr Costello, thanks for joining us. |