Transcript No. 99/49

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 television’s 7.30 Report last night would know it’s

impossible to remove the grin from Treasurer Peter Costello’s face. In fact Mr

Costello was observed whistling and humming his way through the Canberra Press Gallery

after the Senate finally passed the Government’s 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

he’s speaking to our Chief Political Correspondent, Matt Peacock.

PEACOCK:

Mr Costello, you’ve still got the smile on your face, was it a hard battle, ever a

time that you felt that it wasn’t worth it, that you’d walk away from it and

keep your surplus intact?

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 wouldn’t 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 . . .

You’ve still got a few more yards yet

. . . 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.

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?

Well, there are a lot of people that were of the view that you shouldn’t have a

goods and services tax on food. And I think from the public’s point of view, what

they will see as a consequence of this arrangement is, they will see most fresh foods

become cheaper. They’ll 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 public’s point of view, they’ll 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 that’s 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.

But essentially, jokes about cooked chooks and uncooked chooks aside, it’ll be a

more palateable tax for the public do you think?

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 doesn’t 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 they’re 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 won’t effect a butcher for example,

who’s selling all of their food GST-free, or a green grocer, and it won’t 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?

Well, I don’t think you’ll get that kind of situation. There might be

butchers that do that but butchers, to my way of thinking, sell meat and if they’re

selling meat they won’t come into the GST system, so it’ll be GST-free.

You’re only talking about those people that are in mixed food business.

And what happens there?

Well, in relation to those people, they’ll either work out which stock is subject

to GST and which isn’t, or I expect that we’ll be able to help them with some

rulings that’ll make their compliance costs as minimal as possible.

PEACOCK:

And then what will happen, the Tax Office will set a different rate for them?

Oh well, we’re not going into that now, I’ve made the point that the Tax

Office can do that kind of thing, in fact does do it in relation to income tax.

And is that the way you’re thinking?

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 what’s acceptable and you either know

those guidelines or your accountant tells them and you are able to comply with it. But,

I’ve never heard anybody say, by the way, that because it’s complicated to claim

a work related expense we should do away with income tax. I’ve never heard anybody

argue that proposition. I’ve heard this, sort of, stupid proposition that because in

one small area you’re 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.

In those shops they’ll be given a differential rate, they’ll be given a

slightly lower rate if . . .

Look, it’s one of the . . .

But if it can be lower for them, why can’t the rate be varied . . .

It’s one of the ideas . . .

. . . across the board?

. . . 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.

Now the 10 per cent rate was going to be locked in concrete, but if it’s not

locked in concrete for these mixed shops then doesn’t that imply that it can be

changed for other things.

The rate can’t be varied, cannot be varied.

Okay, now next week . . .

Subject to the agreement of six States, two Territories, the House of Representatives

and the Senate. And if you have the view that the . . .

And what about the High Court, by the way?

. . . 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, you’ve seen how

hard it is to get something through the Senate.

You’re not worried about a High Court challenge as the Opposition’s

threatened?

Oh well, good luck to them. And I hope they use Labor Party funds to do it.

Now if the price of a new car, or a video, or a stereo doesn’t drop for me by next

week should I be ringing up Alan Fels?

Not next week, you shouldn’t be. But in relation to those items that are at the 32

per cent rate, which doesn’t include cars, once the Bill is given Royal Assent after

a time period that’s going to come down to 22 per cent. So you should see those

prices falling pretty quickly and then you’ll see further price falls on 1 July 2000.

And you’ll 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. You’ll be getting tax cuts.

Well that’s 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?

Well, what this package is targetted at is families, I’ll make no bones about it.

The biggest beneficiaries are families with children. Because it’s not just income

tax cuts that they’re going to be getting, they’re going to be getting increases

in family allowances as well. So, families, your middle income Australian family, a family

that’s 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 that’s why we have those benefits going to families with

children. And it’s an investment in our future, you know, children.

Just quickly on corporate tax, the Democrats still want a minimum tax rate. Ralph seems

to have rejected that and they’re 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?

Well, I don’t think that Senator Lees was properly reported in the Financial

Review and I think she made that point herself. So we’ll continue discussions with

her. But Matt, I guess two years ago nobody would’ve 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 we’ve got

to reform business tax to build Australia’s economy and create jobs. And I’m

going to be running as hard in that race as I was running in this race. I promise you.

Mr Costello, thanks for joining us.