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A New Tax System
June 28, 1999
Australian Competition and Consumer Commission Appointment
June 30, 1999
A New Tax System
June 28, 1999
Australian Competition and Consumer Commission Appointment
June 30, 1999

Tax Reform, Gambling

Transcript No. 99/50


Hon Peter Costello MP

Interview with Jeremy Cordeaux


Tuesday, 29 June 1999

8.35 am


SUBJECT: Tax Reform, Gambling


Not surprisingly the Treasurer, Peter Costello, says that the Senate’s approval of

legislation for a 10 per cent goods and services tax is great news for Australia. They

fought hard and long to do it and it’s there. Despite the Government’s failure

to fully implement it’s GST policy the Treasurer is believed to be happy with the

compromised deal. He’s about to tell us. Good morning sir, how are you?


Good morning Jeremy, how are you?


I was predicting you’d be in a fairly good mood.


Well look, it’s been a long, hard struggle and not just my own in the last two

years, but various people over the last 25 years really. John Howard who’s been

working at this for a long time. Paul Keating had a go at reforming the tax system. John

Hewson had a go. And the great news is that we’ll have a new tax system for 1 July of

next year. And it’s going to particularly be good for wage and salary earners who are

going to get income tax cuts and new family allowances. So, I think it’s a great day

for the country really.


One of the things most people, I guess, are nervous or apprehensive about is the

simplicity of it, the ability to understand it, problems that might arise through

innocently making mistakes.


Well, it doesn’t worry consumers, of course, because consumers just pay price for

goods and services on the supermarket shelf, which they do at the moment.


But small business has got (inaudible)


Yes, but for most small businesses it’s a much simpler system. You know, there are

only a small group of people who are affected by the changes in relation to food. It

doesn’t affect you if you’re a butcher selling meat, none of it’s taxable.

If you’re a green grocer selling vegetables, none of it’s taxable. If

you’re a clothes seller your clothes are covered by the GST, if you’re a

department store, if you’re an electrical goods store, if you’re a hairdresser,

there have been no changes. The only change was in that limited area of people that are

selling fresh food and confectionery or fresh food and takeaway food at the same time.

They will have to delineate between that part of the shop that’s taxable and the

other that’s not. And I think once that’s been done it should be pretty straight

forward for them. But for the consumer nothing changes. You see a price in a shop and you

pay it. And just as there’s an embedded tax in it at the moment, there might be under

a GST system or in the case of food there won’t be. And so some prices will go up a

little, but some will come down a little.


Now are you going to let people calculate their GST tax payment to the Government on

their turnover or are you going to demand that it’s done on individual items?


Well, what business does is you put in a quarterly return and for somebody that’s

in the system you just say, these were my sales for the quarter, these were my purchases

for the quarter and the GST is the difference between what’s owing on your sales and

what you’ve paid on your purchases. And not only are we going to do that, but

we’re going to abolish provisional tax, company tax instalments, prescribed payments

system, reportable payments system and fringe benefit tax returns. So that one form will

replace five or six different tax systems and it will make it much simpler.


Yeah, well that’s what we’ve been crying out for, a simple and fairer system.


You’ve just got to see these things Jeremy, and I do see them. Businesses filing

separately at the moment, a company tax, for PAYE tax, for fringe benefits tax and what

this new system, this what we call the Pay As You Go system, which is going to come hand

in hand with GST, it just takes the GST form and you get one assessment for everything and

we can collapse six tax systems and just have one.


This came in yesterday from the Certified Practicing Accountant people. GST

compensation for business dealing with GST-free food has disappeared from the amendments

presented to the Senate. While the parties have acknowledged that compensation is an

important issue, it is a glaring omission from the GST amendments – Angela Ryan’s

comments. What happened there? Was that resolved or not?


No, the money which is being put aside to help business in relation to account keeping

and returns is $500 million. It’s not a small sum, it’s $500 million. And

that’s separate from the legislation, that wasn’t ever in the tax bills,

that’s an appropriation. The money is going to be made available to peak industry

groups, to very small businesses, to education and charities to help them in relation to

the system. And if I might say, it’s the first time this has ever been done, whenever

taxes have changed in the past and they change generally a couple of times a year,

nobody’s ever set aside money before but there’s $500 million and that will be

distributed over the course of the next year. Although the legislation has passed the

Senate, people have got to bear in mind the new tax system doesn’t actually take

effect until 1 July next year, 12 months time, so we will be distributing that money

through the year.


So in that time you’ve got a reasonably important selling job . . .




. . . to do.


Yes, to help people comply and to get around and explain from business. From the

public’s point of view it’s very simple, but from businesses point of view,

although it’s simpler, it’s a new system and we’ve got, we’ve always

said we need 12 months to help business in relation to it and that’s why, if we have

the legislation in place by 30 June this year, we’ll start it from 1 July next year,



And provisional tax disappears after July next year?


Your provisional tax is wrapped up in the Pay As You Go system, as well, people come

off provisional tax, company tax is wrapped up in it. I’d say it gives us a chance

for a major simplification generally.


Treasurer, would you take a call?




Okay, Faye.


Good morning Jeremy. I just want to ask Mr Costello, what about your bank taxes, like

your FID charges and all that stuff that’s in now. Is that going to go once this

goods and services tax is introduced?


The first one to be abolished is Financial Institutions Duty, which will be abolished

in 2001. And then, as part of the agreement with the States, as the States, these are

State taxes, Financial Institutions Duty and Bank Account Debits tax – as the States start

receiving the GST revenue and it grows they’ll be abolishing further taxes. And the

next one to be abolished will be the Bank Accounts Debits tax and after that some further

stamp duties. But the first one to go will be Financial Institutions Duty, abolished in



Another caller wanted me to put to you or get you to clarify in his mind just what the

service tax means, the service part of the goods and services tax?


Oh well, at the moment as you know we tax goods at the wholesale level, the wholesale

sales tax. A goods and services tax is just a tax on goods, which we by and large have at

the moment, and on services as well. So that if, well let’s say an accountant renders

an accounting service there will be a tax on the service that they render. And the reason

for that is that with a goods based tax, which Australia first went into in 1932, that was

appropriate when goods were the major part of the economy. But in a modern economy

services are increasingly a big part of the economy, so it’s better to tax the full

range of the economy, just not a narrow base. Why do we say that? Because that will

produce growing source of revenue for State Governments to provide services like the

hospitals and schools and education. And the thing to remember, the point I keep making is

this, all the proceeds of goods and services tax go to State Governments. It doesn’t

go to Canberra, it goes to State Governments and it goes to State Governments so that they

have a growth revenue base to run the schools and the hospitals and the other services

that people need.


Just on that subject, I was speaking to Dean Brown earlier about the crisis that is in

our dental health system here, with people in real and serious trouble being asked to wait

perhaps three years. The problem seems to go back to the $10 million that was taken out of

the system by the Federal Government. Is there any way we could find $10 million? And

it’s not a problem just associated with South Australia, I would think all the States

have the same problem. Is there some money that could perhaps come from, I don’t

know, foreign aid, maybe we have more of a responsibility to look after our own people



Well, I agree with that proposition that we do have to look after Australians and we do

do that. But, you see in the past, this is one of the great things about tax changes, in

the past State Governments used to go across to Canberra and they used to say give us

money to run a dental scheme or to run schools or whatever. And all of this has changed

now. State Governments will get all goods and services tax. They will have a growing

source of revenue. They will have sufficient money to run their health and their education

schemes. And the Governments will be able to stand on their own two feet with growing

revenue base. And what we’re doing with tax, to bring it back to tax, is to fix this

perennial problem of the dependence for grants of State Governments on the Commonwealth.

And I think if we can fix that, then we’re going to get much better services over

time, that’s why I fought so hard for these tax changes.


A couple of other financial stories. I won’t hold you up, I know you’re busy.

The story went round this morning that says, each Australian owes $20,550, which is

something like $387.9 billion, that’s the debt that Australians owe. Is that worrying

to you? Can we sustain that kind of figure?


Well, I don’t know which figures you’re looking at. Are these personal credit

figures that you’re looking at or are these foreign debt figures?


No, no. These are debts that we’ve run up as individuals . . .


Credit . . .


This is a survey by the Grey Communications Company.


Yes. Well, without, I haven’t seen the actual figure so I can’t vouch for

their accuracy, but there is no doubt, I think probably over the last couple of years that

Australians have been willing to borrow more. And that is something that we keep an eye on

if it’s not backed by real assets. Now, some people are borrowing more because

they’ve invested in the stock market and their shares are worth more than

they’ve ever been before. Our stock market’s at record levels. Some people are

borrowing more because the property market has risen and their homes are worth more. And

if they’re borrowing against hard, solid assets then they’re not actually

running down their savings. But if people are borrowing where they don’t have hard

solid assets and they’re going into debt, that is a matter of concern. And people

have got to be very careful with credits and make sure that when they borrow they’ve

got the means to actually pay it back.


So too would be of concern, this national gambling addiction which is costing $11

billion in one year. I don’t know how a Government can possibly address that, the

genie is out of the bottle I would’ve thought?


Well, I’m worried about gambling. I think that particularly in relation to poker

machines and the like, which seems to have proliferated in the suburbs, there are people

that are facing temptations that they haven’t faced in the past. And I was so

concerned about it, we set up an inquiry, a national inquiry, Productivity Commission

inquiry to actually look at gambling and to assess its social and economic costs and to

make recommendations to us. I’m still awaiting that inquiry, but it is a matter of

concern to us and I promise you that we will see if we can do something about it.


Treasurer, thank you.


Thank you very much Jeremy.


Have a great day.


Okay, thanks.