Transcript No. 47

Hon Peter Moore MP

5DN interview with Jeremy Cordeaux

Friday, 14 August 1998

9.05 am (CST)

E&OE

It’s time to welcome the Federal Treasurer, Peter Costello. This long awaited tax

package is out. Most interest groups and most headline writers and editorialists I

believe, glancing at the papers, give it a very positive view – some are more cautious

than others, but generally speaking it’s very positive. You can expect the Opposition to

go at it hammer and tongs, or perhaps hammer and tongues is a better way of putting it.

The package includes income tax cuts, a ten percent goods and services tax in place of

something like ten State taxes, including the wholesale sales tax. I think that when I was

speaking to either the Treasurer or the Prime Minister we talked about a thirty/thirty,

which is a thirty percent personal tax, thirty percent company tax, and a 10 percent GST,

and at the time the pundits were saying that would be really ideal. Too much, indeed, to

ask for. Well, there it is.

The Treasurer’s on the line. Peter Costello, good morning. Can you hear me, Sir?

Absolutely nothing. Treasurer, can you hear me.

I can hear you Jeremy. Can you hear me?

Yes, now I’ve got you.

Ah, sorry about that.

First I must say Happy Birthday.

Thanks very much, yes, it’s my birthday today and thank you for your good wishes.

Well it seems to me – I mean not everybody’s going to agree I suppose because

everyone’s got vested interests, but it seems to me that it’s your birthday and we got the

present.

Well, look, this is a new tax system for a new century. It’s proposed to start the tax

system in July of 2000, and that will mean dramatically reduced income taxes, in fact for

most people, for eighty-one percent of Australians an income tax rate no higher than

thirty cents in the dollar. It’s great news for people who’ll be able to work all of their

lives and never go above a thirty percent tax rate. A new indirect tax system which will

help business and create jobs, and a better system of business taxation, so this is a

great opportunity really to change Australia’s ramshackle broken-down tax system for good.

Yes, get rid of the thirty thousand pages of tax law. Will that be scrapped or will you

just add on to that? What are you going to do with that?

A lot of that we can just abolish.

Okay, now the provisional tax I think is a great move.

We’ve abolished provisional tax, Jeremy, for retirees and self funded retirees, people

who get big tax bills in April, before the income year is finished. That will be

abolished. They won’t have to pay that anymore and that’s going to be great for them, and

in addition we’re also announcing one measure to take effect from now, from 1 January next

year, thirty percent rebate on private health insurance premiums for people who take out

private health. It’s open to everybody. If you take out private health, you’ll get thirty

percent of the premium back.

Treasurer, did you think of changing the name?

Yes we did because in Europe this kind of taxation’s called VAT, value added tax, and

has different names around the world.

Well GST has got some baggage hasn’t it.

Yes it has got some baggage and the thing that we found was no matter what we called it

everybody else called it GST, so we thought we might as well stick with a name that people

knew.

I suppose so, but the context in which they know it, you could have had the RGT, the

really good tax.

Or GST, good simple tax.

Yes.

GST can stand for anything and it’s known around the world as VAT mainly.

Well this package is yours. Did you design it?

Well as the Treasurer I was responsible for drawing it and I was heading up a team that

was drawing it, but of course the Cabinet, the Prime Minister, were very much involved.

It’s a team effort really.

Now the mechanism, I’ve got to say, to keep it at ten percent is very clever, but what

do we do if a future government comes in and is rather bolshy and decides to change the

law that fixes the mechanism. How do we guarantee that won’t happen.

Well the important thing is this, that all money from the goods and services tax goes

to States, the State governments. Our Government doesn’t take any of the money, and that

goes to fund the State governments to provide their services – health and education and

all the rest of it. Now because the revenue goes to the States, because it’s a mechanism

for helping them pay for their services, this tax can only be introduced upon the

unanimous agreement of six States and two Territories and the legislation of the House of

Representatives and the Senate, and you’ll have an agreement that it will only be done as

a result of that. Now any future government would not only have to tear up that agreement

but would have to steal money from the States because, bear this in mind, a Commonwealth

government would have no interest in increasing the rate, because if it increased the rate

the money wouldn’t go to it, the money would got to the States.

Yes, but I mean the mechanism is clever, but how can you seal the thing in concrete so

nobody can actually come in change the law?

Well this agreement will have six States and two Territories policing it, plus a House

of Representatives plus a Senate.

But will it be federal law?

It will be federal law, but you see you’ve got the Senate in close and I can tell you

as a Treasurer it’s hardly possible to get anything through the Senate at the moment. You

have a Senate in place which, if somebody tried to tear up the agreement or not abide by

it, would be there ensuring that the rate didn’t go up, and if you think of it this way,

Jeremy, there’s nearly always a State election going on somewhere in Australia …

Yes, that’s true.

At the moment there’s one going on in Tasmania, for example, and what that means is,

you know, any State premier who’s facing an election is obviously not going to agree to

tax rises, so they would have the right to veto it, and the one thing you can be sure of,

and I’d be perfectly sure of this, that once locked in, this won’t go up. Now it’s quite

different of course to the tax it replaces. The tax it replaces, the wholesale sales tax

has no mechanism to prevent it going up of course. That can be increased just through the

Commonwealth Parliament and regularly, as in fact Mr Keating did it after the 1993

election, so you’re getting rid of a tax that is hidden, unfair, and can be increased

almost at will. You’re introducing it with one simple tax, one simple rate, policed by six

States, two Territories, a House of Representatives and a Senate.

Were you surprised that the Democrats gave it such a favourable thumbs up?

Well the Democrats have been pretty interesting on this. I think they’ve said, well

look, the current taxation system doesn’t work properly and something has to be done about

it and they kept an open mind. I would have liked it if Labor had kept an open mind too.

You see Labor announced they were going to oppose tax reform even before they saw it.

Well they say they can bring tax reform without the GST.

Well, how can you?

Well let’s see what they put on the table, I suppose. It seems strange to me, but they

obviously feel they can re-jig or perhaps dip into the surplus, and do it that way.

Speaking of the surplus, you are using the surplus as well. How can you be sure that your

anticipated surplus will be there considering the worsening Asian situation?

Sure. Well the first point I’d make is the budget is now in surplus. The outcome for

the last financial year on 30th June was a surplus, the first time we’ve been in surplus

in nearly a decade. That’s what our Government di in its first two years. So we’re

starting from a strong position and we are projecting growing surpluses over the next

couple of years. Now we haven’t spent all of those. We are still, after paying for this

package, going to have a budget in surplus, and we need to do that because of the Asian

situation.

What do you think the surplus would be, considering the goodies that you’ve promised

after they have been distributed, how much will be left in the kitty?

In the first full year which is 2000/2001, without the package we were looking at about

an eight billion dollar surplus, and with the package about a four billion dollar

surplus, so we’ve still got a decent surplus there, and the second point of course is if

we continue with our debt retirement program we’ll have the budget in surplus, debt

falling, and that’s the situation in which you can give out tax relief. As I often say,

it’s like a company, a company that does well can pay a dividend to its shareholders for

having done the hard work in relation to the budget and got it back to surplus, we can now

give people tax relief, and this is all about tax relief. The average wage earner today,

who earns thirty-eight thousand dollars, pays forty-three cents tax on each additional

dollar they earn. Under this proposal, that person’s top rate becomes thirty percent. You

take them down from forty three to thirty percent. That’s taking about a third off

their tax.

Yes, anything that is a disincentive to work or to achieve should be scrapped, but it

brings me to this. On Face to Face on Channel 7, you were asked about indexation, and

things like bracket creep and you made the comment I think something like the fact that

you would do better than indexation. Now what have you got in this to protect people from

being sucked up into that higher bracket?

Well if we were introducing indexation, what we would be doing is we would be saying

that the thirty-eight thousand threshold would go up next year by say two percent which is

the CPI, so it would go up, and the year after it would go up two percent and so on. We

are doing much better than that. That thirty-eight thousand dollar threshold is being

kicked right out, much better than indexation. Your thirty-eight thousand dollar threshold

which means that at the moment you’re paying it, at thirty-eight thousand, at forty-three

cent rate, is being brought down to thirty and to get out on to that forty percent rate,

you’ve got to go right out to fifty thousand or more.

Yes, because you argued the case for indexation in a period of low inflation which is

what we’ve got now.

Yep, well the point I make about indexation is the best way to protect people against

going into higher and higher income tax brackets is to actually keep inflation low, and in

the last year we actually has a CPI which went negative.

Yes.

And keeping inflation low, not only does it make sure that you’re not being pushed into

higher and higher tax brackets, but keeping inflation low means that you can keep interest

rates down as well. But if people talk about indexation this is much better than you could

ever conceive of under indexation. If you were having an indexation policy, you know,

you’d be incrementally increasing that thirty-eight thousand threshold. We’re taking that

thirty-eight thousand dollar threshold right out to fifty.

You see, the trouble in the court of public opinion is we feel that after, particularly

after the L-A-W tax cuts, we feel that politicians may just try to weasel out of the good

bits.

That’s the point, Jeremy, about all this. This is very up front. What we are saying

here is, if we change our indirect tax system, if we make that fairer and we apply it a

broader base, then we can fix our income tax system. Now the people who say to you, oh

well, look, I’d like the income tax cuts, but I don’t want the GST, are basically saying

I’d like to eat the icing, but I won’t pay for the cake. You’ve got to reform the system

totally.

I know, but what I’m saying is that the GST is in place, and let’s say we get caught up

in this Asian crisis, and it doesn’t look, it looks this morning to me like it’s getting

worse and worse, and we don’t know how much worse it is going to get, what happens if, you

know, when you look at that surplus and it’s being eroded and the time is there for you to

distribute the goodies, and you have to come and say, well we didn’t know we were going to

get caught in this way?

Well that’s why we have always been very up front and said that the price of tax reform

is GST. Now, you know, somebody who’s going to come along and say, oh well look, we’ll

give you income tax cuts, but without a GST -that’s what Mr Keating did in 1993 …

Yes.

Remember that? He said, oh I can give you income tax cuts and I’m against a GST. Now

remember how that ended. The income tax cuts were taken away, and every rate of wholesale

sales tax was increased, and I’m sure Mr Beazley’s going to come along, he’ll say the same

thing. That’s where that ends. This is why this is an honest tax …

Yep. It boils down to his credibility or the Labor Party credibility or lack of it in

this matter against yours.

Well we’ve always been up front. We said, we are saying now that, yes, if you want to

release income taxes you do have to be honest, it does involve a GST, a broad based goods

and services tax, that means that some prices will rise, and other prices will fall.

But by and large, most people will be better off, even if it is only slightly better

off, would you go on the record now and say that if something happens and you can’t

deliver the tax cuts or some other aspect of the goodies that we are perhaps more

interested in than the GST, would you resign?

What I will tell you is this: That this is a package. I am not interested in

implementing one part of this and not the other. It’s the GST, the income tax cuts, the

social security improvement, the compensation for pensions, the pension rises, this is

comes as a package.

Oh I agree, because I mean if you start to let the lobby groups in and they’ll all want

to exempt this or exempt that or the other thing, I mean there’s the package, but it would

give everybody a lot of comfort to know that you are prepared to put your job on the line.

I suppose it is indirectly anyway.

Of course it is. Because this is the package, and I must say to you Jeremy, you can’t

do one without the other. We’re being very up front, and very honest with people about

this. If you broaden the indirect tax base, some prices will go up, some will go down, but

what it enables you to do is to drop income taxes. Now what is the benefit of that? Let me

just remind people. What that means is you get to take home more of what you earn. The tax

is paid when you spend, so that you get the choice. You’ve got more of your own earnings.

The incentive is to work and to save, and you have the choice about the financial

decisions that you make.

I heard …

… for the economy by the way because if you’re giving people incentives to work and

save the economy as a whole benefits from that.

I heard Kim Beazley this morning saying it was a package for the rich. Now I’ve gone

through it as best I can as a complete lay person. I can’t see that there is anything in

it for the rich. If you’re earning over seventy-five thousand dollars you are on the top

bracket. The tax cuts go to people under seventy-five thousand dollars, I can’t quite see

what he’s getting at?

I must say I don’t think he understands it, and he certainly hasn’t taken the time and

effort. See, he said he was against tax reform before it was even announced, so I don’t

think he’s taken the time to actually look at it, but as you say, where are the tax cuts

delivered in this package? The tax cuts in this package are delivered to people earning up

to fifty thousand dollars. They are the people that have a rate which is no higher than

thirty percent, and as you quite rightly said, for those that earn over seventy-five

thousand their rate stays where it currently is, at forty-seven cents in the dollar.

And you’ve kept a luxury tax on luxury motor cars. Did you consider a luxury tax by the

way on things that might be considered to be excessive, like caviar, Lear jets, perfume

…?

Well we really want one single rate.

Except on luxury cars.

And except on luxury cars because people said, oh well, if you just had one single

rate, your luxury car could fall by as much as ten or eleven thousand dollars, whereas

your standard Camry or Holden or Mitsubishi would only be falling two thousand.

But what’s wrong with more people being able to afford a luxury car?

Well we don’t actually build luxury cars in Australia.

Oh, okay, point taken.

And so you would get the two thousand dollar cut in relation to your standard motor

vehicle, the kind that’s built in Australia, but if you’re importing your Merc or your

Jag, you’ll still get it two thousand dollars cheaper but you won’t get it ten or

eleven.

But just on that, are you sure that the motor car industry isn’t going to fall in a

hole now while people wait for the GST, they just don’t buy their new car this year or

next year?

Well the point is car prices are going to come down, and long term that’s going to be

great for the car industry, of course, but prices come down, they’re going to sell more

cars.

But what about now?

Then they say, but if people hold off, you know, although we’ll sell more cars as soon

as the tax change comes in, we won’t sell more while people are waiting. Now we do have a

mechanism in there which actually staggers down the decrease, the fall in cost of cars for

business. So that, business are very big buyers of cars, particularly the Australian made

cars, and so we stagger that down so that business really has no great incentive to wait

for the changes on 1 July 2000, but for individuals it’s true that cars will fall by two

thousand dollars which is great news, but I don’t think people will put off buying now for

a two thousand dollar price cut in 2000. It’s still two years away.

Anything you regret not being able to abolish. I’m thinking of fringe benefits tax,

payroll tax, capital gains tax, stuff like that?

Yes, well in relation to payroll tax the fact of the matter is it’s a State tax and

because the States get all the GST over time their revenues will rise, they’ll get more

under this formula than they’re getting from Commonwealth grants, which will put them on a

more secure financial footing, and so they will have options in the future I think in

relation to their own State taxes. They might start looking at payroll taxes and

reductions in the future. They might start looking at increased services, but what it

means is once you give the States a guaranteed share of revenue, they are able to deal

with some of those State taxes rather than always looking to the Commonwealth government.

Here’s an interesting question. Somebody goes in and pays a bill on a credit card, plus

GST, and when he gets his bill from the credit card company, does he pay GST on that as

well.

No, what you do, the tax is built into the price. When you go into a supermarket there

will just be prices as there now. When you buy in the supermarket now, you’re buying a lot

of goods that have twelve, and twenty-two percent taxes on them, and when you go in the

future, you’ll be buying goods that have ten percent tax. Some will have higher prices,

some will have lower prices, but you just pay the price of the good. There is a tax

component, just as there is a tax component now, and when your credit card bill comes you

just pay your credit card as you do now. In relation to the financial industry, the

financial industry is not applying GST to its prices.

Here is a fax that Jim has sent me. ‘Jeremy could you please ask the Treasurer why does

a low income earner in 1998 on twenty-four thousand dollars a year pay almost twice as

much tax as a low income earner in 1986 on thirteen thousand dollars. The tax free

threshold should be lifted to ten thousand dollars’.

Well the answer why you’re paying such high taxes now is that our indirect tax base,

the wholesale sales tax is shrinking. To keep a wholesale sales tax in place, the current

tax, income tax rates are going to go up, they have to, because the wholesale sales tax

only taxes goods, and in any modern economy your goods base is always shrinking, so if you

keep the wholesale sales tax you’re just going to pay higher and higher income taxes. The

only way you can bring income taxes down is with a broad based GST. That’s what this is

all about, and what he’s basically pointing out is how penalised he has been as a

consequence of the continuation of the wholesale sales tax.

Second hand goods are subject to a GST?

In relation to their margin. If you buy a good for a hundred dollars and you sell it

for two hundred, GST only applies to the margin, the difference between the sale and the

purchase price, which is one hundred dollars.

Now you’ve given us a lot of your valuable time and I know you’re very busy, can you,

just one last question. You’ve said there’ll be some changes to family trusts, about one

and a half million people have family trusts, not necessarily wealthy people either. What

are the changes?

Well the changes are that family trusts will pay tax in the trust and then they’ll

distribute, and if they distribute to anybody who has a lower tax rate than the company

tax rate that person can get the excess tax back, but if you have a structure where you

have a chain of trusts, trusts upon trusts, upon trusts, what you’ll have to do is you’ll

have to identify who the ultimate beneficiary is, and if you don’t there’ll be tax taken

out at the highest rate in the trust. That’s to get around these fancy schemes where

people set up chains of trusts and distribute money through them to try and hide income

from the tax office.

I don’t know have you seen, just quickly, the announcement or the comment by John Laws

this morning, a scathing attack on the Prime Minister, and I suppose the Liberal Party as

well, talking about John Howard, the Prime Minister, getting on his knees and getting

gravel rashed to come on his program. I mean, do you have a comment on that sort of remark

cast by a broadcaster?

I don’t think it’s fair of course, and I don’t know what caused it, but …

May I tell you?

Well …

I think John Howard appears a little more often on Alan Jones program which is rating

about twice the points that John is at the moment. I think that’s at the bottom of it.

Well that seems as if it’s an inter-radio dispute which I’d prefer to keep out of,

Jeremy, if that’s alright.

Ha, ha. I just wondered what you think of a remark like that?

Well I think it’s uncalled for.

Will you be appearing on the Laws program?

Well if they ask me and I have time I do, but I haven’t been asked today.

Interesting. Thank you very much, and again, Happy Birthday.

Thanks very much Jeremy.

All the best.

Bye.

The Treasurer of Australia, Peter Costello.