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CGT Small Business Rollover Relief and Retirement Exemption for Land and Buildings Held in A Non-Operating Entity
August 13, 1998
Doorstop interview
August 18, 1998
CGT Small Business Rollover Relief and Retirement Exemption for Land and Buildings Held in A Non-Operating Entity
August 13, 1998
Doorstop interview
August 18, 1998

Tax Reform Plan

Transcript No. 46

Hon Peter Costello MP


Hon Peter Moore MP

6PR with Howard Sattler

Friday, 14 August 1998

8.35 am (Perth)


SUBJECTS: Tax Reform Plan


Good morning to you. Politics is a numbers game and if most of the people are better

off under one side’s policies, they will attract the majority of votes and they’ll win

government. Nothing is more important to a voter than having money in the hip pocket.

Well, that being the case, the Howard government and the architects of its just released

tax package, I think, are looking at it here are on a winner. With barely an exception

from singles through families to superannuants to pensioners, almost every Australian

seems to be financially better off under a GST regime, that also offers substantial cuts

to income taxes and other indirect imposts. State governments will no longer have to put

out the annual begging bowl as they did to Canberra, they will at least automatically

carve up extra billions of dollars, about $25 billion reaped from the GST. Now if there’s

a stand-out downside to the proposed overhaul of the tax system, I think it’s that the

Australian government might go broke, if there’s a larger than predicted economic downturn

from the Asian crisis. In that, even the only resort might be to borrow money overseas –

perish the thought. Abolition of business taxes opens the way for more job offers if

companies are prepared to take the punt. The Labor Party’s predictable implacable

opposition to the package should not be sufficient, I think, to attract voter support.

They won’t like that but it’s true. Nothing short of a genuine alternative which includes

a massive overhaul of the mish-mash that’s our tax system will do. A repetition of the

Keating-style 1993 fear campaign, I don’t think will win office, this time round. My next

guest probably wondered why he was hearing music on a talk station. Happy birthday, Peter



Thanks very much, Howard.


Blame the Beatles, that was the Beatles version.


That was the Beatles was it? Well, I was foot tapping I didn’t actually pick it. The

Beatles are probably a bit before my time, Howard!


Oh, turn it up! 41 today.


No, I was kidding.


Happy birthday anyway.


Thanks very much.


But will it be our birthday, too?


Look, this is the chance to reform Australia’s tax system. We either do it now or we’ll

never do it. This is a programme for a new tax system for a new century. It’s to take

effect in July 2000, we’re putting it out there now so that people can study it, so that

there’s plenty of time before its introduced. We set up the current tax system in the

1930s, it was okay then but the world has changed and what we need to do is we need to

reduce ordinary and average income earners’ income tax rates, we need to get rid of ten

taxes with one broad based indirect tax. We need to give incentives for business to create

jobs and we need a fairer system and this is it.


But you’re not going to try and kid us that everyone is a winner, are you? I mean, that

is a statistical impossibility – somebody has got to lose if most of us have got more

money in our pockets.


If you’re currently operating in the cash economy and not paying tax, you’ll lose. If

you’re a tourist to Australia you’ll have to start paying taxes just like Australians pay

taxes when they go overseas.


Okay, but what’s that going to do to the tourist industry, our biggest growth industry?


The tourist industry will do quite well under this package because the tourist industry

is going to get reductions in the cost of diesel, and the tourist industry is going to get

reductions in a whole range of business areas, but if people come to Australia – you’ve

been overseas, you pay tax when you go overseas, and people come to Australia, they’ll pay

tax in Australia, and a third area that we’re clamping down is the really fancy tax

mechanisms through trusts will be clamped down on and the people who have been using fancy

tax advice to get out of paying their fair share …


But Treasurer, is all this going to make up for what you’re giving up? Will it balance?


Oh well, too right it will. At the end of all of that, you get income tax cuts for

middle income earners. The average wage in Australia, about $38,000 a year, Howard, you’re

now paying 43 cents in the dollar. That rate will go down to 30 cents. 43 cents in the

dollar, down to 30 cents, and you won’t pay more than 30 cents in income tax until $50,000

and that means that 81% of Australians will now have an income tax rate of 30% or less.


Okay, but can you guarantee that no person on a fixed income and I’m including

pensioners and the unemployed there, people like that, are going to be worse off under

this system?


Oh yes, that’s right.


Well, what would you say to Iris Dowling of Embelton, a 71-year-old pensioner who the

West Australian newspaper have identified here as being $6.92 a week worse off?


Well, if she’s a pensioner, she’ll be getting a 4% increase in her pension in advance,

for a 2% increase in prices.


So you think they’re wrong. She gets $9,090 a year is what she lives on and they say

she’ll be worse off by $6.92.


Well, if they say that she’s worse off, they would be wrong because what we’re

doing …


Ernst & Young say she’ll be worse off.


Well, I haven’t seen their figures, but they would be wrong because she will be getting

an increase in her pension to more than compensate for price increases. If she has private

income there will be an easing of the income test, so that she can keep that private

income whilst not having as much of her pension taken away. If she takes out private

health insurance, she will get on an $1800 private health insurance policy, she will get

$600 back because we’re also introducing a 30% rebate on all private health insurance and

we’ve carefully modelled for age pensioners to actually put them in a position where

they’ll be better off.


So if she’s $6.92 worse off as Ernst & Young reckon, will you make up the



We will make up an increase in the pension which will put her in front before the

effect of the GST. That’s what the package is all about.


And what about Blair Major of Bunbury, a 16-year-old TAFE administration course

student, who they say, again Ernst & Young, will be $7.64 a week worse off.


Well, look, I haven’t seen Ernst & Young’s figures, but I can tell you we had

extensive modelling on all of these people and all of their allowances will be increasing

4% for a 2% price increase.


All right. Now let’s come to income taxes and you’ve gone through again what we, most

of us, have heard in the last twelve hours or so, that our income taxes are coming down,

the rates are coming down. What’s to stop a future government and a future Treasurer

booting them back up again? You can’t speak for a Treasurer 20 years down the track.


No, I can’t, but if a future Treasurer wants to put your income tax rates up, boot him

out. But this is a Treasurer that wants to take your income tax down, and there will be an

election. If you want reduced income taxes, the only way you’ll get them is by voting for

the government’s new tax system. That’s true, that’s true. If Labor were to get elected,

you wouldn’t get income tax cuts, you wouldn’t get a new tax system. But if you do want to

have a new tax system for the new century, the opportunity is there. That’s the plan,

that’s what it’s about.


Okay, now what if a retailer doesn’t pass on reductions. He might have some goods that

were attracting 32% wholesale sales tax and a 10% GST to replace that will reduce the cost

of those goods. What if he doesn’t?


Well, in the twelve months leading up the changes, and the changes come in to effect in

July 2000, in the twelve months leading up, and thereafter there’s going to be full

surveillance by the Australian Competition Commission. If they find any unfair practices

or price taking or anti-competitive conduct, they will be able to take action and they can

impose fines of up to $10 million.


Just before our first talkback caller too, have you, do you believe, accurately

factored in the Asian economic crisis?


I think so, Howard. The budget is now in surplus, don’t forget that. When we came to

office it was $10,000 million in deficit. We’ve now put it into surplus and we are

forecasting surpluses across the forward estimates. Some of those surpluses, about $4

billion, will be returned to taxpayers in the form of tax relief – that’s why people can

be better off because at the end of the day, this is an important point, at the end of the

day under this tax plan, the government will be taking less tax than it currently takes.

We will be collecting less tax out of the Australian economy under the new tax system than

is currently being collected, and that’s why you can target all of your measures to ensure

that people are better off. Now that’s good for the economy because if people take home

more of what they earn, it’s their choice. You know, it’s your choice. You get more reward

for your effort; you work harder, the economy works better. It’s your choice and tax is

collected instead, when people spend, and it gives families more choice. Now in addition

to the income tax cuts, for those that are rearing children, there are additional benefits

to look after the costs of rearing children because we want to make an investment in

children and their future as well, that’s going to be good for the future of Australia. So

this is an integrated plan – we changed the indirect tax system abolishing ten taxes and

introducing a GST. We dramatically reduce income taxes for people that are on average

weekly earnings. We improve the interaction of the tax system with the social security

system, we look after pensioners, we have a better system for business which will help

exports and trade and that creates a better economic climate.


All right, Treasurer. Now we promised our listeners they can ask you some questions.

This is the first opportunity to quiz you on this and they will do so in about thirty

seconds. Adam is your first caller, good morning, Adam.


Good morning Mr Costello.


Hello, Adam.


I’ve got something that you want, Mr Costello. That’s a vote, now I expect some honest

answers and I need some convincing. What I want to know is there’s been a number of

countries that have started this GST and as you’d be aware, a number of them have gone up.

What I want to know is what did they do wrong in the beginning, has it been a simple case

of the wrong rate, or has it been a simple case of mismanagement since because we are

certainly, you know, there have been a number of mismanagements in the past years from

both governments, and I’d also be curious to know about the GST, it’s going to the States.

Now is the GST collected in the States stay in the States or is it pooled and then handed

out and distributed?


Okay, let’s get the Treasurer to reply, Adam, because we need to get some other calls?


Well, the 10% will be collected in a pool and then it will be distributed to the State

governments in accordance with the formula that the States agree upon. There is at the

moment a formula which some of the bigger States help subsidise some of the smaller States

and I would expect that to continue. Because all of the revenue goes to the State

governments, we won’t be keeping any of this revenue. All of this revenue goes to the

State governments. In order to increase the rate, you will have to have the agreement of

six State governments and two Territory governments, enactment by the House of

Representatives and the Australian Senate. That is the best guarantee against rises. Now

you think about it, in Australia there’s nearly always a State government in an election

mode, they’re having an election in Tasmania at the moment. Any single State Premier or

Chief Minister would be able to veto the tax rise, any single one of them, or the House of

Representatives or the Senate. Now this really sets the rate once and for all. It’s going

to be impossible really, in practical terms, to increase the rate.


But where did these other countries go wrong?


Well, in a lot of the other countries what they did, is that they just decided to spend

more money. Governments are always going to … look it’s a rule of politics. Those that

want to spend more money, will increase taxes. Now you see our government came into

office, we cut government spending. We had $10 billion of deficit and we put the budget

back into surplus. Once you put the budget back into surplus, as we did as of the 30th of

June this year, then you’ve got the opportunity for tax relief, which is what this is



Okay, we’d better go to our next caller who is Ron. Ron’s a manufacturer, I think. Is

that right, Ron?


That’s right.


Okay, the Treasurer is all yours.


Right. Mr Costello, as a manufacturer, I am exempt from all sales tax on all the

products I buy to manufacture my products and then when I finish it I [inaudible]. The big

grey area that people are concerned about is [inaudible]. How is it going to work?



One tax. What happens in relation to business is that when you put in your return you

say these are all the purchases I’ve had in my business and you get a credit for 10% of

the purchase price. That gives you a credit for every dollar of tax you’ve paid. You then

have a 10% liability on your sales. So every business gets credited back to it every

single dollar of tax that has gone in to its purchases, and that means that all the way

through the business chain, with full input credits for business, by the time the product

is sold it bears one rate, one rate only, which is 10%.


You’ve got my vote.


You’ve got his vote – okay, there’s one.


Howard, a long journey always begins with the first step.


Hello, John.


How are you Howard?




I’m a State Superannuation pension disability pensioner. I’ve just heard all the

comments about the increase of our superannuation to 4%, but it’s all been talked about,

people who over 65. How do we go, people that are under that who are off on disability.

Are our super funds going to increase us? Can that government force us the super fund to

increase it?


Well, if you’re currently paying tax in relation to your pension …


That’s $850 a year …


Okay, you get a reduction in tax. First of all, your tax free threshold goes up to

$6,000 plus your tax rate comes down from 20% to 17%, so you get the benefits of reduction

in taxes..


But I’m not paying much tax.


Well, how much did you say you were paying, $800. Well, you’re going to get tax cuts.


Would that cover things like GST on electricity and gas?


The overall price rise from a GST, as you’ve heard me say before, when you introduce

10% GST, you take out wholesale sales tax which you are currently paying at rates of 12,

22, 32, some 41, 47. You take away the FIDs, the Federal Institutions Duty, the BAD tax on

your bank accounts, you take away stamp duties that you’re currently taking.


Well, we’re not because we’re paying stamp duties on our cars and that over here.


That’s right, hang on. The new tax system doesn’t come into effect until July 2000. I

mean, all of this is happening in July … it didn’t happen yesterday. It’s coming into

effect in July 2000.


So when you take …


Well, so do I. But we’ve got to get all this through the Senate, of course. When you

take all the indirect taxes that are being abolished off, there’s a 2% price rise, that’s

1.9 to be precise. Prices will rise overall by 1.9%, so that people who are getting the

benefits of tax cuts, pension increases, if you want to take out private health insurance

you’re going to get a 30% rebate, are going to have more money in their pocket to cope

with the price rise which is 1.9%.


All right, now Treasurer, just before you go, my last question is what guarantee have

you got that you’re going to get this through the Senate anyway. Do you have some hope of

the Democrats trying to fight off the One Nation movement will side with you?


Well, I hope so. You see, the first thing we’re going to do, we’re going to say to the

Australian public: do you want the current tax system or do you want the new tax system,

and if the public says we want the new tax system, well, we’ll put the legislation in the

Parliament and we think that the Senate should pass it, if the people want it. Now Labor

says, oh well, we’re going to ignore the verdict, we will oppose tax reform, doesn’t

matter what the people say, we will vote against it. If that’s the case, then we will have

to try and negotiate with the Democrats, but we want to make it clear, this is a package.

It all hangs together, you can’t cut and paste and pull it apart. That’s how the tax

system got destroyed. You’ve got to design it from first principles so it all interlocks

in a fair way, and that’s the package that we want to see.


We all know John Howard decides when the election is but are you ready to go to the

people now on this tax package? Are you ready, are you confident?


Well, yeah, I’m confident, yes I am. But what I want to do is spend time explaining

this to the Australian public.


How long will that take?


Well, some people will work it out quickly, others will want some time to have a look

at it. You know, I’m going to explain it as much as I can. This is the biggest tax reform

we have ever had in Australia.


I said that.


Well, you were right. I must have heard it from you, but our tax system was introduced

in 1930 and it was okay in 1930. But the 1930’s tax system is not going to work in 2010.


Nope, I’ll have to leave you there, birthday boy. Have a good day. Thanks for joining



Thanks very much, Howard.


That’s Peter Costello, the Federal Treasurer.