Transcript No. 45

Hon Peter Moore MP

Radio National interview with Fran Kelly

Friday, 14 August 1998

6.50 am

E&OE

KELLY:

Peter Costello, you’ve gone from Uncle Scrooge two years ago to Santa Claus now. Why is

that believable?

Well, I don’t agree with either of those things Fran. I don’t think I was Uncle Scrooge

and –

It was a pretty tight first budget.

Well, when we – when we became the Government and I became

the Treasurer, the budget was $10 billion in the red. We took some strong measures, but

that budget is now back in the black, and I always said if you had your budget in the

black, in surplus, and if you had a debt reduction program on track –

and we have – that there would be benefits for people, and the

benefit is tax relief. People will pay lower taxes overall as a result of this package.

It’s like a company paying a dividend to its shareholders. It’s a tax return to the

taxpayers of Australia.

Well indeed we will pay less tax. The Prime Minister says we’ll be paying two billion

dollars a year less in tax overall by the year 2002 I think it is, and yet everyone gets a

tax break. How does it add up?

Well, you have a broad-based indirect tax, which means that it’s much harder for people

who are currently avoiding the tax system to do so. As a result of that, you bring into

the income tax system a whole lot of cash businesses that are currently avoiding it; you

bring tourists into the tax system as well, and you make sure that you get a fair share of

tax out of them. What you then do with the money is you reduce income taxes so that

average earners get a far better go. The average earner in Australia now pays 43 cents in

the dollar tax on each additional dollar. Under this they’ll pay no more than 30. And you

help families. And the reason why you’re doing all of that is so that families have more

incentive to work and to save and to invest and do all the kinds of things which will help

our economy grow.

Sure. But just looking at the sums. There’s $13 billion in tax cuts here. Five

billion dollars we know will come from the projected surpluses, three billion from the

things you talked about there – the black economy,

tightening up on trusts and other efficiencies. There’s still five billion or so that I

can’t figure out where it comes from.

Oh well, there’s a bring forward in relation to company payments in the year 2000/2001,

and I think that’s fair in relation to companies, because companies will be getting the

benefits of cash flow under the GST; and we also bring into the net the black economy,

which, as I said before, the Tax Commissioner believes with our major business reforms we

can do – the setting up of the Australian business number; and

don’t forget, we have also tightened the opportunity for tax minimisation through trusts,

and that’s another way in which we bring more people into the tax net. Now I’ve always

said: the broader the base the lower the rate. If you bring more people into the tax net,

you can get rates down for decent, average, hard-pressed, hard working earners in this

country.

I want to come back to talking about the surpluses in a minute, but the big surprise in

the package was the States getting all the loot from the GST. Is this the mechanism that

makes this package so difficult to unravel? Is that the trick?

Yeah. I think because if you’re looking at the balance sheet, there’s not just one

here, there’s two. There’s a Commonwealth balance sheet, and there’s State balance sheets.

People aren’t used to looking at it. But what we say is that when the GST is introduced,

the States get all the revenue. The Commonwealth will no longer give them financial grants

because they will get all of the revenue, and the Commonwealth will use what it saves in

the financial grants to abolish wholesale sales tax and to reduce income tax rates.

But the reason we did that is: one, it gives the States a guaranteed revenue base; but

the second thing is, if it’s a State’s GST, then the rate can only be increased on the

unanimous request of six States and two Territories with the enactment of the House of

Representatives and the Australian Senate. Now that means that there is a mechanism to

keep this rate, once in place, fixed forever.

Sure. And that’s going to be a big thing here isn’t it.

Yes.

This package may live or die on whether people believe that the GST can’t and won’t go

up.

Now the Prime Minister himself has conceded that he can’t guarantee what other future

governments do when he is no longer around. Once we’ve got a GST, this package can be

changed. That kind of mechanism, for instance, could be altered, couldn’t it?

But look at it from the Commonwealth’s point of view. People say `Well what if the

Commonwealth decides to put up rates?’.

The point is, there would be no bonus. If the rate went up, the Commonwealth doesn’t

get an extra dollar. The revenue goes to the States. This is –

this is the genius of this mechanism.

It was a surprise. Who thought of this genius move?

Well, leave that aside. But six States and two Territories. Now you’re always going to

have somebody facing an election in Australia, and there’s always going to be a temptation

for whoever is coming up for an election to say that he or she won’t agree, and what that

means is one of the eight can veto the rise, and if one of the eight doesn’t veto the

rise, the Australian Senate can veto the rise. I mean, this is a mechanism basically for

setting a rate and locking it.

Let’s get back to the rate. The Opposition says this package is blatantly unfair. The

more you have, the more you get, the more likely you are to keep it. Now in a sense that’s

true isn’t it? A single income family on $80,000 with one child, according to your

figures, is $83 better off every week. On $35,000, the same family will only be $18 better

off. How is that fair?

Well do you think that the family that’s $18 a week better off is going to complain?

They are $18 a week better off than they are under the current system. Now –

Well I’m coming to that. Some families are not so – some

families are less than $10 better off. Is that going to be enough to entice them to throw

the dice and go with the GST?

Well – well, the important point is this Fran: you’re not

telling me that they’re worse off. You are telling me they’re only $10 a week better off.

Now I ask you, if you had the opportunity to stick with the current system or be $10 a

week better off, doesn’t it make sense to be $10 a week better off?

Except Labor will be telling them that from now on for the rest of their lives they’ll

be paying 10 per cent extra on everything they buy –

every good and every service, every haircut, every whatever.

I’m sure Labor will, but that’s only because Labor won’t tell the truth. At the moment

they are paying 12, 22, 32 per cent on their toiletries, on the things they use

in the bathroom, on their cars. You are paying taxes at the moment –

the Labor Party tax – the wholesale sales tax.

Let me ask this question: What mechanism is there to stop that going up?

1993 was the last time Labor campaigned against tax reform, and won. And what happened?

The income tax cuts that they were promised were taken away, and the wholesale sales tax

rates went up. That’s what Labor did then. That’s what Labor will do again. When you hear

Labor campaigning against tax reform, just remember, they have priors.

Peter Costello, thank you.

Thanks very much.