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Turnbull says Australia can afford more tax r -

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Turnbull says Australia can afford more tax reform

Prominent Liberal backbencher Malcolm Turnbull says Australia can afford further tax reform. But he
says the problem lies in selling the idea to the public.

BARRIE CASSIDY: And now to our program guest - prominent Liberal backbencher and former chairman of
the Republican Movement, Malcolm Turnbull. He has been in the federal Parliament for less than a
year, but he has already made his mark on issues as diverse as water conservation and taxation
reform. This is what he had to say about the tax system back in March, when he appeared on Inside
Business.

MALCOLM TURNBULL ON INSIDE BUSINESS ON MARCH 3, 2005: In an ideal world we would have a tax system
with lower rates. In order to have lower rates you need to have a broader base and that's what I've
been talking about. And obviously a broader base, that's to say, more income is caught by the tax
system, there's less difference or no difference ideally between the rates of tax which, you know,
say corporations pay and individuals pay. And you broaden the base and then you can lower the
rates.

BARRIE CASSIDY: Malcolm Turnbull is our program guest this morning. He'll join us shortly in the
Sydney He's just having trouble hearings us at the moment.

MALCOLM TURNBULL: I can just hear you, Barrie.

BARRIE CASSIDY: You can hear it now.

MALCOLM TURNBULL: Speak up.

BARRIE CASSIDY: I will. In the insert we just heard you were talking about both lowering the rates
and broadening the base. Two months later in May the Government spent $22 billion in tax cuts
without doing either of the things you were advocating. How disappointed were you?

MALCOLM TURNBULL, MEMBER FOR WENTWORTH (LIBERAL): I thought it was a very good Budget and the
changes to tax were very helpful. They've, in fact, made the possibility for doing exactly what
I've recommended, lowering the rates and broadening the base, more feasible in the future because
the number of taxpayers paying the high rates of tax is now a very small number, a very small
percentage and, therefore, to lower those rates in the future has a much lesser impact on the
Commonwealth Budget.

BARRIE CASSIDY: Do you think that was part of the strategy at the time?

MALCOLM TURNBULL: I can't say, but that's certainly one of the effects. If you, for example, were
to lower the top marginal rate to 40 per cent which would be a significant reduction, not as low as
many people would like, but if you were to lower the top marginal rate to 40 per cent, on my
calculations in 2006, 2007, the most that would impact on the federal Budget would be by a little
bit less than $2 billion. Given the dynamic nature of the economy and other reforms you could make,
you could say that could be done in a revenue neutral way. That's because only a small percentage
are paying tax at those higher rates now.

BARRIE CASSIDY: Given there are just a small percentage of people, is it too soon to move in the
next 12 months or so in lowering the rates to 40 per cent as a first data?

MALCOLM TURNBULL: I don't think it's too soon. There are two questions associated with tax reform -
and I might just say everybody, I think most commentators agree with the basic proposition that we
should have a broader tax base i.e. fewer concessions and a lower rate. From a political point of
view the only way you could achieve the removal of many concession social security by the exchange
of a lower rate. So the two go together. Now in terms of lowering the, making these changes in the
near term, there are political considerations. I believe substantial tax reform, further
substantial tax reform is financially affordable. That's to say, we can afford it and maintain a
broadly revenue neutral result. We don't have to cut expenditure to fund it in other words. The
question then is a political one. Is it politically saleable, is it politically feasible? Can you
bring the community along with these changes? That's the more difficult question.

BARRIE CASSIDY: It shouldn't be as difficult as it once was, though, Lindsay

Tanner for example is talking about lowering the rates, including the top rate. The coalition's not
going to be in office forever. You really do have to take your opportunities as they come up?

MALCOLM TURNBULL: That's a very powerful case for further tax reform. The

OECD in their recent paper on Australia identified two areas of further economic reform that were
needed - in the workplace, which of course is under consideration now, and further tax reform. So
there is a, John Howard speaks of the receding horizon, this microeconomic reform, economic reform
overall is an unfinished work all the time. And so we just have to keep moving. We have to keep
reforming because it's only through continued economic reform that we'll be able to continue to
lift productivity and by doing that ensure our prosperity in the years ahead.

BARRIE CASSIDY: And when you say "broaden the base", the Labor Party talks about broadening the
base and suddenly there's a scare campaign, the coalition identifies all sort of things they might
be talking about. What are you talking about?

MALCOLM TURNBULL: Well, the debate about broadening the base often focuses on things like
work-related deductions, work-related expenses, concession - just identifying things that are
looked at - concessional taxation treatments of lump sums payable on termination. The Treasury
publishes a long list of tax expenditures which are all of these concessions and there are some of
them that are never going to be touched by governments of any political hue and some of them
shouldn't be touched because if you were to change them you'd have to make it up in some form of
social welfare compensations or payment. But there are a number that are, that can be removed and
would simplify the tax system. See, the other thing we've got to bear in mind is that we have a
relatively complex personal income tax system relative to other countries. You know, in many
comparable companies most taxpayers do not have to file tax returns, the UK for example. And if we
can simplify the system by broadening the base and as part of that effort lowering the rate, you'd
reduce a lot of the cost of complexity that is imposed on taxpayers and on the business community.

BARRIE CASSIDY: OK, I want to ask you about terrorism. There's a debate going on now about the need
to change attitudes towards multiculturism that governments have encouraged and indeed paid for
ethnic groups to retain and celebrate their own cultures in the past. Was that a mistake in your
view?

MALCOLM TURNBULL: No, well it depends what we're talking about. Fundamentally everybody that lives
in Australia, that wants to live in Australia has to recognise that we live by certain Australian
values. And that membership of our community is fundamentally based on a commitment to those
political values of tolerance of the rule of law, of democracy. And so people that seek to
undermine those values, that seek to undermine our society are groups that we will ultimately have
a very, very severe problem with. We have to work out ways of discouraging and preventing language,
conduct which is calculated to undermine our way of life. Now that's not to say that everybody has
to look the same, dress the same, worship in the same place. Of course not. We can be a diverse
community but still be united in basic democratic ideals of tolerance and the rule of law and, of
course, terrorism is totally unacceptable and I agree with the PM when he says we need to hear from
all Australians and most particularly from Australian Muslims a denunciation of violence, because
ultimately the only, or the best defence, or the best antidote for extreme Islamist violence is
moderate Islam, is the majority of Muslims that seek to live a peaceful and orderly life in a free
society.

BARRIE CASSIDY: OK, water recycling is a passion of yours but a survey of 600 people has been
released which suggests Sydneysiders won't drink it. Sixty-eight per cent uncomfortable with the
idea?

MALCOLM TURNBULL: Well, you can frame the question in all sorts of ways to get the answer you seek,
of course. But let me just say this question of drinking recycled water in Sydney is a furphy. It's
a non-issue, because there is no need to put that recycled water back into the drinking water
system. There are plenty of non-potable, non-drinking uses for it, not least of which is restoring
the environmental flows in our rivers. Israel is a good example. They recycle 70 per cent of their
waste water and drink none of it and have no need to drink any of it. Can you treat recycled water
to make it fit for drinking? Of course you can. Absolutely, and in many parts of the world that is
done. Do we need to do it in Sydney? No, we do not.

BARRIE CASSIDY: Are you still insisting Bob Carr is on the wrong track with the desalination idea
rather than recycling?

MALCOLM TURNBULL: Absolutely. It will be the single biggest white elephant ever built by a State
Government. This plant will cost hundreds of millions of dollars to build, perhaps billions and the
water will be so expensive because of the very substantial cost of power it costs twice as much to
desalinate water as it does to recycle waste water, that because of that cost when our dams are
full when it rains the plant will be turned off and that happens all round the world with
desalination plants and the cost of maintaining that plant when it has been turned off - it might
be for three or four or five years - will be hundreds and hundreds of millions of dollars. The
great virtue of recycling is that even if the dams are full, even if there is plenty of rain and
you don't really need all that recycled water you are nonetheless protecting and benefiting the
environment because you are putting more water into your rivers and you are no longer polluting
your ocean. So you see, recycling is a fundamental premise of a sustainable environment in a major
city like Sydney.

BARRIE CASSIDY: I've just got one question wearing your former hat, one question on the Republic
before we go. What is the most relevant factor - is it the reign of the current Queen or the reign
of the current PM?

MALCOLM TURNBULL: To be honest, I think it's the reign of the current Queen. I know people talk
about John Howard as a very committed monarchist and if and when he ceases to be PM, things would
change. I said in 99 when the referendum was on that a 'no' vote means no for a long time and I
said then that I thought it would be unlikely that there would be enough of a sense of a mood for
change until the reign of the Queen came to an end. And so whether monarchists will cheer at this,
Republicans will be sad. But the fact is - be it sad or happy - is that the next obvious time for
this issue to be on the front burner is not when there's a change in PM, but when there is a change
in monarch, because then people will sit back and say, "OK, there's been a change in the
environment, a change in the monarch, let's reconsider this issue. " They may do that. My crystal
ball is cloudier than most, but that's the view I expressed six years ago and it's the view -
nothing's changed in the interim to cause me to have a different view.

BARRIE CASSIDY: It could be a long way down the track. She seems to be a very healthy person.

MALCOLM TURNBULL: She may outlive all of us Barrie.

BARRIE CASSIDY: Thank you for your time this morning.