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ABC News Breakfast -

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SUBJECTS: Tax Forum; building on the Government's record of tax reform

TRIOLI:

Treasurer good morning, good to talk to you again.

TREASURER:

Good to talk to you

TRIOLI:

How would you rate day one?

TREASURER:

Pretty good actually, I was pretty happy with the discussion. I think there was some vigorous
debate but I also think that we found some common ground, particularly in that important area of
business tax where I think the unions and the employers did come together. Because I think
everybody recognises that in some sectors of industry there are big challenges at the moment: the
higher dollar, so not everybody in the business sector is in the fast lane and of course what's
important there is that we look at business taxation and how it assists those firms and their
workers to adjust and that's where there was some common ground.

TRIOLI:

Indeed, and there was some common ground with you as well. You said yesterday we may need to make
some changes in that area. You were saying that in particular speaking of the limits the companies
have at the moment in maximising their losses. So talk to me about what you're thinking
particularly when it comes to altering the company tax rate, what's your feeling?

TREASURER:

Well I think there was a vigorous discussion about that as well. Do we on the one hand go for a
significant cut in the company rate or do we actually target our business assistance at specialist
type measures which focus on some firms that have got difficulties but good long-term prospects. So
there's a trade off here and I think that was on show in the discussion yesterday. What we will do
is progress further discussion about what we might do in the area of losses. This was also an issue
raised in the Henry report, not only did they say there should be a cut in the corporate rate, they
did suggest some action in this area. So we're interested in progressing that with the business
community and of course with unions.

TRIOLI:

So could you do both? As you mentioned Ken Henry talked about that cut in the company tax rate, a
proposed cut to 25% over time. Could you have that targeted assistance when it comes to losses and
write-downs and the like and make a general cut to company tax?

TREASURER:

Well I think everything we've got to do, Virginia, has to be funded and as you know we've got a
difficult revenue outlook. We've lost something like $130 billion worth of Commonwealth revenue on
the estimates prior to the global financial crisis. So there's not a great deal of room to move, if
you like. We've already said we would cut the corporate rate by 1 cent in the dollar using some of
the revenue from the MRRT. But what we've got to focus on now I think is some of those specific
measures and there was a lot of agreement across the room to do that yesterday.

TRIOLI:

The Business Council of Australia was saying once you start to actually make those cuts, and to be
fair we were speaking more specifically of the states, the inefficient state taxes which we'll get
to in a moment, the Business Council believes then growth just naturally follows. And so I guess in
the medium to long term you don't need to worry about the funding because your growth will be
there, you will simply - you will simply get more money into revenue over time. Is that too
optimistic?

TREASURER:

I'm not sure that the Business Council is saying that. That's some sort of supply-side voodoo
economics. The fact is that if you change the tax arrangements and you put more incentive, yes, you
do get growth but it's not automatic that you somehow have a tax and you get this huge wave of
revenue.

TRIOLI:

No, no one's saying it's automatic, but this is all medium to long term talking anyway, it's not
about fixing it tomorrow and seeing the money flow.

TREASURER:

That's true but there's no magic pudding here either and I don't think the Business Council is
saying that to be fair to them. What they have done is some modelling about a whole series of
changes and how that will promote growth but the fact is, that whatever we do, whether it's short
term or medium term, it's got to be sustainable and it's also got to be fair. What we've got to do
is strike a balance between the need for more investment on the one hand and on the other hand the
need to provide those critical quality public services that make our economy strong and you've got
to get a balance between the two, and I think the Business Council is up for that discussion as are
the unions.

TRIOLI:

Well can I get then a more specific sense from you today which is where your mind seems to be right
now when it comes to that potentially difficult choice between making a cut generally to the
corporate tax rate or perhaps that more targeted assistance that you were speaking of as well. Do
you have a leaning one way or the other at the moment given you say you can't afford both?

TREASURER:

Well at the moment we've got a cut of 1 cent in the dollar already factored into to our forward
estimates. What we've got to do now is sit down and talk about what we can do particularly for
those firms that are impacted upon by structural change. Whether we will progress some of the other
suggestions in the tax review and how we fund that. I haven't reached a conclusion about all of
that but the Government will progress those issues as we come out of the forum, taking note of the
fact that there was a pretty strong view on the floor that we need to do something more immediately
for those firms that are impacted by substantial structural change.

TRIOLI:

The States are now of at least harmonising payroll and land taxes from 2014. In your view is that
enough?

TREASURER:

Well certainly it would be a good start because there hasn't been a lot of action in this area in
recent years. I thought the State Treasurers, particularly Fraser and Baird, brought a constructive
view to the room yesterday and I'm certainly looking forward to working with them to progress
harmonisation as a step to doing more in the long run.

TRIOLI:

Can you not be persuaded to look at the GST rate? This seems to be still the issue on most people's
minds as being basic reform that, in their view at least, can be easily managed. Is that an
absolute no-go area for you still?

TREASURER:

Well it wasn't the view of everybody in the room yesterday. It certainly was the view of some but
certainly not everybody. No, the Government has no intention of increasing the rate or the base of
the GST. It's not the money tree some people assume that it is. What the Government wants to do is
make sure we get the balance in the tax system right and there's no way in the world that we're
going to be supporting an increase in the rate or the base, if you like, for punters to give a
benefit to someone else somewhere else in the tax system. We're just not going to do that. We don't
think it's good tax policy and we certainly don't think it's fair.

TRIOLI:

Alright well the other key point that was made by the BCA and repeated this morning in an interview
with us, was the idea that if you wanted to get rid of those inefficient state taxes or if the
States would agree to do that, you then needed to somehow divide up the more general income revenue
with them, between the States and the Commonwealth. And I'm not verballing the BCA here, that's
what they said, long-term reform they'd very much like to see. Is that too big a job to take on?

TREASURER:

Well I think the States have got a number of tax bases that they can work on. They do have revenue
streams but the Commonwealth will certainly not be giving up income taxation and handing that to
the States. We wouldn't see that as being a good step in terms of macroeconomic management and we
certainly won't be doing that. But there is plenty of room for the States to sit down, and if they
want to, to work with the Commonwealth about what they can do to increase the effectiveness of
their state tax regimes.

TRIOLI:

Just finally this morning Treasurer, will you agree with Rob Oakeshott by the end of the conference
that an office of tax simplification needs to be established?

TREASURER:

Well what I'm going to do is listen to what everybody says on the floor of the conference. Rob has
had his go, others will have their go today and I'll indicate some priorities and directions.

TRIOLI:

He wants agreement on that particular request by the end of the conference. Is that a reasonable
request?

TREASURER:

I don't respond to those sorts of requests. What I will do is consider all the requests which have
been put by all of the people at the conference and I'll provide a response at the end of the day.
But what we will be doing is indicating general directions for the future. We've already got a very
big, substantial set of tax reforms out there right now and many of them are starting on 1 July
next year, including the resource rent tax and big tax cuts for small businesses. We're going to
build on that by announcing some future pathways for policy development this afternoon. But I'm not
going to come in and respond just to one request by one person on this program.

TRIOLI:

Well, he was the person who requested the forum in the first place. It's the reason you're doing
it.

TREASURER:

We're actually having the forum...

TRIOLI:

The point I'm making is he perhaps has a slightly higher standing than others at this forum.

TREASURER:

Well he made a very good contribution yesterday. I think he said a lot of sensible things as did
many other people, but we're having the forum because we said we would follow up on the tax review
when we released it. We said there are some things we'd do straight away, we're doing that - a big
set of tax reforms right now. We said there were some things we wouldn't do. And we said we'd have
a further discussion about a lot of the other issues in that report. That's what we're doing here
and Rob was pretty keen to have that and we agreed with him that we would and that's what we're
doing.

TRIOLI:

And just quickly and finally, are you considering getting yourself a cattle prod for all those
people who kept falling asleep during the forum as they did yesterday, Treasurer?

TREASURER:

Have you got a spare one?

TRIOLI:

I'm not giving you mine, you'll have to find one of your own. Treasurer Wayne Swan, thanks very
much.

TREASURER:

Thank you