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The words he'd like to swallow: Peter Costello on taxing food.



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Media Release

The Hon Simon Crean, MP

Deputy Leader of the Opposition and Shadow Treasurer

 

 

THE WORDS HE’D LIKE TO SWALLOW

PETER COSTELLO ON TAXING FOOD

 

E&OE

 

 

12 May 1999, National Press Club

 

BRUSCH:

 

...As we approach the post-Harradine era, would you be willing to forecast that your relationship with the Democrats may start to improve a little if not significantly?

 

TREASURER:

 

Well look I’ve had numbers of meetings with the Democrats and I have tried to progress negotiations with them. If their position is, and it was the last time I spoke to them, that if the GST applies to food they will vote it down no matter what, that is a position which the Government cannot accept. That opens up $5 billion in the whole package.

 

 

21 April 1999, Doorstop, Treasury Place, Melbourne

 

TREASURER:

 

Well the proposal by the Australian Democrats yesterday to introduce enormous compliance costs for all supermarkets, all bakeries, all milkbars is a proposal for nightmare on Main Street. You’d be in a milkbar and if you sold bread and butter it would be tax free, but if you put butter on the bread it would be taxable. You’d have sandwich counters where they’d say, here’s the bread, here’s the butter you go make your own sandwich because if we put the butter on the bread it suddenly becomes taxable. You’d have a situation where spaghetti sold in a tin would be tax free, if they put it in a plastic container it would become taxable. You’d have a situation where you’ve got raisin bread, presumably is not taxable but the hot cross bun is. So you get a situation where hot chicken is taxable and cold chicken is not. What the Democrats want the Government to do, if this were accepted, would be to hire tax inspectors to go around putting thermometers into chickens. You really want a tax system where we’re employing people sticking thermometers into chickens to try and run a tax system — it’s nightmare on Main Street. It is not real life. They’ve made it to try and sort of get some brownie points. It won’t work and I think now is the time for some sensible tax reform. And we ought to get on with real tax reform which is taking complexity out of the system rather than putting it in.

 

JOURNALIST:

 

[Can you address Harradine’s concerns] Without changing the package at all?

 

TREASURER:

 

I think so, yes…I’ve always said that we’re quite happy to explain the package to the Senators, those Senators that are prepared to look at it in good faith. And I think that Senator Harradine is looking at it in good faith, unlike the Democrat position which really is a recipe for, well, a nightmare. A small business nightmare.

 

JOURNALIST:

 

What would you call upon the Democrats to do now?

 

TREASURER:

 

Well I think they’ve, I think what the Democrats really wanted to do was to try and get some publicity for a separate position. And you know, they’ve made this, it wasn’t a good idea and I would call on them now, they’ve made their point, and I would call on them now to sit down and now start supporting real tax reform. This is a bird with no feathers that won’t fly, this idea. In fact under the Democrat package if it’s an uncooked, feathered bird it won’t be taxable, but if you cook it it will be.

 

 

20 April 1999, Interview with John Laws, 2UE

 

LAWS:

 

What about this new Democrat plan for removing the GST on basic food only and what about, is it John Tierney saying that a compromise is already being worked on anyway?

 

TREASURER:

 

I’m not sure precisely what he said, but whatever he said, the Government’s position is that since we’ve crafted the package as a whole and ensured protection for low income earners, it’s that package which we were elected on that we’re putting to the Senate. In relation to exempting basic food, well, you know we’ve been through this argument a thousand times, but let me just give you one example. The Democrats say oh well you can tax takeaway food, but not basic food. So you say what’s Kentucky Fried Chicken? Well they say well that’s obviously takeaway food. Well what’s a cooked chicken in a supermarket, is that takeaway or is that basic?

 

LAWS:

 

I would think anything that’s cooked is takeaway, wouldn’t you?

 

TREASURER:

 

Well they say that’s takeaway.

 

LAWS:

 

Okay.

 

TREASURER:

 

Well what if you cook a chicken in the supermarket and then let it cool? And it’s bought cool for reheating at home. Is that takeaway or basic?

 

LAWS:

 

Well that’s where the problems lie.

 

TREASURER:

 

And, and they say, they generally say, well if it’s cool it must be basic, not takeaway; if it’s hot, it’s takeaway. So in some countries that have that distinction, you know what they do? They get tax inspectors walk around with thermometers sticking them into chickens to see what temperature it is to determine whether or not it’s taxable.

 

LAWS:

 

Well wouldn’t it be simple then to say if it’s cooked it’s taxable. Even if it’s cooked and cooled down.

 

TREASURER:

 

What if it’s cooked and cooled?

 

LAWS:

 

Still cooked.

 

TREASURER:

 

What about coleslaw?

 

LAWS:

 

Still cooked.

 

TREASURER:

 

Coleslaw would be cooked food in takeaway, but if you bought the cabbage separately it wouldn’t be.

 

LAWS:

 

That’s right. If you went home because you’d paid tax on your mayonaise.

 

TREASURER:

 

It’s an unbelievable situation. So, so we’ll have tax inspectors wandering round with thermometers, we’ll have people wandering through…

 

LAWS:

 

No, no. no.

 

TREASURER:

 

...supermarkets looking as to whether or not the food has been processed. You’ve got, then you’ve got the argument about what is snack and what is food. Is a donut a snack or is it food?

 

LAWS:

 

Well it’s a snack.

 

TREASURER:

 

Well in Canada they said if you were buying less than six...

 

LAWS:

 

And it’s cooked.

 

TREASURER:

 

Well in Canada they said if you were buying less than six it would be a snack but if you buy more than six it’s a meal and it’s food.

 

LAWS:

 

But we have a brighter Treasurer than the Canadian’s, don’t we?

 

TREASURER:

 

Yes. And a brighter Treasurer says in accordance with international practice the better thing is just to apply the tax regime across the board. You don’t have armies of inspectors, you don’t have these stupid demarcation and classification disputes and you get on with cutting people’s income taxes and giving them higher pensions. Which all the international experience says is the way to go.

 

LAWS:

 

Is there any room for any sort of deal with the Democrats. Cause if you got that then you wouldn’t have to be concerned about Brian Harradine and Mal Colston, would you?

 

TREASURER:

 

Well not if they’re going to you know, if you exclude food and I think that costs 5 billion dollars. They’re talking about another five billion dollars of compensation I think. Let me make this clear, to do that would be to put the budget in deficit, would be to risk Australia’s prospects, it could put pressure on interest rates and the economic consequences of that for Australia would be very bad.

 

LAWS:

 

Who have you heard say it?

 

TREASURER:

 

Well, that’s what the Democrats say basically. They say, you know, we want money here, here, here, here and there and we don’t care if it’s going to drive the Budget into deficit, we’re the Democrats this will make us popular, this will get us more votes, so we won’t vote for it until you give that money…

 

 

14 April 1999, Interview with Neil Mitchell, 3AW

 

MITCHELL:

 

Is food untouchable?

 

TREASURER:

 

Yes, because look...

 

MITCHELL:

 

Totally?

 

TREASURER:

 

If you take food out of this package you blow a $5 billion hole through the package...

 

MITCHELL:

 

I understand that but we’re in this sort of negotiating time. How many balls have you got in the air?

 

TREASURER:

 

So, we won’t be doing that you can’t add $5 billion on to the cost of tax reform without driving the Budget into deficit. The probably impacts in relation to interest rates and the economy generally. And all of the economic effects that that would have. You just can’t do it.

 

MITCHELL:

 

So how many balls...

 

TREASURER:

 

And it’s silly anyway. Well that’s not one of them.

 

MITCHELL:

 

What are they?

 

TREASURER:

 

And one of the great questions is how do you define food? It’s easy to say. I mean when you say to people what’s food, you say, well let’s say for example: is Kentucky Fried Chicken food? They say no that’s takeaway. So, well what about a chicken which is cooked in Safeway, is that food or is that takeaway. They say well, it’s takeaway, you know if you buy it to take it away. What about if it’s been cooked in Safeway and cooled down? Is that takeaway or is that food? And they say, what some of these European jurisdictions say is oh well, well it must be food if it’s cooled down. So you know what happens then, you have tax collectors going around with thermometers sticking them into chickens trying to work out what their temperature is because if it’s a high temperature it’s takeaway and taxable, and if it’s a low temperature, it’s food and not taxable. So if you want an army of tax collectors in your supermarket sticking thermometers in chickens let’s try and sort of exclude food from the GST.

 

 

30 March 1999, Doorstop

 

JOURNALIST:

 

But they argue it isn’t on food.

 

TREASURER:

 

Well, it is on food. In many types of food, they have multiple rates. And once you start dealing with the tax base you get into incredible complexity. Let’s go through the evidence here. The food manufacturers, who have the most to lose if you have a tax on food, say it should be on food because otherwise you’re going to have stores and supermarkets running two sets of accounts. The Commissioner of Taxation says it should be on food. The experts that were called into the Senate, Warren, Dixon, Harding said it should be on food. The international experts said it should be on food. When it was pointed out to one of the groups that if you took GST off food in fact you give five times the benefit to 80 per cent high income eamers, they said well, they’d be quite prepared to do that. In other words, quite prepared to give benefits to the high-income earners. Now, the logical way to do this and everybody who has thought about it for a moment will say this - is not to have tax inspectors running around putting thermometers in pies to try and work out whether they’re take away or fresh food; not to have tax inspectors looking at gingerbread men to try and figure out whether the chocolate is just an eye, or whether it’s turned that food into confectionery…

 

 

30 March 1999, House of Representatives (Hansard, p 4656)

 

TREASURER:

 

If you exclude food from GST, you are going to have tax inspectors running around trying to see whether the chocolate on a gingerbread man is bigger than the eyes, trying to determine whether it is food or a snack. You are going to have tax inspectors putting thermometers into pies to see whether they are fresh or takeaway. The government is supported by the economists, international experience, the Commissioner of Taxation and, of course, the Australian people, as expressed in their votes at the last federal election.

 

I finish by saying that it is all very well to say you should drive a $5 billion hole through the government’s tax reform, but I note that nowhere in that [ACOSS] press release was there any suggestion as to where you could get $5 billion from to make it up. To drive the budget into deficit would, of course, cost jobs and cost interest rates in this country.

 

 

25 March 1999, House of Representatives (Hansard, p 4418)

 

TREASURER:

 

Yesterday, one of the world’s foremost indirect tax experts, Professor Cnossen, Professor of Economics at Erasmus University and a judge of the Dutch tax court, delivered a significant paper in Australia. The professor has advised 25 governments on the design and implementation of GST. He stated in his paper yesterday:

 

Research and experience ... proves that the best GST is a GST with a single rate applicable to all goods an d services. A zero rate on food is largely ineffective in mitigating the GST burden on the poor.

 

Adding to the measures that the professor referred to yesterday was a speech from the Commissioner of Taxation who yesterday said that he wanted to inject int o the public debate that -

 

Any attempt to draw a line around food will lead to costly disputation...

The Commissioner of Taxation warned that to exempt food from the GST would mean that 370,000 businesses would get into the business of trying to distingu ish between GST and non-GST purchases and sales.

 

The commissioner adverted to the UK system where hot meat pies are rated zero unless they are warmed at the customer’s request of reheated from cold. A more recent ruling in the UK which tried to have a different rate for food was that a meat pie sold before 3pm is taxable as snack food but, if it is sold after 3pm, it is classified as a grocery and is sold tax free.

 

Countries around the world that have tried to work out what is and what is not food have engaged in temperature tests, and the Commissioner of Taxation said that a temperature test makes frozen yoghurt taxable and refrigerated yoghurt tax free. They have tried to engage in timing tests. They have tried to engage in volume tests in the UK where a gingerbread man with chocolate is taxable unless the chocolate is only used to paint the eyes on the gingerbread man. If it is only used to put the eyes on it is not taxable. Restaurants face a particular problem in excluding food. Those that have tried to engage in a fresh food test have oysters served natural tax free and oysters kilpatrick served as taxable. That is another one of the rulings.

 

The House would be well advised to take notice of both the professor and the Commissioner of Taxation.

 

 

2 March 1999, Nine Network interview

 

REPORTER:

 

The speculation, Treasurer, is that the one area you might compromise on is, is the area of compensation, is that true?

 

COSTELLO:

 

Well, we won’t be compromising on the base, it sounds really easy to say why don’t you drop food? Nobody’s yet defined food. Let me give you one practical example. In the UK they said we’ll tax take-away food, but we won’t tax food generally. What’s a hot pie? Well, in the UK the bakers said a hot pie was not take-away food, because they only heated the pie to get fresh odours in their bakery shops. If they’re only heating the pies to get fresh odours in their bakery shops, it’s not taxable, but if somebody comes in and asks them to heat it, it is taxable.

 

REPORTER:

 

So, you won’t compromise on the question of food?

 

COSTELLO:

 

So, we won’t be compromising. You get into these ridiculous positions. In Canada, they said snacks are taxable but food isn’t.

 

 

1 March 1999, Interview with Jeremy Cordeaux, 5DN

 

CORDEAUX:

 

Now, it would seem to me, you don’t even have to read between the lines really, that the Democrats are setting this Senate rejection up well and truly.  They’re not going to pass it are they?

 

TREASURER:

 

Well they’re trying to sort of make themselves relevant to the game. It’s all politics. You know, the Democrats are saying well, you know, we want to make ourselves the balance of power. We want to write ourselves into the script. Which is all very well, but you see, the Democrats will never have to run a tax system. They’ll never form a government. There will never be a Democrat Treasurer. And it’s all very well for them to say well look we’ll try and get as many votes as we can by amending the tax package here, there and everywhere, but a tax package is a design. You try and design it so that if you’re taking more tax from one area, you’re alleviating it in another. If you’ve got to do a reform in one area you balance it with compensation in other areas. We took the chance to sit down and redesign the whole lot. Now, if the design is accepted, it works. But if people want to fiddle with the design and put amendments here and loopholes there, which smart tax avoiders can drive their way through; if they want to take revenue off here and put extra burdens off there you can ruin the whole design. That’s how we got the current Tax Act. You know we started off in 1936 and we put a little bit here and a little bit there and a little bit there and it went on and on and the Tax Act became a complicated maze. Now, we sat down before the last election and said if we’re ever going to re-draw this, you’ve got to re-draw it as an overall design. We’ll go to the Australian public, we’ll give the public the chance to vote on it, and if the public votes for tax reform then we’ll be able to introduce a whole new design. Now, the Democrats come along and say oh, we don’t like this part, we don’t like that part, we want to re-draw that part. We’ll never have the responsibility of running it

 

 

 

Reported on 19 February 1999 (The Age, p A8)

 

TREASURER:

 

“Excluding food would lead to nightmare compliance costs and efficiency and simplicity losses”.

 

 

15 February 1999, Doorstop Interview

 

TREASURER:

...Now, you’ve seen in relation to the inquiry, what’s obviously giving some Senators problem, is that the case for excluding food from the GST has obviously collapsed. There is no credible economic support for it. The broadening of the indirect tax base should be passed and we should get on to reducing income tax rates. Which is what the Australian people really want.

 

JOURNALIST:

 

But the Democrats say Mr Costello, that there really is no case for taxing food when the evidence by Dr Murphy basically says in terms of the welfare gain it’s line ball. You know, it’s $600 million roughly.

 

TREASURER:

 

Well, let me go through that because I saw a press release that they put out today from Peter Dixon, right, showing that the welfare gains go negative if you take food out, right. Three times worse result on welfare gains. That’s what Dixon said...

 

JOURNALIST:

 

...but the bigger welfare gains...

 

TREASURER:

 

...hang on, hang on, hang on. On Murphy they said, out of $600 million Murphy thought on his model, there might be $9 million difference right? Now let me take you to what Murphy actually said in relation to that, and I think it’s very important that we stick to the evidence here isn’t it? Murphy said, chapter seven, possible variations to ANTS, he noted this change right, and he said this: “a reasonable preliminary conclusion is that making food GST free would have a neutral to slightly negative effect on the efficiency”. So he says, when you take efficiency gains in, that $9 million out of $600 million would reverse. Now let’s go through the evidence. Professor Harding, the person that was thought to be on the side of the welfare groups, what does Professor Harding say — food in. What did Professor Neil Warren say — food in. What did Professor Dixon say — he says better welfare results with food in. And what does Chris Murphy say — he says after you take account the efficiency gains, food in. So Professor Harding, Professor Warren, Professor Dixon, Professor Murphy. How long have we got to go through? There is not one of the persons that the Senate has called, and don’t forget I don’t run the Senate committee, the Labor Party runs the Senate committee there’s not one of the economic modellers that the Senate has called, that has called for food to be excluded.

 

 

2 February 1999, Interview with Neil Mitchell, 3AW

 

MITCHELL:

 

And there is still, there is no significant change will be made to the GST, do you stand by that?

 

TREASURER:

 

Oh yes. The Government is seeking to enact the policy it put to the election, and we said, if we were elected we would implement our policy in full which is what we intend to do.

 

MITCHELL:

 

Is food non-negotiable?

 

TREASURER:

 

Well, the impact of GST on food is $6 billion. Now you can’t just tear a $6 billion hole in a budget.

 

MITCHELL:

 

I understand that, but is it negotiable?

 

TREASURER:

 

Well no, you cannot, the package is unsustainable if you rip $6 billion out of it. It can’t be done.

 

 

26 October 1998, Doorstop Interview

 

TREASURER:

 

Well I saw the announcement today by the Labor Party that they would not be supporting Democrat amendments to the Government’s tax plan and I think that’s right.

 

 

11 October 1998, Interview with Laurie Oakes, Sunday

 

OAKES:

 

Well, the Democrats are insisting that food” must be exempt. In fact, Natasha Stott Despoja is now saying not only fresh food, the restaurants and take-away food should also be exempt. Would that make a big difference increasing it from fresh food to restaurants and take-away?

 

TREASURER:

 

Well, of course it would because the other thing about this is it’s costed as a package. If you want to start saying, well, the ten per cent GST won’t apply to this or won’t apply to that, two things would follow — you’d wither have to have a higher GST or lower income tax cuts. Now...

 

OAKES:

 

Are both of those still live options, Mr Costello?

 

TREASURER:

 

No. Neither of them is a live option because we have pledged to the Australian people a ten per cent GST and that’s what we will be introducing.

 

 

20 August 1998, Doorstop interview

 

JOURNALIST:

 

Treasurer what’s your reaction to the fact that the churches are coming out against a GST being proposed on food?

 

TREASURER:

 

Well look the argument’s been around for a long time. What I say is this: if you exempted food from the new tax system; first of all the best and biggest benefits go to higher income eamers. Higher income eamers spend 2.8 times more on food, including restaurants, than 2.8 more, 280 per cent more.

 

JOURNALIST:

 

…percentage of there [their] income?

 

TREASURER:

 

Well hang on, I’m trying to give a grab please to Mr Middleton who is a colleague of yours, so before…let me go back, he’s trying to get a grab for his news so we’ll go back and we’ll start again.

 

JOURNALIST:

We just want an answer.

 

TREASURER:

 

Karen.

 

JOURNALIST:

 

Inaudible.

 

TREASURER:

 

Hang on, hang on, I’m answering Mr Middleton’s question. If you were to leave food outside the tax system first of all you would be giving a bigger benefit to higher income earners who spend 2.8 times more on food including restaurant meals, that’s the first point. The second point, the second point is that if you did that you would be in extreme classification difficulty.

 

All of the experience shows that once you start trying to define what is food, what is not food, what is pre-cooked food, what is raw food, you get back into all of the complexity that we are trying to get this tax system out of. And the third thing, of c ourse, is that people who argue that are in fact, if they are arguing for broad based indirect tax reform are arguing for higher rates because that is what follows. As I’ve always said in relation to indirect tax the broader the base, the lower the rate. The people who want narrower bases are the people who must be arguing for higher rates, that’s the way that it always works out.

 

JOURNALIST:

 

…the OECD today, Mr Costello, says that in 18 out of 23 OECD countries they do have lower or zero rates for essentials like food?

 

TREASURER:

 

And the OECD also argues that one, you should have broad based indirect tax and the broader the base, the better.

 

JOURNALIST:

 

Inaudible.

 

TREASURER:

 

Hang on, hang on,…well one of the conclusions of the OECD reports is that those system do not work as well, do not work as well as broader based systems because you go right back into all of the classifications. What’s food, is orange juice food, is milk food, you get into all of these classification difficulties. In some countries they say food at a particular temperature is cooked food and bears a different rate to food at another temperature. Now if you want tax inspectors going around with little thermometers putting them into your pies, putting them into you chickens, trying to determine what the temperature is to try and work out what the tax rate is, you can do that. But you’re going to have tax inspectors in every take away store and supermarket trying to enforce those rules. A much better way of running a tax system is to have a broad base, to have lower rates, to give people more of their income to take home so that they can choose and the tax is collected when people spend.

 

 

19 August 1998, Doorstop interview

JOURNALIST:

 

Is there any circumstance in which you would consider exempting food from the GST?

 

TREASURER:

 

No, because if you started pulling apart the broad based indirect tax, the first thing you do is you advantage the high income earner. The high income eamer spends, including restaurant meals, 2.8 times more on food than a low income earner. So that would be an enormous benefit to a high income earner so you wouldn’t do it for that reason. The second thing, of course, is once you start pulling apart tax reform you’re right back to where you are now. All you’ll have to do is increase income tax rates. This is the Labor policy, remember the Labor policy is to have higher income taxes because they won’t reform the indirect tax system, you would be right back to where you are now. You’ve got an average income earner today whose paying 43 cents in the dollar and for that income earner, it’s just going to go higher. Now if you believe as we do that people should have more incentive to work, that average income earners shouldn’t face income tax rates which are more than 30 per cent, you’ve got to reform your indirect tax system, and in relation to indirect tax you’ve heard me say a thousand times I think, the broader the base, the lower the rate. Once you want to start narrowing the base, once you want to start narrowing the base, the higher the rate is going to go. Over and over and over again.

 

 

md 1999-06-28  12:09