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Transcript of doorstop interview: Parliament House, Canberra: Friday, 26 March 2004: Ministerial Council Meeting, abolition of Bank Accounts Debits tax, distribution of GST to the States, review of CGC methodology, review of stamp duties, special purpose payments.



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TREASURER

www.treasurer.gov.au

PRESS RELEASE

NO.

TRANSCRIPT

THE HON PETER COSTELLO MP

Treasurer

Doorstop Interview

Ministerial Entrance Parliament House, Canberra

Friday, 26 March 2004

2.15 pm

E & OE

SUBJECTS: Ministerial Council Meeting, abolition of Bank Accounts Debits tax, distribution of GST to the States, review of CGC methodology, review of stamp duties, special purpose payments

TREASURER:

The Commonwealth State Ministerial Council on Financial Relations has today agreed that every State Government will abolish the Bank Account Debits tax by 1 July 2005. The Bank Account Debits tax is the tax that is charged when you take money out of a cheque account. The abolition of the Bank Account Debits tax will save Australian taxpayers $1 billion. Every person that has a cheque account, every small business that has an account will be a winner, and the abolition of the Bank Account Debits tax will be funded by the growing GST revenue, which is being received by all of the States and the Territories. The reforms from the Government’s tax reform of 2000 keep rolling on, and by 1 July another tax will be abolished. We have also agreed with the States today to set up terms of reference for the abolition of further stamp duties which will occur in an orderly way after the abolition of the Bank Account Debits tax on 1 July 2005.

In the next financial year the six States and two Territories will receive $34 billion in GST revenue. Every single dollar of GST revenue is received in the State capitals of Melbourne, Sydney, Brisbane, Adelaide, Perth, Hobart, in the ACT and in the Northern Territory. The Commonwealth Government does not receive a dollar of GST revenue. That sum of $34 billion includes a windfall to the States over and above the previous financial arrangements and the windfall in 2004-2005 will be nearly a billion dollars, nearly a billion dollars.

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Now the States of course argue between themselves as to what amounts that they should get, but the Ministerial Council has overwhelmingly accepted the recommendation of the Commonwealth Grants Commission, and independent arbiter in relation to relativities. All of the States and the Territories with the exception of New South Wales and Victoria, accepted the recommendation of the Commonwealth Grants Commission. That being the case, the Commonwealth will abide as it has in previous years, by the recommendations of the independent arbiter. But I want to make this point. This is an argument between States, between Labor State Governments, as to what shares of the GST revenue they get. Between them they get 100 per cent, every last dollar of GST revenue and between them they will share in a windfall next year of nearly a billion dollars over and above what would have been the case in the old arrangements.

JOURNALIST:

Michael Egan said that he feels like he wants to ‘slit his wrists’ over of the result of the allocation, do you have any sympathy for him or New South Wales?

TREASURER:

Well, I would advise him not to slit his wrists. Michael has been around for a while and I always look forward to his company. Michael is a bit dramatic you know.

JOURNALIST:

Treasurer do you think the review of the Commonwealth Grants Commission that was agreed to is going to result in any substantive changes to the formula, or is it just going to be tinkering around the edges?

TREASURER:

Well, what the States did not agree on is re-opening the question of equalisation. There was a very strong opposition to that, so as a fallback what they have agreed on, is they have agreed on doing some work on things like simplification and better information. But there was no agreement at all to re-open the principle of equalisation. The principle of equalisation is that you distribute the revenue so as to try and provide to every Australian, regardless of the State they live in, a basic standard of service. That is the principle of equalisation. So that regardless of whether you are in a popular State or a small State, regardless of whether you are in a concentrated State or a decentralised state, the idea is that if you are an Australian citizen, you should get a basic service from Government in respect of health, transport, education. The States will not re-open that principle, New South Wales might, but the balance of the States will not re-open that principle. What they did agree to, was that they said that they would do some work to try and look at simplifying the way in which the Commonwealth Grants Commission reports, and we support them in that. Our view has always been this: that if the States between themselves agree on a new formula, the Commonwealth will abide by it, but in the interim, we will go with the umpire. This is not an argument between the Commonwealth and the States, this is an argument between eight Labor States and Territories, as to who gets the most of the GST, a tax which they actually opposed the introduction of.

JOURNALIST:

Mr Costello, why did you accept a majority view amongst the States, rather than unanimity?

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TREASURER:

Well I did accept a majority view.

JOURNALIST:

Yes I asked why, rather than insisting on unanimity?

TREASURER:

Well, if I can’t get unanimity…let me make this point. A majority of the States and Territories support the current system. If the current system were to be changed, there would be the interesting question as to whether you would need a majority or a unanimous. But that never arose, they couldn’t even get a majority to change the current system. So, in future years you may have to face that question as to whether you need a majority or unanimous. But that didn’t even arise.

JOURNALIST:

Treasurer, the States are concerned that special purpose payments are not keeping pace with actual costs in areas like healthcare. What is your response to that concern?

TREASURER:

Special purpose payments are increasing in real terms, that is over and above inflation they are increasing. Healthcare agreements in real terms, the money that is being provided is increasing by 17 per cent, that is over and above inflation. Now, how many ways can you skin a cat? Here is six States and two Territories, who are sharing between them $34 billion of GST revenue, a 17 per cent increase in health funding and what do they say? They want more money. Well, I am standing up for Australian taxpayers here. If the States had their way, I have no doubt that they would be claiming more money for everything. There is only one person today, that was pushing for tax reductions, and it wasn’t any of the eight Labor States or Territories, and what we have got out of today, is that some of that GST revenue will be used to abolish the Bank Account Debits tax.

JOURNALIST:

Would you look again at some of the strings that are being attached to those payments to make them easier?

TREASURER:

No.

JOURNALIST:

Mr Costello, when would you like to see all the business state stamp duties reduced?

TREASURER:

As soon as possible. Next one, 1 July 2005 and at next year’s conference, we will be applying the pressure to reduce more stamp duty. You see what has happened is this, as the GST revenue has grown, in the next year they will have nearly $1 billion distributed, sorry in the current financial year, 2004-05, nearly $1 billion of windfall. The year after, even bigger, and so we have said that in the year after, some of that windfall has got to be applied to the abolition of the Bank Account Debits tax. We got an agreement.

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But some of that windfall must also be applied to the abolition of other stamp duties and we are going to keep the pressure on these States. That now that they have the GST revenue, now that it is in, now that it is growing, some of this money will go into better services, but some of it has to be applied to tax reductions.

JOURNALIST:

Treasurer, Professor Neil Warren said that one way to persuade the States to scrap inefficient State terms would be to increase the rate of the GST, do you see any merit in that option?

TREASURER:

The Commonwealth Government, whilst it is a Liberal Government, will not agree to an increase in the rate of GST. The GST rate can only be increased by the unanimous agreement of eight States and Territories in the Commonwealth. You now have eight Labor States and Territories. If you had a Labor Commonwealth Government, you could have an increase in the GST rate. Whilst you have a Liberal Commonwealth Government, there will be no increase in the GST rate.

JOURNALIST:

Mr Costello, would you think there is any sense in the argument that the overall funding formula was too prescriptive, too complicated and needs a sort of fundamental re-think?

TREASURER:

Well, I said earlier that I believe that simplification would be a good thing, yes, I did, and I am supporting moves to simplify it. What will not be re-opened because the majority of the States are ferociously against it, is the question of equalisation. That will not be re-opened, whether or not there should be equalisation between Australia will not be re-opened. But within the equalisation requirement, if there can be further transparency and simplification, I do agree with it, yes I do.

JOURNALIST:

Should the Commonwealth take over public hospitals if the States are not happy with the funding they get?

TREASURER:

Look, the States are well and adequately funded and if we are to have State governments, they do have to have duties. If you had a State Government that wasn’t responsible for economic policy or tax or defence or foreign affairs or even health, what would it be doing? If we have State Governments, they do have to be responsible for certain things, and what they are responsible for in Australia is the health system, the government education system and the transport system. And may I say, to discharge their duties, they have the GST revenue, which the Commonwealth put in place. You know the GST revenue is now employing every teacher in every classroom, in every school, in Australia. It is now paying for every policeman, on the beat in every State in Australia and it is being received in its entirety by the six State and two Territory governments. Sorry last question.

JOURNALIST:

You say you are sticking up for taxpayers, etc, but how reasonable is it for the Federal Government to sit back and say it is a State government argument when Victorian and New South Wales taxpayers are subsidising others, more and more?

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TREASURER:

Well, since the dawn of Federation, and this was the basis of Federation, it was agreed that if the six States came into the federation that they would equalise between themselves. If you don’t want to equalise between the States, you could reverse Federation, but this idea that equalisation is somehow new, or unexpected, that was what the federal compact was all about, that was what

happened in 1901. If States wanted to go it alone and be self sufficient, they wouldn’t have federated. They came into a Federation in 1901, that meant that there would be equalisation between the States, because we are all Australians. The principle has been in place since 1901, the equalisation has been applied by the Commonwealth Grants Commission since 1933. You can complain about the way in which it does its work, and I think it should be done in a simple and a transparent way, but if you don’t believe that all parts of Australia should be looked after, you really don’t believe in Federation and it is now 103 years too late to re-visit that issue.

Thank you.