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Transcript of radio interview with Dr John Hewson MP leader of the opposition and Mickey De Stoop 2NC Newcastle NSW

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SUBJECTSt Tax Reform

de Stoopt

And that'b exactly where you're at at the moment. welcome

back to the program, eight and a half past nine, and my

special guest here in the studio this morning is the Leader of the Federal Opposition, Dr John Hewson. Welcome to the

studio, John.

Hewson *

Good morning Mickey, how are you.

de Stoopi

Well, I should be asking you. How are you.


I'm fine.

de Stoop*

You were at a wine tasting last night.


I was at a wine tasting yes.

de Stoop*

Hunter reds, not bad.

Parliament House, Canberra, A.C.T. 2600 Phone 77 4022



I didn't have too much wine, actually, I tasted a couple of

the whites, but I had to speak and I had to present the


de Stoopt

Unfair isn't it.


At least there had to be one sane, sober person in the room.

de Stoops

How were the rest.


Oh, some people enjoyed themselves.

de Stoops

Well, I'm sure it was a great night. You're up here today to

speak at lunchtime with Chamber of Commerce and you're opening John Tierney's office, I understand, while you're up here.

1 !


That's right, yes.

de Stoops

And heading back this afternoon, I guess.


Yes, flying out at about half past two.


de Stoop*

Alright, well the big question for you, and as I've said we

are taking some calls, John, but it depends upon how we go

with time, but if people would like to call through on 2961, I can never get it right, 29640&, if we do have time we will

be taking calls. Convince us, convince us, that a consumption tax is going to benefit me, Russ, and people out there who are really battling at the moment to make ends meet.


well, you can do that at several levels. At the level of the

big picture, the country is in decline, we need to do

something. If people are happy with one million unemployed and the prospect of more, they can stay with the present

Government and policy paralysis. If they're not, they'll recognise that we need to make change and an essential part of the change that's got to be made is to get the country working again, to give people jobs, and to give them a chance to earn more and to keep more of what they earn. And that's the

background against which a decision on the consumption tax has been taken.

At the individual level, there are no magic puddings. I'm not promising you instantaneous improvement in anything, what I'm saying is that under our tax reform package if we all lift our game, if you improve the quality of your work, or you work

harder or you save, you'll be significantly better off.

de Stoop*

But how's that going to work for me, when I've got to go out

there hypothetically, I ’m in a lucky position I don't have three kids at home, I do have a job at the moment, but how

does it work for me if I'm a mum living in a single income

family, we've got three kids, we're going to go out and buy

shoes every day, basically, that's what you're doing, you're buying food every day, we're going to be buying clothes every day, w e ’re going to travel on buses and every single one of

those things is going to have an added tax and no-one is going to, 1 mean, I don't care what you say, manufacturers aren't going to drop there prices.


Well, I disagree with that. But, there are a number of things that you should recognise. We're not about destroying the lives of average Australians.


We are about improving the lives of average Australians, and I mean, I'm not here in this job trying to make the life of

Australians worse, and a lot of the arguments that are put to us seem to suggest that. The family you have in mind can be

compensated for the impact of the tax. Now, we've done an

enormous amount of work identifying the expenditure patterns of different groups in Australian. There's pretty reliable government data available on how much people earn and how much they spend. And from that data you can calculate the impact of the tax on an average family, whether its a single income

family, a double Income family, where they've got no kids, one kid, two kids, whether they're small business people, whether they're unemployed, whether they're pensioners, whether they're farmers, we can do all that. And we've done all that. And we can demonstrate to those people that the impact of the

tax on them is so much, and this is how they can be

compensated. In the case you've taken, they'll probably be compensated by way of substantial tax cuts.


Maybe ...(inaudible)... they get some benefits,

de Stoopt

OK, but do they have to keep every receipt...



de Stoop$

Do they have to keep every receipt for every item.


I just heard Eric Risstrom as I came through the door. I have no idea what he's talking about. I mean, for the average

Australian, you won't have to keep any additional records that I can see and for a business person, I mean, one of the

reasons why the tax has been so popular internationally is that it is so simple for business.

de Stoop$

...but is it popular internationally...


Hewson t

You have sales and you have purchases and all you have to know is the difference. It is very popular.

de Stoop*

Well, its not in New Zealand.


Oh, it is. I mean, in New Zealand, the Government won an

election after the introduction of the tax. I mean it was

very popular. The public opinion polls swung dramatically in favour of the tax.

de Stoops

Did you watch the Sunday program, last Sunday.


Well, I didn't see the Sunday program.

de Stoops

Interviewing your average Joe Blow in New Zealand...


| Hewson:

! .

; I've been to New Zealand ...(inaudible)... You know, we're not

just following New Zealand but it was very successful in New Zealand and you can ask Roger Douglas, I think he was

interviewed on that program, he said that it was very

successful and they did win the next election after they'd introduced it. People, Peter Keith went over to New Zealand and not only spoke to the tax officials, and the Treasury

officials, and others, but he took a cab and went out and

spoke to the parish priest, and the corner shop, and the small business, and he didn't find any agro about that tax, they all find it to have been a very important change. Now people, one ! of the problems you've got is that we already have a very

complex system of consumption taxes. The government already taxes you very heavily, doesn't tell you about it, and doesn't compensate you. And then many people therefore don't know that on a lot of basic household items they're already paying 25 or 30 cents tax, 20% or 20% tax, toothpaste, shampoo, and detergent that you wash the dishes with.


de Stoop;

So everyday products.


Everyday products have already got a massive tax on them and, of course, when we introduce the tax reform package, that that system the wholesale sales tax system, will be abolished lock, stock and barrel, and it is a very inefficient tax system. The Government raises $10 billion from that. They haven't

compensated anybody.

They've put it up 200% in eight years, and, you know, we've

got to have some logic and rationality and truth in the debate and that's one of the reasons why we've been trying to elevate the issue to get people to understand how much tax they

already pay. And secondly, to understand that the personal tax system that we've got really does discriminate against the person that you used in your example.

The average Australian, the average Australian family, has been hit to leg. The PAYE taxpayer, as we say, the person who pays tax as they earn, so the tax is deducted from their

paypacket before they get the paypacket, they don't have any chance to minimise tax, no rich, no perks that are available to the rich, they have the money taken out of their tax packet and they have gone backwards. And they're the group that we

are most concerned about because if this country is to start working again, its average Australians that are going to make it work again.

It's not Bob Hawke or John Hewson, or, we can do our part in

putting together policies that will change the environment, but the whole country has to lift its game and in that sense, we want to make it worth people's while. Now if you look at

an income of about $21,000, that person is already starting to pay thirty nine and a quarter cents tax in the dollar.

de Stoop;

In the dollar.


And you get two thirds of average income. You go to $36,000, a bit above average income, and that family starts to pay

about forty seven and a quarter cents in the dollar. Now,

where's the incentive to work there.


Where's the incentive to take on, you know, as people eay, why should I take a promotion, why should I work an extra shift, why should i work any harder or try and improve the quality of my work, or why should i save. And they are dead right. And

that's why you've got to make the change because if we can

change that tax system to give them incentive, and to give

them money back in the pocket, you watch the way the country just improves as a consequence of that sort of change.

de Stoopt

OK, let's move away from my example there, and Peter Reith

yesterday was trying to convince small business people that consumption tax would be of benefit to them. Now, where.


Well, if you just look at the existing sales tax system, as I said it collects, the government collects about $10 billion, nearly $6 billion of that is paid by business and business

under a goods and services tax would have any taxes they paid rebated, that is, they in effect wouldn't pay any of that

consumption tax, and that would, obviously, significantly effects their cost structure. Just let me give you an example that came a couple of weeks ago when I spoke to the Trucking

Association. Now, large truck drivers in Australia, a very important industry, freight is an input cost of a host of

other industries, and, of course, it affects all our costs of living...

de Stoopi

... and a lot of them listening to us right now.


That industry pays $1 billion in sales tax. So, somebody who goes out and buys one of those big trucks, costs about

$300,000, they pay $60,000 tax on it, they pay tax on their

tyres, they pay tax on their spare parts, they pay tax on

their fuel. Now, under our proposal, that wholesale sales tax would be abolished and any taxes that were levied on their

tyres or their fuel or their rig, would be, would in effect be refunded to them. So you can imagine the cost advantages to those operators from that change in that tax system. And

because its a competitive industry, and that's why I disagreed with you before about some prices won't, you said some prices wouldn't go down, in that industry, which is so competitive, they will lower price to get the business and, of course...


de Stoopt

.. . but they .... business anyway, aren't they. I mean,

people still have to ...


No, no. Truckles are really, in some parts of Australia, are really in very desperate shape. I was at a Slim Dusty concert this week...

de Stoop:

I beg your pardon, I misunderstood you. You're saying that the truck drivers would lower their cost. Sorry, I was

assuming you meant the manufacturers of the tyres, and the....


No, but some of those will too. See the thing goes back to

the system. Just to make sure that people don't use this as

an opportunity to rip off the system, if you like, we're going to keep the Prices Surveillance Authority with a specific task of monitoring what people do with their prices. Now you know where the taxes are levied at present, you know the wholesale

tax is levied, we just used the example, the trucking

industry, they can check whether the price of the trucking services are reduced commensurately. That's very important.

I mean, we are, we are as concerned as everyone else that the price effects are there, and are favourable and the prices of a lot of things will actually fall. And so, while tax, its

true, will be put on some new items for the first time, they, prices of other things will go down. And the sort of exercise we've done, which you referred to before, is to look at all

those different groups of people, determine the impact of the tax change, and it is a tax change on them, and look at how

they can be compensated.

And as I say, we are about helping the average Australian, and particularly helping those who help themselves. We're also doing one other thing. we're cutting government expenditure. The only way you can give real tax cuts in Australia is to cut

government expenditure, reduce the size of government and give the money back to people. And that's also part of our

package, so it's not just the change from a wholesale sales tax to a goods and services tax that we're doing, we're also cutting government expenditure and giving them additional tax benefits and other tax changes.

]■ 9

And I think when people see the system that we will announce, they will be immediately impressed by the fact that we have taken account of the people that were most concerned about the introduction of the tax.

de Stoopi

Alright John, I want to talk to you about a lot of things,

including the balance of payments figures that will be out very shortly.


Some out today, I think, yes.

de Stoopi

Yes, some of them. But first, we might take a couple of quick calls if that's OK because people have been fairly patient and are going to make them brief, folks, so if you could just

limit yourself to one question to Dr Hewson, who's getting tied up in his headphones.


I pulled on the cord.

de Stoop:

I have it very loud, incidentally, John, you'll probably have your ears blasted out. It's good morning to Jill from Lake



Yes, Dr Hewson, I'm apolitical, and I liked your spirited

reply to the Budget. However, Dr Hewson, knowing the

...(inaudible)... consumption tax in England has definitely been a failure, increasing unemployment and bankruptcies now are at an all-time high, I can't see how you're going to sell this here, and also, in New Zealand two weeks ago, you urged the New Zealand Government to hold it's nerve. How do the

unemployed and welfare recipients hold their nerve.

de Stoop:

OK Jill, thanks for that.


Hewson ι

Well# you make a couple of points, I disagree that the

British VAT system has been a failure although I'm not in any sense trying to emulate the British VAT system in Australia 'cause they've had their own circumstances over a long period of time with tax as a whole. Shouldn't forget, though, that they brought tax rates down from the high 80 or 90 cents in

the dollar to the, I think, high 20 cents in the dollar and

that has had a phenomenal improvement in the incentive to work and in attracting foreign investment and in creating jobs.

There are other reasons why unemployment has gone up in the UK and one very important one was the very bad management of

interest rate policy a few years ago which flowed from an

attempt to peg the pound to the mark, they flooded the country with money, they then tried to tighten the country as

Mr Keating did here, banged interest rates through the roof, and that's what created the unemployment, not the tax system.

Now in New Zealand I was speaking about, in general terms,

about the very deep and difficult circumstances in a country like New Zealand, which are different to ours, although we both have debt problems that are very large by world

standards, theirs is a lot worse than ours. And the

Government is trying to make a change which is directed to

improving their capacity to produce and to pay their way in their world and to service the debt while looking after those who are genuinely in need. Now, that is always difficult. In politics, any change is difficult and you have to be prepared

to argue the case, explain the case, defend your position, stand up for what you believe in. And that's really the

message that I was giving. I think its, today, in government, you've got to be prepared to show leadership and to act in the best interests of the great bulk of the people of your


de Stoops

... and be brief...


... not just a few. it was a long question. Give me a break,

long question.

de Stoopi

... just thought I'd get you through a few more. Thank you

Jill, good morning Andrew from New Lampton.



Good morning Andrew, how are you.


Very well thank you. Good morning Mickey, good morning

Dr Hewson. Dr Hewson, why are you calling it a sales tax,

when its actually a value added tax and what's so wrong with the wholesale sales tax which is levied once, and what would be inflationary effects of the value added tax, which is

levied several times, each time value is added to a product.


Sorry, the sales tax I referred to is the wholesale sales tax and that will be abolished. Me are not...


... yes, I'm say what's so wrong with that when it's only

levied once.

Hewson i

Well, its an anomalous and inefficient tax. I mean, if you're happy for example, to have a system which taxes orange juice and children's flavoured milk but exempts pornographic

magazines and thousand dollar ball gowns and so on, I mean, that is a fundamental inequity in the system.


... but hasn't your calling your tax a sales tax when its

actually a value added tax.

Hewson i

My point is I'm not calling it a sales tax. I call it a goods

and services tax. I don't like the word "consumption tax" it carries a connotations of tuberculosis to me, its not a

consumption tax, its a goods and services tax, it is a value added tax. Me will be replacing the sales tax.

de stoop:

Andrew, thanks for your call. Jack from Hamilton.




de Stoopi

Good morning.


Good morning Mickey.

de Stoop:

Yes, you question, quick.


Yes, Dr Hewson, I've been Involved in the sales tax area for about twenty three years, and just a couple of points, if I've got enough time. I hear a lot of the opposition people saying that we tax our exports, which is not quite correct because they are exempted and I've heard somebody else saying that we

levy our sales tax at various stages, which is also incorrect. And I just think that we're not always getting the correct

information out here, and I'll make another quick point. I think when we had the White Paper in 1985, they said we were

going to have another 3,000 public servants necessary to

administer the consumption tax, and I'm thinking, you know, we presently have about 70,000 sales tax registrations, I think, and now they're talking about maybe 2 million people needing to be registered and I'm thinking why not just broaden the

sales tax base and tax our clothing and food and those things, even at a low level, and we'd still be catching the people who are in say, the black economy, as we talk about them, because everybody's going to have to buy their food and clothing, but

I'm sure it would be a lot less expensive to administer and I think that we could iron out some of the anomalies like the

truck driver and that, just by specifically exempting those sort of trucks...

de Stoop:

OK jack, we'll see what Dr Hewson



Well, jus t a couple of quick comments. On exports, the

estimates that are around by a lot of groups are that there is about $1.25 billion of tax carried on export goods under the wholesale sales tax system. Second, your point about various stages is right, the wholesale sales tax isn't levied at

various stages but it is levied at different rates, 10, 20 or 30% and that's probably where that confusion arises. Thirdly I don't know the estimate of 3,000 additional public servants, I'm quite happy to look at that, but we are going to make a

statement about the cost impact on the public sector of the administration of the tax, and provide some estimates of that.

And broadening the sales tax system is an option that people have advocated but it is a much more cumbersome and

inefficient way of doing it and it still doesn't deal with the basic problem that there is heavy tax on business inputs and its the exemption of the business inputs, if you like, it's the rebating of that tax which is going to be fundamentally

important to getting some of the economic benefits of the tax and once you start to do that it's easier to just use a goods

and services tax or VAT system than an wholesale sales tax.

de Stoop:

OK Jack, thanks for that. And I'm sorry for everyone who's

waiting on. We'll take one more quick one, it's Colin from

Singleton. Yes Colin, last cab off the rank.


Goodday Mickey and John.

Hewson t

Colin, good morning.


Firstly, congratulations John, I think it's very rare to see a politician stand up and be counted for something that he

believes is right, and I share all your commitments. I think if we can pick up some of the money out of the black market

that the overall taxation being paid by everybody will be

lower. My question is specifically around interest and the effects of taxation on interest, on the balance of payments.


What I'd like to eee ie interest on savings accounts and any money held in financial institutions being tax exempt, but disallowing as a tax deduction any interest on investment borrowings by any company. That would remove the drain on

overseas borrowings for a couple of years, at least, and push the interest rates right down and, even though there would be a lack of investment for a couple of years, that would help us get our balance of payments back in order. Just wondering

what you think of that.


Well, your broad point is that we need to save more in

Australia and that will help us bring our balance of payments down. I agree with that. I don't agree, though, that by just exempting existing savings you'll do that 'cause in a sense you may actually see national savings fall as a result of that change. I do agree, however, that there is a bias in the tax

system against saving, and in favour of debt and you've got to change that bias in the tax system. And you know, you just

take the case that you mentioned, somebody putting their money in a bank account, in the last few years they would have gone backwards. Once you allow for the tax and inflation, most

people are going backwards. And that's the bias against

savings which can be addressed without fully exempting the existing savings of individuals. So, I mean, we do, as a

nation, have to save more and we have to have a tax system

that encourages people to save rather than discourage people to save.

de Stoop$

OK, Colin, thanks for your call. And thanks to all those

people who rang through. . Apologies for those we didn't get to. But just very quickly, 'cause I understand you've got to be out by 9.30, John, balance of payment figures, some out

today, what's you're guess, under a billion.


well, look I don't know. The numbers have been running in

recent months at less than a billion. The fact is, the real

issue about this is that we still run, we are still running a large current account deficit. Last year we had about a

$15 billion deficit, but the real issue is how much money we spend overseas each year servicing our international debt, which was bigger than the current account deficit, it was

$17 billion. In fact, even though our trade account improved last year, and a very welcome improvement, it was swamped by the amount of money we paid off shore in terms of servicing

our debt.


And that's what worries me about it, we're in a debt trap, and unless we boost our national production, and get people

working again, we are not going to be able to continue to

service that, we'll have a major, balance of payments crisis.

de Stoop:

If it is under a billion dollars, though, is it time for

interest rates to come down.


Well I don't, and never have, thought that you can link

individual interest rates decisions to individual statistics on the balance of payments, inflation, or anything else. But, you know, to be clear, I want interest rates to come down.

We have got real interest rates, that's interest rates after you allow for inflation, about 3 or 4% above our trading

partners. We can't get investment in Australia, can't get jobs in Australia 'til you get them down, but just pushing

them down, on the back of particular numbers, can be

disastrous, can be turned around very shortly, in a very short time, so you need to put in place policies that will bring

them down and that really goes to the very heart of our

problem, that's why tax reform is important, it's why labour market reform is important. .

We've got to boost our production in Australia and start to pay our way in the world and then interest rates can come

down. And anyone, any politician who comes through saying I'm going to lower them today and lower them again tomorrow, you know, you'd better check what policies they're putting in place to see whether they can actually deliver that.

de Stoop:

One thing people talking to you this morning, I'm sure, expect you to be the person to give economic policy, and not Peter

Reith, is that going to be a problem for you. Would he be

your Treasurer if you're in next year.


Yes, Peter will be. I have every confidence in Peter and

people should look at the way he performed last week in

Parliament against John Kerin or in the television debates, the radio debates, whatever they were last week. In our view he outscored Kerin at every turn and Peter's a very good and very competent and trained economist.



I mean, people forget that Mr Keating didn't know anything about economics, and look at the damage he's done to this

country. And Paul Keating's problem I guess, Is that he knows that we know that he didn't know what he was doing.

de Stoop:

But he's the World's Greatest Treasurer.

Hewson t

Well, he claims that, and his monument is a million people


de Stoop:

Alright John, just one final thing, you buying the Women's Weekly this week.


Well, I haven't. I don't normally buy it, but look, I've

always refrained, I've maintained silence on personal life and I intend to continue to do that. I don't deny my ex-wife's

right to speak, and if what she says is seen as a negative for me, well, I just have to wear that.

de Stoop:

John Hewson, thanks for joining us today. And, you're not

going back to the Hunter, but enjoy the Chamber of Commerce luncheon today, you might get a nice round red.


Yes, I'm look more for a round of applause,

de Stoop:

Good luck. Thanks for joining us. Dr John Hewson.