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TRANSCRIPT OF THE TREASURER, THE HON P.J. KEATING MP

Mr Keating, what do you think about the letter put in the paper by the Premier?

Well I think the thing to say about the Premiers is this year when the Commonwealth is in surplus and paying back debt, the States are out there borrowing $5 billion worth of debt. In other words, when we have been

cutting the Commonwealth demands on Australian savings to fix the current account and we are now where we're at the stage of repaying all this debt which was incurred over the past 10 or 20 years, the States are still this year out there borrowing $5 billion. Now when the

States talk about a 'fair go' what I have to say to them is 'yes that is right, but a fair go for all Australians not just the States' and by following the policies which we have advocated we have seen an improvement in our

current account deficit, we've seen lower interest rates, w e ’ve seen more economic growth, higher employment and that is the fair go all Australians deserve. So the States are a bit one-eyed in this exercise. They've been treated pretty well by us over

the last few years. They have played the game somewhat but nothing like the Commonwealth played it.

They say that Federal spending has gone up 24 per cent in five years but payments to the States have only gone up 4 per cent, is that correct?

The thing is you can make any set of numbers say anything for you. It depends what period you cover. They would include the big blow out under Mr Howard and Mr Fraser, whose policies they support which of course we inherited. The fact of the matter is that the big

fall in the public sector borrowing requirement has come down on the part of the Commownealth, not the States. In fact in these years the net demand from the States has risen.

Mr Keating, how much money could be saved if you cut out duplication between the Federal and State governments?

I'm not sure Laurie, but I notice of course that the BCA said that we should cut $2 billion out of the States and Mr Peacock said that wasn't enough. So it is very interesting that we have got these conservative Premiers

telling us that we shouldn't be cutting the States but the BCA says we should cut $2 billion out of them and the conservative Shadow Treasurer said that was not enough. ,

DOORSTOP 11 MAY 1988

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j: Do the States have to be cut in the Mini Budget?

T: Well the States must play their role along with the Commonwealth in terms of fiscal restraint.

J: So they will have real cuts?

T: Probably Laurie.

J: Mr Keating, what about the States and the Northern Territory Chief Minister saying they are worried about their deal not being a fair deal, they are still saying that?

T: Well it is a fair deal for all Australians not just Premiers. Premiers all like to have an easier life, but I would like Australians to have the benefit of having better policies and of course it is obvious for all to

see the declines in interest rates we have seen. The high levels of output, the high levels of employment and the lower current account deficit have all come about because of the policy of the Commonwealth Government and

that is a fair go for all Australians, not just State Premiers or State Treasurers.

J: Mr Keating what chance does the Government have of getting a full referendum process through now with the Opposition has rejected .. .

T: That is a question you should put to Mr Bowen.

J: Mr Keating, you have had time to look at the Opposition's tax policy. Do you think they have moved very far your way?

T: No. All that Mr Howard has done is not defend the obvious rort of free lunches. He has given that up. Well big deal. But all the other rorts stay there. As far as he is concerned if people have assets for five

years they should pay no capital gains tax, that is every other Australian can pay the full rate of tax on their income but if you take your income as capital and

you keep those assets for five years you pay no tax. That is Mr Howard out there protecting his friends in terms of the Liberal Party constituency. In terms of the wholesale tax, this is the greatest slight of hand

of all. It is the consumption tax at the wholesale level. You see many people don't understand the wholesale tax because it is not visible to them. But it is not on things like food and it is not on things like

building materials but if you put it on things such as food and building materials and services you have got a consumption tax but at the wholesale level. Now Mr Howard has not said with repeated questioning yesterday that such a tax would be revenue netural. In

other words he has not said he is not going to take any more money or expand its base. So I think it is the job of the media to get the figure out of him. If he says it is not revenue neutral what does he hope to get and where will he get it by broadening the base or

increasing the rates. And I think it is only when Mr Howard comes clean on that figure can we have a reasonable debate about the Opposition's tax intentions.

On another subject are you standing beside Steve Loosley?

Well I didn't comprehend all the nuances in that. I only saw the reports today.

Mr Peacock spoke about making up the rundown in the crude oil levy revenue with indirect tax State coordinating. What sort of impact would that have?

You see that is Mr Peacock implying that as the crude oil levy declines they would pick up the balance in other indirect tax receipts. Well that is just simply code words for saying that they will have a consumption

tax at the wholesale level to pay for the decline of the Bass Strait revenues. You see as the resource base in Bass Strait declines the indirect tax base of the Commonwealth will also decline. It has been declining under this Government but we've let that decline happen because we've been cutting outlays of the Commonwealth. We've been cutting the size of government. What they

are about is hanging on to all that indirect tax money and they would do that as Bass Strait revenues fell by lifting the wholesale tax receipts by having a consumption tax at the wholesale level. That is what Mr Howard has got in mind.

Mr Keating, what do you think of the fact that the non-Labor Premiers actually went to the trouble of seeking out full page adds in newspapers to make these points against you?

Well a little bit of theatre probably doesn't help to

Do you think that the Liberal’s tax policy is more credible this time round than last year though?

No. Because you see last time Mr Howard lost his chance of being Prime Minister because he had a fraudulent tax policy and that was obvious to us all. What he is trying to do now is say he'll keep the money but change

the way the policy works. It is like fringe benefits, why would he wish to wantonly destroy a secure piece of tax legislation accepted now across the whole community which provides a billion dollars to the revenue. What

he wants to do is to destroy that and put that billion dollar fringe benefits tax on employees. One thing that

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didn't come out in today's press is that Mr Howard has made it abundantly clear, he said firmly and positively that the billion dollars we collect from FBT and substantiation will now be imposed on employees. So whatever else there was new to Mr Howard's tax package

yesterday, there is one thing which is above argument even from him, and that is that there will be an extra billion dollars of tax levied on employees which was formerly levied on companies.

J: How closely will you be sticking to the Grants Commission recommendations tomorrow particularly those of the Northern Territory?

T: Well you will have to look at that tomorrow.

J: Will there be real cuts to the States?

T: That is to be comprehended tomorrow. I'm not going to canvass that today.

J: The Victorian Treasurer, Mr Jolly, said that the the Tax Commissioner classifies the Victorian Equity Trust as equity, then why shouldn't the Federal Government?

T: Well I think in terms of the way the Victorian government view this trust it is equity but for the purposes of the globals, the Grants Commission and the call upon Australian savings that is the process we have

at the Loan Council, it is debt.

J: So you will be determined to keep under globals?

T: Well I don't think there is any dispute between Mr Jolly and me about that. I mean I made that clear last year.

J: Well his office was saying last night that he did intend taking it up and pursuing his alleged agreement with you last year to keep it outside globals.

T: Well it is not outside the globals, it is in the globals, it was this year. I mean the fact that it is this year says it all.

J: As the leading light of the NSW right how concerned are you about the love boat allegations?

T: Well I tell you are really around the world this morning. Well I'm bored with the whole thing like everyone else.

ENDS

fiPRESsIl TREASURER NO.\ co:/i;vto; ;Ή * \ PARLIAM2N7A.V.' LlL.iA.7Y IS .(RELEASE i v- v EMBARGO JSTATEMENT BY THE TREASURER, THE HON PAUL KEATING, MPINTERNATIONAL COMPARISONS OF BUSINESS TAXATIONThe Treasury has today released Treasury Economic Paper Number 13 entitled 1 International Comparisons of Business Taxation’ .This paper provides a valuable input to the Government's current review of the corporate tax structure and examines claims, particularly in the light of tax changes in other countries, that by international standards company income in Australia is highly taxed.The paper establishes that overall Australia is a relatively lightly taxed country, having the 5th lowest tax burden out of 23 members of the OECD.This paper, however, pays particular attention to the corporate tax burden. It points out that statutory or nominal tax rates are an inadequate guide to the level of corporate taxation principally because;. they fail to take account of taxes on corporate incomelevied by lower levels of government; and. they say nothing about the tax rate which applies bythe time the income ends up in the shardholders' hands.The Treasury paper provides a detailed analysis of the importance of these two issues in a comparison of tax regimes operating in Australia and seven other countries, mostly OECD countries.On the first score it establishes that while Australia has the highest Federal statutory company tax rate of any of the eight (although West Germany has a 56 per cent rate on undistributed company income), five of the countries surveyed have a statutory corporate tax rate in the range 40 per cent to 52 per cent when account is taken of State and local taxes.

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On the second score, the United States, Germany, Canada and Japan are all shown to have a tax rate on distributed corporate income considerably higher than that of Australia. The tax rate in the United Kingdom is on a par with that in Australia, while only in New Zealand and Hong Kong is the

rate noticeably lower.

In summary, when all the factors are taken properly into account, Australia's statutory tax rate on corporate income ranks around the middle of international comparisons.

However, the paper points out that a high statutory company tax rate does have the disadvantage that it encourages profit shifting, whereby a firm can arrange its affairs so that even though its principal activity is carried out in a country with a relatively high statutory corporate rate where it

claims its deductions, some of its profit is brought to tax in a country with a significantly lower statutory corporate tax rate. Although the location of the investment will not be affected by such behaviour, the tax revenue of Australia may well be reduced.

The paper also addresses the important issue of the corporate tax base; or in other words, what proportion of company profit is subject to company tax. It points out that a low company tax rate applied across a broad company income base does not necessarily imply a lower tax burden than a high company tax rate levied across a narrow base.

In this context it reviews the recent company tax reforms that have occurred in a number of countries overseas. It finds that the common feature of each of these reforms is that statutory tax rates have been substantially reduced without any significant decrease - and often an increase - in

aggregate effective tax rates. The paper concludes that the prime advantage of such a reform approach, recognised by those governments that have undertaken it, lies in a reduction in distortions to economic decision making imposed by wide dispersal of effective tax rates.

The paper recognises the usefulness of marginal effective tax rate analysis such as that used by the Bureau of Industry Economics in its recent study, "The Taxation of Corporate Investment Income: Australia's Place in the World". In general, the results of the Bureau's study are consistent with those in the Treasury paper.

The Government regards this paper as providing a useful input to the review of business taxation and believes it will make an important contribution to public understanding of the issues.

CANBERRA 5 May 1988