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John Laws programme, Radio 2UE, Thursday, 5 March 1998, 9.30 am: transcript [taxation reform; debt]

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TREASURER: ... He's got a lot of authority. I think people saw the way in which he did the Constitutional Convention. They thought he had a lot of authority and he'll be a good Speaker.

LAWS: Will Bob Halverson go to London?

TREASURER: Well, it's far too early to talk about that. Bob's said that he's going to stand down at the next election. John Howard said that he was sure that Bob could serve the country in some other way.

LAWS: I just thought it might have been that way.

TREASURER: Well, there's been a lot of speculation over the years about that but I'm not quite sure when the vacancy arises.

LAWS: Okay. Now we did specifically talk about tax and we've had faxes and calls from people all over the country asking me to put questions to you and it's better I put the questions of the people to you than be selfish and just put my own. A lot of them are apropos the GST and I said that it was unlikely that we'd get a great deal of detail but I would ask the questions nonetheless. But also there have been an awful lot of questions about this debit tax, literally dozens of taxes. It did appear to me that it might have been a bit orchestrated. I don't know if there's a mob out there orchestrating this sort of thing. A debits tax replacing all the existing taxes - income tax, sales tax, everything taxes - instead all the withdrawals from banks and financial institutions. You have an understanding of it. Why are people keen on this and is it a possibility?

TREASURER: Oh well, there is a group that's pushing it. I'm not saying that's a bad thing. They're entitled to push it and it is quite a well organised campaign.

LAWS: But is it a good tax?

TREASURER: I don't think so. We've already got bank account debit taxes. They raise about $2 billion. The proponents of replacing all taxes with a bank account debits tax is suggesting that we should increase the current levels, which raise about 2 billion, by about 80 or 90 times.

LAWS: Yes. Would it be a fair and equitable tax? That's what you say we want.

TREASURER: No, because anybody with any substantial income would just have their pay packets paid in offshore bank accounts and indeed you can make most of your purchases in offshore bank accounts. It's very easy to avoid, the liability in relation to that would fall on pensioners - people who would have to operate bank accounts in Australia. And what it would mean is that you know those fiddly little bank accounts debit taxes you put in your cheque book when you try and balance it up?

LAWS: Yes.

TREASURER: Imagine an 80 or 90 time increase in those particular taxes. I think it would drive people crazy.

LAWS: Okay, so you don't favour or obviously wouldn't even consider a debits tax?

TREASURER: Well look, we've had a look at it. In fact one of the things that I get complaints about all the time is the current bank account debits tax. I get a flood of letters, particularly from pensioners, who say look you pay your pension into the bank account then you get taxed to bring it out again. You have to sit down at the end of each month and try and reconcile your bank statements and it doesn't really matter what's paid in and what's paid out. What always seems to knock it out of whack are these taxes which get at it in the end. My experience tells me that the bank account debits tax is in fact a very unpopular tax. It's a State tax. It's now actually applied by the States and I get a lot of letters asking me to abolish it. It could only be abolished with State cooperation but if you were going to increase it by about 80 or 90 times I think there'd be a near riot in Australia.

LAWS: Okay. A listener in Wodonga whose name is John has asked me to ask you this question, which I know you can answer probably in one sentence. Why are there so many avenues of tax minimisation for big business compared to the salary and wage earner?

TREASURER: Because big business, one, has better advisers and, two, because the amounts that are involved means that it's profitable for them to use those advisers and, three, because our taxation system is not a watertight and fair system. It, at the moment, is far more effective against lower income earners than against higher income earners. It's one of the reasons why I want to change it.

LAWS: Okay. That was the answer I anticipated. Consequently, we now find ourselves on the subject of a GST. Rob Clarke from Bundaberg in Queensland simply says will sales tax be abolished completely - yes or no?

TREASURER: If you had a broad based indirect tax, yes. That's the whole point of it. The whole point of broad based indirect tax is to get rid of our current wholesale sales tax. The current wholesale sales tax has rates of 12, 22, 32 and more. It's on different items. You get stupid classification points. For example, you can get a sales tax on toothpaste but not on toothbrushes.

LAWS: Yes, I know that.

TREASURER: I mean, explain that.

LAWS: Yes, well it's impossible to explain. But you qualified that a bit by saying if you have a broad based consumption tax. Are you looking for a broad based consumption tax?

TREASURER: Well, yes, in principle I'm in favour of broad based indirect tax.

LAWS: Okay, so if you get your way all sales tax will be abolished?

TREASURER: And would only be introduced on the basis of abolishing all wholesale sales taxes. Now wholesale sales taxes are current taxes on goods. The taxes can be 12, 22, 37, 32, 45 or 41 per cent.

LAWS: What's 45 per cent on?

TREASURER: That's cars above a threshold. 45 per cent.

LAWS: And all that would go?

TREASURER: And all that would go and if you had a broader base you could have a lower rate. The whole idea of this, if you can just imagine this. Imagine a skyscraper on a narrow block of land, you'd have plenty of stories. But if you had a broader base, you don't need as many stories to get the same number of offices. You can have a lower rate of tax if you have a broader base. That's the whole idea of this. So that it's fair as between goods, it's fair as between people and it's a lower overall rate. And the wider the base, the lower the rate.

LAWS: Now Norm Roberts asks a very interesting question. I don't know where Norm is but he faxed this question in. Ask the Treasurer, if you would, if the GST is going to be on all second hand goods as well. If so, isn't this going to hurt the poor people even more?

TREASURER: Well, you said earlier that you didn't expect me to go into too much detail.

LAWS: I thought I was sort of getting along with it.

TREASURER: Yes, you were going pretty well. But because we have not yet announced our tax package, so if I get in here and I start saying what's going to apply to this or apply to that you will, by putting together a whole lot of jigsaw pieces say, aha!, that's what they're going to announce. Now we haven't finished the package yet.

LAWS: Okay ...

TREASURER: We are still consulting. But what I've said to you before is I do believe that a broad based indirect tax is fairer than a current wholesale sales tax and that's what we're looking at. But I'm not going to get into rates or particular avenues because ...

LAWS: But I think that's quite interesting concerning second hand goods. I imagine if it's a tax on everything that it would have to apply to second hand goods.

TREASURER: Oh, different countries treat this in different ways.

LAWS: Which country do you favour?

TREASURER: Well, I favour the Australian way, John. It's going to be unique and the best. But the thing about this tax argument is we're not alone in the world. We can look around the world now and we can take from the best and we ought to do it. As we look around the world we see that nearly every developed country in the world has taken the opportunity to improve its taxation system. We've been left behind. We are still running a 1930s taxation system. The tax that we apply to goods, the wholesale sales tax, is shared by Australia, Botswana, Ghana, Jordan, Pakistan, the Solomon Islands and Swaziland.

LAWS: Well, why didn't we change it before? You know, you made an attempt at it - not you but your Party made an attempt at it - but failed and other parties did nought about it despite the fact that I think it was '85 when Paul Keating wanted option C. So one would assume that the Australian public up until this time at least has not wanted it.

TREASURER: Well, I think the Australian public is being wary of change and they've been susceptible to scare campaigns.

LAWS: Why weren't other countries susceptible to scare campaigns?

TREASURER: Well, I think in a lot of these other countries there was bipartisan support. That is, both parties joined together for the sake of the country. In some of these countries it was introduced without consulting the public because they didn't have Upper Houses. You see, you've got to bear this in mind. What makes Australia pretty different to nearly all the other western countries is that we have an Upper House, a Senate, which the government doesn't control. So it's very hard for a government to get it's legislation elected.

LAWS: Yes, we've noticed with Wik.

TREASURER: Well, that's precisely right. Now the only way ... If Labor says we're against tax reform, okay, we're against tax reform, we're going to try and run a scare campaign, the only way in which you can actually get tax reform in this country is to get enough people to vote for it. And we can go back to the Labor Party and so no longer, no longer do you stand in the way of tax reform in this country.

LAWS: But by getting people to vote for it, that means at an election?

TREASURER: Yes.

LAWS: So you can't do anything about tax until another election?

TREASURER: That's right. Until we can get the Australian public to endorse tax reform proposals.

LAWS: Do you ever see the possibility of any bipartisan support because I hear that there are rumbles amongst some people in the Labor Party that they rather do approve of the idea under certain circumstances?

TREASURER: Oh, that's right. There are people in the Labor Party today who support tax reform. There are people at the State level and there are people in the Labor Party here in Canberra who do support tax reform. And when we first said let's do tax reform even the Deputy Leader of the Opposition said well he was prepared to look at it. But the hard heads and the factional chiefs have said nobody's to speak out on this, this is a chance to win votes.

LAWS: Yes, they think there's another election to be won.

TREASURER: You know, we saw with Keating that we ran a scare campaign. Forget about the national interest. Here's an opportunity for votes. And we know what happened with the Keating experience. Keating said, of course, he was against tax reform, he was against GST in 1993. He got elected. You know what he did? He put all sales tax rates up. 10 per cent to 12, and the 20 per cent to 22, and the 30 per cent to 32.

LAWS: You see, it proves what I say. You can't trust politicians.

TREASURER: Well, all I say to them is the people who tell you before the election are much more trustworthy on this than the people who are going to do it to you after the election. Look, why is it, John, the Income Tax Assessment Act 1936, wholesale sales tax came in 1930. It was brought in as a measure in the Depression and then it was changed with temporary measures during the war. Why is it that in 1998 we're about to go into a new century, we're about to go into a very different economic world to the one we had in the 1930s, why can't we modernise the taxation laws?

LAWS: Well, we can't because we have an opposing political party that wants re-election. Like all political parties, they care more about the next election than they do about the next generation.

TREASURER: Well, of course they do. But here is an opportunity, and I say this regardless of whether you're Liberal or Labor. Here is an opportunity to really do something for the future and let's take it. Let's embrace it.

LAWS: Can I just go into another area? Where's our trade surplus gone?

TREASURER: Well, in the figures that were released two days ago, I think there was a small trade deficit. That is the trade on the goods and services. We were running trade surpluses in the quarters before. But there was a downturn in relation to exports [inaudible] imports.

LAWS: But our current account deficit went from 4.7 billion to 5.7 billion in the last quarter.

TREASURER: The current account deficit adds not only the trading position but you then add into that the money which you pay on foreign debt and the money which we pay on foreign debt makes up about 95 per cent of our current account. And, as a result, it turned down.

LAWS: Well, it's not good. What caused it?

TREASURER: Well, it's ... You know I'd rather that we had the figures of a quarter ago than the figures now but by historical standards, in fact, it is quite good. It's about 4 per cent of the economy now. Back in the '80s it was well over 6.

LAWS: What about foreign debt? 222 billion. I mean that is a record. If those other people were there we'd be hearing large screams about this?

TREASURER: Oh, in dollar terms, it is the highest we've had but in dollar terms our economy is the largest we've ever had. As a percentage of the economy, it's down somewhat off the peak. But having said that, foreign debt in Australia must be brought down. Don't get me wrong on this. I am determined to bring down foreign debt.

LAWS: Why did it go up? I mean why did it go up to a record high?

TREASURER: Well, it went up to a record high in nominal dollars because the economy was going up in nominal dollars. But having said that, don't get me wrong about foreign debt. Foreign debt is something that we in Australia have to deal with and bring down Now in May of this year I'm going to bring down a budget which has the possibility for the first time in a decade to be in the black. And when you bring down a budget which is in the black, what it means is that, rather than borrowing, we are going to be repaying debts. Now ...

LAWS: Is this a fact of life or this a possibility in your mind?

TREASURER: Well, that's my aim.

LAWS: But that's been your aim for some time?

TREASURER: Well, we've made extraordinary progress. In my first budget, the deficit - which was Mr Beazley's deficit, $10,000 million ...

LAWS: But you knew that. You knew that. You know, you can't blame Mr Beazley because you knew about the deficit but you still wanted to run the place. We put you there because we thought you'd run it better.

TREASURER: Yes.

LAWS: So you can't complain about what he did. He's not there any more.

TREASURER: Well, all I'm saying is I started off with a deficit of $10,000 million. In the first year we brought it down, in the second year we brought it down and my next budget, which will come out in May, has the opportunity to completely erase that $10,000 million that put Australia into the black. Into the black for the first time in a decade. And what that means, John, is this. It means that we're not going to be borrowing, we're going to be repaying debt. Now having said that, we make a small repayment next year but we go on and on. If we keep Australia in the black and we'll start repaying debts and bringing our foreign debt down. But there's only one way to do this and that is to make sure we put Australia into the black. Now there is not point in running around now, as Labor and Beazley are, and saying we should spend more money that we don't have. They want to spend more money, they want to spend more money on all sorts of areas because they think it's popular. Let me tell you what that will do for Australia, it will put us back into the red and our debts will increase. At the big risk of Labor at the moment, if they ever got the chance to do that not only are debts going to mount but they are going to put interest rates up. Now the average family today on the average mortgage in Australia is paying around $3000 a year less mortgage interest rates. A Labor policy will cost them $3000 a year on their mortgage.

LAWS: Let me just put this to you. This is again from listener, Mr Peter Thompson of Leichhardt in Sydney, a question about the whereabouts of the $14 billion from the Telstra sale. If the Government received $14 billion from the Telstra sale and they have a $10 billion deficit when they came into office and they made all those cuts in the first budget, why don't we have a surplus now? Or as Steven Mayne in the Daily Telegraph column correct that is money has been used to pay off futures debts, if we had a future debt how can we really ever have a surplus unless it's simply about creative accounting.

TREASURER: Because, let me explain it,

LAWS: Where is the $14 billion?

TREASURER: The $14 billion is being used to retire debt.

LAWS: Future debt?

TREASURER: Future and current, current obligations and future obligations.

LAWS: But I mean I am not a mathematical genius but this is pretty straight forward. You just said a moment ago that when you came to office you had that $10 billion deficit that was Mr Beazley's fault.

TREASURER: Yep.

LAWS: But you sold Telstra and you got $14 billion, you know, why haven't you got $4 billion left over.

TREASURER: Well you have got two factors at play here, just hear me out. A normal company's got a profit and loss account, that sales in the current year and it's expenses in the current year. A normal company has also got a balance sheet, hasn't it, and the balance sheet records its capital assets. The sale of Telstra is a capital asset, we don't take that money and put it in the revenue account. We don't say a one off sale, you can never repeat a sale of one third of Telstra ...

LAWS: You can because you can sell the second ...

TREASURER: Yes I know but you can't resell the same third over and over and over again.

LAWS: Well you've resold Telstra, Australia already owned it.

TREASURER: Well you have put the shares out Mum and Dad own, you can't resell their shares. That's the only point that I am making, it's a capital asset and we don't say oh well this capital asset, let's go out and spend it. What we say is that has got to go on the balance sheet. The sale of that capital asset

has got to reduce our capital liabilities and that's what we didn't. That's what we did and it reduced our capital liabilities. Now what benefit did that give Australia? What it meant was that the interest we were paying on our capital liabilities came down. When I do a budget every year John, we

spend nearly $9 billion paying interest on past debts, if I can bring those debts down, our interest bill comes down and our money gets spent on today's needs - roads and education.

LAWS: Was any of that $14 million from the sale of Telstra spent on future debt?

TREASURER: Well in the sense that you repay in debt now means that in the future your debts are going to be less.

LAWS: Why wasn't it used to get rid of the $10 billion deficit?

TREASURER: Well it was used to bring down our overall debts which were about $100 billion dollars. But $10 billion debts is just an annual deficit, that goes on and on and on. In addition to a $10 billion deficit we have $100 billion of liability as a Commonwealth Government and what we did with that money

was start retiring those liabilities.

LAWS: Are you keen to sell more of Telstra, aren't you?

TREASURER: Yep.

LAWS: You want to sell all of it?

TREASURER: Well we haven't announced ...

LAWS: Personally, I mean.

TREASURER: We haven't announced a policy on this but the point I made is this, we offer a great national institution to the people of Australia to give them a chance to buy and own. When we offered one third of it, do you know we had five applications for every share. It was five times over subscribed and we had to say to people sorry there just isn't enough stock to go around and everybody got their own entitlement. It has been a fantastic investment for those people, I think it went out at about $1.95 and it's up around three and a half or something. So Mums and Dads and young people and old people throughout the country got the chance for a good investment in relation to a national asset. Now all I say is that's been a great thing and if the public wants another opportunity, personally, I don't see why they should be denied. But we haven't announced that we would do it, we've always said we would go to the next election, we would ask the people what they think about that in the next election and we would announce our policy then.

LAWS: So nothing would happen prior to the next election?

TREASURER: Oh no, no, no more of Telstra is up for sale.

LAWS: Okay.

TREASURER: And it won't be unless we announce before the next election that we want to do it and how and we are elected to do it. Because there is a reason for that, you know Labor opposes people owing Telstra and so if they got elected that's it, there wouldn't be an opportunity for people to buy shares in Telstra. So that's fair, again it's something that turns on the next election.

LAWS: Okay, Peter Thompson of Leichhardt thanks for that question incidentally. This is a question that comes from Eric Goff and it is a GST question. As one of 800,000 or so small businesses who will become tax collectors if the GST is introduced, how much will we be paid for the work we do and will we be provided with the necessary equipment by the Government?

TREASURER: Oh look the Government would have to ensure that it was providing to small businesses information and assistance in relation to that but small business currently collects tax.

LAWS: Yes but it would be much more complex.

TREASURER: Well no, nothing would be as complex as the wholesale sales tax system and small business collects Fringe Benefits Tax, small business collects group tax. If you happen to be a small business in the petrol industry or the wine industry, you are involved in excises as well.

LAWS: But they see it as being more complex and he also says he would, which is interesting, will the initial percentage be set in concrete and not subjected to convenient increases?

TREASURER: I think that's an important point, if we're to do this what we would be doing is having a broad base with a low rate to make sure that it is set in concrete. You see that's the trouble with the current WST. Don't forget we have taxes on goods at the moment and if they stay, they go up all the time. Mr Keating put them up in 1994 from at least 20 and 30 ...

LAWS: But he is not there anymore.

TREASURER: No, the point I am making is this, that one of the reasons that I am against the WST system, the current tax system on goods, is that the rates go up all the time. And if you have a new system where everybody knows the single rate and it's set in concrete, you're guarding against that situation.

LAWS: Okay, just off on another subject again, in the Canberra Times today it says that you're reported as having told colleagues at least that you don't won't Ian Sinclair to stay a second term, is that true?

TREASURER: Look that is not a correct report. We had a meeting before the election of the new Speaker, in which I supported very strongly the nomination of Ian Sinclair. The Liberal Party would normally appoint the Speaker, Ian is a member of the National Party, so the question was would the Liberal Party support a National Party candidate and I supported his candidate very strongly. What I said is that this is an appointment throughout the term of this Parliament and which runs until the next election. And noted the point that the relations that govern Speakership and Ministry after the next election would be renegotiated after the next election. So that was completely the view of the Prime Minister, we both had exactly the position and that's the way that we expressed it.

LAWS: But it doesn't mean that Ian Sinclair wouldn't stay in the seat?

TREASURER: Oh no, he would, if he's re-elected, he's got to get re-elected to Parliament, he would be perfectly entitled to run again for Speaker.

LAWS: Would you be happy to see him there?

TREASURER: And provided he is doing a good job and provided we properly negotiate the Liberal Party and the National Party agreement, he would be a very strong candidate.

LAWS: And you'd be happy to see him there?

TREASURER: I think he is a very good speaker.

LAWS: Then you'd be happy to see him there?

TREASURER: Well, I don't think he has actually sought any votes. I don't think anybody is actually making any pledges ... as long as we can negotiate those other matters.

LAWS: Peter thank you very much for you time, terrific to talk to you and I'll look forward to talking to you again when we can get a little further into this GST, because that it entirely up to you, but I imagine it will be coming out in dribs and drabs, will it?

TREASURER: Well look, we're at the moment consulting the Australian public. We've closed public submissions on Friday, we have got hundreds of submissions, we are sorting through them, we're consulting. But the one thing I do know is this, Australians think they deserve a better tax system and a fairer tax system and if we can achieve that, that's what we intend to do.

LAWS: Okay, thank you for your time, good to talk with you and I hope I see you soon.

TREASURER: Thank you very much John, hope to see you soon.

LAWS: Thank Peter. Peter Costello, the Treasurer of Australia.