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Treasurer discusses the $100 million relief package for people affected by the Victoiran gas crisis; the budget surplus; taxation package; debates capital gains tax and the GST.



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THE HON PETER COSTELLO MP

 

Treasurer

 

Interview with Jon Faine, 3L0

 

Melbourne

 

Friday 2 October 1998

 

8.30 am

 

SUBJECTS: Gas crisis, economy, tax reform

 

FAINE:

 

Peter Costello is the Federal Treasurer and Deputy Leader of the Liberal Party. Good morning to you Peter Costello.

 

TREASURER:

 

Hello Jon, how are you.

 

FAINE:

 

Are you bearing up in this campaign?

 

TREASURER:

 

Yes, and may I say at the outset I think that the response from Victorians has been magnificent throughout this gas crisis. I think it’s been very tough. There’ve been a lot of families and older people and people who’ve been laid off. But I think that the sense of sacrifice and cooperation has been terrific.

 

FAINE:

 

The Prime Minister has just announced on AM a $l00 million relief package. Do you have the details of that?

 

TREASURER:

 

I had discussions with the Prime Minister about that this morning and what we’ve decided to do is to intervene as a national government on a national issue and make a fund available. And it will be available in three areas. The first is for people that aren’t eligible for other benefits from Centrelink, to have relief for people that have been stood down and lost wages. People that might be baffling and need finance in the short term. The second is

 

FAINE:

 

Sorry, that’s by way of loan or by way of grant?

 

TREASURER:

 

Oh no, no, they’ll be advanced cash in lieu of their wages, the people that have been stood down.

 

FAINE:

 

Not lent money but given money.

 

TREASURER:

 

No, no given money.

 

FAINE:

 

Right.

 

TREASURER:

 

Well, paid, I think is the best way of putting it.

 

FAINE:

 

So if you’re not eligible for unemployment benefits because, for instance, you have accrued holiday pay ...

 

TREASURER:

 

Well, there might be a technicality. There are a lot of people that are immediately eligible for benefits. There are some people who ...

 

FAINE:

 

Who aren’t.

 

TREASURER:

 

... may not be because they might fail an income or an assets test or some other kind of test and the first element of this is that money is going to be made available for them who have lost wages because they’ve been stood down because of the gas crisis. The second is in relation to

 

FAINE:

 

Sorry, still more detail. A set amount, a percentage, a proportion?

 

TREASURER:

 

We’re making a statement on that later on this morning, as the Prime Minister said.

 

FAINE:

 

OK.

 

TREASURER:

 

The second is in relation to business, those businesses that are making the conversion for fuel, that there’ll be assistance in relation to the conversion costs. And the third is ...

 

FAINE:

 

And is that by way of tax credit, or ...

 

TREASURER:

 

We’re making, we’ll be putting the details on that later this morning.

 

FAINE:

 

Right.

 

TREASURER:

 

And the third area is to advance to emergency care organisation additional funds which they can make available to families that are suffering.

 

FAINE:

 

A package that will be very welcome I’m sure and some of that seems to be borrowed from VECCI, the Employers Chamber of Commerce and Industry, who made some suggestions on this program yesterday.

 

TREASURER:

 

VECCI made some suggestions yesterday and we’ve looked at all of those. We had some crisis meetings last night and this morning. I was in contact with the Prime Minister. We’ve decided to act in those three areas and we’ll be announcing details later in the morning.

 

FAINE:

 

There is an interesting angle to this, when a government is in election mode, it’s supposed to be a caretaker government. On the other hand, this is an emergency, you’ve got to break those protocols.

 

TREASURER:

 

Well, look, the money will be actually paid, I would imagine, on Monday morning. And so either we’ll be in Office or if the Labor Party were in Office I’m sure that they wouldn’t be objecting.

 

FAINE:

 

I’d like to just cut off any criticism of you for doing something when you ought to be in caretaker mode, because it is an emergency and I think that has been recognised ...

 

TREASURER:

 

Well, (inaudible) ... well, just so you know, in caretaker mode you can actually do things by agreement with the Opposition and I can’t imagine that there would be any disagreement in relation to this.

 

FAINE:

 

We’ll put that to Mr Evans in a moment when we have the chance. Peter Costello, your tax reform package relies on some economic projections which build in a surplus into the future Budget position of the Federal Government if you’re in charge. Are you still confident that there’s a surplus there. All the economic predictors, that the economy is not as strong as it was even six months ago when you first did your modelling, and indeed the vulnerable economies of Asia are looking all the worse for the passing of time.

 

TREASURER:

 

Jon, let me make this point. The Australian budget is in surplus today. Let’s make this point. When our Government was elected the deficit on the Commonwealth Government was 10,300,000,000 millions of dollars. That’s what I inherited. And in the last financial year, the financial year that ended on the 30th of June 1998, it was in surplus. Our Government turned a $10.3 billion deficit into a surplus. That was a surplus within two years after the Beazley financial mismanagement. Because Beazley was the Finance Minister, don’t forget that. There will be another surplus in the next year, 1998/99. There will be another surplus in 1999/2000. The argument then becomes, and this is the point that you’re referring to, what is the situation in 2000/2001. That’s the period that we’re talking about in relation to tax reform, which is two years off. But those surpluses between now and then are building. And we’ve shown in relation to our tax plan, that the tax plan, in relation to the forward estimates, is eminently affordable and the credibility of this tax plan is in fact the feature that the Labor Party keeps on reminding people about — the revenue which comes from goods and services tax.

 

FAINE:

 

When you brought down your last Budget and then when you announced the tax reform package, you were building in growth figures of around three, three and a half per cent, depending on where we were at any particular time we take a snapshot. Since then there have been many events that have taken place, each of which seems to chip off a half a per cent of growth here and a half a per cent of growth there. First it was Malaysia, then it was Indonesia, and then we get now the gas crisis, which people say could take as much as one per cent off growth, who knows, we’re still reeling in shock. My question to you is that some of the fundamentals that underpin your entire strategy are no longer there.

 

TREASURER:

 

Jon, every one of my Budgets has come out better than I forecast. I forecast that we wouldn’t even have a surplus we’d have a slight deficit on the 30th of June. We beat the world into surplus. Now President Clinton is now talking about a balanced budget in the US. Australia, we beat the world. And we did it a year ahead of time. In the last year, in the year just gone by, we had the strongest growth, much stronger than the OECD average, and the strongest growth in Asia.

 

Right, so let’s put this in context. We have said that growth will be significantly less in the forthcoming year because of Asia. There’s no doubt about that. We’ve marked down our growth forecasts and we’ve taken all that into account. And I do want to make this important point, that as we are sailing now into very difficult times, the Labor Party never had to manage an economy during an Asian financial crisis. Let me remind people, Keating and Labor and Beazley had Australia in recession when Asia was booming. Where would they have been during an Asian financial crisis. And that underlines my point. That during an Asian financial crisis, in difficult economic times, the important thing is to have people who can manage the economy and the people that can manage the economy are the people that took a $10.3 billion deficit and turned it into a surplus.

 

FAINE:

 

Alright, specifically on the GST, which is the cornerstone of the strategy for the next term of a Coalition Government. Still grave concerns, even at this stage, five weeks into the election campaign, grave concerns being expressed by welfare groups — ACOSS, the Good Shepherd again have put out a release saying that the GST will hurt the poor. You’ve not been able to shrug off that perception.

 

TREASURER:

 

All of the analysis that has been done shows that by increasing pensions and reducing tax rates, poorer people will be better off. And there is no analysis which has shown to the contrary. The point I make, and you’ve got to say time and time and time again, is this: the GST replaces ten taxes which are abolished. The GST is introduced after you abolish the wholesale sales tax, and after you abolish the financial institutions duty and after you abolish the bank account debits tax. All of the taxes that Keating and Labor are so wedded to. You know, the taxes that Keating and Labor want to charge pensioners for putting money into their bank accounts.

 

FAINE:

 

Yes, but then there are any number of transactions ...

 

TREASURER:

 

The taxes that Keating and Labor want to charge pensioners for taking money out of their bank accounts.

 

FAINE:

 

But then there are any number of transactions where the taxes you’re abolishing weren’t there in the first place. I’ve got a fax here from a hardware shop in suburban Melbourne. This man has 23,000 items available to him from the wholesalers catalogue. He can choose which ones he stocks in his shop. He’s taken the trouble, and I must say it would be an enormous amount of trouble to go through, and identify what proportion of the 23,000 items have what level of wholesale sales tax. 46 per cent of them have none. He says they’ll all go up by 10 per cent.

 

TREASURER:

 

Well ....

 

FAINE:

 

46 per cent of his stock

 

TREASURER:

 

How can they all go up by 10 per cent?

 

FAINE:

 

Because there’s no wholesale sales tax.

 

TREASURER:

 

And how do you think they’re made ....

 

FAINE:

 

... that’s going away, but a GST is going to be applied.

 

TREASURER:

 

Jon, how do you think those items are made?

 

1

 

FAINE:

 

Well they may be imported.

 

TREASURER:

 

Yes.

 

FAINE:

 

They could be cheap brass hinges from India, who knows.

 

TREASURER:

 

And when they’re imported the wholesale sales tax is applied to imported goods at the same rate as would apply in Australia. How do you think those items are made? They’re made by machines which bear wholesale sales tax. How do you think those items get to that hardware store, Jon? They’re loaded into trucks which are taxed at 22 per cent. How do you think those trucks get the goods down there? They get them down there paying diesel excise at 43 cents a litre. Which is going to be more than halved. How do you think that man gets his payments into his bank accounts? It’s taxed with an FID. How do you think he deducts from his bank accounts? It’s taxed with a BAD. You see, you’ve got ten taxes which are applying on every single business. There’s the first round effect, what we call the first round effect, where there’s a direct wholesale sales tax. There’s a second round effect where everything that goes to make the item and transport the item and do the financial transaction on the item is also taxed under Beazley. And all of his stamp duties are built into the price and you abolish all of those things. That’s the whole point about this, before you apply a GST. You see, the interesting thing in this campaign is at the end of this campaign, after five weeks, there is only now one tax plan before the Australian people. I listened to Kim Beazley a moment ago on AM. Did he mention income tax credits? No, that’s dead. Did he mention his rebate for single income earners? No, that’s dead. Did he mention his capital gains tax? No, he didn’t mention that. Did he mention his diesel excise at 43 cents a litre? No, he didn’t mention that either. You see, after five weeks ...

 

FAINE:

 

You’re spoiling my interview with Gareth Evans, you’re doing all the things I was going to ask him.

 

TREASURER:

 

Well why don’t you ask Gareth this: a single income family with two children on $43,000 for every additional dollar they earn will pay tax at 59.5 cents in the dollar. Why don’t you ask him why a single income earner on $43,000 should be taxed at 59.5 cents in the dollar for every additional dollar that they earn. Why don’t you ask him why farmers should be brought into the capital gains tax net for assets that they owned prior to 1985 when Paul Keating and Labor said it would never be done.

 

FAINE:

 

You get the chance to ask him yourself because he’s just joined us in the room.

 

TREASURER:

 

Gareth, why ...

 

FAINE:

 

Peter ... in a moment. Peter Costello I’ve got a long list of things we could continue to ask you and all sorts of listeners have sent in questions as well but we’ll wind it there so that there is time for you and Gareth Evans to exchange some words towards the end of this time. Thank you very much for ...

 

TREASURER:

 

Just one point. I have brought in a letter from the fellow from Sherbrooke who’s been ringing you up.

 

FAINE:

 

Ah, yes, Roy from Sherbrooke.

 

TREASURER:

 

Roy from Sherbrooke. I’ve got a letter.

 

FAINE:

 

Who’s offered $1,000 to a charity if you can convince him ...

 

TREASURER:

 

And I’ve got some benefits for him. I can either go through them now, or I can fax it to Roy today and I’ll be in touch with him. I’ve got very good news for Roy.

 

FAINE:

 

Alright thank you. And I’ll be interested to have a look at that as well. Peter Costello, the Treasurer in the Federal Parliament, and Deputy Leader of the Liberal Party.

 

(Debate segment between Treasurer and Mr Evans follows)

 

FAINE:

 

Alright you’ve each had equal time one to one.

 

EVANS:

 

Have we?

 

FAINE:

 

I believe you have. If we can get you to now answer each others questions that you have been holding out. You had a number of matters Peter Costello you wanted to ask Gareth Evans.

 

TREASURER:

 

Back to the capital gains tax situation because Gareth Evans I don’t think understands his own policy. Let me ask him this question: if a farmer bought a farm for $1 million and it’s valued on 1 January at $500,000 under your policy as it must be, and he sells it for $1 million. He gets taxed on a capital gains of $500,000 even though he’s sold it for precisely for the same value he bought it for, isn’t that right?

 

EVANS:

 

Properties are depressed in price at the moment and we’ve said we want to introduce a mechanism which ensures that any valuation as at 1 January next year reflects the true long term value of the farm property in question rather than same transient depression in the market. We will consult the farm organisations everybody else, to secure that result.

 

TREASURER:

 

So the answer is  

 

FAINE:

 

I don’t think Gareth has quite finished Peter.

 

EVANS:

 

Well I’m just putting the question in the way that, putting the answer in the way that I was asked. How will we deal with that situation of a falling away in the price of a farm property from its original purchase price if it is on a substantial basis and if it reflects that transient depression in the price, we will find a mechanism where it compensates for that.

 

FAINE:

 

Peter Costello.

 

TREASURER:

 

Well, well, 60 seconds the question is this: if you bought it for a million and its value on 1 January is $500,000 and you sell it for a million, right, you haven’t made a dollar. Under Labor’s capital gains tax you will be taxed on $500,000. The difference between its value on 1 January and what you sell it for, even though you haven’t made a dollar. And the ALP says, Gareth Evans

 

EVANS:

 

(inaudible)

 

TREASURER:

 

Let me quote his own policy just in case he doesn’t understand it: “There are billions of dollars of pre-CGT assets whose future increase in value will become

 

FAINE:

 

Okay Peter, okay Peter Costello thank you very much.

& 1

EVANS:

 

The return on the capital gains tax change here is going to be minimal to the Budget. We’ve estimated that around about $200 million a year, Finance has not responded any differently from that calculation. Compared with the impact on the community of the Government’s goods and services tax, this is trivial as Kim Beazley has been saying you are comparing a $30 billion gorilla with a $200 million chihuaha.

 

TREASURER:

 

Well what was the answer....

 

EVANS:

 

This is a scare campaign. You’ve had your answer.

 

TREASURER:

 

Will it be taxable, will that $500,000 be taxable, of course it will, of course it will be.

 

EVANS:

 

If you passing on a

 

TREASURER:

 

... .you know it will be.

 

EVANS:

 

Behave yourself. If passing a farm on to your kids in the way that most people want to do, no tax at all is payable whatever the values are that you are talking about.

 

FAINE:

 

Gareth Evans surely tactically it was a mistake to put it in because it has caused you so much grief for very little benefit, even if it offers some extra money to revenue it’s not been worth it in this campaign.

 

EVANS:

 

The opinion polls are showing, for what they’re worth, that this is an extremely marginal issue on peoples’ consciousness. The Libs are trying desperately to build this up as a major issue in the last week of the campaign. They’re doing so on the basis of a scare campaign which is utterly scandalous and disgraceful. The letters that went out from Peter Costello’s colleagues to people all around Australia saying you will have to open your door to a valuer you don’t know to get your domestic jewellery and so on valued before 1 January next year is an outrageous lie, L-I-E, lie from Mr Costello and his colleagues and it is just disgraceful.

 

FAINE:

 

Mr Costello.

 

TREASURER:

 

It is a bit rich isn’t it. At the end of the campaign Gareth Evans is sitting here saying oh, there’s a scare campaign on tax. I mean have you been watching your leader, have you been watching Kim Beazley. He’s had no positive policy for five weeks and

 

EVANS:

 

We’ve been talking about jobs....

 

TREASURER:

 

And you are complaining about a scare on tax.

 

FAINE:

 

Just a moment, just a moment Peter Costello.

 

TREASURER:

 

I just want to make another point. Mr Evans says...

 

FAINE:

 

I feel let a school master can someone bring in a cane....

 

TREASURER:

 

Mr Evans said I think, then, that this had been whipped up by the Coalition wrong. This has actually been whipped up by the Labor Party. As yesterday’s Financial Review said this: “ALP sources said the policy was politically flawed and likely to cost Labor vital marginal seats”. Now this is under “Labor frets overs Evans’ tax plan”. Gareth knows that it is the Labor party which is now moving away from him on this particular issue because he got it wrong. And it is wrong.

 

FAINE:

 

Peter Costello I think we would like to hear an answer from Gareth Evans.

 

EVANS:

 

Well a transient piece of party political comment in the media, who cares? The issue out there is jobs, the issue is the GST, the issue is on the impact of the GST on ordinary households. The issue is why Peter Costello and the Government have refused to make public the household expenditure surveys which show that the impact of their GST on households is going to be up to five times greater than that which they had acknowledged. The issue is why Peter Costello is alone in the world in saying that the Australian economy is going to grow at 3 Y2 per cent over the next couple of years, 99-2000 onwards. Peter Costello has to answer the question 

 

TREASURER:

 

Keep talking Gareth.

 

EVANS:

 

If the Budget....

 

FAINE:

 

I’ll try and close out time here.

 

TREASURER:

 

I know what you are trying to do, I’ll tell you who cares....

 

EVANS:

 

... .well if the Budget....

 

TREASURER:

 

... .farmers care.

 

EVANS:

 

When those growth figures can’t be sustained....

 

TREASURER:

 

But let me tell you...

 

EVANS:

 

He has got to answer: is the tax cuts he’s offering going to be delivered or are we going to have another round of major expenditure cuts.

 

TREASURER:

 

I’m going to tell you who else should care. Anybody who owns 

 

FAINE:

 

Now before you start Peter Costello if you talk on top of each other I will have to turn your microphones off, so just calm it down.

 

EVANS:

 

Thank you.

 

TREASURER:

 

He said, who cares about bringing assets, everything you owned prior to 1985 into the capital gains tax net. Let me tell you who should care: somebody that owned a beach house, somebody that owned a farm, somebody that owned a caravan sites, somebody who’s got musical instruments or rugs or cutlery or boats. Somebody who’s got paintings or jewelleries. Somebody who’s got a mothers’ engagement ring or a grandmothers’ wedding ring....

 

EVANS:

 

None of those are going to be taxed.

 

TREASURER:

 

They will be, they will be taxed.

 

EVANS:

 

At all if they are passed, passed onto the family...

 

TREASURER:

 

They are all in the capital gains tax net for the first time ever. For the first time ever these....

 

EVANS:

 

It is not for the first time ever. Don’t be absurd, all those things are under capital gains tax at the moment.

 

TREASURER:

 

Hang on.

 

EVANS:

 

(inaudible)

 

FAINE:

 

Peter Costello....

 

EVANS:

 

Jon Fame I am not going to tolerate this    you are telling lies. These things are in the capital gains tax net at the moment as he knows very well.

 

FAINE:

 

Gentlemen.

 

TREASURER:

 

Come on, don’t lose your cool. Don’t lose your cool.

 

FAINE:

 

Gentlemen we can always

 

EVANS:

 

... covered by the existing capital gains regime. Every single one of those items and.

 

FAINE:

 

Peter Costello and Gareth Evans.

EVANS:

.not taxed at all, if they are passed on in people wills to their family which is the normal way people like to dispose of those sorts of assets.

 

FAINE:

 

We can always put some music on for the last five minutes if we don’t get meaningful debate instead.

 

TREASURER:

 

He talked over me. For the first time ever all of these things which will go into.. ..for the first time ever.

 

EVANS:

 

... .not for the first time ever.

 

TREASURER:

 

Let me finish.

 

FAINE:

 

Gareth Evans please allow Peter Costello to elaborate on his point and then you’ll have a chance to respond.

 

TREASURER:

 

For the first time ever, all of these things which were owned prior to 1985 are going to come into, are going to come into the capital gains tax net. Now listen to what the Labor Party has said, when it introduced a capital gains tax. This is what Paul Keating said: “It has been decided that the tax will in every sense be prospective, it will only apply to gains on assets purchased or acquired after today”. That’s what he said in September of 1985. Now the Labor Party says thirteen years after the event it’s going to apply to everything that was owned before that day and....

 

FAINE:

 

Peter Costello wind it up because we need a response.

 

TREASURER:

 

And in the terms defined by Paul Keating that can no longer be prospective meaning it must be retrospective.

 

FAINE:

 

Alright Gareth Evans a minute and a half to answer.

 

EVANS:

 

It was a purely transitional measure back in ‘86 to limit...

 

TREASURER:

 

(laugh)

 

FAINE:

 

Peter Costello please.

 

EVANS:

 

.to limit future acquired goods. There is always no reason in principle why earlier acquired assets should be treated any differently from later acquired assets. There’s no reason in principle. There’s no reason in principle now why those assets should not be treated equally. It is wholly prospective in its effect because it is only increases in value that start after January the next year are taken into account. The existing capital gains tax regime applies to all those classes of asset that Peter Costello has just listed. Most of the more sensitive classes of assets like the family home are not in the capital gains tax regime at all. And things like farms and personal jewellery, heirlooms and so on which people want to pass onto their kids are not taxed under capital gains. When they are passed on in that way.

 

FAINE:

 

Okay three minutes to nine. I want to ask you both a question about the future, win, lose or draw who knows what’s going to happen on Saturday. Peter Costello in some ways a vote for John Howard is a vote for Peter Costello. All the speculation is between tomorrow and the next Federal election, whether you’re the leader of the Opposition or the Prime Minister, you’ll be the leader of the Liberal Party.

 

TREASURER:

 

No a vote for the Liberal Party is a vote for John Howard as the Prime Minister and me as Treasurer. I’m running for one position in this election and that’s Treasurer. And I make no bones about that, over the last two and a half years...

 

FAINE:

 

You make no bones about your ambition to be Prime Minister either?

 

TREASURER

 

No, I make no bones about the fact that I think after the last two and a half years I, and the Government, have put down a record of strong economic management which means that the people of Australia who want good economic management, who want people that are running the economy, who know the business and are prepared to take tough decisions, have every reason to re-elect the Government. Now over the last two and a half years, Mr Beazley and Mr Evans have made on positive contribution to economic policy. They left this Government, they left this country dangerously exposed with a $10.3 billion deficit.

 

FAINE:

 

You’ve got 10 seconds.

 

TREASURER:

 

A $96 billion debt burden and they fought the Government every step of the way as we tried to improve the Australian economy. They are not qualified to run an economy.

 

FAINE:

 

That’s time. Gareth Evans likewise your political ambitions have never been on hold either. If Kim Beazley falters in this election are you going to look for a chance to make a challenge even though there are those who say you’d be better off heading to the United Nations?

 

EVANS:

 

Thank you Jon for that vote of confidence. No I have got no intention what-so-ever of challenging Kim or anyone else for anything. My hope and my intention is to serve in a Labor Government which deserves to be elected because we are going to generate some decency back in the Australian political system, some fairness into the tax system, some tax cuts targetted where they are needed, we are going to ensure that we don’t have an unfair inflationary job killing GST shoved down peoples’ necks. We are not going to be dishonest in the way that Peter Costello and the Government has been in refusing to put out data and information about the effects of their tax proposal, we will be utterly, utterly committed to doing better on jobs. Meeting that 5 per cent target over two terms, getting 500.000 people into work over this first term, we can do it, we will do it.

FAINE:

 

Alright.

 

EVANS:

 

And we are very, very committed to doing it.

 

FAINE:

 

Alright finally by what marjority the Labor Party Gareth Evans?

 

EVANS:

 

I think we can possibly just sneak over the line but it’s going to be very tough and I’m not calling it that way.

 

FAINE:

 

How many seats?

 

EVANS:

 

I’m not calling it that way.

 

FAINE:

 

Not going to call it. Peter Costello?

 

TREASURER:

 

Tight election Jon. You’ll know the outcome in about 36 hours so I won’t make a prediction now.

 

FAINE:

 

I’m very disappointed, I think you would each take a little bit of a stab at it. Thank you very much for coming in Gareth Evans the Shadow Treasurer and Deputy Leader of the Labor Party, Peter Costello the Treasurer, Deputy Leader of the Liberal Party. Gentleman both of you good luck, the people will decide.

 

TREASURER:

 

Thanks Jon.