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Treasurer discusses terrorist attacks in the US; the economy; Ansett; and CHOGM.

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Interview with Jon Faine, 3LO

Tuesday, 25 September 2001 8.30 am


SUBJECT: United States terrorist attacks, Economy, Ansett, CHOGM

FAINE: (Inaudible). . .and thank you for your time. You have given us a warning saying the economy is poised on the brink and, I'm paraphrasing here, that things could get worse before they start to get better. Why do you think that?

TREASURER: What I've said is that in the United States, the United States was going through a period of no growth, that the US economy had more or less ground to a halt in the June quarter and was probably weakening in the current quarter. Into that scenario you've had the terrorist attacks in relation to New York, the shocking loss of life, the destruction of property, the huge insurance claims, and this has given a lot of trouble for the airline industry in the United States, which is facing huge claims and finding it very difficult to get insurance. In fact international insurers withdrew cover for aeroplanes over $50 million and some of the claims that will come out of this will be in the billions, as you know. So that will have a very immediate effect on the United States economy. The point I made yesterday, of course, is if it fed back into American consumer and business confidence you could have second round effects, and with an already weak United States that would affect global growth, and global growth will be turning down as a consequence of the events in the United States. In Australia . . .

FAINE: Overnight stocks have recovered Mr Costello. Oil has dropped. Isn't there just a bit of politics in all of this? Are you not, and excuse my cynicism, talking down the economy because it might confirm in people's minds that it's not the time to change Government in Australia in the election we are about to have?

TREASURER: Yes, I think that is cynical. I understand why you put the question but as you know Jon, I don't think we should underestimate the terrible loss of life in New York and the effects that it has had particularly in relation to property and insurance. Now, I can assure you of this, nobody would be happier to see the US economy recover than I would be, obviously. And from the world point of view we would all like to see a strengthening United States economy. But it was weak and this will be a shock to it. I think from Australia's point of view the news is better. We were growing faster than the United States and faster than Japan and faster than France and Germany and Britain . . .

FAINE: And you've been telling us how robust our economy is for some months now.

TREASURER: We were in a much stronger position than the United States, and stronger than France and Germany, and Britain and Japan and so we are in a stronger base. But Australia is affected by the world developments as are other countries and it will take a little bit of growth that we otherwise would have had, off Australia.

FAINE: And are you also attempting to deflect criticism of the way the Government's handled the Ansett crisis by saying that if the economy falls over it is because of what has happened overseas. As we have just heard with Coles Myer laying off, we don't know how many, but it is said to be as many as 440 or so workers, the domino affect is starting to make itself shown.

TREASURER: I don't know how you bring the Ansett crisis into this. Let's go through the Ansett crisis because it is a terrible tragedy for the employees concerned.

FAINE: Not just a blip?

TREASURER: Well, as I said it is a terrible tragedy for the employees concerned. And the thing about Ansett is that it was owned by Air New Zealand. Now, Air New Zealand is a private company, it is the parent company of Ansett. And Air New Zealand, it now appears, conducted the operations of Ansett through its directors and management in a way which more or less ran Ansett into the ground. The administrator is talking about debts of $2 billion, up to $2 billion, that is the figure that has been around now. The point I would make to people is this: at the end of the day directors and management are responsible for their decisions, and we as a Government believe that there is a responsibility on behalf of Air New Zealand and its directors and management.

And if there is a chance through legal action to recover employees' entitlements from those that were responsible for running the company, then we will see that that action is taken. In the meantime, what the Government is going to do, is, the Government is going to underwrite those entitlements, all of entitlements in relation to wages and pay in lieu of notice, and holiday pay, and long-service leave and 8 weeks redundancy. But I can assure the public of this, the taxpayer will step in to look after the Ansett employees, but on behalf of the taxpayer we will certainly be pursuing the Air New Zealand company directors and management.

FAINE: Mr Costello, two quick things have come up on talkback over the last few days about Ansett, one is that if as a customer I had bought tickets from Ansett and I had paid for my tickets and a GST, I won't get the tickets but I also won't get a refund on the GST.

TREASURER: Well, if you get a refund on your ticket, you will.

FAINE: But I am unlikely to get a full refund on my ticket because . . .


Well, let's go through this. If you had a ticket, the first thing we try to do is to make sure they are honoured by Qantas so you will actually fly. It is unclear how many people who have tickets will not be able to use them, we hope they all will if we can get the Ansett flights back up and if Qantas can pick up the remaining passengers...

FAINE: There is a slim chance of that. But more realistically though . . .

TREASURER: Well, but if you are entitled to a refund you are entitled to a refund of the full amount, let me make that clear, the full amount. I know that the Labor Party tried to raise this in Parliament yesterday, it was a cheap stunt and it didn't go anywhere. You are entitled to a refund of the full amount.

FAINE: If the supply is not made it's a contractual matter between the airline and the customer, I'm reading from a Tax Office press release here, any refund made to the consumer includes the GST. So if you get a partial refund from, let's speculate here and I admit that, the liquidation that may in fact be looming for Ansett then you'll only get a partial refund of your GST as well. Is that fair?

TREASURER: If you are entitled to a refund on your ticket you are entitled to the refund of the whole amount, including GST, Jon.

FAINE: But if you become a creditor in the liquidation because you are owed a refund you are only getting part of your GST back.

TREASURER: Well, you are asking me another question. You are saying what if you are an unsecured creditor in a winding up, will you get the full face value of the ticket? That is another question, that is an insolvency question. But you are asking me a tax question and the tax question is, if you are entitled to a refund of the full amount, the full amount includes GST and you are entitled to a refund of the full amount of GST.

FAINE: Another tax matter that has come up is that people who worked for Ansett who have been offered casual work for Qantas, for instance baggage handlers here at Melbourne Airport, are being taxed at the marginal rate, as if it was a second job, at the top marginal rate as if it is a second job. So they are earning hardly anything. Can you fix that?

TREASURER: Well, it is a good reason why marginal, it is a good illustration of why marginal tax rates are high in the country isn't it? Let me make that first point.

FAINE: But can you fix it?

TREASURER: And, well, let me make the first point that we've been working to bring down the application of those marginal rates by making sure that they apply to fewer people and of course if we'd had our way and the

Senate hadn't blocked us we'd have been able to push the threshold out. But in relation to the tax question, and bear this in mind, the Labor Party and the Democrats opposed us on that. So I'd say to the TWU workers, by the way, that are worried about going on the top marginal rate at low threshold it was the Australian Labor Party and the Australian Democrats that opposed the Government in pushing those thresholds out. But it was probably...

FAINE: But as a practical problem we have a baggage handler . . .(inaudible)

TREASURER: . . . an illustration, by the way, of where the Labor Party operates against the interests of TWU.

FAINE: Yeah, he has been offered casual work with Qantas while. . . .

TREASURER: Let me come back to it, let me come back to it, Jon. The answer is this, that at the end of the financial year the tax rates apply to the whole of your taxable income.


TREASURER: So that if he doesn't get any further income from Ansett and he has been taxed at too high a rate, he can claim that back. If you want to vary your instalments you can apply for an instalment variation, if on the grounds that this is your principal or primary job. But at the end of the year, even if you don't do that, there is a full reconciliation, you will only pay the applicable tax on the taxable income earned over the whole of the year.

FAINE: Yes, but that's not helping people who are struggling to make ends meet on their weekly take home pay because they are being taxed as if it is a second job when it is their only source of income.

TREASURER: Well, no, they are being taxed as if they are getting let's say $30,000 from one job and $20,000 from another, so they are being taxed as if their full taxable income for the year is $50,000. If it turns out that their full taxable income for the year is only $30,000 they get a refund. If they are not going to have that income from the first job they can apply for a variation in relation to instalment.

FAINE: Can't you issue a decree or something to help all of these people rather than every one of them having to make a application to the Tax Office, and still in the meantime being taxed at the higher rate. Can't you just sort of say I'll fix it?

TREASURER: Well, Jon, look I would be very happy to. This is the very first time it has been raised with me.

FAINE: Yeah, I understand that.

TREASURER: And I'm very happy to look at it and, you know, if you had given my office a call last week I would have looked at it.

FAINE: We'll follow it through with your office. Two other quick things…

TREASURER: No, no, can I just say Jon, if you had given my office a call last week I would have fixed it.

FAINE: It came up on talkback yesterday. It came up yesterday on talkback.

TREASURER: You want me to have a look at it, and we will have a look at it. The law as it currently stands makes sure that that person will not pay any more tax than they are required, this is the law that has been in effect since the 1930s under the income tax laws. There is also a provision for variation, you might know when you go for a job you have to fill in a form which declares what is your principal job. The sole remaining question is, can you file one of those forms for a new job whilst the other one may still be on foot? It is a legal question, we can have a look at it, very happy to come back to you.

FAINE: Terrific, look forward it. Two very quick things, because I know you need to go. First of all, is CHOGM going ahead as best as you know?

TREASURER: As of the present, yes, it is.

FAINE: No intention within Government ranks to try to call it off?

TREASURER: It is not a matter for the Government, Jon, it is the Commonwealth Heads of Government. It is a matter for the Commonwealth and in particular the Secretary General of the Commonwealth. And if the Secretary General of the Commonwealth should take the view that CHOGM shouldn't go ahead or some of the other Leaders that would be one thing, it is not a matter for the Australian Government alone, this is an international meeting. And as far as the Australian Government is concerned there is no reason for it not to go ahead at the moment.

FAINE: We'll follow that matter up with your office about the baggage handler….

TREASURER: Very happy to help, Jon. And can I just say it is a question of law and I'm pretty confident that the law allows for these situations to be fixed, and it is just a question of getting the lawyers in and getting you the proper legal answer. Very, very happy to help on that.

FAINE: Thank you indeed. The Federal Treasurer, Mr Peter Costello speaking to us from our Parliament House studios.