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Treasurer discusses election campaigning, One Nation tax package, GST, Liberal Party leadership, fuel excise, inflation and CPI.



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TRANSCRIPT of HON PETER COSTELLO MP Treasurer 2BL with Philip Clark

Friday, 4 September 1998 8.30 am

 

E&OE

 

SUBJECTS: Tax Reform

 

CLARK:

 

Mr Costello good morning.

 

TREASURER:

 

Good morning Philip.

 

CLARK:

 

How’ve you survived the week?

 

TREASURER:

 

Oh well I think I’ve been in about three or four states and...

 

CLARK:

 

Since Friday it must be Sydney.

 

TREASURER:

 

That’s right, one week down and what is it 29 days to go, something like that.

 

CLARK:

 

Are you going to last the distance?

 

TREASURER:

 

Oh y es, you get used to these things after a while, you get into a bit of rhythm and I’m just finding my rhythm actually at the moment.

 

CLARK:

 

There was something to put you off your rhythm last night, wasn’t there, with the release of the Hanson tax plan, 2 per cent, that sounds like an attractive prospect.

 

TREASURER:

 

Look it’s hard to sort of imagine that it’s taken seriously really, this would be one of the silliest proposals that I’ve ever heard. Apparently every time a transaction occurs you tax it at 2 per cent. So that, and I think as one of the business groups said, if there are one hundred steps in the manufacture of a car, you tax it at a hundred times 2 per cent. If you import beef you tax it once at 2 per cent when it comes through the import barrier but if you produce it in Australia you tax it when it moves from the farmer to the truckie, from the truckie to the wholesalers, from the wholesaler to the retailer, from the retailer to the butcher. It discriminates against Australian production, it means that manufacture would be chased out of the country and it, apparently, the idea is if you’re a millionaire you’ll pay 2 per cent tax, and if you’re on $5,000 a year you’ll pay 2 per cent tax.

 

CLARK:

 

Nevertheless you’ll it has the that sort of superficial attractiveness which many believe has lead One Nation to the levels of support that it’s got. Given the complexities of explaining tax packages anyway ...

 

TREASURER:

 

Well I think that’s right.

 

CLARK:

 

... .do you think it might have some attraction?

 

TREASURER:

 

I think that’s right, tax is a complicated matter, there’s no doubt about it. The current tax system is, and I run it, is almost inexplicable. If I had to sit here this morning and try and explain how the current taxation system worked, you know I’d be here for four hours and probably nobody would be any wiser. But to actually then go a step further and say it should be reformed, and we are putting forward in this election a substantial reform package, means that you do have to think about it every carefully, and very cautiously and along comes somebody with a hare brained proposal and there’ll be some people that will say, well it is all so confusing, it can’t be all that hare brained because all tax is hare brained, but it is. This is the kind of stuff that would destroy Australia and at the end of the day I think Mrs Hanson says, oh well, she’s going to spend $50 billion less. Now that would involve abolishing for example all aged pensions, the Medicare system, winding up the Australian Defence Force. We only spend $10 billion on the Australian Defence Force.

 

CLARK:

 

Mrs Hanson can sell her own policy I suppose, I get the impression it’s not very popular in your neck of the woods. The GST itself though, can we turn to that for one second, the tax on services and the services component for the GST, to some degree it is an unknown quantity, isn’t it, people will be paying tax on things they’ve never paid tax on before and granted all of the other set offs in the system as you propose it. But They will -be paying tax on a whole range of things, dry cleaning, renting videos and all of these sorts of thing which in the past they’ve not paid tax on, this will be, this is a new and uncharted territory. I mean it’s very possible, I think Mr Kennett’s conceded this too, that the tax will raise a lot more money than you will think?

 

TREASURER:

 

Well we’ve looked at it very carefully and we’ve got our best estimates and the best minds in the country and we’ve put the figures on it. But I make two points the first is you’ve always got to start from this point, we are abolishing 10 taxes. We are abolishing wholesale sales tax, we’re abolishing financial institutions duty, we’re abolishing bank account debits taxes, we’re abolishing bed taxes, we’re abolishing stamp duties. We’re abolishing 10 taxes and in their place there is one and that’s the goods and services tax. That means that for many items that are currently taxed at 22 per cent or more, they’re taxed less. In the services sector, which you asked about, although generally speaking you don’t get a direct tax on the services, there are some services you do, like a bed tax for example which we are abolishing. In the services sector the other taxes are all built into the price, you ...

 

CLARK:

 

Out of sight, out of mind in a lot of taxes, isn’t it?

 

TREASURER:

 

You’re quite right, you used the example of dry cleaning, and say well there is no tax on dry cleaning. Well of course there’s a tax on dry cleaners, there’s a tax on the machiner y that the dry cleaner buys to do his dry cleaning which is built into that service. There’s a tax on the car, which the dry cleaner buys to do his dry cleaning. Under our tax system every tax, every dollar of tax that a business has paid on something it’s bought for its’ business is refunded so that it all comes back. You have a tax on the final output but every dollar of tax on every input is refunded and that’s why with a 10 per cent GST your price effect is 1.9 per cent. You only get a 1.9 per cent increase in prices.

 

CLARK:

 

Let’s turn to that 1.9 per cent for a moment, the fall in the dollar this week is bound to have some, or potentially have some inflationary affect as well, you say 1.9 per cent’s the inflation      as you can best measure it that the GST will have. Are you concerned that the inflation affect may be influenced upwards by the fall in the dollar?

 

TREASURER:

 

Oh yes. Movements in the dollar have an effect on the inflation and in the course of the update of the Budget which I put out earlier in the week we reaffirmed that we except inflation to rise somewhat in the next year for exchange related factors. The dollar has come off quite a bit in the last year, but we didn’t revise it up more than we thought at Budget time. That is because obviously the dollar only affects those goods that are imported, it doesn’t affect so much the goods that are produced in Australia, we have got a good competitive economy. We’re forecasting that inflation will go through 2 per cent over the course of the year but that is historically low.

 

Back in the early 90s or the late 80s to talk about a 2 per cent inflation rate would have been considered madness, we were used to living with 7, 8, 9, 10 in those days. Now inflation in the last year has been the lowest in 30 years,the lowest since 1963. . As I like to say the lowest since the Beatles came out of Liverpool, that’s have long you’d have to go back to find an inflation rate down in the ones and it will edge up a bit as a result of exchanged related factors.

 

CLARK:

 

All of which with a lot of these things, I think the point’s been made in relation to the tax tables too, a lot of it is projection into the future, isn’t it. These are projections based on assumptions and you can’t do much else than that if you’re projecting a tax system into the future, you have to make assumptions about it.

 

TREASURER:

 

Of course you do.

 

CLARK:

 

But they are to be treated with caution, aren’t they, both the tax savings that you’re advertising and the affects of the tax should be treated with caution because they are just that, assumptions?

 

TREASURER:

 

Not the tax the tax is hard cold fact. We can actually say if you have a tax rate, we want a tax rate of 30 per cent for middle income Australians. We want everybody earning up to $50,000 to pay no more than 30 per cent tax. We think 30 per cent tax, income tax, is fair for middle income Australians. And that’s cold hard fact, you can work out so many people, earning so much, at such and such a rate you earn. But what people are saying about projections is that if you are going to say well what will the economy be growing at in the year 2002-2003. The best you can do at this stage is have a projection. I mean, the best analogy is you gave out the weather forecast today, you’ve got a pretty high chance of being right about today, the long range weather forecaster will give out a projection for next year, his probability of being right is lower but notwithstanding all of that if you have the right model and if you look at the past experience you can get within the range in future years. And that’s what we do with out projections, we always have.

 

CLARK:

 

Okay the projections on growth for what 1999 through to 2000 3 1/2 per cent, now there would be plenty of people around that who’d say that’s optimistic and I know you’d say well look in the light of this week’s growth figures why should be we be concerned about that and granted that, but there’d be plenty around to say that it is optimistic. If things are looking so rosy in relation to that, tax cuts are based on those estimates, why not legislate the tax cuts?

 

TREASURER:

 

Because we want to bring this in as part of a whole system. We are not going into this election saying here’s a tax cut to vote for us, we are going into this election saying here is a whole new tax system, what this whole new tax system....

 

CLARK:

 

But many people might be worried they’re going to pay more under this tax system?

 

TREASURER:

 

What this whole new tax system does is it reforms the indirect tax system with a broad-based indirect tax, GST. Reforms the income tax system with a 30 per cent rate for middle and average earners, it reforms the business tax system with a new system of what we call entity taxation, it reforms Commonwealth-State relations to make the States have a revenue base, a growth revenue base which they’ve never had in the past. And it reforms the interaction of the tax system and the Social Security system. Now to pull out one bit and say, oh there’s that bit, would be to ignore the whole substantial reform which makes that bit possible. This is a package, this is a new design. Our current tax system was set up in the 1 930s and it hasn’t been substantially changed since then. We had the wholesale sales tax in the 1930s, we had Income Tax Assessment Act 1936. Now the economy has changed dramatically. The Australian economy of today looks nothing like the Australian economy of the 1930s, I mean I don’t think people were sitting in talk back studios in the 193 Os. For example you know with computer screens in front of them giving out whether forecasts. But our tax system has substantially not changed and so we have said the new century demands a new tax system and it’s got those five pillars and it comes as a package. This is not just a pre-election tax offer, this is a whole new tax system for a new century.

 

CLARK:

 

Al l right and everyone will have a chance to look at that. Can I ask about you personally, you’re, it’s widely known that you’ve got aspirations as do all politicians .... I imagine, Mr Howard’s not going to last forever, in fact the reasonable assumption would be that if Mr Howard and yourself are successful at the election that there’ll be some shifting or some changing on handing on the baton. You’d be the pea if that baton was handed on now, things may change, if people vote for Mr Howard and tax plan and the Coalition, they are essentially voting in Mr Costello in the future aren’t they?

 

TREASURER:

 

No that’s not the case.

 

CLARK:

 

Why not?

 

TREASURER:

 

Well this is an election where you are voting for the Coalition led by John Howard and I am the deputy leader, I have been the deputy leader of the Liberal Party now for four or five years, I can’t remember, and I am working night and day to bring about a new tax system led by a new Coalition Government and led by John Howard.

 

CLARK:

 

But there’s going to come a time in the course of the next Government when decision will have to be made about leadership?

 

TREASURER:

 

Look I don’t think that’s right.

 

CLARK:

 

By common consensus you’re at the head of the pack?

 

TREASURER:

 

I don’t think it’s right and don’t think it’s worthy of speculation frankly.

 

CLARK:

 

But if in this election, don’t we, in a sense aren’t we going to be ask to consider that, that choice that if we’re voting for Mr Howard t his time but really down the track we’re voting for Mr Costello as well?

 

TREASURER:

 

No I don’t think so. We are voting for a Coalition Government with a proposal for major reform of the Australian economy, led by John Howard as Prime Minister, that’s what we’re voting for.

 

CLARK:

 

Do you still want to be Prime Minister one day?

 

TREASURER:

 

I don’t think I’ve ever said that I did to be frank, Treasurer will do me, I quite like being Treasurer.

 

CLARK:

 

I remember Andrew Peacock once said at a famous press conference after having finally, perhaps, done his dash and so meone asked him did you ever want to be Prime Minister and he said I don’t know if I ever really did.

 

TREASURER:

 

Yeah, that was one of those candid moments of Andrew’s. He had the ability to do that, didn’t he?

 

CLARK:

 

Yeah, do you still have the filed marshal’s baton in your knapsack?

 

TREASURER:

 

Look I, as I said before, I’m the Treasurer, I think that we have got enormous challenges in front of us, we’ve got to build a new tax system for the country, that’s a big one. We are facing on incredibility uncertain international environment , as volatile as we' ye seen in our lifetimes. We have just managed to get our Budget under control, we are reducing Government debt and these are great challenges and to be frank they take up 100 per cent of my time.

 

CLARK:

 

Let’s take some calls. Kathleen is-on the-line, Kathleen good morning.

 

CALLER:

 

Good morning Philip, good morning Treasurer, nice to speak to you again it’s Kathleen Swinbourne from the Women’s Electoral Lobby. I’ve actually 

 

TREASURER:

 

Hi Kathleen.

 

CALLER:

 

I’m actually ringing, I’ve been trying to get an answer from your office for a couple of days to issue on invitation to a breakfast where you can explain the GST and your tax system to women, that we’re holding in Sydney.

 

TREASURER:

 

When ...

 

CLARK:

 

An unusual way of communicating.

 

TREASURER:

 

When did you have in mind Kathleen?

 

CALLER:

 

The 25 th of September, Friday 25th September, I’ve got 600 women clamouring to speak to you and to listen to you.

 

TREASURER:

 

That the day before the grand final, isn’t it?

 

CALLER:

 

It is, we already have Gareth Evans, said he’d love to come along and speak to women and I’m sure you would as well.

 

TREASURER:

 

Well I’d love to come along and speak to women. I did enjoy that meeting that I spoke to, that was the meeting in Canberra, wasn’t it, where I spoke to all the women’s groups?

 

CALLER:

 

Yes.

 

TREASURER:

 

Which I really enjoyed actually,. is was a goodtime, so we’ll see what we can do, you know what these programs are like but we’ll see what we can do.

 

CLARK:

 

We are not going to be able to resolve it here Kathleen.

 

CALLER:

 

I know how important women are to you in the election and I’m sure that you’d love to be there.

 

TREASURER:

 

Well look I can tell you this Kathleen, women are very important to us in the election and I’m speaking to numbers and numbers of women’s’ groups and if we can fit another one in of course we’ll do so.

 

CLARK: 

 

All right Kathleen, Ray good morning, you wanted to ask about road tolls.

 

CALLER:

 

Yes, Tim Fischer said just recently that if they took the diese l tax off, he was asked what about the damage      and he said oh well we’d have to put a road user charge on. When are you going to announce the road user charge?

 

TREASURER:

 

Well what Tim was saying was that under our policy we’ve said that if you’re a heavy truck, which I think is defined as more than 3.5 tons, you’ll get a rebate of the diesel excise. The current diesel excise is 43 cents a litre, but if you’re a transport truck you’ll only pay 18 cents a litre. That’s a drop of 25 cents a litre.

 

CALLER:

 

Inaudible

 

TREASURER:

 

Now the reason why 18 cents a litre is chosen is that most of the motoring organisation regard that as the road user charge, that is, most of the motoring organisation said if you were actually charging people to drive across a road and you wanted to charge them a price that would look after the building of the road and the renovation of the road it would be around 18 cents a litre. And so that’s why we said we would rebate them back to 18 cents a litre.

 

CLARK:

 

OK.

 

CALLER:

 

Right, well you’re going to. give me back $1.1 ,000 a year for my fuel bill.

 

TREASURER:

 

Well that’s great. That’s terrific.

 

CLARK:

 

Well there you are you’ve done the sums already Ray.

 

TREASURER:

 

But can I tell you Ray it’s also important to pass on the benefits of that to the goods that you transport, and particularly out to rural and regional Australia. The reason we do this is to make sure that rural and regional Australia gets the benefit of tax reform and that will dramatically reduce their transport costs.

 

CLARK:

 

Speaking of transport here in Sydney there’s been, there was, there’s been some discussion, I must say unresolved, about the effect of the GST on road tolls here, particularly tolls on roads such as the M4 for example, which might go up b y a 50 cent leap some say. Is there a definitive answer as far as you’re concerned about that?

 

TREASURER:

 

Well, we said that we’d talk to the operators because it depends a bit on the way in which they do it. Whether they’re private or non-private. We’re actually having some discussions with them about that Phil.

 

CLARK:

 

Right. Mary from Randwick , we’ll take this call too. Mary good morning.

 

CALLER:

 

Good morning Phil. Good morning Treasurer.

 

TREASURER:

 

Good morning Mary.

 

CALLER:

 

I’m interested in the fact that you say that the inflation rate is 1.9 per cent at the moment. My understanding is the reason that it’s so low is because so many things that would normally make up the inflation rate have been cut out. So in fact it’s actually a very false representation of what the real inflation rate is. Could you tell me what items make up that 1.9 per cent?

 

TREASURER:

 

Well, the current, the 1.9 per cent was the figure I gave as the effect of tax changes, that’s not the current rate. The current-rate of-inflation, we have a CPI measure which is a basket of goods. And that’s put together by the Australian Bureau of Statistics, a sample basket of what people would buy. It includes things like health care. It includes mortgage charges and all of that. We then actually, in the Treasury, we abstract some of those items and we produce what’s called an underlying measure of inflation. And the underlying measure of inflation is a little higher. It’s a little over 2 per cent, because we take out mortgage interest charges. Because mortgages have been falling under the Government , the mortgage interest rate has come down from about 10.5 per cent to about 6.5 per cent. When you put mortgage interest rates into the CPI you get a much lower CPI. When you take them out it’s a little higher. But what has actually led those historically low CPI , CPI means Consumer Price Index figures , is falling mortgage interest rates, which are now the lowest they’ve been since 1969.

 

CALLER:

 

But isn’t it correct that just aside from that there are lots of other things that have been deleted that make them look so much lower?

 

TREASURER:

 

No it’s not. No. In fact if you put everything in, including mortgages, it makes it look much lower. To actually make it look higher you have to take things out because not only have prices been low, but as I said, the mortgage interest rate is what’s really pulled the Consumer Price Index down. For most Australians, for your average Australian who tends to be a homebuyer, their biggest single expense is their mortgage. The average mortgage in Australia is $100,000. Now, when we brought interest rates down from 10.5 per cent to 6.5 per cent, which is a 4 per cent cut, that saved your average Australian $3,000 a year, so the prices, the consumer prices, it wasn’t that they weren’t just rising, it was that they were actually falling in practical terms.

 

CLARK:

 

Alright, we’ll leave it there. Ten to nine here on 2BL This is possibly the worst day that, I would have thought, a Federal Treasurer could face anyway, in his capacity as a supporter of the Essendon Football Club isn’t it, because the end of your season is nigh?

 

TREASURER:

 

Well, as a mark of respect I’ve got my cufflinks on today ....

 

CLARK:

 

He’s wearing his Bombers cufflinks. Tonight you meet North Melbourne in the first elimination final and it’s goodbye isn’t it? Goodbye Bombers.

 

TREASUR ER:

 

Look, you know, on the face of it you would say, North top of the ladder, strong team, track record, but there’s going to be a lot of passion down at the Essendon Football Club and passion may overcome power tonight.

 

CLARK:

 

Why don’t you put a massive tax on Wayne Carey?

 

TREASURER:

 

We don’t need a tax on Carey we need a handicap on Carey. I’ve got a plan to make him carry about 5 kilograms on his back, you know a saddlebag on his back to even up the competition.

 

CLARK:

 

Pass a special Bill. Mr Costello good to have you here.

 

TREASURER:

 

Thanks very much Philip.