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Doorstop, Monday 23 February 1998, 2.15pm: transcript [Telstra; Tax reform; Indonesia]


TREASURER: Anyone interested in Greencorps?

JOURNALIST: Mr Costello what's a bad tree?

TREASURER: Look, on the weekend I cut a few branches down of European trees which I then mulched and put on the garden as part of my environmental consciousness and a bad tree is one that blocks out good trees from growing so they can be taken down to make good trees grow. It wasn't pulling its weight, that's right, and because it wasn't pulling its weight others had to bear an unfair weight - it's a bit like the tax system.

JOURNALIST: Mr Costello will, after the next election, Australians be able to buy more of Telstra?

TREASURER: Well, look I think the part privatisation of Telstra has been a fantastic success. One third of Telstra is now in the hands of the Australian public. And I think that the Australian public will want the opportunity to share in a bit more of Telstra. This is putting shares into the hands of Australians and giving them a stake in the national telecommunications carrier. It's been a good investment. It's consistent with our policy which is to encourage share ownership. And I think that the Australian public will want the opportunity to share in further ownership.

JOURNALIST: Will they get that opportunity though?

TREASURER: Well the Government hasn't announced its position in relation to that. No doubt we will announce our position in relation to that before the election but you'd have to say it's been a smashing success. Ordinary Australians in their droves took up shares, they over-subscribed and they will want more and I can't think for the life of me why Labor opposes Australians taking out ownership of Telstra.

JOURNALIST: ... all but $1 billion of the money last time around was used to retire debt. Can you give a guarantee that if you do sell off more of Telstra all of it would go to retiring debt?

TREASURER: The economics of the situation is this, if we are running a Budget surplus then any privatisation goes to repay debt. This is a very important point here. In the current financial year we are retiring debt. Next financial year if we can get the Budget into surplus every dollar from asset sales retires debt. It has to because we're already in surplus. You see, we are, this is a very important point to understand here, that, when we came to office we changed the whole way in which Government accounts were kept. We no longer tried to take asset sales into the revenue account. The Budget now is based on underlying revenue and underlying outlays. If underlying revenues and underlying outlays are in surplus, then the money from asset sales goes to retire debt.

JOURNALIST: Mr Costello are you saying ...

TREASURER: And that's why this Government alone of any other Government, and the Labor Party could never ever match this can say that we are selling capital assets and we are engaging in the capital transaction of retiring debt for Australia.

JOURNALIST: So are you saying that you wouldn't be using this to fund any tax cuts?

TREASURER: Well, let me make my position clear on tax because there is obviously, you've got an assumption out there about tax cuts. Our position in relation to tax is this, Australia needs a new tax system. We are the only political party that is interested in delivering it. The new tax system should have the following features about it: one: it should be simple and fair - and that means we've got to clean up the indirect tax system. Two: it should give incentives to families and income earners who are currently being penalised by high marginal tax rates. And three: it should be a business taxation regime which makes Australia internationally competitive. That's the kind of taxation system that we want and we will be arguing the case for that tax system day in and day out against those people who say that Australia's tax system either can't or won't be reformed.

JOURNALIST: Will it be incremental privatisation or will the Government look at selling off the entire two-thirds?

TREASURER: Are you talking about Telstra?


TREASURER: Well I don't think, I haven't announced what the Government will be doing yet. All I've said is that if you looked at the experience in relation to one-third of Telstra, it was over-subscribed about five to one. That is, people wanted five times as many shares as were available. Now what that tells you is that the Australian public supports this policy of allowing individuals to own a telecommunications company. It will be good for telecommunications because you'll get cheaper prices out of a better organisation. And it will be good for investors. Now in that kind of climate there are obviously all sorts of reasons why we should continue the reform process. Have we announced it? No.

JOURNALIST: ... main sell off is financially viable.

TREASURER: Can I go into detail? No.

JOURNALIST: Does it make any sense for the Government to be a minority shareholder in Telstra?

TREASURER: Well there's no particular logic in it is there? There's no logic in the public owning one-third and the Government owning two-thirds. The situation is as it is because we said to the Australian public that we would put one-third up for public ownership, we asked for a mandate to do that, we got it, we did it. If we want to put further parts of Telstra up into public ownership we will before the next election seek a mandate, and if elected we will do it. But let me ask you this question. The Labor Party says that it believes in nationalised telephone companies. Ask yourself what other governments in the world believe now in nationalised telephone companies. In Cuba they're privatising their telephone company. So where have you got, you've got Kim Beazley and Gareth Evans where? To the left of Fidel Castro. Pretty lonely out there.

JOURNALIST: Auckland's not a great example of privatisation at the moment.

TREASURER: Auckland's not a great example for privatisation? New Zealand has made a lot of improvements in its economy over the last decade. I wouldn't say that in every respect they're better than us. But I think they've made big strides. I think in some other areas we're matching and beating them.

JOURNALIST: Do you support the IMF's rescue package for Indonesia?

TREASURER: The IMF rescue package for Indonesia?


TREASURER: Yes of course. Look the IMF rescue package for Indonesia is a statement by the international community, not just the IMF, by the international community that the international community will make financial accommodation for the Indonesian government in return for economic change in that country. Now the economic changes are required for two reasons. One is the economic change is required to strengthen the Indonesian economy. The second is that the economic change is required to give international investors the confidence to return to Indonesia. Now it's important that Indonesia continues to proceed with that program so that the international community can see the progress that is being made. That is the Government's position in relation to Indonesia. We are urging that the Indonesian government continue with that economic program which does not involve a currency board. We are also as a Government and as a near neighbour determined to be a part of stabilising the situation in Indonesia, one, through our involvement in the IMF package but secondly on a bilateral basis. We have always had bilateral programs with Indonesia and that will continue.

JOURNALIST: ... beyond the package you've already established so far.

TREASURER: Well the package that we've established so far is we have said if there is a draw down, a second tier draw down outside the IMF/World Bank financing then we will make funds available. The draw down will be in response to the continuing implementation of economic reform and we will do that if the economic reform continues. Now outside of that, before any of that was in place, we had aid programs in Indonesia and these are bilateral, they're separate, they existed before, they will exist separately. The nature and shape of them has been outlined and if there are to be any changes in relation to those they will be announced by the Government in due course.

JOURNALIST: Will the economic reforms continue if they threaten social disorder in Indonesia?

TREASURER: Well the point about the economic reforms is to improve social cohesion. I make this point, that it's been the collapse of the currency and the instability in the financial system that has triggered this economic crisis and the social stability. You won't get that social stability back until you are in a position to rewrite the economy and rewriting the economy involves cleaning up the financial system and it involves taking measures to re-establish confidence in the currency. Now that's what the programs are designed to do.

JOURNALIST: Should that come at the cost of food riots?

TREASURER: Well the point about it is this. That the economic program, properly implemented, is designed to improve the economic situation and prevent food riots. I think this is an important point to bear in mind, the IMF is not in Indonesia because the economy was going along swimmingly. The economy dived and the IMF put together a program to try and re-establish international confidence. Now re-establishing international confidence, which means, one, getting capital back into the country, two, stabilising the exchange, is designed to improve economic prospects and enhance social stability.

JOURNALIST: Do you think the package could be more flexible?

TREASURER: Well look, the main elements of the package are fiscal action, market liberalisation, measures in relation to the currency, and financial improvements. Unless those things are engaged in, nothing outside of that is going to work. Now the big four pillars have to be engaged in, you know, other things can be backed and filled but you can't get away from the big important issues, they are the issues that are needed to re-establish international confidence.

JOURNALIST: Will Australia withdraw support for the IMF package if Indonesia proceeds with the currency board?

TREASURER: Well, the Australian position is this, that the IMF package, which is not just the IMF, which is nearly all of the G7 countries, or a number of them, certainly Japan and the US, and other countries in the region, has been put together to provide financial accommodation for economic reform. Now we are encouraging the Indonesian government to go ahead with that economic reform package and that package does not involve a currency board.

JOURNALIST: Has Mr Suharto asked the Australian Government to ... (inaudible).

TREASURER: Well I'm not going to go into that.

JOURNALIST: Treasurer, Australia on Friday agreed to participate in a multilateral export credit scheme (inaudible) extend export credit to Asian economies. How does that reconcile with our opposition to the US extending unilateral credit ...

TREASURER: Well look, we'll have a look at that on a multilateral basis.

JOURNALIST: Today you've announced a delay in releasing your reforms to tax rules for trusts. Why have you delayed that? What message is that sending?

TREASURER: No I said at the time of the last Budget that we'd be putting out a discussion paper for public discussion and for inputting submissions on the taxation treatment of trusts. What I've announced today is that matter is on the Government's agenda as part of our tax reform package. That is, as part of our tax reform package we are now looking at the taxation of trusts and we will be announcing the direction that we intend to go in relation to that as part of the general tax reform package. So that if people want to make submissions in relation to the tax treatment of trusts, they should now make them as part of that tax reform process generally. Because we now think that there is an opportunity to take a larger and wider view in relation to the taxation treatment of all business vehicles but particularly those of trusts. This is the way to do this, do it in the context of a very broad ranging and wide review.

JOURNALIST: ... operating on that business activity of a like nature should be taxed at the same rate ...

TREASURER: Look, let me make this point, in an ideal tax system taxes would relate to the economic activity that is being carried on, rather than the legal vehicle which houses that activity. And just as I've said in relation to indirect tax, broad base and lower rates, I say the same principle applies in relation to business taxation. The broader the base, the lower the rate. And there will always be arguments of exceptional circumstances and as I've also said we'll wait to hear those arguments. But if you want to know the principle that is motivating us in relation to tax reform, whether it's in the indirect tax system, personal income taxes or business tax, the broader the base, the lower the rate.