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Melwood Furniture Factory, Queanbeyan, Thursday, 17 September 1998, 9.30am: transcript of doorstop interview [tax reform; economy].

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Federal Member for Eden-Monaro


Doorstop Interview at the Melwood Furniture Factory, Queanbeyan


Thursday, 17 September 1998, 9.30 am




SUBJECTS: Tax re form, Economy


JOURNALIST: plan have on small businesses in Queanbeyan such as Melwood?




Well it will be of enormous assistance. All of the furniture that’s coming through this factory here is being taxed at either 22 or 12 per cent. It’s pretty hard to know which because the wholesale sales tax is so complicated. I think they were saying that a credenza is taxed at 22 per cent but if you call it a sliding bookcase, it’s taxed at 12 per cent. It’s exactly the same product. If you change the description, you get a different tax rate. They made the point that throughout the industry some are passing it off as sliding bookcases at 12, some are calling it credenzas at 22. The same item, if it’s for, if it’s classified for home use is at a lower rate than if it’s going for office use. And then if it’s fixed in a building, it doesn’t bear a tax at all because it becomes part of a fixture. And they were just making the point that this is a complex, high tax. A single rate on all of their products will be of enormous benefit for them. And they also mentioned to me that abolishing financial institutions duties and government debits tax will be of enormous benefit and they also mentioned the new pay as you go system which will give them cash flow benefits. Tax reform is of great advantage to Melwood and small businesses like this.




They gave the example with sales tax at the moment, it is has to be remitted by the 21st of the month, but their trading terms are that their invoices are due to be paid at the end of the month. So, you know, in any month, in any one month they could have something like $50 000 in sales tax that they then carry on behalf of the government and the time that they pay it to the government before they can actually get it back when their invoices are paid.


I think the other significant point was that when you look at the people working for Melwood and the sorts of wages that they’re on, and a growing company which is offering some overtime, people who aren’t wealthy by any stretch of the imagination, are basically paying a dollar in tax for every two dollars that they earn when they get up in that. And there’s just no incentive for them to do that additional work. And there’s a great incentive here with a sort of business that has gone from nothing, from two people who employ nobody four years ago to now over 30 people, with the average age of the whole business at 27. Now that’s the sort of thing we want to encourage and the package that we’re putting forward certainly gives that incentive.


As opposed to the Labor package, for those same guys it doesn’t give them any tax break at all on a week by week basis because they’re offering tax credits not tax cuts. Tax credits only come into play when tax returns are done at the end of the year. So, you know, it doesn’t help them on a week by week basis at all. That was the areas that they talked about.




Yesterday you seemed to be quite optimistic, a lot people thought you were very optimistic about the Asian crisis perhaps subsiding next year, you still, sort of, stick by that?




The point I made yesterday, I think I was asked the question whether I expected growth in the next financial year which is 1999-2000 to be higher than what we, forecasting for this year which is 1998-99. As you know we’re forecasting in 1998-99, 2¾ per cent. Absent the Asian financial crisis it would have been more than that coming off 4 per cent growth this year. I said that there was every reason to think that in the following year it could be higher. I’m not putting figures on it, because at the moment all we put out is projections as you know. But by 1999-2000, we’ve been through the first year of the Asian crisis, this will be the second year since it began, that would be three years after the event. And I think most people would be expecting a turning in many of those economies by then.




Do you think that there is a need in Australia to shift the focus from capping inflation to promoting growth in line with what the G7 and the Reserve Bank Governor, Mr Macfarlane, have said?




Well we’ve been very successful in relation to inflation. We’ve got our inflation target and we are now well within the range of that inflation target. And let me make this point, one of the reasons why we want inflation to stay low is that it promotes growth. It promotes growth in the productive economy. Now it’s always been my view, and it’s been the view of the Government that if you have low inflation, you can have low interest rates. And that’s the situation that we’ve got at the moment. These are historically low interest rates. Not only the official rate at 5 per cent but the spread on yields between Australian ten year bonds and US ten year bonds are historically low. We haven’t been through a period like this, if at all, certainly for a very long time.




Treasurer, what’s the biggest concern raised by the public in meetings like this morning about the GST? What are they worried about the most? And what do you have to convince them about before they'll support the GST?




I don’t think there was any great concern about the GST this morning. I think...




Not just this morning.




You know, I think everybody knows the tax system is broke. Now you either fix it or your don’t. We propose to fix it. But the people who say to you that you can, you can run this tax system for any great length of time aren’t being honest. What’s more, they know they’re not being honest. That’s the truth of the matter. Incidentally, what rationale is there to say taxing goods is a good thing and taxing services is a bad thing? What possible economic rationale is it? 140 countries in the world say it’s, that’s wrong. Right. The Evatt Foundation says that’s wrong. They say you should tax services. The Labor Party has said that in the 1980s and Gareth Evans was saying that as recently as a year ago. Let’s strip it all away. They are not pretending to have a political or economic argument. This is base politics. Propagating something which they know is wrong for the sake of a few cheap votes. You get caught. You get caught out in the end.




So the public is not scared about anything in the tax plan, in your view?




No, no people always want to know if things are going to change, how they’re going to change, and what it’s going to mean. And I find that there’s a great deal of interest in understanding it. That’s fair enough, that’s a fair point. But I also find that when you explain things, people say yeah, that’s right. You know, why should you, if you call something a credenza, tax it at 22 per cent and if you call it a bookcase, same product, tax it at 12. What was the logic there? You know, why have three different rates of wholesale sales tax on yoghurt? You know. Here we go, the Labor Party thinks that all you’ve got to do to reform the tax system is change caviar and orange juice. Well enough said. Thanks.