The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
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Peter Costello

Treasurer

11 March 1996 - 3 December 2007

Transcript of 17/03/1999

Transcript No. 99/18
Treasurer
Hon Peter Costello MP

Interview with John Laws, 2UE

Wednesday, 17 March 1999

9.35 am

E&EO

SUBJECTS: Taxation – motor vehicle industry

LAWS:

Here’s what we don’t need. It seems there’s, I think, I hope, some sort of drafting mistake in the GST legislation which could see taxpayers slugged all the way down the line for manufactured goods. It’s the sort of mistake which could inadvertently turn the goods and services tax into what is known in other parts of the world as a VAT – a value added tax – and destroy many of the gains made in tax reform. We’re indebted to the automotive industry for spotting the error and I’m assuming it is an error and I think the Treasury people will be told by the Treasurer to fix it. I hope so. We have the Treasurer on the line. Good morning Treasurer.

TREASURER:

Good morning John, how are you.

LAWS:

Pretty good, Peter. Good to talk to you, I haven’t talked to you for a long, long time.

TREASURER:

No, it’s great to catch up.

LAWS:

Yes. Well I just thought this was a good excuse. My dear friend Conomos from Toyota, the Senior Vice President of Toyota, John Conomos, raised the possibility of this GST turning into a VAT as far as motor car manufacturers were concerned and he said he was deeply concerned that multiple taxation of manufactured goods would lead to big cost increases for the consumer in the end. Is that some sort of mistake?

TREASURER:

No, there’s no mistake and really I think John has got his wires crossed here. Because the final price of the car bears a 10 per cent tax, only one, 10 per cent, as opposed to the current situation where the final price of the car bears a 22 per cent wholesale sales tax. So cars become cheaper. And all the motor car manufacturers know that. And I take it that John’s been misquoted because I don’t think he could have misunderstood the situation.

LAWS:

Well, I would have doubted, that’s why I accepted it without calling him, and called you.

TREASURER:

Yes, well I was pretty surprised to see the story and you know I hope that he’s been misquoted because I don’t think he could have misunderstood things in that way. But the truth of the matter is that the way in which the GST operates is that the final price bears a 10 per cent tax and that you abolish all the current taxes. Now because a car currently has a 22 per cent wholesale sales tax, when you abolish that and you apply a final 10 per cent, the car actually becomes cheaper. We think about $3,000 on your standard car. So, I’ll get somebody in touch with Toyota today to straighten them out. But if the Financial Review has beaten up the story it would be worth them correcting the record I think.

LAWS:

Yes, so it doesn’t mean that every item used in every vehicle would be taxed along the line?

TREASURER:

No. What happens is that as it moves through the line the, everybody who buys it gets a credit for all the tax that’s been paid, so that by the time you get a credit for all the tax that’s been paid the final price bears the 10 per cent. The motor car manufacturers know this because in fact they’ve been to see me. They’ve got a bigger concern than this. Their concern is that the prices will go down and they don’t want people to stop buying. So they know very well that prices will go down.

LAWS:


Yes. So if the prices are going to go down, that was something else I was going to ask you, and we know that we’re going to get the GST providing it’s alright with Mr Harradine, the real Prime Minister, do you think that there will be a downturn in the purchase of motor vehicles because people, particularly fleet buyers will say, well, we’ll just hang off?

TREASURER:

Well, look that’s one thing that’s been raised with me and I’ve said we’ll keep the situation under review but the reason I raise it is that the motor car manufacturers’ bigger concern is that prices will go down, not that prices will go up, which is why I was surprised to see the comments in the paper. Now, I don’t think there should be. As we know, motor car sales have been at record levels in the last year and I don’t know if you can sustain them at all time record levels in any event. But we have said that we’ll keep an eye on the situation.

LAWS:

OK. If it does appear that fleet buyers and even your Departments, your Government Departments say, well, hang on, we’ll save some money here – and I’m sure you would want to save us money if you possibly could – we’ll hold off before we buy our fleet, what can you do to rectify that?

TREASURER:

Well, we’ve got a staged introduction. Because the price of cars falls, for fleet buyers we’ve got a staged introduction which stages the fall in price over a period of three years. Now most people that buy fleets turn them over in two years.

LAWS:

Two, yes.

TREASURER:

So that you’d be mad if you waited three or four years to get the full benefit. You get a bit of a benefit in the first year, a bit more in the second year, a bit more in the third year and that’s why we’ve got a staged introduction.

LAWS:

OK. I’ll try and get in touch with John Conomos. In fact we’ve tried to get in touch with him, he’s in a meeting. But I’ll let him hear what you said Peter.

TREASURER:

Sure. We’ll try and get in touch with him too John because I think there’s no need for him to be concerned, as I said, it may well be that he’s been misreported.

LAWS:

Yes, well let’s hope he has because otherwise he does have his wires crossed, which I’ve got to say would, in his case, be very unlikely. But we’ll sort it out during the morning.

TREASURER:

Pleasure to talk to you John.

LAWS:

Good to talk to you Peter and I hope I see you soon.

TREASURER:

OK.

LAWS:

Bye. Peter Costello, Treasurer of Australia.