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

Peter Costello

Treasurer

11 March 1996 - 3 December 2007

Transcript of 01/06/99

Transcript No. 99/42
Treasurer
Hon Peter Costello MP

Doorstop

Tuesday, 1 June 1999

12.15 pm

SUBJECTS: Current Account Deficit, Tax Package

TREASURER:

Well, today’s current account deficit showing a deficit of $8.9 billion for the quarter is consistent with the Government’s forecasts. The Government has been forecasting as I said yesterday, a current account on a quarterly basis of the order of 6, this is about 6 per cent, averaging over the course of the year to 5 per cent. And in fact the year-to-date on the current account deficit of about $23 billion indicates that we’re forecasting about $9 billion for the next quarter to come in on the forecast. Having said that, there is no room for complacency in relation to the current account deficit. One of the reasons why this Government has made such an effort to put the Australian Budget into surplus and has a debt reduction programme is to make sure that the public sector of Australia is not drawing down on savings in any respect whatsoever, so that the current account deficit is totally as a result of private sector trading. The Government is not contributing one dollar, in fact the Government is putting savings back into the economy. And in relation to that current account deficit you would expect at a time when your domestic economy is strong and your export opportunities are weak because of a downturn in the rest of the world, you would expect pressure on your current account deficit. We are not complacent about it, but it is in line with the forecasts and it underscores again the importance of a strong Budget position and the importance of keeping economic reform going in this country. If we are growing faster than the world, there’s not much we can do about the world, we have got to make sure that we have good economic indicators in place to retain confidence.

JOURNALIST:

Is your tax package economically efficient, Mr Costello?

TREASURER:

Well, the tax package that the Government is introducing is miles in front of the current tax system, miles in front of it. Much more efficient than the current wholesale sales tax regime, which has multiple rates and multiple classifications. The thing about the Government’s broad-based indirect tax is there’s one rate. Now, you have classification problems as to whether you’re at zero or 10, but you don’t have classification problems as to whether you’re at zero, 12, 22, 32, 37, 41, 45. So that takes the classification down to about a fifth. You then have a broad base which excludes things like health, education, childcare, charities, religion and fresh foods. But you don’t have the classification of the myriads of things that you have under wholesale sales tax, like detergents, and toothbrushes, and toothpastes and all of those sorts of thousands of classification issues under the current tax system.

JOURNALIST:

Treasurer, it seems that the Democrats don’t have a sense of humour when it comes to birthday cakes.

TREASURER:

Well, you know, we have made the offer to the Democrats to consult on design principles, that is going on at the moment. We’ve always made this point, that you have to have legislation in place by the 30th of June. Why? To have 12 months to get business ready. I’ve always made this point, I think to all of the assorted press gallery, you’re going to need 12 months to ensure that there is a full and proper explanation. Once we get the legislation through by the 30th of June we have 12 months, 12 months to ensure that businesses are fully briefed up on the system. You won’t brief people on a new tax system overnight. We always built into our tax plan 12 months to do that.

JOURNALIST:

What are you going to do for retailers that have problems with the new classification, you know the people that sell fresh food and also other groceries that are taxed?

TREASURER:

Well, let me make this point. When you talk about complexity bear this in mind, nothing has changed for hardware and department stores and accountants and lawyers and farmers and tourism and training. There’s one area and one area alone of the economy where something is changed, and that is where people are selling processed food alongside fresh food. That’s the one area where there is a change and the Government will ensure that in that area, people are selling different lines of food from the same store, the Government will ensure that they will be well briefed, that they have systems, that there is a full consultation process, and in that one area the Government will ensure that business has assistance.

JOURNALIST:

The Democrats this morning, notably Meg Lees, has called for a nationally mandated recipe for bread to be legislated by the Federal Parliament. Do you support that?

TREASURER:

Well look, the amendments that the Democrats have put forward in the Senate have a definition. And we have said consistently that we would consult with the Democrats if they want assistance, but it would retain true to their design principles. It’s always been our position. We stand ready to consult. If they want assistance in tightening some of these definitions we’ll do it, but we have undertaken to maintain the integrity of their design principles.

JOURNALIST:

Are our tax laws going to read like a recipe book, Mr Costello?

TREASURER:

Well our tax laws do read like a recipe book. At the moment, can I tell you, at the moment; our tax laws read like recipe books. Not just recipe books for a rate of nought and 10 per cent, recipe books for nought, 12, 22, 32, 37, 41, 45. The thing I’m always amazed about is nobody has ever asked me in my life to explain why under current Australian law toothpaste is taxed and toothbrushes aren’t. And I’ve asked everybody in the Australian Taxation Office, I’ve asked for a definition of toothpaste. We’ve got definitions of toothpaste by the way, which currently apply in Australian law. And we have this multiple system, multiple rate, multiple classification, multiple recipe system at the moment, which we are significantly reducing in complexity. Now, if you want to take something out of a broad based tax you have to define it. But, without the myriad of exemptions, the thousands of exemptions and multiple rates, I can assure you it is much easier than the current law. I mean, why don’t we ask the Australian Labor Party? Why do they support a system that taxes toothpaste and not toothbrushes? What’s the difference?

JOURNALIST:

But isn’t the fundamental difference this time, Mr Costello, that retailers have to work out what’s exempt and what’s not as opposed to wholesalers as it is under the WST? So many more people have to do that, that’s why it’s more complicated?

TREASURER:

Well as I said, you know, there’s one area of retail that’s affected by this. Go down your strip shopping centre, who’s affected by this? Your hairdresser, no; your hardware store, no they’re not affected; your dressmaker, no; your butcher, no; your greengrocer, no. Who’s actually affected? Well, your Coles and Woolies, but your Coles and Woolies are pretty big operations you know, and they’ve got practically everything that’s bar-coded. The only people that will be affected by this are people that are selling fresh foods alongside processed foods in that particular area. And they can be easily identified and we will have an explanation for them. Now, you know, you can make points about complexity, but can I tell you this, those stores would have much more trouble with the complexity of a fringe benefits tax . . .

JOURNALIST:

Treasurer, do you think there’ll be . . .

TREASURER:

. . . those stores, can I tell you this, have much more complexity on a capital gains tax. I mean, you go down, you find a milkbar owner and ask the milkbar owner to explain to you the gross-up rate under the FBT - a Labor introduced tax. The Labor Party running around saying, well I can’t explain the gross-up rate in a milkbar so we better abolish the fringe benefits tax. Go around to the milkbar owner, just incidentally, and say, when you dispose under a higher purchase agreement, your cash register, could you please explain to me how you valued the residual and how you bring that back into your accounts for the unused depreciation. Now you go and ask them and they’ll say to you, oh gee, I don’t know. Anybody out there arguing, by the way, that the taxation treatment of residuals under hire purchase should be abolished? No, no the Labor Party’s not out arguing that. This is a total political stunt by the Labor Party. Let me tell you what’s happening here. The Labor Party is irrelevant to Australian politics and they are trying to get relevance by attacking the Australian Democrats. I mean, their sole relevance here is the extent, as they see it, to which they can get the Australian Democrats out of constructive involvement in political debate. Why? Let me tell you. If the Australian Democrats are constructively involved in political debate, who’s left out? Labor, no where to go.

JOURNALIST:

(inaudible) simplify what the Democrats have proposed?

TREASURER:

Well look, we have said that we would consult with them on the design principles. And if they want us to help in some of those definitions, we will. But we have also undertaken to them that we will be true to their design principles. And I made the point last night, there’s a very obvious reason for that. If the amendments are not to their satisfaction they won’t clear the Senate, so . . .

JOURNALIST:

So it’s basically their legislations?

TREASURER:

Well, it’s basically their design principles. Now if . . .

JOURNALIST:

(inaudible) your package?

TREASURER:

Well of course it’s our package. Let me tell you, what’s the package here . . .

JOURNALIST:

Meg Lees wants you to help . . .

TREASURER:

Hang on, hang on.

JOURNALIST:

. . . her sell her design.

TREASURER:

Hang on, hang on. What’s the package here? The package here is $12 billion of income tax cuts, $2 billion of new family allowances, an abolition of the wholesale sales tax, an abolition of stamp duties on shares, staged abolition of financial institutions duties and bank account debits taxes, a new growth tax for the Commonwealth and the States, a broad-based indirect tax which applies right across services, and in one area of goods, one area of goods, you have a carve out. Now, when I said that carve out and the other matters in relation to diesel, represented a 15 per cent change on the package, that means that this is a package; 85 per cent of which the Government will be able to enact. Would I have liked 100 per cent? I’ll be frank with you, I would’ve liked 100 per cent. But 85 per cent beats zero per cent. Now if I can say, you can focus on the hole or you can focus on the doughnut . . .

JOURNALIST:

But it’s still not . . .

TREASURER:

. . . and I’d urge you to focus on the doughnut.