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 28/06/99

Transcript No. 99/47

Treasurer
Hon Peter Costello MP

7.30 Report

Monday, 28 June 1999

 

SUBJECT: A New Tax System

O’BRIEN:

It’s the end of one chapter for Treasurer Peter Costello and the start of another. Having spent a year selling the new tax he now has to introduce it with maximum effect and minimal fuss. Peter Costello joins me now from Canberra. Peter Costello, originally you said that a GST without food wouldn’t work. You now say, even with your various compromises to the Democrats, you’ve got 80 per cent of what you wanted. Is that good enough to deliver the benefits that you promised all along?

TREASURER:

I think the first thing we should say Kerry, is that it is a great day for Australia, we’re going to get a new tax system. And this is an argument that’s been going on in the country, I think, for 20, 25 years. Labor had a go at introducing a consumption tax, John Hewson had a go and it’s great, really great news for Australia that we’ve managed to get that legislation through the Senate and we’ll be able to cut income taxes on 1 July. And I just want to pay tribute to all of the people who’ve worked so hard for tax reform in this country. We said during the course of the election campaign that the broader the base the better the tax would be. As it turned out we weren’t able to implement our election policy, but the Australian Democrats, and I pay tribute to them too, they were prepared to negotiate, compromise. We weren’t able to introduce 100 per cent of our policy but I think I said 85 per cent, they got some important wins and the great thing is we did something together for Australia and we’ve moved this debate on probably 60 or 70 years from where it was and I just want to thank all of those people that have been part of it.

O’BRIEN:

Okay, even with the compromises, you’re still promising increased growth, you’re still promising increased employment?

TREASURER:

Oh sure. I think the funny thing is, as I recall back at the time of the last election, the attack on us was that growth would fall away and none of this would be affordable. We’re now in a situation where the economy is growing faster than nearly anyone predicted. Some people are saying that you’ll get a surge in the lead up to July of 2000. We’ll have a GST in place on 1 July 2000. We’ll have Olympics visitors coming in in September, they’ll be making their fair contribution to Australia’s tax system just like Australians make it to other people’s tax systems when they go overseas. And on 1 July 2000 people will be getting income tax cuts as well. So to be able to abolish wholesale sales tax, modernise the indirect tax system, get a new system of Commonwealth-State relations, cut income taxes, have a timetable for reducing other state indirect taxes, this is the culmination of enormous personal work and effort and for the country too, I think, to have put the argument behind us and to face the future with confidence.

O’BRIEN:

But even allowing for all of your sense of triumph about this, the jury is still out for a number of other people who are expert in the field and who are not, it would seem, political. One of Australia’s leading modellers, Professor Peter Dixon from Monash University, has looked at the latest package, he looked at the original very closely, he’s looked at the latest package and he says, it’s still based on narrow analysis, on outdated economic theory with changes not yet subjected to rigorous modelling.

TREASURER:

Well Peter Dixon, I think, was the odd man out in all of this, that’s why he’s quoted obviously. But we did a comprehensive analysis on Dixon and showed where his models were wrong and why his assumptions were wrong. But it’s not just the economists Kerry, I’ve been in IMF meetings and OECD meetings, and when they discuss the Australian taxation system they’ve always said you’ve got to broaden the base. Why do you have to broaden the base? Because in a sophisticated economy, increasingly, part of our economy is services. If you don’t broaden your indirect tax base two things follow. One, you won’t have enough money to run decent social services. And to all of those people who are concerned about social services, the good news is we now have an indirect tax system that will grow in proportion to the economy and decent social services are secured. The second thing is, if your indirect tax base isn’t growing you will have high income taxes. And we were getting to a stage where people on average earnings were staring down the barrel of marginal tax rates of 43 cents in the dollar, possibly 48 cents in the dollar, we just had to cut income taxes in this country and give back incentive. The great news is on 1 July 2000, there will be income tax cuts for everybody.

O’BRIEN:

Victorian Premier Jeff Kennett says quote, "it’s not Howard’s package, but the Democrats package and I tragically fear we’re going to pay a very high price." One of the things he’s talking about there is the cost of compliance to business, isn’t he?

TREASURER:

Well, he’s wrong on that of course and we’ve made that entirely clear. In relation to people that are running mixed food businesses there is additional complication. Jeff doesn’t have to run a tax system so he doesn’t have to be up with all of the details on this, but only in that area is there increased complexity. The complexity pales in significance compared to wholesale sales tax. And to have made that agreement with the Democrats in order to abolish wholesale sales tax, cut income taxes, get new Federal-State relations, increase family benefits and to have a timetable for the abolition of indirect taxes. This is the biggest tax reform in Australian history.

O’BRIEN:

But you’re also going to be relying, as Neil Warren made the point in Barry Cassidy’s piece tonight, on 1.6 million new tax collectors.

TREASURER:

The obvious thing in relation to this is if you have a simple concept, that is a broad base. There’s only one area where the base has been changed, food. You can have very simple returns. We’re actually taking the opportunity that this presents to do something even bigger, which is we are going to use a GST quarterly return to give businesses their FBT return, their company tax return, their reportable payment system return, their prescribed payments system return. We can abolish five tax systems, collapse them into one, as a consequence of this. And this gives us the next stage, which is having reformed indirect tax, income tax, Commonwealth-State relations, family assistance, to move into business tax reform which will give Australia an even better base for economic growth in the future.

O’BRIEN:

So, with all this radical change which will have to be implemented by the Tax Office, the Taxation Institute, which is certainly no enemy of the GST, says that the Tax Office is going to be massively under-resourced to administer the new tax.

TREASURER:

And I think you will find the Tax Commissioner will have a letter in the paper tomorrow saying it’s nonsense, as I did today. Because the cost of collection of GST is paid for by the States. This is a very important point. I’m in a situation where we are trying to introduce a tax, not one dollar of which goes to the Commonwealth. All of the proceeds goes to the States so they can run their hospitals, and their schools and their transport. Therefore the cost of collection comes out of the revenue that is collected and the States have a very big interest in ensuring that the tax office is well and truly equipped to get revenue for who? For the States.

O’BRIEN:

As the clich goes, only time will tell. Peter Costello thanks for talking with us.