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 29/06/99

Transcript No. 99/50

Treasurer
Hon Peter Costello MP

Interview with Jeremy Cordeaux

5DN

Tuesday, 29 June 1999

8.35 am

 

SUBJECT: Tax Reform, Gambling

CORDEAUX:

Not surprisingly the Treasurer, Peter Costello, says that the Senate’s approval of legislation for a 10 per cent goods and services tax is great news for Australia. They fought hard and long to do it and it’s there. Despite the Government’s failure to fully implement it’s GST policy the Treasurer is believed to be happy with the compromised deal. He’s about to tell us. Good morning sir, how are you?

TREASURER:

Good morning Jeremy, how are you?

CORDEAUX:

I was predicting you’d be in a fairly good mood.

TREASURER:

Well look, it’s been a long, hard struggle and not just my own in the last two years, but various people over the last 25 years really. John Howard who’s been working at this for a long time. Paul Keating had a go at reforming the tax system. John Hewson had a go. And the great news is that we’ll have a new tax system for 1 July of next year. And it’s going to particularly be good for wage and salary earners who are going to get income tax cuts and new family allowances. So, I think it’s a great day for the country really.

CORDEAUX:

One of the things most people, I guess, are nervous or apprehensive about is the simplicity of it, the ability to understand it, problems that might arise through innocently making mistakes.

TREASURER:

Well, it doesn’t worry consumers, of course, because consumers just pay price for goods and services on the supermarket shelf, which they do at the moment.

CORDEAUX:

But small business has got (inaudible)

TREASURER:

Yes, but for most small businesses it’s a much simpler system. You know, there are only a small group of people who are affected by the changes in relation to food. It doesn’t affect you if you’re a butcher selling meat, none of it’s taxable. If you’re a green grocer selling vegetables, none of it’s taxable. If you’re a clothes seller your clothes are covered by the GST, if you’re a department store, if you’re an electrical goods store, if you’re a hairdresser, there have been no changes. The only change was in that limited area of people that are selling fresh food and confectionery or fresh food and takeaway food at the same time. They will have to delineate between that part of the shop that’s taxable and the other that’s not. And I think once that’s been done it should be pretty straight forward for them. But for the consumer nothing changes. You see a price in a shop and you pay it. And just as there’s an embedded tax in it at the moment, there might be under a GST system or in the case of food there won’t be. And so some prices will go up a little, but some will come down a little.

CORDEAUX:

Now are you going to let people calculate their GST tax payment to the Government on their turnover or are you going to demand that it’s done on individual items?

TREASURER:

Well, what business does is you put in a quarterly return and for somebody that’s in the system you just say, these were my sales for the quarter, these were my purchases for the quarter and the GST is the difference between what’s owing on your sales and what you’ve paid on your purchases. And not only are we going to do that, but we’re going to abolish provisional tax, company tax instalments, prescribed payments system, reportable payments system and fringe benefit tax returns. So that one form will replace five or six different tax systems and it will make it much simpler.

CORDEAUX:

Yeah, well that’s what we’ve been crying out for, a simple and fairer system.

TREASURER:

You’ve just got to see these things Jeremy, and I do see them. Businesses filing separately at the moment, a company tax, for PAYE tax, for fringe benefits tax and what this new system, this what we call the Pay As You Go system, which is going to come hand in hand with GST, it just takes the GST form and you get one assessment for everything and we can collapse six tax systems and just have one.

CORDEAUX:

This came in yesterday from the Certified Practicing Accountant people. GST compensation for business dealing with GST-free food has disappeared from the amendments presented to the Senate. While the parties have acknowledged that compensation is an important issue, it is a glaring omission from the GST amendments - Angela Ryan’s comments. What happened there? Was that resolved or not?

TREASURER:

No, the money which is being put aside to help business in relation to account keeping and returns is $500 million. It’s not a small sum, it’s $500 million. And that’s separate from the legislation, that wasn’t ever in the tax bills, that’s an appropriation. The money is going to be made available to peak industry groups, to very small businesses, to education and charities to help them in relation to the system. And if I might say, it’s the first time this has ever been done, whenever taxes have changed in the past and they change generally a couple of times a year, nobody’s ever set aside money before but there’s $500 million and that will be distributed over the course of the next year. Although the legislation has passed the Senate, people have got to bear in mind the new tax system doesn’t actually take effect until 1 July next year, 12 months time, so we will be distributing that money through the year.

CORDEAUX:

So in that time you’ve got a reasonably important selling job . . .

TREASURER:

Yes.

CORDEAUX:

. . . to do.

TREASURER:

Yes, to help people comply and to get around and explain from business. From the public’s point of view it’s very simple, but from businesses point of view, although it’s simpler, it’s a new system and we’ve got, we’ve always said we need 12 months to help business in relation to it and that’s why, if we have the legislation in place by 30 June this year, we’ll start it from 1 July next year, 2000.

CORDEAUX:

And provisional tax disappears after July next year?

TREASURER:

Your provisional tax is wrapped up in the Pay As You Go system, as well, people come off provisional tax, company tax is wrapped up in it. I’d say it gives us a chance for a major simplification generally.

CORDEAUX:

Treasurer, would you take a call?

TREASURER:

Sure.

CORDEAUX:

Okay, Faye.

CALLER:

Good morning Jeremy. I just want to ask Mr Costello, what about your bank taxes, like your FID charges and all that stuff that’s in now. Is that going to go once this goods and services tax is introduced?

TREASURER:

The first one to be abolished is Financial Institutions Duty, which will be abolished in 2001. And then, as part of the agreement with the States, as the States, these are State taxes, Financial Institutions Duty and Bank Account Debits tax - as the States start receiving the GST revenue and it grows they’ll be abolishing further taxes. And the next one to be abolished will be the Bank Accounts Debits tax and after that some further stamp duties. But the first one to go will be Financial Institutions Duty, abolished in 2001.

CORDEAUX:

Another caller wanted me to put to you or get you to clarify in his mind just what the service tax means, the service part of the goods and services tax?

TREASURER:

Oh well, at the moment as you know we tax goods at the wholesale level, the wholesale sales tax. A goods and services tax is just a tax on goods, which we by and large have at the moment, and on services as well. So that if, well let’s say an accountant renders an accounting service there will be a tax on the service that they render. And the reason for that is that with a goods based tax, which Australia first went into in 1932, that was appropriate when goods were the major part of the economy. But in a modern economy services are increasingly a big part of the economy, so it’s better to tax the full range of the economy, just not a narrow base. Why do we say that? Because that will produce growing source of revenue for State Governments to provide services like the hospitals and schools and education. And the thing to remember, the point I keep making is this, all the proceeds of goods and services tax go to State Governments. It doesn’t go to Canberra, it goes to State Governments and it goes to State Governments so that they have a growth revenue base to run the schools and the hospitals and the other services that people need.

CORDEAUX:

Just on that subject, I was speaking to Dean Brown earlier about the crisis that is in our dental health system here, with people in real and serious trouble being asked to wait perhaps three years. The problem seems to go back to the $10 million that was taken out of the system by the Federal Government. Is there any way we could find $10 million? And it’s not a problem just associated with South Australia, I would think all the States have the same problem. Is there some money that could perhaps come from, I don’t know, foreign aid, maybe we have more of a responsibility to look after our own people first?

TREASURER:

Well, I agree with that proposition that we do have to look after Australians and we do do that. But, you see in the past, this is one of the great things about tax changes, in the past State Governments used to go across to Canberra and they used to say give us money to run a dental scheme or to run schools or whatever. And all of this has changed now. State Governments will get all goods and services tax. They will have a growing source of revenue. They will have sufficient money to run their health and their education schemes. And the Governments will be able to stand on their own two feet with growing revenue base. And what we’re doing with tax, to bring it back to tax, is to fix this perennial problem of the dependence for grants of State Governments on the Commonwealth. And I think if we can fix that, then we’re going to get much better services over time, that’s why I fought so hard for these tax changes.

CORDEAUX:

A couple of other financial stories. I won’t hold you up, I know you’re busy. The story went round this morning that says, each Australian owes $20,550, which is something like $387.9 billion, that’s the debt that Australians owe. Is that worrying to you? Can we sustain that kind of figure?

TREASURER:

Well, I don’t know which figures you’re looking at. Are these personal credit figures that you’re looking at or are these foreign debt figures?

CORDEAUX:

No, no. These are debts that we’ve run up as individuals . . .

TREASURER:

Credit . . .

CORDEAUX:

This is a survey by the Grey Communications Company.

TREASURER:

Yes. Well, without, I haven’t seen the actual figure so I can’t vouch for their accuracy, but there is no doubt, I think probably over the last couple of years that Australians have been willing to borrow more. And that is something that we keep an eye on if it’s not backed by real assets. Now, some people are borrowing more because they’ve invested in the stock market and their shares are worth more than they’ve ever been before. Our stock market’s at record levels. Some people are borrowing more because the property market has risen and their homes are worth more. And if they’re borrowing against hard, solid assets then they’re not actually running down their savings. But if people are borrowing where they don’t have hard solid assets and they’re going into debt, that is a matter of concern. And people have got to be very careful with credits and make sure that when they borrow they’ve got the means to actually pay it back.

CORDEAUX:

So too would be of concern, this national gambling addiction which is costing $11 billion in one year. I don’t know how a Government can possibly address that, the genie is out of the bottle I would’ve thought?

TREASURER:

Well, I’m worried about gambling. I think that particularly in relation to poker machines and the like, which seems to have proliferated in the suburbs, there are people that are facing temptations that they haven’t faced in the past. And I was so concerned about it, we set up an inquiry, a national inquiry, Productivity Commission inquiry to actually look at gambling and to assess its social and economic costs and to make recommendations to us. I’m still awaiting that inquiry, but it is a matter of concern to us and I promise you that we will see if we can do something about it.

CORDEAUX:

Treasurer, thank you.

TREASURER:

Thank you very much Jeremy.

CORDEAUX:

Have a great day.

TREASURER:

Okay, thanks.