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 28/07/99

Transcript No. 99/54

TRANSCRIPT

of

THE HON PETER COSTELLO MP

Treasurer

Interview with Philip Clark – 2BL

Wednesday 28 July 1999

8.30am

E&OE

SUBJECTS: PNG, Tax reform, Republic, Productivity Commission

CLARK:

Mr Peter Costello. Mr Costello, good morning.

 

TREASURER:

Good morning Philip.

 

CLARK:

How are you?

 

TREASURER:

I’m well thank you.

 

CLARK:

You’re off to Papua New Guinea?

 

TREASURER:

To Port Moresby today to meet the new Government, the new Prime Minister. This is obviously an opportunity for PNG to get a bit more stability than they’ve had. They’ve had some very difficult economic problems and I’ll be going up to discuss those with the Prime Minister and other Ministers.

 

CLARK:

And making economic (inaudible) . . .

 

TREASURER:

Well look it’s . . .

 

CLARK:

You adopted that language . . .

 

TREASURER:

It’s been a bad period. They’ve had trouble in relation to their currency and in relation to their reserves. There have been some bad decisions under the previous administration in relation to recognition of foreign countries and they have been at odds with the IMF and the World Bank for quite some time. And there’ll be a World Bank / IMF mission going to PNG pretty soon and we will be urging them to make contact again, get economic reform back on track and take the opportunity to start rebuilding the economy.

 

CLARK:

By all accounts Sir Mekere is a different kettle of fish. There is some optimism there that he might be able to put things back on the rails, isn’t there?

 

TREASURER:

I think Sir Mekere has indicated that he’s in for the long haul, that he believes in the importance of the economic restructuring, that he wants to re-establish contact with the World Bank and the IMF. The country is in a pretty exposed state and it’s necessary for a lot of economic rebuilding and also to clean up the political situation.

 

CLARK:

What can we do? I mean, for years most of our foreign aid budget, of course, goes to PNG. What can we do, practically other than to offer, you as Federal Treasurer, to offer some sound advice?

 

TREASURER:

Well, we’re doing a couple of things. One is in relation to our aid, we’ve increasingly made that programme orientated. Rather than just give a lump sum, we have increasingly said we want the aid to be used in particular areas in particular projects so that it’s not syphoned off. And we’ve increasingly been moving towards that. The second thing is, if you’re going to take loans from Australia or the World Bank or the IMF, it shouldn’t just be money for jam, it should be money to see through various economic reforms. They’ve got to clean up their tax system, make their tax system work. They’ve got to make sure that they’ve got budgets which they can afford. A very serious situation in relation to their budget at the moment. They’ve got to have a strong foreign reserve policy so they can cover imports. They’ve got to make sure that the industries they’ve got, the thing about PNG is they have got some great industries, you know, it’s a very wealthy country. The mining industry in particular.

 

CLARK:

Resource rich country.

 

TREASURER:

Very resource rich. And if those resources are properly managed and cleanly managed and efficiently managed it can actually be quite a rich country.

 

CLARK:

Alright, I’ll be intrigued in your views after your visit actually. Back home, the GST, well it’s been put to bed as far as the Government’s reform agenda is concerned and we’re now down to the details of implementation and so on. The capital gains tax start up assistance office of whatever it’s called . . .

 

TREASURER:

GST start up . . .

 

CLARK:

Did I say capital gains tax?

 

TREASURER:

You did, yes, it’s on your mind.

 

CLARK:

It is on my mind.

 

TREASURER:

You’re thinking of your shares.

 

CLARK:

I don’t have any shares. The GST start up assistance office will be providing help to businesses. There have already been complaints from small to medium sized businesses that the cost of the changeover is going to be huge, far in excess of what the Government has estimated. Have you re-thought your, or the possibility of providing some extra assistance?

 

TREASURER:

No. Let me say how we’re going to go about implementation. We’ve got until 1 July 2000, we’ve got about 11 months left. We’ve now set up a private sector board, which is chaired by a chap called Chris Jordan, well known accountant here in Sydney, which is going to be directing the overall strategy. We’re going to have a start-up assistance office working in accordance with that strategy. And that’s been allocated $500 million for implementation issues, both for the small business sector and for the charity and education sector.

 

CLARK:

But no one says that’s enough, do they?

 

TREASURER:

Well, a lot of that money is going to be actually directed towards peak organisations who are going to be training their members and providing products for their members. Outside of that, we’re going to have an advertising campaign, which I believe is going to start on Sunday, to start advertising information. And we’ve set up call centres that are now being heavily used in relation to getting the information out. So, an 11 month campaign of public education, headed up by a private sector board, The Board for the New Tax System – the BANTS, and the campaign ready to go into swing from Sunday night.

 

CLARK:

Yeah, alright. The GST’s off the agenda, the Government really has to set some priorities in tax reform for the future, you can’t rest on your laurels with this. And business tax is clearly looming as the next big thing.

 

TREASURER:

Yes.

 

CLARK:

The Government gets the Ralph Review on business tax, I understand, on Friday.

 

TREASURER:

Well . . .

 

CLARK:

Is it still the date?

 

TREASURER:

Well, I inquired, it may be Monday.

 

CLARK:

But it was due on Friday.

 

TREASURER:

It was due on Friday. I was looking forward to reading it on the weekend . . .

 

CLARK:

I’m sure.

 

TREASURER:

Perhaps I’ll get a weekend off.

 

CLARK:

Will the Government release the report once it’s been handed over?

 

TREASURER:

What we’re going to do is, we are going to look at it. I’m going to brief the Cabinet on it. I expect that Cabinet will take some in-principle decisions and then we’ll release it.

 

CLARK:

There’s been some suggestion that the decisions, the decisions might be made after the release to enable some degree of consultations, discussion and input into that process, but it’ll be decisions plus release the report all at once, will it?

 

TREASURER:

Well, there’ll be some things in it that are market sensitive and you put a recommendation out for a big tax change which can affect behaviour, it can affect prices, everyone wants to know immediately, what’s your response. And we want to be able to say, well, here are the recommendations and here are the responses. I’m not saying it’s going to be on every last detail, but in relation to the overall thrust of the report. Now, this consultation issue, we have been consulting on this for 12 months. Mr Ralph is a businessman, he was joined by Rick Allart, Bob Joss, who are also businessmen. And they were asked to go around and to consult with business and to bring recommendations to us. This has been going on now for 12 months and the business consultation has been extensive, even to the extent where they’ve got groups in and they’ve run proposals through them. They’ve even run proposals through companies to see how they would affect companies. Now, that’s coming from the business sector to us. The critical question is, people want to know what our response is going to be. So, we’re going to get the report, we’re going to have a look at it, we’re going to indicate what our response is and release the report at the same time. It’s precisely the mechanism that we used in relation to the financial review which was done by Stan Wallis. Stan Wallis came up with his report, the Government considered it, the Government said we’re going to do this, this, this and this, and everybody knew where they stood.

 

CLARK:

Alright, where’s the direction, the Government’s direction here? We’re looking at what, a 30 per cent flat tax rate? 20 per cent flat tax rate? Because all of these issues are going to have to be fought through the Senate, aren’t they?

 

TREASURER:

Yes, yes they are, yes.

 

CLARK:

And as you know from the GST things ain’t so easy up there, even less easy these days.

 

TREASURER:

Things are not easy in the Senate, yes I agree with that. And we’re going to have to argue our case again. But I make, sort of, two points. One is, this is revenue neutral. So, if you happen to be a Senator you can rest assured at the end of the day what we’re aiming for is the same amount of tax to come out of the business sector, but to get it in a more efficient, simpler, pro-economic development, pro-job way. Some of the big issues that are going to be considered by this are capital gains, obviously that’s on the agenda. We asked the review to look at capital gains tax simplification, rates, the incidence of it. Questions of the company tax rate. We’ve got a 36 per cent rate at the moment, whether we can lower that rate . . .

 

CLARK:

I mean, you’re going to want to lower that, aren’t you?

 

TREASURER:

Well, I think we ought to make sure that our business tax system is competitive. I’d like it to be one of the most competitive in the world. Why? Because I want more companies here doing more business, creating more jobs. And if you can get a competitive business tax regime which still raises revenue to pay for your other social obligations – your schools, your hospitals, your aged pensions and so on – that’s what you ought to be aiming for.

 

CLARK:

What’s your preferred rate? What would you like to see?

 

TREASURER:

Well, I would like to see a low, competitive company tax rate, which makes us a great centre for business in this region. Look, we have a historic opportunity in this country at the moment. When the whole of Asia went into recession, Australia grew and outperformed the world. And there are people sitting around the world saying, that Australian economy looks pretty strong. Why don’t we use Australia as a base for our business operations in Asia. It’s got a good financial system, it’s got low inflation, low interest rates, growing, more jobs being created, good legal system, talented workforce, all of the things that are running for us at the moment. And if we were to fix our tax system, I think we could make this a fantastic business base. And a fantastic business base which will create jobs for Australians. So, I want to get a competitive low business tax regime because I think it will be good for our economy.

 

CLARK:

As you know, there’s heat from parts of the National Party about the proposal to tax trusts as companies, for example. Have you had any further thoughts on that, it’s just an example of one of the line of thoughts that are going around?

 

TREASURER:

Oh yeah, look, these are complicated issues, technical issues and once you start reading about business tax your mind goes into absolute overdrive because it is so complicated.

 

CLARK:

When do you want a package through though and in place?

 

TREASURER:

Well, some elements we want in place by 1 July next year. That’s another reason why we’ve got to keep moving on this. Some of the elements that . . .

 

CLARK:

Might you cut a deal in this case with the Labor Opposition and therefore bypassing your problems in the Senate with the Democrats?

 

TREASURER:

If they want to start being constructive on tax reform they should be encouraged to do so. Look, they dealt themselves out of tax reform. They said, we’ll go the cheap populist road for votes and they became irrelevant. They just completely dealt themselves out on income tax, indirect tax, Commonwealth-State relations, you know, ran around holding up chickens and salads in the Parliament and dealt themselves out. If Labor wants to become relevant and says, right, we will join you to reform the business tax system, we’ll look at that seriously. If they don’t, the Democrats will be the key second force in Australian politics as they were in relation to previous tax . . .

 

CLARK:

They’re going to want things that worry, that have worried people for sometime, like, for example, the perception that big corporates don’t pay enough tax. The published tax rates of 10 per cent and lower for big corporates are fluttered around as matters of pride by big corporates. It doesn’t impress voters much, does it?

 

TREASURER:

No, I don’t think it does. And one of the reasons is that you could look at headline rates, but if there are all sorts of concessions in the tax system that can be used, the taxable income, that income that is subject to the headline rate can be dramatically less.

 

CLARK:

That’s part of the thing that Ralph’s designed to fix isn’t it, to make it simpler?

 

TREASURER:

And again the basic principal, I think, should be simplicity, broader base and lower rates. And I think that’s one of the things that you can say to the public. Look, it’s like indirect tax. I always used to make this point on indirect tax. The broader the base, the lower the rate. Company tax is the same thing and not only is that reassuring for voters, but it’s simpler.

 

CLARK:

Alright look, a few other issues. The front page story this morning reporting a study by BIS Shrapnel, a well known economic forecasting group, which says, look, the increaseing cost in houses in Sydney is what, $14,000. Well in excess of the Government’s first homeowners compensation scheme to compensate for effects of the GST. You’ve got your figures wrong here, haven’t you? Not just for Sydney, for around Australia according to these figures?

 

TREASURER:

Well, I think BIS has got it wrong.

 

CLARK:

Why would they get it wrong, they’re a reputable forecasting group?

 

TREASURER:

Well, they’re in the business of publicity and . . .

 

CLARK:

What, you reckon they’ve cooked the books, have they?

 

TREASURER:

No, no. I think they’ve made a couple of errors. One is they have not allowed for the current wholesale sales tax embedded in housing costs and they haven’t totally discounted that. Second is, they have not properly treated the margins on land packages. When you do that, as our modelling has shown, I think it’s been supported by Econotech that the first homeowners scheme will be sufficient for construction costs of up to $150,000. You’re talking about first homebuyers, I’ll concede this point. If you were buying as your first home a million or $2 million property - $7,000 would not outweigh the GST impact on a $2 million construction. How many first homebuyers are buying $1 million or $2 million properties as their first home? We say that the first homeowner’s scheme is sufficient to cover a construction cost of up to $150,000 which I think is a pretty generous construction cost for a first home.

 

CLARK:

It’s not going to be enough though is it? It’s going to cost you more, in Sydney.

 

TREASURER:

Well, how many first home buyers - I’m not talking about land component, I’m talking about construction cost- are buying houses that are more than $150,000 in construction cost?

 

CLARK:

Alright. Public transport fares in New South Wales. The State Government, last Friday after the close of business as these things always seem to be, announced a 14 per cent increase in public transport fares. Now you’re trying to keep the inflation rate low. What do you think of that?

 

TREASURER:

Well look, I want to keep prices low. Looking at the national economy perspective that will add to inflation. In fact, we’re going to get inflation figures today.

 

CLARK:

Still, it’s a more rationale fare basis. Two things are operating here, aren’t they?

 

TREASURER:

Well I don’t know what they took into account, but you asked me as a Federal Treasurer, what do I want? I want low inflation. Obviously, price rises feed into inflation. It’s a funny thing isn’t it, that price rises and taxes and charges can feed directly into inflation. We’re all better off if inflation is low. We’ve had a period . . .

 

CLARK:

I mean, things like this by State Governments don’t help though, do they?

 

TREASURER:

No, they don’t help me, no. But, I’m not in charge of fares and I haven’t read the report, but you asked me what my view is. It doesn’t help inflation and I care about inflation. We’ve had a period in Australia where inflation has been around 1 per cent for the last three years. Do you realise we have not been in a position like this since the late 1960s. These are the rates of Bob Menzies and Harold Holt. And we haven’t seen rates like it since, all through the period of the seventies and the eighties and the nineties. And low inflation is good for an economy.

 

CLARK:

Eleven to nine, my guest is Federal Treasurer, Mr Peter Costello. The Newspoll in The Australian this morning showed that the Republic is in big trouble. This is the second poll in as many weeks, which would indicate that support for the Republic around the country has seemed to have dropped. Today’s poll seems to indicate the drop is amongst younger people as well. You’re a Republican, you’re saying you’re voting (yes) in the November referendum. It needs a git of a gee up, doesn’t it, from people like you?

 

TREASURER:

I think the campaign needs a gee up, yes I do. I don’t think it’s properly started yet and there are committees on either side. I’m not on either of the committees that are apparently going to publicise the case and go through the arguments.

 

CLARK:

But you’d have to say on the moment, it’s not going to get up, is it?

 

TREASURER:

I wouldn’t say that. All referenda are hard to get up, aren’t they? We know that because very few have got up in Australia’s history.

 

CLARK:

Do you plan to take a more active role? I mean, seriously, you’re one of those on the Republican side who say, this would be a good thing for Australia.

 

TREASURER:

My view is, that Australia will one day replace its monarch with a president. And what’s more, I think that that would be a good thing for Australia . . .

 

CLARK:

November is the time when we’re going to decide . . .

 

TREASURER:

. . . and what’s more, I think it would be a much better symbol for our country. Now, the arguments in relation to the referendum will be a hard argument because referenda are hard to carry. I think it’s important that people consider and weigh the arguments properly. I think it’s important that there is a mature debate in relation to this. I don’t think this is a debate which would turn on a slogan . . .

 

CLARK:

But are you going to take a more prominent role?

 

TREASURER:

I’ll be stating my views during the course of the referendum. But I’ve always said, everything in its place. First thing I’m going to do is reform the tax system. After we’ve reformed the tax system then we can move on to the Constitution.

 

CLARK:

Just one quick one before you go. The State Ministers last week, decided they’d like a Productivity Commission inquiry into the health system, that’s your baby, that is the Productivity Commission if not the health system - and your probably thankful. But, would you support the Productivity Commission inquiry into the way the health system’s financed?

 

TREASURER:

Well, we’re still dealing with the last one. We had a Productivity Commission look at health insurance. And we’re still dealing with that. One of its big recommendations, you might remember it, which I announced in the Budget was this lifetime community rating for private health insurance. Where you get a rating for life. The earlier you come into health insurance, the lower your premium and you keep that bonus, it’s like a bonus for life. So we haven’t implemented that, so my view is we should implement the recommendations of the last report before we get on to a new one. But I will say this. The Productivity Commission, I think, is a very good institution. I think the report that it did on gambling was one of the best reports we’ve ever had.

 

CLARK:

It had a lot of impact, didn’t it?

 

TREASURER:

I think when people look back on that gambling inquiry, they’ll say it was a critical thing for Australia. I mean, here we were, we had this huge gambling industry going on out there. Nobody had ever looked at it before. I asked the Productivity Commission to look at it and I think people were astounded by the results. I was absolutely astounded, I think as most people were, to find that we had over 20 per cent of the world’s gaming machines.

 

CLARK:

It’s gambling though, we need a similar inquiry into health, don’t we?

 

TREASURER:

Well, as I said, we’ve done one in relation to health insurance and we are dealing with health insurance and I’d like to finish that one before we start anymore.

 

CLARK:

Okay, alright. My guest has been the Federal Treasurer, Mr Peter Costello. It’s seven to nine. Mr Costello, you’re a well-known Essendon Bombers fan. On Saturday night at the SCG the Swans will take on the Essendon Bombers, I’m a well-known Swans fan. I’m hesitant to predict a crushing defeat. I think it will just be a small defeat for the Essendon Bombers. I see you were encouraged this morning, I was looking on the net this morning and you were very encouraged by the fact that James Hird is back in a few weeks.

 

TREASURER:

Great, yeah, it’s great. I’ll give you four goals in.

 

CLARK:

Dear oh dear. I can’t take it. I’m shaking his hand, what am I doing? I’m a fool. Thanks Mr Costello.

 

TREASURER:

Thank you very much