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 22/09/99

Transcript No. 99/69

Transcript
of
THE HON PETER COSTELLO MP
Treasurer

Interview with Howard Sattler
6PR

Wednesday, 22 September 1999
10.45 am

SUBJECTS: Business tax reform, East Timor, Victorian Election, Collingwood Coach

SATTLER:

Well joining me now is the man many in the WA mining industry and, well I don’t think I could go this far, but certainly the Resources Minister here might agree with some of them. They might like to drop him down one of their shafts today. Federal Treasurer Peter Costello. Good morning Minister.

 

TREASURER:

Good morning Howard, how are you?

 

SATTLER:

Good. Well the question I have to ask is why did you reject Premier Court’s overtures not to scrap tax benefits on infrastructure projects, particularly for mining, when everybody in the business here, in the State Government, predicted a significant impact on the mining business in our State?

 

TREASURER:

Well, this is a good proposal for the mining industry.

 

SATTLER:

Good?

 

TREASURER:

It’s a reduction in their company tax which has been welcomed by the mining industry.

 

SATTLER:

Yes, that’s the ones who’ve already got mines, isn’t it?

 

TREASURER:

Well it’s the ones that pay tax. I mean anyone that pays tax benefits from a reduction in corporate tax rates.

 

SATTLER:

Yes, but do you accept that for new projects starting up, that break that they used to get for new equipment was a good kick-start?

 

TREASURER:

Well, it depended very much on the company Howard, because another one of the complaints of the mining industry, a fair complaint, is it was a good kick-start if you had revenue to set it off against. So, you’ve got to look at these things in the totality. But, the good announcements for the mining industry is a reduction in the company tax rate, which has in fact been welcomed by the Mining Industry Council; immediate expensing of overburden; expensing of exploration costs; the chance to deduct expenditures, what are called black hole expenditures, which can’t currently be deducted. And the announcement that funds a lot of this is in relation to accelerated depreciation. Now, I mean, everybody would like everything of course, but that is a very fair deal overall for the mining industry, and when you put it together with the changes which come from indirect tax reform, mining has been a great winner out of the tax reform process.

 

SATTLER:

OK, but our Premier did approach you about this didn’t he?

 

TREASURER:

Well, I mean, I’m aware of the views of the West Australian Government.

 

SATTLER:

I mean forgive us for being parochial but mining is a pretty big deal for Western Australia.

 

TREASURER:

Yes, I know, and I’m aware of the views of the West Australian Government and what I was particularly aware of was that – are you still there Howard?

 

SATTLER:

Yes, sorry about that.

 

TREASURER:

What I was particularly aware of was that they were worried about the long-life projects, the really large projects like the North-West Shelf type projects. And as a result of their representations and other representations we’ve made provisions in relation to those projects. Now, I think it’s pretty fair and good deal for the mining industry. But, let’s also think that there are other industries in Australia and in Western Australia that are getting tax cuts today. All small businesses are getting capital gains tax relief. Farmers are getting capital gains tax relief. Individuals are getting capital gains tax relief. And, overall, looking at the whole breadth of society, as we have to, this is a great change in taxation.

 

SATTLER:

Well, we’d expect you to say that because this is your package.

 

TREASURER:

Well, you don’t have to just look at me. It’s been strongly welcomed by the farming sector, small business sector. I saw somebody on TV last night saying the best thing that’s ever been done for the small business sector. They’ve got a lower tax rate. They can deduct expenses up to $1,000. They’ve got pooled depreciation. They’ve got capital gains tax rollover. This would be the biggest breakthrough we’ve had for small business in Australia …

 

SATTLER:

So are you saying the mining companies and Colin Barnett and our Premier should stop bleating about it, that they should look at the overall picture and say this is a good one for Australia.

 

TREASURER:

Well, I think that they’ve got to look carefully at the Report and they’ve got to understand all that’s in the Report. I mean, you can sit down and say, oh well, look we had three wins and one loss so what we’d like to do …

 

SATTLER:

You do accept that there is one loss then?

 

TREASURER:

Oh, I accept that, where you are designing a tax system Howard, unless you’re going to abolish tax, to reduce taxes in one area, you’ve got to make changes in other areas. Now, I’m sure Mr Barnett would understand that point and I’m sure he applies that point when it comes to West Australian taxes.

 

SATTLER:

No, no, he, to be fair to him he has said that there’s a lot of positives …

 

TREASURER:

That’s right.

 

SATTLER:

… he says that for the mining start-ups it’s not good news. I mean we’ve got the native title problems over here and all of that …

 

TREASURER:

Sure.

 

SATTLER:

And he just says we didn’t really need this.

 

TREASURER:

Well, let me ask this. Is native title expenses deductible under the current taxation system?

 

SATTLER:

You tell me. You’re the Treasurer.

 

TREASURER:

Well, one of the things that we’re announcing, if this package goes through, is that they’ll get deductibility in relation to that. An enormous positive.

 

SATTLER:

What if they can prove that their …

 

TREASURER:

If it’s part of the business. If it’s part of the business and the company …

 

SATTLER:

You mean legal costs …

 

TREASURER:

Yes, legal costs, yes. Now, you know, I can understand Mr Barnett would say lower company taxes great, you know, deduction of expenses, great; deduction of overburden, great; oh well, depreciation won’t be quite the same as it’s been. Now, you know, you’ve got to look at things in totality. This is tax we’re talking about here. We can’t abolish every single tax. And I’m sure Mr Barnett isn’t proposing the West Australian Government abolish all of its taxes.

 

SATTLER:

No, of course not.

 

TREASURER:

He would understand very clearly that you’ve got to have trade-offs and this is a fair and good trade-off.

 

SATTLER:

OK. Now there’s also some criticism here that small business people will have to have had their companies for 15 years before they can be exempted from capital gains tax. We’ve got a 60 year old florist in the paper this morning who’s had his business for six or seven years complaining about that. They reckon 15 years is too long. What do you say to them?

 

TREASURER:

Well, what I say to them is this: under the Government’s proposal if you sell a small business and go into another small business, no capital gains tax.

 

SATTLER:

So he needs to go into another business.

 

TREASURER:

If he does that, that’s the first way. The second way is if you’re just selling a business and just taking the money, only 50 per cent of the business assets are taxable. Only 50 per cent. So that’s the second improved rule. And the third thing is if you’re selling a business that you’ve had for 15 years, none of it’s taxable. So, at the moment, OK this guy says well, or this lady, I don’t know which it is, the florist …

 

SATTLER:

That man, yes.

 

TREASURER:

Man says, he says, oh well I don’t get the benefit of zero capital gains tax because I’ve only held it for eight years. What he gets is a 50 per cent capital gains tax, which is certainly a lot better than he’s getting under the current taxation system. And he wouldn’t get that benefit if we aren’t able to introduce this new tax system and all of the benefits that come with it. Now this is one of the great things for small business …

 

SATTLER:

I’m just telling you about some of the people that are complaining.

 

TREASURER:

And it’s an improvement on the current situation. The man might say well I’d have liked you to have gone further. Well, Mr Barnett wants me to go further and everybody else wants us to go further. At the end of the day you’ve got to have some kind of tax system. I haven’t noticed the West Australian Government saying that it will forego its share of Commonwealth grants.

 

SATTLER:

No.

 

TREASURER:

And we’ve still got to raise revenues to ensure that we pay the grants for the hospitals and the roads and the schools.

 

SATTLER:

And the (inaudible) and everything. Yeah, good. Now listen, what is to stop individuals, and this is another thing Mr Barnett raised in my interview with him, people who are on top marginal tax rates, more of them, what’s to stop more of them from just incorporating it and taking the benefit of the lower company tax rate?

 

TREASURER:

Well, they can do that at the moment.

 

JOURNALIST:

So you expect more of it, do you?

 

TREASURER:

No, I don’t really because I think those people for whom it pays at the moment have probably already done it. And what’s the answer to this point, what does Mr Barnett say, if there’s a difference between the company tax and the top marginal income tax should we put company taxes up, should we?

 

JOURNALIST:

No he didn’t . . .

 

TREASURER:

Is that his argument?

 

JOURNALIST:

He just said he’d expect more people to incorporate.

 

TREASURER:

Well, I mean, really it’s an obvious point isn’t it. But what does it lead to? My point is, you’ve currently got the differentiation. Those that can do it most probably have done it already. Those that can’t do it, haven’t done it. But, I mean, there are two ways to fix that problem, Howard, aren’t there. One is to put company taxes up. That gets rid of the difference. And I don’t think Mr Barnett . . .

 

JOURNALIST:

Don’t do that.

 

TREASURER:

. . . or anybody else would be arguing for that. The other of course, is to bring marginal income tax rates down. Now, of course, we’d put a proposal to the Senate which was defeated to bring the rate down to 30 per cent for everyone up to $75,000. That was our proposal, it was defeated. But I’m very cognisant and aware of that position.

 

JOURNALIST:

Alright, I have the Federal Treasurer on the line from our Canberra studios. Now, talking about the Democrats, talking about the Senate. They say, the Democrats, they want to see a whole package because they want to see also what you’re going to do so far as anti-tax avoidance measures. When are you going to announce those? The Business Council man last night was saying, November. Is that right?

 

TREASURER:

Well, I’ve announced the bulk of them already and they apply from February. We announced some that apply from yesterday. And I said in relation to two particular proposals which aren’t avoidance measures but they’re proposals to tighten tax, that we would try and clarify the way in which it could be done and announce that in November.

 

JOURNALIST:

In November?

 

TREASURER:

Yes.

 

JOURNALIST:

Alright now . . .

 

TREASURER:

But they’re not really avoidance, they’re perfectly legal things like people that form companies to take advantage of company tax rates. And the proposal is, that you try and look at providing a test to prevent some people from forming companies. Now, it’s easily said that the devil’s in the detail as to how you actually go about that and I said we’d do some more work and announce in November.

 

JOURNALIST:

Do you expect any trouble convincing the Democrats to support this package?

 

TREASURER:

Oh, the Democrats have been pretty positive I think. Look, this is politics and the Democrats, I’m sure, you know, they’re not going to come out and say, well, the Liberal Government’s got it all right. I mean, they’re in the business of politics. So, you know, they won’t give us unanimous approval of every detail. But the fact that they’ve been as supportive as they have and the fact the industry reaction has been so good this morning, I think, indicates that we’ve worked pretty hard and we’ve come up with a pretty good package.

 

JOURNALIST:

Now while you’re there too, your mate Jeff Kennett’s in trouble.

 

TREASURER:

Yes, it doesn’t look good in Victoria at the moment. The counting didn’t go well yesterday. Too early to call, but it looks at the best that Jeff could do at the moment would be a minority government.

 

JOURNALIST:

Are you blaming him entirely for what’s happened down there?

 

TREASURER:

No, nobody’s doing that. Look, it was an unexpected result. Clearly mistakes were made. The Party will have a process of going through . . .

 

JOURNALIST:

You mean mistakes like gagging everybody else?

 

TREASURER:

Well, clearly mistakes were made. I’m not going to walk away from the fact that mistakes were made. And if they hadn’t been made you wouldn’t have the current outcome. So we’ve got to go through that and have a careful analysis.

 

JOURNALIST:

By the way, as Treasurer are you expecting the Defence Minister to come to you before the next Budget and say, that he wants to lift spending considerably for our forces?

 

TREASURER:

Yes. The fact that we have forces in East Timor today, and we’re going to have 4,500 troops, our biggest military engagement since Vietnam. And we didn’t expect it when we were drawing the Budget last year. I don’t think anybody expected 12 months ago that we’d have 4,500 troops in East Timor. It means that we will have to budget new money. This will have quite a substantial economic cost on the Budget.

 

JOURNALIST:

1.9 per cent of gross domestic product is not enough to spend on defence in the current environment is it?

 

TREASURER:

Well, when you spending you’re always looking at the risks and what you’re going to need. Now, that was good spending for an Australia which had no forces serving abroad and no immediate threats. We now have 4,500 troops on East Timor that we will have to ensure that those troops have full equipment, allowances, support, rotation, leave, it will require another brigade which we’re already raising, and it will have additional costs. I give this guarantee. The Australian troops in the field won’t be left short of a dollar.

 

JOURNALIST:

Is this going to put our income tax cuts on hold?

 

TREASURER:

No.

 

JOURNALIST:

We’ve got to pay for it somewhere.

 

TREASURER:

No. No. It means we’ll have to be tight with expenditure in other areas in order to fund this. The good thing about it, Howard, is people have often said to me two years ago, why do you need a budget in surplus? And the point I always made was, you don’t know what’s around the corner. When we put the Budget into surplus in 1998, we didn’t know that the Asian economic crisis would be the savaging that it was in the region. But we were in surplus and we survived it. We had the Budget in surplus, we didn’t know that we would have to have troops in East Timor 12 months ago, but we put aside money which can fund those operations. Now, we’ll have to be tight on other expenditures. But I give you this guarantee. That the Australian troops who are well-led, well-trained, will be well-resourced for this very, very important undertaking that they’ve got in East Timor.

 

JOURNALIST:

We’ll leave you there. Thanks very much, I appreciate your time today. And after 9.00am this morning the new coach of Collingwood’s going to be announced.

 

TREASURER:

And who’s that going to be?

 

JOURNALIST:

You’ve got one guess.

 

TREASURER:

Mickey Malthouse.

 

JOURNALIST:

You got it. See you later.

 

TREASURER:

See you.

 

JOURNALIST:

Alright. That’s the Federal Treasurer, Peter Costello.