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 26/07/01

Transcript No. 2001/102

TRANSCRIPT

of

THE HON PETER COSTELLO MP

Treasurer

Doorstop

Melbourne

Thursday, 26 July 2001

12.45 pm

SUBJECTS: Rollback, Taxation Policy, petrol, double taxation

TREASURER:

Well, the Labor Party has a problem, and it is this. How do you rollback the GST and still fund social services? Because every time you rollback the GST and you raise less revenue it means you have to increase income tax to pay for it. There is a reason why Labor wont release the rollback policy they are ashamed of it. They are ashamed of rollback now because once they release rollback we will be able to tell how much the increase in income tax will be that will be required to pay for it. Now, Mr Crean cant release his policy, so he puts in hysterical performances, like he did today, trying to cover his basic problem, which is rollback narrows the indirect tax base and to make up the tax you have to get it from the direct tax base, from income tax. This is Labors problem. This is why they are ashamed of rollback. And that is why they engage in hysterical cover stories to try and cover that fact. No allegation against the Government, no false allegation, no matter how hysterical, can cover Labors problem. If you rollback GST you rollup income taxes.

JOURNALIST:

Mr Costello, can you please explain what you meant last night by saying you have to broaden the indirect tax base in order to fulfil Australias social service obligations?

 

TREASURER:

Well, that is not what I said last night. What I said last night was, our indirect tax base funds Australias social service obligations, and if you roll it back you have to increase income tax. If you roll it back you have to increase income tax. If you keep it in place it funds Australias social services. GST today funds the salary of every school teacher in every classroom in every school in Australia. If you roll it back you either take teachers out of classrooms, or if you want to keep those teachers in classrooms you have to increase income tax. Rollback of GST means rollup of income tax. And that is why I say to the people of Australia, the rollback policy is misguided and wrong. It either means less social security or higher income taxes.

JOURNALIST:

So will the GST rate be increased or not?

TREASURER:

If Labor rolls back the base of the GST it could try and increase the rate, but more likely, because that would be so hard, it will increase income tax. You have got to understand this, if the GST is on a narrower base you have got to get additional revenue from somewhere. It could try and increase the rate, but I think we put in place a mechanism which would make that very hard for them. So what it will do is it will try and increase income tax. And that is why Mr Beazley said 2 weeks ago he doesnt think Australians pay too much tax, no he doesnt, he thinks they should pay more. And he needs them to pay more to fund the rollback policy. And the reason he wont release the rollback policy is the moment he does they know how much more income tax they would have to pay to fund it.

JOURNALIST:

What about under a Liberal Government, can you rule out any further rises in the GST?

TREASURER:

We are going to keep the base as it is, which means there is never any need to increase the rate. If you keep the base where it is there is never any need whatsoever to increase the rate. But if you narrow the base, if it applies to a narrower base, you have to go back to higher rates. That is where we were when we had a narrow Wholesale Sales Tax, the rates were 12, 22 and 32 per cent. When we broadened the tax base we could bring it down to 10 and cut income tax. But if you narrow the base, if you rollback, rates have to go up. And the only way to keep rates down is the keep the base as it is.

JOURNALIST:

The Taxpayers Association are saying you have let the cat out of the bag. What do you say to that?

TREASURER:

Well, this Government has cut income tax by putting in place GST. If we keep it we can keep income tax low. If you rollback the GST base, if the Labor policy is successful, income tax rises. It has to rise. The money has to come from somewhere.

JOURNALIST:

Will you further reduce income tax?

TREASURER:

Well, we have been able to cut income tax by introducing GST. The income tax rate for a person on average wages now, the top rate is 30 per cent when it used to be 43. But if you rollback GST that rate will go back up. It would have to go back up from 30 to 43. The only way to keep the income tax rates low is to keep the indirect tax base in place. Rollback, which means narrowing the tax base, means rollup in terms of income tax that Australians will have to pay.

JOURNALIST:

But will you reduce income tax(inaudible)?

TREASURER:

Well, we have already reduced income tax. We have already reduced income tax

JOURNALIST:

(inaudible)income tax.(inaudible)?

TREASURER:

and we can keep those income tax cuts in place with GST. But the thing that threatens income tax cuts is rollback. That is why we are opposed to rollback. And that is why Labor wont tell you what rollback is. But I think the argument could be settled today if the Labor Party released its rollback policy because than we will know how high those income tax rates would go under rollback, and everybody would have it.

JOURNALIST:

OPEC is cutting production. Do you see a return to higher fuel prices for Australia?

TREASURER:

Well, look, the fuel price has come off principally because the world oil price has come off. The world price has come off for two reasons. One is that we are now in a northern summer which means that the demand out of the northern hemisphere is lower. The second is that the world economy has slowed, so demand has lessened. If production were to be cut it could put pressure back on the world oil price. So we dont want to see any cuts in production. We want to see full production in relation to oil because for Australian motorists that means they get lower petrol prices at the bowser.

JOURNALIST:

Mr Costello, there are reports about the re-negotiations in overseas company tax rates. Can you confirm that is correct?

TREASURER:

We have had a round of negotiations with the United States over our double taxation agreement. And one of the things that has been the subject of discussion in those negotiations has been withholding tax on income earned by Australians in the United States. That is still the subject of negotiation. No agreement has yet been come to.

JOURNALIST:

Are you confident an agreement will be reached for a more conducive tax regime for Australian companies operating offshore?

TREASURER:

Well, we want to improve the taxation regime for Australian companies, yes we do. And we would like to see a reduction in the American tax rate on American earnings by Australian companies. So that is one of the reasons why we are pushing that in these negotiations. But you have to remember this, what a negotiation is about is trying to get an agreement by another country to cut their tax rate. And unless you get their agreement they wont do it. So, we are pushing that as hard as we possibly can for an agreement.

JOURNALIST:

Just one last one. So you can finally rule out once and for all that there wont be any increases in the GST should you retain Government?

TREASURER:

Under a Coalition Government there will not be increases in the GST because we keep the base the same. I cant rule it out for Labor, because if Labor narrows the base, they may try and increase the GST rate or more likely increase income taxes. But we put the GST in place at 10 per cent, because at 10 per cent on the current base you can fund social services. You cannot do that on a rolled back base. You cannot do it. So they will most probably put income taxes up. And that is why I say, Labor should release rollback today because once they do we can tell you how much they will be increasing income taxes. If Labor releases rollback today, and they have been working on it now for, what, 3 years, we could tell you today how much income taxes would have to rise under Labor to pay for it. And that is their problem, that is why they are ashamed of their policy and that is why they wont release it.

Thanks.