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 03/08/01

Transcript No. 2001/107

 

 

TRANSCRIPT
of
HON. PETER COSTELLO MP
Treasurer

Interview with Paul Murray, 6PR
Perth
Friday, 3 August 2001
8.40am Perth time

 

SUBJECTS: Tax, Rollback, Tax Effective Schemes

MURRAY:

The Federal Treasurer, Peter Costello joins me in the studio now. Good morning to you.

TREASURER:

Good morning Paul.

MURRAY:

Good to see you again.

TREASURER:

Great to be here. I'm sorry I'm a bit late.

MURRAY:

You brought some rain to town?

TREASURER:

Yes. John Howard brought some last week and I've brought some today.

MURRAY:

Okay, we'll be checking the gauge later to see who's been the most successful.

TREASURER:

(laughter) My rain's bigger than his rain do you think?

MURRAY:

Now, the political debate this week's been somewhat dominated by talk of tax cuts. And I sort of blame, in some ways, my own business, the media business, for that because it seems that the media are incredibly, find tax cuts a very sexy thing to talk about. They think everyone's going to be interested in it. But I don't think we ever looked particularly at the other side of tax cuts, and the issue I want to take up with you today is this, the public's continuing demand, continually demanding better public services from government especially in health and aged care which rely very much on federal funding, how do governments meet these demands, while all the vote-chasing rhetoric these days seems to be about tax cuts, which leads to lower revenue?

TREASURER:

Sure. Well I think you have put your finger on the point. The public wants good services and the public wants low tax. And what, when we looked at the great challenge of that, we said that the way you can meet the public's desire for good services and minimise taxes, is with GST. That is why we did GST. GST is a tax which taxes the consumption of goods and services, and all of the revenue goes to the States and it will fund decent basic social services because it is a tax which has a broad base. That's why we did it. And all the way through that debate people were saying "Oh well we don't like GST," or grumbling about GST, we did it for that reason. Having done that, what we can now do is we can keep the weight off income taxes. But the debate that is going on, is, Mr Beazley has been taking the cheap shot all the way through. He says he's against GST. Well that's fair enough. How is he going to fund his social services? It means he needs higher income tax. So we're now getting, I think, a much more balanced debate, Beazley tried to make out as if it was a debate about whether you wanted a GST or not. No it wasn't. It was a debate about whether you wanted a GST and lower income taxes, or whether you want a Rollback and higher income taxes. And that is a debate that is taking place now, and I think that's a real debate because there are two real choices out there.

MURRAY:

At this stage if you add up what Rollback actually means in terms of dollars and cents, with just the things he's talking about, like the GST on tampons and caravan parks and things like that, it doesn't amount to a hill of beans. He's not going to need any extra income tax because there's hardly any revenue involved there.

TREASURER:

Well, if he is going to give up the Rollback policy, that's the critical question isn't it. For three years now, he's been banging on about how the GST is the worst thing that has ever hit the world, the known world as we have discovered it, and he's been saying he is going to roll it back. Now, you're saying well he's going to give that policy up. If Kim Beazley comes out and says: "Well I never really was against the GST. I'm not intending to roll it back to any significant degree," that would be one thing. But that's not his position. He's been banging on for three years now about Rollback.

MURRAY:

Well we know that Rollback doesn't mean 8 per cent or 7 per cent or 6 per cent. We know that. So in real terms there's not a lot for him to play with, from what we've seen so far unless he's got something up his sleeve that no analyst has yet been able to find.

TREASURER:

Well shouldn't we settle the argument by having a look at Rollback?

MURRAY:

Well, we'd like to see it.

TREASURER:

You know, we're all sitting around here saying: "Oh it could mean this or it could mean that.", he's been banging on about it for three years, right. Do you think he could just let the public have a little bit of a look at it? I get the feeling like you Paul, he is so ashamed of it, he won't release it. But if he did release it, then we would know whether he's been serious in opposing the GST and he'd tell us how he's going to fund his rollback. If he's going to give it away, then I don't know what we've been arguing about for the last three years because we've been in heated agreement, haven't we?

MURRAY:

Yep. Let's talk about income tax because that's what the PM put on the agenda this week. Is the top tax rate too high at 48.5 cents in the dollar? The head of your consultative committee on tax reform says it is and he says he wants it down to 30 cents.

TREASURER:

Well I don't think you could take it down to 30 cents in the near future. What I think about that top tax rate at 48.5 is, that, it used to cut in at $50,000...

MURRAY:

Now cuts in at $60,000.

TREASURER:

We pushed it out to $60,000. We actually in our original plan were proposing to push it out to $75,000 remember, and Beazley and the Senate opposed that. So, I think what you have got to continue to do, is, to work on making sure that those thresholds are such that they don't cut in too early. Now...

MURRAY:

Sounds like you're satisfied with the rate of 48.5 but you're not satisfied with the threshold?

TREASURER:

Well, we pushed the threshold out for that reason. And the other threshold that we pushed out was the one for average earners. You have got to remember, before we put in place our income taxes on 1 July last year, an average earner was on a marginal tax rate of 43 cents. And we have got that down to 30. You don't pay, you don't pay a rate above 30 per cent until you go over $50,000 now. But prior to our tax plan, you used to go on 43 at $38,000. So we kicked that right out. The average earner used to be on 43 cents, he is now on a top marginal rate of 30 cents and I think that's the trick in relation to tax is to keep people who are average earners out of those higher brackets. We've been able to do that, but we couldn't have done it if we didn't have GST. That's the point. If you want to rollback GST you've got to roll up those rates again.

MURRAY:

So are you going to go to the people with changes to the tax scales?

TREASURER:

Well...

MURRAY:

Which in effect offer tax cuts?

TREASURER:

The point I've made is, because we did the big, heavy lifting of tax reform, we were able on 1 July last year to push out those thresholds quite significantly. If you keep the GST in place, you can keep the pressure off income tax. If you want to roll it back, income taxes have got to rise. Now Mr Beazley wants to put a Rollback plus income tax rise policy out there, we don't agree with it, we'll debate it. But we don't know until he puts Rollback out.

MURRAY:

Because if you, if you want to pull down income tax as your tax consultative committee is asking you to do so, then it raises the question that you're going to have to get the revenue to meet what I say is this continuing demand for better services, you're going to have to get the revenue from one of a couple of sources. One of them would have to be an increase in the GST, and you've got to be vulnerable there, if this talk continues about bringing down this tax rate, or raising company tax which is at 30 cents now and is the lowest we've seen in Australia for many, many years.

TREASURER:

Well, that's why we put the GST in place so we could bring down income tax and bring down company tax. And if you leave the GST in place, you can sustain both of those. But the way I explain it is this. You probably heard me say during tax reform, the broader the base, the lower the rate. You know, if you think of the area of something, if it's one metre wide it's got to be ten metres high to get ten square metres. But if it's ten metres wide it's only got to be one metre high to get ten square metres. If you have a broader base, you can have a lower rate. That's the whole idea of a GST. Broad base - low rate. We used to have rates of 12, 22 and 32 per cent, because, we had a narrower base. We've now got a broad base, 10 per cent. But if you want to narrow that base, you've either got to put the rate up, or some other rate up. Now, the worst thing you could possibly be arguing for at the moment is narrowing the GST base. We went through all of these things so we could have a broad base. If you've got a broad base you can have a low rate. It doesn't go up. But if you start narrowing it, rates will go up somewhere else. And that's why I say, look, the GST was the right thing to do. Even Mr Beazley knows that now. Why run around and talk about this Rollback business. He ought to give that policy away. In fact, if you're right he is giving it away. But if he'd put it out we'd know, for certain.

MURRAY:

Well, yeah I mean, he doesn't have to give it away, because we haven't actually seen much...

TREASURER:

Well...

MURRAY:

... of it, I mean that's been the big issue. And okay he's vulnerable on that and we'll take that up with him at one time. I want to raise with you the question of these tax effective schemes, these tax minimisation schemes or whatever you want to call them, but there's been a crackdown. This sheaf of emails here, there's about 15 of them, have come in ever since I started talking on the show that you were going to be a guest. And they're from Australians, West Australians, caught up in this who are suffering badly. I'll just give you just a little taste of one of them from a guy called Hamish. He says: " My wife and I owe more to the ATO than we are worth. We invested in good faith in projects for the future of Australia. We performed all the due diligence we possibly could and now have the ATO knocking on our door for $80,000 for investments in managed projects from 1995 through to 1999. Please ask Mr Costello the following: I paid hard cash $10,000 into a managed business tea-trees and I borrowed $20,000 against future earnings giving me a total of $30,000 in expenses and the manager I paid, declares receiving $30,000. He paid tax on that. Why is the ATO coming after me, saying I owe tax. The reduced tax benefit I got on my direct income was made up by the tax paid by the manager."

TREASURER:

Well, the common feature of these schemes seems to be that you invested a certain amount of money, but you got a tax deduction that was much greater than your investment. That seems to be the common feature, like, and I think the standard one, is, you invested $10,000 but you got a tax deduction for $40,000. And because you got a tax deduction for $40,000, the tax deduction was greater than your investment. That seems to be the essence of these schemes. These matters are going to the Court, and I think that's the appropriate place for the Court to decide whether these were tax effective schemes or not. They're always called tax effective schemes, but that's the question; were they actually effective? Were you actually able to get that very large deduction for a smaller investment? The Commissioner of Taxation has announced waivers in relation to penalties and interest, but I think the Courts should determine whether or not tax was payable, whether these schemes were in fact tax effective, and I think those cases have got to be brought on with all due haste.

MURRAY:

Yep. Retrospectively that might give some justice to these people. But in the meantime, the damage is immense. This guy called Doug says: "I'm one of the so-called tax cheats that have been causing the collapse of the Australian economy according to the Tax Commissioner Carmody. It's just not true." He goes on to tell me that his Dad's a pensioner in the UK, he says he can't even pay his bills, he says there's no way I wanted to be like that in my retirement. I went to a registered Financial Planner to see what I could do about it, he invested in. Budplan, one of the ones we know...

TREASURER:

That's before the Courts... (inaudible)

MURRAY:

Yes that's right. But he says: " I had to sell our family's house in Woodlands to pay just 50 per cent of the alleged tax debt, because his wife just freaked. She got a letter from their accountant saying: "Please find enclosed your final notice for $46,233.". And this is on an investment of much less than that. He goes on: "Unless you pay this amount immediately the ATO will start legal action to recover the debt without further notice to you." He said, we saw our only way out to sell our house, they're now renting, he says he's been a Liberal voter all his life, and he says he'll never vote again because of the tactics used by the Tax Office. Now was this just too heavy handed? The Tax Office did treat these people, many who just took advice, as if they were crooks.

TREASURER:

Well as I see it, there are too separate issues. There is, was tax payable by the investors? And that's a matter for the Courts. If the Courts say there was no tax payable well, there's no tax payable. But the general opinion seems to be, that the Courts are going to say that tax was payable, and that is one issue. I think that's a matter for the Courts, have to settle. The second question that arises is should these people be liable for penalties and interest and I think what the Commissioner has said, is, that for the innocent investors there's going to be a minimal interest rate, he's going to waive all those high interest rates and a substantial amount of the penalties. So I think the Tax Commissioner has made a decent offer in relation to that. But the primary question, and this is a matter that can only be resolved by an independent Court I think, is, was the tax payable in the first place. Now as the Treasurer, I can't say to people, look, you know, the Court says that you are liable for tax, you don't have to pay it. That's why we have an independent Court system in this country. The Courts decide whether or not these schemes are fair. Now the Budplan as I understand it, has already been heard for a couple of days in the Court and they're expecting the Court to finish hearing that case, well certainly before the end of the year, in the next month or two, as I understand it.

MURRAY:

But what about the activities of the Tax Office? Are you happy about that? It does appear to have caused massive hurt to many people who thought they were investing in good faith. And many of these were agricultural pursuits which had value. I know that you...

TREASURER:

Sure.

MURRAY:

Some of them are...

TREASURER:

There are all sorts...

MURRAY:

(inaudible)

TREASURER:

...schemes. The trouble with, when you're asked questions about this, you wrap up all the schemes as if they're the same. So I want to make the point, there were all sorts of different schemes. But it looks like some of the main schemes, somebody came to you and said, invest $10,000 and you get a $40,000 tax deduction. And I just say to people, life isn't like that. You don't pay $10,000 and get a $40,000 tax deduction. And I just say to people, there are a lot of unscrupulous promoters out there that will come around and they will tell you all sorts of things. If it sounds too good to be true, it probably is too good to be true.

MURRAY:

So you're making the difference but it appears the ATO doesn't. They've treated everyone the same.

TREASURER:

Well there are other schemes. By the way, there is a capacity for somebody who sets up an agricultural investment to go and get a ruling from the Tax Office - it's called the Product Ruling - that the whole thing is kosher. And there are legitimate companies that have got a ruling from the Tax Office. So there are legitimate schemes, but I would say to people, what, do not go near anything that does not have a Product Ruling from the Tax Office. It is not enough if they flash some lawyers' opinion at you, or some accountants' opinion at you, and the other thing I would say is this, that if somebody says to you, look, pay $10,000 and you can have a tax deduction of $40,000, it sounds too good to be true and it most probably is too good to be true. Don't go near it.

MURRAY:

See the collateral damage is that companies like Australian Plantation Timber, very big tree farmer in Western Australia, has gone into voluntary administration this week, as a consequence of this. I mean it's an absolutely straight up and down company and a very good one...

TREASURER:

As I understand it, it had a Product Ruling too...

MURRAY:

Yes.

TREASURER:

...it was one of those ones. It did have a ruling.

MURRAY:

But the investors have been frightened off by the way the Tax Office has been going on.

TREASURER:

Well, look...

MURRAY:

And in fact your colleague, Wilson Tuckey, the Forestry Minister, says that these companies need better tax breaks.

TREASURER:

Look as I understand, it that company had a Product Ruling. If it had a Product Ruling or anybody has a Product Ruling, what that basically is, is a ruling from the Tax Office that this is for tax purposes, not for investment purposes, but for tax purposes, that this is legitimate. But at the end of the day, the Tax Office doesn't warrant that something is a good commercial investment. I mean who would take commercial advice from the Tax Office? All the Tax Office is saying, is, for tax purposes it's okay. But at the end of the day, not every investment gives a good return. And I'd also say to people, make sure you put your money into investments that do give good returns. I think that's very important.

MURRAY:

Okay.

TREASURER:

I don't give commercial advice. The Tax Office doesn't give commercial advice. All the Tax Office can give, is, to give Tax Rulings, Product Rulings, they're called.

MURRAY:

Because many of these people are clearly Liberal voters and they say they're going to take it out on you at the election because they don't think they've been fairly treated.

TREASURER:

Well, I just say this, that there are two issues. There's the question of whether tax is payable and that's a matter for the Courts, there's a question of the administration which is done by the Commissioner of Taxation. The waiving in relation to penalties and also in relation to interest, I think, are a very welcome step that's come from the Commissioner.

MURRAY:

The car industry's in great turmoil today. I think three of the countries four major car makers have been forced to stand down workers because of the strikes that are going on. Are they going to get anywhere with these tactics?

TREASURER:

Well, I think these tactics are absolutely irresponsible and the union that is involved in relation to this plant in Sydney, who have now put something like 10,000 people out of work, and I say this, how could a union put 10,000 people out of work? I think it is absolutely irresponsible. I think the union ought to cease supporting this strike. I urge the employees to go back to work so that they can resume the production of supplies so that 10,000 other Australians can resume their jobs. And let me make this point, the Prime Minister is in Japan at the moment, talking with car makers, giving them assurance about why Australia is a good place for Mitsubishi to continue its investment. How do you think the directors of Mitsubishi are going to view what is going on there today. When the Prime Minister says Australia is a good place for them to continue their investment, they are going to say to him, how can you say that when the whole car industry has been closed down by one irresponsible union.

MURRAY:

I think you've offered Mitsubishi something like $20 million in inducements to stay. Is the PM going to up the ante on that?

TREASURER:

Well, there's no point in offering companies inducements, any kind of inducement, if they can't keep their factories open. And they can't keep their factories open, if irresponsible union action at suppliers, designed to close those factories, incidentally to put pressure on the industry, is going to close them down. And I think the union involved, which is flexing its muscles, is being irresponsible, it ought to advise a return to work. I urge the workers to do the same. The Government wants to see all of those car workers at Mitsubishi and Ford and General Motors back to work as soon as possible. And I say this to Mr Beazley too, by the way. Mr Beazley, the Labor Party Leader, the Leader of the Party that the unions formed and dominate, he ought to have the guts to stand up to the unions too, and tell those unionists to get back to work. And there's a challenge for Mr Beazley. Don't run around and, and fail to condemn this action. This action ought to be condemned and people ought to return to work.

MURRAY:

Okay, we're nearly out of time. I want to raise a very important matter with you. It's a matter that I referred to earlier in the week, as, what I saw as the Red and Black Collywobbles. It appears that Essendon has gone right off the rails. Big chance for them this weekend against Carlton, a very in-form Carlton, you couldn't actually say that Essendon is looking too good. Now I know that you have some interest in this football team...

TREASURER:

(laughter) I have a big interest in this football team. Look Carlton beat us in the first round, and we had a narrow loss to Port Adelaide last week. But I don't think you can give us away yet. We've only lost three games this year.

MURRAY:

Your full forward says you know, you may not have the ticker for it.

TREASURER:

(laughter) I think come the business end of the season there'll be a bit more ticker around the club. There'll be a big test today, on Sunday, but it's, you've got to say it's been a pretty good record. Three losses this year, one loss last year, they'll still be in there fighting.

MURRAY:

Peter Costello, good to talk to you again.

TREASURER:

Thank you very much.