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 31/03/2005

Interview with Leon Byner
5AA, Adelaide

Thursday, 31 March 2005
9.05 am
(Adelaide Time)

 

SUBJECTS: GST, State Windfall, Petrol, Budget

BYNER:

Good morning.

TREASURER:

Good morning Leon, good to be with you.

BYNER:

Likewise. Now, what do you say to what Kevin Foley told us last week?

TREASURER:

Well, South Australia is getting record windfall amounts out of the GST. And this year, just so you know, it will be getting $3,281 million.

BYNER:

$3.2 billion.

TREASURER:

$3.2 billion, and a windfall, this is over and above what was expected, of $160 million. The figures I gave Kevin Foley show that over the next five years the windfall, this is over and above the guaranteed amount, will be $1.4 billion. And Kevin Foley is sitting there, receiving these GST cheques, they flow into him on a monthly basis, is getting more than was ever expected. Then we come up to this meeting in 2005 and I made the point to Kevin and the other State Treasurers, look the GST was introduced to get rid of all of these other taxes, we all know that, the public was told that, you are now looking at a $1.4 billion windfall, that is not the amount he is getting, that is the cream over and above $1.4 billion? He is now in a position to abolish those other taxes which they clearly are.

BYNER:

So you have asked specifically for which taxes for Kevin Foley to cut? Because he is saying he wants to get in there and help the battler maybe with land tax, maybe with stamp duty…

TREASURER:

Yes.

BYNER:

…he says that you want to cut business taxes where really he ought to have the freedom to cut where he believes it is most prudent.

TREASURER:

No, no Leon, this is very important. He ought to do both, right? Let’s get this entirely clear. The GST was introduced to abolish nine other taxes, and they ought to be abolished.

BYNER:

But just say that again would you?

TREASURER:

The GST was introduced to abolish nine other taxes.

BYNER:

What were the nine?

TREASURER:

Financial Institutions Duty, Bank Account Debits Tax, duty on shares, duty on leases, duty on cheques, duty on mortgages, duty on rentals, duty on non-residential conveyances, right? Now, they now have the GST and it is now time to abolish. I don’t mean reduce - abolish those other taxes. Now…

BYNER:

What will you do if Treasurer Foley says, sorry, no can do?

TREASURER:

…well, this is the agreement Leon. The agreement was that the Commonwealth would introduce GST and give it to the States so that nine other taxes could be abolished. Now, they can’t sit back and say, we will have the GST and the nine other taxes or and a few of those nine other taxes, this is the whole agreement.

BYNER:

Some of them have been dropped.

TREASURER:

Some of them have been dropped already, yes you are quite right, Financial Institutions Duty has been dropped and I think the South Australian Government is going to drop the Bank Account Debits tax as from 1 July this year.

BYNER:

Yes.

TREASURER:

So some of them have been dropped, some of them we have got a timetable. But Leon, you and I and everybody who was in Australia in 1998 knows that we made this promise, that the GST would be introduced to abolish other taxes. Now that was signed up, that was the agreement, I carried through my part of the bargain, the States are now getting the GST, their part of the bargain is now to abolish these other taxes. And to run around now and to say to people, sorry, we have changed our mind, you can now have the GST and the other taxes just breaks the whole agreement.

BYNER:

What are you prepared to do to force this to the wall?

TREASURER:

Well I am going to hold them to their agreement.

BYNER:

By doing what?

TREASURER:

By insisting.

BYNER:

And that means, I am asking for what you will do, you can insist, you have heard Treasurer Foley say well look, I don’t know that I can do this or I don’t know that I want to…

TREASURER:

Well he has got to. He can’t say, I’ll take the GST, I’ll take that side of the bargain but I will ignore the other side of the bargain and I will keep all of the other indirect taxes as well. He can’t say that. This was an agreement, in fairness, Kevin wasn’t there at the time, it was the previous Government, but we all agree, I was there because I negotiated it. We all agreed and we agreed that this was what was going to happen. We promised the Australian people it would happen, it is going to happen as far as I am concerned and…

BYNER:

You are expecting all of the State Premiers including ours, to drop those nine taxes…

TREASURER:

Absolutely, if they want the GST that is the grounds on which they got the GST – abolishing those nine taxes.

BYNER:

…so if they don’t abolish all nine, you will start withdrawing the GST?

TREASURER:

Well I am not going to go into what will happen at this stage because I am trusting them as honourable men to keep to their agreement.

BYNER:

So you are just at this stage verbalising with the big stick?

TREASURER:

I am just reminding them of what the agreement is, I am reminding them of what we promised the Australian people and by the way Leon, I don’t see why they feel it is some kind of imposition. They should actually be welcoming the fact that they can abolish these taxes. This is actually a good thing for South Australia. By the way, why did we do this? We did this because you get rid of nine other taxes, you would introduce the GST, when you got rid of the nine other taxes your State would boom, business would be helped, more people would get jobs, but you know, they treat it as if it is some kind of medical treatment, this ought to be a joyous experience. Abolishing taxes, that is what we are in the business of doing here.

BYNER:

So the GST was the first major step towards tax reform?

TREASURER:

Yes.

BYNER:

Now, I want to move on from that for a moment because this is really important. When Malcolm Fraser in the late 70s gave us a tax indexation with brackets, if we kept that going up to now, you wouldn’t be paying the highest marginal rate of tax as an employee until you earn over $150,000 a year. At the moment it is $52,000. Do you think that is…?

TREASURER:

No well at the moment it is going to $80,000 on 1 July but you would have to go back Leon to those rates because I believe that the top rate then was much higher than it is now. I think it was about 60 per cent.

BYNER:

But nevertheless, we are now finding, we have got a couple of real conundrums here for the taxpayer. The poverty line is at around $12,000, although I don’t know how people live on that but some manage to and I think they are miracle workers, they are magicians, but we start taxing them at $6,000. You pay the highest marginal rate of tax even if you do some overtime. I get callers ringing me and saying, and you probably heard this Treasurer, where they say, Leon, I don’t want to take a promotion because it will put me into a higher tax bracket and when I work out the family payments and all the things with a couple of children, it is not worth my while, I am staying put. That is not good surely.

TREASURER:

Well let me just take a few points up there. From 1 July of this year, you will pay the highest marginal rate of tax when your taxable income exceeds $80,000. If you take a second job and your taxable income doesn’t exceed $80,000 you don’t pay the top rate. It doesn’t matter how many jobs you have got, you don’t pay the top rate of tax until you go over $80,000. And why do we do it that way? Well that is because it is only a small percentage of the Australian public that do have taxable incomes over $80,000.

BYNER:

But nevertheless, the average Australian worker is now paying the second highest tax rate.

TREASURER:

The average Australian worker is now paying a top marginal tax rate of 30 per cent.

BYNER:

There are many people in the community who are families between $40,000 and $50,000 a year combined, who will find themselves being taxed at the second highest or in some cases depending on overtime at the highest rate?

TREASURER:

If you are on $40,000 or $50,000 your tax rate is 30 per cent, your top tax rate. You don’t pay 30 per cent on all of your income, you pay nothing on your tax free threshold, then you pay 17 per cent, then you pay a top rate of 30 per cent. That is the average Australian worker has a top marginal tax rate, and I brought this in because it used to be 43 per cent, now it is 30 per cent.

BYNER:

Chief Justice Gibbs has attacked our complex tax laws as a disgrace. Many of the examples are, if I was a plumber, I could claim my uniform for work as a tax deduction. If I work at Harvey Norman and I have a particular type of clothing that I have to wear, I can’t. Are we going to do anything to make these laws simpler…

TREASURER:

Well…

BYNER:

…(inaudible).

TREASURER:

…well yes, I agree with Chief Justice Gibbs in this respect that the tax laws are particularly complicated applying to business taxation, they are particularly complicated. That is because there is a lot of business structures that are complicated, by the time you have trusts and companies and distributions and dividend imputation you know, it gets very complicated. For most Australians however, whose principal sources of income are either the job and maybe some interest in the bank, if the bank takes out the tax on your interest as it does for most people and your employer takes out the tax on your salary, you don’t have to get into all of that kind of stuff for business taxation. Chief Justice Gibbs is right, but business taxation is very complicated but most people, most Australians don’t have to cope with the business taxation system.

BYNER:

Would you ever consider allowing a person’s mortgage to be tax deductible for an ordinary individual?

TREASURER:

I don’t think so Leon and I will tell you why. In America they do that but then again if you allow the deduction to buy the house they tax you when you sell it. You have got to remember this. Although we don’t give you a tax deduction when you buy your house, we certainly don’t tax you when you sell it. And for most people in Australia I think they would rather have a tax free home both ways because they get their capital gains on it. And by the way, in America and also in Britain death duties cut in on family homes above certain levels and we don’t have a death duty on the family home and I am certainly never going to have a death duty or a capital gains tax on the family home.

BYNER:

Well let’s do this quid-pro-quo and move to super. Now as of the 1st of July, you are going to have control of the Senate…

TREASURER:

Yes.

BYNER:

…and you will be able to do a lot of things that you couldn’t do under the previous administration. Now I know that you have tried to reduce and do more to superannuants and this is about self-reliance, will you be moving to reform that much more quickly?

TREASURER:

Well as you said before we have had a few goes already at reducing taxes in relation to superannuation in particular superannuation surcharge and that has been defeated in the Senate so if the Senate majority changes I would be much more confident about pursuing that Leon, yes.

BYNER:

So you will likely remove the surcharge?

TREASURER:

Well I am not saying what we will do but I am just saying that if the road block gets removed that will be a positive step forward.

BYNER:

And do you still think it is a good thing to start the taxable rate at $6,000 when $12,000 is subsistent?

TREASURER:

Well you have got to remember this, that it is true there is a tax free threshold at $6,000 and that is where tax starts. But if you are a low income earner you also get a tax offset which means that you don’t actually pay tax until well after $6,000. Those people don’t pay tax because they get a tax offset. It is only people who are up in the middle incomes that actually do pay tax after that first $6,000.

BYNER:

Now, a number of people at the moment, especially, most of us drive, are really feeling the pinch at the petrol pump and in actual practical terms, the kinds of increases we are seeing are equivalent, when you look at petrol, to an interest rate increase of course there has, it has been 0.25. But in real terms for you and I who are going about our normal business it is as if we were paying a much higher interest rate. It is having the same effect on the economy…

TREASURER:

Yes, well…

BYNER:

…and on the average person now who can barely afford to use their vehicle.

TREASURER:

…oh look, I agree with you. Petrol prices are terrible, they are really high and people are feeling the squeeze and I feel for them. Nobody would be happier if petrol prices will come down. But petrol prices won’t come down while the oil prices are at record highs and the oil prices are at record highs for all sorts of international reasons…

BYNER:

International reasons, just think because America who is less self-sufficient in oil production than we, at their bousers they are paying the equivalent of under 70 cents for Australian cents and we are paying $1.10, $1.09, $1.15.

TREASURER:

Well, I would have to look at those figures, to be frank with you I don’t know what the petrol price in America is at the moment…

BYNER:

A lot less than what we are paying.

TREASURER:

…well, I don’t know about that, you would have to have a look closely at exchange rates and also you would have to have a look closely at fuel (inaudible).

BYNER:

This is in (inaudible) comparative price in the first place, but anyway, I think it goes back to the previous Labor Government does it not?

TREASURER:

Well I think actually it goes back to Malcolm Fraser in about the 1970s, but can I say on parity pricing, if you said that, Australia imports from memory about 70 per cent of our crude. If you said that Australian producers had to sell their crude into Australia at a lower price than the world market…

BYNER:

They wouldn’t sell it.

TREASURER:

…they wouldn’t sell it.

BYNER:

No.

TREASURER:

This is a world commodity and if you say that let’s say to BHP, BHP can sell its oil at say, at $US50 a barrel and you say to them, well look, you can sell your oil at $US50 a barrel anywhere in the world except Australia, but if you sell it in Australia you have got to sell it at $20, they wouldn’t sell it. They just wouldn’t sell it. In which case you would have to import it at $US50 anyway.

BYNER:

But the excise on fuel though is very sizable. The excise, in fact, on fuel is nearly half of what we pay for it.

TREASURER:

There is an excise on fuel of 38 cents a litre and there is a GST on fuel of 10 per cent like there is on anything else.

BYNER:

Well some States are taxing petrol, your are collecting it, but some are doing it, Queensland is not…

TREASURER:

Yes.

BYNER:

…their petrol is cheap.

TREASURER:

Let me make this point. The 38 cents a litre doesn’t move, if the price goes up it is still 38 cents a litre. Of course the 10 per cent GST does move, so if the price goes up you do get more under a 10 per cent GST and who gets all of the revenue under the GST?

BYNER:

(inaudible).

TREASURER:

It goes to Kevin Foley. Premier Rann. We are back where we started again Leon.

BYNER:

So you are saying we could cut 6, 7 cents a litre off petrol now and reduce the GST.

TREASURER:

Well, the GST revenue goes to the State of South Australia, they are in a windfall position. You know, if they are getting more it is up to them what they do with it, I am just making the point that none of this ends up in the Federal coffers.

BYNER:

Are you satisfied that the increased price of fuel will have the dampening effect of the economy which will negate the need for the Reserve Bank to increase interest rates any further?

TREASURER:

Look, fuel prices shouldn’t be a lever of economic policy. Fuel prices, we would just hope could be as low as consistent with the international global oil market and as I said earlier, I feel for people at the bowser, I think these prices are really hurting people but the only thing I can say to people is it is not a decision that has been made by an Australian Government. You watch the oil price every night on your TV, you will know it has been up at $50, $US60 a barrel, this is partly because what is happening in Iraq, it is partly because of OPEC, the producers, it is partly because the world economy is recovering and people are buying oil which is pushing up the price, and until such time as you see the price of a barrel of crude oil come back again, you are going to feel it at the bowser and we are just caught up in what is an essential global industry here.

BYNER:

Treasurer, before I let you go and thank for joining us today, I have got ask you one question. How many more Budgets do you think you have got in you?

TREASURER:

Well, well, I take them one at a time. But Leon, I am you know, like the Port Adelaide Footy Club with one match at a time and we are gearing up for the next one.

BYNER:

Well I am sure that you would agree that if you were to take over the mantle of Prime Minister at some point and I suspect that that could be sooner rather than later, you would want to go in with the reputation of being in the governance of major, major taxation reform that isn’t just the GST?

TREASURER:

Well look, you know, I think it is important that we keep our taxes as low as possible, consistent with funding proper services and balancing the Budget and that is what I am on about. You should raise enough money for your decent services and to balance your budget and after that you should keep your taxes as low as possible, that is the principle that I am working to.

BYNER:

Treasurer, thanks for joining us.

TREASURER:

Great to be with you Leon, thanks.