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 16/04/2005

Treasurer

Doorstop
Higgins Electorate Office
Malvern

Saturday, 16 April 2005
1.00 pm

SUBJECTS: South Australia mortgage stamp duty; Income Tax; Share Market.

TREASURER:

Well I welcome the news today that the South Australian Government has announced that it will be abolishing stamp duty on mortgages. This of course is one of the taxes that was slated for abolition as part of the introduction of the GST. The States are clearly in the financial position now where they can abolish those nine taxes and they include stamp duties on mortgages – South Australia is now the first State to have announced that it will be abolishing that stamp duty – Victoria has already done so. I call on all of the other States to follow suit. This is why the GST was introduced so that other taxes could be abolished – and stamp duty on mortgages should be abolished under the GST Agreement and I welcome the fact that South Australia is now doing that.

JOURNALIST:

Mr Costello, South Australia’s Treasurer says that this is not in response to the Federal Government saying that you must cut these taxes. But do you think they actually feel a bit under pressure?

TREASURER:

Well stamp duty on mortgages is one of the taxes to be abolished when the GST was introduced. The GST was introduced in 2000 – it has raised more revenue than was expected. The States are now in a position to abolish these other taxes and South Australia is the first one that has announced that it will be doing that. So it is a good thing and I welcome it.

JOURNALIST:

Do you think it is a direct result of the Government saying though that you must cut these nine or so taxes?

TREASURER:

I do not think it is worthwhile going into why they have decided to do it except to say that they now have the capacity with the GST revenue windfall – I welcome the fact that they are doing it – another State, Victoria, is doing the same thing, and I call on all of the States to follow their lead. Now this is why the GST was introduced so these taxes could be abolished and I congratulate the South Australian Government for being the first one to move.

JOURNALIST:

How much will South Australians save?

TREASURER:

Oh well, South Australians will save all of the amount that they would pay as stamp duty on their mortgages. Now that would depend on the level of their mortgage but it now means that when you take out a mortgage you do not have to pay to the Government for taking it out.

JOURNALIST:

So if it is a $200,000 mortgage?

TREASURER:

Well I could not give you the precise figures in South Australia – the South Australian Government could give you those - but what I can tell you, is, that after that stamp duty is abolished, after every South Australian homebuyer has a benefit the South Australian Government will still be in front because it has got a GST windfall.

JOURNALIST:

There’s some statistics out today published in The Age that’s showing that the number of people actually paying tax has fallen. Do you have a concern about the narrowing of the taxpayer base?

TREASURER:

Well if less people are paying tax, in some respects it is a very good thing. For example, when we raise the tax-free threshold less people come into the tax net, that is a good thing. When we announced the Senior Australian’s Tax Offset many self-funded retirees were freed from the obligation of paying tax, that is a good thing. So a fall in the number of taxpayers in response to tax cuts is a good thing. But also in those figures will be some people who were not paying tax because they did not make a profit. Back in 2002-03, which is the year we are talking about, we were in the middle of a big drought. Many Australian farmers did not make a profit – if you do not make a profit you do not pay tax. The fact that farmers were not paying tax because they were caught by drought is a bad thing. So, in those figures are all sorts of movements every way but overall if self-funded retirees and low income Australians are not paying tax because we introduced tax cuts, that is a good thing.

JOURNALIST:

Is there a particular issue with negative gearing though because it looks like a lot of revenue has been lost because of the large number of people that are negative gearing?

TREASURER:

Well if you are investing and as a consequence of that investing you are making a loss you do not have to pay tax. You can not make people pay tax on losses. People only pay tax on profits.

JOURNALIST:

But is there any plans to change the negative gearing?

TREASURER:

No.

JOURNALIST:

You are not concerned about a drop-off of around something like $2 billion?

TREASURER:

Well hang on, if you borrow money to invest and you do not make a profit, you are not liable for tax. You can not tax people on non-existent profits. And any tax system that said, even if you made a loss we will try and tax you as if you made a profit would be a pretty bad tax system.

JOURNALIST:

The simplification of tax laws – is that overdue?

TREASURER:

The Government has announced a programme to reduce the amount of tax legislation. And we think that we can reduce it by a very substantial amount. Now the way things sit at the moment, when the 1997 Income Tax Act was introduced it stood alongside the 1936 Act - the two of them stood alongside each other. But the consequence of that is that a whole part, maybe half of the 1936 Act is never used, it is totally inoperative, it does not apply to anybody. And if it is never used, it is totally inoperative, it does not apply to anybody, we can repeal it. We have just got to make sure that where the new Act cross-references back you take those cross-references out. So we have got a proposal which is going to take those cross-references out and when we do that we believe that we could repeal about 30 per cent of the statutes on the book. We can repeal about 30 per cent of the statutes on the book because they are never used, they are inoperative, nobody needs them any more. But it is just a careful technical project of making sure that you get the cross-references right.

JOURNALIST:

You talk about this making it easier for people to do their own tax returns. But if you are just getting rid of laws that aren’t used anyway does it actually make it easier?

TREASURER:

Well for most people who do their tax returns the amount of law they deal with is quite simple – it is just what is income and what is a deduction. They are not the complex provisions of the Tax Act. The complex provisions of the Tax Act apply to businesses like franking dividends, inter-corporate dividends, trafficking in trusts, trust distributions, they do not apply to your average taxpayer but, you know, when you hear these statistics about how voluminous the Tax Act is, they are talking about all that stuff, and all that stuff can be repealed where it is non-operative and we will do that.

JOURNALIST:

What is the experience in other countries on tax returns? I understand in some nations you don’t even have to put in a return it is sort of done automatically?

TREASURER:

Well in some nations, and this could be the same in Australia too, if your tax is taken out of your salary and tax is taking out of your interest earnings really all you have to do is put in a nil return. The reason people put in tax returns is to get money back – and fair enough, nobody wants to pay more than they have to. And for putting that tax return in you get some money back, that is worth it. But if you do not want any money back or if you are not entitled to any back then you can just put in a nil return.

JOURNALIST:

So could you see in the future Australia having the same situation where the majority of PAYE tax earners they wouldn’t have to put in a return?

TREASURER:

Well for the majority, even today, they only put in a return in order to get some money back, in order to claim deductions. Now those people that do not claim deductions have very simple tax affairs. But experience tells me that people are prepared to put in a tax return if there is something in it for them. If they can get something back, and fair enough too, they should not have to pay any more tax than the law prescribes.

JOURNALIST:

Mr Costello can I ask if you are concerned about the big fall on the Australian Share Market yesterday?

TREASURER:

The Australian Share Market over recent weeks has been at all time record highs. There would be no other share market in the world that in this year has been at all time record highs. That is, the Australian index was outperforming every other index in the world and by a long shot. Now, what you have seen is you have seen a bit of a correction, it was always bound to happen. As I keep on saying – markets go up – markets can come down. But the fundamentals of the stock market are still very strong. We have very strong profitable companies which are reporting record profits, we have a strong growing economy, business conditions are good and if the stock market reflects those fundamentals then so be it. But you can not expect the Australian Stock Market to outperform every other market in the world for a continued period of time and a bit of a breather may actually be consistent with more solid, durable, sustainable growth.

JOURNALIST:

Do you think that correction may continue given that the Dow yesterday hit a five month low?

TREASURER:

Well I never give prognostications on where a stock market is going. That is a bad principle that, giving investment advice. Last question.

JOURNALIST:

Oh just to indulge the old SBS, I understand South Australia has started crumbling on the issue of stamp duty…

TREASURER:

I did that. Oh, you did not get that…oh okay.

JOURNALIST:

We missed it.

TREASURER:

Well I welcome the fact that the South Australian Government has now announced that it will be abolishing stamp duty on mortgages. This was one of the taxes which was slated for abolition under the GST deal. The GST was introduced so these taxes would be abolished. The South Australian Government has recognised that, it is doing it, the Victorian Government has done it and I call on the other States to do the same. This is why the GST was introduced – so these other taxes could be abolished – and South Australia is now leading the way. Is that okay?

JOURNALIST:

Thank you.

TREASURER:

Thank you all very much.