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 07/03/2006

Interview with Leon Byner
5AA

Tuesday, 7 March 2006

9.00 am
Adelaide Time

SUBJECTS: Tax benchmarking study, workplace relations, unemployment, GST and abolition of State taxes, SA economy, trade balance, competition, health and welfare spending

TREASURER:

Good morning Leon, good to be with you.

BYNER:

Peter, this investigation that you have commissioned, when are we likely to see an outcome and if we do, is anything going to happen because tax has always been on the agenda and there have been many studies done, the Centre for Independent Studies, Access Economics, so where might this lead us?

TREASURER:

What we aim to do is we are going to benchmark Australia against other countries around the world and we are going to find out those areas where Australia’s practice is the best and those areas where Australia’s practice lags behind. And that will enable us to focus on those areas where we lag. Now, we have got a pretty modern indirect tax base, the GST, probably the best world practice, certainly better than countries like America and Britain. But there might be other areas where we are not at the forefront of the world’s best practice and so we want to identify those areas and have an international comparison and we will have that report by the beginning of April.

BYNER:

Now, your Government has introduced what many have seen as being controversial IR changes but of course the fact is that you have got a whole community of people out there Treasurer, who are the working poor. That must concern you.

TREASURER:

Leon, the first point I would make of course is you have got more people working in Australia than ever before. Ten years ago we had the workless poor when we had unemployment at 11 per cent back in the days of Labor Federal Government. So you have got more people in work than ever before which is a great achievement. For most of those people on average incomes their tax burden is considerably less today than it was ten years ago but that doesn’t mean that you can’t improve things and we have always got to try and work to improve things.

BYNER:

That burden is better but they are earning more therefore they are paying more tax, but I put to you the ILO, the International Labour Organisation Structure for benchmarking unemployment is an hour a week so whilst the figures are what they are there are few of us who could live on that, an hour a week.

TREASURER:

Leon, the definition hasn’t changed. Whatever the definition is it was the same ten years ago but there were twice the amount. Ten years ago, let’s bear that in mind, the unemployment rate was double what it is today, so whatever the definition is, the same definition was in use ten years ago and on the same definition unemployment has halved, the rate of unemployment has halved over the last ten years. That is the only point I would make, we have got more people in work than ever before. Now it is true that under these definitions if you are in part-time work you are not counted as unemployed. That Leon, is because a lot of people actually don’t want to work full-time, they are only looking for part-time work – mothers with children and so on – so you have a standard definition and you measure these things and we measure it in accordance with international practice.

BYNER:

Are you looking at broadening the tax base? In other words it does seem the wage and salary earner is paying more than their fair share of taxes in general, and there have been all sorts of submissions put to you by, such as Malcolm Turnbull and many others in your own Party and indeed organisations outside, so are we likely to see a fairer tax system, a more equitable tax system as a result of the investigation now being done by Messrs Warburton and others?

TREASURER:

Well, you have got to be precise in this area. When people say they want to broaden the tax base what they say is they want taxes to go up in some areas. That is what it means…

BYNER:

Is that what it means to you?

TREASURER:

Well it does mean that, yes, when you talk about broadening the tax base it means taxes going up in some areas. Now it depends what those areas are. One of the suggestions that came to us was to put Capital Gains Taxes up because if we cut Capital Gains Tax in half some people say you should broaden the base, you shouldn’t have a lower Capital Gains Tax rate. Obviously I don’t agree with that, I think having a lower Capital Gains Tax rate has been of enormous benefit to Australians generally and to our economy. So, you have got to be very precise in these areas. There are other people that say, well superannuation is taxed too concessionally and we should broaden the base and we should have higher superannuation taxes. Obviously I don’t agree with that. So, you have got to be quite precise in these areas but I can guarantee you this, we won’t be lifting Capital Gains Taxes, we won’t be lifting superannuation taxes and these supposed concessional areas are areas where there should be concessions.

BYNER:

Philosophically are you of the view that it would be better for people to retain more money from their earnings in the first place rather than take it off them and give it back?

TREASURER:

Oh sure, absolutely. The important thing I think is to keep taxes as low as possible. Now, at the same time where there are people that need financial assistance and particularly people who are unemployed or people that are raising children I think it is important that we look after them and we do. But the important thing is to keep taxes as low as possible consistent with a decent society.

BYNER:

Your reported comments earlier about the GST would indicate a degree of disappointment, why?

TREASURER:

Well the GST is a very efficient way of collecting tax. As you know the Government put it in place in the year 2000 and all of the proceeds go to State Governments and it has proved very efficient and it has given them more revenue than they were ever promised or ever expected. For example, in South Australia in this financial year $3,394 million.

BYNER:

Just repeat that figure again.

TREASURER:

$3,394 million for one year. That is for this financial year, next year $3,573 million. You know, it has opened up rivers of gold to State Governments, more money than they were ever promised. Our great hope was that the State Governments would use this wisely, that they would abolish a whole raft of other indirect taxes…

BYNER:

What taxes would you like or believe should be, abolished as a result of the quid pro quo that you have just quoted to the South Australian public?

TREASURER:

Well we named all of those taxes – stamp duties on mortgages, stamp duties on rental agreements, stamp duties on business conveyances, stamp duties on leases – some of those the State Governments have abolished, some they are promising to abolish and some they are not even promising to abolish yet. So, that is the first point. The second point that I would make here is, you know, when we introduced this tax and gave it to State Governments, and they get the whole of it – people have got to remember all the GST goes to the State Governments – we hoped that State Governments would take responsibility for services, that they would stop going back and blaming Canberra because they now have such a growth revenue they would be in a position to run good hospitals and run good schools and run good roads and run mental health and all of those sorts of areas. And in some areas I feel the States have taken the revenues but they won’t take the commensurate responsibility for the services that they have to fund out of those revenues.

BYNER:

Our State budget at the moment is at $28 million in the black and that was last and most recent report. Given all of the money that you have mentioned and the information that David Koch has given us that over this cycle – the last four years – we have basically received – and this is a conservative number – an extra $5 billion to spend, is that not a very small amount?

TREASURER:

Oh well, it wouldn’t be balanced if it wasn’t for GST revenues. It is obvious and it wouldn’t be balanced if it wasn’t for the windfall that they are getting out of GST revenues. So, you know, in South Australia like other states I think they should acknowledge that it was the tax reform that the Federal Government put in place which has essentially saved their State budgets.

BYNER:

Now David Koch mentioned on this programme a week ago that we are actually getting more than South Australians pay in GST. How has that happened?

TREASURER:

Well, when Australia federated part of the agreement was that as a nation we would try and share revenues wherever they came from on a basis that gave all Australians an equal go and the consequence of that is really since Federation the larger states have been subsidising the smaller States. They don’t complain about that, that is a consequence of Federation. Now, one of the consequences is that South Australia actually gets a better deal, it does get a cross subsidy from the larger States. Leon, in Sydney and Melbourne I regularly get attacked for this, I regularly get attacked for this cross-subsidisation. In places like Adelaide I hope we actually get a few endorsements because Adelaide actually is a winner out of this process whereas in Sydney and Melbourne they are donors. What I find Leon, is you get attack in Sydney and Melbourne, you get attacked in Adelaide as well.

BYNER:

Look, on this subject though, the forward projections for GST are still very strong.

TREASURER:

Yes.

BYNER:

Still very strong, I just need to clarify this because some of the comments being made by some within Government are suggesting that look, things might be reasonably good now for the GST but, hey, returns might be dropping so we have to be very careful and frugal.

TREASURER:

Well, the GST is, as its name implies, a tax on goods and services. And, goods and services in a growing economy keep on growing. So, a stable rate on growing goods and services produces an increase in revenues. And while the Australian economy, keeps on growing, and our forward projections are that it will, South Australian Governments forward projections are that it will, so too will the revenues.

BYNER:

What is your observation of the health of the South Australian economy at the moment?

TREASURER:

Well, look, the Australian economy is doing well. We have low inflation, we have low unemployment, we have balanced Budgets, we have low debt, we have strong productivity. And South Australia shares in that as well. South Australia has not had the kind of growth that you have seen in other States, particularly Queensland and Western Australia, which have been helped by the minerals boom. So, you know, prosperous national economy, South Australia is enjoying the benefits of that. But, as compared to other States isn’t growing as strongly.

BYNER:

The other point about the business of how well the economy is going, we only had major headlines here a couple of days ago, that people with mortgages are finding it very hard and risk foreclosure because they just cannot manage all the bills that they are getting. We are not talking bills from consumerism but just the business to stay afloat. All the taxes and charges that they are being hit with.

TREASURER:

Well, that is right, there has been quite substantial property increase in Adelaide, South Australia, and as a consequence, the property taxes are now much steeper than they were back say 5 years ago.

BYNER:

So, your view is that South Australia’s economy is going well, but you are suggesting it is mainly through Federal initiatives?

TREASURER:

Well, what I am suggesting is South Australia is enjoying the benefits of national economic management in the sense that this is delivered: low inflation, low interest rates, which people can benefit from, strong business profitability and employment growth. South Australia shares in the national economic benefits that come from all of those things. But, the South Australian, when you isolate down, the South Australian story and compare it with some of the other States, particularly the leading States at the moment of Western Australia and Queensland, it is on the slower end of growth.

BYNER:

One thing that a lot of people ask about is our trade imbalance which is quite substantial. Who pays for that?

TREASURER:

Well, it is actually foreigners. That is what happens.

BYNER:

Well we have a debt. We have a debt which is run by bankers who are part of the International Monetary Fund and we presumably have to pay interest on that. So…

TREASURER:

Yes, sure.

BYNER:

…I want you to explain if you can, to the people of Adelaide, how that works because it is often mentioned in financial papers and in reports but I think sometimes people do not quite understand what it means, and what it implies.

TREASURER:

Well, there are different ways of understanding this Leon. But, suppose some one wanted to sell you more than you could afford to buy, they might actually lend you the money to pay the purchase price. They might actually finance you to do that. It is a bit like if you went into a motor vehicle yard and you wanted to buy a car but you did not have the $25,000, the motor vehicle organisation might say we will make you a loan to buy our car and, you have to be careful about these analogies, but that is one way you could look at it when you are dealing with the rest of the world. If you want to buy their imports, sometimes they will actually finance you to buy them.

BYNER:

But, isn’t a trade imbalance the likes of which we are getting that is increasing the danger? Some economic commentators say it is.

TREASURER:

I would like to see the trade imbalance narrow and last week we had some trade figures which showed a widening of the gap. Now, when we look at that trade, there were some lumpy items in there, some big aircraft purchases, for example Qantas is a big buyer of aircraft. The truth of the matter is you cannot buy Boeing aircraft anywhere except from the United States. You have got to buy them if you are going to run an airline. You have these big lumpy areas. But I would like to see Australia’s exports increase, particularly the area where we waiting for export volumes to increase is the mineral areas, because prices are very strong but investment is taking some time to get the capacity up.

BYNER:

In your opinion what does South Australia have to do to box above its weight in sectors where it can start to get the kinds of growth in its economy that the rest of Australia is enjoying?

TREASURER:

Well, I think South Australia has been good at manufacturing over the years and some of the Federal Government contracts in South Australia I think will be very welcome, such as air warfare destroyers, I think which will be a big opportunity for the South Australians. Obviously the wine industry is very important in South Australia and I was recently in the Unites States where they did a big presentation for Penfolds and I think exports, particularly in the wine industry, will be important to South Australia. And then I do not know, Leon, maybe they should get one of their teams to win the AFL premiership this year.

BYNER:

Well, if anybody has got anything to do with it, it will be happening with the Crows, I can assure you.

TREASURER:

You have got to beat the Bombers first, though.

BYNER:

Now, speaking of bombers, there is one thing that I need to ask you about which is an ACCC issue, and it has come up a lot. The Coles and Woollies conglomerate is very powerful and there does seem to be a situation where many other operators are not able to fairly compete because the distribution and sale of goods is controlled by a huge swag of a market controlled by two players. You must surely be concerned about this because you would surely want a situation where there can be fair competition.

TREASURER:

Sure, it is important that all competitors have an even go and the benefits from strong competition, of course, are for consumers. We have got remember this, that we do not encourage competition to help various producers, we encourage competition to help consumers because from competition consumers get lower prices.

BYNER:

Yes, they do but of course it does not want to be on the backs of children who have got to go to their parents who are shareholders in the big two to fund them to a lifestyle to which they have become accustomed, because they cannot get a job because it is all tied up in the distribution and sale by a duopoly.

TREASURER:

Sure, and Leon, we have got a very, very strong watchdog called the Australian Competition and Consumer Commission which is empowered to investigate theses matters and ensure fair competition is going on and you mentioned the big retailers, the ACCC recently took a case against Safeway, which is Woolworths, and recovered huge fines because they found there was unfair competition in the bread market.

BYNER:

This was interstate. I am aware of it, so….

TREASURER:

Yes, it was not in South Australia, I think it was in Victoria that they recovered huge amounts and if there is any evidence that they are misusing market power or unfair competition then the ACCC can investigate.

BYNER:

Well yes, the problem is though, that if you are being supplied by one of the big wholesalers or retailers and you do not comply, and you do not think they are being they are being reasonable, if you put your hand up, you will not get any supply of anything.

TREASURER:

Well, if they boycott you that is an even bigger offence, let me assure you. And any evidence of boycott material would be prosecuted with huge fines. The one thing they cannot do is they cannot boycott you.

BYNER:

When will there be an outcome of the tax investigation?

TREASURER:

Beginning of April.

BYNER:

Okay, and then what? So, all this then goes out to the public for discussion and debate?

TREASURER:

Well, we will get the international benchmarks and that will give us a good international grip on how to proceed from there.

BYNER:

One question before I let you go, and I thank you for coming on this morning, how big is Australia’s welfare bill according to what we actually produce as a nation? Is it going up, is it going down, is it the same?

TREASURER:

It depends how you measure these things, but health and welfare would be more than half of Government expenditures. Could be up around 60 or 70 per cent.

BYNER:

How is that going to be compared to other countries and nations?

TREASURER:

We can look at spending as a proportion of the economy. Australia’s Government spending as a proportion of the economy is actually quite low by developed economy standards. But the largest area of our spending is in welfare, which is the aged pension, unemployment benefits and in health, which is the hospital system, Medicare and the like, pharmaceuticals and the like.

BYNER:

Peter, thanks for joining us today.

TREASURER:

Good to be with you Leon, thank you very much.