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 12/04/2006

Interview with Philip Clark
2GB

Wednesday, 12 April 2006
4.10 pm

SUBJECTS: International Comparison of Australia's Taxes Report

CLARK:

Mr Costello the Treasurer joins me on the line this afternoon. Mr Costello good afternoon to you.

TREASURER:

Good to be with you Philip.

CLARK:

Well you too. It is a release in advance of the May Budget. You claim that the report suggests that Australia is a relatively low taxed country. This might come as a surprise to many Australians.

TREASURER:

Well that is what Dick Warburton and Peter Hendy found after comparing Australia's tax system with other countries in the developed world that we tend to be on the lower side, we were the eighth lowest out of 30 developed countries and that is after you take into account (inaudible) at all levels of taxation (inaudible), GST, income tax, company tax that the tax take is the eighth lowest of the OECD.

CLARK:

Does this mean that the report is going to be used as an excuse not to cut taxes?

TREASURER:

Well we have always got to keep ourselves competitive and we are in a good position because of the work we have done in recent years but we are going to have to continue to work to stay there. And some of the reforms of recent years are paying off today and it is the reforms of today which will pay off tomorrow. And this is a really good report because it highlights those areas that we have got to work on and shows us those areas where we are doing comparatively well.

CLARK:

We have still got high marginal tax rates and the report makes that clear. What are we going to do about that?

TREASURER:

Well average earners in Australia do better than most people in comparable countries around the world. The average earner in Australia has a tax rate of 30 per cent top rate of 30 per cent. The top rate in Australia of 48 ½ which is going to apply when you go over $125,000 per annum is a little high compared to the OECD average of 46.7 and so you know that gives us some food for thought but all in all the Australian taxation system is weighted as you would expect it to be towards middle income earners.

CLARK:

In all this seems to be me to be a recipe for what you are saying and from the summary of the release that you issued this afternoon is suggesting that it is a recipe for saying that we are doing very well thank you very much so let's not do anything else.

TREASURER:

(inaudible)

CLARK:

Well I spoke to Mr Hendy yesterday, he said Look I don't want to see the report used like that. I think we should have comprehensive tax reform in this country he said including a big revision of the income tax scales amongst other things. Now if Mr Hendy as one of the authors of the report is calling for comprehensive movement on tax reform, from the tone of what you are saying we are not going to get it?

TREASURER:

Oh no, we have had comprehensive tax reform in Australia

CLARK:

So we don't need any more? That's it?

TREASURER:

No. No. It will go on forever. You never get to a stage where one reform finishes things forever. It is just a continuing work in progress. Now what we find is, as a result of some of the reforms we have put in place with the GST, cutting company tax, cutting capital gains tax, abolishing financial institutions duty, bank account debits tax, some of these reforms have got the Australian taxation system much more competitive but it is something that you have got to keep on doing. Other countries are trying to get more competitive, they are trying to catch up with us. We want to stay in front of them.

CLARK:

What about superannuation taxes? A tax on saving if ever there was one. The case for reform is huge. Are we going to see any in the Budget?

TREASURER:

Well, what the report shows is that superannuation tax is very concessional compared to income tax. That is, if you put your money into superannuation it is taxed at a far lower rate than if you actually take it as wages.

CLARK:

And so it ought to be.

TREASURER:

Well so it ought to be. But you do hear people say from time to time, oh it is really highly taxed. It is you know taxed as high as wages or higher.

CLARK:

Hang on, hang on and so it ought to be. And in fact you could make an argument that perhaps there should be no tax on it. I mean if it has been put away as a superannuation saving and we are trying to encourage a greater level of national saving then we should be encouraging people for heaven's sake.

TREASURER:

Yes we do and we have got more money under superannuation now than we have ever had before in Australian history and one of the reasons is that it is very beneficial. And I would say to people

CLARK:

Well the other major reason is that there is a government requirement for a percentage to be put away.

TREASURER:

Yes well some of it is compulsive, some of it is attracted by tax concessions and we have got a scheme not many people know about called the Co-contribution Scheme whereby if you put a dollar into a superannuation account the Government will put $1.50 in to match it. And this is to encourage people to save. And a lot of people don't know about that. It is a really good scheme for middle income earners but you are quite right that we do have a concession there to superannuation because we are trying to attract savings. And the policy seems to be working.

CLARK:

Why under your stewardship and indeed under almost every Australian Government since the War has the tax system become more and more complicated?

TREASURER:

Well, a lot of commercial life has become more and more complicated. And the complexity of the Australian taxation system really relates to commercial life you know people are moving money across borders, internationally, through trusts, then the taxation system becomes complicated. But if you were just a wage and salary earner maybe with a bit of interest in the bank then your tax is taken out of your wage and salary. If you don't file a tax file number it is also taken out of your savings and it is pretty straightforward from that point of view. The complexity of the tax system is directed towards complexity in business arrangements and as they become more complex then your tax system is going to be more complex.

CLARK:

No policy including a tax system is a good one if its citizens can't understand it. The need to use an accountant has become almost mandatory for everybody these days particularly if anybody is a contractor running a business of any kind, you have to use a tax accountant.

TREASURER:

Well I think that is right.

CLARK:

That is hardly a proud record is it?

TREASURER:

If you are running a business I think that is right. But you know at that point you are a business owner.

CLARK:

Well even if you are not running a business. I mean look at the size of the tax act, the tax pack that people get, are expected to master.

TREASURER:

Well for most people they are not expected to master it. For most people it is just a question of putting your group certificate in which has taken the tax for income and fixing up your interest. That is what most people do. Now, if you are a business contractor and you have got clients and you have got GST and you have got plant and equipment and you have got depreciation, you have got company tax, and you have got imputation of dividends, yes, that is quite complicated but at this point you are a businessperson and the complexity comes with the business arrangements.

CLARK:

All right, you have heard, you may have heard of the proposals by the New South Wales Government to introduce an extra public holiday in New South Wales. Is that a good idea?

TREASURER:

Well, what is it for?

CLARK:

To replace the union picnic day. Now you would have been a regular attendee at your union picnic day wouldn't you?

TREASURER:

I don't think I ever got invited to union picnics, Philip.

CLARK:

(inaudible) I am sure you would have been invited they would have thrown a lot of boiled eggs at you.

TREASURER:

They might have invited me as the entertainment. Well I doubt that many Australians would go to a union picnic so I would be very surprised if we need a new holiday to replace the union picnic day.

CLARK:

Five years ago you said, I have got one or two Budgets left in me there's a few more by the sound of it.

TREASURER:

Well I have done a few since then and we are gearing up to another one. It takes a lot of work but it is a great responsibility and you have got to get these things right because if you don't get them right the economy turns down and people lose their jobs and mortgage interest rates go up, and there is a lot of misery in the community and so you have got to try and get these things right and I am very conscious of the work and the responsibility I have to try and do it properly.

CLARK:

All right Mr Costello good to talk with you.

TREASURER:

Great to be with you Philip. Thanks very much.

CLARK:

Thank you. Peter Costello the Federal Treasurer on the line.