David Speers:
Dan Mulino, welcome to the program.
Daniel Mulino:
Well, thanks very much for having me on, David.
Speers:
So when did you first become aware the tax office was considering banning the acceptance of credit card payments?
Mulino:
So if we go back to a really important decision, and just for context, this is a reform of our payment system that is long overdue. People in the economy, consumers, have been aggravated by paying surcharges for many years, $1.6 billion on surcharges. We were an outlier.
And so the RBA made the recommendation that we should get rid of surcharges, but also they recommended a holistic reform of the system where we also capped interchange fees.
After the RBA announced those reforms in March, I engaged with government agencies not long after that to ensure that they were aware the expectation was, of course, that they would comply with that removal of surcharges.
In July, the government became aware that the ATO was looking at options and that at that point their preference was to not accept credit cards. And we made it very clear that we wanted them to continue to engage with credit‑card companies to seek the best possible deal for the taxpayer and to explore ways in which they might be able to continue accepting credit cards. And we also made it clear that we wanted there to be a transition period.
And so those discussions with credit‑card companies continued. Those discussions didn’t get to the point where it was possible for that to occur. And so the ATO made a call in late September to not accept credit cards with a transition period of 2 months.
It became clear after that, government heard the message, I heard the message, as did the PM and the Treasurer that that transition period of 2 months wasn’t long enough. And so we acted very quickly to extend that transition period.
Speers:
So just on the timeline you’ve laid out there, in July you were told by the tax office that their preference was to ban credit card payments. And you said go back to the drawing board and find another way. Is that correct?
Mulino:
Well, they were already in discussions with the credit‑card companies, and so we indicated they should continue those discussions. And that was something that was very important as part of the process.
We also indicated that there should be a transition period, and that was something which was ultimately decided.
Speers:
But did you agree with the tax office that the preference was to ban credit card payments with a transition period, but ban credit card payments?
Mulino:
No, this was ultimately their call, but what we indicated was that they should continue talking to credit‑card companies to seek the best possible deal to see what options there might be.
Speers:
Sure, but it was your preference to ban the credit card payments at the tax office rather than the government fund the tax office to keep accepting them.
Mulino:
So it was the ATO’s call as an independent agency –
Speers:
I understand that.
Mulino:
– we left the design –
Speers:
Did you have a preference?
Mulino:
No, the indication we gave to the ATO was that they should continue to engage with the credit‑card companies and that there should be a transition period. That was what was indicated to the ATO from the government, and they did –
Speers:
Engage with the credit‑card companies to lower –
Mulino:
The seek the best possible deal.
Speers:
Lower the fee, but to ultimately see credit card payments stopped?
Mulino:
No, no, if they had been able to achieve a much lower fee from credit‑card companies they might have been able to continue accepting them, but they didn’t get to the point where that was on offer from the credit‑card companies.
So our preference at that time in July was continue those discussions, and those discussions have led to an improved offer, is my understanding, and those discussions in fact continue.
One of the advantages of the extension of the transition period is that the ATO and the RBA can continue those discussions. They didn’t get to the point where it was possible to have an indefinite continuation of the acceptance.
Speers:
But if you knew in July this is where the tax office was heading – I accept that you said keep talking, keep engaging, keep talking – but you knew in July that this was where the tax office was heading, is that correct?
Mulino:
That this was going to be something that they had to consider in their decision as to where they would end up going. And yeah, as I said, we flagged with them very clearly they should continue engaging with the credit‑card companies and that there should be a transition period.
Speers:
Then why was it not until October that the government ultimately decides to help fund the tax office to keep taking the credit card payments?
Mulino:
So they made the call in late September that there would be a 2‑month transition period, and that 2‑month transition period was something that did have some support from government. And then once that was announced in late – on 1 October with the ATO having made the decision on 25 September, we then received feedback that that wasn’t sufficient.
Now the 2‑month transition period was the period of – the busiest period of tax submissions, so the original thinking by the ATO was that that would be a sufficient period.
Speers:
And government as well, by the sounds of it. Do you accept the criticism, including from within Labor’s own ranks, that you and the Treasurer don’t have the business experience, didn’t accept, didn’t see, what impact this would have on small business?
Mulino:
No, we rightly left the detailed design and implementation of the surcharge ban and the ATO’s dealing of this to the RBA and the ATO respectively. The detailed design and implementation –
Speers:
But you’re talking to them both, you’re the Assistant Treasurer, do you just take your hands off and let it go, or do you need to, as you ultimately did, step in earlier and fix it?
Mulino:
It wasn’t a hands‑off approach, it was an approach where we didn’t get into all of the details, but we made it very clear that they should continue to negotiate with the credit‑card companies to get the best possible deal and those discussions did continue and have led to an improvement in the offer and they continue now.
Speers:
Why didn’t you –
Mulino:
But we also insisted on a transition –
Speers:
– more directly say back in July that you can’t do this to small business, you need to actually keep accepting credit card payments?
Mulino:
So accepting credit card payments going on indefinitely would have very serious fiscal ramifications for the budget. And that’s why we always said that there should be a transition period. But the policy position taken by Angus Taylor is one that he has not costed –
Speers:
Let’s stick with the government – let’s stick with the government of the day. So your view about these very serious budget implications, that suggests you were saying to the tax office, ‘This is going to cost too much, you need to ban the credit card payments’?
Mulino:
No, no, this was a decision taken by the ATO, but in our discussions with the ATO –
Speers:
But you’re saying to them that, ‘It’s going to cost us too much to keep taking credit card payments’.
Mulino:
No, the ATO made a decision and in making that decision we engaged with them and indicated that they should engage with the credit‑card companies to get the best possible deal. They did engage with the credit‑card companies and improved that deal, but it wasn’t good enough to get to a position where they could be accepted ongoing. But we also insisted that there be a transition period and that did occur. But the transition period, as it turned out from stakeholder feedback, wasn’t enough, and so that’s where the government stepped in.
Speers:
So no regrets on your part for not stepping in earlier back in July?
Mulino:
Well, I think it’s appropriate that the RBA and the ATO have independence, it’s appropriate that we had engagement with them, and look when we got the feedback –
Speers:
Well, you ultimately stepped in, you know, why didn’t you step in earlier, I guess is the point?
Mulino:
Well, we stepped in very quickly once the feedback came to us, and I think it’s a sign of a government that is genuinely listening –
Speers:
You stepped in very quickly, you’re arguing. You knew in July, you stepped in when this became a big mess in October.
Mulino:
Well, in July what we did was to insist that there be a transition period, and also we took action with the ATO to arrange that that was possible. That 2‑month transition period that the ATO originally settled on –
Speers:
And you agreed to.
Mulino:
– was the busiest period of tax submissions. Now that was their call, their design. We worked with them to make sure that they were able to fund that.
Speers:
So no regrets, no apologies, Dan Mulino?
Mulino:
Well, we’ve changed our position. So I’ve listened to stakeholder feedback, as has the PM and the Treasurer, so obviously we’ve changed tack and we’ve listened to feedback. And that’s a sign of a government that is putting in place important big reforms and responding to feedback.
Speers:
You don’t think you should have twigged earlier the problem that was coming down the tracks?
Mulino:
Well, I think that we did twig to the fact that there needed to be a transition period, and there was a transition period for the busiest period of submissions.
Speers:
All right.
Mulino:
But it turned out the feedback was that 2 months wasn’t long enough. We listened very quickly to that and acted.
Speers:
Okay. Let’s turn to trusts. Small business aren’t happy on that front either. They say you don’t understand the impact this will have. Do you?
Mulino:
So again, just to take a step back to the importance of this reform, what we’re doing through the trust tax reform, a once in a 25‑year tax reform, is making sure that we better align the way that tax on income from Labor is taxed compared to that from capital and from trusts.
This is really important reform from a fairness and an efficiency perspective. This is something that’s been called on in every major review for 50 years. You go back to Asprey under McMahon and Whitlam, all the way through Howard, all the way through Henry and Abbott.
Now this reform is critical for our tax system to be fairer and more sustainable. When it comes to small business, we’ve heard loud and clear that we need to have restructuring arrangements. There are 2 different restructuring arrangements. One is for small businesses that want to restructure from being held within a trust to being a corporation. And we’ve signalled that we’re going to have roll‑over arrangements and a transition period, and that they will not be taxed in relation to Commonwealth taxes.
But we’ve added an extra restructuring option, which is really important, the election method. Where if a small business wants to be treated as a fixed trust, they can do so by indicating that the beneficiaries will be allocated according to fixed proportions.
Speers:
Okay. Let me go to why some want to stay as discretionary trusts in small business. They’re widely used in the construction sector. A builder might have several projects on the go, one falls over for whatever reason, and it records a loss, another project does well and you have a profit. At the moment you can use the discretionary trust to take the profit to offset the loss. Under your changes you wouldn’t be able to do that without a 30 per cent tax hit on that profit, would you?
Mulino:
No, so what you can do at the moment is you can transfer from being held within a trust to a corporation with roll‑over relief. You can transfer to a fixed trust arrangement –
Speers:
You’d cop a stamp duty hit though in some states, wouldn’t you?
Mulino:
Well, that’s possible, but you know, that’s something which we’re continuing to discuss with jurisdictions –
Speers:
Well, small business doesn’t want to take the stamp duty hit here. So what do they do?
Mulino:
But look, the fundamental issue here, and again, I think we need to go back to the point that discretionary trusts have doubled in number over the last 25 years, we now have 800,000 discretionary trusts. And at the heart of this reform is the fact that there are a range of options available to some taxpayers in our community that are not available to most, that aren’t available to people who provide the labour –
Speers:
I appreciate that but I’m talking about where they’re legitimately used.
Mulino:
– and that’s at the heart of this reform.
Speers:
Just looking at where they’re legitimately used, the building industry’s one of them. Will some end up paying more than 60 per cent tax under these changes if they’re using a trust, and then separate companies for different projects?
Mulino:
So what we’ve done throughout this process is to provide a transition period, there’s lengthy transition periods to allow different structures to adjust. We’ve also provided a range of really important carve‑outs, so fixed trusts, charitable trusts –
Speers:
No, you’ve said that.
Mulino:
– and so on.
Speers:
I understand that. Will some pay more than 60 per cent tax?
Mulino:
Look, I think the point is that there’s a range of carve‑outs which are really important, and –
Speers:
No, but will some still pay that much tax?
Mulino:
Look, I don’t want to get into particular tax arrangements for particular –
Speers:
Why not?
Mulino:
– companies, because each situation is different. But the point here is that what we’re setting is a very reasonable minimum tax. The 30 per cent is a level that is really to better align taxations through trust income, through discretionary trusts –
Speers:
Okay, we’ve heard that point.
Mulino:
– with the kinds of tax that is paid through –
Speers:
But you can’t –
Mulino:
– labour income.
Speers:
– you can’t deny that some will pay more than the 49 per cent top marginal tax rate?
Mulino:
No, we’ve undergone a very detailed consultation process where we’ve added an extra restructuring pathway, which is very important, and that was informed by stakeholder consultation.
Speers:
Yeah.
Mulino:
We’ve exempted a whole range of arrangements. But at the heart of this reform is the need to better align taxation through trusts and labour income.
Speers:
Okay. All this restructuring that you’re talking about will involve cost, legal advice, accounting advice and so on. What is the government’s estimate of how much this should cost a small business on average, all the compliance?
Mulino:
So it’s difficult to pin that down to particular businesses, but –
Speers:
You must have done the work on this.
Mulino:
– but the economy‑wide costs are something in the order of $50 million going forward. Which is a reasonable kind of ongoing cost for adjustment across the economy for a tax reform of this magnitude.
Speers:
So the average cost for a small business, is it in the thousands, tens of thousands, what’s the estimate?
Mulino:
Look, it really depends on the kinds of arrangements that a small business has. It depends on the kind of restructuring pathway they undertake, but it should more be toward the former than the latter.
Speers:
Okay. Towards the thousands not the tens of thousands. Let me turn to private health insurance. Why do you want pensioners to pay more for private health insurance?
Mulino:
Look, this is a really important example of where we need to make tough decisions in order to go down the path of fiscal sustainability. We did so with the NDIS, taking measures to much better target and calibrate that huge program, very important program, but to do so in a way where it maintains its core purpose.
Similarly with the private health incentive, what we’re saying is that there will be an incentive right across the board, but it will be based on income measures not age measures.
Now this is an example of where it’s necessary to take tough decisions occasionally. The income that we’re going to save from this particular measure will go towards much needed investment in aged care and home care packages.
What we’re seeing from the Opposition is it’s all too easy to show a cavalier disregard for the bottom line and to take the easy political wins. This is a measure that was targeted –
Speers:
Let’s stick with the government again. Just on the consequences of this decision, the Health Department estimates nearly 80,000 older Australians will drop their cover in the space of just 2 years under what you’re planning to do. Do you know how many would drop their private cover over 4 years?
Mulino:
No, so this is a measure that is at its core designed to ensure that the government has more resources for aged‑care facilities and home‑care packages –
Speers:
I understand that. But I’m just going to what the Health Department – your own Health Department is saying. Their estimate is nearly 80,000 drop their private cover in just 2 years. Has the government looked at the impact this would have on hospitals, on state budgets?
Mulino:
Well, we do look at the impact holistically, and obviously we are involved with major hospitals agreements with the states. But it’s important as part of that overall arrangement where, you know, we help to fund the hospitals with states. But we also need to calibrate particular measures within that, including ways in which we help to fund private health insurance.
Now it’s important that we continue to do that but do so in a more targeted way and do so in a way where it’s based on income and not age.
Speers:
The Greens say you’ve got to carve out pensioners. Will you?
Mulino:
So this is a matter that’s obviously not in my portfolio –
Speers:
Okay.
Mulino:
But I understand that Minister Butler has said he’s open to good faith negotiations. What we saw in the Senate was frankly a bit of a stunt last week.
What we need is for both the Greens and the Coalition to engage in good faith with the minister.
Speers:
Dan Mulino, Assistant Treasurer, we appreciate you joining us this morning. Thank you.
Mulino:
Thank you.