O’BRIEN:
Peter Costello a windfall on company tax, a windfall on capital gains tax. It’s all supposed to yield dividends in a greater flow of investment into the Australian economy but will it be productive investment or to some degree indiscriminate investment?
TREASURER:
Well I think it will be productive Kerry. What we’ve done in relation to company tax is we’ve broadened the base and lowered the rate so that you take out some of the concessions so that those that were previously taking advantage of the concessions and could get in to a concession could get out of the company tax rate. You take out the concession, you bring more activity into the tax net, but because you’re bringing more activity you can lower the rate. People now make decisions not based on how they can skew to concessions but how they can get an overall economic benefit. So that’s good.
Secondly, in relation to capital gains, what we say is only 50 per cent of the gain will be taxable and as a trade-off for that, you’re operating capital gains on nominals, you don’t have to index your base and you take out averaging. So again, wider base, lower rate. We move to small business and we have a magnificent package for small business which is going to help those small businesses, particularly the farmers, who have turnover of $1 million or less, going to give them the advantage of lower rates and simplified system. And again, that’s good for economic activity.
O’BRIEN:
Amongst the commentary today were lines like that to some degree it takes you back to the 80s in the sense that negative gearing investment in real estate is going to be more attractive; that negative gearing in shares is going to be more attractive; and that you’ll see, you’ll see more trading, faster trading, faster turnover for profit on the sharemarket. Now is that the kind of investment that you want?
TREASURER:
I make this point in relation to capital gains, that these are cuts in capital gains for individuals. Now you won’t find people negatively gearing as individuals unless they’re prepared to open themselves up to risk. Quite often when you negatively gear and you borrow in excess of what you’ve got the capacity to service you do it through a company because you want some limited liability. So there’s a downside. But at the end of all of that, if we do promote people buying and selling shares and more activity, on more activity with lower rates you get the same revenue. It works out as a benefit. Let’s come back to the capital gains, we are now the second largest share owning nation in the world as a result of Telstra and the AMP demutualisation. We’ve got another Telstra privatisation going out to the market. Australia could become the largest share owning country in the world and that’s because mums and dads, individuals, buying their Telstra shares or getting their AMP shares are now share owners. What this does is it says in relation to those shares that they’re going to get some relief from the capital gains tax and we actually think it’s a good thing to encourage them to come into the stockmarket. We’re trying to encourage them to come into the stockmarket, it’s good for Australia.
JOURNALIST:
The Australian Council of Social Security (sic), you’ve heard what they’ve said, that under your tax regime millionaires will pay a lower rate of tax for part of their income than average taxpayers, people between $20,000 to $50,000. They’d pay a marginal tax rate of 30 per cent, but high income earners would only pay 24 per cent on their windfall gains.
TREASURER:
Well, they’ll pay the same rate on income. Everybody pays the same rate, every individual pays the same rate on income. The question then becomes, what do people pay in relation to capital gains? Now in Australia we had top capital gains rates for individuals at 48 per cent, the highest in the developed world. What we are saying is, that if we tax nominal gains, bear in mind we were only taxing real gains, you used to have to index every year for the base, enormous complexity. If we just tax the capital gain at its nominal value, we can afford to tax it at half the rate. What that does is it puts us back in the ball game. It means that our rates our now equivalent to those in the U.S. and the U.K. We become in-line with the international community again. And that’s been a big part of this business tax reform, we want to make sure that Australia is in-line with the international community. Come back to company tax. We’ve got a company tax rate of 36 per cent, we can make it at 30 per cent. On that company tax rate we can go lower than Britain, lower than the United States. Not the lowest in the region, Hong Kong and Singapore would still beat us. But we can beat most of the other countries in the region. Why do want to do that? We want people to invest and grow businesses in Australia. We want the jobs here and the economic activity here, and building an internationally competitive tax system is a big part of that.
JOURNALIST:
You always said that your business tax reforms would be revenue neutral. But that promise is a little bit rubbery on today’s information, is it not?
TREASURER:
No, it’s not. Because what you actually find in the first year, it’s revenue positive. And then in the second year we go back the other way. I should say, the first year it’s revenue negative and the second year it’s revenue positive. In the third year it’s again revenue negative, but we have some further measures which can make up the difference and after that it’s basically almost status quo as you go across the forward estimates. Now, we want to be in a position where we can keep the business taxation raising the same amounts of revenue. If we can do that on lower rates with a broader base and more activity and more jobs, why wouldn’t we try and do it?
JOURNALIST:
You’ve estimated $800 million, well $1.4 billion in tax avoidance, but $800 million of that we don’t know exactly how you’re going to raise it.
TREASURER:
Oh yes we do.
JOURNALIST:
Well you haven’t made the, you haven’t actually bitten the bullet on it yet, have you?
TREASURER:
Oh yes we have. We’ve announced today the two largest funding measures, accelerated depreciation and prepayments. We’ve also announced, by the way, some tax, anti-tax avoidance measures which are backdated to the 22nd of February. And we’ve said as part of a second round, there are two additional measures that are on the table. Both of which we’re prepared to agree to in principle, but are going to take some discussion as to how you implement them in practice. Now when you add those measures back in, they again produce additional revenue. This is on a . . .
JOURNALIST:
The thing is, if there is tax being avoided that you can stamp out, why wouldn’t you stamp that out anyway? Why would that be an offset for business tax cuts?
TREASURER:
Well, we are stamping it out. Where there’s tax avoidance we’re stamping it out as from the 22nd of February. Where there are lawful techniques that are being engaged in, which we think should be restricted but have to be restricted in a fine way so that you don’t actually penalise legitimate activity. What we want to do is, do it in a fine way. And that’s why we’ve got that out for consultation and that’s why we’ll be very careful in drawing the legislation.
JOURNALIST:
Very briefly, Mr Costello, because we’re close to time, the Victorian election. The crunch that Jeff Kennett faces, whether he gets back to Government or not, is one that most people agree, it seems including Jeff Kennett, would severely restrict any further reforms in the Victorian economy. What is left for governments in terms of reform agendas if you can draw a line from the message from Victoria?
TREASURER:
Well, I think there’s a lot of work to be done at the Commonwealth level and that’s what I’m looking at, obviously. We’ve got to complete tax reform. So, we’ve got indirect tax, personal income tax, business tax. We are reforming family entitlements. There’s more work to be done in relation to welfare reform. We are privatising Telstra and retiring government debt, there’s more work to be done in relation to that. There’s more work to be done in relation to industrial relations, we’ve got a second wave of industrial relations reforms coming on-stream.
JOURNALIST:
The message from Victoria is, that there is a lot more work in selling the message too.
TREASURER:
Well, you know, I don’t think you can say that there were federal issues in the Victorian election. I think everyone agrees with that, Mr Kennett, everyone agrees on that. That was fought on state issues and it was decided on state issues. But we have a strong reform agenda. We’ve had a strong economy, that’s the benefit of past reform. It’s the reforms of today which will give us the opportunity of tomorrow. And I actually think that the great benefit nationally is going to be falling unemployment. Unemployment is now low and can go lower.
JOURNALIST:
And I’m sorry, I’m going to have to cut you off there before I get cut off by the programmers. Peter Costello, thanks for talking with us.
TREASURER:
Thanks Kerry.