Peter Costello

Media Transcripts

Interview with Neil Mitchell: GST, tax cuts, brewers, petrol, business tax

Transcript No. 2000/69

TRANSCRIPT
of
THE HON PETER COSTELLO MP
Treasurer

Interview with Neil Mitchell
3AW

Monday, 3 July 2000
8.35 am

SUBJECTS: GST, tax cuts, brewers, petrol, business tax

MITCHELL:

First in the studio the first full business day of the new tax system, the Federal Treasurer, Mr Costello, good morning.

 

TREASURER:

Good morning Neil.

 

MITCHELL:

Are you looking for cracks in the sky?

 

TREASURER:

I think the weekend went pretty well. Better than most would have predicted and certainly better than the doom and gloom rioting scenario that Kim Beazley was running around talking about.

 

MITCHELL:

But you were expecting a difficult day yourself were you not?

 

TREASURER:

As I said, I think it went as well probably better than anybody could have imagined.

 

MITCHELL:

Were you ready for bedlam?

 

TREASURER:

I wasn’t saying that there was going to be bedlam. I thought that there’d be a lot of work in the changeover and I want to pay tribute to business in Australia which I think geared up for this magnificently. There were some businesses that traded from 11.59 to 12.01on Saturday morning and took it in their stride. People had worked hard, I was out in my own electorate going through shopping centres on Saturday morning. People had worked hard, they understood the system, they were ready for it, they were doing well. I pay tribute to them and I think it went much better than anybody predicted.

 

MITCHELL:

It was very quiet though. I mean today is the first real business day. When, there is a buying slump there’s no question. How long will that last do you think?

 

TREASURER:

All of the international experience shows you that when you introduce a GST you normally get a big consumer boom up until the day it comes in and then it falls away, and then it starts recovering. One hundred and fifty countries in the world have done this, so we’ve got a bit of evidence on the table, and the bigger the frenzy beforehand, the bigger the drop afterwards, as you can imagine. There was a really big frenzy in Japan and in Canada. Our frenzy was not nearly as big. We don’t have final retail figures for June. What they will show, I believe, is that there was strong buying but nothing of a frenzy nature. In Canada for example the report was the day before GST came in, there were queues of cars outside stores, laden with goods, you know, looking like people fleeing an occupying army or something. And then things fell away. We never saw anything like that, so I think that the pickup will be stronger. The second point is we’ve taken the opportunity to cut income taxes at the same time. And a lot of these countries just introduced a GST, or hiked their rate of GST.

 

MITCHELL:

So if you put those together, when does the slump end? How long does it last?

 

TREASURER:

Oh I think it will take a while. People will start going back into the shops I think in the next week or two. Start looking at, look, let’s make this distinction. There’s compulsory buying which won’t be interrupted at all right, that’s your food, your milk, that’s your bread. That will not be interrupted and in fact if you go into a supermarket today you probably pay maybe a dollar less on a hundred dollars of groceries. And then there’s what we call the discretionary expenditure. This is stuff you don’t have to buy. It might be a new compact disc, it might be a car, it might be another pair of jeans, it might be a jumper for the kids. The experience is that people will sit back, they’ll have a look at the prices, they’ll see what they’ve got in the nature of tax cuts, and I would expect in the next week or two, they’ll start sort of deciding.

 

MITCHELL:

So you would argue business won’t long term have to carry much pain?

 

TREASURER:

Well not over the course of the year, they won’t.

 

MITCHELL:

Short term can be a problem for them?

 

TREASURER:

I think, as I said, people stand back for a week or two. Remember if you’re on a monthly salary, your tax cut will appear about the middle of the month, if you get paid once a month. If you get paid fortnightly it should appear about the end of this week. People now see, well we’ve got money. Good heavens, I’ve got more money than I’ve ever had before in my pay packet I’ll go down and I’ll have a look at prices.

 

MITCHELL:

Now the Prime Minister has suggested that it could take 6 months to know, just let it settle down to see how things go. What if it’s not right in 6 months, what do you do?

 

TREASURER:

Well, when he says 6 months, what he’s talking about is from the businesses point of view. I think from a consumers’ point of view it will settle down pretty quickly.

 

MITCHELL:

But there could be glitches which could emerge, couldn’t there?

 

TREASURER:

Oh look if there are glitches, look let’s suppose there is a technical error in the legislation somewhere, they get fixed. We do that all the time in relation to tax laws.

 

MITCHELL:

What if it is a real problem in 6 months, what do you do? Do you change it?

 

TREASURER:

Oh look nobody’s going to, I’ll make this prediction Neil, in 10, 20, 30, 40, 50 years time, Australia will have a GST. You’ll have this GST. Nobody will ever abolish GST and go back to wholesale sales tax.

 

MITCHELL:

So are there any more changes to the system ahead?

 

TREASURER:

Oh as I said, if you find a glitch, that is you find a technical error, I’m not saying there are any, but we do this all the time in relation to the income tax law, I have about five correction bills a year on income tax law. If you find a glitch you fix it.

 

MITCHELL:

What about business though. Business trying to cope with it could be one area of a problem. The business activity studies are concerning them, carrying the cost, the rest of it. If there’s a fundamental issue which could raise its head. Would you adjust that?

 

TREASURER:

Well that’s why I think the Prime Minister said six months. Because the first business return is at the end of the first quarter which is in three months time and the second is at the end of six months which is just after Christmas, January of next year. That’s when businesses will really know how they’re doing. Now there’s been a lot of talk about cash flow. I think this is an important point for me to make. From a business they are collecting the GST as from today. As they go through this quarter in fact they’ll have more cash flow. If their sales are the same they should actually have about 10 per cent more in cash. Now it would be a real mistake to say, oh, my business has boomed, I’ve got 10 per cent more in cash and spend it. Because you’ll come up to your quarterly statement, that has to be remitted off to the tax office, this is how people can get into trouble. So I would say to business, with the increased cash flow, might be a good idea to actually set aside that component which is GST, or alternatively, some of the banks are now offering these offset accounts. That is you could put the money, the GST, into an offset account which offsets against your overdraft, and cuts the interest on your overdraft. That way you get the benefit of holding the cash, because it is reducing your overdraft but you’ve also got the money which can be remitted at the end of the three month period. So I just say there is a bit of a trap there on the cash flow point. It’s not that you’re going to have too little cash flow, it’s that you’re going to have too much cash flow. And when the time comes to remit it people shouldn’t get caught by that.

 

MITCHELL:

But let’s stay, I guess, stay with my main point. If there are significant, well, is this the final version?

 

TREASURER:

Oh yes.

 

MITCHELL:

Look, look…

 

TREASURER:

Oh this is the final version.

 

MITCHELL:

No significant changes?

 

TREASURER:

This is the final version. Look we started this in August of 1998. That’s when we put out the policy. We went to an election…

 

MITCHELL:

I mean it wasn’t right on Thursday last week. Changes were still being made.

 

TREASURER:

Well hang on, there were technical issues, and as I said if you pick up the technical issues then you fix them. But this has been going now for two years. The legislation was put into the Parliament at the end of 1998, it was enacted in 1999, we’ve had a year in education, the key elements, you know the fact that it is a value added tax, the fact that it is 10 per cent, the fact that the base excludes food and health, they are cast in stone.

 

MITCHELL:

Okay now the tax cuts come into effect this week effectively. Is there any chance of a second round of tax cuts before the next election?

 

TREASURER:

Well, look let’s not start talking about a second round before we’ve had our first.

 

MITCHELL:

Why not? I think it’s a legitimate point.

 

TREASURER:

Well, well…

 

MITCHELL:

That you and John Howard are up to something. I look at you and you’re so confident about the way this is going, despite what’s all that’s going, and I think you’ve got something up that sleeve, what is it?

 

TREASURER:

Well I make this point. I believe in lower income taxes. I always have. If there’s a chance to lower income taxes in this country, I’ll always be in favour of it. One of the reasons why we’ve engaged in this tax reform is to lower income taxes. I’ll tell you today Neil, I think income taxes in this country are too high and that’s why they’re being reduced this week.

 

MITCHELL:

What should the rate be?

 

TREASURER:

Well the rate ought to be the rate that’s coming into effect this week. That’s what it ought to be.

 

MITCHELL:

But you’d like to see it lower?

 

TREASURER:

No, what I’m saying to you is, why would you start talking about another income tax cut before you’ve had this one?

 

MITCHELL:

Well because it looks like part of your strategy to me.

 

TREASURER:

Well I actually, it was so long since people have had an income tax cut in this country, they don’t even know what they look like anymore. So let’s actually have one, having one this week and let’s give people the opportunity to spend more of their money, and let’s please not get fixated on further income tax cuts.

 

MITCHELL:

Okay but I guess I’m saying that if the GST works as well as you think, you’re going to have a bit of money there.

 

TREASURER:

Not necessarily.

 

MITCHELL:

Well…

 

TREASURER:

I’ll tell you why…

 

MITCHELL:

You’re going to be in a position to either give…

 

TREASURER:

No, no…

 

MITCHELL:

…tax cuts or spend some money.

 

TREASURER:

…because if the GST raises more money than expected, and I don’t for a moment think that it will because you know we’ve done all of our calculations. I’m not saying it will. You know who gets that money – Premier Bracks. Money doesn’t go to Canberra.

 

MITCHELL:

Yeah of course it doesn’t.

 

TREASURER:

None of the money from the GST…

 

MITCHELL:

Don’t tell me the Federal Government won’t be better off.

 

TREASURER:

Well it won’t be. No it won’t be.

 

MITCHELL:

It’s revenue neutral? You’d still stand by that.

 

TREASURER:

If the GST raises more money than is forecast in our Budget, the winner is Premier Bracks, Premier Carr, Premier Beattie, Premier Bacon, Premier Court. Now I think at that stage they’ve got to start cutting taxes and I think this is going to be the great opportunity for them to start cutting payroll taxes, for example. But if GST raises more money, it doesn’t go to Canberra. This is, one of the most amazing things about this whole debate, here are we carrying the whole weight of reforming the tax system, introducing the GST and the beneficiaries are - the State Premiers.

 

MITCHELL:

The Brewers, it’s reported in the Financial Review today are planning a legal challenge against excise. You’ll fight it?

 

TREASURER:

Of course we will. Yes.

 

MITCHELL:

Will you win it?

 

TREASURER:

Oh yes the Brewers themselves admit that the excise is lawfully payable, what they’ve said is that they’re going to pay it under protest. Well, we know they’re protesting. They’ve got ads on tv every day. So this is no new news.

 

MITCHELL:

Do you think we’ll have a long term fight over excise in the beer industry, in the brewing industry.

 

 

TREASURER:

It depends how much the Brewers want to spend. I heard that they were spending $7 million. Now if they want to spend more money they can do it. But frankly, if I was a Brewer and I was making a big fuss about all these things I’d rather spend it on my drinkers. The challenge is coming from the foreign owned brewery Lion Nathan, according to the Financial Review. It says it is going to pay this amount under protest. But I say to Lion Nathan, this is something we’re doing for Australia here. This is something that Australian business is supporting. It is good for our country. It has the right to invoke the legal system of Australia, that’s open to any foreign owned company, but I think it’s important that the Brewers like the other Australian companies take the view that we ought to do this for our country. And business as a whole has…

 

MITCHELL:

So you think a foreign company, company is being what, unfair to Australia?

 

TREASURER:

No, no it’s entitled to use our legal system. But I’m saying to it, that we are doing this for Australia and you know that, Lion Nathan, operates in New Zealand, it’s got substantial Japanese ownership. Japan has a value added tax, GST. New Zealand has a GST. And Australia now has a GST.

 

MITCHELL:

But the Brewers say they have been dudded on the excise, that’s basically what they are saying.

 

TREASURER:

But the Brewers argument is this, that whereas a packaged beer is hardly rising in price at all, 1.9 per cent at the most, but probably less, a pot of beer is going up 20 cents. That’s their argument. A pot of beer is going up 20 cents. And I say, yes, that’s right. That’s our policy, for a pot of beer to go up 20 cents. Lets be under no misaprehension about this. This has always been our policy that a pot would go up 20 cents. And for an average family that has $40 to 50 a week more in their pay packets, $40 a week is going to buy a lot more pots at 20 cents a pot.

 

MITCHELL:

Well petrol we’re told will go up… mid week.

 

TREASURER:

How many pots is that. That’s 200 pots at 20 cents.

 

MITCHELL:

Yeah but they’re also paying a lot more in other areas. But we’ll get to that.

 

TREASURER:

Well, no, no, no, in some areas they’re paying less, and in some areas they’re paying more and one of the areas where they’re paying more is in a draught beer. They’re paying 20 cents more, and people have in their pockets…

 

MITCHELL:

Well they’re paying more…

 

TREASURER:

…more money to pay it.

 

MITCHELL:

Well they’re paying more money to pay it but let’s not get hung up on beer. Petrol goes up mid week we’re told by the petrol companies. Is that justfied, or is that profiteering?

 

TREASURER:

Well, look I’ve read something in the paper about that, and I think from the reports I saw, they say that they’re going to put it up 4 cents a litre. I don’t know what that’s about. Obviously it’s not related to tax.

 

MITCHELL:

Well some of it is.

 

TREASURER:

Well it can’t be. Because even on their argument, they say that the tax effect should be at the most one cent a litre.

 

MITCHELL:

Well, is that profiteering?

 

TREASURER:

So the four cents can’t be related to tax. I’ll have to have a look at it. But I assume what they’re claiming is that world oil prices have gone up.

 

MITCHELL:

Is there anything you can do about it?

 

TREASURER:

Ah yes, if they go ahead with that, the Australian Competition Commission will look at it very carefully.

 

MITCHELL:

So you think it’s justified in any way?

 

TREASURER:

I’m not aware that the oil price has gone up in the last week. What they’ll no doubt argue, is they will argue that this is a relay effect, from previous rises. Now, we’d have to have a look at their cost structure. We’ve got an independent person that’s going to do this. But I say this to the oil companies. Well, first thing I’d say is, actually, over the weekend, the price fell. And I guess we should congratulate them for that. Give credit where credit is due. The price actually fell over the weekend when the tax changes came in. Now if their argument is they now have to take into account some relayed increase in the world oil price we will look at that extremely carefully because we want to protect consumers.

 

MITCHELL:

We’ll take a break, come back with more from the Federal Treasurer, in our Melbourne studio, Peter Costello.

 

MITCHELL:

The Federal Treasurer’s with me, we’ll be taking calls out of nine, Alan Fels will be here then, Porfessor Alan Fels from the ACCC. Mr Costello, is the State Government profiteering, Workcover rates up 12 per cent because of the GST?

 

TREASURER:

Well there is a legitimate argument about this Workcover, and we have asked for some further information on that. As I understand it one of the arguments that Workcover is making is this: just get a load of this argument; that because income tax rates have been cut you have to pay injured workers more…

 

MITCHELL:

Okay, so is the 12 per cent spot on?

 

TREASURER:

…so they’ve got to put up their premiums, but there’s no basis for saying that a tax change, GST change should move prices by more than 10 per cent (Inaudible) my colleague …

 

MITCHELL:

(inaudible)

 

TREASURER:

…Joe Hockey is

 

MITCHELL:

He’s looking at that

 

TREASURER:

Yes.

 

MITCHELL:

Gas companies. Origin gas company (inaudible)?

 

TREASURER:

I saw that, yes I was asked about that, that can’t be right. When I asked about that I was told that the independent regulator in Victoria had said that it could go up by that amount, but as I understand it, it’s not tax. He said that they could have a some kind of CPI inflator as well. Now you can’t pass off something that is governed by a CPI inflator as a tax change and …

 

MITCHELL:

What about the banks, what can you do about …

 

TREASURER:

…and that actually is engaging in misleading, deceptive conduct.

 

MITCHELL:

Who is?

 

TREASURER:

If you pass off, that you’ve put up a price as a result of a tax change and it’s not, it’s for example because of a CPI inflator or it’s because the price of raw materials went up or a world price went up, then it’s misleading and deceptive conduct and that is actually against the law.

 

MITCHELL:

What about banks, what can you do about bank fees?

 

TREASURER:

We’ve actually spoken to the bank fees and I think the banks actually, I’m not sure what the status of Westpac is, but the other banks have been pretty good. I don’t think that they’ve moved their bank fees.

 

MITCHELL:

Well National’s increased their on-line banking by 10 per cent on everything

 

TREASURER:

Well their bank fees, that is the fees that they charge consumers for transactions, as I understand it hadn’t moved. I’m not sure about the on-line, I haven’t seen that press release but if you want to give it to me, I’ll…

 

MITCHELL:

Sure.

 

TREASURER:

I’ll certainly get to the bottom of it.

 

MITCHELL:

It’s not a press release, it comes from information they send to customers. So that’s National and Westpac.

 

TREASURER:

Ah ha. Well I don’t think they actually say it’s gone up 10 per cent do they? I think, I’m just looking at it very quickly, they say they will collect and remit the 10 per cent. A lot of people say that, they say they’ll collect and remit the 10 per cent, it doesn’t mean that, there are two different issues here, there is one the price you charge and two, the tax you remit. You can actually keep your price constant you know, and remit 10per cent of that price, the tax. You’ve got to very clearly distinguish out the tax and the price

 

MITCHELL:

Yes, it depends whether the bank’s making a quid …

 

TREASURER:

You’d have to know what it was beforehand actually Neil, you can’t tell from that.

 

MITCHELL:

How long will it take for the polls to turn around for you?

 

TREASURER:

Oh look, these polls frankly, different polls different amounts, I don’t really take them all that seriously at this stage because I don’t think we’ve engaged in the political battle. At the moment …

 

MITCHELL:

What’s been going on for the past three years?

 

TREASURER:

Oh, I will tell you what’s been going on.The Government’s been doing something which everybody knows is necessary for the future of Australia and the Opposition has been engaging in cynical populism. That’s what’s been going on

 

MITCHELL:

But you …

 

TREASURER:

Now now now, we now get to this point, the GST is in. The Opposition has been saying for two years the GST would bring disaster, there’d be riots in the streets, there’d be people attacking shop assistants over the weekend, that people would become, you know go into poverty and start starving. We came through the weekend no evidence of any of that, and so they say, oh it’s actually going to be a slow burn

 

MITCHELL:

It’s very early days though.

 

TREASURER:

A slow burn. So having missed the high jump bar they set for themselves, they’ve sort of taken it down to about three inches, and said well we’ll see if we can get over this. But the critical question now is this Neil, - what’s it going to do? You’re not going to tell me that for the last two years the Labor Party has been telling us that this is the worst tax system ever for Australia and now if they ever get elected, they’re going to keep it.

 

MITCHELL:

Today is the first day of full business though, I mean we will not know more until perhaps the end of this week at the earliest.

 

TREASURER:

Look, I think that’s right. There was trading on Saturday and Sunday, we’re now a seven day a week trading economy so there was real retail trading on Saturday and Sunday. I think what happens on Monday is offices open and so you’ve got the whole lot of the white collar people back at work for the first time and you know people will be putting in place their accounting systems, we’ll know a bit more by the end of today. But we are a seven day a week trading economy and big trade days Saturday and Sunday now.

 

MITCHELL:

Is this the biggest reform item on your agenda?

 

TREASURER:

Oh it’s the biggest reform to the Australian economy ever.

 

MITCHELL:

What’s next?

 

TREASURER:

We’ve got a few projects, but I said earlier, why would you start thinking about your next meal until you’ve digested your last one. We’ve still got to digest this one

 

MITCHELL:

General areas? Tax?

 

TREASURER:

Oh there’s some big areas of unfinished business but nothing will be as big as this. Look, I said on Saturday it was like AFL Grand Final day, the first day of the Boxing Day Test and election day all rolled in one. You think back 100 years, a hundred years ago we were becoming a Federation, we abolished Customs posts on all our State borders, every price changed. But even that was not as big as this. This is …

 

MITCHELL:

What about business tax, when do the business tax changes - can you speed them up

 

TREASURER:

Well, the first round of business tax changes started on Saturday, the company tax rate went from 36 to 34, on Saturday. Capital gains tax for individuals has been basically halved from September last year. If you sell a share, you’ll pay half the capital gains tax, practically, that you used to pay before, so we’re on that. We passed some legislation in the early hours of Saturday morning as part of business tax reform and we keep on working. On Saturday, just go through it. We abolished the wholesale sales tax, we introduced the GST, we cut every income tax rate in Australia, we increased all family assistances, we cut the company tax rate and when I go back to my office today I’m going to authorise the first payment to the States of revenue out of the GST.

 

MITCHELL:

So will you win the next election?

 

TREASURER:

Well the next election will be close. Too early to make predictions now.

 

MITCHELL:

You might go in as the underdog do you think?

 

TREASURER:

Look I think it will be close. In Australian society it’s always easier to knock, isn’t it? And the knockers and the whingers have had two very good years, but the day of reckoning is coming for the knockers and the whingers. Tonight Mr Beazley’s got to say what he’s going to do. For two years he’s said the GST’s …

 

MITCHELL:

(inaudible)

 

TREASURER:

…no good and tonight he’s got to say what he’s going to do about it.

 

MITCHELL:

One final question, never ever more than 10 per cent?

 

TREASURER:

Not in my lifetime.

 

MITCHELL:

Never ever?

 

TREASURER:

Never.

 

MITCHELL:

Never ever?

 

TREASURER:

Never in my lifetime. You know, and I intend to live a long time but after I’m gone, it will be up to whoever’s running the tax system.

 

MITCHELL:

Thank you for your time

 

TREASURER:

Thanks Neil

ENDS

 

3 Jul 2000

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