The accuracy of the content is not guaranteed. Please rely only on the authorised document. PILKINGTON: Federal Treasurer Peter Costello is the guest. Treasurer, good morning and welcome. TREASURER: Good morning, how are you this morning? PILKINGTON: Treasurer, you're prepared to take questions too we believe? TREASURER: Sure. PILKINGTON: Alright, that's 8224 0000 number of ours. And again, as we suggested at the top of the programme, the idea being that you get in early okay . . . McCLUSKY: Yes . . . PILKINGTON: . . . I think, nice and early. McCLUSKY: . . . if you've got a query. PILKINGTON: Alright, away you go. McCLUSKY: Mr Costello, obviously many people are very concerned, and many of our listeners are pensioners, very concerned about the fact that you're telling them that they're not going to be any worse off, and they're suggesting that, well, maybe they don't necessarily believe that. They're suggesting that particularly talking about that 4 per cent increase in pensions, whether that's a real 4 per cent or whether, you know, is that a 4 per cent hit as of July the 1st that they'll see in real and tangible terms? And many of them also concerned that that maybe automatically swallowed up by an increase in housing trust rent, for example, you know, what will happen there? TREASURER: Sure. Well, it's real. It's real money, and it's a 4 per cent increase on what the pension currently is. McCLUSKY: So when do they get that 4 per cent increase? TREASURER: From 1 July. Normally with pensions you index them twice a year, I think it's March and September . . . McCLUSKY: Right. TREASURER: . . . so you wouldn't normally be getting a pension increase on 1 July. But on 1 July pensions will go up 4 per cent, not because of prices, it's an increase in advance of any price rises, and then we start indexing again in September and March to make sure that the pension is always 2 per cent higher than it would have been if it hadn't of been for the New Tax System. McCLUSKY: What do you say to those people though who say, look, I can understand that, and 4 per cent, I don't think that's particularly generous but we'll take that thank you very much, but there are costs such as housing trust for instance, there are other costs, fixed costs that I can't do anything about. It's not as though any income tax benefit is going to be of any great news to me. I mean, I'm fixed, I'm limited, an income tax, I suppose, drop is not going to help. People don't seem confident that when they sit down and do their sums that they're not going to be worse off. TREASURER: Well, this is an increase in the pension in advance of any price rises. Normally what happens with a pension is that prices go up and then you index the pension. This is something that's never been done before, this is an increase in the pension in advance of price rises, and then we resume indexation as (inaudible) . . . McCLUSKY: So, it doesn't replace the indexation? TREASURER: It's in advance of any price rises. Normally when you have indexation it's after the prices have gone up, then you put the pension up so that you cope with the price rises in arrears. But this time it's in advance. 4 per cent increase on the pension so that pensioners can cope with any price increases. Then we go back to indexation, and the pension is always 2 per cent greater than it would otherwise have been without the New Tax System, so that pensioners will unquestionably have more money than they would have without tax reform. PILKINGTON: Treasurer, a lot of our callers, and I dare say this will be one of our themes for the morning, many of the callers would like a simple explanation of the benefits to self-funded retirees. TREASURER: Well, for self-funded retirees, government policy has been on a number of fronts. The first, of course, is to cut tax rates because self-funded retirees rely on income which is taxable . . . McCLUSKY: Yes. TREASURER: . . . and if you happen to be a self-funded retiree, a lower income tax is of enormous benefit. The second thing we did, of course, is we introduced the health insurance rebate. Don't forget that as part of this whole package you now get 30 per cent rebate on private health insurance. That's particularly of benefit for the self-funded retiree because they tend to take out health insurance more than the general public. The third thing which I think will be of enormous benefit for self-funded retirees is those people who might be getting dividends from companies. At the moment, as you know, if you've got shares in a company, and a company pays what's called a franked dividend, that is that the company has paid tax on it at the company tax rate, and it sends you a dividend which is not taxable because you've got a credit for the 36 per cent that the company's paid as company tax. Now, for most self-funded retirees, their income tax rate is not 36 per cent, so they get a dividend which is taxed at 36 per cent, but they don't have to pay tax at 36 per cent. They've paid too much tax on their dividends. And you never, ever got a credit for what we call that excess franking. And as part of the New Tax System, you're going to be able to claim back the difference between your tax rate and that 36 per cent tax rate on the dividend. McCLUSKY: I think the issue that a lot of people are concerned about is wanting to know whether or not they qualify for those bonuses. You know, that one-off bonus that can be up to $3,000, who qualifies (inaudible), is that across the board, is it means tested, how do you get your hands on the $3,000? TREASURER: Sure. If you're a pensioner you can qualify for a savings bonus of $1,000. And if you happen to be a self-funded retiree you're eligible for up to an additional $2,000. McCLUSKY: And just be clear on that, because a lot of people are confused. That's not $1,000 for every pensioner? TREASURER: Every pensioner is eligible for the $1,000, yes they are . . . McCLUSKY: If what? TREASURER: . . . if they happen to be on the pension. McCLUSKY: Yes. TREASURER: . . . and if they happen to have income. And in addition, if you're a self-funded retiree . . . McCLUSKY: Yes. TREASURER: . . . you're eligible for another $2,000 . . . McCLUSKY: But I suppose . . . TREASURER: . . . so you go up to $3,000 . . . McCLUSKY: . . . yes, I suppose the issue is . . . TREASURER: . . . but it's means-tested . . . McCLUSKY: Yes. TREASURER: . . . that's the point I'm coming to . . . McCLUSKY: Exactly. TREASURER: . . . it's means-tested. That bonus is available for people who have incomes less than $30,000. McCLUSKY: But they also have to have savings, don't they? TREASURER: Yes, it's dollar for dollar. If you happen to have income from savings of $1,500, you're eligible for a bonus of $1,500. If you have income from savings of $2,000, you're eligible for a bonus of $2,000 . . . McCLUSKY: Okay. TREASURER: . . . and there's an income test, if you go over $30,000 of income then you don't qualify for those bonuses, because if you're getting $30,000 of income you're then generally accepted as somebody who's receiving income and you're getting income tax cuts. PILKINGTON: It's 16 to 11, McClusky and Pilko here at Adelaide's 5AA. Our guest is Federal Treasurer Peter Costello, and on a mobile, Tony, the first of our callers. Tony, good morning, you've got a question for the Treasurer. CALLER: Yes, good morning guys and good morning Mr Costello. TREASURER: Hello Tony. CALLER: I'm a taxi operator and have been for some years. Now that the Tax Department is dragging taxi drivers into the income tax net because of the GST, what has always concerned me, and has done for 20 odd years, why some consideration has never been given to the fact that a person in a normal job would get super, sick pay, holiday pay, public holidays, long service leave, that some sort of tax rebate or tax concession couldn't be given to taxi drivers to take into account that they work very long hours, mostly at a low income rate, particularly in places like Adelaide, whereas income in Sydney is a much higher level. But if there's no sick pay, there's no holiday pay involved, and why can't some tax scale be worked out to at least recognise the fact that taxi drivers do work in an industry and an environment that is different to normal, sort of, run of the mill jobs. TREASURER: Well, I've got a lot of sympathy with you, and obviously for a taxi driver who's owning their own car, and undertaking all of their own repairs, and all of that kind of thing, there's the added risk of really running a business, isn't there? And the . . . CALLER: Well, the actual taxi driver that's employed in the industry has no benefits whatsoever - minimum income, they have no benefits of holiday pay, or sick pay, or long service leave. And the owners and drivers they have the benefit of the investment in the car, but the driver has no investment in nothing, he doesn't even have a tenure of a job . . . TREASURER: Sure. CALLER: And I think the Tax Department, if they want the taxi drivers to pay an honest level income, I think in all fairness they should turn around and recognise the fact that the average taxi driver works very, very long hours, mainly to maintain his own integrity, that's at generally high risk levels, and surely it wouldn't be too difficult to come up with some formula that says, an average minimum wage person, 30 per cent of his income is over and above to take into account holiday pay and sick leave, and give taxi drivers a 30 per cent tax break. TREASURER: I was just going to go on and say, the way the income tax system works is whatever your income is, then you should be paying the same rate of income tax. And can I say in relation to taxi drivers, you said earlier, that the idea is to bring them in and to make them pay income tax. The truth of the matter is that taxi drivers should always have been paying income tax. Nothing's changed, you should've been in the income tax system yesterday, you should be in it tomorrow. What the New Tax System is going to do though is, it's going to make the income tax system a lot more generous. The rates are going to go lower. And you talked about somebody on ordinary wages, you know the people on ordinary wages, average wages in Australia today that are paying a top marginal rate of 43 cents in the dollar, on 1 July that's going to be cut to 30 cents in the dollar. And the whole idea of this is, whatever your income, everybody gets an income tax cut, so that on a given income you're going to be paying less income tax after 1 July to give more incentive. McCLUSKY: Now, somewhere in town, Phil, good morning to you. CALLER: Good morning Lee. Commiserations to Pilko for yesterday mate, I know how you feel. PILKINGTON: Well, a pretty lousy weekend, Essendon thrashed the Crows . . . CALLER: I know. PILKINGTON: Anyway we've got the Treasurer here, down at Alberton, I'm sucked in, I'm taking bets up at the half time, yelling and screaming and making a goose of myself. Bloody Port Adelaide. Go on Phil. CALLER: Okay mate. Listen Phil Harrison here Mr Treasurer, how are you this morning? TREASURER: I'm very well thanks Phil. CALLER: If I could just have an opportunity to preface my issue with a bit of a story. As you are aware there is a university system that we have in Australia that is basically, predominantly funded by the Federal Government. Incorporated in that system is what we have as a student fee system called HECS. And basically for students who can't afford to pay their fees, they defer that, and that goes through the tax system, and HECS fees are paid, I suppose, once they get their job and throughout their lives, as well as a mortgage and that sort of stuff, they have to pay their HECS debt. Basically Mr Treasurer, what I'm asking is, whether you would consider quarantining the GST slug on HECS debts that's going to hit students? And I just believe that given, you know, in the last three years of Labor from '94 to '96, it cost an engineering student $10,000 for their degree, but in the last three years of a Liberal Government it's cost an engineering student $20,000. I mean, it's just another slug. And in the context of tax, you know, it really is double dipping, because students pay for their degree, and then it gets slugged by, you know, the CPI, (inaudible) tax, it's going to be hit by the GST. And also, they go out, they get jobs, and they pay tax again – normally at a higher rate, and I know you'll go into tax rates and that sort of stuff. But the other thing is, you know, really the GST is the oldest form of tax there ever was, because medieval taxes were based on goods and services, and I just think if it's a progressive tax, how come it's such a corrosive impact on students, particularly low-income students that have to defer their fees. I mean, it's not fair. McCLUSKY: Okay, alright Phil. Thanks. TREASURER: Well, the first point I make is, you said when people go out into the workforce after qualifying they pay tax, and the whole idea is that when people qualify and go into the workforce they pay lower tax. Nobody was actually favoured by having higher income tax rates which are going to be cut on 1 July. And of course that's what's really gone wrong in Australia when you can have people on average earnings paying 43 cents in the dollar on tax, that's coming down to 30 cents. And the whole object of this is to cut income tax rates. Now in relation to HECS, as you know, what happens is that with HECS you get an interest free loan, and because it's interest free it's indexed to the consumer price index so that it maintains it's real value, it's real value, you don't pay interest on it but it just maintains its real value. That's the system that currently operates, it's the system that's going to continue. But in relation to the repayments, the repayments are based on earnings levels, you have certain repayments at certain earnings levels, they will continue but the good news is that if you happen to be in a job and you don't start repaying until you are in a job, your income tax is lower. McCLUSKY: Mr Costello, a couple of questions we had from callers this morning, and I'll try and get through them quickly. Chris rang this morning, and he said that he'd been hearing from New Zealand a problem with people, and I'll give you a very simple example, I provide a service to you for a charge of $500.00 of which the GST component would be $50.00, you decide not interested in paying the GST component thank you very much, I'll pay you the $500.00. Who then has the responsibility of making sure that GST is collected? Is it still up to me? I've done the right thing, I've performed the work, I've invoiced you the amount, you haven't paid it, who then chases it up? TREASURER: Well the purchaser is liable for the full purchase price, which in your example is $550.00. McCLUSKY: So would the Federal Government hassle you? TREASURER: No, no, no, no, the seller should hassle the purchaser to pay the full purchase price. McCLUSKY: But what happens if you say to me, well look, you know, thank you very much but you can stick you proverbial GST? TREASURER: Well, the sale doesn't take place. McCLUSKY: So does that mean the onus would be on me to recoup that money? TREASURER: Well, the onus is, the sale doesn't take place until you've paid the full purchase price. Let me give you an example, lets suppose there is a can of coke at the moment, and I go into a shop and the can of coke is a $1.20 and I say well I happen to know that 10 cents of that price is wholesale sales tax, I'll only pay you a $1.10. You don't make the sale. McCLUSKY: No, but what I'm saying though is there is the possibility there could be a protest vote. Now, if for example it is something like a plumbing job where the work is being completed, I can hardly go out and say, look I'm going to take back half your s-bend because you won't pay me the last 50 bucks. TREASURER: What you would say is that you are liable to pay the full purchase price, just as any other bad debtor, and you've got to get it out of the purchaser. It's the same as, by the way I haven't seen this problem come up in New Zealand, I haven't heard about the problem, but that is why you have a tax inclusive price, as you do at the moment in relation to all your goods, a sale never takes place until the price is paid. McCLUSKY: The other one which was interesting, Joan rang this morning and there seems there has been a rapid increase in the price of medication. A couple of medications that are on the Pharmaceutical Benefits Scheme that have jumped from $3.30 to $6.29 for, no bear with me Joan, I think it was Renotic and Novascar, two commonly prescribed drugs, and she was told that the price increase was relating to the GST. Is that correct? TREASURER: I couldn't imagine it. And I don't know who would have told her that, but in relation to, look lets make a few points, one is that GST doesn't apply until 1 July so if the price increase has occurred it's definitely not related to GST. The second of course is that medications which are on prescription are not subject to GST anyway. Now I don't know those two particular drugs and I don't know if they've been put up or not, but the one thing I can tell you is that it is not related to GST. McCLUSKY: He says with a sigh of relief. PILKINGTON: It is 5 to 11. TREASURER: No, it's not a sigh of relief. The one thing I do know is that in relation to GST because it hasn't even applied yet, if there was a price increase yesterday or any day previously it wasn't GST. PILKINGTON: It's 7 after 11. Federal Treasurer Peter Costello is our guest. Back in a moment and taking calls on that 8224 0000 number of ours………..Peter Costello is our guest. Lets go to (inaudible), another call this is….Ross I think. McCLUSKY: Ross, yeah. PILKINGTON: Good morning Ross. CALLER: Oh good morning. I've got this question for Mr Costello here. I've been in close contact with people from the Tax Office and a lot of small businessman, and they're very concerned that the same thing will happen here as in New Zealand when their new tax system came in, that it put a lot of the small businesses to the wall, and it created a lot of bankruptcies and small businesses went to the wall and there was a lot of increase of people on the streets caused through their new tax. Is that going to happen here? And what's is Mr Costello going to do about all these people? TREASURER: Well, I don't think that happened in New Zealand. I think if you go back to New Zealand back in the mid 80's I think it was, in fact the New Zealand economy at that time, although it was a different time, coped with the tax changes very well and subsequent to that unemployment fell. But I think that if you look around the world in relation to GST or value added tax it's now in place in France and Germany, Britain and the whole of Europe and Canada and New Zealand and Japan and Singapore, and as far as I can tell Australia, which has a wholesale sales tax, is the only country along with Swaziland that still has wholesale sales tax, so this is a modern way of progressing tax systems. We can't pretend that we can go one way and the rest of the world will go the other way. And by helping especially our manufacturing and export industries, I think that this will be a good climate for creating a stronger economy and new jobs. McCLUSKY: Mr Costello, we've all been watching the fairly shaky fortunes of the Australian dollar, it's been up and down and more down than up unfortunately. What sort of impact will the GST have on the Aussie dollar and the way in which it's viewed internationally? Where is it likely to take us? TREASURER: I don't think it is going to have any impact on the short term because what this is all about is getting a broader and a better tax base. But I think longer term because it will make the exporters more efficient. The rest of the world, lets make this point, the rest of the world takes taxes off it's exporters, that's what a value added tax or a GST allows you to do. This country penalises it's exporters, because we make sure they have wholesale sales tax embedded into their products, so when Australian products go out into the world they're penalised. The rest of the world sends their products out, because they've got value added taxes, with benefits. So over the long term, because you are improving your export performance, and I'm talking long term here, in relation to the effect of tax reform, you'd actually expect it to improve the exchange rate. PILKINGTON: Treasurer a call from Geoff. He'd like to know why the excise will remain on alcohol and cigarettes and petrol after the introduction of the GST? TREASURER: Well, we've always had excise on all of these things for different reasons. Partly for health reasons in relation to cigarettes, and these have often been called sin taxes, as you know, on cigarettes, alcohol and petrol. And these products have also had wholesale sales taxes, so after you abolish the wholesale sales tax you put GST on but the excises are still there, they always have been and they remain in place. PILKINGTON: Mr Costello, what's the Government thinking, how long will it take people, first of all to get used to the idea of a GST, okay come the 1st of July, we're talking 6 weeks or so away, and the advertising campaign and all of the talk, and it is the issue of the moment, quite obviously. How long, I mean behind closed doors when you sit down, what have you said to yourselves, how long will it take? Are we talking Christmas time? After the Christmas rush? Are we talking about 12 months, a whole financial year? TREASURER: I think for consumers, they'll adjust very quickly because on 1 July you'll go into your supermarket, the food will cost the same, it could be a little bit less expensive, your toiletries and your cosmetics will probably be cheaper, and some other items such as clothing will cost a little more. PILKINGTON: It's going to take a while though for that to filter through isn't it? TREASURER: Well, I think the, I think for the consumer they'll adjust very quickly. I think for business, you've got the first GST return after the first quarter which will be in October. PILKINGTON: Especially small business? TREASURER: And that first return will be the first time they've actually had to remit their GST back to the Tax Office. So I think it will take a little longer for business. But I would expect on 1 July from the consumers point of view, you'll notice some prices will go down, some will be about the same, some will go up, and I think they'll adjust very quickly. PILKINGTON: Yeah. McCLUSKY: I don't know that we'll adjust that quickly, but you could be right, as Pilko says I think it is the small businesses that are still sitting there in meetings with their accountants where they can least afford to waste the time in meetings going, gee where do we start. PILKINGTON: Treasurer, the, a lot of calls saying when they're wanting information, finding it difficult to actually get through, there is a colossal delay. TREASURER: Sure. PILKINGTON: I suppose that is something that was just about inevitable isn't it? TREASURER: Well, this is a big tax change. The biggest tax change in Australian history, and that's why we are advertising as much as we are. Some people say, oh well you're advertising too much. But you know, wherever I go I hear the same refrain, we want more information. PILKINGTON: Yeah. TREASURER: And that's why we are advertising on the television now, people want more information, there is a hunger for information out there and that's why we are meeting that particular need. PILKINGTON: Treasurer thank you for your time this morning. TREASURER: Thanks very much. PILKINGTON: And hopefully we'll whip Essendon next time. TREASURER: Well, good luck. McCLUSKY: Thanks. PILKINGTON: Federal Treasurer Peter Costello has been our guest.
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