11 March 1996 - 3 December 2007
Transcript No. 99/85
The Hon Peter Costello MP
Friday, 12 November 1999
SUBJECT: Business Tax Reform, anit-avoidance measures
Well as I mentioned, the Treasurer Peter Costello is in our Sydney studios. Hes speaking to Fiona Reynolds.
Treasurer, small business and rural Australia is pretty angry. The Farmers Federation is accusing the Government of engaging in clandestine discussions with the big end of town. Have you been ignoring small and medium sized businesses?
Well, I think Fiona, if we go through all of the matters that weve heard, they are all properly covered already. The first thing in relation to farmers of course, is that theres no new announcement in here on trusts. And I think Mr Donges acknowledged that. He wants changes in relation to what was announced before the election, so thats not really part of this announcement at all. The second criticism I heard, I think from the Master Builders, was that contractors would be put out of the building industry. Thats not the case. Its not the case that everybody who does 80 per cent of their work for one contractor will pay PAYE tax. It will only be the case if you do 80 per cent for one person and you arent operating as a business. You know, youre not out there holding yourself open to the world, and advertising your wares, and bringing your materials and everything else. So, thats easily covered off.
So are their concerns unjustified?
Well, the measure is not directed at the bona fide contractor. If you are a bona fide contractor, the measure recognises that. What the measure is directed at is the people who are in fact employees who have interposed a company or a trust to try and get a company taxation rate, and if youve done that and you are really an employee, youre not holding yourself out in a business, then if you have done that and you are an employee you should be paying PAYE tax. So thats not really a problem.
How can you say the business tax reforms are revenue neutral in the face of evidence we heard yesterday to the contrary from economists?
Well as you see, the costings are all put out and the costings are clearly revenue neutral. In fact, probably mildly revenue positive over the course of the four years.
But economists said yesterday, that your research is out of date.
Well, youll hear the up-to-date evidence as this inquiry goes on. You had, I think, one person from the US which came in and put certain submissions yesterday. But the figures we rely on are not one study from the US. The figures that were relied upon are all of the studies taken together, and the official US figures. And I make this point in relation to capital gains tax. You had one of these US academics there yesterday, the US Government taxes capital gains at 20 per cent. We have a 48 per cent rate. One of the reasons why they do that is they want to attract investment and jobs. And Ill make no bones about this. We want to attract investment and jobs into this country as well, and thats why were reforming capital gains tax. Now, in relation to the other measures, let me make this point. We have a very complicated capital gains tax system in this country. Youve got to index your cost base year by year and average it, and then you pay top marginal rates. We are getting rid of indexation, we are getting rid of averaging. If that was all you did and you left those rates at their current levels, that would put up effective capital gains tax rates. So, if you want to simplify by getting rid of indexation and averaging youve got to reduce rates, because otherwise you will be putting up effective rates. Now this is a fair trade off. It gets us back in the international game. We will still be slightly higher than the US. We will be lower than the UK. This is all about creating jobs and new investment opportunities.
The Democrats say, that a third stage of tax avoidance measures might be needed to ensure that the package is fully funded. If thats what it takes to get their support in the Senate, will you do that?
Well, theres a lot in this for the Democrats. And once you accept the point on capital gains, which is the point that Senator Lees just raised that you cant abolish indexation and averaging without cutting rates - once you accept that point theres an awful lot in this for the Democrats, including these measures which make employees pay PAYE tax. A matter that they themselves have raised. Now those measures are only going to go through if the tax cuts go through. Now this is a whole package. Were not going to come out of this increasing taxes. What were going to come out of this is, broadening the base and reducing the taxes. So, if we can get agreement with the Democrats on the capital gains tax rate reduction, we are prepared to help in relation to other measures that weve announced and the package can sail through. I think this would be a good package and what a great thing to do it before Christmas. Can I make this point . . .
Treasurer . . .
. . . I make this point. It has to be done before Christmas because many of these measures are already operating, announced to operate and people are already taking decisions, and the law has got to catch up with the commercial reality.
Treasurer, thank you very much
Thank you very much.