ii1 1Ifib. ilL L CeV L[? h
O. E. PROOF ONLY
TRANSCRIPT OF JOINT PRESS CONFERENCE HAWKE AND KEATING 4/ 6/ 85
PM: Well ladies and gentlemen, we have no opening statement.
We are ready for your questions.
JOURNALIST: Prime Minister, why have you surrounded yourself
by flags. Is that to show thaL
PN: It's a great day for Australia. All over?
JOURNALIST: I am a little puzzled by the reference in one of ' vur
papers, Prime Minister, that there be no death duties. I can't
actually reconcile that with a provision for deeming capital gains
be realized at a certain time. That seems to be a tax on a
notional amount.
PM: Well tliat. I a problem in your comprehension. it has got
nothing to do with the facts of the situation. Quite clearly, a
capital gains tax is not a death duty. It varies in so many
ways. The elements of the capital gains tax are that it is not
a tax on the nominal value of the asset in question. It is on the
real value so that the accumulated amount . in the asset "; which
represents inflation is not covered which would be the case in a
death duty. It is in no sense applicable to or describab-e as the
concept of death duties.
JOURNALIST: But by virtue of the deemed realization provision,
you will be taxing estates and gifts?
PM: You won't be
KEATING: But outstanding tax is now paid on an estate, if there
is Lax payable and a capital gains tax is an income ta;: ed as
capiLal. And the monies which are paid now the Commiszioner
of Taxation ha. a call upon the States which you don't call
death duties, so why therefore make the analogy in respect of
a deemed realization on the real gain, as the Prime Minister
indicates. It doesn't qualify for a death duty. A death
duty is levied upon the full value of an estate and, of course,
there is in this, of course, an exemption for residential homes
as " ell. r.
JOURNALIST: Mr Keating, were you disappointed that after so mi. uch
work, the tax task force was unable to come up with more
positive action on trusts and income splitting. Would the
Government anticipate going on with work in that area to try to
see how that could be dealt with?
KEATING: Look, Michelle, that is a difficult area because the
problem with trusts is that first of all, you have got unit
property trusts which have been built up over a period public
trusts built up over a period of time with set price earning
ratios which would be disturbed by a rove to company taxation
in, any precipitate way. That is the first point. The second
point is, say, on trusts of a private nature, that if we were
to impose outright company tax on trusts, the likelihood is
that those arrangements would shift then to partnerships, and
then you would have to devise a way of taxing partnerships.
And the likelihood is then that one partner would lease ecquipment
to the other partner. And you have got to then devise a
system of taxation to cover that. The other point I think which
that indicates the difficulty. It is not an easy problem. And,
in the case of discretionary trusts the ones I have just
described you will find very quickly changing arra:; ge;. ents to
accommodate the tax. Now, that would be the main point I think
I would like to make about it.
Sorry, there was one further point I was going to mcake. That is,
in respect of uompanies we talk about in here half imputation
and full imputation and we examine the concept of full integration.
Now, if it is, in the view of the public desirable to see full
integration of companies that is, we would be moving down
or imputation of companies we would be moving down the track
where we are going for an outcome in tax treatment of incorporated
arrangements similar to a trust. So before one takes the
position of imposing tax treatments on a trust to try and bring
them back to the company tax arrangements when one is :-using over
changing the company tax arrangements heading Lowards trusts, it
is not just simply a simple matter then to say, well look, the
clear thina to do here is to tax trusts. If it is to be that
we believe and it is not clear this is not the Government's
position, but it is certainly a view put very solidly that the
full integration of companies is.. a desirabie development.
Full integration of companies would accord with the current
tax treatment of trusts. So therefore, one has to be very clear
about one's objectives in going down the trust route in terms of
the company tax treatment. So, we have left open the possibilities
there of half imputation, full imputation, and integration.
And those issues, 1 . think, are important in de. trmining what the
long run focus of tax treatment trusts should be.
JOURNALIST: Does the Government have an estimate of whether or
by how much the public service i. e. the Taxation Depart. ent
would have to be increased to implement the various asoects of the
preferred option? 1 1* 1, 1
PM: Well a calculation has been made as to the net cost
of the administration of abolishing the wholesale tax and
then bringing in the new broad-based consumption tax.
And the estimate, I think, Paul, and I say this subject to
question, is the net additional cost of the order of $ 80 million.
JOURNALIST: Any extra staff in the Tax Department to
implement KEATING: Oh yes, there would need to be extra people.
JOURNALIST: How many?
KEATING: I'm not s'ure of the number, Wal, but there would be
a lot of extra people if you let the tax evasion and avoidance
industry go on. Simply, we put another 700 on last year on
compliance only because this package represents a fairly
substantial salt upon the instruments of avoidance and evasion.
The savings there in compliance staff offset against firstly,
the losses of staff which would be part and parcel of the
winding up of the wholesale sales tax system. And the additional
staff to operate a consumption tax at the retail level would be
significant, but it has to, I think, be viewed against what the
tax system would otherwise need to try and keep the income base
in some sort of repair.
JOURNALIST: the package is implemented, Prime Minister, does
the Government believe that the next logical step is a system
of taxation indexation in order to ensure that the benefits,
particulaly in the lower marginal tax rates, are in fact
preserved and not eroded over time.
PM: The White Paper makes the point that once you have made
the tax reform the substantial tax reform that that is the
logical next step.
JOURNALIST: And I take it, the Government accepts that, does it?
PM: I believe so, yes. When I say I believe so, I am saying
that in the sense of our general position as government. You
see, we have made it clear from the beginning in the enunciation
of the nine principles that we are not putting a position of
take it or leave it. We are seriously saying to the community
as you will see from the last paragraph we want all the
options, including the preferred option, to be tested. And on
the basis of the preferred option being acceptable broadly across
the community then, the Government, I believe, would say that
that is what logically follows. I
JOURNALIST: Mr Keating the Treasury estimates of revenue
collections have notoriously been inaccurate. The provisional
tax estimates for tbLs year is an example in point. When you
are putting figures on what could be collected from fringe
benefits particularly, if they do run under the mark what is
going to happen to the income tax cuts. Are you still going
to work at a zero sum or are you going to set a bigger deficit?
KEATING: Well Mungo, let me just make the point. It is
true we have a discrepancy in the provisional tax outcome
this year. That has arisen, not because of the Treasury's
estimates of income it'nich it has the peculiar and sole
responsibility of estimating but of other estimations by
other agencies about the likely buildup of equipment on farms
etc. Now the point is they've got to be right, no matter
who does them. I take the responsibility for them as
Treasurer. And I take responsibility for these numbers.
But I don't think that given the fact that the Treasury
picked the turnaround in the economy in 1983/ 84, broadly
picked inflation and employmcnt estimates, employment growth
for numbers outcomes in the las-couple of years. I think
their estimating has been pretty good considering the swings
and the magnitude of the swings in the economy. Now on this
particular measure I don't think there's anything in the
Treasury been through greater scrutiny than these numbers.
And on a lot of those numbers we've taken the conservative
i estimate. And I think the conservatizve estimate also applies
in respect of fringe benefits. The fringe benefit assessment
at seven hui: dred million dollars it would effect, if it were
wildly astray, it would effect the figuring. But on a sum
of that magnitude even a modest change would not dramatically
effect the potential for the tax cuts on a revenue neutral
basis. JOURNALIST: The point that I'm trying to make is that there i;
still a very big tax avoidance industry, there are a lot of
tax cuts and a lot of lawyers around, who are going to be as
from this morning, trying to work out ways to drive a train
through anything that you pau up
PM: If not a cart.
JOUJ-' ALIST: OK, try and knock your cart over by a train, if you like.
KEATING: Well lock basically we think the estimates
are firm. They hany together. They would provide tax cuts
of the orders we specify in the document, and it is on
S. a revenue neutral basis. Now there is of course a potential
for some of the brace broadea; nj measures to produce higher
out year earnings, and those earnings would be subject to
Cabinet's approval I,' m sure, as part of the tax relief.
So we're talking about the second full year of the second
year of these measures operating in terms of that revenue
buildup. And on those bases those figures hang together and 4
tax cuts of those orders are appropriate on a revenue neutral
i basis.
JOURNALIST: Mr Hawke the Opposition leader has refused
to say whether the Opposition will allow legislation to
implement Option C, through the Senate. How do y., u feel
about fighting an election based on that factor?
PM: Well I feel confident. I go back, Laurie to
what I've been saying consistently on this. When we
started this process tax reform during the last election
campaign toe set cut the nine principles. The ninth
principle was that any tax reform would need broad support
in the coin:.-unity. We believe strongly that during the process
of public debate and discussion, leading up to and at the
Summit, w, will get that broad support because the benefits
of this tax reform, I believe, will be so obvious. If the
Government makes t! h judgement, which I believe we'llbable
to, that we have that supportthen we will put it to the
Parliament. Its going to be a very heavy obligation, I believe,
upon the Parliament to recognise the ill of the community.
You talk about the attitude of the Oppos-ition, I think its
been best summed up by one well known radio cormm: entator this
morning wno said " here they go again, negatije, obstructionist
unprepared to look at the package as a whole". I believe
if they do that they w. ill pay a heavy price. We are prepared
to face up to these hard issues. We've done it in the areas
where they refused to in the past. I've listed them before,
hey did ith-work on the deregulation of the financial i., arket.
They knew \., hat ought to be done, but then they wouldn't mTrKe
the hard decision because they thought there might be some
difficulty. Same thing in the dollar float. Same thing in
the entry of foreign banks. They would never face up to the
decisions that needed to be taken to protect and advance the
interest of the Australian community. If they try and go
down that track again of saying yes well we recognise that
these things ought to be done but we're going to try and take
some political advantage out of a particular point. We're
prepared to fight them on that.
JOURNALIST: Does that mean an election sir if its blocked
in the Senate.
PM: Well I'm not going to the point now of answering
that hypothetical question. What I'm saying is that we've
discharged our obligation, we'll.. go to the Summit. Our
responsibility, our first responsibility'-discharged. Our
second one now is to get the response of the Australian
community. Then we will seek to give effect to that. Now
I am optimistic that, particularly with the involvement
of the Demccrats, who are at lecst accepting their
responsibility to comne to the Summit, -o listen to what
the community has got to say. lCfhc@ see that there is a
broad support for this we'll get that support reflected
in the P& rliament. I am not going to address myself to
the hypothetical questions of refusal by the Parliament to
reflect the desire of the community. We'll deal with that
if it arises.
JOURNALIST: Ir Iiawke do you think that the ACTU will be
able to resist the tax cuts inherent in Option C, and
if not when do ynu think they're going to give their approval.
PM: Well as I understand the position it's this
Greg. Paul has had extensive discussions with the ACTU, as
he has had with the business community. The understanding
that he has and which he's conveyed to me and the Cabinet,
is that they will go to the Ta>: Summit with their options
open. Ihey will not close their mind to a package which
involves the broad based consumption tax. P.. id essential in
the understanding of your question, I know you understand
it, is that the only way you can get the very substantial
direct tax cuts about 30% the level of , verage weekly
earnings is through the broad based consumpcion tax route.
Now the ficures are stark, they're clear at the level of
average weekly earnings there would be a thirty one dollar
a week cut, for the average weekly earner. That's thirty
one dollars a week more he or she has in tiJ: pay packet.
The cost of the broad based consumption tax approximately
sixteen dollars eighty. Net gain, therefore, of just over
fourteen dollars a week to tnat average earner. Now they
know now and they will know even more clearly by the ti-.
the Summit's finished that it's only by preferred option that
they can get that benefit. They will also know that in that
process. that the lower income people in the community and
those not on direct incomes, but relying on social welfare
payments will be more than protected. Now its our judgement
that as those things become clear to the Trade Union leadership
and their members that they will see that that is an
appropriate path to go. Now as to when they make that
decision, I think the indications are they're imoving that
way. They go to the Summit with an open mind, and I beli. eve
that relatively shortly after the Su-mit, that good sense
would indicate to them that that's the way to go.
JOURNALIST: But will they accept discounting, Praime Minister?
PM: Let me make it clear as we did in principle
seven, of the nine principles. That that is an essential
element. This has got to be clefir. y understood. Let it be
clear from day one of this debate. We will not; 3ou could
not, simply have a situation w. here wage and salary earners
get these substantial benefits, the thirty dollars a week,
which come from the increase in revenue associated with the
broad based cnsumption tax -get that benefit which in
net terms, as I say, at the level of average weekly earnings
is fourteen dollars a week and then say, we grab that
thank you very much. Put we're now going to double dip and
not accept discounting'" wages. That is not on and it was
made clear in principle seven that it was not on.
JOURNALIST: A fist full of dollars perhaps Prime Minister?
PM: No the difference between the fist full of
dollars that's in your mird of 1977-that you had a weak
gutless deceptive governeicnt then, that deliberately deluded
the Australian electorate. Weint into an election and said
there's your fist full of dollars and then within five months
grabbed them back. The distinction is that we have laid
out entirely, and honestly all the implications rhat's
involved in net benefit terms, and the bringing into effect
of that pack: age will be as a result of full and nonest
consultation with the Australian electorate. They with
uswill be making the decision. They, w ith usI think will
adhere to the decision.
JOURNALIST: Whose preferred option is the preferred option?
This morning the ' rcasurer told us that our Cabinet will
support the decision of Cabinet as you've always done. Last
night only Senator Walsh came up with rather a different
preferred option. Does this mea. n we'll get a number of
Senator alsh's preferred options between now and the
Summit cr will we not.
PM: We have outlayed in the Paper a number of
options. T Cabinet las made it clear that Paul Keating and
I, and others who speak on this issue now have the authority
of the Government to put as the preferred option the-one
which is designated in the White Paper. That is the waya
the debate will be conducted between now and the Summit and
at the Summit. I make it clear that as you see in the final
paL graph of the White Paper, we're not saying there it is.
its all closed, you can't talk about anything else, to the
community. We are saying to the community we want you to
test all the options, including the preferred option.
And its our firm belief that a fair analysis of that
preferred option, which is a total package, will lead to its
acceptance. And its not going to be any good in this debate
someone getting up and saying well look there's a bit of
the package I don't like. Because there will be bits of
the package that some people won't like. The obligation
upon everyone in the community now is to look at the
package as a whole, and see whether the community as a
whole benefits from the implementation of the package as a
whole. JOURNALIST: If certain groups do pick out sectionwhich
they don't like, is it then worth assuming that Option
B, given the fact that the White Paper says that it mayE not
be worth going down that route, given the fairly small gain. for a lai
upheaval in the tax Is is not worth going down that route, if there
are problems with Option C.
PM: Wel1 we've made it quite clear that we want
all the options examined. We would say now, if ouL of the
Summit, and the processes leading to the Summityou were
to get a position where there was a clear majority view in
the cormmunity-' that they did; n't want to go down the
preferred option package, then the Government would obviously
have to take account of it. That's what principle nine
says. But the task that faces, particularly Paul and myself
now, cs having the main car-iaze of this matter, is to try and
get the community to see the benefits of the preferred option.
And let me make it clear that you've got to get, and I hope
the Australian Community will see this, they've got to get
their time scales right on this. There's no point in just
looking at this today and say well look, there might be
a bit of a problem about one element of this. As I've said
recently on a number of programmes, we could slide through
today and tomorrow, with this tax system that we've got, and
without a fundamental reform of it. But the future generations
of Australians will pay a very heavy price if having now
fully exposed the haemorrhaging of the revenue base of this
country they say well we're not really going to deal with that.
Because the inevitable result of that soft option, if you like,
of saying we won't really have a thorough going review, is
that the ordinary Australian man and woman, and their
dependants are the ones who will pay more and more, as they
have been over recent years.
KEATING: Can I just add a point to that, in respect to
the 46% rate, and I think this needs to be well understood.
That where we got near the 46 rate in the seventies, the
Labor Government of the day broadened the base of the income
base under the treasurership of Bill Hayden. And that 46%
area was then moved away from average weekly earnings.
Its with the dramatic inflation through the seventies has
started to come back. And about the time it was starting
to impact again, the Fraser Government discovered Bass Strait.
And so again revenue was used to keep average weekly earners
out of the 46% area. It was then moving back to the 46%
area when the Fraser Government gave a tax cut in 1982/ 83
which the budget could not afford and left us with a massive
public deficit. But despite that tax cut, its in the 46%
area now. But there isn't a Bass Strait this time. There
can't be any irresponsible blowout of deficits of a fiscal
deterioration of the kind we had in 1982/ 83. And now
Australia faces a clear choice-+ hat it either does something
about the high marginal rates impacting on average weekly
earnings and finds another base in the tax system or it
doesn't. Because the three billion of new revenue which
Bass Strait provided, or the base broadening which was
provided back in the seventies, is only in part available
now and as far as Bass Strait is concerned is running down.
We've got the company base being eroded by five three
depreciation. The excisers in a position where they can't
contribute very much more to revenue. And if there isn't
some offsetting of these very high marginal rates on" narrow
income base, in another base in the tax system. Well what's
going to happen is what the Prime Minister described. Low
and average income earners are going to be suffering a
high proportion of their extra earnings being lost at that
rate.
PM: Can I just add the statistics so that you really
understand clearly the dimension of this. As of today 39% of
full time earners are at the 46 cents marginal rate. Within
three years that will be far in excess of 50%. There'll be
three million out of the five and a half million full-time
earners. Now we believe that t. e overwhelming majority
of Australians are simply saying its not tenable to go on to
a situation where that extra dollar is going to be eroded to
the extent of half of it by tax. Now you can't substantially
deal with that problem, we believe, other than with the sort
of reform we're talking about.
JOURNALIST: Mr Hawke, are you saying that Option C is a
discrete package and that elements of it are not negotiable.
PM: No I'm not saying that. With respect, Greg,
you could not have listened to what I said a while ago. We
have we believe, accepLed the primary obligation upon government
to these things. To expose the inadequacies of the existing
system. Its lack of simplicity. Its lack of fairness. Its
lack of economic efficiency. Then we've gone through the
stages of saying the things that can be done. The broadening
of the direct tax base. Some actions that can be taken by
moving in regard to the wholesale tax, and perhaps some
level of broad based consumption tax. And have gone through
to the final preferred option. Now we have said, and I repeat
here again, as I've said earlier in this conference, that
we have the obligation of trying to persuade the Australian
people that going that route is the one most likely to
produce a system that will last in terms of fairness and
simplicity, and efficiency. Now if despite our best endea-vurs
of exposition you reach a position where the community is
not prepared to accept that route, then as a Government we
will have to see what elements of reform can be put together
to improve the system. But we have said that on the best
evidence available to us that preferred option, if all the
difficulties can be overcome, is the one most likely to
produce those results. I want to say this, as I've said in
another programme, but its fair to Paul 1Keating that this be
said, as well as to the Government as a'whole. Its not a
question of saying we want to steamroller something through
for some ideological or perceptual reason. We recognise the
difficulties that are involved. Clearly if you have a
broad based consumption tax, then prima facie, that will
be regressive and have an adverse impact upon lower income
people, and particularly upon Social Welfare beneficiaries.
What we've done by dedicating just under two billion dollars
to compensation is to say we believe that we have overcome
those problems. Now its for the community up to and at the
Summit to test whether they are satisfied that those problems
have been overcome. If the community were not satisfied
then we would have to face up to that and see what other
combination of reforms would be possible. But its cur belief
at this time that you will not most effec-ively overcome
the weaknesses of the existing system, and get into place
something that as a community we can be sure of into the
future, other than by that route.
JOURNALIST: What will the Government do to restrict or
reduce fringe benefits to p ople on its ow . n payroll?
Well 11' ijkc thezetv1 l1 o_ no distinction r-a ,_, l
m-. ay wish to adid to tnis. ' 2here'll bo no distinction madL
b) etween ponle and its payroll and t1h. E genearal cmu v
The same principles vi]]* 1 apply. 1 wantC to r. Lake it ctecI ear
as far as we're ccncerned~~' r not about trying to get
benefits for any par t iculihr, 00eCople including GLrr-solves. ha t
we're a. bDojt is to and ensuro that the coimmunitv 3s a who11le
Lencfits from reform. Do you % xw'nt to edd to that [ to Keating)
aPRE ASU BE R: Therc w.-as a coi-mment madc by the O-pposition tod-ay
that it was nonsens&. zal to,: have a Coimm7-Onwalth DeCpartm'ernt
paying the Comrini ssioncr of Ta,, ation tax money. JW. ell if tO,
want to extend that urincipo we should say that we don' t
need to pay Telecom for the telephones, bec---use w'e own thoem.
W'e can just, hop on a Qantas plane) no bu a ikt as
we own thiat. I mean this whole question of no intCer-o. ernmeLL
transfers of funds is nonsense. And thiere's a demonstrz. ruic,-
effect, and. the fact that theore s " account-+-abilityr there cLi
is important.
JOURNALIST: On the question of fringe benefits. Yuv
got a new poncnipie coming in! tr. That a tax payable by oneo
section of the comimiunity of those receiving t.! he bellef its
actually has to be paid by their employers byv another
section of the coum,-,, nity. 1, here dJ-that idea come from,
is it som-thing that th1e ACTU wantcd.
PM: Well let me say i-wo thinus about that
let me get rid of that l~ ast ,; nide question or observation
that i-ts something that the AC'U Let me ma'Ke it clear
that in this whole approac: h to tax reform its the Government
which has accepted the obligation of outlining the approach
as to what is necessary to produce, as I say a frairer.
simpler more efficient system. Vie have accepted our
obligation in discharging the primary obligation upon us'
to talk with the Trade Union movement, to tall, witCh the
business community. Our w~ hola! thinking has been in-tormed
by information fromn a range of sources, within arnd outside
Australia. Specifically on the question you asked, our
colleagues in New Zealandl have hrought in the conce,: t_ of
fringc benefits being taxed in the hands of the employers.
And it has seemed to have beeni acceptc: 1 as a sensible
approach there. row we believe that out of the discussion
that will take place leading up to the Summait and at it.,
that that wil]. be accepted as an appropriate way of
aoprcarhi-ncj this. But as on all parts of the package
that's sot. jething on which vwan. to hear views from
the business co7. itu-ity and frmth rade uniors and fruin
others. JOURNALIST: Most of the oosition criticis-m today has
come in re-lation to Option A.
PM: Is this froin Mr Howard Mr -Poacock, becausothey
have different viewvs on the whole question.
JOURNALIS-JWOUeRlNl LItShT: i s is in particu~ ar from Mr J. ezicocK.
11.
PM: Ar Peacock, well that'll have less authority,
yer-, JOURNALIST: He's focussed his criticism on Option A, which
is the broadening of the direct tax base. To what extent does
the Government believe that this broadening of the direct
tax base is non-negotiable as a precondition to switching
to a broad. y based indirect tax.
PM: I have two things to say about it. I repeat
what I've said before, and it is important I have to keep
saying it. That we are not going to h--e Australian
community and say there it is, we've made up our -mind and
we're just going through a charade. e.' e want to hear what
they've got to say about all parts of the options we present.
And the broadening of the tax base, as you will appreciate
is common to all the options. But we want to hear w. hat
people have got to say about it. We believe that when you
look at it you've got to try and get the situation in this
country where those who are not paying tax, either through
evasion, or avoidance, pay a greater contribution to the
common revenue than they are now. No;; if Mr Peacock, who
really after all as know is not an authority on matters
economic or fiscal, if he is saying izs not proper to take
steps to limit evasion and avoidance, well r. hat's the bed
he can make up and lie in it. Its belief tnat one of
the reascns we are ir government, and he is where he is
and where he'll continue to be, is that his party hcs been
traditionally the one which has not only been soft on ta::
avoidance and evasion, but las deliberately created the
conditions in which tax avoidance and evasion has been
able to explode in this country. He wants to take a
position in this tax debate that he wants further to facilitate
evasion and avoidance, let him make that bed and lie on it.
KEATING: Can I just add that Bob, with a caveat which
the Prime Minister's just given. I think you need io see this
package in terms of carrots an-. sticks. And the carrots
are reductions in marginal rates. Obviously if we have a
marginal rate of 10' there will be no propensity or little
propensity to avoid. If you have a marginal rate of 90 there
would be every propensity to avoid, to the extent that you
bring marginal rates down you bring down the propensity to
avoid. In terms of the instruments of avoidance and evasion
the sticks, we have the penalties which were introduced in
the latter parL of last year, . hich have dramatically lifted
the cost to people who wish to undertake avoidance activity.
But as the paper schere-s have been effectively, and are
being effectively dealt with obviously high income taxpayers
are going to move into the shelters, as they are
doing. And if we were to say at the end of this whole
exercise, well look the tax shelters are just too hard to
touch, then you would just have elective taxation in this
country. You would have people deciding whether they would
pay tax by the exploitation of the shelters. Now if
Mr Peacock wants to line up with that sort of a tax system
well let hi; do so. But as far as we're concerned what
we're saying is that there has to be some change. It is
6
the Liberals primarily who allowed the inflation to run through
the scales in the seventies. It is the Liberals who dragge
the tax system into disrepute by their fa: ilure to do anything
about the bottom of the harbour, and the outright evasion
paper schemes of that period. And it is this disiepute, it is
this non-compliance with the system, the state of mind which
is part of the problem that we're now dealing with. And that's
why it has to be approached in terms of broadening the base.
Moving away pushing out removing the availability of
the instruments of avoidance and minimisation as well as
penalties. But at the same time saying we will reduce
marginal tax rates, we'll reduce the incentive to go into
those schemes. Now there is a view around that once the
loss of innocnce has occurred, that people continue to
develop tax avoidance schemes, that argument has some force.
It has more force if the Government leaves the instruments
available in the system. That's why the base broadening
measures are important in terms of the content of the paper.
They add to the equity and fairness of the proposal.
JOURNALIST: Mr ! lawke the Prime Minister gets substantial
fringe benefits. They get the use of the Lodge, Kirribilli
House, they get the use of Cl the VIP plane fleet. Who would
pay tax on those and how much would it be.
PM: I don't know how much it would be but I simply
want to make this point. That what I'm about, and certiainly
what Paul Keating's about, in this exercise is not to have
a situation in which I as Primn-. Minister will derive any
special benefits out of the Tax Reform. The principles that
apply to the community generally should apply to me. And I
want to make it quite clear that I will not be seeking any
special benefits. And I will ensure that at the end of the
road I receive none.
JOURNALIST: But by applying this principle doesn't it mean t: Ca.
the taxpayer will then be paying the tax? Really paying doucle
for the Lodge and Cl?
THE TREASURER: Well that's like us paying Telecom.
PM: We went to the point about paying Telecom. I'm simply saying
in the area in which I could be a direct beneficiary out of lower
tax rates, that's not what I'm about and I can assure you I will
not be seeking to be a beneficiary in the result.
JOURNALIST: During the last election campaign you talked about
the desirability of withdrawing the Income Tax Assessment Act in
the interests of simplicity. Do you think that given that one of
the major features of the White Paper is simplicity, and you have
just talked about simplicity, is that really possible now to
withdraw the Income Tax Assessment Act and start all over again?
PM: Well. of course, how the Government will give effect in
legislative terms to the package upon which it decides will be a
matter for serious consideration by the Cabinet on the advice of
the Treasurer. And at this stace of the debate it's not open to
me to say precisely how that will be done. I make this point, and
I'm sure Paul would want to add to it, that from the beginnir: n we
have emphasised our desire, as well as getting a more equitable,
fairer system and a more efficient system, wp also want to make it
simpler. Now the ways in which that will be done will be on the
basis, as I say, of the advice to us from the reasurer. I am
sure that in the result the tax system will be fai-er and simpler.
Paul, I don't know whether you want to add to Lhat.
THE TREASURER: I would just add to those remarks in those terms.
I think an adoption of a proposal around the theme would seem
would certainly produce a fairer, a more simpler and more
efficient tax system. And that is the objective. Now it may be
that one could take the view that what we ought to do is rip up
the book and start again. But I don't know where in practical
terms that would lead you in terms of the kind of legislative
approach or change the tax system. Any progressive tax system
will always have an incentive for people to minimise their tax at
higher levels of marginal rates and invariably a lot of the pot
hole filling and changes, amendments have been made over the
period arise from that. Now my Party believes, as I believe, and
the Prime Minister believes that a progressive scale is
appropriate and therefore with that progressive scale I think we
have in this proposal done what is reasonable in these
circumstances to make the system fairer and more simple.
JOURNALIST: Can I just ask you just a follow; up question to that
Mr Keating. One of tie great gaps in the Tax Act is that there is
no definition of income. Given that you are now looking possibly
at introducing a Capital Gainn Tax and you've introduced an assets
test would you consider writing into the Tax Act some definiticn
of income paying to include capital?
THE TREASUR'ER: Well Andrew, there's always been a simple notion
that by the flick of a pen you can solve all of the avoidance,
evasion problems by so called : edefinitions of ir. come. Thats
never been a view that the Treasu-y has aver put to me with any
force. And while with the Capitdl Gains Tax the system would be
far more complete and may leave the prospect for some change in
definition, it's not something we contemplate in this paper. And
I couldn't really give you an answer to that without taking
advice.
JOURNALIST: Prime Minister to get back to constitutional basics,
the Governments option are Ministers' bound to prefer the
option. Therefore will Senator Walsh be supporting the preferred
option from now on or will you abandon the Westminister principal
of Ministerial solidarity in respect to tax reformation?
PM: I don't accept that you have letters back to constitutional
basics but I will simply say this, that the Cabinet has made the
decision which is reflected in the White Paper and that is that
the preferred option is clearly there. I would expect to receive
the support of all members of the ministry in that respect.
JOURNALIST: Mr Keating, while your talking about Senator Walsh.
He seems to dispute your argument about the effect of the 60 cent
marginal rate to encourage avoidance saying that he doenn't think
a cut in that rate would help combat avoidance. Would you care to
comment on that?
THE TREASURER: Well, I gave an example earlier. If you had a
marginal rate of 90' the propensity to avoid would be increased.
If you had a marginal rate of 10%, it would be reduced. And any
movement up or down changes that propensity. JOURNALIST: So you
think he's just wrong? THE TREASURER: I didn't see the point he
made, to be honest Michelle. And so I can't say that he is. But
that is my view and that is, I think, coupled with the other
things removing the avenues, lifting the penalties and se'eing a
change of this kind introduced will do a lot to damage the
psychology of non-compliance. And I think that's the important
thing. The psychology of avoidance and minimisation whijh, in my
view has been no doubt occasion by the compression of the scales.
I mean the point is, if you go back to the 60% rate, well go back
to $ 35,000 where the 60% rate now comes in 1.6 times average
weekly earnings. In the 1950s that group contributed 52% of the
earnings of the personal income tax system. Today they contribute
21. And I think that in itself stands as at some testinony to the
fact that if you compress the rates and lift the taxes you may
think you've got a progressive tax systen You only have a
progressive tax system while you've got compliance. And while
nominally you have a progressive tax system you don't have it
because you don't have'compliance. The 60% rate cost $ 400m. We
earn $ 400m from it out of $ 30,000m, which is a commentary in
itself upon the compliance of the 60% level. So there's no doubt
in my mind that hioh marginal rates have had E very severe im. pact
upon the propensity to avoid. And I think any objective analysis
would lead anyone to that conclusion.
J OU RNX I ST: M r 1' o,' tiriq i. L he Covernment f inal ly. d,: c i d es to
introduce the Capi tal Gailr.. i TAax, would6 itI come, into effect this
vear and do you accept the ie that was espouse(! Aspray that
the sta* rting 6( sate of such a new tax shonld be aheF-d of 1. he -3ssage
of th. 2 legislation through Parli. an,-, ent?
TH1E TREASUREI Well, John, we'd like to see how the packac,
first of all, is received publicly, how it is recaived Iby the
Summ,-i t. And T think that in the post-summit consideratio of all
of these issues by the Governnieit that kind of issue Could the0-n
appropriately be reattended to.
JOURNALITST: You would be worried about people azrarCi nq therc
affairs before hand.
T HE T RE AS URER: Well, let me say this, with any of these measures,
any notice provides tFaxpayers with a benefit they w.. ouldn't
otherw. ise have in thle normal course of a budget. But this is not
about budgetary changes. This Is -a major proposal for reform . f
the tax system. And because of the difficulties of insLitutional
reform in this country, and the Government's beliefl that we nLeed a
proce-ss of consultation to make the reform possible, then, I think
that's simply one of the problems one has to live . with in this
kind of reform chance. I don't think, I mecan, surely this country
has been t1-alking abou) t the prospect of capital gains taxes now for
four yeacs, and if anybody needed to, as you say,. arranging their
affairs, thcv w. ould have certainly been, daimo th--t-for a . lo:, ri
time. I don't think that the evidenc e of it in this document is
going to changje public perceptions all that much.
JOURNALIST: As the employer have you worked out how mu, 7h the
Commonwealth Is likely to be up for in the tax?
PM: No I haven't. I don't know whether Paul has.
THE TREASURER: 700m across the nation, say, if you work it back.
It's hardly anything that's going to debilitate fiscal policy.
JO0U R N A LA'ST: Mr K( eating, did your Department have a look at the
compensation of incomes in the threshliold? Preparing of facts?
THE ' TfEASUnEfl: Yes, the threshol. d has been increasad to provide
full compensatien fo: everybody above the threshhold. And that
provides full compensation for taxbayers above the threshhold and
below),. the threshhold. Bel~ ow the threshhold people are in thle
Social Security systri. ni. They are, over compensated crd: these
arrangements.