PRIME MINISTER
E. O. E. PROOF ONLY
TRANSCRIPT OF PRESS CONFERENCE 4 JULY 1985
PM: Ladies and Gentlemen, at the conclusion of an extraordinarily
s uccessful Summit, I would remind you of the ninth of the nine
principles, which at times seems to have been overlooked. The
words of it exactly: Ninth any reform package must have
widesprea ' d community support, including support of a widely
representative National Taxation Summit, of economic organisations
and communite groups. We have just concluded that Summit, the
Government has, in terms of principle nine, responded to that
process. And we are now, as a result of the tremendous assistance
that we have received from the representatives of the people of
Australia assembled at the Summit, now ready to go into the final
stage of~ this process which commenced over six months ago. And
that fir~ al process will begin when we meet at the ordinary
scheduled Cabinet meeting on Monday of next week. And I take this
opportunity of saying, as I said to the Summit participants
themselves, the gratitude of the* Government, particularly the
Treasurer and myself, for the magnificent co-operation that we
have received from the representatives gathered at the Summit.
JOURNALIST: P rime Minister, was pushing Option C a monumental
mistake? PM: No. We have made it clear, from the beginning, that we would
adopt the responsibility as a government of doing all the work of
analysing the existing tax system, and its weaknesses. And
indicating the avenues that are available, in our judgement, to
meet that situation. And we accepted the obligation of pitting
what we saw as a pref ' erred option... We did that within the context
of the nine principles, including the ninth which I've read out.
I would guess the best answer to the question is provided by the
reaction of the people at the Summit themselves. Because they,
within that framework, were able to put their position and lead
the Government to a position which will clearly enable us to meet
the requirements of broad cbinmunity support.
JOURNALIST: Prime Minister what is the status of Option A,
against your nine principles?
PM: Well, Option A is still there.
JOURNALIST: That's what........ nine principles.
PM: Yes of course it does. There was a clear broad support,
unanimity, of course. But there was a broad, I would say
majority, support for option A. We of course will within the
Cabinet look at the elements of Option A. There may be some fine
tuning, there will be,' it won't be precisely in exactly that term,
but essentially Option A remains there as part of the package that
will be adopted by the'Government.
JOURNALIST: Prime Minister yesterday twenty-four business
organisations issued a statement saying that they reject Option A.
PM: Correct.
JOURNALIST: Mr Keating when did it become clear to you that
Option C was not on?
TREASURER: Well. I think, Niki, the Prime Minister referred to
the criteria, which he established before the election campaign.
We, I think, argued that Option C, was in its entirety, I think
the most ambitious tax reform change that would have been, I think
as you have seen around the world at the moment where we
have got lots of tax reforms, going on in the country. Now, I
think we,. as we went through the Summit process, we were
interested in the views which were coming from various groups. We
were loojding for the chemistry of the Summit itself, to work on
the vievjs of others, and to see just where Option C in its
entirety sat towards the week's end. And I think, probably, if
you ask me for a specific time, probably yesterday. I thought we
were at the position, probably where we couldn't get Option C up.
If not all of it a part of it, and of course a part of it is there
in terms of a consumption tax on services.
JOURNALIST: And when-you arrived at work this morning you said
you weren't there for the fun of it you were still fighting for
Option C. I
TREASURER: Yes that ' s right. We still keep barracking.
JOURNALIST: Was it the ACTU last night or yesterday.
PM: No. I
JOURNALIST: Will full tax indexation accompany any package the
Government agrees to?
PM: The indication has been that there has been a disposition
towards that principlq. But the question of indexati-on will
properly be a matter~ for consideration and decision by the
Cabinet.
JOURNALIST: In compbrison to package C how good a reform package
will this one be?
PM: It will be an excellent reform package.
JOURNALIST: It's not the best is it sir, and that's what you are
on about?
PM: Well look, you are going to have a lot of interest in trying
to pursue your cart in and out of this. I am trying to put to
you, and whether you want to accept it or not, principle nine has
been valid from the time it was written. Now I wish that you
would understand the reality, the actuality of the words. Any
reform package must have widespread community support, including
support at a widely representative national taxation summit. Now
that principle was not there for the sake of having nine rather
than eight. It was there because the Government, the Treasurer,
and myself from the word go, saying we will accept the obligation
of analysis and recommendation, but whatever we do it has got to
satisfy principle nine. Now please get into your head, and
understand that principle nine has been meaningful from word go.
MR KEATING: Can I just pick the point up. Just in response to
the other elpment of the question, and say it is without a doubt,
it will be without a doubt the most radical tax reform
package this country's seen. We've seen reform of the direct tax
base, in a way which its never been reformed before. We are
finishing off the debate on capital gains which has raged in this
country for years, taxing fringe benefits in a way where vie stop
this trenendous haemorrhaging of the revenues through fringe
benefits, the identification cards deal with the haemorrhaging of
the system of the straight out fraud, and an unprecedented attack
upon tax shelters. The second objective of the reform, we said,
was to reform the indirect tax base. We will still be reforming
the indirect tax base in terms of changing the wholesale sales tax
system, and th ' e establishment of the consumption tax on services.
And the third element was to shift some of that weight. Arid we're
shifting the weight, and I think in terms of establishing the
principle that we'll have a tax on the service sector of the
economy, which after all has been the growing sector of the
economy since the middle 1960s, is a very substantial principle.
And I hate to go so far as to say, well without the broadness, or
breadth, of option C, and its ambitions, if we had begun, with
what we have this afternoon, we wouldn't have it this afternoon.
PM: That's right.
JOURNALIST: What sort of income tax cuts are you looking at under
this new approach?
TREASURER: Well, we will ha've to see when the package is costed
accurately, and we ( interrupted)
JOURNALIST: Can we just clear up that question about Health
services. Are they going to
PM: They will be out.
TREASURER: Exempt.
JOURNALIST: What will be the order of the income tax cuts under
this PM: Well the Treasurer has just given an answer which goes to
that point. The elements of the package now have to be determined
by the Cabinet. And what we are able to do in that area will be
the result of the final outcome of all that goes into the package.
We obviously can't give you a final answer on that here.
JOURNALIST: What sort of reform, in fact, will be made to the
indirect tax base, then, compared to Option C. Hiow much will the
net revenue n effect be, what will the wholesale tax level be,
will there be one level, or more than one.
TREASURER: Well in terms of services, Paul, 12.5%, as proposed
by the consumption tax. And the point I was just going to answer
in respect of Michael's question, is to simply say that this is
not, andy never was a tax cut exercise in terms of say the 1984/ 85
a u dit.-It is a tax reform exercise which brings tax cuts. And the
principles-of tax rerorm, along with tax cuts, is what is
important. And so in terms of simply looking at the exercise for
any particular groups that will only be possible when we cost the
proposal, and put the scales there.
JOURNALIST: Treasurer, could you help us with a checklist
of exemptions both those you have given to this point and
ones you would consider.
KEATING: I will, but not right at the moment. You
will have it the first time I can give it to you.
JOURNALIST: When would you expect the changes to start now.
Will the timetable be able to be brought forward at all for
the changes actually coming into effect.
PM: Well it will depend on all the elements of the package.
IT may be that some elements will be able to be brought in
relatively quickly. Others obviously will not. Now it will
be a matter for decision on the advice of the Treasurer and
myself to the Cabinet as to what that timetable will be, but
what is informing our minds right through is the desirability
of getting the tax changes into operation in their totality
as soon as-is possible and consistent with the work that needs
to be done , to ensure that all the relevant considerations have
been taken into account.
JOURNALIST: The services tax would still be about a year off
though, would it?
PM: oWell, I don't think that you can say exactly how long
t-hat would be. It may be of that order. I simply can repeat.
It's in everyonr&': interests, the Government's and the community,
to try and get this thing resolved and into place as soon as is
possible, consistent with your obligation to take into account
all the sorts of points that were made to us at the Summit.
Now that will be done. Everyone has got a common interest, as
I say, in getting it in as soon as possible. I
JOURNALIST: Mr Hawke, the Government had previously rejected
the idea of abolishing the tax free threshold. What has
caused you to change your mind and are you confident that
the problems in that in terms of compensation can be
overcome? PM: Again, in-line with principle nine, as was acknowledged
there this afternoon, there had been a not universal, but
quite considerable expression of the view that that is
something that ought to be taken into account. And we have
said that does make sense to take it into account. There are
obvious possible advantages but there are clearly concerns
and difficulties and if you were going to proceed down that
path you would be doing it in a way which would ensure that
the needy and particularly the elderly in Australia could
not in any way be disadvantaged and you would have to be
satisfied, if you were going down this route, that you could
meet those necessary requirements. So, what I've said, and
what the Summit heard us say, was that was something that had
had a majority support to examine. we are going to examine it.
and see whether it is an appropriate element to include within
a total reform package.
JOURNALIST: The Government is still determined to press
ahead with a capital gains tax. That wasn't clear this
afternoon in your response to Sir Joh Petersen.
PM: Well, I think it may not have been clear to him. It
may not have been clear to you. I would have thought it
was clear to everyone else.
JOURNALIST: The future of fringe benefits. Has that
changed under this package?
KEATING: No.
JOURNALIST: Treasurer, do you realise that you were given a
vote of confidence by the financial market this afternoon
when they took half a cent off the dollar on the strength of
rumours that you were about to resign or had resigned?
KEATING: Look, I heard this report this morning. There is no
truth in it at all. But I didn't know about that. I would
like to taaZe this opportunity though just to clear that point
and to say that that never crossed my mind....... and that
there has never been the slightest, if you like, rift in
relations between me and the Prime Minister and anybody else,
for that matter. And the Prime Minister paid me a compliment
in the House of Representatives today which I appreciate. I
want 1Vo pay him this compliment and say that without his
support there would be nothing on this table today. And
without this support there wouldn't have been a White Paper
of this dimensions because no Treasurer with the best
intentions in the world can get a reform proposal like this
through a Cabinet and this country without the support of a
Prime Minister. I am pleased to say in the time I have been
Treasurer that support has been unqualified and I appreciate it
very much. And I would like to take this public opportunity
in front of you people who have written so much about our
relations on this issue just to say that the support has
always been there and I have always appreciated it.
JOURNALIST: Mr Keating, do you think the support should
have lasted a little longer?
KEATING: Well, as I said, cynicism has overtaken most of us,
John. I had hoped
JOURNALIST: Did it cross your mind, Treasurer, that today
you are standing alone in ~ a sea of weakness?
KEATING: Look, David, I wonder why you are not still barrackingyou
should try and find Malcolm somewhere.........
JOURNALIST: Mr Keating, do you feel in any sense as journalists
and politicians would understand the word do you feel you have
been dumiped?
KEATING: No, I mean, look, let's be clear about this. This is,
you see, in a sense let's be honest. if we had talked about
a proposal as radical as Option C last year, no-one would have
believed if a package of that dimension was put on the
table by a Government and argued for in this country and
if Prime Minister and I stumped the country arguing for it.
We did. We tugged at all of the ends of power in this
country to pull it to the table to pass We have done
that. But the fact is under his principle nine, it wasn't
there. We couldn't get that support. But what you are
seeing is a major change a major change in the business
tax area. A major change to tax on services. A major
change ' in respect of the income tax base itself. And
busting that whole non compliance psychology the disrepute
with whichothe tax system has been held particularly since
the former Government failed to do anything about the paper
schemes the outright contrived schemes of the 70s we have
got a very difficult job in restoring taxpayer respect for
the system of compliance. And this approach on the base
broadening, the repair of the income tax base, establishing
a tax pn consumption and services, and enormous change to the
business tax area will be a milestone in this Government's
history.
JOURNALIST: Prime Minister, Mr Keating said that it was
yesterday he decided that option C wasn't a goer. But I
put to you that you decided that on Monday when you heard
Bill Kel ty's speech?.
PM: You can, yes.
JOURNALIST: Would it be right?
PM: * No.
JOURNALIST: Mr* Keating, you said-under his principle 9. Does
that imply that that isn't your principle.
TREASURER: In fact I saw that draft, you were with me in the
election campaign, Geoff, you knew when that was drafted. That
was of course a draft which the Prime Minister and I, in fact, had
a common hand in. Aud when I say it is the Prime Minister's
principle, he made the statement in the election campaign.
JOURNALIST: Prime Minister, you were saying all last week
that you were convinced that by the time the next election
came around tax reform would be a major plus for your
Government and-one of the main reasons for that
PM: And complete what I said, " and a major minus for the
opposition". JOURNALIST: Yes that is right. And one of the main reasons
you gave for that was that there would be significant nett
benefits for the average Australian. Given that there is now
not going to be a broad based consumption tax, and nett benefits
must be less, are you still convinced that the package is
saleable.
PM: Well I understand that you would have been there today and
you would have been able to form the judgement on the basis of
the reaction at the Summit as to whether the package that we
have in mind is saleable. The answer is resoundingly in the
affirmative. But let me make this point, as you open it up
widely. Let me say a couple of things. Firstly, if you are
going to be looking at the benefits to the Australian people,
it is no) 7 simply to be judged in terms of reductions in scales,
and any cuts that may be available. But the great benefit to
the Australian people is going to be the continuing one that
at last you have had a government that has the guts to face
up to this issue and not run away from it and deliberately
by their actions, as 30 years out of the previous 35 under
conservative governments that you have had, but by their
deliberate action as well as inaction, allowed to emerge in
this country a system which has disintergrated to the disadvantage
of the great majority of Australians. And it is because that
realisation will be, have been made very significantly sharper
as a result of the events of this week. You saw in there the
almost universal approbation of the courage shown by this
Government to tackle this issue. It wasn't easy and we knew it.
But the courage that has been displayed by the Government has
been universally approved in that Summit. That will be reflected
at the same time as the courage of this Government will be
approbated by the electorate, will be the analysis of the gross
inadequacy of what passes for an opposition. They have stayed
in their funk hole, not fighting for tax reform, but fighting
one another as they use the criterion of perceived political
advantage to * see, what particular piece of negativism after
another they can utter. I have been confident from the word
go, and I am more confident than ever as a result of the end
of this Summit that those judgements will work in the way I
said for this Government and against this pathetic opposition.
JOURNALIST: Prime Minister, do you really believe that you
and Mr Keating can walk away from the statements that you have
made over the past month. And can I ask you both whether you
really believe that a broadly based consumption tax is still
the best reform to make to the tax system. And do you think
that the chances for that reform are now finished.
PM: You can ask that and I remind you of what I have said
at the outset of this proposal. WE had a job, ail this
conference, W~ e had a job to do which we have done. We guided
through a preferred option. We had the responsibility then
PM cont: of selling it. And I don't think anyone can
possibly make the judgement in respect of the Treasurer
or myself that we have failed in that task of trying to sell
what we believed was the ideal option. And of course, we continue
to believe that that was the ideal option. But the whole task
that we were about at all times was in the context not of 8
principles but of 9. And we knew that we had to come to a
position at the S~ jmit, as explicitly stated in the 9th
principle, and if,, weren't there able to get the indications
of broad community support then the task we had undertaken
had not finally met with the satisfaction of principle 9.
And then we had to accommodate to that. We have done it.
And as Paul Keating has said without the possibility of
any sensible contradiction in the result, you have still
got the most significant tax reform that this country
has ever seen, and secondly, by any international standard
the most significant tax reform I believe that has been
undertaken. And let me say this, I am proud of the fact
that Paul Keating., and with Paul Keating, we have been able
to 1I think guide the community to that position.
JOURNALIST: Does, the fact that you couldn't get broad
based c~ mmunity support for your ideal option mean that
the Government is really out of touch with the community?
PM: No.
JOURNALIST: Priffie Minister, I am perplexed by your remark
tha: t you haven't failed in your task of selling option C.
We don't have option C and a supplementary..
PM: No, we haven't failed in ultimate task of reform. We
have failed, if you want to use that phrase, to get in terms
of principle 9 broad community support for option C. That is
clear. JOURNALIST: Well I am sorry I must have misheard you.
PM: You did.
JOURNALIST: You said that hadn't failed to sell. option C.
Leaving that aside when did
PM: I am sorry, I did not intend, we have not failed
in the task that we had to go out and try to sell. J That
I was trying I don't think..
JOURNALIST: trying to sell it?
PM: What I am trying to say is that we had a task and a
responsibility, once the Cabinet had decided that that was
the preferred option, we had the task. I don't think we
or, I should have used the word, Bather than the word
failed is that we didn't miss the obligation and thc opportunity
of going to try and sell. We2 did that to the limit of our
ability. In the end w-, e failed to get satisfaction in term1s
of principle 9. That is obvious.
JOURNALIST: When did you decide to ditch option C?
11.
PM: It was during this week that it became clear that
in terms of the Summit position, it was not on.
JOURNALIST: The Treasurer was precise, can you be more
precise. PM: I would say it was during the evening of Tuesday and
the Wednesday.
JOURNALIST: Mr Hawke, the Opposition of course has a policy
supporting broadly based indirect tax. What sort of credibility
are you and Mir Keating going to have opposing that now?
PM: Well, let me respond with this question. Do you
believe that the Opposition is going to be out selling the
proposition of a broadly based indirect tax. if I find that
Mr Peacock or Mr Howard or
Mr Sinclair is going to be out selling such a proposition then
I will be fascinated. And that is when we will need to make
our decision-about them. But I would be prepared to enter into
a side bet with you.
JOURNALIST: So you think they will abandon their..
PM: Well let's say they have already.
TREASURER: One interesting thing was in the polling research
we did see that support among Liberal Party voters for a
braadly based indirect tax, which was after all one of the
main planks of the last election of the coalition, they're
a pretty crook pair of salesmen if they couldn't get
hardly any registration of support within the coalition.
There was a substantial level of support within the Labor
voters. So, you know, out of their hands, they wish to try
and stir their constituency.
JOURNALIST: Mr Hawke, the Centre Left is feeling somewhat
vindicated by the outcome 0Cthis package and Tax Summit. Were
you influenced by representations made by Centre Left Ministers,
especially Mr Hayden, over the last few days.
PM I have not had representations made by ir Hayden.
JOURNALIST: Have you had any-talks with Mr Hayden?
PM: After we had made the decision.
JOURNALIST: Prime Minister, following up on Michelle's
question in a way. You' keep referring to the significanca
of the proposed tax changes but there is one process you
need to go through and apparently that is the Cabinet
process. Do we take it from what you have been saying
up till now that you are confident that the broad outlines
that you have proposed today will be endorsed by Cabinet?
PM: Yes I took the opportunity today before T went into tk-he
Summit to put that approach * Lo sipeak" the Ministers. I had 1-, d
the opportunity earlier of speaking to Bill Hayden and to
Stewart West, to Brian Howe. I got the other Ministers then
12.
PM cant: before I went in and indicated to them what
I was going to put to the Summit, and the terms I was going
to put it. And there was no dissent from that.
JOURNALIST: How important in your deliberations was principle
7 as opposed to principle 9?
PM: Principle 7 has always been important for the obvious
reason that for those of you who haven't got principle 7,
and indeed each one of the principles engraved on your heart,
principle 7 is the one which goes to the question of the
support within those sections of the community which would
be necessary for the implementation of any indirect tax area.
Thath/ ys obviously always been important. And I believe that
we will have the support of the ACTU. I certainly, in light
of what the Secretary of the ACTU said today, have no reason
to believe that principle 7 will not be satisfied.
JOURNALIST: How would you respond to the perception that the
Government has ditched the broad based consumption tax, which
is what the ACTU wanted, but has retained, essentially retained
all of option A, which business yesterday rejected?
PM: Well I suppose I could equally be asked how would I
respond to the perception that the sort of approach that
we have adopted i'n the indirect tax area meets what was put
by the Chamber of Commerce, by certain of the welfare groups
and-so on. And it would be just as legitimate. The point is
tha~ t under principle 7 the attitude of the ACTU is important
not of itself but at all points it has been regarded as
absolutely essential that if there is going to be within
a reform package an increase in the indirect tax area
which would be compensated by way of changes in indirect
tax rates, there could not be double dipping. for the obvious
reason that if that were allowed that of iLtself would be
inflationary. And I am satisfied as a result of what has
been said and the Australian community assembled in the
Summit has heard the undertakings of the ACTU in that regard.
I am confident that they will be adhered to.
TREASURER: this point about the ACTU. The ACTU wanted
no indirect tax, wasn't prepared to talk about indirect tax
in this country. And they were coaxed there, schooled there
by 6 months of assiduous effort. They had more ex osure, more
exposure to the Government, to the Treasury and to whole
basis of analysis, as indeed has other groups in the community.
And I think the achievement of getting recognition for
broadening the indirect tax area and establishing the
principle of taxation on services is a very important
milestone. And I'-don't think. if the ACTU has come to
that party at this stage one should presume that that is
where they were. They were definitely opposed to it and
have been pretty well right throughout.
JOURNALIST: Prime Minister, I just wanted to ask are
there any modifications you would consider to the capital
gains tax and fringe benefits proposal?
13.
PM: Well what we have said in there and have said here again
earlier, that option A remains an essential part of the
approach and package that the Government will finally adopt.
We are prepared within that package to look at elements of
it. But as I said in answer to a previous question, a capital
gains tax will be part of the end result. Now, there may be
elements of it that we can, of what has been said that can
be taken into account. But that is a matter which the Cabinet
will decide.
JOURNALIST: I think you will find the ACTU had said for months
that they were prepared to keep their options open on all
reforms including indirect taxes. How does the 12.5% tax
differ from what came from the ACTU tax negotiating.
TREASURER: It didn't come from the ACTU. The whole proposal
came from the Government. Every element of it, and every
element in that paper came from the Government. And in the
course of those discussions, I think, we have broken down
a very big barrier of public thinking in this country that
an increase in indirect taxes is necessarily regressive and
that it * should not be considered. And that has changed.
The ACTOJ has changed its position on that, and taxation
of services is a very important element in that.
JOURNALIST: Mr Keating, apart from exemption for health,
food and fuel areas for a consumption tax on services, other
than those will it be across the board consumption tax on
sei~ vces, 12 2%.
TREASURER: Peter, that is proposed at 12 would apply to
goods and services, the areas, perhaps the grey areas in between
were automatically covered. What it will mean now in fleshing
out this proposal is definition about the area of the coverage
in the services sector, which I think is the point of your
question. And that is going to be something we have to just
give some time and attention to in the next week or so.
PM: Just let me add this to what Paul has said there, Peter,
that clearly an overwhelmingly important consideration in
what Paul has said there will be looking at those services
which if they are to be taxed would have an unduly regressive
effcct upon the underprivileged and the needy. That is the sort
of criterion that has been taken into account to this point
and would continue to be taken into account in the decisions
that we will come to in that area.
ENDS