PRIME MINISTER
PRIME MINISTER 0ON ZUE ALAN IJONES -24 September 1985
E 50 E PROOF ONLY,
' JONES: Well the tax package has been launched and the tax
debate about its merits has begun. To see how the Prime Minister
is bearing up under the challenge of selling it, he's with me
this morning. Godd morning, Prime Minister.
PM: Good morning, Alan.
JONESs Prime Minister can we just go right to the hub of the
thing, do you think this is a proposal, the tax change, where
there are considerable risks for you but not a lot of rewards.
I'm just wondering how, for example, you respond to yesterday's
Sydney morning Herald editorial which said that in three years
more than a million people who are now in the 30% tax bracket
will be paying tax at the marginal rate of 40%. Is that still
a worry.
PM: Well I think the greater worry would have been if we had
done nothing because the tax system had disintegrated, Alan,
and we had to take measures which were going to ensure that
' avoidance and evasion loopholes-were closed off . and that we made
' these steps to reduce the tax rates, marginal tax rates. Xff we
hadn't done that you were just going to have an intolerable
situation. So, no, I don't think that we've taken risks. I
think we've taken the right measures and all the first evidence
seems to be that the Australian people have--reacted accordingly.
JONES: out if this brings as it suggests here, about one million
people into a higher marginal rate and then they're only on about
three quarters of average weekly earnings, may we not still have
to contemplate a move to indirect tax to relieve that personal
tax load.
PM. well we've made our calculations, Alan, on the basis of
what we believe is going to be necessary to relieve burdens.
Those calculations have been made on the best data av~ ilable
to Us. We're Confident that we've produced a situation which
the great majority of Australians are going to be better off.
Now we will keep the whole of economic policy under constant
review.-as we have done. And it's a result of keeping that econonic
policy making under cons tant; revi ew that we've produced an
economic performance in this country which is the envy of the
rest of the world.
* JONks! well can ye just take the difficult question of fringe
benefits I have said i'm not opposed to a tax on fringe benefits
but I wonder if we are taxing all benefits. And if I could take
perhaps the most current example, and that is namely Vr Armstrong,
who's received a payment of $ 500,000 and yet he's going to be
taxed at 31% rather than at the marginal rates. 1s it true then
that we are taxing all fringe benefits.
PM. well let me say in regard to Vr Armstrong I'm simply not
in a position to comment on that. As you know I've asked
Mr xeid to write to me on the subject of-that separation payment
and until 1 receive a reply from 14r Reid I simply can't talk
about that. but going to your question more generally, what
we've done in a long period of examination of this issue now
is to try and ensure that all those areas where these benefits
were being used as a method of emolument substitution that
meant the avoidance of legitimate tax payments, that they have
been covered. I guess in any tax systemn, Alan, you're not
going to be able to cover every single little item that may
come into that category. But i think we have done the best
job that can be done in the circumstances. And I repeat, Alan,
it's one which seems to have received the support of the
majority of the Australian people. Because, after all, the
majokity of the Australian people do the right thing and
they want to see those who are not doing it brought into the
same situation.
JONES: Sure, I'll come to that in a moment. I agree with that.
point.-But I'm just wondering in relation to taxing the fringe
benefit whether some taxpayers aren't paying twice. For example,
if the taxpayer's a private employer, then he's going to pay the
tax on his empl. oyeee benefits. b~ ut the taxpayer is also the
employer of the public sector, so isn't he also paying that
tax as well.
PMt the latter part?
JONES: well the employer is in fact the taxpayer-when It comes to
~ he public sector.
PM: Well you take the individual employer in regard to the
benefits of his employee it is true that we ' are taxing those
In the hand of the employer and Mr Keating has been quite straightforward
in his discussions with the business community and everyone
about that. And we think that on the basis of the enormous increase
in profits that have been affected under the policies of our
Government and taking into account the very substantial benefits
that we're giving to the business community through the full
imputation system and no tax on dividends, that this is an impost
which is reasonable for them to bear. NoV i'm not sure what you' 9re
saying as to the next point though..
JONES: well if I could use and example, could 1, because I am
opposed personally to tax and I'm forgetting that Bob Havke:' s
thel.' Prime Minister a tax on the Prime Minister's benefits.
but let me just take the comparison between a Prime Minister and
a managing director of a company. If the managing director had
the Prime Minister's benefits that's houses, ~ cars, planes, meals,
allowances and if they were taxed, don't you concede that that
would be hell of a burden on his company, in ot'her words, the
-YONES cont private sector is going to be more burdened by
this than would gay a Bob Hawke or his employer.
PM: Well let me say in regard to Bob Hawke, I've made it quite
clear from the beginning of this tax debate, as you know, that
I seek no benefit of it at-all and I simply wan * t to say in regard
to my own situation that I will expect the Tax Commissioner to
treat me as is appropriate in his exercise of Jud . gement under
the law. And I won't be seeking any benefits, and if I get hit
in some respevt you won't hear me complaining.
JONES: But you're like me, you're only an employee in that
sense because we're taxing the employer. What I was saying is
your employer is the taxpayer which makes the position somewhat
different from the corporate world.
PM; In that sense let me just say this in regard to the
corporate world where the managing director or the person you
I ant to think of as an equivalent, travels, and his travel is
in pursuit of his business then that will be claimable. If he
goes overseas on a business trip, Alan, and he is doing that
in the pursuit of his business, that will be deductible.
( COMMERCIAL BREAK)
JONES: PM, what would you say to the case that's bee n argued in
SOAte quarters that the reason the tax on fringe benefits was
made payable in the hands of the employer, or by the employer,
is because unions or MP's wouldn't wear it if their. taxes were
paid in their own hands.
PM: Well it is the case in regard to some areas of employment
that Ao; literally there would be an industrial difficulty. And
we had discu ssions with the employers before we did this. Now
don't let me appear to misrepresent the situation and imply tha~ t
the employers supported the way we've done this they don't.
' ut i'm simply saying that in the discussions with the employers
. h at Paul Keating and I had this point was covered and there was
a recognition as to the reason why we were doing it, that there
would be enormous difficulties particularly in s ' ome areas of doing
the taxing the other way. Now this didn't mean the employers
were supportive of the concept, but they did understand that
it could create enormous problems for them if it were done
the other way. Now we've:-quite readily acknowledgeo, Alan, that
you can see some conceptual difficulties, if you like, in this ' way.
But I want to go back to the point I made to you before, and that is
that the employers of this country have prospered enormously under
the policies that we've brought in. I just remind you that when
we came to office the profit share in the Australian national
Income was down to historically low levels of about 12 per cent.
Now we've pushed it up to where it's gone back to historically
high levbls of 15, 16%. And In that process the, amoun~ t of profit
has increased by something like $ 6 billion-Now we have made the
Judgement In the total balance of things that this is something that
is reasonable to do, particularly Alan, when we've given employers
Something that conservative Governments for 30 years wouldn't give
PM cont...: them and that's full imputation. Now they've said
to us. business has said to us, that this is centrally important
for their well-being, to have full imputation. We've done it.
We've brought the marginal rates down from 60 to 49. so if
you're going to talk about impact upon business, I thihk'if you
look at it in total, a reasonable view is that the business
community is going to do quite well out of this.
JONES: Yes, I was just thinking actually not so touch of that
but of course of the implications if people, to maintain existing
benefits, anj want to maintain people in employment at those
benefits, may put up prices,-then that impinges of course upon
people who are buying and the sorts of people we're protecting.
Because yesterday, if I can just put it to you, X read where the
union movement sections 6f the union movement were saying that
they are not going to surrender the benefits at all. Now I
understood a tax on fringe benefit to suggest that perhaps the
benefit as it was being received was more than they were
entitled to. Now isn't the employer going to be in some
difficulty, if he seeks to wind back the benefit he really is
ioing to be in difficulty with the union. And if he doesn't he's
g~ ot to pay the tax.
PM: Oh well I think you'll find over time, Alan, that there will
be some gradual winding back of these benefits. 1 mean I don't
expect it to happen Immediately. But what you've got to understand
is if you look at current salary packages that exist for people,
they've been built up over a period of time and when employers 4
have seen what's happening elsewhere in the market they do
some matching of these things. But I think ' the corresponding
thing will happen there~~ ill be n~ o doubt that in some areas
there will start to be a gradual winding back of some of these
benefits or that there will be substitution of cash payments,
straight additions to salaries, in place of benefits. Vow it's
going to take some time, Alan, for that change in composition to
take place. It will work itself out in the market. But I don't
think it really makes very much sense to represent this which
is going to bring in,-well I think the fringe benefits paymentbrings
in less than half a billion dollars, to see this in a
otal emolument package of this nation, the total wage and
salary package is something which is going to be dramatically
overturthing. JONES: Well on that basis, and that was one of the reasons
I asked you the question about the gamble at the beginning, PM,
because you are committed to a $ 2000 billion tax package next
year with the union movement, and this is likely to only net
you about $ 800 million, and that was the nature of the gamble
in part that I was talking about. Where are you going to get
the other $ 1200 million from?
PM:. Well yod-get. it through economic gvowth. I mkean one of the
great advantages that we've got, Alan, is is a result of our
economic policies and the stringent trilogy restraints that
we've imposed upon ourselves, that means that with growth our
revenues grow. Wd've got one of the fastest growing economies
in the world. That means growth In revenue.* but we are
committed by the trilogy not to allow that to become an
FM cont...: excessive take by way of taxation. So ye will be
able out of the processes of growth to finance this. But we've
given the Australian community the additional promises, Alan, that
we yre not going to be increasing Government outlays at a rapid
rate. we'll constrain those outlays to be within the rate of
growth of the economy.
JONES: Could I just tackde the capital gain thing, because it
neems to me that there Is an assumption when people talk about
capital gain that everyone is making a capital gain in a fairly
underhand way designed to sort of make a quick quid. And I'm
really thinking of the people and I'm sure that you've lived
this aspect of your life as we'all have, where you hope in
retirement you'll be able to realise something with a few
bob, to be less dependent on Government and therefore whenJ
you get 10 or 15 thousand dollars, you put it as a deposit on
a second house. Now it seems to me that we are by imposing
a capital gain on that, taxing investment and risk-taking and0.
thrift and personal saving, when we ought to be encouraging
people to do all of those things.
PM:-Let me put it to you this way. I think the best answer to
y'our concerns you've expressed is if you'd been in the House
of Representatives when Paul Keating was delivering his speech,
and when he got to his capital gains section, you've never seen
such a lot of mournful faces on the other side. They were really
Bating, Alan, you rotten thing Keating, why weren't you more
severe, you terrible thing, you promised to be much tougher than
this. And that's what they were saying virtually.
JONES: Yes, I appreciate that you've watered it back.-
miserable looking pack of fellows. You know I've never
seen anything like it. Now that's the answer to your question.
This, Alan, is not a tough capital gains tax. But it is a
necessary one. Just let me make that clear. we have not been
seeking to impose a capital gains tax to hurt the sort of people
that you're talking about because those sort of aspirations that
people have are legitimate. what ye needed to do was to bring
in a capital gains tax as an instrument there to stop deliberate
schemes where people were traversing the barrier and moving
income into capital as part of a process of avoiding tax.
JONES: Right, but still the little bloke with the second house
is going to be ' taxed at 49 per cent.
PM: No, but only on his real capital gain. AInd remember this,
there are these elements of it if he's done * that already, his
existing property as you know is not touched. Secondly, and
implicit in your question, it doesn't affect the domestic home,
the major home. Thirdly, it's not on nominal gains, it is only
for real capital gains. in other words if the bloke has bought
his house for $ 100,000 and over a period of, time it's gone up
to say $ 130,000-and'. there's been 20% inflation, he's only taxed
on that $ 10,000. So it's a very very mild capital gain and I'm
sure that the overwhelming majority of Australians are going
to say if it's necessary to have that mild capital gains tax
to ensure that we have another instrument there to 13top the
tax avoiders and the evaders, which we do need, then I'm sure
they're going to say well we approve of that.
JuNrS; Sure, I don't want to labour the point, but all I'm saying
is that the bloke really only does invest in that second house
to get that capital gain. I mean there's not much return
as you would know the rent that you get on an investment
in housing, where wedesparately need housing acoOmmo~ ation
being built the return on that's not great. And even when
you take the real gain in that he's going to give 49 percent
of that up to the Government. but it Just seems a dininoentive.
PM: Let me say this, Alan, the more usual pattern with the
person who invests in that second house, is that it's usually
their holiday or esaLibl& shedl. retirementt home that they're looking
to. Now when that person sells their principal residence they're
not going to pay a cent of capital gain on that. So the normal
pattern of investment for Australians is not going to be
adversely affected. I mean the normal of your listeners
who has bought a second home, normally that's the one they
go to havu their halildTnyr. and that they're going to retire to.
And they sell, when they come to do that, and they sell their
principal residence, they will not pay a cent of capital gain
.) on that. So really for the normal pattern of Australians they're
not going to be hurt in that respect. Now-as to residential
buildings, there's no Government,-and I think you've bleen generous
enough in the past torecognise this we've done so much in the
area of residential housing, we lifted the housing/ construction
industry off its knees. They were building 100,000 units a', year
when we came to ortice. We'vc t Ihat up to over ISO, nOfD now.
We've put enormous increases into public welfare housing and
we've given the tax incentive for residential building now.
We've brought that in.-So we're addressing the issue of the
increase of our housing stock in other direct ways, Alan.
And you've got. to have and I'd think you'd appreciate that
the tax avoidance and evasion has been grossly unfair in this
country to the sort of people that you're talking about the
decent, honest, ordinary people and we must have the instruments
there to cut that out. And that's why we've got to have that
pattern. ( COMMERCIAL BREAK)
JONES: Prime Minister, just finally if I might just cover that
question of poverty traps because you have done quite a bit
about that. Where do you see tho biggest initiative of the
Government in solving the poverty trap problem.
PM: Well when you say the biggest initiative, Alan, what we've
done there is to pat ii.-boat $ 215 million, as you know, and that
is going to help in three ways. firstly, in increasing the
amount of private income that a pensioner may earn, we've
increased that by $ 10 a week for single pensioners, and
a week for pensioner couples. And what that means that a single
pensioner now, Alan, can earn each week without affecting the
pension, up to $ 40 now and for couples up to $ 70. Now our
calculations are that that will mean the pension payment received
by all of the 450,000 recipients who currently get a part-time
pension, that will increase by up to $ 5 a week. So it's the
first area. Secondly, and this is very important, we'll abolish
the separate income test on rent assistance ond the calculations
7.
PM cont...: are that that will reduce the marginal rate of
Income withdrawal faced by about 7U0, U0O pensioners, and
A benefit of up to about $ 15 per week will flow to about 300,000
pensioners. And thirdly, and very importantly, in regard to I
pensioners with children, that amount thAt a pensioner can earn
without a reduction of pensions is going to be increased by
$ 6 for each child. And the statement that was brought in by
Paul Keating gave an example. Alan. if you take the case of
supporting parent or pensioner with two children living in
rental accommodation, what those measures would mean, it would
mean th.~ t if riirh a poncivinr earno'd cay $ 100 a wook of private
income, the social security pension plus rent assistance S s
reduced by $ 44 a week. Now from November that pensioner now
would lose only 18 a week, so there'd be a total gain
JONES., Right $ 2b in front..
PM:-So that I think is a necessary part of the package. Because
we regard it as essential to reduce those higher marginal tax
; ates to bring more equity, efficiency and incentive into the
system. But while were doing that in the upper ranges it
was very important that we looked after the least privileged
section in the community who had been faced, because of these
poverty traps, at times with marginal rates of tax of over
100 per cent.
JONES: Yes, quite, plus of course the raising of the ceiling
of the non-taxable component of incomes. PM, could I just
end perhaps with the ubiquitous Dr Armstrong. I'm just wondering
whether you regret the fact that you didn't tell, froma the outset
the House everything about his resignation.
PM: I think that my reputation for straightforwardness is
pretty well known. what my concern, Alan, from the beginning was
not to do anything which was going to create more likelihood of
political disputation in regard to an inc! ident we wanted
handled in a way which wouldn't bring problems to the Bicentennial
Authority or for that matter any undue hurt, personal hurt, to
) Armstrong.
JONES: But did you recommend that he should go.
PM: I told the House quite clearly that 6n the basis of all the I
information put to me, Alan, it was a clear view that the best
interests of the Authority would be served if that happened.
I made that quite clear.
JONES-. Sure, but now you worked as a President of the AC2Tu
and on a salary of about $ 27,000 a year because people in union
organisations and employer organisations aren't paid a loot.
PH: SAId with feeling.
3ONUS6: Said with feeling. surely you wouldn't approve of a
termination payment of halt a million dollars.
PM: But you've put your finger right on the point, unfortunately,
because of the 1~ gislation brought in by our predecessors I had
no authority to determine the conditions. Mr Reid made it
quite clear when I indicated to him I thought that the change
should take place, he said and Mr Reid was quite right in saying
this, Alan, that the matter of the negotiation of the dismissal
well that's not the right-word.-of the termination, the severance,
of Dr Armstrong was a matter for him. It was a matter for the
Authority. I had no* right to determine the conditions.
JONES: z Well then has he erred in striking such a ridiculously
high figure.
PM. well what he put to me was the question on the contraeL
that they'd negotiated. See they had negotiated the contract
for Dr Armstrong in the first place, and he put to me that there'd
be a question of buying out the contract-and that there were
six years to go, and given the level of salaryit was gbing to
be a pretty high figure. Now all I'm saying, Alan I'm not
trying to av6id responsibility I didn't have the authority.
JONES: Well should you have that authority.
PM-Well you now againl,. if I might congratulate you, you logically
go to the next point. And I've said to the media yesterday
when I had a press conference with them, that I have my
Department now looking at this issue, a range of options, as
to whether in fact there should be a different sort of
relationship between Government and the Authority whether,
and I think this will appeal to your sense of humour, whether
we should be deprivatising the Authority-I mean we have the
Opposition pressing for privatisation and the removal of
Government control, it may be the case that what we've got to
look at is reversing what they did. They established this as
a separate company, private company, away from Government.
JONES: Could I say, though, that in this current climate
if Mr Reid in the structuring of the contractual a;, rranagements
for termination has been so insensitive to public opinion as
to pay a bloke after a limited number of years service who
) obviously wasn't doing an adequate job, half a million dollars,
shouldn't then Mr Reid g0.
PM: Well let me say this, that I'm waiting for a response from
Mr Reid on this matter of the composition of the payment.
Now I think it would be grossly unfair of me to Mr Reid to
make any judgements on this issue until I have received the
correspondence from Mr Reid and spoken to him. And I think
you'd agree that that's the fair thing to do.
JONES: Yes, I do Prime Minister. Finally could I just ask
you to clarify Mr Keating said the other day that because
Alan Bond's Amekica's Cup Challenge boat may have Foster's Lager
printed on its outside, that the America' s Cup syndicated costs
to defend the cup may be a tax deduction. is that a view you
take. PM: I haven't addressed my mind to it, Alan. I will discuss
the matter with my good friend and colleague, Mr Keating, and
give you a considered answer.
ENDS a,, l .47-