E. O. E. PROOF ONLY
INTERVIEW WITH ALAN JONES, 2UE, 4 JUNE 1985
JONES: As I've said to you earlier on in the program the tax package,
or the government's draft White Paper its preferred position
has been made public today and I think we ought to emphasise
that. There's a long way to go before the government is able to
win the day on its preferred position but nonetheless it's a
brand new area of reform in Australia and the government is to be
commended, as I have said many times, for the initiative it's
taken on the question of reform. But like everything it's not
going to please everybodyand the man who perhaps stands to lose
most and has got the toughest job in front of him in selling it,
both to the summit and to the public at large, is the
Prime Minister himself and he's on the line. Good Morning
Prime Minister.
PRIME MINISTER:
Good Morning Alan.
JONES: Well Prime Minister I suppose the community will be saying some
good news and some bad news. Perhaps could we take the good news
about the overall reduction that you have foreshadowed in
personal tax and may I ask you does that mean that all four
marginal rates will be reduced?
PRIME MINISTER:
Under the preferred option yes, Alan,' if I could just give them
to you: at the level of income between roughly $ 6000 and
$ 12500 wherethe present rate is 250 in the dollar the marginal
rate that would come down to 20g. Between$ 12500 and $ 19500
it would be reduced from 300to20 and in the very important
area where just so much damage has been caused now
earnings comes in the range of $ 19500 to $ 28000 where people
are now paying virtually half that's 46,, there'll be a
massive reduction down-to 350, and the $ 28000. to $ 35000 comes
down from 48 to 40 and the top rates of $ 35000 and over
., would come down from 600* to 500.
JONES: Right.
PRIME MINISTER:
If I could give you very specifically the example of the level
of average weekly earnings so that you could get quite clearly
the net sort of picture, there would be a 30% reduction in
direct tax paid by the average weekly earnings person of an
income tax cut of $ 31 a week. Against that would be the rise
in costs coming about from the consumption tax. That will
cost $ 16.80. a week. So net benefit, Alan, to that person
on average weekly earnings of $ 14.20 a week.
JONES: Right. Well now also Prime Minister you've raised the tax-free
threshhold, haven't you?
PRIME MINISTER:
Yes Alan. It's currently $ 4595. That would go up to $ 6250
tax-free threshold,' which if I can put it in weekly terms,
Alan, a person now can earn up to $ 88 a week and pay no tax.
Under the preferred option that'would go up to $ 120 a week which
a person could earn and pay no tax.
JONES:
Right. Now we'll come to the consumption tax later but again
on the good news front to compensate the lower income earner
for the damage that might be done by a consumption tax you are
also going to make a one-off increase, are you not, in pensions?
PRIME MINISTER:
Yes. JONES:
That will be all pensions?
PRIME MINISTER:
Yes Alan. Let me just go very quickly to that and I'm very glad
you brought it up early. The calculation is that the
affect of the introduction of a broadly based consumption tax
is that it would increase the CPI one-off by 61%. Now on the
basis of the adjustment of pensions to meet an increase in the
CPI that would require an increase of $ 6 a week in the pension
to cover that increase in the CPI. The proposal is that the
pension would increase by $ 9 a week for the single person so
that's well over 50% over the price impact. Married couple
pensions would go up by $ 14 a week. But that's not the end,
Alan, of what we'd do because we are very conscious of the fact
that introducing a broad based consumption tax would in the
absence of compensatory mechanisms hurt people at lower level
of income, and particular social security beneficiaries. So
you're right over-compensate in pensions but in addition to
that we would also increase the dependent spouse rebate and
family allowances by 14% and the family income supplement,
which is particularly there to help low income families, would
also be expanded and the benefits increased. So in total the
compensation package that we would bring in under this preferred
option would be about $ 2 billion so that there would be
over-compensation for the price impact. Ve believe, Alan,
and I know you would share this view, that you can't talk about
bringing in a consumption tax which would otherwise hurt people
on lower incomes. You have got to have that compensation
there would be $ 2 billion worth of it.
S . r 1
Right now if we could just take the total package then
Prime Minister. That is, the cost to the government of the
* thresbhold increase, the cost to the government of reducing
the four marginal rates plus the pensions and the welfare
benefits. What do you anticipate that to-cost you?
PRIME MINISTER:
Well I wonder Alan i. f I could put the total picture to you this
way I think it would be clearest: what we would get from
bringing in the broad based consumption tax would be Just over
$ 14 billion. That would be increased revenue. The broadening
of the direct tax base would bring in about $ 1 and 3/ 4: billion.
But then the offsets that you refer to; we would abolish the
wholesale tax which would cost about $ 5 billion. The compensation
package that I just talked about of just under $ 2 billion and
some slight changes in the excise levels and other administrative
changes about billion, so the costs . of. those abolition
and the compensation is about bi. llion. Now when you take
that billion off the approx. $ 16 billion we get from the
broad based consumption tax and the broadening of the tax base
leaves you about billion which you can then use to vepy
substantially reduce the personal direct taxes and which as I
say at the level of average earnings would give you the
30% 1/ reduction in tax. Now Alan people may ask well how is it
that you're able to say to the great majority of Australians
you'll be better off under this tax reform. I think you will
appreciate there are two elements in it when you look at those
total figures that I'm talking about two elements which give
you more, revenue to distribute to the mass of Australians.
Firstly, that the broadening of the direct tax base which gets
into areas where people are simply evading and avoiding, that's
about $ 1 and 3/ 4 billion. But also you see that large number
of people who are paying no tax at all now on their income
because they are avoiding or evading, with a broad based
consumption tax you're getting a benefit there you are
getting revenue from them that currently you miss. So when you
take those two things together the broadening of the direct
tax base to get the people who are avoiding, pltis the revenue
you get from them on their consumption which you dont get now,,
that gives you a net benefit as a community which you are able
to distribute so that the great mass of Australians in net
terms will be off.
JONES: Quite right and Prim Minister I agree with that position
entirely and have said so. I think that indirect tax at
least prevents people from getting out of that net and makes
people meet their obligation and I just would put to you the
next proposition which I have in fact equally argued strongly
and it's a counter position to yours. Why then, when such a
comm~ endable initiative is in place, do you prejudice this
opportunity for acceptance by moving into the fringe benefits
and the capital gains area?
PRlIME MAINISTER:
Wiell I'm glad you asked that Alan. Could I just go to the
points you raise one by one. If you look at the fringe benefit
area, all the evidence shows, Alan, that that's absolutely
exploding now and it would treble or more within the manner of
about three years and so the great mass of Australians who
don't get that benefit would be even further prejudiced and
something simply has to be done about that we believe if you
are going to close of that very significant haemorrhaging
' of the tax revenue base.
JONES: Could I just before you go make two Points there PM?
PRIME MINISTER:
Sure. JONES: One is I'm just wondering whether that obvious explosion which
you're talking about isn't a manifestation of the high
marginal levels and secondly, I'm just wondering that if this
goes ahedd that the employer won't Just scrap those benefits,
put them as taxable income, which means the bloke is going to
be worse off than he was now.
PRIME MINISTER:
No in regard to those non-cash fringe benefits It would be a
tax on the employer. Now there will be varied responses to
that Alan. In many cases I think the employer would say well
that is something which I will bear. In some cases, Alan,
they might just say alright we'll transfer that to an
equivalent, or more than equivalent, cash payment in which case
the beneficiary would be better off by the reduction to the
extent of the very significant reduction in marginal rates
that we will be bringing in and obviously in some cases
Alan they would say oh well we won't go on with this. W/ here
the allowances are there as a result of specific arbitration
they will be exempt from this provision so when you look at
that total package Alan there will be dif ferent responses but
again'I've got to come hack to this point. You're right
absolutely right in saying that this will be an area of
concern, perhaps some risk for the government, but I believe
responsibility we've got to put before the Australian people
the dimensions of what has been lost to revenue and most
importantly'the obvious fact that if something is not done
about this it will explode in a way which will cost the revenue
very, very dearly into the future.
JONES: Prime Minister I don't mean to be personal about this but
I suppose that the first question the public will ask is
where then do politicians fit into this with air travel and
those sorts of benefits which I personally thi~ nk are
important to induce the best people into the job?
PRIME MINISTER:
Well I made the point whether its politicians or ordinary
workers where they have benefits which are a result of
arbitration, where there has been a deliberate dodislon Ly
an independent arbital authority if it should be given for
the purpose of allowing a particular job to be done
appropriately then they w41l be excluded and politicians
won't be treated any differently in that respect from
anyone else in the community.
JONES: So that because the Remuneration. Tribunal. has so determined
those sorts of allowances will be exempt from this taxation?
14:
PRIME MINISTER:
Yes well let me make it clear; to be fair it's not just
politicians whether it's railway workers or anyone else
where a particular provision has been not just given whim by
an employer but has been subject to independent arbitration
then that would not be affected and there'd be many more
people than politicians, infinitely more, that would be
covered in that way.
JONES: Well now could I just take the because time is always against
us but the capital . gain question PM.
PRIME MINISTER:
Capital gains-yes?
JONES: No I mean obviously a lot of money now of investors which
have a few bob goes into the housing industry and that
provides tremendously in Sydney here tremendous problems in
the shortage of rental accommodation. Now isn't this going to
act as a disincentive to the person who invests money in the
house and may he not seek compensation for the capital gains
imposed upon that investment by raising rentals which is also
going to damage the very bloke we're looking to protect?
PRIME MINISTER:
Oh a very fair I wonder if you'd excuse me if I just said a
number of things, some directly in regard to that and then
more generally about capital gains. Firstly, it is the
case that uncertainty about whether there would be a capital
gains tax or not I think has had had some impact upon investment
decisions in the rental market. Now I believe that once there is
certainty after dicussion with the community on this and
I believe that on balance the community will come to see the
benefits of a capital gains tax which I'll go to in a moment
once the uncertainty is removed then these things will sort
themselves out. I make the second point which I think is
relevant to that and more to your specific points but also
more generally relevant, and it is this: Australians have to'
ask themselves I think this question why is it that
virtually every other western country has a form of capital
gains tax and what is it that's unique about Australia that we
shouldn't have it. The answer I think is this it's in
two parts first, and both of them are relevant to Australia,
firstly, it is unfair that a person, an ordinary worker,
should through the sweat of his muscles or the exercise of his
mental capacity go out and earn money and then pay tax on that
but you could have a situation where other people derive very
considerable income by way of capital gain and make no
contribution to the general revenue as a result of those
changes. And so the world has said that it's inequitable,
that you should make that distinction against people who derive
income by their actual work. Secondly and very importantly,
in some senses more importantly, the rest of the world has said
that it is important to have a capital gains tax in place
as an effective instrument against tax avoidance and evasion.
So in other words Alan this is a very modest tax in the sense
that not an enormous amount of revenue will be derived from
it that is proof of its modesty but it will be an important
part of the armoury which I believe the Australian community
is entitled to have to stop tax avoidance and evasion
( WORD INAUDIBLE) make these specific points about the proposed
capital gains tax which I think you would appreciate.
JUNES:
* Jes I do. I would say though In answer to that dnd we always
seem to get cracked for time but I would have thought that
that. is one of the incentives to investment. I mean if we've
got shortages in the housing industry there has to be.-we've
got to try and generate haven't we some investment for people
to put their money there as oppsoed to the famous problem of
the election campaign under the beds so to speak.
PRIME MINISTER:
Let me make this point about housing: it's the responsbility
of governments by general and specific economic policies to
ensure that the housing requirement of the community are
met as quickly as possible and that's why we have specifically
brought in policies to do that,-as a result of two things
it was the First Home Owvners Scheme and also a significant
increase a 50% increase ina funds for public housing which
has produced the result now that the housinig industry is
operating at its capacity of 150,000 units per year. Now that
has the industry almost at more than full capacity so that
all that would happen now if you had more activity in the
housing area would be a reflection in prices rather than more
supplies so I can assure you Alan that we are talzing the
range of decisions that regard to housing and also construction,
because you'll recall that In our previous budget we introduced
a further Investment allowance for bildings the depreciation
allowance for buildings which has acted as a stimulus to
construction in tbat area.
JONES: Rlight. Well PM finally and we'll close off here but a
yes/ no; I suppose everybody will be asking at the end of the
day whether the excise on grog is going to go at the rate it
is. Is that a yes or a no?
PRIME MINISTER:
No you will find that decision has been taken wvhich will mean
that in regard to.-grog, beer in particular, there vvill. be a
decision which will mean that grog won't be disadvantaged.
JONES: Right. Alright Prime Minister, much appreciated that you've
taken the trouble to explain what is a fairly complicated area.
PRIME MINISTER:
Alan can I just say two things very quickly: thank you very
much for this interview. And secondly can I say that I
appreciate the positive and constructive way in which we're
able to discuss this with you and I hope that in the day and.:
the weeks ahead we'll have further opportunities to do it.
JONES: You'll be-most welcome Prime Minister and I appreciate those
remarks. The Prime Minister of Australia, Mr. Bob Hlawke.