14 August 1997
E&OE...............................
JONES:
Prime Minister, good morning.
PRIME MINISTER:
Good morning Alan.
JONES:
How's the health?
PRIME MINISTER:
The health is excellent. It's good to be back.
JONES:
Is that John Howard being John Howard's doctor or the doctor for John Howard?
PRIME MINISTER:
No the doctor said I had made a very full recovery. He said: you're raring to go.
JONES:
Well you proved that yesterday. You made much at the beginning of that press conference yesterday of the Reserve Bank Governor saying that the speed limits are off. You would be aware, wouldn't you, that those sort of comments don't mean much to a quarter of a million long-term unemployed.
PRIME MINISTER:
Well they may not when they're first uttered but they actually do because the way to get unemployment down is to have more economic growth because more economic growth generates jobs. I repeat, more economic growth generates jobs. If we can run the Australian economy at 4 - 4.5% growth, we will generate more jobs and unemployment will come down.
JONES:
Do you ever think though from the people to whom you speak, and you're travelling all over the country that there are jobs out there. For example, there are 40 000 bridges that need repair. There are dams needed in drought stricken parts of Australia. There are hospitals that are totally unsuited to modern hospitalisation. Now those jobs are waiting to be done. We don't have money perhaps which is cheap enough for those people to be encouraged to embrace those jobs.
PRIME MINISTER:
Well some of that activity of course has got to be paid for by the Government. Some of it is infrastructure which the Government has got to provide. A lot of it has got to be provided by the private sector. We will be providing $2.2 billion of job creating infrastructure through the environmental fund, the Natural Heritage Trust and the Federation Fund and one of the criteria that I'm attaching of the Federation Fund is that they have to be job generational projects as well as projects that add to the sum of the national infrastructure but if you're talking about interest rates for the private sector, well one of the brighter things of the last 18 months is the way in which interest rates have come down.
Now clearly, people listening to this programme, particularly those in small business would say: well, we'd like to see them come down further. I understand that but they are markedly lower, markedly lower than what they were 18 months ago and whilst we would all like to see further progress on that front, the fact nonetheless is that the cost of money in the Australian community is 2 - 2.5% at the very least lower than what it was 18 months ago. If you are paying off a housing loan, in some cases it's 3 - 3.5% lower than what it was. To the average family that is a very large amount of money.
JONES:
A lot of money, a lot of money.
PRIME MINISTER:
It is real dollars in the pocket after tax.
JONES:
I will come to tax reform in one moment. I just want to ask you one question because the one thing that could torpedo a lot of what you have in train is this whole business of drought. When you were Treasurer last, Malcolm Fraser faced this awful problem of having to fork out billions and billions of dollars as the country was just driven asunder by drought and I have proposed this thing for some time now and I just would like an opinion from you on it. I mean, the Ord River, I've been saying, every second throws 50 tonnes, 50 tonnes of water is released into the Ord River every second but 90% of that goes into the Timor Sea. Should we be spending money to harness that water so that the productive sector of Australia is not constantly ravaged by drought? In other words can you build a pipeline from that area where there is plenty of water into the areas of Queensland and New South Wales where they desperately need it?
PRIME MINISTER:
I have to say Alan, I haven't examined that particular proposal myself in recent years. I do know from earlier experience that whilst on the surface it sounds do-able, there's not a lot of support even amongst the more adventurous areas of the agricultural sector for it. Look, I have to honestly say to you, there's no point in wasting your time, I have not looked at that proposal in recent years. I am interested that you are advocating it but I frankly haven't looked at it.
JONES:
I will drop you a note and see if we can't get some thought on it. Now just on reform, you talked yesterday about a framework of options for tax reform but then I thought that in the five principles you stated you might have closed off some. For example, you said no increase in the overall tax burden. Do we have enough money coming in to do the sorts of things that are needed to be done in a modern society?
PRIME MINISTER:
Well the answer is that there are always loopholes in any tax system and when I talk about no increase in the overall tax burden, I certainly don't rule out tightening the system so that those who are dodging their liabilities in the future meet them. What I am talking about is I am not in the business of loading a new layer of tax on the existing layer of taxes. I mean, the essence of this reform is that you've got to alter the balance between direct and indirect tax so that individuals are paying a lower rate of personal income tax and in the process you've got to improve and modernise the indirect tax system, and what I sought to do yesterday was to lay down the four or five major guiding principles.
But I want to say to the Australian people through your programme, Alan, that I am not interested in increasing the overall tax burden. I am interested in making it a lot fairer. I am interested in ensuring that people who slip through the net at the top end and any other end, that those people are caught up. I mean, it is aggravating in the extreme if you are a PAYE tax battler, you're having your money taken out each week when you hear of people through all sorts of dodges, the cash economy as well as some people at the big end of town not paying their fair share. Now part of the process will be to ensure that the system is fairer.
JONES:
Right, on that basis then, and you're talking about the battler and this is where there is massive imbalance, your total tax receipts this year are $127 billion. Now you get a further $68 billion from sources other than taxation. $127 billion. $60 billion will come from that battler, the PAYE, only $18 billion from companies. Now, are foreign companies paying their share of tax?
PRIME MINISTER:
Well, there are obviously some large companies that are paying a very low level of tax but I just go back to your figure. You've got to remember that some PAYE taxpayers are on fairly high incomes. I mean, a lot of people who are fairly highly remunerated company executives and public servants, politicians, whatever you like, they are all in the PAYE tax system and it covers everybody who's on a wage or a salary.
JONES:
But if you're going to reduce that as you said you would yesterday...
PRIME MINISTER:
Particularly we are aiming to reduce it for people who are in the lower and middle income area. Now I don't at this stage on day one want to get into..
JONES:
The detail of it.
PRIME MINISTER:
..hypothetical numbers and so forth, it is too early for that.
JONES:
No I was just saying to you Prime Minister...
PRIME MINISTER:
The answer to your question is there is obvious leakage in the present system. One of the advantages of a broad-based, indirect tax is it is harder to dodge. Most people accept that if you have a broad-based, indirect tax you will collect tax from the cash economy that you are now losing out on.
JONES:
The real worry though as you are speaking to people here now is that you seem to have made up your mind, or someone has, that tax reform equals GST and that sends shivers amongst a lot of people.
PRIME MINISTER:
No I haven't. I've said that tax reform equals lower personal income tax. I mean, I wouldn't call this a GST policy. I would call it an LTP, a lower tax policy,
JONES:
Right but if you said in your third principle and you outlined five yesterday, no increase in the overall tax burden, major reductions in personal income tax, and your third point was a broad-based, indirect tax, what is that if it's not a GST?
PRIME MINISTER:
Obviously a GST is one form of a broad-based, indirect tax. It's just that we're not going to at this stage absolutely chain ourselves to that particular kind of broad-based, indirect tax but obviously that is one broad-based, indirect tax. But the key to the thing is to have lower rates of personal income tax and give people more incentive to save and invest, give people a greater control over their own lives. I read a lady in the paper saying this morning that the beauty of a broad-based, indirect tax or GST was that it enables me to exercise greater choice. Now if you protect the vulnerable, you ensure that people who are now slipping through the net in the cash economy and elsewhere pay their fair share. You collect more revenue and you will end up with overall a much fairer system and very importantly for jobs, if we can get rid of some of the indirect taxes that now have an adverse effect on jobs like the effect of the wholesale sales tax on manufacturers, you can make our exports cheaper and more competitive and through that generate more Australian jobs.
JONES:
Is it not a problem that many people when they think tax think income and I could, it would take me a half hour to outline from Glad Wrap and toilet tissues and deodorant and fruit juice and flavoured milk and ice cream and tissues and toilet paper and baby oil and stationery, all the things that we buy every day, pay the price up and yet we're being taxed to the eyeballs for those things. What kind of relief can people expect from those in any kind of reform? For example I said this morning toilet paper, which most of us, to be fair, even Prime Ministers can't do without, has a 22% sales tax on it. Caviar is tax free.
PRIME MINISTER:
Well Alan, without once again going into figures, what I said in one of the principles yesterday was that we would look at having a broad-based, indirect tax to replace some or all of the existing indirect taxes. Now obviously one of those existing indirect taxes is the wholesale sales tax which is the very tax about which you have just spoken and one of the weaknesses of that...
JONES:
There's millions of them.
PRIME MINISTER:
There's millions of them and it would take you at least half an hour and the rate is in some cases as high as 32%. There's a luxury rate of 45%. There's another rate at 22%. I mean, they talk about particular levels of a GST or a broad-based, indirect tax. A large swag of the wholesale taxes are still very much higher than any figures that have ever been kicked around in the past for a GST so obviously, one of the reforms that will be looked at is to replace some or all of those with a single rate, indirect tax.
JONES:
Right then could I just raise one political point. I know you don't want to canvass where you're going to finish up but if you were to replace those wholesale sales taxes, the ten pages of them that we could sit here and read you would need a GST of about 5%. If you had exemptions for things like food and health care and education and rent and so on you would then be up to 7.5%. If you were to replace the fuel excise for example, or many of those inputs which cost our export industries, you would need another 5 - 6 percentage points onto your GST. If you then replaced payroll tax because you're wanting to create jobs and that's a tax on jobs, you'd finish up with a GST well over 10%. Is a GST over 10% politically saleable?
PRIME MINISTER:
Alan, I am not going to talk figures, even hypothetically and even with great respect, with you but what I am going to say is that we've laid down some broad principles. We are clearly going to look at all of the options. Fundamental to this reform is altering the balance so that individuals pay much lower personal income tax. Now it is too early and I don't want to be unhelpful but it is much too early for me to be talking precise figures or to be hypothesising.
JONES:
Okay well will a debits tax get on the table for debate?
PRIME MINISTER:
Will a debits tax?
JONES:
Yes.
PRIME MINISTER:
You mean the existing one?
JONES:
No, no, no. A debits tax whereby you merely tax all withdrawals from financial institutions. You have no taxes at all. This has been canvassed with Bill Clinton in America and it's been widely...
PRIME MINISTER:
Something like that was looked at by the former Coalition Government. From my recollection it's one of those things that sounds pretty good in theory but in practice ends up being wildly distortionary and wrecks the financial system.
JONES:
Too simple to be contemplated.
PRIME MINISTER:
No, no, I wouldn't put it that way. Look, we will get submissions from everybody and obviously we're going to be open minded and look at them but I can only react to that by recalling that little sort of snippet of a recollection from the past.
JONES:
Right. Can we then, how do people make an input? You're saying you might have this thing in several months. Can it be done within "a few months" - your words yesterday?
PRIME MINISTER:
Well I would expect so. I mean, bear in mind that there's an enormous amount of material around in the system on this subject already and I don't want to put a time limit on myself. I have said that well before the next election the public will know where we stand on tax. Now, given that the next election is what, 18 months off and given that this is a huge undertaking and it is a very complicated issue, I think that is a reasonable broad framework. I don't think anybody can complain about that and it would operate of course, any change is after the next election, so keeping the commitment we made about nothing new during this term.
Now people can obviously make submissions and on top of that I am going to establish a Government Members Taskforce to actually take over some of the burden of public consultation and talking to different interest groups and I think this will generate an enormous amount of community debate. I think you will have interest groups right across the spectrum putting points of view. I will certainly be talking to the Premiers in detail and in formal session about the proposals but I think the community will get into this debate because they will see it as a splendid opportunity to give this nation a modern, fairer and better taxation system for the next century.
JONES:
To get rid of five and a half thousand pages of unreadable Tax Act.
PRIME MINISTER:
Some of that can be done, certainly but the real thing is to give the bloke in the street a fairer and better system, more incentive. One way you do that is to give him lower personal income tax and give him more control over what he decides and what he does.
JONES:
Right. In that election, talking about elections, you promised to rectify the tax-free threshold difference between the self funded retirees who are looking after themselves and a pensioner.
PRIME MINISTER:
Yes we've done it.
JONES:
My information from self funded retirees and pensioners is that it hasn't been done. From 11000 for the pensioners, for self funded retirees 5400. Have you closed that gap?
PRIME MINISTER:
We have done it in two stages. We have implemented our commitment in two stages. We did the first half in the first budget and the second half in the second budget.
JONES:
Okay. I'll just follow that up when I come back to you.
PRIME MINISTER:
Yes. I'd really like you to follow that, I mean, I'm surprised to hear people saying... I mean, we announced, I mean we're doing it in two stages. It will be completed in our, you know, the phasing, it is being phased in and will be completed during our first term.
JONES:
Okay well you said yesterday, one thing I must ask you, the heroin trial. Prime Minister, how on earth can you have a Government, can you be part of a Government where you make laws about the illegality and criminality of supplying of heroin and you have a Minister in your Government who actually has agreed that that should happen?
PRIME MINISTER:
This is a difficult issue and you would be aware yesterday that I expressed very great scepticism about the general view in the community that if you've got a problem with something, the way to sort of handle it is to legalise it. I mean, I remain to be convinced that there's any benefit at all in this heroin trial. It came out of a meeting of Health Ministers. I think in fairness to Michael Wooldridge, he expressed himself some ambivalence about it. I am expressing quite a strong scepticism about it. I share many of the concerns that were expressed yesterday at that press conference of church leaders on this subject and I know there are a lot in the community who argue otherwise but I haven't been given a convincing argument as to, I mean, where do we go after the trial? What are the benefits that are meant to flow and I do fear as some of the church leaders fear, that it gives the wrong signal.
JONES:
I got the impression that your Government was providing money for this? You're the Prime Minister.
PRIME MINISTER:
We're not actually providing, as my understanding is, we're not, the provision is not directly for the trial itself.
JONES:
There was talk yesterday there would be a child care centre provided.
PRIME MINISTER:
I haven't, because I was diverted on other things yesterday, I didn't have the opportunity to investigate the detail of that. In any event I understand that's something directly under the control of the ACT Government. Alan, I want to say to you on this that I have all the reservations that I think many have expressed about this and whilst the majority of the people of that particular Health Minister's conference said a minimum they would be open minded enough to give the trial a go. I've got to say that I am myself, and I know many people in my Government are profoundly ambivalent, indeed more than that, sceptical to the point of hostility.
JONES:
So will you allow that scepticism to manifest itself into opposition?
PRIME MINISTER:
Alan, I normally do on these sorts of issues.
JONES:
Okay, okay.
JONES:
You're after industry. You're to have an industry meeting. You're after employment. Don't we have an obligation to look after Australian things and Australian jobs when we've got one and a half million out of work?
PRIME MINISTER:
Yes we do. We do have that and that's why we took the decision on the motor car industry.
JONES:
I know you did.
PRIME MINISTER:
And that decision will bring forth investment and jobs. I mean, that was the sole criterion or the dominant criterion, of that decision and that was a pro-jobs, pro investment, pro-Australian jobs decision.
JONES:
If you were going to a sandwich bar in the city in one of your walks around the city and you wanted to have a sandwich and you ordered a chicken sandwich, would you be happy about having the fill being processed chicken from Thailand, which may well knock out a processed chicken factory here in Australia? Can you think of anything more stupid?
PRIME MINISTER:
Well the final decision on that, Alan has not yet been taken so let's not..
JONES:
No, but the final decision ought to be obvious, shouldn't it?
PRIME MINISTER:
Well the final decision must pay some regard to bona fide quarantine issues...
JONES:
And the viability of Australian business.
PRIME MINISTER:
It must pay, and you also have to understand that if you are not defensible in actions taken in these areas, other countries can knock out our exports as the Canadians did a few months ago and they cut our quota of beef exports because we had refused to allow Canadian salmon to come into Australia but Alan, your general point is right.
JONES:
Okay. Good to talk to you. Just one final thing, and on the timing of it, you won't be introducing tax reform before the next election?
PRIME MINISTER:
No, we will be announcing tax reform, the detail, but we will not be introducing. The measures to give effect to the new system won't operate from a date before the next election, let me put it that way.
JONES:
Okay, good to talk to you and thanks for your time.
PRIME MINISTER:
Thanks Alan.
ends