Subject: Tax reform; Petrol prices; oil companies.
E&OE...........................
Well I haven't the faintest idea what that all meant! But to Michael Tilley, to Malcolm Teague, who over the years has made a wonderful contribution to the culture of great business luncheon gatherings in Melbourne; ladies and gentlemen.
I was invited to nominate a title for my address and I nominated the title ?What's ahead for Australia'. I guess you would have to say if you have been following the news and listening to the radio and watching television over the last few weeks you would have perhaps thought at one stage that 75% of the Australian population were caravan dwellers, you may have thought that there was nothing ahead of Australia other than, in the eyes of some of the commentators, the alleged disaster of taxation reform and of course that there was only one person responsible for it and you are listening to him. I thought at one stage I was even going to get blamed for that grass out there! But nonetheless, I do want to share some quite serious thoughts with you and I want to share with you the proper context of tax reform which of course has its great opening and beginning just tomorrow week.
I want to put into context the reason why we have set out to reform the tax system. I want to put aside if I can for a moment the inevitable political squabble over the detail of taxation reform and try and put into context why we are doing this and why it is so very good to the future of Australia. I agree with Mr Tilley that the economic climate in this country at present is very strong. We have now had twelve quarters of economic growth which represents in terms of the annual rate about four per cent. And you have to go back to the period 1968-1971 to find a comparable period of sustained economic growth. And that was at a time when although our economy was very strong and very bullish, in many respects the Australian economy was a lot more protected and a lot more, I think, cautious and inward looking than what it is now.
The fact that we have had those twelve quarters of economic growth and the fact that we have seen 712,000 more jobs created in the last four and a bit years, we have strong levels of business investment and Australia was able to stare down the Asian economic downturn. The fact that that happened and those things happened of course is no accident. It was overwhelmingly due to the fact that a significant number of economic reforms have been carried out. And I have never been unwilling to acknowledge that one or two of those reforms were initiated by the former government. And what of course in that context on that point disappoints me most about the political debate that is raging at the present time over taxation reform is that whereas the Coalition in opposition was willing to support tariff reform, financial deregulation and other reforms when they were proposed by the Hawke/Keating government, we have had nothing but the most inane juvenile attempts to obstruct and derail taxation reform from our political opponents.
When there does come a time in the affairs of a country, particularly when the people have spoken that all of us in public life have to get behind a reform and try and make it work. But our opponents have chosen not to do that. Now economic growth has been overwhelmingly the result of reforms and particularly the reforms of the last four years - getting the budget back into surplus, reforming our industrial relations system, pursuing a vigorous competition policy. All of those things have made a significant contribution. One of the reasons why living standards in this country now are higher than they were a few years ago is that we are now enjoying much higher levels of productivity. And one of the reasons in turn for that is the fact that we have reformed our industrial relation system. Whenever I meet wage and salary earners in Australia in whatever context it is, I am always happy if I get an opportunity to point out to them that over the last few years their real wages have gone up and on top of that they are now enjoying much higher interest rates than was the case in 1996.
So all of these things have made a contribution and we are now on the verge of the biggest single economic reform that any government in this country has undertaken, certainly since the end of the World War II, and perhaps for a longer period of time. Now, I don't pretend that the path of taxation reform has been easy and I don't pretend for a moment to you, or indeed any audience in Australia, that it has been free of political risk. As I said to my partyroom colleagues this week, the Government was really in a situation that now was the hour, the moment of our greatest political vulnerability. This is the easy hit stage of taxation reform for those who would seek to tear it down and to instill fear within the community and to try and generate a momentum of hostility and concern about the impact of it on the lives of ordinary Australians. And I said to my colleagues, well, if in a few months time, the judgment as I believe it will be of the Australian people was that it was a desirable reform and most of the scare stories were exaggerated, then that will be good for the Government and the public will view with some contempt those who adopted a completely negative attitude towards tax reform. I said on the other hand if I am completely wrong and they think it is a total disaster, I said that I would face a very interesting political challenge, and I think that's right.
And they are the sort of risks every so often you've got to take in politics, and a lot of people may think that it is finely balanced because there is always a bit of a concern in the community about change. And we have undergone a lot of economic change and some people claim that there is reform fatigue in the Australian community and perhaps there is. But as you all know, or most of you know I think, we don't have any alternative in the sort of world in which we are now living. You can't freeze yourself in time when it comes to globalisation and economic change. You either keep going forward or you start to go back. You don't have an option of stopping and getting off for a while and then rejoining it. And that is what we came to believe when we were getting ready for taxation reform.
And that is why we laid out the detail of our reform plan at the last election. No political party has done that before and lived to tell the story politically. And we did that because we believed that the only way you would ever, how can I put it, claim the moral authority and mandate to introduce taxation reform, was to have laid it out before an election. Now, it is not entirely what we put to the people. We would have preferred that the Senate didn't alter what we put to the people, and I guess there are lot of people in this room would have preferred that what we put to people had not been altered by the Senate. But we had a choice ? you either abandon the lot or you settle for 85% or 90% of it and we decided to do of course the latter. And having done that we don't intend to revisit the things that the Senate has taken out.
But it is an enormous cultural and economic change. But on the other hand to many people the impact on their daily lives will be quite limited. To the average consumer, to the person not involved in business, what it will simply mean is that price of some things will rise, the price of many things will stay the same and the price of quite a number of things will fall and on top of that they will find that they will be receiving a significant cut in their income tax.
I've read many surveys about the GST. I'm surveyed out as far as the GST is concerned. They keep arriving on my desk. Some of them are worth reading, some of them I don't like reading at all and others are very illuminating and very encouraging and I saw one the other day from the Melbourne Institute ? I don't always agree with what the Melbourne Institute says about the Government's policies, but it was a bit of research ? and it said that the great bulk of people had, according to their research, had no real conception of the extent of income tax reductions that they were going to receive after 1 July. I took some comfort from that report and chose to believe that it might be accurate.
So it is, ladies and gentlemen, by any measure an enormous change and you say why are you doing it? We're not doing it for our political health but we are overwhelmingly doing it because we believe it is the right thing for the country and in the end if you have the responsibility that I have, if you go into public life, if you get elected as Prime Minister, you have the opportunity of bringing about a change ? you really do have a responsibility to have a go ? and if you fall over and the public reject it then so be it. That is the nature of the democratic process. But this reform I believe is good for Australia and it's good for Australia for a number of reasons.
It's going to make us more competitive, it's going to make our exports cheaper, it's going to give our businesses a more competitive company tax rate and a more attractive capital gains tax rate, it's going to replace a very old fashioned, unfair, discriminatory wholesale sales tax with a far fairer, more balanced, even handed goods and services tax.
It's going to deliver the largest personal income tax in Australia's history and very importantly, it is going to provide a revenue base to the States which will over time give them access to greater amounts of revenue and make it easier for them to provide the basic services such as police, public hospitals, government schools, roads and other services which are the bread and butter of the political responsibilities of State governments in Australia.
And that will end one of the I think least edifying features ? perhaps I shouldn't say end ? but it will help to reduce one of the least edifying characteristics of politics in this country and that is the constant buck passing that occurs between State and Federal Governments.
There's always a temptation to blame another tier of government if you have an embarrassing political difficulty and whilst I don't for a moment presume to be as naive to think that you're going to get rid of that altogether, I think if you are giving to the States of Australia a guaranteed increase in their revenue over time and a much higher revenue base than they have under current arrangements, it is in my view far more likely that some of the unedifying characteristics of Commonwealth/State financial exchanges are going to disappear.
So when you bring all of that together, it does represent a major economic change and a major, I think, shift not only in the way in which we raise taxation in Australia, but I also think it will be very important for the national self confidence of this country.
The media treatment of taxation reform over the last few months has been, in my view, with a few noble exceptions, incredibly negative. And I think it's very important that this country be able to look back in a few months time and say to itself well, we have embraced taxation reform, we were told it was going to bring all sorts of disaster and in reality it hasn't, and I think it will demonstrate to the Australian community the capacity of this country to change and reform in very necessary areas.
I've always had the view, ladies and gentlemen, that the Australian community will embrace change, even major change, if you can satisfy two criteria.
The first of those criteria is that you have to persuade the public that the change is good for the country. Because, at heart, all Australians are intensely patriotic and intensely concerned at the national good.
They may not shout it from the roof tops in a hand on the heart fashion as others do, but deep down they care very much about this country's future. They care very much its reputation around the world and they care very much about the need to undertake necessary change.
And the other component that we have sort to do, to satisfy, the other criteria rather is the reform as well as being for the good of Australia must also be fair because Australians have a great sense of the importance of things being fair and just. And that's one of the reasons we have gone to extraordinary lengths to respond where it's been appropriate to those more vulnerable people in our community. And I mentioned whimsically a moment ago, the caravan park issue. Now we have put a lot of time and effort in to that when we were devising the structure of the tax and we came to the conclusion that providing the option of either a half GST or allowing the proprietors of the caravan parks to the input taxed that would certainly provide a more manageable outcome and would not irrespectively of the option chosen, leave people any worse off. And that remains our view. In fact many of the calculations that we have made indicate that if you take the option of being input taxed, you many in fact find that the residents are a little worse off, so we can't quite see the point of our opponents advocating the removal of the half GST options. But we agreed to in discussion with the Australian Democrats we agreed to a further increase in rental assistance.
And one of the things I will defend very tenaciously is the fundamental fairness of this package. I know that there is some unease, indeed some criticism in sections of the business community about the role of the ACCC. Now there's a difficult balancing act. As the leader of a free enterprise government, I don't want unnecessarily prescriptive approaches being taken to business. I don't want regulatory authorities being unrealistic about how businesses operate. And businesses exist to make profits, I understand that and I would be the last person in the world to try and interfere with that.
But I am also very conscious that when you have a major change, there is always the possibility of some exploitation. There is always the willingness of some that drag their feet. There is always the willingness of some to try and blame the government and blame the change for something that they were looking for a cover to do anyway and I hope that those of you who may harbour reservations about the role of the ACCC will understand the importance of providing assurance and confidence to the consumers of Australia that the introduction of the tax is not going to be in any way interfered with, is not in any subject to distortion or exploitation.
I don't need to tell you of course that given the extraordinary scope of taxation reform that it is possible if you set your mind to it to create concern about every single element of it.
And we've had an example of that in the last 24 hours in relation to fuel excise. Now what we said in 1998 was that when the GST was introduced there would be an adjustment to the level of excise so that the price of petrol at the pump need not rise as a result of the GST. We didn't promise in 1998 that we could control the other factors that influence the price of petrol We didn't promise in 1998 that the price of petrol was going to fall as a result of the GST. We simply said that it need not rise. And in the last 24 hours, the acting Treasurer has released the details of the excise reduction which is going to be in straight production terms, 6.7 cents a litre. He's also indicated that there would be cost savings to oil companies of 1.4 cents a litre and all of that will be calculated on the basis of a retail price of 90 cents a litre on the pump, hardly an unreasonable figure. Indeed an earlier calculation we had done and the average of the price over the preceding six months had produced a figure of 85 cents. I can't predict what is going to happen to the world oil market. At the moment people are suggesting that there is no likelihood of a significant fall and there's a possibility of a further rise but of course the actual landed price of crude oil is going to be influenced by a lot of factors including exchange rates considerations.
But I am therefore in that context rather concerned to hear suggestions on behalf of some of the oil companies this morning that there are no cost savings at all out of the introduction of taxation reform. I mean, I would like to put it to them - their fuel is carried to service stations in very large tankers and those tankers use diesel and that diesel from the 1st of July will be 24 cents a litre cheaper. That's an immediate cost saving and I think the consumers of Australia would expect that cost saving to be passed on immediately and therefore any suggestion that there will be no cost savings even immediately is a little hard to take.
I mention that in passing, ladies and gentlemen, to underscore of course the complexity and also to underscore the magnitude of the advocacy and explanation task which faces any government which in embarked upon a reform of this character.
I am now in my 27th year of political and parliamentary life and quite some time ago, I came to the conclusion that this country needed a number of quite fundamental economic changes if it were to realise its full potential. It needed to reform its financial system which it has. It needed to reform its industrial relations system which it has partially, but until we get a more intelligent Senate, we will not be able to fully complete.
We needed to get our budget in order and I ought to remind you that in the last five budgets of the former government, we added $50 billion dollars to our commonwealth debt and we've been able to remove something like $30 billion of that in our first five budgets. And there's every prospect, certainly if we could get rid of the remainder of Telstra and it makes no sense to me for the Commonwealth Government to have $50 billion dollars of public investment tied up in a telecommunications company. I think it could be more effectively used elsewhere. All of those things have made a very significant contribution.
But I knew 20 years ago that we needed to reform our taxation system and I have often said that a year after I came in to parliament, there was a report tabled in federal parliament, bearing the name ?The Asprey Report' and it had been written by a former now deceased judge of the New South Wales court of appeal, Ken Asprey, and he'd recommended sweeping taxation reform. Many of you in the room will know that he recommended the introduction of a broad based indirect tax. He recommended changes to income tax. He recommended changes to a whole lot of other things which bare great similarity to what the Government has finally done.
And what that tells you of course is that for a long time, a lot of people have known what ought to have been done about our taxation system. We've always known that eventually we would have to be dragged screaming taxation wise in to the sort of post World War II period, let alone the 21st century through the introduction of a broad based indirect tax. And as Peter Costello said the other day, the only country left in the world virtually now with a wholesale sales tax is Botswana because I understand that Swaziland is contemplating abolishing it.
Now ladies and gentlemen, we have needed these changes for a long time and the Government has embarked upon them and ultimately of course, as is the case in a democracy, the Australian public is going to make a judgement. We've reached a stage now where I don't think the general public is listening too much to the claim and counter claims. They know there is only eight days to go and in good Australian style, they will make up their own mind uninfluenced by what other people are telling them as to whether this reform is good for them or bad for them.
Now I believe it will be very good for them. I believe that in a few months time, people will look back on the debate and wonder essentially what much of the fuss was about. I hope they view with contempt those people who tried to stop it, particularly after it was voted for by the Australian people in October in 1998. I hope they will remember all the detail of that was explained to them before the last election. I hope they will remember that the role and responsibility of governments is to do things that are not perpetually popular but are always in the long term national interests of the country. I'm optimistic. I believe the reform will be well receive, but if they are not I will have no regrets because I will be able to say to those who make an adverse judgement, well we gave it our best shot, we did what we thought was the right thing, we took the risks and if the Australian people ultimately make a negative judgement then that is something that we will accept, that we will not in any way be regretful for having made attempt.
So that basically is where things sit when you say to me what's ahead for Australia. Of course there is a lot more than tax reform that is ahead of Australia. And once tax reform is in my view successfully behind us, there are of course, a large number of other things to which the government will be turning its attention. It's pointless to try and spell out that agenda today. Until tax reform is behind us, we won't get clear air to get the public focusing on other subjects. There is so much preoccupation with the debate of the detail of tax reform. But I remain incredibly optimistic and hopeful and enthusiastic about this country's future. Not only its future economically, but also its future reputation and standing in the world.
I had the opportunity a few days ago of going briefly to Tokyo to attend the memorial service for the former Japanese Prime Minister and in a brief space of 24 hours, met a large number of the regional leaders and it is very clear from those discussions with leaders such as the Prime Minister, the current Prime Minister of Japan, the Prime Minister of Thailand and others that this country's reputation the respect we have gathered in the region for being able to not only to provide political leadership in relation to East Timor but also the economic strength and regional friendship that we displayed toward countries facing great difficulty in the region at the time of the Asia economic downturn has rebounded very much to the credit of Australia and to the credit of Australians. And the respect and prestige that we enjoy in the region as a result of that is very significant.
Can I finally ladies and gentlemen thank the group that organises these magnificent gatherings and it is quite a big meeting and it's at a very interesting and I think wonderful venue. Can I also thank Merrill Lynch for its sponsorship of the lunch and can I say to all of you and I hope that the great bulk of you think taxation reform is a good idea. It's too late of course now to do anything about it if you don't. Can I say to you in the end, what you get judged on in running a business, what you get judged on in running a government indeed what you get judged on in running anything is your willingness at the right time to have a go, to bring a quantum leap or achieve a quantum leap and bring about a significant change. I think tax reform is one of those things, it's one of those turning points in the policy development of a nation and we've embraced it because we really think it's the right thing for the country and I have no doubt in my own mind that in the months ahead that is the judgement the Australian people will make.
Thank you.
[ends]