Howard Launches Goods And Services Tax Policy

Prime Minister John Howard launched the government’s tax package that features a Goods and Services Tax.

Howard held a press conference with Treasurer Peter Costello to explain the package to journalists.

  • Listen to Howard (3m)

Transcript of Prime Minister John Howard’s press conference.

Ladies and gentlemen, welcome to the launch of the Government’s tax plan for Australia’s future. This is a very important day for the economic future of Australia. The plan that is being launched today represents the biggest single remake of the Australian taxation system since Federation. It involves some historic changes in relations between the Commonwealth and the States. It lays the groundwork for Australia going into the 21st century growing more strongly, generating more jobs and being able to compete more effectively on world markets. It also involves a very major remake of Australia’s social security system, which will do two very important things.

It will remove many of the poverty traps that now exist in the social security system and will provide incentives for work and thereby continue the policies of the Government whereby we have sought to rebalance the incentives within the Australian community towards work and away from welfare dependency.

The Government is particularly proud of the changes that are involved in the relations between the Commonwealth and the States. For as long as any of you can remember one of the least ignobling characteristics of government in this country has been the annual begging-bowl pilgrimage to Canberra by the States. For the first time ever a Commonwealth Government has tackled this full-bloodedly head-on. We are giving the States the entire proceeds of the goods and services tax revenue.

It will be their tax administered by us on their behalf. They will pay for its operation, they will get its full proceeds. It will not be possible for the rate to be varied without the total support of the governments of all of the States and Territories, the Federal Government and the Senate and the House of Representatives.

In other words, I don’t think it is going to happen, because to get an agreement at all of those levels is indeed a mammoth task and something that I think more than anything else guarantees a long period of time for the rate, and indeed, works very strongly against its change. What that particular change will do will be to give the States far greater freedom and far greater resources over time. On our calculations rising to about $25 billion more cumulatively by the year 2010 over and above what they would be likely to get under the operation of the present system through to the year 2010. It will therefore give to the States greater resources to do the things for which they are constitutionally responsible.

It will probably lead to the end of the annual Premiers conference’s and some of you may well be disappointed about that but there will be others who may not be so disappointed about that development. So that does represent a very, very important shift and a very, very significant and historic one as we approach the centenary of the Federation. Not only will we have a new State for a new century but we will have a new tax system and we will have a new arrangement
between the Commonwealth and the States for a new century. And the historic importance of that should certainly not be underestimated.

I said when I announced that there will be taxation reform that there would be five principles that would guide that reform. And if you go through the plan you will find that at every point those principles have been faithfully honoured. To start with, there will be lower tax collected under the plan. This plan reduces overall tax collection. There will be a $13 billion reduction in the area of personal income tax cuts and on top of that the additional family initiatives are worth about $2 billion.

I am immensely proud of the fact that under this plan the top marginal rate paid by 81 per cent of Australian taxpayers will be 30 cents in the dollar or less. In other words, you can pass from $20,000 of annual income to $50,000 of annual income without going into a higher tax bracket. You can almost call it the “bracket creep abolition provision” of the tax plan because if you look at the working, the income profile of so many low and middle income earners to pass from $20,000 through to $50,000 would be the experience of their working life and probably no more. And 81 per cent of people, we must always remind ourselves that 81 per cent will be on 30 per cent or less and that is a particularly important change. We have changed the rates at every point except the top rate. What we have done with the top rate is to alter the threshold but to keep it at 47 cents. We have increased the tax-free threshold from $5,400 to $6,000. We have dropped the bottom rate from 20 to 17. The 30 cent rate cuts in at $20,000 and carries you through to $50,000 and then there is a 40 cent rate between $50,000 and $75,000. So the benefits for low and middle income earners are enormous under this package. The incentive for doing more overtime, the incentive for extra effort and the incentive for harder work is very self-evidently there.

We have, of course, included in the plan a number of things that have not been widely speculated about or even thought of outside a very narrow range of people. I am delighted to be able to announce that as part of the plan provisional tax will be abolished. And that will be of enormous encouragement to many people in business, many self-employed people, and it will be a very great advantage to many self-funded and retired people. Very importantly for that group also we are introducing a system whereby we are going to fully refund imputation credits. And that is very, very important to people on modest incomes who hold shares who will get dividends franked to the tune of 36 cents, which is the company rate, and they might be on 20 and they can’t get the other 16. Well under this system they’ll get the other 16 as a refund on the franked increment from the Taxation Office.

We have gone to very great care to ensure, as I outlined in the five principles, that low and fixed income and modest income people including pensioners will be fully protected. On July 1 pensions and other benefits will rise by 4 per cent and the proposals contain a guarantee that at all stages there will be a real increase of 1.5 per cent in the pension over and above CPI increases. And that’s a very, very important cushion, a very, very important additional protection. We are also increasing the retired persons’ rebates. We are introducing special untaxed payments, one of $1,000 for all people 60 and over who have investment income and a further one for self-funded retirees of and above pensionable age of $2,000.

There will be full eligibility for that; $20,000 a year and under and phasing out to $30,000. And importantly also, not only for this section of the community but for the entire community, the plan involves the introduction with effect from January of next year of a 30 per cent tax credit or rebate on the cost of taking out private health insurance. This will be for 80 per cent of the Australian community as valuable or more valuable than full tax deductibility of the cost of taking out private health insurance. This benefit will be available to everyone. It will not be subject to an income test and it will represent a very significant further incentive for people to take out private health insurance. That is important, not only for the contribution that private health insurance makes in its own right to the aggregate health system in Australia but also for the load that it will take off the public hospital system.

And, of course, it follows the decision of the Commonwealth Government to inject a further $915 million over five years into the public hospital system, representing real increases over the five year period of the new Medicare agreement of 17 per cent at a time of virtually zero inflation. So we are particularly pleased about the contribution that that initiative is going to make.

This is an extremely good tax plan for the bush. Country people will benefit enormously through the massive reduction in fuel costs. The reductions in fuel costs are worth about $3.5 billion a year. That involves something in the order of a net reduction in relation to diesel of $2 billion and the additional capacity of people to get a rebate because it is an input cost of the cost of other forms of fuel. So the benefit of this for the bush and the extent to which the economic consequences of what has long been described as the tyranny of distance in this country, those economic disabilities will be ameliorated by this package are really quite enormous. And the benefits in relation to diesel fuel will not be restricted to farmers, they will flow through to people like ferry and marine operators and will be of particular benefit to many tourist operators.

And will also be of benefit particularly to the State of Tasmania which in recent times has been experiencing a very significant boost in its tourist industry as a result of changes that have been made by the Federal Government in other areas.

The package, of course, as widely predicted, includes the introduction of a 10 per cent Goods and Services tax. It will, of course, be known as a Goods and Services tax, or a GST, and that 10 per cent will be introduced to replace 10 other taxes. And those 10 taxes are, of course, the wholesale sales tax, which will be abolished in its entirety. And there will be Commonwealth and State taxes, the Financial Institutions Duty, the bank account debits tax, stamp duty taxes on business conveyancing, on mortgages, on shares and marketable securities, bills of exchange, cheques, promissory notes, bed taxes, which will be abolished, it’s part of the deal that they must go by the 1st of July in the year 2000. So it does represent a very straight-forward, simple, clearly defined, well put together, broad-based, consumption tax. The exemptions are minimal but important.

Local government rates and water and sewerage charges are exempt and we are going to use the description of ‘GST free’ to describe something that was previously described as zero-rated.

And health and education, childcare and a number of other things that are listed in the document, including regulatory charges such as motor vehicle registration fees, will be free of the GST. And there will be another category that will be ‘input tax’ which is the new description that we are bringing in instead of ‘exempt’ which is the equivalent description under an earlier document.

We think the Goods and Services Tax is a modern, fair tax. One of the great advantages of the introduction of the Goods and Services Tax is the way in which we can increase the dividend for honest taxpayers out of the black economy. And you can’t do that without a GST. You can’t get $3 billion out of the black economy over three years without a GST.

And the GST’s introduction has also paved the way for the introduction of new and simplified methods of collection of business tax…group reductions and the like, which are described in detail in the document.

The Goods and Services Tax will, of course, come into operation on the 1st of July in the year 2000 and, simultaneously with the introduction of that tax, of course, the personal income tax provision, which I’ve outlined.

I’ve already had a number of preliminary discussions with the Premiers and Chief Ministers and it would be the intention of the Government, if returned at the next election, to convene an early meeting of Premiers and Chief Ministers at which the Treasurer and I will outline in more detail the proposals that we have.

In the area of business tax we have made a number of decisions and we have set down a number of goals and objectives. The first thing that I should say about this package, so far as business is concerned, is that it reduces the cost burden of Australian business by an annual amount of $10 billion. What a lot of people still don’t understand is that the cascading effect on business cost of the existing wholesale tax and indirect tax system, you can’t get
them back – once you pay the taxes, you can’t get them back from the Tax Office, they go into your cost base. The advantage of a Goods and Services Tax is that you can get it back.

Could I just give you a simple illustration I have that will resonate with everybody in the room and that is that the savings for business in relation to petrol is worth seven cents a litre. Because seven cents a litre is the per cent, per litre equivalent of the 10 per cent GST. You can’t get that back now but you can with a Goods and Services Tax. So that is of an enormous benefit to business.

There’s a $4.5 billion cost saving for Australian exporters. And at a time when this country has, more than ever in its history, a need to do well by exporters, it is imperative that we take the load off the backs of exporters. And one of the tremendous advantages of this proposal of the Government’s is the way in which it reduces those business costs.

The Treasurer will be outlining to the Business Council tomorrow the way in which we intend to handle and review consultative mechanisms that are alluded to in the document with the business community.

We have the goal of moving towards a company tax rate of 30 per cent. Obviously in moving towards that there needs to be a consideration of some of the trade-offs that might be involved between achieving that goal and the maintenance of some of the tax preference arrangements that exist under the present legislation. And, quite plainly, different sections of the business community have different views on how that might be achieved.

We have indicated in the document our intention to move to an entity system of taxation, and that’s very important for the future of trust arrangements. We have outlined in the document some proposals whereby trusts, in effect, from the 1st of July, 2000, will be taxed in the same way as companies. Now, those changes are subject to certain provisions which strike, I believe, a fine and correct balance between the need to prevent the abuses that are occurring through the use of trusts but, by the same token, to acknowledge the contribution that those arrangements have made to the viability of many rural and other businesses throughout Australia. And the document details that balance that has been struck. And, in addition, the Treasurer is announcing today some specific measures which are targeted at particular tax avoidance practices using trusts. And we believe that those measures alone will enhance the revenue and make a very significant contribution.

We’ve also, in the document, outlined some of the goals that we have in relation to reform of the capital gains tax, that they once again will be brought up in the review consultation mechanism, about which the Treasurer will have more to say tomorrow. I might also mention in that context that one specific announcement that has been in relation to capital gains tax that will further liberalise the rollover provisions in relation to capital gains tax.

Ladies and gentlemen, it is neither possible nor desirable in a presentation such as this, with all of you having the full amplitude of the documentation available to you and, no doubt, a very keen desire to return to it, and also with what I can assure you is an excellent PowerPoint presentation that you are about to receive from the Treasurer, I don’t think it’s appropriate for me to go on any longer.

I am especially proud of so many features of this tax policy. It does, importantly, build further on the additional assistance to families which was contained in the Government’s Family Tax Initiative which we announced before the last election and which we introduced on time, in full, without deduction from the beginning of 1997. It will greatly enhance the choices available to Australian parents about the caring arrangements for their children.

There’s a lot of debate about this issue and there are a lot of false notions. The philosophy of the Government and the personal philosophy of the Prime Minister in this area has always been that maximising choice is the desirable thing. It is not the role of the Prime Minister or the role of the Government to stereotype a particular pattern of family behaviour or to say what families ought to do in relation to the arrangements of their infant children. It is the responsibility of the Government, within the bounds of fiscal capacity, to give maximum choice. And one of the features you will find as you absorb the detail of the new arrangements regarding family payments is that not only are they more generous, not only will we be achieving the consolidation of 12 payments down into three, not only will we be simplifying their delivery to the public by the establishment of a special family office, but they will particularly enhance the choices available to parents in relation to their young children.

And they will capture the need that many of us are very familiar with, of having a tax and welfare system that allows people to go from a situation of two parents in full-time work to one for a period of time and then one of those back to part-time work and then one of those, over another period of time, back into the full-time workforce.

And what we’ve tried to do with these changes is to maximise the choice, not to dictate stereotype but to maximise the choices that are available to parents in relation to those arrangements. And I think they will make a very healthy and a very welcome and a very positive contribution to achieving that particular goal.

Ladies and gentlemen, this is an immensely visionary taxation reform. We have confronted the need for root-and-branch change. We have not squibbed any of the difficult issues. We do not underestimate the extent to which our opponents will try to conduct a fear campaign.

We take a positive, hopeful, optimistic view about Australia’s future. We believe that properly explained, the Australian people will embrace a tax plan that is good for Australia and fair to them.

They are the two criteria, the two great tests. And applying those criteria and applying those tests, I believe that this plan passes both of them with flying colours. It will give Australia a new system, a better system for a new century. It will boost growth, it will boost jobs, it will improve fairness, it will generate greater incentive, it will improve the business climate, it will reduce the operating costs of business in country Australia. It will simplify and make more humane and sensitive the interaction between the tax system and the social security system, it will give a much needed boost to private health insurance. Overall, it is a tax plan for all Australians, and a tax plan that will be of enormous benefit to the future of our country and before concluding I would like to personally record my gratitude to my colleague Peter Costello, to the fine work that he has done in relation to the compilation of this package. Like all of these things they are team efforts, and as many of you know here, many of the things that I’ve canvassed this morning are issues to which I have committed in terms of policy change more than half of my political life, and I find in the launching of this plan this morning the achievement in a personal sense as well as in a political sense, a lot of the things that I’ve wanted to do. But you can never do those things alone, and I do appreciate immensely the commitment and personal skill that Peter has brought to the effort and I’d also like to take the opportunity of warmly thanking the members of the Treasury taskforce chaired by Dr Ken Henry who’s seen many a tax package from both sides, and he’s handled himself with enormous professional flair and skill and also many others, Michael L’estrange and David Stevens from the Cabinet Policy Unit, and of course the irrepressible Arthur Sinodinos who is the head of my office and who has a great economic understanding. So to all of those people can I express my immense gratitude.

It is a moment of great excitement for me. It is a moment of immense satisfaction that we have been able to put together a plan that is good in the long term for the future of our nation and that is what public life is about, that is what doing things in politics is all about, and we are than happy to go the length and breadth of the country which I will start doing tomorrow to explain to the Australian people the benefits of this plan. We believe in it, we believe it is good, we believe it is fair and we believe it will deliver a better and a stronger and a happier Australian community.

JOURNALIST: Some of the States say they won’t cop this….?

HOWARD: Well I look forward to campaigning in the State of Queensland if Mr Beattie opposes this package. I can’t see that a State with it’s vast distances and its heavily decentralised population and its significant areas of strong provincial business, I can’t think of a State that will benefit more as a result of the transport measures that I’ve announced today than Queensland. The effect of these measures will be to reduce transport costs by an average of 6.7%. The impact of the diesel changes and things associated with it will massively reduce the cost of transporting goods over long distances. And that in Queensland, given the structure of Queensland, is more important than any other.

JOURNALIST: What if they just say they don’t want it?

HOWARD: Well, I’m sorry I didn’t hear your question.

JOURNALIST: What if they just say they don’t want it?

HOWARD: Well I think they will. And can I tell you what will be happening. We will be going to the public with this plan and if we get the support of the public whenever the election is held, and I make no comment about that, we will expect the opposition parties in the Senate, whoever they may comprise, to let the plan go through because if ever an election campaign is going to have as a really major issue, the next election will have this tax plan as a major issue. It will be no side bar mandate issue. This will be right there slap bang in the middle.

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