All Posts Tagged With: "taxation"

This is the full text of Treasurer Wayne Swan’s Budget Speech to the House of Representatives. Click the play button to listen to the speech:

On the first full day of the 2007 election campaign, the coalition has announced a tax package offering income tax reductions across the board.

A re-elected coalition government is proposing to reduce the number of tax brackets to four over a five-year period: 15, 30, 35 and 40 cents in the dollar. It proposes raising the tax-free threshold to $14,000 next year.

The tax cuts are worth more than $34 billion.

The aim of the restructure is to arrive at a tax-free threshold of $20,000 with the top marginal rate set at 40 cents.

The changes were announced by the Prime Minister, John Howard, and the Treasurer, Peter Costello, at a joint press conference in Canberra.

Listen to the joint press conference held by John Howard and Peter Costello:

This is the transcript of the joint press conference held by John Howard and Peter Costello.

HOWARD:

Well ladies and gentlemen the Treasurer and I have called this news conference today to do two things. The Treasurer will be releasing on behalf of the Government the Mid-Year Economic and Fiscal Outlook and he’ll also be announcing on behalf of the Government a five year plan for further major restructuring of the personal income tax system. It represents the first and certainly a major announcement in a series of announcements which are designed to lay out our plans to improve incentive for workforce participation, to provide the opportunity for people who are feeling cost of living pressures in the community to receive some assistance in dealing with those cost of living pressures; to remind the Australian community of our longstanding belief that you should have incentive in the tax system for effort, for risk taking, for workforce participation - that we believe work in infinitely preferable to welfare.

The tax cuts that are going to be announced and the plan outlined by the Treasurer are a series of tax and is a plan that is eminently affordable. It builds of course on the personal tax cuts contained in the last five Budgets. It gives substance to our assertion that we can further reduce unemployment, drive it down to a level closer to 3.5 per cent because the participation benefits arising from personal income tax reform are very, very significant.

This plan is all about further building and growing the Australian economy. It is about creating more, not less jobs. Unlike Labor’s anti-small business industrial relations system it will lead to more people entering the workforce and it will provide far greater incentive for people who are already there.

Finally, can I say that the economic picture to be outlined by the Treasurer in the mid-year review shows an Australian economy continuing to grow, continuing to perform exceptionally well. The tax reform plan, which is a detailed plan over a period of years, is entirely affordable and consistent with the Government’s objectives in relation to both inflation and interest rates. Treasurer.

COSTELLO:

Thank you very much Prime Minister. First of all I am going to outline the major changes in the mid-year review to what we had at Budget time. I am then going to explain our tax reform plan, which will take place over the next three years. Then I am going to lay out an ambitious tax reform goal for five years time, a goal of where we want to see Australia to be, world class with a competitive tax system and with a tax system which has been absolutely re-cast to enable this country to go for growth.

First of all, since the Budget we have upgraded our growth forecasts for both 2006-07 and 2007-08. Growth in 2006-07 was expected to be 2.5 per cent, in fact the outcome was three and a quarter. Growth in 2007-08 was forecast to be three and three quarter per cent, the new forecast is four and a quarter per cent.

As a consequence of this upgrading of growth and developments in the labour market, we have upgraded employment growth for 2006-07 and 2007-08. In fact in 2007-08 we have upgraded forecast employment growth from one and a half per cent to two and a quarter per cent. The consequence of that is that we now forecast in 2007-08 we will have on average 100,000 additional people in the workforce, higher than we forecast in the May Budget. That 100,000 additional people in the workforce, higher than we forecast in the May Budget, will lead to a growth in revenue for PAYG and increased receipts for superannuation because more people are putting money into superannuation and indeed returns are better. This is part of the story, as you know, of 2.2 million additional people in work since March of 1996.

The announcement that I make today in relation to the tax plan keeps the Budget in surplus above one per cent of GDP over the whole of the forward estimates. That is, this year, next year, 2008-09 and the two projection years out to 2010-11. As you know this puts Australia in a much stronger position than comparable developed economies in the world, all of whom on average in the OECD or the Euro area on average are in deficit, including the United Kingdom, the United States and Japan.

I now turn to the income tax plan which is being announced today. Prior to the reform by this Government of the income tax system there were four rates of tax, 20, 34, 43 and 47, with the top rate of tax commencing on your first dollar of income above $50,000. The effective tax free threshold for low income earners was $6,150. As a result of the announcement in this year’s Budget, our four tax rates, currently in the current financial year are 15, 30, 40 and 45 per cent. The 15 per cent rate goes up to $30,000. The 30 per cent rate which replaced rates of 34, 43 and 47 applies right through middle income areas. People go onto the second top marginal tax rate at $75,000 and the top marginal tax rate for each dollar over $150,000. The effective tax free threshold for low income earners in this financial year is $11,000.

The tax plan which I announce today will next financial year do a number of things. First of all it will lift the effective tax free threshold for low income earners to $14,000 from the current level of $11,000. Secondly it will extend the range of the 15 cent marginal tax rate from $30,000 to $34,000. Thirdly, and this has already been legislated; this is why it’s in blue, the legislated changes that have not yet taken effect will still take effect to increase the 30 cent threshold up to $80,000 and the 40 cent threshold up to $180,000.

That was legislated as part of our two part plan to apply from 1 July. The first part for low income earners, which was the increase in the effective tax free threshold and the increase of the 15 cent rate has already taken effect. That second instalment will take effect but with additional tax relief on the 1st of July for low income earners. The year after, in 2009-10, we will continue to increase the threshold for the 15 cent rate, taking it now from 34 to $35,000 and we will begin to reduce the top marginal tax rate and the second top marginal tax rate, each coming down by 2 cents.

The second top marginal tax rate coming down from 40 cents in the dollar to 38 and the top marginal tax rate coming down from 45 cents to 43 cents. By increasing the low-income tax offset we will also increase the effective tax-free threshold for low income earners to $15,000. The third year we will continue these reforms by again increasing the effective tax-free threshold in 2010 to $16,000 by taking the 15 cent threshold up to $37,000 and by cutting again, this time by one cent, the top marginal tax rate and the second top marginal tax rate. This plan is all to work towards the goal of tax reform which we now set ourselves. Within five years, by 2012-13, four tax rates 15, 30, 35 and 40. That’s why we keep reducing those top two tax rates.

Secondly the goal is to have 45 per cent of Australian taxpayers on a top marginal tax rate of 15 per cent or less. Thirdly to have 85 per cent of Australian taxpayers on a top marginal tax rate of 30 per cent or less. Fourthly, to have 98 per cent of Australian taxpayers on a top marginal tax rate of 35 per cent or less and fifthly, for low income earners who qualify for the low-income tax offset, no tax until they go over $20,000. This is goal we set ourselves over five years.

The plan that I have announced to be implemented in the next three years puts us well within striking distance of meeting that goal. It does it by lifting the effective tax free threshold in the stages I’ve described by reducing the two top tax rates in the stages I’ve described and by lifting the threshold for the 15 cent rate in the stages that I’ve described. Over the three years to 2010-11, as you can see, this will mean that we will have an effective tax free threshold that is for people qualifying for the low income tax offset, no tax until they go above $16,000. The reason we are doing this is to get more – encourage more people to join the workforce and to boost the capacity of the Australian economy. This is part of our go for growth strategy.

Treasury modelling shows that the tax reforms that we have put in place since 2000 have boosted, in a cumulative way, the number of people in the workforce by 300,000 and the changes which we announce today will boost the estimated workforce by around 65,000 people. Encouraging more people into the workforce, particularly by reducing their tax – effective tax free threshold, and particularly by lifting the threshold up until you which you pay 15 cents in the dollar, is boosting the number of people joining Australia’s workforce and this is producing a virtuous cycle. Lower tax encouraging more people into the workforce, more people into the workforce lifting the number in work, increasing the number in work, boosting revenues, boosting revenues allowing us to cut tax. Cutting tax, encouraging more people into the workforce.

These are the results that can be delivered from strong economic growth. This is where we have got ourselves after increasing employment by over two million in this country and this is where we can drive the agenda by increasing the workforce further.

Finally, you will see in the pack that I am about to reduce…to release that from the period of 2002-03 when we began regularly cutting tax, we have cut tax very substantially for people on low incomes. For people on $15,000 we will cut it out entirely. For people on $50,000 they will have a net tax cut which will reduce their tax paid from around $11,380 to $7,850. Let me emphasise: these tax cuts which began with the new tax system in 2000 have continued through our last five budgets and now have the aspirational goal which we announce today, have delivered tax cuts right across the income spectrum but the highest in percentage terms to the lowest income earners, in percentage terms. In dollar terms, of course, because they pay less, the dollar terms are not so great but in percentage terms they have, as a consequence, been the highest.

This tax plan is moving us towards a goal which we set today for a five year period. It will make the Australian taxation system competitive. It will boost employment, it will grow our economy and it is part of setting Australia up for the next generation. Now I’ll ask the staff to release both the mid-year review and the tax release in relation to the income tax cuts.

HOWARD:

Then we’d be happy to take questions. Could I just make one observation that encapsulates the incentive effects. By the year 2010, 65 per cent of women with children in the part-time workforce will face a top marginal tax rate of no more than 15 per cent. Now given that a very typical family employment formation is a full time husband in the workforce or a husband in the full-time workforce, and a mother working part-time, this is a hugely significant figure. 65 per cent by 2010 of women with children in the part-time workforce will face a marginal tax rate of no more than 15 per cent. That is one of the quite stunning implications of this tax reform plan. We’ll distribute it and then we’ll be happy to take questions.

COSTELLO:

Also, I ask my staff to give me a copy of the press release, I didn’t bring one. Please.

JOURNALIST:

Can I ask, what do the tax cuts cost?

COSTELLO:

Yes, the tax cuts cost $34 billion, roughly, over three years. If I can take you to the area where they are in the mid-year review, you will see them in the revenue measures on page 62. $7.1 billion in 2008-09, $10.9 billion in 2009-10, $15.9 billion in 2010-11.

JOURNALIST:

Prime Minister, why are you release the tax policy now? Why decide to go so early…

HOWARD:

Well the right time to release the tax policy is the time of the release of the mid-year economic review so that we are able to say immediately that these tax cuts are fully funded and it’s a very sensible, conservative, logical thing to do.

JOURNALIST:

Treasurer, (inaudible) consistent with the provision of decent services? Aren’t the polls telling you at the moment that people are keener on the government providing more services and they’re not too fussed about tax cuts?

COSTELLO:

Well can I make the point that the Government will provide decent services and is funding decent services. After this tax cut, as I showed you in my graph, the Budget will still be in surplus by the equivalent or greater of one per cent of GDP. That’s the goal that we’ve also set ourselves to deliver surplus Budgets. Now, we have a situation where we have increased revenue because of a surge in employment. The Government can either hang on to that revenue or return that revenue to taxpayers by building a more competitive tax system. I think it’s a matter of fairness it’s right to return it but also in order to build capacity and to get into this virtuous circle whereby you encourage more people into the workforce, you might be able to do it again in the future. That’s what we’re about when we go for growth.

JOURNALIST:

Aren’t you pumping an enormous amount of money into an already overheated economy, or overheating economy?

HOWARD:

No we’re not. These tax cuts are done in stages. They start with about seven billion from the first of July next year, a larger amount a year later and a still larger amount a year after that. But you’ve got to remember that the things that produce the revenue surge that we have also tell us that unless you return a significant portion of that by way of further tax relief, over time you are going to reduce the incentive for people to work and once you reduce the incentive for people to work you begin to reverse the very positive economic activity that we have at the present time.

JOURNALIST:

So you’re not concerned even though the MYEFO prediction for CPI (inaudible) from 2.5 per cent to (inaudible) closer to the top of the Reserve Bank’s…

HOWARD:

No we’re not because I’ll tell you…one reason why we’re not concerned is that we have an industrial relations system that in fact contains wage pressure. What would be of concern would be a return to a regulated centralised wage fixation system whereby wage increases in very profitable sectors in the economy such as the mining industry flowed through without lead or hindrance to other parts of the economy. You can go back to what Glenn Stevens has said and what Ian Macfarlane have both said that it’s different now then what it was, and the reason is that we have a decentralised wage fixing system.

JOURNALIST:

So you relying on WorkChoices and the wages system to contain inflation?

HOWARD:

Well I’m certainly pointing to the fact that one of the things that helps contain wage increases not based on productivity gains is a more flexible industrial relations system and one of the reasons why now as was the case three years ago that I can say that interest rates will always be lower under the Coalition than under Labor is that we are running a sensible industrial relations system and one that is not centralised and one that’s not regulated in the way Labor would propose. Labor’s industrial relations policy would be of enormous threat to the stability of inflation and thereby interest rates.

JOURNALIST:

(inaudible)

COSTELLO:

Look we have shown that the plan to be legislated to take effect over the next three years will keep the Budget in surplus at one per cent or greater. We’ve shown that in the mid year review. Now to go on and to complete the last two years of the five year goal will require the economy to continue to grow. If it continues to grow as we forecast it will, this will be capable of completion.

JOURNALIST:

(inaudible)

COSTELLO:

Well I’m very confident now that just as the Australian economy, we are forecasting, will continue to grow over the next three years, properly managed, properly managed will continue to grow and allow us to complete the last leg. I wouldn’t bet anything on it if there were a change of government.

COSTELLO:

Sorry can I just take this one first? Steve and then Tim.

JOURNALIST:

Treasurer, the $36 billion tax cut announced in the Budget, $36 billion, you got no bounce out of that. Are you concerned that there is a, perhaps a sort of complacency in the electorate and that you’re not going to get bounce out of this tax break?

COSTELLO:

I think we have an opportunity now to get the Australian tax system competitive. Competitive with other countries around the world and competitive in encouraging people to join it. This is serious reform. This is a five year goal which as you saw will have, what was it, 98 per cent of Australians on a top rate of 35 cents or less. This is a goal that would have low income earners paying no tax until they go above $20,000. Now I’ve shown you how in three years we can get very close to that goal and I have every confidence that we can complete it in the two years thereafter. Now I think Australians do want help with their cost of living pressures, yes of course I do, and this will deliver tax cuts for every Australian taxpayer. That’s good. But also this will deliver Australia an internationally competitive personal income tax system. When you think of where we’ve come in modernising indirect tax, in modernising capital gains tax, in modernising company tax, in the landmark reforms of superannuation, to be able to deliver this in personal income taxes is a great reform and it’s going for growth. Sorry, Tim was it?

JOURNALIST:

Ah yeah, I just wanting to clarify, the three stages you spelled out (inaudible)

COSTELLO:

That’s exactly right. The plan is for the next three years with the rates and the thresholds as they will be on the first of July for each of the next three years. The goal is for two years after that and if we implement our plan then that goal will be well within delivery.

JOURNALIST:

5000 jobs, you mentioned, that’s three years or …

COSTELLO:

Yes that’s if I can take you to the, it’s chart three in the press release, Tim, on page four.

JOURNALIST:

Treasurer, are you confident that these….that you will be able to keep to that three year schedule if there were a fall in commodity prices?

COSTELLO:

Well the mid year review sets out all of our assumptions. The mid year review also includes an assumption about a return to more normal commodity prices in the projection years. So we built in an estimate which is very prudent.

JOURNALIST:

Prime Minister Howard, $34 billion isn’t a bad opening up on day one, are you challenging Mr Rudd to say me too?

HOWARD:

Mr Rudd can respond in any way he thinks fit. I would just make the point, Mark, that this is a very carefully thought through affordable, detailed and serious plan about further major tax reform and I’ll just make the additional point that we’ve heard a lot from Mr Rudd and you mentioned him, I didn’t, but we’ve heard a lot from Mr Rudd about cost of living pressures. We’ve been promised inquiries and we’ve had stunts and we’ve had shopping centre visits, but rather than try and fiddle with a committee on prices, isn’t it better to give people additional purchasing power via a tax cut. Isn’t it better to say well here is additional tax relief particularly for low income people, let them decide how they spend it rather then the government fiddling with a housing affordability policy which might add to the cost of buying the first home? Isn’t it better to do this rather than to fiddle with the excise on petrol which can be wiped out with some kind of variation in the world price of crude oil. I mean the infinitely fairer, economically more responsible way of dealing with cost of living pressures is to actually give to the average taxpayer the wherewithal to deal with the pressures in the way that he or she thinks fit; not for the government to say well we think that pressure is worth relieving but that pressure over there is not deserving of relief. That is the case for across the board tax relief, the cost of living argument in favour of across the board tax relief quite apart from the workforce participation and long-term capacity building benefits of lower rates of tax.

Yes you’ve been trying, Mr Coorey has been politely and desperately trying.

JOURNALIST:

(inaudible) does that mean you’re not going to have a housing affordability policy?

HOWARD:

No it doesn’t mean that, just listen carefully; what it means is that we’re not going to embrace policies in any of these areas that actually aggravate the problem. And, I mean, the problem of housing is that over a period of time is land has become far too expensive and that flows from a number of things and it’s much harder now because of that to buy your first home but you don’t solve the housing affordability problem by doing things that further increase the cost and the price of housing. But that doesn’t mean to say we will remain silent on the issue, don’t think that for a moment.

JOURNALIST:

(Inaudible) the mid year statement. Both of you have been calling on Kevin Rudd for the last few weeks if not months to put out his tax policy. Wouldn’t it have been irresponsible if he’d one if before this statement was available?

HOWARD:

No, not at all, not at all because he’s had 11 years or his party has, to produce a tax policy.

JOURNALIST:

Mr Howard, how do you respond to Kevin Rudd’s challenge today that you outline the further reforms you’ll make to WorkChoices if you win?

HOWARD:

Well I haven’t outlined any further changes. I regard the current state of WorkChoices and the industrial relations legislation as right. We brought in a Fairness Test and we don’t have any secret further changes to WorkChoices in a drawer or in our pocket or on a computer or anywhere. We think we’ve got the balance right. We’re concerned that if he wins, particularly small business will suffer because he’s going to bring back the dreaded unfair dismissal laws that will send our falling unemployment into reverse. I mean, you can bank on this, if Mr Rudd becomes Prime Minister, unemployment will go up.

JOURNALIST:

The Labor Party has been suggesting that you would like to go further on…

HOWARD:

Me?

JOURNALIST:

That Mr Costello would like to go further on WorkChoices. Can you guarantee that if the Prime Minister retires and you’re elected Prime Minister that you, or that are, you become Prime Minister without being elected that you are not going do further…

COSTELLO:

I can guarantee you that I thoroughly support our current policy, absolutely, absolutely.

JOURNALIST:

It’s a rather different thing though.

COSTELLO:

Well whatever you would like me to say Michelle, I’ll say because you know, I think I’m making it entirely clear. I thoroughly support the policy, I don’t believe that it requires changes. Is that enough?

JOURNALIST:

But can you, can you definitively rule out…

COSTELLO:

Yes, I can.

JOURNALIST:

What was the gestation period for this tax policy? When did you start working on it and does it constrain in any way your ability to make other spending promises…

HOWARD:

Who’s that question directed at? Peter?

JOURNALIST:

Well whoever would like to answer it.

COSTELLO:

We’ve been working on this tax policy for a long time, you know, you don’t just produce a book like that overnight. There’s a lot of work and the detail is in there and it’s fully costed and it’s fully paid for and after it’s done the Budget is still in surplus by one per cent or greater of GDP. Now, we believe that a surplus of around 1 per cent of GDP is responsible economic policy. So that’s how we’re going into this election. I don’t know what Mr Rudd thinks, but that’s what we have laid down, that’s what we believe. We think that’s consistent with Budget policy and we have done that consistent with this aspirational tax plan.

JOURNALIST:

Treasurer, why have you left the top personal rate even at the end of your aspirational period, well above the company rate?

COSTELLO:

Well it will be 40 per cent Paul. The company rate is 30 per cent, the gap is narrowing. When I became Treasurer the top company tax rate was 36 and the top tax rate was 47. So they both will have come down by six or seven per cent, they’re both lower now…

JOURNALIST:

But the argument many economists put up is that they should be in line for reasons…

COSTELLO:

Yeah well, I think there was a period…

JOURNALIST:

…tax avoidance and other things…

COSTELLO:

Well I’ll just make two points…

HOWARD:

We’ll have total nirvana one day, in 100 years.

COSTELLO:

I’ll make two points. I think once, for a very short period of time they were aligned in the 80’s if my memory serves me right at something like 46 or 48 per cent, so alignment is not the point, competitiveness is the point. The second thing I’d point out to you, of course, is that with full dividend imputation now, any dividend that comes out of a company gets a full 30 per cent rebate and you pay the difference. If your tax rate is lower you actually get the difference back and that’s something that this government introduced Paul.

JOURNALIST:

Treasurer, after this announcement today, how much more have you got in the kit to spend during the campaign to keep that surplus at 1 per cent GDP.

COSTELLO:

Well you can examine the figures but you’ll find that this is costed, funded, responsible and we still have a surplus and, you know, can I point out to you there aren’t that many other comparable countries in the world that are where we are. Certainly not America, not Britain…

JOURNALIST:

So how much more have you got to spend in the campaign?

COSTELLO:

…not France, Germany, Europe, Japan. This is a pretty responsible position to be in and not only do we have a Budget surplus, we’ve cleared Commonwealth debt which is now saving the Australian taxpayer $9 billion a year.

JOURNALIST:

So how much more can you spend to keep a surplus of 1 per cent GST?

COSTELLO:

Well as I said to you this is a responsible policy.

JOURNALIST:

Will you be addressing business taxation separately in this campaign or do you think this…

COSTELLO:

Well I think business would support these reforms and I’ll tell you why. One of the things you’ll hear from business these days in some parts of Australia is they can’t get enough employees. There are some businesses that cite labour shortage as their number one problem. Now if you increase the effective tax free threshold and if you make sure that lower income earners won’t face a rate higher than 15 per cent you’re encouraging more people into the workforce. If you reduce your top tax rates, and this will reduce it, lower than the OECD average, you make your country more attractive for skilled immigrants, people who can bring particular skills from all around the world. And I think business will like this because this is an economic plan. This is about building capacity and the point as I said earlier you wouldn’t be able to do this if we didn’t have an extra 100,000 people in work. If you can get another 100,000 extra people in work in a year or two years time these are the sorts of things you can do again.

JOURNALIST:

You say that you’re increasing, you would increase household spending power through this which would help with petrol bills etc, but what about things such as schools and hospitals Isn’t there an argument this money would be better spent on capital works like that?

HOWARD:

Well, we are in favour of more investment in both education and health and we’ve announced it. I mean, the implication, I don’t think you really mean it but a possible implication of your question is that we have neglected those areas.

JOURNALIST:

Well hasn’t spending been cut on public hospitals?

HOWARD:

No, it hasn’t been cut, no spending’s been increased. It’s been increased, and it will be, can I tell you now, we will if we’re re-elected, we will be investing more in the Australian health care agreements, we’ll provide more money for public hospitals around Australia in the next five year health care agreement than is provided under the current one and that is quite apart from all the measures we’ve taken to strengthen Medicare, the safety net and the like. But we’ll also be requiring better administration. I mean, you don’t solve the public hospital crisis of New South Wales by giving Reba Meagher more money to spend unless you’ve got a better regime. I mean, you know really, if I could just say in relation to this how anybody living in western Sydney would contemplate voting Labor federally when they see the mess that Labor at a state level has made of public hospitals and public transport in New South Wales for example, you know, completely and utterly escapes me. We believe in local control for public hospitals and one of the conditions of our policy when it’s announced in detail, and there will be a detailed policy on public hospitals to be released by the Coalition, we will encompass the issue of local control.

JOURNALIST:

Mr Howard, would you describe this tax policy as your, as the lynchpin of your re-election bid?

HOWARD:

Look, that is commentary. What this is, is a bold plan for Australia’s future to keep our nation growing, to give people incentive to work, to maintain the transition towards an opportunity society where people are encouraged to work harder and to take risks. I mean, that’s what I’m interested in and I’ll leave lynchpins and cornerstones and forks and all of those other things that, you know, and committees and commissions, you know I’ll leave all of that to somebody else. Yes?

JOURNALIST:

You did say a couple of months ago that you had no more rabbits to pull out of the hat. Has one just re-appeared on day one of the election campaign?

HOWARD:

Look, that’s, you were inaccurately briefed out of a party room meeting.

JOURNALIST:

Just on who this policy was in part aimed at women who work part time. Do you believe that the incentives haven’t been there? Is this an admission that it’s not working for some families?

HOWARD:

When I say, it wasn’t, I mean it’s aimed at everybody but one of the spectacular, stunning, consequences of this is that remarkable figure I gave you, that 65 per cent of women with children in the part time workforce by 2010 will be on a marginal tax rate of no more than 15 per cent. Now when you bear in mind that, you know, a very typical family arrangement now is the father, the husband working full time and earning at or near or above AWE and his wife in the part-time workforce, now what I am saying is 65 per cent of those by 2010 will be on a marginal tax rate of no more than 15 per cent. Now that is an amazing reform and it is a contemporary modern reform that recognises that nature of family arrangements. I think it is terrific.

JOURNALIST:

Is that how you plan for them to have more money to spend on childcare or do you think there’s still room for more childcare reform?

HOWARD:

Look, I am told that on average about 65 per cent of the cost of childcare is defrayed by various government payments and tax benefits. It is about 65 per cent. Now you can always argue that it should be more but, you know, there are arguments and we will have something to say about childcare during the course of the campaign. But what I am saying about this is that it does provide an incentive for part-time workforce participation and many parents now want a situation where Dad is full-time in the workforce and Mum is, thinks the right thing in order to balance work and family responsibilities is to go back to work part-time, not full-time and that is an increasing formation. The point I am making is that this is facilitatory of that, this encourages that, supports that choice and isn’t that a terrific thing?

JOURNALIST:

Treasurer, you’ve announced, in the 06-07 budget the surplus was 1.7 per cent of GDP. You’re bringing it down to 1.3. You’ve announced about $16 billion worth of spending since the Budget and you haven’t gone through the Budget (inaudible) campaign promises. How can you argue that none of that is inflationary and an economy running at close to capacity as Glenn Stevens has repeatedly pointed out?

COSTELLO:

Well if you go to page 255, the Budget outcome in 2006-07 was 1.6 per cent of GDP. In 2007-08 we are expecting 1.3 per cent. In 2008-09, 1.2 per cent. 2009-10, about 1.4 per cent. That is remarkably consistent. The movement from year to year is very small indeed. And I would make two points. One is, of course, that if we didn’t cut taxes for all Australians, your tax to GDP revenues would rise, would rise, and we are not about increasing tax to GDP revenues, we are about decreasing them. The second is that this is part of building capacity. I saw a survey the other day, I can’t quite remember which one it was, but business was asked to name the number one problem for small business and they said labour shortage. What business is telling you is what is constraining our capacity now is getting people to fill the jobs. Now, where are we going to get people to fill the jobs? I am encouraging Australians to have more kids. That might help in 20 years time but we have got to encourage people to join the workforce. And what better way of doing that than increasing the effective tax free threshold and then increasing the threshold at which you are only taxed up to 15 per cent. And if you have a plan where you are not going to go above 15 per cent as your top marginal tax rate to $37,000, this is what the Prime Minister was saying, many women coming back into the workforce working a day or two, they won’t go above $37,000. So their top tax rate won’t be their average, their top tax rate will be 15 cents in the dollar.

JOURNALIST:

But isn’t the more pressing issue the skills shortages problem and this won’t go towards that will it?

COSTELLO:

Well let me say the Government is doing more to build skills in Australia than any other government in Australian history, including the announcement which I made in the Budget by the way, of the $500 voucher against TAFE fees and the $1,000 wage subsidy to encourage people to take up apprenticeships in areas where there are shortages. And the other point I will make about this tax plan is that one of the reasons why we are reducing those top rates from 45 down to 42, and our goal is to go low as you know, is again, in the world market for skilled people these things count. They can make a difference and this will take us below the OECD average for the top marginal tax rate.

JOURNALIST:

Treasurer, how much do the tax cuts cost over five years and given the history of previous administrations promising LAW law tax cuts what guarantee can you give of the tax cuts coming through…

COSTELLO:

Well, the tax cuts which we are introducing are fully paid for. And when you say, you know, given previous records of previous administrations, let’s call a spade a spade, given the Labor Party’s broken promises on tax, can you believe the Coalition? The answer is ‘yes.’

HOWARD:

We haven’t taken any back.

COSTELLO:

Never. In fact, as I recall the last lot of tax cuts were in May of this year. Rather than taking them back, we are actually taking them forward.

HOWARD:

Last question. Katherine.

COSTELLO:

Katherine.

JOURNALIST:

You’ve done a lot of work as Treasurer Mr Costello on (inaudible). Are both of you confident that you’ve got the balance right between dealing with the participation problem now and dealing with future pressures on (inaudible)?

COSTELLO:

Well I am, because I think this is a much better tax system. This is really going to be a competitive tax system. We couldn’t have done this before. We can do this because our economy has grown, more people are in work. And I have no doubt that Australia will be a stronger and more sustainable place with a competitive, an internationally competitive tax system. This is what we are about, these are the fruits of good economic management and this is the plan for further reform.

HOWARD:

Can I just add to that we as a Party actually believe and hold to the philosophy of lower tax. And I was asked a moment ago what the gestation period of this was, in a sense, we never stop thinking about tax relief because we think that there is an obligation on a government, where it has the opportunity to do so, to return people’s money to them by the way of tax relief. Thank you.

COSTELLO:

Thank you.

This is the text of the press conference held by the Prime Minister, John Howard, and the Treasurer, Peter Costello.

It follows the Premiers’ Conference which reached a new agreement on Commonwealth-State financial arrangements.

PRIME MINISTER:

Ladies and gentlemen, today we have had an extraordinarily successful Premiers’ Conference. We’ve reached agreement on all outstanding matters relating to the financial agreement between the governments which has now been signed, sealed and delivered. And the last act in the dramatic transformation of Australia’s taxation system and the last deed required to take this country into the 21st Century with a financial and taxation system fit for the 21st Century is for the Australian Senate to take heed of what the governments of Australia, the Federal Government and the six State governments and the two Territorial governments of Australia have done.

It was a very good meeting, there was a bit of give and take. The Commonwealth was able to go part of the way in relation to the Queensland situation. We agreed with a number of the State requests in relation to the disputed items. We did not agree with one major request relating to the fringe benefits tax because that did not involve as alleged by the States any diminution at all of the goods and services tax. Overall it was an outstanding result. It speaks volumes for the constructive character of these meetings when they are backed by a decision of the Australian people. As one of the Premiers said today, the Federal Government has a mandate to implement taxation reform and of course we do. And the Premiers were recognising that and that is why they signed this agreement. But it would be wrong of us, of either of us, to discount the historic character of today’s agreement. This is the largest single transformation of Commonwealth-State financial relations at least
since the end of World War II.

One of the ironic things to me about this whole tax debate is that the GST is the most pro-welfare sector tax system that this country could ever have. Because it’s through the GST going to the States that for the first time the States will have enough money to fund all of the services that they want to fund.

The other item that I’d like to mention is drugs. The Commonwealth has offered a new $220 million drug programme over a period of four years. This is over and above the $290 million under the Tough on Drugs strategy that I have progressively released over the last couple of years. The biggest single item in the new programme is a diversion strategy whereby the Federal Government will fund, we calculate up to 300,000 treatment places over a period of four years as part of a diversionary programme whereby people who have been apprehended by police that are not judged to be people who would benefit from going through the criminal justice system are offered the opportunity of going into treatment. And if, we believe that if we can through this approach divert a large number of those people into treatment facilities that will not only be of enormous long-term benefit to them but also to the community. The Commonwealth will provide the money, we will fund the places, the States and Territories will provide.

But it represents new money of $220 million over and above the $290 million which now takes to over $500 million the additional Commonwealth Government commitment to the war against drugs. We don’t argue for a moment that it provides all of the solutions but it will be another important building block. We have also indicated that we will to the best of our capacity at a federal level fast track the National Health and Medical Research Council consideration of the listing on the pharmaceutical benefits scheme list of Naltrexone and also when an application is made in relation to Buprenorphine we will adopt the same approach as well. That is the drug that has been mentioned by Mr Beattie, the Queensland Premier. And the Victorian Premier placed on the table for consideration by governments, and it will be a matter to which we will return later, the proposal to establish a national institute in relation to depression.

Overall, the drugs component of the conference was equally constructive. There’s a genuine desire Commonwealth and States across party lines to focus on our many common points of agreement and to make a further contribution towards fighting the scourge of drugs within our community. And I am particularly pleased at the very co-operative attitude displayed by everybody in relation to that.

JOURNALIST:

Mr Howard you mentioned give and take with the States on the tax deal. Are you ready to extend some give and take to the Senate in the form of enhancing the compensation package?

PRIME MINISTER:

Well, we think the compensation package is good. We think it has stood the test of scrutiny and examination and we look forward to the debate starting.

JOURNALIST:

Mr Howard can you guarantee that pensions under the GST will always be higher than they would otherwise have been without the GST?

PRIME MINISTER:

Well, I can repeat the guarantee that I gave in the election campaign and the guarantee on which we were elected and that is that under our arrangements people receiving the pension will always be in real terms 1.5 per cent ahead of the CPI. That was the guarantee I gave in the election.

JOURNALIST:

What about in relation to male average weekly earnings?

PRIME MINISTER:

Well, you know the arrangements in relation to male average weekly earnings. You know that as a result of our legislation there was a guarantee under that legislation that it would not fall below a certain percentage of male average weekly earnings and that’s always been the case. If as a consequence of the action of our proposals and our commitment pensioners are even better off, well that’s good.

JOURNALIST:

Is your drugs policy predicated on zero tolerance especially in schools?

PRIME MINISTER:

Look our drugs policy is not predicated and never has been predicated upon a particular description. Everybody around that table today is united in the view that there is no place for drugs in the schools in Australia, and that we will give the principals, the parents and the school communities every support in pursuing that objective. Some people like myself call that zero tolerance. Others might call it something else. But the name is not as important as the commitment, and the commitment is that there is no place for drugs in our schools full stop.

JOURNALIST:

On radio this morning you spoke of an element of compulsion for this treatment…

PRIME MINISTER:

Yes there is. There is an element of compulsion. I mean what happens is that if somebody is apprehended they have to be assessed. They might then decide not to comply with the, or enter into the treatment to which they have been assessed. But of consequence of that could be that they slip back into the criminal justice system.

JOURNALIST:

Mr Costello how important was your conversation with Senator Colston in arranging the extra money for Queensland and how important do you think your future dealings will be with him in terms of arranging passage of the GST legislation?

TREASURER:

Well it’s very important. Senator Colston had previously made representations to us concerning additional funds for Queensland. He’s a Senator from Queensland and I think he’s got the interests of Queensland at heart. I rang him again this morning. We had a discussion about compensation. He put his view to me and as it turned out the Commonwealth and Queensland compromised. Queensland had been seeking an additional top-up after the first year and we agreed to give a top-up after the second year. And so we met the Queensland demand half way. But Senator Colston was very important to that and I recognise the submissions that he made and they proved very successful, very good for Queensland if I may say so today.

JOURNALIST:

And what about the future of the GST? Did he express or do you expect to discuss with him any question of compensation for the poor under the GST plan?

TREASURER:

Well I think Senator Colston’s made the point before, that he respects the Government’s mandate in relation to GST. By the way it wasn’t just Senator Colston. Premier Beattie made the same point today. He accepts the Government’s mandate in relation to GST. We went to an election. We received a mandate and those people that recognise the outcome of elections, and that governments ought to be allowed to govern on the basis of their policy recognise that. And Senator Colston’s made that point previously I believe.

JOURNALIST:

Treasurer, the States, Premier Beattie…

PRIME MINISTER:

Speak up George. I can’t hear you and I always like to know what you’re saying.

JOURNALIST:

You said Peter Beattie respects your mandate but that still didn’t stop you from kicking in a bit of extra money. The Senate, even if it did respect your mandate, would be demanding extra compensation. Is that now the reality that we are in? That having compromised with the States, that we are looking at some sort of compromise with the Senate to get the package through?

TREASURER:

Let me make the point about Queensland’s claim. Queensland’s claim was that the GST revenue ought to be distributed on a pure horizontal fiscal equalisation basis which would deliver them a bonus over and above the minimum guarantee, the current system. And they said that they should be entitled to that from the beginning. Our argument was that that money should be used to make the minimum guaranteed payment to the other States and that for the first three years any bonuses should be redistributed into the pool. Now we came to a compromise with Queensland so that Queensland gets the benefit after the two years. It wasn’t fully what they were seeking but it was a compromise. Now you’re asking about the Senate and compensation. The first point I make, and I think the Prime Minister said it, the Senate is the States’ House. It would be a funny day wouldn’t it if the Senate tried to vote down something that’s just been agreed by the Commonwealth’s six States and two Territories. And you may well ask…

JOURNALIST:

But on their assumption, pensioners get 30 cents in some cases.

TREASURER:

Well depending on the assumptions you make George, but I think I’m right in saying, and I think this has been accepted by Warren and Harding, and by anybody that’s looked at it, on all reasonable assumptions, under tax reform all identified category and classes are still winners - are still winners. In other words if tax reform were defeated they would go backwards. Now I know there are a lot of arguments that got around about additional compensation but that’s sort of premised on the fact of identifying people who would be worse off. We have still not, and none of our political opponents, and none of the modellers, have yet identified a category of person that is worse off.

JOURNALIST:

So are you ruling out additional compensation, Mr Costello?

TREASURER:

I’m saying that no additional compensation is required if all categories of person on all possible analyses, with all reasonable assumptions, are still winners.

JOURNALIST:

Does that mean you are ruling it out?

TREASURER:

Well I gave you the answer …

JOURNALIST:

At least three of the States are reviewing National Competition policy. Do you view that with favour and what is your concern about it?

PRIME MINISTER:

It wasn’t discussed. Nobody raised it with us.

JOURNALIST:

Premier Beattie…

PRIME MINISTER:

Well he didn’t raise it. I mean people can always, you know, have reviews in their minds and amongst themselves but they didn’t raise it with us.

JOURNALIST:

How much is the total value of the compromises you had to give today to get the States on board. They were asking $800-odd million, was it a figure of $600-odd?

PRIME MINISTER:

Nothing like that.

TREASURER:

The largest item of the claim from the States was a claim on fringe benefits tax of $750 million over three years which is not accepted.

PRIME MINISTER:

But look, can I just say in relation to that - it was give and take. And one or two of the items that the States put forward had merit and we agreed to them.

JOURNALIST:

But how much did you end up giving?

PRIME MINISTER:

Much less than they asked for. The precise amount I don’t remember, Paul.

JOURNALIST:

Was it $819 million over three years?

PRIME MINISTER:

Well, I haven’t done the calculation. We agreed to give, I think it was about $70 million a year in relation to the local government and then there was a certain amount going to Queensland and there was some in relation to housing and the tax equivalent payments.

JOURNALIST:

Would it have been more than you expected?

PRIME MINISTER:

No. It was about what we thought - look, you may find it very hard to accept but we actually did try and analyse the merit of the argument. And there was some merit in the Queensland argument, some merit, not as much as Queensland claimed. There was certainly some merit in relation to the local government argument. There was no merit in relation to the fringe benefits tax argument, none at all. There was some merit in relation to housing and some in relation to the tax equivalent regime. So we are reasonable men and we settled in a reasonable fashion.

JOURNALIST:

Given that, then one could assume if there were any merit in the arguments put by the Senate you’d have a little (inaudible)

PRIME MINISTER:

Well, we had an argument about merit last October and we were judged the more meritorious of the two teams and that’s why we won.

JOURNALIST:

Given the defeat on FBT is Victoria the only State that’s lost?

TREASURER:

The defeat on FBT doesn’t produce any loss in Victoria.

PRIME MINISTER:

No.

TREASURER:

But the claim on FBT by the States was that because the gross up factor will be increased as a result of the GST, that revenue should go to the States and not the Commonwealth. The Commonwealth position is and was that fringe benefits tax, which is an adjunct to the income tax system, is a Commonwealth tax base and GST is a State tax base and that the States were not entitled to any of the proceeds off the Commonwealth tax base. That was that argument. The argument by Victoria that they haven’t done well is an argument in relation to the funding for 1999/2000. It’s not an argument about the distribution of funds under the new tax system. It’s an argument about the distribution of funds under the current tax system with the relativities as set by the Commonwealth Grants Commission. It’s the last argument of the ancient regime, that argument. And since they now have a guaranteed tax base in the future we don’t have to have those arguments anymore because they’ve got a guaranteed share of the goods and…

JOURNALIST:

Did Victoria go it alone on FBT or did the other States support…

TREASURER:

It was put forward this morning as a joint demand.

JOURNALIST:

Mr Howard, if the Senate continues to refuse to accept your tax package in its current form, now that the States have signed off on it, and if the Senate still refuses, will you consider a double dissolution election, now that you have the backing of the…

PRIME MINISTER:

Oh look, as I’ve said before, it’s not long since I was re-elected and I’ve got no desire to race back to the polls. I remain positive. I remain hopeful. I believe that today’s outcome sends a loud, unmistakable, powerful and emphatic message to the Senate - get on with it, do the will, do the bidding of the Australian people; do the will, do the bidding of the Australian States. I mean, if you can get Bob Carr and Jeff Kennett and Peter Beattie and Richard Court and John Olsen and Jim Bacon, all of them - three Labor, three Liberal - to sign up and to say this is the tax system for the new century, how on earth can the Senate hold out and preserve any sense of credibility. I mean, here you’ve got the most recently successful Labor leader in Australia, he’s offered Della yet again to visit Canberra…

TREASURER:

Which we accepted.

PRIME MINISTER:

Which we accepted. The most recently successful Labor leader in Australia, the two most recent leaders - I mean, Beattie and Carr have won elections and those who have lost elections on the Labor side should take a bit of notice of those who’ve won elections on the Labor side and they should heed their message. But we will just take the Senate in its stride. The debate starts soon. We’ll listen to the debate. We’ll talk to people. We believe the Senate should do the will of the Australian people and I have no intention of hypothesising and speculating about entirely hypothetical situations.

Thank you very much.

The Prime Minister, John Howard, has signed an agreement with State and Territory leaders to reform Commonwealth-State financial relations.

This is the text of a statement released by John Howard:

I am pleased to announce that Commonwealth, State and Territory leaders have today signed a landmark Agreement that will transform Commonwealth-State financial relations, as promised in the Commonwealth Government’s Tax Reform: not a new tax, a new tax system.

The Commonwealth has introduced legislation to provide all of the revenue from the GST to the States and Territories and to protect the rate and base of the GST in accordance with this Agreement. The Agreement will commence on 1 July 1999. As a further sign of the Commonwealth’s good faith, the Commonwealth will attach the signed Intergovernmental Agreement to the A New Tax System (Commonwealth-State Financial Arrangements) Bill 1999 and similarly the States and Territories will attach the Agreement to their legislation.

The new arrangements will provide the States and Territories with a stable and growing source of revenue to fund important community services. The States have committed to abolish nine inefficient taxes, removing their reliance on these distortionary and growth-reducing taxes and charges. The Agreement will also remove the States and Territories’ current reliance on Financial Assistance Grants.

In each of the transitional years following the GST’s introduction, the Commonwealth will compensate any State whose budgetary position is temporarily worse off. It has also agreed to more generous transitional arrangements from the third year. As GST revenue increases, all States will receive large financial gains, even after abolishing stamp duty on non-residential conveyances.

The Commonwealth has also agreed to provide further assistance to the States and Territories in relation to the effects on State and Territory budgets of the abolition of wholesale sales tax equivalent payments by Government business enterprises and to ensure that local government benefits fully from the removal of wholesale sales tax and excises on their purchases. It has also agreed to provide funding to meet increased public housing costs as a result of tax reform, subject to the resolution of the new Commonwealth-State Housing Agreement.

A Ministerial Council, chaired by the Commonwealth Treasurer, will oversee the operation of the Agreement. It will meet at least once a year. It is also envisaged that the Council of Australian Governments will meet at least once a year for Heads of Government discussions.