Motor Trade Association: Interview with The Hon Peter Costello

 image: Sydney Morning Herald

Taxing Times: Interview with The Hon Peter Costello 

The Federal Treasurer Peter Costello recently announced that he would crack down on the State Government for double-taxing the people of Western Australian.  MOTOR spoke to him about this and the industry’s own double-dipping woes…

In A Nutshell:  The Federal Treasurer believes that with GST revenue far surpassing all expectations, the States need to now make good on their pledge to abolish the nine State taxes GST has replaced in accordance with the inter-governmental GST agreement signed by all States in 1999.

However, many States feel they have already met their obligations to the Federal Government, with many holding the view they have been ‘ripped off’ by the Treasurer and Democrats Leader Meg Lees citing him as ‘mischievous’.  NSW recently offered the Federal Government $1 billion to pay its way out of the GST deal, which was rejected, after refusing to cut stamp duties. 

On 1 July, the Treasurer announced he would put measures in place to force NSW and WA into honouring the GST agreement. Eric Ripper conceded his government would fully comply with the GST agreement with the abolition of the Bank Accounts Debits Tax.  He also said WA had already axed the Financial Institutions Duty and Stamp Duty on Quotable Marketable Securities.

On 7 July, WA State Treasurer Eric Ripper announced that there would be a new review of State taxes.

JSL:          

According to you, many Australians are currently being double-taxed by the GST as well as the taxes it was designed to replace. As you are probably aware from your meeting with Peter Fitzpatrick, the vehicle dealers of WA are also the victims of double-dipping by the State Government following the introduction of the new stamp duty Ruling on loan and leave vehicles on 1 July 2005. Can you provide a national perspective on this issue for our readers?

PETER

COSTELLO:      

 I am concerned about the tax burdens imposed on businesses and individuals by State and Territory Governments. The WA Government is projecting to collect $645 million in motor vehicle taxes in 2004-05 and $642 million in 2005-06, which is up 30 per cent since July 2001.  Across the Forward Estimates total tax revenue for WA is projected to increase from around $4 billion in 2005-06 to $4.6 billion in 2008-09, which is an increase of around 16 per cent.

JSL:            

Could you provide a brief synopsis on the issues surrounding the GST agreements with the States?

PETER

COSTELLO: 

In 1999, Australian Government, State and Territory leaders signed an Intergovernmental Agreement on the Reform of Commonwealth State Financial Relations (the IGA) which provides that all GST revenue is paid to the States and Territories.

The GST revenue for WA is forecast to increase from $3.8 billion in 2005-06 to around $4.4 billion in 2008-09. In the absence of further tax reform, this will provide a cumulative windfall above WA’s Guaranteed Minimum Amount of around $1.4 billion.  The GST was intended to replace a range of inefficient indirect taxes, one Commonwealth and nine State taxes, which were listed in the IGA. These State taxes were identified by the States themselves as undesirable on efficiency and equity grounds.

Originally, all of these taxes were to be abolished on or before 1 July 2001, with the exception of stamp duty on non residential conveyances of real property which was to cease to apply from a date to be determined by the Ministerial Council on the basis that no State or Territory would be worse off.  In order to get the GST legislation through the Senate, as part of an agreement with the Australian Democrats, some items were removed from the GST base meaning it raised less revenue. As a result the States would not receive enough revenue to abolish all these taxes by 1 July 2001 without being worse off.

It was therefore agreed that wholesale sales tax and accommodation (bed) taxes would be abolished on 1 July 2000, Financial Institutions Duty and stamp duty on quoted marketable securities would be abolished by 1 July 2001, and bank account debits tax abolished by 1 July 2005. All the other taxes would then be reviewed so that if GST was sufficient they could then be abolished.

Over six years from 2004-05, anticipated GST revenue payments to the States will amount to around $243 billion, exceeding original projections. In the absence of further tax reform, it is estimated that this would result in the States receiving a windfall of around $17 billion compared to the amount they would have received under the former system of Commonwealth-State financial relations.  In light of this growing GST windfall, at the 23 March 2005 meeting of the Ministerial Council for Commonwealth State Financial Relations, the Australian Government proposed a timetable for the elimination of the majority of stamp duties listed under the IGA for the benefit of Australian businesses and families. 

On 20 April 2005, six States and Territories responded to the Australian Government with an alternative proposal on the timing and sequencing of the elimination of these taxes. Western Australia was not a party to this offer. It wants to keep the State taxes and the GST, which was introduced to replace them. The Australian Government is disappointed.

JSL:            

You announced on 1 July 2005 that over the next twelve months you would be putting measures in place to compel NSW and WA into honouring the GST agreement with the Federal Government. What sort of measures do you mean to use to force the WA Government into abolishing some of its taxes, and what are the legal ramifications of this move?

PETER

COSTELLO:  

 People in other States will not have to pay GST and the State taxes it replaces. The WA Government wants to double tax West Australians, unlike those in the Eastern States. The Australian Government wants to encourage the WA Government to protect West Australians against double taxation and give them tax relief that other Australians will receive.  A range of measures are available to the Australian Government to encourage the WA Government to abolish these taxes. However, as noted before, the Australian Government wants to deliver this outcome by agreement. It is premature, at this stage, to outline the response if the WA Government tries to maintain double taxation.

JSL:            

What would your message to Mr Gallop & Mr Ripper be at this point in time?

PETER

COSTELLO:     

 Everyone knows the GST was introduced to replace nominated State taxes. Six of the eight States and Territories have offered timetables for the abolition of IGA taxes. The WA Government is at present refusing to abolish the taxes that the GST is intended to replace and putting West Australians behind people in other States. No State can keep the GST revenue and the taxes it is designed to replace. Should the WA Government continue to double-tax its citizens, the Australian Government will introduce measures to encourage the WA Government to relieve the tax burden.

Motor Trade Association, 2005

Taxing Times: Interview with The Hon Peter Costello, Federal Treasurer

The Federal Treasurer Peter Costello recently announced that he would crack down on the State Government for double-taxing the people of Western Australian. MOTOR spoke to him about this and the industry’s own double-dipping woes…

In A Nutshell: The Federal Treasurer believes that with GST revenue far surpassing all expectations, the States need to now make good on their pledge to abolish the nine State taxes GST has replaced in accordance with the inter-governmental GST agreement signed by all States in 1999.

However, many States feel they have already met their obligations to the Federal Government, with many holding the view they have been ‘ripped off’ by the Treasurer and Democrats Leader Meg Lees citing him as ‘mischievous’. NSW recently offered the Federal Government $1 billion to pay its way out of the GST deal, which was rejected, after refusing to cut stamp duties.

On 1 July, the Treasurer announced he would put measures in place to force NSW and WA into honouring the GST agreement. Eric Ripper conceded his government would fully comply with the GST agreement with the abolition of the Bank Accounts Debits Tax. He also said WA had already axed the Financial Institutions Duty and Stamp Duty on Quotable Marketable Securities.

On 7 July, WA State Treasurer Eric Ripper announced that there would be a new review of State taxes.

JSL: According to you, many Australians are currently being double-taxed by the GST as well as the taxes it was designed to replace. As you are probably aware from your meeting with Peter Fitzpatrick, the vehicle dealers of WA are also the victims of double-dipping by the State Government following the introduction of the new stamp duty Ruling on loan and leave vehicles on 1 July 2005. Can you provide a national perspective on this issue for our readers?

PC: I am concerned about the tax burdens imposed on businesses and individuals by State and Territory Governments. The WA Government is projecting to collect $645 million in motor vehicle taxes in 2004-05 and $642 million in 2005-06, which is up 30 per cent since July 2001. Across the Forward Estimates total tax revenue for WA is projected to increase from around $4 billion in 2005-06 to $4.6 billion in 2008-09, which is an increase of around 16 per cent.

JSL: Could you provide a brief synopsis on the issues surrounding the GST agreements with the States?

PC: In 1999, Australian Government, State and Territory leaders signed an Intergovernmental Agreement on the Reform of Commonwealth State Financial Relations (the IGA) which provides that all GST revenue is paid to the States and Territories. The GST revenue for WA is forecast to increase from $3.8 billion in 2005-06 to around $4.4 billion in 2008-09. In the absence of further tax reform, this will provide a cumulative windfall above WA’s Guaranteed Minimum Amount of around $1.4 billion. The GST was intended to replace a range of inefficient indirect taxes, one Commonwealth and nine State taxes, which were listed in the IGA. These State taxes were identified by the States themselves as undesirable on efficiency and equity grounds.

Originally, all of these taxes were to be abolished on or before 1 July 2001, with the exception of stamp duty on non residential conveyances of real property which was to cease to apply from a date to be determined by the Ministerial Council on the basis that no State or Territory would be worse off. In order to get the GST legislation through the Senate, as part of an agreement with the Australian Democrats, some items were removed from the GST base meaning it raised less revenue. As a result the States would not receive enough revenue to abolish all these taxes by 1 July 2001 without being worse off.

It was therefore agreed that wholesale sales tax and accommodation (bed) taxes would be abolished on 1 July 2000, Financial Institutions Duty and stamp duty on quoted marketable securities would be abolished by 1 July 2001, and bank account debits tax abolished by 1 July 2005. All the other taxes would then be reviewed so that if GST was sufficient they could then be abolished.

Over six years from 2004-05, anticipated GST revenue payments to the States will amount to around $243 billion, exceeding original projections. In the absence of further tax reform, it is estimated that this would result in the States receiving a windfall of around $17 billion compared to the amount they would have received under the former system of Commonwealth-State financial relations. In light of this growing GST windfall, at the 23 March 2005 meeting of the Ministerial Council for Commonwealth State Financial Relations, the Australian Government proposed a timetable for the elimination of the majority of stamp duties listed under the IGA for the benefit of Australian businesses and families.

On 20 April 2005, six States and Territories responded to the Australian Government with an alternative proposal on the timing and sequencing of the elimination of these taxes. Western Australia was not a party to this offer. It wants to keep the State taxes and the GST, which was introduced to replace them. The Australian Government is disappointed.

JSL: You announced on 1 July 2005 that over the next twelve months you would be putting measures in place to compel NSW and WA into honouring the GST agreement with the Federal Government. What sort of measures do you mean to use to force the WA Government into abolishing some of its taxes, and what are the legal ramifications of this move?

PC: People in other States will not have to pay GST and the State taxes it replaces. The WA Government wants to double tax West Australians, unlike those in the Eastern States. The Australian Government wants to encourage the WA Government to protect West Australians against double taxation and give them tax relief that other Australians will receive. A range of measures are available to the Australian Government to encourage the WA Government to abolish these taxes. However, as noted before, the Australian Government wants to deliver this outcome by agreement. It is premature, at this stage, to outline the response if the WA Government tries to maintain double taxation.

JSL: What would your message to Mr Gallop & Mr Ripper be at this point in time?

PC: Everyone knows the GST was introduced to replace nominated State taxes. Six of the eight States and Territories have offered timetables for the abolition of IGA taxes. The WA Government is at present refusing to abolish the taxes that the GST is intended to replace and putting West Australians behind people in other States. No State can keep the GST revenue and the taxes it is designed to replace. Should the WA Government continue to double-tax its citizens, the Australian Government will introduce measures to encourage the WA Government to relieve the tax burden.

Motor Trade Association, May 2005

Gas: The Economic Alternative?

As petrol prices skyrocket around the country, many Australians are beginning to hunt around for fuel alternatives for their motor vehicles. As a relatively inexpensive automotive fuel, LPG Autogas is currently leading the way as an accessible and more economic fuel option to petrol.

LPG is also much more environmentally friendly. According to LPG Australia, there would be between 10 and 15 percent less greenhouse gases than petrol-powered equivalents from Autogas-powered vehicles. LPG also has 20 per cent less ozone-forming potential (a measure of the tendency to generate photochemical smog) and one fifth of the air toxic emissions.

According to the Australian Institute of Petroleum, there are approximately 250,000 vehicles in Australia currently running on LPG, with more than 3,500 service stations selling it. Estimates are that exhaust and evaporative greenhouse emissions are approximately 15 per cent lower from LPG than from petrol vehicles, and it does not need lead or other additives to boost its octane rating. When converted to a gas, LPG expands up to 270 times. This means that the liquid form is a very efficient method of carrying large amounts of gas, and hence more economical than petrol.

In Sydney and Melbourne recently LPG was selling at an average of 40 cents per litre compared to the average price of unleaded petrol at $1.07 per litre. According to LPG Australia, at that price a Holden Commodore driver traveling 20,000 kilometres a year on Autogas would save $1,145 – the equivalent of $22 per week.

Possibly inevitably, oil companies are finally beginning to recognise the advantages of fuel alternatives that are economically as well as environmentally friendly for consumers. Shell have just announced that it would progressively phase out the supply of lead replacement petrol (LRP) throughout their Australian service stations by mid 2005 due to a sharp decline in demand. BP is also in the process of phasing out LRP, estimated to be completed in the second half of 2005.

In line with the phase-out of LRP and for those people who have been caught out, a new product called Nulon Lead Substitute is available which allows drivers to safely use either standard unleaded or premium leaded petrol in their leaded-fuel engine.

Following the phase-out, the Government has promised that LPG will remain excise-free until 2011, when a $1,000 rebate will be paid to motorists who purchase a new Autogas-powered vehicle. After this date an escalating excise will apply. The high establishment costs to convert motor vehicles to LPG have also been eased by the Government offering a $500 subsidy for private vehicles. To date, there are an average of 1,500 subsidy claims per year.

"Autogas has always been much better value than petrol. However the current upward trends in petrol prices should prompt motorists to again consider the potential savings to be had by running their car on Autogas," said LPG Australia's industry development manager, Phil Westlake.

Pat Browne from Pebco is used to being inundated by enquiries for gas conversions every time there is a price hike in petrol.

“There has been a huge increase in the last couple of weeks,” says Pat. “We are getting 50-60 per cent more telephone calls right now than we were two months ago, which is estimated at about 6-10 calls per day. At the moment, we’re getting through two full gas conversions per week, which is all that we can handle right now with the other work we have”.

Despite the Government’s subsidy for private users, there still remains no subsidy for commercial or fleet vehicles, acting as a disincentive for businesses to convert their cars to more eco-friendly gas. Pat sees this refusal as completely unacceptable.

“I think it’s criminal that the small business sector cannot get a subsidy for its vehicles. I find it absolutely disgusting that one person is eligible for a discount and the next can’t”.