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.
