9 April 2015
Transcript - #2015075, 2015

Press Conference, Q & A Session following Council on Federal Financial Relations Meeting, Canberra

REPORTER:

I notice your comments yesterday about the fact that you prefer a consensus on the GST distribution, but you do have the powers that you could use. You could ask the CGC to do this and that. One suggestion from Mike Nahan has been that perhaps the growth of the GST, the natural growth of the GST could be temporarily distributed in a different way to allow WA to get beyond that three year lag which has that dreadfully high iron ore price, is that something you’re considering?

TREASURER:

There were many suggestions. Late into last night and also today. There was no consensus. I think most Australians would consider it unreasonable that a State would have a situation where only 30 cents of every dollar spent on the GST by its citizens are sent back to that State. Now, as I pointed out because I’m sure my State colleagues will regale you with many of my comments in the room. So let me be upfront about it.

Western Australia has been hit with a ‘perfect storm’ in that it is seeing a very significant and rapid fall in its GST appropriation. And at the same time it, like the Commonwealth Government, is being hit dramatically with a rapid reduction in iron ore prices. Now, Western Australia is locked into building infrastructure that is essential for what is significant population growth in that State. I fully recognise that. It was also pointed out legitimately by a number of States, that Western Australia has to undertake the sort of reform, domestic economic reform, that other States have undertaken. Such as, deregulating fully retail trading hours, or getting rid of a range of anomalies in business practices, or even perhaps undertaking the privatisation of poles and wires in the same way that New South Wales did. It has also been the case that Western Australia has consistently opposed the extension of the GST below the $1,000 threshold for imports. I got the clear impression, as did others, that the Treasurer of Western Australia accepts that there will need to be some reform in Western Australia to address the concerns of other States that have undertaken that very painful, politically painful reform. But at the same time, I think the fairness test would suggest that going to 30 cents in the GST per citizen is at the extreme end, and I released a table which I'm releasing to you as well on the GST relativities and the history of them.

REPORTER:

What will you do?

TREASURER:

Well, I have a legal obligation to consult and then make a determination.

REPORTER:

[inaudible] Tim Pallas just told us that during the discussion on the GST, that you canvassed the prospect of increasing the rate or base of the GST, it was a philosophical discussion he said [inaudible].

TREASURER:

I think Mr Pallas was confusing integrity measures with broadening the GST or increasing the rate. The integrity measures were in relation to what is emerging as an OECD consensus, that GST should be charged at the source, so a company providing intangible services into Australia, such as media services or so on, wherever they are located they should charge GST on those services. So there are some obvious ones of more recent times engaged in that, and without naming companies, I think you can work them out. And there are a number of those companies that are prepared to charge the GST on the services that they are putting into Australia, but they want to know that they are not at a competitive disadvantage. Now, the States agreed in principle that we should move in that regard. I have offered to work as quickly as possible with them to introduce legislation to address that in relation to intangibles. If you were to apply it to goods under $1,000 for low-value thresholds, that would probably be the appropriate system to follow as well, because there are now fewer providers of goods into Australia than there might have been two or three years ago. Therefore, you can identify those major providers of goods and therefore ask them to charge GST as well, so that there is competitive neutrality. I see those things as integrity measures for the tax base, not a broadening of the GST or an increase of the GST.

REPORTER:

It’s open to you to give Western Australians a one-off grant isn’t it? Are you intending to do anything like that?

 TREASURER:

From the Budget? From our Budget?

REPORTER: 

Yes. Go on.

TREASURER:

Well, you know, they always think there is a magic pudding. There is no magic pudding. I am concerned for the Federation about this. I think there are structural issues. Having said that, there were a lot of legitimate points made by other States in the debate, there were a lot of legitimate points. Particularly around the fact that they've suffered the same Dutch disease that Western Australia had said it had been affected by during the boom in the iron ore prices. There were also legitimate - each State had a legitimate point in one form or another. When you see the appropriation to individual States, some in 2015-16 are going to be arguably worse off than might have been expected if they had the same relativities as last year. This is a very complicated area. But some of them were arguing against receiving more money on the basis that they didn't want to change the Grants Commission process.

REPORTER:

It’s only Western Australia that wants the change?

TREASURER:

Well, I think there was, I won't put words in others’ mouths.

REPORTER:

Treasurer, on the GST integrity issue you talked about with media...

TREASURER:

Not just media.

REPORTER:

Yeah, but I presume it applies to buying a movie online and there may be no GST on it. Does the increase in the downloading of movies, and other media and other content from overseas, change the calculations in terms of the return to revenue from removing that low-value threshold?

TREASURER:

There is no doubt that there would be an increase in overall revenue if the GST were to applied right across the board to the delivery of information and licensing and so on over the Internet, as if it were delivered domestically. There would be an increase in the GST and, you know, it comes back into the tax net.

REPORTER:

Are you more inclined to actually tackle that issue of the low-value threshold?

TREASURER:

Western Australia has previously held out in relation to low-value threshold, despite the best endeavours of many, including Mike Baird. Western Australia has always held out on the basis that they would never support anything to do with the GST given that they receive only, the majority of it goes to other States. You would need to ask the Treasurer of Western Australia whether he continues to stand by that position. But, there is a difference between integrity measures and broadening and increasing the GST, I mean there is a clear difference. We have an obligation to offer the States further integrity measures in relation to the collection of a tax that goes to them. We offered that, in fact there was an agreement to increase the resources of the Australian Taxation Office to give them the ability to collect more GST from people that might be involved in the cash economy outside of the GST net. So, we’re all working on it, but the integrity measures are very important and I detected a slight change in attitude.

REPORTER:

Treasurer, a couple of the State Treasurers have suggested it would be quite extraordinary for you to move outside the findings of the Grants Commission to favour one State, to favour West Australia. That in effect, it would change the rules of the game that they had to put up with when it was negative for them. Do you agree that for you to do that would be that extraordinary and it would in effect amount to a changing of the rules of the game?

 TREASURER:

Well there’s two issues there. It hasn't happened since 1981-82, I'm mindful of that. But I’m also mindful that no State has fallen below an appropriation of 81 cents, other than Western Australia, which is on the recommendations of the Grants Commission going to 29.9999. It is a fall from around nearly 38 this year.

REPORTER:

We are told WA would like the Grants Commission abolished in its current form, is that something you’d consider?

TREASURER:

No.

REPORTER:

Treasurer, the Prime Minister said today that multinationals should pay tax where it is earned and we will see some more about that in the Budget. Can you expand on what we might see in the Budget, and also how much do you want to raise through your Google tax?

TREASURER:

Well, I'm not calling it a Google tax. It is vitally important, vitally important that a business, wherever it is located, pay tax in the jurisdiction where it earns the income. Now, there has to be a fairness about the taxation system. Obviously, you know, a small retailer, or a corner shop operator, or a small business that I grew up in, is unable to use sophisticated taxation arrangements in the way that some larger multinationals do. That's desperately unfair. We have worked damn hard through the G20 and with the OECD, to have global integrity measures in place. And we are working with them on a continuing basis. That is essential, because that is the safety net for the tax receipts globally. But we are absolutely determined to do whatever we can, as soon as we can, to ensure that people pay the tax that they should pay in the jurisdiction where they earn that income. Now, we have been drafting legislation, that's quite right. I am not going to speculate on it, because I don't want people to see it as a grab for revenue. I want to see it as an issue about the integrity of our tax system and the fairness of our tax system, and that's exactly what it is.

REPORTER:

Treasurer, you say that the States couldn't find consensus on the GST…

TREASURER:

On the GST distribution, there was consensus on the GST.

REPORTER:

Sure, but on the GST distribution. But then you say that it’s not fair that a State gets paid less than 30 cents. You’ve indicated that you’re not going to allow a one-off payment for a year for a State, so what are you going to do? [inaudible] Are you just going to consult? What are you going to do?

TREASURER:

Well, I have a legal obligation to consult. I will consult. The leaders will be meeting next week, I understand. And I'm sure they'll discuss the issue as well. I have given you a fair indication that there are many factors at play here, many factors at play. It's not about robbing Peter to pay Paul. It's about what is fair for the future of our Federation. After all, we’re all Australians. We are all Australians, and we have got to make sure that there is a fairness in the distribution of money around Australia…

REPORTER:

So, a one-off payment is not going to happen?

TREASURER:

The pool of GST has increased by $3.5 billion this year over last year. So the States have more money. And in fact the increase in the GST is a lot better than a lot of other taxes we have, so the increase they’re getting in the GST pool is larger than most of our tax increases or any additional revenue that we’re collecting. So we’re feeling the pain of a significant write-down in iron ore and it's not over yet, clearly, given in MYEFO we identified $60 a tonne, today it's around $43 a tonne. That has an impact, every $10 fall has an impact of around $2.5 billion each year on our revenue. So we’re facing significant write-downs in revenue on a continuing basis, which is extraordinary. It's affecting us significantly. It's affecting Western Australia directly even more. So we are going to get the balance right and I'm not going to pre-empt a decision.

REPORTER:

Will the decision be before next week’s meeting, for example?

TREASURER:

No, no.

REPORTER:

Will you advise the Prime Minister before next week’s meeting?

TREASURER:

No.

REPORTER:

Two questions. First, [inaudible] the key problem I suppose WA is complaining about is one that the three years on which their share is calculated, [inaudible] about two years ago. Is there any way you can see a shortening in that gap?

TREASURER:

Well, I'm releasing the report which gave me advice on shortening the cycle in relation to the treatment of revenue from a particularly volatile commodity, such as iron ore has gone to spot prices, as you know, over the last few years, rather than contract-based prices. It is also the case that, you know, there are swings and roundabouts. Western Australia will come back. But the question is how low does it go, and as I said a little bit earlier, it's a ‘perfect storm’ that they are being hit with both a massive drop in their allocation on the GST as they’re being hit by a massive drop in iron ore prices and royalties. Yet they have got lag expenditure in infrastructure in particular. We want them to keep rolling out that infrastructure, because that is helping to suck up the construction workers that have lost their jobs in the mining and resources industry. So, having said all of that, there is no doubt Western Australia still needs to undertake the sort of reform that every other State in Australia has undertaken and that will take some political effort in Western Australia. And there has to be a trade-off.

REPORTER:

The second question. After you've consulted with the other Treasurers, what would your options be?

TREASURER:

Well, I advised them to the States but I'm not going to share them with you.

REPORTER:

Do you have any preliminary estimates about how much revenue you could make, what these integrity measures will be worth, that you spoke about earlier?

TREASURER:

I'd need to have a think about whether I can disclose that. I haven't got those numbers in front of me.

REPORTER:

Are we talking billions, millions?

TREASURER:

Well, the integrity measures in relation to the GST overall could represent billions.

REPORTER:

Could you give us an idea about timeframe for this decision on the GST distribution?

TREASURER:

I will do it quicker than my predecessors.

REPORTER:

June 30 obviously is...

TREASURER:

I'm mindful of that. I'm mindful the States have to [inaudible] deliver their own budgets.

REPORTER:

Before your own budget?

TREASURER:

I will consult appropriately.

REPORTER:

The Victorian Budget is the 5th of May, will it be out, will a decision be made before that?

TREASURER:

That was raised with me, believe it or not, by the Victorian Treasurer, and they’re all keen for a timetable. But we want to make sure we get it right.

REPORTER:

[inaudible]

TREASURER:

One of the things is, you know, one of the most significant issues is next week I'm in New York and Washington meeting with the G20 and the OECD and the IMF and the World Bank, to get a better picture of where the world economy is heading and in particular, commodity prices, so that we can put it into our own Budget. And obviously I'll be meeting with Angel Gurria, the head, the Secretary-General of the OECD, to discuss progress on the global arrangements in relation to taxation. That's part of next week's agenda, and I'll be back on the Sunday and I promise you after that we'll continue with this. In the meantime, I have asked the States to put in written submissions to us in relation to the GST relativities and any other information that might assist us, and I'll obviously be seeking a meeting with the Western Australian Government when I return to identify other issues that might be of concern to them.

REPORTER:

[inaudible]

TREASURER: 

As soon as I physically can.

REPORTER:

Treasurer, some of your State counterparts this afternoon have said that they have very little sympathy for the WA position, [inaudible] lines like they made hay while the sun shined, they failed to save for their future. What do you make of those comments?

TREASURER:

We had a very good discussion last night, and a very good discussion today. It was robust, it was forthright, it was actually very well-informed as well. My interests are the interests of all Australians. I don't see State borders in relation to parochial interests. What I see is what's in the best interests of the Federation and the nation, and that is the view of the Government as well. And frankly, the fundamental question is, is it going to, does it really help the Federation for the first time to have a State receiving 30 cents in the dollar from the GST that is contributed by its citizens. It's a question that is out there. It might be next year 20 cents, it might be less, but at what point do you say well, this is just a little bit unfair, particularly given what they are going through with their own royalty drop-off in iron ore. Okay, thanks very much.