21 August 2015
Transcript - #2015175, 2015

Press conference, Canberra

TREASURER:

I met today with the state and territory treasurers and we had an incredibly productive discussion about tax reform in Australia. For the five hours that we met today and the two or three hours that we met last night, we had a very frank discussion about the need for taxation reform in Australia, and how we all need to work together to make sure that we can build a new tax system that will cope with the modern Australian economy. The state and territory treasurers agreed with the principles that I outlined for taxation reform. We also agreed to undertake further modelling in relation to specific taxation proposals. Specifically, the treasurers agreed to apply the GST to offshore sales into the Australian market. This is a significant initiative. From the 1 July 2017, the GST will be applied to all products and services sold by vendors overseas into Australia. This will deliver competitive neutrality for Australian businesses, it will ensure that there is fair and equal treatment of all goods and services, so that if goods and services in Australia were to have the GST applied by companies in Australia, then the same would apply overseas. The treasurers failed to come to unanimous agreement to remove the application of the GST on feminine hygiene products. As is required under the intergovernmental agreement, there needs to be unanimous agreement from all the states and territories to a change in the base of the GST. There was no agreement, therefore the matter has come to an end and the current arrangements are in place. So I’d just say again, it was a very productive discussion. We have agreed to meet again in September – October to accept a further report in relation to taxation reform from our heads of Treasury, and to feed into the leaders conference which will be held in November. And there’s a communique here that goes into considerable detail about all that.

JOURNALIST:

Treasurer, on the broader topic of increasing the GST and the various proposals being kicked around. Given the states were a bit like [inaudible] and there’s very little prospect of agreeing. Do you think the time has come for the Federal Government to say what we want done in terms of increasing the GST, and what taxes you want lowered to address [inaudible]?

TREASURER:

Well, we want to continue to work as closely as possible with the states and territories, because ultimately they will be the beneficiary of any changes to either the base or the rate of the GST. Importantly, there was recognition that we do need to reduce income tax rates and that the Commonwealth needs to do that in order to address bracket creep and the growing disincentive for people to earn more income as they go into higher tax brackets. We had detailed discussions about individual taxes, the interaction of those taxes with the economy. There was recognition that the domestic economy is still feeling the effects of some dislocating market activity. For example, we know that there’s quite a bit of speculative activity in residential real estate and therefore transaction taxes on residential real estate - even though they are not good economic taxes - in the current environment to remove stamp duty on residential property would only fuel speculation in that market. That was not seen as a particularly good idea. I made the point that introducing or increasing new taxes on superannuation in a period when we’ve got lower than expected returns would in fact be counterproductive for household consumption by people in their retirement age. After all, household consumption actually is a big driver of economic growth. Overall there was a clear message from the treasurers - we recognise that whatever we do has to stimulate economic growth in Australia. We’ve got to have a tax system that facilitates innovation, facilitates investment and facilitates job creation. I must say what was most pleasing, was that unlike the Federal Opposition, none of the states or territories were ruling anything out, and that was a positive step forward.

JOURNALIST:

Treasurer, what sort of revenue flow are you expecting from the extension of the threshold change? And the carve-up of this money - my understanding is that it’s being done on a per capita basis to the states and territories under the CSG…

TREASURER:

This is the extra - the integrity?

JOURNALIST:

Yeah, how long will that last? Will you actually end up with this growing amount of income going off into years, or is there a time cap on that?

TREASURER:

No this will go into the general GST pool, so there’s no special treatment for the application of the GST by the low value threshold. It will be part of the overall GST. In relation to the amount of money that will potentially be raised - we’ve got to do further work in that regard. It’s hugely important to understand that one of the impediments to delivering on this integrity measure in the past has been the enforceability of it. That’s because previously there were proposals that each parcel that comes into the country should be inspected, and determine whether that was less than a certain value. Quite frankly that was ridiculous, and it was one of the reasons why ourselves and other jurisdictions resisted going down the path of fixing the low value threshold. However, as a result of our work in the G20 and in the OECD, there is now a growing global consensus where the vendors of goods and services overseas will willingly apply consumption taxes to their goods and services of a particular jurisdiction. In the case of Europe, that could be out to 2020 - by the time the Europeans come to an agreement, they’re moving in that direction. Some countries have moved faster than us in relation to digital products, others are slower than us in relation to goods, but overall we think we’ve got the balance right. From my perspective if we can do it earlier than the 1 July 2017, we will, but there’s a lot of work to be done. What it effectively means is that we’re going to have to have taxation officials travel around the world, visiting these companies and asking them to register for GST purposes should they be selling into the Australian market goods or services greater than $75,000 Australian of value.

JOURNALIST:

How many are there? How many of these big companies greater than $75,000?

TREASURER:

There could be hundreds. In relation to digital products, it’s easy to identify a number of those companies such as Netflix or Facebook or others. In relation to goods, there could be a very large number. However, what we are able to do is to narrow down the number of high volume goods vendors into Australia.

JOURNALIST:

[Inaudible]

TREASURER:

Well I’ll come back to you about the specific figures that we have, but we’re working to improve that data.

JOURNALIST:

What will you do if a company doesn’t pay, just says no, I’m not going to do it?

TREASURER:

Well, increasingly the global pressure is going to force them to respond. If you’ve got very substantial companies like Amazon who…

JOURNALIST:

No, it’d be a small company though…

TREASURER:

If you have substantial companies like Amazon that are operating in a number of jurisdictions and have considerable market share and so on, they are actually quite willing to do it because effectively they don’t pay the tax personally, it’s the consumer that pays the tax, so they’re remitting it to us for taxation purposes. Having said that, it is also the case that we’re pursuing our multinational tax initiatives where companies that have engaged in what’s known as the Double Irish Dutch Sandwich, will be caught into our taxation net. So ultimately, these companies whether they are providing digital products or they are providing physical products, ultimately if you are of any scale you are going to be caught into the global taxation network and that’s a direct result of the work we’ve been doing with both the OECD and the G20.

JOURNALIST:

On 18 May 2015 you said to Andrew Bolt, we have a tax white paper, a process for looking at tax, we promised the Australian people you would not introduce, increase, broaden or change the current GST in this term of government. In honouring our promise, if there is to be a change to the GST or substantial changes in taxation, we will take that to the next election. How is this not an unbroken promise?

TREASURER:

Well, [inaudible] integrity and secondly it starts on the 1 July 2017 after the next election.

JOURNALIST:

 You said you’d like to bring it in sooner rather than later, if you can…

TREASURER:

Well, it could be six months, or it may not be, we’ll wait and see. Fundamentally this is an integrity measure in this situation - it really is Friday afternoon for you isn’t it [laughter]. I mean these are integrity measures we have to deal with integrity measures. If there’s leakage out of the GST it is our responsibility, with the unanimous agreement of the states and territories to plug the hole. Unquestionably, the low value threshold has had a negative impact on Australian jobs and Australian businesses. So, you would expect us to properly react and we are. And we’re doing it with the unanimous agreement of Labor states and territories - and Liberal states and territories.

JOURNALIST:

There had been some concern the administrations policing this outweigh the revenue. Are you now confident that you can raise some revenue from it and I want to check the threshold will now be zero won’t it?

TREASURER:

Yes, it is a zero threshold. I am confident we can do it. If it was going to be a case of inspecting every parcel, that was plainly ridiculous. There’s been three or four different proposals put forward as a way of dealing with it. We think this is the best proposal because it’s consistent with what is happening internationally. It is also the case that the companies are more willing now than they were a short period of time ago to comply. There’s many levers we have to be able to apply some pressure to these companies. We have been – the Australian Government has been leading the world in many of these areas. We think it’s patently unfair that your newspapers or your television stations have to charge advertisers GST whereas someone selling a product into the same market, simply because they are based overseas, don’t charge a GST. It costs you your jobs ultimately. So we think it is only fair this should be applied. The question has been how do you do it? We’ve found a way forward. It’s taken a lot of work, a lot of work, and we’re working co-operatively with other jurisdictions.

JOURNALIST:

[Inaudible] we all get through the net here?

TREASURER:

Look, over time the integrity will increase. I’m not going to put a specific figure on it but over time - the earlier we start, then the less effective it will be - but over time, we’ll get greater and greater compliance, particularly as the Europeans come on board in 2020, because a number of these businesses have very significant operations in Europe. But I also live in hope that one day there will be real tax reform in the United States, so that may help in that regard and as for other parts of Asia, I’m pretty confident that we can, through various agreements and various diplomatic avenues, forge arrangements to ensure that the companies do charge appropriate tax [inaudible].

JOURNALIST:

You recently expressed a view on sanitary products, on Q&A, I’m sure you remember that…

TREASURER:

So did the state treasurers…

JOURNALIST:

They might have reminded you. Did you express a view at today’s meeting?

TREASURER:

Well, they know what my view was, and I said over to you guys. I’ve written to them and asked them…

JOURNALIST:

You didn’t argue the case at this meeting?

TREASURER:

Well, it was a simple case of going around the room and asking people for their view. Because we’ve already written to them, including with a proposal of the costs associated with the change. So, they know my views, we talked about it last night amongst the treasurers. Today it was simply a case - given we spent so much time on substantial tax reform - it was simply a case of going around the room and asking people…

JOURNALIST:

[Inaudible]

TREASURER:

No. It was a majority – there were a number of jurisdictions that were opposed to any change.

JOURNALIST:

 [Inaudible] that the state treasurers didn’t agree with that?

TREASURER:

Well, it’s their tax, it’s their revenue. Just as, previously, as some of the states have held out in relation to changes for the GST on low value threshold goods. So too on this occasion, did some not agree. This is why we keep emphasising it is a state tax. And under the intergovernmental agreement, it is very specific – that any changes to the base, as this would have been, or changes to the rate of the GST – needs the unanimous agreement of the states and the territories.

JOURNALIST:

Bill Shorten wasn’t committing to this change the other day. Do you expect Labor to back this, or not?

TREASURER:

Well they did, today. A number of Labor states did back it today. Who knows, Bill Shorten commissioned a number of reports into it, if you remember. And he was actually advocating for that change when he was the minister responsible in the previous government, but who knows what his position is today.

JOURNALIST:

Treasurer, the share market has lost another [inaudible]. Are you worried about what that might be doing feeding into the general economy and does it have any budget ramifications?

TREASURER:

No, you’re going to get ups and downs. There are going to be some pressure points in the economy, in the global economy over the in the next few months. Obviously we’re carefully watching the deliberations of the US Federal Reserve. In my last discussions with Janet Yellen and at the IMF in April, the line put by the Federal Reserve was entirely consistent with that, it’s been putting for some period of time, that is, that it’s of a mind considering increasing interest rates in the United States in the later part of this year. Now, in two or three weeks’ time, I’ll be travelling to Turkey for the G20, it will be a hugely important meeting, because we’ll all get a clearer indication of the thinking of the US Federal Reserve.