The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Wayne Swan

Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

11 May 2011

Question-and-Answer Session
After National Press Club Address

Parliament House

11 May 2011

SUBJECTS: 2011-12 Budget

JOURNALIST:

Mr Swan, Lyndal Curtis from ABC News 24. You sold this Budget before you brought it down as a tough budget. While you did save [$22] billion, you spent most of that. The Defence Minister managed to save more than $2 billion. Should you have asked more of your other Ministers to be able to lower government spending further and for those people who are involved in services-export industries take the pressure off inflation, interest rates and the Australian dollar. Or is the reality that you don't have the political capital inside or outside the Parliament to wear the fall out of any really tough spending cuts?

TREASURER:

Okay, thanks Lyndal. I think there's a couple of points I'd like to make about that and the first one is this: we are running a really tight fiscal policy. To use the jargon, this is the biggest fiscal consolidation or return to surplus we've seen in the history of the country: 3.8 per cent over two years and just look at what we're doing with spending. The application of our 2 per cent expenditure cap has been rigid and it has been strict. So much so that we are averaging an increase in spending of 1 per cent a year, each year over five years. Now there are plenty of people in this room who can tell you what that figure was for Peter Costello and John Howard. It was 3.7 per cent. So when you've got an average increase each year of 1 per cent and you've got an economy which is growing next year by 4 per cent what you've got is really strict fiscal discipline.

Now I draw your attention to the Reserve Bank Statement on Monetary Policy from last week. They made the point that the Government is running a strict fiscal policy. They said our settings are contractionary. That's what they said. So we are running the appropriate fiscal setting and $22 billion worth of savings in this Budget are quite important. Yes, we made room for other initiatives, important initiatives, important initiatives such as mental health, important initiatives across education and training and so on. All of those investments that I spoke about before which are so important to the future. So our savings record in this Budget and our savings record across three budgets have not been matched virtually by, certainly not by the previous government and when it comes to spending growth only matched back by a Labor Government in the late 1980s. So there's plenty of fiscal discipline being applied and the 2 per cent rule here is really important. So I wouldn't run down the size of the savings.

We went through an election campaign and people forget this, where we didn't spend a single cent. We have made savings through that election campaign for every single initiative that we put forward, that is unique I think in Australian political history. Someone down there is nodding. Certainly unique in the last 20 or 30 years. So we went through a campaign and didn't spend an additional cent. That's a pretty good record and shows how serious we are, but the final point and this is perhaps the one that is not understood and it's the one that you don't see in the Budget papers, and that is all of the proposals that landed on the table of the ERC and got thrown out the door and all of the disappointed ministers that followed them. So the task here is not just to make the big saves and to apply the 2 per cent rule and to put in place a structural saves such as we have done in this Budget. The task here is to say `no' to good Ministers with ambitions in their portfolios that have got new proposals and that's what we did. And that's why we got to a point where our saves were bigger than our spends by $5 billion and that was a pretty good outcome, a very good outcome.

JOURNALIST:

Treasurer, Hugh Riminton from the Ten Network. There was one proposal that didn't get thrown out the door. Joe Hockey on our network last night said, quote: `What really riles Australians in this Budget is the $6 billion increase in spend on foreign aid.' What do you make about that line of attack and how do you justify the spend?

TREASURER:

Well, I'm surprised by it because there was a discussion in the Coalition about foreign aid and our targets and our joint and bipartisan commitment to the percentages of GNI and that was reaffirmed by the Coalition when they had an unseemly brawl early this year over the flood levy and what sort of savings they will put in place not to have had a flood levy. So to my knowledge so far that policy of commitment to those goals which is reflected in our spending has bipartisan support. So what you've got is actually another demonstration of the Coalition not knowing where it stands bereft of a fiscal policy, not having any credible savings. I mean, I don't know whether you can take these guys too seriously anymore because following the last campaign the Department of Treasury and Finance went through and studied the alleged savings that the Coalition put forward during the campaign and found there was an $11 billion hole in the savings they claimed they were putting forward. They were fraudulent and declared so by the Departments of Treasury and Finance. So they have very little credibility here and of course could I remind you of the farce that we experienced last year when the Coalition was trying to prepare its response to the Budget. Fair dinkum, it was like the Three Stooges. Mr Abbott said it and then he didn't do it and then he passed it to Mr Hockey and he didn't do it and then he passed it to Mr Robb. So they haven't advanced much since then.

JOURNALIST:

Phillip Hudson from the Herald Sun. There's been a lot of discussion today about whether a family earning $150,000 a year is rich. Tony Abbott has hit the airwaves saying your Budget is a class war attack on the aspirations of people, and that you've branded a policeman married to a nurse as super rich by your freeze on benefit thresholds. How do you respond to that? Are these the people you said would feel pain from the Budget?

TREASURER:

Well, I'm sorry but I've done no such thing. Can I just make a couple of points and deal with this all clearly and rationally. First of all I don't think a couple on $150 thousand is rich. I don't think that at all, but what I do think is that we need is that we need a family payments system which is sustainable. All of my political life I have been a really strong supporter of the family payments system. A strong supporter of it because I believe that parents are doing the most important job in the country which is bringing up the next generation of young Australians and our family payments system has evolved over time. There have been bits and pieces bolted on and it does provide a relatively substantial support to families with children and I think that's appropriate but expenditure on it must be sustainable. So you would recall when we came to power we did put in place a series of means tests across the family payments system that weren't previously there and what we are doing now to make sure that the growth in payments is sustainable over time is suspending indexation at the top end for a period of years to constrain the growth in family payments. But that act does not put an end to the normal indexation increases that are happening across the system. So people's family payments will increase, but we did also put a pause on the indexation of what is known as supplements in the system as well. The supplements in the system are put there in response to a huge problem that has developed with debt in the family payments system. That problem is no longer the size that it used to be. So we are putting if you like a restraint on the growth of family payments at the top end. And that is a family payments system that was administered by the previous government. So I defy anyone to say that that is in anyway class war.

What we are doing is restraining the growth on family payments at the top end for very good reasons: to make sure that family payments are sustainable, not just over four years, but also over 40 years because that area of our budget has been growing significantly over time and it's a growth I generally support, but what we have to do is more effectively target our payments. So what I would say about the Government is that we are really strong supporter of the family payments system and we have put in place additional payments which did not exist under the previous government. One of the things that I'm really proud of – because it marries the whole participation agenda over here to our social agenda – is paid parental leave, which we have put in place. So we have added to the system. We've put essential parts of it there that were missing. That has also added to expenditure so when you look at it in total put in some restraint into the top end is entirely justifiable and also in this Budget we put in another important improvement to the family payments system which is to get the payments to teenage kids that are studying or in training the family payments back up to a reasonable level for those aged 16 to 19. I think there's some $700 million additional in the Budget to do just that one thing to improve the family payments system and to put it into better shape and that was of course a recommendation which came out of the Henry Review, or a consequence of one of the recommendations that came out of the Henry Review. So we are strong supporters of the family payments system. Always have been. Always will be. We've got to make sure that it's sustainable over time. That is what we are doing and given the nature of the Budget and the nature of the savings that we are putting in place over a range of areas, whether it is Defence, whether it's the top end of family payments or whether it is what we are doing with some of the tax offsets or whether it's throwing out all of those proposals that come across the table of the ERC. We've got to have a comprehensive savings process in place. We have. That has produced $22 billion worth of savings and of course in net terms $5 billion worth of savings.

JOURNALIST:

Hi Mr Swan, Philip Coorey from the Sydney Morning Herald. In the Budget yesterday and in a speech Ms Gillard, the Prime Minister, gave a couple of weeks ago she flagged more welfare reforms in the Tax Forum you're going to hold in October. Now, I know you had an element in there yesterday allowing single mothers to earn a bit more income and you've made changes in the past to the low income tax offset to allow, acts as an inducement for people to move from welfare to work, but will you take to the next election or the next Budget further measures for tweaking the effective marginal tax rates.

TREASURER:

Sure. Well, the first point I'd make here is that we have reduced the taper rates particularly for single parent. That is going to be a major benefit to something like, I think, 50,000 single parents. So that when they work a few more hours they get 20 per cent more than they were getting so that's pretty important. That's a pretty important reform. It does impact on what you call effective marginal tax rates. It puts extra money in their hand. Effective marginal tax rates have been a significant issue in our system. This is the intersection on the tax system on the one hand and the family payments system on the other, the child care assistance and some other payments that are in the system. They are not as dramatic now as they were some years ago, principally through the most significant reform that we have made already in the tax system in our three years and a bit in Government which is the very substantial increase in the low income tax offset which gives it an effective tax free threshold by something like $16,000 essentially for low-income earners up to $30,000 an extra $1,500.

So that has been a very big reform and that has taken a lot of the pressure off some of the worst effective marginal tax rates that we have in the system but there is more work to be done in that area and the Prime Minister has correctly said that looking at the intersection between the income tax system and the family payments system is an important topic for the Tax Forum later in the year and of course that cannot be unrelated to suggestions that have been put forward in the Henry Report about fewer marginal rates of tax and simplifying the system. So there will be a really healthy debate first of all about how we simplify the personal income tax system and we have to have that in the context of the discussion about how a transfer payments system works as well. I do anticipate an intelligent discussion and conversation about those issues when we get to the tax summit. The Government has made the point that we are not going to be telling people what they can or can't do at the tax summit, but we've also made it pretty clear that the Tax Forum, pretty clear, that we will try and have an intelligent discussion in this area.

To that end, we'll be putting out a discussion paper which will prompt further discussion as we go through to the forum later in the year. In terms of that, I'd just like to make this point: I think for all the reasons that I've said in my speech today, I want to see a much stronger, involved discussion about where our economy is heading for all the reasons that I've outlined today. And of course, getting the settings right across a whole range of policy areas is imperative and tax is one of them.

JOURNALIST:

Treasurer, Andrew Probyn from The West Australian. In anticipation that the Opposition is going to go you over your tax on welfare, what is your justification for the phase-out of the Dependent Spouse Tax Offset? Is it a scurrilous attack on trophy wives? Or is it correcting a historic curiosity? If it is the latter, why is it that you have maintained the Child Housekeeper Tax Offset, which effectively subsidises taxpayers who keep their children as housekeepers?

TREASURER:

So you say. Can I just make a couple of points about the Dependent Spouse Tax Offset? It's been, I think, in the income tax system since 1936. It reflects a model of society and workforce participation where there was a principal breadwinner, and the partner, the spouse, didn't work. We have a very strong family payments system that is built up particularly in the last 20 years, which supports families with children. Of course the reality today is, that in any couple, one or both will be working in some form or another. So the Dependent Spouse Tax Offset reflects an Australia which simply doesn't exist anymore.

So we thought it was time to take up that recommendation from the Henry Report. But as you'll note, we've only abolished it for those under 40. Why have we done that? We've done that because there will be some families where there has been a recipient of that offset who has been out of the workforce for some 20 odd years. So we thought it was fair basically to cut it off for those below 40. Others would advocate a much harder reaction and a withdrawal altogether. So basically it has been superseded in our system. Also, we have put in place very substantial increases in the Low Income Tax Offset, so there are a number of other things happening in the system, and as identified by the tax review, this is one that needed reform and that's why we've done it.

PROBYN:

(Inaudible)

TREASURER:

Well, I don't accept your characterisation of that offset. But that, along with anything else that people want to debate at the Tax Forum will be welcome.

CHAIR:

Karen Middleton.

MIDDLETON:

Hello Treasurer, Karen Middleton from SBS Television. The Shadow Treasurer this morning has belled the cat on the Opposition's motives in attacking your Budget, suggesting that they are going to do everything they can to pressure you to call an election. I presume you don't think that's a terribly good idea at this point. But given that voters didn't choose clearly between you and the Coalition, and that they actually won more seats outright than you did, who's got the greater mandate?

TREASURER:

We've unquestionably got the support of the Parliament, and I believe that we have the support of the Australian people. The fact is, that we've put together a Budget which is responsible, which brings us back to the black, which puts more Australians than ever in jobs, and which spreads opportunity around the country.

I think it would be an act of recklessness and an act of folly for the Opposition to deny the Government its Budget. I don't believe they could possibly be that reckless. But if they set out to wreck the surplus, then it will be a huge problem for them if price pressures re-emerge as a consequence of this Government not coming back to surplus in 2012-13, because all Australian families will pay the price for that.

JOURNALIST:

Laura Tingle from The Financial Review, Treasurer. If I could just take you back to your speech. You mentioned that we should all read Statement No. 4.

TREASURER:

Have you done so?

TINGLE:

Well, I'm a nerd from The Financial Review, so yes! Page 5, dash 17 has a reconciliation –

TREASURER:

(Laughs)

JOURNALIST:

This is a serious question. Look, if you look at the figures that have gone through, just for 2011-12, between the Budget last year and PEFO there was a $1.7 billion change in parameter terms on revenue estimates. Then it went down by $2.4 billion between PEFO and MYEFO, and then between MYEFO and this Budget it's gone down by 5.3 percent. Now, Statement No. 5 actually makes a lot of serious effects on revenue. You have been very restrained in your spending but revenue is jumping all over the place. Can you just take us through the reasons why you believe revenue will recover in the coming Budget year and beyond, given that that is so important for your return to surplus in 2012-13?

TREASURER:

Sure. Well there's a couple of effects happening here, some are structural, some are sort of more cyclical. The very first thing that is happening is that in this year, growth is only 2.25. It was expected to be 3.25. So that means we are weaker before that four per cent figure we've got next year starts to kick in. So that is a challenge but fundamentally there is also the weaker revenue which has flown, or come through because of the floods and so on but the dominant impact over the first two years of the Budget is revenue downward revisions which flow from the global financial crisis and in particular the accumulated losses that are in the system which mean that we are not receiving either in terms of company or in terms of income tax the same volumes of revenue that we normally expect to receive.

So companies are not paying as much tax but the Treasury has examined this in great detail and it believes that we will see a revenue improvement come through in the next few years but it is true they have been written down more substantially than we originally envisaged. That has meant, for example as I said in the speech, that the revenue write-downs for the five years from 2008/09 are $130 billion. What we must do in those circumstances and because of those circumstances and because of the impact of the floods is keep in place our two per cent cap and our spending discipline but I do believe our estimates are realistic and the Treasury is reasonably very conservative in this and one of the reasons why we will be back to surplus is because we are now forecasting growth of four per cent in 11-12, not 3.75 per cent as we were back in the Budget review last October.

So two things are happening, growth strengthens again. We took a huge knock in the economy in this part of the year but the next year as we go through, growth is very strong and we will begin to see some of that revenue recovery which is precisely what you see in the forecasts and I don't think that our forecasts are dramatically different from what you will see being presented by many of the private sector forecasts, forecasters around the place. I think we've been reasonably conservative in the way in which we've approached this challenge.

JOURNALIST:

Hi Treasurer, Matthew Franklin from The Australian. In about half an hour I think Bob Brown's holding a press conference to give a detailed response to the Budget. He said a couple of days ago that he thought this would be a Budget for coal barons. He attacked the skilled migrants who come into the country as queue-jumpers. Can I just ask, you rely on the Greens for their support, how difficult will it be to win their support for this Budget? In what areas do you think you may be able to talk to them to accommodate some of their concerns, as they've stated them already? And can you, just before you answer that question, on your own account you've come here today not wanting to be too political and please address this question, because you know you've been asked last night, I asked the Prime Minister twice today and rather than answer it I got a speech about Tony Abbott, so could you please address the question, the Greens.

TREASURER:

Well if you're asking me to respond to what Bob Brown is about to say, well I haven't heard, that's a bit difficult Matthew. But I'm happy to give you an answer in general terms. When we were staring the global financial crisis in the face and we had to get our stimulus package through the Parliament, the wreckers weren't the Greens, it was the Liberals and we actually got it through the Parliament with the support of the minor parties in the Senate and the Greens. So on that occasion the Greens were far more responsible than the Liberals.

Now there's many things in this Budget that the Liberal Party would traditionally support but apparently, according to Mr Abbott anyway, they stand ready to try and wreck the surplus in 2012-13. Well they can only wreck the surplus in 2012-13 if they vote with the Greens against it.

Now who is going to be the more responsible in those circumstances? The Liberals have already proved their irresponsibility at the height of the global financial crisis when they tried to sink our economy and vote down the stimulus or the Greens who actually supported it. So on that occasion the responsible party was the Greens and the irresponsible party was the Liberal Party. That's why this is such a big test for the Liberals again, because coming back to surplus in 2012-13 is very important for the future of our economy because our economy will be growing strongly again. That mining boom and investment pipeline that I spoke about before is going to be very strong. We can't compound inflationary pressures.

Now we've got these contradictory statements from Mr Hockey and Mr Abbott about what they may or may not do. I mean Mr Hockey said last night that he didn't have time to actually study the detail. He was in the lock up for six hours. Now I've been in lock-ups from a position of Opposition and we've been expected to front up and give a position on the night and we've been attacked pretty vigorously, when we were in Opposition, on one occasion for not doing that. Well, the weights on them. The stakes are high. This is an important Budget for the country. Will the Liberal Party have any shred of economic responsibility or not? Or will they continue to play this wrecking role which is against the national interest of our country.

JOURNALIST:

Thanks Laurie, Mark Riley from the Seven Network. Mr Swan, I think a lot of people at home today would be wondering what your Budget means for their mortgage. The analysts seem to be predicting two more rate rises before the end of the year. So what message do you want the Reserve Bank to take from your document?

TREASURER:

That we've got very strict fiscal policy. That we've got very a significant fiscal consolidation going on, 3.8 per cent of GDP over two years. That we are very serious about fiscal discipline. If you look at what we're doing, say compared to what other developed economies are doing internationally, it's just chalk and cheese. Nobody internationally in the developed world has got the sort of fiscal policy in place that we've got in place and I would just like to remind everyone that we actually put these rules in place back in 2009 when we put in place the second stimulus package that moved to rescue the economy because we knew that we needed an exit strategy and we put it in place.

That has been the recommendation subsequent from the G20 to all of its membership that that's what countries should be doing. They are now recommending to other countries that they have an exit strategy such as we had and a fiscal discipline such as we've put in place to deal with problems in their own economies. We put all of this in place. Nobody much noticed or talked about it at the time but we thought it was pretty important way back then to send a signal to the world, to send a signal to international markets, to send a signal markets, to send a signal to investors that we had a Government that was prepared to go into deficit to support the economy, to save jobs and to save small businesses but that when growth returned, particularly when growth returned to above trend, we would apply these rules and we've been applying these rules and that sends the message that we're serious. That's just something that the Liberals don't understand.

JOURNALIST:

Stephen Scott from the Courier Mail. Mr Swan you mentioned tourism was one of the sectors that are particularly struggling at the moment and, as you're aware, particularly struggling in your own home State and yet there's very little in the Budget for tourism. Is that an admission that there's not much the Government can do to help the sector?

TREASURER:

Well, sorry I don't see it that way at all, I mean the whole Budget is about our patchwork economy and how we have to spread the opportunities that are flowing from the boom to all corners of our economy and to all sectors of our economy. I know the tourist industry is suffering from a higher dollar. They also will suffer if we don't do something about all of the labour supply issues that I've just talked about today because what will tend to happen in practice is that the larger, very profitable mining companies will start drawing their labour from many of these other businesses or from the rural sector or from the tourist sector and there will be problems down the line. We've got to expand our labour supply as demand for labour gets really tight. That's what having an unemployment rate of 4.5 per cent is like. So there are a lot of these sectors that aren't in the fast lane, who may have the challenge of having their labour, if you like, pinched and taken away somewhere else. So we've really got to move on these labour supply issues and that's critical, absolutely critical, for our tourist sector and one of the reasons why I decided in my speech today to spend so much time talking about the services sector is precisely for the reason that you've just raised because parts of our tourist sector industry are doing it really tough and they've got to be looking for new markets. They've got to have a full appreciation of the new conditions and, of course, in those circumstances a higher dollar makes it harder but it doesn't mean to say that there aren't new markets to be taken.

Now, as you know, I spent Easter in Cairns because I said I would go back to that region and support their tourist industry after the full impact of Cyclone Yasi and they actually had a good Easter. The first good period they've probably had in years because some years ago, prior to the natural disasters, they began to lose the Japanese market and there have been other structural factors at work in the tourist industry in that region. The thing that warmed my heart as I was in Cairns over that period was that there were still European tourists wandering around, going out to the Reef but the biggest new source of tourists that were there and were evident the day we went out to the Reef were Chinese tourists.

So there are still markets there. So there's a lot we've got to do, working with all industries, not just the tourist industry, agricultural industry and also manufacturing industry and, by the way, what I didn't have time to talk about today but I do want to talk to the country about is how important and more important our agricultural sector is going to become in the years ahead as well because I believe the prospect for prices, not just in minerals, is going to extend across into our rural sector and we are already beginning to see that in the extent of foreign interest in investment in that sector. An interest which is not necessarily replicated from investors domestically but they will soon follow.

So this is just a perfect example of what I was trying to demonstrate in my speech about how our economy is going to change and be changed by all of these competing forces. We've got to face up to them, have an intelligent discussion about them, make sure we get the policy settings right so we can maximise the opportunities that will flow.

JOURNALIST:

Treasurer, Colin Brinsden, AAP. You've spent a lot of energy late last year trying to make the banking system more competitive and trying to get a better deal for consumers but it's all very well having a cheaper mortgage if you can find a house. There's still a lack of housing supply and that hasn't been addressed in the Budget. I know it's been dealt with through COAG but there doesn't seem to be much happening is there?

TREASURER:

Well certainly there is a fair bit happening through COAG and I agree with you, this is a very substantial challenge for our country and it's something that I will be taking a much more personal interest in, in the period ahead. There are supply issues involved in the housing sector. They mainly do reside in the States and its all been complicated by the impact of the global financial crisis on funding and so on. It's one of the reasons why we've put so much investment into residential mortgage backed securities and so on. But yes, there is something happening and more needs to go on. Michelle.

JOURNALIST:

Michelle Grattan from The Age. Mr Swan, you've said it's hard to put numbers on the outcomes for some of your welfare measures, how many people you can get into work and so on, but can you give some general idea of the proportions you're thinking of in terms of aim to reduce numbers on the disability pension which is headed for 800,000, long-term unemployed, which is more than 200,000, I think and also, some timetable? Is this a decade-long reform process or would you expect to see results, tangible results, in five years or two years or what?

TREASURER:

Well I wouldn't put a timetable on it and, of course, there will be different solutions for different groups. Some groups are more severely disadvantaged than others. What we've put the numbers on is the number of opportunities and/or contacts that we expect to make. So in the case of the Disability Support Pension we want to work our way through a discussion and interview process with all of those aged under 35 who may be capable of working a few more hours a week. I can't tell you the outcome of those interviews because they haven't happened yet. But the fact is that we've begun that process in working our way through the group who are already on the Disability Support Pension.

The second thing we're doing in that area is we're changing the way people go onto the pension. It's always been the case that you could get the pension if you were just certified as [not] being able to work more than 15 hours. Now what we're saying is that we've got to go through a whole process of really seeing whether those people can work, can get jobs and we've set up the process for that. It's not possible for me to give you a number on what the outcomes of that will be, given that it hasn't been done before.

Now, in terms of the long-term unemployed, we thought we will give some wage subsidies a go in terms of the very long-term unemployed and we're going to make 35,000 of those available over time. We'll see how that goes. What we want to do is we want to do a variety of things, in different ways, with different groups and we'll see what evidence comes out of that and what it says about we should do next because we're pretty serious about trying to break the cycle of intergenerational welfare dependence.