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

30 September 2011

Joint Press Conference
with
Senator the Hon Penny Wong
Minister for Finance and Deregulation

Press Conference

Canberra

30 September 2011

SUBJECTS: Final Budget Outcome; Tax Forum; Minerals Resource Rent Tax

TREASURER:

It's good to be back home. It's good to be here with Penny Wong this morning. Today we're releasing the Final Budget Outcome. This outcome shows that Australia's public finances are among the strongest in the developed world and that's despite the impact of the global financial crisis, the devastating natural disasters earlier this year and the impact of the high Australian dollar on revenues.

Budget revenues for 2010-11 have been reduced by around $40 billion on their pre-crisis levels. Now, on top of all of this, we've seen the impact of global turbulence, volatility in markets – that will continue to weigh heavily on budget revenues. So we'll have softer revenues going forward as a consequence of the global instability and all of that will make it more difficult to reach surplus in 2012-13 but we are absolutely determined to do that.

So Australians can be assured that their public finances are strong, that they're in very good shape. Our net debt is one-tenth of that of major advanced economies and international rating agencies have re-affirmed our AAA credit rating. I just want to run through some of the details and then Penny will say a few words.

The underlying cash deficit for 2010-11 is improved by $1.6 billion compared to the estimate at the time of the May Budget. It's come in at 3.4 per cent of GDP – one of the lowest levels in the developed world – or $47.7 billion. Just compare that for one moment to some of the outcomes we've elsewhere in the developed world where budget deficits exceed 10 per cent of GDP in the US and the UK in 2010.

Spending was $3.6 billion lower than estimated at Budget, but revenues also came in lower, with cash receipts down $2 billion. The biggest revisions were to company tax receipts and taxes on wages, including PAYG, super, and fringe benefits. The factors weighing on revenues, like the high dollar and ongoing global turbulence, are expected to have a continuing impact on budget revenues in future years.

Now we always expected that the 2009-10 and 2010-11 fiscal years would bear the brunt of the global financial crisis and that has been borne out in these figures today.

As this chart shows, tax receipts for 2010‑11 were revised down sharply when the GFC hit, you can see that very marked downturn over there, and that has certainly meant that there has been a pretty pessimistic revenue outlook. You can see the expectations came up somewhat and they have tailed away yet again.

Slide 1: $40 Billion Stripped from Budget Revenues (Total Tax Receipts in 2010-11)

So the fact is we are still suffering a revenue hit of $40 billion, predominantly as a consequence of the global financial crisis. But we've also, latterly had the impact of the high Australian dollar, which you can see just towards the end of that graph and also the impact of natural disasters on revenues, particularly company tax receipts.

So overall, tax receipts for 2010-11 came in around $40 billion below their pre‑crisis levels. Now let's just put that $40 billion in perspective, that's a reduction of 13 per cent on what was forecast in the 2008-09 Budget. That's a pretty substantial hit to anyone's income over a period of time.

Now, despite all of that, the global instability, the sustained [higher] dollar and so on, the Australian Budget position remains amongst the strongest in the developed world and you can see this in the next chart.

Slide 2: Strong Fiscal Position (Budget Balance, 2010-2016)

Australia's budget deficits are substantially lower than countries like the US, the UK, the Euro area, and we expect it come back to surplus much sooner and of course our net debt is dramatically lower than other major advanced economies as well. So a strong budget position overall and very low, very low, net debt.

Slide 3: Dramatically Lower Net Debt Levels (Net Debt 2010-2016)

So all of these charts, all of these figures, demonstrate that the Budget's in very good shape, particularly with low debt and that is one of the reasons why Australians can be so confident that our economic fundamentals are strong and that's very important for Australia at a time of global turbulence.

Now all of this was obvious to me as I sat around the G-20 and IMF tables last weekend with finance ministers. Australia's position couldn't be more different from that of other developed economies sitting around that room. Now, of course, many Australians are doing it tough but when you compare our situation to what's happening in other developed economies where there are stalling revenues, high rates of unemployment and massive public debt burdens, I think Australians can take a lot of confidence from the fact that we have a growing economy with low unemployment and low public debt.

Now our strong position is a result of a number of factors: first and foremost, the rapid stimulus that we put in place when the GFC hit. What that meant was Australia didn't go in to recession and we face the new challenges from a position of strength. That's not a position that many other developed economies are in because they're facing these challenges from a position of high public debt, large budget deficits and very high unemployment. But what was important when we moved to protect our economy back in 2008 and 2009 was that we put in place a set of strict fiscal rules, an exit strategy, and we've been applying that exit strategy since that time. And what that exit strategy is about is a clear path for fiscal policy, a clear path for return to surplus - or what you call in the jargon, fiscal consolidation. It's very important that we continue on that path, particularly given the turbulence that we see and events that are playing out in other developed economies.

So what we did was to put in place fiscal support for our economy when it was weak but we also put in place a program to strengthen our fiscal position as the economy grew and that is precisely what we are doing. And that was the plan that we laid out in February 2009. So we are budgeting for a fiscal consolidation or a return to surplus of 4 per cent of GDP over two years.

All of this is important and a powerful reminder of why this approach is the way to go when we look at the turbulence that we see in other countries where sovereign debt problems are endemic amongst a number of developed countries.

Those sovereign debt problems are putting pressure, not just on public budgets in those countries, but putting pressure on the banking system and that's impacting upon confidence globally. Here in Australia the contrast is stark with what is going on there. It's because we acted decisively to stimulate the economy, to put our fiscal rules in place, that we do face the current situation from a position of strength with solid economic growth, low unemployment and fiscal position that is one of the strongest in the world. I'll just hand over to Penny.

WONG:

Thanks very much Wayne. I'll just make a few brief remarks to follow up Wayne's comments. The Final Budget Outcome that you are seeing again demonstrates the spending restraint that the Government's planned for, and that the Government is delivering. And you'll see from this FBO that cash payments in fact fell in real terms in the 2010-11 year, and this is the first decline in real spending growth in more than 20 years. This is a Government that is taking the hard decisions in the budget context to deliver a strong bottom line. We've found savings across the Budget to make this possible. You might recall in the last Budget we made some $22 billion worth of savings across the forward estimates, and this builds on the $83.6 billion worth of savings identified in the previous three Labor budgets.

And as the Treasurer said, the approach that you're seeing delivered in the FBO today is part of a strategy that was outlined prior to the GFC and that we are delivering today and in the Budget that was handed down earlier this year, the fastest fiscal consolidation since at least the 1960s. I would also emphasise the structural position of the Budget. Many of the saves that the Government has made are structural reforms. These are about strengthening the long term Budget position and they are saves which grow over time.

I just want to make some brief remarks about the importance, particularly in the current economic climate, of a clear budget strategy. As we've outlined, we have had a very clear fiscal strategy we've been delivering on. A strategy based on spending restraint which allowed revenues to recover naturally as the economy recovered. And the recent turmoil that we are seeing on global financial markets underscores the need for clear budget frameworks.

These global challenges remind us that this is a time for responsible policies, responsible fiscal policies, sustainable fiscal policies. Fiscal frameworks need to be clear, and they need to be credible. They need to be clear and credible. And what we are seeing on global markets reminds us of the importance of a clear, credible fiscal strategy which is why the Government has done the hard yards in finding savings and adhering to the fiscal strategy, and will continue to do so. Thanks very much.

JOURNALIST:

At what point in time do you have to make an assessment about the impact of the soft international economy on Australia? And while it's great to have those fiscal rules in place, what time do you have to say well, maybe we need to just push out the surplus forecast or whatever because revenues aren't so strong?

TREASURER:

Let's be very clear, the Government is determined to come back to surplus in 2012-13. The events on international markets will have an impact on global growth, that will have an impact on domestic growth, that will have an impact on revenues and we're beginning to see that already. You can see that in the fact that the tax receipts here are down $2 billion. It's not exclusively a result of those impacts from global instability - one or two other factors as well, but we do expect weaker revenue as we go forward. It just means, as the finance minister was saying, that we've got a significant savings task in front of us.

Now your question is: at what point do you respond to a dramatic change in international circumstances? Well, I say it's early to make any conclusion about that. I'm quite happy to talk at some length about what is happening internationally but in terms of our Budget I repeat our determination to come back to surplus in 2012-13. And I just make this very clear point: we will deal with the cards when they're dealt. These events have got some way to play out. The fact is that we have shown in the past that if conditions were to change dramatically that we have the ability, the capacity and the proven record to deal with those circumstances but those circumstances have not played out as yet.

JOURNALIST:

In terms of the savings task are you going to do something special? Are you telling ministers to make extra effort? And secondly, following Laura's point, doesn't it at some point become counterproductive to look for excessive savings if you're under pressure from the world economy?

TREASURER:

Well, the first point I have to make again is that there is some way to go in terms of these international events before you would make an assessment that there has been a really dramatic change in the overall growth outlook. We're not at that point yet. We don't do updates every month, or every two months, or every three months, in terms of our forecast. We do them twice a year. So we will do that in the context of MYEFO. We are always – and I'll throw to Penny in a second – always looking for savings in our Budget. I think we've found over our four budgets about $100 billion worth of savings. We will continue to look for savings and we will continue to look at savings in a way which certainly isn't one that is counterproductive for growth, I make that point. Penny.

WONG:

Well I think the Treasurer has outlined it but unsurprising what the Finance Minister would say is that the job of finding new savings is never finished. You always have to find savings to offset spending pressures and also to prioritise expenditure in accordance with the needs of the country, the needs of the economy and that's an ongoing task. And one I think we've demonstrated to date.

In terms of your point Michelle about counter productivity, what I'd reinforce is what the Treasurer has said. I think if you look internationally – there is a very clear indication about the importance of clear credible fiscal strategies. And that's why it is extremely important that we continue to deliver on what is a clear and credible fiscal strategy.

JOURNALIST:

Treasurer, the fiscal deficit is about $5 billion worse than Budget because of accounting treatment changes principally on disaster payments.

TREASURER:

ANAO, yes that's right.

JOURNALIST:

Will that have an impact on the 2011-12 Budget numbers?

TREASURER:

Well, there's two things that are very obvious from the figures – and I will throw to Penny, in a second – but when we are looking at disaster payments the fact is that there is some spillage over from this year to next year. But that accounting, that accounting change that the ANAO has got in place which impacts on the fiscal deficit, not on the underlying cash balance, is one that will have an impact when we look at future natural disasters, okay. Because in the past we've accounted for this in a fiscal sense when nobody expected to come in, not when they've been occurred, okay. Now you can well ask the question, why has it been like that? I'd have to go back in history and find out but in terms of our underlying cash balance there's no great change. So this is probably news to everybody else in the room but no one looks at the accrual figures or accrual tables. There's been a change there by the ANAO when it comes to disaster payment delivery.

We are delivering, in full, on everything that we said we would when it comes to the Queensland floods and Cyclone Yasi, including a $2.5 billion prepayment to Queensland. There has been a change in terms of expenditures in terms of the cash balance because there's been a delay in receiving some bills from the states for previous natural disaster events prior to the floods in Queensland and Cyclone Yasi. So there are adjustments in terms of both the accrual accounting in terms of the underlying cash balance. But your question was about the accruals and I expect that's going to apply and have impacts as we go forward for events that haven't yet happened because we will not be accounting for them in the same way.

JOURNALIST:

Treasurer, the ACTU called for an increase in the tax-free threshold up to $25,000 eventually and for that to be partially funded at least by changes to the tax treatment of superannuation. Is that something you'd consider, seriously consider at the Tax Forum? And secondly, what concrete outcomes do you expect from the forum next week?

TREASURER:

Okay, well there's quite a few questions in there. First of all could I say that one of the reforms the Government is most proud of is the tax reform that we've already announced which is consistent with the recommendations of the tax review from last year, which is a very substantial increase in the tax-free area or threshold. We're tripling that from $6000 to $18000 – an enormous benefit for many people on the lowest incomes and particularly for second income earners. It will have a benefit in terms of work force participation and it's just one of those great reforms that any Labor politician would be proud to stand up and say this is a very, very significant reform. Like a number of the other significant reforms we have reforms we have already announced but only commence from 1 July next year like the MRRT which is going to fund a very significant tax cut for business, particularly small business, and a very significant boost for super. So I make the point that when we go into to the Tax Forum, the Government goes into the tax forum with a number of significant reforms already announced but not yet commenced. So the increase in the tax-free threshold is one of those.

So I will welcome, for this tax forum, a pretty healthy debate from groups right across the spectrum and whether I agree with them or whether I don't I'm going to welcome the discussion that's going the discussion that's going to happen at the Tax Forum. But tax reform is one of those things that happens block by block. So we've already, I think, announced 32 reforms that have come out of Henry and some others in the last Budget. I think there are a good dozen or so in the last Budget which I think already give us a pretty substantial tax reform agenda but we're not going to rest on our laurels.

So there'll be plenty of ideas put forward including those that have been put forward by the ACTU because I think it is incumbent on anyone who is arguing for a position which is going to have a big impact on revenue for them to come forward and say how they're going to fund it. And in this case the ACTU has put forward a proposal. I neither endorse nor oppose these sorts of suggestions that are going to come from a whole lot of people in the next couple of days.

There will be a whole lot of stuff out there which is going to be part of the debate at the forum and I have no intention of pre-empting any of that. What I've already said is some of those things that the Government will not be doing, commitments we took to the last election, but there's a whole ambit of things out there that people will be making suggestions about and they're welcome to do so and I welcome them all in the next couple of days and through the next week.

What I hope we will do at the forum is come out with a few more ideas about what are going to be the priority areas for reform. So you just don't take a tax system one day and the next day it's just suddenly changed over. Australia's got a pretty good tax system. A pretty effective tax system in world terms but we've got to make it better. We've already made a very big start on some significant reforms and there are a lot of others that people will talk about at the forum and I don't intend to pre-empt them.

JOURNALIST:

Can I just clarify by the end of the forum are you imagining that there will be a communiqué or some sort of statement?

TREASURER:

No I'm not, I don't think we should think about this as we're going to be in there in some sort of tripartite way like the '80s where there's this grand bargain that everybody agrees to, it's signed up and then it falls over.

JOURNALIST:

No, but is there something coming out of it saying well we've all talked about this and agreed that these are the priority areas for reform or…

TREASURER:

Sure, well I think there are a couple of points there and I'll just go through each of them. I don't know because I'm not going to pre-empt the debate but what I'd like to be in a position to say is look, there's some directions here because as you know there's sort of well over 1,000 pages of the previous tax review. There's an enormous amount of analysis, an enormous amount of data. We've done about 32, 33 things coming out of that. What I'd would like to be in a position is to say I think it's pretty clear there are a couple of priority areas here we would want to do and we want to sequence them like this, but I'm not going to pre-empt the outcome of what is said on the weekend. We've got a diverse group of people coming along. No one person or voice is more important than any other person or voice and we'll have a listen to it and see what they've all got to say.

JOURNALIST:

But when you talk about setting priorities. Are you saying you will, at the end of this, outline your priorities or are you saying the meeting needs to outline.

TREASURER:

No I don't see this as being a thing where everyone sits down and they all put up their hands and say yay or nay. It's not like that. It's a forum. I know a lot of people have wanted to run around and call it other names. It is simply a forum for people to get up and various organisations to talk about what their priorities are. At the end of the day the Government will assess all that and we will move on the priorities that we outline.

JOURNALIST:

And you will outline your priorities at the end?

TREASURER:

No, I'm not saying that I'm going to come out and say, you know, this is the Government's legislative program. No I won't be doing that. We're going to go to the forum, we're going to listen to what people have to say and then we'll have something to say about future directions after that.

JOURNALIST:

Will there be some kind of a document produced as a consequence of the forum?

TREASURER:

Well, there's already lots of documents being produced for the forum. But the Government will move forward with an indication of those things that we think have got some immediate priority. That's what we'll be doing.

JOURNALIST:

But Mr Swan you've already had the Henry Tax Review. Many people at the forum will have made submissions to that, presumably their views haven't changed. What will this forum accomplish that you wouldn't have been doing otherwise?

TREASURER:

Can I just correct that? I don't think that's necessarily the case because there's been a dramatic change in the global outlook since the Henry Review came down and a lot has happened. So I don't think you can conclude that everyone either A, supported every recommendation in the Henry review or B, every recommendation in the Henry Review is as applicable now as it was two and a half years ago.

JOURNALIST:

You've also made the point that tax reform is a long-term process, surely the great bulk of what could have been done won't be thrown by events of one or two years?

TREASURER:

I'm suggesting that at all. I'm suggesting the measures may not be necessarily the same or apply the same way. Look, I've made it clear, for example, that the Government is interested in progressing some short to medium-term measures when it comes to comes to business tax, for example. Now I've made that really clear. Why is that? Because what's emerged in the Australian economy in the past 12 months in particular has been a much more substantial structural adjustment imposed on the country by a higher Australian dollar than many people had envisaged. We had talked about the structural adjustment and that was one of the reasons we made the announcements we did about the MRRT, the direction of revenues to cuts in company taxation and so on. All of that has become even more relevant in our current context. I know for example there are plenty in business who want to talk about further reform in business tax over and above what was talked about in the Henry Review. So that's just one area where I think the situation is slightly different than it was two years ago.

JOURNALIST:

Treasurer, Rob Oakeshott said for example that if we get changes to the treatment of inefficient state-based insurance levies and also stamp duty perhaps scrapped as two basic results out of this forum he'd be happy.

TREASURER:

Well, that would be good.

JOURNALIST:

Has he got any chance of seeing say, those two measures for example, coming out of this forum?

TREASURER:

Well, let's just hold it right there because I think that question really illustrates the dilemma. It's one thing for people to stand up and say they want to abolish a whole lot of taxes. The next thing that they've got to stand up and say is well, how is it going to be funded.

JOURNALIST:

Why won't you allow discussion, not allow discussion, why won't you consider in the future changes to the GST as a way of funding which a number of groups seem to think it would be …

TREASURER:

Because it's not the Government's policy and for very good reason. It's a lazy solution. It's not an economically efficient solution and it's not a path the Government is going down and I'm absolutely proud to say that.

JOURNALIST:

Why do the business groups think it is?

TREASURER:

Well, we just had a disagreement with them and that's healthy too and they're welcome to get up and argue their case but I for one, as Treasurer of this country, will not stand by while someone wants to argue a case that any change of business taxation has to be paid for directly by the punters of Australia. The Government rejects that position. I've been very clear about it. I've been very consistent about it. The position pre-dates the appointment of the tax review and it continues but within that there is a whole lot of stuff that can be done and we can talk about all of it. The Government is just not doing that.

JOURNALIST:

But they are talking about state taxes not business taxes.

TREASURER:

Yes I know, but some people are suggesting that the reform of state taxation would be funded by an increase in the GST. The Government is not going to do that. That will have to be done within the states.

JOURNALIST:

One tax not on the agenda next week is the mining tax. You have clear political support to boost that tax if you so wish and to boost its proceeds. What's stopping you from doing that? Are you worried about another campaign from the miners?

TREASURER:

No because the Government believes that we came to a very good outcome for the MRRT which we agreed through the Argus Review and we're going to stick with that. This is a very big reform for Australia and we outlined the need for a Resource Rent Tax 18 months ago. We have been through endless consultation. We've been up hill, down dale, consulting about this tax.

We've got an agreement on a proposal and it's the one that we are going to legislate and we're going to use it to do essential tax reform elsewhere in the economy and if people want to get up and talk about how they want a different one, that's fine, but it's a bit like the answer I just gave to Michelle. The fact is the Government's not hitting the pause button here. We're getting on with our agreed MRRT to get the revenue to do the tax reform and we're not revisiting what I regard as a very good arrangement for Australia.

JOURNALIST:

I understand that, Treasurer. What about plugging holes in the royalties issue where the states keep – Western Australia and New South Wales have both had a crack at gouging proceeds by raising the royalties. Why don't you just cap that? Why don't you call the miners' bluff and cap royalties?

TREASURER:

Well, we'll work our way through that issue but it's not an issue for the Tax Forum. If people want to raise it at the Tax Forum, they can raise it. The Government is working its way through those issues but there is plenty on the agenda. I don't know whether people in the room have actually been through all of the stuff that's published on the website and so on. But everyone who is coming has all put down what their priorities are and what they want to do. I recommend you go away and have a look at all of that. There's a diversity of views, a diversity of suggestions and they cover a wide area of tax policy and I'm happy to hear what anyone's go to say about any issue whether it's the MRRT or what they want to say about the GST. But the Government has an established position. We're going to have a yarn with a couple of hundred people about tax, that's a good thing, it's a healthy thing but tax policy is not something that is made – or substantial reforms to the tax system are not something that are made – in one or two days of discussion. What they're made in is a pretty healthy discussion, debate, and then considered government policy over time and that's how we're going to proceed.

JOURNALIST:

Just to go back to Phil's question, outside, irrespective of the Tax Forum, is the Government looking at plugging that royalties hole in the MRRT?

TREASURER:

Well, the Government will deal with that in time. For example, I just make this point, that New South Wales is not providing any detail on what they intend to do in that area. It's by no means clear that anyone should reach any conclusions about its impact on anyone's bottom line. Thanks very much.

JOURNALIST:

(Inaudible)

TREASURER:

No I'm not buying into where we're going in that area. People may want to raise it at the forum. The Government will work its way through and implement its agreements with industry to the full, everything we agreed we will implement. Thanks very much.