Interview with Cathy Bell
ABC News Radio
18 April 2012
SUBJECTS: Budget surplus, International Monetary Fund
The Federal Treasurer Wayne Swan says that predictions from the International Monetary Fund shows that Australia will out-perform every other advanced economy over the next two years. He says that the IMF announcement underscores the importance of returning the Budget to surplus. The IMF has also revised its global growth forecast, up slightly to 3.5 per cent.
But, there is a warning there that the recovery remains very fragile indeed. That warning comes as Treasury reviews it's processes to try and find out why it has been overestimating company tax revenue, another factor that will play into the Treasurer's calculations as he frames his Budget. Joining me now for more on this is the Assistant Treasurer, David Bradbury. Good morning to you.
Good morning Cathy, how are you?
I'm very well thanks. Let's start with the IMF because that would be making you feel very happy this morning I imagine, upgrading growth forecasts globally since January. Does this make it easier for the Treasurer as he heads in to his fifth Budget?
I think what we're hearing from the IMF is relatively consistent with the picture that we've been hearing in the past. Although on the global growth front, we have even more signs of optimism in terms of the future direction of the global economy, I note that whilst the IMF indicates that they are optimistic about the global growth prospects they also note that there continues to be some *inaudible* risks, particularly emanating from the Euro zone. But that's no surprise. Also coming out of this report is a focus on the strength of the Australian economy.
If you have a look at what the IMF has to say, they make it very clear that Australia is the stand out performer of the advanced economies. Indeed when you look at their growth predictions, they are indicating that the Australian economy is expected to continue to outperform every other advanced economy over the next two years. So, there is good news but as we've seen before, there continue to be some risks and in that context we will be framing the budget.
Indeed. Let's talk about those risks because the IMF as you say has been very positive about Australia but it has warned that western economies just like Australia can't become complacent because of the risks that you've mentioned in Europe and also in terms of that volatile oil market too. The IMF says that governments like the Australian Government have to make some tough policy decisions.
Well that's right, and the prospect of any future external shocks is one of the most significant reasons why we need to return the Budget to surplus. There are many people who are getting out there and running this line that returning the Budget to surplus is merely a political objective. If you need any stronger evidence than we've previously provided on this point, have a look at what the IMF is saying.
They're saying, very clearly, that countries that have the capacity to do it, such as Australia, are preparing themselves in the event of any future shocks in the global economy. That is precisely why that at a time when our growth is returning to trend, when we have unemployment at record low levels, at a time where we have record levels of investment in our resource sector, but an investment pipeline of unprecedented proportions, this is precisely the time where we need to be returning the Budget to surplus. This is to ensure that we're protecting the Australian economy from any shocks should they occur down the track.
Well you talk there about countries that have the capacity to make these tough decisions to bring their budgets back into surplus, you talk about Australia specifically but how disconcerting is it for you that Treasury is seemingly unable to accurately forecast company tax revenue because that is going to make it far more difficult to frame a Budget, isn't it?
Well Treasury has always had some difficulty in estimating with precision, revenue forecasts. That is just the nature of the difficult task that they have in trying to estimate revenue forecasts. If you have a look through the Howard period, often Treasury got their revenue forecasts badly wrong and generally that was in favour of the Government because generally, figures came in stronger than what had been estimated. We're facing the opposite prospect and I think that, nearly in large part, is a result of the difficulty you have in trying to estimate these matters.
But can I make these points: there are three significant factors that we can point to that we see is in part the reasons why this is the case. If you look on the first issue, there are a large number of companies that are carrying forward losses out of the GFC and that of course means there is a longer period of lag before they start to pay tax in to the future. Another reason is the impact that the GFC had on the growth in asset prices and the impact that is having on capital gains tax collections.
The third point that what we're seeing with mining boom mark two, is that it is a much more capital investment boom than we saw during mining boom mark one. The significance of that in terms of tax revenues is that when businesses are investing in capital, and I spoke earlier about the record investment in mining capital, when they're doing that they get deductions upfront and less tax is being paid. That doesn't mean that that tax won't be paid at some point in the future, but obviously that presents short term challenges in the flow of corporate revenues. It is in that context that we're framing the Budget, but against the backdrop of the global economy that is showing some signs of improvement, with a domestic economy that is very strong. We need to ensure that we make the room necessary. The best thing about the surplus is that we can tackle inflation, so in doing that we're tackling the cost of living, it is about giving the Reserve Bank the room they need to cut interest rates and obviously the eventual impact of that on the Australian Dollar will be beneficial as well.
David Bradbury we'll have to leave it there. Many thanks for your time this morning.
Good to talk to you Cathy.