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

9 April 2012

National Press Club address
Question and answer session

Parliament House, Canberra

SUBJECTS: Company tax reform, delivering a surplus, responsible budgeting, spreading the benefits of the boom, company tax reform, debt ceiling, overseas aid

HOST:

Thank you very much Treasurer. We have quite a number of journalists who would like to ask questions so I would appeal to my media members to keep themselves to a single question if they can. The first one comes from Mark Kenny.

JOURNALIST:

Mark Kenny, Adelaide Advertiser. I'm going to make a fairly shameless early bid for that business journalism award that was mentioned earlier. You've scrapped the 1 per cent company tax rate and you say you're happy to keep talking to business about what you can do there but is there any room in your wafer thin surpluses this year and next to do that, or are you just play paying lip service to that?

TREASURER:

Thanks for that question. It's a very good question. It gives me a chance to talk about tax reform more generally and in particular business tax reform. We determined to fund a number of initiatives with revenue from the mining tax and that decision goes back a couple of years. The instant asset write-off which commences on 1 July, a very big boon for small business, is funded from the mining resource rent tax and we also determine that we would fund a one cent cut in the company tax rate but the fact is that Mr Abbott and the Liberals have blocked it. We cannot get it through the Parliament.

I find it incredible that the party of Menzies, supposedly the party of business, would be opposing a cut in the company tax rate but they have done so and they've gone one step further, they're indeed proposing an increase in the company tax rate, that is their stated policy. So in the circumstances where we couldn't get it through the parliament we determined that we would use that revenue to spread the opportunities of the mining boom more broadly across our community by, if you like, enhancing family tax benefit payments to families.

The fact is, and I've said it very clearly in my speech today, what we want to see is more people have a stake in the outcomes of this mining boom. That means we have to attend to the patchwork pressures in the economy, which is why we are so focussed on policies to give tax relief to small business in particular, that's not in the fast lane of the mining boom. Hence our commitment to Loss Carry Back, instant asset write off and so on and hence our original commit to cutting the company tax rate. That not being possible, we determined that we would spread the benefits of the boom out to low and middle income families under financial pressure.

At the end of last year we had a Tax Forum here in Parliament House. I think it was pretty handy discussion, a pretty successful discussion, and we appointed a Business Tax Working Group to go away and to make recommendations to us on the future of business tax reform.

That first report came back recommending the Loss Carry Back proposal which we have funded here out of mining tax revenue and that is in the Budget. They couldn't reach a conclusion however, on how further reform of the company tax system might be funded. They did propose some possible savings options within the business tax framework that could be taken.

The business community came back to Government and said look we're not in a position to say yay or nay to those savings. We're also not in a position to finalise where we want to take the corporate tax system, whether it's possible to go down one cent or five cents or whether we want to examine an alternative proposal that comes up at the Tax Forum. They said we want a longer and more informed discussion about these matters. In those circumstances we took the decision to use those resources from the mining tax to spread them broadly across Australian families on low and middle incomes but I do want to make it really clear here today that the Government is still in the cart not just for that discussion, but for a policy outcome when it comes to the future of company tax in Australia. But it was very clear to everyone involved in our discussions in this room back at the Tax Forum at the end of last year that we would be happy to fund business tax reform from within the business tax envelope if you like. So that's where we are.

HOST:

Next question is Phil Hudson.

JOURNALIST:

You've said today that the surplus is a powerful sign of credibility. It provides the room for the Reserve Bank to cut interest rates and is a buffer against the uncertain global economy. In the spirit of analysing the Budget as you've invited, given last year's bottom line changed by $22 billion year from year, how can you be sure that the mining tax revenue won't be less than you've expected? How can you be sure of the price that you're banking on from the sale of the 4G mobile spectrum licences won't fall short or that there won't be just general revenue write downs given that since MYEFO, six months ago, there was a hit of $5 billion a year, and if any of this was to come true would that then mean your surplus and credibility had vanished?

TREASURER:

I do really welcome that question Phil. I think it's a really good question. I'll take a bit of time to walk you through the answer. First and foremost, what's occurred is that revenues are down further than we even expected back at the time of the mid-year budget update which was last November, that's what has necessitated a much larger savings exercise in this Budget, a much larger savings exercise than we'd anticipated at the end of last year.

Two factors in particular drove that impact on revenues. The first one was a greater than expected impact generally on our economy from the biggest natural disasters in our history and that also affected the spending side of our Budget, $6 billion for the reconstruction of Queensland was a pretty big hit. So we had the floods, they also had a bigger impact on growth than many had anticipated in the early stages, and then in the last quarter of last year another bout of very chronic instability in the European Union with a couple of countries actually turning negative in terms of growth - even Germany - in that quarter. That set off another round of global jitters which impacted upon global confidence which fed through to consumer caution, impacted on asset prices and all the rest that Europe has generally been doing to the global economy through that confidence channel. So those two events occurred, they necessitated a very substantial revenue write-down which had us lifting our savings task for the Budget well above where it was last November and we're up for that task again.

Why do I insist upon surplus? With growth returning to trend, 3.25 per cent, with contained inflation with solid consumption and with a huge investment pipeline, that's precisely what we ought to be doing. It's just with those metrics we're not quite getting the revenue growth we ought to get. And we took the decision that we would come back to surplus and we'd have to find more savings and we might end up in that position again. As you know, we make our forecasts based on the best judgment, the best advice that is available, the people in the Treasury here are very professional. They've served this Government. They've served the previous government.

And we are in the fortunate position of being located in that part of the world which is now leading global growth. Well, over half global growth in the next year will come out of the Asia Pacific and it just keeps rising. The baton, if you like, is being passed from west to east and being located here as I've said in my speech means we've really got to pay a lot of attention to the importance of a medium term fiscal strategy. So it's not just the fact that we've got a modest surplus this year. We will have to start building those surpluses over the years and they are built over the years in this Budget and we'll have to build on that, so that that medium term fiscal strategy and our lift in national savings becomes the anchor upon which we maximise the opportunities that flow out of growth in the region not just in resources.

So you asked me about the MRRT revenues. The MRRT revenues are down slightly over three years in this Budget. As we've always said, they are affected by the factors of commodity prices, volumes, and currency. So there's nothing unusual about them being revised down. We've got another year in the forward estimates. So we're still back in there with around $12 billion over the forwards from the MRRT which has been being spent in the way in which I've described today, assisting low and income earners through the family tax system, giving a big boost to tax relief when it comes to small business, all of those aims.

HOST:

Mark Simkin.

JOURNALIST:

Treasurer, just to clarify, are you saying that you would be willing to cut further if necessary to ensure you do meet that surplus and you remain the $1.5 billion man?

TREASURER:

Yes.

HOST:

Next question, Laura Tingle.

TREASURER:

Short and sweet.

JOURNALIST:

Laura Tingle, Financial Review. I wanted to ask you about the medium term fiscal strategy, Treasurer. In the Budget papers last night, you've changed that strategy slightly, having reached a forecast surplus. It previously was that you would aim for a 2 per cent cap on real spending in outlays, real growth in outlays, real growth in outlays, and it's now changed to 2 per cent on average. I just wondered how much that actually meant? If you look at the Budget figures you've achieved a very commendable -4.3 per cent growth or cut in spending in the coming financial year but all the other years both the current year and the forward years generally exceed that 2 per cent target. And given the capacity to move spending around between years, isn't it a figure that you'll never have to reach?

TREASURER:

No. I'll explain why. You've got an eagle eye Laura, but the fact is that that rule has been there since 2010. There's nothing new and I'll explain why. We've had two rules, we had the rules that were first announced for 2 per cent which were announced in 2009 and in the 2010-11 Budget we announced arrangements which would apply when we came back to surplus. So the rule was 2 per cent all the way through to coming back to surplus.

When back to surplus the rule was changed some years ago to be 2 per cent on average until we get back to surpluses of 1 per cent. That's what was changed. So there's nothing new about that and I'm delighted you've asked a question about what's happening with expenditure because expenditure over the forwards averages 1.8 per cent. And you can pick out a particular year and say that it's higher than 2 [per cent] because it will be above 2 [per cent], and in some years it will be below 2 [per cent].

But the figure I really want to draw your attention to – and there's a graph also in the Budget papers – which is payments or expenditure as a percentage of GDP. That is about 23.5 [per cent] over the forwards, the lowest percentage over any four year period since the early 1980s. So what I'm saying is coming back to surplus inevitably means a big drop in terms of expenditure and in terms of expenditure as a proportion of our economy it flat lines right across the forward estimate because as the economy grows, you'll get some of those expenditure figures that will go up and sometimes they'll exceed 2 per cent and sometimes they won't. But as a proportion of our economy, expenditure flat lines over the forward estimates, that's exactly the way we want it because that's how we're achieving the objectives that I spoke about before including building bigger surpluses in the out years.

HOST:

Mark Riley.

JOURNALIST:

Mark Riley, Seven News. I know you called this a game changing Budget and part of the game is obviously changed. I didn't hear you mention the carbon tax in your speech even though the compensation measures are in this Budget. Is it now a case for your Government, as John Cleese may say ‘don't mention the war' and can you concede that the Benefits of the Boom Package at least a small part of that is recognition by you and your Government and the Prime Minister of the fact that you underestimated the financial and the electoral impact of that policy?

TREASURER:

No and I'll explain why. The fact is that putting a price on carbon is absolutely essential. You can't be in the 21st century, a first world prosperous economy, unless you are going to be substantially powered by clean energy and that's our starting point. And it's true that we've paid a pretty high political price for making our commitment to reduce carbon pollution and putting in place the clean energy package which provides in particular assistance to both households on the one hand and affected industry on the other.

There's been a lot of hype and a lot of hysteria about the alleged price impacts of what we're doing with the price on carbon but we've put together a comprehensive package, where assistance will be flowing through to households in the next month or so in recognition of price impacts of the carbon price. And ditto, it will be flowing through to industries particularly in those trade exposed sectors.

But I believe, as we go through those periods a lot of the hysteria that has been peddled in the media will be revealed for what it was at the time it was peddled and that we have accurately accounted for the impacts of carbon pricing and provided the additional assistance to make sure that people make the transition.

So I'm pretty confident of all of that. So because I'm confident of all of that I don't see what we've announced in the Budget through the prism that you just proposed in your question. What we're recognising here is a more complex picture of a really strong economy on the back of resources but a patchwork economy where many sectors are far weaker than other sectors. And what we're trying to do is to spread the benefits of the boom around the economy, not just to one or two areas in the economy. And we think adjusting family payments for low and middle income earners is one of the fairest ways of spreading the benefits of the boom more broadly around the economy.

Why do I think that's important? I guess it was the key of my speech today - we want to see more Australians have a stake and a say in our future prosperity because if we don't we'll have the very foundations of it challenged.

I'm a really big believer that we as a society can't go down the American road. For example, down the American road of the shrinking middle class, of great and vast disparities in the distribution of wealth. One of the means that we can use to avoid that is a very effective family payments system. I've spent most of my political life in Parliament talking about the family payments system and indeed through our previous four Budgets we've spent a lot of time fine tuning it, making it more targeted, making it fairer, and that has been the subject of a lot of spirited debate in previous Budgets, indeed in the last Budget.

So I think adding money to family payments is a really great way of making sure that we do spread the benefits of the boom more fairly and give more Australians a stake in its success because for too many Australians it's just someone else's boom. It's completely removed from them. We need to give more people a stake in that success which is why we devised the MRRT in the first place. So we could do a number of things to spread the benefits around the patchwork economy which is partially the result of the consequence of a higher dollar which flows from a permanently higher terms of trade.

So that's the context it's seen in. I know people will make a judgment about current politics, the current situation with Government, and that's what people will do because that's a political debate, but when you're talking here about the longer term, when you're talking about when people like myself are long dead and gone, what we do now will really matter about how we set our country up for the future and give all Australians a stake in the prosperity of our country.

JOURNALIST:

Michelle Grattan from the Age. Just taking up one of those points Mr Swan, you obviously made the decision sometime ago that the first choice for using that money from the boom was to give it to companies via the company tax cut.

TREASURER:

Yes.

JOURNALIST:

Yet you've just made a strong defence of giving it to individuals. Was the individual route a less good option, do you think? And if you don't think that why didn't you choose first to go down that individual route, rather than the company route?

TREASURER:

Well, I haven't given up on the reform of the company tax system, that's the simple answer to your question. It just wasn't possible to progress it through this Parliament and the Government wasn't prepared to sit there and see no reform take place. So we took, I think, a very important economic decision to spread it more broadly across our community and I think that's a good thing.

But I'm serious; the Government is serious about tax reform. We have been progressing our way through a whole range of reforms, including more in this Budget which are working their way through the conclusions of the review done a couple of years ago. For example: in this Budget we decided not to proceed with the standard deduction which was the recommendation of the review a couple of years ago. Why? Because we've got one of the biggest tax reforms in our history starting on 1 July. This is the tripling of the tax-free threshold. This is another element of the Henry Review which is there in its full glory and will be delivering enhanced participation in our workforce, more reward for work when low-income earners have worked a few hours. A really fundamental reform. So sometimes conditions change.

We did determine when the review came out that we'd do the standard deduction. We got to a point where we actually thought we could triple the tax free threshold. We've done that. Well, that in some ways alleviates the need to do the other one. You have to choose between competing priorities. Governments do that all the time and that's what we've done.

HOST:

Paul Bongiorno

JOURNALIST:

Paul Bongiorno, Ten News. As we speak, the Parliament is debating the Government's attempt to get the Schoolskids Bonus through the Parliament today and tomorrow so the payments can flow next week. A number of the Opposition speakers have spoken of wasteful spending, a cash splash, a hand-out that isn't targeted that will disappoint. Now if we don't see this in the context of compensation for the carbon price, should we see it in the context of a stimulus payment, and an admission that the economy is more fragile than many people fear?

TREASURER:

The answer to that is no. The Education Tax Refund was put in place by this Government, because it was a commitment we gave and we've implemented it. But our review of where it's got to is it isn't working as effectively as it ought to have worked and it wasn't going to as many people as it needed to go to. And in particular, it wasn't going far enough down the income spectrum.

So we had a good long think about it. I've been thinking about this reform for some time. I know the Prime Minister has as well because she had this within her portfolio responsibilities some years ago, and we determined the best way to do this, the most efficient way to do it was to pay it as a lump sum and to pay it when families need it. Because the main thing that was happening with the Education Tax Refund is it was coming a lot later than it was needed.

So now people are actually going to get it at those pressure points in the family budget, when they're sitting around the kitchen table and have to buy the books, the school uniforms and the software and all that sort of stuff. They're going to get it when those pressures are on the family budget. That's the thinking behind that and that is why we've moved in that direction. So this is an enhancement of a policy which we put in place. It's not something that's come out of the blue. It's actually something we've thought about for some period of time.

Can I just say, if that's what the Liberals have been saying in the Parliament, that's just an insult to working families with kids in this community and it really shows a complete disrespect for the role that parents play and their importance in our community. One of the reasons I so value the family payment system and one of the reasons I'm so keen on the Schoolkids Bonus is that parents are doing the most important job in the country – bringing up the next generation of young Australians and nothing is more important to our success in the 21st century than the quality of our education and what is going on inside the brains of our young people.

So this is a government, whether it's early childhood education, primary education, secondary education, VET, or tertiary education, that takes the economic power as well as the social power of education very seriously. So it's not a very hard thing for us to sit down and say if we can give the education bonus, the Schoolkids Bonus, we'll do it. We've done it and I'm extremely proud of it but what I'm really perplexed about, I'm really perplexed about where the Opposition has actually got to on this because their position up until now has been to say that they will not support any measure which comes from MRRT revenue.

Remember they want to abolish the MRRT to give Gina Rinehart and Clive Palmer a tax cut. Now they have appeared to backflip and now they're saying they may support the family tax benefit payments even though they come from the MRRT and then they then turn around and say they are not going to support the Schoolkids bonus. What that is is just really shoddy politics which shows an incredible disrespect for parents in this community and the education of their kids.

HOST:

Matthew Franklin.

JOURNALIST:

Matthew Franklin , The Australian. I just wanted to pick up on the theme of some of the earlier questions. I heard and accept that you want to spread the opportunity from the boom, to share the boom around to more parts of the community. What I wanted to ask you though is, you were earlier proposing to do that by giving a tax cut to business and you could argue and I think you may have argued yourself in the past that that would perhaps help battlers by creating more jobs. It's an economic reform. Wouldn't that be a preferable outcome and probably in the mould of the Keatings and Chifleys to pumping up payments to families which would be more in the mould of John Howard in his distribution of budget surpluses?

TREASURER:

No, look I don't see it as either or. This is the point, we've got to strengthen the benefits of the boom around the country in a variety of ways and have a variety of mechanisms. One of the reasons why I've been so passionate, for example about the instant asset write-off, the $6500 instant asset write-off that small business can get on multiple items of capital equipment is such a huge boost to their cash flow and it is a very significant reform that's just been forgotten about. But it's out there, it's being funded by the MRRT and that's why we announced the $700 million for Loss Carry Back and why we are still keen on working with the business community but the rules and the parameters of the discussion we've been having with the business community are through the Business Tax Working Group were about what more can be done over the long term cut, to actually bring the corporate rate down. That's a discussion that's not concluded and given the fact that the Liberals wouldn't even support a 1 cent cut and in fact are arguing for a company tax increase. We thought the best way out of that situation was to spread it in a different way and they're not mutually exclusive because frankly these payments are also good for business.

HOST:

Colin Brinsden.

JOURNALIST:

Colin Brinsden, AAP. Can you explain why you need to raise the debt ceiling again by $50 billion when your bonds on issue are only going to be around $250 [billion] at the end of every financial year. Why not $25 [billion]? And secondly, once debt starts to decline what level do you intend to attain sort of maintain a liquid bond market?

TREASURER:

Well, you're right to point out that debt that will be issued at year's end under the debt cap of $250 billion. That is absolutely the case. What we are seeking to do here on the full advice of the AOFM is to put a bit of a buffer in because what we actually have is an end of year financing challenge. What tends to happen is that Government revenues come in big lumps towards the end of the year but Government expenditure goes out evenly across the year. And then secondly, we also have to retire bond lines as we bring new ones on. Those two factors combined has led the AOFM to say to us that to cover the mid-year financing requirement which is only temporary, which will go over the cap, that we should lift it. But there is no intention of the Government to do anything other than provide the buffer that the AOFM has argued they should have to conduct their operations in a completely professional way. So that's why we're moving to do that. I don't believe it ought to be controversial at all. That advice is available to anyone who wants to read it and the reasons for it are there for all to see and given the nature of global financial markets I think it would be good if we could actually have a mature, measured discussion about this issue because that is the fact.

Secondly you asked me if the (inaudible) about what we will do with the size of the bond market once we start paying down debt because that is the point of actually building up surpluses and paying down debt. We've got a report before us which recommends that we should leave it at about 12 – 14 per cent of GDP. The Government has not announced a decision in that area. We're determined to pay down our debt over time but that's a serious recommendation which will progress through normal policy channels and that ought to not be controversial at all. It's a matter about the liquidity in financial markets and we want to have a mature discussion about it. We haven't reached a conclusion about that but the Government is serious about paying down its debt and there is a legitimate question, what do you do once you've done that and what should the size of the bond market be?

HOST:

We'll have to make this our last question from Karen Middleton.

JOURNALIST:

Karen Middleton, SBS Television. It's well known that Australia is currently campaigning for a seat on the United Nations Security Council. The slogan for that bid is ‘we do what we say'. How will you explain to the developing countries whose votes Australia has been seeking that we aren't doing what we said on Foreign Aid? Or are you now just kissing that bid goodbye?

TREASURER:

No not at all and that would be very inaccurate and unfair to the aid program that we conduct and the additional monies that we are putting into aid over the forward estimates. We are increasing the money that's available for aid but we're doing it at a slower pace and only a slightly slower pace. So the fact is we are going to be a very generous donor, are a generous donor. We ought to be a generous donor.

This Government has made enormous leaps and strides in this area and we will continue to do so. It's just going to happen at a slightly slower pace. And when you bring down a budget which has got the savings scope that this one has got, you've got to actually make sure that there's a bit of restrain across the whole budget and that's what we've done. I think the question would have been well, why was one area carved out? Well, all areas have been impacted on in this budget but I think we've done it in a way which is very, very true of our aspirations to be a generous donor and to take our rightful place in the world as one of the most important countries working against global poverty, and that hasn't changed one bit.

HOST:

We'll conclude on that answer. Please thank the Treasurer.