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

22 October 2012

Press conference

MYEFO

SUBJECTS: MYEFO 2012-13

TREASURER:

OK, well thanks for coming. Thanks for coming for our fifth mid-year update. Now I think it is pretty obvious to all that once again this mid-term review, or this mid-year review has been put together amid the storm clouds which are hanging over the global economy. We can see this in the impacts of the Global Financial Crisis continuing in Europe, you see it in the European recession. You can also see it in the subdued recovery in the United States, and then of course the flow on impacts of both of those on our region. Now this lower global growth outlook has had another very big whack at government tax revenues and has made it harder to deliver on the surplus. Now anybody who suggests that somehow our finances are immune from the global fallout is simply kidding themselves. These are a reality of economic management in these conditions. But if we look at where we are, we're still expecting around trend growth, low unemployment and in those circumstances it is absolutely appropriate to stick with our surplus objective.

So, we have continued to find savings in this mid-year update in a balanced way, in a responsible way, and we are focussed in doing that on minimising the impact on the economy. Our savings send a very clear message to the world that we have world-beating public finances and that is very important given global economic uncertainty. These savings also show that we manage the economy in the interests of working people. And we've been living up to our end of the bargain, we have been running a tight ship. That means that the RBA has been able to cut interest rates so that a family with a $300,000 mortgage is paying around $4,500 a year less in interest in their annual repayments on their mortgage.

I just want to run through the economic context. As I said before there is a challenging international environment, but what we've got here is a combination of economic strengths that puts our economy up in lights compared to other developed economies around the world. We are a beacon of strength compared to what is going on in this fragile global environment.

No economy can hide from the recession in Europe or modest US growth, and that is weighing on the region. So growth in our region has moderated as a consequence of what is going on in Europe and the United States. That is reflecting in terms of weaker demand and that is impacting particularly on China. So we have lowered our forecasts for global growth in this mid-year update by ¼ of a percentage point in 2012 and 2013, to be 3¼ and 3¾ per cent respectively, in terms of global growth.

And for us at home, the clear impact of weaker global conditions has meant that there has been a bigger than expected decline in commodity prices in recent months and that has had a huge impact on the budget, not just in this financial year, but as we go forward. As a result, we now expect the terms of trade to decline by 8 per cent in 2012-13, larger than the 5¾ per cent decline factored in at the Budget. But I would make the point that even then prices still remain at relatively high levels. This means our forecast for nominal GDP growth is also one percentage point lower at 4 per cent in 2012-13. Which reflects the decline in commodity prices that has already occurred. Now despite global headwinds, and a high dollar and changing consumer behaviour which weighs on some sectors, we're still forecasting growth around trend.

Growth is expected to be 3 per cent in both 2012-13 and 2013-14, and that is underpinned by a healthy combination of strong investment, solid consumption and strong growth in export volumes. In 2012-13, growth is a ¼ of a percentage point below our Budget forecast. What that reflects is lower commodity prices and the impact of that on some resource projects, in addition to stronger than expected investment in the year which has just passed. So there is still significant resource investment to come, and that will drive business investment to record highs as a percentage of GDP over the forecast period, and you can see that in the chart. Notwithstanding the impact of lower commodity prices, business investment is still strong in Australia as we go forward.

New business investment to reach record high as a share of GDP

Now just like the Reserve Bank of Australia, we expect resource investment to peak over the forecast period as a per cent of GDP, and this should coincide with a ramp up in export volumes, as the boom transitions into the production phase. So far from falling off a cliff, resource investment is set to stay at high levels, with lower interest rates providing further support to the non-mining sectors. At the same time, unemployment is expected to remain low, rising slightly to 5½ per cent over the forecast period. That is consistent with our Budget forecasts.

Now this weakening global outlook that I was talking about before plays a very big part in our fiscal story. A weaker outlook for global growth and lower than expected commodity prices, along with the easing of price pressures in the economy, is really putting the hand brake on company tax revenue. These influences have led us to write company tax revenues down substantially – by over $4billion in 2012‑13 and a total of almost $22 billion over the forward estimates. This takes the total write down in company tax revenue since the Global Financial Crisis to $160billion over the five years, 2008-09 to 2012-13.

This is particularly concentrated in taxes on profits, especially company tax and resource rent taxes. Company tax has been revised down $13.5 billion over the forward estimates. This mainly reflects lower commodity prices reducing resource sector profitability, but there is some contribution from generally weaker corporate profits right across the economy.

Resource rent taxes have also taken a hit from lower commodity prices, revised down by over $7 billion across the forward estimates. Now this includes revenue not just from the MRRT, but also the PRRT; because oil prices are lower than at budget, as are iron ore prices and coal prices. Now of course, this is how resource rent taxes are supposed to work. Unlike royalties, they are profits‑based so by design they collect more when profits are higher and less when profits are weaker.

Now in contrast, the forecasts for taxes on wages and consumption do remain solid, consistent with our positive outlook and expectations of around trend growth. Both personal tax on wages and GST have been revised up very slightly from the Budget, which gives the States another $675 million for their budget bottom lines. But even with the revenue write-downs elsewhere in our own budget, returning to surplus is still appropriate given current economic conditions. As I said earlier, growth is expected to be around trend, unemployment is forecast to remain low and commodity prices remain high by historical standards.

So the Government is returning in this budget to a small surplus of around $1billion in 2012-13, with growing surpluses over the forward estimates. This puts us on a responsible middle course, between those who say we should cut hard in the budget and don't worry about the impact on growth and jobs, and of course those who say don't not cut at all and don't worry about a surplus. This is the responsible middle course. What it has meant is that we have put in place responsible savings of $16.4 billion over the forward estimates. You can see the size of that savings task in the chart on the screen. We have been making savings in MYEFO over recent years, but this year is much larger than past years.

Savings of Budgets and MYEFOs

The savings this year, builds on savings of $138 billion we have made in our five budgets. This is the fourth consecutive mid-year update where we have made net savings. What it does, is it shows that we have a consistent track record of meeting strict fiscal targets and focusing spending our spending priorities. We are targeting our savings to have the least impact on the economy and on the vulnerable.

It is important to remember that when we are taking saves, it is not just about where we get this year, it's about where we get over the forward estimates. And it's about where we go in terms of the long term sustainability of spending programs. Many of our saves over time, and including in this update improve the underlying position of the budget over time beyond the forward estimates.

For example, we are reducing the baby bonus from $5,000 to $3,000 for the second and subsequent child. Now of course these families do receive strong support from the Commonwealth. Whether it's Family Tax Benefit Part A, Family Tax Benefit Part B; whether it's the new Schoolkids Bonus; whether it's conditions that we have made for the family payment system - particularly for those with older teenagers in the family or whether it's what we are putting in place in terms of Paid Parental Leave. We have had a consistent record of very strong support for families.

But we believe that these changes to the Baby Bonus will bring it more into line with actual costs of having children. After the first child you've already bought the cot, the pram and other items you can use again. This is a tough decision, but it will help improve the sustainability of the family payments system over time.

We are also reforming the Private Health Insurance rebate, to link the growth in the Government's contribution to premiums at the rate of inflation. This is another saving to make spending in this area sustainable over time. This policy change builds on the earlier reform of means testing the rebate and helps to move Private Health Insurance rebate, from one of the fastest growing areas of health expenditure onto a much more sustainable footing.

We currently spend around $5 billion on Private Health Insurance rebates - that's around what we spend on Medicare on GP visits. And it is growing on average by 6.3% over the forward estimates.

Without this reform, the Private Health Insurance rebate was estimated to grow to around $8 billion by 2022. This reform will make expenditure in this area more sustainable over time. The Minister for Health also believes there is benefit in reforming the premium approval process and she will work with industry and consumer groups to find the best way to protect consumers and create efficiencies for industry.

We are also continuing our tax reforms, by removing the concessional treatment of in-house fringe benefits if they are accessed through salary sacrifice. It's simply not fair that some workers have access to these concessions, while the great majority do not. And it is clear that these concessions are being used in a way that was never intended, for example for things like tickets to the Melbourne Theatre Company.

We are also moving to require large companies to pay their tax monthly, in the same way that many businesses pay GST monthly or workers have tax taken out of their pay on a fortnightly basis. We think that's only fair and it's only logical. We'll give companies at least a year to prepare, with around 350 to be affected from 1 January 2014, and a longer period of preparation for others.

Through our five years in government we have made many decisions that have produced continuing saves over the longer term. To either improve the budget position or to fund what have been key Labor priorities, such as Paid Parental Leave or the very substantial increase that we put in place for the base rate of the pension.

Without these saves, net debt would not return to zero in 2020-21. Instead it would be over $250 billion at that time. Without them, the underlying cash balance would be around $51 billion lower in 2022-23. That's a massive boost that is helping us to make room for new priorities, such as schools and disabilities.

In the past these 'structural' saves have made room for initiatives, as I said before, such as an increase in the pension, investments in schools and universities. In the next year, these and other structural saves like them will help make room for the National Disability Insurance Scheme and very important school funding reforms.

Now, as I have said before in this room, the Government will always ensure that our fiscal settings are appropriate for the economy and for jobs. Our number one motivation is to support employment and that why we support growth. This means that we will continue to ensure our approach to savings is appropriate for the economic conditions and always fair on the community.

All of this means that Australia's public finances will remain strong, amongst the strongest in the developed world. Our net debt is dramatically lower than for other major advanced economies. As you can see in the chart, our net debt peaked at 10 per cent of GDP in 2011-12 and now begins to fall. This is around one tenth of the projected peak in net debt for the major advanced economies, and we are doing very well in comparison to all of them.

Public finances amongst the strongest in the developed world

With Australia's strong set of economic fundamentals, it's hard to find a country that's better placed to deal with uncertain times in the global economy. But there are challenges, and no economy can hide from global weakness. But I don't think we should let these challenges overshadow the substantial strengths that we find in our economy, which is a standout in the eyes of the world.

Our economy is now the twelfth largest in the world even though we're not even in the top 50 in population terms. And we've gone up three places, from 15th to 12th in the time that we've been in power. And we're expected to grow faster, this year and next, than any other major advanced economy. As this chart shows, and I think it pays just to have a reflection on the data, we continue to power ahead of the major advanced economies, with our economy now11 per cent larger than when we came to office, 11 per cent larger.

By mid-2014, which is the end of our forecast period, our economy is likely to be around 18 per cent larger than when we came to office, while Europe is still trying to catch back all of that lost ground. We shouldn't lose that in our discussion of the challenges that we face domestically or internationally.

Australian economy outperforms

So whether it's our strong budget position or our unique combination of economic strengths, I think there's a lot that Australian's can be proud when we look at our economy. We wouldn't want to be anywhere else in the world when you look at what is going on in the global economy.

You just don't get to this position without having to take difficult decisions from time to time, and this Government over five years has taken plenty of those. Always with an eye on growth, always with an eye on jobs and always with an eye on fairness and always with an eye making sure our budget is sustainable over time, so that we can make room for new priorities.

Now we haven't taken any of the saves we've made today lightly, but we've made sure that they don't hurt the economy and don't hurt the most vulnerable. There's a very clear contrast between what we've done here and the slash and burn cuts that have been made by State Governments around this country or would be made by Mr Abbott as he faces up to the fact he's got a $70 billion crater in his budget bottom line.

This Government will always do everything possible to ensure those on low and middle incomes are looked after and benefit from the strong economy through a strong budget. So one of the dividends of our responsible economic management has been that we've supported employment and growth and we've given additional room for the Reserve Bank to move when it comes to monetary policy, resulting in a situation where many Australians both in business and in the community are the beneficiaries of lower rates over time. Someone with a $300,000 mortgage is now $4,500 a year better off than they were prior to the Government coming to power. I think we've achieved a lot together and this mid-year update is part of the strong continuing economic management which brings benefits to the country and to the people. Penny.

WONG:

Thanks very much Treasurer. I just have a few brief comments I wanted to add. I want to talk about the uncommitted grants and just a couple of comment on the structural saves and also the higher education saves.

First, in relation to uncommitted grants, which has obviously been a bit of a focus in the lead-up to MYEFO. Obviously with the publication of the mid-year update we have lifted the temporary pause in the grants programs. It was a pause that was put in place to enable the Government to examine every dollar of spending and to ensure taxpayers are getting value for money, and obviously a normal part of the budget process to make those sorts of considerations of program expenditure. You'll see in the mid-year update we've reduced uncommitted grant funding by about $157 million in 2012-13 as direct decisions. Of that, more than half has returned to the budget and been re-directed to other Government priorities, and there has been a conscious decision to delay some payments into later years across a range of portfolios. I'd make this point: no grant already awarded is being affected by the decisions announced today and savings have only been found in programs with uncommitted funds.

We also, in the course of doing this, have re-profiled some expenditure from grants programs to better reflect expected expenditure patterns. This is a standard part of the budget process and the movements are treated as variations so that's why you won't see them in the measure description. In total the review of grants funding has yielded close to a $500 million reduction in spending in 2012- 13. Obviously this is just one of the decisions the Government has made in the mid-year review and I just want to make a couple of points about the structural saves that the Treasurer has spoken about. Things like the Private Health Insurance changes, the Baby Bonus and other measures in this MYEFO are all savings which don't just improve the budget in the near term but improve the budget bottom line over the longer term.

As the Treasurer said, without these long-term saves you wouldn't see net debt returning to zero in 2021 and you'd see a very different position on the underlying cash balance this year and over the forward estimates. So these saves reflect our commitment not only to the surpluses over time but to the longer term sustainability of the federal budget.

I want to make a couple of comments about higher education. There are some decisions in the mid-year update which reflect changes in relation to funding of the university sector. Let's recall that under this Government funding for university places has grown considerably. We've invested to date more than $43 billion in core university funding over the period 2008 to 2011. That is a 50 per cent increase on the four years prior to our election. In the years ahead, that is 2012 to 2015, we'll be investing some $58.9 billion in our universities – more than double the funding in the last four years of the Howard Government.

This additional funding has created some 150,000 additional undergraduate places compared to when we came to office. As a result of these new places we are providing an additional $1.7 billion to additional student assistance in recognition of the substantial additional take-up of university places. When it comes to research, we've increased spending on research by more than 40 per cent since 2008.

We have made some is changes in this mid-year update to the Sustainable Research Excellence program; a program which funds the indirect costs of research – not salaries – and we are achieving some savings by delaying when this program will reach its maximum funding of $300 million. We're delaying that by three years so the target will be reached in 2016. It's important to recognise that from next year funding will continue to increase in the program, albeit with growth at a slower rate, and growth in funding for National Health and Medical Research Council grants and ARC grants has not been reduced over the forward estimates.

Just in closing, inevitably, some of the savings in MYEFO will no doubt be unpopular but the Government is focused on making the right decisions for our circumstances and ensuring a strong and sustainable budget position now and into the future. Thank you.

TREASURER:

We've got plenty of time so we'll go around. We've got a bit of an audience so I'll make my way around.

JOURNALIST:

Treasurer, about half the $16.4 billion worth of savings comes from a bring forward of company tax revenue. Has Treasury said anything to you about an expectation that company tax revenues will recover in the medium term or have you just put off dealing with a structural problem in the company tax base? And second, why not wait until you get the details of the mining tax returns?

TREASURER:

I'll deal with both of those, two good questions. Firstly, what we've done in terms of paying monthly company tax doesn't start this year - it's not in 2012-13. It starts from 1 January 2014. We've put in place a measure which gives people plenty of time to get ready, so I don't think you can say it's motivated from some desire in terms of the surplus this year. We think this will make it more accurate, more timely, more clear and easily understandable.

We don't see why companies can't be in the same boat as those paying their GST monthly, for example, or for that matter if you want to take an analogy with a punter, it's not quite the same but everybody pays their tax on a fortnightly basis.

This is not unique anywhere in the world, there are plenty of other countries that pay on a monthly basis. In terms of company tax revenues, as you'll observe, company tax revenues are down substantially. They are coming back but they're not coming back as fast as we thought they would be coming back and that's why we've got further revenue write-downs, but they are still recovering. As you know, they're weighed down by accumulated losses particularly from what's occurred in the Global Financial Crisis and the global recession. But look we stand ready to work with the business community in introducing this important reform for the company tax system. It's not an increase in tax, it's simply a change in the timing of the payment of it, and we look forward to having a constructive dialogue about all of that and that's why we have not started it immediately and it is not providing any revenue for 2012-13.

In terms of resource rent taxes, I just want to deal with this furphy that somehow because some material is going into the tax office and the Treasury on the MRRT that we'd magically tomorrow or next week or next month have a complete appreciation of what revenues are going to be like from the MRRT from that data. That's just a nonsense and it is just another one of the inaccuracies that's peddled, particularly by the Opposition.

The fact is that in this update we have written down MRRT revenue by over $4 billion. Its total over the forward estimates is $9 billion, it has been written down by just over $4 billion. Why is that? It's as I said in my remarks, the whole point of resource rent taxes are that when profits are high they pay more, and when profits are low they pay less - unlike royalties when you pay whether you're profitable or not.

The fact is – and people want to concentrate on this figure because it goes to so much else we've had to do in this Budget really explains much of the revenue loss - is that iron ore prices plunged 30 per cent, they're back up by about half of that now - for a period between the Budget this year and September. Ditto with coking coal, plunged 30-odd per cent. Thermal coal has been down 15 per cent. So some of that has come back, but what it did do for a period of some months is impact on revenues across the board.

The whole point about resource rent taxes is that they encourage investment. They encourage investment because they recognise that when prices are low less is paid and they recognise when prices are high more is paid. So that is why there was no need, because there would not have been any more substantial information to have governed our estimates about resource rent taxes next week or the week after.

JOURNALIST:

Treasurer, could you explain how the Government decided that the Baby Bonus would be cut from $5000 to $3000 for subsequent children, and on the private health insurance, could you explain -

TREASURER:

We're doing two questions then, we've got to get around. Anyway, in terms of the Baby Bonus, the fact is it's increased substantially. I think it started off at $3000; it's now up around $5000. The original rationale when it was announced was to help families out at particularly that time when they're making a lot of their bulk purchases. We've decided to recognise that for the first child that's absolutely the case so the $5000 remains there but we'll take it down to $3000 for subsequent children, recognising that there are many things purchased once that they don't purchase twice.

Now, many people will see this as a tough decision, I understand that, but in the suite of support we provide to families when you look at Family Tax Benefit part A and when you look at Family Tax Benefit part B and when you look at what we've done in terms of paid parental leave, and when you look at what we're doing in terms of the school kids bonus, when you look at what we're doing to the boost the family payments from the 1st July next year, all of those things indicate that we are very strong supporter of providing assistance to families when they need it but I don't think that this one payment, which has increased by something like 70 per cent in its time that it's been operating, was sustainable in that form and therefore it is one of the saves we've taken today.

JOURNALIST:

Mr Swan, when you were talking about the structural savings measures you've announced today, I think you said these and other structural saves will help make room for the NDIS and Gonski, for schools funding. Does that mean that you're agreeing that there is still a mismatch between the long-term cost of those measures and the money that's likely to be there to pay for it and are you signalling there will be more of those structural savings measures in the May Budget?

TREASURER:

I'm saying both things because I think it ought to be recognised that from day one the Government has put in place some very important sound structural saves which are providing room in the Budget over time to put in place new initiatives. I could take you through a list but we've published it today and I want to give people time to answer their question so I won't go through it but we put it out in the structural saves paper. But, I'm also saying there will be other structural saves we will have to take as well but we've already done a lot of the heavy lifting when it comes to structural savings. We will do some more as we go about responding, as we must because it's an economic and social imperative, to get the major education reforms in place and to get the National Disability Insurance Scheme in place as well. I'm just pointing out we've got a long history of doing this, we're going to continue to do more of it but the reason we're in a position to contemplate these big reforms for the future is precisely because of what we've done in the past.

JOURNALIST:

Coming back to the company tax issue. However desirable that might be in itself, doesn't it mean that half your savings really are an accounting saving rather than a substantial saving.

TREASURER:

It's not the only saving that we're doing, we've got $16 billion worth of saves in the Budget [update], $10 billion-plus net and there are swings and round-abouts. There's plenty of other saves here so we're not relying just on one. Trying to say that there is one measure which makes up the outcome is like trying to say you won the footy match because of the last two tries you scored. You know, the fact is that a mid-year update or any other Budget is the sum of its parts and there's a whole lot of changes in here, some which just go over the Forward Estimates, some are moving around, some are as you point out a bring-forward, others are enduring saves that go over time. There's all sorts of things happening but we didn't put it in place for 2012/13. We've given people plenty of time because essentially it's a reform and it's not done exclusively as a savings measure. But over to Penny.

WONG:

I just wanted to make the point that I think an important data set to look at is payments as a share of GDP over the forward estimates. That gives you a sense of the extent of government spending in the economy and ours are projected to be below 24 per cent, at or below 24 per cent, for the whole of the forward estimates period. That's the longest sustained run at that level for some 30 years so that gives you, I think, a better sense of the extent of spending restraint that accumulation of previous budget decisions and these decisions make across the forward estimates. I'd make this point also if you want to look at that, then look at the tax to GDP ratio where we're still below the Howard Government.

TREASURER:

I'll add to that. Then I'll go to Dennis and then I'll go to David. The tax to GDP ratio at 22.1 is quite low. If we had the same tax to GDP ratio that the Liberals had when they left office we'd be in surplus by $24 billion. So, anyone who wants to make this argument that somehow that there's all this tax revenue floating around the place is barking up the wrong tree.

JOURNALIST:

With the private health insurance rebate, Treasurer, you eliminated it for high income earners in the middle of this year. The measures you're taking in this statement will reduce its value over the next four years by $700 million. Why shouldn't Australians be of the view that you're trying to get rid of the rebate by stealth?

TREASURER:

I don't accept that at all. We're not trying to do that. We're trying to make sure we're not providing an endless rebate for any level of increase. This a very sound move in terms of making expenditure in this area sustainable over time and not hostile to the rebate I think we're getting all of the settings right now. We're not providing rebates to people who are on incomes like mine or yours anymore, and that's a good thing and that's what the Government got through the parliament. This is another measure which I think is very important. If you're really committed to this dual system, Medicare on the one hand, private provision on the other, then it's got to be sustainable and I think this is an eminently sensible move.

JOURNALIST:

Treasurer, the report emphasises a lot of the uncertainty in the economic environment. Were there to be a further deterioration in commodity prices while the economy is still growing at trend, would you undertake further savings measures to ensure that the surplus is preserved?

TREASURER:

No, what I'll do is make sure our current economic settings match the economic circumstances, that our Budget settings match the economic circumstances. The whole purpose that we have behind economic policy is to support jobs and growth and that's what we'll do. And by the way, we've got a proven track record of handling volatility in the global economy, should we need to.

JOURNALIST:

Treasurer, won't the cuts in specific purpose payments to the states of $700m, won't that impact on their ability to deliver infrastructure and other services?

TREASURER:

I'll just correct that, you used the word cuts. There have been no cuts in Specific Purpose Payments to the states and we should be really clear what about what has happened here. The fact is that we have an agreed form of indexation in terms of our SPPs with the states and we have applied that indexation. It's not been a decision that the Government has taken at all, the fact is that our agreements which are providing the states with revenue, very generous revenue increases over the forward estimates and into the rest of the century.

JOURNALIST:

It's a saving, isn't it?

TREASURER:

No, it's not a savings. It is the application of our indexation so indexation is going to be - the indexation that is worked out for health and education is slightly less in these documents than some would have anticipated at the Budget. That's because the same factors which are driving down company tax revenue are at play in the calculation of the level of indexation. Not a calculation that we do. In the case of Health, a calculation done by an independent body. In the case of schools, it's a factor of school enrolments and a whole lot of other things. There's been no cut at all and in fact states are continuing to receive very generous increases in terms of funding in health and education but the calculation of the latest indexation method done on an agreed formula, signed and sealed in the agreements, has produced in this year a lesser flow of money in some areas and nothing whatsoever to do with Government decision-making.

JOURNALIST:

Of the measures announced today, how many need to be legislated by the year's end?

TREASURER:

I think lot of them.

JOURNALIST:

And also seeking clarification to the answer to David Uren. In your answer to him, are you effectively saying that you are guaranteeing there won't be any more revenue measures announced between now and the Budget?

TREASURER:

I'm not entering into that sort game. I never do and I'm not doing it today. The fact is we will absolutely ensure that our Budget settings support jobs and growth. That's never changed, never changed.

JOURNALIST:

The other question about legislating-

TREASURER:

I think a number of them will require legislation, not necessarily by year's end. Different start dates for different measures so obviously PHI , we're talking on the lifetime health cover component is 1 July 2013 so that has a particular start date so obviously different measures will have different start dates and we'll seek to legislate appropriately.

JOURNALIST:

Treasurer, you talked about how these changes will have the least impact on the economy. Moving effectively $5.5 billion out of the corporate sector to your Budget bottom line as part of the timing change to PAYG, doesn't have that have risk of an impact on the economic activity going through major Australian business?

TREASURER:

I don't think so with a year or 14 months to go. I don't think that. We'll talk to the business community about this; I think it's a perfectly reasonable proposition. There is plenty of time, I don't share that view.

JOURNALIST:

Were the company tax changes raised as part of the Business Tax Working Group and if they weren't (inaudible) expect business will say what's the point of consultation afterwards (inaudible)?

TREASURER:

Well we're getting a final report of the company tax working group, it wasn't in the remit of the company tax working group. But if you're saying is there going to be consultation - yeah, heaps. It's not starting for 14 months and so you know.

JOURNALIST:

On Nauru and Manus Island, you said the contract for building are subject to commercial in confidence

TREASURER:

They are yes, they are being negotiated at the moment.

JOURNALIST:

(Inaudible), can you give us a ball park figure.

TREASURER:

Well we are currently still negotiating contracts, its commercial in-confidence. When it's not commercial in-confidence I'm happy to publish it for you. It's costing us money. That's clear from the documents. This is entirely the normal way these things are done.

JOURNALIST:

You're forecasting a surplus, $1.1 (billion), revealed on Twitter in what I think is a first - $1.1 billion. Is that something you're confident you can deliver, should we regard it as that? Or should we regard it as an estimate that might change?

TREASURER:

Well, welcome to the 21st century. It's good to get it out to everyone at once, which is the power of social media -

JOURNALIST:

How should we regard that 1.1 -

TREASURER:

Our regard for it doesn't change because it was out on Twitter. Maybe our regard for it goes up, I don't know.

JOURNALIST:

Is it something you are confident you can deliver or is it an estimate that might change?

TREASURER:

It is, as it has been for 100 years, it is the forecast of the Government, prepared for it by the Treasury, and in this case the Treasury that has prepared forecasts for both sides of politics for a long period of time. It's been very professionally done. Our Treasury, when it comes to these matters, is regarded as one of the best in the world so that's how you regard it, that's how I regard it.

JOURNALIST:

It's not something you are guaranteeing?

TREASURER:

It is our forecast and that's why we have put in place a whole lot of really tough saves over which I think there's going to be a pretty vigorous debate because we take it really, really seriously.

JOURNALIST:

Treasurer, you say that this creates room for the Reserve Bank. In forecasts, the dollar will stay at about 102 cents. And secondly, you think the interest rates will follow markets which are currently pricing in roughly another three maybe four interest rate cuts. The two don't seem to reconcile. You're arguing the dollar will go down with the terms of trade and yet it's not in your forecast?

TREASURER:

No, what we've done here is put into our forecast what the Treasury regards as the appropriate forecasting for interest rates and for the dollar. Never done any different by the Treasury of the previous Government, it's just done in exactly the same way here. They take a conservative view about the market's view on the likely path of rates. That's what they do and that's what they will have told you at Estimates. In terms of the dollar, we take an estimate of the dollar, a snap shot of it at a time around when we're putting all of our forecasts to bed which is what we've done and we've got to go. Thank you.

JOURNALIST:

You're giving the tax office an extra $390 million to raise $2 billion extra. Is that a correct reading of it? And where do you -

TREASURER:

It's for a variety of things. Happy to take you through that in some detail but it's not out of the blue, it's also an extension of a number of programs running to an end. So it's not like of all this is just sort of - it's a whole lot of different stuff. There may be new stuff, but its mixture of things we're also currently finishing up that needed to be refunded as well. Thank you.