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

8 February 2013

Press Conference

Brisbane

SUBJECTS: Statement of Monetary Policy; MRRT revenue; Improving transparency in the Tax System: Drugs in Sport; Private Health Insurance Premiums

TREASURER:

I think the statement from the Reserve Bank today again confirms the resilient fundamentals of our economy, despite the fact that there are patchy conditions across a number of sectors. I think it also highlights that some of the downside risk to the global outlook has abated in recent months, following what has been very significant volatility at the end of last year.

Now it's clear that European and US policy makers have taken steps to reduce risk in the global economy and I think everybody is reassured by the fact that there has been stabilisation in our own region, particularly in China. But there are still deep-seated challenges facing the global economy and the developed world and that the recovery there does remain fragile and uncertain. As the RBA says, Europe remains a potential source of instability and the US must resolve its looming spending cuts and debt ceiling in a growth-friendly way.

Difficult global conditions, particularly towards the end of last year, contributed to patchiness in our economy and, of course, those global conditions have made business cautious, particularly in terms of hiring labour. Now all of this comes on top of a higher Australian dollar, which is pretty unusual given the lower terms of trade that we have experienced in the recent times and, of course, all of that has produced a cautious consumer, particularly when it comes to borrowing. Now these factors have tempered the outlook for some sectors but the RBA is still expecting solid growth over the forecast period. So we're in a position where many other developed economies are still trying to claw back lost output that came from the Global Financial Crisis and are still trying to reduce very high levels of unemployment. A stark contrast with where we are here in Australia. Our economy is 13 per cent larger, and of course we have an unemployment rate with a 5 in front of it.

According to RBA, inflation is expected to remain well contained, with the carbon price only having a modest impact as expected. Unlike other countries, we have a lot going for us here in Australia with solid growth, low unemployment, contained inflation and of course low interest rates. Whilst it is the case that the crest of the investment boom is approaching, we still have a very substantial pipeline of investment that is locked in or under way. This investment will boost volumes in terms of production, or export volume for years to come, with the production phase of the boom only just starting to ramp up.

As I said before, our fiscal discipline has given room to the Reserve Bank to substantially reduce interest rates over the past 15 months. If you have got a $300,000 mortgage, you are paying $5,000 a year less than you were paying when Mr Abbott was a minister in the Liberal Government.  Now of course, there is a transition in our economy and those transitions are not always seamless. A transition from this investment phase from mining over to the non-mining sectors of the economy. There are some encouraging signs in the statement from the Reserve Bank today that we are seeing a revival, particularly when it comes to investment in housing. So the lower interest rates will work their way through our economy and they will stimulate the non-mining sector of our economy.

Now I wanted to make comments on the MRRT revenue data and I think you probably have in your possession the letter from the Tax Commissioner. So the Tax Commissioner has provided me with this letter today which gives the revenue figures for the first two quarters of the 2012-13 financial year. Combined revenue from the first two quarters of the MRRT total [was a total] $126 million.

I think it's pretty important today that I step you through the processes that have got us to the provision of this figure from the Tax Commissioner to the Government today.  The ATO had advised prior to today that it was unable to provide MRRT revenue for the first instalment. The ATO's assessment was that to do so, would have breached taxpayer confidentiality provisions of the Tax Administration Act. Treasury shared the same view, drawing on the opinion of the Government's solicitor. Treasury's advice has now been publicly released; it was tabled in the Senate yesterday.

The information provided to me today is the combined figure from the first and second quarters. The Commissioner has advised that the release of the combined figure for the first and second instalment does not breach the privacy provisions of the law. I don't have further details of instalments, no more details than the ones I have released today publicly. Today I want to be very clear; the Government has always supported increased transparency in our tax system, particularly for revenues which are derived from the MRRT. We do believe it should be published which is why I'm making this information public today after it was received by the Government this morning.

This is also why the Assistant Treasurer has said for some time now that the Government is working on increased transparency in our tax system. We think reforms there are important for the future and this will include further work on MRRT revenue and remove ambiguity from reporting requirements. The data being released today shows that the MRRT has collected less revenue in its first two instalments than was forecast originally. Now clearly, the huge drop in commodity prices in the second half of last year had a dramatic impact on MRRT revenues and indeed the huge drop in commodity prices and the higher Australian dollar had a huge impact on all of our profit-based taxes in the second part of last year. I spoke at length about that in the press conference I did just before Christmas. But in the case of commodities, just consider this fact. Iron ore prices fell from $170 a tonne at the end of 2011 to just $80 per tonne in September last year. So a very dramatic drop in commodity prices reflected in commodity prices reflected in a drop in revenue.

It's true, prices are recovering but only in part. And these depressed commodity prices have continued to impact through to the end of the second quarter. As I outlined in December, revenues across the board have taken a massive hit from the impact of global instability, the volatility of commodity prices and a higher dollar and it is those three factors combined that have impacted here as they have impacted elsewhere in other profit-based revenue heads. So the hardest hit have been company tax, as I said Resource Rent Taxes like the MRRT and the PRRT, but also capital gains tax and superannuation taxes as well. As the Commissioner has advised today, the amount of MRRT paid has risen substantially from the first instalment to the second instalment which corresponds partly with commodity prices towards the end of last year. Now, to what extent the significant fall in commodity prices explains all of the lower than expected revenue is unclear. But in the normal course of events, this is something that the Tax Office and the Treasury would examine as they examine for all of our revenue heads when they match up their forecast as against the performance of the revenue.

Now I want to make this point, the MRRT is a very important reform for Australia. Australians own our resources 100 per cent and when very big profits are made, Australians are entitled to share in those profits. And that is the purpose of the MRRT. It is the purpose of the PRRT. Both are Resource Rent Taxes but when prices are high and profits are high, the revenue flows. When prices are low, and profits are low, then they collect less revenue. They are inherently volatile taxes.  There are some, including the Opposition and other commentators, that said no revenue would be raised. Well revenue has been raised. It has been raised in circumstances where prices have been very low.

Now I wanted to make a couple of comments also about the discussion we are having as a nation about drugs in sport. I think it's pretty fair to say that the findings of the Crime Commission are simply shocking and Australians are shocked at what they have heard. Now there is plenty of lifelong sports fans out there, like myself, and I think it's pretty disturbing to Australians to see that this disgusting drug culture has infected such a significant part of our national life. And that is why the national response to this, by the responsible authorities, now particularly the police, is so important. It's important that work is done so we can restore confidence in our sporting traditions and the role that they play in the life of our nation. Over to you for the questions.

JOURNALIST:

Treasurer, do you think Kevin Rudd is making too many media appearances?

TREASURER:

No.

JOURNALIST:

It's the fifth anniversary of the apology, he has called for the indigenous school for health, do you think Kevin Rudd is taking too much oxygen from the Government at the moment?

TREASURER:

No.

JOURNALIST:

What were you expecting the revenue to be from the resources tax over that period?

TREASURER:

We don't publish forecasts for the quarters. There are four quarters of the year. We made forecasts for the full year. But you can't in anyone one quarter say you have got an accurate handle on the total revenue prices flowing when prices are moving around such as they are. We don't ever publish quarterly forecasts.

JOURNALIST:

It's pretty obvious you are not going to make the $2 billion for this financial year, even if there is a recovery?

TREASURER:

As I said in December last year, that profit based tax revenue is down across the board. For example, what I announced at the end of last year was a consequence of profit-based revenue being down substantially - MRRT, PRRT, company tax, capital gains tax and so on – that we saw the revenue write down for a full year occur in just four months, the first four months of this current financial year. So they are down across the board. We have seen a partial recovery in profits. We will have to see how prices go over the next six months. There were have some people saying there wasn't going to be any revenue. Some commentators in the Liberal Party were out there, the people who go on bended knees to the mining billionaires and tell it them they won't have a profit-based tax, there all out there saying oh there won't be revenue. Well there is revenue and it's very clear that revenue has been substantially impacted by the huge collapse in prices that occurred at the end of last year. With a partial recovery in some, which is obviously as the Tax Commissioner has seen a return of revenue in the second quarter.

JOURNALIST:

How can your forecast be so wrong given the commodities were sliding already last year? I mean it's a significant write down

TREASURER:

I think to answer that question I ought to take you through forecasting. I don't think you will find that the prices we were forecasting for our commodities were any different to the prices that our major companies were forecasting for those same commodities. So what occurred in the second part of last year was an extreme bout of uncertainty in a global economy which wasn't just confined to Europe, but spread, particularly to a view and analysis that there was something profoundly slowing in the Chinese economy. That reverberated into commodity prices. As we have subsequently seen, much of that talk about China in the second half of last year was overdone. We have seen a stabilisation in Chinese growth and with that a partial recovery in commodity prices. There wasn't anyone I'm aware of, in the forecasting business here, or virtually anywhere else in the world that forecast the tumble that took place last year in iron ore.

JOURNALIST:

Mr Swan, is it time to review the structure of the Resource Rent Tax regarding the amount of offsets that mining companies can claim before they hand a dollar into you as part of that tax?

TREASURER:

As I said before, mining volatility in profit-based taxes. As I said before, very clearly, there is a significant influence here that has flowed from a big change in price.

As for other influences, they will be looked at in the normal course of events by both the Tax Office and the Treasury in the way in which they would also review forecast against performance of the tax. But it is too early to be drawing the sort of conclusions that some may want to make about saying this exact percentage is price and this percentage is these other factors. It is clear that price is a very significant factor. It may not be the only factor. It may not be the only factor and the Treasury, as they would normally do and the Tax Office, as they would normally do, will look to see whether there are other factors impacting or not.

JOURNALIST:

Will there be company by company breakdowns be released?

TREASURER:

We are seeking to have greater transparency and confidentiality is important. The Government has got a review and we have set up an advisory committee looking at greater transparency particularly for large companies and the amount they pay. I won't pre-empt those processes.

JOURNALIST:

Was it borne out of you pushing the tax Commissioner to revise his stance about privacy and lot release the figures after the first instalment. Was the mining companies told these figures would be released?

TREASURER:

First and foremost the Tax Commissioner is independent and takes his decisions independent of the Government. So he determined that because of the confidentiality provisions, he would not release the first quarter data

JOURNALIST:

Did you ask him?

TREASURER:

He is independent. What I had was a discussion with the Tax Commissioner in recent times about how we might increase transparency in the tax system. That's the discussion that I just referred to before in terms of the wider community. I have had a discussion about how we can make the system more transparent. He takes decisions under the law and under the Act he works under. He doesn't take direction from the Government and nor does the Government seek to provide any at all. As this letter makes very clear, that he felt that in terms of the revenue that came through in the second quarter, he wasn't therefore in breach of those provisions and he could make the figures available and I'm delighted, absolutely delighted that has occurred.

JOURNALIST:

Why has it taken two-and-a-half years to publish the first about the mining tax? It's obviously quite difficult getting information out.

TREASURER:

This is the first year that the law applied.

JOURNALIST:

No, but the first time, you have had some delays though in getting this information out there

TREASURER:

I'm sorry, but it may be an uncomfortable fact but this is the first year the law has applied. This is the first year the tax has operated in.

JOURNALIST:

The Government is approving 5% increase in health premiums. Isn't that pushing up the cost of living?

TREASURER:

These are matters that the Health Minister dealt with today. She has the task each year to review these claims and I have no doubt that there are many families out there are many families out there that experience cost of living pressures. It's the reason why the Government has put in place the significant measure, the Schoolkids Bonus to assist parents with the cost of sending kids back to school and it's one of the most important things the Government is proud of.

JOURNALIST:

The Opposition raised the issue about pamphlets, taxpayer pamphlets released in the ten Labor electorates which said we delivered a surplus on time as promised. This is before your comments later in the year that the surplus wasn't being delivered. Can you tell us why these pamphlets said you delivered a surplus on time and as promised when it is only as had been forecast?

TREASURER:

That's right, that is what we had forecast. At the end of last year, I stood up and said it was unlikely that that forecast was unlikely that that forecast was would be achieved because there have been a substantial change in the revenue outlook caused by global volatility

JOURNALIST:

You put out a pamphlet saying we have delivered a surplus. That is a huge difference.

TREASURER:

We have put in place a fiscal consolidation which is ongoing and that has been a key part in very significant interest rate cuts delivered by the Reserve Bank because our strict fiscal discipline has given them the capacity to adjust rates downwards but forecasts are adjusted. Twice a year, we first of all bring down a budget, then we bring out a mid-year budget update. Because of what occurred in the second part of last year, after the update, I provided further guidance of what had happened with revenue.

JOURNALIST:

It says "We delivered a surplus" and you hadn't.

TREASURER:

We had forecast a surplus, put in place a fiscal consolidation to achieve that surplus. Only somebody who would stick their head in the sand would ignore changes in the global economy. The facts have changed, so responsible Governments have to change their settings to protect growth and jobs. Fundamentally, when we take decisions about budget settings, what we have to do is grow the economy and support jobs. I said at the end of last year, in response to those events, the responsible thing to do was to support growth and jobs and not to further cut public spending. Those people who are pushing this line are in fact advocating a substantial cut to public spending which will reduce growth and push up unemployment.