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

14 May 2013

Press conference

Canberra

SUBJECTS: Budget 2013

TREASURER:

Well it is good to be here with so many familiar faces and it's particularly good to be here to deliver a Budget that I am very proud of. A Budget which tackles some of the fundamental challenges in our economy and in our society and puts to the very fore the fundamental priorities we need to have as a nation. So this Budget outlines the choices we have made and talks about the Australia we want to leave to our kids and to our grandkids. Now I know a many people have said this budget is about change and in some respects that's very true. It's definitely set in very different economic circumstances to a year ago. A year in which we were obviously meant to come to surplus. In this Budget, we expect to achieve a budget balance in 2015-16 and a surplus in 2016-17 before most of the developed world but I think much more significant than that this is a Budget that about consistency.

Consistency in doing what is right for the economy, putting jobs in growth first no matter what the global economy throws at us. Consistency in putting in place the fair and responsible saves to address the fiscal challenges that we face. Consistency in making the forward looking investments that will keep our country well ahead of the pack in the years and the decades to come. Now these have been the guiding principles in all of my past five Budgets. And they are the principles that are governing what we are doing again today. This Budget keeps our economy strong, head and shoulders ahead of virtually any developed economy. The Budget puts in place the responsible saves that chart a path back to surplus. Perhaps more importantly, and something that I am very keen to address, this Budget puts in place the savings that permanently improve the Budget bottom line and fund the big investments that are at the core of the Budget. We should take a step back and think about this for a moment. This Budget funds DisabilityCare Australia to the next ten years and beyond. That is a necessary and very substantial achievement. This Budget funds the national plan for school improvement for the next ten years and beyond. These are some of the most important reforms our country will undertake in a generation and this Budget locks them in. These investments are at the core of what Labor governments are about and I will say a little bit about that later on as well.

I do want to say something about the economic context because our economy is in good shape. Our economy has been through an extraordinary ride over the past few years. We have come through the biggest global crisis in a generation and the largest resources and investment boom in our history. To come through these extraordinary events with the kind of economic scorecard we have is nothing short of remarkable. Here we are we are about to chalk up two dozen straight years of economic growth with a set of economic indicators that are the envy of the developed world. We've got a solidly growing economy, low unemployment, contained inflation and record low interest rates. That is a combination which does put Australia up in lights and it is from this position of strength and resilience that we tackle two more big transitions that will shape our economic landscape. Over the next decade or so we will see the unprecedented investment boom in mining shift into a boom in resource export volume as production commences. More broadly our economy will transition towards non-resource drivers of growth with low interest rates supporting stronger consumption and recovery of housing construction and a lift in non-resource investment. These big transitions will not be perfectly smooth or seamless with the sustained high dollar bearing down on many of our industries. Now despite all of this, real GDP growth is forecast to be close to trend at two and three quarter per cent in 2013-14 and three per cent in 2014-15, outperforming most of the developed world. Now I know some of you will be familiar with this chart - this shows that our economy has grown by 13 per cent since the Global Financial Crisis, far outstripping major advanced economies.

But what you are now going to see is even more remarkable. By mid-2015, our economy is expected to be over 22 per cent larger than before the Global Financial Crisis. Now this compares to nine per cent for the US, two per cent for Japan, with Europe still below its pre-GFC levels, nearly eight years on from the Global Financial Crisis. And while many developed economies are still saddled with stubbornly high unemployment, ours remains one of the lowest in the developed world. While we do expect the unemployment rate to tick up slightly to five and three quarter per cent in 2013-14, overwhelmingly this reflects the transition in our economy as the resources boom shifts into less labour intensive phases. None of this changes the fact that we've still got one of the world's most impressive economic scorecards, solid growth, low unemployment, contained inflation, one of the strongest set of public finances in the developed world, and net debt a fraction of what it is across major advanced economies as you can see in the chart. Now I do want to turn to the revenue outlook because this has had a dominant impact on the presentation of the Budget, because while our economy remains strong, there have been unprecedented economic circumstances that have taken a huge toll on government revenues, on government taxation. Never before have we seen the Australian dollar remain so high for so long in the post-float era. There will be very few people in Australia today who predicted the dollar would remain so high in the face of a 17 per cent fall in the terms of trade since late-2011. Nobody predicted that outcome. And of course few back then, would have tipped the breakdown in the historical relationship between the dollar, commodity prices,\ and lower interest rates. The high dollar has had a much more acute impact on prices and profits than anybody anticipated this time last year, not just in mining, but of course right across our economy. Now as this chart shows, while the expected company profits would be weak at the Budget last year, and you can see how they are historically to the Budget last year, what has occurred since then has been a result which is much weaker than our already low expectations. At the mid-year Budget update we did begin to see the leading impacts of this change, of this lower profitability. And of course since that time, we have seen clear and dramatic signs that a hit to profits and prices has been far, far bigger than anybody expected. So what we have got is unusually weak nominal GDP growth, and what do I mean by nominal GDP growth? Volumes in our economy are growing solidly, but growth in prices is much weaker - much, much weaker. And this is the main point. Our tax base depends on growth in both volumes and prices in our economy. For the first time in 50 years we saw a situation where nominal GDP growth for three quarters was below real GDP growth, and that is what has caused the unprecedented hit to government taxation revenue. Now we do expect nominal GDP growth to recover from very low growth in 2012-13. We expect it to remain, however, well below the ten year average of six and a half per cent, and below our mid-year update expectations over the forecast period. Now the hit to nominal GDP, we have already seen in 2012-13, what that means is the low level of nominal GDP continues to impact across the value of our economy across the forward estimates. And just consider this one fact when you are thinking about the revenue write downs: nominal GDP is now forecast to be around 90 billion dollars lower than it was at the mid-year update. Over 2012-13 through the 2015-16, it is this fact that has impacted so dramatically on government revenues and you see it in the reductions that we are receiving in all of our profit based taxes: company taxes, resource rent taxes, taxes on investment in small business income, and of course this has been compounded by other structural changes hitting our revenue which flow from the aftershocks of the Global Financial Crisis. In particular, capital gains taxes recovering more slowly than we expected and that has hit the revenues in the tune of $10 billion over the forward estimates. Over and above that, there is a lag impact of these events with lower profits and capital losses taking time to feed through the lower tax collections which means the revenue hit in 2013-14 is actually bigger than the revenue hit in 2012-13. I also ask that you note that we have not had the same impact when it comes to taxes which are the ones that follow real GDP growth in our economy. There have been much less effective such as PAYG taxation, the tax paid by ordinary working people.

Taken together, revenues in 2012-13 are down around $17 billion from last year's Budget and they're down around $60 billion across the entire forward estimates compared to the mid-year review. So this takes the revenue write down to around $170 billion in five years since the start of the Global Financial Crisis. What this weaker revenue outlook means for the economy is that tax as a proportion of the economy is very low. Tax is 21.5 per cent of GDP in 2012-13 and 22.2 per cent in 2013-14 and you can see that there very dramatically in that crack. Anybody who is saying that there is a surge of tax revenue coming into the Australian economy simply doesn't get it. So tax revenue is down substantially not just over one year, it has been down for some years but has dropped very dramatically as a result of the events I have just described. Now if I had the same tax-to-GDP ratio that my predecessor had back in 2007-08, we would be in surplus in 2013-14 by around $6 billion, that is, we'd have $24 billion more in taxation revenue. Now of course this revenue hit has contributed to a deficit of $18 billion in 2013-14 and means net debt will peak at 11.4 per cent of GDP in 2014-15; less than one-eighth of the average across major developed economies. By comparison net debt-to-GDP in the US is over 80 per cent and it's around about 35 per cent for Canada. So on the face of these huge revenue write-downs, the Government has made a very, very clear choice, a choice not to make drastic cuts that would hurt the economy. Cutting much harder to offset the hit to revenues in the near term would come at a very big cost to jobs and to economic growth. This is something this government will never, never accept. Instead we've put jobs and growth first as we've always done, putting in place more gradual fiscal consolidation in the face of these circumstances. This consolidation is appropriate, not only given the substantial revenue write-downs but also because of the transitions underway in our economy that I spoke about before. So the Government will continue to deliver on our medium term fiscal strategy, charting a path back to surplus, at a pace that ensures our economy continues to grow solidly and unemployment remains low. In doing this, we have maintained fiscal restraint, limiting spending growth and putting in place responsible new savings that build over time. We've already achieved a substantial consolidation of around 2.9 per cent of GDP over the past three years, and we continue to build on this record. Consistent with our fiscal strategy, average real spending growth over the five years from 2012-13 is only 1.3 per cent. To be clear this is the lowest spending growth over any five year period in 25 years.

Spending as a percentage of GDP over the five years from 2012-13 is only 24.2 per cent of GDP, lower than the average of the past 30 years. So we have made 43 billion dollars of responsible saves over the forward estimates. With our policy decisions delivering the greatest improvement to the Budget position in nearly two decades. And this takes savings to a total of $180 billion over the past six years. And what I am most proud of in this Budget is our ability as a consequence of taking those savings to fully and sustainably fund critical investments in schools and disability care over the next ten years and beyond, which you can see in that chart. So what we have done is we fund these important reforms in disability and in education through savings which deliver permanent benefit to the Budget. Savings such as increasing the Medicare Levy, closing loopholes in the corporate tax system, better targeting of family payments, better targeting of health spending, including the private health insurance rebate, reducing the growth in higher education spending. These are the measures that deliver these benefits to the Australian people. So I am particularly proud to be delivering a Budget that builds on the Labor legacy of making historic investments in our future. We are funding the next wave of reform and investment in our schools, disability services and infrastructure. And we are delivering sustainable long-term funding for the national plan for school improvement; a plan that will transform our nation's schools. This is some of the most important work the government can ever do. So this Budget is all about our economy and the future of our country. I am proud of what it says about our priorities, that we have dealt calmly and responsibly with the circumstances that have unfolded and through all of this, as we have done for the past five years, we have always put jobs and growth first. We know the time has come to give our kids the best education they can possibly get, and we also know the time has come to ensure people with a significant and permanent disability no longer get left behind. So just as we have faced a choice, so will the Opposition. A choice between making motherhood statements about ending the age of entitlement, or putting those empty words into action. For the Government's part, this Budget strengthens jobs in our economy, makes the smart investments we need for Australia's future and builds a fairer society. Over to you.

JOURNALIST:

(inaudible) Baby Bonus . Will you be legislating that before the election?

TREASURER:

Well my speech tonight is the start of that process, it is the start of the appropriations going through the Parliament, you will see in the Parliament tomorrow the legislation, for example, for increasing the Medicare levy. As for the rest of the legislative program I have to keep you updated on that over time.

JOURNALIST:

Mr Swan, on the change to the Baby Bonus, have you done any modelling on what the effect that that might have on the birth rate, and, is the reason that you have given people nine‑and‑a‑half months before the change comes in, to give people the chance to have one for the nation?

TREASURER:

Thanks Phil.

JOURNALIST:

It is more that families are going to be weighing this up, in deciding to have a baby or not.

TREASURER:

Phil, as you are aware, I have been a really strong supporter of the family payments system and the fundamental role that it plays in our society, because it does recognise that parents who are bringing up the next generation of young Australians are doing the most important job in our country. So I have always been a strong supporter of the family payments system, at many times a critic of it as well. But if we are going to keep a strong family payments system in Australia it has to be sustainable over time, and it has to be targeted. Now, of course, we have spent a lot of time in Government building up support for families. Think about what we have done, in terms of the School Kids Bonus, the tripling of the tax free threshold. Think about what we have done in terms of the fifty per cent childcare cash rebate. Think about what we have done, when we have increased family payments for teenagers as well. But this payment has been increasing dramatically and is not sustainable in its current form. And as you know, one of the first steps we took when we came to Government was that we put a means test on it in the first place. And of course at that time we were criticised for that move. At the mid-year update last year, we indicated that we would make some further changes. But when we sat down and looked at all of the choices we had and what we wanted to do for the future, particularly when it came to the education of our children, it seemed to us that further reform in this area was imperative. And we decided the best policy for the future of the county was simply to abolish it, and then roll additional benefits into Family Tax Benefit Part A, which is what we are doing. So families that are eligible for Family Tax Benefit Part A will receive, in the early months, following the birth of their child, additional payments additional to Family Tax Benefit Part A. We think it is better located within the Family Tax system, which I'm a very strong supporter of. It is means tested within that framework. I think you can get Family Tax Benefit Part A for two children up to a combined household income of around $110,000-$112,000. So we understand there will be some people who will be unhappy about this decision. But we think this is in the interests of maintaining over time a very substantial system of family payments which recognises that at the end of the day decisions have to be made about who needs those payments the most and the extent to which they are sustainable over time.

JOURNALIST:

Mr Swan you talk about (inaudible) new infrastructure spending in your speech but in fact the new spending is $3 billion over the forward estimates.

TREASURER:

Sure, absolutely, because there are long term projects that will never get off the ground unless governments make a commitment to the long term projects. Most of these are big nation building projects; some of them have been in the planning stage for some while and some of them…

JOURNALIST:

(inaudible)

TREASURER:

They haven't got to the stage, of actually getting to the point of actually working out the cost. In the case of Cross-River Rail in Brisbane for example, there has been a long process that's gone on between the Queensland Government and the Commonwealth Government working through all of our authorities, working out all of the issues including costs and so on. So what we are doing is providing the certainty to state governments and the private sector in saying: here are the projects of the future, there is some funding for some of these projects within our current envelope of our Nation Building Plan Part One. We will be making contributions to these projects in Nation Building Part Two. Here are the contributions we're making in the future. These projects will not get off the ground unless there is an indication of Commonwealth Government attitude and how much money we are prepared to deliver to these projects over time. They will not be delivered…

JOURNALIST:

(inaudible)

TREASURER:

Well it varies between projects. It's the time of the next Nation Building Plan. This one is just finishing. Some funds have been spent on that to prove some of these projects up. If you look at Minister Albanese's press release you'll see the full list of monies that are going over time into the second Nation Building Plan, which extends beyond our forward estimates. This is…

JOURNALIST:

(inaudible)

TREASURER:

Yeah, sure, but that shouldn't diminish the importance of what we're doing here. We're not just saying there's money within the forward estimates. We're saying there is money for four or five years to come. On that basis, state governments can sit down with the Commonwealth Government and indeed the private sector and plan these very big projects. That's how infrastructure works. It doesn't live within a four-year forward estimates process.

JOURNALIST:

Treasurer, with four months today from an election, unless I've missed something, there is no additional pre-election bribes anywhere in this Budget. Is it your calculation that voters will reward Labor for long-term vision and that would be enough to…

TREASURER:

Well Hugh, it's not as if DisabilityCare Australia and the NDIS just arrived. The Government has been working on the NDIS, now known as DisabilityCare Australia, for some years. We commissioned the initial Productivity Commission report. We received that. We've engaged in consultation with the disability community. We've sat down with state governments and we've got to the point that we can make this reform a reality for Australia. An end, a discrimination and an unfairness that's existed in our society against people with a permanent severe disability for so long. And we've got to the point that we've got people signed up. But if it's going to stay a fixture of the Australian system, if it's going to be permanent, as are the disabilities of those people we're seeking to serve, there has to have a permanent source of funding and it has to have long term support. So, we've been on a process over a number of years, it's been brought together over the last 12 months, and this was the Budget to do it for the future. And it's not as if Gonski or the [National] School Improvement Program has just come along. A report commissioned by the Government in our early days concerned about what was going on in our schools, a whole series of reforms taken place in terms of transparency and so on, in education, but what the report said to us was that too many Australians were being left behind, and it needed a very substantial financial response to get behind additional resources and better quality in our schools, and that can only be delivered over a long period of time. So we've said, well if we're going to put these reforms in, to make a difference to the future of Australia, then let's do it, and that's what we've done in this Budget. You'd recall that when the Prime Minister was talking to the Premiers over both schemes, over a period of time, she made the point repeatedly that we would put structural saves in our Budget, to make sure that we'd have new structural spends which were sustainable for the future, and that's what we've done. So you say there's nothing in this, this is a huge change to education in Australia. It doesn't matter if you're talking to the Business Council, or it doesn't matter if you're talking to a mum or dad, the one thing they want for their kids, is that they know the best thing they can do for them is to get them the best possible start in life in the education system. And what we know from the report that was prepared by Mr Gonski's committee, is that this required a whole range of reforms. So I do reject the notion that there is nothing in this. There is something big in this for Australia, and there's something big in this for every Australian family because this is going not just to the public sector, it's going to the private school sector, it's going across the board. It's a huge change for Australia. We know from the Asian Century White Paper and other reports that we are falling behind the rest of the region when it comes to the education race. We've got to lift ourselves up, and that's not just a matter of social outcomes, that's a matter of economics. There's something in this for the whole country, as there is for DisabilityCare Australia.

JOURNALIST:

Mr Swan, you couldn't get a package of announcements for regional Australia, um, is that just a marketing exercise to appease the rural independents, Tony Windsor and Rob Oakeshott, or is there significant new money and new announcements for regional Australia?

TREASURER:

Well there has been significant new money and new announcements for regional Australia every year that we've been in Government. And as I go around Australia making further announcements – like I was up doing the Yeppen roundabout outside of Rockhampton a few weeks ago – it's a continuation of what we've been doing for a long period of time. And there's a list of further projects which have been announced in the Budget. I'm really proud of what we've been able to do. It isn't just a question of doing the big urban transport projects in our capital cities, it's investment right across the board, right across our country over a five and a half year period, and that continues in the Budget. There's a fair bit of space devoted to it in the papers.

JOURNALIST:

Mr Swan, if the MRRT is going to generate $200 million this financial year, (inaudible)…nuisance tax more than anything else?.

TREASURER:

Not at all. In fact, if you have a look, what you will see is that the revenue ramps up over the forward estimates. This is a profits based tax. It's a profits based tax that just happened to be introduced at the very time that the profitability in the mining industry took the biggest hit that it's had in years and years. So last year, its first year of operation, we saw commodity prices between the end of 2011 and the end of last year, come off dramatically. Our terms of trade were down 17 per cent and we saw a persistently high dollar. So what has principally happened with mining tax revenue has been a consequence of those events, as well as others, and I think that we will go through the next little period where the Treasury and the Tax Office has a look at the first full year operation and comes back with a further report on the tax. But it's raising money now, it's forecast to raise more over the Forward Estimates, and I tell you what, whether it's a $100m, $300m, or $5bn over the Forward Estimates, it's $5bn more the country is getting, then they would get out of the other mob.

JOURNALIST:

(inaudible) two different taxes, the carbon tax and the mining tax (inaudible) sort of growth out of them?

TREASURER:

Well, I'm sure that somebody asked a question like that at a press conference when the former Labor government introduced the PRRT, and we had the same debate about resource rent taxes then. The PRRT I think has delivered to Australia about $28bn of revenue over a period of time. I'm very proud of putting in place a resource rent tax, which was the number one recommendation of the Henry Review you may well recall, but it did come in at a time where prices went down dramatically, and you can see that reflected in the estimates, but it's not a reason not to do it, but we are having a look at its operation as we do normally in light of forecasts and we will do that in a normal way.

JOURNALIST:

Treasurer (inaudible) do you think big business would look at the wider issues in the budget and big business would see the soft revenue (inaudible) of the government.

TREASURER:

Well we haven't approached the Budget from that perspective at all. We've approached the Budget from the perspective of ensuring that we support jobs and growth, we support demand in our economy so that businesses are profitable and Australians are in work. This is all about an economy which generates jobs, and has successful businesses. The investment in infrastructure, the NBN, what we've done in terms of loss carry-back, the instant asset write-off, all of those measures are all very much pro-business measures. Business has a very big stake in an economy which is growing strongly, and this economy has solid growth, and the whole framework we're putting forward here is to make sure that that continues, so businesses are profitable.

JOURNALIST:

Treasurer, budget (inaudible) turnaround (inaudible)

TREASURER:

Well we haven't approached the Budget from the perspective of opinion polls, we've approached it from the perspective of doing what is right for the nation, and putting in place some the most essential reforms that are required to ensure we're not only prosperous economically, but we are smarter, and we're fairer. This is a Budget about making our economy stronger, smarter, and our society fairer, and that's what we've done, and the people can judge that at the election. But I couldn't live with myself if I walked in here and said that in the face of the biggest revenue write down virtually in history that I was just going to ignore it because it was politically inconvenient, or that we were going to dog the task of actually stumping up the money for doing the school improvement program, or we couldn't really provide the peace of mind and stability that was required for DisabilityCare Australia to be funded, I couldn't live with myself, if that was the approach that I took. The approach this government has taken, whether it was back in 2008, when global demand fell off a cliff, or whether it's now when our revenue has taken a big hit, has always been to put jobs and growth first and get on with the big reforms of the future, we didn't postpone the NBN because something happened in the global economy back in 2009, we got on with it, because long-term projects for the future actually take a long time. And now that the NBN has been rolled out around the country, people are beginning to see the benefits of that program, and one which has very considerable community support. So we're in there for the long run, the long run reforms, doing the right thing by the economy, we can't dictate what the global economy does to our economy, but we can choose how we respond to those events, and just because the global economy has taken an axe to our revenues, we shouldn't take an axe to our Budget and jobs, and we haven't done that.

JOURNALIST:

Your budget (inaudible) was asking the Australian public to put the national interest before their own self-interest. As a politician, wouldn't you agree that there is great political risk in that?

TREASURER:

No.

JOURNALIST:

(inaudible) explain that incentive on getting them to downsize their family homes.

TREASURER:

Well at the moment many elderly, for a whole variety of reasons, their lifelong attachment to their home, the desire for example to do something with their family, stay a lot longer in the family home. And many would actually wish to sell the home, but do it with minimal disruption to their finances, move into something smaller, some form of accommodation which was more suited to their current circumstances, say, perhaps, closer to a relative or closer to a carer, but the intersection of the sale with a whole series of sections in the aged care arena and means tested a social security system, may encourage them to stay in the home rather than take a much more rational and friendly decision to go elsewhere. We are trying to break down those barriers and give people the option. But we are doing a lot more than that, and I am sure Everald Compton will talk to you about this tonight. We understand all of the issues associated with the ageing of our population and trying to liberate, if you like, the wisdom and the energy and the experience of so many elderly Australians is a big task that we face ahead of us as a nation, as we grow older together. So there are some other initiatives in this Budget around that as well.

JOURNALIST:

Mr Swan, (inaudible) we face an uncertain future. Just wondering what are some of the uncertainties and their effects on the Budget?

TREASURER:

The uncertainties are ones that flow principally from events in the global economy. One of the great benefits, that has come to Australia has been that our economic strength has been noticed around the world, and as a consequence, many more international investors come here, and they invest capital. As they see what a great place it is to do business, as they look at our economic indicators that I was talking about earlier, they decide they want to come here and be involved in economic activity. What that has brought with it has been a higher Australian dollar. It is a mixed blessing; it brings great benefits but it puts enormous pressure on parts of industry. And we have seen that experienced across tourism, manufacturing, and more broadly on our economy. So what I am saying today is that, given all of those circumstances, what we must do, in particular, from an economic point of view, is make that investment in education, which not just underpins social fairness in our society, but underpins productivity well into the future. If you pick up any of the reports that have been written around the place that have been written about the productivity benefits of education – they're not ones that can be brought on in a year or two or three, but when you get to the ten-year mark, you get a considerable improvement in your education system and you leap ahead in the productivity stakes. So our commitment here to education is one way that we strengthen our economy from those uncertainties, which have surfaced in our economy, principally, in the form of a higher dollar, which has put pressure on many parts of our industry.

JOURNALIST:

Mr Swan, how has this Budget, given black Australians (inaudible) the country (inaudible)

TREASURER:

Well, it has got some pretty big investment in Indigenous affairs, not just in terms of the Northern Territory, but closing the gap. One of the things that I am proudest of is how we have funded a whole range of initiatives in closing the gap, and these were covered principally by our Prime Minister in a speech in the Parliament about a month ago.

JOURNALIST:

After (inaudible) NDIS and on Gonski, (inaudible) booby-trap in the Budget for a future Abbott Government?

TREASURER:

Hardly, I think they have booby-trapped themselves. What we are doing here is recognising something really fundamental. You can't improve a school system if you do it on a four-year timeframe. People go to Year One, they go all the way through to Year Seven. Then they go to high school. You can't fix the disability system on a four-year timeframe, when people are growing older with permanent and severe disabilities. In both cases, what they need is long-term funding certainty, and new frameworks to deliver better quality service in disability, better quality educational outcomes in education. You can't do it on a four-year timeframe.

Thanks very much.