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

15 May 2013

Interview with Fran Kelly

Radio National Breakfast

SUBJECTS: Budget 2013-14

KELLY:

Treasurer, good morning, welcome to Breakfast.

TREASURER:

Good morning Fran.

KELLY:

Treasurer, as you framed this Budget, did you feel dudded by your own mining tax, and your own carbon tax; both critical in the failure to deliver the revenue needed to balance the books?

TREASURER:

No I didn't and they're not absolutely critical in that failure. The failure has been in profits-based taxes right across the board. The mining tax, for example, is part of the revenue write-down is I think over the forward estimates only about 10% of the write down.

KELLY:

What $2 billion dollars less?

TREASURER:

This is a very big write-down in all our profits-based taxes and what you have to understand, and your listeners need to know, is that we had a unique event in our economy last year where what is called nominal GDP grew below real GDP. It had never happened in fifty years. Happened for three quarters in a row. And that has impacted upon all of our profits-based taxes. So the $17 billion write-down and the large write-downs, $60 billion across our forward estimates, are principally from all of the profits-based taxes caused by a sustained higher dollar and the level effect that that has on our economy.

KELLY:

But no all of it. You can't get away from the fact that the mining tax…

TREASURER:

No I'm not trying to, Fran.

KELLY:

No I know but over the years ahead, it is now going to be $10 billion less, it is only going to deliver $3 point-something billion dollars.

TREASURER:

Well it's actually going to deliver $5 billion over the forward estimates. But anyway, the point is that it is down. I don't disagree with you.

KELLY:

2.3 over the next three years is it?

TREASURER:

I don't disagree with you. It's $5 billion over the forward estimates. I don't disagree with you that it is down. The point I am making to you is that profits-based tax, when commodity prices crash and the dollar is high is the first one that really gets hit by those sorts of events. But it is the company tax more generally that is down, and it is down because of the impact right across our economy of a sustained high dollar. And that is the principal impact; it's prices across the economy that are down and are being reflected in revenue write-downs across Capital Gains tax, company tax, superannuation tax, Mineral Resource Rent Tax. All of those are down, and that's what occurred last year.

KELLY:

That's true, but you know, 12 months ago we were talking about a profits-based tax and you booked those profits, and spent those profits, before they delivered. Now they're not here. So that the plan that was meant to share the boom, spread the benefits of the boom, have gone boom.

TREASURER:

Fran, things change in the global economy, and what changed was the impact of the global economy and its uncertainty led to a prolonged and sustained higher dollar. We had a crash in commodity prices. That impacts first on profits-based taxes. Now when I brought the Budget down last year, I went back and had a read of what all the commentators were saying. Nobody was predicting around that time that nominal GDP would fall so dramatically. It was a one-off, unprecedented event. First time in fifty years. We're living with that. I'll put my hand up and say that this has happened. What we have to do is make sure that we support jobs and growth. We had a choice to make in the face of that revenue write-down, you could go out and slash and burn, that's what the Liberals would do, cut to the bone. We took the choice to support jobs and growth, and come back to surplus on a more gradual path.

KELLY:

Well the Coalition isn't buying that excuse from you. This morning Joe Hockey spoke to us earlier this morning. Let's have a listen to what he said:

HOCKEY: "For a Government that is getting $20 billion more revenue this year than last year, and $22 billion more revenue next year than this year, and every year after that, I do not accept their claims that they're writing down revenue. That is the biggest load of spin and codswallop I have ever heard. They're writing them down off their overly optimistic assumptions, and then claiming the world has come to an end. And I just make this point Fran: terms of trade, even at their lowest point under this Government, the terms of trade are still more than 10 per cent higher than they were at any time under the Coalition."

KELLY:

That was Joe Hockey speaking to us earlier this morning. Your response?

TREASURER:

I think it demonstrates how unqualified Joe Hockey is to be the Treasurer of Australia, I think that's what that demonstrates. You see, our forecasts are down, and anybody sitting in my seat would be dealing with this outcome. And this is an outcome caused by an event in our economy which he doesn't understand. Our tax to GDP ratio is at 21.5. It is very low. If we had the same tax to GDP ratio that we inherited from Mr Hockey, we would have $24 billion more in revenue and we'd be in surplus right now. The fact is that taxes are still growing. That is true. Our economy grows. The fact is that is has not grown as fast, the revenue head, as it should have grown and as was forecast and as it has grown in the past. So for him to come in and glibly put those figures forward shows that he doesn't understand how to run a modern economy.

KELLY:

Treasurer, you would have had a better tax to GDP ratio if you hadn't put in place those income tax cuts that were promised in the 2000 election. In hindsight, was that a bad idea?

TREASURER:

No, not at all. Not at all.

KELLY:

Why not?

TREASURER:

We don't regret income tax cuts.

KELLY:

Eroded the tax base?

TREASURER:

You have to adjust your tax rates from time to time. And we made that adjustment. The fact is, that what has occurred here is that our profits-based taxes have been hit by these events. And what we have been doing is making savings. We've made $43 billion worth of savings in this Budget, and of course the rub is really on Mr Hockey now; he was squirming in his seat on the 7.30 Report last night when he was asked what he was going to do about our proposal to put the Baby Bonus in the Family Tax Benefit Part A. He couldn't answer that question. He goes on to say the Government is spending too much, but he won't say where he would make savings. We're making responsible savings. What we know is, he would have to cut to the bone, cut to the bone to meet all the commitments that he has made and he won't tell the Australian people where it's going to be.

KELLY:

Let's go to the Baby Bonus, because you're cutting the Baby Bonus, scrapping it altogether. Handing back $2,000 to people who had been expecting perhaps $5,000. That's a bad deal by anyone's count?

TREASURER:

Well Fran I am a strong supporter of the family payments system, and you and I have discussed it on many occasions. Indeed one of the first steps I took when I became Treasurer was to means test the Baby Bonus, which hadn't been means tested under the previous Government. What we need to have is a well-targeted family payments system, and we have put in place additions to the system, for example, the Schoolkids Bonus which is opposed by the Liberal Party. We've got to make it sustainable over time, and we've got to fund the School Improvement Program. So what's we've done is we've made a range of responsible saves, $43 billion to fund two very big programs. And I notice Mr Hockey said there was no hope in the Budget. Well go and tell that to the 490,000 people with severe and permanent disabilities.

KELLY:

But what are you going to tell the 161,000 people who currently are eligible for the Baby Bonus who'll be getting much less than the 28,000 people who'll be getting nothing at all.

TREASURER:

Well unlike the Liberal Party I'm up front, and I'll be telling them that we've had to make responsible savings across the Budget to fund a School Improvement Program which goes to the core of our future prosperity. We'll make sure that no kid is left behind in school. And I'll tell them that we're fronting up to our responsibility to sustainably fund DisabilityCare Australia. And doing both of those things for ten years, and that's something the Liberal Party can't tell them.

KELLY:

It's a pretty rough cut though, and you're getting the means testing ceiling is pretty lean pickings now. I mean, 28,000 people as I said, will lose all the Baby Bonus.

TREASURER:

Well let's go through the means test for Family Tax Benefit Part A.

KELLY:

$113,000 for a family? That's not a wealthy (inaudible).

TREASURER:

For a family income and two children, that's when it would cut out.

KELLY:

That's not a wealthy family is it?

TREASURER:

No it's not, but we have to have a well-targeted family payments system that is sustainable for the future. And we're making it sustainable. We've taken a difficult decision and the Liberal Party is squirming all over the place. Mr Hockey goes around giving speeches about ending the age of entitlement, and he can't even respond to this proposal on the Baby Bonus.

KELLY:

Will you be bringing it in before the election, and do you expect the Coalition will pass your (inaudible)?

TREASURER:

Mr Hockey has already been rolled in his party room on a previous proposal that we put up in the mid-year Budget update last year to further means test the Baby Bonus. And he got rolled.

KELLY:

Treasurer, families have been hit in this Budget. Business has been hit too, slapped $4 billion over four years.

TREASURER:

Sorry I don't think I can let you go on and say it's a slug. What we are doing with these changes is not a tax increase. We're closing loopholes in the tax law where people who should be paying tax in Australia are not necessarily paying that tax. That is the principal drive about what we are doing here in terms of business tax. Unlike the Liberals, we are not putting up the company tax rate. They are putting it up by 1.5% but you don't hear much about that from the Business Council.

KELLY:

Fair enough. Some of that taken back is from the resources sector, $1.1 billion of that. Is that payback for the mining tax revenue you never got, because the big three miners arranged their tax affairs to minimise it.

TREASURER:

No, not at all. It's a loophole that has emerged. It's been there for some time. It was discussed extensively by the Business Tax Working Group. We've been consulting with the industry about this change. It's a responsible change, it's got nothing to do with that at all. What is has got to do with is making sure those people that are exploring are getting their proper tax deductions.

KELLY:

Treasurer, I know your time is tight this morning, you're in demand. But to sum up the political message of this Budget, as someone put it last night, are you asking the people of Australia to put the national interest above the self-interest? Is that your pitch for the election?

TREASURER:

Put the national interest first. Put the economy first, and make sure we do something to create prosperity and spread opportunities through our reforms in education and disability care.

KELLY:

But you accept in that that a lot of pretty ordinary Australian families will be feeling the pinch from this?

TREASURER:

Look I understand that there has been some changes across the board and that not everybody will be happy. But we had to make these changes by circumstances that have occurred in the economy. We think it's the best for jobs and growth. Supporting jobs and growth has governed everything we do since we've been in power for the past six years. Changing circumstances in the global economy, we've never lost sight of our strong support for jobs and growth and the consequence of that has been 960,000 jobs in Australia since we've been in power. I'm proud of that, and proud of the very smart investments we're going to make for the future to further strengthen our economy and make our society fairer.

KELLY:

And was that your key design here in designing this pretty tough Budget in the year where the polls suggest you may not be the Treasurer be next year to be implementing it, to carve out your legacy as an economic manager?

TREASURER:

No not at all. This is not a Budget that was designed for opinion polls or elections. It was designed to do the right thing for the country. We've been working on the school improvement program, working on DisabilityCare. We've been bringing all that together. It's a product of a lot of work over many years.

KELLY:

And is it a Budget full of booby-traps for an incoming Government if there is a change of Government?

TREASURER:

No I think the Liberals are out there setting their own booby-traps.

KELLY:

Treasurer, thank you very much for joining us on Breakfast.

TREASURER:

Thank you.