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

National Press Club Post-Budget Address Q&A

SUBJECTS: Budget 2013-14

JOURNALIST:

Laura Tingle from the Financial Review. In statement five of the Budget papers there is a box showing what's happened to various taxes over the last few years, page 5-8.

TREASURER:

I don't have that in front of me.

JOURNALIST:

Okay, well, what it shows is something that you have referred to a lot in the Budget about the fact there have been huge revenue write-downs. It's saying that corporate taxes will only recover half of their losses by 2016-17, personal income taxes won't - might be recovering by then and indirect taxes will be a lot lower in terms of proportion of the economy than they were at the start of 2000. Doesn't all this suggest a volatility in the corporate tax base we've seen in the last few years with our whole tax base needs to be reviewed again, that it is unsustainably volatile and we need to look at changing the tax mix, whichever party is in office?

TREASURER:

No, I don't think it necessarily means that. I think if you look at the data, you have referred to this, all of the taxes that are not associated with profitability, have held up reasonably well. But all of the profit-based taxes have taken a turn for the worse. There is a debate about the extent to which this is cyclical as opposed to structural.  I think, and I think my Treasury officials, believe it is primarily cyclical but there will be some structural influences. One of those structural influences that we are dealing with in this Budget is in fact profit-shifting and base erosion because there are loopholes in our corporate tax system which have been exploited and have cost a significant amount of revenue to the public purse and to the Treasury. This is a very big international agenda at the moment.

When I was at the last G20 meeting in Moscow, I convened a meeting with George Osborne, the French, German Finance Minister and the Finance Minister from South Africa to get together the coalition of both capital exporting and capital importing countries who are dealing with multinationals, some of whom were seeking to avoid paying the legitimate amount of tax they should pay which reflected the level of economic activity in the home country. So those discussions have focused even more on a whole of G20/OECD agenda about international co-operation to, if you like, put more integrity into our tax bases when it comes to corporate taxation. That agenda is ongoing. It's not an agenda about jacking up corporate taxes, it's an agenda about making sure that everybody in the corporate tax system, indeed as they should, pays their fair share. Because when one or many do not, it jacks up the rates for everybody else. So that's one issue that we're dealing with. I think it's a significant issue, and you can see there are $4 billion worth of savings there.

I would contrast that in fact to the policy of the Liberals which is to jack up the corporate tax rate which strikes me as not a very smart policy given the challenge we have got with overall corporate profitability in our economy at the moment. When we talk about the divergence between nominal and GDP growth, what we are talking about is the fact that price levels across our economy and the competitiveness between businesses is eroding profitability. So, looking to strengthen your system, looking to keep your rates competitive means you have got to have a system everybody pays what they should pay in the first place.

The second point is our Party and our Government absolutely rejects the notion that to be financially stable and to have a stable and growing tax system you have got to lift the GST. That is the position of the Business Council of Australia. They want to jack up the GST to bring in lower corporate rates. They also want more spending on infrastructure and a whole lot of other spending at the same time so I don't know how that magic pudding adds up, but the fact is this Government believes in a progressive taxation system which is a combination of corporate profit-based taxes as well as taxes that we are all familiar with which relate to the real economy which is PAYG taxation. We will never go down the road of jacking up the GST system to a flatter rate system which is less progressive.

JOURNALIST:

Malcolm Farr from news.com.au. A few minutes ago you said Australia – and by implication the government - had never seen a challenge it didn't like. Why then, last night, did you squib the challenge of completing the dismantling of middle class welfare which was largely a hangover from the Howard Government, you went as far as abolishing the Baby Bonus, but there are a lot of other areas, including the generous treatment of tax treatment on superannuation. Didn't you squib that?  

TREASURER:

Thanks for that question, Malcolm. I'm absolutely delighted to receive it. I've never been a user of the term middle-class welfare. I'm a great believer and supporter of a family payment system that recognises that people of modest means should receive some support from Government for doing the most important job in the country, bringing up the next generation of young Australians. Being a parent is the most important role in our society, more important than many others because the quality of care, how they are nurtured, what happens to our young people in their earliest ages is absolutely critical to the nature of society we are and it underpins the health of an economy. I don't think family payments are middle-class welfare. I see it bandied around in newspapers, all these ugly headlines, "middle-class welfare, cut it out". I see that as a lot of that talk as just being the back door way to rip up the social safety net that comes particularly from mad organisations like the IPA.  And I don't support that agenda. I will never support that agenda. It is actually more an agenda which is in tune with the priorities of the Liberal Party, although they broke out and extended a lot of those payments in their attempts to stay in Government in their last period in office.

But the system under the Liberals did get out of control and you will recall, I would have stood here at my first Budget and announced that we were going to means test the Baby Bonus. And I do recall the howls of horror and the evisceration that occurred across newspapers when we had the temerity to means test the Baby Bonus in the first Budget. The reason we have moved further on the Baby Bonus is two-fold. Firstly, we put a set of amendments in the Parliament earlier this year, which came from decisions we announced in MYEFO to make it more sustainable and to fine tune it, and they were rejected by the Liberal Party. And Joe Hockey got rolled in the Liberal Party room.

The Government thought a lot about the sustainability of the family payment system. We thought a lot about it in the context of how we were going to fund the education reforms, the school improvement program. So we decided we would abolish the Bonus and we'd put additional payments into the family payments system and the backdrop to that decision is that our Paid Parental Leave scheme which we introduced two years ago is now proving to be very, very successful. It has now got something like 280,000 people that have been within it. So when you are looking at whether someone works in the workforce or someone works who stays at home and doesn't earn an income for it, what are the policy supports we provide? A new one, Paid Parental Leave which can be accessed by people on modest incomes - we are not in the business of Paid Parental Leave to people that are earning $1 million like Mr Abbott and the Liberals are - we've got a modest Paid Parental Leave scheme which provides enormous benefit to a lot of working parents and for those who choose to stay home, what we have done is wrapped the Baby Bonus into Family Tax Benefit Part A and that is there for them. We have now got a two-pronged system.  You either get Paid Parental Leave or if you are not in the workforce, you'll get the Baby Bonus. We have done it in a way that makes it more sustainable. I will always be and the Party will always be a strong supporter of making payments to families who are on modest incomes who struggle to get by. That is one of the reasons for example that we reconfigured in last year's Budget the Schoolkids Bonus. Because it fits perfectly with the view that we are moving to in terms of our education reforms. That Schoolkids Bonus has been of enormous benefit to families throughout Australia and it is also means tested by Family Tax Benefit Part A rules,  just as is the new payment for those who have had a bub is also means tested by Family Tax Benefit Part A.

JOURNALIST:

Mr Swan, Lyndal Curtis from ABC News 24. The Budget speech last night was your opportunity to have a half hour conversation with the public about your Budget. I'm wondering why you didn't take the opportunity to, perhaps, you may have been a bit wrong last year to be so certain about things that are uncertain, to be so certain about absolutely guaranteeing failure is not an option to deliver surpluses when they are based on things that are inherently uncertain, on forecasts and projections?

TREASURER:

If you want to mount an argument against forecasting then you will simply remove the basis of modern economics. The fact is that we forecast, Governments forecast, private sector companies forecast, think-tanks forecasts, everybody forecasts. But of course, sometimes there are things that happen that are not forecast-able. For example, I don't think anybody forecast the collapse of Lehman Brothers and the impact that it had. What wasn't forecast-able last year and early this year is the fact that, to use the economic jargon, nominal GDP for three quarters last year fell below real GDP growth. And its growth rate as we go through this year is well down on its normal growth rate. The normal relationship is that nominal GDP grows much faster than real GDP. But we've got a situation where it dipped below to three quarters, the first time that has happened in Australian history. I would suggest to you that's not forecast-able and it wasn't forecast-able. And given the debate we have had about this,  I decided I'd go back and have a look back at the commentary on last year's Budget where there this was supposed to have been forecast. And you might be surprised to know that it wasn't forecast, it wasn't predicted, it was barely even mentioned because it wasn't forecast-able.

What's caused this? Something entirely new and different in our economy. The fact is the dollar has remained high, but last year in the face of falling commodity prices, lower terms of trade and lower interest rates, when that happened, the dollar didn't come down. The normal relationship is that the dollar comes down when the terms of trade comes down, it will also come down with lower interest rates. So on the face of a massive cut to interest rates, in the face of a mass fall in the terms of trade, the dollar didn't move. And guess what? There is nobody I know in any of the commentariat who forecast that either. So these two things had a very big impact on you are on profit-based taxes and continues to have an impact across our forward estimates because it has a level effect on the value of our economy. Our nominal economy as a consequence of this is smaller than it otherwise would have been. So we have got $60 billion worth of revenue write-downs. The responsible thing to do in those circumstances is not to say 'oh well, we have lost $17 billion in 2012-13, we will race out and hack it out of the Budget and cause massive unemployment and dislocation'. The responsible thing to do is to say: 'oh well, delay the return to surplus for a while, do that in a responsible way, support jobs and growth' - that's what we are doing. I put up my hand and went out last December and said that was likely. The Prime Minister and I, on numerous occasions through the early part of this year have been having that conversation. Do I understand that is politically difficult for the Government? Absolutely. I absolutely understand that. Do I understand that people will want to know why things have changed? Absolutely I do. And I will take my medicine for that. But the thing that they pay ministers to do, treasurers to do, is to do the right thing by the economy. That is what I was talking about last night - how and why we came to these conclusions.

JOURNALIST:

Sid Maher, from The Australian, Treasurer. The Budget included long-term discussions for how to pay for the NDIS and the education funding over ten years in savings.  I'm just interested why the Budget didn't contain a long-term discussion of the debt and when it will be paid down?

TREASURER:

[inaudible]

JOURNALIST:

And I will finish and you can shoot  me down, if you like. And our comments this morning -

TREASURER:

Why don't you save time?

JOURNALIST:

I only get to come here once a year, I may as well make the most of it. But your comments this morning about the debt ceiling debate being a debate for the next Parliament. Are you just trying to push that problem into the next parliament?

TREASURER:

There is a discussion about how debt is paid off. It is there very clearly. I don't have the Budget papers here. Laura has probably has them. Have you got them? But it is there. And there is a full explanation of how coming back to surplus, the level of surpluses and how they pay down debt and how you get back to net debt in zero is there in black and white. And over and above that is estimates of the long-term fiscal sustainability and so on. It is all there, in fact I would recommend to everyone who is keen on economics. Chapter 4 of the Budget has an extensive discussion of all of these issues and the way in which it is presented on this occasions is completely new. It's something different. Every year we choose a topic and this year there is a very extended discussion of fiscal policy and all of the issues you have raised. I might say, it's very gripping reading.

JOURNALIST:

Lenore Taylor from Guardian, Australia, Treasurer. I'm not in any way mounting an argument against forecasting but given the economy and therefore the forecasts about your revenue have proved so volatile, as you described in your speech, should we change the way we think about forecasts? Should we maybe have them with a margin of error or something? And would future politicians of whatever persuasion be well advised to learn from recent years and have a very big buffer between forecast revenue and what they commit to spend from it?

TREASURER:

Dr Parkinson commissioned a view of the Treasury's forecasting which is published in this year's Budget which I recommend you read that as well, for basically the reasons you have raised. But, look, it shouldn't be surprising if we have been through the most volatile period in over 80 years in the global economy, that things have been bouncing around a bit in the real outcomes. I mean I don't think anyone should be surprised. I was thinking about this issue a lot over the last couple of days because I was thinking what if when I was here last time, I had said, 'oh well, these are the numbers in the Budget paper but we don't think we will necessarily get there'. We think they could be derailed by something that might just come, a killer satellite might come along or something, it might happen. I know how that would have been interpreted.

Everybody looks for certainty. Everyone wants everything to be black and white. That's not just a comment about journalists or politicians, but there is a look for everything to be black and white. And as I've tried to say in my comments today, we have coped with and responded to what has been a complex, nuanced changing policy environment but it doesn't really lend itself to public commentary and reporting. So if I did stand up here last year and say, 'look, I'm not sure about that surplus number, it might disappear in six months if time if A, B, C and D happens', I know what people might have been reporting. I do hope we have a much more informed discussion about all of these things and I look forward to playing my part in making that a much more informed discussion than it's been. And I accept my role in saying that maybe I haven't done enough in that area. I should do more, I will, I hope you do too.

JOURNALIST:

Mark Riley, Seven Network, Treasurer. I was struck by your observation that Australia is a country that likes to run the ball up the middle on the fifth. I wonder if that might not be a metaphor for your Government. Because it is gritty, as you say, but it very rarely works. You did run the ball.

TREASURER:

I've been a second rower and I've scored a few tries from there.

JOURNALIST:

We will go to the video tape. You run the ball up on the fifth on the mining tax and got poleaxed from the mining lobby. You ran the ball up the middle on the carbon tax and got coat-hangared by the anti-carbon lobby. You've run the ball on the fifth on so many other issues – you've been confronted by Tony Abbott's front row and been spear tackled. I just wonder if you thought of chipping or chasing or a cut-out pass or maybe…

TREASURER:

What do you think is in the Budget?

JOURNALIST:

It's metaphorical, Treasurer. Maybe a 40-20, the safe long punt to take the country with you. Or are we now, such a confrontational phase of politics that it's just bash and barge or nothing.

TREASURER:

How about good policy? Because that's what we have put in the Budget. How about doing the right thing by the country? That's what we have done. That's how we see it. That's what I've said last night, that's what I'm talking about today. I'm not worried about the politics. I know that the lives of millions of people depend on decisions we take and how we go about them. I take that responsibility very seriously and I put it well ahead of any interpretation of opinion polls or what immediate political prospects may be.

If you have an event that is a one in 50 year event as I have described, you're going have to do something that is fairly unconventional to respond. I know everyone is scratching their head saying it's election year, so why have they made these savings and done these things, it's politically inconvenient. Well it's the right thing to do. Can I just take you back through a couple of issues you raised because I welcome the opportunity comment on them.

You raise the MRRT. Well it is going to raise $5 billion. We brought a super profits tax in at precisely the time the super profits disappeared. People can debate its design and go on about it but we had the misfortune politically, if you like, and economically to get that in just at a time that we saw the terms of trade come off 17%. Associated with that are also factors to do with the level of the dollar and so on, a few other factors I could go into. I want to make the point it doesn't make a profits based tax any less worthy. I'm proud we have got one in, it's delivering revenue. It's forecast to deliver much more revenue over the forward estimates and I'm proud of that. That's the sort of thing we should be doing.

If you watch the debate we had about Resource Rent Taxes in this country, you would be forgiven for thinking we didn't really take tax reform seriously. I mean it was actually the number one recommendation of the Henry Review. So it's raising money, it's doing good things, it's the right policy. It's been impacted by one of those changes.

You raise the question of carbon price. It's all about markets and markets sometimes move and move suddenly. We have got a fixed price, that's true. At the moment because the European price is down, we are linked into that. We have got a provision for years ahead based on that price. But that's the whole design of the scheme. That's how it's meant to work. I don't think that demonstrates your point. I think it's the opposite of that. This is the policy doing what it's meant to do.

JOURNALIST:

Mark Kenny from Sydney Morning Herald and The Age. Treasurer, your former Chief Whip Joel Fitzgibbon has said to Fairfax your Budget is an exercise in poor expectation management presumably referring to your ironclad commitment last year to deliver a surplus this time around. It sounded like you were edging close to some sort of acknowledgement you were too black and white. If you had your time again, would you had your time again, would you be so unequivocal in declaring you would bring in a surplus this time around?

TREASURER:

I took our fiscal consideration very seriously. What has been lost in this discussion is the consolidation that is going to come in for 2012-13 is $23 billion. If it hadn't been for the revenue write down, we were in the hunt to come back to surplus. So what markets want what everybody expects is clear pathways towards surplus.

I've been a member of the G20 leadership group since its inception. One of the early decisions of the G20 was for developed economies to put in place exit strategies and to put numbers around them to give confidence. That's what we did. Was that politically unwise? I guess you could say yes. Is it politically uncomfortable, I guess you can say yes. Was it in a policy senseunwise, I don't believe so. Showing a clear pathway to surplus has brought enormous benefit to this country. We are still showing it. If you want to read the commentary that has come through from the rating agencies overnight, they are saying a clear pathway back to surplus. It's just going to take a little longer. They are saying that's fine. They actually recognise what has been going on with some of the data I'm talking about because that's the sort of stuff they take into account in a standard way. And they also tend to reject the austerity for austerity's sake as well. They can see the consequences of that in Europe. So having a clear pathway back to surplus, being a Kane'sian on the way up and down are the principles I've operated in. As we are on the way up, we got interrupted with another event. We took the middle course and slightly delayed our  return to surplus in the interest of supporting jobs and growth. I will never apologise for supporting jobs and growth and trying to make sure our economy is as strong as it can possibly be.

JOURNALIST:

Kieran Gilbert from Sky News. I want to ask you an historical question if I can. If I can read from a piece Alan Ramsey wrote in 2008. He quoted from a letter John Dawkins, Paul Keating's Treasurer wrote to you saying "I hope the expletive Caucus is kinder to you than it was to me. He was referring to the internal friction you were part of creating in 1993, the Keating-Dawkins Budget. Looking back at the six budgets you have created, have you thought back with a little bit of regret at the role you played all those years ago?

TREASURER:

Yes, and I said so to Joe. I saw him last night actually, I caught him on the way out here.

JOURNALIST:

Colin Brinsden, AAP. I understand you told your Caucus colleagues on Monday that Labor "has a bloody good story to tell". Can you tell us, is there another chapter in this epic? Opinion polls seem to suggest people, they don't like the plot, they have heard it all before and switched off, or they want a new narrator. What twist of the tale can we expect at the 11th hour?

TREASURER:

I think what you have seen from us is a Budget that does the right thing by the country, supports  jobs and growth, does all the things I've spoken about today. It's right for the country. Whether it's right for the politics of the time, the people will decide that, not you or me or the editorial writers or people in the business community. I'm happy to be judged by the people on all of those matters when the time comes. I've been in public life for a significant amount of time. I think public policy and being involved publicly is one of more important things anybody can do in life, making a contribution and whatever happens, one way or the other, I will know that I can go to sleep at night, thinking that in difficult political circumstances whatever happens, we did the right thing. I happen to think that we will win this election. I know that turns on its head all of the conventional wisdom around the room, but at the moment, there is really just a one-sided examination of the Government and the Opposition has rolled itself into a small ball pretending it doesn't have to say or do anything and it can sneak its way through the next election campaign, get into office and then do a Campbell Newman. That's the strategy at the moment. And cut to the bone after the election if they are successful. I hope the Budget in particular, not only has a public discussion about the things we need to do to make our country a better place, but also brings forward a fair comparison between the competing ideas and policy agendas in our country.

JOURNALIST:

Andrew Probyn from the West Australian. Would you be able to confirm today that the little fiddle you did with indexation of tobacco will raise in the order of more than $400 million over the next four years? There seems to be a state secret about this. On the same thing, why is it that the Government for the second year running has not increased the actual rate of excise on tobacco which has been recommended by the Preventative Health Taskforce? Is it to preserve smokers as a cash cow or to protect the Government from an electoral backlash?

TREASURER:

None of the above. The fact is that we did change the method of indexation in the Budget. I would love to tell you how much we are going to raise. I'm not allowed to do so. I'm not given that figure by the Treasury. We are developing legislation to put it into the Parliament, I'm not in a position whether it comes to a tobacco excise or MRRT.  Let's be clear, this is not something that I have chosen to do. I've said to people that my understanding is that the impact on a pack of 25 will be an additional 7 cents twice a year. I think you can probably go through and work out some numbers from that. I would love to be able to tell you. It is not there yet because I can't lawfully tell you. 

JOURNALIST:

Phillip Hudson from the Herald Sun. One of the choices you are asking voters to make is to accept the change to the baby bonus which after its axed and repackaged more than halves the payment and tightens eligibility but you are giving people nine-and-a-half months to get ready for it. Is there any extra support in the Budget for obstetricians, say next February? Seriously, are you concerned that some parents might try and deliver a baby on February 28 rather than March 1 so they can get the payment?

TREASURER:

No, I'm not.

JOURNALIST:

Karen Middleton from SBS Television. You have said there is nothing in this Budget about political expediency. I would like to ask you about one very small item which only allays you $4.5 million and that is the scrapping of plans to apply a filter to the internet. That's been a highly controversial move. If it's not about revenue, which it looks like it's not, why have you snuck that into this Budget?

TREASURER:

I don't think it's snuck in there. Minister Conroy has spoken about it this. We have spoken about it this. We have spoken about this and it is because we have achieved the sameobjectives working with the internet providers. I don't know the full answer. You should go and ask Steve Conroy. I will ask him when I'm finished. JOURNALIST:   Michelle Grattan even from The Conversation. The business community has been very critical of the Budget. More generally it has now got a fractious relationship with the Government. Do you think that this is all the fault of business not understanding  policy or wanting too much or whatever? Or do you take some of the responsibility for the deterioration of that relationship and if you are right and you were re-elected, what would you do to try to improve it in another term?

TREASURER:

I always try to have a dialogue with everybody, whether they disagree with me or not or whether we are on the same political side or not. In terms of say the Business Council, I had dinner with what they would call their executive committee about two months ago. It was a long conversation, went for about an hour-and-a-half, two hours. We went through the major elements of the Government's program, how they related to the plans and the views of the BCA and when it came to the fiscal approach that I've outlined to you today, I broadly spoke to them about our intentions to maintain fiscal discipline in the face of revenue write-downs. They also publicly said at that stage it wasn't wise to come back to surplus in 2012-13 for the reasons I've outlined today. There was agreement about that. There we had a lot of agreement about our agenda on infrastructure. It also fits into this transition going on in our economy between mining and non-mining investment and in fact that some of the big mining projects or construction projects come off. We see our infrastructure project which Anthony Albanese has put together in that light.

There are some things we will never agree on. They want a corporate tax cut by jacking up the GST. They have half the Liberal Party on side with that. We agreed to disagree on that agenda. That doesn't stop me from having a dialogue and a conversation with senior business people. I ring senior business people reasonably regularly to talk to them about what they see happening in the economy. I don't just rely on the ABS figures that come through. I will frequently talk to corporate leaders. I will ring them on the weekend saying how are your numbers going, what are you seeing. That real time data is important for a Treasurer and I do that regulary. I did that a lot during the Global Financial Crisis and I will keep doing it. Irrespective of whether they want to go out and barrack for the Liberal Party. The fact is their silence on the increase in the corporate tax rate being put forward by Mr Abbott does indicate some degree of political agreement between the two. Because if it was this Government that was standing up and saying we are putting up the corporate rate by 1.5, I know what the reaction would be. That doesn't in any way discourage me from continuing to have a dialogue. It's like it is in the media. There are some media outlets I've noticed are particularly hostile to the Government. But nevertheless, nevertheless, we still continue to have a civilized relationship. My office interacts with those outlets, we try and do everything we possibly can in a professional way. There are a number of people I see around the room I've agreed with on some issues and disagreed with on same others