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

17 May 2013

Q&A

CEDA Post-Budget

SUBJECTS: Budget 2013-14; Tony Abbott's Savage Cut; Superannuation; GST; Global Financial Crisis; Farm Finance Scheme; Lilley

HOST:

I guess you are quite used to the routine of preparation. It is one of those things that probably starts in September/October and right the way through, and delivering and getting out selling the Budget as well. Do you ever have any time for reflection, especially after you have done six now, an election coming up, quite possibly be your last Budget – do you have any time for reflection about how it is going?

TREASURER:

I don't see it that way.

HOST:

How many more are you going to deliver, do you think?

TREASURER:

That's up to the Australian people. But, let me make this point. I think preparing for a Budget is a bit like preparing for a football Grand Final. You know, it is a long season and as you get closer towards the end and as you start to get towards the main game, the pace really intensifies.

HOST:

You don't want to peak too early?

TREASURER:

No, you don't want to peak too early. But you've also got to make sure that you have done all the work way out. So a lot of the work for the Budget is really done towards the end of the previous year, and it ramps up early this year. And if you haven't done the work, haven't done the hard yards, then it is pretty hard to get it all together in May.

This one was more complex because we were dealing with a situation that was rapidly evolving when it comes to the revenue write downs that flowed from our profits based taxes. So, we saw in revenue collections in December that we had lost, in terms of money in the till, a revenue write down that we had put in for the whole year, we had lost it all in four months. So, we knew then that it was unlikely that we would be coming back to surplus in 2012-13, and I made that announcement last December.

But what they happened as we went through the early months of this year and the revenue collections came in, that the revenue was falling even faster as we moved through this year. And as we now know, that was a consequence of a unique event in the Australian economy – a one in 50 year event – where for the first time for three quarters in a row nominal GDP growth fell below real GDP growth. Now that's all pretty technical and I won't spend too much time talking about it, but essentially what it means is the prolonged and high level of the Australian dollar in the face of a falling terms of trade and lower interest rates, didn't move. And what it did was put a real squeeze on profitability of companies right across the economy. Not just particularly in mining, which had been most profitable up to that stage, but more broadly. The [inaudible] figures I quoted in my speech today, the figures about the manufacturing industry and retail and their profits, and that has been reflected in the figures that have been published. We have had a big debate about this, and all of this came all of a sudden, or didn't.

I began making announcements about this in December last year and spoke about it frequently as we went through this year. But this was a unique event which had implications for our revenue and presented really difficult choices. What do you do in these circumstances? In those circumstances, the inappropriate thing, the reckless thing to do is to come back to surplus to make up for that revenue write-down. What you should do in those circumstances is let the automatic stabilisers work and that's what the government decided to do. But we also knew we has an economy which still has solid growth, high investment pipeline, low interest rates, good public finances, we shouldn't let that deter us from putting in place the really big investments for the future that we need to underpin our future prosperity. So, in an environment of deteriorating revenue we also set about a very substantial savings exercise so we could fund over 10 years these long-term investments that require the certainty that the profiles provided by both Gonski and disabilities support required.

So that is a long way of saying we had many more moving parts in this Budget than we would normally have in a normal Budget. And of course, all of them happening in an election year. So it's not an election-year budget, but it's a budget that's very much right for the times, which makes the investments for the future, takes the responsible course of supporting our economy now and coming back to surplus at a steady pace.

JOURNALIST:

 It was your sixth Budget you delivered on Tuesday. How would you rate it to others? Was it the toughest one because you've had to ditch the surplus promised last December? Or is it the toughest one that it's an election year and you couldn't actually plant any election sweeteners?

TREASURER:

The really tough circumstances that I've confronted and the Government confronted were the events that occurred following the collapse of Lehman Brothers and then the associated global recession which rapidly followed. The period from September 2008 all the way through to June, the second half of 2009, was one of many sleepless nights and a lot of worry. Because trying to figure out in rapidly evolving global circumstances where global demand first of all in developed economies fell off a cliff towards the second part of 2008, towards the end there, and then in early 2009, demand fell off the cliff for the developing economies, produced a near catastrophic situation in the global economy and was going to produce a near catastrophic situation for us given the extent to which it was then impacting.

We saw the leading edge of it here. The leading edge of it here in Queensland was mining companies were putting people off towards the end of 2009. Pretty hard to contemplate that now given everything that has evolved since that time, but it was a pretty grim time. We had to take really big decisions about what we would do in an environment where there was no clear line of sight and no conventional wisdom about what ought to be done to and to a large extent no great knowledge about where things were going. The thing I am proud of from that period is the Government did get a pretty good handle on these things and put in place a response through two stimulus packages that gave us the best outcome of any developed economy in the world.

Many people who comment on the Australian economy retrospectively somehow say that those events through that period were of course assisted by the resources boom. They were not. The resources boom really started to kick in a little bit later than all of that. No-one was predicting around that time that we were necessarily going to see one evolved in the resources sector. The government took big decisions, we knew that in taking them we would be severely criticised. We knew when you were spending money on things like building new facilities for schools, when you had that many construction projects around the country, that that would involve a fair degree of controversy. It was a very difficult period. The revenue write-downs in this Budget are probably, if you wanted to rank it, and the challenges they pose for this budget were probably second following that period. 

But what I am really pleased in this Budget is the extent to which we have fronted up to our responsibilities into the future and fronted up and funded in a sustainable way DisabilityCare Australia and the reforms for school improvement, otherwise known as Gonski. Because disabled people, severely and permanently disabled people don't exist on a four-year budget cycle. You can't fund an education system for primary and secondary students on a four-year budget cycle. These two big policy reforms demand that there is policy certainty. When you're taking such a big structural change, you have to follow up with structural saves in our Budget if you're serious about being a Keynesian. I have always believed if you are Keynesian on the way down, then you have to be one the way up. We've just had to basically adjust the pace of that given the events we've been through and let the automatic stabilisers operate in the environment we're in. But that's what we've done. That's why this Budget was much more complex.

JOURNALIST:

There has been a lot more focus this year on the Budget in Reply speech from the Opposition Leader. Obviously it's an election year and there seems to be an assumption there could be a change of Government come September. What was your response to  something that your government introduced was changes to the increase in the superannuation guarantee and that is one of the key measures that's going to be deferred? John Brogden, obviously who represents the Superannuation Industry said this morning it would leave a $46 billion hole in the industry.

TREASURER:

This is an act of economic vandalism. The introduction of national superannuation has been one of the fundamental reforms which is underpinned the strength of the Australian economy at a variety of levels. Underpinned because it has given us a national savings pool which was particularly handy during the Global Financial Crisis because many businesses recapitalised using that savings pool. But also because it deals with the challenges of an ageing population and an ageing population, we are. So to walk back from this increase is basically shifting the costs of ageing onto a whole younger generation of Australians. So if this measure were to be implemented, it would have a dramatic impact or a significant impact on the total savings of a worker, say a young worker now on average wages, it would probably cut that by $20,000 over time. That is from the total amount they'd received when they retired.

This is common ground for the Liberal Party. Mr Abbott is on the record as opposing superannuation. And of course the superannuation increases that have been put in place by the previous Keating Government were suspended by the incoming Howard Government of which Mr Abbott was a member. So essentially the Liberals in this country have been hostile to the Superannuation Guarantee and in the way in which it underpins the saving strategy of our nation which is also a very important part of our fiscal policy and our financial sustainability as a country. We are, and always be, a capital hungry country. It's nature of our country. We're a first-world capital hungry country that requires big investment to drive the sort of industries that we've got a comparative advantage in. And that does mean we have to be attentive to national savings but we can't generate even though we're the world's 12th largest economy, we can't necessarily generate themselves with a population of 51[st] - 12th largest economy but 51st in terms of population. So for us, a national superannuation policy the likes of which we have got gives us the savings policy we need not just to develop our economy and underpin its strength but also to give dignity to people in retirement. And essentially interrupting the increase in the SG, diminishes that savings pool but also diminishes the retirement savings of a whole generation of young Australians who deserve better.

So this is economically reckless and very unwise, but I think it's at a piece with a number of the things that we heard last night. Essentially Mr Abbott has got a $26 billion hole in what he said last night. He didn't account for how he's going to fund some of the commitments that he gave. On top of that he said he wouldn't be doing the school improvement reforms so they would hit the fence. But it was more notable for what it didn't say and his adoption of what I would call the Campbell Newman strategy, which is that that he will have an audit commission that he would implement after an election.  And of course Campbell Newman skated through the election campaign up here in Queensland not telling people what he was going to do after the election. And he set up an audit commission and then took the axe to health and education and a whole lot of jobs right across the Queensland economy. Well Mr Abbott is constantly in the Parliament saying the Australian Government spends too much even though are spending levels are roughly at the levels of what they were for the Howard Government. So what that actually means is he has a very secret plan for savage cuts and he is not going to tell the Australian people and he didn't tell them about them last night. 

JOURNALIST:

 So do you think Peter Costello is going to get another call up to the federal commission of audit?

TREASURER:

Well he didn't do a good job up here did here.

JOURNALIST:

 I guess one of the keys things that is always talked about in tax reform is the GST increase. I know there some alluding to the fact that there could be a GST increase if there is a Coalition Government. But the GST is one of the things that was excluded from the Henry review. Do you think that it will ever be feasible should be back on the political agenda?

TREASURER:

Well former Prime Minster Howard was out during the week suggesting it should be extended to food. That is the view of the Liberal Party. It is in their DNA. That is not the view of the Labor Party and that is why that was excluded from the Henry Review. We believe in a progressive taxation system which has got a mix of taxes that deliver progressive outcomes. The Liberal Party has had a long-term attachment to a taxation system that is less progressive and they are very much attached to GST.

JOURNALIST:

Just a final one before we throw to the floor. Obviously it is no surprises that a Coalition Government would scrap the Mining Tax.  Mr Abbott was on radio this morning saying that he expects that once that happens he expects electricity and gas prices are going to fall by 18 per cent. Do you believe that will happen?

TREASURER:

Well it is a very big claim from Mr Abbott and he ought to put forward the sort of figuring that would lead to those sort of claims. But we didn't see any of these details from Mr Abbott last night. And Mr Abbott has been Leader of the Opposition now for four years. He has had plenty of opportunity to develop his policies. He has been very critical of the Government on a whole variety of levels. So we would have thought by now he might have been able to provide the Australian people with some of the detail that lies behind the claims he was making last night. But none of it was there. It wasn't there for reason. Because he hasn't told the Australian people about what his real plans are and he wants to get away with trying to make irrelevant statements, three word statements, slogans, rather than  put the detailed policies to the Australian people so there can be a compare and contrast with the Budget figures that were put down by the Government.

JOURNALIST:

Hi Treasurer. I wanted to ask what you think this Budget will mean for regional Queenslanders considering Labor only has, I think, one seat outside the Southeast corner?

TREASURER:

Sure. Well I spend a lot of time travelling through regional Queensland. Always have, always will. I love it. In fact I was just up in Townsville three or four weeks ago announcing a Farm Finance initiative which now hopefully will be backed by the State Governments, because there is a lot of stress in the rural sector due to a combination of factors. Due first of all to the high dollar. And then secondly because there has been a hit to land values of many rural producers particularly the cattle industry. So many viable farmers are under enormous pressure at the moment so we have developed a package in consultation with rural groups and the Agriculture Minister Joe Ludwig to have finance available for those farmers who are viable in the long term to get them through what is a pretty difficult period.

Regional Queensland has been a major beneficiary of initiatives from this Government across a range of areas. And infrastructure is one. If I look at the road investments we have made particularly in the Townsville region. The great investments we have made the Gladstone region, what we are doing with NBN.  As I see at the Yeppon roundabout that five weeks ago just outside of Rocky having probably the biggest flood point on the Bruce Highway between here and Cairns, we have done Stage One which we committed to some years ago. I was up there to observe that, and as part of the Budget we committed to Stage Two. What that will mean is that basically the flood proofing of that area around Rocky which has caused enormous problems when we have these big foods that seem to become an increasing fact of life for people who live in our State. So a lot of investment in infrastructure. The region is really excited about the NBN. They understand its importance to the future economic development.

So we are doing a lot in regional Queensland. A lot of the work we have already done in schools and so on, and much more. So a fair bit in the Budget by way of infrastructure but all the things we are doing in health, the big investments for example in making health particularly in Townsville, although sadly they have been dampened by the savage State Government cuts up there. Investing in regional Queensland in health, in infrastructure and in education are very firm priorities of this Government.

JOURNALIST:

 Just quickly while we are on infrastructure. Obviously there is $750 million dollars on the table for the $5.2 billion dollar Cross River Rail in Brisbane. There is $3 billion for the $9 billion Melbourne Metro. That is conditional on the State Governments signing up and the private sector coming to the table as well. Is there a time limit on that money there or do you want those projects signed off before the September election?

TREASURER:

Well we thought we had the Cross River Rail project signed off by the State Transport Minister, Mr Emerson because he wrote to Mr Albanese proposing a set of agreements, and we agreed and Mr Albanese wrote back and those letters are available to you.  So there has been last minute change of heart from the State Government level. I don't know why. But I hope they come to their senses pretty soon as they did on DisabilityCare Australia. I certainly welcome that decision from them. It is very good that we have finally got that one done.  This Cross River Rail is really important because if we don't do it in about five years' time all the advice is that we are going to have the same situation happen across our city that was happening around the airport where I live for years and years. Gridlock around a particular area which then spread across the whole city. This essentially gives the capacity for 70,000 additional passengers at peak hour.  It is going to take a lot of traffic off the road and a combination of public works that has been done will help us to solve the truly horrific traffic situation in our city. 

Also what we are doing on the Gateway Highway do deal with another big problem. We have already put money there. What you see going on down at Sandgate at moment is federal money. One part of that blockage we have put the money out for the other part.  The State Government however says they want a toll road on the Gateway Road which is pretty bizarre because it is putting a toll on a toll. Because the Gateway as it currently is a tollway. So if you want get off the freeway, you get a toll going on airport road as well. So it is completely unacceptable to the Commonwealth that they would want to put another toll on the Gateway and our money is conditional on no tolls on that part of the Gateway which is what Transport Minister Emerson is pushing for.

JOURNALIST:

 Last year at this meeting you were still hoping to get a small surplus this year. In terms of what we both said there would be an enormous fiscal contraction to achieve that surplus and in terms of what we both said that would generate very considerable room for the RBA to cut interest rates. So I have two questions really to ask. The size of the fiscal contractions is pretty sizeable. For the last couple years it has been about three per cent of GDP. As one Keynesian to another that would have, normally except to have negative effects on economic growth. So my first question is do you think that the Treasury underestimated your fiscal contraction's impact on economic growth? And the second thing is do you think that fiscal contraction still gives more room to the RBA to cut interest rates?

TREASURER:

Well we are in furious agreement. I made the argument, and have been making the argument around the country that we needed to anchor our fiscal policy and to provide the pathway back to surplus to give the Reserve Bank precisely the room to do what they have done. It is true to say that the contraction in 12-13 was about 1.7 [per cent].  That is a significant contraction. However it was appropriate to the investment side of the equation was in the economy. Because our fiscal pathway back is always been premised on growth above trend. As we have seen we have had a transition in our economy in terms of the peak of the investment phase which is construction heavy. So one of reasons why we have decided to slow the fiscal consolidation because the transition moved more quickly than we thought. Why did this transition move more quickly than we thought because of the factors I associated with the dollar. As you have seen, if you reading the statements that have come from the Reserve Bank over the last three, or four or five meetings those statements have been proven to the fact that the high dollar has been a pretty big handbrake on a large amount of activity in our economy not just in mining.

So that is why we decided about the automatic stabilisers on the revenue side of the Budget.  Our consolidation was $23 billion dollars. Now if you were listening to Mr Abbott last night, you would somehow be forgiven for thinking there was money going all the other way. We have actually been pulling money out. In nominal terms we have spent less money in 12-13 than we did in 11-12. So we haven't had a problem in our Government on the spending side despite what everyone is reading in the newspapers, we have a problem with the revenue side. Our tax to GDP ratio is 21.5 [per cent].  When we came to government it was 23.7 [per cent]. If we had the tax-to-GDP ratio, that is tax as a proportion of economy that we had when we were elected, that we inherited from previous Government we would have $24 billion dollars more in revenue in this year and be in surplus. So we have had a revenue problem and we responded to it in an appropriate way as good Keynesians do. And we put in place given the transition and the factors I have mentioned a slower consolidation which over the next four years is about 0.5 per cent of GDP on average across the year, across the years coming back to balance in the second last year of the forward estimates. So I think we are in extreme agreement.

HOST:

Is there anyone who disagrees with Wayne Swan who'd like to ask a question?

QUESTION:

Matthew Peter, QIC.  As an economic forecaster I understand the difficulty of getting accurate forecasts on [inaudible]. I also understand as an economist a lot tighter fiscal policy coming into [inaudible] is good for the economy as opposed to austerity. [Inaudible]. Forecasts in the forward estimates returning back to trend immediately. What happens if that doesn't occur? What happens if the slow-down that we are seeing, exceeds [inaudible]. What's plan B? Run another $20 billion deficit?

TREASURER:

Well, I don't answer hypothetical questions.  Look, forecasting looks at the central scenario. That's all you can do. Treasurers can't speculate around the central scenario. But I will say this, as I say to everybody, is that we've got an economy where its fundamentals are in good shape. And when it comes to both fiscal policy and monetary policy, if events were to change dramatically then we've got plenty of firepower to deal with it.

HOST:

I think we'll finish up there, but I will ask one final question. Obviously the seat of Lilley, you've been there before, you've been elected and had to make second come back again. It's a pretty tight margin, 3.2%, it's the third most marginal ALP seat in Queensland. I'm a betting man, Sportsbet has you a $2.35 to win and the Coalition $1.40.

TREASURER:

Take the money. Get on me.

HOST:

In the same week that Clive Palmer has got the Brick with Eyes Glenn Lazarus, on a serious note, how do you think you rate your chances in that seat? It is hard when you're a Treasurer and you're travelling six days a week. And how do you think Palmer's Party is going to go?

TREASURER:

I've never taken myself for granted.  My seat has always been a very competitive seat.  As you've said, I've lost it on one occasion [inaudible]. That's the judgment of people I represent in the local area.  I am the Treasurer and the Deputy Prime Minister, but they frequently have their Treasurer, Deputy Prime Minister, and local member doing what a local member normally does.  And I've never stopped being out and about on a regular basis right throughout my electorate doing all the things I've always done the whole time that I've been the member. I've always had the view that you don't win an election by what you do in the last 3 months or the last 4 months, it's actually what you do for the three years that you've been there.

So, you know, I don't think in those terms about my seat, and in terms of speaking as the Treasurer, my job is not to think about the next election or the opinion polls, it's to get the big economic decisions right because a lot of things depend on that.  And that's what I think about. So, I don't view my activities from any other prism other than trying to be a good local member, getting good things done for our local community. You can't necessarily please everybody all of the time, either as a local member or a minister, but to do your best in those circumstances. And that's what I do. But I spend a don't spend lot of time thinking about predictions of what's going to happen in my seat, because our job is not to be worried about that, my job is to actually make sure that we get the decisions right for people nationally and locally.   

HOST:

Just a quick one about Clive Palmer, he was going to challenge you at one stage and then he backed out. 

TREASURER:

I was really looking forward to running against Clive, I tell you.  But there could well be a Palmer candidate and I'll run against them anyway.

HOST:

Thanks very much Treasurer, Wayne Swan

TREASURER:

Thank you