Interview with Fran Kelly
ABC Radio National
15 July 2010
SUBJECTS: Economic Statement; MRRT revenues; interest rates; climate change
KELLY:
The Gillard Government's re-election stocks have been boosted by revised Treasury forecasts which show the surplus will be bigger than forecast in the Budget less than two months ago. An increase in the terms of trade driven by the mining sector will lift the surplus in 2012/2013 to more than $3 billion – that's up from just $1 billion that we heard about seven weeks ago. The extra cash should give the Government more room to move when offering election sweeteners and, you never know, we might see some of that when the Prime Minister addresses the National Press Club later today. The Opposition though says these revised Treasury figures are dodgy:
ROBB:
We've seen today dodgy figures used to explain a dodgy tax delivered by a dodgy deal. It's an emergency mini-Budget to solve a political emergency and it fails.
KELLY:
Shadow Finance Minister, Andrew Robb, yesterday. Well, Treasurer Wayne Swan is in the Parliament House studio. Treasurer, welcome to breakfast.
TREASURER:
Good morning Fran.
KELLY:
Dodgy figures according to the Opposition. Why did the Government release this economic update yesterday? You're not obliged to do so until after an election is called and we've only just had the Budget.
TREASURER:
Well, first of all can I say those comments from Mr Robb are entirely laughable. The Opposition has spent weeks calling for an update of the Budget figures. We provided the update of the Budget figures and then they said it wasn't necessary.
The fact is that there has been very considerable global economic uncertainty over the past few weeks. I've seen that at the international meetings I've been to, and there was a hunger in the international community for more information about the mining tax and, of course, we've had a change of PM. So I thought it was entirely appropriate to provide an update and, of course, this Government has provided updates before in addition to the normal Budgets and MYEFOs the Government has put out. This is a Government that is entirely transparent and I think it is in the national interest to provide an update given the global uncertainty.
KELLY:
It's certainly in your political interest isn't it? I mean, just handily before you're about to call an election you've got these updated figures which are very rosy, showing a bigger than expected impact from revenue, from the mining sector and getting into surplus even earlier and bigger than before.
TREASURER:
Well, certainly, but what the updates shows is the Government's very strong financial management. We're bringing the Budget back into surplus in three years, three years early. What it shows yet again is the application of our very strict fiscal discipline and the implementation of our two per cent cap on spending. That is a very good story for Australia, Fran.
KELLY:
Let's go to the mining tax – the compromise deal that Julia Gillard and you struck with the miners was extremely expensive for the country, we now know. The Government sacrificed $7.5 billion in projected revenue when you agreed to lower the mining tax rate. Why didn't you tell us that in the first place?
TREASURER:
Well Fran I reject that characterisation. We said we would go in to negotiations with the mining industry about the nature of the tax, and we changed the design. The changed design produces a revenue of $10.5 billion. The original revenue was $12 billion.
KELLY:
No but the original, hang on. It's only $10.5 [billion] once you add on the additional forecasted revenue from the, that Treasury had underestimated. So if you add it on to the $10.5[billion], you've got to add it on to the $12 [billion] as well.
TREASURER:
Well, Fran we never set out to raise considerably more than $12 billion and Fran I think you were there on the day when I did the press conference responding to the report of the independent Tax Review. And I said that we would use every cent of the revenue raised from the resource rent tax to invest in tax cuts for small business, to provide a cut to the company tax rate, to boost superannuation and to invest in infrastructure and it was never the Government's intention to raise a lot more money than $12 billion. Now, what we did do…
KELLY:
Why not though? Why not?
TREASURER:
Well, because we thought that was a reasonable amount and what we did was…
KELLY:
Yes, but if the profits are being made, if these super profits are being made then it doesn't matter if we take $12 or $24 billion off the top. The companies still get their massive profits.
TREASURER:
I think it does matter. The size of the boom does matter. We set out to raise $12 billion. The industry said that they had problems with parts of the design of the original tax. They objected to refundability. They objected to the bond rate and no higher uplift factor. We made a number of changes and what we went forward with was a substantially different tax.
The point that you are putting to me is hypothetical. We redesigned the tax. We also, as is always done, we updated the forecasts. We updated the forecasts because there were new ABARE reports out. There had been new contract negotiations. We had discussions with the companies. And at the end of the day the tax that we designed will produce $10.5 billion to go to those very important reforms that I outlined in our response to the independent Tax Review. I think it's a great outcome for the country. We've got a tax which is designed well, which will go forward, which will bring a return to the Australian people as we go forward as we go through mining boom mark II.
KELLY:
I guess the question is, and people might be wondering, was it worth it? It's certainly a good deal for the miners because you can see that, as we've now discussed, quite a lot for the miners, on the original figures you compromised more than half of what you expected to get. Was this deal worth it for the country still?
TREASURER:
Fran, absolutely. The point you put is hypothetical. We set out to raise $12 billion. We are raising, through this new tax, $10.5 billion. You are now saying to me that we should have raised twice as much as we originally started with…
KELLY:
No, I'm saying you wouldn't have if you'd gone with your original proposal.
TREASURER:
On the new prices. That is true, but the fact is we didn't set out to raise twice as much as we put before the Australian people in our response to the independent Tax Review. We didn't set out to do that. What we have done is raise what I regard as a reasonable amount of money to invest in economic reform, and in particular to deal with the challenges that flow from mining boom mark II, but also to put in place a framework for the future which will give a fairer return to the Australian people for a long time to come.
KELLY:
Okay. Well, talking about Australian people, I think what everyone wants to know is can we believe the figures that are being put out? The Opposition says they're dodgy. Seven weeks ago, you know, the figures weren't quite as rosy as this. Now we're going to have a surplus of $3 billion within three years time. How do voters know what Treasury claims to believe?
TREASURER:
Well, the Opposition in particular is out there questioning the Treasury all of the time and I find that appalling. I think it is very poor behaviour from the Opposition and they use that to substitute for the fact that they don't have an alternative economic policy. The Treasury is doing its forecasting for this Government in the same way that it did its forecasting for the past Government.
And when we were in Opposition, Fran, we didn't set out as a political strategy to attack the Treasury, to attack the Treasury Secretary and to attack its forecasts. This Opposition is so bereft of an alternative economic policy, they have no other strategy. The fact is the Treasury has supplied its forecasts to us in the same way it supplied its forecasts to the previous Government.
KELLY:
Yes, but looking on, we now know that the Treasury forecasts of seven weeks ago were wrong. They have changed those forecasts. They severely underestimated, for instance, the commodity price outlook three months ago. Why should we believe Treasury now and, because isn't the obvious question what if they're wrong again? What if they've overestimated and then we're going to have a black hole?
TREASURER:
Well, I think if you read the analysis from many of the market economists today I think they regard the figures that have been put forward as quite reasonable. Indeed many describe them as cautious. I think they are very credible. The Treasury is usually criticised for being too cautious. I believe that they have been cautious. I believe that they have been prudent and I believe these forecasts are credible.
KELLY:
The Treasury downgraded slightly its outlook for growth next year from 3.75 per cent to 3 per cent largely because inflation is forecast to be higher, which in turn will mean more interest rate rises which is the downside of a growing economy isn't it? Interest rates will rise. Will they rise through an election do you think?
TREASURER:
Well, that's entirely a matter for the Reserve Bank, but the downgrade of the forecasts by that small amount is principally due to weaker consumption. That's the reason that the Treasury has cited in its forecast. So it's not quite as simple as presented there but, look, we have to do everything we possibly can to invest in the capacity of the economy to take pressure off inflation and therefore pressure off interest rates. The Reserve Bank takes those decisions independently of the Government.
But from a Government perspective we are doing everything we possibly can to invest in capacity in the economy and to ease inflationary pressures and we're doing that particularly, Fran, for those out there, the punters out there in the streets and suburbs of Australia. That's why we moved to change the Education Tax Refund. It's why we have proceeded with three rounds of tax cuts for Australian working families because we do understand there are cost of living pressures out there.
KELLY:
And just briefly Treasurer, I know you've got to run but the Government's yet to unveil its climate change policy changes. How much will the new measures impact on the Budget bottom line?
TREASURER:
Well, the new measures will fit into our fiscal rules which I've spoken to you about before. They are strict and those fiscal rules will apply to any measures that the Government brings forward into the future.
KELLY:
Wayne Swan, thank you very much for joining us.
TREASURER:
Thank you.
