SUBJECTS: MYEFO, Budget surplus, unemployment, economic growth, infrastructure spending
JOHN STANLEY:
The Treasurer Wayne Swan announced all of this earlier today and the Assistant Treasurer Chris Bowen is on the line with me now, Chris Bowen, good afternoon to you.
CHRIS BOWEN:
Good afternoon John, nice to talk to you again.
STANLEY:
Can you just explain to us with the Budget surplus, it was $21.7 billion now revised down to $5.4. Now I'm assuming that takes into account the $10.4 that's being handed out in December is that right?
BOWEN:
Well, the $10.4 billion is all of course out of this year, this financial year, and this is a mid year economic projection for this financial year and next financial year and the projections after that. So obviously as you pointed out John, big reductions in government revenue as a result of the fiscal situation around the world. Tax revenue down substantially; capital gains tax in particular; big reductions in [inaudible] to the government which has had the impact on the surplus.
STANLEY:
So the surplus...so what we are saying is the surplus if you hadn't decided to spend the $10.4 billion the surplus would have been around $16 billion as apposed to the $21 billion is that right?
BOWEN:
Well the surplus in the out years John, the projection is all as a result of the fiscal situation around the world. So as I say, all of the decisions in the stimulus package are out of this financial year whereas the projections for the budget surplus for example is down to $3.6 billion for the financial year 2009-10 that's all as a result of reductions in tax revenue. There are hardly any policy decisions, just very minor ones, but hardly any policy decisions that have impacted on that. So do you see that impact for example our tax revenue will be down by almost $5 billion in 08-09 and then down by $12.2 billion in 2009-10 and $12.4 billion in 2010-11, that's where the big hits are coming in.
STANLEY:
Just to clarify so our listeners know. You had budgeted for this financial year a deficit of 21.7 billion deficit...
BOWEN:
...surplus.
STANLEY:
...surplus rather, $21.7 billion
BOWEN:
...that's right.
STANLEY:
The forecast is now that it will come in at $5.4 billion and that includes the $10.4 billion, the policy decision that's been made.
BOWEN:
Yes, that's right. As I stressed the big reductions in the surplus are a result of the tax reductions.
STANLEY:
And that's going to be more pronounced next year than this year?
BOWEN:
That's correct, that's absolutely right, $4.2 billion reduction in tax revenue in 2009-10 and lets take capital gains tax for example John, we raised $20 billion dollars out of capital gains tax in 2007-08 and it will be $12 billion 2009-10 so almost a halving of the revenue coming from the government.
STANLEY:
So in terms of ongoing policy I know the Treasurer said that the pension review he commits to that but everything else has got to be looked at again does it?
BOWEN:
Well the Treasurer has made the point that these are very difficult times and of course we are committed to fixing up the pension in a long term sustained way. We have brought in the bonus this year but we know that's just for this year; we need to do it in the long term sustained way everybody's committed to doing it. There are going to be great pressures on government expenditure and we'll need to next year as we did this year to make some difficult decisions but we are committed the core agenda of fixing the pensions for example.
STANLEY:
The rest of it...I mean...I think certainly during the election campaign there was an objective of trying to simplify the tax regime even further and you've got this tax review under way there won't be much room to move based on the these figures will there?
BOWEN:
No, but a lot of the tax simplification is not necessarily all that expensive when you look at all the small taxes that are levied throughout the economy. We are committed obviously - we have delivered tax cuts this year - we've committed to those tax cuts that we promised but there were what we call aspirational tax cuts into the future where we have said look this is where we would like to get to if we can, if the economics circumstances were [inaudible]. They weren't if you like a commitment, what we have is a committed tax cut this year and next and then we have aspirational tax cuts but we will need to judge the situation at the time.
STANLEY:
At the Treasurer's press conference there was come confusion over the situation with first of all inflation. What's the outlook for inflation?
BOWEN:
Well the outlook for inflation John is that it will be 3.5 per cent in 2008-09 which is up from 3.25 per cent at the budget time.
STANLEY:
Which was your prediction?
BOWEN:
Yeah, that's right. Obviously inflation has been the main focus of the Reserve Bank and the government earlier in the cycle the crisis has obviously changed the focus and of course the crisis...the policy decisions taken by the government and the Reserve Bank earlier in the year. The crisis has taken a lot of the pressure off inflation and is projected to come back under control. That's both the Reserve Bank's projection and the projections in this document.
STANLEY:
And the annual growth rate was 2 per cent is that right?
BOWEN:
Growth forecast for 2008-09 is 2 per cent, which is down a little bit from...
STANLEY:
There were questions from journalists to the Treasurer about whether, what the quarterly figures where I think the significance of that is that if you get two quarters of negative growth, to use that term that technically puts you into recession. Have you got any more information on whether there are forecasts for the quarterly growth figures? Are there...
BOWEN:
Well, to get a recession as you say you need negative growth for two quarters. Now we can see the rest of the world going into recession John, that's the harsh reality. The IMF predicts the 0.1 per cent growth for all the worlds advanced economy's at the lowest in 25 years. Now our forecast is still positive, our forecast is still 2 per cent down from where the budget projection was, but it's still positive and frankly the envy of the rest of the world if they could be predicting 2 per cent growth over a year, then they would be very happy with that...
STANLEY:
The question was whether in that 2 per cent there may have been a couple of quarters of negative growth to produce the technical...
BOWEN:
If you are getting a 2 per cent growth over the year the chance of getting a negative growth in any two quarters are slim, but what we need to do is of course make whatever policy decisions we have to, to keep us out of recession if we possibly can. The rest of the world goes into recession, that's what the economics stimulus package has been all about.
STANLEY:
Does the Treasury do quarter by quarter or just give an annual figure?
BOWEN:
In this document they give an annual figure and of course the quarterly figures come out retrospectively from the Australian Bureau of Statistics.
STANLEY:
Okay. The other one, you worked for sometime as an adviser within the NSW government. You know the something of NSW finances and you'd aware of the need not just for NSW but for the states around Australia to do something about infrastructure and you live in Sydney, so you know the state of our services and infrastructure here.
Does this mean the federal government won't really be able to do much to help the states fix up their infrastructure?
BOWEN:
Oh, not necessarily John because we've already put $26 billion aside into our funds Building Australia Fund, the Health Fund and the Education Fund. Now that's $26 billion that's already there. That money will go to infrastructure: whether its transport, education or health infrastructure, so they are very important now. Of course the rest of them, the future money was to come out of future surpluses. Now we are still projecting surpluses much smaller than we were projecting before, but there's still a surplus there which would go into those funds. Now of course we will continue to do that for as long as we run a surplus, but we have already put that money aside into those funds, and we have already announced that we are bringing forward the consideration of that, to try and get some of those infrastructure budget projects going more quickly.
STANLEY:
Do you think this might have been better to release this on another day because it does look like you've got something to hide doesn't it, releasing on the day of the presidential election?
BOWEN:
Some are always cynical John, I understand that. But look the reality is yesterday, of course, it was Melbourne Cup day. I think we would been roundly criticised for doing that. Tomorrow, the Treasurer is off to the G20, he had to be here to do this and I think he's gone for something like 10 days. So we wanted to get this out nice and early, he did it in the morning. The previous government used to do it at like 4 o'clock in the afternoon so it was very difficult for news shows to cover it. We put this out in the morning. I understand it's a busy news day, yesterday was a busy news day, it's a busy news time there's a lot happening around the world and yesterday of course we also saw an interest rate reduction, as well as the Melbourne Cup, and the presidential election all of them got a fair run. I recognise it's a busy time but really this was the only day that it was possible to do it.
STANLEY:
And the final bit of bad news in this and there's a fair bit of it unemployment 5.75 per cent by June 2010. That looks to me to be on the conservative side most of the economic forecasters had it going higher than that do you think you can contain it even to that?
BOWEN:
Well that's the Treasury's best estimate of course we will be doing our best to keep it to that. Of course, our economic package stimulus package is expected to create 75 000 new jobs so that will help. No body wants to see unemployment higher than it needs to be and the whole idea of the economics stimulus package and everything we are doing to get us through this crisis, with as a robust growth as possible, to keep unemployment as low as possible. So we will be doing whatever it takes both fiscally and I know the Reserve Bank will be doing whatever it takes with its monetary policy to get us through and get unemployment still with a five in front of it.
STANLEY:
Okay, Chris Bowen I appreciate your time thank you.
BOWEN:
Always a pleasure John