O’BRIEN:
Peter Costello is it fair to say that the surplus you’ve achieved in this Budget was more by good luck than good management.
TREASURER:
Well, let me correct something Allan said, because he was wrong. He said that we were spending proceeds from spectrum licenses, we are not spending a dollar from spectrum licenses. All of the money that is raised from spectrum licenses goes to pay off debt, and in addition to that we use Telstra to pay off debt and at the end of this financial year we will have paid down another $9 billion of Labor debt, and the last five Budgets of Labor ran up $80 billion. Our first five Budgets have balanced and then run down debt by $50 billion. We haven’t paid back the full $80 billion because it is harder to pay back than it is to run it up. So what you are seeing in this Budget is a Budget which is balanced and all of the proceeds from the spectrum which are treated under IMF standards as revenue, because the Budget is in surplus go to retire debt, every last dollar and we retire additional debt to pay down $50 billion of Labor’s $80 billion debt.
O’BRIEN:
Nonetheless you’ve nailed your shingle to the wall as Mr Surplus.
And it’s true, is it not, that until very recently in your preparations for this Budget you had estimated the sale of this particular spectrum at something like $200 million, it is now $2.8 billion. Without that you would not have a surplus. And it’s gone next year, it is one year.
TREASURER:
Well, Kerry what’s happened over the course of the last year is that our dividends have gone down and our license fees have gone up. But our non-tax revenue is lower than we thought, it’s lower than it was last year. So, luckily for us as our dividends went down, our license fees went up, the non-tax revenue still fell. What keeps a Budget in surplus……
O’BRIEN:
I’m glad you acknowledge some luck in there.
TREASURER:
Well luck can’t always run one way. I would have been lucky if the dividends had gone up, that is what I would have preferred as they have over most of the last decade or so. No, what keeps this Budget in surplus is that we spend less than we raise. That’s what keeps the Budget in surplus.
O’BRIEN:
But at one point you were going to have a surplus of $11 billion, and the markets very clearly are seeing you as having become a spending Treasurer.
TREASURER:
No, no. At the Mid-Year Review we were going to have a deficit of half a billion dollars. That’s all we were going to have.
O’BRIEN:
Two years ago you were going to have a surplus of $11 billion.
TREASURER:
We were going to have a deficit of half a billion dollars. And we said to the Australian people there was a one-off year caused by two factors, one was East Timor and the other of course was the hole that was punched by the Labor Party and the Democrats in the Tax Package. So we said we’ll have a one-year levy so the Budget doesn’t go into deficit. As it turns out our non-tax revenue in the license areas moved better than we thought and our tax revenue went up. So we said to the Australian people, we told you a levy was necessary to keep the Budget in surplus, the Budget will be in surplus without it so we can’t look you in the face and say the levy is necessary, and so we were honest and we won’t be imposing it. Now, let’s go back to the other point that you say. If you looked at the forward projections, three, it was either three or four years ago, probably three years ago, you have a large number in this Budget, that’s right. And you know what we said, we said that because we would have our debt under control we ought to be cutting taxes. There is nothing wrong when you’ve got a Budget in surplus, when you’re paying down your debt to cutting taxes.
O’BRIEN:
But you’re cutting taxes to compensate for the GST?
TREASURER:
No we’re not. Income taxes in this country are too high. Australians hadn’t had an income tax cut for a decade and they deserve one. The last income tax cut, as you know, was in….
O’BRIEN:
But this one is part of your compensation package to pay for the GST.
TREASURER:
No. You would have been cutting income taxes anyway Kerry. The last time the Australian public was promised income taxes, and John Edwards your market commentator would remember it very well, he was advising Paul Keating at the time, was in 1993 when they were taken away. Now, you can’t tell me that it wasn’t responsible to cut income taxes for the first time in a decade. They were too high. We have a Budget which is in surplus, we have paid back $50 billion worth of debt, and our debt to GDP ratio at the moment will be 7 per cent. In Europe it is 50 per cent, in America it is 50 per cent…..
O’BRIEN:
But you keep saying you’ve got a surplus, and on paper it’s a surplus, and however credibly you sell that surplus it seems the markets are not going to be persuaded. Now, surely at least a substantial part of the value of having a surplus is having the markets react accordingly. You’ve got a fragile dollar.
TREASURER:
No, the reason we have a surplus is that we want to pay our way, and we want to ensure that we pay down debt. The reason we have a surplus is to pay down debt. What do you do with a surplus Kerry?
O’BRIEN:
But part of your surplus again is assets. You’re selling assets, you’re selling defence property and you’re selling the CSIRO property, hundreds of millions of dollars which again are making up part of the surplus.
TREASURER:
No, they’re not, I’m sorry that is not right. What we do in relation to property sales is, as you sell a property sale and buy a property to replace it or a new property, which is called a non-financial asset, which has always been the case, it goes into the bottom line. If you didn’t put the sale of the property in the bottom line you wouldn’t put the purchase of the property in the bottom line as an expense. That has always been the case. What you don’t put in a budget revenue and expense statement is a one-off-capital sale because it is unrepeatable.
O’BRIEN:
But then there are those who are saying that’s precisely the case with the spectrum sale, it is a one-off.
TREASURER:
Let me finish the point which is why we never put Telstra or any other privatisation in the bottom line. Now let me answer the question I asked you before. If your budget is in surplus, what can you do with a surplus? There is only one thing you can do with a surplus and that is pay down debt.
JOURNALIST:
You can get ready for an election too.
TREASURER:
No you can’t spend it because if you spend it, it’s not a surplus. There is only one thing you can do…..
JOURNALIST:
It might be a surplus in this budget it could be part of spending in the next one.
TREASURER:
Kerry, there is only one thing you can do with a surplus. When you meet all of your expenses and you’ve got money over, if you’ve got no debt you put it in the bank, if you have debt what you should do is you should pay down your debt. Now, we’re in a situation where the budget is in surplus, where all of the proceeds from license fees go to retire debt, where the proceeds of Telstra go to retire debt, where we pay down debt $9 billion this year. If we’d had a $1 billion higher surplus the difference would have been instead of paying down $9 billion we’d have paid down $10 billion. Instead of paying off $50 billion of Labor’s debt in five years, we’d have paid back $51 billion. Now this is a responsible economic strategy. The debt to GDP ratio, and all you can do with your surpluses is pay down debt, the debt to GDP ratio in Australia is 7 per cent at the end of this year. The United States is 50 per cent, Europe is 50 per cent, Japan is 50 per cent. Our continuing surpluses pay down debt. It puts the Australian Government in a stronger position than any of those governments.
JOURNALIST:
Let’s talk about market perceptions and you would know them better than anybody or at least as well as anybody. The question is how the markets are perceiving this surplus against a backdrop of a slowing of the economy, albeit still a respectable figure but slowing growth, slightly slowing growth. They’re arguing that we are not in as good a position as we should be in the event of a downturn down the track.
TREASURER:
We’re in this position. Australia ran up $80 billion worth of debt from 1991-1996 while the economy was growing. While the economy was growing we ran up that debt. While the economy was growing under the Coalition management we’ve paid down $50 billion of it. Now if we actually could get our full program through the Senate we could extinguish it.
You know I’d be the first to say that if the Senate would remove its brakes we could have a better outcome on our debt. But even with that particular situation to have paid off $50 billion and have a debt to GDP ratio of 7 per cent, I’ve looked around the world to see which countries would be better. There is precious few I can assure you of that.
JOURNALIST:
Can we look at the package for rural and regional Australia. The Prime Minister raised expectations quite dramatically when he went bush at the beginning of the year. Are you confident that you’ve actually delivered enough on that because there was a lot of talk of infrastructure programs and so on. And secondly, I know Simon Crean is going to be sitting in the chair in a minute and I’m sure one of the points he’ll make is that you’re really just giving back some of what you took when you were into your cutting budgets. That there were very substantial cuts to rural and regional services.
TREASURER:
No. What we’ve done is we’ve increased funding for regional Australia in one particular area which is health services and carefully focussed and carefully targetted. And that’s new expenditure. But it’s responsible. Sure there were people that were running around saying oh you should be spending billions of dollars but that wouldn’t have been consistent with our economic strategy. Our economic strategy was to keep the budget in surplus to pay down debt and as the interest payments on our debts declined that would free up some additional resources, in this case it’s freed it up for a health package in rural and regional Australia, and I think it will make a difference. There were people that would say oh well you should spend more but I don’t think that would be consistent with our economic strategy. This is a tight spending government and it’s a tight spending budget but within the room and the parameters of the budget I think we’ve done something pretty important.
JOURNALIST:
It sounds by the same token that certainly the headlines tomorrow and the editorials largely are going to give this a thumbs down. Does that surprise you, disappoint you?
TREASURER:
Well look I’d always prefer a good headline to a bad headline of course I would but you’ve got to put this in context. I think in Australia today you know having got the budget in surplus, four surpluses in a row, paid off $50 billion, growing the economy at three and three quarter, this is now considered pretty pedestrian. If you’d have said to anybody in Australia five years ago do you think you could possibly have a surplus budget. Do you think you could go a step further and actually pay off debt. Do you think you could pay off $50 billion of debt. I think people would have laughed at you. I think there are some that are saying oh the task of a budget is to pull out surprises all the time. I don’t think that’s the task of a budget. I think the task of a budget is to have sustained economic policy which is what this budget is all about.
JOURNALIST:
Peter Costello, thanks for your time.
TREASURER:
Thanks very much Kerry.