TREASURER:
Well ladies and gentleman, perhaps, as per previous years, I’ll start with the charts first. This is a Budget which has been framed against a slow-down in the Australian economy in the current financial year but which forecasts a rebound in the economy in 2001-2002. We are forecasting in the current financial year growth of about two per cent on average and three and a quarter per cent in 2001-2002 and I think most private sector forecasters would probably be within the range.
It’s a Budget which is forecasting continuing low inflation, if anything with inflation to decline in 2002. We’ve had a one-off impact from the new tax system, which will wash itself out of the system and we expect that underlying inflation will be low in 2002 for a number of reasons. One is that the Australian economy, in my view, is now incredibly price competitive. We’ve said that petrol, which has been contributing to the CPI, will not be contributing; we expect that tax deductions will be subtracting from the CPI in the year ahead, in particular, the reduction in Financial Institutions Duty.
This is a Budget which is in surplus for the fifth consecutive year in a row. As you know the Government was elected in this year, in March of 1996, the last five Labor Party Budgets had been five deficits, totalling $80 billion of deficit. We have programmed to put the Budget into balance over two years, one, two. This will be the one, two, three, four, fifth surplus, consecutive surplus, in 2001-2002 and you’d have to go back pre-Whitlam to find five consecutive surplus Budgets. The surpluses that the Government has been running in previous years and this year have been directed towards paying off Government debt.
As we moved into the new tax system, we had transitional differences between what we call the fiscal balance and how we report the Budget on an underlying cash basis. The reason for that is essentially when we moved to PAYG for, that is Pay As You Go for companies, you had the delay from the system they were on, and they moved into the PAYG. And in accrual terms, two sets of liabilities became payable in this particular year 2000-2001. We gave companies two and half or five years to actually make those payments so they don’t actually make the double payment in the one financial year. But because it’s shown as accruing in that financial year, correspondingly revenues are low in the following two years. The actual cash position is that they pay over time, but that is the explanation for the variance between the fiscal position and the cash position over those years. And as you go through the transitional system you should expect them to move back into harmony.
With five consecutive surpluses we have now paid debt. The Commonwealth had a net asset position pre-Whitlam, the Commonwealth moved into a debt position through Whitlam. It built up in the early years of Keating, was brought back in the late 1980s and then we had the five Labor deficits accumulating $80 billion, one, two, three, four, five. The Coalition was elected in 1996. We’ve had the five consecutive Budgets in surplus, one, two, three, four, five, and we estimate that we will have paid back $60 billion of Labor’s debt over our six Budgets. And we will have the debt to GDP ratio back around five per cent. Not quite as low as it was before Labor began the debt build-up of the 1990s, but back to five per cent. Forecasting future surpluses and the proceeds of privatisation would actually eliminate Commonwealth debt in future years. That depends of course on whether the privatisation proceeds and on the position of the accounts.
Put that into international perspective, Australia is paying it’s debt down to about five per cent of GDP. It’s good by OECD standards, good by US standards, although the Clinton administration had a program to eliminate net debt by 2010, so they would probably overtake us at some point in the next decade, but if we were able to maintain our fiscal position we would beat the United States in terms of debt position.
I’m often asked by colleagues and other people, ‘What’s the point of paying down all of this debt, what’s it actually do for you?’ What it does for you is it gives you the chance to invest in more important things. And if I could leave you with one thought, I’d like to leave you with this one. Before I became Treasurer we used to raise about $8 billion to service our debts. We spent as much servicing our debt as we spent on hospitals and schools. That was in 1995-1996. Because we’ve repaid our debts, we now need $4 billion less per annum, we need $4 billion less per annum; and we’ve got $4 billion more to invest in other things. And what I particularly would like you to see here is now our investment is hospitals and schools is about double our public debt interest payments. Before we came to Government it was about the same. So as we paid off debt, as we freed up resources, we’ve been able to invest in more important things. And the way I like to think of it is that public debt interest servicing past debts - that’s just paying for the past; investing in hospitals and schools and families and children – that’s investing or the future. And we’ve changed the focus of our fiscal policy from the past to the future, and I think it is something that this Government can be proud of. In relation to this particular Budget, I see this Budget as very much a continuation of the prudent economic management that the Government’s had in place since its election in 1996. On 1 July the big tax changes continue to roll with the reduction in company tax from 34 to 30 cents, the abolition of Financial Institutions Duty, the abolition of stamp duties on shares, the introduction of refunding for imputation credits, and a new measure which is announced in this Budget and wasn’t even guessed by any of you, I’m pleased to say, the bring forward of full input tax credits for business on motor vehicles, and that includes trucks. That was going to be introduced on 1 July 2002, it has been brought forward to midnight tonight. That will be a stimulatory measure, and that’s the reason why we’ve done it. And a stimulatory measure which won’t build in a structural cost for the Budget because it was factored into the Budget in the years ahead. A bring forward which will be stimulatory.
In relation to others measures in this Budget, we propose to pay pensioners and part-pensioners $300 tax-free before 30 June. We will be introducing the legislation tonight with the view to getting it through the Parliament by Thursday so we can make the payment to pensioners next month. It is something that will give them additional spending power and that will be consistent with a good economic outcome, and it is something that the Budget can afford, but most of all it is something they deserve. I think this time last year many of you said to me, well you’ve got a budget surplus of $2.6 billion and the spectrum sale of $2.6 billion, and some of the newspapers were unkind enough to headline the budget ‘dial a surplus’, well, as you know, the spectrum didn’t realise anything like $2.6 billion, it realised $1.1 billion but the surplus was still as strong, in fact stronger. And that is because the receipts, the revenue receipts, particularly from companies were stronger than we’d forecast and out of that dividend we are now paying a one-off bonus to pensioners, to Prisoners of War, to the widows of Prisoners of War, to internees of the Japanese under Second World War and to their widows as well.
We are also cutting tax for older Australians from 1 July of last year. This is a retrospective tax cut. Their tax is cut as from 1 July of last year and they will be eligible for a tax refund once they file their tax returns after the end of the financial year on the 30th June. The increase in the tax-free threshold, the increase in the Medicare levy means that an older Australian, a qualifying older Australian, and this has a phase out, it doesn’t go to unlimited income earners; a qualifying older Australian pays no tax on their first $20,000. They have a tax-free threshold of $20,000 - no tax, no Medicare levy. And in addition to that if they happen to be couples, and it depends on whether you’ve got equal income or not, if you happen to be, it changes is what I’m saying, if you happen to be a couple you’ll get a saving on last year’s tax of $75 a week. These are very large tax reductions for older Australians and they compliment the pensioner bonus.
In addition to that the Budget introduces the biggest overhaul in welfare reform ever and commits an additional $1.7 billion over four years to that, which we expect and hope will deliver savings in the long run, as we encourage more people into work. It is a big up-front investment. The Budget makes our biggest investment in defence in twenty-five years, it makes our biggest investment in quarantine in response to foot and mouth disease, and it makes a very large investment in health. This is a huge Budget. There are measures in here for war widows, there are measures in here in relation to superannuation for over 55s. It is unquestionably the biggest Budget in terms of measures that’s been done at the Commonwealth level. It is a Budget which is directed, in my view, at a strong economy, at a just society, from a prudent Government which is continuing good economic management.
QUESTIONS and ANSWERS
JOURNALIST:
Treasurer, how confident are you that you will achieve that growth forecast of three and one quarter per cent given recent history?
TREASURER:
Well, I think most private sector forecasters are in the range of three to three and a half, and I think that’s probably, three and a quarter, is probably the average of the private sector forecasters, it wouldn’t be above average, could be marginally below average. We think that fundamentals of the Australian economy are sound. We have got a good Budget position, we have got a good debt position, we have got low interest rate regime, we have got a competitive tax system. We have had the transitional effect in relation to housing, which I believe, in the quarters to come will power growth, and we have had a growth in exports. A very significant growth in exports, partly a result of the New Tax System because we don’t tax our exports anymore, and partly the result of a super competitive exchange rate. So, I think that growth forecast is eminently achievable.
JOURNALIST:
Treasurer, you’re saying it is a big Budget, is it an election winning Budget and if you have your doubts how much more of the surplus would you be willing to sacrifice before the poll?
TREASURER:
Well, I don’t see, I think there was a feeling in some quarters that the Government was spending huge amounts of money. The Government, in this Budget, makes very sound investments but still produces a surplus. It cuts taxes but still produces a surplus. I guess one of the biggest measures that we have done recently was cuts in petrol excise and indexation. But, I think it is a prudent Budget and we are now able to share some of the dividends of good economic policy. That is the point I make. Why is it that now when you pay a bonus in relation to pensions, why is it that now we can cut the tax rate for self-funded retirees? Why is it that we can now abolish Financial Institutions Duty? That Financial Institutions Duty is paid by everybody that puts money into the bank, everybody who makes a payment on their credit card, everybody who pays a monthly mortgage, and we can do that because we are starting now to get the benefits of good economic policy, and I think the Government wants to continue its reputation for good economic policy.
JOURNALIST:
(inaudible) an acknowledgement that certainly the self-funded retirees and pensioners have been neglected by the Government in the past? Is that why you are focussing on them now?
TREASURER:
No, it’s not, because, I actually see that we have been building for self-funded retirees in the past. We have been putting bricks in place and off a solid base we have gone further. The bricks we have been putting in place, do you know before we were elected the tax-free threshold for a self-funded retiree was $5,400? And it was in my first Budget that I increased it to $11,100 and something - doubled. We were thinking about self-funded retirees then. We are now taking it to $20,000, another doubling. We introduced the private health insurance rebate, predominantly goes to older Australians, a 30 per cent rebate. Before we were elected you got not a dollar back on your private health insurance. When we were elected, to get that Commonwealth seniors health care card you had to have an income of, I think, below $21,000. We increased it to $40,000 and tonight we take it to $50,000 for singles, or $80,000 for a couple. Can I say that again. If you are a retiree the income test now is $80,000 for a couple to get that Commonwealth health care card. That is a very, very high level. But, is it a change of policy? No, it’s a continuation because it was $21,000, we took it to $40,000, tonight we take it to $50,000. I think we have been building bricks in the past and now we have come along and we have put another storey on it, but we were building bricks in the past.
JOURNALIST:
Is the pensioner bonus a compensation for the GST?
TREASURER:
What I would say about the pensioner bonus is this. It will be good for the economy because it will stimulate the economy. The Budget can afford it and pensioners deserve it, and when you have the conjunction of those three things it’s good policy, and it is deserved, and we can afford it, that’s why you do these things.
JOURNALIST:
Do you regret that you didn’t give it to, give them more last time?
TREASURER:
Look, what we did on 1 July of last year was we increased the pension by 4 per cent, and we have maintained it above where it would have been by 2 per cent at all times. And if we hadn’t have done what we did on 1 July of last year the pension would be 2 per cent lower than where it is at. So, we increased it and I think that is good. Now we are paying a one off bonus of $300. Some people will say, I’m sure some pensioners, you know, will say $300 – why not something else? But we can afford $300 and that is why we are paying it. I think it’s, and I also think it will be good for the economy. My picture of the economy is, at the moment, it’s probably more subdued than we have known it in the last 4 years, but we have come off 4 years of very good growth, and in the future it will be stronger again and it won’t do the economy any harm to have a bit of stimulation right now. But, you don’t want to build stimulation in structurally for years to come when the timing is wrong. That is why I think it is a good way to do it.
JOURNALIST:
With the, what you describe as the generous arrangements for self-funded retirees and pensioners, someone has to pay. Aren’t you unfairly burdening future generations of the payer – PAYE – taxpayers, younger Australians to fund these arrangements, in perpetuity?
TREASURER:
No, I don’t think we are. You have got to remember this, Tony, that on 1 July last year we cut income tax by 12 billion dollars per cent. If we hadn’t have done that, a person on average earnings today would be paying a marginal rate of 43 cents in the dollar and they are now paying 30 cents in the dollar. That is a third, and they don’t pay more than 30 cents in the dollar until they go above $50,000, which is 80 per cent of Australian tax payers. So, for young people, for the whole of their working life they now have the prospect of never moving beyond a top marginal rate of 30 cents. Whereas, on Labor, they stuck at 43 cents. I think that has been of enormous benefit. We increased family assistance on 1 July, and we increased pensions. Now, I think, for a tax reduction of, for self-funded retirees, I think that will be warmly welcomed by them. I hope it is, but don’t see it as unfair, no I don’t, and if it encourages more people to be self-funded in the future the tax payer won’t lose from that either because remember this, for each person that looks after themselves in their retirement the Government actually gets a saving, it doesn’t cost the Government money.
JOURNALIST:
How will this Budget affect interest rates?
TREASURER:
Well, as you know in Australia we have an inflation targeting regime, underlying inflation of 2 to 3 per cent. We are forecasting continued low inflation which is consistent with accommodative monetary policies. And other than that I won’t say any more.
JOURNALIST:
Mr Costello, the Shane Stone memo described the Government as mean, tricky and out of touch. Do you think this Budget will help overcome some of those perceptions and how much more scope is there for election spending, given that you now have a fairly slender surplus of $1.5 billion?
TREASURER:
Well I think the Budget is right for the economy in the year ahead. That’s why we budgeted it. During an election campaign, I guess people will be campaigning not for the year ahead, will they, they will be campaigning for the year after that or the year after that, or whatever it is. And we have laid down a plan which will mean that there will be a surplus. I want to make this point, if you were to become Treasurer in a year’s time with the accounts in the current position, you would be $10 billion in front of me. Because when I became Treasurer, we didn’t talk surplus, the accounts were then $10 billion in deficit. And in debt terms if you were to become Treasurer after me, you’d be $60 billion in front. You’d only have to service $20 billion of the $80 billion that I had to service when I became Treasurer. So you start a long way in front. But I do want to make this point, (interjection) oh no, I’ll tell you this, that’s why I want to be the Treasurer to take advantage of it….
JOURNALIST:
This is not an admission that you won’t be Treasurer next year?
TREASURER:
Nobody should think that I’m sitting around here trying to give the benefit to future Treasurers. That’s not my plan at all. But I’m just saying, you know to Steve, because I know he follows these things very closely, he’s saying oh future Treasurers, there’s only $1 billion in the kitty, that’s $11 billion in front of where we were in 1996, that’s $11 billion in front. And I say this, it’s a very important point, and I think, I think people have got to be a bit more searching in relation to Mr Beazley. Mr Beazley says oh well he can’t tell you how he’ll fund roll back. You can fund the whole abolition of GST by simply undoing what we did on 1 July last year. You can abolish it, all you have got to do is introduce Wholesale Sales Tax, Financial Institutions Duty, double the Capital Gains Tax, increase the company tax rate and put income taxes up $12 billion. But the fact that he won’t do that tells you all along he has agreed with us on tax reform. If he really thought that GST were bad for the economy he would be in favour of reversing it. And he doesn’t need to know what the state of the accounts are because it all self-funds. You put up Capital Gains, company tax, income tax and you bring back indirect taxes, that’s all you do. And I think it’s about time that somebody has a very, very careful interview with him and ask him why…
JOURNALIST:
The GST is obviously here forever like the written word…
TREASURER:
Well no, why do you say that Mr Bongiorno, why do you say its here forever because I thought the Labor Party was opposed to it in principle.
JOURNALIST:
But I don’t think he’ll offer to abolish it as you’ve very effectively point out.
TREASURER:
Well why did they oppose it Mr Bongiorno, if they don’t want to abolish it?
JOURNALIST:
Treasurer, my question is GST is here forever, how long will the $300 bonus last as compensation for older Australians?
TREASURER:
Well again Paul, look, if the Labor Party was genuinely opposed to it they could abolish GST, they could reduce the pension by 4 per cent, they could abolish the one off payment. Pensioners would not be better off. I mean at the end of the day, the 4 per cent increase, the 2 per cent increase in real terms, the $300 bonus, I think has been a good measure, I think has been a good measure. But what I can’t fathom is on the one hand this Labor sort of line that the worst thing that could possibly have been done to the Australian economy was tax reform and it is so bad that we want to get elected and take advantage of it. We want to slip into office and we want to take advantage of everything the Coalition has done. I’d say to people stick with the authors, stick with the authors. We had the courage to do the tax reform. The benefits are now starting to come about, the fact that the Labor Party now accepts them indicates that they had to be done, they were right for the economy and the important thing is to stick with the people that have the economic management credentials on the board. And there will be a big part of my, that will be a very big part of the pitch at the next election.
JOURNALIST:
Is this the sort of Budget that sets the Government up, to get Government up, should the Prime Minister decide to go to the people early?
TREASURER:
Should he decide to what?
JOURNALIST:
Is this the sort of Budget that sets the Government up should the Prime Minister decide to go to the people early?
TREASURER:
Look I think this is a Budget which is pitched by a prudent Government, at a strong economy for a just society and I won’t say anymore than that.
Thanks a lot.