TREASURER:
Well I think I will just go through some of my coloured charts, if you will bear with me for a moment, to put the Budget in context.
The Budget is in surplus for the seventh year that the Government has been in office, with a surplus this year of $2.4 billion. Other countries around the world were in the same position as we were back in 1995-1996 when our deficit was 2 per cent of GDP. And none of the other countries that are listed here – the Euro area average, the OECD, the United States or Japan – have managed to get their Budgets back into surplus but Australia has.
And when you have a surplus, that is net revenues over expenditures, you have the opportunity to reduce your debt. Whilst other countries have been increasing debt in the first part of this century, Australia has been reducing debt. And our debt to GDP ratio at 30 June of this year will be about 3 per cent of GDP. That is extraordinarily low by the standards of the developed world.
The OECD average debt to GDP is about 50 per cent. We are about 3 per cent. So Australia is in an incredibly strong financial position. And this hasn’t happened by chance, it has been a consequence of very strong economic management. This compares the current year and the next financial year – Australia, two surpluses - Japan, two deficits of 7 per cent of GDP - the United States, 5 per cent - the OECD, 4 per cent - the Euro area, 3 per cent. This is not an accident, it is not a fluke, it is economic management.
And just allow me to, for those State based media, I just want to show you this graph. Every State will receive a bonus this year in 2004-05, that is their GST proceeds will exceed the amount of money that they would have received under the old tax system, the Financial Assistance Grants. Every State, including New South Wales, which will have a $100 million bonus, and Victoria, so I will have to get some new ads up on TV, $200 million bonus. And some of the States like Queensland are major beneficiaries. That is an annual bonus that Queensland will be receiving in 2004-05.
Now the point about this is, as those revenues grow, the Commonwealth doesn’t receive an extra dollar. We receive no benefit from the growing GST base. Because the growing GST base in its entirety goes to the States.
Now economic management, strong economic management, has allowed us to put in place some very important structural changes. And I think it is important that the public does see the benefits of strong economic management. In this Budget we will be increasing the base rate of Family Tax Benefit by $600. That increase of $600 means that this benefit has increased by more than 100 per cent since the Government was elected in 1996. That was our Family Tax Initiative in our first Budget, that was the New Tax System in 2000, that is a $600 increase in this financial year.
But we have also used the opportunity to accomplish some structural change. And in particular to address this question of effective marginal tax rates. This is for one child, of course the benefits are more substantial for two or three children, the benefit increases by $600. So if you are on maximum rate, you will go up from around $3,400 per annum to $4,000. If you are on minimum rate you are up from $1,095 to $1,695. And the taper rate here is changed from a 30 per cent taper rate to a 20 per cent taper rate.
So that previously as your earnings increased and you were on the 30 per cent tax bracket here, you had a 30 per cent tax rate and a 30 per cent taper out, an effective marginal tax rate of 60 per cent. The easing of that taper reduces that by 10 per cent. That is a structural change, which is designed to assist families in the pathway from welfare to work.
More importantly, Family Tax Benefit B has been changed to assess women returning to the workforce in part-time work. Previously they began to lose their benefit once their income went above $1,800 and they lost it completely a little over $11,000. They will now lose no benefit until they earn more than $4,000 and the taper is changed to 20 per cent, they can receive a part benefit up until a bit over $18,000.
So the disincentive that some women found by getting back into the workforce has been eased. That is a big structural change.
And the average married woman in part-time work, works 17.4 hours a week. The average 17.4 hours could previously exempted that woman, married woman returning to work, from any Family Tax Benefit. They can now receive Family Tax Benefit and they do not have that disincentive to go back into the workforce.
The other thing we have done in relation to Family Tax Benefit B is that if you go back into the workforce half way through the year, instead of your income disqualifying you from the Family Tax Benefit you have already received you keep what you have.
So you can go back into the workforce, you keep what you had in that financial year, the income test is made more generous and the taper is extended.
These are very significant structural changes to help balance work and family.
This is directed squarely at the family which is struggling with juggling between work and family. And it is a major structural change. We have taken the opportunity of strong economic management to introduce major change.
And as I said earlier this shows how since 1999 the interaction of the tax system and the taper rates have reduced. Back here the tax rate was 34 cents and the taper 50 cents. The New Tax System 30 cents and 30 cents, as from 1 July 30 cents and 20 cents. We have addressed front and centre this question of work and family in our response.
Now in addition to that, to help the work and family issue, we have the new Maternity Payment of $3,000 per annum in a lump sum from 1 July rising to $5,000 and in addition to that as well we have an increase of 40,000 outside school hours childcare places and we have additional family day care places as well. That is reform. Significant reform. It meets the work and family issue, it improves incentives, delivers more benefits to families.
And for those families, particularly what we regard as probably the standard family in Australia, Dad on average weekly earnings of $50,000, Mum working 17.4 hours in a part-time job, the benefit in family assistance is around $50 a week. And that is as close as we can get to the typical Australian family. Now that is benefits for families and particularly middle and lower income earners.
The second part of this package is a new tax scale. A new tax scale which increases thresholds in two stages - one from 1 July this year, the second stage from 1 July next year - so that you will stay on the 30 cent rate up to $63,000 and you will not go on the top rate until you are above $80,000. This will make Australia more internationally competitive. It will increase incentives. It will particularly appeal to those people who are in middle income brackets, looking for a promotion, or upgrade skills and it will deliver a tax cut of about $42 a week to somebody that is at that level.
The third component of this package of more benefits for families and employees is the superannuation co-contribution. You have seen the ads on television with the piggy bank, the dollar for dollar, which has just been introduced against staunch opposition from the Labor Party and Senator Coonan had to fight tooth and nail in the Senate. Well we are gearing that up. No longer dollar for dollar but dollar fifty for dollar for people that want to make a contribution into superannuation. And it will be extended to a far wider range of people. At the moment you can’t get any assistance from this scheme when your income hits $40,000. You will be able to get assistance from this scheme right up to $58,000. Not the full $1,000 but you will get $1.50 for the amount that you are allowed to put in. And even down here let’s say $50,000, if you put in say $500 over 1.5, whatever that is, you will get $500 co-contribution from the Government. That is yours, it is in your super account, it is part of your savings, and it addresses the incentive to boost individual savings. It is a benefit for all people, all employees that are within that taper range.
The only other thing I would like to say in relation to spending if I can, is the ageing demographic as we know, which is with us, means that we have to encourage more people into the workforce, which is what our family measures are all about. But it also means that we need to grow more aged care places. We have a $2.2 billion package to grow the number of aged care places over the forward estimates. And in addition to that, in this year, before the 30th of June this year, we are going to make a payment to every aged care provider of three and a half thousand dollars a bed. It is a payment of more than half a billion dollars. Before 30 June to every provider, three and a half thousand dollars per bed, if you had ten beds that is $35,000, if you had a hundred it would three and a half thousand times one hundred, whatever that is, for them to be able to improve fire standards, capital, and to upgrade building standards. This is a half a billion dollar immediate injection into the capital of Australia’s aged care system. And in addition to that we announced changes to the fee structure, which will allow the providers to charge a higher fee which will give them more capital, but that higher fee will be offset by the Commonwealth for low income earners as the Commonwealth will increase the re-imbursement.
So when we tie all of this together, what we see is a picture of an economy which has performed strongly in recent years. Strong economic management has got our debt position in a very low level, it has got our Budget into surplus. We now have the opportunity to do the structural reforms on work and family. We meet the objectives in relation to encouraging savings and we make a very significant investment into Australia’s aged care sector.
And as I say at the beginning of the Budget speech, without a strong economy you couldn’t do this. It wouldn’t happen. But if you do have a strong economy and your economic management is strong, you have the opportunity for these investments. And I believe that these investments will set Australia up for a very long period of time.
Families front and centre. Reform to family payments, a more competitive tax structure, boosting retirement savings and investing in aged care brings together economic work which this Government has been putting together for a long period of time. Thank you.
JOURNALIST:
Treasurer, can you tell me how you are going to be sharing this new strong economy (inaudible) with indigenous Australians (inaudible)?
TREASURER:
Sorry what?
JOURNALIST:
Can you share with us how you are sharing the wealth of this new economy with indigenous Australians over the next year?
TREASURER:
Yes, we will be maintaining spending which was previously allocated to ATSIC in total and what’s more, by abolishing ATSIC we save $61 million in political and other activity, which will be re-directed into domestic violence campaigns and health programs, so more dollars will reach Aboriginal communities on the ground as a consequence of this Budget.
JOURNALIST:
Treasurer, how will you avoid the perception that the Government is simply trying to buy the next election?
TREASURER:
Well, if your economy is strong, and you have got people in work, and your companies are more profitable than at any other time as a proportion of GDP, people should share in the benefits.
JOURNALIST:
But they didn’t last year.
TREASURER:
Well, let me come back to last year in a moment, you know, you do re-open long memories, and how should they share in it? They should share in it by having assistance with their families, mothers who are juggling work and family should have better incentives, they should have the opportunity of 40,000 new childcare places and people who are on middle income earners and are facing a 47 cent tax rate shouldn’t have to do it, it should be returned to them. Now, you mentioned last year, last year we increased all thresholds in the income tax system as well and from memory the tax return last year was $2.7 billion, this year it is above $14 billion, so all Australians get to share.
JOURNALIST:
Treasurer, you failed to get Senate support in 2000 to lift the thresholds to, I think it was $75,000, you are now aiming for $80,000, what makes you think the Senate is going to be any more likely to back your tax package, (inaudible) in an election year?
TREASURER:
Well, $75,000 back then probably equates to $80,000 now. Maybe if you had indexed $75,000 back then it would be more than $80,000, so what I am basically doing is I am returning to the scene and saying that the people who should have received income tax relief back in the year 2000 still deserve it, and what has changed is this, is that the Australian Labor Party has now said that they believe that they believe income earners between $60,000 and $80,000 are not rich. Their leader has said that he doesn’t regard them as rich, therefore they shouldn’t pay the top marginal tax rate, and so we will be asking the Senate to enact that change. Let me just say, by world standards, our top tax rate cuts in at $62,500 at the moment, by world standards that is low, by world standards it shouldn’t come in at $62,500 and there are countries that cut their top rates in at a lot more than $80,000 by the way, so if Australia wants to keep a more competitive tax system, if you want to stay in touch with the rest of the world, you cannot have your top rate coming in at $62,500, it should come in at $80,000. And I think people that are living in the suburbs on $60,000 or $70,000 are not the rich, they should not be paying the top marginal tax rate and we will be asking the Australian Labor Party to put their votes where their rhetoric has been.
JOURNALIST:
Treasurer what impact do you judge that these tax cuts and spending initiatives in the Budget will have on economic growth?
TREASURER:
We think that the fiscal stimulus is a consequence of this will be about per cent of GDP in the next year, and that will support our growth forecast of 3 per cent which is slower than our growth forecast for this year which is 3 per cent. Now, I think the Australian economy can grow at 3 per cent on low inflation, I think we have proved that and we want to keep it there and if you can keep it growing at 3 per cent, if you can keep your employment growing sufficiently to hold unemployment at current levels. But if your growth rate comes down much below 3 per cent your employment growth will not be sufficient to keep unemployment at current levels, and unemployment at current levels as you know are at 23 year lows.
JOURNALIST:
Treasurer, the Budget Papers suggest that you have found an extra $22 billion over the coming 3 years just in economic (inaudible) variation, where is that money coming from?
TREASURER:
Mostly from company tax, company tax has been very strong…
JOURNALIST:
Do you expect it to continue at this rate?
TREASURER:
…and, well the company profits as a proportion of GDP, the profit share as a proportion of GDP around 25 per cent is the highest ever recorded in Australia. Australia’s companies are profitable and here is an interesting one for you, we cut the company tax rate and increased the collections. We cut it from 36 per cent to 30 per cent and we have never had such strong collections, now the Laffers amongst us would say there was a cause and effect there, but there may be other factors but company revenues are strong.
JOURNALIST:
Is this a Breeding Budget Mr Costello? Are you the family friendly Treasurer saying get out there and procreate?
TREASURER:
Well you know, if you can have children it is a good thing to do, you know, you should have, if you can, not everyone can but you know, one for your husband and one for your wife and one for the country. Some will manage two for the country but, two only will only replicate yourselves so if you want to beat the ageing demographic you are just back to square after two, you make no net improvement and some of you of course will have to have bigger than one for the country because you will have to make up for some of your friends that aren’t even replicating themselves.
JOURNALIST:
So does that mean you are not patriotic if you only have two children?
TREASURER:
You go home and do your patriotic duty tonight.
JOURNALIST:
Last year’s tax cut was around $4 and it didn’t go down too well in the electorate, for the earner on $55,000, this year they will receive a $7 a week tax cut, do you think they should be more appreciative of a tax cut of $7 than they were last year?
TREASURER:
Well look, I think when you can cut taxes…
JOURNALIST:
That was a single.
TREASURER:
…when you can cut taxes you should do so, there is another point, with people, if people are not paying that much tax it is hard to cut that much tax, you know, here is the effect, in percentage terms of our three sets of tax cuts, under the new tax system, last year and this year. For people on very low incomes, the tax cuts last year were a very large percentage of their tax bill. Now, it is not a lot in dollar terms, but as a percentage of what they were paying in tax it is a large proportion, now, I think that where you can balance your Budget, when your debt position is strong and where you can meet your expenses, you should try and work to reduce revenues and that is what we are doing.
JOURNALIST:
Treasurer … the inflation outlook is very low (inaudible) are interest rates coming down?
TREASURER:
Well, I won’t comment on the future movement of interest rates.
JOURNALIST:
Treasurer…
TREASURER:
Thank you for inviting me to.
JOURNALIST:
...will this Budget affect the Government’s chances of winning the election, whenever it is?
TREASURER:
Well look, it is not our plan to lose the election right? So I will start off by saying that, and the reason for that, and I feel this very strongly and a lot of people in this room won’t agree with me, I don’t think you can trust Mr Latham with economic management, I think it could be one of the worst things that could ever happen to Australia, I have said it before, worse than Whitlam. But having said that, the focus of this Budget is reform, economic management, economic reform, that is the focus of this Budget.
JOURNALIST:
Treasurer, why is the (inaudible) a double $600 extra payment on the Family Tax System this year?
TREASURER:
Well they get $600, an increase of $600 every year…
JOURNALIST:
This year they get two.
TREASURER:
…yes, I will come to that. So that if you are $3400, they get $4000 if they are in the minimum payment of $1095, they get $1695, that is a lump sum every year at the end of a financial year starting with the end of this financial year, which is on 30 June 2004. We decided to make an additional advance payment so that they will receive $600 providing the Parliament appropriates it, before 30 June, and their annual $600 entitlement when they reconcile after 30 June which means that depending on when they put in their reconciliation they could get $1200 per child, three children $3600, and that $600 benefit goes on year after year after year. So, we increase the benefit but we bring forward an advance payment if you like.
JOURNALIST:
Treasurer, Labor and welfare groups have been warning about the family debt overpayment for years, isn’t it a bit cynical to bring forward relief a couple of months out from an election?
TREASURER:
Well, if the consequence from this is that because people get an increased payment then they won’t … let me start, first of all we are trying to encourage people to get the right payment, if they are under paid during the year, they get it made up, if they are over paid they have to pay it back. That was Labor’s system, except for one thing, they never made it up where there was an underpayment. Under Labor you had to pay back if you had been overpaid during the year. If you have a $600 lump sum available at the end of the financial year and you do have a debt it may offset it but it is not introduced for that purpose because we hope that nobody gets the wrong payment, if you have got the right payment throughout the year you will get $600.
JOURNALIST:
Mr Costello, what is in this Budget for people who don’t have children and are low income earners and therefore won’t benefit from tax cuts and who may not be able to afford their superannuation contributions?
TREASURER:
Well, you are talking about single income people who don’t have kids basically, now most of the single income people who don’t have kids and who are living on $50,000 or less are self-funded retirees, that is who most of them are.
JOURNALIST:
But not all of them.
TREASURER:
Well, I will come to some others in a moment, you know, I am a slow thinker, I have got to go through it bit by bit, and those Australians qualify for the Senior Australians Tax Offset, which can mean they don’t pay tax up to $33,000, so bear that in mind, for the self-funded retirees we have already introduced a Senior Australians Tax Offset. So now, what you are talking about is a single income person who is under 65 and who doesn’t have children, some of those people will be single people who expect to become part of families and will have children, a large proportion of them, you know, what we used to be in our youth. But others of them who intend never to marry or never to have children, will be single income persons below retirement age who don’t have children and I think the superannuation guarantee will be very attractive to them, I think they will have some disposable income and what the Government is saying to them is if you want to put $100 into your retirement, then we will give you $150 and you will have $250 of additional money in your superannuation fund and I think that will be very attractive to them actually. Last question.
JOURNALIST:
How many taxpayers will benefit from this Budget, form the tax cut?
TREASURER:
Well I can’t, I will find out the precise figure for you rather than estimate it. OK, thanks very much.