KELLY:
Treasurer good morning.
TREASURER:
Good morning Fran.
KELLY:
It’s been said that you’ve grabbed this surplus out of thin air, your $2.8 billion surplus essentially delivered by the sale of the mobile phone spectrum. You have to admit that without that sale, you’d be in big trouble, wouldn’t you?
TREASURER:
Oh no. The Budget is in surplus for the fourth time in a row. It includes licence fees from spectrums, it always has. As it turns out all of those licence fees go to retire debt. We retire $9 billion …
KELLY:
Those licence fees go to the bottom line, don’t they?
TREASURER:
Yes, but the bottom line retires debt. There’s only one thing you can do with a surplus. You put it in the bank, and if you owe the bank that retires debt, and if you don’t owe the bank you build up a balance. Now when we came to office Labor had run up an $80 billion debt. Five Budgets, $80 billion. As we turn surpluses, we pay down Labor’s debt. This year we pay down another $9 billion of Labor debt and just as Labor in five Budgets ran up $80 billion worth of debt, we’ve had five Budgets which have paid for themselves and over and above paying for themselves have paid down $50 billion of Labor’s $80 billion debt. So…
KELLY:
Sure, but markets…
TREASURER:
So we’re 5/8th of the way there.
KELLY:
Sure, but economic analysts are very, are tuned to things like debt, yet they warned you that they would mark down this Budget if you relied on the mobile phone spectrum to deliver a surplus. They have marked it down, if the markets don’t like it, many of the interest groups largely don’t like it. It’s a fail isn’t it?
TREASURER:
When you say markets, markets don’t have personalities. There are some people who have that view. I know John Edwards, Paul Keating’s adviser has that view which is…
KELLY:
Have you heard an economic analyst this morning who hasn’t had that view?
TREASURER:
Yeah, actually I have. I have. And if you actually put this into international terms and let’s put it into international terms. We’ve paid back $50 billion of Labor’s $80 billion debt, 5/8th of the way. The end of this year the Australian debt to GDP ratio will be 7 per cent. If you put the proportion of our debt to the size of the economy it will be 7 per cent. The US 50, Europe 50, Japan 50, its probably one of the strongest financial positions of any industrialised country in the world.
KELLY:
Well then why don’t they like this Budget? I mean what they don’t like is that they see that the surplus is soft and its not come from hard yards, its come from essentially an asset sale, selling the licensing.
TREASURER:
When you say they don’t like it, its one or two people. I mean I saw John Edwards on the ABC ….
KELLY:
It’s more than John Edwards.
TREASURER:
… last night. And I said to John …
KELLY:
… Access Economics doesn’t like it.
TREASURER:
John, John had his chance when he was advising Paul Keating. And Mr Crean and Mr Beazley were in that Government and they did five Budgets and how many surpluses were there? None. Not one. Now this is the fourth surplus in a row. We’ll pay back another $9 billion this year and just as Labor accumulated $80 billion of deficits, we will have paid back $50 billion worth of it. Now at the same time the good thing is we’ve been able to, in a targeted way, increase spending on important areas like rural health which hasn’t been done before and income tax cuts. Now let me make this clear, this is I think the first Budget, well certainly in my memory, where there’s been income tax cuts. The last time you’ll recall there was a Budget before the 1993 election which had income tax cuts as L-A-W and after the election they disappeared. Now when you deliver income tax relief you are cutting the revenue take. And that’s a deliberate policy to give income tax relief. Australians deserved it, they haven’t had an income tax cut for a decade.
KELLY:
Sure there’s in fact massive income tax cuts, $12 billion. Some analysts, that will have what's called an expansionary effect on the Budget. Some analysts predicted last night that this Budget with the surplus as it is, and with the effect of those income tax cuts, will put pressure for at least one more interest rate rise. Can you see that happening as a result of this Budget?
TREASURER:
No not as a result of the Budget because this has been factored in I think now, for two years. The only thing that has changed in the bottom line is…
KELLY:
The surplus is getting smaller.
TREASURER:
Well, I was just going to say, the only thing that’s changed in the bottom line from two years ago was Labor and the Democrats were successful in blocking some measures in the Senate and they put an additional cost on the tax package of $1.8 billion a year. Now that’s been also known for a year. I remember, I remember last years Budget, we were sitting here, we were having all these discussions, everyone was saying oh but you can’t deliver any of this because the GST hasn’t been enacted and you recall that it hadn’t been enacted in May of last year. As it turned out we got it through the Senate, but it came at an additional cost which has been known for a year. But…
KELLY:
But you can’t blame the Senate for all the loss in this. And when we were sitting here last year you were predicting a much bigger budget for this year.
TREASURER:
No, no I blame the Senate for losing $1.8 billion dollars in this year and $1.8 billion in every year thereafter. But let’s make this point. Anybody who is interested in good economic management will want to see a strong bottom line, so I think the onus is now on Labor and the Democrats to pass all of our measures in the Senate. And if the Labor Party as it now says, is getting interested in economic management again, I expect that they would be giving you an assurance that they’ll be passing all the measures in the Senate including Budget excise measures. Now if the Labor Party and the Democrats try and gang up on Budget excise measures, and try and again reduce revenues the only reason they could be doing it would be to try and put extra cost on the Budget.
KELLY:
Okay well back to the dollar. You yourself concede that the fall in the dollar lately has been caused more by sentiment than anything else. The people factor more than the economic fundamentals. If the analysts don’t like this surplus, and they doubt some of your projections of growth that could affect the dollar couldn’t it? I mean the dollar plunged 0.5 per cent overnight. Its back up now, but it could have an affect, sentiment isn’t good.
TREASURER:
Well look, people take a lot of factors into account in relation to the currency and I think earlier this week they were looking at retail trade figures and they were also looking at the trade position and they take into account a whole lot of things. But in relation to fiscal policy, the Budget last night was actually the fourth Budget surplus in a row, an $8 billion pay off of debt, a $9 billion pay off of debt this year, $50 billion off Labor’s $80 billion. And if you ask me what the real news about the fiscal position would be? It would be if Labor and the Democrats were to actually combine to try and defeat Budget measures. The important thing now I think is that all of those measures be enacted and I would be expecting if the Labor Party wanted to show some economic responsibility be giving an assurance to you this morning that it won’t be voting against any revenue measures in the Senate.
KELLY:
Treasurer, I feel a mantra coming on, thank you very much for your time.
TREASURER:
Well you might as well get the assurance from them Fran.
KELLY:
Thank you. And that’s Treasurer, Peter Costello.