TREASURER:
The Mid-Year Review for the financial year 2006-2007 shows that the Australian economy remains sound, although it is buffeted by severe drought. At Budget time the Government forecast that the economy would grow 3 ¼ per cent. We have revised that forecast down to 2 ½ per cent, taking three quarters of a percentage point off growth because of the effect of drought. The drought which has now emerged in Australia looks like it will cut farm GDP by 20 per cent. At Budget time we were expecting farm GDP to grow. The Bureau of Meteorology notes that “…In the historical record dating from 1900, it was the driest August to November across South Australia, the second driest over the Murray-Darling Basin, the third driest across Australia and the fourth driest for Victoria.” The maximum temperatures were the highest on record, averaged over Australia – Victoria, South Australia, Western Australia and the Murray-Darling Basin. Notwithstanding that fall in farm production of 20 per cent, the Australian economy continues to grow. Employment has grown stronger than we thought at Budget time, and taken the unemployment rate lower again to 4.6 per cent. Inflation has been higher than thought at Budget time, although that has mostly been reflecting sharp increases in fuel and fruit prices. We forecast inflation to average 3 per cent for the year and to be back in the middle of the target band by 2008. In fact, when you see the June quarter drop out of the figures it could be significantly lower. The Government Budget is in sound shape. The Budget surplus forecast for this financial year is around 1 per cent of GDP. The forecast for next year is 0.9 of 1 per cent and a surplus is forecast right across the forward estimates. Australia eliminated net debt earlier this year and Australia is now beginning its provision for its largest unfunded liabilities, which we have never done before in our history. In fact, for the first time, we are looking at a positive net worth in 2008-2009. On the revenue side, revenues have been broadly in line with what was expected at Budget, although the outcome for last financial year was a little weaker than we expected. On the expenditure side new policy measures have been more or less offset by underspends. Underspends have arisen in a number of areas and they are best explained on page 21 [of MYEFO]: delays to Defence acquisition projects, a reduction in the takeup of some pharmaceutical benefits, lower Newstart as a consequence of stronger employment, lower Disability Support Pension as a result of lower take up. And those underspends have been made up by new policy decisions, the biggest of which is additional drought relief. You can see also on page 20 what some of the policy decisions were – the admission of new pharmaceuticals to the Pharmaceutical Benefits Scheme, such as Herceptin for the treatment of early stage breast cancer; the announcement we made in relation to energy, additional spending for veterans under the Gold Card. So, on the Budget side the forecast is more or less in line with what we had at Budget. Revenues have hardly moved but we are getting savings in some areas. The areas that we wanted to get savings in – such as the take up of Disability Support Pension, such as the Pharmaceutical Benefits Scheme – most of those savings have in turn been offset by policy decisions such as the admission of new drugs to the Pharmaceutical Scheme, such as increased payments for veterans under the Gold Card. So, although Australia faces very severe drought and although that has marked down growth in the course of 2006-07, our economic prospects are sound, our economy continues to grow, our Budget is in good shape, and because we have eliminated net debt Australia is in as strong a position as it has been in for quite some time.
JOURNALIST:
Mr Costello, just on a slightly different subject…
TREASURER:
Can we take the Budget first?
JOURNALIST:
Is another reason, apart from the drought, that business investment has been weakened (inaudible) volume of exports hasn’t increased as much as we’d anticipated?
TREASURER:
Exports are definitely picking up. Except in the agricultural area. In the agricultural area, of course, exports are much weaker because farm production is down. But in other areas exports are picking up. In the mining area there has been a huge amount of investment going in to build volumes and we are starting to see that come through now. But there are long lead times – developing a mine, getting increased railway access, improving your port, making sure that you have got additional loaders – and it is the long lead times over the last three years that have held back the boost in export volumes, but we are now, I believe, starting to see that coming through.
JOURNALIST:
Mr Costello, the inflation forecast of 3 per cent, how much of a threat is that to all households facing a higher mortgage rate – do you think this will send the RBA into another rate rise?
TREASURER:
Well, I think the factor that has increased the CPI since the Budget, now passing through the system, the biggest, of course, was the fuel prices. We also saw it in relation to fruit and vegetables. We would expect that in this current quarter, the December quarter, fuel prices would actually detract, on the CPI we think that fruit and vegetables might actually detract from the CPI. We are forecasting an average of 3 per cent in the year. And that is lower than the CPI is at the moment. So, we are actually expecting the profile of the CPI to come down and to actually go the middle of the band by 2008.
JOURNALIST:
So with that Budget surplus and that forecast that you have just made, is that clearly room for tax cuts in the May Budget?
TREASURER:
Well I always said that is important that Australia keep its Budget in surplus. We are not going back into deficit and debt. That is the Labor Party way. We are not going to go back there. It has taken us ten years to get to where we are now, we have got to keep our Budget in surplus. We have now paid off our debt and I think it is prudent in the current economic circumstances to continue to have surpluses. If you spend surpluses you do not have surpluses…
JOURNALIST:
Can you…
TREASURER:
…No, no, no, no – I keep making this point – if you spend a surplus what you have got is a deficit.
JOURNALIST:
No, that is only if you spend all of it.
TREASURER:
The point I am making Paul is – you have got a surplus of 1 per cent, I think it is prudent to have surplus budgeting so that we can keep our economy strong and keep the fundamentals right.
JOURNALIST:
How much do you think it is safe to eat into that 1 per cent?
TREASURER:
Well, let me make this point, that in previous years we have had higher surpluses than that. I consider that a reasonable surplus…
JOURNALIST:
(inaudible)
TREASURER:
(inaudible) 1 per cent is 1 per cent of GDP.
JOURNALIST:
The discussion on the risks to the outlook consists of (inaudible) and down side risks and negative risks, are you sure you have not framed a forecast too optimistically given that it is usually the (inaudible) forecast trying to reflect the (inaudible) and down side risks?
TREASURER:
Well, I say here that the risks to the economy are weighted to the down side. I see more down side risk than upside risk and the biggest down side risk is drought. These figures assume a return to normal conditions. Now, that means rain next year.
JOURNALIST:
Would it be more prudent to then have a more cautious forecast given that rain can thwart the other revenue and spending predictions?
TREASURER:
Well, we always forecast normal conditions. What else can we do? Unless somebody can tell me what the rainfall is going to be next year, and if you can I will put that in, but if you cannot tell me then all I can do is assume it will be normal. Now, we look at a hundred years and we say rain will be normal next year. I hope it is – in fact I hope it is better than normal next year, but what can I do now? I don’t have a rain diviner, I can’t tell you. If the drought continues then that is a downside risk. If rain is better than normal that is an upside risk. All we can give you in these forecasts is the range on normality.
JOURNALIST:
How is manufacturing going to go according to the forecast?
TREASURER:
Manufacturing I think in the last National Accounts grew, I do not have the last National Accounts here, but the future for Australian manufacturing is going to be increasingly in higher value add. It is not going to be in mass manufacture and low-value add. That will be done in countries that have lower cost bases – like China. This is not just something that Australia will have to do – every other developed economy in the world will have to move up in terms of value add for manufacturing. Not just Australia – the United States will be doing the same thing; Britain will be doing the same thing; Japan will be doing the same thing. Because developed countries have higher costs they will have to focus on higher value add manufacturing. The days of cheap mass production in developed countries are passing.
JOURNALIST:
In that context, Mr Costello, can Australia sustain four car manufacturers. What is your response to the industry’s request that tariffs be frozen at 20 per cent from 2010 and an extra $1 billion through the (inaudible)?
TREASURER:
Well, let me make the point that automotive manufacturing is higher value add. The kind of manufacturing that we will be looking at. That’s the first point. The second point is the Government has announced a long-term plan in relation to tariff reductions and we will continue with that plan. We have also announced a long-term plan in relation to automotive competitiveness. An enormous assistance - $7 billion over the period of 2001 to 2015. $7 billion. So, as you can see a program which gives certainty to the industry, an adjustment package which is of enormous benefit to the industry and I think that that policy is well placed.
JOURNALIST:
So no more?
TREASURER:
Well Paul can I say – a programme which has given certainty a $7 billion assistance package. That is the Government’s policy, that is what we have announced.
JOURNALIST:
Consumers are obviously voting with their feet, I think domestic car sales are down 44,000 year on year, and people are switching to imported. Doesn’t that suggest that inevitably the four manufacturers are going to have to be pared back, wound back?
TREASURER:
Steve can I say this – I think from the year 2000, when we took wholesale sales tax off cars, to about 2006, there were all time records for six years, in the Australian motor car industry – all time record sales. The biggest benefit that motor cars ever got was taking wholesale sales tax off them - 22 ½ per cent. For consumers they pay 10 per cent and for business zero per cent. The biggest benefit that the car industry ever got was the tax changes which we introduced in 2000. Now, what is happening now I believe, is that consumers are very conscious of the price of petrol. Some consumers, as a consequence, are moving from larger cars to smaller cars. Now, those manufacturers that are still in the larger cars are beginning to feel that in their sales. But, there is nothing you can do about that – other than either wait for a permanent down turn in petrol prices, or readjust to four cylinders. There will always be a market for six cylinders. But the market for six cylinders in this country may not be as great as it was when petrol prices were lower.
JOURNALIST:
Mr Costello, company tax receipts are higher this MYEFO than was expected – this continues quite a long run of upwards surprises in company tax – do you think this is perhaps the last surprise in higher company tax?
TREASURER:
Well, table 7: at Budget we forecast company tax would be $56.8 billion, MYEFO we are forecasting $56.7 billion.
JOURNALIST:
I was going off your release saying company profits were higher.
TREASURER:
Yes. So, company tax is down 0.1, which is 0.2 of a per cent – which is on page 18, table 7. So what you seeing there I think is company tax plateau. Company tax is very strong at the moment and that is because company profit is very strong. But it is not rising. It is not rising higher than we expected at Budget time. Let me go back and make this point again – company profit is higher as a proportion of GDP than at any other time in Australia’s history. So if you are collecting 30 per cent of company profits you should be collecting good tax revenues. Unlike some business organisation that said ‘Oh, well the tax revenue shows that the rates have gone up’ – the rates have not gone up! The rates have gone down – the profits have gone up! And this is exactly what you would want in relation to a company tax system as companies make profits. With a fixed tax rate, the tax they pay goes up. That is precisely what you would want. And, by the way, it is a flat tax.
JOURNALIST:
Speaking of tax, the number of executives using complex option arrangements to pay only 13 per cent tax – are you going to do something about that?
TREASURER:
Well, I am not sure that’s true because, as I understand the way the taxation works, when an option is issued, taxed on the discount, you pay for the option of course, you haven’t been given anything, when the option is issued at a discount you are taxed on the discount. If the value of that option when the share goes up, you are taxed on the capital gain and I think that this was point that was made in the newspaper today but right down the bottom of the article, that the analysts hadn’t brought into account the capital gains tax. Just as if you bought a share today and it went up in five years’ time you would pay capital gains tax on capital gain on that share.
JOURNALIST:
So you are saying capital gains captures…
TREASURER:
What I am saying is that the normal rules apply. If you have a capital gain you pay capital gains tax. If your employer gives you a discount in the nature of income you pay income tax. They’re the general rules that apply. Now I have made inquiries on that very point today – the general rules that apply: if you are given a discount you are subject to income tax on the value of the discount at the time and then if the option increases in capital value you are subject to capital gains tax. So, that is all I can say. I noticed that people talk about individuals – I have got no idea of individuals’ tax affairs. The only people that would know that would be the Commissioner and them. The Commissioner cannot talk.
JOURNALIST:
Could I ask about a different industry – aviation? As you said before with cars we have got an adjustment package which is basically about (inaudible) out all special assistance. In aviation it appears that we are only agreeing to international aviation agreements, or it is alleged, that we are we are only agreeing to international agreements if they suit Qantas, and as a result Brisbane and Melbourne airports say they are losing custom because Qantas is withdrawing capacity and other airlines are not being allowed to create it. Are you concerned about this in the context of the Qantas takeover bid?
TREASURER:
Well, leave aside the takeover bid, my view is that airports outside of Sydney should be allowed to schedule additional flights, yes of course they should. Qantas has been based in Sydney and Sydney is the major international gateway but if Qantas can fill planes to Brisbane or Melbourne or Cairns then I would like to see additional flights in Brisbane or Melbourne or Cairns.
JOURNALIST:
But Treasurer, isn’t the argument that overseas airlines are (inaudible) to Australian routes…
TREASURER:
It is not just Qantas, I was going to go on and say, that I would like to see increased flights from other airlines as well come in to Australia. Now you know, what the airlines will say to you is they will say to you we can’t fill the flights. An airline would never say to you we refuse to put on a flight (inaudible) to make a profit because of the business of making a profit. What they will argue to you is, we can’t actually fill the additional flights from Brisbane or Melbourne. My suspicion is that they could fill a few extra flights, that is my suspicion and I would encourage them to do so, but I can’t give you the actual figures here. And I would certainly not be someone who says the Government should restrict those flights, the Government should not restrict those flights.
JOURNALIST:
… they fly from the Pacific route? You banned Singapore Airlines from the Pacific route?
TREASURER:
Steve, number one you are not in the batting order, but I will come to that point. Number two, you are like a night watchman Steve. You came in before your time and you are about to go out. Because you have raised an entirely different question. The question we were talking about is landing rights, the question that you are talking about is access to international routes. First wicket down.
JOURNALIST:
Have you heard some of Kevin Rudd’s criticisms echoed by the State Premiers about spending on major city infrastructure by the Commonwealth and his commitment to spend more, unspecified, and is there the scope to be able to do that and perhaps match that?
TREASURER:
Well the Australian Government is engaging in the largest infrastructure programme in our history, in our history. Our Auslink programme of national roads, national highway, railway, is beyond anything else that has ever been done and I could take you round the projects around Australia, from the Hume Highway duplication, to the Bruce in Queensland to the Western Sydney orbital. Now…
JOURNALIST:
Cities, is the criticism.
TREASURER:
Well cities too. Cities too. We announced the largest funding ever of a thing called the Scoresby freeway. And we couldn’t get it up, half a billion dollars and we couldn’t get it up. You know what we did instead? We allocated money to the duplication of the Calder and the Deer Park bypass. You don’t want to fall for this idea that somehow the Government isn’t spending on infrastructure. The amount of roads spending, and I will say it again under our Auslink programme, the largest infrastructure spending in Australia’s history.
JOURNALIST:
Following on from that, what the Opposition also said is that you are using the drought as almost a convenient excuse to cover up for a failure to invest in infrastructure, a failure to invest in skills and training, that is why the economy hasn’t withstood the drought quite so well. What so you say that specific allegation from them?
TREASURER:
Well, the Australian Bureau for Agriculture, Resources and Economics says that the drought has cut half a percentage point directly from the GDP and when the Reserve Bank say three quarters of a percentage point direct and indirect, there is no doubt about that. Now we had Mr Swan display his economic ignorance the other day, saying that the drought would not affect the economy by that. Can Mr Swan please tell us what the effect of the drought is on GDP if it is not three quarters of a percentage point? Can he please tell us why ABARE is wrong, the Treasury is wrong and the Reserve Bank is wrong, and he is right? Mr Swan please tell us why the Reserve Bank is wrong, Treasury is wrong, ABARE is wrong, the only person who actually gets this right is Wayne Swan? You would have to be living in a parallel universe to believe that. And what’s more, how callous was that to Australia’s farmers? They have suffered a 20 per cent decline in production, to say, ‘oh, you are whinging, didn’t happen’. We have had a 20 per cent reduction in farm output and Wayne Swan said it never happened. This bloke will turn up tomorrow and he’ll say the world is flat.
JOURNALIST:
On AWB could you explain how the ATO has come to the decision…
TREASURER:
On the what?
JOURNALIST:
… on AWB how the ATO has today come to the decision that the bribe, the payments weren’t bribes and so that AWB will be able to claim its tax deductions?
TREASURER:
I don’t think the ATO come to that conclusion, the Cole Inquiry come to that conclusion.
JOURNALIST:
Isn’t the Cole Inquiry saying it wasn’t in their scope to be looking at the tax issue?
TREASURER:
No, the Cole Inquiry was charged with finding out any offence that the AWB had engaged in, including bribery. And the Cole Inquiry did not make a finding that it engaged in bribery.
JOURNALIST:
Were you disappointed by the decision, I mean…?
TREASURER:
I accept the Cole Inquiry decision. If the Cole Inquiry had found that they were bribes it would have recommended that they be prosecuted for bribes. Apparently it didn’t, so we had a multi, multi million dollar inquiry, they went through all of those matters and that was the finding they made. I accept the Cole Inquiry, I will have to read carefully what the Tax Office has said, but the probabilities are they are bound by the Cole Inquiry as well.
JOURNALIST:
Common sense would tell you that they are paying (inaudible).
JOURNALIST:
On the wool industry, in the United States the US pop star Pink has said she is going to lend her high profile to the campaign that the Australian wool exports (inaudible) practice of mulesing. Will this damage the sale of exports and are you getting a bit sick of pop stars handing out advice like this?
TREASURER:
Well look, I don’t know if Pink is an expert on the sheep industry. But you know, Pink is entitled to her views but at the end of the day would Australia’s farmers take advice from Pink? Australia’s farmers do know a lot about sheep, and Australia’s farmers - rightly in my view - believe that, if you don’t take preventative action, sheep are at risk of being fly-blown and dying. I have seen sheep that are fly-blown dying in the paddocks. It is not a pretty sight. Now mulesing is not a pretty sight either but it is a darn sight more humane than letting a sheep die fly-blown in a paddock. And look I would just say to Pink that she (inaudible) be invited to come to Australia and speak to some of our farmers and she might come to a different view and I would recommend that to her. You know, Australia’s farmers are doing it tough. They are good people, they are concerned about their flocks and I just don’t think Pink understands the Australian sheep to the extent that Australian farmers do.
JOURNALIST:
(inaudible) welfare programmes, can you elaborate a little more about your understanding or Treasury’s understanding of what is happening there, why fewer people are applying for the Disability Support Pension in particular and why the job network (inaudible).
TREASURER:
My assumption is that fewer people are applying for the disability support pension because we are now trying to encourage people, who are capable of part time work, to take it. We are now trying to encourage people who in years gone by might have gone to the Disability Support Pension to look for work, and of course it is a better time to get a job now than ever before in the last 30 years because they can actually find it. I would say the same in relation to job search, that the payments that are being made to get people into work aren’t as great because it easier to find a job now, this is the spin off from good economic growth.
JOURNALIST:
Treasurer do you have any comment on the Petrolius case and his lawyers criticisms of the handling of the rates?
TREASURER:
No.
JOURNALIST:
Do these figures lead you to believe that the interest rates have peaked and they will fall next year?
TREASURER:
Well I will never talk about future movements in interest rates.
JOURNALIST:
(inaudible) against higher interest rates, what will you be doing in the next Budget to ensure that the economy or mortgage holders are safe from that and how should the Reserve Bank be dealing with the drought given its increased severity?
TREASURER:
Well I don’t know that it is up to the Reserve Bank to deal with the drought. The Government is dealing with drought with increased drought assistance to farmers to ensure that they have the ability to keep food on the table.
JOURNALIST:
How should it be factored into economic policy though?
TREASURER:
The Government is giving assistance to small businesses that are in drought affected areas. At the end of the day the only thing that can solve a drought is rain. Unfortunately we can’t do that, but along the way we can, on behalf of the Australian people, lend a helping hand. Now you asked me about interest rates. We are one country, with one Government, one Central Bank, and one interest rate. We don’t have different interest rates for different sections of the country, that’s because we’re the one country. And so when you are setting overall interest rates, you look at the economy as a whole, but if you want to assist particular areas as we do in the rural areas, we do it through income support and, in fact, through interest rate support, that’s how we do it.
JOURNALIST:
Would you be avoiding stimulating consumption through to the next Budget?
TREASURER:
Oh, you know, when I bring it down, the next Budget, I’ll tell you.
JOURNALIST:
Can I take you to Table 8 and just ask you (inaudible)
TREASURER:
Table 8?
JOURNALIST:
Yes.
TREASURER:
It’s not a trick question?
JOURNALIST:
No, it’s not. When I add up the effect of policy decisions since the Budget, it looks like you’ve spent $11.5 billion in about six months, is that possible?
TREASURER:
That’s mainly the superannuation package. We go through all the policy decisions. The superannuation package was about a $7 billion package. It was put off the bottom line as I announced in the Budget. We have now taken it into account as a policy decision. So the money was announced and taken off the bottom line, it just wasn’t treated as a policy decision. But you can have a look at the policy decisions table. Let me take you to Table A2 because this sets out all of the expense measures. It itemises them. Table A2.
TREASURER:
You will see that the superannuation decisions which appear both on the revenue side and the expense side and are itemised on page 80, I think, amount to something like on the revenue side $4 billion and on the expense side, there it is, ‘the Government will provide $7.2 billion over four years’. Do you see on page 80? That’s the largest measure in the policy decisions.
JOURNALIST:
$4.5 billion worth?
TREASURER:
I’ll take you through it if you like. I can show you where each and everyone are. The biggest is the drought. The Government has spent over a billion dollars on drought. I think the second biggest is the raising of additional battalions. But (inaudible)…
JOURNALIST:
The skills package?
TREASURER:
The skills package. None of these are new. You know about all of these. They have all been announced. And this is a record that puts them all together.
JOURNALIST:
Treasurer, there is about $300 million of spending and revenue measures that aren’t announced. They are in the table of decisions taken but not yet announced. Wouldn’t it be more transparent to just announce things as you decide them?
TREASURER:
No, because there are occasions when you have to speak to the industry about the way in which it is to be applied. But I’ll tell you, there is every single decision over a four year period that has already been announced. I am not announcing any new decision today.
JOURNALIST:
(Inaudible) million dollars of expenses and revenue measures taken but not announced. Do they include the Managed Investment Scheme issue?
TREASURER:
When I am ready to tell you, I’ll tell you. But there you go, every decision that has been taken since the Budget. No new decision announced today. Every decision, all there in total.
JOURNALIST:
Has a decision been taken on…
TREASURER:
And there it is. I think, what would you say, 240 pages.
JOURNALIST:
Has a decision been taken on …
TREASURER:
Let me just show you the Mid-Year Review that my predecessor as Treasurer announced. Two pages. That was one table and that was the other.
JOURNALIST:
Has a decision been taken on the tax treatment of Managed Investment Schemes?
TREASURER:
I can’t tell you that I’m sorry.
JOURNALIST:
Treasurer, you mentioned employment growth, you said it was going to moderate, where, have you got a figure that we’re using for what the unemployment rate will reach in a year, and which particular sectors?
TREASURER:
Employment? Well, the fact of the matter is, and I’ve said this before, the economy has slowed, most clearly in rural and rural-related areas but we’ve had extraordinary jobs growth. Now, I think that as we go into the New Year, people who’ve been creating large amounts of jobs would have already filled a lot of their books and you will see a slowing. But you’ve got to remember it’s a slowing off an incredible base. In Australia, I think we’ve been creating 1000 jobs a day. Let’s just, you know, 1000 jobs a day over the course of this year. Now that is the kind of job creation that we’ve never seen in our country before, you know. Suppose it came down to 800 jobs a day or 700 jobs a day. Nobody is going to say it is zero jobs a day. And it certainly won’t be negative jobs a day. But you’re just coming off an extremely high base.
JOURNALIST:
Treasurer, regardless of whether the Cole Commission found or used the word bribe or not in relation to those trucking fees paid to Alia, what was that money, if not a bribe, in your view? Do you regard it as legitimate (inaudible)?
TREASURER:
I’m sorry, I don’t have a view. The Cole Commission has reported. The Cole Commission had a view. I would recommend that you read the Cole Commission report.
JOURNALIST:
But you’re the official in charge of taxation arrangements …
TREASURER:
I’m sorry; we had a Royal Commissioner who heard all of the evidence – all of the evidence. Everybody in the witness box, counsel assisting, defence counsel – for tens of millions of dollars over several months. And he made a finding.
JOURNALIST:
And in terms of the tax treatment of that money though, you’re happy for it to be regarded as legitimate expense for someone, of the company to (inaudible)?
TREASURER:
I don’t actually make these findings. When you have a Royal Commissioner who hears the evidence, they tend to make the findings. I don’t walk in and just say, ‘Mr Cole’s wrong’, without hearing any evidence or any admissions.
JOURNALIST:
Why is it appropriate for those payments to be tax deductible?
TREASURER:
Well, I will refer you to the Cole Commission.
JOURNALIST:
Well the Australian people might ask that question, do you not have an answer for them?
TREASURER:
Yes – the thousand pages of the Cole Commission. That’s my answer.
JOURNALIST:
Does the legislation need to be tightened up though?
TREASURER:
Ah, well these are other questions and of course we will have a very careful look at the Cole Commission, and look at it from a policy point of view, but we are not going to re-litigate the Cole Commission.
JOURNALIST:
Most people out there would look at this decision, irrespective of what Cole said and say this is outrageous, that a company like AWB can claim these expenses as a tax deduction. Surely as Treasurer, you have a view on whether this is acceptable practise and whether the tax (inaudible)?
TREASURER:
Here is my thought, here is my view: there should be no tax deduction for a bribe. That’s my view. And that’s what we put into the law. Now, I’m sorry, if a court finds, or a Royal Commissioner finds something, whatever may be my personal view, that’s the law.
JOURNALIST:
The parameter variations have added about $14 billion to revenue over the foreword estimates, where’s that largely come from?
TREASURER:
Superannuation. The superannuation measure was not included as a policy decision, it was included as a parameter, and so when it was moved into a policy decision and out of parameters, it had the effect of producing roughly four or five billion of policy decisions as a negative and a corresponding entry in relation to parameters.
JOURNALIST:
But it’s something like, you still lose about $10 billion …
TREASURER:
No, it’s nothing like that.
JOURNALIST:
...variations on revenue of $14 billion over foreword estimates.
TREASURER:
The major one, as I said, is superannuation. Abstracting that, it’s not $10 billion. I could take you to the table and I’ll itemise it out for you separately.
JOURNALIST:
Treasurer, off the back of these figures and looking at the forecast budget surplus for 07-08, is there movement for tax cuts (inaudible) without threatening another round of interest rate rises?
TREASURER:
Well bear in mind that the largest tax cut, which will be introduced on the 1st of July, is still to come. That’s a cut of all tax on superannuation for over 60 year olds. This is the biggest rate change we’ve ever had, because the rate is going to zero.
JOURNALIST:
It’s not going to help family budgets though.
TREASURER:
It’s a tax cut Steve. I’m asked about tax cuts. It’s $7 billion in tax cuts and it’s coming in on the 1st of July, 2007.
JOURNALIST:
Treasurer, with that 20 per cent decline in farm production, how long can the Government keep throwing money at our farmers, since there’s no sign that the drought is going to ease, at what stage do we pull the pin and say (inaudible) no longer viable?
TREASURER:
The Australian Government will stand by Australia’s farmers in a severe drought, in many respects as bad as we’ve had for a hundred years. We will stand by our farmers because they are people who work hard, they are people who love the land and they are people who are going through a tough time. And if that takes further drought assistance, we’ll do it. Our economy is being buffeted by drought but nobody is being buffeted to the extent of our farmers. One of the reasons why you run a strong economy is so you can help farmers in their time of need. We have increased drought assistance by over $1 billion. If the drought persists next year, drought assistance will increase as well, but we will see Australia’s farmers through.
JOURNALIST:
In your list of …
TREASURER:
Last question.
JOURNALIST:
…. list of the bottom line in the Budget, does it include some of your colleagues wanting to win the next election? And will there be a pressure on you, extra pressure coming in the next six months, particularly with Labor doing reasonably well?
TREASURER:
Well, I think there will be a lot of pressure coming on Labor in the next six months. And I think the reason will be that when you first become the Leader, there’s a honeymoon period, and you engage in windy rhetoric, the press will reprint it with all due seriousness. They will reprint every promise as if you intend it to be delivered and as if it has no cost, as if it won’t divert from other areas. They will give you the benefit of the doubt in terms of your aspirations rather than your performance. But as the months go by, the scrutiny will become higher and the press won’t let you turn up in every city and promise them more money without asking, well – what other areas will you be taking that money from? And how can you be promising more money to everybody, and every promise? And even journalists like yourself, who can get carried away with flushes of enthusiasm, as the months wear on, you’ll get tired, and jaded, and the marriage will fracture and fray, and you will look at your new bride with more jaded eyes in the months which lie ahead (inaudible).