TREASURER:
Today the Australian Government releases its Mid-Year Economic and Fiscal Outlook for 2004-2005 and it shows that the Australian Budget remains in a very strong position.
It also forecasts strong growth, although moderating growth in 2004-2005. Forecasts for growth in 2004-05 have been revised to 3 per cent, solid growth, but moderate, more moderate than was forecast at Budget time.
Forecasts for growth in 2005-06 have been revised to 3 per cent. Again, very solid growth, but a forecast less than was the case at the time of the Pre-Election Fiscal Outlook prepared by The Treasury.
Employment growth is expected to remain robust and the unemployment rate to continue at the kind of low levels that we are currently seeing. These are levels of unemployment which are the lowest in 27 years.
The Government believes that the housing market is cooling and that there will be a relatively mild decline in housing investment. Provided that the adjustment in the housing market continues in the kind of mild way that we have seen to date this could actually turn to a positive for the Australian economy. The risks on the external front are high oil prices, they have come down a little bit since the extreme highs that we saw say a month ago but are still by historical terms quite high. And we face the risk of a rapid realignment of world currency movements, particularly the decline of the US dollar, which is forcing the Australian dollar higher and making life tougher for our exports.
In fact the reason why we have revised growth down is principally because of the detraction from net exports. Although prices are good, volumes have not increased to the extent that we would hope although we see them increasing through 2005. And we see extremely strong investment going on in the mining sector where Australian products such as iron ore, coal in particular, are booming in price terms and in market terms. And that increased investment should give the capacity for lifting exports through 2005.
The Government is forecasting a Budget surplus in cash terms of $6.2 billion in the current financial year with solid surpluses right across the forward estimates. This contrasts with other advanced industrial economies such as the United States, Japan and Europe which are all forecasting very substantial budget deficits in 2005-2006 as chart 1 on page 2 of the Mid-Year Review indicates.
In relation to the fiscal position, the improved fiscal position has been essentially driven by strong revenues, principally coming out of strong company profits and increased employment. That is, while the Government has been reducing income tax take by increasing thresholds - as we did on 1 July, and as we will do again on 1 July 2005 - revenues have still been strong and the reason for that is more people are in work than expected. Unemployment is at 27 year lows. Whilst we were forecasting back at Budget time that the unemployment rate would be around 5 per cent, as you know it is about 5 at the moment. So unemployment has actually been lower, more people have been in work. As I said on the basis of the last labour force figures in the last year 180,000 people moved into full-time work in Australia over the last 12 months. And in addition to that company profits have been very strong – for exporters they have been extremely strong because prices have been good and the profit share to the Australian economy is as high as it has ever been in Australian history.
So we have this picture of an economy where more people are in work than ever before, the company profit share is as high as it has ever been, but we have disappointing export growth in volume terms - partly I believe because of under-investment in the mid to late 90s, partly because we have seen bottlenecks emerge particularly in some of the ports on the east coast of Australia. And some of the newspapers have been covering that. But as that investment swings back and bottlenecks are dealt with, we should see export volumes rise in 2005-2006.
The consequence of this has been that the Government will be able to retire more debt than was expected at Budget time. And we expect that net debt will fall to around $19 billion by 2004-05, that is by the close of this financial year, which will mean that since the election of the Coalition Government in 1996, net debt will have fallen by $76 billion. And Australia will have one of the lowest debt to GDP ratios in the world, certainly outperforming the US, Japan, Europe and the other major industrialised economies.
The good news is that the growth in employment of course has not only led to continuing strong revenues but it has reduced expenses, and that expenses on unemployment benefits have been lower than they were forecast at the time of the Budget.
So, in a context of solid but moderating growth, the financial position of the Commonwealth remains very strong.
I just take briefly this opportunity to highlight two other releases that I am issuing today. The first is the GST estimates which are contained in this Mid-Year Review. I have got a separate release which is setting them out. But the forward estimates of GST for the current financial year 2004-05, 05-06, 06-07 and 07-08 show that every state is now in a windfall position over and above the Guaranteed Minimum Amount.
In 2004-05 New South Wales will receive a windfall of $195 million, Victoria $285 million. And those windfalls will continue right across the forward estimates.
The total windfall to the states in 2004-05 will be $1.9 billion, in 05-06 $1.5 billion, in 06-07 $2.2 billion and in 07-08 $3.1 billion.
Now let me underline this point, that is the windfall, that is the windfall over and above a growing amount. And as you can see the amounts there are growing year by year. And the windfall over and above the growing amount is growing year by year, so that for example New South Wales under the old system was guaranteed $9.7 billion, in fact it will receive a $195 million windfall.
The final release which I am taking the opportunity to put out today because the figures for all of these are contained in the Mid-Year Review, is the National Competition Policy payments to the states and territories. This is in addition to the GST revenue, the states and the territories receive National Competition Payments. The Government has accepted the recommendations of the National Competition Council. It will be paying in 2004-05 a total of $777 million to the states and territories. Victoria, Tasmania and the ACT were the star performers in terms of competition. They have received the maximum amounts. Some of the other states which had suspensions in previous years have attended to matters and received payments of their suspensions and as you can read there there’s some other states that have ongoing suspensions and deductions. Although I would point out to you that the amounts involved in suspension or deductions are quite small and certainly are far less than the windfall that each state is getting out of its GST revenue.
So, no doubt you will hear complaints from some of the states. The complaints ought to be looked at in this light our bonus, large as it is, could still have been larger - and I think it is important to see it in that context.
But overall, as I said, the economy is not without its challenges. We have to cope with the oil price, the exchange rate, the changing on the housing cycle and the export situation, but I think careful management will be required to see those challenges in 2005 and 2006.
JOURNALIST:
Treasurer, every time there is a new estimate for revenue it goes up substantially. This is presenting a fairly compelling case for further tax relief isn’t it?
TREASURER:
Well we cut taxes on 1 July 2004. We are going to cut them again on 1 July 2005. Now this is a very important point, people are paying less tax but more people are paying tax. This is the important point here. When you get 180,000 new people paying tax, even though the tax rates are lower, you get more tax. And what is more, you pay less in unemployment benefits. This is the kind of return you get from good economic policy. And long may it continue.
JOURNALIST:
What about the people earning less than $52,000 a year? Will you give some consideration to further tax cuts for them?
TREASURER:
Well over the course of, what since 2000, we have cut tax rates, changed thresholds, we have increased for seniors the tax offset, we have increased family payments by $600 per annum, we have increased the childcare rebate a 30 per cent reduction for those families that are paying tax. The best way of actually delivering returns to lower income earners, particularly families, is through family assistance. You see they don’t pay that much tax. The point I used to keep stressing with the Opposition, for many of these families they are not paying tax. So you can’t cut their tax. The best way of delivering them returns is to increase their family tax payments, which we did with the $600 payment. By the way, a real payment. Something that actually exists.
JOURNALIST:
Do you agree with your Deputy Secretary of the Treasury, Martin Parkinson, when he says Australia is undergoing a historic shift away from manufacturing and towards mining?
TREASURER:
Look I think a historic shift has taken place in this sense that Australia will not be in the business of low cost mass manufacture in the future. Because low cost mass manufacture is increasingly moving to China. This is not just Australia it is the world’s low cost mass manufacture - from Europe, from America even from South East Asia is moving to China. And incidentally probably even moving in China, moving from coastal China to inland China. There is a whole global readjustment going on at the moment. So where will Australia find its manufactured place? In higher value add and specialty markets. Let me give you one example – what has been the great success story of Australian manufactures in the last five years? Autos. Now exporting particularly into the Middle East but now exporting – Holden. So it is not that we won’t be doing manufactures, it is that we will have to be doing higher value add, specialty and niche manufactures. Australia is not going to be in the business of the mass manufacture of global products that can be manufactured anywhere and will gravitate to the cheaper places. So for our manufacturers we’ve got to find speciality, niche and higher value add. Now, let me turn to the other side. Resources will be a strong seat for Australia, I believe, because the people that are going to be doing these mass manufactures and principally China are going to need energy, and commodities and we have both. And frankly if you can sell your energy and your commodities at prices that may increase and buy back your mass manufactures at prices that have been decreasing, that gives you a wonderful opportunity.
JOURNALIST:
Sounds like a fairly compelling case for a free-trade agreement with China?
TREASURER:
Well I tell you what, it’s a compelling case for lower tariffs, as we have put in place in the auto industry and as we have in place for the textiles, clothing and footwear industry. But I’ll tell you this, if Australia can hitch itself to the emergence of the industrial giant in China, we’ll be a much better country for it.
JOURNALIST:
Do you support an FTA with China?
TREASURER:
Well, look you’ve got these interesting legal questions, haven’t you as to whether China is a market economy. One day it will be. But, …
JOURNALIST:
(inaudible)
TREASURER:
…But you’ve got these interesting questions. In the context of the Mid Year Economic Review, I’m not going to pontificate on that. Sorry, yes.
JOURNALIST:
Treasurer, you are talking about higher oil prices remaining a risk, and just looking at the revenue from the various oil and petroleum products, do you think that there’s been a big increase? Do you think that perhaps it is worth looking at a cap on the amount of tax collected from oil and petroleum just over this current high prices?
TREASURER:
Well let me take you to table 7, on page 18. Income tax withholding, that’s what we used to call PAYE tax, up 1.5 per cent. Gross income tax withholding, that’s unincorporated businesses and the like, farmers would be in there. That’s really a measure of profitability, up 8.9 per cent. Superannuation more or less down. Now, you’ve looked at the petroleum resource rent tax and you’ve said well, it’s up 41 per cent. It’s true. But the amounts involved are quite small, $460 million. It’s a large percentage increase but on a small base. Now, why is that? That is because oil companies are more profitable. It’s quite right. Oil companies are more profitable when the oil price goes up. But a large proportion of that is exported and the sums that the involved in that are not the sums that the consumer is paying, what the consumer pays is excise, 38 cents a litre, which this Government reduced and capped in 2000, in 2000. So, you know, if you say we’ve been having 2-2 per cent inflation since 2000, you know, that’s in real terms, in real terms a drop of about 10 per cent. Let me make this point. The excise doesn’t go up as the price goes up. It’s 38 cents a litre. The Commonwealth which charges excise does not get any more money as the price goes up. It doesn’t change. In fact, it’s falling in real terms.
JOURNALIST:
Mr Costello, during the election campaign you appeared on the Neil Mitchell program in the closing stages of the election, and you were asked in relation to the childcare 30per cent rebate, is it capped, by Neil Mitchell and you replied, ‘No, it is a 30 per cent rebate on your tax’. Have you misled voters and do you think that you owe anyone an apology who was confused by that political statement.
TREASURER:
Well, a $4,000 cap would cover 51 weeks a year at $60.00 a day, when you getting no childcare benefit. You would have to be an extremely unusual case to have more than $4,000. I read in one newspaper today that this would save money. Completely wrong.
JOURNALIST:
Would you be an unusual case (inaudible) there are many places in Sydney that pay $85.00 a day.
TREASURER:
No. Hang on, well $85.00 a day less childcare benefit. Let me make this point, whatever you pay, you take the childcare benefit off it and it’s only the cost less your benefit that you’re out of pocket. In an approved centre, which you claim 30 per cent off your tax. Now we set that cap at a level that very, very few people outside those that might be trying to hire a private nanny, and this is not designed to cover a private nanny, and this is not designed to cover a private nanny might be paying. And the costings do not show any savings from that measure, any savings from that measure. Now I just say that because there was some suggestion in some of the press that there was a savings from that measure. There are not savings from that measure. But what we don’t want, is we don’t want a childcare centre which is currently charging $50.00 or $60.00 a day to say, we will put our price up to $85.00 because no one will pay a dollar extra. That’s what we don’t want. I want to make this absolutely clear, the childcare rebate is for mothers, not for large corporations that want to get into the business of childcare.
JOURNALIST:
Sorry, sorry. Can I just ask you about your prediction that net debt will be reduced to $19 billion…
TREASURER:
My goodness, what is that?
JOURNALIST:
You are on film.
JOURNALIST:
Thank you, thank you I like it.
TREASURER:
Who’s running that thing up there?
JOURNALIST:
I’m not going to stretch it.
JOURNALIST:
Big brother is working today.
JOURNALIST:
Just on the prediction that …
TREASURER:
If I get put on the set of Big Brother, I don’t want to live with all of you.
JOURNALIST:
Just on the prediction that net debt will be reduced to $19 billion, I was just wondering what the ramifications are for the Telstra sale, given that we are expecting to get something in the order of $30 billion, and you have said that all the money will be used to retire debt. What is going to happen to the excess, or is that $30 billion already factored into the Budget?
TREASURER:
Well I announced during the election campaign that we are going to keep a gross holding of bonds, and that we would establish the Future Fund to start funding superannuation liabilities that the Commonwealth currently owes. What the Commonwealth does for public servants that might have been employed forty years ago, when they retire they are guaranteed an annual income, and we just take that out of revenue on an annual basis, and we pay them until they are dead. Now if you were to crystallise that liability and say that we will set up a fund to meet all of those liabilities, you would have to have a fund of about eighty or ninety billion.
Now the reality is that they are all not going to retire at once and all going to have to be paid at once. But that is the way these actuaries do these things. So what I have said is that we should start moving towards funding some of these liabilities. And these are not liabilities that have accrued under this Government. Some of these public servants could have started their employment in the public service in the 1950s, and worked 40 years and retired in the nineties and they might be 60 years, but the Commonwealth will pick up the liability until their death which could be another 20 years. So these are not liabilities that have accrued under this Government, they are liabilities that have accrued under successive Commonwealth Governments.
Now, I have said that one of the things that we should try and do is start moving towards funding those Commonwealth liabilities. The first thing we have got to do by the way, is we are not going to allow new entry to this scheme and all newcomers are going onto a fully funded scheme, right?
So, the problem is not going to deteriorate as it were, so we have ruled off the books. And then I have said what we should try and do is we should try and move to putting aside provision for funding that liability and that will relieve future generations of that liability. It is a very pro-generational thing. So the future fund will be in a position to grow an asset position which it can match up with that liability position. We can keep the bond market going and the future fund would certainly be in a position to receive proceeds if you had a problem receiving proceeds which I think is a very long answer to the implication of your question.
JOURNALIST:
(inaudible) child care (inaudible) that you said that there wasn’t a savings but MYEFO says that the cost of that policy is $585 million in the forward estimates. During the election campaign Treasury came out and said that is $980 million, how is that not a saving?
TREASURER:
Because the outward years are not included in that.
JOURNALIST:
(inaudible) forward estimates still costing less.
TREASURER:
No, let me say, the child care rebate is costing more. It is costing $140 million more. Let’s get this point clear, because women are going to get a rebate from 1 July to the 31st of December which they were never promised. Instead of it costing $140 million for six months it is going to cost $280 million for 12 months. Let’s get this absolutely clear. The Government has backdated it and it is going to cost more. Now, let’s come to how you actually claim this. You can only claim this after you have received your child care benefit, I have said this before. You claim your child care benefit, you deduct that off your fees, it is 30 per cent of your out-of-pocket. You can’t actually calculate 30 per cent of your out-of-pocket until after you have received your child care benefit. People won’t receive their child care benefit until after they have put in their tax return, so you can’t fix the amount of the rebate until you have had that tax return. Now, you could ask people to estimate and you will run into the top-up and under-payment problems. So what the Government has decided is there is not going to be any top-up or any under-payment problems, it is going to be a fixed amount, it is going to be more, it is going to be $140 million more.
JOURNALIST:
Treasurer the Reserve Bank hasn’t dismissed an interest rate increase and in today’s outlook the forecast for inflation for this financial year is slightly higher than at the Budget. Would you agree with the Reserve Bank’s view that (inaudible) an interest rate increase earlier next year?
TREASURER:
Well, the Budget forecast, the year average consumer price index was 2 per cent, the MYEFO year average forecast is for 2 . Now, the agreement which we have with the Reserve Bank is two to three per cent over the course of the cycle so whether it is 2 or it is 2 it is still well within the band. Now, I don’t believe that we are seeing the emergence of inflationary pressures in the economy, but we have to be careful. I have said, what would be the greatest risk to inflationary pressures in the economy, well wages would be. We are now at an unemployment rate of the lowest in 27 years. If people say, well gee, we can go out and have wage claims of five or six or seven per cent, that would threaten the inflation outlook and so I have said, we have to keep our wages demands contained because that will keep inflation low and that is consistent with our interest rate regime and in addition to that it is consistent with continuing low unemployment. In that past in Australia when we have been in the territory of low unemployment, one of the things that has always undermined that has been wage demands. Now in the past we had a worse industrial relations system which we have improved but we need to be vigilant on that front.
JOURNALIST:
Mr Costello the revenue growth is expected to continue at a rate of about five or six per cent a year, you are obviously expecting a river of corporate tax revenue to keep on rolling, is that not a little bit optimistic over the course of the next four years given the kind of risks that are out there?
TREASURER:
Well I like to see healthy companies in Australia and you know, I have always argued the case that good company profits is good for the economy. Why? It creates more jobs also it underpins revenue. So, you talk about, what was it, the, what did you call it?
JOURNALIST:
The river of corporate tax revenue.
TREASURER:
The river of corporate tax revenue, I just hope the river of corporate profits continues and it is my aim to keep Australia a good place for companies to trade.
JOURNALIST:
Is that a little optimistic?
TREASURER:
Look, you sit down when you are doing a Budget and you try and analyse the risks, you try and analyse behaviour and you make a forecast. Now, what are the risks? I have told you what I think the risks are. We have got to make sure that we manage the housing cycle, we have got the risk of oil prices, we have got the difficulty of the exchange rate. You know, it would be a risk if wages started to get out of line with productivity. And then after you have analysed those risks and you have analysed the state of the current economy, you have got to make a forecast. Now, what is the up-side for corporate Australia? Well let me tell you. For our resource companies, a demand like we haven’t seen for a long time. For our agricultural producers, normal climatic conditions we hope, right. No hundred year drought. For our other companies, strong consumer sentiment, right, which means that people are quite confident, they are buying their products, they are out there in the supermarkets as we speak buying Christmas presents. Low interest rates, a reduced corporate tax rate, I hope an improved industrial relations system. So you look at those risks, you look at those advantages and you make a forecast. Now, this forecast I believe, is the best forecast available. Now, you are quite right, it is possible for things to come out of no where. Let’s take SARS. Before SARS happened who had ever heard of SARS and what it would do to our tourism industry. Before it happened who had ever anticipate September the 11th terrorist attack? But even those shocks we managed to get through and there might be some shock out there that we can’t even contemplate at the moment and if there is we will have to deal with it when it arises but all I can tell you is these are the best forecasts available at the present time.
JOURNALIST:
Treasurer speaking…
TREASURER:
Sorry, Mr Lewis.
JOURNALIST:
…Treasurer, speaking of forecasts, do you share Jeff Kennett’s view that Prime Minister Howard maybe just at the mid-point of his career?
TREASURER:
Well look, I am not going into prognostications except to say this and I have said it over and over again. It is a tremendous achievement to be the second longest serving Prime Minister in Australian history, it is a stellar performance to have won four elections, nobody can ever take that away from you, ever, and I just congratulate the Prime Minister on the last nine, is it nine? Nine years.
JOURNALIST:
Almost.
TREASURER:
The last nine years and he deserves a day off with his family and I hope he has a happy one.
JOURNALIST:
What do you think his legacy is?
TREASURER:
Well, it is a little too early to start talking about legacies.
JOURNALIST:
Well what do you think his career achievements have been during his…
TREASURER:
Look, I could go through a whole lot, but I will tell you this, winning four elections is something that only two other political leaders have done in Australian history so that puts you in a pretty select company and you know, they have been tough elections, they have been tough elections I think, I have lived through them all.
JOURNALIST:
Treasurer…
TREASURER:
Let me go, one, two, three and then we will finish.
JOURNALIST:
…Treasurer you were talking about wage pressures being a bit of an issue, there have been advertisements in the papers for electricians and plumbers in rural areas for packages of $100 thousand a year. What sort of advice would you give to, first of all employers who are under this pressure to get tradespeople who are in such short demand and also what do you say to the people who would like those jobs?
TREASURER:
I think there are fantastic trade opportunities going at the moment and I would say to kids that are finishing school, think about getting into a trade, you will get a job, you will have a great opportunity I think, even to start your own business and you will find that the monetary rewards will quite probably out pace anything you will get in a desk job so think about it very, very carefully and we need more tradesmen and women today and we want a situation where it is highly prized and highly valued. You see, it is a funny thing isn’t it, the market is now highly prizing and highly valuing it and perhaps it is just time that the expectations of schools and other purveyors of political opinion value it as highly.
JOURNALIST:
Treasurer…
TREASURER:
Sorry, this is really the last, one, two, three.
JOURNALIST:
Mr Costello in relation to Telstra once again, do you think two issues need to be on the table as far as the privatisation goes, one the level, the current level of foreign investment and two any potential changes the Government may have to make to the competition law in order to ensure that a privatised Telstra doesn’t abused its market power once the Government loses its majority of shareholding?
TREASURER:
Well can I say this by the way, the idea that somehow because the Government has a majority ownership that is stopping the company from abusing its market power, I don’t agree with that at all. In fact I would actually say if the Government has a majority ownership and is also the regulator, that the Government is probably much more inclined to let it abuse its position. You see what I mean? The assumption in your question is somehow our ownership makes Telstra a better, a fairer competitor. I actually think one of the strongest reasons for privatisation is that whilst this organisation is owned by the Government the tendency is always to allow it to be an unfair competitor. Why? Because we maximise our value. The strongest reason for Telstra privatisation is the Government is now in a serious conflict of interest. We are writing the rules and owning the largest player. You know, you wouldn’t let the owners of other companies write the rules on which their companies competed and yet the owner of this company is allowed to write the rules on which its corporation competes. And so, you know, I would say the privatisation of Telstra is likely to lead to a better, more pro-competitive outcome rather than a worse one.
JOURNALIST:
And foreign investment?
TREASURER:
Well our policy is settled on foreign investment and I believe it is right.
JOURNALIST:
Treasurer, do you…
TREASURER:
Now, yes.
JOURNALIST:
…you said it is important to place the cap on the 30 per cent child care rebate because you don’t want child care providers to gobble up the benefit of it, why not adopt the same principle for the private health insurance rebate and put a cap on that because private health funds and have been hiking fees six and seven per cent a year?
TREASURER:
Well, I think we set their fess don’t we? I think we - the Government - or some committee of the Government actually sets the fees of private health insurance. I think there is actually Government control of those fees.
JOURNALIST:
Treasurer…
TREASURER:
So it they are very directly controlled, very, very directly controlled.
JOURNALIST:
You said the States are getting a big GST windfall, should we expect better services or tax relief and also I want to ask you if you are looking forward to yet another Budget?
TREASURER:
Well thank you Louise, but I have just done a mid-year review so I am thinking about Christmas as from tonight. Look, the truth of the matter is that the States are receiving a GST windfall and in addition to that the States have received the proceeds of large increases in land values. Because a large proportion of their own source revenue comes from land taxes and stamp duties. And I didn’t notice too many of them adjusting the thresholds as the property market moved up. So the States have had a pretty good run. Now, I believe therefore, that there is no excuse for saying that we can not properly fund services, because they can. But I would not want to see all of the GST revenue devoted to expenditures. The GST revenue is to fund tax abolition. Now, it has already funded a reduction in gaming tax, the abolition of Bed Tax, the abolition of stamp duties on shares, the abolition of Financial Institutions Duty. On 1 July, it has got to fund the abolition of Bank Account Debits tax. But there is also out there a huge range of other taxes that have to be abolished. There is stamp duty on commercial conveyances, stamp duties on mortgages, stamp duties on leases. Now, you have got to remember the reason why we introduced the GST and the reason why the GST goes to the States, is so that the States would use that revenue base to abolish these other inefficient indirect taxes and we will be keeping…last March, I had to fight with some of the States, not all of them, some of the States, to get the abolition of the Bank Account Debits tax which is going to happen on 1 July 2005, and this March, I will be pushing that tax reduction agenda. We did not introduce the GST so the States could hang on to all of those taxes and get the GST. As the GST revenues grow that has to be delivered back in the abolition of further State taxes…..
JOURNALIST:
…(inaudible) force the States to do that, Treasurer, is that (inaudible)…
TREASURER:
…in your usual way Mr Lewis, Sir, you have got an extra question, so this is the very, very last one. There is scope…
JOURNALIST:
…(inaudible)…As an addendum to Louise’s question.
JOURNALIST:
A supplementary!
TREASURER:
...you’re a footnote to Louise Dodson. The scope is? What are you talking about? Here is the windfall, let me make this point, they’re all in a windfall position in 2004-05. You will notice for many of them their in a lessor windfall position than 2005-06, why? Because the Bank Accounts Debits tax is abolished in 2005-06 so the GST rises to fund all the revenue that they would have got from the Bank Accounts Debits tax and still produces a windfall. Now these windfalls in the out years are to be directed towards the abolition of other taxes and I have not said that they have to abolish them in such a way that they go back below the Guaranteed Amount, but their windfalls should be funding the abolition of those taxes, that is the idea and that table shows that there is plenty of room for them to do that.
JOURNALIST:
(inaudible).
TREASURER:
Well we got it all listed in the Intergovernmental Agreement. You know, I went through the ones that have been done and then there is no chronology on the next level, the next level are stamp duties on commercial conveyances, stamp duties on mortgages, stamp duties non-marketable securities which is things like leases, I think. And so that is the discussion that we have got to have, which of those we start pulling out now and prioritising for abolition.
JOURNALIST:
What about Mr Egan’s Capital Gains Tax?
TREASURER:
Well you know, here we have a situation where the property market has started to cool. You know every indicator starts telling you this. Building approvals start telling you this. Credit starts telling you this. Auction volume starts telling you this. Auction clearances start telling you this. Measures of prices start telling you this and into this situation somebody wanders in and says ‘I would like to apply a new tax on the sale of a property’. Blunders in to a cooling market, with a new tax. Now what do you think the effect of that will be? Well the effect of that will be, just to amplify the down turn. Should you be surprised that it is not raising the forecast revenue, no of course you should not be. Because taxes like that will have behavioural consequences and behavioural consequences will amplify the problem that that Government was running into. Now, talk about traps for young players. We have a cooling housing market and you decide to put an exit tax on.
Now the only thing I will say, is if there where a rush for the door, it would cool even further and what will the consequences of that be. The consequences of that will be that rather the raising additional money could not, may not meet their expectations and they may actually dampen other sources of revenue which were the entry taxes, the stamp duties and the land taxes. So…
JOURNALIST:
Treasurer, an addendum to Alan Wood’s question…
TREASURER:
This is really the last…
JOURNALIST:
Whether you have got any view on the National Interest argument that has been put by some businessmen regarding Xstrata’s bid for WMC?
TREASURER:
Look can I say this. The National Interest argument is something that the FIRB deals with and ultimately the decision is made by the Treasurer. It is very important that it be done - that decision and that process be - done in a way which is immune from legal challenge, right, because large sums of money turn on this and we have had experience where major players want to litigate. And so I have taken the view in order to ensure is what is done, is done in a legally defensible way, that we’ll do these thing by the book. That is, if an application is put in, it will be dealt with as commercial-in-confidence, it will be carefully considered and a decision will be made. So anybody else is entitled to put their views out there, that is what happens, but because I am the decision maker, I am not entitled to put views out there or to enter into the debate because the things that you say are written down and later used in evidence against you and I want to make sure that the whole thing is done perfectly properly and immune from legal challenge. Thank you all very much.
JOURNALIST:
Thank you Treasurer.
TREASURER:
Merry Christmas to you all.
JOURNALIST:
Are you taking a break?
TREASURER:
Yes I am, thank you all very much. Go home and show a little bit of love…