TREASURER:
The Final Budget Outcome for the Commonwealth Government in the 2004-2005 year measures that at 30 June 2005 there was a surplus of 1.6 per cent of GDP, higher than forecast at Budget time of 1.1 per cent of GDP. In cash terms the surplus which was $4.4 billion higher than forecast at the time at the 2005-2006 Budget. The reason why the outcome was higher than forecast was principally because cash payments were lower than expected. The outcome was $4.4 billion higher in cash terms. Cash payments were around $3.5 billion lower than was expected at the time of the Budget. No one particular factor contributed to those lower payments but as you will see on page one of the Final Budget Outcome, the lower cash payments were due mainly to lower than expected take up of grants and subsidy payments across a range of programmes, delays in contractual negotiations in deliveries of goods and services, lower wages and salary payments and the rejection by two State Governments of an offer to extinguish superannuation liabilities.
In cash terms, revenues were marginally higher around about $0.9 billion coming mainly out of company taxes. The tables on revenue and expenses which you see on page three and page five are in accrual terms and they contributed to a fiscal balance which was higher than expected at Budget time, in the Final Budget Outcome a fiscal balance which was around $10.8 billion or 1.2 per cent of GDP compared with an estimate at Budget time of 0.8.
So, the outcome for the Budget year was a little stronger than expected, 1.6 per cent of GDP in cash terms rather than 1.1 per cent. It was because payments were less than expected, some of those payments might find their way into this financial year but it is important that the Australian Government continue to run a surplus budget at this stage of the economic cycle, it is important that the Budget be in surplus, it is also important that it be in surplus because the Government needs to contribute to savings at a time when the private sector is borrowing, including households borrowing. The Government by building up savings, by running surplus budgets puts downward pressure on interest rates. And the important thing is that the Government makes its contribution to keeping downward pressure on interest rates because low interest rates are a big part of the Australian growth story, to keep Australia growing and to keep people in work.
Thank you, I will take any questions.
JOURNALIST:
Treasurer, can you give us, what are some of the programmes that…
TREASURER:
Were underspends?
JOURNALIST:
…yes.
TREASURER:
Yes, there were underspends in health and ageing because of delays in negotiations principally with the States in getting money out. There were underspends in agricultural grants, largely delays in relation to the sugar industry package; there were underspends in Australian Federal Police deployments to New Guinea; there were underspends in some areas of the Commonwealth Government due to shortfalls in new recruitment of employees; there were some lower payments for salaries and wages across a number of small agencies. And as I said earlier, the Australian Government made an offer to two States to extinguish its superannuation liabilities and budgeted to make those payments - those states rejected the offer and as a consequence the Commonwealth Government saved itself about half a billion dollars.
JOURNALIST:
With that rejection aside, those other underspends you would expect to be caught up with (inaudible)?
TREASURER:
Yes it is quite true, we are talking cash terms and in cash terms if you have got an underspend in the previous financial year they normally get paid in this financial year. So, it is a timing thing. If you actually look at the accrual expenses, the accrual expenses didn’t actually change that much. So, it is really a timing thing, there was a better cash outcome because cash payments were down, many of those payments were down because the money wasn’t expended before the 30th of June and the payments will move into the current financial year.
JOURNALIST:
Does that happen very often?
TREASURER:
Yes. To be frank with you, in a $200 billion budget, $3.5 billion is what, it is about 1 per cent. So it is not uncommon to have movements of around 1 per cent, it is not a large sum when you look at $200 billion of revenue and $200 billion of expenses.
JOURNALIST:
The net debt fell as well.
TREASURER:
Yes, the consequence of a better than expected outcome for the final budget result in 2004-05 is that net debt would be reduced by more than budgeted. Net debt fell by $11.9 billion to leave only $11.5 billion of net debt outstanding for the Commonwealth Government. That means that the Commonwealth Government net debt to GDP ratio is 1.3 per cent and that is the lowest in 28 years. So, if you go back further than 28 years you actually find that the Commonwealth didn’t have net debt they actually had a surplus position. So, we are now well on our way to getting back to where we were in the 1970s with the elimination of Commonwealth net debt. And that is an important point that the Commonwealth didn’t actually carry net debt back in the early seventies, I can actually give you the years. It wasn’t really until the advent of the Whitlam Government that the Commonwealth started going into debt and borrowing as a consequence, peaking under the Keating Government.
JOURNALIST:
Could you give us some ideas about current projections as to when that might actually happen and the underlying themes, are they revenues or costs to contribute into that, please?
TREASURER:
Well the reason why the Commonwealth has reduced debt from around about 20 per cent of GDP to 1 per cent of GDP is that we have run now eight surplus Budgets and the proceeds of our privatisation programme have gone to retiring debt. When Labor was in office they used to privatise and spend the money. What we have done is we have privatised and we have used it to reduce the mortgage. When you sell an asset you should decrease a liability or buy another asset not spend the money and have nothing left to show for it at the end of the year. So, it has been a combination of running surplus Budgets, eight surplus Budgets, it has been a combination of ensuring that we didn’t waste the proceeds of privatisation. Australia now has one of the lowest debt to GDP ratios in the world, not the lowest but there would only be a couple ahead of us and because the Government is reducing debt and building savings it is keeping downward pressure on interest rates and it is also very good financial management for this time of the cycle. You would expect that at this point of the cycle after a decade of growth that Australia would have a low debt position.
JOURNALIST:
With all of this extra money floating around is there any chance of any help with petrol prices?
TREASURER:
Well, can I say as you can see from today’s figures, the Commonwealth Government gets no additional revenue from increasing petrol prices. The Commonwealth excise is 38 cents if the price is 90 cents a litre and it is 38 cents if it is $1.40 a litre. There is no additional excise collected by the Commonwealth Government. Now people say what about GST. All GST goes to the State Governments. It is possible that State Governments are collecting more GST on petrol. Some State Governments like Queensland use that to subsidise the price, others like Victoria don’t. So, these are matters that can be taken up with the State Government but this is the point. Commonwealth excise is 38 cents a litre, it doesn’t move. Whatever the price is, it is just 38 cents a litre. It isn’t even indexed to inflation. If it had been indexed to inflation, if we hadn’t have abolished indexation, by today it would be 52 cents a litre. But we cut it and abolished indexation and it is still 38 cents a litre.
JOURNALIST:
Do you think the State Governments should be doing more to subsidise price?
TREASURER:
Well you know this is a matter for State Governments. All I am saying is, there is one State Government that does – that’s Queensland and there are five that don’t.
JOURNALIST:
But can you understand that people would think today and see that there is all this money floating around and that they’re just putting more money into their cars with petrol. Can you understand that people would want you to help out? Is there anything the Government can do?
TREASURER:
Well the reason that petrol prices are going up is that world oil prices are increasing. People know that. Petrol prices are going up in America, in Europe, in Britain, in Asia and that is because they are based on world oil prices. The worst thing that we have had recently is another hurricane in the United States and unfortunately what that hurricane could well do is push up the price of oil again, just as it was coming back, and even worse take out refining capacity. Now where oil prices are being influenced by international events, such as hurricanes in the United States, there is not much the Australian Government can do about it. What we really need, is, we need more world oil production. That is what we need. And I have raised this at international fora. I hope that it will be raised again and again on behalf of not just Australians but on behalf of consumers throughout the world. There have been some signs from the oil producing nations that they may be increasing production and that’s about the only lasting thing that would have an effect in bringing oil prices down.
JOURNALIST:
What would be the effects on the economy of these continuing high petrol prices?
TREASURER:
Well let me make this point – high petrol prices are good for nobody except perhaps the oil exporting nations of OPEC. They are not good for Australian consumers, they are not good for Australian business, the don’t give the Commonwealth Government any money – extra money – and they will feed into the Consumer Price Index. So, petrol prices are bad for consumers, bad for the economy, they are bad for the Consumer Price Index, they are not good for the Commonwealth Government and the only people they help are the oil exporting nations and that’s why the oil exporting nations should be increasing production. Not just for the sake of the Australian economy and Australian consumers but for the sake of the world economy. High oil prices are no good for the world economy either because they will dampen world economic growth, no doubt about that. Now you have got to hold these things in balance. I am not forecasting world recession I am just saying that whatever growth would have been, the high oil prices will dampen it, and that is not good for the globe.
JOURNALIST:
You mention that commodity price increases have been beneficial for the tax take this year, what about the resources boom and is that also being a corresponding tax boom for the Federal Government?
TREASURER:
The resources boom has meant that certainly Australia’s mining companies have been extremely profitable, extremely profitable and you only have to look at annual results. A consequence of that, is that company tax has been strong particularly, in relation to mining companies. Now as you know we cut company tax some years ago but company profits are so high that that is assisting with revenues and from an ordinary Australian taxpayer’s point of view that is a good thing. That is the way in which the taxpayer shares in the mining boom. Companies, particularly in the mining areas have higher profits, they pay more taxes; it is one of the reasons why we were able to cut everybody’s income tax on the 1st of July this year.
JOURNALIST:
Can you put a figure on what that (inaudible)?
TREASURER:
Well the figures on company taxes are in here – company tax in 2004-05 raised about $43 billion. That is not just mining companies of course, that is all companies.
JOURNALIST:
May I ask we are strongly advised by the State Opposition and it is sort of widely accepted here now that you inspired and endorsed Robert Doyle’s “half-tolls” policy? Is that the case?
TREASURER:
I completely support Robert Doyle and his policy. Absolutely. But can I make this point: Mr Doyle is the person who, together with his Parliamentary colleagues, makes these policies. I think this is a very important point, that the State Liberal Party generates, develops and announces State Liberal policy. The Federal Liberal Party generates, develops and announces Federal Liberal policy. And that is because each area of Government is responsible for its own policy. But I strongly endorse him in his policies. Absolutely. And you know to be frank if I were a commuter out in the eastern suburbs of Melbourne and I can’t have a freeway like the rest of Australia has or the rest of Victoria has, I would at least like to have a 50 per cent discount on my tolls. And I don’t think there is any choice. If you are a resident or a commuter in the eastern suburbs of Melbourne, Bracks wants to make you pay double for your transport costs. So I don’t think there is any doubt at all that the Doyle Policy, if you happen to live in the eastern suburbs of Melbourne, is a much better policy.
JOURNALIST:
Will that $442 million that was in dispute be spent on Victorian roads?
TREASURER:
Well the money was allocated according to a signed Agreement with Steve Bracks who broke the Agreement. Unfortunately, we have never had a case where a State Government has broken a written Agreement before on road funding. So we will have to now consider what to do about that. Certainly I would want to see money come back into Victoria but the trouble is all the other State Premiers will say, we keep our written Agreements and Bracks breaks his. And they will not be as supportive as I am of the Victorian public. So this is now a matter that goes back into the hopper and I can assure you I want to see some of that money coming back into Victoria because I don’t think Victorians should be punished for Mr Bracks breaking his word.
JOURNALIST:
So will you be advocating for that money to be allocated…
TREASURER:
I will certainly be advocating that Victorians shouldn’t be punished because Mr Bracks broke his word.
JOURNALIST:
Nor would you be talked out of the correct decision because of the pressures of the other Premiers would you?
TREASURER:
Well you know every other Premier will say, we keep our written Agreements and you make us keep them. Why should the only Premier in the history of Australia who broke a written Agreement be allowed to profit? Now I will have to think of an answer to that. But it is not a bad question is it? I will have to think of an answer. What is the answer? Perhaps I will read the Sunday Age and find out the answer.
JOURNALIST:
But can’t you say that Robert Doyle has broken his promise too so they are square?
TREASURER:
No of course you can’t. Did Robert Doyle sign a written Agreement with the Commonwealth Government? If he did, produce it. Steve Bracks and Peter Batchelor did. Did Robert Doyle say one thing before an election, get elected and then break his promise? He hasn’t even run to his election yet. I mean this idea that there is some kind of moral equivalence between what Steve Bracks did and the Doyle promise is ridiculous. Mr Bracks wrote a letter to everybody in the Scoresby corridor saying if you vote for me you will be get a freeway, and then after he was elected said sorry about that old chum. Mr Doyle runs to an election with a policy which hasn’t yet occurred. The election hasn’t yet occurred and to say that there is some kind of moral equivalence between Mr Doyle putting his promise out there before an election and Mr Bracks breaking a written Agreement after an election is a long bow. Thank you.