TREASURER:
The Final Budget Outcome for the Commonwealth in the financial year just passed, that was 2005-2006 was a surplus of $15.8 billion or 1.6 per cent of GDP. The outcome was around about $1 billion higher than we expected at Budget time, this is made up of principally of the fact that payments were lower than expected, around $1.5 billion lower than expected and cash receipts were also lower than expected. In particular company taxes were weaker than we expected at budget time by around about half a billion dollars.
The areas where payments were less than expected range right across the whole gamut of the Commonwealth programmes. We have paid assistance for cyclone Larry to around $173 million but the assistance at the time of Budget was overestimated. At the time of Budget we were expecting to make 13 payments in relation to childcare because there were 13 monthly dates that fell within the year, as it turned out there were only 12, we will pick up a 13th in the following year, that is 2006-07.
The outcome means that over the course of 2005-06 general government debt fell by around $17 billion and the Commonwealth Government eliminated its net debt. That is in 2005-06, the Commonwealth Government in net terms went debt free. This is the strongest position that the Commonwealth has been in for more than three decades. Now, this is the outcome for the financial year just passed, that is 2005-2006. The surplus will be transferred to the Future Fund, and will mean in addition to the payment in the Future Fund which we made last year, the Future Fund will now have capital of around $30 billion. That $30 billion is to go towards unfunded liabilities. The Commonwealth now has unfunded liabilities of around $100 billion.
So we have not by any means funded those liabilities, but in the last two years have made a very good start towards funding them and in the last two years picked up quite a considerable position in relation to our unfunded liabilities particularly in relation to superannuation. This is an outcome which is consistent with the strengthening the position of Australia. We are adding to savings, we have cleared net debt, we are making provision for the future liabilities for an ageing population. This is also an outcome which is consistent with keeping inflation low and keeping inflation low is very, very important for keeping monetary policy on track and the Australian economy growing. These outcomes go towards our overall economic objectives and our overall financial objectives. And as we go into this financial year, the current financial year of 2006-07, it is important to stay on track for the future of Australia and the future of our economy. Questions.
JOURNALIST:
How much was the Cyclone Larry assistance overestimated by?
TREASURER:
Well these were back of the envelope figures that were done in a day and as I said, we have paid $173 million, we were expecting on the back of the envelope figures to do more than that, so it wasn’t that the payments were less than expected, the estimation was higher than it should have been.
JOURNALIST:
Why was company tax lower than expected?
TREASURER:
Well, it was really due to a number of companies that were balancing on 30th of June, we have got to make a guess or an expectation as to what you think they will do but you have got to get this in perspective, company tax is around $50 billion, of which the less than expected revenue was $0.5 billion. So $0.5 billion out of 50 is what, 1 out of 100 is that right? 100 per cent. So when you are dealing with large sums, 1 per cent is a large sum but the fact that you can get to 99 per cent accuracy always amazes me rather than a 1 per cent margin plus or minus.
JOURNALIST:
What has happened to tax as a share of GDP?
TREASURER:
Well taxes as a share of GDP under this government are falling and I can give you the historical tables which are published with our Budget but they that tax as a proportion of GDP are actually falling and of course will fall further as tax cuts kick in in the current financial year. The outcome in 2005-06 was 21.2 per cent in terms of tax receipts. When the Government was elected it was 22.3 per cent.
JOURNALIST:
Does this have any bearing on next year’s surplus, Treasurer?
TREASURER:
What this would tell us is that we are probably on track in relation to next year’s surplus. We are forecasting a smaller surplus in 2006-07 than we were forecasting for this outcome. The fact that we were so close in relation to this outcome – we were within a billion dollars in a $200 billion budget which is what, 1 out of 200, is that 0.5 per cent, shows that the estimation is pretty accurate and I would think we should be on track. Now, there will be some expenses that we didn’t make this financial year which will go into next financial year. As I said, the 13 months of payments that we are expecting in 05-06 will become the 13 months of payments in 06-07. But I would take from this that we are pretty much on track.
JOURNALIST:
Would that be a good election surplus?
TREASURER:
It will be responsible, it will be consistent with our inflation policy which is to keep inflation low and it will be consistent with strengthening the Australian economy so that people continue to remain in work.
JOURNALIST:
What do you think the biggest threats are (inaudible)?
TREASURER:
Well there is still a lot of global economic strength which is driving strong global growth, also driving high global oil prices, we have seen that in the bowser. The good news is there has been a bit of relief in the last couple of weeks, but we can’t rely on that for good and even though the price has come off it is still quite high. And so the threat of oil prices, the way they translate into petrol prices, the way petrol prices translate into the general economy, these are the big risks in relation to inflation.
JOURNALIST:
What about wage demands and the skills shortage, do you see that continuing to be a problem?
TREASURER:
Well I think it is important that wage outcomes are based on productivity improvement, it is important that we make sure that wage outcomes are moderate because if wage outcomes should break away as they did in the early 80s and as they did in the late 80s, then you would have the same outcomes. Both of those experiences ended up with high inflation and ended up in recession. Moderate wage outcomes consistent with economic growth has been a big part of the reason why the Australian economy avoided its tendency to recession every 10 years.
JOURNALIST:
Just on the skills shortage, do you think that American Express is justified in recruiting 160 workers from Japan for its call centre?
TREASURER:
Well I haven’t seen what American Express have done.
JOURNALIST:
Treasurer, there is a report in the financial press today that the Government has misled the public over the savings from the Welfare to Work policy (inaudible) Financial Review, is that possibly true, that the Government actually saved money with Welfare to Work or did it actually cost the Government?
TREASURER:
It actually cost the Government money. The increased services that the Government has introduced to assist people who are moved from welfare to work, are actual net outlays in the early years. Now, we believe that if you reduce the number of people on that, that you will get savings in the longer term. But in the shorter term it is actually a net cost.
JOURNALIST:
What are you thoughts on all the foreign equity (inaudible) stockmarket and the possibility that some Australian ownership could be heading offshore?
TREASURER:
Well as a country we welcome foreign investment. It has been part of building the Australian economy over the years with companies like Ford, General Motors, so we have been welcoming of foreign investment. But we have a foreign investment policy which means that in sensitive sectors bids are scrutinised and, on occasions, rejected. And of course the last time on which such a bid was rejected was when Shell made a offer for Woodside, that was rejected because that was a sensitive sector. So it is really a case by case analysis, it depends on the company, it depends on the industry, it depends on whether the foreign investment will lead to better services or more jobs or whether a national interest is at stake.
JOURNALIST:
Is the drought a threat to the 2006-07 Budget, it was something that was not anticipated in May?
TREASURER:
Yes well the drought is biting harder than any of us would have wanted and indeed any of us expected. And that will reduce growth unless there are rains soon. I hope that there are rains soon, I hope for the sake of our farmers there are rains soon. But it is just a question of how long this goes on. This is now more serious than what anybody thought three months ago.
JOURNALIST:
Will it have an impact on the surplus?
TREASURER:
Look, drought can impact on the bottom line because it impacts on drought assistance but you have got to keep all of those things in proportion.
JOURNALIST:
Treasurer, is Mr Beazley doing a Mark Latham in his recent policy on Iraq or do you think that the Government must begin to start, look at, accept some responsibility for committing ourselves to this terrible war?
TREASURER:
Well of course, the Australian troops are part of rebuilding democracy in Iraq, they are contributing to stability in their area of operations and they are saving lives. Now, if you want to take them out then you wouldn’t be contributing to democracy, you wouldn’t be stabilising the situation, you would be putting more lives at risk. I think the Australian troops are doing a great job, I think that they are contributing to a situation which is enhancing safety and you wouldn’t want to move the Australian troops without knowing that their absence can be properly covered in a better way. And I don’t think Mr Beazley has come up with such a plan.
JOURNALIST:
What did you make of Telstra’s decision to strip pay phones from railway stations?
TREASURER:
I don’t think it is a good idea. I think people who travel by train want to be assured of safety, part of that is having access to a pay phone. Not everybody has a mobile phone, there will be a lot of older people in particular who don’t have mobile phones who are used to using pay phones and having pay phones at railway stations helps them and I hope that Telstra does reconsider its decision to pull its pay phones out of railway stations.
JOURNALIST:
Do you think Telstra is losing touch with the common man?
TREASURER:
Well you can’t imagine can you, that having pay phones at a railway station is a huge expense. You don’t have to have someone manning it, it is just the installation and the maintenance and so you can’t imagine that pulling those phones out of railway stations is going to make some huge contributions at the Telstra bottom line and yet having those pay phones in railway stations does give a lot of people security of mind. And so I hope Telstra reconsiders its decision.
JOURNALIST:
What do you think of Peter Garrett’s comments that yourself and the Prime Minister are a bit too obsessed with sport and not focusing enough on the arts?
TREASURER:
Well I don’t understand this idea that if you are interested in sport that means you are not interested in art. You can be interested in both. You can walk and chew gum at the same time. And for Mr Garrett to say just because I am interested in sport, I am, I am very interested in sport, I think the whole of Victoria is interested in sport. You know, you will see in a moment a huge roll out in Collins Street for the AFL Grand Final. I love the AFL. You will see a huge roll out for the Melbourne Cup, I think it is a great sporting event. Is there anything wrong with that? People love sport and I love sport and that doesn’t mean that I don’t take an interest in the arts, I don’t know what Mr Garrett was thinking of when he made those statements but I am sure when he reconsiders them he will realise that they were maladroit.
JOURNALIST:
Were you ever into Midnight Oil?
TREASURER:
No, no. I am into art.
JOURNALIST:
Who do you think will win tomorrow?
TREASURER:
I think the Eagles. Having come through last year and having the experience of losing, I think it will make them just a little bit tougher, a little bit more hungry and besides anything else, you have got to share these premierships around.
JOURNALIST:
Is that a metaphor Treasurer?
TREASURER:
It is a metaphor for life.
JOURNALIST:
What about politics?
TREASURER:
In life there is no success without striving. It is a metaphor for successful journalism. Lots of striving and disappointments but eventually one becomes a great journalist.
JOURNALIST:
Mr Costello would you replace the Board of Telstra or the Executives of Telstra if you could now?
TREASURER:
No, the, you have got to understand this point. The shareholders appoint the Board, the Board appoints the executive. The Chief Executive is not appointed by the shareholders, he is not appointed by the Government, he was appointed by the Board. His contract is made by the Board. He answers for his contract to the Board. He doesn’t answer to me, he doesn’t answer to John Howard, he doesn’t answer to shareholders. So, if you have got a legitimate concern about his contract and his bonuses it is the Board that has got to explain it.
JOURNALIST:
You are a shareholder.
TREASURER:
…the Board – you weren’t listening to me. The contract is not for the shareholders, the contract is for the Board, his contract is with the Board, the Board found him, the Board gave him the contract. The shareholders didn’t find him, the shareholders didn’t give him a contract. So if you have got a question about his contract and his performance it goes to the Board, not to the shareholders.
JOURNALIST:
But on preference base would you prefer a different executive (inaudible)?
TREASURER:
It is not my business, it is not my business. The business of the executive is the Board and that is why I said the other day, if people want an explanation as to the performance bonus it can only be given by the Board. The Board set it, the Board monitors it, the Board decides to pay it, the Board explains it. Not the shareholders, not the Government, not the Treasurer, not the Prime Minister. It is the Board.
JOURNALIST:
Not a ringing endorsement of Mr Trujillo though, either way?
TREASURER:
Well, as I say to you, Mr Trujillo was not appointed by me, he doesn’t answer to me. He answers to the Board. Now, I think the Board is a good board and I have confidence in the Board and the critical thing is that the Board has confidence in him. So the confidence works down but the accountability works back up. Chief Executive to the Board, the Board to the shareholders. All right, thank you.