TREASURER:
Ladies and gentlemen, the Pre-Election Economic and Fiscal Outlook updated the state of the Commonwealth Budget which was released last Friday. Today I release the figures updating the position of State Government Budgets based on those figures. These figures show that the State Governments are now receiving an unexpected financial bonanza from their GST revenues. If I can take you to Attachment A, in the year 2004-2005 every state will receive GST revenue above the guaranteed amount, that is the amount that they would have received under the old tax system. And the bonuses in total will be around $2.2 billion. In 2005-2006 every state will be receiving a bonus over and above the guaranteed amount and it will be $1.7 billion. In 2006-07 every state will be receiving above the guaranteed amount and in total it will be $2.7 billion and on the updated forecasts for 2007-08 the state windfall will be $3.9 billion.
If I can take you to Attachment B, Attachment B shows the bonuses which the States are getting now as compared to the forecasts which were put down at the time of the Ministerial Council in March 2000. In March of 2000 when the original Ministerial Council agreement was reached, it was expected that in 2004-05 only Queensland and Western Australia, sorry the ACT and the Northern Territory would be beneficiaries from the GST system which would deliver in total a benefit of $544 million. I have just taken you to the fact that in fact in 2004-05 every state is a net beneficiary and the net beneficiary is around $2.2 billion.
The top table just repeats the benefits for every state, the second table compares it to what was expected in March of 2000, and the graph shows the difference today between what the States will be receiving as compared to what they expected to receive in March 2000. What that shows is that the States and Territories of Australia will get a cumulative windfall of $11.8 billion over and above their guaranteed amounts as was expected in March of 2000. Let me say that again, the States and Territories will be receiving a windfall of $11.8 billion over and above what they expected to receive in March of 2000 when the agreement was entered to introduce GST and give the revenue to the States.
The GST revenue, every single dollar of which is being received by the eight Labor State and Territory Governments has delivered, or will deliver up until 2007-2008 a windfall of $11.8 billion. Now that $11.8 billion, not the total amount they are receiving, it is the windfall amount, over and above what they would have received under the old system, is the money which has given the States an increasing source of funds to finance schools, hospitals and police services. That is a growing source of revenue and State Governments have to be held accountable in relation to that.
Now, it is plain to me, two things we can draw out of this, first, State Governments are playing Mr Latham on a break. They are increasingly trying to shift some of their legitimate functions to the Commonwealth Government and get Mr Latham to promise to pay for them whilst they are enjoying this $11.8 billion windfall. And when you have got an inexperienced person like Mark Latham, you are an easy pushover for a State Premier or Territory Chief Minister.
The second thing is, needless to say, you can imagine the financial windfall which the States would be eyeing if they managed to increase the Commonwealth Government to put up the rate of GST. The GST rate can only be changed with unanimous agreement between the eight States and Territories and the Commonwealth. The eight States and the Territories and the Commonwealth are not of the one political colour, but if Mr Latham is elected would be. You can imagine the financial windfall the States would be eyeing off in that situation.
Now, this is the graph which represents what the States expected to have as their benefit from the GST system when the original agreement was signed in March of 2000. This red line shows what is expected to be the benefit on the basis of the Pre-Election Fiscal Outlook, the difference is an $11.8 billion windfall to the State Governments, a significant part of which, the part which has arisen since the PEFO, is not factored into their forward estimates in relation to their budgets. Any questions?
JOURNALIST:
Next year it is about $2.9 billion, is it not, windfall gain to the States and Territories?
TREASURER:
Well in 2004-05 if I can take you to Attachment A, the windfall for New South Wales, you can read the figures, $269 million, for Victoria $360, you can read across there, the total, approximately $2.2 billion.
JOURNALIST:
So isn't this just proving that you as Treasurer is one, or is the highest taxing Treasurer that this country has ever seen, I mean this is just a matter of the New Tax System taking more from consumers.
TREASURER:
This is State Government revenue.
JOURNALIST:
But it is not a State Government tax though, this is GST take which is a federal tax.
TREASURER:
No, all GST is received by State Governments. The fact that the GST goes up doesn't give one extra dollar for Commonwealth expenditure, it is appropriated to the States. The fact that it went up by $2.2 billion doesn't give the Commonwealth an extra dollar to spend. What it does is it gives the States an additional $2.2 billion to spend.
JOURNALIST:
But it was a tax introduced by the Federal Government.
TREASURER:
It was a tax introduced as part of an intergovernmental agreement that it would all go to the States on the condition that the States abolished State taxes. It replaced State taxes. Like gaming tax, bed tax, financial institutions duty, bank account debits tax. The States gave up indirect taxes in order to get the GST, and they substituted their own tax bases for a GST return. Without going into those points, the reason I am making these points here today is you saw crass, political opportunism from the State Premiers saying that, oh, we are going to be affected by competition payments. The point is, let me just tell you what competition payments are by the way. Competition payments in 2004-2005 are $777 million. That GST windfall dwarfs competition payments, dwarfs the competition payments, and to have the statement that I heard made yesterday, oh now we will cut back on health or eduction because of competition payments, they have, collectively, a $2.2 billion windfall.
JOURNALIST:
Why does Queensland get a windfall in excess of $3 million while Victoria gets less than $2 million?
TREASURER:
Oh yes that is the way in which the GST revenue is distributed by the Commonwealth Grants Commission. The Commonwealth Grants Commission takes into account how big the State is, how widely dispersed the population is, and also takes into account the State's tax base, and Queensland has always had a lower tax regime than Victoria.
JOURNALIST:
How do you explain though to Mums and Dads out there who are paying for the GST this windfall? They're the ones …
TREASURER:
Well, they ought to see it in better State schools, better State hospitals, better state roads. You know, let us come to Victoria, since we are in Victoria at the moment, Victoria will be receiving $7.3 billion of GST revenue for its schools, its hospitals, its police, its roads, which is $360 million more than it would have got under the old tax system. Now, you know, these are financial windfalls, these are enough to build the Scoresby Freeway.
JOURNALIST:
Why is this windfall happening? Is this a result of (inaudible)?
TREASURER:
It is a stronger economy. We had, this document has been sent to the States with the Pre-Election Fiscal Outlook. It revised up again. If you had seen this graph, just to explain this, if you had seen this graph at Budget time it would have been sort of like that. When the Pre-Election Fiscal Outlook was released, that line has been revised up to where it now is. Why? Because consumer spending has been stronger than was even anticipated at Budget time. Now I updated the Commonwealth financial position to the Pre-Election Fiscal Outlook, now I am updating the State Governments fiscal positions.
JOURNALIST:
So are you saying Victoria should spend it on the Scoresby Freeway, or police, hospitals or schools?
TREASURER:
Well I think it should spend it on the Scoresby Freeway of course. Victoria has more than enough money to pay for the Scoresby Freeway. It's the point I keep on making. It is not as if Victoria does not have the money in its bottom line to pay for the Scoresby Freeway. It can. It can afford it. It could almost pay the full amount out of its windfall. But when you take together its windfall and its entitlement, of course it can afford it. You have been given no explanation by the Victorian Government as to why it will not build the Scoresby Freeway. It is not a financial matter.
JOURNALIST:
Your argument would be that the windfall has pretty well costed the freeway?
TREASURER:
Well, that's the windfall …
JOURNALIST:
So they should spend the entire windfall on the freeway?
TREASURER:
Well they could, but they don't have to fund the freeway just out of the windfall, Michael, they can fund the freeway out of the base as well. Their base is $7.32 billion. That's just one year's windfall. By the way the Scoresby Freeway is a project which we factored in over four years. Their windfall over four years would be more than the cost of the Scoresby Freeway. But, leave aside the windfall, they can fund it out of their base. There is no financial reason why they can not do it. Mr Bracks' bottom line is bigger than his share of the Scoresby Freeway. There is no financial reason why it can not be done. I have been at a lost all the way through as to why, why he can not do it. But leaving all that aside, that is not the purpose of me releasing all these figures today. The purpose of me releasing these figures today is to update the State financial positions and to put paid to what was crass politicking yesterday, the State Governments saying; oh, if competition payments are not renewed, we will have to cut back. They are in a massive financial bonanza. They do not have to cut back on anything.
JOURNALIST:
Mr Costello why did you can the competition payments when the Productivity Commission is mid-way through a review into competition policy?
TREASURER:
Well the competition agreement made provision for competition payments to be paid to 2005-2006. No provision for any payments in 2006-07, or 2007-08. So nothing is being taken away from any state government, that is the first point. The second point is this. As part of the competition agreement, here they are here, there was an agreement in relation to electricity, gas, water resources and roads. A good part of the electricity has now been accomplished, mostly gas has been accomplished, mostly the competition review has been accomplished. The big outstanding agenda under competition policy was water, and water was not the area where we were making good enough progress. So we are going to take water resourcing and water policy much more seriously, and we are going to pull financial resources that could have gone to general projects, could have gone on other competition type issues, and we are going to focus them right on water, and we are going to try and make some steps there.
JOURNALIST:
But none the less it was part of the specific part of the reference to the Productivity Commission the fact that competition payments (inaudible).
TREASURER:
Oh no. We said that we would refer to the Productivity Commission to report on competition policy generally. The Productivity Commission does not report on the Commonwealth payments, on policy generally. And if the Productivity Commission makes some recommendations at to how we might promote competition in other areas, we will certainly look at it.
JOURNALIST:
How can the Government during this campaign continue to say that these, this tax take is a matter of good management, when it is based on a tax system that is based purely on consumer sentiment? On consumer positivity, you said the reason that this is up is because consumers are spending, but that's not always likely to be the case; it's not necessarily good financial management?
TREASURER:
Sorry what was the question?
JOURNALIST:
Well, is it good financial management to base a tax system purely on the basis of consumer confidence?
TREASURER:
Well a tax system always depends on the state of the economy. You can tax consumption, it will rise and fall with consumption, if you tax income, as we do, it will rise and fall with income. Let me make this point, if Australia were to go into recession and hundreds of thousands of people were thrown out of work your income tax collections would fall. The company tax system is based on company profits. Companies make profits you get more revenue from companies. If companies are unprofitable you get less. State taxation systems are built on land. Land values rise, they get more, if they fall, they get less. The tax system is always geared to the economy in one way or another.
JOURNALIST:
Steve Bracks says he needs every cent of that GST money because you have slashed the health budget. He also says that you are a “smart alec”. What do you think of that?
TREASURER:
Yeah well, I regret the fact that Mr Bracks has got personal. I know that he will be upset because I keep reminding him that he promised a freeway to the people of the Eastern Suburbs. But if he wants to break his promise to the people of the Eastern Suburbs I think he should give them a real reason and I don't think getting personal will do his argument any good. And I would say this to you, I think he must be feeling the heat on that broken promise. When you tell a lie about your funding plans and you break your word, then you really owe an explanation to the people and getting personal is not the explanation that they are listening for.
JOURNALIST:
So do you think Premiers have been crying poor when they are not? He says he simply can't afford to build the Scoresby without tolling it. So is he, he has, you're saying he has the money…
TREASURER:
Well he is saying he has the money, look at his Budget bottom line.
JOURNALIST:
He is saying he can't do it without putting tolls on it.
TREASURER:
Well look at his bottom line. We have allocated $560 million over four years. His Budget surpluses are way in excess of $560 million over four years. His Budget surpluses are even understated because they don't take into account the revised figures upwards. There is no financial reason why the Scoresby Freeway can't be half funded by the Victorian Government. For some reason he has just decided he wants tolls and he won't listen to reason. Now people of the Eastern Suburbs, I make this point over and over again, you have got one last chance to register your demand that Labor keep its promise and that you get your freeway that's on October the 9th.
JOURNALIST:
Given that Mr Doyle would also inherit this windfall would you now urge him to say that, to commit to spend whatever it takes to undo the contracts and turn what will be a toll by the next election into a Freeway?
TREASURER:
Well Michael can I make this point, there are no contracts. This is another point that puzzles me in all this. There is no contract for a tollway. There is no contract for a tollway. No contract for a tollway has been signed. There is only one contract in existence as of today. That is the contract between the Commonwealth and the State for a freeway. The contract that he has got to overturn is the one he has signed for a freeway before he enters into any new contract. I mean, they are sort of trying to give you this idea that there is some contract in existence that requires tolls, there is no contract in existence that requires tolls.
JOURNALIST:
So should Mr Doyle commit to turn it into a Freeway (inaudible)
TREASURER:
Mr Doyle should do as I am doing, everything in his power to make sure no contract for a toll is ever introduced. That's what he should do.
JOURNALIST:
You mentioned crass political opportunism by the States, that's what you labelled it, is that how you would label their opposition to the Coalition Water Plan?
TREASURER:
Well look, the States as I understand it, said yesterday, we're going to oppose your water plan because we want competition payments to be paid in 2006-07, 2007-08 although there is no agreement for competition payments in 2006-07 or 2007-08. Now they would have made out to you that they had had some entitlement or that these were large sums. The only point I am making on these figures here, is the States are in an incredibly strong windfall position in both 2006-07 and 2007-08. The windfall of $2.7 billion in 2006-07 and $3.9 billion in 2007-08. There is no financial reason for that at all. That is the point I am making. It was just crass politics. Now you would expect the State Labor Leaders to try and help Mr Latham in an election campaign but all I am doing is I am just putting their figures out there. They are there for everybody to see. I think they speak for themselves.
JOURNALIST:
Mr Costello we're at the halfway point of the campaign, what is your assessment of where you are placed?
TREASURER:
I think at the beginning of this campaign my view was that it would be a close campaign. That Labor would go into the campaign as the favourite. I think, as we approach the halfway mark it is still close. And I couldn't predict the outcome but I think that the Government really wants to put forward to people the importance of the issues, the importance of the economy, the fact that nobody can take strong economic times for granted. It is not an accident and it is not a fluke that Australia is enjoying a strong economy. It takes disciplined management and all of that could be at risk on October the 9th. And that's the point that I make. Don't take it for granted. Sure, our economy has performed better than many others around the world. That's not accidental and it could very easily be lost under inexperienced management.
JOURNALIST:
Treasurer just finally another issue that has been around in the election campaign, is Mr Howard's intentions and Senator Hill. What do you reckon about his view the Prime Minister's looking so good, so fit and so confident that he should hang around for the next three years should he get in?
TREASURER:
Oh I think the Prime Minister is looking very fit and very confident. We're campaigning very strongly as a team and we put ourselves forward as a team to run the Australian economy. Mr Latham puts forward himself and Mr Crean. And I think people can assess the difference between our team and our record and the calibre and the experience and the policy of Mr Latham and Mr Crean. And think very carefully about those issues. Thank you.