LEIGH SALES:
Treasurer Scott Morrison, thanks very much for racing up.
TREASURER:
Thanks Leigh.
SALES:
You are facing an election within a year and the economy has suddenly come up roses, delivering a windfall of about $35 billion. To paraphrase Paul Keating on Peter Costello, has your derriere had a lucky encounter with a rainbow?
TREASURER:
[Laughs] These things don't happen by accident. Stronger economies don't happen by accident. You have to work hard. Businesses work hard, employees work hard to generate these sorts of outcomes and that is what is happening in the Australian economy. We have turned around an economy as an Australian people that just several years ago was seeing investment in the negative. Now it is in the positive. Business confidence is up. Conditions are up. Businesses are starting. This is happening because of the settings that are in place and the hard work and enterprise of Australians and that's what we're backing.
SALES:
You say these things don't happen by accident, actually to the contrary, there is an enormous amount of luck and timing involved in the economic performance, the Budget papers note that the global economy has risen to its fastest pace in six years. You're primarily benefiting from external factors aren't you? It's not driven by policies you've introduced.
TREASURER:
I disagree with that entirely, over the last several years we've done everything from expanding our defence industry program which is creating jobs in the defence industries. We've lowered taxes for small and medium sized businesses, we've lowered taxes for new start-up businesses. We've invested in science and technology. We have a $75 billion rolling infrastructure programme. We've been investing in a growing economy, and the economy has been growing.
SALES:
You cannot deny that you are benefiting from favourable external conditions.
TREASURER:
We said at the beginning of last year that the global economy was turning and we've put ourselves in a good place to benefit from that Leigh. Opportunities are one thing, but opportunities pass many countries by. They're not passing Australia by because we've put ourselves in the right place to be able to capitalise on that and grow jobs by more than 1,000 jobs created every single day last year.
SALES:
You like to say that you're a Government that lives within its means. You're giving away about half of the $35 billion windfall to funding income tax cuts. If you live within your means, why aren't you using that to pay down debt and get back to surplus faster?
TREASURER:
We're not giving anything away. It's their money. They earned it. They pay us tax. This isn't a spend. We're saying that when taxes rise too high above the speed limit of 23.9 per cent, we say we've got to give the money back. If you run taxes too high as an economy, it ends up costing them their own jobs, their own investments, their own futures.
SALES:
Don't you think Australians, they don't really care about the number, whether it's 23.9 or 24.2, what they care about is the quality of the services that they get delivered.
TREASURER:
They care about paying higher taxes, and they care about paying too high taxes, and you can achieve the essential services, which we've set out in this Budget. Everything from 3,000 extra doctors and nurses in regional areas, guaranteeing the pharmaceutical benefits scheme, investing more in 20,000 aged care places for in home care — this year, we've announced alone. They're essential services, now we're doing that. We're getting the Budget back into balance one year early, we're increasing those surpluses over the medium term to over 1 per cent of the economy, and we're staying under the tax speed limit. Net debt has now peaked one year early, that means we'll turn the corner on debt, and we are now paying down debt every single year to the tune of over $230 billion over the next ten years, and $30 billion in just the next four.
SALES:
You say net debt is turning a corner. It's doubled what it was when you took office. And even in the best case scenario that you're offering it will take ten years to drop away to 4 per cent of GDP. Do you think that will that pass most Australians' benchmark of turning a corner?
TREASURER:
If you could reduce your mortgage by that amount in that amount of time over ten years...
SALES:
I wouldn't say I was turning a corner today…
TREASURER:
If you are paying the debt down, if you are seeing the debt come down from today over the next ten years by $230 billion, that is what is happening over the next ten years Leigh. And you know why it's happening? Because we've got the Budget into balance in 2019-20, that's what it's forecast to achieve. Once you do that, you can start paying down debt. This is the moment we've been working towards for years, to get to the turning point on debt.
SALES:
And that's still in the future, as you point out?
TREASURER:
No, I'm sorry, 2017-18, net debt peaks this year and net debt falls as a share of the economy from this year down to 3.8 per cent of the economy over the next ten years. So we have turned it this year.
SALES:
Australia has now had ten years of deficits, your party is responsible for half of that, national debt has doubled since you have been in office. How is that not a failure based on what you said before you were elected?
TREASURER:
You don't turn the ship around easily. When the Labor Party set off on a spending binge and blew the surplus and blew the expenditure from the previous Coalition Government, from day one we have set about turning this ship around. It hasn't been an easy task, even since the last election, $41 billion in legislated savings have been achieved through the Senate, which others said could not be achieved. So we are getting the job done. This is something that we have been working to for years and that means the essential services that rely on a stronger economy can be guaranteed by the Turnbull government.
SALES:
You say Labor was on a spending binge. Your spending as a percentage of GDP is roughly the same as what theirs was. It's barely moved. But let's compare...
TREASURER:
Hang on a tick. I have to pull you up there. Because our real growth in expenditure under this Government, since we came into Government, is 1.9 per cent, over the Budget and forwards is 1.6 per cent, under Labor it was 4 per cent. So we have the lowest spending growth of any government in the last 50 years.
SALES:
I don't want to get bogged down on spending. GDP...
TREASURER:
That is going to 24.7 per cent over the forwards.
SALES:
Which is basically, Labor's was around 25 per cent.
TREASURER:
0.3 per cent of GDP Leigh is a pretty serious deal. And it will be below the long run average which is at 24.8. Spending under control, tax is under control, debt turning around, getting back into balance one year early and turning that debt ship around is a big deal.
SALES:
You say that spending is under control. Let's compare the Turnbull-Morrison Government to the Howard-Costello Government, for example. By the end of their first year in office, they had their spending equal to and then after that smaller than their receipts. From year one, your spending has exceeded your receipts, you've had five Budgets and you've never been able to square the ledger?
TREASURER:
And in 2019-20 is when we're estimated to return to balance Leigh.
SALES:
Do you agree that past behaviour…
TREASURER:
Well I'll swap our Senate for theirs any day of the week Leigh. But that said, these conditions in these times are different. As that government went through their period, their expenditure growth was at 3.3 per cent real above inflation, ours is 1.9 per cent above inflation. On that measure, our expenditure growth has been the lowest of any government in the last 50 years. And our tax to GDP is also lower because we have set a clear speed limit on taxes. 23.9 per cent and that is a hard limit, it is in our fiscal rules. Because if you control your taxes, you control your spending. You shouldn't give anyone any government a blank cheque on taxes and we refuse to take one and no-one should offer any such measure to any other government.
SALES:
Your signature policy in this Budget is your income tax cuts. Is that an attempt to buy swing voters?
TREASURER:
It is an attempt to reward working Australians who have been doing it tough. They're seeing the economy improving, but they're yet to feel it. This tax relief means filling up your car six times. It means a quarter's electricity bills. It means your school uniforms and books for your kids to go to school. It means a new washing machine, as was reported in one of the papers today. It means your car rego. It means getting to work from Western Sydney to the CBD on a train for two or three months depending on how you do it.
SALES:
Well it's about ten bucks a week actually, so it's not going to be all those things.
TREASURER:
Well hang on, no it is. It is each of those things Leigh.
SALES:
Not all of those things…
TREASURER:
I said it is each of those things, and each of those things is important and that's how it makes that thing just a little bit easier for those families. $530 on a family, and if it's a double income family earning average incomes, that's $1,000 a year extra for those families in less tax that they have to pay. It's their money, I want them to keep it, they earned it.
SALES:
By cutting tax, are you, while we're still in, the Budget is in deficit, are you rewarding todays workers at the expense of future workers who are going to be paying down debt for longer?
TREASURER:
No, over the ten years net debt as I just said gets to 3.8 per cent of GDP and falls by over $230 billion.
SALES:
You can't make us…
TREASURER:
I'm sorry?
SALES:
You can't make ten year projections, the budget is based on forward estimates of four years. Ten years is…
TREASURER:
Ok, and lets just talk about the forward estimates, comes down by $30 billion over the next four years. $30 billion reduction in net debt in the next four years alone, in this Budget…
SALES:
And that still puts debt at over $300 billion…
TREASURER:
And then it falls over the medium term. As Peter Costello said on your program just last night. It takes a good decade of being in surplus to turn these things around, and that's what we're planning for. And you can't achieve that, as he knows, without a stronger economy because that's what that Coalition Government was able to provide for and that's what this Coalition Government is providing for. A stronger economy.
SALES:
He actually said last night that he doesn't thing national debt will be paid down in our lifetimes.
TREASURER:
Well he hadn't seen my Budget yet.
SALES:
Why would Australia believe you who hasn't delivered a Budget surplus over a Treasurer who delivered ten?
TREASURER:
Well I just said, he hadn't seen my Budget last night.
SALES:
Well he would have a fair idea of what your parameters were likely to be?
TREASURER:
No.
SALES:
Why do you say that?
TREASURER:
Because he hadn't seen the Budget.
SALES:
What you're saying that Peter Costello's not a figure of credibility?
TREASURER:
No, I'm just saying he hadn't seen the Budget. It's just a statement of fact.
SALES:
You mention the size of the surplus and the pace at which you are going to pay down the debt. But given that, you know our nation is very vulnerable to external shock, for example commodity prices. How is a tiny of surplus down the never never going to protect Australia against sudden falls in commodity prices for example?
TREASURER:
Well this is why you don't have higher taxes, because higher taxes weaken your economy. It actually slows your growth, it costs jobs, it makes you less resilient. This is why we need to control taxes and we're controlling taxes and getting the surplus projected to a balance of over 1 per cent of GDP over the medium term, which has been clearly set out in our fiscal rules. If you tax the economy harder and higher, which is what our opponents want to do. Then Australia will pay a heavy price. It will be less resilient. It will be in a lesser position to deal with these things because it would have a weaker economy. The stronger economy is key, and you can't harm it, and having lower taxes helps that economy be stronger.
SALES:
Governments can't control though what people do with the money in their pockets, you can't control if they save it…
TREASURER:
Well should we?
SALES:
You can't control if they spend it. You can't control what they spend it on. Aren't you foregoing a known amount of revenue in the form of income tax, for an unknown effect on the economy?
TREASURER:
Leigh, it is their money. It's not a giveaway. It is theirs. I trust Australians to look after their own money and spend it on what they think is most important to them. Now others may want the Government to make those decisions for them. But I don't think those Australians do. I think that, and I know you are not suggesting this, but it's an offensive idea that you should give your money to the Government because they know best. There is a reasonable amount of taxation that should be in the economy. We have set what our number is. It should be no higher than 23.9 per cent. It's based on the post-GST, pre-GST period that occurred under the Howard government. That is a sensible level of taxation to support a growing economy. We don't think you should breach that speed limit. You go too fast, you crash the car on tax.
SALES:
But you're saying it will strengthen the economy. What about for example if people decide to put that on their mortgages, that means they are consuming less so therefore you say your GST…
TREASURER:
And they are reducing their level of debt over time. You are just extolling to me the great virtues of this and I agree with you.
SALES:
You're saying that it will strengthen the economy, that it will stimulate the economy…
TREASURER:
Well we do know for those particularly Leigh, on incomes of between 37,000 and 87,000 and those on middle and lower incomes, their marginal propensity to consume is almost 100 per cent. That is why this measure, as the first stage of the personal tax plan, focuses on those households, because A) It does support consumption, we do know that. They aren't in a position to go and do some the things you are talking about, they will spend it on the kid's uniforms, they will spend it on the bus ticket…
SALES:
You don't know that?
TREASURER:
They will spend it on these things, because Leigh, that's what they do do. I spend a lot of time talking to everyday Australians and particularly with incomes of what we are talking about here…
SALES:
A lot of people might bank it?
TREASURER:
But, they have a lot of pressure they need to deal with. And paying for those things, whether it is your quarterly electricity bill, or for a dual income family, it's a half-year's electricity bill. Now that's important, that's important relief. They need it now. We are giving it to them.
SALES:
We spoke about the size of the surplus. Treasury's model, just a 10 per cent shift in commodity prices, and we know how volatile they can be. If there was a 10 per cent shift, that would be worth $6 billion to the Budget bottom line. There goes your surplus. Are you really making your policy decisions taking into account, the sort of volatility that is out there?
TREASURER:
Well yes we are. On commodity prices in particular, in every single Budget update and statement I have delivered since December of 2015, our commodity prices estimates have proved to be cautious. They were on the soft side of the line, and on every Budget statement I have brought forward, we have seen improvements because we have taken a cautious approach. Now, previous governments, the previous government didn't do that. They overpitched on revenue every time. The surplus projected date blew out year after year after year. Six consecutive budget updates all with a projected balance of 2020/21 and indeed in this one, the balance coming forward a year. We have been able to do that, because our forecasts are credible. We are only one of ten countries to retain the AAA credit rating at a time of extreme financial pressure in this country. One of the reasons for that is we don't overegg our Budget.
SALES:
Scott Morrison. We always appreciate the Treasurer racing up. Thank you very much.
TREASURER:
Good on you Leigh, thankful to be here.