TREASURER:
Welcome everyone, in particular welcome to Mathias Cormann the Finance Minister. The document bears both our names and we're pleased to present it to you this afternoon. I won't delay you by going through all the measures, you'll be pleased to know. I'm sure you've had the time to work through those. What I wanted to particularly focus on were some of the key fiscal outcomes and provide a bit of an explanation behind those and then we can move to questions.
The underlying cash balance is in the best position that we've seen since the Howard Government's final Budget. The deficit has halved in the past two years as you can see. The outcome for 2017-18 and 2018-19 has significantly improved over what Mathias and I told you in December for Mid-Year Economic and Fiscal Outlook (MYEFO), with a $20.2 billion improvement over the forwards since then. The Budget returns to a modest balance as you can see in 2019-20, before building to stronger surpluses in 2020-21 and 2021-22. The 2020-21 year has been the target year, projected year, for surplus now over the last five previous statements and this makes it six. We've consistently said in the projections that that's when the surplus will be delivered and that remains the trajectory presented in these documents but obviously with an improvement in 2019-20 with a return to a very modest balance. The fiscal consolidation since we came to Government, as you can, see has run to about 2 per cent of GDP up until now, with a further 1.8 per cent consolidation over the balance of the forward estimates which would see almost a 4 per cent turn around since we were elected over that period of time. Over the medium term, you can see there that over the medium term the projected surplus rises to over 1 per cent of GDP over the mid to back end of the medium term and that is achieved, I should stress, while remaining under the Government's speed limit that is set out in our fiscal rules. From 2017-18 we will no longer be borrowing, that is the current year, we are no longer borrowing to pay for everyday expenses for current expenditure, welfare payments and so on. This time last year I told you that would be achieved in 2018-19, that has been achieved in 2017-18 and we refer to that also in MYEFO.
On debt, we have reached a turning point on debt. Net debt will now peak at 18.6 per cent, as you can see here, in 2017-18, and that is one year ahead in reaching peak net debt than we had previously projected. It begins falling as you can see to 3.8 per cent of the economy over the medium term. As you can you see from last year's Budget followed by MYEFO, the steepness of paying down the debt has improved over the last 12 months. What that means is a reduction in the size of our net debt in nominal terms of $232 billion over the next ten years. Paying down debt. This is where we have been wanting to get to for years and this point is the turning point where it comes to net debt. Over the forwards that is a reduction in nominal terms of net debt of around $30 billion. Net interest payments over the forwards are also $2.2 billion less when you get to the final year from where they are at their peak. If we look at gross debt, these have also been similarly improved, this is what happens when you get a Budget back into balance and it does it on a cumulative basis and your net interest payments lower. We've seen quite a pronounced shift on where gross debt is expected to be over the next decade, and you can see it pretty much under that current debt ceiling where it's currently set at. Compared to what we were previously projecting for 2027-28 in MYEFO, gross debt is $126 billion less. Now I should stress here that this line would actually look a lot like that line if it were not for one thing and that is we still maintain our decision not to raid the Future Fund. If you raid the Future Fund, then you don't have to borrow. You can actually run gross debt down the same way net debt is run down. But on gross debt, we made the decision and in last year's Budget, some of you recall, we would not draw down from the Future Fund. The Future Fund is earning around 7-8 per cent or thereabouts a year, we're borrowing at about 2.7 to just around 3 per cent depending on the latest issuance. It would be financial foolishness to actually raid the Future Fund if that's how you were seeking to finance these things so the gross debt position remains elevated but you can see it has a very sensible purpose behind it.
If we move to spending, this is our spending performance both existing and projected at 1.9 per cent growth over the period. Now that is the lowest level of spending growth of any government in the last 50 years. Certainly a lot lower than the 4 per cent that we inherited from the Labor Party of their period. We've halved that. You may recall that Wayne Swan had a 2 per cent real spending cap on his medium term. The only problem was he never actually did anything that would actually lead to spending only growing at 2 per cent. That's what it was growing at. The difference between that and our tax speed limit is we're actually taking decisions to ensure that we remain below our tax speed limit. Even under the Coalition Government previously, spending growth was 3.3 per cent and you can see the other numbers there. If we move to the next chart, you can see that over the forwards you can see us returning to under the long-run average of 24.8 per cent and we get down to 24.7 over the forwards. There's some $41 billion worth of savings that have been legislated since the last election and I particularly want to commend Mathias Cormann for the work he has done with his Senate colleagues, in getting those savings through the Senate which have played a very significant role in the performance of the fiscal outcomes that you see today. The spend-save balance as many of you observed to me as I've moved around the lock-up remains positive around over $400 million over the forwards, which is consistent with our own rules.
Now on taxes, you can see that over the forwards we remain below the tax speed limit of 23.9 per cent. Now a speed limit on taxes recognises that too much tax is too much tax. It's that simple. Too much tax undermines the economy, costs jobs, it weakens investment, it undermines wages and ultimately undermines the Budget. As you can see 23.9 per cent is not an unreasonable figure if you look at the history. Paul Keating was able to live with three surpluses with tax to GDP at 23.2 per cent, 22.7 per cent and 22.5 per cent. This is not an unreasonable figure. In fact the long run average is at 22.3 per cent. The reason it is, there are many, but it provides a very responsible limit which can also therefore provide a backstop on spending growth as well. You can't give governments blank cheques, and we're not asking for one, in fact we're demanding we not be given one. And I don't think others in politics should be seeking one as well. And I don't think they can be trusted with one. The speed limit also provides a warning: as you approach that speed limit, you should be thinking about what you need to do to ensure the taxation doesn't overburden the economy. And you have to recalibrate the tax system and that's exactly what we've done in this Budget. So as revenue rises to these levels, you must recalibrate. Now in the Budget we are staying below that speed limit and we're ensuring we don't take as much tax as is absolutely necessary. If you look at the revenue improvements which is the product of that, now obviously revenue involves tax receipts and other non-tax receipts, I'm focussing just on the tax receipts. I've run through this chart with a few of you as I've moved around the lock-up. Now the revenue improvements over 2017-18 and 2018-19 are at 9.8 per cent and then 5.8 per cent growth and there is a $25.9 billion improvement over the Budget and forward estimates which is these years here. Now what you can see in here is this slight aqua blue is company tax receipts. And as you can see in the back three years these company tax receipts are smaller, now the key reason for the difference between that and that is what we're saying about commodity prices. On commodity prices, this is fueling more of this earlier period. And so and those earlier estimates, those commodity price impacts are there. And as you look across, if we go to the next chart, you can see what makes up those total receipt parameter variations since MYEFO, and you can see more than half of it overall is coming from personal income tax. It's not coming from those company tax receipts even when you include the commodity price impacts for 2018 and 2019. It's less than 15 per cent in that period. And so it wouldn't be right to say that the overwhelming impact of what is driving receipts up is commodity prices. It's just simply that the numbers don't say that at all and so that doesn't bear it out. What it is largely coming from, is people getting in jobs. People getting work. The labour force expanding. People going from receiving welfare benefits to paying taxes because they're working and they're earning money, and this is one of the key drivers that sits behind what we're seeing in the economy and in the Budget.
I should also stress on this is that this overall figure of around just under $25 billion or thereabouts, that includes $4.5 billion on GST. And so the states are getting additional revenue for hospitals, schools and so on. Now that $4.5 billion, I have no ability to hold onto that and put that to the bottom line. That's a matter for state governments about what they do with the GST revenue. So it comes straight in, and it goes straight out, and so of that $24.5 billion or thereabouts, what we are seeing, sorry $25.9 billion, of that $25.9 billion, $4.5 billion are GST payments over which we really have no discretion in terms of how they are acquitted. And so that $4.5 billion sits on both our payments going out to the states, and sits on our tax revenues as well. So I think that's just important to understand.
If we go to the next chart, you can see what I was talking about in terms of what is being paid back down into the balance. In this first year here, and the two that follow, but particularly in 2018-19, these are the changes to those receipts in total. And you can see the ones that have been particularly impacted by commodity prices have all gone to the bottom line, all of it. And then in 2019-20, the year we come back to our modest balance, then you can see again when we're in deficit – modest balances and those revenue improvements that are coming from parameter variations are going to the bottom line. When we move into 2020-21, 2021-22 and we're now in a position of surplus of well over $10 billion, well $11 billion in the first year and then above that again in 2021-22. That is the year where the tax speed limits starts to kick in, and that's where basically what is happening is more tax is being received and we're saying too much is coming in out of people's pockets and they should get to keep it. That's a product of bracket creep and a whole range of other things that the tax system is producing. So it's revenue that is being pulled out of people's pockets because of the way the tax system is designed, and it's pushed us over the speed limit, and so we've made the changes to what we've done. 23.9 by the way is a period based on post-GST and pre-GFC for those of you who are keen on those things. So that's what's happening with the receipts. That's where it's been acquitted. That's where it's been applied. These are obviously the impact of the personal income tax cuts plan and the other measures that are on that side of the ledger. If you go to the next chart.
So why would you believe all of that? Fair question. What this shows, the dots are what was forecast for those years on tax receipts. The blue line is what happened. Now as you can see for all of those periods under the previous Coalition Government, the dots are in the bars, that's a good thing. And they were hitting them and in fact they had revenues well above what had been forecast. That was a product of both being cautious when it comes to forecasting, particularly as you move to the end of this period when you're really starting to see the mining and investment boom and commodity prices starting to kick in. Now I don't think anyone's going to hold anything against the previous government for getting that year out of whack, which was the GFC, obviously predicting up there and it falling there. After that though, I mean way out, way out. And that is why the projected balance kept slipping, year after year after year. Rosy forecasts on receipts that never got close, and as a result they'd announced something like the forecast surpluses I announced tonight, all this sort of thing, and that it didn't turn up. Now, in these last two years, we've been on the line or in the line, which is where you want to be. We've been taking a very cautious approach to our forecasting on revenues and we've seen that reflected in the ultimate results. If I go to the next charts I'll show you one of the reasons why.
Iron ore's one that is often talked about. Back here though we're assuming that that would stay over the foreword estimates, and it didn't. Then they kept doing it, and it didn't. And then they kept doing, and it didn't. What we've done and you'll record in the first year we said there'd be a 2020-21 projected surplus. MYEFO that's the 2015-16 MYEFO as the green line here, we dropped it, and we allowed things to be better because we thought we'd take a cautious approach. And we didn't lift it until there was a strong case for doing so, and we've remained within that line, and we remain there today. So we've taken a very cautious approach when it comes to these variables that can have a big impact on the total receipts. If we keep going, I'll finish very shortly. In our overall forecasts we are more conservative than the IMF and the RBA. Not what I'd call bullish organisations, particularly the RBA. Very sensible, very sober, and we are sitting completely consistent with where they're pitching the economy.
What's driving these numbers is jobs. More than a 1000 jobs a day. You know this story. 75 per cent in the last year were fulltime. A million jobs, almost, created since we were first elected. People getting jobs is what is driving our economy. Next slide please.
And that means people are getting off welfare and they're getting into work. You can see the employment ratio picking up, and you can see this is the welfare dependency of the working age population, which is now at 15.1 per cent, which is the lowest level we've had in 25 years. Next one thanks.
Business conditions, the NAB survey this week just confirmed this again. The best business conditions we've seen in a very long time as the chart demonstrates.
We've seen a very significant turn-around in non-mining investment on the back-side of the mining investment boom. $80 billion ripped out of the Australian economy over a number of years on the downside of the mining investment boom. That was a more profound shock to our Australian economy than the GFC. And what we've seen is that non-mining investment, which was in negative territory, turn around and really start to lift, and that's reflected, particularly in the near-term forecasts.
Public infrastructure is also what's driving jobs. So businesses investing, businesses going forward. A public infrastructure pipeline which is very solid, which has been set out over the last week or so, as you've seen that and you've reported on it.
That largely covers off I think all of the fiscal measures. This is the overall plan, which goes through all of these points I won't go over now. I will talk briefly about the tax cuts, because you've raised some questions on that. It's a three step plan. It's a plan that sits together. It's not designed to be broken apart. It's a packaged deal. All elements of the plan sit together. It's like the enterprise tax plan. It starts with those who need it most, and it works through the system. When you have the task of delivering tax relief with clear constraints in what you can do in your Budget, you need to make sure it all hits the spot it's got to hit. And by targeting to middle-low income earners, what we've done is we've used the tax offset method, because that means all of it, all of the tax relief estimate goes into impacting on those groups, and so it doesn't flow up the line. If you'd done it on rates and thresholds, then yes you would have got some impact there, but the costs could have been two or three times more what it was because it would kick up the scale. So step one, it scales up from 37,000 up to $530 on a pretty steep taper, runs out to 90,000, because we're expanding, which is really part of step two: that threshold from 87,000 to 90,000. Then it tapers off to 125,000. The money comes back in your tax return. That is in addition to all the current LITO offsets and other offsets, and other parts of the scheme. This goes on top of that. That's, you know that's $530 for those who are in those tax brackets. You've got 4.4 million or thereaboutswho are affected by that. And for those of you who'd like to describe what $530 means, I note The Telly had some I think useful descriptions of it today. A quarterly electricity bill. The car rego. A new set of tires for the car. School uniforms and books for a year. Half a dozen or thereabout tanks of petrol for the family car. Two to three months of your train fares coming from western Sydney into the city. Now anyone who thinks that doesn't matter clearly is not in touch.
For a year half a dozen, or thereabouts tanks of petrol for the family car, two thirds, two to three months of your train fares coming in from Western Sydney to the city. Now anyone who thinks that doesn't matter, clearly, is not in touch, because that stuff does matter. Your power bill matters. What you pay to get on the train matters. What you pay to put petrol in your car matters. Your rego matters. And that is real relief and it comes in one go to help families with those bills. If we go to the next one: the overall plan with the other two steps involves changes to thresholds, as you know, and ultimately in step three, the abolition of the 37 per cent threshold. What that means is that we will go to a situation where 94 per cent of Australians will face a marginal tax rate no higher than 32.5 cents in the dollar. That means for people throughout their entire working life with the implementation of this plan, they could go through their entire working life never facing bracket creep ever again. Every extra dollar they earn, it is the same tax rate. Every extra shift they take, every overtime they do, every wage rise they get, we don't take any more of it. That's how you deal with bracket creep. You flatten the tax system in that way for the majority of Australian earners. And as you can see, there are just as many, in fact slightly more people on the top tax bracket after you've done that. Even with the adjustments to the top tax rate. 5 per cent now, it will be 6 per cent then. But what we will not be doing, is we will not be funding this by putting higher taxes on other people. That we think, both destroys the economy, in terms of its retarding impact on growth and on jobs, but equally, it sends a message which is anti-enterprise and anti-achievement in this country.
The tax plan means, in its entirety, because it's a package, that we stay under the tax speed limit to well back into the medium term. Which, as you know, is still being done while achieving the 1 per cent. And that gives some more room towards the back end of the medium term to do further changes to the tax system to keep under the limit. So you can see the difference between the dotted line and the hard line is what was previously there without the personal tax cuts. So that gets back on track. I won't go into the aging package. I think you've had a pretty good opportunity to look at all of that, but I am obviously happy to take any questions on it, and I thank you for your attention.
QUESTION:
Treasurer, the GDP figures in the Budget are fairly conservative, the outlook is largely unchanged from MYEFO. Have you factored in a growth dividend from income tax cuts, or not?
TREASURER:
Well, from the income tax cuts there is no change to the forecasts, as you said, so we're not making any assumptions about that.
QUESTION:
Treasurer, on the income tax cuts, you've said that over four years it will cost $13.4 billion, but it's a 7 year package, so how much is forecast to cost over the full 7 years?
TREASURER:
Well the costs over 10 years is around $140 billion.
QUESTION:
Why not let what is clearly fundable in the personal income tax cuts over the next, say over the next term of Parliament, and then let the Senate wait to see whether the revenues actually come over the full 7 years to legislate the full 7 year package?
TREASURER:
It's a complete package, it's designed just like the enterprise tax plan to do the right things by the economy, and ensure that we meet our fiscal rules of ensuring the taxes don't burden the economy over the medium term. I mean people want to know what the plan is, we've got a plan. We're going to legislate the whole plan, and I won't be giving Bill Shorten or Chris Bowen a leave pass to tax people more. The plan will go into the Parliament and we will seek to have it legislated as soon as possible.
QUESTION:
If the Budget is in such good shape why is it necessary to make more cuts to the ABC?
TREASURER:
We've all got to live within our means, including the ABC.
QUESTION:
Given that we're coming out of a difficult period, one of the toughest periods in a very long time, are you also hoping that this will see the Coalition stocks rise?
TREASURER:
Those are judgements for the Australian people. What we've put before them in this Budget is the product of several years, since we came to office, of work. Of just the hard, responsible grind to get the Budget back on track. To bring it back to the position we all want it to be in, which is when you start paying down debt. We inherited a shocker of a legacy from the previous government. And it was never going to go away overnight. And we've had to buckle down over that period. And we've had our challenges. We've had challenges whether it's in the Senate or otherwise. But we've stuck to it. The $41 billion that we can talk about since just the last election, of passing important savings measures to achieve these sorts of results. To pass the changes we already have for small and medium size businesses. And again, we know we're extending the instant asset write-off, again for another year, which will be well received, I think, by small business all around the country. And remember it's up to businesses of $10 million in turnover, not the $2 million. We believe a small business is a business up to $10 million. The Labor Party's figure is $2 million, and so we don't agree with that. We have a view about the economy which is that if you back those who create jobs, then jobs get created. And that's what we're seeing happen, and that has a positive dividend at the end of the day for the nation's finances. But you don't over borrow on that. You don't over purchase on it. You respect it. The tax speed limit is about respecting tax payers.
QUESTION:
[Inaudible] cracking down on the black economy, how can you guarantee that you will get that money back?
TREASURER:
Well I've already gone through, I think, our record when it comes to estimates. And the same disciplines that have been applied to previous estimates by our Government, have been applied there. This has been a process several years in the making, and we've got real measures to back it up. But that will obviously be assessed and tested each time statements are done, and it will be fully transparent, and you'll be able to make your judgements. That is the judgement that has been made in the costings, or I should say, the revenue estimates to date, and we think they stand up very well based on the measures that we're putting in place.
QUESTION:
Given the modest surpluses you've outlined that will be coming forward, will we still have debt in the order of $250 billion in 10 years' time?
TREASURER:
No you won't.
QUESTION:
In 10 years' time, what will it be?
TREASURER:
Well it will be $232 billion less than 2018-19.
QUESTION:
Less, ok. Do you assume…
TREASURER:
and that's off a peak of around $370 billion. So it will be significantly less.
QUESTION:
You still have a…the point more is…you still have a debt challenge at that point…
TREASURER:
Pardon?
QUESTION:
You still have a debt challenge, at that point, there is still debt.
TREASURER:
It will be 3.8 per cent of GDP.
QUESTION:
Yes, but there will still be debt.
TREASURER:
Do you know how many countries would want to swap places with me as Treasurer who can actually talk about a figure like that over the next 10 years? Every single one of them!
QUESTION:
Sure, and I know how many times the Coalition has said it's important to get out of deficits and to get back to a zero debt. As the previous Coalition Costello government did. So, why not put more of the surplus that you are achieving into paying down the debt in its entirety and quicker, rather than, say, taking out a whole tax bracket. Can you explain why you've chosen to remove a tax bracket over that?
TREASURER:
Because I respect taxpayers. That's why. Because when too much tax revenue is coming in because the tax system is actually overburdening them, I think it's wrong to punish them for that. It's their money! This isn't costing us anything. I'll tell you why. Because taxpayers pay us money. It's not spending. It's them being able to keep their own money. This is a very important point. It's not ours! And we're saying that when taxes run above 23.9 per cent of the economy, that's enough. We shouldn't be taxing them any more. Now the Labor Party has a different view. There may even be different views in this room. I mean the Labor Party, at the last election, had a tax to GDP ratio of 25.7 per cent over the medium term. And they aren't done yet. They've got the Labor retirees tax now, they've got the family business tax. They can't stop themselves. But I tell you why they don't support a tax to GDP cap, because if you can't tax more, you can't spend more. That's what it comes down to.
QUESTION:
How worried are you about Labor being able to up these tax cuts for middle and lower income workers?
TREASURER:
I'd invite you to have a close look at what they said at the last election, which I know many of you have. At the last election, Labor had changes to negative gearing, capital gains tax, increasing the top rate of marginal tax. They had all of these things. They spent it all at the last election and they haven't changed those expenditure commitments since then. They've already spent all that money. Don't believe Labor's lie which says that they can now spend it all again. Only in Labor land can you spend money twice. You can't do that in a Coalition Government, and we don't do it. They have already spent all of those taxes they said they would raise at the last election on other commitments, and they still turned up with a deficit which was $16.5 billion higher. They're spending always exceeds their taxes, even when they get to 25.7 per cent.
QUESTION:
Treasurer, the Budget says the income tax cuts will now complement the company tax cuts. Would you ask Senators now to regard those two measures as a tax reform package?
TREASURER:
I think they can look at it like that. I think that there are issues which have been raised and Mathias is closer to that than I am in the discussions that he's had. But what this does do, is you bring these two things together in the way that we've been able to do it affordably and responsibly, I think people can see that. You might remember last year, I said that people on low and middle incomes would get a tax cut before larger business. They are.
QUESTION:
Treasurer, you are going to extend the cashless welfare trial for another year. At what point is it no longer a trial?
TREASURER:
The thing about trials is that you work out the kinks in the system, and you know, we've run trials on things that haven't worked and we've stopped them. We've run trials that have shown that they can be improved and we improve on the program when we take it into a full program. That's the honest answer. When we believe it's in a position where it can be more broadly applied then we would seek to do that, but the results so far have been very encouraging and they have been changing a lot of lives for the better.
QUESTION:
Older Australians are important in this Budget, obviously. Is it still important to raise the age pension age to 70?
TREASURER:
Well the next raise in the age pension age will actually be done under the changes that Labor introduced. They're the only ones that are legislated currently. You're all aware of the Government's policy, but when the pension age goes up next it will be because of the changes that the Labor Party mentioned. Let me tell you what we're doing on aging though, given you've raised it. This package, that you've seen in the More Choices for a Longer Life in the Budget, it recognises that if you get older and you live longer, and you live healthier, that's a good thing. So often, the aging challenge is talked of in a policy sense as if it's some sort of curse on the nation. Well if you're living longer and healthier, well I think that's a good thing, and I think most Australians do too, and that's what they aspire to. It should be a goal, not a curse. And one of the reasons why it can be a very bad experience for older Australians is because they lose choices. They have to, and they shouldn't have to ever, they sacrifice their dignity. And we, in this package, are doing everything from improving their economic means, their health, their lifestyle, as the package sets out, safeguarding their quality of living and their rights in residential care. There's 14,000 additional in home care places, that's on top of the 6,000 we announced in MYEFO. Now, that is an 86 per cent increase for high level places on the 2017-18 numbers. I mean if people want to stay in homes and age there, we want to support them with that choice. And that's where the demand is in the system, it actually isn't on the residential age care places side as it has been before. People are wanting to stay at home, but staying at home can be costly, and it can be difficult. And this package respects that and provides much needed support for those additional places. Now I know that as a local member myself. I see it coming through my own office, and I've sat in the room with families who have dealt with this very difficult challenge. And the waiting list is longer than we would like it to be but putting an extra 20,000 places, both from MYEFO and now, on the table at a cost of $1.6 billion is a very good way to start solving that problem.
QUESTION:
[Inaudible]
TREASURER:
The Government hasn't changed its policy but what we're focusing on is for those Australians who choose to work longer, that we will be backing them in. Whether they want to start a business, transition their skills, deal with age discrimination in the workplace. There's a wage subsidy for taking on older Australians in people's businesses, in the same way as there's a wage subsidy for taking on younger unemployed Australians. We're ending that sort of discrimination when it comes to that sort of support. Older Australians wanting to live longer and be in a position to do that healthier and have the right choices available to support themselves and indeed get the support when they need it. That's what the package is delivering for those older Australians. It is an important part of how we address the aging of the population but doing it, I think, in a very positive way, which is giving them the choices for longer and ensuring that we protect their dignity. Thanks very much everyone.