TREASURER:
Well there’s a lot of people here, aren’t there? In past years I’ve got used to being in the broom closet with a few people around the corner and a packet of chips and some jelly beans. So, we haven’t quite had the same experience in the past from Opposition.
It’s good to be here because it’s taken a long time to get here. So, I’m not going to waste your time. I want to talk about the importance of this Budget. It is an honour to deliver the Rudd Government’s first Budget. It’s been put together in challenging circumstances. It’s an inflation fighting Budget. Importantly, it’s a Budget that meets all of our commitments. I said this morning there wouldn’t be any rabbits out of the hat. What we would do is what we said we would do, which is to meet our commitments and to fight inflation, and most importantly to invest in the future, to put behind us the politics of short‑termism that have characterised so much of politics in this country in recent years, and invest for the future.
Somebody said to me that there wasn’t much new. What about $40 billion to modernise the economy? What about $40 billion to invest in first-world infrastructure? What about $40 billion to invest in education and health? Because that’s what all of these Funds add up to: a very substantial commitment to modernise the Australian economy, to expand the productive capacity of the Australian economy, and to make sure that in the future we can look our children in the eye and say that we did the right thing by Australia when the government changed.
So, I just want to run through the main highlights of the Budget. I do want to show a few slides. I just want to talk a little bit about the underlying figuring in the Budget. Now first of all, as you’ve all seen, it does deliver a strong surplus of 1.8 per cent. But this has been achieved in an entirely different way from Budgets in recent years. We’ve achieved savings of $7 billion in 2008‑09 and $33 billion over four years. And unlike previous years we have banked all the upward revenue revisions. We have banked the lot and that is very important. And every single cent of new spending in 2008‑09 has been offset by spending cuts. And that hasn’t happened in this country for a very long period of time.
This is the fiscal disciple that we said that we would apply, and we have. But most importantly, in applying this fiscal disciple to fight inflation we have also created the great opportunity for Australia to invest in the future. To invest in our education system. To invest in our hospital system. And to invest in infrastructure.
But this has been a Budget which has been brought forward in difficult and challenging circumstances. Countervailing forces are creating high inflation at home and financial market turbulence abroad. As everybody is now aware, inflation over the last two years reached 4.2 per cent in the year to March. That is the highest in 16 years and as a consequence of that the Reserve Bank has increased interest rates eight times in the last three years.
On the other hand, what we have seen is turbulence in global financial markets. It’s having a widespread impact on the global economy and on the Australian economy. It’s having an impact on borrowing cost for households and borrowing costs for businesses have risen. And of course global share markets have declined. The consequence of this is weaker global growth, 4 per cent in 2008 compared with 5 per cent in 2007. And of course the consequence of this combined with the consequence of higher interest rates is the reason we are forecasting slowing growth and rising unemployment. Growth is forecast to moderate to 2 ¾ per cent in 2008‑09. And for the same reasons, employment growth is expected to ease, which would lead to a modest rise in unemployment.
On top of all of these forces Australia has just experienced the highest increase in its terms of trade in many years. We’ve had a 20 per cent increase in this calendar year. This is the largest increase in a generation and strong rises in our terms of trade will boost incomes and add to already heightened price pressures in the economy.
Now, the point I want to make is that all of these influences, the international influences, have had a marked impact on Government revenue. Now, of course on the one hand, higher commodity prices do boost national income and profits. We all know that and we have all grown used to that in recent years. But falls in share markets have reduced capital gains and higher borrowing costs have chipped away at company profits. So, what you can see in that graph there for 08/09 is the fact that the gains to revenue from the commodity boom have been more than stripped away by the losses in capital gains tax and in company tax as a consequence of the events I was talking about before.
So, the assumptions that many analysts were making as we went through this Budget process, that somehow this Government would be as lucky as the last, and have this fantastic upward revision of revenue at the last minute, where it could walk in and say, “Hey presto, we’ve got all this money and aren’t we brilliant because we’re going to spend it”, that money has not been available in this Budget, precisely at the time the nation demands investment in its infrastructure and its education.
And what all this has meant in terms of developing this Budget is that we have had to work very hard. We have had to reject the approach of the past because as you can see – another demonstration there in the graph – of just how little the revenue upside has occurred during this Budget process. But look at the revenue upside in those years for 2004-05 right through to now. That is why rabbits were brought out of hats in previous Budgets. This Budget has to be much, much more responsible.
And of course, what that has meant is that we have had to go on the hunt. The hunt for savings. And it has been an exhausting hunt for savings. Line by line, night by night, week by week, Ministers on the ERC have been looking for savings and we have got to the point that every single cent in new spending has been more than matched by spending cuts in 08-09. Now, there’s never been a savings effort like that in recent years, as those graphs absolutely demonstrate.
Of course essentially, what the previous Government was doing was spending, at a fast rate, ever‑increasing revenue. What we’ve done is we’ve added to the bottom line, and that is terribly important when you come to understand the foundations of this Budget. Because what this Budget is actually about is securing our economic foundations and putting an end to the spending of the past, to put downward pressure on inflation and create the room for the commitments that were made during the election campaign that go to the very core of expanding the productive capacity of our economy, to put downward pressure on inflation and make sure the investment for the future is there, so we can continue to be a wealthy country well into the future.
Now, I am not going to go into all of the spending cuts in detail. I am sure there will be plenty of questions. But they are broad, they are wide and they will not be popular. But we weren’t elected to be popular. We were elected to do the right thing by the country and that’s what we have done in this Budget.
This, of course, has led to decisions about means testing. Tough decisions about means testing. And these are very important decisions because they change the structure of the Budget over time. Because I happen to have the belief, and the Government has the belief, that paying Government transfer payments to people who are very well off is impossible to defend. Impossible to defend on any grounds.
We have a very simple principle. Transfer payments should go where they are needed most and that is what has guided us in the decisions that we have taken in this Budget. So there will be a means test of $150,000 for the Baby Bonus. That is $355 million saved over the Forward Estimates.
I notice there has been some commentary about means testing. And that somehow it costs too much to means test. The saving is there. The means testing of the baby bonus: $355 million over the Forward Estimates. And for Family Tax Benefit B: $543 million over the Forward Estimates.
These are very substantial amounts of money. Very substantial amounts of money that can be used elsewhere in the Budget, and are being used elsewhere in the Budget to meet the priorities that we believe are necessary for the long-term wealth and health of our economy. So, we have begun rearranging our spending priorities and you can see the impact of the means testing in the graph.
And this brings me to that part of the Budget where we get very serious about investing in the future. Because what we have done in this Budget tonight is we have earmarked more than $40 billion to help remake Australia over the next decade.
We have got the Building Australia Fund — $20 billion dollars for roads, rail, ports, telecommunications. The Health and Hospitals Fund — $10 billion. The Education and Investment Fund — $11 billion.
These Funds will allow the Government to undertake a massive modernisation of the Australian economy to permanently lift its productive capacity. Because, if we are to be a lucky country in the future and to take advantage of the rise of China and India we must expand our productive capacity. If we are to deal with the ageing of our population we must expand our productive capacity. So this is the thinking behind the creation of the Funds. So this is what we do mean by investing in the future. Taking the proceeds of the mining boom and investing them in building 21st century infrastructure and a modern economy. But not only that, in addition to investing in the future, we made a solemn commitment to the working families of Australia that we would do everything we possibly could to humanly protect them from the impact of these cuts, given the impact of eight interest rate rises in a row, given the impact of price pressures in the economy.
Delivering this package, this family support package, goes to the very core of Labor values, to the very core values of this Government. This is a Budget that tips the scales back in favour of working families. We received a fair bit of advice about how we should have ditched the tax cuts. These tax cuts are absolutely essential to reward the hard work of millions of Australians who have not received any additional incentive through the tax system of any significance in recent years. Who have been left behind, and as a matter of core belief the Government thinks that it was only fair that we should deliver these tax cuts, not just for economic reasons, and they are very important: enhancing labour force participation, giving ordinary people the incentive to upgrade their skills, but also because they are doing it tough. Doing it tough after 8 interest rate rises and other price rises, and of course this chart points to what we’ve done: the impact of the tax cuts, the impact of the Education Tax Refund, the impact of the Child Care Tax Rebate. Very important for recognising the dignity of labour and the effort that million of Australian workers put in, and giving them some incentive in the tax system, and beginning to deal with some of those traps in the system which discourage incentive, particularly at lower income levels.
In addition to that, there are some substantial initiatives in housing, and the housing affordability package meets the housing affordability challenge head-on. There is of course, more support for pensioners. We are paying the bonuses that have been paid. We are paying them with great support. People who worked hard to make the economy strong and the country great over the years do demand these bonuses if they are affordable, and certainly the carers deserve the support that they’re receiving. In addition to that, we have gone forward with our commitment to the utilities allowance – the commitment that we made during the election campaign.
Then, of course there is the education revolution. Substantial new money for education, and not just in the year ahead, but in the years ahead. We recognise the significance of education and particularly in 2007-08 an immediate injection of $500 million into our universities and into our vocational education. There is our commitment to climate change as well, and our commitment to better health and to hospitals, $500 million into hospitals in 2007-08 and more to come.
All wrapped around that is our commitment to a very substantial reform of Federal/State relations. The reform of Federal/ State relations goes to the core of success in reforms in infrastructure, in health and in education, and we have provided the means and the construction of those funds to finance well into the future the type of Federal/State reforms that this country has been crying out for, for a long time – to end the blame game and to put in place a set of financial arrangements which encourages the sort of reform that this country has been crying out for, for a long time. So, we are proud of this Budget, because it does what we said it should do. It mightn’t have any rabbits, but it has got a lot of commitment. A lot of commitment to putting into place policy settings which will create wealth and spread opportunity in Australian well into the future. Over to you.
JOURNALIST:
Mr Swan, is this going to be the first instalment of a much tougher and targeted (inaudible) welfare system (inaudible)? Did you have any qualms about setting a different income level for means-testing Family Tax Benefit B when I think you talked about (inaudible)?
TREASURER:
Well, we talked during the campaign about means testing Family Tax Benefit B, and when we went through and had a look at the scale of what was happening, we decided it most appropriate to set a level of $150,000 across the range of payments. Look, there is much more work to do in the intersection between our transfer payments system and our taxation system, and that is one of the key areas that the tax review that this Budget announces will do. More work to be done. We’re a Government that’s only been in office for a relatively short period of time, and we’ve had a very intense ERC process, as Lindsay Tanner has indicated. We will have an ERC process that is ongoing, and it won’t be directed to this, but just to make the point that the search for savings continues as well. But when it comes to policy reform in tax, the intersection of the social security system with the taxation system, that is one of the very important issues that will be examined by the Henry review.
JOURNALIST:
Mr Swan, have you delivered on every single election promise that Kevin Rudd made?
TREASURER:
Yes, I believe we have…
JOURNALIST:
And also, what was the toughest decision you had to make on a spending cut?
TREASURER:
Look, I think the toughest decision has been means testing the benefits. It’s not an easy decision. It’s not a decision I take lightly. I know it’s a decision that will be opposed by many in our community, many hardworking people who think that they have some entitlement to such a benefit. But I believe governments are elected to take the hard decisions. And I think that’s probably the hardest decision that we’ve taken. But, if we’re going to set this country up for the 21st century, if we’re going to maximise the opportunities that flow from the growth of India and China, there’ll be more hard decisions down the road.
JOURNALIST:
And the promises?
TREASURER:
We have kept all of our promises. We have kept all of our commitments. And that’s why the savings exercise that we’ve entered into through this Budget process has been so important. The previous Government simply made new policy commitments funded by an endless increase in revenue from the commodity boom. We had to go back and reorder priorities. That’s what we did.
JOURNALIST:
Mr Swan, spending is still increasing in real terms in this Budget.
TREASURER:
That’s right.
JOURNALIST:
Do you think that that will do enough to take pressure off inflation? And how does that compare to the Budgets delivered, the first two Budgets of the previous government and the ‘87 Keating Budget, which actually cut spending in real terms? Why aren’t you doing more?
TREASURER:
Well, it would be a nonsense to have made much more substantial spending cuts. You would have hit the brakes so hard that you might have had a detrimental impact on the economy. We’ve struck the balance here, and there is a balance. And that’s why I spent so long at the beginning of my presentation talking about the countervailing forces that are at work in the Australian economy at the moment. I’ve been spending a lot of time with economists. I’ve been spending a lot of time with businesspeople. I’ve been spending a lot of time with policymakers. And they all say to me that there’s probably not been a time in the last 20 years where the policymaking environment has been as complex as it is at the moment.
There is a mild tightening in this Budget, for sure. It’s a tightening which we’ve put there because it was necessary to deal with the inflationary pressures. But what we’ve done is that we’ve put aside the reserves, if you like, to give us the flexibility to deal with international uncertainty, and in the longer run, to make those investments for the future because inflation has two sides to it. The first side to inflation is excessive demand, and in recent years, excessive demand has been fuelled by Federal spending. You’re right to highlight Federal spending. The previous government had an increase of spending the highest of any four-year period of the previous sixteen years. We reined that back from 4 per cent to 1 per cent this coming year, and a bit over 2 per cent over the Forward Estimates. So we’ve more than halved it over the Forward Estimates, and we’ve cut it dramatically in this coming year, because of the inflationary pressures. We’ve done that.
But on the other side of the equation, we recognise that there does need to be action taken on the productive side of our economy. And that’s why we’ve constructed the policy framework that we have. Not necessarily to do anything to heighten inflationary pressures in the next year, but to put the foundations in place to build the productive capacity of the economy because that’s just as important when you’re dealing with inflation.
JOURNALIST:
How many public sector jobs will be cut as a result of this Budget, particularly here in Canberra?
TREASURER:
I’m not expecting any huge cuts to public sector jobs flowing from this Budget. There may be some smaller agencies that are finding it difficult to deal with the efficiency dividend, but there are swings and roundabouts. We’ve axed some programs, we’ve created new ones. There certainly won’t be a dramatic increase in employment, I can tell you that, and in some areas there may be an impact. There certainly won’t be the impact that has been speculated on in the media on Centrelink, for example, which is one of the largest government agencies.
JOURNALIST:
(inaudible) How disappointed are you (inaudible) is forecasting a steady rise in unemployment? Are those Australians who lose their jobs natural casualties of the fight against inflation, and how long will it be before the strategies that you’re putting in place today will actually create jobs in Australia?
TREASURER:
Well the forecast for employment, which are employment growth, and for a slight rise in unemployment, are a consequence of eight interest rate rises in a row, and a slowing world economy. That’s directly where these forecasts flow from. But for me, if we don’t tackle inflation, if we don’t take substantial action to tackle inflation, we’ll have higher inflation, we’ll have higher interest rates, and we’ll have far higher unemployment.
High inflation is the enemy of economic growth. And high inflation, if it is allowed to run through this economy, will have a dramatic impact on employment levels in the economy. So, what we have to do is to get the best balance with settings that put maximum downward pressure on inflation and encourage sustainable growth, and that’s what we’re doing. Because if we kept going the way we were, unemployment would have been forecast much, much more higher.
JOURNALIST:
Mr Swan what would you say to families on $150,000 who are actually going to be out of pocket because the tax cuts from July 1 aren’t enough?
TREASURER:
Well, what I would say is that anyone on $150,000 and above has had very, very substantial tax cuts over the last three years, which will far exceed, in most cases, not all, any losses they will have as a result of these decisions.
I mean, let’s look at what’s happened in taxation in recent years. There have been very big cuts at the top end. And there’ll be further cuts at the top end as we go through reforming the taxation system. We as a Party have committed to aspiration tax scales: forty, thirty and fifteen. So, we’re not here to argue that marginal rates at the top ought to be higher. We’re just arguing one very simple point: that if you’re on an income of around $150,000 you don’t require Federal Government transfer payments.
But there will be an ongoing requirement for a tax system which is internationally competitive, for a tax system that rewards hard work for everyone, from the top to the bottom. They are ongoing requirements. And you’ll see this will be a government that will be very much devoted towards tax reform, because it’s part of our international competitiveness. But when it comes very specifically to the $150,000, I don’t believe that we can justify paying transfer payments to those groups.
JOURNALIST:
You also get some pretty good savings through FBT and other taxation measures which overwhelmingly will hit those in the boardrooms and business executives etcetera. According to the (inaudible).
TREASURER:
Hardly. Don’t think so. This is a tough Budget, but it’s a fair Budget. And if there are loopholes which have emerged in tax systems, they should be closed. There’s one that we’re closing: when it comes to a rort which has developed with meals and that people have escaped the Fringe Benefits Tax. And what it means is that most people in a building, who are paying out of their kit to go and buy a cup of coffee, other people up the road are salary sacrificing and getting a tax cut to do it. Well, that’s not on. And we are going to attack those sorts of loopholes in the system. And we have done a number of them in this Budget.
And we don’t make any apologies for that because, you know what? If everyone pays their fair share of tax, rates can come down. That’s what actually happens. Rates can come down.
JOURNALIST:
(inaudible) China and India. How do you see the rise in skilled migration (inaudible) changes to withholding tax and benefiting the Australian economy (inaudible)?
TREASURER:
Well, the skilled migration program is essential. Because, we are currently in a period of labour shortage generally, and skilled labour shortage specifically. And if we want to continue to grow and see the development of this economy — and there’s a nice map in one of the Budget charts of all the development projects that are going on around the country — well, we’ve got to have a skilled migration program.
JOURNALIST:
I noticed a couple of your Funds can be drawn down fully over time. If this was truly a forward‑thinking Budget, wouldn’t you have these funds in perpetuity and only ever allow investment (inaudible)?
TREASURER:
No, I absolutely reject that. That’s go us into this position that we’re in at the moment. We have starved the productive base of this economy of investment in recent years.
There’s no better example than education. The way the previous government disinvested in education. We are not going to spend all of the money in these Funds in one hit, or two hits, or three terms. But what we are going to do is that when economic conditions are justified, and when projects have been thoroughly identified, thoroughly assessed, we are going to fund them on a national priority. And how we will do that, we have made very clear. Monies from these Funds will hit our Budget bottom line. So they will have to be accounted for.
Let’s just take a situation where the economy is going at a pretty fast pace, all things are growing pretty strongly. If we’re going to be spending significant amounts of monies out of these Funds, then we will actually have to be cutting back spending elsewhere in the Budget to do it. So we want the flexibility of being able to spend this money when it is needed – when the national economic need for it demonstrated. We want to be able to spend it. Not to be in the position that country has been in recent years, where there has been crying need for investment and the Federal Government hasn’t been able to respond because they have had other priorities.
JOURNALIST:
Mr Swan, does that flexibility you mentioned include the possibility of flying some of the monies in these Funds to different uses?
TREASURER:
No. There’ll be very strict guidelines. All of that will be published as we go through setting up these funds. Monies will not be being dispersed from these Funds for some time. All of that will be fleshed out as we go through. The management of the money will be from the Future Fund Board of Guardians and so on.
JOURNALIST:
When we will start seeing better infrastructure, universities, medical technology and so forth. What’s the time frame for this?
TREASURER:
Well, much of it is actually in the Budget tonight and not in the Funds. We’ve got an ongoing requirement to spend money. And you’ve seen in the Budget the additional monies that are going into health; the additional monies that are going into education. But what we’ve got alongside that is the capacity to increase investment into the future through the Funds. So, we’re actually doing some that now. So, we’re doing both.
But you will see, take the case of the Infrastructure Fund, we’ve got Anthony Albanese, who’s been waiting patiently here, who’s going to talk to you a little bit about that. I might just take one more question, and then I’ll hand over to Albo, who’s going to be the roads, rail and ports king.
JOURNALIST:
You described this Budget as delivering a mild tightening. However, you still have growth (inaudible) handing out the tax cuts. Haven’t you really let the Reserve Bank to do the tightening?
TREASURER:
Not at all. $7 billion worth of savings in one year. Spending growth in 2008-09 of 1.1 per cent — about a quarter of where it had been under the previous government. A major internal rearrangement — it’s not just quantity it’s also quality. Structural change in the Budget, in terms of the out years. These are all things that demonstrate a degree of rigour which has not been evident in policy for the last four or five years. And if you want my assessment I think these are settings which are justified by the circumstances. Anyone who’s been reading the Statement of Monetary Policy from the Reserve Bank would understand the points that I’ve been making about the countervailing forces on our economy. They have been making the same ones.
JOURNALIST:
Mr Swan, one question before you go, just on your election policies. What’s in this budget to reduce the family grocery bill and what will make filling the family car cheaper?
TREASURER:
Well, getting inflation down in the long‑term. And secondly, all of those measures that we have put in place. The ACCC inquiry into grocery prices. The Petrol Commissioner. All of those things are in here. But I’ll tell you what, the one thing that is the real enemy of working families is high inflation. If we don’t deal with that then we’ve got a problem. And that’s why this Budget is so focused on dealing with the inflationary challenge. Inflation is a cancer that erodes the living standards, particularly of those on the lowest incomes and we’re determined to tackle it.
Thanks.