ANNOUNCER:
Today at the National Press Club, the Finance Minister, Lindsay Tanner.
Mr Tanner heads the Rudd Government's razor gang and faces the task of slashing $10 billion from government spending before the May budget. But his efforts to curb inflation have become even more urgent after yesterday's rise in official interest rates.
From the National Press Club in Canberra, the Finance Minister, Lindsay Tanner.
KEN RANDALL:
Ladies and gentlemen, welcome to the National Press Club and today's National Australia Bank address.
It's just over three months now to the first budget day of the new government and we're pleased today to welcome Lindsay Tanner, the Minister for Finance and Deregulation, who is doing quite a bit of heavy lifting for that event. Specifically, we thought he was looking for big savings in government expenditure around about one and a half per cent of gross domestic product, but the Prime Minister informed us yesterday, and maybe the Minister will today, that they're looking for even more than that after what happened yesterday, if it's possible to do it. He may need to sharpen that razor even more than previously.
Lindsay Tanner of course is the Melbourne for - [laughs] Member for Melbourne in the House of Representatives. He's a distinguished graduate of Melbourne University, an enthusiastic sports follower. And I'm told he's no mean pianist. But for now, the focus is the budget, and I'm sure he'll tell you more about that today.
Please welcome Lindsay Tanner. [Applause]
LINDSAY TANNER:
Thank you very much, Ken. It's great to be here without the word shadow in my, in front of my title. That is indeed a very good thing.
I've been asked recently what my qualifications are for the position of Finance Minister and in particular I was asked whether I was an accountant. Now, sadly I have to confess I'm not an accountant. The Health Minister's not a doctor either, but that doesn't mean she's not a very fine Health Minister. She is. But, I am in fact the son of an accountant, so I do have accountancy in my blood, so I think that's something of a qualification.
My dad was an accountant in a small country town in East Gippsland and while the other kids grew up with copies of the racing guide or TV Week on the table, I had this obscure publication called The Taxpayer that was on the kitchen table. Then he became a farmer and it was the Weekly Times.
So, growing up in that environment, I think, stood me in good stead for where I've ended up in my ministerial career. It taught me a bit about financial prudence, but it also taught me something that I think is extremely important to the task that is before the government now, and that is a pretty good understanding of the central role of tax and financial management in the lives of ordinary working people.
I've never forgotten an incident when I was working for the Forest Commission, when I was a kid during the fire season fighting bushfires, and I was out with a variety of characters who I didn't really know, they only knew my Christian name. They were sitting round talking about things, this was just after Christmas, and one of them - they were asking each other how'd you go at Christmas and so on. One of them said, oh, I had a pretty good Christmas, you know, was able to afford to buy the kids some decent presents and whatever - Joe Tanner got me a pretty good tax refund.
And it was an interesting insight to me, not only about what my father actually did, because even at that stage, you know, I was 17 or something, I only had a fairly vague idea of what he did, but more importantly how critical the role of government, of delivering value for money for ordinary working people and keeping the tax burden on ordinary working people actually is.
The way that governments manage public money is critical, absolutely critical, to the everyday lives of ordinary working people. A tax dollar is a dollar that a family can't spend on petrol, can't spend on school books, can't spend on groceries, can't spend on holidays. So when a government takes that tax dollar, it's got a very real responsibility to ensure that it's going to provide value in return. That responsibility is even greater in an economy where pressure on inflation and interest rates is threatening to put additional strain on household costs.
In the final years of the previous government, John Howard seemed willing to spend taxpayers' money on anything he thought might buy him a vote. He let the inflation genie out of the bottle, well and truly, and Peter Costello and Nick Minchin threw away the cork. Elevated inflation, let there be no doubt about this, elevated inflation is the Liberal's parting gift to the Australian people.
And the circumstances in which the Rudd Government must frame its first budget are very challenging. Borrowers have now worn 11 interest rate increases in a row. Underlying inflation is running at 3.6 per cent. The prices, as we know, of many groceries, rent, petrol, and other things are surging. Much of Australia is still feeling the human and financial effects of drought. Our domestic economy is suffering from serious capacity constraints, and the outlook for world economic growth is uncertain.
Now that's not spin, it's not the predictable posturing of an incoming government, as some have suggested. It's simply cold hard economic reality. The issues we have to face in the preparation of the budget and in the management of the economy. We're not in the business of talking down the Australian economy. With the right policy settings, Australia remains very well positioned to deal with these challenges.
But there shouldn't be any more fudging on the issue of inflation. After the June 2007 inflation data showed underlying inflation at 2.8 per cent, Peter Costello said that inflation is right where we want it. When underlying inflation hit three per cent in the September quarter, Mr Costello bragged that this of course is a very low average inflation rate. And even last week, Brendan Nelson was still saying the Liberal's have left the economy in absolutely first rate condition.
So like teenagers whose party just keeps getting longer and longer, and bigger and bigger, they - and ignoring the consequences, they've ignored 20 Reserve Bank warnings on inflation, 10 successive interest rate increases, and they just kept partying. And Brendan Nelson and Malcolm Turnbull are still looking at the Australian economy through those big yellow shades. They still think the party's going.
Yet, the neglect of the previous government has left Australia with an inflation rate at a 16 year high. It's now time for some discipline. The Australian Government has to apply sensible fiscal restraint to put downward pressure on inflation and interest rates, and boost investment in the productive capacity of the Australian economy.
Interest rate rises like the one we had yesterday are a kick in the guts for ordinary Australian working families. That's why we're going to be working extra hard to put downward pressure on inflation and interest rates, to ensure that they get relief from the pressures that flow from those things, because higher inflation means higher interest rates, something that Brendan Nelson doesn't appear to have worked out.
The Prime Minister recently outlined his five point plan to fight inflation which addresses both supply side and demand side aspects of the issue. The government will help to take pressure off demand by strengthening the budget surplus to at least 1.5 per cent of GDP for 2008-2009, provided that growth prospects remain as currently anticipated.
That'll help make the task of the Reserve Bank a little bit easier. We'll encourage private savings and we'll act to address skills shortages in the economy. Infrastructure Australia will develop a national approach to tackling infrastructure bottlenecks and we'll help people re-enter the workforce and remove disincentives to participation and to working harder.
The government will deliver a strong surplus whilst also delivering on election commitments; improving education, delivering high-speed broadband, reforming Commonwealth-State relationships, and cutting taxes for working families. And let me clear about one absolutely critical point here. Labor's tax cuts are not the problem. They'll improve workforce participation, and they will provide some much needed relief to working families who are under financial pressure.
The problem we have inherited from the former government isn't to do with tax cuts, it's government spending that is growing at an unsustainable rate. Prior to the election, the former Treasurer Mr Costello published the mid-year economic and fiscal outlook, the pre-election fiscal outlook papers, and they showed spending growing by four and a half per cent in real terms in the current financial year. In other words, after inflation a four and a half per cent rate of increase. That's in an economy that's growing by over four per cent.
When my department recalculated the figures to take out the distorting impact of the increase in mineral prices, they found government spending growing at an even faster rate. So, when the effect of inflation is removed, and tax cuts are not part of this equation, you've got government spending growing way too quickly.
For the past decade, the Liberal Party has governed in some of the most economically favourable times we have ever seen in this country. Yet, what of lasting substance have they left us? What can we say is their legacy?
Previous governments have left legacies, like occupational superannuation, the Snowy Mountains Scheme, our national university system, internationalisation of the Australian economy. Previous governments have left big, productive improvements in our economy. How has the Howard Government added to the productive capacity of Australia?
The bounty from the mining boom and 16 years of continuous growth has been largely squandered; not invested for the future of the nation. What Australia's been left with is a lot of missed opportunities and an inflation threat that the Liberals still won't add up - won't own up to. We've now got to reign in government spending to tackle inflation and to deliver better value for money.
The former government spent a staggering $350 million in 2007-2008, budgeted $350 million on WorkChoices. Previous annual spending on industrial relations was $116 million. WorkChoices cost three times, in the current financial year, from their budgeting from what the ordinary industrial relations spending was.
And that does not include - that does not include the absolutely scandalous figure of $457 million spent on government advertising in their final 16 months in office. I'll say that again, $457 million on government advertising. And we all know what most of it was directed to; not informing the community but helping to propagandise for the re-election of the government. Sixteen months, $457 million. That, as I said, is simply scandalous.
Kevin Rudd announced during the election campaign that we'd establish a razor gang to cut wasteful government spending. Razor gangs have a lengthy history in western democracies, stretching as far back as the Getty's Committee in early 1920s Britain, which pursued a number of cuts to government spending and became known as the Getty's Axe (*). I'm looking forward to my name going down in history in a similar way. Though I'm not quite sure whether that's a good thing or a bad thing. But hopefully not with the word 'axe' attached to it.
Combating Australia's inflation challenge requires action both in the short term and in the longer term. The Liberals have allowed inflation pressures to build over the past couple of years and we can't fix that overnight. So we have a short term task, but we also have significant, median term reform tasks as well.
You would all be aware that during the election campaign we identified $10 billion in savings. The former government spent almost that much of - amount of money in their election campaign launch. Somewhere around $9 billion. We promised to cut government advertising and to require government department's and agencies to deliver an additional two per cent efficiency dividend in the 2008-2009 financial year. The conservative side of politics, by contrast, effectively gave up on the savings challenge altogether.
Our razor gang, I can announce today, will occur in two stages. The first stage is what you've already heard about. That will deliver substantial spending cuts in the 2008 budget, to start relieving the pressure on inflation and interest rates. And next week I will be delivering a modest initial instalment when I introduce the additional estimates bills in the Parliament.
Some of the former Liberal Government last minute spending commitments will be revised or abandoned. Five minutes before an election the Liberals were throwing the cash around, making desperate promises, trying to buy votes. This irresponsible spending will now be cut to reduce outlays by $642 million over four years, including $243 million in the current financial year. This is a $642 million, modest down payment on the task ahead. The bigger cuts that we will announce on budget night.
Amongst the measures we will not be proceeding with is the former government's Innovation Ambassador's Program. We'll reverse the decision to fund Flemington Racecourse's alternative water strategy. Money allocated to a range of advertising programs, including the simplified superannuation initiative, will not be spent. We'll not be funding the proposed Fishing Hall of Fame or the Australian National Rugby Academy. The Growing Regions Program will be abolished. And the estimated cost of re-establishment assistance for farmers affected by the drought will be revised down to reflect lower than expected rates of take up.
If we are going to tackle inflation, we have to start now. These savings are modest, but they are an important first step in reigning in the excessive spending we've inherited and they flow from the fact that we have to respond in the additional estimates legislation that is due next week, to the initiatives that are already being factored into the budget, either to accept them or to reject them.
Soon, we'll get a - something of a clearer insight into the Opposition's position on these issues. Do they accept that there is a need for cuts? Do they recognise that they've left us with a problem, a serious inflation problem? Will they acknowledge that every dollar that's wasted on things, like outrageous government advertising, is a dollar that's coming out of some working family's budget?
There hasn't been a great deal of clarity in their position thus far. We're hearing a variety of different messages from different senior Liberal politicians on this and on other issues. I hope, for the sake of the nation, for the sake of serious debate about these issues, that we do, sooner rather than later, get a coherent, clear position from them on these issues.
But as I indicated, the 2008 budget is not the end of the razor gang's work. It's the beginning. Stage two of the razor gang will be part of a wider reform agenda. We intend to radically increase efficiency, transparency and accountability in government. We are seeking a transformation in the way the government works, how much it costs and how much financial information it publishes.
The second stage of the razor gang will be an intensive program by program, agency by agency review of government spending and tax concessions, to be completed before the 2008-9 mid-year economic and fiscal outlook is released. Measures arising from that razor gang effort will be announced towards the end of this year. This stage will also deliver savings and improve the quality of expenditure. We intend to streamline government and improve the efficiency of service delivery.
A good example of where this kind of thing is already happening is with the coordination of child immunisation information between Medicare and Centrelink, which is eliminating the need for individuals to go through processes with both of those agencies in order to claim the payment. But there's more to be done across government in this regard, including in agencies like Centrelink and Medicare, more to be done in getting better delivery of services and a lower cost to the taxpayer.
Procurement of goods and services by the government will also be overhauled. The former Liberal Government treated the government as an organisation as something like a collection of individual private companies, with the government as a holding company. A radical decentralisation of how government operated, following on private sector philosophies. The trouble is that this radical decentralisation of government has created widespread inefficiency.
There's very little shared information about what different agencies are doing in procurement, let alone much coordinated purchasing. They're all out there trying to catch and kill their own. Agencies are effectively bidding against each other for goods and services, often without adequate support and advice, and rarely, if ever, making use of the collective buying power that a coordinated government approach to purchasing could deliver.
Now, we're not going to go to the other extreme because excessive centralisation would be just as bad. We don't want to have some kind of central bureaucratic administration of paper clip purchasing across every agency in government or whatever. But we will drive tax dollars further, through greater coordination. And with about $30 billion of government contracts awarded every year, even small improvements will deliver substantial dividends, to the budget and to taxpayers.
Disciplined processes are the essential foundation of strong budget management. The Strategic Budget Committee will meet at the beginning of each budget cycle to set a strategic direction for future budgets. All expenditure decisions will be taken through the annual budget process, unless there is a genuine and urgent need for consideration outside that at another time. That will ensure that competing spending proposals can be examined in the context of the total budget picture, measured against each other, considered together, so that the genuinely highest priorities can be identified.
We also intend to have the Expenditure Review Committee meet throughout the year, not just for a few weeks during the budget process. Where urgent spending measures are needed, they will be required to be considered by the Expenditure Review Committee, by Treasury, by Finance and, wherever appropriate, by Cabinet.
Many of you will recall that John Howard and Peter Costello announced a $10 billion water plan without proper scrutiny by Treasury, or Finance, and without a decision by Cabinet, without even being considered by Cabinet. Yet by contrast, only a matter of a month or two earlier, they had Cabinet approve a $350,000 grant to a private individual to fund a jewel encrusted horse-drawn carriage as a private gift to the Queen.
The $10 billion water plan didn't hit the Cabinet table. The $350,000 gift to the Queen from a private individual, that was considered by Cabinet. That's no way to run a government. It won't happen under Kevin Rudd and Labor.
The Government will also be instituting new rules to end the Liberal Party and National Party's great grants rip off. Just how far discretionary grants were debased by the previous government was revealed in last year's report by the Auditor-General into the $417 million Regional Partnerships Program. Grants were approved by ministers before formal applications had been considered. Ministers overruled departmental advice and gave grants for no apparent reason other than the money would be spent in a coalition-held seat. Large numbers of grants were approved in the lead up and even during the election campaigns.
The former Deputy Prime Minister's chief of staff directed a junior minister to approve a $1.1 million grant to an ethanol refinery in his boss's own seat. The refinery was never even built. In 2006 alone, the Commonwealth spent around $2.7 billion in discretionary grants. That money should be properly administered, properly accounted for, and in the future, it will be.
Ministers won't be allowed to make decisions on discretionary grants for their own electorate. Consistent with rigorous probity principles, that decision will be made, where necessary, by other ministers. Unlike the previous Government, ministers will be expected to consider and respect departmental advice, and all agencies will be required to publish details of awarded or announced grants on their websites at the earliest opportunity.
My department is also undertaking a more comprehensive review to examine the value of discretionary grants and the transparency and effectiveness of existing programs. The review will report to me in August. I'll then take further recommendations to Cabinet on the management and monitoring of discretionary grants.
Spending discipline of this kind is a critical priority for the Rudd Government. As you know, we have already established Infrastructure Australia to ensure that there is genuine rigour and accountability in infrastructure spending. Infrastructure investments will be subject to rigorous expert analysis. Any Government that chooses to invest in a project for political rather than economic reasons will know that everybody will know that that's what's happening, because of the arms length scrutiny of projects, the examination by Infrastructure Australia, that will identify the relative costs and benefits of proposed infrastructure spending.
We've commenced a reform process through the Council of Australian Governments to create a clear and rational frame work of state and national responsibilities. And we have created a new and specific ministry for deregulation to reduce the ever-mounting red tape burden on business. I am delighted to have been given this responsibility in partnership with Craig Emerson. It's a critical part of the task of reforming government.
Openness in public administration is also fundamental to good government. Accountability means better government and better public outcomes. I am very personally committed, very personally committed and very strongly committed, to greater openness in government. There has been far too much fudging, dishonesty and cover up in Australian public life in recent times, and I and the Government are committed to reversing that trend.
One of my core objectives as Minister for Finance and Deregulation is greater government transparency. I have already published the government's consolidated financial statements, with the GST accurately reflected as a Commonwealth tax, as proposed by the Auditor-General and the Australian Bureau of Statistics. So for the first time in a decade, the Commonwealth's accounts are not qualified. I'm determined to eliminate the trickery that has enshrouded budget information in recent years. I'm committed to ensuring that the Government provides more detailed financial information and better disclosure of Government contracts.
Democrat Senator Andrew Murray shares my passion for open government. He is, of course, in the last six months or so of his term, he's retiring, and he has agreed, and we announced this prior to the election and we will be following through on it, he has agreed to conduct an independent review for the Government of all available transparency and disclosure options, including our commitments that we made a couple of years ago on this front, and to map out future directions for improving government transparency and disclosure. We published these under the title of Operation Sunlight. I suspect Senator Murray would probably call it just another round of keeping the bastards honest. But it's a critical objective for the Government.
Budgets are about choices. Decisions of government on spending are about choices. Every dollar that we spend is a dollar that a family or an individual doesn't have to spend as they wish. It's a dollar that won't be directly creating jobs in the private sector. Every interest rate increase that reduces the amount of money that families have to spend on essentials like food, clothing, textbooks. This budget is going to involve tough choices. Inflation is above the Reserve Bank's target band. The Government has a responsibility to the Australian people to make the tough choices to put downward pressure on inflation and interest rates.
The previous government fuelled inflation with expansionary and wasteful spending, rather than investing in the drivers of productivity, in spite of many warnings from the Reserve Bank and much campaigning from the Opposition at the time, it tried to fund its own electoral fortunes. This Government is not going to make the same mistakes. We realise that political success ultimately comes from good government. That means new programs, but it also means transforming processes.
Finding savings and approving efficiency, as I've talked about today, probably won't get the headlines that computers in schools, public hospital reforms, or a national broadband network will get. But the big things that we want governments to do, of that kind, or others, simply won't be able to happen unless we transform the way government operates. And it's my job to make that happen. And it's my job to keep Government spending in check.
Rising inflation and rising interest rates are making things tough for working people, and tough for business. The Government is absolutely committed to helping the Reserve Bank get on top of the inflation and interest rates challenge and we are committed to getting on with that job now. Labor intends to build a strong economy for the future which delivers for all Australians, particularly working families who are under pressure from rising costs and rising interest rates.
Thank you very much. [Applause]
KEN RANDALL:
Thank you, Minister.
As usual, we have our period of questions from our media members. The first of those today is from Jacqueline Maddock.
QUESTION:
Jacqueline Maddock, Network Ten, Minister.
I'm just wondering, Wayne Swan said today that he has sympathy for families he thinks will be furious about the Commonwealth Bank's decision to lift interest rates by 0.3 per cent after the Reserve Bank's move yesterday. I'm just wondering, what's your response to the bank's move and isn't it a sign that the big banks are snubbing their noses at the new government?
LINDSAY TANNER:
We're very concerned about the timing of the Commonwealth Bank's additional interest rate increase and I think the customers of the Commonwealth Bank are entitled to be asking questions about their choices of bank as a result. And one of the things that you'll know that Wayne Swan has stated previously is that we intend to make it easier for people to shop around, to make choices, to move from provider to provider in order to get maximum competition into the market.
We're very disappointed about the Commonwealth Bank's decision. I don't think it will reflect well on the bank in the marketplace. It'll be up to consumers to draw their own conclusions about that. It's up to the Government to ensure that they've got the maximum ability to make choices about where their loans are held and to move them if they seek to do so. And we are working on that. And we expect that there'll be announcements on that in due course.
KEN RANDALL:
Thank you. The next question's from Colin Brinstone (*).
QUESTION:
Colin Brinstone, AAP.
Minister, have you or the Government spoken to BHP about their new bid for Rio Tinto? And aren't you concerned about what impact on the mining sector that will have regarding competition?
LINDSAY TANNER:
I can't speak for my colleagues in regard to what it - discussions they may have had with anybody in this matter and it's not a matter I'm directly responsible for, although of course, indirectly, as a senior economic minister, I obviously have an interest. It's important to note that we have established regulatory arrangements to deal with the issues that emerge from both the prospective BHP takeover and also the Chinalco dimension as well, with the Foreign Acquisitions and Takeover Act and also of course, the ACCC and the Trade Practices Act.
We've actually got a very robust regulatory regime in this country that's applied under governments of both persuasions in this regard and our basic position is to allow the regulatory regime to do its work. The foreign investment issues will be dealt with by the Foreign Investment Review Board and, ultimately, the Treasurer has responsibility to make decisions in accordance with advice that's provided through that process. And the ACCC will deal with competition issues that may emerge.
I don't anticipate that we would be seeking to intervene publicly in those processes. They've got to be allowed to proceed. They've got to be allowed to proceed without undue political interference or commentary so I can't provide you with any other commentary beyond that, I'm afraid.
KEN RANDALL:
The next question's from Gemma Daley.
QUESTION:
Minister, Gemma Daley from Bloomberg News.
LINDSAY TANNER:
Gemma.
QUESTION:
I just wanted to talk to you about the appointments to the Reserve Bank board. The Government has promised more transparency and a register of eminent candidates. I was wondering if you could shed any light on how that might work and whether there's any change in terms of the industries the candidates will be drawn from?
LINDSAY TANNER:
Also not in my direct responsibility but a change that I do strongly support. And it reflects a change in philosophy on the part of the Government to have a greater arm's length process, with respect to key board appointments, something that I pushed very strongly for with respect to the ABC and SBS when I was Shadow Communication Minister some years ago, and which Steve Conroy, now the Minister for Communications, has followed through on.
I don't believe we'd be looking for any particular orchestrated changes to the backgrounds or kinds of sectors that individuals came from. The critical thing is to get the best people, but also from a diverse set of backgrounds. And the proposal that Wayne has adopted, I support.
That will mean that there is a greater degree of clarity and transparency to the process and ensure that we don't have a repeat of the Rob Gerard affair, which sadly as well as obviously diminishing the reputation of the former government to some degree, sadly, clearly had a negative impact on the reputation of the - of the Reserve Bank. Our Reserve Bank, irrespective of what you may think of any individual decisions, our Reserve Bank is clearly one of the best central banks in the world. And we are committed to ensuring that it remain - it retains that status as one of the best central banks in the world and this reform will be part of that.
KEN RANDALL:
Thank you. James Gribble.
QUESTION:
James Gribble from Reuters.
Minister, I just noticed that the high Australian dollar yesterday was one of the reasons that Mitsubishi cited for its inability to export and for the closing of its plant in Adelaide. And given that we're putting interest rates up while the rest of the developing world seems to be easing, is only going to be putting more pressure on the dollar. Is there anything you can say for manufacturers, farmers, exporters, is there any relief in sight for them?
LINDSAY TANNER:
Look, I can't obviously predict where the dolly - dollar will head anymore than you or anybody else can. There is no question that the high level of the Australian dollar has been putting pressure on a number of sectors, the vehicle manufacturing sector in particular. And that's - that's something that we are concerned about.
You'll note that we propose to bring forward the review of assistance arrangements in vehicle manufacturing that was scheduled for the early part of our term in any event. We're proposing to accelerate that process. That reflects our concern about the immediate future and the longer term future of vehicle manufacturing in this country. It doesn't pre-empt the outcomes.
But we have the dollar floated. Previous Labor Government did that. The previous Liberal Government kept that in place. It was the right decision and you have to take the good with the bad with that decision. And there've been times in the not too distant past where the dollar was at 50 cents US, which of course was enormously advantageous for people in some sectors. So there are fluctuations that are just part of the modern economy that we shouldn't seek to intervene in, even though they do cause difficulties for particular sectors. They are also delivering - the high value of the dollar is also delivering considerable benefits to the Australian economy as well.
KEN RANDALL:
Question from David Uren.
QUESTION:
David Uren from The Australian.
At about one and half per cent of GDP, your surplus next year will be around $20 billion and presumably over the forward estimates, close enough to $100 billion. What are you going to do with that money and how do you ensure that the investment of it does not in itself add to inflationary pressure?
LINDSAY TANNER:
I think the projected figure for 1.5 per cent of GDP is somewhere around $18 billion. And certainly you're correct, David, that if in the out years, we get similar rates of economic growth, then we'll see more very substantial surpluses emerging. We've yet to make decisions on the question that you raise. It's obviously a very important question. We do, however, have a commitment to complete the obligations established by the former government with respect to the future fund, to fully fund public service superannuation liabilities. That is close to completion, but not absolutely completed.
We also have a commitment that the former government put in place, announced but has not yet legislated, to establish a health and medical investment fund that would be equivalent to the future fund and the higher education endowment fund as a source of earnings to be spent on infrastructure in the health sector. So I'd expect that we would be following through in that regard.
The longer term question though of course, is very much subject to wider economic conditions so we don't want to be counting chickens before they've hatched to some degree. But clearly, we will be dealing with that question in due course as to what the strategy is for those - dealing with those surpluses.
KEN RANDALL:
Peter Martin.
QUESTION:
Peter Martin, Canberra Times.
Just before the election, you announced that two per cent efficiency dividend, the extra two per cent. And you gave an assurance that it should mean no redundancies. Will you give the same assurance for, I guess what you're calling stage one of your razor gang to be announced in the Budget?
LINDSAY TANNER:
I stated at the time as you broadly, correctly indicated, that I believed there would be no need for involuntary forced redundancies. I stand by that position. I would expect that natural attrition turnover will enable agencies to absorb any reductions in head counts which will flow in some cases.
There'll be increases in other areas, because we have election commitments to follow through as well. So to some degree, there'll be a bit of swings and roundabouts in this regard. But there will be instances where individual agencies particular - particularly smaller agencies will find it difficult to absorb a reduction to absorb those people because they won't have enough turnover to enable them to redeploy internally.
Myself and John Faulkner are currently in discussions about redeployment processes, his role as the Minister for the Public Service, my role as Minister for Finance, to ensure that everybody has the opportunity to redeploy in some form or other. I believe that will be possible, because we have a pretty tight employment market in this country and we have a very large federal public sector with significant turnover of people. We should be able to meet that objective.
It's important to keep in mind that the federal public service has been growing in size at a rate significantly higher than employment growth in the overall economy. We don't have an agenda to tackle the head count per se. Our focus is on spending. That does have implications at a specific level in particular agencies for head counts. But we believe that the ordinary growth and the ordinary redeployment opportunities will enable us to absorb those difficulties without involuntary redundancies of any consequence.
QUESTION:
And just to clarify, that answer refers to the cuts to be announced in the May Budget? That this was…
LINDSAY TANNER:
That applies to both. That's our objective, that's what we believe we will achieve, that's what we'll be seeking to achieve. There's a lot of detail in that, of course, and there's a lot of unusual specific circumstances in different agencies. There's considerable variety across the public sector. That's our big picture view of this particular issue though. Same as prior to the election.
KEN RANDALL:
Thank you. Shane Wright.
QUESTION:
Minister, Shane Wright from The West Australian.
About three weeks ago you released the tax expenditure report for '07, and you've noted today that you're looking at tax concessions going forward. Your report identified superannuation as the, by far, largest tax concession expenditure facing the Budget, and that's grown very quickly. Is that an area that you'll have to look at if you are serious about bringing tax concessions under control?
LINDSAY TANNER:
It's important to note that the report that I released - I can't recall exactly how many weeks ago it was - is effectively, in that regard, something that is routinely released every year, and it is a statement, amongst other things, of the effective cost of a variety of tax concessions to the overall budget. It rarely changes much from year to year and it certainly hasn't changed significantly this year to the best of my knowledge.
I'm not going to speculate about potential target areas for the razor gang exercise. We'll be sticking to our election commitments. That, obviously, constrains what we can do. We'll be honouring contracts and we'll also be taking it very seriously, situations where money has already been spent, and where, if the program is to cease, then that money would be thrown away.
There's a range of factors that will constrain our choice, particularly commitments that have been made prior to the election. But other than that, those choices are going to be made diligently, progressively between now and the budget, working through line by line, issue by issue, agency by agency, and obviously we're not going to engage in public speculation about particular individual possibilities.
KEN RANDALL:
David Crowe.
QUESTION:
Thank you. David Crowe from The Australian Financial Review.
Just another question about the two stage razor gang process. Does it suggest that you're getting some push back from the public service who are saying there's only so much we can do by May. You've got the August review of grants and now you've got the MYEFO stage where you're having trouble with the timing. And secondly, can you expand on what the second stage would mean? We had a question about staff cuts, for instance. Is there scope for staff cuts in the second stage?
LINDSAY TANNER:
To answer the last bit first, we certainly wouldn't rule out changes in staffing arrangements flowing from the second stage. The same principles will apply in that regard as to the first stage.
Look, I think it's important to emphasise here, the department that I've inherited is outstanding. I am - I've been absolutely rapt at the quality of the work that I've received, the dedication, and there's an awful lot of hard work going on in the bureaucracy in Canberra at the moment, with an incoming government, with a lot of things happening. And I think it's important to point out that the proposal for a two stage razor gang process was first raised with me immediately after the election.
So, my department had already thought through the incoming government possibilities and had analysed the practicalities involved, and made what I think's a very sound judgement. And that is that if we tried to cram in all of the detailed structural analysis that I anticipate occurring in the second stage, if we tried to cram that all in between now and May, the risk of missing good opportunities, the risk of making mistakes, the risk of not producing optimal outcomes would be quite high.
So we've got to be realistic about the amount of work and effort and time that's involved here. So I think a sensible judgement's been made that we can do a more intensive task in the second stage. And yeah, that'll mean that in some instances there'll be particular matters that may surface in the first stage and we may make a judgement that we're better off to look at them in the second stage.
But in the overall result, we will get a more serious and rigorous scrutiny of all of the Federal Government programs, processes than would be possible between now and the Budget. That's just simply a reality of timing. Had we taken over in July last year, for example, then it will be different. But we've got to do it properly. We've absolutely got to do it properly.
In terms of where that - what that second stage actually means, I mentioned the child immunisation process as an example. It's a small example of where the government saves money and Centrelink clients get one less process to go through. They don't have to front up to get their immunisation payment to both Medicare and Centrelink. It's a win-win. There's no reason why we shouldn't be able to produce win-wins of that kind with a more rigorous scrutiny as well.
There's also a big agenda that we have to follow, as you probably might have seen on the front page of yesterday's Financial Review, about IT purchasing. Because, as I mentioned, we'd had a radically decentralised arrangement in government, which has meant that the quality of government purchasing for IT, which totals about $6 billion a year, is variable across agencies. We want to produce a more coordinated approach to IT purchasing to get better value, less problems, lower cost to the taxpayer, but I can tell you we're not going to do it overnight. Anybody who's ever been in charge of any company, or any organisation involved with a significant IT spend knows that it's hard.
So, that's another example of the kind of thing that we intend to pursue in that process, and it's going to take a lot of work and a lot of thought. It's very important though that we get the best outcomes, and although we've got an immediate job, a short term job to put downward pressure on interest rates, and downward pressure on inflation, right now, in the next few months, for the course of this year, we've got a medium term to longer term job as well to get better outcomes heading into next year and the year after too.
KEN RANDALL:
Lenore Taylor.
QUESTION:
Lenore Taylor, The Australian Financial Review.
On the second stage of the review process, is it your goal in the second stage to achieve significant further savings over and above those that you'll achieve in the Budget?
And what is the goal, the aim, of the review of tax concessions? What do you want to gain from that exercise?
And another question, if I could. On your review of discretionary programs and regional partnerships, why should we have discretionary grants programs at all? Why shouldn't all grants programs be run on a competitive basis where grants are compared one against the other?
LINDSAY TANNER:
I think you might be misinterpreting the - and I suppose it's a bit of a technical term, the term discretionary grants, which simply … what it refers to is a situation where the grant is not available as an entitlement, and where there is some kind of competitive process. So the premise to your question I agree with. What we want where we do have these grants is genuine competition and none of the political manipulation that we've seen in recent years.
QUESTION:
They're not like the regional partnerships where they just roll and [indistinct]?
LINDSAY TANNER:
Essentially, that's right. Where you've got no - and I can't pre-empt where the review might take us. But obviously one of the key things that we want to ensure is where you've got discretionary grants that you are getting the best applicants getting the grants. The ones that most qualify against the criteria that there is some kind of measurement, some kind of benchmarks that tell you that if you want to give 10 grants to people running mentoring programs or whatever the case might be, then the best 10 applicants, according to the criteria that you've established, that are transparent in public, will get those grants. That's the objective.
In regard to the tax concessions, I - important to emphasise that there is not a specific process of examining tax concessions per se. It should be seen the other way round. We have - we are not excluding them.
So effectively we're saying that government spending is not just about for money going out the door. There are tax concessions that have an implication for the Budget, that are in effect, equivalent to spending, and that we are not arbitrarily ruling them out for consideration. We are saying they, along with all the other spending are part of the totality of government that has to be considered.
KEN RANDALL:
The other one was about…
QUESTION:
The overall savings…
LINDSAY TANNER:
Oh, sorry. Yes we would aim to achieve savings. At this stage, we haven't identified a particular target and I couldn't really say whether we would even intend to set a specific target for that process. We may well do. As you can probably imagine, we are focused pretty heavily on stage one at the moment. And so, the - getting that up and running and a lot of the preliminary work has been occurring, but we are just getting to the point of the very long meetings and very large folders stage of the process. We're obviously pretty heavily focused on that. So at this point, we don't have a particular target for that process. And it may be difficult to establish a target because you don't know what the possibilities are until you've actually had a clearer look. So we may well develop a target at some point in the process. But it's not on the agenda at the moment.
KEN RANDALL:
Thank you. Jessica Irvine.
QUESTION:
Jessica Irvine from the Sydney Morning Herald. Just on that, you mentioned the very large folders that you're going through. Can you tell us a little bit more about the nitty gritty of your gang? Who's in the gang? Which ministers accompany you at the table? How often have you met in the past week? Do you literally sit around a table with red markers and go through the Budget?
[Laughter]
LINDSAY TANNER:
Yes, it's - we have a gang problem in Australia and I'm part of it.
[Laughter]
The - look, what has been happening thus far is a strategic budget committee, which is Kevin Rudd, Wayne Swan, Julia Gillard and myself, has been doing preliminary work with the big folders and the long meetings. The formal expenditure review committee has yet to be announced. And although I'm not privy to the timing on this, I'm expecting that Kevin will announce that and the various other Cabinet committees, their composition and so on in the very near future.
But I'm not in a position to say, because that's the Prime Minister's call, that's not mine. But very soon, I would expect that that process would expand. All four members of the strategic budget committee are also members of the expenditure review committee, so I - at a point in the very near future, I would expect that would expand into that formalised process.
Keeping in mind that a lot of the stuff that's happening at the moment is preliminary, because essentially what you have to do is to identify a potential saving, then throw it at the relevant minister and invite their comment. And so there's often quite a bit of to-ing and fro-ing in the consideration process. You don't just arbitrarily take the red pen out and go, right that's gone, that's gone. You have to get some serious input from the relevant minister, and there can be a bit of backwards and forwards in that regard.
So very much we've been in those early stages as yet. I would expect that the meetings are going to get longer, the folders are going to get bigger and we'll just have to keep wading on through. And that's just part of the process and I'm extremely grateful we didn't win an election in February or March.
[Laughter]
At least we've had a little bit of time to tackle the issue.
KEN RANDALL:
Clinton Porteous.
QUESTION:
Clinton Porteous from The Courier-Mail. There's a press conference yesterday with Mr Rudd, and he talked about politicians perhaps, taking a pay cut. We heard about wage restraints for workers. We're hearing about your razor gang. In your view, are the states doing enough? There's a lot of borrowings out there. Anna Bligh yesterday from Queensland said, oh yes, it's - but it's for infrastructure. The Commonwealth is putting money into infrastructure and has a budget surplus. Why can't the states do more?
LINDSAY TANNER:
Look, I don't believe there is a problem with respect to the states and the - their relative budget positions, debt positions, investment positions across the country. And you'll probably recall that Peter Costello, probably about nine to 10 months ago launched a bit of an attack on the states after having attacked them for not investing enough in infrastructure, then turned around and attacked them for borrowing more money to invest in infrastructure.
And at the time, I and others publicly said that we didn't believe the overall financial position of the states was contributing to any difficulties in the Australian economy. Obviously the levels of surplus, the degree of investment varies around the country. But I don't think it's appropriate for me to engage in micro-commentary about the individual performance of particular state governments.
I think our general view would be that we have no overall concern about the totality of the state position. Obviously, you know, we don't intend to - that's not automatically the case. It's based on the current situation and I think it's worth noting here, and this is something that I've said before, is burned into the soul of people like Wayne Swan and myself. The great lesson of the last 20 years of history of the Australian Labor Party; you manage your budget, you manage the economy wisely and soundly and conservatively, you stay in office. When you don't, you lose.
The key reason why we have Labor governments all around the country is because the Labor Party has learned that lesson, learned it big time. And that will show through in our approach at the federal level to economic management. And I believe it shows through at the state level and that's the key reason why those state Labor governments have kept getting re-elected.
KEN RANDALL:
Tim Colebatch.
QUESTION:
Tim Colebatch of The Age, Mr Tanner. Coming back to the two stage review, I'm still not clear what the differences between the roles of the first review and the second review is. Is the second review essentially tackling the too hard basket that, of things that were too complex to do in the first review?
And secondly, on the issue of tax concessions, and it's just a fact that they have not been subject in the past to the same rigorous scrutiny that spending proposals have had. Will they receive that in your budget? Will they be part of the first stage review as well as the second stage review? And does this preclude the Government's option of having a full scale review of tax policy?
LINDSAY TANNER:
The tax concessions question is part of razor gang scrutiny stages one and two, simply on the principle that we are not arbitrarily excluding anything, we're not arbitrarily excluding a particular element of the total picture of government spending and the government interaction with the economy from that examination. Your characterisation of stage one and stage two is not totally inaccurate. Too hard basket's probably a little bit unfair, Tim, but it's not totally inaccurate.
But I think the simple contrast is between the ability to cleanly cut a program - for example, some of the things I mention in my speech today, where there is a spending commitment for $10 million or $50 million that you either proceed with, or you cut. And where the actuality of implementing the decision is reasonably straightforward. That's very different from a situation where you decide to try and for example, achieve some structural reforms with how that $6 billion worth of IT spending is done across the Commonwealth, where you aren't making clean and simple decisions, you are faced with a very complicated challenge of getting agencies that have been highly radically decentralised working together, still achieving the optimal outcomes, but getting the best overall outcome. That's a much tougher challenge.
If you want to streamline processes in Centrelink, so that you've got things like standard business reporting to government, you've got client interaction with Centrelink or other agencies being rationalised, that's not the kind of thing you can do overnight. So almost inevitably, there is an element of truth in what you've said Tim, but I think the too hard basket is probably a slightly unfair characterisation.
The first stage really will focus on things where it is possible to make reasonably quick decisions. The second stage will dig deeper into the structure and processes of the Commonwealth with the aim of seeking genuine substantial structural efficiencies, which in many cases are going to be really hard, really hard to achieve and certainly not the kind of things that you can just have a group of politicians sitting around a table for a couple of long nights sort of whacking red pen marks through things on - in folders.
KEN RANDALL:
Glenn Milne.
QUESTION:
Glenn Milne from the News Limited Sunday publications and The Australian, Mr Tanner. We've heard much from the Prime Minister and yourself and Wayne Swan about bearing down on inflation through the budget process and we've talked about it today. Can you tell us here what is either in percentage terms or quantum terms, the amount that has to be stripped out of outlays before there is a measurable impact on inflation and therefore on interest rates?
LINDSAY TANNER:
We've established 1.5 per cent of GDP as our at least target. So that the implication of that is that the amount of spending cuts that we will have to find is somewhere higher than $3 billion - $3 billion to $4 billion of spending cuts, possibly even higher. It's important to keep in mind that there are other factors moving around as well, so the growth projections, the estimates for revenue, the estimates for spending, the outcomes for existing programs, they get over spent, they get under spent, all of those things move around as well, that change, you know, pretty much on a daily basis. So, that - that alters the landscape as well.
It's also important to bear in mind that we have spending pressures to deal with too. So, for example, we will have to - I have to introduce legislation in the not too distant future for some additional money for the equine influenza program. That's just one of numerous examples. There are - there are spending pressures that whoever the Government is has to deal with which weren't necessarily anticipated when the May budget was handed down. So there's a lot of factors, well, moving around in this.
But, our public estimate has been that the target we've set ourselves implies, that the total amount of savings of effective cuts that we produce, above and beyond the savings that we've already announced, by the way, in the election, which are already factored in into this process, is going to be in the order of three or $4 billion. That's a pretty serious target. As I've said, a couple of days ago, there will be pain. Our aim will be to try and, you know, over the long haul, have that as distributed as evenly and fairly as possible. There will be pain, but I think it's an achievable target and it's necessary.
The alternative we cannot contemplate. We've had 16 years in this country of inflation under governments of both persuasions, being under control. And that has been absolutely central to the good economic outcomes, to the strong growth rates and to the reduction in unemployment that we've had over that period. That low inflation rate has been absolutely critical to it.
If we allow that three - three and a half per cent that we've now got to drift upwards, and that's what can happen, you get a few inflationary pressures bubbling over, inflationary pay settlements, all kinds of increases in costs continuing to rise and you won't be looking at three and a half per cent for very long, you'll be looking at significantly higher rates. That's when it gets entrenched, that's when you've got a really serious economic problem.
So, nobody should be under any illusions, we regard this as a very serious threat and something that it is absolutely critical for us to tackle. Absolutely critical.
KEVIN RUDD:
One more question. It's from Misha Schubert.
QUESTION:
I know we're almost out of time, but Misha Schubert from The Age.
I'm really heartened to hear what you've had to say about your personal and the Government's commitment to more openness in government, cause for the first couple of months, at least, there hasn't seemed to be a really large discernible difference in the control and flow of information out of government. And I speak as a working journalist here in the press gallery.
Can you give us some - some more specifics about the kind of practical differences you hope to make and the sorts of information that will come more easily to the public and to journalists, looking at the activities of government?
LINDSAY TANNER:
Obviously, this is subject to Andrew Murray's review and the - the detail of the propositions that we put forward. But I'll give you one simple example, Misha, and there's numerous one's that I could mention. If you've ever looked at the portfolio budget statements, which are the detailed financial statements for each department, that are supposedly a companion to the budget papers, and tried to understand them, if any of you here can tell me what they're actually about and what they mean, I'd be most grateful. Cause we won't have to reform them.
But I think in practise, the answer is that they are virtually incomprehensible. They don't give you the kind of information that you need, they don't connect in a seamless way with the information that's in the budget papers or with information that's in annual reports. There is a major reform needed so that journalists, the general public, opposition politicians, minor party politicians, are able to track what's going on. To find, for example, how much is spent and is projected to be spent over the next three or four years on a particular program or a particular agency. It's very hard to do that at the moment. Very hard.
It's a really good way for a government to hide information, to hide bad news. It's a terrible way to actually run government in the interests of the nation. And although there are obvious temptations for any government to indulge in this kind of activity, I've got a different view on this. I reckon that if you have genuine disclosure and transparency then you get alerted to problems when they're relatively handle-able and modest, and when they're not necessarily going to turn into giant political disasters.
If you don't have good disclosure, if you don't have adequate transparency, people don't know what's going on, you end up with AWB. So, what we've got to do, what I'm very strongly committed to doing, is to ensure that the information is there, it's out there. The first stage was because the timing of the consolidated financial statements of the Commonwealth, which it's my obligation to sign off on - I instructed my department to - following consultation with the Auditor-General, or receiving opinion from the Auditor-General, I instructed my department to include the GST revenue as Commonwealth revenue and to include the payments of GST revenue to the states as Commonwealth expenses.
That's one small but significant example of following through on that commitment and I think
you'll see a very, very substantial change. And, frankly, if the portfolio budget statements in a year or two's time are as incomprehensible as the current lot, you'll be entitled to complain.
KEN RANDALL:
Thank you, Minister.
[Applause]
Thank you very much, Minister, it's a very timely hour to spend with us in this, what, 13 weeks before the budget. I wish you luck with your razor work and hope that it doesn't make it as unpopular as it made some other razor gang people in the past.
LINDSAY TANNER:
Thanks.
[Applause]
* * End * *
| Media Contact: George Wright - 0419 556 616 |
Website: www.financeminister.gov.au |
