TONY JONES: With me now in Canberra is one of the key architects of Labor's second Budget, the Finance Minister Lindsay Tanner. Thanks for being there.
LINDSAY TANNER: Evening, Tony.
TONY JONES: Now, there emerging view is there's no real pain in this Budget, so was the razor gang asleep or are you softening us up for an early election?
LINDSAY TANNER: Tony, we've had to do three things with this Budget: sustain jobs now, invest for the jobs and productivity of the future and start repairing the budget and repairing the damage that has been done by the global financial crisis, the huge drop in revenue. And we've made some major decisions towards that, but we haven't been able to do it all in one Budget. That's not possible because of the fact that we have to sustain jobs and economic growth in a time of enormous global recession and a time when we're projecting Australia is heading into recession, so ...
TONY JONES: But are you softening us up for an early election?
LINDSAY TANNER: No, we're not softening anybody up for anything, Tony. We've actually got a major task on our hands here. And anybody who wants to actually look at the detail of the savings will see that there are very major decisions being made here about superannuation tax concessions, about family tax benefits, about eligibility for the pension and in particular the age level at which you qualify for the pension. And even in the area of my own specific responsibilities, the total amount of savings from the processes of government that we have now put together over the last year or so is about $5 billion over a five year period. So, there's a lot of hard work gone into this. More needs to be done in the future. But we can't do it all in one Budget because we've got to stimulate growth and jobs now because of the impact of the recession.
TONY JONES: I heard one wag in the Budget lock up say you get more pain from a Chinese burn.
LINDSAY TANNER: Well, that's a good line, I suppose, for a journalist, but I don't think it really tells you very much. If you actually look at the projections, you'll see that we are projecting a return to surplus by 2015-16, so in six years time. We're also projecting over the 10-year period a spike of debt in about three or four years, and that scales down to a very modest level by the end of that 10-year period.
TONY JONES: Well we'll talk a little bit about that debt.
LINDSAY TANNER: All of those things are part of a medium term strategy to repair the damage to the Budget.
TONY JONES: OK. I mean, the fact it you're projecting the budget deficit - the Budget won't be out of deficit before 2015. So it's a fact, isn't it, that even if you were a two-term Government, you'll never see a surplus?
LINDSAY TANNER: On current projections, that's the position. That's right.
TONY JONES: And Malcolm Turnbull's right about that at least.
LINDSAY TANNER: Well, but, if we adopted Malcolm Turnbull's position, we would be doing the same thing that conservative politicians did in the 1930s, which turned a severe recession into the Great Depression. That is, when have you a major contraction, when the national income contracts, government and wages and benefits contract with it. That entrenched the Great Depression. And what Malcolm Turnbull and Joe Hockey are now advocating is in effect the same thing; that rather than spending short term to sustain jobs, having substantial deficits because of the dramatic drop in revenue, what he's effectively saying is, "No, don't do that." Forget about the 200,000 jobs that would be lost as a result of doing his version and just proceed to slash and burn to increase taxes. That's the net effect of his position.
TONY JONES: So exactly how much debt will the Australian Government be in? How much public debt by this time next year?
LINDSAY TANNER: We're predicting that the debt will peak at around 13.5 per cent of GDP. It rises gradually. That's significant because it means a very substantial hit on the budget bottom line each year to pay the interest. But we're also ...
TONY JONES: How much in billions of dollars?
LINDSAY TANNER: That - it'll peak at about $7 billion a year. That's an unavoidable reality. If you look at the loss of revenue that we have suffered over the forthcoming four years, and compare that with the projected deficits, what you'll see is that in the forthcoming year, we've got a deficit that would be about $8 billion if it weren't for that loss of revenue. And of course out stimulus package to keep jobs and growth ...
TONY JONES: Let's just talk about the overall debt.
LINDSAY TANNER: But this is an important point, Tony, as to why the debt's necessary.
TONY JONES: There is a figure - but there's a figure that says that the next month the Treasury will have issued $79 billion in bonds. Does that mean $79 billion in debt by next month?
LINDSAY TANNER: Well that's right, but that's only part of a wider calculation, because net debt is the ultimate figure that counts. The point I want to emphasise, though, is that if it weren't for that loss of revenue, the last two years of those four years would be in surplus, and the second year of the four years would be close to balance. So the thing that is causing this mount up of debt is that huge loss of revenue, $210 billion of revenue, previously projected for those four years, has gone out the window. If we were to take Malcolm Turnbull's approach, you would see a further contraction of the economy, thousands more jobs lost, thousands more businesses going broke. What we have to do is to sustain activity through short term spending which our stimulus package involves, through investment in infrastructure, and longer term investment to improve productivity which is also central to the budget, and that means that we have to live with that debt. But we've got a strategy to get out of it, medium term, and we'll follow that.
TONY JONES: Let's look at the strategy, because your projections are contingent on Treasury's assessment of a return to 4.5 per cent growth in two years time. I mean, where's this coming from? Why such optimism in the face of an unprecedented global recession, the like of which we haven't seen since the Great Depression?
LINDSAY TANNER: These forecasts come from experience. We've seen from the last two major recessions in Australia that once things turn, then growth becomes very rapid because of the very limited amount of change that you require to get back into rapid growth, because there's naturally slack in the economy. Once things turn, that growth will be quite rapid. So it's based on past experience and it's also reflected in the forecasting behaviour of major countries like the UK, like Canada, like New Zealand. So this is not an unusual thing. It is a change from previous practice, but we are in such unusual circumstances, that to do the old method of forecasting would've simply been unrealistic.
TONY JONES: So you're actually relying on a kind of hockey stick graph which suddenly has growth surging in two years in the face of the worst recession since the Great Depression.
LINDSAY TANNER: It's professional estimates by Treasury that the Government has no control over.
TONY JONES: But are they basing it on just the recent recessions in the '90s and earlier?
LINDSAY TANNER: They're basing it on experience and their best estimates based on all of the methodology that they can use and the modelling that they can bring to bear to forecast what will actually happen. Now this is always an inexact science. But in the past, they've simply been mechanical forecasts. It's simply been assumed for that third year and fourth year that you'll have trend level growth and trend level inflation and jobs and wages growth. What they've done is sought to actually make genuine projections. That's a more sophisticated way of doing it. Time will tell how accurate they are, but that's how it's done in equivalent countries as well.
TONY JONES: OK, Lindsay Tanner. We'll have to leave you there, and this debate will continue, no doubt.
- ENDS -
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