SPEERS: The budget update shows the surplus for next year is being trimmed to a wafer-thin $1.5 billion dollars. How confident are you that you will still hit a surplus next financial year?
WONG: Let’s remember the context of the surplus that we’re on track to deliver, on these budget numbers. It is a $20 billion writedown in revenue from budget time. So in six months the Government’s getting $20 billion less in revenue than we anticipated, because of what’s occurring in the global economy, a much weaker global economic outlook.
SPEERS: So given that, how confident are you that we will achieve it?
WONG: We are determined to do what is laid out in the budget update, which is to bring the budget back to surplus. But as I’ve said many times – I think including to you – there’s no doubt any change in the economic situation globally would make that harder.
SPEERS: Make that harder – are you willing to say that you may not achieve the surplus?
WONG: I think the answer stands, David.
SPEERS: It has gone from a promise, a guarantee to now something that’s becoming harder.
WONG: And the global economic outlook has gone from more robust growth to much less strong growth. And we see the OECD downgrade its forecast, as well as the forecast that have been downgraded in this budget update for the global economy.
SPEERS: So was it wrong to forecast and promise two or three years out that you would get a surplus, given the global uncertainty.
WONG: It is absolutely not wrong to make sure you lay out your plans for fiscal discipline. You’ve seen today another ratings agency giving us their top rating, a AAA rating. The first time in the nation’s history all three ratings agencies have given us that rating. And I think what that shows is the importance of holding the discipline in difficult circumstances.
SPEERS: Can you honestly say, given those circumstances, this is the best thing for the economy, to drive the budget back into surplus. Wouldn’t a bit more flexibility be appropriate?
WONG: Yes I can. What people forget is that making sure you hold to fiscal discipline is about ensuring you have economic stability –
SPEERS: But –
WONG: – and if you don’t believe that, look at Europe. What you see in the European economies is what happens when financial markets look at governments and say, well, you’re not going to deliver the sort of discipline you talked about. We are –
SPEERS: But you’re a long way off Europe, as you’ve just been pointing out, we’re a long way off Europe.
WONG: Absolutely, but the point is it’s important for our economy – a small, open economy that wants to ensure we continue to get investment – to demonstrate this sort of discipline. Having said that, you’re right, we have had to make judgements. I’m sure that there will be people out there saying we should have swung the axe much harder. We have been very conscious of charting the right course, making sure we support jobs, growth – the budget update shows that – but at the same time holding the discipline.
SPEERS: But there’ll be people out there too, and particularly those who may now be joining the jobless queue because the employment rate is forecast to increase because of this, who would argue otherwise.
WONG: We still are projecting growth in jobs. It’s important to record that – 300,000 jobs.
SPEERS: But also a growth in joblessness.
WONG: There has been a reduction in the growth figures for the next couple of years, so obviously that has an impact. But we’re still, if you compare us to most other economies, we’re a long way ahead in terms of jobs growth.
SPEERS: As far as the public service goes, this is the big spending cut that you’ve announced today, an increase in the efficiency dividend of 2.5 per cent. It will take the efficiency dividend up to nearly 4 per cent. Can that really be achieved without jobs being lost?
WONG: Let’s remember what we’ve announced: it is a one-off, one year, additional 2.5 per cent. Our expectation is that agencies will look to savings through improved efficiencies, rather than resorting to forced redundancies, and that remains the Government’s position.
SPEERS: So it can all be achieved, this $1.5 billion saving, through spending less on travel, and printing, and advertising and consultancies?
WONG: I’m not going to sit here and pretend this is not going to be hard. It is going to be hard. We are asking government, through the public service, to make a contribution to holding the fiscal strategy and our fiscal discipline but also delivering Labor reforms, such as carbon and the community workers case.
SPEERS: But it won’t mean public service job cuts?
WONG: What I have said is we want agencies first to look at a whole range of non-staffing efficiencies. And we’ve outlined them. We’ve also put in place a process of consultation, involving stakeholders around that, I think that’s important. And of course, the Government announced previously a redeployment policy within the public service.
SPEERS: So does it mean job cuts?
WONG: Our expectation is that we do not have to resort to forced redundancies. That’s an expectation.
SPEERS: An expectation, not a guarantee?
WONG: Ultimately, we are in a devolved financial framework, and ultimately agencies make their decisions. But remember the context of this also –
SPEERS: So the agencies may decide to cut jobs?
WONG: Agencies have a turnover across the public service, I think of about 7 per cent. So people do have the capacity to decide which positions they will replace, and which ones they won’t. In addition, there are savings to be made through greater efficiencies, and we will work with agencies to deliver that. But I’m not going to sit here and pretend to you that this is not a difficult decision.
SPEERS: So what’s it going to mean for services? The services these agencies provide, the taxpayer’s going to feel the effect of this.
WONG: Our expectation would be that the heads of agencies would do the right thing by the Australian public. This is a very professional public service, they do a very good job.
SPEERS: But you can’t cut $1.5 billion out without feeling the impact on services.
WONG: And what I’d say is that I’m sure they’ll prioritise those functions that are about delivering the core services to Australians. I’m sure agencies will do that. That would be our expectation.
SPEERS: And is there any embarrassment here for Labor, given that the Coalition, at the last election, promised to increase the efficiency dividend to 2 per cent. You railed against it, Labor ridiculed it, and said it would lead to 12,000 public service jobs being lost, you’re now increasing it to nearly 4 per cent.
WONG: Come on, let’s get the facts right - what did the Coalition promise? It wasn’t just a 2 per cent efficiency dividend, it was a recruitment freeze – that is no new people employed in the public service.
SPEERS: This is surely going to mean a recruitment freeze too.
WONG: A recruitment freeze actually imposes a far greater cost impost on the public service. Our advice, very clearly, was that was unworkable. Because, of course, what it means is that you can’t replace people who need replacing, and it is a far greater cut into the public service. So I think if the Coalition are going on about this, I think people need to know –
SPEERS: But you did ridicule the Coalition for increasing the efficiency dividend to 2 per cent, you’re now increasing it to 4 per cent.
WONG: And a recruitment freeze for two years, and for the reasons I’ve outlined.
SPEERS: No change to Labor –
WONG: Not at all. The recruitment freeze, as I’ve outlined, we don’t think is sensible policy, and we’ve been on record as to why. But this is a difficult decision, I absolutely concede that.
SPEERS: The other big spending cut is on the baby bonus. Why do couples not deserve the additional money that they would have received?
WONG: Couples will still get $5000. There has been a very significant growth in the baby bonus since it was introduced, and as the Treasurer said, it is important that these payments are on a sustainable basis. It’s not sustainable to have that amount of growth over that time.
But remember what the Government has provided. We’re the first Government in Australia’s history to provide paid parental leave. We’re putting more money into childcare through the Child Care Rebate than the Liberals ever did. So we have our credentials when it comes to supporting families.
SPEERS: Would you like to see, eventually, the baby bonus phased out, and just have a paid parental leave scheme?
WONG: This is a sensible mix I think, because obviously there are some people who wouldn’t get paid parental leave, because they haven’t been previously working. So I think this is a sensible mix.
SPEERS: And the other thing I’ve got to ask you about is the infrastructure spending here, you’ve brought forward $1.4 billion in spending on infrastructure to this year, so the deficit’s a lot bigger this year, so you can still be in surplus next year. Isn’t that smoke and mirrors?
WONG: I don’t accept some of the facts on the question. The additional deficit this year is primarily due to a number of things. $5 billion of writedown in revenue, as a result of what’s happening in the global economy.
The carbon price – now, we were upfront when we announced that package. We said there was a significant upfront cost in the 2011-12 year because we are going to start to deliver tax reform and increased payments.
There is about $1.4 billion of infrastructure bring forward, I think about a third of that is for the Pacific Highway. These are good projects. If you go through the projects which we are funding, they are important projects. We do have a backlog in infrastructure in this country. And remember also the non-residential construction sector has had a fair bit of softness in it as the Building the Education Revolution projects wind down.
SPEERS: This is all very convenient for getting the budget back into surplus, isn’t it?
WONG: No, I don’t agree with your characterisation. These are important decisions for the economy, important decisions for the budget, against the backdrop of a very big writedown in tax receipts as a result of the global economy.
SPEERS: Final question, can we now see an interest rate cut on the back of what the Government’s announced today?
WONG: That’s a matter for the Reserve Bank, how it handles interest rates.
SPEERS: Alright, Penny Wong, thank you.
WONG: Good to speak with you.
ENDS
