Senator the Hon Mathias Cormann
Minister for Finance
TREASURER:Today, the Minister for Finance and I are releasing the Final Budget Outcome for Labor's second last Budget. This is the Budget that they promised to deliver a surplus on more 500 occasions. It has now come out to be an $18.8 billion deficit.
The fact of the matter is it is a litany of failures in political promises, and represents the truth about Labor's claims to be responsible economic managers. The fact is that the Government promise, as I said, a 0.1% surplus ended up being a 1.2% deficit of $18.8 billion. Receipts were down, mainly because of changes in the terms of trade. Payments were actually higher than what the Government originally forecast. The net debt that the Government forecast in the 2012-13 Budget was $143.3 billion. It turned out to be higher, $153 billion. The gross debt, the market value in balance sheet terms - that's not the debt ceiling equivalent - but the gross debt in market value terms increased from $274 billion to $285.7 billion. The fact of the matter is these are the Labor Party's numbers - their second last set of numbers, based on their second last Budget. We are carefully and methodically going through all the details of the current Budget and we will have more to say about the current state of play in due course.
I want to emphasise again, these are historic figures - these are the figures from the second last Budget of Labor.
FINANCE MINISTER: To just reinforce what the Treasurer has just said - the Final Budget Outcome today just confirms the deteriorating state of the Budget after six years of Labor. We have got to remember that in 2007 Labor inherited a very strong Budget position with a $20 billion surplus. We are inheriting a $30 billion deficit. In 2007 Labor inherited a position with no Government net debt and, of course, we're now heading for $200 billion worth of Government net debt. The Labor Party has consistently blamed the GFC for their failure to achieve promised Budget surpluses but of course the promises the Treasurer referred to - the promises made on more than 500 occasions of a surplus in 2012-13 - were all made after the Global Financial Crisis. So this is, of course, only Labor's second last Budget, we will of course have some further consequences of Labor's Budget mismanagement to deal with moving forward but these are the figures here today for 2012-13.
REPORTER: Isn't the $18.8 deficit billion figure precisely the figure that Labor gave in its Economic Statement just before the election- the last document that it had control of before PEFO ?
TREASURER: It is very similar but this again is for the previous financial year, not the current financial year.
REPORTER: But you went to the election knowing that - you concede in retrospect - Labor went into the election telling you that the starting point for 2013-14 was an $18.8 billion deficit?
TREASURER: No. That's not quite right. The starting point for 2013-14 was different. There was a $33 billion deterioration between the Budget and the Government's Economic Statement about what the Budget was going to deliver for 2013-14 in the forward estimates. This is an historic figure. This is last year's financial year and it is, in our view, best to compare it with the promise Labor made on over 500 occasions to have a surplus. They promised to have a surplus on over 500 occasions. Today the truth is out - it is a deficit of $18.8 billion and it is rising. We have to deal with it.
REPORTER: You promised to have a surplus in your first year, 12 months ago, and you've gradually changed your position?
TREASURER: I don't accept that 12 months ago I did say that. I said we have to deal with what we have. The previous commitment we gave at the 2010 election, going back, was that we would be able to get the Budget back to surplus. Now we are dealing with an entirely different set of numbers.
FINANCE MINISTER: An important point here to make also is that between May 2013 and the Budget, and the Economic Statement in August 2013, the Budget position deteriorated by more than $30 billion and of course by about $3 billion a week. So obviously what we've said during the election campaign and what we will deliver is that the Budget position will be better off under the Coalition as a result of the savings that we have announced during the election campaign and which we will now be implementing in Government.
REPORTER: These numbers you are talking about today - they're actually better on an underlying cash balance basis than the numbers as forecast in the 2013-14 Budget [for] 2012-13?
TREASURER: Actually, what matters in terms of the final Budget outcome for 2012-13 is the 2012-13 Budget. Obviously by the time the 2013-14 Budget was released the 2012-13 financial year was nearly over and you wouldn't expect there to be that much more variation compared to what was already a significant deterioration to the tune of $20 billion by that time.
REPORTER: Now that we've got a fair handle on the budgetary position I assume...
TREASURER: No. Please do not assume that, please do not assume that. This is the Final Budget Outcome for Labor's second last Budget. Please do not assume that these numbers are relevant to the state of the books that we have inherited today. Please don't do that.
REPORTER: Both of you said in your opening remarks that you're going to have more to say in the forthcoming period? Are you making ground there to make more cuts than you promised before the election?
TREASURER: No. The presented numbers in the Pre-Election Economic and Fiscal Outlook are different to what exist today. There has been a further deterioration in the Budget. We are methodically going through every line item of the Budget, identifying where the numbers are robust and also appropriately looking at some of the forecasts and identifying whether they are robust or not.
REPORTER: Your thinking on MYEFO? Are you still …
TREASURER: I will have a lot to say between now and Christmas about the state of the Budget and about what we are going to do to fix the Budget. But I say again, we are methodically going through a process. We are carefully going through and looking at every number. For example the Government claimed it was going to raise $1.8 billion by changing the Fringe Benefits Tax rules in relation to motor vehicles. Obviously, after consulting with the motor vehicle industry, with the car leasing industry and others, that $1.8 billion figure was unreal. The facts, as they stand, based on evidence from the industry which the Government never consulted clearly illustrates that that number was wrong - let alone the potential compensation costs that would have had to be delivered to charities and others for the significant change that would have resulted from a continuation of that policy. We are going through those numbers carefully and it is quite a revelation.
REPORTER: Given that you're going through all these numbers carefully, have you reached any sort of view at this stage on whether the 2013-14 Budget numbers are likely to be accurate?
TREASURER: The 2013-14 Budget numbers obviously are not accurate, because the Government changed them in the Economic Statement that was delivered just before the election and the Pre-Election Economic and Fiscal Outlook. I say to you, the numbers that were released in the Economic Statement have deteriorated.
REPORTER: By how much?
TREASURER: I am not going to speculate on it but I can say that they have deteriorated.
REPORTER: What has made it worse given that since the last six, seven weeks the Terms of Trade have probably gone up if anything? The dollar is lower, those key drivers that were making things worse have gone away so what…?
TREASURER: There will be some variations in relation to times of payments and a range of other things. But it is not a significant deterioration but it is deterioration. I don't want to be in a position that predecessors from the Labor Party found themselves in where they were continually releasing numbers and the numbers continually changed. If we release a set of numbers we want to make sure they are absolutely right. There will be some variability, of course there will, but let's just get it as close to accurate as possible in the circumstances.
REPORTER: On the bigger picture of the economy you've had your initial briefings now. There's talk about housing bubbles and so forth out there. What's your view based on your briefings you’ve had so far about the outlook for the economy, whether there is any sign of overheating in property or whether there are some dark clouds there?
TREASURER: The fundamental point is that what Australia needs is an injection of confidence. We have done that by having a change of Government. The Australian people have done that by having a change of Government. Australia is now open for business, emphatically. You can see confidence helping to bring back some retail spending, you can see it in business confidence as well. That's a good thing. I'm not going to speculate on further forecasts, I'm not going to do that. I will release the Mid-Year Economic and Fiscal Outlook in good time and you will see the forecasts and that will be based on a robust assessment of a range of different variables, including the Terms of Trade.
REPORTER: Are you worried about a housing bubble?
TREASURER: No. I think the most important point is, at this stage, that there is confidence back in the real estate market in Australia. I would say to you that rising house prices actually help to make marginal property development viable. There is a shortage of supply out there and what this will do is make supply more readily available.
FINANCE MINISTER: Just on the point of the economy - there is an opportunity for the Opposition, of course, to help us strength economic growth by supporting our plans to scrap the carbon tax, scrap the mining tax, and of course abolish all of that unnecessary red and green tape which has accumulated under the previous Government.
REPORTER: Is there an expectation that company capital gains tax will be rebated in the next 12 to 24 months and secondly have been you also been briefed on the economic ramifications of the Feds tapering program in the return to more normal interest rates?
TREASURER: I was in Bali for the APEC Finance Ministers last week. I was sworn in on Wednesday, jumped on a plane on Wednesday, spent a number of days with other Finance Ministers from around the world. There was extensive discussion about the decision of the US Fed. My strong view is that we have got to focus on our own challenges and those challenges are how do we sustainably grow the Australian economy, that's what we have got to focus on. There will be market volatility and people will speculate about what the Fed is going to do but I would just say let's focus on our domestic economy. Let’s focus on getting the fundamentals right. That means having a strong Budget that is returning to surplus. That means dealing with the challenges of Government debt that we have inherited including the debt limit. Getting rid of the carbon tax, getting rid of the mining tax, closing down the Clean Energy Finance Corporation - my dance card is pretty full at the moment. I'd just say to you, we obviously monitor what is happening in global financial markets but we are going to do everything we possibly can to avoid or minimise the influence of global volatility on the Australian economy.
REPORTER: On a housekeeping matter; in your time as Treasurer now, have you spoken to the Reserve Bank and have you reaffirmed the Government wants the Reserve Bank to target interest rates at the 2-3% level?
TREASURER: I haven't given them that formal engagement process yet, but I have had briefings with the Reserve Bank.
REPORTER: During the election or before – I can’t remember which - you talked about broadening or looking at the way Treasury forecasts, particularly revenue and perhaps bringing in some private sector assistance. Have you taken any steps on that?
TREASURER: I was sworn in last Wednesday. I have spent three days travelling. I have been here all week, as much as I love Canberra - I just want to affirm that. I'm here all this week and here all next week and then I'm expected to go and I will go to the IMF, World Bank and G20 meeting in Washington, so in that time I'm being fully briefed on as much as possible.
REPORTER: You mentioned a range of things on your dance card. Amongst the various issues facing the Australian economy is the slowdown in capital [inaudible] work related to the resources boom. Is that a reason to accelerate infrastructure spending and if so, is the Federal Government got a role in that?
TREASURER: Yes. We are looking at ways that we can stimulate growth, particularly in the next 18 months and beyond. There is a challenge that we recognised in Opposition and the Government talked about of sustaining growth and increasing economic growth. From my perspective - and the Coalition's perspective - infrastructure investment that is based on proper cost benefit analysis is a good investment that helps to improve productivity growth and that is the sort of thing we need to drive.
FINANCE MINISTER: Just in relation to this, I refer you to the Coalition's pre-election costings where you can see that there is a list of 31 key infrastructure projects where we've said that we would either accelerate, expand or make new commitments in terms of additional infrastructure which comes at a total cost of about $11.5 billion, some of which comes out of existing resources in the nation building funds. But of course there is a net increase that we have put out there quite transparently in our pre-election costings of about $4.6 billion once you take redirections and re-prioritisations into account.
REPORTER: You mentioned just then you want to return the Budget to surplus. Mr Abbott said it during the election campaign probably about 500 times that was his intention to return the Budget to surplus. Based on what you know now can you tell the Australian people when you will return the Budget to surplus?
TREASURER: You will see our plan over the next few months to return the Budget to surplus. I'm not going give an on the run assessment of the current Budget. We'll deal with it in a careful, prudent methodical way.
REPORTER: I have a Dorothy Dixer for Senator Cormann.
FINANCE MINISTER: I like my Dorothy Dixers. You can have two.
TREASURER: He’s never had them before. He’s never been a Minister.
REPORTER: You said you're inheriting a $30 billion deficit...
FINANCE MINISTER: And growing.
REPORTER: This says 19. We all know that last year's deficit was phoney because so much spending was shifted into 2011-12 and same into 2013-14. Do you have an underlying deficit figure which says what it would have been had all payments been made in the normal timetable?
FINANCE MINISTER: Let's just make a couple of observations here. Firstly, in the lead-up to the 2010 election you might recall that Labor promised a $4.5 surplus for 2013-14. In the Budget in May that became an $18 billion deficit and of course by the time of the Economic Statement and the Pre-Election Economic and Fiscal Outlook that had deteriorated further by $12 billion to $30 billion. So the point that I was making was a historical one and that is that when Kevin Rudd and Wayne Swan took Government in 2007 they inherited a very strong fiscal position from the Coalition with a $20 billion surplus, no Government net debt, about $50 billion in the bank and the Government at that time was collecting more than a billion dollars of net interest payments per year. If you fast forward to 2013 and look at the situation the Treasurer and I have inherited for 2103-14 - it is $30 billion of deficit and growing. It is net debt which is heading to $200 billion and will exceed that over the forward estimates according to Labor's estimates and Labor has been spending about $10 billion on net interest payments a year. So that just shows the dramatic turnaround and the dramatic deterioration in the Budget position after six years of Labor.
REPORTER: What do you see as the risks that the Australian economy is facing based on the briefings you've received from Treasury?
TREASURER: The greatest risk to the Australian economy has been a continuation of the Labor Government.
TREASURER: Since the election? I'm not going to start dissecting the Australian economy in our first press conference. I want us to be at our best as a nation. I want us to be at our best as a nation and we will do whatever we have to do to ensure that growth continues, that we try and address the rising unemployment legacy that Labor gave us. That we try and prevent the massive increase in Government debt that Labor has left us and that we deal with some of the things that Labor didn't want to deal with or couldn't deal with. As part of the dance card, one of the challenges we have is that so much of what Labor said in the last 12 months has proven to be fundamentally incorrect.
REPORTER: Any impact on the Budget from the IPCC report?
TREASURER: On this current Budget? I can't give you an answer on that. I haven't seen this new IPCC report. It was released overnight I understand.
REPORTER: You mentioned earlier that the idea of helping the economy by spending on infrastructure and Senator Cormann mentioned the $11.5 billion in the Coalition costings. Do you think that you can add to that? Do you think that over the next six months you can actually unveil further infrastructure investment and do you think you can unlock private sector investment and help make that happen?
TREASURER: Prime Minister Abbott has said he wants to be known as an infrastructure Prime Minister. He will be.
REPORTER: Can I just take you back to the Fringe Benefits Tax. You said that the change the Government made wasn't going to raise the $1.8 billion. That came from Treasury. These are the same people now advising you. Are you saying those numbers are wrong? What would it raise and what does it say about your relationship with Treasury that the numbers they provided only a few months ago are so wrong?
TREASURER: The starting point is I have a very good relationship with Treasury. In fact, yesterday myself. Minister Billson, Assistant Treasurer Sinodinos and the Parliamentary Secretary Steven Ciobo – the four of us - went and addressed 900 of the staff. The media missed it, it was outdoors actually. It was the first time anyone can recall that happening. We talked with them and I said emphatically, “a strong Treasury is a strong Treasurer”. Therefore we need to work together in partnership and we are. It is based on mutual respect and I will not be using the Treasury as a political shield or a political sword.
REPORTER: And on the FBT?
TREASURER: And on the FBT I'll have more to say about what when we release the Mid-Year Economic and Fiscal Outlook.
REPORTER: Based on the relationship of mutual respect, why is Dr Parkinson's contract being truncated?
TREASURER: I don't accept that it has.
REPORTER: Assuming Parliament comes back before the end of the year, will you legislate to raise the debt ceiling before Christmas and also when you let us know when we're going to see MYEFO. Do you subscribe to the point that Saul Eslake made this morning that if you do postpone MYEFO…
TREASURER: Wayne Swan said when he was asked about the debt ceiling, it will be someone else's problem. Well, meet someone else. I'm standing before you. This has to be dealt with, and it is Labor's legacy. The debt limit is an issue that we are dealing with now. Quite obviously the major pieces of legislation in the first week of Parliament; the repeal of the carbon tax package, the repeal of the mining tax package and the closure of the CEFC. We have to increase the debt limit because I am advised that we will go extremely close to the debt limit of $300 billion before Christmas. Labor refused to deal with it - they didn't have the courage to deal with it. We will deal with it and it will be Labor's limit - it will be what they would have left us with. The final major piece of legislation from our portfolio perspective is cleaning up Labor's mess of announced but unlegislated initiatives in relation to taxation. We are methodically going through that list. There has been very little stakeholder engagement. The Government in the last few months announced a whole range of tax initiatives without understanding what the impact was on the economy. We are carefully going through those initiatives. That is why I say we have got a full dance card and you will see and hear a considerable amount from us over the next few months.
FINANCE MINISTER:On the timing of MYEFO; firstly we haven't made a decision on the timing and as the Treasurer said we're going through a calm, methodical and structured process to make that decision once we've considered all of the relevant advice. But let me make two observations though. Firstly we, of course, have had a Budget update in the form of the pre-election economic and fiscal outlook in August and secondly the Charter of Budget Honesty Act actually explicitly provides for the Mid-Year Economic and Fiscal Outlook to be released by the Treasurer by the end of January and of course the Government will fully comply with the provisions in the Charter of Budget Honesty Act. Thanks everyone.