Senator the Hon Mathias Cormann
Minister for Finance
Date: Thursday, 25 September 2014
TREASURER: The Minister for Finance and myself today are releasing the Final Budget Outcome for the last Budget year of the Labor Government. The Final Budget Outcome for the last year of the Labor Government is a deficit of $48.5 billion. In dollar terms, the second biggest in Australian history.
Last year, in his last Budget, Wayne Swan promised a Budget deficit of $18 billion and it ended up being $48.5 billion, a deterioration in excess of $30 billion. Of the $30 billion deterioration 60 per cent was from the write-down of receipts and in particular, tax receipts. This comes down to the fact that Labor continually overestimated the amount of tax that they would collect; they continually got it wrong. This is not a confected figure, it is the real numbers, what actually came into the Budget. In relation to that, there were a number of miscalculations by the previous Government, including in particular, the failed Mining Tax, which was expected to raise around $700 million in 2013/14; it raised $100 million. Don't forget, it was originally meant to raise $9 billion in its original form in that year. There were other policy decisions which accounted for $11 billion of the $30 billion including the Reserve Bank capital buffer of $8.8 billion. Of course, that is money that would come out of the Budget at some point, because the Reserve Bank Reserve Fund needed to be replenished, either at that point in time or in the future, through the non-payment of dividends. There were also a couple of other issues in particular the Labor Party failed to pay for the redundancies they announced. They funded 800 redundancies but they actually accounted for 14,500 and a lack of funding for offshore processing of illegal maritime arrivals.
The fundamental point being this draws a line under the sand of the last year of Labor delivering a Budget. They made a $30 billion error between what they promised and what was actually the outcome. I will ask the Minister for Finance to say a few words and then go to questions.
MINISTER FOR FINANCE: Thank you Treasurer. As the Treasurer has said, the Final Budget Outcome for Labor's last Budget shows the extent to which the previous Government had lost control of the Budget. When we came into Government in September last year, we inherited a deteriorating Budget position, a weakening economy and rising unemployment. What the Final Budget Outcome for Labor's last Budget also shows is that on coming to Government, we were able to stabilise the Budget position as a foundation from which to repair the Budget and put us back onto a believable path to surplus. So our objective in the Mid-Year Economic and Fiscal Outlook back in December last year was to present the true state of the Budget we inherited, using more realistic assumptions than those used by the previous government and also dealing with some of the unresolved legacy issues that Labor left behind and that the Treasurer just went through in some detail. So what you can see today is that the Final Budget Outcome for 2013/14 is broadly consistent with our estimates in the Mid-Year Economic and Fiscal Outlook and at Budget time earlier this year. The constant deterioration of the Budget bottom line under Labor has stopped. The position has been stabilised, which was a necessary precursor to our work to get the unsustainable spending and debt growth trajectory we inherited from Labor back under control.
JOURNALIST: You mentioned the revenue side of the Budget and the fact that the Labor figures ended up being incorrect. You just mentioned that you think the deterioration stopped. What gives you the confidence that your new figures are looking even stronger, more reliable and what particular measures you have taken have locked that in?
TREASURER: Well, I think there is an argument, I think if you get some of the fundamental forecasts right and instead of taking an overly optimistic approach to forecasts, you take a more realistic approach to forecasts, then that ends up feeding into your underlying forecasts in terms of revenue and we've been proven right so far in that regard. There will always be one-off events or certain circumstances that create dramatic change but as you can see, there is a dramatic change.
Two years ago, Wayne Swan promised this year would be a surplus – it's a $48.5 billion deficit. That is a dramatic change in two years. A massive, dramatic change in two years. Without any single shocking event. And even before the last election, they said it was going to be a $30.1 billion deficit. Turned out to be $48.5 billion and there had to be further write-downs in revenue. Now, there was nothing that we did that made a dramatic change to the revenue that came in at all during this year. It is simply the case that they got their numbers wrong.
MINISTER FOR FINANCE: So Laura, the proof is in the pudding. What we are presenting today is the actual outcome for 2013/14. We have gone past forward estimates and projections now. So Labor as the Treasurer is saying, in May 2012 was still predicting a $2.2 billion surplus. By May 2013 that became an $18 billion deficit and we know that in the 11 weeks after that, that deficit continued to deteriorate by more than $1 billion a week. We inherited a deteriorating position. So what we set out to do was to ensure that in our first Budget update in December last year, the assumptions that we used for our estimates were more realistic and that we took into account all of the legacy issues that Labor left behind: not providing funding for their promises for off-shore processing, not providing funding for public sector redundancies, depleting the capital reserves of the Reserve Bank to an irresponsible level. So we presented our best estimate and all of us in Government whether it is Labor or the Coalition, ultimately will be tested by how the actuals compare with our forward estimates. That is the point we are making today. This is now the line in the sand in terms of the record of the previous Government. This shows what a mess Labor truly made. It also shows that we have stabilised the situation, that we now have a foundation from which to repair the Budget and get back on a believable path to surplus.
JOURNALIST: Are you preparing for write-downs in company tax revenue in this financial year?
TREASURER: We will carefully and methodically go through forecasts. MYEFO will be published in December and that will be the latest estimate.
JOURNALIST: And what's the impact at the moment of the big fall in commodity prices? The forecasts for the Budget is 6¾ fall in terms of trade, it has gone beyond that already. What's the feeling in terms of how it will feed through to your revenue?
MINISTER FOR FINANCE: What we are putting to you today is the Final Budget Outcome for 2013/14. What we will put to you later in the year as the Treasurer has just indicated is the update for the 2014/15 Budget in the Mid-Year Economic and Fiscal Outlook. That is how these sorts of updates are provided.
JOURNALIST: You're the Finance Minister, you've got a good feel of how things are flowing. Are you happy with how it is all going?
MINISTER FOR FINANCE: It would be very irresponsible to provide a running commentary when as you know in any Budget at any one point in time, there are a lot of moving parts, which is why there is an orderly and methodical process to provide updates on the Budget.
JOURNALIST: Are you suggesting that Labor, in office, manipulated the revenue forecasts, manipulated Treasury.
TREASURER: Ultimately, the forecasts published in the Budget belong to the Treasurer and Minister for Finance. That's the bottom line. We are always, whenever we sit down with our offices, we pepper them with questions, we test their assumptions, we go through all the appropriate processes to ensure that we are satisfied the forecasts are as robust as possible. Now, maybe the previous Government didn't do that, I don't know, but they seemed to get every number wrong.
MINISTER FOR FINANCE: The Government of the day is responsible for the Budget forecasts. Wayne Swan and Penny Wong kept getting their numbers wrong. They kept overestimating revenue and underestimating their spending. And Labor can run as far as they like, they won't be able to hide from their responsibility. We are taking responsibility and we will stand by how we perform against our forecasts.
JOURNALIST: Is this definitely the line in the sand? Because I am sure you said something similar at MYEFO and we have six months of your governing.
TREASURER: This is the Final Budget Outcome for 2013-14. These are actual numbers, these aren't forecasts.
JOURNALIST: [inaudible] you've been in power for nine months of this budget.
TREASURER: Well we wish we could turn everything around in a matter of milliseconds.
JOURNALIST: [inaudible] MYEFO it was $47 billion and now it is $48.5 billion.
MINISTER FOR FINANCE: Hang on, so let's be very clear on this right. So under Labor the Budget position deteriorated by more than $1 billion a week from the Budget in May 2013 to the economic update in August. What we said when we came into Government is that the deterioration was continuing. We did draw a line in the sand in MYEFO and we predicted $47 billion at that time. In the Budget in May this year, it was updated to $49.5 billion, we came in half way.
TREASURER: Half way.
MINISTER FOR FINANCE: At $48.5 billion. I have got to say that if the previous Government at any one point in time over a nine month period had been able to have the actuals come in that close to forecasts, they would have been celebrating in the aisles. Wayne Swan and Penny Wong never had that particular capacity.
JOURNALIST: So this is it? This is the final line in the sand?
MINISTER FOR FINANCE: Well this is Labor's final Budget.
JOURNALIST: Treasurer you say these, the Government must take responsibility, the Government of the day, needs to take responsibility for these numbers. Of course, at that time, Labor was saying, 'Look these are Treasury forecasts, they're our best forecasts [inaudible].' Aren't you, in essence, saying that the Labor Government exercised or flexed these numbers for political purposes?
TREASURER: We know they tried to do that in relation to a surplus. They kept claiming they were going to deliver a surplus, they never delivered a surplus, then they were so bold as to claim that they actually had delivered a surplus – publishing material in their own electorates saying they have delivered surpluses. Come on, I mean, these guys promised surpluses, they never delivered them, this is their last Budget outcome, the second biggest deficit in Australian history as I can tell.
JOURNALIST: So we were never getting the numbers from Treasury [inaudible] we were getting Labor's figures.
TREASURER: You know what, Tim, that's their issue.
MINISTER FOR FINANCE: Let's just be very clear. Labor is all over the place with this. Because at the time they were hiding behind Treasury when as the Government of the day they were responsible. Yet the other week we had Chris Bowen coming out: 'no, no, no we don't want Treasury to provide the information on Budget forecasts anymore, we want the Parliamentary Budget Office to do it.' Labor is making it up as they go. The truth is the Government of the day is responsible. We are taking responsibility. We are drawing a line in the sand and we are repairing the Budget.
JOURNALIST: Overall, [inaudible], get your surplus targets over the next couple of years despite falling iron ore prices [inaudible].
TREASURER: Laura, there are swings and roundabouts. There are literally hundreds of decisions that are going to be made between this point in time and two or three years down the track.
JOURNALIST: Your policy goal is to [inaudible]
TREASURER: Absolutely, our policy goal remains, we have to get back to surplus and start to pay down the debt.
JOURNALIST: Which month will we expect MYEFO to be [inaudible].
TREASURER: I said December and that is because, and I said it at the Press Club last year, I want us to have the most up to date data. This is another good example, I mean, it is much better to have the September quarterly accounts feeding into MYEFO so that you've got more accurate data in MYEFO than to do what the previous Government did and mix it around in time and actually end up on the economic data from the previous financial year which has, perhaps, little bearing on what your updated forecast should look like.
JOURNALIST: Just a quick one, [inaudible] the G20 meetings at the weekend, the IMF coming up, are you concerned about the health of the global economy, global growth, are you seeing greater headwinds coming at us from some local trends [inaudible].
TREASURER: There are significant local challenges, but they can be beaten. Germany has, is obviously facing some new headwinds, but the German Government which has been fiscally prudent over an extended period of time does have the capacity to address that in the short term. It is also the case that even through China is facing some challenges, particularly in the property market, I think China can overcome some of those challenges and it has the strength of leadership and the policy initiatives that give me confidence that China can meet its growth target or near its growth target and later this year I will be visiting Japan on the way to China for APEC. I'm looking to have further engagement with Finance Minister Aso about the Japanese economy, [inaudible] back in Washington for the IMF and World Bank autumn sittings and also the G20 again in Washington in two weeks so we'll get a further update.
JOURNALIST: When will you expect MYEFO?
TREASURER: I said December.
JOURNALIST: Senator Cormann, is it embarrassing that the banks have asked for more regulation given what you have done with FOFA?
MINISTER FOR FINANCE: Not at all. What we're doing with FOFA of course is getting rid of unnecessary costly red tape which just pushes up the cost of advice for investors saving for their retirement, managing financial risks through life and we have kept all of the consumer protections that actually matter to consumers, such as the requirement for advisers to act in the best interest of their clients and also the ban on conflicted remuneration for financial advisers. Now when it comes to professional, ethical and educational standards, the Government has said all the way through that we support further efforts to keep lifting professional, ethical and educational standards. We are working with the industry to do that in the best possible way because the objective ought to be to make progress in this space in a way that is as efficient as possible so that we don't keep pushing up the cost of advice. The Financial Planning Association, the Association of Financial Advisers, the SMSFs Professionals Association all have done some excellent work in recent years, lifting professional standards, lifting ethical and educational standards. So we support that work. We are also progressing right now an enhanced public register of financial advisers, which will provide transparently available for consumers, information about adviser credentials, adviser status in the industry and so on. That is a sensible way forward. We are also supporting the work of the Parliamentary Joint Committee which is looking at further measures to make improvements in this space.
JOURNALIST: But are you supporting the FSC proposal?
MINISTER FOR FINANCE: Well what I would say in relation to the proposal that was put forward by the Financial Services Council is that I don't expect anyone to put up the white flag when it comes to providing leadership in the industry themselves about lifting professional, ethical and educational standards. I expect the Financial Services Council to join others like the Financial Planning Association, the AFA, SPAA and others in providing leadership to the financial services industry on lifting professional, ethical and educational standards. I don't believe that another layer of bureaucracy on top of the regulatory arrangements that are already in place through ASIC in particular is appropriate. Now I've indicated that to the Financial Services Council directly. What I'm interested in is working with all stakeholders to lift the professional, ethical and educational standards in the most efficient way possible moving forward, recognising the work that has already been done. But I don't want anyone to say that they can't do better, even within the regulatory arrangements that are currently in place. To say that somehow the FSC doesn't have the capacity to provide leadership in this space themselves as well I think is a cop out.
JOURNALIST: There were reports over the weekend that domestically you view changes to the industrial relations system as a way to boost growth. How much change would you need [inaudible].
TREASURER: Well I wasn't the source of that report.
JOURNALIST: Just on FOFA would you bring on the legislation on FOFA this afternoon [inaudible]?
MINISTER FOR FINANCE: Well no. The short answer is no because on Thursdays in the Senate for those of you who are across the intricacies of the Senate it is actually a non-Government day in the main. Our priority today in the Senate as I understand it from our leadership team, is to deal with the national security legislation. Improvements to the Future of Financial Advice laws are on the list, but I would expect that it would come up some time next week.
TREASURER: Thank you everyone.