The Hon. Joe Hockey MP
Senator the Hon Mathias Cormann
Minister for Finance
TREASURER: Hello everyone. This Budget represents the next step in our economic plan. When we were elected just over 18 months ago we inherited Budget deficits over four years of over $123 billion dollars. We’ve reduced that by $40 billion dollars over a four year period, and in 18 months we’ve had to deal with $90 billion dollars of write downs in expected revenue. At the same time, we’ve had the biggest fall in the terms of trade in modern Australian history, more than 50 years. It wasn’t expected, but because we have changed the nature of the Australian economy, we’ve been able to cope. We got rid of the carbon tax; we got rid of the mining tax. We’re no longer giving handouts to industries. We’re opening up new trade opportunities through the free trade agreements such as those with China, Japan, Korea, which as I identify tonight in the Budget speech, at a cost of $6 billion dollars to the Budget. And in the meantime, we are focusing on giving Australian small business the chance to have a go. This is where the jobs and the innovation is going to come from over the next decade. And in this Budget, whilst we are continuing with a credible path of fiscal consolidation of around half a per cent of GDP per year, we are mindful that we continue to deal with some headwinds, but we are coming through the most difficult days. The Australian economy is going to grow faster. The deficit is coming down. Unemployment will peak at 6.5 per cent; we expect it to come down. We’re seeing good export growth. And the reason why our forecasts are positive, are going to 3.25 percent in the out years is because we are now seeing historic lows on interest rates, we’re seeing low petrol prices and low electricity prices and because consumers, through their consumption, represent 60 per cent of the Australian economy, we can see good growth coming in the future. Importantly, we are laying down opportunities for small business to invest. Having a $20,000, 100 per cent tax deductibility opportunity for small business is hugely important. Two million small businesses can buy and write off multiple items, up to $20,000, and it starts from 7:30pm tonight. Also importantly, very important, we are opening up new parts of Australia. The $5 billion concessional loan facility for investment in Northern Australia is the first step. It is the first step in the opening up of one of Australia’s long term great growth opportunities. So, we have balanced the challenges of the current economy, we’ve taken into account the demands of Australians to be confident and invest in the future, and also we are continuing with a number of structural initiatives from last year’s Budget, that ultimately are going to help us to strengthen the overall Australian economy. Over to you Mathias, and thank you to you for your great work.
FINANCE MINISTER: Thank you Treasurer. When we came into Government, we inherited a weakening economy, rising unemployment and a Budget position which was rapidly deteriorating on the back of unsustainable spending growth. We came into Government with a responsible, long term plan to strengthen economic growth, to strengthen job creation and to repair the Budget. The economy has been strengthening, jobs creation has been strengthening and the Budget is on a credible path back to surplus. Importantly, we have kept the discipline on spending, with all new spending more than fully offset by spending reductions. Over the 2014-15 forward estimates, we are now spending about $7.3 billion less than projected at MYEFO. We continue to control expenditure growth in this Budget with spending growth to 2018-19 at about 1.5 per cent above inflation on average per annum, less than the 3.6 per cent under Labor and less than the 2 per cent they promised but never delivered. The major reason for the slight increase in the on average expenditure growth over the forward estimates is the ramp up in expenditure on the NDIS in 2018-19, with spending on the NDIS due to increase by about 67 per cent above inflation over the forward estimates. Importantly, spending as a share of the economy is projected to fall to 25.3 per cent over the forward estimates. The size of the public service has reduced again to below 2006-07 levels. And as the Treasurer indicated, despite having had to deal with a $90 billion reduction in expected tax revenue, we remain on a credible path to surplus, with our timetable back to surplus unchanged from last year. The bottom line is that there is more work to be done, but we are now heading in the right direction and we are making progress.
TREASURER: Over to you.
JOURNALIST: Treasurer, in the Budget papers it says that real payments growth is being kept to 1.1 per cent over the next couple of years, but then it is going to go up to 3.1 per cent and then the Budget papers themselves say this indicates that further Budget repair is necessary over the medium term. So my question is, if that Budget repair is necessary over the medium term why not do it now?
FINANCE MINISTER: If I can take that question. So the 1.1 per cent spending growth above inflation was over the 2014-15 forward estimates. As I have indicated in my opening remarks, that is going to 1.5 per cent on average over the 2015-16 forward estimates. You mentioned the 3.1 per cent in the final year of the forward estimates, that essentially relates to the ramp up in spending on the NDIS. What we’ve done in this Budget…
TREASURER: Which was not fully funded.
FINANCE MINISTER: Which was not fully funded. What we’ve done in this Budget is made measured responsible decisions on how we can get ourselves on a sustainable spending growth trajectory over the medium term without going too far.
TREASURER: And sorry, the important point is, the NDIS was never fully funded by the previous Government. I want to emphasise we’ve still got more work to do. We’ve still got more work to do. This is not the end of the process, it’s a step along the way. And we know that we’ve got to continue to reduce the size of Government, and we know that we’ve got to do it in a balanced way. But we want the economy to strengthen, we want the economy to build up momentum, and we’re seeing very good signs internationally. I’m not going to overplay it, but I truly believe we are seeing some good signs internationally that will help us [inaudible].
JOURNALIST: Treasurer, you’ve talked about, you used to criticise Wayne Swan for having very optimistic projections in the Budget you talked just then about low petrol prices, low electricity prices and the actions of the reserve bank and getting to a 3.25 per cent growth rate in the out years of the Budget, isn’t that a little optimistic, and isn’t it more optimistic than the RBA projected last week?
TREASURER: No, well, there’s two things. The RBA obviously forecasts rather than projects; forecasts on the basis of calendar years. Last year they were a little more optimistic than us, this year they were a little more pessimistic. Look at the glass half full. Look at the glass half full. If you look at dwelling investment, which is obviously - record building approvals, asset prices are going up, you’ve got those record low interest rates, the Aussie dollar is still pretty high. We can see some good growth for Australian exporters; see export numbers in particular are going to increase. I’m more bullish on China than a number of other people, but in fact there is a measured response about China here. I actually see, as I say in my Budget speech, you can see that the change in the economy of China is actually going to help our services industry. Services represent 70 per cent of the Australian economy, but only 17 per cent of our exports. So through the free trade agreements we can get on the ground in China. India’s growth, they represent one tenth of the capacity that we could have to export to them. We see tremendous growth opportunities in India as well. Look, I have always been cautious about our forecast. I mean, my caution has been reflected in the iron ore forecasts, I mean a number of people said well, you know, you’ve been too pessimistic about iron ore, at $90 a tonne. Then they said you’re being too pessimistic at $60 a tonne. Well, I think we’re being realistic…
JOURNALIST: [inaudible]…. Accelerated depreciation for small business, $20,000 per year per asset, if there’s a stampede buying ride-on mowers and photocopiers will you cap that, or will you [inaudible]?
TREASURER: No. We want people to spend, we want people to go out and have a go. We want them to have a go. Small business is going to be the engine room of innovation. It’s going to be the engine room of new jobs. And when you can have businesses in this world, that were small businesses, start-ups, just a few years ago, and suddenly become the great disrupters of the global economy, we have that capacity as well in Australia, we’ve just got to give people the chance. And that’s exactly what we are doing. There’s two million out there that want to have a go, but they’ve been constrained. We’re unleashing the opportunity.
JOURNALIST: Does that mean that if it outstrips the projected expenditure, you’ll be a happy man?
FINANCE MINISTER: It’s not expenditure, just to be very clear.
TREASURER: It’s a tax cut.
FINANCE MINISTER: The Labor party describes tax cuts as expenditure, but the Coalition doesn’t. It is a very important distinction.
JOURNALIST: But if your figures in accordance with Phil’s prognosis turn out to be pessimistic, optimistic, then are you happy if more people [inaudible]?
TREASURER: Ultimately, they’ve still got to pay for the goods. So it’s still out of their pocket. The fact that they can get a deduction for it, they don’t get 100 per cent of the $19,900 that they spend, depends on their taxes and various other things. But, this is about getting on with it. This is about giving people the chance to get ahead. You know, when you give people back the money that they earn, and you say, have a go, go out and employ more people, this is about growing the economy. And I say to you, if there is an exceptional response, I say, fantastic, because that is going to mean the economy is growing even faster than we might have [inaudible]…
JOURNALIST: Treasurer, given your experience with last year’s Budget measures in the Senate, how important is it to get all of these measures through the Senate this term?
TREASURER: Well, it’s always important and the heat’s now on Bill Shorten. I mean, you can’t tax your way to prosperity. It is impossible to tax your way to prosperity, and Mr. Shorten here has come up with new taxes on higher income individuals, that’s all fine, that’s not going to fix the challenges in the Budget. Because ultimately there is still a spending challenge in the Budget, and that’s why when we looked at small business, how to fire it up, it wasn’t about writing out a cheque for $900, or pink batts, or anything else. We’ve said we’re giving you back your money, we’re giving you, in particular, with accelerated depreciation, an option to spend more of your money in order to get the benefit. So it’s creating activity, and that’s what we want.
JOURNALIST: Your jobs scheme, you’ve got work subsidies, employment subsidies in there, as well as programs to encourage youth. What’s your projection of how many jobs that might create, and what are the subsidies [inaudible]?
TREASURER: Well I can’t give you a projection on the number of jobs, because it’s intensive work. One of the things we’ve found is that whilst the rather regimented programs are important, if we can give maximum flexibility to a number of people on the ground, like the Brotherhood of St. Laurence, and a number of others that are actually in very high unemployment areas, and also are right on the ground, and are looking for flexible facilitation of what they’re doing. Then we can get better results. This is intensive work. You know, the youth unemployment rate in various parts of the country is way too high. Way too high. You can have another $2 billion dollar program, or another $1 billion dollar program, but ultimately there are people on the ground that are working in that area, particularly out of the NGOs, we’re trying to give them maximum flexibility. In relation to wage subsidies, in particular we are again giving our providers maximum flexibility, if it works better to have a faster approach so that the wage subsidy can be used for a training program, or something like that, then it’s totally in the capacity of our job provider to work with the employer to get that outcome.
JOURNALIST: What’s happened with the importance of getting higher education fixed up and also dealing with the problem of health spending [inaudible]?
TREASURER: Absolutely. The fact is, in relation to Medicare, Sussan Ley is working with the doctors to look at the schedule, and working through the schedule. I think that’s hugely important, given there are, I understand, thousands of item numbers on the schedule. In relation to higher education, it is in our Budget, we are absolutely determined to put it back to the Senate. That is one of the structural reforms from last year, as childcare is a structural reform this year. We are absolutely determined to continue with our structural reforms.
JOURNALIST: Mr. Hockey, when you came to government you promised an end to debt and deficit, you’ve got a surplus of [inaudible] given that, why is it [inaudible]?
TREASURER: Well I’d say to you, we are actually, we have a credible trajectory back to surplus. We are fixing the deficit, and of course we, over the long term, over the medium term in fact, have at least $110 billion less debt than our predecessors would have had, $667 billion. But in addition, we’ve lost $90 billion of revenue over the last 18 months on our forward estimates; $90 billion. So I would love to do more, I would love to do more, but we’ve got to get the balance right between the needs of the economy, and importantly, and importantly, continuing with a credible path of fiscal consolidation which is 0.5 per cent per year over the forward estimates, which is pretty similar to the last [inaudible].
FINANCE MINISTER: And despite having lost $90 billion worth of expected tax receipts, the timetable to get back to surplus remains unchanged from last year’s Budget. Now in relation to Government net debt, it is actually projected to peak in 2016-17 and then to come down.
JOURNALIST: Treasurer, do you acknowledge your Budget deficit reduction remains dependent on the $80 billion reduction on health and education funding for the states from 2018. You’re in dispute
with the states, you’ve got white papers on the federation of the tax system. Is future funding for the states non-negotiable?
TREASURER: Well, the bonus payments to the states were never funded. If Mr. Shorten’s going to reinstate them, he can find the money. Then it comes back to Eliza’s question, of where he’s going to find that money. So that, they were bonus payments, but I’d say to you over the next four years, real growth, real growth, in health spending, and education spending is 6 per cent. So that’s in real terms - growth. But the bonus payments were never funded, they were never there Quentin.
FINANCE MINISTER: And there is an important additional point. Labor locked in pie in the sky, unfunded spending growth, supposedly on health and education, in the period beyond the published forward estimates. That was never affordable. What we have done is put spending growth on a more realistic, more affordable medium to long term trajectory for the future.
TREASURER: Quentin, some of the states are running surpluses. We’re not running a surplus. Don’t shed a tear for the states; don’t shed a tear for the states.
JOURNALIST: The asset depreciation issue, if it is so good now why did you get rid of Labor’s less ambitious version? Secondly, mine’s a very parochial question, WA goes to 32 cents in the dollar the following year, does this mean you are going to have to dig into your pocket once again, Mr Hockey?
TREASURER: See it’s in my pocket for WA [laughter].
FINANCE MINISTER: I’m all ears.
TREASURER: On WA, yeah, look, in relation to Western Australia, when the iron ore price was looking at $35 a tonne, it was falling dramatically, it got down to $43 a tonne, there were obviously variations in the estimates of where Western Australia’s Budget would be at. I have said previously, I don’t think it’s good for the Federation, for one state, and we have to explain to them, we’re all Australians. To explain to one state that you’re only getting 30 cents back in the dollar of every GST and tax you pay, to individuals in Western Australia. Now, we’ve addressed the issue in the immediate moment, and the Prime Minister has put it on the table for discussion with the Premiers. In relation to accelerated depreciation under the previous Government. It was part of the Mining Tax package that raised no money; no money.
TREASURER: Hang on, I’m not arguing, but it was - the Mining Tax. I mean, whenever you hear the other mob talk about a tax, I will throw the Mining Tax at them. Imagine the Mining Tax at $48 a tonne on iron ore. Zero. How much expenditure against it? $19 billion dollars, $19 billion dollars based on revenue that is zero. And one of our successes last year was getting the whole Mining Tax package repealed, along with the Carbon Tax and a range of other things, because thank God, at an iron ore price of $48, I could tell you we’d be paying money to the miners. We’d be paying money to the miners. We wouldn’t be receiving anything from them. We’d actually be writing them out a big cheque.
FINANCE MINISTER: And we’d be spending millions on administering a tax that doesn’t raise any cash.
JOURNALIST: Just on the agricultural white paper [inaudible] signed off on this and how does it weave into the Northern White Paper and is it just an ad hoc process?
TREASURER: No, not at all, and why, because we have it funded in the Budget. We’ve made an allocation for its funding in the Budget. But, there are some items that we want to consult further with some of the farmers about, in relation to the Agricultural White Paper. I’m really proud of the initiative, to give instant asset write-off on fencing. There’s a lot of farmers, I’m sure you’re an Ag reporter, you know a lot of farmers that pretend it’s just repair of fencing, that they’re putting up new fencing. This is a big productivity supporter. I mean, this initiative will help with self-farming, which is far more productive and actually better for the environment. And it will also help a lot with pest control. A lot of farmers actually don’t erect fences, you know, because it becomes expensive. You know, the more fencing we have and the better utilization that exists in farmland, through self-farming, you’re going to see a better outcome. So that’s one step. There are more to come, and in Northern Australia, the Prime Minister has already announced $100 million to improve the cattle routes, which is hugely important, given the massive growth in cattle exports, and the good prices, I might add. And there’s more to come in that regard as well.
JOURNALIST: [inaudible] how will that help them get a job [inaudible]… in future years revisit last year’s proposals [inaudible]?
TREASURER: No, we listened, and we heard. And that previous proposal for under 30s is off the table. And now it’s under 25s, and as you correctly identified, it’s four weeks, but we obviously still have the learn phase of that in from last year’s Budget, where for example we provide HELP loans to people undertaking sub-diplomas and the like, and also importantly we’ve got that loans scheme still in place for apprentices, and that’s proving to be hugely popular.
JOURNALIST: Mr Hockey, in the event that your glass half-full [inaudible] have you war-gamed [inaudible]?
TREASURER: Look, our numbers are the best available numbers. There’s nothing gilded there. I haven’t influenced the numbers. They are based on the best information. I’ll leave it to economists to opine on whether we’re too positive or too negative, but as far as I’m concerned, they are the best possible forecasts we could have in this environment. Now you can always look at the dark side of life. You can do that; not me. Because you know what, I can see it, and it’s on the ground. People want to have a go. Big business has more cash in its pockets than at almost any other time. Interest rates are low. The cash in the economy is enormous, and it’s ready to invest,
it just needs that incentive, that moment, that trigger that is going to unleash that investment. And we’ve turned to small business and said we want you to have the go. We want you to put it in. And we think it’s going to happen.
JOURNALIST: The government today has detailed exactly where the foreign aid cuts are going to be felt by our overseas partners, Indonesia is copping reductions of about 40 per cent, how did the government arrive at that conclusion that it should be 40 per cent?
TREASURER: Well, I can tell you that all the cuts in foreign aid were announced last year as you know, in both the Budget and then in MYEFO. Julie Bishop has gone through a proper process of evaluating a number of things. Firstly, she considered whether those countries themselves are giving foreign aid. A number of countries that we were giving foreign aid to, were actually going and giving foreign aid away themselves, so that was number one. Number two she looked at their forecast economic growth and their capacity to do it. Number three, she looked at the regions and said well, we have a responsibility to take care of our region. So there wasn’t any specific targeting of any single country at all, I want you to take that out of your mind, not at all. We’re actually, there has been a formula that has been applied by the Minister.
TREASURER: Well, firstly we are not introducing a bank deposit tax. Labor had a bank guarantee levy, I think they called it, in relation to the deposit guarantee that is available to the banks. They put it in the Budget, it is still in the Budget. We said that we would respond to that particular initiative when we response to the Murray Inquiry which I will be doing in the next couple of months. And we will have more to say about it. We haven’t touched it. It was Labor’s initiative, we haven’t touched it but we will have more to say about it in the next couple of months.
TREASURER: I said we will have more to say about it in the next couple of months Fran.
JOURNALIST: Treasurer, you said that [inaudible], how will they address the accessibility of places in childcare [inaudible]?
TREASURER: Well, the work tests are going to be important in helping workforce participation and in relation to places, as the Productivity Commission identified, there’s 165,000 parents that want to work more but haven’t got the affordable, or accessible or flexible childcare that would help them in that regard. Obviously, our childcare package doesn’t kick in until 2017 so it gives the childcare centres in particular the opportunity to prepare for that increase in usage but also, the nanny program which is hugely important for people doing shift work, is about flexibility. That trial is going to be hugely important in further identifying the needs of parents.
FINANCE MINISTER: We are putting significant additional resources into childcare. We are putting a significant additional investment into childcare. When you increase your available resources, over time that will lead to an increase in supply and that will help not only with affordability but also with accessibility of childcare.
TREASURER: Okay, a couple more, Tom, haven’t seen you for a while!
JOURNALIST: Guys it was cigars last year, what will it be this year?
TREASURER: Great to see you again Tom [laughter]. We’re very focused on the job at hand.
JOURNALIST: The Budget is all about jobs, growth and opportunity…
TREASURER: Great question so far.
TREASURER: Language programs for indigenous Australians. It must be yours.
FINANCE MINISTER: I’m sure that Nigel Scullion will be able to provide a very good answer to your question in relation to that.
TREASURER: There’s been no reduction in indigenous allocations.
JOURNALIST: I notice that your revenue as a percentage of GDP is increasing over the next four years… [inaudible]
TREASURER: Paul, I would love to hand back some of the bracket creep, I am concerned about bracket creep. As Australians on average wages start to creep into the second highest tax bracket. I have said it in Parliament, I’m sure you were paying attention and I have said it at a number of speeches more recently about the Tax White Paper. If bracket creep continues, ultimately it will slow down the economy. Why? Because middle income Australia paying more tax means they have a disincentive to work more. So this is an issue that has to be addressed. In our Budget forecasts and our medium term forecasts for the Budget we do put a cap on tax revenue for the Commonwealth Government. We put a cap on it. Which just goes to prove that we are absolutely determined to keep doing what we must for Budget repair and we’re mindful of that, but at the same time we want to fire up the Australian economy and that’s what we’re doing.
FINANCE MINISTER: Now, the only way you can actually reduce tax revenue as a share of the economy without adding to the deficit is if we reduce spending. We are committed to lower taxes. Taxes as a share of the economy are already on a lower trajectory than they were under Labor. But of course, we would want to deliver tax cuts. But the only way you can do it is if the Parliament supports the government’s efforts to reduce expenditure.
TREASURER: And by the way, Labor’s blocking $30 billion of our reductions in spending, I assume they’re going to find an alternative. Thanks very much everyone.