Senator the Hon Mathias Cormann
Minister for Finance
Deputy Leader of the Government in the Senate
Senator for Western Australia
The Hon Scott Morrison MP
Federal Member for Cook
Date: Tuesday, 26 September 2017
TREASURER: It’s good to be here with my colleague Mathias Cormann, Finance Minister, to announce the Final Budget Outcome figures for 2016-17. Today’s Final Budget Outcome figures demonstrate again the wisdom of the careful approach that we’ve been taking as an economic team with the Prime Minister to our Budgets. Our disciplined approach to financial management implemented over successive budgets and updates has been successively and successfully de-risking the Budget. The Final Budget Outcome deficit for 2016-17 has come in at $4.4 billion better than what was contained in this year's Budget, to be less than 2 per cent of the size of the economy at 1.9 per cent of GDP or at $33.2 billion, and that is down from $37.6 billion as was forecast in the Budget in May of this year.
Payments have come in at 25 per cent of our economy, 25 per cent of GDP. That is well down on the 25.8 per cent estimate that I first announced with the Finance Minister in Perth, I recall, some years ago in the 2015-16 MYEFO. That is $5.6 billion down on the first estimate I provided for that 16-17 year in the 15-16 MYEFO. It is also down on the Budget night of 2016. The biggest contributor to what we've been able to achieve on the spending side has been a reduction on payments on social services of more than $5 billion from when we first announced that position on Budget night in 2016.
Now since 2013-14, we have been holding the line on expenditure. At the time of our Government's first statement in 13-14, payments for 2016-17 were estimated to be at $447 billion. The final budget outcome is at $439 billion for that year now. However, revenue, has come down $22.9 billion over the same time from that original estimate from our first MYEFO. I stress this, in Labor's last budget they were forecasting revenue that ultimately proved to be $43.7 billion higher than what the Final Budget Outcome for 16-17 has produced. Now revenue was up $4.1 billion on the last estimate we provided for the 16-17 year in the Budget but was down around just over $1 billion from what we announced on Budget night in 2016-17. What this shows is that the Government has been keeping expenditure under control. We have had to deal with changes to what has happened on revenue, but all along the line we have been holding firm to keeping expenditure under control, and we have been doing that by having sensible and constructive forecasts and realistic estimates of where things are going. That is one of the key reasons why Australia, to date, has been able to maintain our credit rating because we have been transparent about this process, we have been realistic. For example, nominal growth has come in at 6 per cent for the year, for 16-17, which is exactly what was estimated in the Budget that I handed down in May for that fiscal year. In the Budget itself, in 2016-17, we had a forecast of 4 ¼ per cent. So we have come in better on what nominal growth was originally forecast in the Budget and I note that when we said 4 ¼ per cent in that Budget, the Labor Party said it was heroic. It came in at 6 per cent. What this says, is as a Government we are carefully looking at what the conditions are. We are constantly recalibrating the Budget to ensure that we have the best possible understanding of where things are going. We are not spending money that is not there. The Labor Party said there was going to be almost $45 billion more in the 16-17 year that didn't show up. The difference is the Labor Party would have spent that money and blown the deficit out by that much at least. The Labor Party’s spending can never keep up, even with their higher taxes. What we are showing is that we have been able to adjust to what has happened on the revenue side. We've kept the expenditure under control and I think today's financial Final Budget Outcome figures demonstrate that cautious and calibrated and wise approach that we have been taking to the nation's finances. Mathias.
MATHIAS CORMANN: Thank you very much Treasurer. What these Final Budget Outcome numbers show is that we continue to make progress, that we continue to head in the right direction. We are continuing to repair the Budget by getting spending growth under control and by getting stronger than expected revenue in particular on the back of stronger than expected growth and better than expected employment growth numbers. What these numbers also show is that this is not the time to shift to Bill Shorten's anti-business, anti-growth, anti-opportunity agenda, because Bill Shorten's anti-business, anti-growth, anti-opportunity agenda would lead to less growth, fewer jobs, lower wages and a worse Budget outcome for Australia.
Just pointing to a couple of the specifics in why payment numbers are less than what was anticipated in the 2017-18 Budget for 2016-17. Payments for onshore compliance and detention numbers on the back of our strong and effective management of our borders are lower than estimated at Budget time. On the back of stronger than expected employment growth spending on employment services is lower than expected at Budget time with demand across a range of employment services programs less than what was anticipated. There has been a reduction in payments to the National Disability Insurance Scheme on the back of lower than estimated payments reflecting a more gradual transition of participants into the NDIS and a lower than anticipated take up of capital expenditure.
Happy to take questions.
QUESTION: Treasurer, does this mean that we’ll return to surplus quicker than expected?
TREASURER: Well these are figures for the year that has just finished, so, the midyear update will provide updates on what we believe is occurring for this financial year and out over the Budget and forward estimates. We remain, as the figures demonstrated in the Budget, committed to seeing that projection of a balance in 2021 maintained. We have been able to hold that projection since the 15-16 MYEFO. So December of 2015. We have ensured that we have been able to keep us on track for delivery to that timetable. Now we update these things every six months and what these figures show is that we're very honest and very transparent in those updates. That very up-front approach about where we think commodity prices are heading for example. It was in 15-16 MYEFO and subsequent updates that we had some significant revisions as to where we saw those things heading and we have taken a cautious approach to that. The reason you do that is for exactly the reason Mathias says. We are not forecasting revenue that is not there. We are not forecasting revenue that allows you to spend money that is not there. That is what the Labor Party does. They did this constantly when they were in Government. They spent money they didn't have and that is what deteriorated the financial conditions. What we have done is be far more upfront about where we think those revenue figures are going and we have cut our cloth to suit what we think is going to be achieved and in fact, do better than that, and that is what the figures show today.
QUESTION: With the figures, that is good news for you, would you commit on the back of those figures to not having to raise the debt ceiling again?
TREASURER: Let me be clear about what the debt ceiling related to. It relates to the gross debt. The gross debt is different to the net debt. That is different to the net debt. What we are doing at present is we are borrowing money to put in place one of the biggest infrastructure programs over the next 10 years the country has seen, $75 billion, and on top of that, engage in the biggest recapitalisation of our defence forces that we have seen since World War II. We are also borrowing to ensure we don't draw down on the Future Fund so we can make sure that the Future Fund grows and matures to a level where it will be able to meet all of our unfunded superannuation liabilities. That is the reason the gross debt will go up above where it is now. From 1 July next year the Government will no longer be issuing securities to pay for recurrent expenditure. That ends on 1 July of next year. So you won't have to borrow money to pay for the welfare bill. You won't have to borrow money to pay for recurrent expenditure, everyday expenditure in health and education. The revenues the Government will be bringing in will be sufficient to meet those expenses from 1 July next year. So when it comes to gross debt, for those who say that they're concerned about that level, yes, I think it is a high level, but the real important figure for our indebtedness is the net debt, which will be declining. Gross debt, if you are not in favour of seeing that figure on gross debt going where it is currently projected then you can't spend on the infrastructure, you have to draw down on the Future Fund and you have to stop recapitalising your defence forces. So it is an important way the Government has chosen to conservatively and maturely fund those important commitments which are also proving to be incredibly important for the economy.
MATHIAS CORMANN: Let's just remember that a large part of the forward trajectory when it comes to expenditure is still what we inherited from Labor. We have been able to bring that spending growth trajectory down, but we are still dealing with the trajectory that we inherited from the Labor Party. There is no doubt that the Budget is in better shape than it would have been if we had not changed the policy settings that we inherited from Labor. There is no doubt that the Budget is in better shape than it would have been if Labor had been able to implement the high spending policy settings they took to the last election.
TREASURER: Our expenditure growth is just under 2 per cent, half of what it was under the Labor Party. They had a target of achieving what we have achieved. They couldn't achieve it themselves. They were growing expenditure at almost 4 per cent. We are doing it at 2 per cent. Our growth and debt is two-thirds less than what we inherited from the Labor Party.
QUESTION: Just to clarify, you mentioned the biggest improvement to the bottom line was social services. Was that the NDIS or does that also include, for example, debt recovery for overpayment?
MATHIAS CORMANN: The biggest improvement is from higher than anticipated revenue on the back of stronger growth and higher employment growth. On the spending side the largest item in terms of less than expected expenditure is lower than anticipated payments to the NDIS reflecting a more gradual transition of participants into the NDIS.
TREASURER: When you look back over the past 12 months, in that year we had 250,000 jobs created. So we have more people becoming economically independent in our society. That’s a good thing. That means people become less dependent on other forms of support. When you look at what I announced on Budget night in 2016-17 to what is in the Final Budget Outcome, we are $5.6 billion spending less and there was a $5 billion less spend on social services.
QUESTION: If you get the gas companies to play along and sell domestically how would that affect the Budget through the tax take for instance?
TREASURER: The most important thing it will influence is keeping jobs in - particularly those commercial and industrial sectors that depend on gas for their production. I'm confident - I said this at the press conference yesterday, we are looking for around 110 petajoules, that is what is needed. That is basically rounded up a few. That is what the supply shortfall is for next year. I have no doubt that the industry is more than capable of filling that gap. What you want is for them to fill that gap. That is what you need. What would be even better is if we removed the artificial constraints on gas supply in this country, particularly in the south. In New South Wales and in Victoria. That is the long-term solution. We can do what we need to do in working with the gas companies to get Australian businesses and industry and households the gas they need in the short term by using those mechanisms, but in the long term, what we need is the gas to become available. We are walking around on top of the gas in New South Wales and Victoria that our economy needs, that the jobs that depend on that gas need and it is important that this be freed up. All of those who barrack for the moratoriums need to take some accountability that those moratoriums are denying businesses and industry the gas they need to function. That is something that needs to change. In the short term, we will deal with this problem with the industry but in the long term, we have to solve the real problem and that is the supply of gas, particularly in the south. The answer is not, as the Prime Minister said yesterday, to import gas that we've sold overseas to pump it back in on terminals. Just think of the transport costs alone and the premium that people are paying. Also the answer is not to draw, necessary, the gas down from the north where it is also needed to support industry. New South Wales and Victoria has to carry its own weight when it comes to gas supplies and it is not doing it at the moment. To put that burden on the north I think is walking away from an important need to deliver those services and supply here.
QUESTION: Can you explain what a petajoule is, just for everyday people who have probably never heard that term before in their life.
TREASURER: I think from memory it is about a trillion of the most basic units, so 3 trillion is basically it. (Note: The Treasurer has clarified a petajoule is a quadrillion joules).
QUESTION: Do you have any idea how many swimming pools would fit into a petajoule?
TREASURER: I can tell you how many shipping containers. I am happy to be corrected by that if I’ve got it at all wrong. The 64.3 petajoules are currently estimated to be sold offshore in addition to existing contracts, so there is no bound commitment to sell that into the offshore markets, that is just over 15 container ships of LNG. If we can get those 15 ships back, turn those boats back around this way, if you like, then that will go a long way, I think, to addressing the shortfall that is currently there. That is why I am confident that the industry can actually respond to the challenge that the Prime Minister has set down and will be able to do that, I think, in pretty prompt order. You need to get this right. You need to get the right solution. I think the Prime Minister and Energy Minister and the Deputy Prime Minister, together with myself, are making the right call to be very cautious about implementing these other export controls. They don't come without cost either and without implications. The best answer here is to ensure that the industry can supply the shortfall and that we have guarantees that can be objectively verified around that and the even better outcome is the moratoriums on both conventional and indeed unconventional where it is appropriate, can be lifted.
QUESTION: The date for the next MYEFO?
TREASURER: It will be before Christmas, and after the National Accounts are finalised for that important quarter.
MATHIAS CORMANN: Thank you very much.
TREASURER: Ok, thank you.