Senator the Hon. Mathias Cormann
Minister for Finance and the Public Service
Leader of the Government in the Senate
Senator for Western Australia
The Hon. Josh Frydenberg MP
Federal Member for Kooyong
JOSH FRYDENBERG: Welcome, it’s good to be here with my colleague and friend, the Finance Minister Mathias Cormann. We’ll both say a few words and then open it up to questions.
Well Australia is back in the black, with a surplus of $7.1 billion and $45 billion of surpluses over the forward estimates. It is a $2.3 billion improvement since MYEFO and net debt to GDP will be eliminated by 2030. We’ll have surpluses reaching one per cent, and exceeding one per cent of GDP in 2026-27.
We have got there by being restrained and disciplined when it comes to spending growth and we’ve brought spending growth under two per cent. This is about half of what we inherited and in terms of spending to GDP at 4.6 per cent that is below the long term average and below what we inherited. When it comes to tax to GDP, we stayed well below our 23.9 percent cap, for tax to GDP at 23.3 percent.
The country is living within its means and is preparing for the challenges ahead and there are economic challenges both on the domestic and international front. You would’ve seen in these numbers that international growth has been slightly downgraded. When it comes to the global outlook, Brexit, trade tensions, are putting a damper on international growth. China has come down to around six per cent growth, the United States under three per cent, the European area under two per cent and Japan under one per cent.
When it comes to the domestic economy, growth will increase in 2019-20 (inaudible), and we’re also seeing investment continue to grow on the basis of exports, as well as we’re seeing household consumption going up. But one of our chief concerns is around dwelling investment, which in 2019-20 will fall by seven per cent, and the year after by 4 per cent. This is the worst possible time for Labor’s housing taxes. In terms of commodity prices, we have been as we have been previously in Budgets, conservative, basing our forecasts on comprehensive industry engagement by the Treasury. With iron ore on a glide path down to $55, today it’s around $80, coming down to $55 by mid-2020, and metallurgical coal coming down from around $200 today, to $150 by mid-2020. It’s slightly improved from where those forecasts were at MYEFO.
In terms of where we go from here, this Budget sets out the next stage of our economic plan to grow the economy, with a major package of tax breaks. $158 billion of tax cuts, the biggest tax cuts since the Howard Government and building on the $144 billion of tax cuts announced in last year’s Budget. Small business will also benefit greatly, with the expansion and the extension of the instant asset write-off to companies with a turnover of under $50 million, and from $25,000 to $30,000. Already over 350,000 companies have used the instant asset write-off and we expect more to do so.
There’s a half a billion dollar skills package, which will be very significant in preparing our young people with the skills to meet some shortages in the labour market, but also the skills of tomorrow. And our infrastructure spending will now extend to $100 billion. There will be cranes, there will be hard hats, there will be heavy machinery across the country, ensuring that we have the congestion-busting infrastructure to get people home sooner and to get them to work earlier. A package of tax, skills and infrastructure to help build the economy.
And the dividend from a strong economy is that we can spend more money on the essential services that people need. Increased spending on health, on education, aged care. There’s an important package of measures for mental health, particularly in youth suicide, among many others.
So this Budget will help secure a better life for all Australians and help build a stronger economy. The surplus is no accident. It’s the product of disciplined decision-making and an economic plan that is working. Australians can trust the Coalition to continue to grow the economy, to create more jobs and to guarantee the essential services that they need and deserve. Mathias.
MATHIAS CORMANN: Thank you very much Treasurer. This Budget is a further demonstration that under our Government, Australia is heading in the right direction. Stronger growth. Stronger employment growth. Lower unemployment. A Budget back in surplus after we have provided funding for all the essential services Australians rely on and without the need to increase taxes. In fact, with delivering further income tax relief to hard working families and to small and medium sized business.Our message today and over the next few weeks will be this is not the time to change direction. This is not the time to go back to Labor’s discredited approach of the past.
It has taken us two terms to fix the Budget mess we inherited from our predecessors. After just two terms, we have now delivered on stage one of our Budget repair efforts. Getting the Budget back into surplus. Stage two is paying down the debt that has been accumulating as a result of the Budget mess that Labor left behind. The job is not finished. There is more work to be done and we stand ready to do that job. In this current 2018-19 financial year, we are already in a position where our recurrent revenue more than pays for our recurrent expenditure, with a net operating surplus of $8.5 billion. To a large part, our return to surplus in 2019-20, is as a result of our efforts to better control expenditure growth. From time to time, people talk about revenue windfalls and spikes in revenue, which is not an accurate reflection of what has been happening.
It is true that the actual outcome in terms of revenue are better than our assumed revenue forecasts, but that is because our revenue assumptions have been much more realistic and more conservative than those of our predecessors. Real spending growth over the period 2013-14, so when we came into Government, to 2022-23, the end of this current forward estimates period, has been kept at 1.9 per cent in real terms. That is lower than any other government over the last 50 years. And well below the about 4 per cent average annual growth in spending above inflation, which we inherited from Labor.
Payments next financial year will be $4.2 billion lower than previously assumed and payments over the 2019-20 forward estimates period will be $21.2 billion lower than previously assumed. We continue to more than offset any new spending increases with spending reductions in other parts of the Budget, consistent with our fiscal strategy and the table I am pointing to is there in Budget paper one, statement three, dash ten.
The net impact of policy decisions on the payments side of the Budget is a $982 million improvement once we take the offsetting spending reductions into account. Spending as a share of GDP, which under Labor’s policy settings was headed for 26.5 per cent by 2023-24 and rising, is expected to come down further to 24.6 per cent over the first two years and to 24.5 per cent over the final two years of the forward estimates period, below the 30 year average of spending as a share of the economy at 24.7 per cent.
Our return to surplus in 2019 delivers on first part of our plan to repair the Budget. We now move to the second stage our plan, which is to pay down the debt by now reversing the debt growth trajectory we inherited from Labor. In this Budget Government net debt is expected to be eliminated over the medium term. In fact we are projected to reach a small positive net position of $1.2 billion by the end of the decade.
In relation to progressing Budget repair measures through the Senate, which is also something that we have been asked about, we can report that since the last election, the Government has now secured the passage through the Parliament of around $62 billion in Budget repair measures.
The net impact of unlegislated Budget repair measures that were announced prior to this Budget is now just $5.7 billion, of which just about $700 million relates to expenditure. The Budget is our plan to keep Australia on the right path to a better and stronger future. As I said, this is not the time to change direction.
QUESTION: (Inaudible) How much of this Budget is about neutralising Labor before the Election?
JOSH FRYDENBERG: Well there is a clear contest at the next election between one side of politics which wants to reduce taxes, and the Labor Party who want to increase taxes. Because Phil, as you know, they’ve got $200 billion of higher taxes. Whatever they say about the lower and middle income tax offset, people are overlooking the fact that they want to reverse stage two and three of our income tax plan; that they have a plan to raid the retirees’ savings; that they’ve got a very dangerous plan to abolish negative gearing as we know it, and increase capital gains tax by 50 per cent; their changes around superannuation; and their changes around discretionary trusts, are very significant tax increases. And it never ends well to increase taxes to chase higher spending. What we have done and what you’ll hear from me tonight in the speech is that we have brought the Budget under control, we have increased spending on the areas that boost the productive nature of our economy, particularly infrastructure, and that we’re providing record amounts of funding to the essential services that people need, all without increasing taxes. So we are not increasing taxes, the Labor Party is, that’s the clear contest between now and Election Day.
QUESTION: Senator Cormann, we’ve heard a few weeks ago that you were going to have to spend some billions on Christmas Island. The budgeted figure is very modest. Could you reconcile those two.
MATHIAS CORMANN: Well, what we have said is that we will, if we are successful at the Election, we will reverse the legislation that was recklessly and irresponsibly put through the Parliament at the behest of Bill Shorten, and which exposed the integrity of our borders and which caused the intelligence agencies to advise the Government to reopen Christmas Island. So, what is reflected in the Budget is our decision that, should we be successful at the Election, we will reverse that legislation and, which means that we will be able close Christmas Island again, as we have closed Christmas Island before.
QUESTION: So the earlier talk was a beat-up?
MATHIAS CORMANN: Not at all, like the earlier talk was based on advice from my intelligence agencies and past experience. You’ve got to remember, in the period that Labor was last in Government that we had 50,000 illegal arrivals by boat, and 1,200 deaths at sea. Labor had to open detention centres all around the place, we closed detention centres. We took children out of detention, we were able, of course, to stop the boats and achieve significant savings as a result. What we’re saying is: if we’re successful at this Election, we go back to how it was, we go back to the strong border protection measures that we had in place before. We will reverse the watering down of our border protection that Bill Shorten has put in place, and there is a fiscal dividend from that, and this is reflected in the Budget.
QUESTION: Treasurer, on the tax cuts, aren’t they pie in the sky tax cuts? You can’t legislate them before the election. You are counting on a big increase in tax revenue over seven to 10 years to fund them. Why should Australian voters trust you that they’ll ever be delivered?
JOSH FRYDENBERG: Well we are the party of lower taxes, and these tax cuts will be delivered to the Australian people. And if you are a couple earning $50,000 each, a tradie and a teacher, you’ll take home an extra $2,160 when you put in your tax return in some 13 weeks’ time. And the point is, we are combining this immediate relief to ease cost of living pressures for Australian households, for Australian families, for Australian workers, and at the same time, putting in place the structural changes, the long term structural changes that flatten out and simplify our tax system. By the time our plan is fully rolled out, David, you will have the vast bulk of tax payers in that bracket between $45,000 and $200,000 paying no more than 30 cents in the dollar. That’s a very important tax reform.
MATHIAS CORMANN: And David, the question that you are asking is the question the Australian people will have to answer in the next election: who do they trust to deliver income tax relief to hard working families? The Liberal National Government, which has legislated $144 billion worth of income tax relief before, prioritising cost of living pressure relief for low income earners, as well as addressing bracket creep, as well as reforming the tax system by removing an entire tax bracket. Do they trust us, who’ve done it before, to do it, should we be successful at the next election? Or will they trust somebody who has a demonstrated track record of pushing higher taxes to chase ever higher levels of expenditure?
QUESTION: Treasurer, yesterday, the Government helpfully suggested we shouldn’t characterise the Budget as a ‘tax splash’. You are hitting more than 10 million tax payers with rapid tax cuts; we know already that four million aged pensioners and others who are getting payments. That’s more than 14 million people. Can you tell us why ‘tax splash’ isn’t a very good description?
JOSH FRYDENBERG: Well the Coalition believes that every Australian should be able to earn more, and that every Australian should be able to keep more of what they earn. And this Budget delivers on that. And as you know we have a tax cap, tax to GDP ratio of 23.9 per cent. Now we were on track to hit that by 2022-23, if we didn’t put more money back to the Australian tax payers. Now, Chris Bowen went to the Press Club, the National Press Club, in 2013, after the Election and said, “I set four tests for the Coalition”, and one of those tests was that we had to stay under a 23.7 per cent tax curve. Now the Labor party has abandoned now any pretence of tax cuts. In fact, they’ve said that at their national conference. And the reason why is because they’ve got $200 billion of higher taxes. So Tim, it is very clear, we believe in lower taxes, and we deliver lower taxes. Bill Shorten and Labor can’t manage money, so they’re coming after yours.
QUESTION: [inaudible] Are you – can you actually rush through any of these measures through the Parliament this week?
JOSH FRYDENBERG: Well as Mathias and I have said, we will bring to the Parliament, legislation in terms of the energy supplement that’s been announced, the $75 and $125 into the pockets of pensioners and people on carers payments, single parent payments. And as for these Bills, they’re part of the package. Let me point that out, it’s a package. The changes to the tax rates, bringing it down to 32 and a half, down to 30; [inaudible] the lower and middle income tax offsets of $1,080, that is a package. We are taking that to the Australian people and we will ask the Australian people, “who do you trust to deliver lower taxes?” And the Coalition has that track record of delivering lower taxes.
QUESTION: There’s a lot of talk about being back in the black. But we’re not back in the black yet. Is that a – why aren’t you in surplus this financial year? Or was it a deliberate choice not to be?
JOSH FRYDENBERG: Well let me make it very clear: a lot of people talk about Wayne Swan’s promises. Well Wayne Swan’s promises were incredible, because, he was banking on a three per cent of GDP turn around, more than $45 billion in one year, when he made those commitments. And he was relying on $175 iron ore. What we have seen is a steady trajectory downwards in the deficits of previous years, to the point that we now can deliver a $7.1 billion surplus and $45 billion over the forward estimates. And an improvement on MYEFO. Now, Labor also missed its estimates when it released the Final Budget Outcomes, they were worse than their initial Budgets. As we know, in our previous two Final Budget Outcomes, we have beaten our Budget estimates. We under-promised, and we over-deliver. That’s the difference, the $7.1 billion surplus will be delivered, and it is the first surplus in 12 years.
QUESTION: [inaudible] Why aren’t you getting this legislation underway as quickly as you can; get it out there in the Parliament [inaudible].
MATHIAS CORMANN: Well, it’s very simple, but experience with Labor and the Senate when it comes to comprehensive tax reform, we’re just not prepared to haggle with the Senate in the remaining 24 hours in relation to comprehensive tax reform, the next stage of comprehensive tax reform. We believe that it is going to be up to the Australian people to decide whether they back us in to deliver the income tax relief for hard working families after the Election. And, if we get a mandate, we will expect that the Parliament will pass this legislation the same as the Parliament passed the last $144 billion worth of income tax relief. But, you know that, there was quite a process involved in getting $144 billion worth of income tax relief through the Senate last time. It involved a lot of conversations. We believe that the mandate from the Australian people at the election will strengthen our hand to get this through the Parliament swiftly on the other side of the Election.
QUESTION: If Bill Shorten would support, for example, the $1,080 tax cut this week that would guarantee that you would get that relief when you put your tax return in. Why not give voters that certainty of what they’re going to get, I mean, he might even support the 32.5 to 30. Haven’t you blinked?
JOSH FRYDENBERG: Well, Bill Shorten can’t be trusted. And, the fact is, the last time he thought to pick and choose, he tried to copy us on the lower middle-income tax offset and then he went differently on stages two and three, not backing us in when we wanted to cut taxes in a structural reform. This time around, we are putting one package to the Australian people, one package that will put $2,160 into the pockets of millions of Australians and reforms that will deliver a flatter, simpler tax system and put more money in the pockets of hard-working Australians.