Senator the Hon. Mathias Cormann
Minister for Finance
Leader of the Government in the Senate
Senator for Western Australia
The Hon. Josh Frydenberg MP
JOSH FRYDENBERG: The Budget is back in balance for the first time in eleven years. The Australian economy is strong and ready for the challenges ahead. As a result of the Morrison Government’s economic plan and responsible economic management, the underlying cash balance in the Final Budget Outcome for the 2018-19 year is $13.8 billion better than estimated at the time of the 2018-19 Budget. The deficit of $690 million represents 0.0 per cent of Gross Domestic Product. A growing economy, with more jobs and a stronger terms of trade than anticipated at the time of the 2018-19 Budget, has driven total receipts $11.5 billion higher, with payments $6.6 billion lower than expected at the time of the 2018-19 Budget. Employment growth far exceeded expectations at the time of delivering the 2018-19 Budget in May 2018. With about 300,000 additional jobs created in 2018-19, employment grew by 2.6 per cent, well above the 1.5 per cent growth forecast in the 2018-19 Budget. More than nine out of ten jobs created in the last year were at full time employment, with the proportion of those of working age in welfare now at its lowest level in thirty years. More jobs drives increases in revenue, as well as lower payments, with individual tax receipts up $5.7 billion, compared to the 2018-19 Budget forecast.
Our strong fiscal management has put the Budget on a sustainable trajectory, ensuring that we can guarantee the essential services that Australians need and deserve. The 2018-19 Final Budget Outcome shows that we have kept spending as a share of GDP at 24.6 per cent, below the long run average of 24.7 per cent, for the second consecutive year, while also providing record levels of investment in essential services like hospitals, schools and aged care. In 2018-19, our total funding for health reached a record $80.2 billion, $4.2 billion more than we provided in 17-18, and around $19 billion more than was provided in 2012-13 before we came to Government. There is also a record investment of around $20 billion in Australian schools, $1.7 billion more than what we provided in 17-18 and around $7 billion more than 2012-13. There is also record investment in aged care, $19.8 billion. $2 billion more than we provided in 2017-18, and increasing from $12.8 billion that was provided in 12-13.
Spending on the NDIS more than doubled in 2018-19, compared to the previous year, going from $4 billion in 2017-18, to $8.5 billion in 2018-19. These outcomes demonstrate that the Government’s economic plan is working, and confirm that the Budget is back on track and will be back in the black for the 2019-20 year.
Importantly, Australia has completed its twenty-eighth year of consecutive economic growth and maintained its AAA credit rating. With more than 1.4 million new jobs having been created since we came to Government, today’s Outcome reflects the number of people in jobs and an economy which is benefiting from the Free Trade Agreements that we have negotiated over the last six years. Our FTAs, combined with strong prices to our key commodities, has seen the current account move into surplus for the first time since 1975.
Nominal GDP grew by 5.3 per cent in 2018-19, which was significantly stronger than the 2018-19 Budget Forecast of 3.75 per cent. This was the result of stronger than expected employment growth and higher than assumed prices for key commodities. The Final Budget Outcome for 2018-19 further demonstrates that the Government’s economic plan is working to create jobs and to ensure that Australians get the essential services they rely on. In the year ahead, the economy will continue to be supported by the Government’s economic plan as outlined in this year’s Budget, including the largest tax cuts in more than two decades, and out $100 billion ten-year pipeline of infrastructure spending.
MATHIAS CORMANN: Thank you Treasurer. Our efforts to keep the economy growing and to create more jobs despite headwinds and our efforts to control expenditure growth are the reasons why we have achieved a balanced budget position in 2018-19. They are also the reasons why the Budget will return to surplus in 2019-20. This is the third year in a row that the underlying cash balance in the Final Budget Outcome is materially better than forecast at Budget. As the Treasurer indicated, over the past three years the final underlying cash balance outcome was $37 billion better than forecast at Budget. Over the last three Labor Budgets, the Budget bottom line deteriorated by a staggering $70 billion compared to Labor’s original Budget estimates. We turned the deteriorating budget trajectory we inherited from Labor into an improving budget trajectory. We kept spending as a share of GDP at 24.6 per cent, below the long-run average of 24.7 per cent for the second year in a row. This is also the fifth year, the fifth year in a row, five out of five, that the employment growth outcome is better than the employment growth forecast at Budget time. 2.7 per cent employment growth last year followed by 2.6 per cent employment growth this year, well above the 1.5 per cent employment growth forecast at Budget time and well above the 1.9 per cent employment growth long term average. Stronger employment growth means more personal income tax revenue for Government without the need to increase taxes. It also means lower payments on welfare.
I am going to go into a bit more detail in relation to the NDIS. In 2018-19 we have continued to implement the transition from a state-based block-funding arrangement for disability services providers to a national demand driven disability insurance scheme. In 2018-19 an additional 115,000 Australians transitioned to the NDIS, taking the total number of participants to about 300,000 by the end of June 2019. We expect that around 500,000 Australians with a disability will benefit from the NDIS over the next five years. Importantly, spending on the NDIS more than doubled in 2018-19 compared to the previous year. It went from $4 billion in 2017-18 to $8.5 billion in just one year and it is expected to increase from $8.5 billion to $14.3 billion this financial year. We did not reach the assumed expenditure estimate of $13.1 billion, which assumed that spending would more than triple from 2017-18 to 2018-19, which had effectively been locked into the budget trajectory before we came into Government. This is in part because of the delays in some of the States coming on board and also because it has taken a bit more time for the service provider market to develop sufficiently to meet the available demand. At no point – and that is very important – at no point has our Government made a policy decision to cut funding to the NDIS. The fiscal outcome as reflected in the Final Budget Outcome as far as NDIS payments are concerned are a reflection of the actual utilisation in the context of the pace of the transition to the full roll-out of the NDIS. We remain fully committed to the NDIS, to fully funding our share and once fully transitioned, to meet and fund all of the demand for NDIS services and support across the Australian community. Most of the estimates variations for 2018-19 in relation to the NDIS were announced at the time of MYEFO last year and at Budget earlier this year. Importantly, as well as a reduction in Federal payments which you can see on page six of the Final Budget Outcome, there has been a related and consequential $1.2 billion reduction in receipts for the Federal Government from the States and Territories, reflecting lower than assumed State and Territory payments into the scheme.
In conclusion, our improved budget position puts us into a stronger, better position to guarantee the essential services Australians rely on. The 2018-19 Final Budget Outcome confirms that we have provided record funding for hospitals, schools, aged care, and disabilities services. The Final Budget Outcome shows how we are delivering on our commitments and continuing to focus on building a stronger economy and bringing the budget back to surplus and without increasing taxes – in fact, moving forward, by cutting personal income taxes by more than $300 billion over the decade ahead.
QUESTION: Just on the NDIS, the underspend of $4.6 billion, instead of turning that into consolidated revenue, shouldn’t that go into disability services in some way?
MATHIAS CORMANN: Ultimately 100 per cent of the demand in the community will be met. Across the budget, across all of the demand driven programs, whether it is the Pharmaceutical Benefits Scheme, whether it is hospitals, whether it is aged care, whether it is the NDIS, whether it is the pension – the Government will cover the cost of the demand that is there to its fullest extent. It makes absolutely no sense to put money aside when the money will be there. Essentially, in any budget, at any budget update you have movements up and down. You have got demand that is higher than expected and you have to pay more. Sometimes you have demand that is lower than expected. The situation with the NDIS is a bit unique, because we are going through a massive transition. We are going through a transition from a state-based, block funding arrangement, where quite frankly there was a lot of unmet demand and a lot of inadequate support for Australians with a disability, to a situation where every Australian ultimately who has a demand for disability services support, will receive that support tailored to their needs.
QUESTION: So they don’t need this money is your message?
MATHIAS CORMANN: No. The message is this: we are continuing to implement the NDIS as fast as we can. That relies on the cooperation of the States and Territories, and sadly some of the States and Territories came on board more slowly than we would have liked, but it also means that in the provider market there has to be sufficient service capacity in the provider market across the Australian community to meet that increased demand that we can then pay for.
JOSH FRYDENBERG: Can I just add to that, we have seen 115,000 people come onto the NDIS in the last year. Now, 90,000 of that 300,000 people that are on the NDIS to date haven’t received support before. We’ve see a ten-fold increase in the last three years as the NDIS has transitioned. Every single cent of demand under the NDIS will be met by this Government. Now, I want to point out that when it comes to demand driven programs and estimate variations, you’ll see in this document that we’ve spent an extra $700 million on the PBS that we thought we wouldn’t be able to actually spend. In the Budget that I handed down in April, we announce $1.9 billion extra for hospitals because, again, that was a demand of the program. And I point out that just as there have been estimate variations for us, there have also been estimate variations for Labor, and in Labor’s last Budget, they had estimate variations of $500 million for carers and $400 million for veterans, and in their last MYEFO, they had estimate variations of $1.5 billion for schools and $1.5 billion less for hospitals.
QUESTION: The estimate variations are taken into account, Treasurer, but aren’t you essentially conceding that the bottom line has been improved by over a smaller than expected expenditure on the NDIS? You’re confirming that?
JOSH FRYDENBERG: No, what I’m saying to you is the story out of today in relation to this improved Budget bottom line, a $13.8 billion improvement on what was forecast when the Budget was first handed down for 2018-19, and a $3.5 billion improvement on what I announced in April. The story today is the 100,000 extra people in jobs. The fact that the participation rate is now higher when we are doing the Final Budget Outcome, than it was when we announced the Budget in May 2018. And if you look at the receipts, where we’ve seen a $11.5 billion higher in receipts, the bulk of that has actually come from individual personal income tax receipts, not company tax receipts. The Labor Party goes on about the iron ore prices. Sure, terms of trade have helped with the bottom line. Nothing like they were helping Labor when they had $180 plus iron ore. But the real story today is how more people in jobs and less people on welfare has driven higher receipts and lower payments as well.
QUESTION: Despite the Final Budget Outcome, you’ve got real GDP at 1.9 per cent down from a 3 per cent forecast. Household consumption is down, dwelling investment is down, business investment is down and indirect taxation revenue down $5 billion. Doesn’t that disprove your assertion that everything is tickety-boo in the economy?
JOSH FRYDENBERG: Well, can I just say what we’ve announced is nominal GDP is above what was forecast…
QUESTION: I’m asking about real GDP…
JOSH FRYDENBERG: And the Australian economy continues to grow and as the Prime Minister, the Finance Minister and I have said, look internationally at big economies like Germany and the UK, Sweden, Singapore, Hong Kong and others, experienced negative economic growth in the June Quarter. We continue to grow. Unemployment is now at 5.2 per cent. We will get some labour force numbers today so we will see what happens there. But, unemployment was 5.7 per cent when we came to Government, it’s now 5.2 per cent. And the real strength of the economy has come from a strong labour market which the RBA Governor has actually talked about himself.
QUESTION: Treasurer, you’ve generally done a good job restraining spending over the last few years, but real spending growth blew out by 3.9 per cent in the last year, funnily enough an election year. What drove that and what guarantees do you have that spending growth is going to get back under control in the years going forward?
MATHIAS CORMANN: Spending growth is forecast to be at a record low of 1.3 per cent over the forward estimates period of 2019-20. As I have indicated in my opening remarks, spending as a share of the economy is at 24.6 per cent below the long run average. When we came into government we inherited a spending growth trajectory that was taking us to 26.5 per cent by 2023-24 and rising. We brought that down to 24.6 per cent as a share of the economy. We do have spending growth under control, but obviously in the context of the 2018-19 financial year we did face a series of challenges, including challenges related to the floods in North Queensland and a whole range of other events. You would expect a responsible Government to deal with these challenges when they occur.
QUESTION: Treasurer, I just want to go back to something that Sarah touched upon. You’ve got a lift in corporate taxation, you’ve got a strong lift in PAYG, but household spending through GST is $4 billion lower than what you projected a year ago. How do you reconcile the fact that you’ve got more people in work but they’re spending far less?
JOSH FRYDENBERG: Well, obviously we want household consumption to be higher, Shane and as you know household consumption is 60 per cent of GDP. One of the ways we can drive that is through the tax relief that has been legislated through the Parliament the last two days. It’s more than $300 billion. You’ve heard from the Reserve Bank Governor, while some people are paying down their debt with that tax relief that is flowing their way, others are spending it in the economy and it will boost disposal income. So, we obviously want to see household consumption higher, but we are pleased that the housing market has stabilised in terms of clearance rates. They are now significantly higher than they were this time last year, prices in the key markets in Sydney and Melbourne have lifted and the benefit of the fifty basis point rate cut was not fully seen in the June Quarter and obviously we’ve seen more in the September Quarter so too with the tax cuts and of course the infrastructure spending. So, we are taking action to lift household consumption, but there is also uncertainty out there and I don’t think anyone wants to (inaudible). There is uncertainty, particularly in the global economic outlook and that impacts on investment.
QUESTION: Do you think you’ve got a bit more room to move in the Budget with the better results than were projected? Is there scope to do something about consumption to get a bit of stimulus? Boost Newstart, a bit more infrastructure spending? Anything like that?
JOSH FRYDENBERG: Well, the Reserve Bank Governor hasn’t called specifically for stimulus. What he has said is that we need to maintain a continuous pipeline of infrastructure projects which we are doing and the Prime Minister has written to state premiers and we are prepared to consider, where appropriate, possibly bringing forward some infrastructure projects. But the reality is, the tax cuts were very significant, they are making their way into the pockets of hard working Australians. More than $16 billion already as well as other initiatives.
QUESTION: Why not adopt Jim Chalmers’ suggestion of bringing forward the stage two tax cuts. You’re a Liberal Government, you’re meant to stand for lower taxes.
JOSH FRYDENBERG: Well, I have to say to you, Jim Chalmers, is calling on us to bring forward tax cuts that he opposed. I mean, he called them offensive. You had Chris Bowen saying they were reckless and the Labor Party fought us every step of the way when it came to our tax cuts. And we know that they took to the Australian people just months ago, $387 billion of higher taxes. Could you imagine what retirees and homeowners and renters and people with superannuation would be doing with their consumption today if this Parliament was debating Labor’s high taxing agenda?
MATHIAS CORMANN: The important point is here, we are making responsible decisions. We are delivering lower taxes, phasing them in in a way that is affordable in the budget. We are making decisions on the spending and the revenue side of the budget in a considered fashion. The Labor Party jumps from one side to the other every five minutes. They went to the election with $387 billion in higher taxes and all of a sudden they want people to believe that they are in favour of lower taxes. They went to the last election to argue that the prescription for dealing with the global economic headwinds the Australian economy was facing was to increase the personal income tax burden as well increasing a whole series of other taxes. All of a sudden now, the same guy that was part of the economic team before the election is saying ‘oh we should do more of what the Government is proposing to do sooner’. The truth is we are making responsible decisions that are carefully calibrated to ensure that we can both deliver a stronger economy into the future, as well as making sure that our budget is on a sustainable trajectory for the future.
QUESTION: Treasurer, given the Government’s desire to hang on to that budget surplus for next year, are you in a financial fiscal position to bring forward infrastructure spending?
JOSH FRYDENBERG: We’ve got a $100 billion, ten-year pipeline with very significant projects now underway. And there are also capacity constraints. But we continue to invest in appropriate areas, and don’t forget that is not just all the infrastructure spending, that is the federal components, the states…
QUESTION: But are you in a position to bring forward that infrastructure spending without putting that surplus at risk?
MATHIAS CORMANN: If I may, on the spending side of the budget, what we are delivering here for you today is the Final Budget Outcome for 2018-19. What it shows is that for the third year in a row we are delivering a materially better underline cash balance outcome than what was forecast at budget time. Any policy decisions that the Government will make in the future in relation to either spending or taxes will be reflected in the mid-year economic and fiscal outlook in December or in the Budget delivered in May next year. We are not here to deliver the next budget for you, but we look forward to having you at this press conference when we do.
QUESTION: Treasurer, you say that the main story here is that extra 100,000 people in jobs and the contribution that has made to the improved bottom line but do you concede that that has only added $3 billion to this result whereas there has been a bigger impact from the underspending on the NDIS?
JOSH FRYDENBERG: No, firstly, there is 300,000 people who have found a job in the 18-19 year, a 100,000 more than we actually expected and the participation rate is higher than what we had expected. Now, the receipt side is $11.5 billion higher and that is a combination of both company tax receipts which were up $4.6 billion and individual tax receipts which were up $5.7 billion. One of the reasons why our company tax receipts have gone up and one of the reasons why we are having a strong economy is because we have entered into these free trade agreements with the biggest markets in our region; Japan, China, Korea, and obviously that is creating new opportunities for Australian businesses who are now exposed to two billion new businesses. So, it’s a combination of factors which have driven the receipt side of this equation and the receipt side of the equation is much more significant than what has happened on the payment side and you could also attribute some of the reductions in payments to higher incomes of Australians and more people in jobs.
MATHIAS CORMANN: On the NDIS, we more than doubled expenditure on the NDIS in 2018-19 compared to 2017-18. In one year we more than doubled. What we did not do because the transition to the NDIS was not at that stage, we did not more than triple spending, as was assumed by some of the assumptions that we inherited.
QUESTION: On the company tax side, $4.5 billion. People are going to say and they are going to want to know, how much of that is due to the higher iron ore price than assumed a year ago in last year’s May budget?
JOSH FRYDENBERG: Well, as you know, we had a very flat iron ore price and a conservative assumption at $55. Now, over the last three years, we have averaged an iron ore price of $65. Now, I hear the Labor Party saying this is all due to iron ore prices. But do you know what their three year average was, Peter, for the last three years when they were in Government? $125 and they still didn’t come close to a balanced budget or receipt.
MATHIAS CORMANN: As somebody who is here for my seventh Final Budget Outcome and who was on the receiving end of Labor’s pie in the sky assumptions on iron ore prices when we came into government and who had to make adjustments to revenue forecasts when we came into government, because the revenue projections they made based on excessive iron ore forecasting assumptions. We had to make all sorts of revenue write-downs in order to find the bottom. Now, when we came into government, the iron ore price assumption we inherited was $120 a tonne and every budget and budget update subsequently for a number of years, we had to adjust that down. What we now have in our Budget is a responsible, credible forecasting assumption, which is why under our Government compared to the Labor government we are performing on the upside compared to forecast.
JOSH FRYDENBERG: So, the actual number is seventy two dollars was our average iron ore price in 2018-19. We had a flat number of fifty five in the Budget, and as you can see, company tax receipts have been up by (inaudible)…
QUESTION: What’s the number?
JOSH FRYDENBERG: And obviously a part of…
QUESTION: $4 billion? $2 billion?
JOSH FRYDENBERG: Well, $4.6 was our company tax, and obviously it’s a combination of, we can break down those numbers, but the combination of company tax receipts being higher is of creating more opportunities for our exporters, so increasing the volume of our exports, but also an improved terms of trade. But Peter, it’s really important here, to understand that we are being conservative with our iron ore price assumptions…
MATHIAS CORMANN: Unlike our predecessors…
QUESTION: You have been.
JOSH FRYDENBERG: Thank you. And unlike our predecessors, we have seen more moderate iron ore prices than they did, as well as having more conservative assumptions in the Budget. But the real story is on the individual data sets.
QUESTION: Can I just ask about the debt figures because one of the things you guys like to talk about a lot is how you paid down Labor’s debt? Since 2012-13, debt has gone from 10 per cent of GDP to 20 per cent of GDP and interest repayments are $15 billion. Why has debt increased so much and isn’t it the case that you’re not paying down that debt, you’re increasing the debt?
MATHIAS CORMANN: We inherited a forward trajectory which was not only in deep deficit but deteriorating. We have been able to turn that situation around and we are now in balance. You only pay down debt once you are in surplus. Having said that, the borrowing requirements in net debt terms have reduced in the 2018-19 financial year. The reason why there has an uptick in net debt is because of the valuation in relation to the government securities and that is essentially an adjustment that is not based on borrowing needs, it is based on what is happening with the valuation of government securities.