Press Conference
Parliament House
29 September 2009
SUBJECTS: Final Budget Outcome 2008-09; Reserve Bank Governor's testimony; Defence spending; Pension increase
TREASURER:
Today I want to talk about the Final Budget Outcome for the year 2008/09. Now the stronger than expected budget outcomes that I'm releasing today do not in any way reduce or substantially diminish the fiscal challenge which has been imposed upon Australia by the global recession. I think you all remember many discussions in this room. I think you all know that the global recession has resulted in the largest fall in budget revenues compared with its comparable budget year forecasts since 1930/31, which of course was the Great Depression. And this is an event which occurred three months into this budget year. So the budget year we're talking about today captures the full force of the global recession, because just three months into the year the global economy fell off a cliff and, of course as we all know, from that point the global economy deteriorated at lightening speed and of course that had massive consequences for our budget. So the numbers today do give us a tentative step forward since the most recent forecasts in the May Budget of this year, but of course, the global recession meant that we started a long way behind.
Now some of the details. The Final Budget Outcome for 2008/09 is an underlying cash deficit of $27.1 billion or 2.3 per cent of GDP. Now this is a stronger budget outcome and stronger balance sheet than anticipated at the time of the May Budget. The Budget outcome is $5 billion better than expected at Budget and the Government's net debt position is $11.5 billion stronger than expected. Now, these stronger than expected outcomes are largely the result of a combination I think of one-off factors and also the effects of economic stimulus which has contributed to better and stronger economic outcomes. The outcome reflects lower than anticipated spending of $2.2 billion and higher cash receipts of $2.8 billion. Tax receipts were $3.3 billion above the budget estimate which is primarily the result of stronger than expected company tax collections of $3.6 billion but I'll come back to those later on. Now lower spending was due to one-off factors as well as lower income support payments including a reduction in payments of $138 million for Newstart Allowance.
The stronger budget outcome is also reflected in a significant improvement in the Government's net debt position. At the end of 2008/09 Australian Government net debt was negative $16.1 billion or negative 1.3 per cent of GDP. Now remember this, a negative net debt position means we have more debt-like assets than liabilities in 2008/09. The outcome for net debt is $11.5 billion stronger than expected at the time of the 2009/10 Budget. This is due to a combination of higher value of Government investments from the stronger budget outcome, and lower Government borrowing.
Now, in conclusion, economic stimulus has helped fill a hole in activity and support employment, and this has had positive outcomes for this Final Budget Outcome. The truth is that stimulus has kept customers coming through the doors of business and that's been very important. It has meant more Australians in jobs and less Australians collecting unemployment benefits than otherwise would have been the case. So it does mean a marginally better outcome, but as I said before, it does not substantially diminish the fiscal challenge facing the country, and it certainly doesn't alter in any way the Government's determination to stick to the fiscal strategy that will see us return the budget to surplus as rapidly as possible.
The effects of the global recession will be felt in Australia for some time to come. There are ongoing negative implications for the budget and, of course, further rises in unemployment. Our plan to return the budget to surplus as the global economy recovers will ensure our net debt remains lower, much lower by a country mile, than any other advanced economy. Over to you.
JOURNALIST:
Mr Swan what can we infer from that lower debt figure in terms of going forward given the huge number that we've heard talked about of peak debt?
TREASURER:
Well I don't intend to pre-empt the Mid Year Economic and Fiscal Outlook. We will be doing our detailed forecasts for that and are doing that in the normal way. It is always prepared and released towards the end of the year. So what we're looking at here is the outcome of 08/09. It's a good thing that we're $5 billion better off. That's a good thing, and the impact of that is reflected in some of the figures that you've seen today. The improvement in the net debt position is welcome but it's a consequence of that bottom line improvement that I spoke about before, but also valuation changes. This is a complex document when it comes to how it accounts for the values of assets and the values of liabilities and that is reflected in that better outcome. But as we go forward there are still very substantial challenges.
Let me just take you to some of the figures just to flesh out this outcome. I said before, for example, that we'd seen, compared to our forecasts, in the 2008/09 Budget the biggest drop in tax revenue in our history - in any one year since 1930/31. I said that and then I've given you a report on the Final Budget Outcome that says company tax is up on what had been expected in the May Budget this year. What that tends to reflect is a series of one-off payments and adjustments which are welcome but they are one-off, and that is the improvement since May to now. Some companies pay their tax and balance at the end of the year rather than in the middle of the year so we've got this series of one-offs which have produced this upward revision since May on tax. But we still have this very substantial challenge on our hands caused by the global recession, which has big implications for our future revenue. For example, it is welcome when it comes to the payments side here that we are spending substantially less on unemployment benefits because employment has been stronger, but also when you look at the data you see that income tax paid or income tax collections from working Australians are down. That reflects the fact that many people are working less hours. So you still see, even in the tax figures and the update here between May and now, the impact of higher unemployment and people working less hours.
So yes, we've had some welcome additions to the budget bottom line. That's good. There have been some upward revisions in terms of company tax but they are largely because of one-off factors. The big challenge still is ahead of us and that is why economic stimulus has been important during this period and remains important in the period ahead, because we do know that business investment will still be weak, and if business investment is weak that has ongoing implications for the payment of company tax and revenues and so on.
JOURNALIST:
Earlier this year you said that tax revenue could be hit by $210 billion over five years or more. Given what you've just said, surely you can still be a little bit more confident now that the impact over those five years won't quite be as damaging.
TREASURER:
Well as I said I don't intend to pre-empt the update which comes at the end of the year, the Mid Year Economic and Fiscal Outlook or - short hand - The Mid-Year Review, but we've got very big challenges. One of the things that has kept things ticking along pretty well here has been our investment allowance which cut out substantially on the 30th of June. It still goes forward until the end of the year for small businesses. That was in place because we recognised just how weak business investment was. There is globally a whole debate about the extent to which the sort of encouraging signs we see in the global economy are reflected in ongoing growth in private sector demand, compared with the fact that it mainly reflects at the moment economic stimulus from governments and inventory rebuilds.
The point I want to make is, even though we've had a welcome upgrade of corporate tax between May and now, it is largely one-off factors and the underlying weaknesses that we are talking about are still there when it comes to the private sector and private sector investment. That's my point.
JOURNALIST:
On the point on taxes. Can you tell me whether you can give us more information on this large one-off tax payment?
TREASURER:
Well there was one very large one-off tax payment but because of the privacy provisions in the Tax Act I don't know the name of the company and I don't know the circumstances that surround the one-off payment. It's a good thing that it's come in but I can't pass judgement one way or the other as to the circumstances that brought it about, and I don't wish to.
JOURNALIST:
Can you tell us how much?
TREASURER:
No, but it is a large one. But there are also other adjustments, other timely adjustments in terms of company tax paid, particularly by financial institutions. And these changes in timing do result from a number of consequences that they were dealing with during this global recession. So what I'm saying is, it is predominantly a one-off. It doesn't reflect a stronger outlook for company tax revenues. That's the point I really want to make to you because that challenge is ongoing and it goes back to what David said before. We did write-down revenues to the tune of $210 billion and we did that for a very good reason, because we were in the middle of a seismic global event which had dramatic consequences.
For us, we - through our economic stimulus - have managed here, with the hard work of the Australian community and the cooperation of the business community, to produce the strongest growing advanced economy with lower deficit and lower debt. And the principal reason we've had to borrow responsibly is because of the revenue write-down not because of the economic stimulus we've put in place, although that is part of it. And those fundamental things have not changed in the outlook.
JOURNALIST:
Mr Swan I noticed some of the spending areas have increased - like Defence. What is your message to spending Ministers when you talk about the fiscal challenges ahead?
TREASURER:
Well we're running a tight ship and over time we want to return our Budget to surplus as quickly as we possibly can. And that's why we outlined our medium-term fiscal strategy, which by the way has been commended by the IMF as exactly the sort of commitment they would want to see from governments around the world as we go forward - to put forward a process for building strong and sustainable growth and the framework for that, that we agreed to at the G20. So there will be swings and roundabouts.
The thing about Defence is that it is subject to large one-off payments and they need to be smoothed over time, because when you're buying lumps of equipment sometimes they arrive on time. So the payments don't always necessarily occur when you anticipate them. I can assure you that the Defence Minister, Senator Faulkner, is laser-like focused on this question of value for money in terms of that particular area.
But back to the medium-term fiscal strategy. When growth returns to trend we've got a 2 per cent real cap on spending and that is a tough discipline, it's a very tough discipline. Except that doesn't apply to Defence; they have their own set of arrangements and they're being dealt with through another process.
So across the board we've got a pretty important set of rules which will guide our return to surplus and to our restraint in spending as we go forward.
JOURNALIST:
The Reserve Bank Governor said yesterday, Treasurer, that the downturn had been very mild indeed, that the recovery was occurring quicker than expected and that you might return to surplus ahead of time. What's your view?
TREASURER:
Well we'd like to return to surplus as quickly as we can but this is what the Reserve Bank Governor said. He said 'It's pretty hard to claim at the moment that there is too much growth in the economy'.
We have done better because we moved early, moved substantially with our economic stimulus. The Reserve Bank Governor said yesterday that Australia would be in recession without the stimulus. We know that if Mr Turnbull and Mr Hockey had had their way Australia would be in a recession right now. And he made a number of other very important points about debt, in particular its relationship to interest rates. He blew away - in his evidence yesterday - the false claim by the Liberals that economic stimulus is somehow related to any future rise that the Reserve Bank independently may put in place through the cash rate. There is no relationship between those factors at all and the Reserve Bank Governor blew that away.
But there's also the evidence from the business community as well yesterday - stunning. The Australian Chamber of Commerce and Industry simply saying it was false to claim there was some relationship between economic stimulus and any future independently determined interest rate rise by the Reserve Bank. It's just nonsense. The Reserve bank will adjust its settings in response to market conditions and general economic conditions. And what the Reserve Bank Governor said yesterday is that the stimulus is appropriate. He endorsed the fact that it is being gradually withdrawn over time, as it was always originally designed to do, and made the point that fiscal policy and monetary policy were working together.
JOURNALIST:
Treasurer (inaudible) to either cut spending or raise taxes? Is that in simple terms the big challenge that you face?
TREASURER:
No the challenge that we face is to deal with the impact of the global recession, to protect our economy from those impacts in an economically responsible way. To put in place a medium-term fiscal strategy that brings us back to surplus as soon as it is possible, given the constraints in which the Government is working – namely the global constraints. And what we have to do is to make sure that as global growth returns that we have the appropriate economic settings. What we don't want to do is pull the rug out from underneath the recovery, stall the recovery and all of the impacts that flow from that in terms of increased and higher unemployment and business failures. We're simply not out of the woods yet. We have done well because we moved early and we moved substantially.
I have just come from the G20. The approach there is one where Ministers around the room conservative or otherwise, all understand the importance of economic stimulus in what is regarded as a very fragile outlook. It is the case there are encouraging signs around the world, but to prematurely withdraw stimulus, as the Liberals have been advocating, is not supported by the conservative Finance Ministers from G20 countries, the IMF, in Australia the evidence yesterday of the Reserve Bank Governor, the Australian Chamber of Commerce and Industry and the Australian Industry group. Everybody understands that as we get global growth returning and our domestic growth begins to return to trend that we then begin to apply, as we should, our medium-term fiscal strategy so we can return the Budget to surplus as quickly as we possibly can.
JOURNALIST:
Treasurer how frustrated are you that the states are intending to claw back some of the increase that you've given the pensioners in the May Budget? And what powers, if any, or options are available to...
TREASURER:
Well we will examine every option because this is a one-off and permanent increase in the base rate of pension which the previous Government couldn't find the wit or the will to do in 12 long years. And there is no justification whatsoever that any Premier can claim for using the normal indexation arrangements that they apply to their rental stock in this circumstance – absolutely none. The Government moved on this issue because we passionately believe that having a safety net in Australia that gives pensioners dignity in retirement, is fundamental to our core national values. And for the State Governments to come along and pick-pocket some of that is unacceptable, and the Government will examine every option available to it.
JOURNALIST:
What options are there?
TREASURER:
Well I'm not going to canvas them today. But this is not in prospect for the year ahead at all. But there is no justification for them applying normal indexation arrangements to what is an entirely different change to the pension base - none whatsoever. And particularly in an environment where the Federal Government has just put a massive injection into social housing, delivered through State Governments to expand the stock as well.
JOURNALIST:
Treasurer given the stimulus payments were going out in May and June what's your interpretation of the fall in GST?
TREASURER:
Well weaker economic conditions. I'm not generally going to canvas all of the possible causes. I am happy to get back to you on that if I can go through the entrails of what is a very complex document and find some information for you.
