ALBERICI: Joining us now in the studio is Finance Minister Penny Wong, one of the key Government Ministers whose job it will be to sell the Budget over coming days, beginning right now. Welcome to Lateline.
WONG: Good to be with you, Emma.
ALBERICI: Now, this is the third consecutive Budget where the amount of tax you estimated you'd get was wrong. Why, say, after the second time didn't you take a more cautious approach and not spend all the revenue Treasury told you you'd get, knowing full well that's not guaranteed income?
WONG: Well, making a couple of points. The first is this: that we actually did take a more conservative approach but what has occurred is an even bigger hit to revenues than was anticipated. And this is not a conspiracy. Remember, the people who make these estimates are the same people who advised Peter Costello, and what we've seen is the largest write down of revenue for a very long time. In fact, it is the second largest since the Great Depression. That's the extent of the hit to the hit to revenues.
Now, we've had to deal with that. As Wayne Swan said tonight in his speech: The Government can't choose the economic circumstances it's confronted with, but you can choose what to do with that. And what we've chosen is to hand down a responsible Budget that makes responsible savings for the long term investments that are so critical to the future of Australia.
ALBERICI: My point was that this is not reliable or guaranteed income. These are just estimates. Why did you decide to spend all the revenue Treasury told you you'd get from the mining tax and all the revenue Treasury told you you'd get from the carbon tax, instead of holding some back just in case it didn't all materialise?
WONG: Well, we assess the Budget on the basis of estimates that are provided and that the Government considers. But what's important in this Budget is that we have taken some $60 billion write down in revenue. Notwithstanding that, what we have done is said look, we need to manage this so that we support jobs and growth
ALBERICI: Sorry $60 billion you mean in the forward estimates?
WONG: That's right, write down in revenues. As I said, the second biggest since the Great Depression. And we said, look, what do we do faced with these circumstances? Well, the first thing you do is you say you do what's right for the economy you support jobs, you support growth. But you also make sure you make provision for DisabilityCare and the reforms in education. And that's what this Budget does.
ALBERICI: I wanted to ask you also what changed between October 22 last year when you released that mid-year fiscal outlook, and now. Because assessing back then what we call the MYEFO, the Treasury got the dollar right, the iron ore prices were smack bang right, the China growth figure estimates were right too. So, how did you end up with a $16 billion hole?
WONG: Well, what we got though was much lower revenues than you'd anticipate
ALBERICI: But what I'm saying is how did they, on the balance of getting all of those projections -
WONG: Its a good question
ALBERICI: those economic forecasts they had them all right. So, how, based on those right forecasts, did they get the revenue number wrong?
WONG: Well, I think it's important to understand a few things. First, what are we seeing? We're seeing something that economic orthodoxy would tell you wouldn't continue to happen that is, a very high dollar when the terms of trade are coming off. So that's the first point.
The second thing that you're seeing is a particular effect that that is having on company profits. Now, company profits have fallen for five quarters in a row. That is a very unusual set of circumstances. And what that reflects is the impact of those parameters that you're describing on the economy. So, I suppose what is different
ALBERICI: But also I'm sorry to interrupt you but also companies were telling you their forecasts were lower as well ...
WONG: I don't think there's any economist that predicted nominal GDP to be where it was, nor Government revenues to be hit as hard as they were. So, people might like to run around now I know the Opposition want to say this was all predictable. The reality was that is not the case. Nobody predicted $60 billion less revenue since MYEFO over the forward estimates than we've got since the mid-year review.
Now, what do you do with that? These are the economic facts you have to deal with. I know others might like to say this is fiction, well, it's not. These are the facts. You have to decide what you do. And if you cut further in the early years particularly, I can tell you what that would have meant. It would have meant a hit on employment, higher unemployment and it would have meant a hit on growth.
ALBERICI: Now the Budget assumes you will receive close to $1.5 billion a year from closing business tax loopholes. Where is that tax being avoided?
WONG: The Assistant Treasurer has done a good job, working with the Business Tax Working Group on a range of measures to protect the company tax base, or the business tax base. There are a number of measures in there. One of them is what's known as the thin capitalisation rules. So, that is where you've got companies who are loading more debt into Australia than we think is reasonable and therefore are claiming a larger tax deduction. So, there are a range of measures there, some of which are quite complex and which the Assistant Treasurer's worked through with the Business Tax Working Group. We think these are important reforms and what I would say is they are certainly are a much more sensible approach than the increase of the company tax rate that Tony Abbott is proposing.
ALBERICI: Let's just try to break it down into as simplistic a way as we can and let's just talk about the fact that, as you say, they try to put debt into Australia rather than in another country, etcetera. But isn't this the consequence of globalisation? So that if you start to take measures like this in Australia you can expect Australian companies to face similar sort of penalties in other countries?
WONG: Well, you're asking a hypothetical there about
ALBERICI: But isn't that the consequence of globalisation? Can you penalise foreign companies in Australia and not expect some kind of retribution on Australian companies overseas?
WONG: And this is one of the policy areas that has been raised in the context of the OECD and the G20, and the Government is working methodically through this. I think most Australians would say we do want a competitive tax system, we do want to make sure our companies have a reasonable set of tax arrangements. But we also want to make sure that we don't get deductions which are not reasonable in the circumstances and that's what these reforms do.
ALBERICI: You talk about also not wanting companies to shift their profits to a lower taxing environment and you just talked then about the G20. The presidency of the G20 is currently held by Russia where company tax rate is 20 per cent versus our 30 per cent. Do you think Russia's going to say yeah, sure, we agree that companies in Australia shouldn't be allowed to send their profits to Russia, for instance?
WONG: Hang on, hang on
ALBERICI: It makes the claims of $15 billion or $14 billion in savings on these sorts of measures sound widely optimistic ...
WONG: Well, I don't know where you're getting that figure from. That's not what is from...
ALBERICI: $14.3 billion over 10 years is what you've estimated.
WONG: Over 10 years, sorry, not the forward estimate period. Well, you know, we'll consult with companies on the implementation of this. But can I say the things that make Australia an attractive place to invest is not that we have a race to the bottom on a whole range of things like entitlements which is what a 20 per cent corporate company tax rate would impose. And I would make the point that there is only one party, other than the Greens, who is proposing to increase the company tax rate and that is the Opposition so I trust you will put these points to my counterpart in the next session.
ALBERICI: You've blamed some of the Budget problems on the structural damage caused by the Howard Government years; halving of the capital gains tax rate and the complete exemption from tax of super payments to people over 60. Why haven't you wound those sorts of things back that have been referred to in the past? And negative gearing, which is now costing around $5 billion a year. You could have made a lot more savings and made a lot more tougher choices.
WONG: We've taken $43 billion worth of savings in this Budget. And that's on top of the savings we've taken to date. And some of the really important structural saves that we've taken for example, the private health insurance rebate, which was growing unsustainably have been opposed. We have taken savings in the superannuation area and in this Budget we've also taken some difficult savings which we've already been criticised for in the family payments area, building of course on a whole range of investments that we have made for families such as paid parental leave and increasing the child care rebate.
As you said in the introduction, we made a decision to abolish the Baby Bonus and fold that into Family Tax Benefit, and the reasons are this: if you want a far better school system for our children that doesn't leave Australian children behind depending on where they live; if you want a system of supporting people with disability in this country, you have to find the room to fund it and that's what the Government has done.
ALBERICI: I'm also curious to know how youve determined that spending on asylum seekers is suddenly going to halve or thereabouts in four years time?
WONG: Well, the Budget provisions for asylum seekers and the methodology for assessing the numbers of asylum seekers is laid out in the Budget papers and you will see we've actually provisioned more in this Budget for irregular maritime arrivals.
ALBERICI: But it suddenly goes down and I'm curious to know what gives you confidence that suddenly you're going to be spending less?
WONG: Well, I don't think it's suddenly. There's a methodology set out in the Budget paper about how these things are assessed and, as you know, there is, the reality is, on irregular arrivals, the Government hasn't been able to implement its policy. Whatever people might think I think you might have had a discussion with me previously about it but we haven't been able to implement our policy because we saw, for example, in the Senate the Coalition voting with Christine Milne to prevent any change. That says something about the extent to which Tony Abbott would prefer to put his political interest first on this issue.
ALBERICI: Penny Wong, thanks very much for coming in for us.
WONG: Good to speak with you.
ENDS