KELLY: Minister, good morning, welcome to Breakfast.
WONG: Good to be with you, Fran.
KELLY: Youre giving Joe Hockey sleepless nights; hes so worried about your budget strategy.
WONG: If Joe Hockey is so worried, perhaps he could do something other than rail against savings measures the Government is taking, and perhaps he could offer an alternative. I mean, the problem for
KELLY: Well hes got alternatives, he said you should dump your Schoolkids Bonus, for instance.
WONG: Thats not going to fill the revenue hole that weve been presented with. The reality is, Joes turning into a bit of a poser, I have to say, Fran. He beats his chest about ending the age of entitlement. Does anyone remember that speech? The importance of ending the age of entitlement.
But every time hes presented with a savings measure he rails against it, as does Tony Abbott. Now it just doesnt add up. Unfortunately, the only way you bring a Budget back to surplus over the forward estimates is to make in this environment, where youve got a global economy softening, and therefore revenue softening the only way you do it is by making the savings such as the ones the Government has made.
KELLY: So is that the dominant strategy then, if we look at strategy and as I said, Joe Hockey is worried about your budget strategy in this environment as you say, is that your strategy, to cut until you reach a surplus? Is that it?
WONG: Our strategy is to run the right budget policy, the right fiscal policy, for the economic circumstances. And what we have at the moment is an economy growing around trend not as strongly as we anticipated at Budget, but still faster than any other advanced economy. Weve got low unemployment, and weve got a pipeline of investment. Now, in those circumstances, it is absolutely the right fiscal strategy to bring the budget back to surplus, and over the forward estimates. And thats what the Governments doing.
KELLY: Is this it, no more cuts? We cant say whats going to happen to the global outlook but the signs arent great. How low will you go?
WONG: Youre right, you cant say with any accuracy, or any certainty, exactly what will happen. Obviously the global economy has softened since the Budget. But what we can say is well always run the right fiscal policy for the economic circumstances.
KELLY: What does that mean? If the right fiscal policy is to abandon your promise of a surplus, what do you do then? I know youve been asked this before, but it does seem as though the language is changing around it.
WONG: Weve just handed down a budget update, which has us tracking to surplus. And thats the most recent budget update. Thats how budgeting works, you hand down budgets and budget updates. I think
KELLY: The thing is, budgeting doesnt work, it seems. Because we keep getting these forecasts, and these budgets based on the forecasts, and then they have to get revised down. I mean, Joe Hockey was talking about in the last couple of budgets hes claimed your assumptions are heroic. And it does seem as though these are heroic assumptions again, because youre still talking about strong economic growth and stable commodity prices.
WONG: This is how the real world in which Treasurers and Ministers for Finances have to operate. And that is, a real world where sometimes the global economy doesnt do what you want it to do. I dont think anybody would have said this is could have given you a blueprint two years ago as to what would happen in the global economy. Certainly before the global financial crisis I dont think anyone could have. There are uncertainties out there.
The job of responsible governments is to do what were doing, which is to respond to those circumstances appropriately and give the Reserve Bank room to move. And weve seen the benefit of that. Weve seen the interest rate cuts. Weve seen that families on average on mortgages are paying less than they would have, but for this strategy and the Reserve Banks decisions.
KELLY: And I know youll say you cant get ahead of yourself because we dont know how the deterioration, how far its going to go. But I guess, can you reassure Australians that you will not hang onto your promise of a budget surplus whatever the cost?
WONG: The reassurance I would give is that this Government has always run the right budget policy, the right fiscal policy, for the times. We did that in the global financial crisis and remember, Joe Hockey railed against that too. He railed against the stimulus, which has ensured that this economy will grow faster than any major advanced economy in the year to come, against the stimulus which ensured hundreds of thousands of Australians stayed in work. I mean, if you go to Europe, or even have a look at America, youll see what that large-scale unemployment does to a society, and to an economy.
KELLY: Youre listening to RN Breakfast, our guest this morning in the Parliament House studio is the Finance Minister, Penny Wong.
Minister, more than half of your $16.5 billion in savings will be made up by shifting 10,500 larger companies from quarterly tax instalments to monthly instalments. The Government wants to discuss these changes with the business community. Isnt it usually a better idea to discuss the changes before you announce them, and propose them?
WONG: Consultation is important, but you also have budget decisions. And regrettably you cant always consult on decisions you want to put into a budget ahead of time. Thats the reality. Id make a couple of points about the company tax change. Companies arent being asked to pay more tax. In fact, the only party thats asking companies to pay more tax is actually Tony Abbotts Liberal Party, who as you know want to put a levy on large companies to pay for their very generous paid parental leave scheme. The second point Id make is that we are giving a lot of notice. The first tranche of change doesnt start until January 2014, which is of course only the largest companies. And were also only asking them to do what they already do in relation to the GST, which is to pay monthly.
KELLY: And you say and the Treasurer made the point that were not asking companies to pay more tax, its not new tax, were just paying it differently. But theres no magic pudding here. If youre getting $8 billion more for your bottom line, business is paying it, and they will feel that pain. Its not going to be a painless change, is it?
WONG: They arent being asked to pay more tax, theyre being asked to pay tax at a different time. And obviously that has a particular effect in each year, because some payments that would be in a subsequent year would come back into the previous year. But thats not
KELLY: And its also going to have a massive increase in red tape, isnt it? For years now youve been promising businesses youll relieve the red tape burden.
WONG: They already pay their GST, remember, on a monthly basis. And as I said, were very keen to consult with the business community about how we can put this in place in a way that is smooth and causes the least disruption.
KELLY: And what if they say you cant, will you back off it?
WONG: It is a budget decision, and Im confident we can work through these details with the business community. But again I say this, weve seen a lot of criticism from the other side of politics. Theyre the ones who are actually suggesting a tax hike.
KELLY: The Treasury has downgraded the mining tax forecasts. Its gone from $13.4 billion in the May Budget to $9.1 billion, over four years; thats how much it will bring in. In this year alone its been shaved by $1 billion. How sure can you be about those figures, considering the big miners only submitted their first instalments yesterday, these numbers could be already out of date.
WONG: Weve factored in some pretty substantial reductions in the terms of trade into the budget update. So, that is, the prices of what we sell to the world compared to the prices of what we buy from the world. And if you look at this budget update theres a much greater reduction in the terms of trade than we anticipated at Budget, although we already did anticipate it. As you rightly said, commodity prices have come off, weve seen the iron ore spot price drop, weve seen prices for coal exports drop; some of those have come back a bit. So we have factored that into our budget. But youre right, its not only affecting company tax, but also resource rent taxes.
KELLY: So is it possible that some of the measures that youve already factored in to be paid for by this revenue wont be able to be paid for?
WONG: But all of those measures are already factored into the Budget, and the Budget bottom line shows us returning to surplus and increasing that surplus over the forward estimates.
KELLY: Cuts of these wont be painless and business has already said the changes will hurt them. What about the cuts to the Baby Bonus and the Private Health Insurance rebate? Joe Hockey pointed out yesterday that even many low-income Australians have private health insurance, and this will cost them. This is going to add to the cost of living pressures on many Australians.
WONG: Were very aware of cost of living pressures, which is why weve done things like introduce a Paid Parental Leave scheme, introduced the Schoolkids Bonus. And of course the tax cuts associated with the clean energy package which Mr Hockey wants to take back from low income Australians.
Id make a couple of quick points. In terms of the Baby Bonus, we do recognise that this is not a popular measure. But we are the Government thats introduced things like the Paid Parental Leave scheme and the Schoolkids Bonus, which obviously reflects an understanding of cost of living pressures on families.
And the reality is, we do have to ensure this system is sustainable over time. In terms of the Private Health Insurance rebate, this really comes back to sustainability. Ultimately, this rebate before the changes the Government is making this and the last Budget changes the majority of Medicare, of medical benefits expenditure by 2050, would have been taken up by this rebate. Thats not sustainable. We have to run a sustainable health system so our children get the same benefits we do.
KELLY: And talking of sustainability, just finally, there was no money in the update for the National Disability Insurance Scheme. That is a big promise, a popular promise. Joe Hockey says you like making big promises, but you cant pay for them. He sees a train wreck on the way. When will you make a firm funding commitment?
WONG: Mr Hockey has candidates for example, last weekend in the seat of Hindmarsh in Adelaide, the Liberal candidate was handing out a leaflet saying the Liberals were committed to a National Disability Insurance Scheme. So if Joe Hockey wants to apply that test to us, where is his funding strategy? The Treasurer has made clear well have more to say about our approach on the National Disability Insurance Scheme at the next Budget. We are very committed to this. We recognise that it will require more hard decisions, but this is the right thing to do for the country.
KELLY: Can the nation afford it?
WONG: I dont think the nation can not afford to do better by people with a disability and their families.
KELLY: Thank you very much for joining us on Breakfast.
WONG: Good to be with you.
ENDS