KELLY: Finance Minister Penny Wong joins you from our Melbourne studio now. Minister good morning.
WONG: Good morning Fran.
KELLY: Joe Hockey says you passed up a golden opportunity to rein in spending and borrowing. Can you identify for us one tough decision you made in this budget update?
WONG: Fran lets remember what MYEFO does. As you said its a budget update, this is a budget update after an election campaign. And what it demonstrates is we have offset every dollar that we have spent. We have put in place around $3.4 billion worth of savings and, despite a $10 billion hit to Government revenue, we are still on track to bring the budget back to surplus in 2013.
In addition, what it also shows is an economy the envy of the world: unemployment down jobs growing, and the economy growing. So thats a very good news story.
KELLY: It is a very good news story, no doubt about it, we are fortunate. But we are only on track, isnt it true, to make up that revenue lost with the higher dollar because the GDP is strong and the jobs are coming. They are doing all the heavy lifting for the Government.
WONG: I dont accept thats the only reason because part of the reason we are also going to stay on track, and are on track, is the Government is delivering on some pretty strict fiscal rules. We are offsetting what we are spending.
KELLY: Yes but thats after you already spent $42 billion to get us through the GFC.
WONG: Hang on. We are offsetting what we are spending and we are winding back spending. We are putting in place and MYEFO complies with this a cap on growth and expenditure. We know that we are winding back the stimulus. We know that that wind back is already subtracting from economic growth this year. So we are running a very sensible, responsible fiscal strategy. That will deliver the budget coming back to surplus. And what we are also seeing is an economy that is growing strongly.
KELLY: Isnt it fair to say though that certainly this time around, with this Mid-Year Economic Review, you have avoided major spending cuts. Which means it will make your job all the more difficult when you sit down to prepare the May Budget.
WONG: There are spending cuts in the MYEFO. I dont recall Peter Costello putting forward a MYEFO which actually returned money to the budget, which is what this one does. But you know my view is this Fran. Fiscal discipline is not about one decision, its about many decisions. Lets have a look at what we have done. We have offset spending during the campaign. We did a lot of heavy lifting. Unlike the Opposition, we got our costings right. Unlike the Opposition, we delivered no hit or an improvement to the bottom line.
Since the election, we have offset all new spending. Thats what the MYEFO story is. We have offset our commitments to the independents and other decisions that we have made since then. Going forward, we will need to continue that fiscal discipline. We will have to continue to comply with the rules I have outlined because we are determined to bring the budget back to surplus. Thats because to do good things you need to bring the budget back to surplus and so we are committed to it.
KELLY: In terms of fiscal discipline there is still, as I mentioned before, $42 billion worth of stimulus money. Some of it, plenty of it, still to be rolled out in terms of school spending. Now we see the Victorian Treasurer saying that the Federal Government BER funds originally designed for stimulus are being used now to accelerate Victorias own 10 year school rebuilding program. Is that an appropriate use of the stimulus spending?
WONG: Fran we make no apology for putting money into building schools and building facilities for schools. Lets remember one of the areas of our economy, one of the sectors that was very hard hit by the Global Financial Crisis, was building construction. This was a very important program for that sector. A sector which is still -
KELLY: At that time.
WONG: A sector which is still soft compared to pre-crisis levels. I think its about 99 per cent of BER projects have already commenced or have been committed. So we are talking about a very small proportion which are yet to be rolled out in a context of spending that is being wound back and in a context of the fastest budget turnaround since the 1960s. Thats what we are going to deliver and we are on track to do that. The largest, fastest return to surplus since at least the 1960s.
KELLY: The Treasury forecast yesterday backed up the picture from the RBA of low unemployment pushing us to full capacity which will mean skill shortages and ultimately higher inflation. Is managing the boom a tougher task than managing the deficit?
WONG: Its a good question Fran. I have said before the challenge of the last term was to avoid recession. The challenge of this term of government is to manage growth. That is complex because we have got a growing economy. We have got very high terms of trade and we have to bring the budget back to surplus.
Thats why its so important that we get this minerals tax up because what that is about is using the proceeds of the boom well to increase the capacity of the economy - to reduce the company tax rate for other sectors of the economy, to put money into infrastructure as well as money into domestic savings through superannuation. We do have to manage this boom wisely. Thats why we are determined to proceed with those investments.
KELLY: We are headed for skills shortages. There seems to be general agreement on that. Where is all the labour going to come from? Will we need to open our doors to more skilled migrants?
WONG: First lets remember this is a pretty good challenge to have, isnt it? An unemployment rate with a four in front of it.
KELLY: Yes but we know what it means and it does mean skills shortages, productivity bottlenecks and higher inflation and higher interest rates.
WONG: Thats true Fran, but its certainly less than half the sort of unemployment rates you see for example in the Euro zone. So it is a good challenge to have. But youre right we cant be complacent. We have to continue to reform. We have to continue to invest in skills. Lets remember that some of the expenditure that Mr Abbott wanted to cut was important investment in skills. Lets remember also that the Governments stimulus package ensured that we continued to invest in skills and training because one of the lessons we know from past recessions is investment in people is one of the first things that drops off. We have got completion bonuses for apprentices. This is a very important part of the Governments economic reform agenda is to continue to invest in the skills of Australians to deal with the very issues that youve outlined.
KELLY: It's 10 to 8 on RN Breakfast. Our guest this morning is Finance Minister Penny Wong. Minister in a speech yesterday in Adelaide the Prime Minister made the point that reform takes years, not weeks, and called for patience from the media and the community. But the political reality is the opinion polls come out every month. The Prime Ministers comment does it suggest that your major reforms on water, carbon price, mining tax, NBN, we wont see any of that in fruition for years?
WONG: I dont think thats an accurate reflection Fran of what the Prime Minister was saying. What she was saying very clearly is that reform does take time. Obviously there are many things you want to do but you have to also ensure you get it right and she outlined our plans on water and she also talked about our economic agenda.
But thats not to say were not doing things now. I mean the investments that were making now in skills are very important. We are rolling out the NBN, we are already doing that. We are, as MYEFO outlined, making decisions to ensure we comply with our fiscal rules to bring the budget back to surplus despite a $10 billion hit on revenue.
These are all important things and we have more to do and we will continue to roll out this economic reform agenda. Because we understand that this is about prosperity not just for now, but for the long-term, for future generations of Australians.
KELLY: Two of those reform issues you mentioned, the Prime Minister mentioned, are to do with carbon and water, which were issues you were dealing with in your old portfolio.
WONG: We might have spoken about them before I think, Fran.
KELLY: Exactly. Your new department, talking about water, your new Department of Finance is critical of the $5.8 billion infrastructure efficiency fund. Will you be advising Water Minister Tony Burke to go for water buybacks, not infrastructure efficiencies?
WONG: Im sure Tony will make the best decisions in the national interest to get the reform up.
KELLY: But do you accept that is the advice from your department? That water savings are more expensive coming through efficiencies than buybacks?
WONG: I think it is a question of what youre trying to purchase or what youre trying to buy. Remember, investment in infrastructure is not just about recovering water. Its also investment in regional economies, and in a more efficient irrigation system. That is the logic behind that program or those series of programs to ensure we also invest in regional economies and making irrigation more efficient. But Im sure Tony will make sound decisions on this issue.
KELLY: Senator Wong on climate, you went to Copenhagen last year with great political hope and it all came to so very little. Now the US President says a cap and trade is off the agenda for the US. What does that mean for Australias plans with a price on carbon if America says it is all too hard?
WONG: President Obama is battling the same sort of opposition that we see from Tony Abbott, the same sort of individuals, people, who dont wish to see reform in this area.
The Government has a very clear view that this is an important economic reform. Its about reforming our economy. Its about taking action on climate change. And its about ensuring we can move to a low pollution economy.
So we are working through the best way to do that after Tony Abbott destroyed any political consensus on action on climate change. Greg Combet and the Prime Minister, through the climate multi-party committee, are working through the options. I hope that we can rebuild the consensus that is needed for this important economic reform.
KELLY: Minister, just finally, theres a fair debate going on internally within the Labor Party at the moment. The Labor Party secretary Karl Bitar yesterday the latest calling for more debate, more ideas. Theres been a call from some in your party on the issue of gay marriage which will be introduced in the Parliament next week for Labor to allow a conscience vote on this issue. Do you support that call?
WONG: Look on this issue, Fran, and on many issues I think you know the way I approach these things and that is to advocate internally. That is the position Ive taken since I came to Parliament; that on these sorts of issues I put my view very strongly but I put it inside the party. And thats the approach Ill be taking on this issue.
KELLY: Can you give us a clue whether internally youll be putting a push for a conscience vote?
WONG: Look, as I said, some of my colleagues wish to take this debate to the media. Thats a matter for individuals, I cant speak for them. In terms of me, Ive always advocated on this issue internally. Thats one of the reasons I was one of the people, as you know, who pushed very strongly for a very substantial amount of gay law reform that we delivered in the last term. Im going to continue to take that approach.
KELLY: Senator Wong, thank you very much for joining us.
WONG: Good to speak with you Fran.