SWAN: Thanks for coming along this morning and thanks to Penny Wong for being here as well. The Final Budget Outcome that were releasing today shows Australias public finances continue to be among the strongest in the developed world. Both our budget balance and net debt remain well below the levels in other major advanced economies. Plus we have that great combination of solid growth, low unemployment, contained inflation and a record investment pipeline, and we continue to outperform just about every other developed economy. We still have, however, the lingering impacts of the Global Financial Crisis and theyre certainly still being felt in our budget - in particular, tax receipts are still well down on pre-crisis levels.
Nevertheless, our fiscal position remains in very good shape. This has been recently recognised by the International Monetary Fund and of course it has been reaffirmed by rating agencies - theyve reaffirmed out top-tier AAA credit rating.
Now the underlying cash deficit for 2011-12 showed a small improvement of $661 million from the May Budget estimate. This is the smallest variation between the budget estimate and final outcome for a decade good work Penny.
This improvement since the Budget estimate was relatively evenly split between slightly lower payments and slightly higher receipts. But the budget is still suffering from the after-effects of the Global Financial Crisis and international instability. Tax receipts remain low as a proportion of GDP by historical standards, with accumulated losses continuing to flow through the tax system.
This forms a part of the $150 billion write down in tax receipts over five years that weve seen since the 2008 09 Budget. As I have said on a number of occasions, because of factors like the high Australian dollar, a cautious consumer, subdued asset prices and the investment boom, we dont expect taxes to return to pre-crisis levels over the forward estimates. We can see that in the numbers yet again today. If we look to, for example, company taxes; theyve come in $876 million lower than expected and as I will mention in a minute we will have further write-downs at MYEFO as well. Now despite these headwinds, its still obvious that Australias fiscal position is much healthier than most other developed economies. At 3 per cent of GDP or $43.7 billion our 2011 12 deficit is less than half the average budget deficit recorded for the major advanced economies in 2011 and you can see that demonstrated there in the chart. And we are returning the budget to surplus well ahead of every major advanced economy.
Also you can see, in terms of the next chart, our net debt is dramatically lower than other major advanced economies. Our net debt was 10 per cent of GDP in 2011-12. For the major advanced economies it averaged 83.5 per cent of GDP in 2011. Now I do want to make this point about net debt. Some of you might have noticed that it has increased a little since the May Budget estimate. It is important to understand how this has happened. Debt issuance in 2011-12 was actually lower than forecast in the Budget we have fewer Commonwealth bonds on issue than we thought in the May budget. The increase in net debt is driven by falling interest rates on our already issued debt. Net debt is measured at market value and when interest rates fall the market value of our debt goes up. Hence the slight increase in net debt.
So what we have seen is that our strong fiscal position has been recognised in the past week by the IMF and the credit rating agency Standard and Poors, who reaffirmed our AAA rating. What this points to is the strength of our economy, the decisive action we took during the Global Financial Crisis to avoid a recession and our credible fiscal policy and our strict fiscal discipline. We stepped in to support the economy when there was a challenge from the global economy and now we are bringing the budget back to surplus, putting in place strict fiscal discipline. So we have a credible path for fiscal consolidation by returning the budget to surplus in 2012-13. And we remain committed to delivering a surplus as Australias best defence at a time of ongoing global turbulence. Now its also obvious that commodity prices have declined somewhat in recent months and they do remain substantially lower than what we factored into our budget forecasts. This will hit government revenues significantly, which does make it harder to deliver a budget surplus. So it does mean that we will have to find more savings. But we do have a proven track record of finding responsible and measured savings which accord with Labor values, and well do that again.
Ill just hand over to Penny to make a few remarks.
WONG: Thanks very much Treasurer. Just a few brief remarks. The Final Budget Outcome shows again that this government is running a disciplined and responsible approach when it comes to the budget. As the Treasurer said weve come very close to the 2011-12 expectations in the FBO, with the final underlying cash deficit at $43.7 billion just less than the $44.1 billion estimated in the May Budget. Youll see in the document a range of payments referenced which are slightly different to that at budget. I do want to just remark on one, which is the payments under the Natural Disaster Relief and Recovery Arrangements. It's important to note that payments to Queensland in total to date under those arrangements from the Commonwealth to Queensland as a result of the 2010-11 floods is $4.2 billion. We're budgeting for further payments in the order of $3 billion and in addition the Commonwealth has paid just over a billion in financial assistance to individuals affected by natural disasters in Queensland. So $4.2 billion to date under NDRRA with $3 billion further to come, plus the individual assistance, financial assistance, to people concerned. Cash payments in 2011-12 were $305 million less than estimated at budget - a variance of less than 1 per cent of total payments. Of course, as you know, we've set our plans in the budget to deliver the fastest fiscal consolidation since at least the 1960s - savings of some $34 billion identified in the last budget across the forward estimates, adding to the $100 billion in our previous four Labor budgets, many of them structural reforms which also strengthen the long-term budget position. So this Government continues to make the necessary decisions to deliver a strong budget position for the country and well continue to do so.
SWAN: I just wanted to make one further comment before we take your questions. Weve seen another outburst from Mr Abbott this morning in complete defiance of the facts. He said this on 2GB this morning, and I quote: Rather than talking to African countries, trying to drum up the numbers to get us a temporary seat on the UN Security Council she (that is the Prime Minister) should be in Jakarta talking to President Yudhoyono. Well, if Mr Abbott had bothered to check his facts, he'd know that the President is actually in New York at the moment. That is a clear matter of public record. This is yet another example of reckless negativity from the Leader of Opposition in complete defiance of the facts and common sense. Mr Abbott ought to retract his statements immediately, he ought to apologise for them. He ought to give an undertaking that hes going to give up this reckless negativity which is always in complete defiance of the facts. This was the Leader of the Opposition who did not have the courage when he last met with the President of Indonesia to even raise his so-called towbacks policy.
JOURNALIST: Mr Swan, in your statement you say tax receipts are $26 billion below the estimate before the Global Financial Crisis. The Treasury Secretary, Martin Parkinson, has been warning that you will be $20 billion down on pre-GFC levels for some time to come. How do you reconcile that with ambitious spending programs on things like Gonski and the NDIS?
SWAN: Let's deal with that in I guess two parts. The first part we have to deal with is whats happened to our revenues since the onset of the Global Financial Crisis which is basically the 08-09 Budget. In that time our revenues have been written down to the tune of $150 billion. It's gone through the budget, it's had a dramatic impact and it still lingers. So revenues this year are down something like $26 billion. What we've determined to do in the face of that is to come back to surplus by making responsible savings to make sure a we have that path of fiscal consolidation that I was talking about before. When it goes to the future we can see there is a further threat to our revenues from lower commodity prices and Ive already said today that we will be looking for responsible savings. But in the middle of all of that, the thing I'm proudest of most about this Government is that we have found room for our priorities, for our Labor priorities, putting in place Paid Parental Leave, making sure that we had the essential investments in education and so on that were required. And as we go forward, we will continue to do that. Weve had big revenue write-downs and of course there are challenges to the revenues. But we will absolutely stick with our fiscal discipline and as we put in place responses to new challenges, we'll find the savings in the budget to do that and to change priorities. That's what we've been doing so far. That's what we will continue to do.
JOURNALIST: Treasurer, you mentioned the write-downs in company tax receipts that have carried through. The budget outcome also shows that personal income tax has been pretty strong and GST also stronger than expected at budget. Personal income tax was very strong throughout last year. Are you expecting those elements to also, sort of, have you seen that's also carrying through?
SWAN: We'll update all of our forecasts for employment and so on in the normal way in the mid-year budget update. Im not going to speculate about where the forecasts go. But what is really clear when you look at the figures here is that we've had strong employment numbers for some time. And they've been stronger than we expected, even back at the budget. That therefore reflects in reasonably strong collections when it comes to income tax paid by working people and that is then in turn reflected in some of the taxation that comes in terms of superannuation and so on.
I would caution you about the GST number. What you're looking at there in terms of one of the numbers you may have seen is a bit of a timing issue. So just check with the officials about what numbers you want to use on the GST because a FBO has slightly different accounting standards and concepts than are used in the Budget. So you see some differences which pop up which really only go to the different concepts used to do the measurement between an FBO and a budget - I put that in as a general caution as you're going through.
Weve done a lot better. I think one of the things that the Government has done really well on has been supporting employment, even as we go about funding our priorities and changing our priorities. The thing were always mindful of is supporting employment.
JOURNALIST: Just following on from Lyndals question. One of the questions that has been raised about Gonski and disabilities are promises, are about the escalating liabilities beyond the forward estimates. Can you just give us an idea of what we will know about your plans to pay for those long-term reforms?
SWAN: All of our plans over the forward estimates will be there and they will be accounted for in the normal way through the normal processes we go through. We go through a MYEFO, we go through a budget then a PEFO. First of all let's look at that in the context of the NDIS. We've already put a billion dollars aside for the trials of the NDIS and that was the savings we found in the last budget which goes over the next couple of years. Both the NDIS and Gonski will require very substantial consultation, discussion and negotiation, not just with the States but also with the community sector. As we go through and do that, we will do that within the budget rules that we have operated on since we put them in place at the beginning of the Global Financial Crisis. We are mindful about longer-term impacts on the budget and we'll deal with those too. But we won't be changing our approach as we deal with those issues and we will do what we've done for the past almost five years as we go forward.
JOURNALIST: How do you deal with the impact beyond the forward estimates?
SWAN: I'm saying to you that were mindful of the longer-term impact but when it comes to NDIS in terms of our forwards weve done a lot of heavy lifting there already. There is more to be done over time and that gets updated as we go through mid-year updates in our MYEFO. But depending on the outcome of those negotiations, we will also indicate our view about future sustainability of the budget.
JOURNALIST: Do you support China investing in Tasmanias dairy industry?
SWAN: Well I haven't seen any proposal. As you know, Chinese investment or foreign investment more generally whether it's from Europe, whether its from Great Britain or if its from the United States - because the United States and Europe are by far the biggest foreign investors in Australia - is welcome in this country, because it supports jobs. And if there is any proposal that were to come to us about investment in dairy or anywhere else, what the Government does is apply our national interest test and in the case of Cubbie [Station] that's precisely what I did. And I just go through the undertakings that I put on that investment because I think that they need to be clearly understood.
First and foremost, to secure the employment of all of the workers at Cubbie Station, 160 or 170 of them. Secondly, to make sure that it was managed independently by Australian interests and that the pricing of its exports were in the hands of the Australian management and delinked and decoupled from other investors in the project. And thirdly, a sell-down to just a bit above 50 per cent. They were three very strict undertakings which meant the national interest guidelines supported employment, a great demonstration of supporting employment, but also making sure we look after national interest. So anything that is done in any area, whether it's agriculture, or whether it's more broadly, has those national interest considerations run across it. And sometimes undertakings are given. I'd like to contrast that with the shambles in the Opposition at the moment, the damage that's been done to this country by some of the most ridiculous xenophobic statements that have come out of the Coalition and Mr Joyce - very damaging to the country, damaging to employment, damaging to jobs, damaging to our standing in the world. Agriculture is going to be a big, big growth industry for this country in the years ahead. A big source of employment and wealth creation, so all this is pretty important.
JOURNALIST: Proportionally one of the biggest changes or variations is in the revenue for tobacco which is down $341 million since the budget. What do you put that down to?
WONG: If you look at page 4 receipts, the figures are different to the ones you just quoted.
JOURNALIST: I'm just looking at the table.
WONG: Lower than expected excise in customs duty of around $149 million, below the (2012-13) Budget estimate, mainly reflecting weaker than expected tobacco collection. So I'm sure people will make judgments about what's driving that. But the figures demonstrate that even since budget, we're collecting less excise and customs duty on those items.
JOURNALIST: Do you think the government's campaign is working?
WONG: I certainly think the Government's campaign is the right thing to do and it may well be having an effect. Finance Ministers just look at the numbers rather than talk about the public health reasons, but you would think that there'd be some effect.
JOURNALIST: Mr Swan you say you will be finding savings in accordance with Labor values. Does that mean no public service job cuts?
SWAN: I made it very clear that the way we go about our business of putting in place good budget management and strict fiscal discipline is to do everything we possibly can to support employment. And when it comes to the public service, the public service has grown under Labor over a five year period. Doesn't mean to say it's always the same size every year. We certainly bulked up quite a bit during the Global Financial Crisis to deal with the challenges but it's still got some growth in it.
WONG: Can I just add to that? We do take a very different approach to that which has been demonstrated in the Treasurer's home state, where the Premier told the public service they had nothing to fear then promptly sacked 14,000 people. We've taken an approach - and we have had to make difficult decisions - but we've taken an approach which is very clearly focused on efficiencies and trying to prioritise non-staffing savings. If you look at the savings weve taken to date when it comes to the public sector, they are predominantly in non-staffing areas. Weve taken approximately $13 billion worth of savings from things such as coordinated travel procurement, ICT efficiencies and a range of other efficiencies. So we don't resile from the fact you have to make difficult decisions, but we certainly take a very different approach to the one that's been demonstrated in the Coalition states and the one which Joe Hockey brags about being the one he wants to implement. Joe Hockey is the man who brags about wanting to sack 20,000 public servants.
JOURNALIST: Don't you find all the non-staffing efficiencies that you can and then you have to have a look at staffing?
WONG: Well, I can speak to you about the approach we've taken. If you want to hypothesise about other things it's up to you, but I can tell you the way weve taken savings to date in this area.
SWAN: The other point is this: I've already dealt with the way in which we have dealt with those very big revenue write-downs over time. We've done it in a way which is entirely consistent with Labor values, but it does put a responsibility on the Opposition to say how they're going to deal with all of that, plus find an additional $70 billion which is the crater they've got in their budget bottom line through a whole lot of other decisions theyve already taken. Mr Hockey might want to put on a tutu and wave his magic wand but there is no way there is a magic wand he can wave that is going to deliver the sort of savings he needs to make up for the revenue write-downs plus the other commitments they've got. So the obligation on the Federal Opposition is to outline where the massive cuts are coming from to make up for the revenue write-down and then their $70 billion crater.
JOURNALIST: Mr Swan, just two things. The opposition as you know has said you will bring forward MYEFO to avoid later problems. Can you give us an approximate time when MYEFO will come out?
SWAN: In the last three months of the year which is when it normally is.
JOURNALIST: A more precise time? And secondly you've been criticised by Geoff Gallop for your attack on the Americans. Would you like to reply to that?
SWAN: Well, what I had to say wasn't about the Americans.
JOURNALIST: The Republicans..
SWAN: Well it wasn't even about the Republican Party as a whole - it was about the Tea Party component of the Republican Party. I did it in the context of a pretty serious speech about the global economy and the risks that there are to the global economy from events in Europe and I made some I think pretty sharp comments about Europe as I did about the risk coming out of the United States.
JOURNALIST: (inaudible)
SWAN: Well I don't accept his view. If we have a repeat of that, I spoke about the consequences of that for the global economy and for Australia and they are very, very serious.
JOURNALIST: (inaudible)
SWAN: I have made my commentary about the Tea Party on numerous occasions before last Friday. You'd be familiar with it. It's a very valid criticism and it is one that has serious implications for the global economy.
JOURNALIST: (inaudible)
SWAN: I directed my comments directly at the Tea Party. They are serious comments about a faction of the Republican Party and the consequences for the global economy.
JOURNALIST: Just to be clear are you saying if Mitt Romneys President of the United States he will be under the influence of cranks and crazies?
SWAN: No, I didn't say that at all. What I said was that that faction of the Republican Party could do enormous damage to the global economy if they had their way in policy making. It's not a point I have made just once. It's a point I have made on numerous occasions and a point made I might add by many other policy-makers around the globe
JOURNALIST: Treasurer the Australian dollar is remaining very high while commodity prices are falling that will hurt your budget bottom line?
SWAN: I said so in my comments that the introduction.
JOURNALIST: It also represents a sort of tightening of financial conditions. Is there concern that budget savings to hit the surplus can increase the financial pressure across the economy?
SWAN: As you know, as we always do, we'll put in place the appropriate settings for the time. Thanks.
ENDS