TREASURER: Well its great to be here with Penny Wong this morning, our new Finance Minister. Im certainly looking forward to working very closely with Penny, weve had a good relationship previously and I think were going to have a very strong working relationship as we go through the rest of this term because the economy is going to continue to be very important. What Im releasing today is the Final Budget Outcome for 2009-10. What it shows is that we are on track to bring the Budget back to surplus in 2012-13. What we do know about 2009-10 is that that year bore the brunt of the Global Financial Crisis. It wiped something like $50 billion from tax revenues in that year alone.
Now of course, we took a decision as a Government to let the automatic stabilisers operate, and of course, to responsibly stimulate our economy. And as a consequence of that, our economy outperformed most other advanced economies. Jobs were saved, businesses kept their doors open, families kept their homes. So when we look at these figures today, were not just looking at the Final Budget Outcome, were looking at the economic impact of what we did through this period and the years that followed, and those economic outcomes are very important for Australia.
We had year average growth of 2.3 per cent in 2009-10. That is 2.2 percentage points stronger than the average of G7 economies. And of course, in that year more than 300,000 jobs were created the strongest employment growth of any major advanced economy. Now, as I said before, our number one fiscal priority is to get the Budget back to surplus in 2012-13, and as I said, the outcome today shows we are on track to meet that commitment.
The Final Budget Outcome is an underlying cash deficit of $54.8 billion or 4.2 per cent of GDP in 2009-10. That is an improvement of $2.3 billion compared to the estimate at the time of the May Budget. Spending was $2.6 billion lower than expected at Budget time, while cash receipts were $249 million lower. Lower spending was due in part to underspends across a range of demand-driven programs, finalisation of some agreements with State and Territories, and lower interest costs on borrowing.
Now, the Budget deficit for 2009-10, as you see in the documents, is the inevitable consequence of the most serious global downturn since the Great Depression. That crisis wiped $110 billion - $110 billion - from Budget revenues over five years and 2009-10 bore the brunt of that crisis with revenues taking a $50 billion hit in that year alone. Thats almost half of all of the revenue lost as a consequence of the global financial crisis. To put that into perspective, it represents a loss of almost one sixth of total forecast tax receipts that year.
Now, as you can see from the chart over there, revenues were revised down sharply when the GFC hit. You can see them come down and continue to come down through the MYEFO of 2008-09, then down to the Budget of 2009-10. And of course, for this year they never really recovered. Fortunately for us in the years that follow they are recovering, but in this year there was this very substantial hit to revenue.
So the revised revenues, or the revised impact of loss of revenues from the GFC, is $110 billion - $50 billion in this year. And thats very important to take into account when youre looking at this Final Budget Outcome. And of course, youve got to look at this in comparison to what occurred elsewhere in the world because our Budget position is in far better shape than most comparable countries. Our deficit and debt is lower. And as you can see again from this chart, we will get back to surplus quicker.
Now, when I was at the G20 Finance Ministers meeting and Leaders meetings in the last few months, the last Leaders meeting set the objective for advanced economies to halve their Budget deficits by 2013. We are coming back to a surplus in 2013. Australias Budget deficit for 2009/10 is less than half the average of the major advanced economies. And of course, as the next chart shows, Government net debt which was 3.3 per cent of GDP in 2009-10 is lower than any of the G7 economies.
So, in conclusion, the Global Recession did have a very dramatic impact on our Budget in 2009-10 and the Final Budget Outcome today reflects that fact. We were faced with a choice between protecting jobs and businesses or slashing services and jacking up taxes and we chose to put jobs first, and that was the correct decision. If it was not for the success of our policies during the global recession, the outcome we would be looking at today would be far worse.
So we kept the economy strong, and of course now that growth has returned to above trend, were sticking to strict spending limits and strict fiscal rules and Ill throw to Penny to say a few things about that.
MINISTER WONG: Thanks very much Wayne. Can I first say what an honour it is to be here today as the Minister for Finance and Deregulation and to be part of the Governments economic team led by the Treasurer and Deputy Prime Minister, Wayne.
Obviously this is a portfolio that helps to shape and prioritise this Governments agenda and we know that strong economic management is critical to the national interest. As Finance Minister, I remain absolutely committed to meeting the strict fiscal rules that have been set out by the Government and prepared to work with my colleagues and the Parliament to ensure that these rules are met and that we make the tough decisions necessary to meet these rules.
The Government is absolutely committed to returning the Budget to surplus in 2012-13. As you know, we are delivering the fastest fiscal consolidation, at least since the 1960s, with a Budget deficit being announced a -4.2 per cent, to a surplus in 2012-13 of plus [0.2] per cent of GDP.
We committed to meeting our strict spending rules to ensuring that real growth in spending is limited to 2 per cent a year on average until the Budget returns to surplus. Now, that is a very substantial task. In the last five years of the Howard Government we saw real spending growth around 3.6 - 3.7 per cent. That is substantially higher than the cap that this Government has placed on itself.
But were determined to meet this because fiscal discipline is at the heart of our forward economic plan, it is at the heart of achieving sustainable and strong growth. This demands fiscal discipline. As I have said, we can negotiate on many things. Were a minority Government, well obviously have to negotiate many things through the Parliament, but returning the Budget to surplus is not an issue on which the Government can negotiate.
It is, I think, the expectation of the Australian community that not only this Government, but the Parliament, act responsibly and bring the Budget back to surplus. I will be accountable, the economic team will be accountable, the Government will be accountable and all of us will be accountable, all Members of this Parliament will be accountable for this, and Finance Minister I look forward to this challenge and opportunity. Thanks very much.
JOURNALIST: Treasurer, the taxation receipts are down by $1.5 billion from the May Budget estimate, largely due to company tax and capital gains tax. What does that tell you about revenue going forward into the new financial year?
TREASURER: Thats a very good question and as those who are familiar with these documents will know, there can be a big difference in what is accounted for in cash terms and what is accounted for in accrual terms, and you are quoting the accrual number. So you shouldnt read those sorts of conclusions into that number. If you look at cash terms, its not down at all. Most of that $1.5 billion in accrual terms, not most of it, but half of it, $700 million of that is basically taxation paid for previous years. So it came in, so in cash terms revenue was about the same, but in accrual terms this related to previous years.
Now, you might go on and draw a conclusion that that means theres an ongoing problem as we go forward. It doesnt mean that at all. There are basically swings and roundabouts. So in cash terms its not down dramatically at all, in fact there is a revenue increase, I think, of $14 million in cash terms. Theres an accrual measure that says that tax revenue is down $1.5 billion. Half of that just relates to the payment of taxes from previous years and it is accounted for in cash terms, its not in accrual terms. Now, as we go forward youll see those swings and round abouts reflected in a difference between cash accounting on the one hand and accrual accounting on the other. I dont think you can draw any conclusion about the future from those differences.
JOURNALIST: Treasurer, how much of the spending in the 2009-10 year is accounted for by stimulus programs?
TREASURER: I couldnt give you the exact figure in the 2009-10 year as a percentage of total spending. I would have to go and check the figures David, but I couldnt give you the figure off the top of my head.
JOURNALIST: (Inaudible) because thats a very important figure in terms of the underlying position of the Budget, that we know exactly how much was spent in each of the-
TREASURER: I can give you those figures easily, but let me make the point that the great bulk of the deficit is not stimulus spending if thats the implication of the question. It is in fact revenue write downs, revenue write downs. So lets not draw the conclusion that this is a deficit that has occurred principally because of spending, it is not. It is principally been caused by the revenue write down.
JOURNALIST: Treasurer, your job dictates that you travel a lot. Warren Entsch, the new Coalition whip, indicated today that they will play hard ball on the pairing arrangement. How (inaudible) you think Parliament will be if theres no give and take on these sort of arrangements?
TREASURER: I think Mr Abbott has demonstrated today that his word is not worth the paper its written on, and he once said judge him by what he wrote down. Well, basically we all saw a signed and sealed agreement where hands were shaken, arms were around shoulders. The Liberal Party said they were a partner in this agreement and he walked away from that yesterday.
So its going to make the operation more difficult there is no doubt about that. What it will mean for senior Ministers, particularly like Minister Wong and myself, is that it will be more difficult for us to attend functions either out of the building or in another city. For example, one today that Ive probably had to cancel as a consequence of this sort of decision. But our main priority is the Parliament, and our main priority is to find common ground in the Parliament for all of those of good will, and we believe we can do that working with the Independents and the minor parties. Its a pity the Liberal Party has decided they want to be as destructive as they now appear to be.
JOURNALIST: Treasurer, what are the chances that you will reach surplus before 2012-2013 given the surging iron ore improved Budget figures here, and also with the drought breaking in many parts of Australia and improved exports there?
TREASURER: Can I just say I find that question a little ironic in that generally when Ive been in these press conferences over the past year everybody has walked in and questioned how optimistic all our revenue forecasts were and claimed theyd never be reached.
JOURNALIST: Will you answer the question?
TREASURER: Well, I am answering the question because I just simply dont speculate about that. Weve put our forecast out there. We stick with our forecast, and by the way this is a forecast that has barely changed. Barely changed between
JOURNALIST: Iron ore has changed.
TREASURER: Iron ore has gone up, right, but the dominant critique in a lot of the economic coverage over the past couple of months is that the Government has been too optimistic about its forecasts for commodity prices. Iron ore I noted was up in the ABARE assessment the other day. We dont count on commodity prices staying high forever. I said that at the Budget. Ive said it all the way through this debate. I think weve got pretty conservative assessments of where we should be, and by in large theyve worked out. But Im not going to speculate about whether theyll stay there or not.
JOURNALIST: Treasurer, what about the $110 billion thats wiped off revenue over a five year period. Has there been anything thats happened, or any sign in the FBO today that its absolutely going to be $110 billion over five years? Is there any indication that it could be any less than that?
TREASURER: Well, were looking backwards here. This is the Final Budget Outcome for 2009-10. As I said to you before when we were looking at that chart, the original write down from the GFC was $210 billion, in our last Budget that was revised down to $110 billion. Almost half of that $110 impacts in this year. As we move forward and we come back to surplus in 2012-13 there are already upward revenue revisions in our Budget as a consequence of growth returning to above trend. Thats a terrific thing for the country and its a great thing in terms of the job creation and so on. But I think were looking backwards here and weve got to look forward as well.
JOURNALIST: But Treasurer, as you say, $210 billion was what you expected and that was the reason that you put so much money into the economy, that was the premise, the report at the time on which you built such a big stimulus package and so could your things have come in much better than expected? So why now dont you cut back on your stimulus package?
TREASURER: Well, one of the reasons that things have come in better than expected is we had a very effective stimulus. You wouldnt be seeing the outcomes were looking at here today if we didnt actually put that stimulus in place. The economy would have contracted in 2009 without our stimulus instead it grew. Now in calendar year 2009 it would have contracted, I think, by 0.7 [per cent] if it hadnt been for the stimulus. Now, because we put the stimulus in place weve actually got higher taxation revenue. More people are working; more businesses have kept their doors open. The reason were looking at a healthier and rosier outlook and are able to say were coming back to surplus in 2012-13 is precisely because the stimulus worked. But we understood when all this happened and when we went to the Budget in 2009-10 and with the very, very big stimulus we put in, we outlined then a set of fiscal rules which would govern the operation of the Budget and the return to surplus. And what are those rules? Those rules are that we bank upward revisions to revenues. Those rules are that when growth returns to above trend, we put in place a 2 per cent expenditure cap.
Two things are now happening as we move forward and are responsible for us coming back to surplus in 2012/13. The application of that two per cent cap, which is the biggest fiscal consolidation since the early 1960s, which is more than half of the improvement, and the second thing is the upward revisions to revenue. Both those things are what is producing a healthy outlook because we have less people unemployed, less business closures as a result of our stimulus.
JOURNALIST: Treasurer, does the Government claim any credit for the fact that spending is $2.6 billion lower now than it was before the last Budget?
TREASURER: Spending is $2.6 billion? Are you looking at the accrual figure or the cash figure?
JOURNALIST: The cash payments.
TREASURER: Yep. The cash payments. Well, some of those are timing factors; some of them are demand-driven programs.
In fact, I could run through some of the reasons why. Of the $2.6 billion, $265 million is natural disaster relief claims, that is, less demand. $254 million Medicare services, that is, less demand. $226 [million] in energy programs. $211 million in interest payments. So a lot of that are demand driven programs where that has not necessarily been the same demand as was expected.
JOURNALIST: Another one is the home insulation program.
TREASURER: Yeah, I just quoted that. Thats $226 million.
JOURNALIST: Why was there $437 million less payments to the states in GST?
TREASURER: Well, because less GST was paid. Consumption was less than expected. But as we go forward, I think that if you go back to the National Accounts figures we saw a month or so ago, consumption had picked up again. So there are swings and roundabouts. You know, we cant always accurately, to the last dollar, predict whos consuming what and when.
JOURNALIST: Mr Swan, that was the same period. The National Accounts told us that consumer spending boomed in June quarter and yet your cash receipts, cash receipts for the GST were lower than expected. Does that make you-
TREASURER: But thats for 2009-10.
JOURNALIST: In the June quarter of 2009-10?
TREASURER: Well, youre saying its a June quarter. Weve got a whole year were dealing with here mate.
JOURNALIST: Im questioning whether the same, does this question the Bureaus figure, estimate of consumer spending in the quarter has been criticised by people, private economists, this would seem to back up those criticisms?
TREASURER: Maybe, Im not so sure. I mean, Im happy to sit down and run through the data with you. Im not going to reach a conclusion on that.
JOURNALIST: Mr Swan, can you explain the wisdom, given that the Liberals have indicated theyre going to muscle up in the House and make things as difficult as possible, why Labor would be flirting with the idea of putting a Liberal in the Speakers chair where that person would have a casting vote and where that person would essentially have complete independence over the program of the Parliament. Why is that a wise decision?
TREASURER: Well, I dont accept that thats factually correct. If youre asserting that there are discussions going on, theyre not ones that Im involved with. Individuals in the House will make their decisions about whether they want to nominate for positions. Im not sure that the outcome of this is known by anyone at this stage. So I dont assert the certainty thats contained in your-
JOURNALIST: I mean, those discussions are going on and there is a desire by some in the Government to basically pump up the Governments numbers by having a Liberal in the chair. Why is that a wise-
TREASURER: Well, Im not sure that thats where this will finish at all, and I dont necessarily accept your assertion. I cant refute it either, but I dont necessarily accept the assertion.
JOURNALIST: Mr Swan, just taking a broader view a story today, just taking a broader view of the story here, the economic story. When you look at those international comparisons, its a pretty stunning result for Australia and youd reckon, looking at that, if you didnt know anything about politics, that this would be a Government that would be re-elected in an absolute landslide. It must irk you as a Treasurer and Deputy Prime Minister that your Government was so hopeless in other areas apparently, that it almost lost office.
TREASURER: Well, I dont, I never question the judgment of the Australian people, and I accept their decision. But we have been returned to Government, and we won the majority of the vote. And I believe one of the reasons that we received that support in the election was the strength of our economic performance. And I think that its genuinely understood by the Australian people that when this economy was threatened, we took very decisive, swift and effective action that produced outcomes here which are truly the envy of the world.
We still have challenges as we go forward and weve got a very broad economic agenda in place to strengthen the economy and to broaden it, particularly to do with the challenges of mining boom mark II. We put all those propositions to the people and I believe they are propositions which receive some strong support amongst the Australian community. But the Australian community will take their judgment on a variety of factors and I leave it up to them to tell people why they did it.
JOURNALIST: Do you question the judgment of the Queensland people?
JOURNALIST: Given that that was where Labor lost all its seats?
TREASURER: I could take you through these election results-
WONG: Were looking forward, not back.
TREASURER: - if you like.
JOURNALIST: These figures are about the past.
TREASURER: And theyre about the future too, and its getting the big economic calls right that are most important and thats why people re-elected us.
JOURNALIST: Senator Wong, during the earlier periods with the Labor Government in the last term leading up to Budgets there was a plan to cut spending fairly heavily but because of the onset of the GFC its been reported that the Government decided not to do that, and sure there was some cuts, but not as hard as the Government was planning at the time. Is there a need to revisit that so-called razor gang style given that interest rates are likely to be rising over the next 12 months, the terms of trade are going to be booming adding a lot of income to the economy?
WONG: As Ive already said, fiscal discipline at this point in time is very important. We obviously faced a very substantial economic challenge with the Global Financial Crisis and as the Treasurer said I think we demonstrably made the right call, the call that was about preserving jobs at a time where weve confronted a global recession. That was the call the Government made.
We now have a project ahead of us which is about ensuring that we apply fiscal discipline, that we observe the spending rules that Ive outlined and certainly the process that the Treasurer will lead and I will be part of through the ERC will ensure we observe that fiscal discipline.
TREASURER: But can I also make the point, and Minister Wong made this before, that weve got a very, very sizeable fiscal consolidation going on right now, 4.5 per cent of GDP. Very significant. And it flows directly from the fiscal rules that we outlined in the 2009-10 Budget and which are now applying.
And secondly, everything we did in our last Budget was directed at dealing with the challenges posed by mining boom mark II. Putting in place a profits based tax into the mining sector to fund cuts to company taxes, very substantial cuts to small business taxation, to boost individual superannuation accounts and national savings, plus to invest in infrastructure particularly in mining areas, a complete program to deal with the challenges that you just mentioned.
So, fiscal consolidation, medium term fiscal strategy, a program to build capacity and to make the businesses more competitive that arent the immediate beneficiaries of the mining boom. This is precisely the program we outlined in our response to the report of the independent inquiry into taxation and subsequently incorporated into our Budget. Thanks a lot.