VAN ONSELEN: Minister Wong, thanks for your company.
WONG: Good to be with you all.
VAN ONSELEN: Can I ask you a first up question? Senior economist, Chris Caton, at a speech during the week about the Budget, made the observation that the combination of the saves and the spending measures is a little bit like trying to drive a car using both the accelerator and the brake at the same time. You can do it but its just not a very good way to drive. How do you respond to that?
WONG: I dont agree with that at all. We have brought down a Budget which brings the budget back to surplus. The surpluses grow every year over the forward estimates and the reasons for it are the reasons that Paul Kelly outlined in the opening. Which are you do need a buffer at this time, given where the global economy is, and also the surplus budget is the right macroeconomic setting. Given the transition in the economy it gives the Reserve Bank room to move and all the positive consequences of rate cuts have already been seen.
But in terms of where the spending is, remember who were giving assistance to in this Budget. Were not giving assistance to the families who are in the mining boom fast lane. Were talking about maximum rate and base rate recipients of Family Tax Benefit A. These are low income Australians and middle income Australians and the majority of the assistance goes quite rightly to low income Australians.
So I think its important to recall which part of the economy is gaining, and which families are gaining, the benefit of the spending side of the Budget.
KELLY: If we look at the Budget Minister, Id like to ask the extent to which the surplus is in fact non-negotiable. Is the Government prepared as we go through the financial year to take further economic decisions if necessary, such as tax adjustments or spending cuts, in order to ensure that the surplus is delivered?
WONG: The Treasurer has made clear this week, particularly at the National Press Club address, that he is, and the Government is, willing to take further spending measures, take further savings in order to protect the bottom line. And in fact, Paul, if you look at the last this Budget and the prior to budget updates so the mid-year review and the previous budget youll see weve actually already done that.
Weve lost I think it was about $10 billion off the 12-13 bottom line between last years Budget and this years Budget. And what weve done in both the mid-year update and subsequently is to find savings to protect the bottom line. Not just in 12-13 but through the forward estimates, ensuring that the budget surplus continues to grow.
KELLY: Tony Abbott has said that if he becomes prime minister he would have a commission of audit to comprehensively review all Commonwealth Government outlays. Why dont you do that, given that youre committed to such significant savings?
WONG: Because weve been doing it not talking about it through the budget process, through the Expenditure Review Committee process. I mean it is quite extraordinary, in the 12-13 surplus year, a year that both parties say should be a surplus year, that Tony Abbott continues to refuse to tell the Australian people, and people like you, what he would do to ensure the budget is in surplus.
He has, by his own admission, or his economic teams own admission, a $70 billion black hole. Since that time hes added to the spending side of the equation whilst rejecting some of the revenue side; the example is the minerals tax.
His finance spokesperson on national television has said that they want to deliver they would deliver a $15 billion surplus in 12-13.
Now thats simply unachievable. To achieve that you would actually have to not do something like not pay any Medicare at all for that year. So Tony Abbott can talk all he likes about a commission of audit. What hes ducking from is providing any detail to the Australian people or to the markets about what he would do were he in government to the Federal Budget.
UREN: Minister, the budget papers explain in great detail the way in which health education and social welfare spending are growing much faster than inflation and really leading to a long-term structural weakening of the budget. How do you deal with that on a long-term basis? How do you tackle this long-term structural weakening from the budget, from the areas that together account for about 60 per cent of total government spending?
WONG: Well the first thing weve done is exercise spending restraint. If you look at the forward estimates, and David Im sure you have, you will recall that payments or spending as a share of the economy stay below 24 per cent over the forwards. The last time we had that sort of sustained constraint upon payments was in the 1980s so thats obviously a very important component.
We have continued previously in previous budgets to restore do work to improve the structural position of the budget, many of which have been opposed by the Opposition. You might recall the private health insurance rebate where, if unchecked, would have taken the majority of medical benefits expenditure by mid-century, absent any policy change.
The policy change of means-testing was obviously opposed by Tony Abbott, but a very important policy mechanism. The other area where weve done a lot of work and probably hasnt got the attention that it deserves is aged care. Where weve revamped the system but also ensured greater levels of both public and private funding to ensure the system is more sustainable. And thats important as we go forward.
UREN: But means-testing of the private health insurance rebate, that certainly was a structural strengthening of the budget. But many of the saves in this weeks Budget dont have that character. And I guess Im thinking of the deferrals of spending in defence and in foreign aid, which together account for many billions of dollars of the saves that youve announced. I mean this is not a structural strengthening of the budget at all, is it?
WONG: I think we have done as Ive said thereve been savings measures in terms of certainly some of the tax concessions. You might recall the Dependent Spouse Tax Offset that the Government removed and a range of other things in this Budget where we think the existing tax concession is not sensible to continue with. But look in terms of foreign aid, it remains the Governments commitment to lift to the target in terms of gross national income, and that is our commitment. The only thing weve said is look, given the fiscal circumstances, well have to delay that by a year. It is of course
VAN ONSELEN: But Minister, can I just jump in because its a fair point though, isnt it, this idea of the realities of the structural deficit going forward? Because it is a deferral in terms of increasing foreign aid, it is a deferral in terms of defence spending thats going to come on line. Weve got $7 plus billion for the NDIS, which isnt even in the budget, that is what the Productivity Commission says will be needed year-on-year if thats to actually be completely rolled out.
So theres enormous spends that are going to be required going forward and a lot of the savings just dont cover it.
WONG: Come on Peter - Im not going to put you in this category, but I have to say the Opposition keep going on about structural deficits but then oppose savings measures which improve the structural position of the budget and then refuse to put out their figures I think the talk of structural deficit gets pretty thin from the other side of their politics.
VAN ONSELEN: Theyre worse - theyre worse than your side of politics, Im happy to say that. But the problem Ive got here is that I think both major parties are ignoring the realities of where were at. And thats because youre all politicians, youve got to try to win votes. But at the end of the day the structural deficit is a huge issue in the five, 10, 15 years going forward, isnt it?
WONG: Weve got a major intergenerational problem in this country but I think what youre not doing is giving sufficient credit for the things we have done, most of which have been opposed. So remember we tightened the base effectively on the family tax benefit so that it doesnt go as high up the income system.
We closed down, phased out a number of tax offsets which were not sensible things like the Dependent Spouse Tax Offset. These are important structural saves for the budget. So I think
VAN ONSELEN: But there is a long way to go isnt there?
WONG: There is more to go and it was disappointing to see - when we announced the aged care package, which really does recognise the intergenerational problem or reality, which lies really at the heart of the structural deficit question that we saw again Tony Abbott playing politics with it.
I mean I thought at that point where he came out and had a go about the private funding, the inclusion of means tested arrangements in that. I thought well really anything you say on structural deficit has no weight whatsoever, has no weight. Because here you are, one of the policy areas which is most obviously going to continue to grow given the ageing of the population and youre opposing a sensible way of improving and expanding the funding for aged care.
KELLY: If we just look at the defence budget, Minister, the big cuts and the big deferrals are coming in defence. We had a defence spending expert, Mark Thomson, tell us this week that next year defence as a proportion of GDP spending will fall to 1.5 per cent, which he says is the lowest since the Munich Peace March period in the late 1930s. Are you embarrassed about that?
WONG: I am not embarrassed about the fact that we have looked across government to ensure there are savings to bring the budget back to surplus. And I accept there have been some difficult decisions. But that is the reality of making sure the budget comes back to surplus, something the Opposition are simply not prepared to do; confront the reality of difficult decisions.
I think that in terms of defence weve made very clear core capability is protected. The numbers in the ADF are protected. The kit for our troops on deployment is protected and the Defence Minister has announced that there will be a revision of the White Paper, which I think is very sensible given the changes to the strategic environment.
KELLY: Does that mean that you accept that going into the future were likely to see defence spending at this low level and staying at this low level of about 1.5 per cent of GDP for some years?
WONG: No, Im not making that assumption at all. Im simply saying weve had to make decisions across government about how we deliver a budget surplus that grows over time. And that weve had to call on a number of portfolios right across government. And in terms of defence, I think youve seen how much capability we have in fact already made decisions about. And in terms of ongoing capability the White Paper is intended to be revised and I think that is sensible.
UREN: Minister, as well as these sort of tough spending cut decisions, there are also a whole lot of new spending decisions that seem rather to be in the province of local government. I guess Im thinking of things like money for lights at Manuka Oval in Canberra, foreshore works in Port Macquarie, a youth camp on Bribie Island and I think also funding in Adelaide for the Adelaide Oval. I mean is this really Commonwealth business and what are these sort of, this new spending doing in what should be, and what was hailed, as a budget of restraint?
WONG: Well it is a budget of restraint and you and your colleagues on this panel are amongst the journalists who would understand the payment or spending to GDP ratio and the significance of that. So Id invite you to consider that rather than the micro story. I mean funding for Adelaide Oval was announced well before the budget, you might recall, and its obviously a contribution to a pretty important piece of infrastructure here in Adelaide thats a priority for the State Government. So theres always going to be some amount of spending in the budget but the overall story is one of restraint.
VAN ONSELEN: Minister, I wanted to ask you about the NDIS. I wrote about this yesterday. Now
WONG: Yes, I read that.
VAN ONSELEN: At least someones reading it. Its an issue in relation to this idea that look its a good scheme, the NDIS, but its yet to be agreed on. The States havent come onboard, some of them are making soundings that they wont come onboard. And it strikes me that when youre putting in place a budget where so much politics is wrapped up in getting back to surplus with $1.5 billion as that surplus figure. If you havent got an agreement yet with the States going forward on something as expensive as the NDIS, doesnt that suggest that some of the figures are a little bit rubbery here for that to be included in the budget?
WONG: No it doesnt, but what it does suggest is were committed to a National Disability Insurance Scheme, and we are. This is like Medicare and it will take time to build it. We brought forward the launch date by a year from the time suggested by the Productivity Commission. I notice you made some comments about costs previously, I think, Peter. Ive made the point we have assumed the cost of care that the Productivity Commission recommended. What we have done is gone with a set of regional launches. So not build the national infrastructure, the IT system upfront, but to do this in stages because we want to make sure we get it right. The Commonwealth is funding the majority of the costs of these launches and I hope the states will come on board.
VAN ONSELEN: Sorry to interrupt, but even where you say that youve assumed the same cost as the Productivity Commission, albeit on a slightly smaller roll-out, that
WONG: Cost of care
VAN ONSELEN: Sure but
WONG: So if you assume what it will cost to care for someone, yes.
VAN ONSELEN: Which is $35,000 per package, as I understand it, but even that assumed cost that youve budgeted on is based on a share by the States. Now the States havent agreed to that yet, so if they dont come to the table then thats an immediate blow out in the budget if the Commonwealth has to fund the whole thing.
WONG: I think its an immediate blow-up in their credibility because a number of premiers have made the very important point that people with a disability have waited a long time. You know on this issue I would really encourage there to be some bipartisanship whether its a state government or frankly at the Federal Opposition level. I dont understand what Tony Abbotts position is.
On the one hand he says he supports it. He also says he wants a committee, and Joe Hockey seems to be entirely negative about it. This does require politicians to have a modicum of bipartisanship about how about we approach this. The Commonwealth has put in good faith on the table a series of launches, funding for those, in order to be able to build this scheme. But it requires, as I said, people to be sensible and be prepared to do some work on this. Now obviously theres a whole negotiation that will proceed and I would encourage people to get engaged in it sensibly.
KELLY: But just on this point, Minister, I mean surely there can only be bipartisanship when the Governments plans are quite clear. So can I ask you in terms of the scheme itself, what is the Commonwealths intention about the funding of the scheme? Would it be funded all out of consolidated revenue or might there be some form of tax levy? I mean this is a really fundamental question.
WONG: The funding in the Budget has already been funded Paul for the launch and the building of
KELLY: I appreciate that.
WONG: Well we will make decisions subsequently about the National Disability Insurance Scheme. At this point what we have funded very sensibly, as per the Productivity Commissions recommendations, is a launch
KELLY: But what is your intention about how to fund the scheme down the track?
WONG: Well these are decisions that will be made subsequently. We funded out of the budget the launches and thats a very important building block for what will be a very significant change.
KELLY: Do you accept the principle involved in the Productivity Commission report that the Commonwealth Government should assume overall funding responsibility for the scheme itself?
WONG: Im not going to get into what might or might not happen down the track. I can talk to you about what decisions we have made and as Ive said, in this Budget we funded the launch of the National Disability Insurance Scheme. We funded it in accordance with the cost of care that the Productivity Commission has suggested. We made some differences in how we propose to fund the IT and the infrastructure roll out. Which I think is sensible to make sure we see how the system works before we go further.
And I have said to you these issues of funding are issues not just for launch but subsequently are issues for discussion with the States. But Im not going to pre-empt those.
UREN: Minister, when you run through the budget papers there are hundreds and hundreds of little line items where there the spending has been reduced on this program or that program. And its often $1 million here or $2 million there.
But its not obvious to me anywhere going through it that there have been any actual programs that have been closed down. Did you find as you went through the expenditure review process that essentially all the programs that are there are, you know, delivering value for money? Is that why, or does it take a different kind of process to identify programs that actually should and could be cut down?
WONG: Im not sure that thats right in terms of specific programs but I would say when youre taking the sort of reduction in spending and constraint in spending that we have, all areas of government are going to have to contribute.
I mean lets remember and I keep saying this, payments are below 24 per cent as a proportion of GDP over the forward estimates; no period since the 1980s has that been achieved. But perhaps as importantly, look where tax stays. We inherited a tax to GDP ratio of 23.7 per cent. We stayed well below that from this year going forward. So were bringing the budget back to surplus with surpluses growing over time, taxing substantially less than Peter Costello taxed in the period just before we came to government.
Now people can look at the Budget and complain about different parts of it, but the macro-picture of those figures is a story of lower tax and lower spending. You know, we did make some decisions across government about how we approached that. Some of those weve been criticised for.
On the other side, some of the spending priorities weve also been criticised for. And I note that Tony Abbott, whilst hes not opposing apparently the assistance through Family Tax Benefit A, has flagged that he may not keep it should he get into government. I think Tony Abbott should be asked whether or not it is his intention to continue that payment or whether hes going to cut it.
UREN: Spending of 23.5 per cent of GDP would certainly be a commendable achievement and its striking in the Budget
WONG: Well Im pleased David that you recognise that, I am.
UREN: Its striking in the Budget that for the first time I think ever I think the budget papers said 42 years but I suppose thats just because they cant find a precedent where actual dollar spending in the year ahead is supposed to be lower than spending in the current year.
WONG: Thats right.
UREN: But one of the things thats striking is that spending in the current year is 25.1 per cent of GDP, which is really a very high level of spending on any kind of historic comparison. And its also much higher than was expected when you did the Budget or even when you did the mid-year budget update.
So one of the questions that I think people in the economics fraternity are asking is you know how can you be believed that youll actually achieve this unprecedented spending cut? And I guess Im just you know interested in how you respond to the issue of the credibility of such a substantial level of restraint in the year ahead when its not been achieved in years past.
WONG: I always find it interesting that people say, how can you be believed in terms of the savings measures at the same time as maybe not the same people but others are complaining about some of the savings measures. Theyre either real or theyre not and for example Paul quite rightly has asked me about defence. Ive been asked about ODA. Ive been asked in other places about the public service and the net reduction in public servants that is assumed, or that will occur in 12-13 for the first time in a very long time as a result of the Governments efficiency agenda.
I mean there are real savings here and they have had to be put in place because we believe that the fiscal strategy is the right one. And the fiscal strategy is the right one because of the economic circumstances.
VAN ONSELEN: Minister, the essence of Davids question, though, hes too polite to put it the way that Im going to, is that theres a real credibility gap there for the Government. A $22 billion deficit becomes a $44 billion deficit for the current financial year. Now factors aside, as far as the average punter is concerned they look at that and then they think well hang on a second, youre now telling us about this huge fiscal consolidation. About a $1.5 billion surplus, and frankly I think that theyre just really sceptical about that. Particularly when you throw in all the other labyrinth of political issues that are in the mix at the moment.
I mean this is the Governments problem isnt it, trying to actually convince people that you will do what you say, when the last time you said you were going to have a budget deficit it was $22 billion and now its $44 billion?
WONG: You know one of the things we will do what we say and we demonstrated our willingness to do that, and our determination to do that, by the decisions we keep making at a time when revenue has continued to be written down in order to protect the bottom line.
I mean we have had to manage $150 billion being taken off the budget bottom line in terms of revenue write downs from what Treasury had previously advised; $150 billion. And people just want to dismiss that but we have had to manage that and offset not just new spending but offset revenue write down in order to protect the bottom line 12-13 onwards.
VAN ONSELEN: Do you feel like youve just been unlucky? That youve come in at the end of a Howard era where it was surplus after surplus, you get hammered by the GFC and youve just been in a sense a government in the wrong place at the wrong time?
WONG: (laughs) Thats a very philosophical question, Peter. A couple of times I have been known to say we should, that maybe I need to go and see a Chinese feng shui person so that she or he can fix up the feng shui. Because I keep getting ever since I became Finance Minister the news on revenue keeps getting worse.
I once compared the budget to MYEFO downgrade that we were dealing with, with the last budget to MYEFO that Peter Costello had. I cant recall how much it was but he had billions of dollars increased in revenue between budget and MYEFO. And obviously he didnt actually do any of that, that is just what happened in the economy in that timeframe.
So whereas they kept getting upward revisions, weve kept getting downward revisions. But thats life; we did come into office at a time where we then had the GFC. Im very proud of the way the Labor Governments steered the economy through the global financial crisis and its washout.
I mean have a look unemployment at the moment is below 5 per cent. Were continuing to grow. Our economy is bigger than it was prior to the GFC. Theres a lot of advanced economies whod love to at least be on level pegging. Inflation is contained and a massive pipeline of investment is continuing to demonstrate confidence in the economy and giving us confidence in growth going forward.
I mean these are very good figures and its important that we continue to manage the budget properly to reflect that strong economic management.
UREN: But Minister, as well as revenue being written down and we all recognise that thats a reality that has something to do with the world and forces beyond the Governments control.
WONG: You might, David, but Im afraid sometimes our political opponents dont.
UREN: But the issue of credibility is raised much more by the expenditure side, which is you know I guess your very direct responsibility, and thats blown out as well. So how do you explain the blow out in spending and in
WONG: Are you talking about 11-12?
UREN: 11-12, yes, relative to the budget.
WONG: First David, dont ask me about the blow out in spending when as Finance Minister Ive been part of a budget thats delivering less spending as a share of the economy than at any time in 30 years.
UREN: Yeah, but it goes to the question of whether you can achieve the spending restraint over the year ahead when the spending in the current year hasnt been held to the levels that you said it would be.
WONG: Sure. There is no doubt that the GFC and in the years afterwards we have seen for obvious reasons we have seen deficits which are in part a function of the Government intervening in the economy, as you know. And also a function of what has occurred in terms of revenue.
In terms of the 11-12 year, Ive gone through that previously. The factors driving that are things like revenue write downs and a policy decision which weve been upfront about to pay a number of things upfront including the Clean Energy package assistance. And we were very upfront about that when we announced the Clean Energy package. We said we are bringing in this assistance upfront because we want families to have it before they have to deal with any cost of living increase, CPI increase, from the carbon price.
So you know we have been transparent about those decisions. In this Budget, the one that Ive been asked about is the Schoolkids Bonus why is that being paid upfront? We changed the policy design. We changed the policy design to make it an upfront payment rather than a tax refund. So of course youre going to get payment upfront as opposed to in a subsequent financial year. So those things are all explicable.
But all I can say to you is look at what weve done. Weve had to continue to protect the bottom line from revenue write downs through savings measures. From last budget, where we found you know, weve had savings of about $100 billion over the previous full budget. We found $11 billion plus in MYEFO and we found $34 billion worth of savings in this Budget. Now they are real savings and they are savings that are about ensuring that the fiscal strategy is retained.
KELLY: Minister, if we just go to the question of super. To what extent will public office holders and politicians on defined benefit schemes endure the same impact from the change in super arrangements and the change in taxation concessions?
WONG: The intention is that politicians and public servants will also be subject to the increased tax. And of course a number of politicians and many public servants are no longer in defined benefit schemes, which were obviously closed to new entrants at various times except for the military. So the people who are not in defined benefit schemes are obviously treated analogously.
In terms of those in defined benefits, it is more complicated and I think Minister Shorten has issued some indication about this publicly. It does require an assessment of the notional contribution. We have provision for making - administering this through in the Budget and well make sure that those details of implementation are given effect.
KELLY: I mean it has been mentioned that some of these tax bills could be quite substantial, figures like $50,000, $60,000, $70,000 have been mentioned.
WONG: Im not in a position to respond to sort of hypotheticals or anecdotes. It is true that when youve got a DB scheme, a defined benefit scheme, its a little more complex. But you know our policy intention has been clear.
VAN ONSELEN: Alright Minister Wong, well let you go. Youve been very generous with your time. Weve been generous too, we havent asked you one question on Craig Thomson. Well reserve that for our next guest, Tony Windsor. Thanks very much for joining us on Australian Agenda.
WONG: And happy Mothers Day to anybody whos watching if someone other than the panel is watching, happy Mothers Day.
VAN ONSELEN: Thanks very much.