Ladies and gentlemen, I just want to give you an overview of the Budget and the Australian economy and just to show you a few of the economic fundamentals of Australia and address some of the bigger issues. I’ll make some comments and then take some questions. If we could start off, just – we’ll just take the charts as they come I think. I was asked before in the press conference how reliable our budget forward estimates are. We’ve done a table, and we’ll be handing out some hard copies. This compares the Keating One Nation statement projections against actual outcomes. You will see that in hardly any year did they meet their projected outcomes. In fact in 1995-96, while projecting that the Budget would then be in surplus, it was about 2%, $10 billion in deficit, a point now conceded by the Labor Party.

Compare our own outcomes against actuals from 1996 onwards. We projected in 1996-7 we would bring the surplus back to about 1% of GDP. We bettered that. We projected that in the current year that we would be bringing it back to about 0.3%. We bettered that. We projected that we would have a $1.5 billion surplus. We bettered that, and I think there’s every reason to think that we can do as well, if not better, in relation to future years. We have always taken conservative estimates in relation to our Budget position.

As we say in this Budget, when we inherited the Australian economy, we set two goals. The first was we were going to put Australia back in the black in our first term and tonight we deliver on that. The second was that we would take $80 billion of accrued debts coming off the Keating recession and we would reduce the debt to GDP ratio from 20 percent to 10 percent by the year 2000. We will deliver on that. We are on track to complete the second leg of that journey.

I want to tell you why we thought that was so important. As you look over the history, you could always see that during recessions, debt would blow out. During recoveries you would get debt back. During recession it would blow out again and the whole history of Australia was as you moved across this graph, an increasing debt burden, each recession making debt worse and each recovery not getting us back to where we started. The white areas show what can be done with privatisation of Telstra. With the privatisation of Telstra, we can break that cycle, we can put Australia back in the debt position it was in back in the mid-70s before Whitlamism took its toll on the Australian economy.

We also put some figures here to try and show Australia’s position in relation to the rest of the world, in relation to the rest of the developed world. As you know, we do well and are improving but we are now in the most turbulent area of the world and we have to do better. That’s the truth of the matter. We are in a very difficult external situation and Australia has to do better. We say in this Budget that in many respects, we have the best fundamentals in 25 years. This is a chart which measures inflation back to the 1960s. Some of you have heard me say the lowest inflation since a band by the name of The Beatles came out of Liverpool back in 1962. But I think it’s very important to put this graph up because as we know, the challenge for Australia in the forthcoming year is going to be our current account deficit. I want to point out to you that in relation to other current account deficits, we have gone into them with significantly higher inflation rates back here in ‘85, at the end of ‘89, as the current account blew out again in 1994. One of the advantages we have is that we go into this current account deficit with lower inflation. The other is that it’s not a result of unsustainable private demand but an external challenge, particularly in Asia. The kind of challenge that we haven’t seen since the oil price shock of the ‘70s. You heard me say before that mortgage interest rates are now the lowest since man walked on the moon and this charts them all the way back to 1970, around 6.5, and you can do better than 6.5 per cent if you are prepared to negotiate with a bank.

I also point out to you that back here, you of course couldn’t borrow 100 per cent of valuations because interest rates were so low they were rationed. And in a comparative position the Australian interest rates, now the best since 1970. In relation to unemployment, this is the Keating recession here which took unemployment to a peak of 11 per cent. We are now back at 8, or below, the lowest since October of 1990. Unemployment in Australia is still too high but it is now the lowest in eight years and I want to show you the advantage that locking in low inflation can have. When our Government was elected, we paid a 250 point differential between Australian long term interest rates and US long term interest, there was a 2.5 per cent premium for being an Australian. And as you can see, over the course of that, by locking in low inflation and by delivering on our budget targets, the differential between the long term US bond rate and the Australian bond rate is practically zero. In fact, on some days we go below it.

I just want to also address a couple of remarks to the question of real interest rates because there are two parts of the interest rate story. One is that official interest rates have come down, as you know, with five cuts since our Government was elected but margins have also been squeezed and real interest rates have come down as well. This is a graph which shows the real short term interest rate from 1983 to 1996 and the real short term interest rate from 1996 to 1998 and it compares it with current US real short term interest rates. That story is part of the story about the benefits that the competition in financial markets can give you and the benefits that credibility in relation to low interest rates can give you.

Now I just want to say in relation to this Budget that we said in March 1996 that we set ourselves two goals. One was to put Australia back in the black. We are back in the black. We are back on track. Our Government will deliver a surplus of $2.7 billion in the forthcoming year and the Commonwealth Government has not been in surplus now for some eight years.

The second leg of the journey, we said that we set ourselves to do would be to halve the debt to GDP ratio by the turn of the century. We are well on track and we enter that second leg with very good grounds to believe that we can do it. Why do we want to recover Australia’s debt position? Well, there are two reasons. One is if we can recover Australia’s debt position, that is, if we can run a surplus and retire debt and strengthen our position, what that means for average Australians is that their taxes are not going to service past debts. Their taxes can go on their roads and their schools and when we’ve improved their roads and their schools and their hospitals, they are entitled to pay lower taxes. That’s the first thing.

The second thing is that in a time when we are seeing the biggest challenge in our region in 25 years, at a time when Australia has been a strong economy, we want to say to the world how strong we are, that this is a strong economy, this is a Government which is determined to set goals and deliver on them and when this crisis passes we will be positioned with opportunities in the region which would not have been within our grasp.

We will have real opportunities, opportunities which can really deliver for Australians and their families in the years to come. So this is a budget which delivers on a three year commitment, in full, plus more. It’s a hard yards Budget but it’s right for the times and it gives wonderful opportunities for our country and for its future. We are in the black and we are back on track.

Is the central message that you want voters to hear in this budget, that your good economic management means you can be trusted with another three years, having handed them…(inaudible)?

Well, we want to say to voters, look, the fundamentals are as good as they have been in 25 years. Inflation, interest rates, debt position coming back, surplus – this is good but we can’t stop now. If we stop now when we have the external challenge then we could fritter away opportunities. Having done such a great leg on the first leg of the journey, let’s go the second and the destination is going to be exciting. That’s the possibility.

Can we take your opening comments to mean that you’re giving a commitment that a tax package won’t appreciably alter the forward estimates?

Well, look, the forward estimates for this year, that is 1998-99 will be delivered in full and I’ve shown you the results from previous years if we can better it, we will. And in the year after, and we will deliver on the second leg of the journey which is absent Telstra 10% and with Telstra, down in low single figures. But, you know, I do make the point that at the end of the day when we have secured Australia’s position we do have possibilities, and the possibilities that we have are better services and lower taxes, and long term – and I’m talking into the next decade – long term, that’s what we ought to be looking at in this country. We never had the opportunity to think about that in the last two years, or really in the last five. But long term, I’m talking into the next decade, we can look at those opportunities.

You said it was long term – I mean, I think the projections are four years hence 14 billion dollar surplus or something. That sort of surplus may be (inaudible) as the need for the …. the tax package comes in.

No, that’s the surplus that we think current policy would deliver. Now, I think there’s every reason to think that current policy would deliver it, but you always make assumptions in relation to these things. You make an assumption for example if there’s no recession, I don’t think there will be a recession. You make an assumption in relation to these figures about your privatisation programme, and so on. But what I am saying to you is this year’s surplus, next year’s surplus, 2000-2001, halve the debt to GDP ratio, and then if we are in an incredibly strong position down the track won’t that be a wonderful problem for us, to think about what we’d have to do with that?

Won’t a $30 billion current account deficit shake international confidence in Australia as it has in the past and push up interest rates?

Well, I think most people are expecting the current account deficit to rise in any event, and I think most of the financial markets have been taking positions already. Some commentators are saying six – we say five-and-a-quarter on average – that means that it will bounce around but over the course of the year, five-and-a-quarter. Now, I make three points in relation to that. One is, five-and-a-quarter is not the six-and-a-half type outcomes that we saw in the mid-80s and the early part of the 90s, is the first point. The second point, five-and-a-quarter when you’ve got an inflation rate of one-and-a-half percent is very different to six-and-a-half when you’ve got inflation rates of six, seven, eight and 10 percent. That’s my second point. My third point is, if you are looking at an economy which had a savings problem, the savings problem was reducing the current account deficit, the first thing that the economy would be advised to do, would be to tighten fiscal policy and put the budget into surplus. That is what we are doing. We have a pro-saving fiscal setting, which is being put into place to strengthen us for just this kind of situation. Now, we’ve got a long paper here in the Budget, but one of the points that we make is that this is not a current account deficit which is based on unsustainable private demand. We have strong private demand. This is a current account deficit which is principally an outcome of a downturn in the Asian region. We didn’t create it, we don’t control it. We’ve taken part in international efforts to try and ameliorate it, but that’s the effect that it will have on our economy. I do say one thing though. Anybody who says, and if the opposition says it, or the minor parties say it, or anybody else who says that when you have a temporary pressure on the current account, the thing to do is to whack your budget into deficit is wrong, dead wrong. The thing to do at a time like this is to deliver on your outcomes, and to deliver the kind of straight strong outcomes that we’re producing.

Treasurer are you hopeful that this Budget can at least hold interest rates where they are, if not bring them down further?

Well, I always get asked about where interest rates are going to go, but my point in response is look at where they’ve come from. Home mortgage interest rates, the lowest since Neil Armstrong walked on the moon. I don’t know if you were even born then Lyndal. You know, a lot of us were still in short pants in those days. This is a long time ago. Inflation at levels of when Menzies was Prime Minister. I mean, we’re leaving aside a lot of Australian political history to get back that far. Back to 1962 – 1963 and what that means for your average Australian homebuyer, is paying $3800 less in interest a year, now, and that’s after tax money. If you are on a marginal income where you are paying 48.5 cents in the dollar, I think it’s above $50 000, that is worth $7600 worth of earnings to you – one of the reasons why private demand in Australia is strong. These are enormous benefits and the other point I’d say is this. Low interest rates just haven’t helped homebuyers, but with housing affordability improving 24% in the last two years, so many young Australians, young couples, have been able to buy homes, which would have been beyond their reach. What a fantastic thing for young Australians to be able to get into their homes.

Treasurer, is your spending in the Budget designed to mollify those groups that are being hit in the last two budgets?

The spending in the budget is designed to attend to important needs of the Australian community. The biggest new spend in the Budget is in relation to health. Hospital funding increasing 15% in real terms over the next five years. I think that’s very generous increases. I notice there are some people that don’t but it’s 15% over five years for hospital funding. Now, that is being done because it is needed. $500 million over four years for World War II veterans. That’s not designed to mollify anybody. The fact of the matter is that World War I veterans were given the Gold Card. World War II veterans, in my view, deserved it – 53 years after the end of the war. Commonwealth seniors Health Care Cards. There are a lot of people out there at the moment who are trying to manipulate their income to get pensioner benefits. They’re actually earning less than they need to earn and one of the biggest is the pharmaceutical concessions. Now, you say to the self-funded retirees who have saved, you’ll get access to that pharmaceutical concession card. I think that’s probably a good incentive for people to fund their own retirement. I think these are sensible measures I must say.

How much of a danger is Asia? Could it drive growth below three per cent?

I think we say in the Budget that if it hadn’t have been for Asia, we would have expected growth in 1998-99 to be greater than it’s been in 1997-98 and in 1997-98 it’s up around the high 3’s. So it has affected the Australian economy. We put down a growth rate there of three per cent. I think most people will think that’s a pretty sober assessment. It could have been more but the one point I’ll make about three per cent is this. I think it will probably be the highest, if not the highest, one of the highest amongst developed nations in the world next year and, incidentally, could even be the highest growth rate in Asia. You have to look at China and Taiwan, but certainly in relation to the ASEAN’s and North Asia, Korea and Japan. Did you ever think you’d hear an Australian Treasurer say Australia had the highest growth rate than Asia?

Treasurer, you say considerable risks in Japan. How bad could things go for Australia’s major trading partner?

Well Japan’s been pretty flat now for five or six years. Growth in the current year is negligible and growth in Japan at about one or a bit more is probably the best you can expect. Now that affects Australia although, I will point out one thing to you, it’s not just the level of growth in Japan that affects Australia because an awful lot of Australia’s exports go into Japanese exports and it’s important to watch Japanese exports as much as Japanese growth when you are assessing Australia. Whilst Japanese exports hold up, that is good for us, because a lot of our materials, particularly in energy, iron ore and so on get processed into Japanese re-export. But even that being the case, obviously Japanese exports into Asia are turning down and that has had an affect on Australia.

Treasurer, what do you say to job seekers? The unemployment rate is not meant to go down much over the next 15 months.

Well, I think in relation to job seekers, we can say one, unemployment is as low as it’s been in eight years and that’s good. Two, unemployment in Australia is still too high and we’ve got to keep working on it. Three, you can’t expect unemployment to be dealt with by growth alone. I think in Australia we need a real, open debate about the structural impediments to unemployment. Our Government, as you know, believes that Labor market reform is a very big part of addressing those structural impediments. And the second I would name is this, that the interaction of the Australian tax system and the social security system means that when people go into the workforce they can face marginal tax rates of 80 or 90 per cent. 80 or 90 per cent of their income can be clawed back either in tax or lost child care subsidies or lost family allowances or lost Austudy benefits. And there are some income levels whereby earning more you can actually go negative. And people are not dumb you know, they’ve figured this out. They’ve figured out that there is not much point in working and going negative. And I think there are some people that have worked out there’s not much point in working if you are facing an effective marginal tax rate of 80 or 90 per cent. So a big part of our tax reform is not just to get down high marginal tax rates on middle income earners, but also to ensure that the interplay of the tax system and the social security system gets some of those disincentives out.

Are you happy with the projected fall in unemployment of only .15 per cent over the next year?

Well look, I think we’ve got to work on it. It’s happier than you’d be right throughout here. Isn’t it? But look, don’t underestimate the damage that the Keating recession did to this country. You know, this is the impact of the Keating recession. We are now eight years after the event and we are just getting the Budget back into surplus. We are $80 billion of debt after that recession. We have just got the unemployment rate down below eight per cent. Now, as I said before, I think our country has got to do better in relation to unemployment, but that involves big structural changes. And the Government is working on those structural changes in all sorts of different areas.

Given your success at leading your Budget target back on debt, is it not time as you’ve just said, to set a target on jobs?

Well, I think the target on jobs will continue to be the lowest unemployment rate that Australia can get. And I think that with big structural change we can do it. Look, let me ask you this question. If a country was going through a downturn in its trading region and it needed to boost exports, why would it run an inefficient port and wharf system? That’s why we want to fix it. If a country, you know, had a problem in relation to exports, why would we tax the business inputs on our exports? No other country in the developed world is running a tax system with inputs on their exports like that. That’s what tax reform is all about. If a country wants to fix unemployment, why would we not deal with the interplay of the social security and taxation system and make it better? But you all know that these are sort of issues that have been debated in Australia for a long period of time and I think we’ve got to face them, we’ve got to overcome them. And that’s really the best way of doing something about unemployment. Thanks very much.