Transcript No. 2000/40

TRANSCRIPT

of

Hon. Peter Costello MP

Treasurer

7.30 Report

Tuesday, 9 May 2000

8.10 pm

E&OE

OBRIEN:

Peter Costello is it fair to say that the surplus youve achieved in

this Budget was more by good luck than good management.

TREASURER:

Well, let me correct something Allan said, because he was wrong. He said

that we were spending proceeds from spectrum licenses, we are not spending

a dollar from spectrum licenses. All of the money that is raised from

spectrum licenses goes to pay off debt, and in addition to that we use

Telstra to pay off debt and at the end of this financial year we will

have paid down another $9 billion of Labor debt, and the last five Budgets

of Labor ran up $80 billion. Our first five Budgets have balanced and

then run down debt by $50 billion. We havent paid back the full $80 billion

because it is harder to pay back than it is to run it up. So what you

are seeing in this Budget is a Budget which is balanced and all of the

proceeds from the spectrum which are treated under IMF standards as revenue,

because the Budget is in surplus go to retire debt, every last dollar

and we retire additional debt to pay down $50 billion of Labors $80 billion

debt.

OBRIEN:

Nonetheless youve nailed your shingle to the wall as Mr Surplus.

And its true, is it not, that until very recently in your preparations

for this Budget you had estimated the sale of this particular spectrum

at something like $200 million, it is now $2.8 billion. Without that you

would not have a surplus. And its gone next year, it is one year.

TREASURER:

Well, Kerry whats happened over the course of the last year is that

our dividends have gone down and our license fees have gone up. But our

non-tax revenue is lower than we thought, its lower than it was last

year. So, luckily for us as our dividends went down, our license fees

went up, the non-tax revenue still fell. What keeps a Budget in surplus

OBRIEN:

Im glad you acknowledge some luck in there.

TREASURER:

Well luck cant always run one way. I would have been lucky if the dividends

had gone up, that is what I would have preferred as they have over most

of the last decade or so. No, what keeps this Budget in surplus is that

we spend less than we raise. Thats what keeps the Budget in surplus.

OBRIEN:

But at one point you were going to have a surplus of $11 billion, and

the markets very clearly are seeing you as having become a spending Treasurer.

TREASURER:

No, no. At the Mid-Year Review we were going to have a deficit of half

a billion dollars. Thats all we were going to have.

OBRIEN:

Two years ago you were going to have a surplus of $11 billion.

TREASURER:

We were going to have a deficit of half a billion dollars. And we said

to the Australian people there was a one-off year caused by two factors,

one was East Timor and the other of course was the hole that was punched

by the Labor Party and the Democrats in the Tax Package. So we said well

have a one-year levy so the Budget doesnt go into deficit. As it turns

out our non-tax revenue in the license areas moved better than we thought

and our tax revenue went up. So we said to the Australian people, we told

you a levy was necessary to keep the Budget in surplus, the Budget will

be in surplus without it so we cant look you in the face and say the

levy is necessary, and so we were honest and we wont be imposing it.

Now, lets go back to the other point that you say. If you looked at the

forward projections, three, it was either three or four years ago, probably

three years ago, you have a large number in this Budget, thats right.

And you know what we said, we said that because we would have our debt

under control we ought to be cutting taxes. There is nothing wrong when

youve got a Budget in surplus, when youre paying down your debt to cutting

taxes.

OBRIEN:

But youre cutting taxes to compensate for the GST?

TREASURER:

No were not. Income taxes in this country are too high. Australians

hadnt had an income tax cut for a decade and they deserve one. The last

income tax cut, as you know, was in.

OBRIEN:

But this one is part of your compensation package to pay for the GST.

TREASURER:

No. You would have been cutting income taxes anyway Kerry. The last time

the Australian public was promised income taxes, and John Edwards your

market commentator would remember it very well, he was advising Paul Keating

at the time, was in 1993 when they were taken away. Now, you cant tell

me that it wasnt responsible to cut income taxes for the first time in

a decade. They were too high. We have a Budget which is in surplus, we

have paid back $50 billion worth of debt, and our debt to GDP ratio at

the moment will be 7 per cent. In Europe it is 50 per cent, in America

it is 50 per cent..

OBRIEN:

But you keep saying youve got a surplus, and on paper its a surplus,

and however credibly you sell that surplus it seems the markets are not

going to be persuaded. Now, surely at least a substantial part of the

value of having a surplus is having the markets react accordingly. Youve

got a fragile dollar.

TREASURER:

No, the reason we have a surplus is that we want to pay our way, and

we want to ensure that we pay down debt. The reason we have a surplus

is to pay down debt. What do you do with a surplus Kerry?

OBRIEN:

But part of your surplus again is assets. Youre selling assets, youre

selling defence property and youre selling the CSIRO property, hundreds

of millions of dollars which again are making up part of the surplus.

TREASURER:

No, theyre not, Im sorry that is not right. What we do in relation

to property sales is, as you sell a property sale and buy a property to

replace it or a new property, which is called a non-financial asset, which

has always been the case, it goes into the bottom line. If you didnt

put the sale of the property in the bottom line you wouldnt put the purchase

of the property in the bottom line as an expense. That has always been

the case. What you dont put in a budget revenue and expense statement

is a one-off-capital sale because it is unrepeatable.

OBRIEN:

But then there are those who are saying thats precisely the case with

the spectrum sale, it is a one-off.

TREASURER:

Let me finish the point which is why we never put Telstra or any other

privatisation in the bottom line. Now let me answer the question I asked

you before. If your budget is in surplus, what can you do with a surplus?

There is only one thing you can do with a surplus and that is pay down

debt.

JOURNALIST:

You can get ready for an election too.

TREASURER:

No you cant spend it because if you spend it, its not a surplus. There

is only one thing you can do..

JOURNALIST:

It might be a surplus in this budget it could be part of spending in

the next one.

TREASURER:

Kerry, there is only one thing you can do with a surplus. When you meet

all of your expenses and youve got money over, if youve got no debt

you put it in the bank, if you have debt what you should do is you should

pay down your debt. Now, were in a situation where the budget is in surplus,

where all of the proceeds from license fees go to retire debt, where the

proceeds of Telstra go to retire debt, where we pay down debt $9 billion

this year. If wed had a $1 billion higher surplus the difference would

have been instead of paying down $9 billion wed have paid down $10 billion.

Instead of paying off $50 billion of Labors debt in five years, wed

have paid back $51 billion. Now this is a responsible economic strategy.

The debt to GDP ratio, and all you can do with your surpluses is pay down

debt, the debt to GDP ratio in Australia is 7 per cent at the end of this

year. The United States is 50 per cent, Europe is 50 per cent, Japan is

50 per cent. Our continuing surpluses pay down debt. It puts the Australian

Government in a stronger position than any of those governments.

JOURNALIST:

Lets talk about market perceptions and you would know them better than

anybody or at least as well as anybody. The question is how the markets

are perceiving this surplus against a backdrop of a slowing of the economy,

albeit still a respectable figure but slowing growth, slightly slowing

growth. Theyre arguing that we are not in as good a position as we should

be in the event of a downturn down the track.

TREASURER:

Were in this position. Australia ran up $80 billion worth of debt from

1991-1996 while the economy was growing. While the economy was growing

we ran up that debt. While the economy was growing under the Coalition

management weve paid down $50 billion of it. Now if we actually could

get our full program through the Senate we could extinguish it.

You know Id be the first to say that if the Senate would remove its

brakes we could have a better outcome on our debt. But even with that

particular situation to have paid off $50 billion and have a debt to GDP

ratio of 7 per cent, Ive looked around the world to see which countries

would be better. There is precious few I can assure you of that.

JOURNALIST:

Can we look at the package for rural and regional Australia. The Prime

Minister raised expectations quite dramatically when he went bush at the

beginning of the year. Are you confident that youve actually delivered

enough on that because there was a lot of talk of infrastructure programs

and so on. And secondly, I know Simon Crean is going to be sitting in

the chair in a minute and Im sure one of the points hell make is that

youre really just giving back some of what you took when you were into

your cutting budgets. That there were very substantial cuts to rural and

regional services.

TREASURER:

No. What weve done is weve increased funding for regional Australia

in one particular area which is health services and carefully focussed

and carefully targetted. And thats new expenditure. But its responsible.

Sure there were people that were running around saying oh you should be

spending billions of dollars but that wouldnt have been consistent with

our economic strategy. Our economic strategy was to keep the budget in

surplus to pay down debt and as the interest payments on our debts declined

that would free up some additional resources, in this case its freed

it up for a health package in rural and regional Australia, and I think

it will make a difference. There were people that would say oh well you

should spend more but I dont think that would be consistent with our

economic strategy. This is a tight spending government and its a tight

spending budget but within the room and the parameters of the budget I

think weve done something pretty important.

JOURNALIST:

It sounds by the same token that certainly the headlines tomorrow and

the editorials largely are going to give this a thumbs down. Does that

surprise you, disappoint you?

TREASURER:

Well look Id always prefer a good headline to a bad headline of course

I would but youve got to put this in context. I think in Australia today

you know having got the budget in surplus, four surpluses in a row, paid

off $50 billion, growing the economy at three and three quarter, this

is now considered pretty pedestrian. If youd have said to anybody in

Australia five years ago do you think you could possibly have a surplus

budget. Do you think you could go a step further and actually pay off

debt. Do you think you could pay off $50 billion of debt. I think people

would have laughed at you. I think there are some that are saying oh the

task of a budget is to pull out surprises all the time. I dont think

thats the task of a budget. I think the task of a budget is to have sustained

economic policy which is what this budget is all about.

JOURNALIST:

Peter Costello, thanks for your time.

TREASURER:

Thanks very much Kerry.