Press Conference

Treasury Place, Melbourne

Friday, 23 September 2005
11.10 am

SUBJECTS: Final Budget Outcome 2004-05, Petrol Prices, Scoresby

TREASURER:

The Final Budget Outcome for the Commonwealth Government in the 2004-2005 year

measures that at 30 June 2005 there was a surplus of 1.6 per cent of GDP, higher

than forecast at Budget time of 1.1 per cent of GDP. In cash terms the surplus

which was $4.4 billion higher than forecast at the time at the 2005-2006 Budget.

The reason why the outcome was higher than forecast was principally because

cash payments were lower than expected. The outcome was $4.4 billion higher

in cash terms. Cash payments were around $3.5 billion lower than was expected

at the time of the Budget. No one particular factor contributed to those lower

payments but as you will see on page one of the Final Budget Outcome, the lower

cash payments were due mainly to lower than expected take up of grants and subsidy

payments across a range of programmes, delays in contractual negotiations in

deliveries of goods and services, lower wages and salary payments and the rejection

by two State Governments of an offer to extinguish superannuation liabilities.

In cash terms, revenues were marginally higher around about $0.9 billion coming

mainly out of company taxes. The tables on revenue and expenses which you see

on page three and page five are in accrual terms and they contributed to a fiscal

balance which was higher than expected at Budget time, in the Final Budget Outcome

a fiscal balance which was around $10.8 billion or 1.2 per cent of GDP compared

with an estimate at Budget time of 0.8.

So, the outcome for the Budget year was a little stronger than expected, 1.6

per cent of GDP in cash terms rather than 1.1 per cent. It was because payments

were less than expected, some of those payments might find their way into this

financial year but it is important that the Australian Government continue to

run a surplus budget at this stage of the economic cycle, it is important that

the Budget be in surplus, it is also important that it be in surplus because

the Government needs to contribute to savings at a time when the private sector

is borrowing, including households borrowing. The Government by building up

savings, by running surplus budgets puts downward pressure on interest rates.

And the important thing is that the Government makes its contribution to keeping

downward pressure on interest rates because low interest rates are a big part

of the Australian growth story, to keep Australia growing and to keep people

in work.

Thank you, I will take any questions.

JOURNALIST:

Treasurer, can you give us, what are some of the programmes that…

TREASURER:

Were underspends?

JOURNALIST:

…yes.

TREASURER:

Yes, there were underspends in health and ageing because of delays in negotiations

principally with the States in getting money out. There were underspends in

agricultural grants, largely delays in relation to the sugar industry package;

there were underspends in Australian Federal Police deployments to New Guinea;

there were underspends in some areas of the Commonwealth Government due to shortfalls

in new recruitment of employees; there were some lower payments for salaries

and wages across a number of small agencies. And as I said earlier, the Australian

Government made an offer to two States to extinguish its superannuation liabilities

and budgeted to make those payments – those states rejected the offer and as

a consequence the Commonwealth Government saved itself about half a billion

dollars.

JOURNALIST:

With that rejection aside, those other underspends you would expect to be caught

up with (inaudible)?

TREASURER:

Yes it is quite true, we are talking cash terms and in cash terms if you have

got an underspend in the previous financial year they normally get paid in this

financial year. So, it is a timing thing. If you actually look at the accrual

expenses, the accrual expenses didn’t actually change that much. So, it

is really a timing thing, there was a better cash outcome because cash payments

were down, many of those payments were down because the money wasn’t expended

before the 30^th of June and the payments will move into the current

financial year.

JOURNALIST:

Does that happen very often?

TREASURER:

Yes. To be frank with you, in a $200 billion budget, $3.5 billion is what,

it is about 1 per cent. So it is not uncommon to have movements of around

1 per cent, it is not a large sum when you look at $200 billion of revenue

and $200 billion of expenses.

JOURNALIST:

The net debt fell as well.

TREASURER:

Yes, the consequence of a better than expected outcome for the final budget

result in 2004-05 is that net debt would be reduced by more than budgeted. Net

debt fell by $11.9 billion to leave only $11.5 billion of net debt outstanding

for the Commonwealth Government. That means that the Commonwealth Government

net debt to GDP ratio is 1.3 per cent and that is the lowest in 28 years. So,

if you go back further than 28 years you actually find that the Commonwealth

didn’t have net debt they actually had a surplus position. So, we are

now well on our way to getting back to where we were in the 1970s with the elimination

of Commonwealth net debt. And that is an important point that the Commonwealth

didn’t actually carry net debt back in the early seventies, I can actually

give you the years. It wasn’t really until the advent of the Whitlam Government

that the Commonwealth started going into debt and borrowing as a consequence,

peaking under the Keating Government.

JOURNALIST:

Could you give us some ideas about current projections as to when that might

actually happen and the underlying themes, are they revenues or costs to contribute

into that, please?

TREASURER:

Well the reason why the Commonwealth has reduced debt from around about 20

per cent of GDP to 1 per cent of GDP is that we have run now eight surplus Budgets

and the proceeds of our privatisation programme have gone to retiring debt.

When Labor was in office they used to privatise and spend the money. What we

have done is we have privatised and we have used it to reduce the mortgage.

When you sell an asset you should decrease a liability or buy another asset

not spend the money and have nothing left to show for it at the end of the year.

So, it has been a combination of running surplus Budgets, eight surplus Budgets,

it has been a combination of ensuring that we didn’t waste the proceeds

of privatisation. Australia now has one of the lowest debt to GDP ratios in

the world, not the lowest but there would only be a couple ahead of us and because

the Government is reducing debt and building savings it is keeping downward

pressure on interest rates and it is also very good financial management for

this time of the cycle. You would expect that at this point of the cycle after

a decade of growth that Australia would have a low debt position.

JOURNALIST:

With all of this extra money floating around is there any chance of any help

with petrol prices?

TREASURER:

Well, can I say as you can see from today’s figures, the Commonwealth

Government gets no additional revenue from increasing petrol prices. The Commonwealth

excise is 38 cents if the price is 90 cents a litre and it is 38 cents if it

is $1.40 a litre. There is no additional excise collected by the Commonwealth

Government. Now people say what about GST. All GST goes to the State Governments.

It is possible that State Governments are collecting more GST on petrol. Some

State Governments like Queensland use that to subsidise the price, others like

Victoria don’t. So, these are matters that can be taken up with the State

Government but this is the point. Commonwealth excise is 38 cents a litre, it

doesn’t move. Whatever the price is, it is just 38 cents a litre. It isn’t

even indexed to inflation. If it had been indexed to inflation, if we hadn’t

have abolished indexation, by today it would be 52 cents a litre. But we cut

it and abolished indexation and it is still 38 cents a litre.

JOURNALIST:

Do you think the State Governments should be doing more to subsidise price?

TREASURER:

Well you know this is a matter for State Governments. All I am saying is, there

is one State Government that does – that’s Queensland and there

are five that don’t.

JOURNALIST:

But can you understand that people would think today and see that there is

all this money floating around and that they’re just putting more money

into their cars with petrol. Can you understand that people would want you to

help out? Is there anything the Government can do?

TREASURER:

Well the reason that petrol prices are going up is that world oil prices are

increasing. People know that. Petrol prices are going up in America, in Europe,

in Britain, in Asia and that is because they are based on world oil prices.

The worst thing that we have had recently is another hurricane in the United

States and unfortunately what that hurricane could well do is push up the price

of oil again, just as it was coming back, and even worse take out refining capacity.

Now where oil prices are being influenced by international events, such as hurricanes

in the United States, there is not much the Australian Government can do about

it. What we really need, is, we need more world oil production. That is what

we need. And I have raised this at international fora. I hope that it will be

raised again and again on behalf of not just Australians but on behalf of consumers

throughout the world. There have been some signs from the oil producing nations

that they may be increasing production and that’s about the only lasting

thing that would have an effect in bringing oil prices down.

JOURNALIST:

What would be the effects on the economy of these continuing high petrol prices?

TREASURER:

Well let me make this point – high petrol prices are good for nobody

except perhaps the oil exporting nations of OPEC. They are not good for Australian

consumers, they are not good for Australian business, the don’t give the

Commonwealth Government any money – extra money – and they will

feed into the Consumer Price Index. So, petrol prices are bad for consumers,

bad for the economy, they are bad for the Consumer Price Index, they are not

good for the Commonwealth Government and the only people they help are the oil

exporting nations and that’s why the oil exporting nations should be increasing

production. Not just for the sake of the Australian economy and Australian consumers

but for the sake of the world economy. High oil prices are no good for the world

economy either because they will dampen world economic growth, no doubt about

that. Now you have got to hold these things in balance. I am not forecasting

world recession I am just saying that whatever growth would have been, the high

oil prices will dampen it, and that is not good for the globe.

JOURNALIST:

You mention that commodity price increases have been beneficial for the tax

take this year, what about the resources boom and is that also being a corresponding

tax boom for the Federal Government?

TREASURER:

The resources boom has meant that certainly Australia’s mining companies

have been extremely profitable, extremely profitable and you only have to look

at annual results. A consequence of that, is that company tax has been strong

particularly, in relation to mining companies. Now as you know we cut company

tax some years ago but company profits are so high that that is assisting with

revenues and from an ordinary Australian taxpayer’s point of view that

is a good thing. That is the way in which the taxpayer shares in the mining

boom. Companies, particularly in the mining areas have higher profits, they

pay more taxes; it is one of the reasons why we were able to cut everybody’s

income tax on the 1^st of July this year.

JOURNALIST:

Can you put a figure on what that (inaudible)?

TREASURER:

Well the figures on company taxes are in here – company tax in 2004-05

raised about $43 billion. That is not just mining companies of course, that

is all companies.

JOURNALIST:

May I ask we are strongly advised by the State Opposition and it is sort of

widely accepted here now that you inspired and endorsed Robert Doyle’s

“half-tolls” policy? Is that the case?

TREASURER:

I completely support Robert Doyle and his policy. Absolutely. But can I make

this point: Mr Doyle is the person who, together with his Parliamentary colleagues,

makes these policies. I think this is a very important point, that the State

Liberal Party generates, develops and announces State Liberal policy. The Federal

Liberal Party generates, develops and announces Federal Liberal policy. And

that is because each area of Government is responsible for its own policy. But

I strongly endorse him in his policies. Absolutely. And you know to be frank

if I were a commuter out in the eastern suburbs of Melbourne and I can’t

have a freeway like the rest of Australia has or the rest of Victoria has, I

would at least like to have a 50 per cent discount on my tolls. And I don’t

think there is any choice. If you are a resident or a commuter in the eastern

suburbs of Melbourne, Bracks wants to make you pay double for your transport

costs. So I don’t think there is any doubt at all that the Doyle Policy,

if you happen to live in the eastern suburbs of Melbourne, is a much better

policy.

JOURNALIST:

Will that $442 million that was in dispute be spent on Victorian roads?

TREASURER:

Well the money was allocated according to a signed Agreement with Steve Bracks

who broke the Agreement. Unfortunately, we have never had a case where a State

Government has broken a written Agreement before on road funding. So we will

have to now consider what to do about that. Certainly I would want to see money

come back into Victoria but the trouble is all the other State Premiers will

say, we keep our written Agreements and Bracks breaks his. And they will not

be as supportive as I am of the Victorian public. So this is now a matter that

goes back into the hopper and I can assure you I want to see some of that money

coming back into Victoria because I don’t think Victorians should be punished

for Mr Bracks breaking his word.

JOURNALIST:

So will you be advocating for that money to be allocated…

TREASURER:

I will certainly be advocating that Victorians shouldn’t be punished

because Mr Bracks broke his word.

JOURNALIST:

Nor would you be talked out of the correct decision because of the pressures

of the other Premiers would you?

TREASURER:

Well you know every other Premier will say, we keep our written Agreements

and you make us keep them. Why should the only Premier in the history of Australia

who broke a written Agreement be allowed to profit? Now I will have to think

of an answer to that. But it is not a bad question is it? I will have to think

of an answer. What is the answer? Perhaps I will read the Sunday Age and find

out the answer.

JOURNALIST:

But can’t you say that Robert Doyle has broken his promise too so they

are square?

TREASURER:

No of course you can’t. Did Robert Doyle sign a written Agreement with

the Commonwealth Government? If he did, produce it. Steve Bracks and Peter Batchelor

did. Did Robert Doyle say one thing before an election, get elected and then

break his promise? He hasn’t even run to his election yet. I mean this

idea that there is some kind of moral equivalence between what Steve Bracks

did and the Doyle promise is ridiculous. Mr Bracks wrote a letter to everybody

in the Scoresby corridor saying if you vote for me you will be get a freeway,

and then after he was elected said sorry about that old chum. Mr Doyle runs

to an election with a policy which hasn’t yet occurred. The election hasn’t

yet occurred and to say that there is some kind of moral equivalence between

Mr Doyle putting his promise out there before an election and Mr Bracks breaking

a written Agreement after an election is a long bow. Thank you.