TRANSCRIPT
of
THE HON PETER COSTELLO MP
Treasurer

And

THE HON JOHN FAHEY MP
Minister for Finance and Administration

Press Conference
Canberra
Wednesday, 26 September 2001
11.30 am

 

SUBJECTS: Final Budget Outcome, Tax Cuts, First Home Owners’ Scheme, John Fahey

TREASURER:

Ladies and gentlemen, today the Government is releasing the Final Budget Outcome for the financial year ending 30 June 2001. This is the outcome, a Budget as you know is a Budget for a year. So that in May we brought down the Budget for 2001-02, an outcome is after the year has closed and the accounts have been audited, the actual result. So this is the outcome for the year which has just passed.

The Final Budget Outcome for 30 June 2001 shows that there was an underlying Budget surplus of $5.6 billion in cash terms.

The fourth consecutive underlying Budget surplus since the Government was elected. The surplus recorded for the year past was stronger than was expected both when we put down the 2000-01 Budget and when we brought down the 2001-02 Budget.

The stronger than expected result principally was a result of two things. One is company tax receipts, cash receipts were higher than expected. That would reflect we believe two factors, one is corporate profitability in 2000-01 was stronger than expected and also fewer companies than we thought took up the advantage of deferring company tax payments in the changeover to the Pay As You Go system. In the changeover, companies come onto a Pay As You Go system, they were given the opportunity to defer company tax payments which were in arrears. It appears fewer than expected took that option. In addition there were some savings in expenses, for example, claims for unemployment benefits were lower than expected and so there were some savings on the expenses side.

The consequence of that is that the outcome was $3.5 billion better than expected in the 2001-02 Budget and the surplus was $5.6 billion in cash terms.

Historical tables, pages 82 and 83 of the Final Budget Outcome show the historical position in relation to Budgets, Budget Outcomes, these are Outcomes. Since the Government was elected in 1996 you’ll see the previous year was a cash deficit of $10 billion. The Government reduced it the next year to $5 billion, the next year was a surplus. The surpluses, the last four surpluses recorded by this Government were $1.1 billion, $4.1 billion and $12.6 billion and today’s result of $5.6 billion.

On the, page 85 records the Commonwealth Debt Position which had built up to $96 billion by 1996-97. The effect of the surpluses and the Government’s asset sales shows that $96 billion being reduced in the Budget year just past to $39 billion which shows that net debt repaid by this Government over the five years to 30 June 2001 has been $57 billion. Reducing Australia’s net debt position to 39, the Commonwealth Government’s net debt position to $39 billion at the end of the financial year.

The Budget surplus therefore has been reflected in a further repayment of debt reducing the Commonwealth net debt to $39 billion and a repayment over the last five years of $57 billion of the $96 billion debt that was outstanding when the Government was elected.

What does this mean for 2001-02, the current year that we’re in? What it means is that the outcome last year was a little stronger so the starting base is a little stronger, but the world economy is significantly weaker so that you would expect world environments to be counting against the strengthening position but some domestic strength counting in favour and those two factors are probably working in opposite directions and counteracting each other. But all in all, fourth consecutive surplus. We’ve Budgeted this year for our fifth consecutive surplus, a strong financial position, a debt to GDP ratio which is, as you can see from the Table on page 85, 5.8 per cent, one of the strongest in the world and certainly much stronger than most of the OECD countries, good financial housekeeping which has put the Australian economy in a strong position to weather very significant challenges in the global economic environment.

JOURNALIST:

Mr Costello, just eyeballing…(inaudible) assistance to the aged seems to down more than $400 million and I was just wondering if you could explain (inaudible)?

TREASURER:

Well, by function is, has factors going all over the place. What I can tell you is the main savings in relation to expenses are in relation to income support payments which is principally fewer claims for unemployment benefits than was expected in the 2001-02 Budget. There has been a slippage of expenses from the recently finished year to this year in respect of payments to POWs and detainees, about $150 million which we expected to get out before 30 June which seems to have slipped into the current financial year and that no doubt would appear in that overall figure for payment to the aged. There’ve been some parameter changes in relation to take-ups of bonuses and the like which would also be in there. But the principal change on the expenses is in relation to income supports.

JOURNALIST:

To what extent do you think the compliance changes have affected the company tax results?

TREASURER:

There is no doubt in my mind that one of the reasons revenues were stronger in 2000-2001 was because of the New Tax System. As you know, if the New Tax System brings in higher GST than expected, and it didn’t, incidentally it came in nearly right on budget, it is the most amazing precision I’ve ever seen that we managed to almost precisely forecast receipt from the first year of GST with no previous experience. But if the GST revenues are greater that doesn’t effect the Commonwealth because the States get GST revenues. But what the GST system does do is it enhances compliance in the company tax and income tax system. And I think the fact that the new tax system was introduced meant that we did have significantly increased compliance. It is one of the reasons why company taxes and income taxes were higher than previously. Most of those had been written into the figures at the time of the 2001-2002 budget. We’ve got an additional bonus which has come since then and, as I said, in the company tax area I think that reflected profitability and a lower take up than expected in respect of this deferral as we move to the new PAYG.

JOURNALIST:

So businesses may (inaudible) the BAS, but ordinary taxpayers should be grateful that it raises more money?

TREASURER:

The New Tax System has led to additional compliance of people paying company tax and where they are not companies income tax, because you had to get an Australian Business Number before people would do business with you. Once people got Australian Business Numbers and came into the income tax system the capacity for the Tax Office to audit was greater and it certainly brought a windfall. That windfall has meant that the budget has been strengthened, it is one of the reasons why we have been able to cut other taxes, because more people were paying, the income tax rates have become lower. That is one of the reasons we were able to lower income taxes, one of the reasons why we are now able to abolish Financial Institutions Duty, which we did on 1 July of this year.

JOURNALIST:

Given what you now know about the company tax base with this greater compliance, how confident can you be about the out years for revenue?

You said this morning that you can’t anticipate any tax cuts in this financial year, but obviously we are coming into an election campaign and I’m wondering how responsible in the current circumstances it would be to make big spending or tax promises for the out years?

TREASURER:

Well this financial year, that is 2001-2002, is much tighter, at the budget time, I think we said at the budget time that we we were budgeting in 2001-2002 for a surplus around about 1, 1.5 billion. So you already had a tight financial situation. One of the reasons was we’d actually already cut taxes for this financial year, okay. In particular the biggest tax cut that we’ve already factored in this financial year is a cut in the company tax. So people talk about cuts in tax in 2001-2002, there are cuts in tax in 2001-2002, they were already in the forward estimates, in particular, the reduction in the company tax rate to 30 per cent. Since that time we have had unanticipated expenses in three principal areas. One is the number of unauthorised boat arrivals and the increased surveillance which we are now engaging in in our northern oceans. The expenses there will be greater than at budget time. The second area is the Government has indicated that it will make good Ansett employees’ entitlements up to $400 million. Now, I can’t tell you at the moment how much of that $400 million will be paid, but obviously there is going to be additional money in relation to Ansett. And I hope that, if the sooner you can get the employees in other employment or the sooner you can recover against Air New Zealand or Air New Zealand directors the less you can limit that liability. The third area is, as you know, we have invoked the ANZUS alliance and if we are asked to contribute to military action against terrorism one would imagine that that would involve additional cost. We haven’t yet been asked so I can’t put a figure on it. So what I’ve been saying is in 2001-2002 tax cuts already factored in, higher expenses, there would be no expectation of additional, factoring in additional revenue reductions in 2001-2002 if we are going to remain consistent with our budget strategy.

JOURNALIST:

Is this saying that there is no tax promise coming up in the election or is it saying merely that that couldn’t relate to the current financial year?

TREASURER:

Oh well, I’m not saying anything about the election, obviously if you want to know what we’ll say in the election you’ll have to wait until the election. I’m making this point, that in 2001-2002 the tax cuts which we want to take effect in that year we have already announced and are budgeting, and the principal one was a cut in company tax which started on 1 July. So we have already announced the tax cut for 2001-2002 and the continuing personal income tax and Financial Institutions Duty and stamp duty reductions and so on. The second point I’m making is that there are additional expenses, not all of which we can precisely quantify, and my assessment is that consistent with our budget strategy then we will be funding those additional expenses in the 2001-2002 financial year.

JOURNALIST:

Would the Government be in a position to foreshadow tax cuts in 2002-2003?

TREASURER:

Well, if we did we will do it at the time. But I’m making no comment in relation to 2002-2003. I am pointing out to you in relation to the financial year we are now in that we have already factored in tax cuts and available funds will be used for expected increases in expenses. And those, I mean, these are no mean expenses by the way, these are issues of border protection and national security. We are going, border protection and the increased patrolling in our northern waters.

JOURNALIST:

How much will that cost?

TREASURER:

Well, it really depends. I don’t want to give you a precise figure because, one – we don’t know how many boatloads are still going to sail this financial year, two – we don’t know how long the patrolling will be required at its current levels. What I think I can say to you is it will be greater than the budget. Now, we are…

JOURNALIST:

But you must have some general idea?

TREASURER:

Well, Michelle, of course I have some idea but we are now what three months into the financial year, we’ve had July, August, September, if you want me to give you a figure as to what that cost will be over the next nine months I would have to make all sorts of assumptions which I am not prepared to do at this particularly time. We will be updating those at the proper time in relation to MYEFO.

JOURNALIST:

Treasurer, is the news and what you said this morning on radio that the Government would have liked to announce tax cuts this financial year on top of what you have already done but in light of everything you’ve spelled out you won’t be able to do?

TREASURER:

No. The point I’d make is the Government has already cut taxes. It cut income taxes on 1 July…

JOURNALIST:

I’ve understood that point, but …..(inaudible)…

TREASURER:

…1 July 2000 with a program for further tax cuts, the most recent of which commenced three months ago, right. Now, the point I’m making is that we have laid down in respect of this financial year our revenues and our expenses. And the priority if there is additional funds in this financial year, I’ll go stronger, not the priority the necessity in this financial year is border protection, employee entitlements and a response to any military strike against terrorism. They are the necessities for this financial year.

Now, you are trying to engage me, fair enough, in future financial years, and what I’m saying to you is if I have an announcement or if the Prime Minister has an announcement in relation to future financial years you’ll have to wait until he is ready to make it. I’m telling you what the current financial position is. Sorry,….

JOURNALIST:

What is the fiscal policy, what (inaudible) fiscal policy response to the prospect of a recession in the United States in conjunction with other parts of the world? What would you do with the fiscal policy with that prospect (inaudible)?

TREASURER:

I think in a weak world environment then you would want to have a number of responses. One is you would want to have a monetary policy which is supportive of growth, and we have a low interest rate regime. I think secondly you would want to have a fiscal policy which is consistent with your medium term directions, supportive of growth and I think this is. I’m not budgeting in this financial year for a $5 billion surplus, or as we produced the year before last a $13 billion surplus. What we are budgeting for is a surplus less than that. And the third thing you’d….

JOURNALIST:

(Inaudible)….we would go into recession?

TREASURER:

I was budgeting for that on the basis of a significant global downturn, yes I was. Now, whether the US grows at zero, as it currently, as it was in the last Quarter, or whether it goes minus, as it could conceivably go. We were budgeting for a substantial global down-turn, cushioned by strengthening domestic conditions, particularly in the housing construction industry. We have got two factors going here. One is, the domestic economy, if anything, looked a little stronger than we thought at Budget time, 0.9 per cent in the June Quarter. The world environment looks a little weaker. Now what would you want in the midst of a global down-turn? You would want a bit of oomph in your domestic economy, we have it. But, I don’t want to, I don’t want to understate the risks, I just think it is far too early. I think the risks in the United States are significant, that is the word I would use, significant. I think it is far too early to actually call what is going to happen in the United States. We knew that economy had stopped growing, we know that. And then an incident occurred of which we have no previous experience, we can not judge the reaction to incidents like this because we have got no previous experience. The one thing we can say is it has probably made things worse. It certainly hasn’t made them better. To what degree? It is just too early to say, but you had an economy which was, which had stopped growing, which has taken a big shock, and you would have to say the probabilities are that will take it in the Quarter below zero. I hope I am wrong. If I am wrong about that I will be the happiest person alive, but I, but, that is my fearful assessment at the moment.

JOURNALIST:

Treasurer, would you be tempted to use less of the proceeds from the sale of Sydney Airport towards debt reduction, than you might have in better times?

TREASURER:

Can I, can I make this point. Where you run a surplus Budget, that is, where your expenses are less than your revenues, then, at the end of the year you can re-pay debt or you can build an asset position. If you say, well, my expenses are less than my revenues, therefore I’ll spend the money on this, this, or this, all you do is you drive up your expenses. When you hear people say we are going spend the surplus, what they are eventually saying is we are going to have a deficit. It’s not as if you can earmark money from here to there, and say, I have still got a surplus, even though I spent it over there. When you spend it, it’s an expense. A surplus is what you have got left after you have finished all of your spending. If you actually take something and spend it, you haven’t got that left. It’s like a profit and loss account and a balance sheet. You know, at the end of the day, after you have declared your profit or loss, the surplus or the deficit goes onto your balance sheet. Now, if anybody has got a proposal to spend any money, I don’t care where it comes from, you know, you can say it’s coming from company tax or you can say it’s coming from income tax, or you can say it’s coming from Sydney Airport. It’s a proposal to spend. It’s not as if you can quarantine sums of money like that.

JOURNALIST:

(inaudible) million dollar properties being bought with assistance from the First Home Owners Scheme?

TREASURER:

Well, I don’t actually know who is buying what properties because the States have not actually forwarded to us the names of people who have received the grant. What the Commonwealth has done is it has funded the States for a $14,000 grant for anybody who doesn’t own a home and who enters into a contract to construct one, or buys a newly constructed home to get a grant.

That is what we have done. The States actually take the applications and administer it, and I actually would be very pleased, and in fact I call on the States to give us a list of the names and addresses. I’ll make that public call now, to give us a list of the names and addresses of all those that have received the grant. I would be very interested to do that, because at the very least, I would like to reassure them that it is the Commonwealth Government which is funding this grant. I have a suspicion that a lot of the States are sending out cheques which have been fully funded by the Commonwealth, with the heavy implication that they themselves are funding it. In fact, Laura, I have seen Mr Egan, the New South Wales Treasurer, handing over these cheques, as if Mr Egan himself were funding it. Now, far be it for Mr Egan to be misleading in any of his activities. He is not that kind of man as you know. But I would call upon them to give me a list of the names and addresses at the very least. And I would like to write to them and I would like to assure them that this is totally funded by the Commonwealth, and it is funded for two reasons. One is, $7000 is funded as part of the package for the New Tax System. The cost of houses went up for everybody as part of the New Tax System, we thought it was only fair to compensate somebody who had never owned a house for that. The limited, additional $7000, only applies in relation to new homes, and that has been put in place as a stimulatory measure to help construction. I think it has been very successful. You say, well, have people got it to construct very large homes? Probably they have, I don’t know that. But, even if they have, the fact is that those homes are still being constructed and it is still a stimulatory measure for the builders concerned, and for the employees, like the, or the tradesmen, the electricians, and the carpenters, and everybody who is working on them. And I think it is a pretty good stimulatory measure at a time when the world is weakening significantly.

JOURNALIST:

Treasurer, (inaudible) the pressures on the Budget this Financial year, given those, what is the likelihood of keeping that $14,000 grant beyond Christmas?

TREASURER:

Well, I would say this to anybody who, the $7000 grant, right, stays, right? There is always going to be a $7000 grant. Alright? So, I can assure you of this, that if you turn up on 1 January 2002 and apply for a grant you will get $7000. I can not assure you that if you turn up on 1 January 2002 you will get a $14,000 grant. And I would say to anybody that is thinking of constructing a new home, or buying a new home that has just been constructed, you can only be sure of getting that $14,000 grant if you enter into a contract this year. And I would say to people, do it this year. Don’t sit back…

JOURNALIST:

Treasurer, if, as the Prime Minister has indicated, you do continue in some form next year. Would you look at, perhaps, means testing it to avoid the sort of thing we saw on the front page of the Telegraph today?

TREASURER:

Well, the $7000 is not means tested, and it is not means tested because that is, if you like, a compensation measure for the increased price of homes which everybody will face. It is not means tested. The additional $7000 only applies if you are constructing a new home or buying a new home that is constructed. Again, that was introduced as a stimulatory measure, and as a stimulatory measure it, not as a compensation measure, as a stimulatory measure. And as a stimulatory measure we didn’t see the need for means testing. Because, if it is going to stimulate construction, if that is what you want it to do, it stimulates all construction.

JOURNALIST:

Would you continue the $7000 grant to anyone who builds (inaudible)?

TREASURER:

To anybody?

JOURNALIST:

Yeah.

TREASURER:

Ah, well…

JOURNALIST:

(inaudible)

TREASURER:

But anyone who owns a home, if you already own a home and housing became more expensive, the value of you property increased. That was the whole idea. As the whole market moved up, you got the benefit, if you actually owned the home. It was only people that hadn’t entered the market that would be facing that price rise. And that is why the $7000 was put in place, and for a limited duration, as a stimulatory measure, an additional $7000. Now that grant is a limited measure, and so we are not going to set about re-designing the system now.

JOURNALIST:

…First Home Buyers, (inaudible)…

TREASURER:

You ask me a hypothetical question. You say, if you were going to extend it, right? Now, I haven’t said I am going to extend it. I have said this scheme, you can be sure this scheme is going to go to December, right? It is going to run out in about two months. Am I going to re-design it, in the next two months?

JOURNALIST:

Treasurer, given the pressures on the Budget you have outlined today and the small surplus for this year, do you think that, particularly with the Defence commitments, that you may have to look at additional revenue measures?

TREASURER:

No. I was asked this question on the weekend. They said would you look at funding the additional Defence measures with another East Timor levy.

JOURNALIST:

Because they could be quite significant, that is the point.

TREASURER:

I know, I am going to come to that point. Can I make this point? There was no East Timor levy. The East Timor levy was never collected. It was a measure that we had announced in anticipation of our involvement in East Timor. As the Budget strengthened it was abolished before it took place. A lot of people actually think there was an East Timor levy. There was no East Timor levy, it was abolished before it actually took place. Now, in relation to Defence expenditures, we fund the Australian Defence Force with something like about $13 billion annually, I think it is. And, in this Budget we announced, that’s $13 billion increasing across the forward estimates, over and above that, we announced the ten year build up of about $25 billion. And that was in response to the White Paper. So, the point I would make is this. We actually anticipated that the call on Defence was going to be greater for Australia in the wake of the events of East Timor, and we have budgeted a build-up over ten years. Now, that budgeting puts Australia’s Defence Forces on a stronger basis than they have ever been. And I think, equips them to take part in a co-ordinated international response to terrorism. Now, if the event should turn into something else, heaven forbid, I don’t want to even conjecture on that, then you would be facing a new world.

But the funding of the Australian Defence Force, with the additional funds from the White Paper, equips Australia’s military to take part in an international co-ordinated effort against terrorism.

JOURNALIST:

Mr Beazley, (inaudible) whether or not Qantas was profiteering in the wake of the Ansett collapse, and he said, `does a duck swim?’ Do you think that Qantas is profiteering?

TREASURER:

Oh look, it’s a bit rich to ask me to…

JOURNALIST:

I’m sorry, it was `does a fish swim?’.

TREASURER:

Well, now you have totally confused me, and can I say to you, quoting Kim Beazley is a sure track to confusion, and it is something that I will leave well enough alone.

Thanks very much

Look, can I just say, in closing, that I want to pay tribute, because it might be, well, it will be his last Final Budget Outcome, to John Fahey. And John Fahey is Australia’s longest serving Finance Minister, and he has been, in my view, Australia’s best Finance Minister, and I want to pay tribute to him for all of the work that he has done, and to have, now five Final Budget Outcomes, four consecutive surpluses. And the reason the first wasn’t a surplus remember, is, we started $10 billion in the red, and that first year we closed it to $5 billion, and in the second year we got it into surplus to have five Final Budget Outcomes, four consecutive surpluses, I think is a great tribute to him and I pay tribute to all of the work that he has done.