Joint Press Conference with the Hon Tony Abbott MP

Minister for Health & Ageing

Commonwealth Parliament Offices,

Sydney

Tuesday, 21 August 2007

1.25pm

SUBJECTS: Preliminary 2006-07 Budget Outcome, Future Fund, Higher Education Endowment Fund, Health & Medical Infrastructure Fund

TREASURER:

Ladies and gentlemen, preliminary estimates indicate that the Australian Government has recorded an underlying cash surplus of around 1.7 per cent of GDP or $17.3 billion for the year ended 30 June 2007.  This is $3.7 billion, or 0.4 per cent of GDP, higher than expected.  The better than expected preliminary outcome is the result of lower spending than budgeted which makes up around $2 billion and company tax receipts in particular, which were around about $1 billion higher than expected at Budget time, although there were some one-offs that contributed towards that.

The Government is, as a result of that outcome, in a position to invest around $15½ billion of that outcome.  The remainder is required for in-year financing and for other cash advances such as higher education loans. 

Today the Government is announcing how it will invest for the future of Australia in those areas which are absolutely critical to our future of the nation.  The Government will allocate $7 billion to the Future Fund and when that allocation is made, together with the instalments from Telstra and getting retained earnings of the Fund, we will be in a position to fund all Commonwealth superannuation liabilities as of 2020.  That is, as a result of this payment we are now on track to be debt-free and to have provided for all superannuation liabilities of the Commonwealth by our target date which is 2020.

Secondly, at Budget I announced the Government would be putting $5 billion in the Higher Education Endowment Fund.  Today I announce that we will add an additional $1 billion and make a total investment in the Higher Education Endowment Fund of $6 billion.  This is capital which will be preserved in perpetuity and its earnings will be available to build first-class facilities for first-class universities for a first-class educational system.

Thirdly, today I announce the establishment of a new Commonwealth fund – the Health and Medical Infrastructure Fund.  This fund will be commenced with an investment of $2½ billion and that will be added to with the privatisation of Medibank Private.  The capital will be preserved in perpetuity and the earnings from the Health and Medical Infrastructure Fund will be available for new capital and medical facilities such as surgical theatres and high technology medical equipment.  The capital will be preserved in perpetuity as the Fund grows, and I hope it does, over the year.  This will enable Australia to get access to the kind of treatment which is only now being invented and built which will be an investment in tomorrow’s health system for all Australians.

I have invited the Health Minister, Tony Abbott here to say a little bit about that Health and Medical Infrastructure Fund: a new fund, a new investment which will put Australia at the cutting edge of health treatment in the years which lie ahead. 

But let me close by saying this: we are now beginning to see the results of long, hard work to strengthen the Australian economy.  We have now paid off in net terms Labor’s $96 billion of debt.  We have now established a fund which will provision for Australia’s superannuation liabilities.  We are investing in a Higher Education Endowment Fund and today we announced we have set aside Health and Medical Infrastructure Fund for future generations of Australians.  This is building for Australia’s future.  This is the result of long economic work.  These are the benefits that a strong economy can deliver for the Australian people. 

MINISTER ABBOTT:

Well thanks very much Peter, and can I just say how proud I am to stand beside you this afternoon to help announce this new fund.  I think the important point to make is that we are only able to invest more in health and medical infrastructure because of the strong economic management, the consistently strong economic management of this Government. 

This government has long, with justice, claimed to be the best friend that Medicare has ever had.  I think with this new fund we will start to be a very good friend to a wider range of health programmes.  Certainly it will enable us to assist in areas where the general public believes that more needs to be done.  And I want to thank the Treasurer and also the Prime Minister for investing some of the Budget surplus proceeds in this way.

JOURNALIST:

Mr Costello, the Prime Minister said yesterday there would be tax cuts or there should be tax cuts for those who take risk in business.  How important will tax reform be particularly for the next term?

TREASURER:

I think tax reform is something that has to continue.  We have to make sure that we always have a tax system which is able to create wealth and jobs.  We should have a tax system which raises enough money to pay for pensions and hospitals, defence, water, environment – all of those important things – and consistent with that, as low as possible.  We have come great strides in reforming the tax system in recent years.  We want to go further and we will continue to work towards the best, most competitive tax system we can have in Australia. 

JOURNALIST:

(inaudible) are you worried that excess spending (inaudible) by the market, possibly (inaudible) after today about a community fund more billions of dollars being pumped into the economy at a time when the Reserve Bank Governor doesn’t want too much more liquidity out there creating pressure on credit markets?

TREASURER:

Well, let me make this point.  The outcome for last year was a surplus of 1.7 per cent of GDP which would be one of the strongest surpluses that we have seen in Australia.  Also bear in mind this is the ninth surplus outcome out of 10 Budgets, the last 10 Budgets.  And also bear in mind that it is the Government’s aim over the next four years to produce surpluses of 1 per cent of GDP or greater.  Now, I must say to you, this would be the strongest fiscal position probably in the developed world, and certainly the strongest position that Australia has experienced.  But it can only be done with strong economic management.  When I became Treasurer we didn’t talk about surpluses, we talked about how big deficits should be.  When I became Treasurer of course we had $96 billion of debt.  So things have come a long way and we are going to take them further.

JOURNALIST:

But Treasurer, given the warnings from the US Federal Reserve on Friday, can you be confident that the world economic growth forecasts or situation will continue to support the Australian Government’s budgetary position?  Will the revenue be there, I’m asking?

TREASURER:

Well obviously there is instability in the United States.  And the housing market is falling in the United States, you have seen a very high degree of default in the sub-prime market and that may well work its way into consumer sentiment.  We may be seeing a weakening US economy.  But Australia is a stronger economy than the US.  We are a small one but we are growing stronger.  When the US went into its recession in 2000 we continued to grow.  Our record over the last 10 years has been a stronger record than the United States.  We aim to keep it there. 

JOURNALIST:

According to today’s Newspoll voters’ confidence in the Government as economic managers has fallen.  What is your reaction to that?

TREASURER:

I would say that people can compare our record to that of the Labor Party.  The record of the Government is nine surplus budgets, the elimination of $96 billion of Labor debt, an inflation rate which has average 2½ per cent and 2.1 million more jobs.  And I think if you compare that record to the record of the Labor Party it speaks for itself. 

JOURNALIST:

Mr Costello, the Reserve Bank Governor said in his address to the questions from the House Economics Committee that any spending in an economy with (inaudible) surplus capacity puts upward pressure on inflation.  What constraints of does that put on the Government in terms of spending initiatives in the lead up to the election?

TREASURER:

Well this is why the Government runs a surplus budget.  What the Commonwealth does of course is that the Commonwealth adds more to savings than it draws down.  That is what the Commonwealth does.  And we have added to savings by 1.7 per cent of GDP.  There is another level of government of course which draws down on savings and to some degree counteracts what the Commonwealth does.  But I must say to you, if you have a look at this record – nine surplus budgets out of the last 10 – and a policy to have four surpluses over the next forward estimates, you know, it stacks up well against any country in the world.  This is a, let’s remember where we are now.  We have now reduced $96 billion of debt to zero in net terms, and after we make this payment into the Future Fund, as long as it is locked down, as long as Mr Rudd doesn’t get his grubby paws into it, we will be in a position to fund all superannuation liabilities by 2020.  This is a very, very strong financial position.  And we are going to need it because the world is very volatile at the moment.  There are big economies in the world that are facing great threats.  The United States is one of them.  That is why we want a strong Australia.  That is what this is all about. 

JOURNALIST:

Treasurer, are you saying Australia will ride out a US recession?

TREASURER:

Australia rode out the US recession of 2000-2001.  When the United States went into recession we kept growing.  And it is the object of economic management to make sure we don’t go into recession. 

JOURNALIST:

What do you think of the Federal Government’s decision in regards to Dr Haneef’s visa?

TREASURER:

Well the court has made its decision and as I understand it the Minister will be appealing and that is a matter for the Minister or for the courts.  I am not even sure how much you can say about these cases until they have been heard. 

JOURNALIST:

Has his handling of the case given the Government any concerns, you any concerns about his future in that position, that portfolio?

TREASURER:

No.  No. 

JOURNALIST:

Should he resign?

TREASURER:

No.

JOURNALIST:

Warren Truss seems to think that Mr Rudd’s recent strip club incident may have given him a boost in the polls.  Do you think it is something Mr Howard should try to boost the polls?

TREASURER:

Are there are any other questions?

JOURNALIST:

Mr Costello, given the better than expected results, is it time for structural tax reforms rather than just cuts?

TREASURER:

Well you know, cutting taxes is reform in my book.  I have never heard of tax reform that consists, good tax reform that consisted of putting up tax.  And you know, over the last few years we have cut company tax and capital gains tax and income tax rates and increased thresholds and abolished superannuation tax for those that are over 60 in a taxed fund.  It is not a bad record and we have kept the Budget in surplus.  And if we can do further things to keep the Australian tax system competitive, we should.  Look, we have come a long way in Australia but there is still so much further to go.  That is why it is important to keep good economic management. 

JOURNALIST:

Treasurer, aside from the strong fiscal position, what is it that will insulate Australia from US downturn?

TREASURER:

We have a strong fiscal position, we have no net debt.  I think the US debt to GDP is about 50 per cent.  If Australia ran the same debt position as the US Government we would have about $500 billion in net debt and yet we have zero.  If we ran the same position as the US, we wouldn’t be in our ninth surplus, we would be in about our seventh deficit.  Now, the US is a much bigger economy than ours, but our record has been stronger.  And we avoided the US recession of 2000-2001 and we want to keep that going.  Okay, thank you.