MYEFO: Budget Deficit Rises To $47.6bn And $123bn Over Four Years; Debt To Hit $667bn In A Decade

The Treasurer, Joe Hockey, has released the Mid-Year Economic and Fiscal Outlook (MYEFO) which shows the federal budget deficit will increase by $17.5 billion to $47.6 billion this year, with total deficits of $123 billion over the next four years.

The MYEFO forecasts gross debt to reach $667 billion in a decade and be around 26% of GDP in 2023-24. Net debt is expected to peak at 16.2% in 2018-19, the highest since 1996-97.

Hockey

Hockey released the MYEFO in an address the National Press Club in Canberra. It forecasts a budget deficit for the fiscal year 2014-15 of $33.9 billion and $24 billion in 2015-16. Whereas both the Coalition and the ALP said they would deliver a budget surplus in 2016-17, MYEFO forecasts a deficit of $17.7 billion.

Unemployment, currently 5.8%, is predicted to be 6% in June, rising to 6.25% for the next three years, adding $3.7 billion to the welfare bill. A blowout of $11.3 billion is forecast for the welfare budget. [Read more...]


Greens Strike Deal With Abbott Government To Abolish Debt Ceiling

With just days to spare before the debt limit needed to be increased, the Australian Greens have struck a deal with the government to abolish the ceiling.

Once labelled “economic fringe-dwellers” by the Coalition, the Greens have stolen a march on the ALP by negotiating a deal that reshapes the debt debate and sidelines the Opposition.

Greens leader Senator Christine Milne told a media conference that the agreement allows for increased parliamentary scrutiny of government debt. An automatic ministerial statement and parliamentary debate will take place whenever a $50 billion increase in debt is undertaken. There is no provision for the parliament to disallow a debt increase.

Milne

The Greens are selling the deal as an agreement that ensures that debt will be justified and the public “will now be able to see whether the government is incurring good debt to invest in our future, or bad debt to cover up a shortfall in revenue”. [Read more...]


Greens And Palmer Back GrainCorp Decision; ALP Says Hockey Acts In The Nationals Interest

Treasurer Joe Hockey’s decision to block the ADM takeover of GrainCorp has met with approval from the Greens and Clive Palmer but has been criticised by the ALP as an attack on foreign investment and a capitulation to The Nationals.

Shadow Treasurer Chris Bowen said Hockey had failed his first big test of credibility as Treasurer. He said Hockey had acted not in the national interest but in the interests of The Nationals. “Hockey can be bullied afterall,” Bowen said.

Bowen

Greens leader Senator Christine Milne said her party was “very pleased” GrainCorp is not to be sold. “Owning our essential infrastructure is critical,” she said.

The Palmer United Party’s Clive Palmer said he would now withdraw his private member’s bill which proposed to legislatively block the ADM takeover.

Palmer

  • Listen to Chris Bowen (7m)

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  • Listen to Clive Palmer (11m)

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Treasurer Joe Hockey Blocks ADM Takeover Of GrainCorp

The Treasurer, Joe Hockey, has blocked the takeover of GrainCorp by the American company Archer Daniels Midland.

Hockey

Hockey used the power given to him alone as Treasurer to reject the foreign investment application. ADM was seeking to increase its current shareholding of 19.85% to 100%. Hockey said he would permit ADM to hold 24.9%.

Whilst many see the decision as unexpected, Hockey’s announcement heads off a political conflict with The Nationals in the coalition. In his announcement, Hockey said a “significant consideration” was that “this proposal has attracted a high level of concern from stakeholders and the broader community. I therefore judged that allowing it to proceed could risk undermining public support for the foreign investment regime and ongoing foreign investment more generally. This would not be in our national interest.”

It seems clear that the government has avoided a clash with sections of its core supporters but the decision conflicts with Prime Minister Tony Abbott’s claim that “Australia is open for business”. Free marketeers and economic rationalists in the government will be alarmed at what the decision says about the future direction of the Abbott government. [Read more...]


The Task Ahead: Joe Hockey Speech To Centre For Independent Studies

The Treasurer, Joe Hockey, has addressed the Centre for Independent Studies on the economic challenges ahead of the new Coalition government.

“We are cleaning up the mess we inherited,” Hockey told his audience.

Hockey

He said: “…Since 2008 we have experienced a period of significant dislocation. External factors have reshaped our destiny. Public policy incompetence has worsened the impact of that dislocation. As we emerge from the worst of the global financial crisis we have rising unemployment, deteriorating debt, declining terms of trade and structural challenges in our Budget that need to be urgently addressed.

“Global challenges remain, but they are not insurmountable. In the next twelve months the identifiable risks on the horizon include the impact of monetary policy tapering in the United States and the impact of revelations about the health or otherwise of European banks by the ECB.”

  • Listen to the introduction to Hockey’s CIS speech (2m)

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Transcript of Treasurer Joe Hockey’s speech to the Centre for Independent Studies.

The Task Ahead

It’s a great pleasure to be addressing the Centre for Independent Studies in my first domestic keynote address as Treasurer.

I want to declare my gratitude to Greg Lindsay and the CIS team for its advocacy of many values and policies that I share.

Initiatives that help facilitate enterprise, empower individuals and nurture consumer sovereignty will always have a page in my playbook.

With this in mind, today I would like to discuss the many challenges the Coalition economic team has ahead of us. The work of the CIS will, no doubt, be of great use as we deliver on our plans for the Australian economy.

The first few days in the job are reflected by the most common question I get from people on the street …, “Are you having fun yet?”

Whilst it is no joyride, my colleagues and I relish the opportunity to help turn things around. [Read more...]


Treasurer And Reserve Bank Issue Statement On Monetary Policy

The Treasurer, Joe Hockey, has issued a joint statement with the Reserve Bank of Australia on monetary policy.

AustraliaHockey said the statement “records our agreed understanding of Australia’s monetary and central banking policy framework.” It reiterates the core place of monetary policy, the importance of the inflation target and the government’s commitment to the independence of the bank.

According to Hockey, the statement recognises “for the first time that the financial strength of the Reserve Bank is important for the credibility of its monetary and banking policy operations, and outlines the Treasurer’s role in ensuring the maintenance of a strong Reserve Bank balance sheet”.

Statement from the Treasurer, Joe Hockey.

Today I am releasing, with the Governor of the Reserve Bank of Australia, a joint Statement on the Conduct of Monetary Policy (the Statement).

The Statement records our agreed understanding of Australia’s monetary and central banking policy framework.

The Statement recognises that monetary policy is one of Australia’s core macroeconomic policy tools and its effective conduct is critical to our economic performance and prospects. [Read more...]


Government Increases Debt Limit, Announces Commission Of Audit

The Abbott government has increased the debt limit from $300 billion to $500 billion and announced a Commission of Audit.

At a press conference in Canberra today, Treasurer Joe Hockey said that Commonwealth Government Securities on issue would reach $379 billion by 2015-16 and that peak debt will now exceed $400 billion.

He said advice from the Australian Office of Financial Management is that “it is prudent to maintain a buffer of $40-60 billion”. The government will legislate to increase the Commonwealth Government debt limit to $500 billion.

Hockey

The Minister for Finance, Senator Mathias Cormann, announced the composition and terms of reference at the press conference. Tony Shepherd, president of the Business Council of Australia, will chair the National Commission of Audit. Hockey said the commission will have “very broad terms of reference” and will report in two phases.

The Commission’s members will be:

  1. Tony Shepherd (Chairman) – President, Business Council of Australia
  2. Dr. Peter Boxall – former Secretary of the Department of Finance and Administration and other departments, currently chairman of the NSW Independent Pricing and Regulatory Tribunal (IPART)
  3. Tony Cole – former Treasury Secretary and Deputy Secretary of the Department of Prime Minister and Cabinet
  4. Robert Fisher – former Director-General of the Western Australian Departments of Industrial and Regional Development, of Trade and of Family and Children’s Services.
  5. Amanda Vanstone – former Senator and minister in the Howard government from 1996 until 2007

Commission of Audit’s Terms of Reference:

Transcript of joint press conference by Treasurer Joe Hockey and Finance Minister Senator Mathias Cormann.

HOCKEY: Thank you very much for coming along today. Cabinet has made two decisions which I particularly want to announce today. The first involves increasing the debt limit for the issuance of Commonwealth Government securities. The second is the Commission of Audit. Firstly, I announce today that the Coalition Government will have to increase the debt limit for Commonwealth Government securities to $500 billion.

We are increasing it to that level because I have been advised that on 12 December, the current debt limit of $300 billion will be hit. We need to move quickly to deal with this, particularly in the wake of what has been revealed in the United States in recent times. This is a significant issue. We need to put it beyond any doubt and we do not want to have to revisit this issue again. The fact of the matter is that peak debt in the Pre-election Fiscal Outlook was expected to be $370 billion. We have been advised it will now exceed $400 billion on current trends. Given that, we have to ensure that there is a buffer of $40 billion to $60 billion to provide stability to the issuer, the Australian Office of Financial Management. We have decided to go to $500 billion. This is the legacy of a bad Labor government. This is part of the job that we have to fix.

The second announcement is about ensuring that we never have to reach the debt limit. There is a difference between the debt limit and the debt. And we need to address the increasing debt of the Commonwealth Government. Today we are announcing a Commission of Audit with very broad terms of reference that is going to focus on delivering to myself, the Minister for Finance and the Prime Minister a comprehensive report in two phases, which the Minister will talk about in one moment. The Commission of Audit is to be headed by Mr Tony Shepherd, President of the Business Council of Australia. It will have a number of numbers, Dr Peter Boxall, former Secretary of the Department of Finance. Mr Tony Cole, former Secretary of the Treasury. Mr Robert Fisher, who has been involved directly in the delivery of services at a state level and former Senator Amanda Vanstone, who has been a Minister in Social Services and also has extensive experience in this area. The Commission’s Secretariat will be headed up by Mr Peter Crone. The Commission itself will be based in Department of Finance. We will have very regular engagement with the Commission during the course of its work. We are today releasing the terms of reference together with the announcement about the Commission. I will ask my colleague Mathias to say a few words.

CORMANN: Thank you, Treasurer. What is very clear to us is that Labor left behind a Budget in very bad shape. The numbers in the Pre-election Economic and Fiscal Outlook were bad enough. But what is even more concerning is that we have inherited from Labor a Budget which continues to deteriorate. We went from a promised surplus to an $18 billion deficit at Budget time to a $30 billion deficit at election time and still growing. Gross debt is growing to $400 billion and beyond as the Treasurer has just indicated. Annual government spending under Labor increased by more than $120 billion over the six years from 2007-08 to 2013-14. In real terms, spending under the Rudd and Gillard Governments increased by more than 25%, or an annual average of more than 4%., irrespective of Labor’s so-called fiscal targets. Importantly on top of having inherited a bad starting position from Labor we are facing significant structural and fiscal pressures on the spending side in particular related to the aging of our population. We have to repair the Budget, we have to reverse the current trend we have from Labor. We have to get spending growth under control.

The Government has to be able to live within its means on a sustainable basis over the long term and this is of course what the Commission of Audit has to help us achieve in a calm, methodical and orderly fashion. As the Treasurer has indicated, the Commission’s work will be conducted in two phases. Phase 1 will report to the Government by the end of January on the roles and responsibilities of government, efficiency and effectiveness of government expenditure and on medium-term fiscal sustainability. Phase 2, which will report to the government by the end of March will then focus on public sector performance and accountability. This is a very important task that the Commission of Audit has to take on for the Government. We did inherit a Budget in very bad shape. We do need to deal with it in a calm methodical and orderly fashion from here on in.

JOURNALIST: It says here in the terms of reference that the recommendations will achieve savings sufficient to deliver a surplus of 1% of GDP before 2023-2024. That seems a long way out. Are you suggesting it is going to be a very long haul?

HOCKEY: No it is not a long haul to surplus. We said 1% of GDP, which exceeds surplus. We will get to a surplus before that.

JOURNALIST: The terms of reference include the privatisation of commonwealth assets. Can you talk about your thinking about when it might be worth selling off assets? If you were to do that, could you tell us when you might be selling off assets? With some assets you’d are giving up a useful dividend strand. What are your thoughts on when that might happen?

CORMANN: In relation to the sale of commonwealth assets, the current policy of the Government is that we intend to sell Medibank Private and we’ll have something more to say about that very soon. We don’t have, at present, a policy to sell any other Commonwealth assets. We’re not going to speculate here today about what the Commission of Audit may or may not recommend. That is a matter for them. But we do, of course, want them to look very much at the scope of government moving forward and whether there is a case in relation to the potential sale of Commonwealth assets into the future but we’re not going to speculate about what the case may be.

JOURNALIST: [Inaudible]

HOCKEY: No. We are going to keep to our election promises but we are also going to make sure that we live within our means.

JOURNALIST: I don’t have a terms of reference at the moment. Is anything at all ruled out of the terms of reference? When you talk about privatisation, and you want to have a look and see what comes up, do you have a starting point that anything such as Australia Post?

HOCKEY: I want to emphasise, the last one was done in 1996. It is time to do it again and we are doing it. It is going to be very thorough and very comprehensive. It involves a relationship between the Commonwealth and the States and it has very broad terms of reference. Now, I’m not going and my colleagues won’t get into speculating what the outcome is of the commission. Let it do its job. It’s going to have all the resources and support we can muster.

JOURNALIST: [Inaudible] are you willing to expend political capital?

HOCKEY: We have to fix the Budget. We have to fix the Budget.

JOURNALIST: [Inaudible]

HOCKEY: The percentage of GDP keeps increasing. Over time when you have an actual figure, it decreases as a percentage of GDP and that is attractive to us. When we see MYEFO you will see the full details of the budget numbers.

JOURNALIST: [Inaudible]

HOCKEY: What matters is not the debt limit, it is the debt, and the level of the debt. You have got to have a credible plan to bring the debt down. That is what we are doing. That is why we are having the Commission of Audit.

JOURNALIST: [Inaudible]

HOCKEY: No. He is absolutely the right person to do it. But he is one of a number of commissioners.

JOURNALIST: On the question of debt. There were suggestions you were going to look at infrastructure bonds to fund the big infrastructure works the Government’s committed to – up to $100 billion. (Inaudible).

HOCKEY: No.

JOURNALIST: Is that what you plan to do?

HOCKEY: I’m not going to talk about the issuance timetable from the AOFM. We have got to make sure there is demand for quality assets in Australia and if government debt issuance is seen as a quality investment then people will go with it. The credit rating is what matters. The pricing I will leave that to the markets. It’s not for us. From our perspective, we have got to focus on the challenges that lie ahead. We are going to go for growth.

JOURNALIST: If you want this to be comprehensive and thorough, you’ve got a very tight timetable. January and then March. It will all be over within six months. The Henry Review took years.

HOCKEY: Yes. And where did that leave us?

JOURNALIST: Such a tight timetable for such a mammoth task or two tasks, really?

HOCKEY: I would say to you the challenge is that we have got to make sure it works. And that the results are credible and they will feed into our budget. This is not the Henry Review, it is a Commission of Audit. It has got a lot of resources.

JOURNALIST: Why have you got the Commission looking at the ANAO and Parliamentary Budget Office?

HOCKEY: Every area of government will be examined. There are no restrictions. Thanks very much.