The Treasurer, Peter Costello, has announced a budget surplus for the last financial year of $7.5 billion, higher than the expected $3.9 billion.
The increase is mainly due to increased company tax receipts.
The budget surplus gives the government a bonus election war chest and follows yesterday’s ministerial reshuffle ahead of the scheduled election in 2004.
At his press conference, Costello also commented on Tony Abbott, Jeff Kennett and Michael Kroger.
- Listen to Costello’s press conference (24m)
- Listen to Costello comments on the ministerial reshuffle, Tony Abbott, Jeff Kennett and Michael Kroger (3m)
Transcript of press conference with Federal Treasurer Peter Costello.
Today I am releasing the Final Budget Outcome for the year ended 30 June 2003. That’s the year which has now passed. The Australian Government recorded an underlying cash surplus of $7.5 billion in the year ending on 30 June 2003. This was $3.6 billion higher than estimated at the time of the Budget.
The higher than estimated outcome was caused predominantly by increases in company tax with increases in company taxes around $2 billion higher than forecast at Budget, principally the result of stronger than forecast company profits. This confirms what you have seen in the recent reporting season that company profits were very strong in the financial year ended 30 June 2003.
In addition to that, expenses were a little over $1 billion less than was forecast at the time of the May Budget. In some of those savings in expenses were as a result of parameter changes, that is that incomes were higher and family payments were less as a consequence. Some of the savings were the result of the fact that contracted programs could not be entered into by 30 June 2003 and as a consequence will fall into this year.
Those expenses that fall into this year, whilst of course they make the bottom line last year stronger, will make the bottom line this year weaker. Those expenses that are parameter driven do not have any effect on the current financial year.
We are currently in the 2003-04 year. The Budget Outcome is releasing a story of what happened last year. We are in a current year 2003-04 where we have forecast a lesser surplus and of course the next May Budget will be for the 2004-05 year.
What the outcome is likely to be for the current year will be revised up at the Mid Year Review. There will be some pressures on the Budget from measures which have not been passed by the Senate and new expenses which have been entered in since the time of the Budget. The largest of which is Australia’s commitment to the Solomon Islands.
But what this confirms is that there was a healthy surplus in the year just passed of around about 1 per cent of GDP. This has accordingly reduced, the Commonwealth, the Australian Government’s net debt, and we have now reduced the Australian Government’s net debt by $66 billion since the Coalition Government was elected. You will recall in the last five years of Labor, the Australian Government ran up $80 billion of additional net debt. We have now reduced that by $66 billion. We have not totally eliminated it, but we have now reduced Labor’s debt by $66 billion. And because the economy has continued growing through that period, the debt as a percentage of GDP has fallen even faster to a twenty year low of 3.9 per cent of GDP.
So, this is a strong result by international standards, it puts Australia in a strong fiscal position. We would be one of the strongest, we would be in one of the strongest positions of the world, certainly much stronger than any of the G-7 countries and nearly all of the OECD. The fact that we have run a strong Budget policy, a strong fiscal position has shielded us against a very difficult international situation and it’s allowed interest rates to be low and the Australian economy to continue growing at a very difficult time.
JOURNALIST:
What does this mean for the prospect of further tax cuts?
COSTELLO:
This is the outcome as at 30 June, in the current year we have already cut taxes. We cut taxes on 1 July 2003 by over $2 billion. So that comes straight off the current year’s Budget. If you are asking me about the 2004-05 year, ending 30 June 2005, my answer would be disclosed in next year’s May Budget.
JOURNALIST:
But is it your preference as it is the Prime Minister’s to give back money, surpluses to taxpayers rather than spending (inaudible)?
COSTELLO:
I have said before, and I said at the time of this year’s Budget, the reason we cut taxes by $2 billion in this year’s Budget is, my principle is, if you can balance your Budget, if you can fund the necessary expenditures which in this financial year are the commitment in Iraq, the Solomon Islands, East Timor, drought and if you have a low debt position, then we should try and cut taxes for Australia. That is the principle that I laid down in this year’s Budget. And that’s why we cut taxes by $2 billion in this year’s Budget. And when people said to me, well, why was it $2 billion? Well, that was the amount that I judged after we had met our necessary expenses, would allow us to make a return to the taxpayer and still keep the Budget in surplus.
JOURNALIST:
Any regrets you didn’t give more given you have now got $7.5 billion for the year?
COSTELLO:
Well Sid, it is not $7.5 billion for this year, it is $7.5 billion for last year, for the outcome for 30 June 2003. And we looked at this year, 2003-04, you are making estimations as to what you think is going to happen to the economy, what you think is going to happen to expenses. The estimation I made was that we could keep the Budget in surplus and cut taxes by $2 billion. Now, after that, the estimation I made was that the Budget would still be in surplus by about $2.2 billion. That’s the buffer if you like. And that’s got to meet all of the unanticipated expenses. We have already had some unanticipated expenses, the Solomon Islands, we have had drought assistance blow out to much more than we thought at Budget time. So I think that was a prudent decision. I hope the economy recovers a bit in 2003-04 because we will need that to cover some of the unanticipated expenses.
JOURNALIST:
Do you think the strong revenue you have seen will continue into the current financial year that we’re in now?
COSTELLO:
Well, I believe that the best estimate of revenue for 2003-04 is the Budget estimate. We’ll have another look at that again in the Mid-Year Review in November. Company profits were extremely strong in the year gone past. Will they be extremely strong in the current year? That’s the estimation we have to make. Now, although growth has come off, growth has come off in the Australian economy because of the external position. The domestic economy is still running very strongly. This is the point I’ve been trying to make. The Australian consumer is confident, interest rates are low, they are spending. It’s a good time for Australian companies. What is detracting from growth? International weakness, SARS, drought, all of those international factors. Now, if the domestic economy continues to run strongly, company profits might stay up.
JOURNALIST:
You’ve indicated…
COSTELLO:
Sorry. Yes, yes and then…
JOURNALIST:
Mr Costello, does this change your view of when we will completely eliminate net debt, government debt?
COSTELLO:
Well we, when the Government was elected, the Australian Government net debt was $96 billion, as you know. We have now reduced that by $66 billion and it’s just a shade under $30 billion. In that time the economy has grown so the debt to GDP ratio has also shrunk, it’s shrunk to 3.9 per cent of GDP as you see here in the press release.
If we were able to offer the remaining equity from Telstra to the Australian public, we could eliminate Commonwealth Government debt, yes we could. And we would be one of the few countries, there are about two other countries in the world that are in that position. Now I have announced, because I know what is going to come up after that question, I have announced we will still keep a gross position out there so that the market has a bond to measure for ratings purposes. But it could be done, in a net term it could be done, yes it could be.
JOURNALIST:
It could be done sooner?
COSTELLO:
Well, yes, to the degree that the outcome was $7.5 billion rather than $3.9 billion, you’re $3.6 billion closer towards that aim.
JOURNALIST:
You indicated before I thought that the Mid-Year Review would revise up the outcome for the current financial year?
COSTELLO:
No the Mid-Year Review will be a review of the situation as we see it for the 2003-04 year, the current year. I did not say it would be revised up, I said the Budget brought down the situation for the 2003-04 year as we saw it in May 2003, now that’s before the financial year began. The financial year only began in 1 July 2003. In November, six months after we do our Budget, we have an update as to where we think we’ll be, and we’re always estimating where we’ll be in 30 June 2004. We never actually know what the outcome is until three months afterwards we get what we call the FBO, the Final Budget Outcome, three months after the financial year to know where we finished up. So what we’re getting now is a statement of where we finished up in June of this year. What our Budget is doing is it is trying to forecast where we think we’ll finish up in June of next year and the FBO of September 2004 will give us the outcome for the current Budget year.
JOURNALIST:
Treasurer, what does this tell us about the cost of war effort in Iraq? Was it what you thought it would be more or less, and what’s your current estimate of what the war and recovery effort is costing the economy?
COSTELLO:
The outcome for the war in Iraq was about what we expected it would be. There was no under-expenses in relation to that. The significant commitments that we currently have is that, and the figure in relation to Iraq was around $645 million, the significant commitments that we still have is in East Timor, where we have ongoing commitments, the Solomon Islands, where we have around 1500 defence personnel and in addition to that I think it’s around 300 Federal Police, 200 or 300, plus advisers. We have announced some assistance in relation to Papua New Guinea, you’d be aware of that but that hasn’t actually taken place yet. And in addition to that we of course maintain peacekeeping operations around the world. There’s an awful lot of them but they’re not as big as expenses. The big expenses that we’re undertaking at the moment are East Timor and the Solomon Islands.
JOURNALIST:
Can you put a total cost on that to the Budget?
COSTELLO:
Oh well it would be in the billions.
JOURNALIST:
…inaudible…
COSTELLO:
Low billions, like very low billions. It depends, it depends really how long it goes. Now, you would have heard me say on Sunday that I hope that when the task of the Australian Defence Force is completed in the Solomon Islands, they can come back. The police will stay there to assist with law and order, but the military part of the operation, I hope will come to an end soon. Now, I think they’ve been there for two months. You say to me how much will it cost, well you tell me, will it be two months, will it be three months, will it be six months. I can’t tell you that until such time there’s, we actually know what the duration is going to be. As it turned out in Iraq we estimated the duration pretty well because we had a policy that once the war was over, that we would bring back the combat troops, and that was about $645 million.
JOURNALIST:
There was some suggestion you were at odds with Senator Hill on this, have you spoken to him about this?
COSTELLO:
I don’t know why that suggestion was made, and I don’t believe I am in the slightest. It’s the Government’s policy that once the military part of the operation in the Solomon Islands is completed that the troops will come back, you know, it stands to reason doesn’t it Michelle, why would we have troops in the Solomon Islands, if the military purposes had been accomplished? Why would the troops want to be there, number one? Why would we maintain them there, number two? Now, the law and order will go on for a long time, we think there is going to be a big policing role, but the military role in the Solomon Islands was to get guns back from the rebels, and disarm the rebels. Now, the guns have come back, Keke has effectively surrendered, or come into custody, and you would have to say that the military objectives are well on the way to completion.
JOURNALIST:
Treasurer, I am just wondering why Treasury has underestimated the company tax revenues by so much, if you go back to this time last year, or the end of last year, it was, I mean they were out by about $4 billion. Are they being overly conservative?
COSTELLO:
Look, we try and do the best estimates that we possibly can. It turned out that this was a very profitable year, I said, you saw that in relation to the reporting season. You know the thing that, the thing that mildly interests me in all of this, is ever since we cut the company tax rate to 30 per cent, revenues have boomed, and…
JOURNALIST:
Are you suggesting the two are linked?
COSTELLO:
Well, it has been an interesting phenomenon that companies have become more profitable and the company tax receipts have increased. Now, I think there are a lot of factors at work here, one is that the domestic economy has been strong, secondly, I think there has been an awful lot of audit work going on by the Australian Taxation Office, but I think thirdly our policy of taking out some of the deductions and reducing the rate has actually proved quite successful here, and the good news for Australians is in the last financial year, companies boomed, so companies were paying larger amounts of tax and in the current year individuals will have income tax cuts.
JOURNALIST:
The underspend on health and education was about $1.3 billion underspend, $315 million of that is in personal benefit expenses including family tax benefit, how much of that underspend, that $315 million has been about clawing back family tax benefit payments to families?
COSTELLO:
Well, as I say in relation, as the document says in relation to expenses, on page 4, parameter variations across a range of family and community services programs have led to lower expenses of $315 million, and as I said earlier, if incomes are higher then family payments are lower. If more people get into work, then payments are lower. That is a parameter change which has led to lower expenses than we expected. Now this is all just measuring what actually happened compared to what we forecast would happen. Then the second dot point, you will see that in relation to education, one of the reasons why expenses were lower, was that there were fewer enrolments in non-governments schools. We put a figure down at Budget as to how many people we think will go into non-government schools, and we budget for a matching grant. If there is a small variation in that you save money. Now these are not large sums. In a budget of about $170 billion, a 1 per cent estimation variation is $1.7 billion. So what always amazes me here is not that you can have a variation of $200 or $300 million, what amazes me is that it is only $200 or $300 million.
JOURNALIST:
Treasurer, have those private school enrolment variations been corrected for the current year?
COSTELLO:
Well again in the current year we have put down what we think the estimation will be. Now this doesn’t, let me make this clear, this doesn’t mean that people are leaving private schools, people are actually joining private schools, it is that they are not joining at the fastest rate that we thought back in May. Remember all this, what we are measuring here is an outcome against a forecast. Now, in May of this year having taken that experience we put down what we think will be the estimation in relation to 2003-04, but we will update all of these things on the basis of experience, when we get to November. And of course we are not just looking at what happened in this school year, we have got to try and make guesses as to what will happen with enrolments in February of 2004. How many enrolments will there be? If there are, if that number of enrolments happens, what is the grant? What is the budget?
As I keep on saying, you are taking your best forecasts in relation to this, and you think a 1 per cent variation on the Budget is $1.7 billion, as I say the thing that amazes me is that they are so accurate, not that the variations are large.
JOURNALIST:
Treasurer in relation to yesterday’s reshuffle, there has been a lot talk about Jeff Kennett heading for the Senate, would you welcome him?
COSTELLO:
Well, yes…
JOURNALIST:
What about Tony Abbott, Treasurer? He has an opportunity to show his wares as a leader doesn’t he, a potential leader?
COSTELLO:
Well I think it gives him a great opportunity to show his wares, yes, and I hope he does. I think that Tony will be, I hope that he will be a very, very successful Minister, I think, I hope that he will carry the Government’s message in relation to health, and I hope that he will be a very big part of the next election campaign…
JOURNALIST:
Treasurer, what about Michael Kroger for the Senate?
COSTELLO:
…well, look…
JOURNALIST:
You’re not speechless, are you?
COSTELLO:
Michelle, I am never speechless. Look, can I say, there will be a Senate vacancy in Victoria. I would like to get somebody who I think can make a strong contribution and carry the fortunes of the Party for a considerable period of time.
JOURNALIST:
Should Michael Kroger have a go at preselection?
COSTELLO:
I think it is important in the Liberal Party, as we start re-building, that we get people that can carry our Party and its fortunes into the future.
And I think one of the most successful things we did in the last Federal election, is we brought in three young members – Greg Hunt, Sophie Panopolous and Tony Smith – who have made an outstanding contribution. I, you know, I just think it was a vintage crop, it was a, it sounds like the name of a racehorse, doesn’t it? It was a vintage crop in 2001, and I just, as the senior Victorian, I just say to the Party, we have always got to be looking to the future. Look don’t – one of the reasons why we have been able to run a successful Government is that ten years ago or thirteen years ago, the Party was taking a chance on young upstarts like me…
JOURNALIST:
Michael Kroger was taking a chance.
COSTELLO:
…and if we can take a chance, I don’t know that it was him Michelle, I think it was the party members as it turned out, you and I were both around in those days…
JOURNALIST:
So…
COSTELLO:
And we’ve aged, we have both aged well, if I may say so, Michelle.
JOURNALIST:
So do you think he should have a go for preselection?
COSTELLO:
…you better than me, if I may say so.
JOURNALIST:
Do you think he should have a go at the preselection?
COSTELLO:
Look, if he wanted to have a go at the preselection, he would be welcome to, but he has had a lot of opportunities to go into the Parliament, and opportunity doesn’t knock that many times in politics. You are lucky if opportunity knocks once, let alone twice or thrice. Always be careful about things going thrice Michelle. Thank you very much for your time.
