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Government Releases Updated Economic Outlook; Deficit Up, Growth Slows, $17bn Of Budget Cuts

The Rudd government has released an updated economic outlook statement that shows this year’s budget deficit blowing out to $30.1 billion.

Treasurer Chris Bowen and Finance Minister Senator Penny Wong have announced $17 billion of budget cuts aimed at producing a surplus of $4 billion in 2016-17.


The Economic Statement confirms the already-announced increase in tobacco excise and a bank levy. The public service “efficiency dividend” is to be increased to 2%.

Bowen stressed that the economy is not in crisis but that it is in “transition” from the peak of the China resources boom.

The terms of trade have declined and been “revised down significantly”, nominal GDP growth has eased, and a small increase in unemployment is expected.

The government has cut foreign aid by $1 billion over the 4-year forward estimates.

Text of a media release from Treasurer Chris Bowen and Finance Minister Penny Wong.

Economic Statement

Today, the Treasurer, Chris Bowen MP, and the Minister for Finance and Deregulation, Senator Penny Wong, released the Government’s Economic Statement, detailing the short and medium?term economic outlook facing Australia, the challenges ahead, and the path to budget surplus in 2016-17.

The Economic Statement shows that despite significant downgrades to tax revenue due to lower terms of trade, falling commodity prices and other factors, the Government has a clear path to return the Budget to surplus within the forward estimates.

At the same time the Government is adopting a fiscal position in the short term that supports jobs and is implementing new policy priorities to lift productivity, economic growth and Australian living standards.

The Economic Statement is a clear, detailed and up-front assessment of Australia’s economic position. It provides a transparent account of the Labor Government’s fiscal strategy and policy priorities, and how this strategy will be implemented in coming years to ensure continued growth and prosperity for all Australians.

Economic growth easing as Australia undergoes transition

Australia’s economic fundamentals remain strong and the outlook remains positive, with solid growth, moderate unemployment and contained inflation.

The transition in the resources sector from a record investment boom to strong growth in production and exports is currently under way. This will mean that non-mining sectors of the economy will need to lead growth in the future.

This transition poses challenges for the economy. But these are challenges that the economy is in a good position to meet and that can be managed through the Government’s fiscal strategy and broader economic reform agenda.

The drivers of the economic transition under way have accelerated since the last Federal Budget.

The terms of trade have been revised down significantly as mineral and energy commodity prices have fallen more quickly than expected in response to increasing supply from Australia and other countries and lower expected growth in China. Nominal GDP is now forecast to increase by 3¾ per cent in 2013-14 and 4½ per cent in 2014-15, well below its 20?year average of 6½ per cent.

Real GDP growth is now expected to be 2½ per cent in 2013-14 and unemployment is expected to increase to 6¼ per cent. However, in 2014?15, economic growth is expected to strengthen to 3 per cent. Low interest rates and a lower exchange rate will continue to support growth in the non?resources sectors of the economy, but a refocused effort on productivity-enhancing reforms will also be needed to ensure our continued prosperity.

Returning to surplus in 2016-17 in a measured and responsible way

Lower than expected nominal GDP growth has had a major impact on expected tax receipts and other revenue, which have been revised down by $33 billion over the forward estimates.

The Government remains committed to the medium term fiscal strategy that has guided Australia’s strong economic performance in recent years. This includes our successful response to the global financial crisis, which saw Australia avoid recession during the worst global downturn since the Great Depression.

This strategy provides the basis for the Government’s decision to both support jobs and growth in the short term by largely absorbing the fall in forecast revenues, while charting a course for a return to surplus to keep Australia’s fiscal position sustainable.

With the economy currently facing a period of transition and falling terms of trade, budget cuts in the near term to offset the lower than expected revenues would put growth and jobs at risk. Protecting growth, employment and essential services in the immediate future has meant the Government has allowed the downwards revisions in expected revenues in the short term to flow through to the budget balance.

Not doing so would be to accept a policy of excessive austerity that would exacerbate, not mitigate, the economic challenges Australia faces and it would hurt businesses, households and the nation’s future prosperity.

With the impacts of the terms of trade and economic transition expected to fall most strongly in the next two years the expected deficit in 2013-14 is now $30.1 billion, and the expected deficit in 2014-15 is now $24 billion.

Returning the budget to a modest surplus of $4.0 billion in 2016-17 is appropriate given Australia’s strong economic fundamentals, and supports medium term budget sustainability and longer term prosperity.

Responsible savings to maintain Australia’s fiscal strength

The Government has made $17 billion of responsible and necessary savings decisions to provide a pathway to surplus in 2016-17. The majority of the required consolidation will occur in 2015-16 and 2016-17 when the economy is expected to return to more balanced growth.

The staged increases to the rate of tobacco excise will help return the budget to surplus, while also improving the health of Australians by reducing tobacco consumption, prevalence and smoking related harm.

The public service efficiency dividend will be increased to 2¼ per cent per annum for the three years from 2014-15, continuing the Government’s record of driving higher efficiencies in the public sector.

While decisions on how the efficiency dividend is applied are properly a matter for heads of departments and agencies, we have a strong expectation that agencies will first look at non?staffing activities before considering staff reductions.

The ATO will also be given additional resources to address ongoing levels of tax debt and unpaid superannuation. Collecting unpaid entitlements like superannuation will boost workers’ superannuation savings and help them achieve a more comfortable and dignified retirement.

The Government is progressing a recommendation from the Council of Financial Regulators, by establishing a dedicated Financial Stability Fund to strengthen Australia’s financial crisis response capability. The Fund will be used to protect deposits, including those covered by the Financial Claims Scheme.

Growth in Official Development Assistance will also be reduced over the forward estimates. However, we will still meet our target of 0.5 per cent of GNI being spent on aid in 2017-18.

A new national competitiveness agenda

To ensure that the economic transition is as smooth as possible and new sources of growth are supported, we must build upon Australia’s strengths as an open, flexible and competitive economy.

However, we are likely to face a period with falling export prices for a number of years. In these circumstances, higher productivity growth will be the key to ensuring a smooth transition to new sources of growth, improving living standards and longer term prosperity.

In recognition of this, the Government has committed to a new National Competitiveness Agenda to lift productivity, economic growth and living standards for all Australians. The Government is working cooperatively with business and the unions to lift Australia’s annual productivity growth rate to 2 per cent or better.

The statement is available on the Budget website.

Transcript of press conference by Treasurer Chris Bowen and Finance Minister Penny Wong.

CHRIS BOWEN: Good afternoon, everybody. Thank you for coming. Today, of course, the Minister for Finance and I are releasing the updated fiscal and economic outlook. As the Prime Minister and I have said, Australia is undergoing an economic transition, not a crisis but a transition, which needs careful economic management. This transition is brought about by the Chinese mining investment boom coming to an end. It’s brought about by growth in our biggest trading partner, China, beginning to slow. This needs careful economic management to ensure that we continue to grow, and grow strongly. That we continue to have low unemployment and strong growth.

This is the key economic challenge for the Government. We need to ensure that our economy continues to grow and build on the remarkable success of recent years. We can see here that not only has Australia grown more strongly than comparable nations over the recent period, but we’re also projected and forecast to continue to grow more strongly than comparable nations. And, of course, we’re doing this with low government debt and low deficits. Again, you can see the comparison is stark, which underlines why Australia is one of only eight countries in the world with three AAA credit ratings with a stable outlook.

But, nevertheless, the fact that the world economy is growing more slowly at this point than we would have been hoped is having an impact on Australia. It’s having an impact on our terms of trade. It’s having an impact on our economy. Here you can see the difference between terms of trade forecast at Budget time and that we are forecasting today. At Budget, the terms of trade were projected to fall by 0.75 per cent in 2013-14. Now, they are projected to fall by 5.75 per cent. This is a dramatic decline which of course impacts on our revenue and our economy.

By June 2015, terms of trade are expected to be 10 per cent lower than was assumed at Budget time. Of course, this has an impact on our nominal GDP, which is the value of the things we produce as a nation. Here, you can see our nominal GDP growth being below the 10-year average and continuing to be below that average into the future. Nominal GDP growth has fallen from 5 per cent in 2013, forecast at Budget time, to 3.75 per cent in the update we’re releasing today.

There is also an impact on real GDP growth. Real GDP is now forecast to grow by 2.5 per cent this financial year, down from 2.75 per cent at Budget time. And this has also led the Treasury to change its projection on unemployment, which was projected to reach 5.75 per cent but is now projected to reach 6.25 per cent in 2013-14.

This softening in our economy underlines the need for careful economic management. The economy doesn’t need harsh and swinging cuts at this point in the cycle. That would make our economy smaller and would lead to higher unemployment. The economy and the budget need sensible, well thought out measures which support jobs and growth now but return the budget to surplus in the medium term, and that is exactly the approach the Government has taken. The slowing in the world economy and the reduction in our terms of trade and the softening in the economy has meant a reduction in our forecast government revenue of $33 billion over the next four years. We’ve taken responsible savings and revenue decisions which will amount to $17.4 billion over that period, or in net terms $8.1 billion.

You can see here in the orange the decisions the Government has made and how they impact on the Government’s fiscal strategy and returning to surplus in 2016-17. The budget will return to surplus in 2016-17, posting a surplus of $4 billion or 0.2 per cent of GDP. We’ve also taken an explicit and deliberate decision to bring down a modest deficit in 2015-16 of $4.7 billion dollars or 0.3 per cent of Gross Domestic Product. This is, as I say, to ensure we continue to grow, we continue to have strong jobs growth and strong economic growth. Bringing the budget to surplus with lower terms of trade requires extra effort, but it means a structural improvement in the budget, which is an important achievement.

Of course, we’ve taken a number of difficult decisions to get to this result. Of course, we’ve increased the tobacco excise, a measure which will raise over $5 billion in revenue and which will also discourage over 200,000 Australians from smoking and particularly discourage young people from taking up the habit. We’ve increased the efficiency dividend to drive better productivity in the public service; better outcomes. The Minister for Finance will provide further details.

We’ve rephased our overseas development assistance budget. We’ll still meet our target of aid as a percentage of GNI of 0.5 per cent by 2017-18, an important target which we’ll meet but we’ll get there in a different profile. All of these savings measures come with no reductions in family payments or pensions, no reduction or abolition of the Schoolkids Bonus, which of course Mr Abbott would abolish, no reduction in the aged pension, no change to family or pension payments.

Before I hand over to Penny, I do want to say just a few things about another measure which you may have noticed got a little bit of media attention today, that is, the introduction of a financial stability fund. As you know, the IMF conducted a public review of Australia’s financial system that concluded that Australia should develop a financial stability fund with a financial stability levy as a matter of high priority. The former Treasurer referred that public recommendation to the Council of Financial Regulators. They advised the Government that Australia should develop a financial stability fund.

Now, as you know, Mr Stevens, Mr Laker, Mr Medcraft are not known as radical or rash men. They are generally regarded as amongst the world’s best financial regulators, and when they make a recommendation, the Government should listen. After due consideration, they advised the Government that it was a good thing to establish such a fund for Australia. Now, in my month as Treasurer, I’ve met with many people across the financial services sector; telephoned, met them, spoken to them. On most of these occasions I’ve mentioned that I was considering this recommendation and got feedback. Of course, not every bank chief executive or not every bank, but certainly I have mentioned and consulted on this matter.

Now, unsurprisingly, people in Australia’s banks would prefer that the taxpayer continued to provide the guarantee with no charge to banks. That’s an unsurprising position for them to take, but the Government properly listened to the financial regulators. We also listened to the sector. Of course, the regulators recommended a levy of between five basis points and 10 basis points. We think a levy on average of five basis points is the right model, at the lower end of the scale. Also, the regulators suggested that we aim for between half a per cent and one per cent of deposits with a lower levy that means we’ll aim for half a per cent. I’ve listened in particular to small banks and credit unions and I have asked the Treasury to consult very carefully in the coming months to ensure that there is no anti-competitive effects, particularly for small banks and financial institutions.

Now, this has a long lead time. It doesn’t come in to place until 2016, but we’ll work constructively with the financial sector as they prepare for this change. I want good and profitable banks in Australia. I’m well known for my support for the financial services sector in Australia, but when you look at the fact that the big four banks in Australia have made a profit of $92 billion over the past four years, I think it’s appropriate that the Government look at this five basis points levy and banks can decide whether they’ll take that out of profits or pass it on. Of course, this is a controversial decision but I believe it’s the right decision. It may not be needed for a long time. But the time may well come when people look back, maybe 20 or 30 years’ time, and say it’s a good thing that this Labor Government took this decision, preparing for the future, developing this fund which of course most nations in the G20 already have. Labor built the four pillars of the current financial system and now we’re building a roof in case of a rainy day.

Now, of course, today, we’re laying out our plans, our costings, our bottom line. We are laying out all the financial details. That is appropriate for the Government to do. It is now open for criticism, for condemnation, for praise. That’s the right thing to do. The alternative government should be doing exactly the same thing, not running away from the Charter of Budget Honesty, but embracing as the child of their side of politics. Not tearing it up but respecting it as both political parties have done now for 15 years.

I’m going to hand over to the Minister for Finance now to talk through some other details.

PENNY WONG: Thanks very much Treasurer. I will only speak briefly – I’ve no doubt all of you have a number of questions. But I do want to detail just a couple of measures in the economic update.

As the Treasurer has said, the approach this Labor Government has taken has been to find responsible savings; responsible savings that are fair and equitable and that make room for important reforms such as DisabilityCare and the Better Schools Plan.

We’ve chosen not to take savings from health or education. We’ve chosen not to cut the services that Australian families rely on – that is the Liberal approach. We’ve chosen a different path of responsible savings in an economic environment which has become more challenging as the Treasurer has outlined.

However, we do retain our commitment to strong public finances; the same commitment which has ensured the AAA credit rating with stable outlook from all three ratings agencies, and, as such, we’ve had to make a number of decisions which are difficult, but are necessary to ensure that we have a sensible pathway to surplus as is outlined in the Economic Statement.

As the Treasurer said, we have reduced our expenditure on official development assistance by about $1 billion over the forward estimates. I would emphasise that our expenditure in both dollar amounts and as a percentage of GNI will continue to grow, and the aid budget will still reach $5.7 billion in 2013-14, Australia’s largest aid budget in history. We will still make our GNI target for 2017-18.

Obviously an area that’s had some attention in recent times is the Government’s Regional Resettlement Arrangement with Papua New Guinea. I refer to you pages 40 and 41 of the Statement which set out the arrangements for the funding of this plan.

The estimated operating cost of the Arrangement is $175 million in 2013-14 and accumulative total of just over $1 billion over the forward estimates. This will be partially funded from a reduction in the operating cost of the onshore network of $423 million over four years. There are also capital costs of $194 million in 2013-14 to expand Manus Island facilities. Funding of $236 million over four years is being offset from a reduction in the aid budget and $23 million from the contingency reserve. The remaining costs of this package have been offset from whole-of-government savings.

In addition, Australia is providing an additional $420 million in new aid to Papua New Guinea to go towards specific health, education, justice and law and order and transport projects, programs consistent with the arrangements that the Prime Minister entered into. This will be funded by redirections in existing AusAID programs but not from existing PNG programs.

The Government has also identified $1.8 billion in savings over three years by increasing temporarily the efficiency dividend on the public service from 1.25 per cent to 2.25 per cent for the periods 2014-15 to 2016-17, inclusive.

The advice from the Department of Finance is that most agencies can absorb the temporary increase in the efficiency dividend through a combination of non-staff cost savings, natural attrition and voluntary redundancies. The Government continues to make it clear that it expects agencies not to resort to rounds of forced redundancies in order to meet these targets. The Government, however, is also continuing to invest in frontline services and the Economic Statement provides a further $20 million per annum to the Department of Human Services to reduce call centre waiting times.

As I said, these have been difficult but responsible savings. They are savings that contribute to the sustainability of the federal budget. They build on the more than $180 billion of savings that we’ve identified in our past six Budgets since 2008-09. Because if we are to continue to ensure Australia is a strong economy in the decades ahead, we have to make the responsible savings today to fund the investments the nation needs for the future.

Thank you.

BOWEN: Over to you, folks. Phil.

JOURNALIST: There’s a lot of money [indistinct] increase taxes or changes to spending on foreign aid and [indistinct] recognition of [indistinct] it’s getting hard to find real structural savings now in the budget with sustainable [indistinct]…?

BOWEN: Well, as I pointed out, Phil, this is a structural improvement to the budget. By continuing to return to surplus even though terms of trade are considerably depressed is a structural improvement to the budget. That means we are returning to a structural surplus over time. A lot of the low-hanging fruit is gone, you’re right about that. That is very true, and the task of the Government continues to be to drive efficiencies and to find savings which are real and sustainable. It’s a task we’re up for, as I think we’ve shown by this process, and I note that spending as a percentage of GDP comes down over the forward estimates. Tax as a percentage of GDP remains under the level of the Howard Government, including in 2016-17, which at its high point still remains lower than under the Howard Government.

So I think of course we’ve made revenue decisions, we’ve made spending decisions. As any responsible government would do, we’ve struck a balance. And that’s what we’ve done and I think it’s the right balance.

JOURNALIST: Treasurer, in the space of 10 weeks you have revenues falling by $33 billion. How can you expect Australians to believe the surplus forecast? And, as a related question, is there something wrong with Treasury methodology or have you been asking the wrong questions?

BOWEN: Well, let’s deal with both of those items. Firstly, the world economy is volatile. It’s more volatile than it’s been for a long time. That makes forecasting more difficult for economic agencies around the world. Australia’s Treasury is no different. The world economy will remain volatile. It will remain volatile whether I’m standing before you in a few months or Mr Hockey is standing before you in a few months. The world economy will remain volatile and forecasts and predictions will be difficult.

Of course, I would prefer and the Treasury would prefer and everybody would prefer that their projections from the Budget have been met. Everybody would prefer that. Of course that’s the case. But these are professional, well-researched projections and I would remind you that my predecessor commissioned a review of Treasury forecasting, an independent review, and it found that the Treasury was using every available tool. It was as good an economic forecaster as was possible in a world economy. If others have a different view they’re entitled to share their projections, but I have not seen any methodology, any approach which is superior to the Treasury’s in a volatile and difficult world economy.

JOURNALIST: Treasurer, we’re about to have an election campaign…

BOWEN: So I hear.

JOURNALIST: At the end of that campaign, will this document still stand? Is this the parameter that you’re taking to the election?

BOWEN: Yes. So, this is our plans. Now, of course, any decisions we make during an election campaign will be offset according to our normal rules. But this is our economic plan. It has our bottom line in it. It has our costings and our funding proposals and, as I say, the Government’s doing this in an open, transparent way. The alternative government should be doing the same. I said I would go to Hugh.

WONG: Well, can I just add to that actually, I just make one point on that issue. As the Treasurer said, we have made a commitment to offset new spending in relation to the election campaign. I would make this point about the Opposition. Joe Hockey has a self-confessed $70 billion worth of cuts he has to make in order to return the Budget to surplus. Today he’s added, or Mr Abbott has added, to that by supporting the Government’s $9.8 billion Better Schools Plan over the next years. Now, this will only add to the cuts that the Liberal Party need to make to health, to other parts of education, to family payments, if they are going to return the Budget to surplus. I think it is absolutely in the national interest for the alternative government to put their plan forward, their plans for cuts forward to the Australian people.

JOURNALIST: Can you talk through the advisability of using the contingency reserve to help fund what you’re doing in PNG? And, if I may, on the issue of waste potentially in the overseas development assistance, the additional stuff to PNG. We’re sending over some Australian Federal Police officers, it’s in the document there. The price that’s been set for that, accounts to $2.4 million per police officer. Why wouldn’t people look at this and think we’re just splashing money around?

BOWEN: Well, the Minister for Finance will answer the specifics. In general terms, of course, foreign aid does come with its own complexities; its own circumstances which do increase its costs. Obviously, it’s got to be done right and properly. There was a review of foreign aid, as I recall, undertaken by Sandy Holloway, a couple of years ago which reviewed the efficiency of foreign aid and made certain recommendations, which I think have been adopted. But the Minister for Finance can handle this.

WONG: Firstly in relation to the contingency reserve, that is actually a budgetary mechanism by which we allocate funding to aid and so you allocate the amount of funds according to the GNI target and then you draw them down as required, and as funds are committed. So that’s a normal process of budgeting, as I outlined to you. In terms of the effectiveness, the Treasurer is right – there was an aid effectiveness review that the Prime Minister commissioned when he was Foreign Minister and obviously AusAID has taken the recommendations of that review into account and implemented a great number of them, in terms of implementing the aid program. But I can come back to you on the details of the AFP…

JOURNALIST: Recognising what you said earlier about the volatility of the global economy and that Treasury is, you know, doing the best that it can for the circumstances, doesn’t that still mean that if things can shift $33 billion in the space of 10 weeks, your forecast surplus is well within the margin of error and you can’t be at all sure that it’s going to happen? And just a second question, also in the document there was a line that said that the Pharmaceutical Benefits Scheme was going to cost, I think, $2 billion less because of existing policy than it was going to cost just 10 weeks ago. How can that happen?

BOWEN: In relation to the forecast, the Minister for Finance might have something more to say about the PBS in a moment. But I will give a general answer. In relation to the forecast, I mean, I have said very clearly the world economy is volatile. We believe and the Treasury believes and the Department of Finance believes that these are the best possible estimates and forecasts at this time. Will the world economy continue to be volatile? Of course it will. Will the Treasury and Department of Finance continue to monitor and update their forecasts? Of course they will. Will we have to adjust our fiscal strategy in response to changing world circumstances? Yes, if that happens. But we are laying out a plan to surplus. We’ve showed we’re prepared to take difficult decisions to get there and we’re showing that, if necessary, we’ll take more difficult decisions to get there.

On PBS, there was decision taken in the Budget about price disclosure to improve that. That has had certain positive budgetary impacts which are good for the Budget, and the Minister for Finance might like to add.

WONG: First, on the savings point, Lenore, obviously you do have to calibrate your fiscal strategy to the economic circumstances and the Treasurer’s outlined why we’ve taken the approach we have, particularly in the years where we see growth a little softer than we would like, for the reasons outlined. But we have taken in this update, in this Economic Statement, some $17.4 billion of savings, with net savings of $8.1 billion. So the Government has continued to take savings in recognition of the importance of a sound fiscal strategy.

I’m sure the Minister for Health can provide more information on price disclosure and the intricacies of the PBS, but as I understand it, price disclosure is currently set out in the MOU with Medicines Australia. What the Government is doing is shortening the period for disclosure and the implementation of a market price from 18 months to 12 months and that is the basis of the saving that you see. I would emphasise that is to be put in place after the current MOU expires.

JOURNALIST: [All talking, indistinct]

BOWEN: Everybody’s going to get a go. We’ll go to Mark first, he’s been very patient.

JOURNALIST: Thanks, Treasurer. What’s your message to the banks today? They’re saying they will pass on the costs of the financial stability fund, the deposits tax, to consumers, to customers. Do they have a responsibility to shoulder some of that cost themselves seeing as it’s an insurance policy, we all pay insurance policies? Why don’t they take it out of their profits, why do they whack customers?

BOWEN: Well, you’re right to raise that question, and it is a matter for them in an open market economy. They have to make a decision. It could be that a bank or banks decide to absorb some of that cost and make themselves more attractive to customers and make a virtue of that. I would be unsurprised if that were the case. As I said, I want big and strong and profitable banks, but the big four banks have had profits of $92 billion collectively over the past four years. They could make a decision – one or more of them could make a decision to absorb that cost. They could make a decision to pass it on, which would then mean their customers would bear that in mind and look at their returns and they may make a decision accordingly.

But you’re right to point out, Mark, with all seriousness and respect to the banks that this Government stepped in during the global financial crisis and made an important step to guarantee bank deposits. More than one person had pointed out it was absolutely vital to the survival and prosperity of our banks. Now, a few years later, in light of the changing circumstances, the IMF and the Council of Regulators looked at this and said to the Government: we think it’s time the banks make a contribution to that guarantee, not just leave it all to the taxpayer but make a contribution to that guarantee, a modest one, five basis points over the years and let it build up.

Now, that is, I think, a reasonable approach, it’s a sensible approach. I will continue to work constructively with the banks. I believe that I have in the past, and will continue to do so in various portfolios, but the Government is obliged to take into account good policy advice and act on it, even if it may not please everybody all of the time.


JOURNALIST: On border protection, are your costings assuming a fall in the number of boat arrivals over the four years and, if so, can you expand on what that forecast is? And would it be wise to assume a fall? And a related question which is: the Coalition seems to be assuming that its Nauru plan would cost about $50 million, perhaps only in tents and so forth, but they say they don’t need to put that into the Parliamentary Budget Office. I’d be interested in your thoughts on that.

BOWEN: In relation to the forecast, my understanding is that they’re based on the same rate as our Budget, and obviously a number of policy initiatives have been undertaken which we believe, over time, will have an impact but the prudent thing to do is to leave the forecast as it was at Budget time.

In relation to the Opposition’s costings on Nauru, they’ve got form here. I mean, these are the guys who got a catering company to do their costings last time. They may think they don’t need to present these costings to the Parliamentary Budget Office or to the Treasury or to the Department of Finance. I think you are entitled, as members of the fine estate you’re members of, to be rather cynical about that approach. They should stump up their costings for full scrutiny, as we have done, for full scrutiny and public disclosure.


JOURNALIST: Treasurer, you’ve talked – you answered a question before about the Treasury forecasts. If it does deteriorate further, as you said is a possibility, how sacred is the pledge to have a surplus? Is it a surplus at all costs? Is it a surplus come hell or high water, or are you prepared to let the surplus drift out even further?

BOWEN: Look, I take this approach, Phil, that this is our strategy. This is what we believe is the right approach given all the evidence before us. And I believe with everything I’ve seen about the world economy it will continue to be the right approach and the right strategy. We may have further challenges. We may have further difficulties, but I believe it will continue to be the right approach.

Now, of course we will respond to changing economic circumstances as necessary, but we are outlining a strategy today and a strategy we would intend to stick to.

JOURNALIST: But you’re not guaranteeing a surplus.

BOWEN: Well, I’m being realistic, Phil. Yes, parameters change around the world economy. Yes, that does sometimes provide pressures for governments in sticking to their fiscal strategy. But we’ve outlined that we’re prepared to take tough decisions. To do so, we’ve announced them today. The Government has made them in the past and I believe we’d continue to do so.


JOURNALIST: A week ago, Mr Bowen, your office was saying that you were still sticking to the commitment of a balanced budget in 2015-16. Did that just prove too hard, or did something change to?

BOWEN: Well, what we did, Michelle – it’s a very fair question, what we did was stick to the strategy of returning the Budget to surplus in 2016-17, but looked very closely in the light of all the incoming information from the Departments of Finance and Treasury, at the economic circumstances and decide that further cutting over that three year period would be deleterious to the national economy. We had to make that judgment. And that’s what you do. You make a judgment based on the evidence before you.

Further swinging cuts would be a blow to jobs, a blow to growth, and endanger our economic prosperity. So we have taken what we think is the balanced and right approach to surplus. We’re achieving surplus by 2016-17, reducing the deficits as I showed before over those years in a gradual approach to surplus, but doing so in a measured way.

JOURNALIST: Treasurer –

BOWEN: Yeah.

JOURNALIST: One of the mantras of your predecessor, Wayne Swan, was that the Government had low unemployment and strong economic growth. This is now basically confirming we’ve got higher unemployment ahead and slower growth. How do you sell that in an election year and was it all out of your control? And one more question, if I may. There’s $500 million of unallocated money. Will most of that be for the car industry?

BOWEN: I will deal with the first question, the Minister for Finance might deal with the second. In relation to jobs and growth, yes, we’ve outlined an increase in unemployment and a reduction in economic growth. As the first table I put up showed, they are still impressive figures in the worldwide context. We’re still growing stronger than most comparable countries. We still have lower unemployment than many developed countries. We’ve created almost a million jobs when Europe and United States have lost millions of jobs.

So it’s still a very strong record that we’re building on and a very strong forecast, but we’re being realistic and laying out that there is a softening which affects both growth and employment and that is primarily the reason why we’ve taken the decisions we have, to carefully calibrate our spending and revenue decisions to not cut too much now, no harsh cuts to the bone now, which would endanger further economic growth.

WONG: I think the second question was in relation to the car industry. I think as you’ve probably seen some speculation in the papers, the relevant minister is engaged in dialogue with the car industry, as is appropriate. We’re strong supporters in the Government of the continued operation of the car manufacturing industry here in Australia. That does put us in stark contrast to the Opposition, who, as you know, are cutting $500 million between now and 2015. So the next couple of years and are refusing to commit anything beyond that.

If there is to be any arrangement that is negotiated that would obviously be offset in accordance with the commitment we’ve given.

JOURNALIST: So how do you explain the un-allocation of $500 million?

WONG: Well, I don’t know what you’re referring to.

JOURNALIST: It’s for policies yet to be announced.

WONG: Well, that is a normal process of a contingency reserve and decisions taken not yet announced and, as I said, standard budget practice.

BOWEN: David.

JOURNALIST: Treasurer, you mentioned that not only has nominal GDP taken a hit but so too has real GDP, and yet in 2014-15 you have got real GDP bouncing back to the same three per cent that it was at budget time. That’s a bigger recovery from slower growth to get back to trend growth next year. What do you see as driving that bigger recovery? What’s giving you that confidence?

BOWEN: Well, in fairness, David, it’s a fairly modest decline in real GDP growth from 2.75 per cent to 2.5 per cent. So it’s not one of the larger write downs that you might see. It’s a recalibration of growth. I think the Treasury is looking at next year and looking at the, obviously, the export phase of the mining boom. The investment phase is coming – has come to an end but we’ll continue to still export. It will be less labour intensive. That means – that’s what I talk about when I talk about the transition in our economy.

Exporting minerals soaks up nowhere near as many workers as building mines. It takes thousands of people to build a mine. It doesn’t take that many people to run a mine. But you will continue to see strong economic growth compared to the rest of the world in real terms because of the fundamental resilience and strength of the Australian economy. Sorry, I will go to Phil but I have neglected Karen. So Karen’s got next go after Phil.

JOURNALIST: Thank you, Treasurer. There’s…

BOWEN: Oh, okay. Phil’s being a gentleman and making…

JOURNALIST: Oh, sorry. I thought you said?

BOWEN: That’s alright, Karen. Karen – no, we’re going with Karen.

JOURNALIST: Treasurer, there’s $283 million in there for housing assistance for South Australia, another (inaudible) for a health and biomedical precinct, and $30 million in assistance for Tasmania. Why are those two areas a particular priority and, on the issue of decisions taken and not announced, isn’t that just storing up decisions for an election campaign?

BOWEN: Well, in relation to South Australia and Tasmania: clearly the Tasmanian economy, it’s well known, has its challenges. The Tasmanian economy is one of the weaker ones in the Commonwealth and it’s appropriate that the Commonwealth work with the Tasmanian Government in relation to ensuring appropriate support. And while the South Australian economy is more robust, it’s still appropriate that we develop bilateral arrangements with particular State Governments for particular economic or social outcomes.

In relation to your other questions, look, as the Minister for Finance said, it is standard practice and procedure to have decisions taken not announced. We’ve done it in previous budgets and economic statements, the Howard-Costello Governments did it. What it does, it means we allocate an appropriate amount of money in a prudent and responsible way for decisions that we intend to announce in the coming period.

WONG: The other component that might be in there too, is decisions where there is funding allocated which might be commercial-in-confidence or, you know, have national security implications where the Government does not publish specific amounts next to the measures.

BOWEN: Phil.

JOURNALIST: Mr Bowen, there’s going to be an election soon and there has been discussions of the wisdom of undergoing this sort of exercise before calling an election, like raising taxes and cutting spending. Certainly Tony Abbott’s been given some ammunition. What’s your message to the Labor MPs who may have grown anxious in recent days and weeks about undergoing this sort of very…

BOWEN: Well, certainly every Labor MP I speak to agrees that we’ve got to be upfront and honest with the Australian people about our plans. You know, I think it’s important as to who we are as a Government. We’re outlining the challenges, our plans, our opportunities. We’re being very clear about that. I mean, sure, you can be cute about these things. Of course you can. But is it being fair dinkum with the Australian people? We’re calling it as we see it. We’re saying there are challenges here.

I mean, I read in the paper – I read in your paper this morning, Phil – that the Liberal Party was planning after the election secretly, to adopt a financial stability levy. I read the conjecture in your paper today. Now, if it’s in your paper, it’s probably true. So, you know, you can do that sort of thing or you can be upfront about it. And it has its political costs and its political downsides. But we’re saying to the Australian people, we are calling it as we see it. There are challenges in this economy. The transition in the economy does not happen automatically. It requires careful management and it requires tough decisions and we will tell you about them now. The Opposition is proposing a commission of audit Campbell Newman-style, after the election, to reveal its cuts and tax increases then. They’ve got it the wrong way if they’re going to treat the Australian people with respect and deal with these things honestly.


WONG: This is what responsible economic management requires, Phil. It is making these sorts of decisions, recognising the economic challenges the nation faces, and making sure they are transparent to the Australian people.

BOWEN: Just behind Phil.

JOURNALIST: Treasurer, you mentioned China’s economic growth is slowing down. What’s your comment about China’s current economic structural reform and what do you see China’s position in Australia’s future economic development?

BOWEN: Well, I think that the response of the Chinese authorities, the People’s Bank, and the central agencies is a responsible one. They’re taking difficult decisions themselves, but they’re ensuring that the growth is sustainable and structurally sound. They’re not letting credit growth get out of control. They’ve taken difficult decisions, the People’s Bank, increasing the Shibor, for example. You know, it was a decision which had an immediate effect but which is, I think, a responsible one to ensure that their growth is sustainable.

It has some downside costs for them and for us and for everybody who has got connections with the Chinese economy in the short-term. But if it means China can continue to grow strongly, slightly less high rates, but continue to grow strongly, that’s a good thing for China and a good thing for the world.

JOURNALIST: You have a revenue issue, plainly, but you also have a spending issue in that spending in this year is up 5.7 per cent above CPI. What do you say to people who look at these numbers you are delivering today and say it’s fine to talk about the world, but you’re just spending too much, you’ve been spending too much and blowing out above the inflation?

BOWEN: With respect, Hugh, you’re selectively quoting 5.7 per cent. You could’ve equally quoted 2014-15, 1.6 per cent spending growth, 2015-16, 0.8 per cent spending growth, 2016-17, 1.8 per cent.

JOURNALIST: Those are out years which are projections. We’re talking about…

BOWEN: [Interrupts] No, no, they are – those figures are based on the revenue decisions that we have taken and the spending decisions, revenue in relation to tax to GDP and tax growth. These are relating to revenue decisions and spending decisions that we have taken responsibly to ensure the Budget returns to surplus.

They are based on the decisions that we have taken and the parameters, the economic parameters that…

JOURNALIST: So you’re not currently in a spend-a-thon?

BOWEN: Well, I don’t think the figures would bear that out, Hugh.

WONG: Very quickly, I can take you through the contribution to the 2013-14 figure and it is driven not by decisions of Government, it is driven by the reduction in anticipated revenue of some $8 billion and payment variations of about $4 billion which are not discretionary decisions of Government. So I think that’s very clear.

BOWEN: Gentleman in the back hasn’t had a go.

JOURNALIST: There’s obviously been some shuffling around of Defence spending over the next few years. Can you explain what projects might be delayed or where the cuts might come in the short term?

BOWEN: There has been some re-profiling of Defence spending to reflect the realities of the construction program. The Defence Minister would be best placed to provide more details. Jessica.

JOURNALIST: You’ve got $733 million revenue save – increased revenue from your financial stability fund. Why wouldn’t you have that money quarantined off budget like the Future Fund? How can that just go into general revenue as a savings?

BOWEN: With respect, Jessica, you’re not quite right. It reflects in the underlying cash balance but it is quarantined as a special stand-alone fund which would be administered as such and could not be used for any other purpose.

JOURNALIST: So what’s the purpose of that money?

BOWEN: The purpose of that money is to build over time and to be available should a financial institution fail and for the – in case the Government needs to provide payments to people who are affected by that failure.

JOURNALIST: Can I ask quickly about the – your criticism of the Coalition for suggesting an audit after an election. There are plenty of economists out there who say that there is a case for having a look at structural savings and structural spending changes. Would a Labor – would a re-elected Labor Government consider a review of the structure of the deficits, structure of the surplus over time to have a look at those savings?

BOWEN: I think our track record shows that we take the difficult decisions necessary, but the key here, David, is not whether you have a commission of audit or not, it’s whether you are honest about it. You say we’re going to have a commission of audit and they’ll tell us what the savings are after the election. ‘We’ll get back to you shortly’ is their approach, ‘after you have elected us’. It’s just not on.

We might take one more question.

WONG: A commission of audit is just a smokescreen. A commission of audit is nothing more than a device for hiding your cuts and that’s what the Liberal Party are using it for.

JOURNALIST: Can you explain for a layperson how it’s possible to take a bucket of money and set it aside in a rainy-day fund, you know, only break glass in case of emergency, and also count it your budget reckoning, in your budget bottom line. How can that both be possible?

BOWEN: Well, because that’s the way the Department of Finance advises that it should be calculated, but I can assure you, just as the Future Fund is set aside and…

JOURNALIST: But it’s not on the budget bottom line.

BOWEN: Well, the Future Fund is set aside as a locked box, so this fund is and will only be used in that circumstance and will build over time to become a substantial fund at the availability of the Government in the unlikely and unfortunate event that that is necessary.

Thank you very much, ladies and gentlemen.

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Malcolm Farnsworth
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