15 December 2015
Transcript - #2015070, 2015

Interview with Leigh Sales, ABC 7.30

SUBJECTS: Mid-Year Economic and Fiscal Outlook

LEIGH SALES, PRESENTER:

The Treasurer, Scott Morrison, joined me a short time ago from Perth. Scott Morrison, thanks for joining us.

TREASURER:

Thanks a lot, Leigh. Good to be with you.

SALES:

Two years ago the Coalition was elected, promising to end Labor's debt-and-deficit cycle, to rein in the budget emergency and so on. We all remember the rhetoric. Yet the deficit number is now worse. How do you explain your inability to deliver what you promised?

TREASURER:

Well, it's a very big job and this year, as the update points out today, we will get expenditure at 25.9 per cent of GDP and it will begin to fall from next year, Leigh. And it's a big job to turn around spending increases that occurred over many, many years, structurally impacting the budget. And it's been a tough task to turn that around. But this is the turning point when it comes to expenditure as a percentage of GDP. And we've been pleased over the last few months, in particular, to ensure that all the additional expenditure that came on since the last Budget we've been able to cover off in terms of savings and other measures to ensure that we're actually adding to the bottom line, outside of any sort of impacts of parameter variations.

SALES:

I can only imagine what the Coalition would have said in Opposition if I pulled up Treasurer Wayne Swan over the deficit and he said, "Oh, well, it's a big job"?

TREASURER:

Well, it is a big job. And it's the job we're about. But what you've also got in this statement today, Leigh, I think is a very honest and realistic outlook about where things are going in our economy. And Australians understand that. It's no surprise to them that we've got global headwinds coming towards us and we've got a transitioning economy. But what the good news is: we're seeing our economy transitioning. The last national accounts figures demonstrated that. We've seen unemployment, which has fallen to 5.8 per cent. And while we have got more realistic growth forecasts in projections, I believe, in this update today, one of those forecasts also is an improved position on unemployment and at a six per cent forecast, that's good news. But the even better news is: it's actually at 5.8 per cent right now.

SALES:

I'll break down some of what you've announced today specifically, but I just want to stick with this point I'm on for one more question. The Coalition made a swift return to surplus the centrepiece of your election campaign. You made the failure to deliver Labor's primary failing. Yet now the talk of a swift return to surplus is abandoned. Doesn't that drastic shift in rhetoric fatally damage your credibility?

TREASURER:

You've got to be realistic about the challenges that you face. And what is in this document is a reduction in the deficit from some 2.3 per cent of GDP down to 0.7 per cent of GDP over the budget and the forward estimates. What it shows is...

SALES:

But you're not addressing what I'm asking about the change in your rhetoric?

TREASURER:

Well, you're asking me is about politics, Leigh. You're asking me about politics. What I'm talking about is what is actually happening with the budget. And what is happening with the...

SALES:

Politics frames everything?

TREASURER:

Well, it may frame things for journalists. What it doesn't frame for me is how we go about setting the tasks of returning the budget to balance. And that's our job and that's what we're doing.

SALES:

I'm directly asking you about rhetoric and the framing that's changed over a short two-year period?

TREASURER:

Well, reality is reality, Leigh. And we're confronting reality and we're dealing with the reality of what's happening globally and what's happening domestically. And what is in this statement today is a very sober, very honest and very patient statement which says: we will return the budget to balance - not as an end in itself, by the way, but a means to an end: and the end is jobs and growth. And everything we're doing, whether it's in fiscal policy or innovation policy or infrastructure roll-outs: it's all about jobs and growth. And we are not going to put at risk our objectives on jobs and growth by pursuing policies that would be contrary to that objective.

SALES:

You've announced a number of areas of spending cuts today. Can I ask first of all for your big-picture criteria; your first principles. What are the first principles you apply by which you then decide, "OK, here are areas that are suitable for spending cuts"?

TREASURER:

Well, whether it's on spending or it's on revenue, Government activities always have to be fit for purpose. What is the design of the scheme? What is the purpose of the scheme? Is the scheme meeting its objectives? And is there unspent commitments that are in the scheme? And how you can bring those schemes under greater control going forward. Because one of the great tasks in managing the budget is: keep downward pressure on spending. Now, we've been able to do that, particularly over the last few months where there's been a lot of pressures forcing spending up.  I mentioned, I think, on one of your programmes: I mean, spending had got to over 26 per cent of GDP. Now, over the course of the last few months we've been able to, through the process we've been going through, to get that back to 25.9 by ensuring the savings have matched the expenditure increases in other areas. And that's all about setting priorities, Leigh. And setting priorities means there are always some things you can't do. You'd love to do everything but you can't. That's not a responsible path.

SALES:

Let's turn some of these numbers into practicalities for people. You're saving around $600 million through changes to bulk billing around pathology services and diagnostic imaging. So, if somebody goes for a blood test or an MRI, will it now be covered by Medicare?

TREASURER:

Well, yes, it will be covered by Medicare. Of course it will. What is not changing is what is occurring with the Medicare benefits schedule. What is changing is: there are some bulk billing incentive payments that have been provided to people who aren't concessional patients; they're not children under the age of 16. And we're simply applying the same test for those services to those that apply for GPs. Now, the previous government allowed this system to get away from it when it came to big expenditure and expenditure was rising in this area. And so it's important that the payments - which are being made to the providers. They're not being made to patients. Patients will still go to their provider and they will have these services conducted. And they're quite competitive areas, I should stress, as well, particularly in the pathology area. And that keeps downward pressure on the prices for patients. So, this is dealing with a bulk billing incentive for non-concessional patients. And this is an area where we believe that the programme could be tighter and more focused for its purpose.

SALES:

You're saving another $500 million or so from aged care services. How, specifically?

TREASURER:

Well, that expenditure item in particular is going up by around $1 billion. And so that is working with the sector to ensure the rules are tight; to ensure that the sort of packages and support that is provided is tailored to the specific requirements of those patients in those facilities. So, again, it's a matter of getting a programme under control and ensuring the right eligibility requirements are set around that programme. And so you don't get the blow-out in expenditures that can really cause great problems for that programme and undermine the support you're wanting to give to the people that need it most. That's what targeting and keeping measures as tight as possible does: it helps the people who need it the most and ensures that there's no expenditure in that programme which can be used for more effective purposes.

SALES:

Your top savings measure aims to save more than $1 billion by cracking down on welfare compliance. But if that money were there to be saved, wouldn't somebody have found it by now, given that successive treasurers have been looking for savings and things like compliance are just low-hanging fruit?

TREASURER:

Well, we already had measures in the last budget and now we're going further. And this is particularly in the area of using data-matching technology and the other enhancements that we've got through our IT systems to go after these things, I think, more vigilantly. And we've got a seconded officer from the AFP who is now working in AFP with Minister Robert and the team down there at Human Services. And what we're talking about here is people who owe debts. People who owe debts; who have been overpaid with benefits or may have achieved benefits to which they weren't entitled; and ensuring that those debts are being repaid. And even at the levels we're talking about, we're talking only about a 20 per cent recovery on those, Leigh, and I think we can go even further still.

SALES:

If you look at where you're cutting it – social services, health and education – doesn't that lend credibility to Labor's criticism that you're targeting the most vulnerable?

TREASURER:

Well, no, because what we're talking about here is better targeted services, ensuring that those who have taken advantage of the system are having to pay debts back and we're ensuring that the taxpayer is being looked after here. It's about making sure the programmes do their job and that's what any government should always do. I think we've taken a very measured approach to this. There are over 180 measures in the statement that I released today. And what that demonstrates is that we've done the work comprehensively right across Government. Some of these measures are quite small, but they all add up, Leigh. That's the work we've done. We've tried to spread it as far as possible to ensure the new commitments we've had are being met by the offsets in expenditure because if you don't do that, then you have a very, very serious budget problem.

SALES:

How concerned are you about the accuracy of figures and forecasts being provided by Treasury? You know, the iron ore projections in the budget have been way out. The growth projections have been massively overinflated. Are you bothered by this?

TREASURER:

Well, we've done a lot of work on that, particularly over the last few months. I think what you see in the forecasts and particularly the projections in the outer years, which are at 3 per cent, down from 3.5 per cent: that, I think, is a very sober and realistic assessment of where the economy is heading. They've done a lot of work, particularly around the impacts of changes in population growth and the working age population. And that obviously impacts on these numbers. I think the forecasts may well prove to be conservative, particularly on the unemployment side of things. But on the iron ore price, I don't think anyone's had any magic formula on that. At the last budget, my predecessor was accused of being too pessimistic on the iron ore price. And history has proved that to be quite different now.

SALES:

We've seen budget after budget where the numbers have worsened. Are you suggesting that because you've taken a sort of, I guess, slightly pessimistic approach here, that we shouldn't see that happen come the budget in May?

TREASURER:

Well, there can be no guarantees on what are forecasts, Leigh. I mean, we don't know the future. But the iron ore price has been struck at the four week average moving forward. There are a number of factors impacting on that currently up in China. One of those is the winter. There is another one that relates to the smog reduction programme they're running and some of the impacts on some of their operations up there, as well as some financing issues towards the end of their year. So look, there are issues that impact on this price every day. You strike a forecast at a point in time and the budget will obviously strike a forecast based on what's occurring then.

SALES:

Let me ask you a political question to finish. We started with politics; let's ends with it. If your effort to cut Government spending starts to bite politically, will you walk away from it like Tony Abbott and Joe Hockey did?

TREASURER:

We welcome the fact that ratings agencies today, particularly, have supported and welcomed the statement that we've made with MYEFO, because it shows a clear plan. I said it earlier today. I mean, we're heading towards budget balance. We know the destination. We're not going to take shortcuts. We're going to get there patiently.

SALES:

What if the public doesn't like this plan?

TREASURER:

We are going to get there patiently and I think that's what the Australian public expects us to do. It's like going off on that summer holiday: you get in the car; you know where you're going; you don't put the passengers at risk; you get to your destination safely. Of course there will be people chiming in from the back seat like my kids always do, saying, "Are we there yet? Are we there yet?" Well, we are going to get there and we're going to get there with everybody on board.

SALES:

Scott Morrison, we're out of time. Thank you very much for joining us from Perth.

TREASURER:

Thanks a lot, Leigh. Thanks for your time.