3 May 2016

Budget lock-up press conference

SUBJECTS: 2016 Budget – A National Plan for Jobs and Growth

TREASURER:

Well first of all thank you all for joining us. Can I particularly acknowledge Mathias Cormann, Finance Minister. Mathias and I have been working steadfastly together on this now for many months as is the normal practice, and I'm pleased that he can join me here today, and it was good to have the opportunity to move around the room with you earlier where I hope we were able to address many of your questions. Why don't we go straight into a brief presentation and then we can take some further questions, because we're all fairly pressed for time.

So I said, and you have heard me say many times, this is not a usual budget, this is not a time for just another budget, it is the time for a national economic plan. That is what is necessary to manage the very difficult but very successful transition that is occurring in our national economy. It is a transition that we must make a success of and we must continue the path that we very much embarked upon. It is path that can be taken off course with the wrong decisions. It is a path that could go somewhere very different if risks are taken, particularly around the Budget. We do know that we are seeing the transformation from the resources investment boom through to a more diversified, stronger new economy. And we see that in the employment numbers that have come through over in recent times. And I won't rehearse them all with you because I am sure you know them all very well.

Australia is performing extremely well internationally. I think this is one of the unsung stories, particularly amongst Australians themselves. I think this is a matter of great pride for Australians that around the world we are growing faster than the advanced economies of the world: the United Kingdom, United States, the OECD average, the Euro average, Japan, and more than twice the weight of Canada which is a similar resourced based economy as Australia. And we're matching it with economies like South Korea. Australia has been growing, but we cannot take that for granted and we cannot be complacent about it.

I turn to the Budget itself and the measures that it contains. The blue and green lines explain a lot of the debate you've been having about revenue and spending and what you can see there, is over the Budget and forward estimates that we will see these things come back in balance almost by the end of the forward estimates period. The Budget position at the end of the forward estimates will reduce down to 0.3 per cent of GDP at the end of that period. But what you can see there is we are getting expenditure as a share of the economy down, and it falls from 25.8 per cent of the economy down to 25.2 per cent of the economy. But that is still well above the long-run average and that is still not a result we consider over the longer term is sustainable and that's why more work has to be done budget, after budget, after budget to ensure that we continue to get expenditure as a share of the economy back to a more sustainable level. This Budget does that, but is one in many more budgets that are necessary to get expenditure as a share of the economy back to a more sustainable level because that's what delivers a sustainable surplus.

You can see there that revenues continue to rise as a share of the economy and that is consistent with what was in last year's Budget and the sort of trend you saw in the mid-year update. There is nothing that we have done in this Budget which adds to the tax burden of the Australian economy based on wheat we put to you last year. This is a Budget that certainly contains revenue measures as we have discussed, but it's one that reinvests the revenues from those measures back into easing the tax burden more broadly across the economy. You see there that the revenue as a share of the economy grows to higher than the long-run average, yet expenditure remains above the long-run average even at the end of the forward estimates, that's why revenue is not the problem, expenditure is the problem that we need to continue to focus on. Deficits are diminishing and we can see them there falling from $39.9 billion in 15/16 down to $6 billion over the Budget and forward estimates period and that's a pace of fiscal consolidation of around 0.4 per cent over the period. The underlying cash balance shows a very tight connection with what we said to you back at the end of last year and it shows us that the crossover point, which is a projection, it's a projection only and I don't want to put too much on that only to say the decisions we've taken in this Budget and the parameter estimates and other impacts on the Budget indicate that that's where budget balance will be restored at this occasion, but these things can't be taken for granted. You need to continue to have the discipline in how you spend and you need to have the discipline in how you don't increase the projection of the tax burden on the Australian economy to undermine growth.

The major economic parameters that are set out in the Budget show a couple of minor changes from what we saw in MYEFO not too long ago. What we have are changes to the GDP forecast for 16/17 which sees us coming off a quarter of a point in what we were discussing back then, we've also got a welcome reduction in our forecast for the unemployment rate. The inflation rate over the course of the Budget and Forward Estimates has also been reduced which is no surprise given the data that has come in more recently and nominal GDP has equally been reduced in the 16/17 year to reflect the changes in what we have seen happening both with the economy and obviously how we see inflation panning out over the period.

Now the parameter estimate changes that you have seen in this Budget show that we have had some $16 billion decrease in receipts over the four years to 19/20 but payments have also decreased as a result of parameter changes by around $5 billion. So that means there has been a $8 billion impact negative on the underlying cash balance over the period of the Budget and forward estimates. Now that compares to previous statements, updates, budgets in the course of what we have seen over some years, as a far more modest variation than many of us have been used to in recent times. I think one of the reasons for that, particularly the difference between the mid-year statement and now, is in the mid-year statement when I came into this role and the Prime Minister came into his role we had a very clear view about being upfront with the Australian people about where things were heading. Longer term projections were revised down to three and a half to three and we took a more sober view about the economy, a more realistic view about the economy, but it was still a view about the economy which believed in the growth of this economy, and particularly those who are driving that growth in that economy. And so those decisions that were set out in December I think have been reinforced as good calls at that time by Treasury. Treasury get lots of criticisms from time to time for forecasts, but I think they are also deserved of credit for when they make the calls and get them right as well.

So we move to the next slide and I'll move to some of the measures. In tonight's speech you would have seen I'm going to make three points about what the national economic plan has to be. It has to stick to the plan for jobs and growth, it has to fix specific problems in our tax system to sustainably cover responsibilities in the future, and it has to live within its means to balance the budget over time and reduce long-term debt.

The key measures contained in the Budget, which you've now had time I think to have a look over are the enterprise tax plan. What this does is invest in small and medium size enterprises first to lower their tax burden, to give them the encouragement to go out and invest. It's those smaller and medium sized enterprises that we believe are more likely to reinvest their earnings, they are more likely to be Australian owned businesses, family owned businesses obviously, and who will go out there and take the additional earnings that they have, which they don't have to pay a high tax rate on and invest it back in their business. It's been small and medium size businesses that have been putting extra people on. They're also the ones that have shown the ability and the courage and the confidence to go out there and win new markets.

So you will see the stepped up progression of the lower rate, first dropping down to 27.5 per cent for business up to a threshold of $10 million, and so that's a pretty significant change. That means 870,000 businesses; 3.4 million employees in those businesses will now be living under a lower tax rate of 27.5 per cent. By the end of the Forward Estimates in 19/20 4.9 million employees will be in businesses that are on a lower tax rate of 27.5 per cent. That's more than half the employees in companies in this country which will be benefiting from those lower tax rates. Once we get past the forward estimates we will continue to step up the threshold to get the harmonisation of our company tax rate at 27.5 per cent and then we will glide that down to 25% at the end of the ten years. Large businesses will then have a clear outline of what they can expect on company tax rates and base future investment decisions on.

Go to the next slide. What that means right now where we're ranked in terms of our corporate tax rate will bring us back into the middle of the pack, which is where we need to be competitive in years from now and we need to get there in a measured way, in an achievable way, in an affordable way to ensure that our business community is better placed to be competitive in the future, and to have the investment that drives the growth and the jobs that we need.

The overall tax package I suggest here, including measures that relate specifically to tax and superannuation, Treasury have done the modelling which shows there will be a 1 per cent increase in GDP as a result of the tax measures that are contained in this budget. It is around a $16 billion lift to the Australian economy over that period of time. That's what investing in growth and jobs is all about by having tax measures that drive that sort of growth. 

Particularly on superannuation, if you go to the next slide. We raise $6 billion in our changes to superannuation. We raise that from some 4 per cent of superannuation account holders in the country, some 4 per cent and we invest $3 billion of that back in the other 96 per cent, particularly those on low income earners through the low income superannuation tax offset, which will see 25 per cent of superannuation fund holders better off as a result of what we have put in this Budget. There are many other measures I won't go over them again because I am sure you have had the opportunity to hear about them. What we have done also with reducing the concessional contributions cap to $25,000 which impacts on just 1 per cent, and what we have done with the lifetime non-concessional cap of $500,000 again which just applies to 1 per cent, and to change the contribution rate to 30 per cent for those on incomes over $250,000 again which only impacts on 1 per cent, means that we are able to achieve those revenue gains. But the superannuation package is not just about a better targeting of tax incentives it also contains very important changes to address the flexibility and work-life issues that Australians have  from a very young age all the way through to the age of 75 and I think it reflects some important changes. Our superannuation system has been too one-size fits all. It has assumed one work-life path and we all know there are many of those. The package of measures that we have outlined today is comprehensive, it's broad-based, it's not just about tax, it's making sure that superannuation is more flexible for older Australians, for women, for carers and for others who don't have the usual or mainstream work-life path.

One of the measures which I think indicates where we're coming from, is we're going to broaden the middle income tax bracket to ensure it goes from 37 to 87 rather than 37 to 80. What this is about is that all average wage earners, whether they are full time wage earners or however you want to define them, they all sit in the middle income tax bracket. It's about creating some space for Australians who are on middle incomes to not have to pay more than 32.5 cents marginal tax rate on the extra dollar they earn by going out there and making that extra effort. It's giving them the opportunity to earn more for their effort and not be taxed more for that effort. And as you can see, the distribution of who's paying that tax means we do have a progressive tax system in this country. Those on higher incomes do carry the lion's share of the burden of income tax raised in this country, that's what we support and we're ensuring that that tax system ensures that the middle income tax bracket has been broadened to ensure its supports all middle income earners.

One of the measures that is in this Budget which I am particularly pleased about is the package for Youth Jobs PaTH. It's no too often that a Treasurer becomes Treasurer after being a Social Services Minister. As Social Services Minister I saw what the impact is on the long-term liabilities of the country when you don't get young people in jobs, and more important than that I see what it does to young people when they're resigned to a life of welfare, they have no choices. And we want to give them choices by preparing them to be able to get into those jobs. We try a lot of things in youth employment, I've spent a lot of time with charitable organisations, government supported organisations, some of the best people you could imagine, and we're going to support them to try and be more successful in what they're doing. I've listened to business people who have said they want to give young people a go, but they don't want to have to shoulder all the risk and all the cost of giving them a go. As a society we all benefit by those young people getting a job, and so what we're doing is we're de-risking that investment through this new approach. It's not just another training program, what it is something quite serious that leverages things like Newstart and other welfare benefits people to get to put them into real jobs, give them real work experience and so at the end of the period of time the employer can say, I can see that that young person has a future in my organisation and now I'm going to take the risk on them because the community has first, and I think it's a very important initiative and it's been funded completely by moving resources from areas that haven't been working as well, areas that won't, we believe get the same results for people to get into real jobs, like work for the dole and get them into real jobs through this program.

So our plan is set out there. I'll go into more detail tonight. An Innovation and Science program start-up businesses, a defence plan for high tech manufacturing and technology, export trade deals to generate new business opportunities, tax cuts and incentives for small business and hard-working families, a sustainable Budget which cracks down on tax avoidance and loop holes which I'm sure you'll have plenty of questions about, diverted profits tax and things like this which are contained in the Budget so important for funding the important measure we've got in this Budget and guaranteed funding for health and education and roads which I've talked about outside this place.

In this Budget we haven't spent more than we've saved, we haven't added to the tax burden, this is not a tax and spend Government this is a Government that has a plan for jobs and growth at a critical time of our transition.

QUESTION:

Major parameters that you've put up on that display, the one that was most rebounding is nominal GDP now that's the been very, very sluggish for the last five years why are you and Treasury so confident that nominal GDP is suddenly going to bounce from, what is it, one point six in the last full year back up to five percent in two years?

TREASURER:

Well as you know there is a difference in the Budget between forecasts and projections, the next two years are forecasts and the other two years are projections which are developed based on that return to full employment, and how those figures are lifted and developed, and that's what those five percent figures are relating to.

QUESTION:

But even the forecast goes up to four percent.

TREASURER:

The forecasts of the 15/16 and 16/17 are two and a half percent and it goes up to four and a quarter percent. In the second forecast year we're investing in growth Dennis, that's what we're doing. We're investing in growth we're investing in jobs and Treasury's forecasts as you can imagine and I'm happy to accept them, but those forecasts are looking to see our growth lift. These forecasts are looking at the improvement in our conditions going down the line. I mean we are in a part of the world which is tagged in and tied in to the largest fastest growing economies in the world, and we make this transition a success and we realise those opportunities going forward. So yes we're optimistic but I don't think unrealistically so.

QUESTION:

You say there's a spending problem Treasurer, but there is only $1.7 billion in policy decisions adding to the bottom line over four years. Why could you not do more than that? Is it because there is an election coming up?

TREASURER:

Well first of all its $3 billion because the net position includes the revenue impacts, so the actual savings of payments on saves versus spends is $3 billion, so we are not spending more than we are saving. In fact we are contributing to the bottom line and the difference between those two numbers and the one you referred to relates to revenue. So we have taken decisions, particularly on health and education, $1.2 billion additional for schools and I stress that's a 26 percent increase over the budget and forward estimates on schools funding for the states, 26 per cent, a 33% increase in funding for schools, for public schools, in the states. In health we have an additional $2.9 billion alone in hospitals, and all of these things have to be paid for David, all of these things have to be paid for. You can pay for it one of two ways. You can pay for it by making the savings that we have made, whether its health or social services or in other areas, or you can jack up taxes. But as the opposition found out, if you rely on taxes then you end up with the sort of holes that they were exposed as having last night. Labor has $19.5 billion now of a big black hole when it comes to how they're hoping to fund their education policies, and it's around $3.2 billion over the budget and forward estimates. Now we saw this happen under Labor last time. They promised a mining tax that would build roads and it didn't deliver any money and it didn't build any roads, and so what happens when you try and fund higher and higher levels of spending by chasing it with higher and higher levels of taxes the public gets let down. Well no more, we're not following that approach.

QUESTION:

Treasure, you've outlined a ten year glide path for your company tax [inaudible]you've only outlined [inaudible] do you have a ten year figure on the costing for the tax reduction and are you confident you'll have the funding available to you based on the revenue measures [inaudible] multinational [inaudible]

TREASURER:

The Budget's done over four years. It's the Labor party who decided to adopt a new 10 year budgeting standard. They couldn't get a Budget right over four years so I'm not sure why they think they could get it right over 10. But over 10 years and the medium term projections obviously include the costing of [inaudible] and that's contained in the projections that sit beyond the Budget and the forward estimates, but yes I am confident Phil, and that's why we've taken I think a very measured and patient approach to get to the corporate tax rate that we believe will put Australia in a more competitive position and the commitments we've made and the savings we've made, we believe will be able to support that position over that medium term.

QUESTION:

Traditionally you might expect in a Budget that offered tax cuts at, a table telling us what the size of those tax cuts by income level might be, given that people earning $0-$80,000, won't receive a tax cut but the Prime Minister will receive a $6,000 tax cut due to the abolition of the deficit levy and high income earners will all receive a significant tax cut, did you feel that you couldn't put that table in the Budget because it just wouldn't look good?

TREASURER:

No, and I'll correct you on a couple of things we're not changing anything on the deficit levy legislation, that legislation is quite clear it comes off at the end of next year. Both major parties voted for that legislation so we're not making any changes to taxes without legislating before the Parliament. The change that you will see by expanding the tax bracket that's around $315 a year. So I'm not claiming that this is some great big tax cut Sam, at all that's not its purpose, what I'm seeking to do in this Budget is expand the middle income tax bracket. See when I say this isn't like any other budget, I mean it, I mean people will say what's the morning after, who's the winners, who's the losers, all these sorts of things. The Australian people have moved on from all of that. They want a plan for getting us through this economic transition, and the old way of looking at winners and losers and who's targeted and who's not targeted that's not what this Budget is about. This Budget is about a national economic plan for jobs and growth. If you're up there in Townsville, if you're in Whyalla if you're down in Albany if you're in any of these places you want to know that the Government is going to do something to support jobs and grow the economy. Anyway, next question.

QUESTION:

a question on winners and losers if I dare.

TREASURER:

You can dare.

QUESTION:

I think you make about a billion dollars from some of those carbon tax transfer payments and correct me if I'm wrong but it looks like there might be two tiers of those who get their carbon tax compo, those who exist now and those in the future, what's your thinking, is it as Sam's suggesting that you don't want to further punish people who are already getting [inaudible].

TREASURER:

In our first Budget, when we got rid of the carbon tax, we turned what was Labor's compensation for a carbon tax, into an actual tax cut for people who were earning less than $80,000 and that was worth about $300 per year. So there was a tax cut in the first Budget for people earning under $80,000 because we got rid of the carbon tax, and the tax relief that was tied to that was continued. So if you like this is our second phase of tax cuts over the course of this Parliament. On the carbon tax compensation that was provided in welfare payments, of which it was considerable and It was all targeted on those on the lower income end, naturally and appropriately, what we committed to do was not remove that carbon tax compensation and what we've done in this Budget is not remove it for those who were promised that at that time. What we will be doing though, going forward, is anyone coming on to benefits in the future well we're not going to do carbon tax compensation for ever for a carbon tax that doesn't exist. I think that's a bit nonsensical. We're also not going to undermine the existing incomes of those who have been relying on that. Now those payments aren't indexed and over time they will erode in value and will get back to a position of normalcy. This is not terribly unlike the type of recommendations that Patrick McClure put into his welfare reform paper last year, he said that's the smart way to try and transition through things like this and so the one point net three billion dollars that is saved by removing now going forward the carbon tax compensation for a carbon tax that isn't there all, of that will go into the National Disability Insurance Scheme Savings Fund and that will be there to close the gap on the funding gap that exists on the NDIS in the future.

QUESTION:

There will be two tiers of welfare payments.

TREASURER:

Well when you're transitioning that can often be the case.

QUESTION:

Treasurer, you talk about the personal income tax cuts being a down payment on future cuts when the Budget is in a better position, does that mean future cuts for low income earners? Is that something that you're looking at doing?

TREASURER:

What we're doing in this Budget is what we can afford, it's what we can commit to, whether it's what we're doing for those in the middle income tax bracket, or what it's what we are doing for small and medium sized businesses, what it's doing for young people who we're backing to get a job, what we're doing is what we can afford on hospitals and schools. What we've said by ensuring that we don't increase the tax burden is that we think that a dollar left in your pocket is much better than a dollar put in the Government's and whenever we get that opportunity, people will know this from this Budget, that when we get the opportunity to cut a tax we'll cut it, we cut the mining tax, we cut the carbon tax, we cut the banking tax…

QUESTION:

What about the backpacker tax?

TREASURER:

Well that's a matter that is still being reviewed. There are no changes to that arrangement in this Budget but it continues to be a measure that we're working with industry on and we will continue to go down that path. So what is in this Budget is not the final word on that matter and we have been liaising closely with our own members on that issue and we may well have more to say about that in the course of the next few weeks and obviously in the lead up to the election. So I want to assure all those who have raised specific issues about this that that matter doesn't conclude tonight there is an ongoing process for that and we will continue to look at those issues very seriously.

QUESTION:

For those earning under $80,000 or up to $87,000 over time tonight there is really nothing for them, down the track perhaps jobs and growth but what are they to make of it and what should they figure over the next 6-12 moths?

TREASURER:

Well I disagree with your assessment. 25 per cent of people on lower incomes are going to be better off when it comes to giving them their tax back when it comes to what they're paying on their tax on their superannuation. Now that's an important change. Other areas of your superannuation ensure that if you're on a low income, you could be on $35,000 or something like that, and you're maybe in a family and you've got a partner who's on a higher income that partner can put money in your superannuation account…

QUESTION:

It's not helping them today though

TREASURER:

sorry?

QUESTION:

It's not helping them today.

TREASURER:

Well all of these things help people to do better today to do better tomorrow, and a plan for jobs and growth. I mean this is why I stress how many employees are supported by the tax cuts that were giving for small and medium sized businesses. If you don't have a job you're not better off and what we're doing tonight will ensure that people can have greater confidence about being in those jobs, and they can have greater confidence about the transition we're making. This is why the defence industry plan is so important. When you're talking about transition it doesn't get more on the acute edge of that transition than South Australia and the naval ship yards there, but the naval ship yard of course will benefit in South Australia, in Western Australia with the investments we're making in particular the navy ship building projects. The defence supply chain goes right across the country. The best form of welfare is a job and if you're not creating jobs and driving the growth that creates those jobs, well no one is going to be better off.

QUESTION:

The tax avoidance taskforce has decided to raise $3.7 billion over the four years; it seems we mainly see this by giving them more resources, with that said why wasn't it done in last years' Budget?

TREASURER:

The first step we had to take on multinational tax avoidance was to get all of the legislation in place which is what we did last December and you'll all remember that the Labor party voted in the parliament against, against toughening up law on multinational tax avoidance. Ee passed those laws without their help. We have now got in to those companies a much larger group of companies that were overdue because of the law changes that were made and now we're in a position to go forward to putting in resources so they can follow through on what we've made very clear in these Budget papers tonight - the considerable revenue of some $3.9 billion that will be derived as a result of both our first round of multinational anti avoidance legislation changes, but going further in this Budget to introduce the diverted profits tax. On top of that we're changing whistle-blower legislation to give those people greater protection indemnities in the circumstances when they come forward. We're not doing the things that Labor proposed to do on the tightening of things like thin-cap capitalisation laws because we know and the advice to us is that will stop pension funds from overseas actually investing in infrastructure development in this country . What we've done is the smarter way of adopting the diverted profit tax proposal from the United Kingdom where we have had people working now for many months and we will apply a penalty rate of tax on multinationals that seek to shift profits offshore, a penalty rate tax on those multinationals. So we've gone further, we've gone harder, we've backed those who need to enforce these rules, and ensure that multinationals pay the tax on the income they earn in this country. That $3.9 billion is being invested in easing the tax burden on small and medium sized companies and that's what we believe is a very good plan for jobs and growth thank you all very much.