Jobs and growth is what was promised at the last election by the Turnbull Government, and jobs and growth is what is being delivered under the Turnbull Government.
Today’s Mid-Year Economic and Fiscal Outlook shows that jobs and growth is also backing our efforts to bring the Budget back into balance and guarantee the services that Australians rely on.
Only with a strong economy can you support the services, like Medicare, schools and hospitals, and the infrastructure that Australians need. Promises don’t pay for it, strong economic management does. And that is what the Turnbull Government is delivering.
[Chart - More than 1,000 jobs a day]
More than a thousand jobs, as I see the national accounts confirm again last week, have been created in our economy every day this year. More than 360,000 jobs so far in 2017, that is the strongest year-to-date result in job creation in 40 years - jobs growth is now running at twice the rate of population growth.
Hundreds of thousands of Australians are now employed and earning a wage as a result of a stronger and growing economy.
For those Australians now in jobs, and that’s some 200,000 since the Budget alone, the better days I spoke of at that Budget are now already beginning for them. And they are not alone.
In the most recent Westpac-Melbourne Institute index, not only did it confirm once again that there are now more optimists in our economy than there are pessimists, but that the consumer sentiment had lifted by over five percent since May and that consumer confidence in family finances over the next twelve months was up over seven per cent.
In addition, our growth record shows that since coming to Government, and especially over the past two years, Australia’s economic growth has outpaced that of the world’s most advanced economies. As you can see from the chart.
[Chart - International GDP comparison]
But importantly, delivering on our plan for jobs and growth has been backing in the budget.
Today’s mid-year update shows once again that the plan we laid out before the last election to return the budget to surplus and reduce debt, remains firmly on track and in fact has improved since the Budget in May.
Today’s Mid-Year Economic and Fiscal Outlook (MYEFO) confirms the budget projection of a return to balance in 2020-21, with the pace of consolidation being maintained at 0.6 per cent.
Despite the many challenges faced, this is the Government’s fifth consecutive budget update that has maintained this outcome of a projected return to balance in 2020-21. [Chart - UCB narrowing every year]
The underlying cash deficit for 2017-18 is now expected to be $23.6 billion, that’s down almost $6 billion from the $29.4 billion deficit reported I outlined in the May Budget.
This comes on top of the $4.4 billion better than predicted Final Budget Outcome for 2016-17.
Now combined with the improvement in today’s MYEFO this represents more than a $10 billion improvement in the current and previous year’s Budget outcomes. Particularly when you’re looking at these figures here.
Over the forward estimates the Budget is now projected to return to a $10.2 billion surplus in 2020‑21, up on the $7.4 billion surplus reported in the May Budget and a projected surplus of $1.1 billion for that year that we estimated at this time in last year’s MYEFO.
Since the 2017-18 Budget, the budget outlook now reveals:
A $9.3 billion improvement in the underlying cash balance over the forward estimates, with the majority of the work done by lower payments.
Nominal payments are now expected to be lower in every year of the forward estimates than at Budget time, and lower over the four years to 20-21 by $6.6 billion, $6.5 billion I meant to say, with real growth in payments remaining at an annual average rate of growth of 1.9 percent.
A reduction in the peak net debt of 0.6 percentage points of GDP to 19.2 per cent.
A reduction of $23 billion in the level of gross debt by the end of the forward estimates, and by the end of the medium term around $40 billion less than what was projected in the budget
[Chart: No more borrowing for everyday spending]
And we have brought forward by a year when the government will no longer need to borrow to pay for everyday spending.
That will now occur this financial year, this is the first time that has occurred since the Global Financial Crisis - no longer will the Australian Government be putting the equivalent of the national grocery bill on the national credit card. Everyday expenditure will be paid for by everyday revenue.
Now these are the welcome dividends of prudent fiscal management and a growing economy.
At the core of these encouraging results is the Turnbull Government’s fiscal discipline. I particularly commend my colleague Mathias Cormann for the outstanding work he’s done as Minister for Finance in keeping those fiscal controls very tight and the rest of the ERC team and my colleagues.
These improvements that we announce today are not the result of commodity price windfalls or a revenue surge. Most of the heavy lifting has been done by lower payments.
Total payments are $6.5 billion less over the four years to 2020-21, while total receipts are up $2.8 billion.
Real growth in payments as I said is expected to remain at an average of 1.9 per cent per annum on average.
Now under Labor, real spending growth averaged at four per cent, despite promising and actually requiring it in their Budget documents to be less than 2 per cent. [Chart - Average real spending growth]
The Turnbull Government has wrangled Labor’s reckless addiction to spending and is bringing the budget back under control.
But the comparisons should not stop there. Our growth in spending remains the lowest of any government in the last 50 years.
To do that, we have maintained our commitment to offset any extra spending with budget savings, which Mathias will speak to shortly, including key spending and savings measures contained in this MYEFO.
But I want to draw your attention to the spending record of this government. From a high back under the Whitlam years of 10.6 per cent down to 1.1 per cent under this coalition government over the Budget and forward estimates. That’s lower than it was under Labor, which was at four per cent, during the previous coalition years at 3.3 per cent, but I note that during that period of time revenue growth under the coalition was higher than expenditure growth. That’s only happened twice in the last fifty years. Under the Howard-Costello government and under the Turnbull-Abbott Government.
The lower level of payments has been driven by our success in getting in particular welfare spending under control, as we continue on this path with further measures that we’re announcing today.
Across the Social Services portfolio, payments are expected to be up to 2 per cent lower over the forward estimates.
Now this is a function of the integrity and eligibility changes that we have put in place, and despite the opposition of the Labor party, over several budgets and getting people back into work.
We now have the lowest level of welfare dependency of working age Australians in also most 25 years.
The payments-to-GDP ratio is expected to fall to 24.9 per cent of GDP by 2020-21, and that’s largely in line with what it was last year.
On the revenue side, we remain under the self-imposed tax speed limit of 23.9 per cent of GDP, as at Budget and unlike Labor, we remain committed to this speed limit over the medium term which Labor has said they will abolish and let taxes rip.
There are higher forecasts for company and superannuation fund taxes, driven by stronger than expected collections, particularly reflecting higher corporate profitability.
Individual tax revenues I should stress have been revised down by $500 million in 2017-18 and by $7.9 billion over the forward estimates, reflecting the weaker forecasts for average wages growth and unincorporated business income.
Having inherited some $260 billion worth of accumulated deficits from Labor, turning this debt ship around was always going to take time. And we are continuing to make considerable progress.
[Chart- Net debt as a % of GDP]
Having cut the growth in debt by more than two thirds since we were first elected, net debt in 2020‑21 is now projected to peak at 19.2 per cent of GDP in 2018-19 - at 0.6 per cent of GDP or $11.9 billion lower than forecast in May - before declining as a share of GDP to 17.2 per cent by 2020-21 and 7.7 per cent by the end of the medium-term.
Now this represents a reduction in net debt of some $116 billion over the next ten years, a $28 billion improvement in the 2027-28 figure we published in May.
We maintain our position of not drawing down on the Future Fund and we will continue to borrow to fund major infrastructure and the largest recapitalisation of our Defence Force since WWII. Nevertheless, as noted there will be a $40 billion reduction in our gross debt projections by the end of [inaudible] .
It is also important to note that this budget performance has been done against the backdrop of rigid partisanship and of other issues, where an uncooperative Labor party constantly seeks to frustrate every effort to return the Budget to balance.
As we did with this year’s budget, when legislation proves difficult, when our opponents choose politics over financial responsibility, we find other ways to get the job done.
And Mathias will outline a bit more of that in a sec.
Now finally, turning to forecasts on the economy and the jobs boom and increased levels of business investment puts the economy in strong shape heading into the new year.
Our growth story remains a compelling one, and although real GDP growth has been slightly tempered in 2017-18, the trajectory is still up.
Real GDP is forecast to grow by 2.5 per cent in the current financial year, picking up from the 2 per cent experienced in 2016-17. The 2017-18 revision is due to softer than expected consumption recorded in the September quarter, notwithstanding some welcome signs of a recovery in the most recent monthly retail sales data.
Growth is forecast to improve to 3 per cent in 2018-19 with the drag from the downturn in the mining investment boom having almost now washed out of the system.
[Chart - Non-mining business investment]
Growth is expected to be supported by increased business investment and public final demand which have both been revised higher. We now expect growth in non-mining investment to be 5 per cent in the current year and in 2018-19, while public final demand is forecast to grow at 4 per cent, up from the 2.5 per cent forecast in the budget. So very much as you can see from these figures here an investment driven growth quarter and that just reasserts again why our enterprise tax plan is so important to continue to drive investment.
Employment growth has also been revised higher to 1¾ per cent, which partially offsets downward revisions in wage growth. Wages are now forecast to grow by 2¼ in the current year and 2¾ per cent in 2018-19 and further reduction in projections at the outer years.
In terms of commodities, we have retained a prudent approach to forecasting, which has served us well since it was adopted again this time last year. The considerable volatility experienced over the year is evidence of the wisdom of taking the more prudent approach to protect against revenue risks.
At the Budget, metallurgical coal prices were forecast to come down to $US120 per tonne by the March quarter 2018. Now even though the price remains above that US$200 per tonne, we continue to expect it to fall from current levels and as you’ll see we’ve taken a very similar prudent approach to iron ore.
The combined effect of these prudent decisions has also led us to adopt a lower estimate of forecast nominal growth, consistent with our approach to de-risking the budget.
Global growth has significantly strengthened over the course of the year, by even more than we had anticipated in Budget. The forecast for global growth has been upgraded in 2017 and, of particular importance to Australia, the forecast for major trading partner growth has also been upgraded in 2017, to 4¼ per cent and I also draw your attention to forecasts in Japan.
The better days for the global economy are revealing themselves, particularly amongst our major trading partners, such as China and Japan, and Australia stands well poised to take advantage of them.
At the start of the year, Bill Shorten agreed with us that 2017 was all about jobs.
[Chart - More than 1,000 jobs a day]
He said it was about jobs, jobs and jobs. Well that is what the Turnbull Government has delivered in 2017 under our stewardship and strong performance of the Australian economy. And businesses have gone out there and invested and made a difference at taking people on at a rate of 1,000 a day.
We have continued to make the right choices to secure the better days that continue to emerge, to guarantee the essentials that Australians rely on, to put downward pressure on rising costs of living whether it’s on National Energy Guarantee or implementation of our housing affordability package and we continue to ensure that the Government lives within its means.
And as we push into the new year, there is still more work to be done but we are on the right track.
Jobs and growth will continue to be our mission and focus, helping the lives of thousands of Australians, millions of Australians and their families, and returning the budget back to balance.
Thank you, Mathias.
Our half-yearly Budget update clearly shows the progress we continue to make in delivering our plan for jobs and growth and our plan to repair the Budget.
Just to recap on some of the key measures of progress when it comes to Budget repair. Firstly, and most importantly, we remain on a credible path back to surplus by 2020-21, as we have consistently projected since MYEFO 2015-16. Importantly, as the Treasurer has indicated, the Government is now not expected to need to borrow for recurrent expenditure from this financial year, which is a year earlier than anticipated at the time of the Budget. Importantly, we continue to control expenditure growth. At 1.9 per cent per year on average over the forward estimates, real growth in payments is the lowest in living memory. Nominal payments in the 2017-18 MYEFO are lower than at Budget in every year over the forward estimates period. Overall, payments are now projected to be $6.5 billion lower than at Budget. Now just to put that in context, given some of the commentary in recent days, of the $9.3 billion improvement in the Budget bottom line over the forward estimates since Budget, 70 per cent comes from payment reductions and only 30 per cent from revenue improvements. We have let positive parameter variations on the spending and revenue side of the Budget go to bottom-line improvements while also, after taking account of Senate positions, we continue to more than offset any new spending increase with spending reductions in other parts of the Budget. The net impact of policy decisions after taking Senate positions into account across both revenue and spending is a $573 million improvement to the Budget bottom-line. Spending as a share of GDP is now projected to come down to 24.9 per cent at the end of the current forward estimates period, just 0.1 per cent above the 30-year average of 24.8 per cent. Now that is a major structural improvement, given we inherited a Budget trajectory from Labor, which was projected to take Federal Government spending as a share of GDP to 26.5 per cent over the medium term at the time of their last budget and rising.
In relation to progressing Budget repair measures through the Senate, we can report that since the last election the Government has now secured the passage through the Parliament of over $37 billion in Budget repair measures. The net impact of Budget repair measures announced prior to the 2017-18 Budget and yet to be legislated is now down to less than $3 billion.
In this MYEFO we have decided to replace, amend or reverse some measures from previous economic updates. The most significantly, we are replacing the higher education reform measures announced as part of the 2017-18 Budget with a revised reform package which will partially deliver on previous Budget decisions to moderate the rate of funding growth at a net cost to the Budget of $544 million over the forward estimates. Australia has some of the world's leading higher education institutions but the cost and quality of the system must be sustainable for future generations. Higher education funding will remain at a record high of at least $17 billion annually. After the planned changes direct funding to universities for teaching, learning and research will grow from $10.7 billion in 2017 by 8 per cent to $11.5 billion in 2020-21. Taxpayer-backed student loans paid to universities will grow from $6.4 billion to $7.4 billion, meaning a total funding increase of 11 per cent, if universities maintain their current enrolment patterns.
We have also reversed the 2015-16 Budget measure in relation to carer assessment processes at a cost of $590 million.
We have made a number of new savings decisions to keep Budget repair on track and to pay for new funding pressures. When it comes to new funding pressures, the two major new spending decisions since the Budget include $2.1 billion over the forward estimates for new and amended listings on the PBS for a range of cancer treatments and for the treatment of a number of chronic health conditions and $1.3 billion to implement the Government's Quality Schools Reform package as previously announced. Major decisions to reduce spending since the Budget include the decision to extend and expand the requirements for newly-arrived migrants to wait before they can access certain welfare payments, which will save about $1.2 billion in underlying cash balance terms. Also, we are expecting to save about $1 billion over the forward estimates period by improving the integrity of payments to family day-care services through increased compliance efforts. As the Treasurer has indicated, this half-yearly Budget update really shows the progress that the Coalition Government has made since we came into Government in 2013, in delivering on our plans for jobs and growth and on Budget repair. It is always important to remember that when we came into Government, the economy was weakening, unemployment was rising and the Budget position was rapidly deteriorating. Listening to some of the remarks again from Labor this morning, we always must remember that in just 11 weeks from Labor's last Budget to the pre-election economic and fiscal outlook before the 2013 Election, the Budget bottom line under Labor deteriorated by $33 billion in 11 weeks, or $3 billion a week. So this is a good set of numbers in all of the circumstances.
Thank you. Questions?
Treasurer, can I ask you, this is obviously a good set of numbers and certainly a very strong economic narrative the Government has. Can you explain why so many people walked away from the coalition in the Bennelong by election and do you think you need to do a better job in communicating this story?
Well, the Bennelong by-election, at the start of the campaign, it was everyone saying it was going to be 50-50. And it looks like now it will be on track to 55 and a wins a win. And well I detected a lot of support for the Government pertaining to what we’ve been doing on the economy and particularly on employment and particularly on small business and the tax cuts we've delivered for small business. So I would say that when it comes to the Government's economic credentials, that they are well supported within the community and we need to continue to maintain the course that we are on which is providing stability for the economy and certainty and an optimistic outlook. Which is not just me saying it but the Westpac Consumer Sentiment Survey, the most respected consumer sentiment survey in the country, and that is showing itself a significant improvement both in how people are seeing their own family finances over the next 12 months but also where they are seeing the economy. So when it comes to the economy, the Turnbull Government I think has a strong track record on jobs and growth, not a slogan but an outcome.
On the, in the last two years can you explain the public, I think there’s been, a nearly $13 billion turnaround from a -3.6 deficit to a 10.2 surplus. Can you explain that…. And given the 10.2 surplus does that mean realistically the first year you can deliver a tax cut, can afford it is the last year before [inaudible]?
Well let me deal with the second part of your question first, we’ll have more to say about that and there is a Budget in May. You know our very clear parameters for delivering in that space for middle income earners in particular and that is with no risk to the fiscal position of the government, no risk to our AAA credit rating, ensuring that we maintain our path back to budget balance, and as we have demonstrated, I mean this is the fifth successive statement where there has been no change to the projected return to balance and as you know that was a fairly critical issue for ratings agencies at this time last year and so we continue to deliver on that and not just in these documents but through Mathias’s excellent work particularly in the Senate and with his colleagues to ensure that measures are being passed and where measures can’t be passed then we find other ways to deliver on that. So we’ll have more to say about that obviously at the next Budget.
On the first point, I mean the things that really have lifted it, and both Mathias and I alluded to it, that is the reduction in the level of payments as you go out over those four years and the improvement in what we saw in revenues as well for corporate profits but on superannuation we are seeing an increase in take there and that's largely through the washout of capital losses which had built up previously in the system. So you have an improvement coming from that. On the payments side, though, the successive, quite often very difficult decisions and as a Social Services Minister, working with the Finance Minister then, we were taking then, and Christian Porter has been doing the same thing, we have been getting fairly significant changes implemented in that area which means you’re getting dividends that pay well into the future.
Now another important part of that is the improvement in the employment outlook. More people in jobs means less people on welfare. When you're putting people into work at the rate of 1,000 per day, the strongest job growth in our recorded history, then that gives you an impact on the Budget bottom line.
If I may just add to the points that the Treasurer has made. On the payment side, and it is a story that is sadly too often ignored, many of the decisions to reduce spending in earlier Budgets were structural savings which started low and slow and were always expected to build over time. In 2020-21 you are seeing that effect, essentially, crank up. If you look at the net effect of Budget repair measures implemented by the Coalition, it is in excess of $300 billion, that is the net improvement to the Budget bottom line over the medium term, is in excess of $300 billion. It was always intended that you build it up over time.
That is on the payments side.
Yes, on the payments.
Treasurer, do you [inaudible] we need to do some fence-mending with China given how...
Why don't we just say on MYEFO please...
This is on MYEFO because China, as you pointed out, along with Japan, is a major trading partner. And all I’m saying is do you feel as Treasurer of this country that we may need to do some fence mending after the heat of battle if you like with the by-election?
I think our relationship with China is a very practical one. There is always a lot of dialogue that occurs and I don't have those concerns.
Treasurer, the Government has had to twice either dump or scale back its higher education reforms. It’s had to scale back its welfare reform measures. Are you confident that the new measures announced in today's MYEFO will pass the Senate and if you could refer particularly to the...
The predominant measure that is in there, which is the freeze, is a non-legislative measure. That's the overwhelming proportion of the savings. So, of course, we would prefer to have, as Mathias and I had sought to do, and Minister Birmingham had sought to do, have some longer-term structural reform in the sector. That has been once again frustrated by the Labor party. So if you can't get to the end point that you're seeking to get to one way, you have to go another. So that's what we've demonstrated we've been capable of doing…
Is that disallowable, that measure?
No. This is the point, we will not let the perfect be the enemy of the good. In the end, we are focused on a particular objective, which is to return the Budget to surplus as soon as possible and as soon as is responsible. If we cannot make enough progress one way, we will explore other ways and that is what we have done over the last four years and that is what we will continue to do.
When you see that figures that Mathias referred to, of that pre 2017-18 Budget measures outstanding that’s now down to $3 billion, that demonstrates the way that we’ve basically been working through the housekeeping on the Budget.
Treasurer, the jobs numbers are strong but the only growth figure we can hold you to here is one for this financial year, the others are estimates and projections and that’s actually below the Budget estimate, so what went wrong?
On growth the major impact on growth was what we saw in the September quarter national accounts, which was the much lower-than-expected consumption figures. It was a 0.1 per cent figure for the quarter – that was well below what was normally anticipated. So as I said at the September quarter national accounts press conference, what we have is growth in the economy made up for in the investment side. Now, had we not taken the decisions we had on public infrastructure, defence force recapitalisation, the enterprise tax plan, better deals for new start-up businesses, innovation and so on, then those private investment figures, particularly the non-mining investment figures, would not have looked like they did and you would have been seeing a sub 2 per cent number potentially in these figures here today. So household consumption was weak. You go back to that September quarter there was, rightly, a lot of concern about what was happening with household living costs, particularly energy prices at that time. That's why the National Energy Guarantee and the other measures we've put in place with the retailers, what we've achieved with the gas sector, and the ACCC report released just the other week confirming those achievements and that progress, that is designed to put downward pressure on those rising living cost concerns. We would hope to see that then flow through into better consumption figures going forward. The simple maths are, Mark, when you get a 0.1 per cent for household consumption and when you have to rebuild-up the figure for the year, then the 2.5 per cent figure is a prudent, responsible, fair-dinkum number.
Treasurer, just following off the back of Sarah's question, you do have welfare drug testing in MYEFO again this year, you’ve had no luck getting it through the Senate. What makes you think it will go through this time?
We remain absolutely committed to it. Matthias did you want to offer a comment on it?
As the Treasurer says, we remain committed to it and we continue to work with all non-Government senators in order to secure a majority for a very, very important welfare reform measure. It remains in MYEFO because it remains Government policy.
Given that there are six new Crossbench Senators that are going to be in place by the start of next year, are you actually optimistic that you would have a chance of getting the rest of the company tax cut through next year?
Well, I am always optimistic, while never taking anything for granted. Everybody knows the Government has got 29 Senators in a Senate of 76. So in order to get anything through we need 10 non-Government senators to support our reform agenda. Company tax cuts are even more urgent now than what they were. It would be absolutely reckless and irresponsible for Bill Shorten to continue to stand in the way of a more competitive business tax rate here in Australia. Nine out of ten Australian workers work in a private sector business. Private sector businesses across Australia need to be able to compete for capital investment with jurisdictions around the world. If we want those nine out of ten Australian workers to have the best possible opportunity get ahead, we need the businesses that employ them to have the best possible opportunity to get ahead. When you have the US now going down to 21 per cent, when you have the United Kingdom going down to 17 per cent corporate tax, when you have many jurisdictions, even France now going to 25 per cent, we cannot leave Australian workers behind. We must legislate the Government's enterprise tax plan. The future job security, the future career prospects, the future wages growth of Australian workers depend on the Senate passing the Government's company tax cuts.
The Trump tax cuts are coming. The Trump tax cuts are coming and Bill Shorten is standing in the way of ensuring that we can keep Australian businesses competitive. What Bill Shorten is doing, by voting against having our businesses more competitive, he is voting to send jobs and investment offshore. What does he say to those union members around the country when he is voting to send their jobs offshore? The Trump tax cuts are coming. We have the plan in place to deal with it, and Bill Shorten is voting to stop it.
Taking your point on the Trump tax cuts, but noting that you've faced resistance in the Senate to the big business tax cut, noting also that you want to give people a personal income tax cut - if that's possible - does it remain an option or is it an option for the Government to reduce the level of the cut for big business in order to give yourself more money for personal income tax cuts and, possibly, get Senate support?
Well, we'll just keep working the issue. Our policies and commitments remain the same. We're working to meet all of those objectives.
You've obviously got improved economic conditions and the forecast is good to return to surplus and get back in balance by 20-21, but wage growth is still sluggish, there’s a slight uplift which is obviously affecting household consumption. Do you have a message for business to give workers a pay rise?
Well what we've seen is the labour market continue to tighten and that's good news, a thousand jobs a day. The Reserve Bank Governor has said it, other economists have said it, I’ve said it, as the labour market continues to tighten, we are already seeing in some sectors where it has got particularly tight, the wage pressures leading to an increase in wages in those sectors. Now that is the natural order for things when labour markets get tight - we're down to 5.4 per cent now on the unemployment rate – and in some sectors in some parts of the country it is a lot lower than that. In other parts of the country that are struggling, it is higher than that and we obviously need to give attention to what is happening in those regional parts of Australia where things are not going as strong as the numbers are suggesting here at a national level. There is no such thing as average rainfall, there’s no such thing as average growth. Australians understands that in their specific areas. But for wage growth, what will deliver higher wages is more investment and more growth. The money won't fall from the sky for wages. It won't fall from the government. It needs to come out of a growing economy where businesses are investing and doing better. Now, we're seeing that investment now take place. We are seeing their profits lift, and those profits can translate into higher wages with continuing tightening of the labour market.
Which is why the important message, actually is a message to Bill Shorten. Bill Shorten should get out of the way of Australian workers getting higher pay rises. Because the only way Australian workers are sustainably going to get higher wage increases is by business being more successful and more profitable. Our business tax cuts will help business be more successful and more profitable. None other than Ken Henry has said repeatedly, company tax cuts deliver higher wages over time to Australian workers.
Just on Labor’s position on the tax cuts, as you've heard me say before and Samantha Maiden has exposed it on a number of occasions now, that is Labor keeps talking about the $65 billion that they somehow have available. Now, that only means one thing - that they will reverse the small business and medium-sized business legislated tax cuts. Those tax cuts alone are worth $25 billion in the Budget. So Chris Bowen needs to be upfront. Is he going to reverse those, and take that $25 billion or is that $25 billion no longer available, and he can’t therefore meet his commitments that he’s pledged in so many other spending areas, that they have spent time, and time again.
Treasurer just on gross debt, it is coming down in MYEFO, $725 billion in 27-28 down to $684 billon. But the last Budget showed the year before [inaudible] 26-27 it ballooned by $60 billion so rather than linear improvement is this a case of bouncing around?
No. A key figure since the Budget is we had $185 billion on gross debt that we anticipated increasing over that medium term. That has now fallen to $150 billion over that same period. You are comparing different time periods from different starting points as well. These debt figures do get impacted by the decisions that are taken. But the key one I refer to in relation to gross debt is this - in the Budget we said we were not going to draw down on the Future Fund to meet the unfunded superannuation liabilities. Now, prior to that, we were drawing down in the medium term on the Future Fund, so reducing the balance of the super fund, to pay those unfunded superannuation liabilities. When your Future Fund is earning 7 per cent, or thereabouts, and you're borrowing at 2.7 per cent, it is not exactly a smart to use a higher cost way of funding those liabilities, than the alternative. What happened between the point in time you referred to and where we are now, is we have taken a conscious decision that it is cheaper to fund the unfunded superannuation liabilities by using our Commonwealth Government security issuances rather than drawing down on the Future Fund. So the question to Labor is: will you draw down on the Future Fund? Because they keep talking about where gross debt is going. The only way to change that is to actually raid the Future Fund. All we're borrowing for now, going forward, is roads, rail, airports, bridges, defence recapitalisation, submarines. All of these things. That is what we’re borrowing for, capital works, not everyday expenditure and to finance the unfunded superannuation liabilities. So that is the reason for that change in gross debt.
[Inaudible] your plan is to get to surpluses of 1 per cent of GDP from about 2020-21 onwards. But your own figures shows you're nowhere close to that and that is impacted by the decision to cap revenue at 23.9 per cent.
When do you get around to making the commitment to getting to 1 per cent, and how do you get there?
I will let Mathias comment on this as well, but that's why expenditure constraint is so important. That’s why it is so important. You will see in the MYEFO documents, just letting taxes rip does not solve that problem. What it actually does is kills the goose that is laying the golden egg. It kills growth if you let taxes rip. $164 billion, costed by Treasury, in Labor increases in taxes over 10 years. That is a Mogadon for the economy, if they get the opportunity to slip them that mickey. That is not something that the economy can afford. What we can’t afford is that higher tax burden crushing down on the economy as we are seeing global growth lifting, investment lifting, consumer sentiment lifting. You want to knock that on the head, elect Bill Shorten, because he will put a sledgehammer on the economy with his higher taxes. The way you do it is continuing to keep expenditure under control. That is something Labor have no appetite for. They have crushed those opportunities since we were first elected in our first Budget, and they continue to frustrate us now. The way you get back to where you get to, Shane, on that is to ensure that we can keep expenditure under control and allow the economy to continue to grow.
As we have consistently said, we will return to a Budget surplus of 1 per cent as a share of GDP as soon as possible.
Treasurer, housing investment you have pencilled in a fall, are you concerned by the figures there?
What I think we are seeing there is a fall from a very high base of dwelling investment.
I'm actually encouraged by what I'm seeing in the housing sector. You'll be very aware of the measures we took early in the year with APRA, which has had the desired effect of cooling the more enthusiastic element of the market in the investor side, particularly in Sydney and Melbourne. Importantly, it has achieved that without damaging smaller, lesser performing markets, particularly say in South Australia or Hobart. Hobart is leading the house price index growth at the moment. But including in the West, where Mathias is from, that's been a struggling market. So with the slightest change to interest-only lending we've seen Sydney house prices fall from double digits from 15 per cent to 5 per cent in six months. That's with the slightest, calibrated, scalpel-like change to macro prudential controls on lending. Can you imagine what the impact would be on Australia’s housing markets if you got out the tax sledgehammer, increased capital gains tax by 50 per cent, and remove negative gearing? You only have to look at just what the slightest change, the impact that has had, and that was an appropriate, proportionate response. Labor's approach would cause serious damage to the housing market and undermine consumer confidence. When I go overseas and talk to ratings agencies, or I talk to international investors, when people look at the Australian economy, they highlight largely two issues that they keep a close focus on, first one is obviously China. Everyone is watching that closely. Australia is not alone in having China figure prominently in terms of their growth story. But the other one is the housing markets. I think we've been able to convince agencies around the world that our housing market issues have been largely driven by supply problems and that the values are real but yet high. What they are concerned about is if you had a hard landing in the housing market. Now, the actions we've taken, both with the housing affordability package in the Budget this year, and the measures we've taken with the banks but particularly with the regulator has meant we’ve been able, so far, to ensure a soft landing of those markets which is good for the economy.
You've cut $10 million from the carbon capture and storage flagship program. Is that an admission that you don't have faith in that type of technology, and what does that mean to states like New South Wales and Queensland that, you know, want a new coal-fired generator?
It does not mean that. What it means is that we continue to review the Budget for opportunities to reprioritise expenditure. We remain committed to it, but we believe that we can do it at a lower cost.
Treasurer, you've upgraded your global growth outlook and we're obviously seeing fabulous employment growth in Australia. Do you think there are upside risks to the Australian growth forecast?
No, not at this point, no. They've been revised to reflect what we've seen most recently in the September quarter national accounts. It's consistent equally with what we're seeing from the bank, as you'd know and what, particularly, on global growth forecasts we've seen from the World Bank, the OECD, the IMF and others so I think we're sitting very much consistent with how they're seeing the world. You'll note we've moderated the forecast on wages, as well as on growth and on consumption, but we've lifted the expectations when it comes to investment both in the private and public sector. There are always swings and roundabouts when it comes to the components of what's driving growth but an important swing to counter the roundabout on this occasion is with subdued growth in consumption and on wages we are through, I strongly believe, the jobs and growth plan we've had to drive investment, and public investment as well, that is having a counteracting force on those weaker things we're seeing on consumption and wages.
Can I go back to the uni package just briefly?
The HELP threshold, which is taking it to the new minimum of $45,000, and the combined lifetime limit. Those two measures are sub 250.
But Simon Birmingham will be releasing a statement with more of the detail in it.
But the major measure is about 90 per cent of what we're talking about. Thank you all very much.