18 December 2013
Transcript - #39, 2013

Interview with Chris Smith, 2GB

SUBJECTS: MYEFO

PRESENTER:

Treasurer, good morning.

TREASURER:

Good morning.

PRESENTER:

I tell you what, the Hockey family will not be choosing you as Santa Claus this Christmas – black suit, black tie, you look like an undertaker.

TREASURER:

It is a job that needs to be done. If I want to be able to do the right thing by my children and everyone elses’ families in the years to come, these are the decisions that have to be made. It is not an ideology, it is not a joyride, it is about making the decisions that ensure that we as a nation can afford our lifestyle into the future.

PRESENTER:

So, how did the books get this bad?

TREASURER:

The first thing is, Labor kept over-promising and under delivering. All those promises of surplus and all those promises that they would reduce government expenditure never materialised. The fact was Labor had a budget rule, a number of rules. The number one rule was that they were going to get back to surplus over what they called ‘the cycle’. The cycle looks to be a millennium, not really a short period of time. The second thing was they said that they would have expenditure at no more than 2% growth per year. The fact is they have been growing at 3.5%,  it is going to grow close to 4%. They have locked in all this expenditure with massive growth into the future in expenditure, but they do not have the money coming in to pay for it.

PRESENTER:

So, have you factored in the cost of, for instance, the National Disability Insurance Scheme, the National Broadband Network, all the things that Labor did not want to put on the books?

TREASURER:

The National Disability Insurance Scheme is a classic case. They introduced a levy, that we supported, to help pay for the NDIS. But the NDIS in its pilot program has had a massive blowout in costs, so they got it wrong from the very beginning. Now what we have got to do is try and ensure that the NDIS is affordable and deliverable. That is exactly what my colleague Senator Mitch Fifield is doing at the moment.

PRESENTER:

So you will not be scrapping it?

TREASURER:

No, not at all. We want to deliver it in full, but we are going to do everything we can to make sure that it is delivered in an affordable fashion. The bottom line here is if things are affordable then they are sustainable. But what happens is if you make promises and you deliver things that are not affordable over the long term, then everyone keeps chopping and changing them, and that is what I want to try and avoid.

PRESENTER:

So what about the National Broadband Network, which has blown out, even under your mixed scheme to, you know, $40 million or something similar, $40 billion. I should say. Then you have workers, many of which are needy in excess of $200,000 a year.

TREASURER:

I must say, Malcolm Turnbull is doing a superb job and has brought in a great team around him, including Ziggy Switkowski, and the fact is Labor said that the National Broadband Network would cost $42 billion, their program would cost well over $70 billion, probably closer to $80 billion. It would take much longer and over the same period of time deliver slower speeds to fewer homes than what we are going to do. From our perspective, we have got to have a mix of technologies. Our program is much more affordable, we have capped the taxpayer contribution to the scheme to $29.5 billion and that is it. After that, it has got a pay for itself. It has to raise its own money and it has to start to generate income. We are capping it and they are going to make it work.

PRESENTER:

Ross Gittins wrote in the Herald today saying that 80% of the deficit forecast for the next four years is due to a worsening economic climate and not Labor’s spending, is he right?

TREASURER:

It is a combination of things. Yes, the worsening economic situation is part of it. The fact that Labor has not been fair dinkum about the state of the economy means they have gone on a spending spree thinking, do not worry the money will just roll in. So one has caused the other their delusion about the state of the economy has caused them to keep running a line that they can afford all the big expenditure

PRESENTER:

Do you now regret granting the Reserve Bank $9 billion in capital?

TREASURER:

No way. It is going to prove to be one of the best decisions we have made. I will tell you why. The fact is the Reserve Bank always traditionally delivered dividends to the Commonwealth Government. That is what they traditionally did every year. Then Labor, one year, took out over $5 billion in dividends from the Reserve Bank and ran down its Reserve Fund. The Reserve Fund is the assets, or the money the Reserve Bank has to offset some of it is riskiest asses and the potential risks associated with some of its investments. What happened was, Wayne Swan said, ‘don’t worry, we’re not going to take any dividends for years and years, so you can replenish your Reserve Fund’. Then he went and he took half a billion dollars to try and deliver his so-called surplus. What that did was it ran down to unacceptable levels. In my view, there are three significant external risks to the Australian economy over the next year. One is that if the Americans play games with their debt limit again - and I think that is going to be resolved, so that is a good story. The second is the risks involved in European banks - and that is yet to come out, and that is significant. The third one is what is known as tapering, where, particularly the Americans, start taking their foot off the accelerator in buying government bonds. The best way for us to prepare for some of those challenges is to make sure that our central bank has all the ammunition and needs to be able to make the decisions that it will have to make during that period. I want the gun loaded and in the holster for the Reserve Bank, so that we are at our best should any of those events occur.

PRESENTER:

I can understand why, yesterday, it was about releasing figures and forecasts and not about telling us where you are going to cut. I notice that you have mentioned that that will be revealed in the May Budget. But I did not understand why you  did not announce a cap on spending growth.

TREASURER:

One of the challenges that we have at the moment is that the economy is going through this transition where you have got a massive amount of money going into mining investment. In fact, I was shown a table the other day that indicates that the mining boom that we have just been going through is bigger than anything since the 1850s, so bigger than the gold rush, but it is coming off quite quickly. All that investment that you have seen into new mines and new energy production means that it is now producing goods, producing exports, but the new building and construction in those areas is falling off quite rapidly. What we have got to do is get the other side of the economy going. One of the things we have got to do is start building productive infrastructure. Infrastructure particularly in our cities. We need to retool the nation and we need to get on with it.

PRESENTER:

So the argument being that if you cut, cut, cut, you are going to leave the economy looking like a dead dog. So you have got to somehow stimulate at the same time, while cutting.

TREASURER:

Exactly right, and what we have got to do is take money from recurrent areas, that is, the ones where we are spending money every day, and start building things. We have got to reprioritise government expenditure and then as the economy starts to gather speed we can then start to significantly reduce government expenditure overall and let the private sector flourish.

PRESENTER:

I, just after 6:00 AM this morning, asked our listeners to jump on the open line, and come up with suggestions for you in terms of moving on between now and May coming up with some drastic decisions to try and get us back into the black again. Some people were saying that we have got to watch what we are doing with the second Sydney airport, be very, very careful, maybe we need to delay the decision. But I just get from that previous question and that answer that you do not have any doubts at all about going ahead with a second Sydney Airport.

TREASURER:

We have got to get on with building that productive infrastructure, whether it is WestConnex –  which Tony Abbott is committed to – and we are going to get on with building with the State Government, or be it other infrastructure – ports or railway or airports. We have got to get on with tooling up in Australia. We need to build that infrastructure, otherwise people are going to lose jobs. It is as simple as that. If we do not get on, for example, with building the second airport in Sydney, it will cost jobs.

PRESENTER:

I was flooded with calls on the open line after six as well with discussions about welfare fraud. Many of the callers said government does not get it. Welfare fraud is on the rise, it is massive, it is all around us, I can give you a case in point - are we doing enough to crack down on fraudsters associated with welfare?

TREASURER:

Probably not. When I was Minister for Centrelink, we put in place a number of programs to crack down on fraud. When Labor was in, they slowed down those programs. In fact, in some cases they changed the programs dramatically. I know this is something that is being exercised in the mind of Senator Marisse Payne, who is in charge of Centrelink.  We have only been in just over 100 days. We are onto those things, but I have enormous sympathy. When someone engages in welfare fraud or welfare deceit – it is theft. They are stealing from someone else. It is not that they are stealing from the government or they are gaming the system, they are actually engaging in theft.

PRESENTER:

A couple of quick questions, and I know you have got lots to do. Medicare, can we afford the free ride as we have since Gough Whitlam’s time?

TREASURER:

There are a lot of people who already pay to go to the doctor. I know when I take the kids I seem to be paying quite a bit. Of course we have got to make sure that it is sustainable. These are some of the things that we are looking at on a more general basis but I want to say to you that overall health expenditure will not be cut.

PRESENTER:

We are hearing that New South Wales hospitals will lose more than $150 million in funding.

TREASURER:

There have been some variations, parameters, they call them parameter variations, based on population shifts. We inherited this, and it is basically – and I am not familiar with that particular $150 million because obviously the states fund hospitals – but when we came in, we found that some of the states were going to be worse off at one point, because of population shifts. That is part of the normal movement, but the $150 million that affects the hospitals today I am not particularly familiar with.

PRESENTER:

Is Gonski a Gonski?

TREASURER:

Gonski was Gonski under the previous Government. They went and did deals with individual States and individual systems. They have never actually delivered what David Gonski and his team proposed. What they did was just on the eve of the election, they took $1.2 billion out of funding from Queensland, Western Australia and the Northern Territory. You and I know that you cannot run a country like that where you just rip money out of two or three states and say you will be fine, so we have had to find the money to put it back in. Yesterday, I announced the cuts into programs, including trade trading centres, to put the money back into the schools, but the idea that you are just going to have continuing enormous growth in education funding over the years ahead is simply unsustainable.

PRESENTER:

Will you be backing off on foreign aid?

TREASURER:

We are. We cut $4.5 billion out of it yesterday.

PRESENTER:

No more?

TREASURER:

I do not think so. Again, we have got a Commission of Audit going through everything. We also have an obligation in our region and foreign aid, not only does the hard yards in building things are a lot of people who do not have much, but it is also a form of soft diplomacy and we need that.

PRESENTER:

I think yesterday’s announcement, final question, yesterday’s announcement got you one step closer to lifting the rate of the GST. Would you agree?

TREASURER:

We are not changing the GST. A lot of people default to increasing taxes, my strong view is let us have a period of tax stability and let people take control of their lives. Let people get on with the job of making their own decisions. I just think it comes down to the fact that government has been spending and wasting far too much money and that is where we have got to start. We have got to get our own house in order before we make life less affordable for others by increasing some of those taxes.

PRESENTER:

Well, you have been very generous with your time this morning. I know you are much sought after, you did not look like Santa Claus yesterday but still enjoy your Christmas with the family and we will talk in the New Year.

TREASURER:

To all of your audience, I really do wish you a Merry Christmas. We still live in the greatest country on earth, but we just need to make it better, and that is what we are doing.