2CC Breakfast with Mark Parton (Transcript and Audio)

Andrew Leigh MP
Parliamentary Secretary to the Prime Minister
Member for Fraser
30 April 2013

TOPICS:     Budget Deficit, falls in revenue, the Budget, Australian economy

Mark Parton:     … So much talk around town over the big announcement from Julia Gillard. We knew it was coming because so much of it had been leaked: that there’s this $12 billion black hole in revenue and obviously all these new things are going to be considered when it comes to the Budget which is delivered in a couple of weeks. Who do you blame for it? You know, it looks as though again that Treasury has overestimated the money that we were going to get as they’ve been doing for quite some time.  I know that there are a number of economists who sort of track it back to’96 and look; the question is how do we deal with it? We’ve got Andrew Leigh on the line. He is of course the Labor member for Fraser. Now, I know that there are those on the Right who are always extremely critical of whatever Andrew says about economics and look, I seriously think they should listen. He’s a very esteemed economist. I’m not, and I think it’s folly to dismiss what Andrew says.  You can have your ideological differences with him, but let’s see what the bloke’s got to say. G’day Andrew,

Andrew Leigh: G’day Mark

Mark Parton:     When Greg Hunt came on the program yesterday he said that basically what Treasury and your Government have done is budgeted for winning lotto and spent as though you’re going to win lotto and then found out that you hadn’t.

Andrew Leigh: Well the challenge, Mark, of predicting revenues is a big one. I mean, you said before that Treasury has traditionally overestimated the amount of revenue that will come in. Actually, the problem under the Howard Government was the reverse. They ended up getting a little more revenue than they expected and what we’ve found now is that the same Treasury forecasters are making the mistake in the opposite direction. Here’s what’s happened to this one: we’ve seen commodity prices come down a bit. Normally that should bring down the Australian dollar and that has benefits for many of our exporters. But the problem is that so many banks around the world are buying Australian government bonds which has kept the dollar high even while commodity prices have come off. It’s a pretty unusual set of circumstances and that’s meant that revenues are down $12 billion just from what we were forecasting in October last year. $30 billion down on what we were forecasting a few years ago.

Mark Parton:     But Andrew, like, I mean, you know much more about this stuff than I do. Why is it that so many others were able to predict that we were going to get this black hole but up until as late as December, your Treasurer and your Prime Minister were still talking about a surplus come hell or high water? Surplus was never going to happen was it?

Andrew Leigh: Well Mark, I think the reason for focusing on the surplus last year when we had better revenue projections was it gave a sense of discipline to spending decisions. In a sense, the global financial crisis, every new revenue measure we’ve made, and every item we’ve spent on we’ve offset by finding another saving. Something like means-testing a payment or something like that. And so we had that simmering through the Budget process until it became pretty clear at the end of last year that the utter collapse in revenues caused by what’s going on around the world meant that that surplus wasn’t going to be achieved and now we’re, I guess, laying out for the Australian public the fiscal challenge that’s ahead of us. That’s there for the Labor governments but it’s also there for the Coalition/opposition. Just to take one example, they’ve got a paid parental leave scheme, which is very expensive, paid for by a company tax levy. When you’re company tax returns are down, that’s going to affect the affordability of that plan. So, being up front about the revenue situation matters for everyone.

Mark Parton:     Medicare Levy. Talk to me.

Andrew Leigh: Well, this is certainly… I’ve seen mooted in the papers as you have but as you know, Mark, the Budget is a tightly kept document and no one wins any prizes for announcing the Budget before Budget night. We’re obviously looking at a range of different ways of addressing the revenue shortfall, but it’s a big shortfall. If you go back to the mid-2000s, we’ve got government revenue that’s 24% of GDP. Now it’s 22% of GDP. So, that 2% gap is pretty substantial…

Mark Parton:     …are there bigger, wider, long term questions to be asked here though, Andrew, in terms of like, the mining boom looks as though it’s over and certainly the Prime Minister is saying those good times will never return. If that’s the case, it’s going to take us a long time to get back into the black, isn’t it?

Andrew Leigh: I think we do have revenue challenges Mark. I’m not quite as pessimistic about the mining boom as you’ve said there. We’re seeing prices come off a smidgeon but we’re also seeing volumes go up a lot, so we’re moving out of a phase of the mining boom where it was driven by this once-in-a-150-years price spike to a phase where we’ve got still  pretty high prices but we’re just digging a whole lot more stuff out of the ground. I mean, some of these extraction projects are extraordinary in their scale and scope and that’ll drive mining profits as well.

Mark Parton:     What a challenge for the Treasurer who’s got to come up with this Budget, which I mean, obviously most of it’s worked out, but there will be some finer details still being sussed out now. A Budget in an election year which has to be desperately tough, but then you’re standing before the Australian people saying, “please vote us back in”.

Andrew Leigh: I think the important thing in politics, Mark, is to be upfront and honest about the challenges that we’re facing.

Mark Parton:     So do you think perhaps the Government hasn’t been as upfront and honest as it should have been in the last year and a half?

Andrew Leigh: No, we’ve been very clear about the revenue situation. What this reflects is that as that projection’s been updated, where the Prime Minister came out yesterday talking about the challenge that it poses. I mean, you’ll hear people saying that the total amount of dollars that they’re getting in in revenue is higher than last year. That’s true, but, it hasn’t kept pace with the increases in the Australian population, the demand for the pension, the health expenditures and so on. So that’s meant we need to look at belt tightening, look also at whether we can find government revenue in other ways. That’s just the political reality that all of us face. Look around the globe though and we’re in a pretty good position. We were the 15th largest economy in 2007, we’re now the 12th largest economy and so we’ve moved up the global rankings. And I bet many countries in Europe would rather have our challenges than theirs.

Mark Parton:     Andrew, thanks for your time this morning.

Andrew Leigh: Thank you, Mark. Appreciate it.

2CC Breakfast With Mark Parton-20130430

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Cnr Gungahlin Pl and Efkarpidis Street, Gungahlin ACT 2912 | 02 6247 4396 | [email protected] | Authorised by A. Leigh MP, Australian Labor Party (ACT Branch), Canberra.