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Budget '94: reaction -

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PAUL LYNEHAM: Well, as budgets go, it's a bit on the thin side because the Prime Minister stole much of the Treasurer's thunder with last week's big statement. But then Ralph Willis's first budget really boils down to a couple of key messages, the most important of which, aimed at the financial markets, is that the Government really is serious about paying off that bank card - the Budget deficit.

The deficit for next year, $11.7 billion is about what was expected, but is it fair dinkum? How much creative accounting is there in the fine print? That's what we'll try to find out from our experts tonight.

In my judgment, there's certainly some rubbery figures, but probably not enough to shoot a gaping hole in its overall credibility. Yes, the Treasurer's bottom line includes nearly $2.5 billion worth of asset sales, and such grand plans always seem to fall short, but the big ticket item's the float of the Commonwealth's remaining 75 per cent stake in Qantas, and that should be possible next financial year.

There's also that old budget favourite - improved tax compliance. This time the tax man's promised to harvest an extra $300 million. Presumably he knows what he's doing and, besides, improved compliance sounds a lot less painful than new taxes.

As for business investment jumping to 14.5 per cent next year, one can only hope that's right, for without strong investment, there's little hope of the Government making real headway on jobs.

I'll be discussing the Budget with Treasurer Willis and Shadow Treasurer, Alexander Downer, shortly. We'll also hear from the AMA's Dr Brendan Nelson on the major health initiatives in tonight's Budget.

But first, for the market's reaction, let's go to the trading floor at Citibank in Sydney, where economist, Grant Bailey, is standing by.

Mr Bailey, good evening to you.


PAUL LYNEHAM: How is the market reacting to that $11.7 billion deficit?

GRANT BAILEY: Pretty good, Paul. The bond market has rallied and the Aussie dollar was pretty firm all day and has only just dropped a little bit. But the Prime Minister is quite concerned about the bond market, last week, but the bond market has had a very good day and has rallied after the announcement of the Budget deficit figure.

PAUL LYNEHAM: And has there been enough time to have look at the fine print to get a feel for the quality?

GRANT BAILEY: No, that does require us for the rest of the evening. But as you said in your preamble, at first blush it is very hard to find a lot of holes. Real growth of outlays is still quite strong. There is strong economic growth; therefore, they are relying on the revenue side of the Budget to get this reduction of the deficit down to $2 billion over the next four years. But overall, I think that's why the market is giving it a thumbs up. The initial knee-jerk reaction is a thumbs up.

PAUL LYNEHAM: Business investment up from one per cent to 14.5 next year sounds a bit heroic.

GRANT BAILEY: Well, at the outer end you've got to remember it is coming from a very low base, so you do get a bit of an arithmetic bounce that way. But it's not out of the ballpark from what private sector forecasts are looking at. We have seen quite a raft of surveys of business confidence, certainly pointing to a pick-up. So, one would hope that we do get that pick-up because otherwise we will see economic growth tail back to about the 2 per cent pace.

PAUL LYNEHAM: And the CPI up from one and three-quarter to two and a quarter per cent next financial year. That's still pretty low, isn't it?

GRANT BAILEY: In year average terms, again, Paul, there is arithmetic at work. If you look at their through-the-year growth rate forecast, it is ticking up towards the 3 per cent pace; that is, you're starting to look at 0.8, 0.9 per quarter, but the year average figure does look a bit low just because of that arithmetic effect. But there's nothing to be concerned about, we think, on that figure.

PAUL LYNEHAM: So, no one's jumping out of any windows where you are yet?

GRANT BAILEY: No, not yet. A long night yet.

PAUL LYNEHAM: Thank you very much.

Well, the crucial question, of course, is whether the Treasurer's optimism about this Budget will translate into business confidence and more business investment. Ian Spicer, Chief Executive of the Chamber of Commerce and Industry, has joined us now here, in Canberra.

Mr Spicer, thanks for your time. Do you believe that business investment is going to jump to 14.5 per cent next financial year?

IAN SPICER: Well, it's certainly a very ambitious figure. I think it's probably a little bit more than we would be anticipating; and if it is going to occur , then it certainly has to be followed up with some substantial policy changes and policy additions in the near future. I mean, we've got to be far more serious about micro-economic reform at the State and local government level, as well as the Federal level.

PAUL LYNEHAM: Well, what can the Feds do about the States, though? That's really difficult for them to take the charge for.

IAN SPICER: Well, I think we've got to be more serious in our heads of government meeting and really get some co-operation between the States and the Commonwealth in this area. But it is an ambitious figure. I would hope that it can be achieved. I think probably one of the benefits within the Budget is that it shows that it's business as usual; there are no great surprises. Most of the initiatives came out a week or so ago. But I think business will be concerned that there are some things that haven't been dealt with properly: investment allowance; provisional tax issues; and probably even the issue of the underlying deficit, which still remains to be looked at closely.

PAUL LYNEHAM: That boost for workers who want to buy shares in the companies they work for: Will workers take it up? And do you think it is likely to make them more productive?

IAN SPICER: Well, it certainly .. if it is taken up, it will certainly give a commitment to the business in a new way, and it's something which we would welcome. We're on record of working with the ACTU to promote that initiative. We welcome that initiative of the Government and look forward to working with the unions to try and progress it throughout the community.

PAUL LYNEHAM: Mr Spicer, thanks for your thoughts.

Well, earlier today the Shadow Treasurer, Alexander Downer, said the Government should get the deficit down to $9 or $10 billion. Mr Downer, isn't that a bit Rambo-like?

ALEXANDER DOWNER: Well, we didn't think the Government would use the growth dividend to spend. We thought they'd use some of it to reduce their Budget deficit so that they could take the pressure in time off interest rates.

They have decided to run a headline figure of 11.7 but if you add into that .. if you take into account asset sales, that's $2.4 billion this year.

PAUL LYNEHAM: You don't believe them?

ALEXANDER DOWNER: Well, even if they did achieve the $2.4 billion, they're doing something that no responsible government would ever do, and that is using the proceeds of asset sales to fund recurrent spending; so that you sell the asset, you spend the money, and by the end of the year it's all gone. That's not responsible.

PAUL LYNEHAM: But isn't it okay if you spend it on your own people, if you spend it on skill levels and getting people off the unemployment scrap heap? Surely that's worth while.

ALEXANDER DOWNER: Well, of course we want to see that happen, but on the hand if you're going to do it by just selling off assets, you get to a point where you've sold all your assets and you have nothing left to sell, and all you're left with are very substantial bills. Now, if you take everything into account, the real Budget deficit is closer to $18 billion than $11.7. They fund, over the years, their deficits through substantial increases in tax revenue. I mean, there's a 7.4 per cent increase in real terms in the tax take this coming financial year.

PAUL LYNEHAM: Eight billion dollars nearly.

ALEXANDER DOWNER: Yes. This is an enormous tax grab. They get $2 billion ....

PAUL LYNEHAM: But Dawkins did all this last year.

ALEXANDER DOWNER: That's right. They get $2 billion from the legislation that Labor, the Democrats, and the Greens forced through the Parliament last year. And the very important point is that they are basically going to use the proceeds of bracket creep to finance the white paper. Now, Mr Keating promised that the bracket creep would be repaid with reductions in tax in time. Now, the tax cuts that he promised in this Budget have simply been abandoned. We'll never see them.

PAUL LYNEHAM: But isn't the headline the fact that he's able to say 'Budget deficit 11.7. Watch my lips: no new taxes'?

ALEXANDER DOWNER: Well, who would ever believe Mr Keating again on the issue of taxes? I tell you, if you look at the document carefully, it's quite clear that the tax cuts promised have been abandoned and, in effect, that's the jobs levy. The bracket creep is the jobs levy.

PAUL LYNEHAM: Do you think we're going to get enough jobs out of this, start to get enough jobs to see us get to that target of 5 per cent unemployment by the end of the decade?

ALEXANDER DOWNER: Well, if you want to achieve the sort of unemployment levels Mr Keating claims he'll achieve, you've got to get economic growth according to the green paper on employment, you've got to get growth of 4.75 to 5 per cent per annum. Even the heroic assumptions in this Budget, including the heroic assumptions about investment, don't forecast growth of that sort of rate.

It's quite clear that by the year 2000 on these forecasts - wouldn't lead to a 5 per cent unemployment rate.

PAUL LYNEHAM: The tighter tax compliance - a neat 300 million windfall there. Sounds like a good idea?

ALEXANDER DOWNER: Well, yes, but if you could believe it, and 300 million for every year after that. I mean, this is just an accounting measure. This is just another way of saying there are going to be $300 million worth of tax increases. We'll put it down to compliance now, and, well, we'll have a look at it later on in the day. What does it mean? In practice it doesn't mean anything. It means $300 million worth of extra taxes.

PAUL LYNEHAM: So, are you saying that a sensible player in the financial markets tonight should be jumping out of a window?

ALEXANDER DOWNER: Well, not jumping out of a window, but a sensible player should be looking at the fine print, should be looking in the out years at the highly exaggerated forecasts for investment and for economic growth, should be looking at the way the $11.7 billion deficit is achieved, which is really through fudging the figures. I mean, it's a political document, this. No auditor would ever put his or her signature to this.

PAUL LYNEHAM: Well, what's going to happen to it in the Senate, do you think?

ALEXANDER DOWNER: Well, we'll look at the measures, piece by piece, in the Shadow Cabinet and the party room over the next few days, and we'll say a bit more about that at the appropriate time.

PAUL LYNEHAM: But is there anything about it that you can speak well of?

ALEXANDER DOWNER: Well, there are things of course in the white paper....

PAUL LYNEHAM: I know you're a man of generosity of spirit.

ALEXANDER DOWNER: I am a man of generosity of spirit, and there are things in both the white paper, and in particular which flow through into the Budget that we've given our support to. There's no doubt about that. But look, in the end, if you want to run a modern economy properly, you have to have responsible budgetary policies. There's not a great deal in this Budget to encourage investment. We've heard about the lack of commitment to micro-economic reform. This doesn't constitute a real contribution to increasing national savings and solving our current account balance of payments problems. So, look, it's just more of the same from Mr Keating.

PAUL LYNEHAM: Thanks for your time.

ALEXANDER DOWNER: It's a pleasure.

PAUL LYNEHAM: Well, one of the biggest expenditure items in this year's Budget is health. Shortly, I'll be joined by Dr Brendan Nelson, President of the AMA. But first, Justin Murphy reports on the sickness of our health industry.

GRAHAM RICHARDSON: For the first time ever, the untrammelled right of a doctor to charge a patient whatever he or she likes would be over.

BRENDAN NELSON: Senator Richardson's proposals can't work. It doesn't matter what your politics or your philosophy are - they can't work. And they will certainly work against the best interests of the most vulnerable people in this country.

JUSTIN MURPHY: Just two months ago, Graham Richardson's battle lines and goals were set and solid. He was going to cap the big salaries, eliminate the uninsurable gap between what Medicare pays and what the doctors charge, and streamline the public hospitals, and finally fix the lack of Aboriginal health.

Today, much is different. The stampede out of private insurance that so put the wind up Richardson has all but stopped. It was recession related. The Australian Medical Association is keen to join in a wholesale review of the Medical Benefit Schedule to at least lessen the gap, but they're still urging the Government to somehow subsidise the cost of private insurance premiums.

And as Stephen Leeder, Professor of Public Health at Sydney University points out, the public hospitals first and foremost need hard cash.

STEPHEN LEEDER: The state of our hospitals is a bit like having an ageing fleet of DC3s, and all of the States are experiencing great problems keeping hospital buildings and equipment up to date. And we really need to move from a position where the Government, the Federal Government, contributes about $150 million per annum to that, to a position where it contributes more like three or four hundred million a year. Because without that, we're not going to fix the symptoms of system imbalance like waiting lists.

Fundamentally, we're talking about real effects on health care, of health status, of people getting access to services when they need them, of having the most comfortable and effective technology available for their care, and of cutting back on those waiting lists where there really is a serious problem.

JUSTIN MURPHY: And the continuing spectre of the gap, according to Leeder, accentuates the pressure on our crumbling hospitals.

STEPHEN LEEDER: The picture is, I think, accurately described by a GP colleague of mine who said 'Well, I have older people who have private health insurance, but when it comes to the crunch when they need a new hip or surgery of some other kind, they end up going public because they don't know what additional costs they're going to incur if they go private.

JUSTIN MURPHY: So, they're scared about the gap.

STEPHEN LEEDER: They're scared about the gap.

JUSTIN MURPHY: The other major challenge in Leeder's mind is Aboriginal health. With Aboriginal life expectancy 20 years less than non-Aboriginal Australians, and with the Olympics coming, he says you'd think we could finally get our act together.

STEPHEN LEEDER: If we had really enlightened statesmanship and leadership, the figures that Senator Richardson was talking about in regard to Aboriginal health would be very well spent.

JUSTIN MURPHY: You mean the $800 million over the next, what, four years?

STEPHEN LEEDER: Eight hundred million over the next four years would make people take this problem seriously.

They've got a big job ahead of them. I would say the biggest job is not relating to how we pay for it all, but in the determination of a national health policy. Now, in New South Wales, Ron Phillips has shown a lot of leadership in pushing this. He's prepared a document which for the first time in my memory looks at the purpose of health care ahead of asking how you pay for it. We need a lot more of that sort of think going on at a Federal level so that we can have a coherent system that makes the very best use of this $33 billion that we put into health care every year.

PAUL LYNEHAM: Justin Murphy reporting. Well, the President of the AMA, Dr Brendan Nelson, has joined us now. Welcome.

BRENDAN NELSON: Thank you, Paul.

PAUL LYNEHAM: Five hundred million over five years for Aboriginal health - is that enough to address this problem?

BRENDAN NELSON: What the Government is doing, Paul, is balancing this Budget with the health and preventable deaths of Aboriginal Australia. It is not $500 million extra. What it represents is an extra $25 million per year for our 98 Aboriginal medical services across Australia. What it will mean is that we'll able to build a few more coffins for those people who are dying in Aboriginal Australia, and I suggest that the Prime Minister and his Treasurer get off their backsides and get out to Aboriginal Australia and actually have a look at where this money is needed.

PAUL LYNEHAM: All right. Commonwealth funds for the mental health strategy go up from $116 million to $250 million over the next four years.

BRENDAN NELSON: Well, this is a good program and I think that Carmen Lawre nce is to be congratulated, as is the Government, for putting money in where it's needed. It's going to address many of the recommendations that Brian Burdekin identified in his three-year inquiry into human rights abuses against people with mental illness and, importantly, it's focused on those people with mental illness most in need - the elderly, homeless youth and people with disabilities.

PAUL LYNEHAM: Two hundred and nine million over four years for a national breast cancer program.

BRENDAN NELSON: Well, again, what that's doing is putting extra money into the screening program for the early detection of breast cancer. We still feel the program should involve family doctors; but again, that money is welcomed. You have to ask yourself, though, is the Government trying to set up a backdoor way of putting money into breast cancer research, other than through the proper scientific community.

PAUL LYNEHAM: Finally, and very briefly - the public hospital system, the DC3s we've just been hearing about?

BRENDAN NELSON: Absolutely nothing. Not one cent is going to be spent on maintaining the infrastructure of our public hospitals, and I'm afraid that we have, after a year of Graham Richardson, empty hopes and expectations. Good luck to Carmen Lawrence. I'll give her all the help she needs.

PAUL LYNEHAM: Thanks for your time. Well, a short time ago, the ACTU made its response to the Budget. This is what President, Martin Ferguson, had to say.

MARTIN FERGUSON: The Budget reflects the nature of the times. It is solid and focused. In the lead-up to the Budget, the real issues were jobs, in association with ensuring that the whole community, not just the Government, give special assistance to the disadvantaged. To my way of thinking, the Government has delivered and delivered in a big way with respect to its priorities.

JOURNALIST: Will we see enough provision for the $6.5 billion provided in the white paper?

MARTIN FERGUSON: Well, clearly, that's what the Budget is about.

JOURNALIST: What are the down sides?

MARTIN FERGUSON: Well, I think there is going to be a major debate within the labour movement about the question of further privatisation, but I think we are capable of handling that debate in a constructive way in the lead-up to the Labor Party's national conference, later this year.

PAUL LYNEHAM: Well, now joining us - his first Budget out of the way - Treasurer Ralph Willis, welcome.

RALPH WILLIS: Thank you, Paul.

PAUL LYNEHAM: Well, at first glance, it looks like you've gone into the rabbit-out-of-the-hat business. No new taxes; you're paying off the deficit faster; you've got some big spending items there - health. I mean, is this Paul Keating or Ralph Willis?

RALPH WILLIS: Just a good Budget.

PAUL LYNEHAM: But come on, how do you appear to square the circle like this? Tell us about the way .. the journey through the Budget.

RALPH WILLIS: Well, apart from the Working Nation statement expenditures, everything else is fully offset by expenditure savings or some revenue increases, and there are some of those, but without increasing tax rates. For the Working Nation expenditures, that's offset essentially by the additional revenues from growth. And through the period of the next four years, we will produce a better outcome in terms of deficit reduction than we were forecasting that we would do last year.

PAUL LYNEHAM: Now that's your big message to the financial markets, isn't it? You promised to keep paying off that bank card.

RALPH WILLIS: Absolutely, that we would get the deficit right down to around one per cent of GDP. In fact, we're now forecasting it'll be down to less than one per cent - 0.9 per cent of GDP. Last year, we were saying 1.2 per cent. So that's a further improvement. And the year after that, 1997-98, down to 0.4 per cent - clearly approaching balance, and we'd expect a move into surplus later after that.

PAUL LYNEHAM: But how much creative accounting is there?


PAUL LYNEHAM: I mean, the Shadow Treasurer, for example, says he doesn't believe your tighter tax compliance to $300 million. He says this is just a fiddle.

RALPH WILLIS: Well, the Tax Commissioner assures me that it's absolutely real. So, I mean, Mr Downer needs to, I think, have a chat with the Tax Commissioner who assures me that this is - and it's his idea, not mine - that he can deploy resources in this way and raise an additional $300 million of taxes which are collectable under current laws. This is not involving .. applying any new tax regime or anything, just simply taxes that are collectable, but otherwise wouldn't be collected.

PAUL LYNEHAM: Well, if they're there, why didn't you do it last year or the year before?

RALPH WILLIS: Well, it's a matter of having the resources to chase them up, and with the additional resources you can do that.

PAUL LYNEHAM: And the asset sales - you really can do that float of Qantas next financial year?

RALPH WILLIS: Well, yes. I mean, that's been projected for some time. You know, that's not something new. We haven't just suddenly sprung that. I mean, that's been around for a while as something that we were going to do.

PAUL LYNEHAM: Yes, but you've put it off. The economy has looked a bit flat.

RALPH WILLIS: Well, we put it off because the circumstances in the markets weren't propitious. Now, I think, there's every reason to believe with a buoyant economy in '94-5 it'll be a very good time to float Qantas.


RALPH WILLIS: Well, similarly with the AIDC.

PAUL LYNEHAM: And no problems at the ALP National Conference in September with the Left?

RALPH WILLIS: Well, there's clearly going to be a debate in the party about asset sales - that doesn't involve Qantas, which is already okay, but for AIDC and the airports, there will certainly be some discussion at the next Federal conference in September, but it's not a debate that the Government expects to lose.

PAUL LYNEHAM: The Shadow Treasurer says it's dreadful to think that you're selling off the family silver to pay for day-to-day recurrent spending.

RALPH WILLIS: Well, that's just a nonsense argument. I mean, the deficit is lower than it would otherwise be if we didn't have those asset sales. So, we are reducing debt by having those asset sales there.

PAUL LYNEHAM: Business investment suddenly jumps to 14.5 per cent. Now that's got to be one of your rubberier figures, doesn't it?

RALPH WILLIS: No, because we've had significant declines in investment. I mean, from the peak at the end of the boom, '89-'90, investment has fallen quite considerably.

PAUL LYNEHAM: So this is off a very low base?

RALPH WILLIS: Now it's flattened out and we expect it to come back again, and the circumstances are very propitious for business. You've got high levels of demand out there. They've got their balance sheets in order again after the problems of high debt at the end of the '80s; capacity utilisation to the extent to which they use their equipment is increasing quite rapidly; and you've got low inflation, low interest rates. I mean, it's just a tremendous scene for increased investment.

PAUL LYNEHAM: Without it, of course, your jobs target - the getting unemployment down to 5 per cent by the end of the decade - would start to drift, wouldn't it? You need that investment, in fact.

RALPH WILLIS: Well, we certainly need investment to come through. Yes. We've got sort of a rolling recovery, but investment hasn't featured so far. We've had dwellings, investment in housing, the public sector and consumption sort of keeping us .. giving us the growth to this stage, and now we need it in the next step of the recovery to have business investment come through, and there's every reason to believe that that will happen.

PAUL LYNEHAM: Now, you talked in your speech about creating a quarter of a million new jobs next year. How are you going to get the remaining two million or so you need by the end of the decade to meet that target, that 5 per cent unemployment target?

RALPH WILLIS: Well, what that number is, is difficult to assess because of the unknown factor of the work force participation rate. In other words, we don't know to what extent people of working population age are going to want to come into the work force, and that's an increasing development - particularly with women increasingly wanting to work after they have children - and that requires us to produce more and more jobs each year just to keep the unemployment level where it is.

PAUL LYNEHAM: And wouldn't a fair-minded person say 'This isn't really .. I mean, it may be a nice thing to try for, but it's really impossible'?

RALPH WILLIS: It is quite achievable. In the period from 1983 to 1990, when .. from our first seven years in office, we had growth in employment of 1.7 million.

PAUL LYNEHAM: In seven years?

RALPH WILLIS: In seven years.

PAUL LYNEHAM: You've got to do about that again.

RALPH WILLIS: Yes, we can do .. exactly. That's what I said in the Budget speech, that we could easily emulate that again.

PAUL LYNEHAM: But your forward projects for growth don't suggest you're going to do that in tonight's Budget, your growth figures.

RALPH WILLIS: They're forecasts of 4.5 per cent for '94-5.

PAUL LYNEHAM: And the following year?

RALPH WILLIS: And slightly less the following year....

PAUL LYNEHAM: Slightly less. But you need more to get....

RALPH WILLIS: ....and then 4 per cent. But the employment projections are still around two and three-quarter per cent.

PAUL LYNEHAM: And you reckon that's going to be enough.

RALPH WILLIS: Those figures will knock the unemployment rate down by about one per cent per year.

PAUL LYNEHAM: That second round of tax cuts - you know the ones that were L.A.W. - law. How long can you defer something before it disappears in a puff of smoke?

RALPH WILLIS: Well, they were deferred last year until 1998, and that's still the position. They're deferred until at least 1998, and as we get closer to that time, obviously we'll decide exactly when they'll come in. But they're not included in our figures for '97-8, so we're .... saying they're not going to be in the first half of 1998.

PAUL LYNEHAM: So, we might have to wait till '98-'99. Is that what you're saying?

RALPH WILLIS: That's true.

PAUL LYNEHAM: But keep the faith till then.

RALPH WILLIS: But remember, we just had some tax cuts which came in last November, quite large tax cuts, costing over $3 billion.

PAUL LYNEHAM: And it's going to cost us $2 more to leave the country.

RALPH WILLIS: Well, that's true, through this new charge, but it simply recovers in full the costs that the Government incurs in processing international passengers. So it's just the application of cost recovery which is a sound principle.

PAUL LYNEHAM: Treasurer, thanks for your time.

RALPH WILLIS: Thank you, Paul.

PAUL LYNEHAM: Well, that's it for tonight. Thanks for your company. The 7.30 report will return to normal programming tomorrow night, but on Thursday night, we'll have the address in reply from the Opposition. Until then, goodnight.