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Release of mid-year economic and fiscal outlook, 18 December 1997: transcript of press conference [Mid-year economic and fiscal outlook]

TREASURER: Today I release the Mid-Year Economic and Fiscal Outlook review for 1997-98. The Mid-Year Review shows that the Commonwealth Budget position is strengthening, both in the current financial year and in 1998-99. The Government is well on track to produce a surplus in the next financial year, 1998-99, and the Government is well on track to achieve its stated aim of halving the debt to GDP ratio in Australia from 20 per cent to 10 per cent over the period from 1995-96 to the year 2000-2001.

The economic forecasts that we release today confirm in relation to growth the Budget forecast of 3 3/4 per cent. Today we release the first forecast for the next financial year which is 1998-99 and the forecast that we release in relation to that which takes into account developments in Asia is for 3 1/4 per cent, a growth forecast which is slightly less than that for the current financial year.

The commentary which I would urge you to read indicates principally the reason why that forecast has been, is a little lower than this year, is the developments in Asia, particularly the developments in Korea which are expected to have a significant effect on the Australian economy.

Growth in this current year of 1997-98 of 3 3/4 per cent will probably be about the strongest growth of any developed country in the world. It is consistent with continuing jobs growth and we reaffirm our belief that by the end of the financial year unemployment will fall further to around 8 per cent.

The economic forecasts also confirm the expectation of Australia as a low inflation country with inflation comfortably within the band set by the Government of 2-3 per cent even notwithstanding the change in the exchange rates.

The forecasts for 1997-98 in the Mid-Year Review revise up slightly, the current account from around about 4 to 4 1/4 percent of GDP.

In relation to the Budget position which you'll see described on page one of the Review, the Budget had forecast in 1997-98 an underlying deficit of about $3.8 billion, the situation has improved and in this Mid-Year Review we revise the deficit down I think is the appropriate word, anyway - less - to $2.7 billion.

In the Budget we forecast that the Budget would be in surplus in 1998-99 and that's the overwhelming objective of our fiscal policy. We forecast at Budget time an underlying surplus of about $1.6 billion. We are now in the Mid-Year Review revising that surplus up to around $2.5 billion and showing good surpluses on current economic policy across the forward estimates to the year 2000-2001.

You'll notice that also in relation to the headline outcome at Budget time in the current year we had forecast a headline surplus of about $6.4 billion. We now think the headline surplus will be more around $11-12 billion and the principal variation in relation to that, the proceeds of the Telstra sale, which as you know exceeded expectations, and the proceeds of the Telstra sale have given us a good headline surplus which goes a long way to our program of retiring debt and our longer term goal of reducing the debt to GDP ratio in the Australian economy by half to the year 2000-2001.

What this Mid-Year Review confirms is that we are now within sight of our goal. Our fiscal policy was to take Labor's $10 billion deficit and in the course of our first term in office to drive that into a surplus. On current economic policy we will be able to accomplish that in 1998-99 in the first term of the first Howard Government. By driving the Australian Budget from $10 billion deficit and into surplus we have put Australia in a much stronger position to weather external events. And the principal external event which has arisen between Budget time and now, of course, are developments in Asia. In relation to the economic forecasts we have forecast down growth amongst our major trading partners from about 4 1/2 per cent to 3 per cent which is about a one-third revision down. That is quite a significant revision and it will have effects in relation to growth in 1998-99.

In relation to the Australian economy, not only by driving our Budget into surplus but by our program to drive Australia's debt to GDP ratio down, we have strengthened Australia's position and notwithstanding exchange rate movements, our strong inflation performance puts us in a position where we can cope with exchange rate movements in relation to our inflation targets and still achieve them over the course of the forward estimates.

We have in the domestic economy seen a strengthening over the course of this year, a strengthening just at the right time as the external events became more uncertain. Strengthening in relation to private demand, strengthening in relation to retail trade and consumer sentiment and a strengthening principally driven off the low interest rates and home loan affordability which has been another achievement as a result of our economic program.

As events become clear in Asia, we think that we will be in a position by next year to assess developments but we believe that the best hope for those countries that are affected are those programs which have been put together by the IMF and as you know Australia has contributed to.

I just want to make one last point. This is a Mid-Year Economic and Fiscal Outlook Review prepared in accordance with the Charter of Budget Honesty legislation. The Charter of Budget Honesty legislation has not been passed by the Australian Senate. That legislation will be reintroduced after an interval of three months. This Government was elected on a program of introducing and enacting that legislation and this Government has a mandate to do it and the Australian Labor Party has no right whatsoever to defeat that legislation, legislation that is designed to make every Australian Government report, thoroughly and comprehensively, in the way you see in that document of some 135 pages.

The last mid year, so called mid year review, done by the Australian Labor Party was a three page press release, with two tables at the end, one of which was an infamous table, claiming that in 1996, the 30th June 1996, the Commonwealth Budget would be in surplus. It came in $10 billion in deficit. If you want a dramatic explanation as to why that legislation should be passed, there it is. And when that legislation is passed, and we are demanding that the Australian Labor Party pass it, you will be entitled to a continuation of this kind of thorough reporting whoever is in office. But until that is done, it relies on the goodwill of the Government concerned, in this case the Coalition Government.

JOURNALIST: Treasurer if we don't get that legislation passed in time for the election, would you still have full disclosure as is foreshadowed in the legislation'?

TREASURER: If we don't get the legislation through before the election then the legislation will not govern the conduct of the election. What will apply will be the normal caretaker conventions.

JOURNALIST: So you wouldn't get Treasury issuing updates?

TREASURER: Well that would be the law. It wouldn't be up to us. The law would be the normal convention, caretaker conventions. And during that period, they would be the requirements. If our legislation is passed, the law prescribes what happens during the caretaker convention. If the legislation doesn't pass, it's the conventions going back into the dim, dark memory that actually apply. And the departmental secretaries would be bound by those conventions because there would be no legislation overriding it. Now I've got to make this point, we went to the last election with a promise to clean this up. We produced a Bill, we had a mandate. But the Australian Labor Party has said in the Senate, oh you know well we want bells and whistles here and you know we want this and we want that. For 13 years they never enacted one section. They were caught engaging in the greatest deception that you've seen in recent political memory and legislation that can clean it up for good has not been passed because they're playing games in the Senate. It's an absolute stunt. And if I can say so, it's not in my interests to have this legislation put through, but it is in the interests of the Australian public to make sure it's put through because they will be the winners because they'll get proper and adequate reporting.

JOURNALIST: So would the convention actually prevent, you were saying, Treasury from issuing accurate figures.

TREASURER: Well the conventions are during that period as you know that the Government can't initiate policy and changes. That is the point.

JOURNALIST: But in the last election it seemed to be accepted that if both sides actually made an agreement and called on Treasury to release the latest figures that would be done ...

TREASURER: It wasn't accepted. It wasn't accepted by the Australian Labor Party, you know that.

JOURNALIST: .. these forecasts. Can you explain how GDP is falling over the next 12 months, falls to 3 1/4, in the current climate ... (inaudible) ... actually rises to 2 1/4.

TREASURER: Well, yes I can. The reason is, and you'll find this in the text, the reason why we had to revise down the year average in relation to employment in 1997-98, this financial year, was that you had a lower than expected June 1997 quarter which impacts on the year averages. Now, when you put in the June 1998 quarter, that reverses out as it were and leads to stronger year average employment growth in the 1998-99 year. Now it's a quirk of the way in which the statistics are done and we've zone backwards and forwards through it and that's the way the mathematics works. But if you actually look at through the year outcomes, just what actually happens in the absolute numbers, then we are standing by the employment outcome as at June of 1998, that's in the current financial year, and we would expect an improvement in employment outcomes, and an improvement in the unemployment rate during the following financial year.

JOURNALIST: Do you have a number for that following year?

TREASURER: We haven't put out a forecast in relation to that yet. The only forecasts that we put out for 1998-99 are shown on page 16 and this is the first forecast that we've put out for that year and the forecast we put out is for GDP growth, for employment growth, wages and inflation.

JOURNALIST: You haven't included a forecast there for the current account deficit but is it your expectation that it will be significantly worse than the $23 billion that you've revised up to for this year.

TREASURER: No, it's not my expectation that it will be significantly worse. As I said earlier, in relation to 1997- 98 we have revised up the current account deficit from $21 billion to $23 billion as you see there on page 11. In relation to 1998-99, you will start to have the impact on exports which I think has been widely written about and you will start to have the impact on import prices of the currency movements that we've seen in recent times. However, those movements are not all one way and I would urge you to read the text. One of the impacts of the movements in currency that we've seen in recent days is that for many commodities where contracts are written in US dollars the value to the exporter has dramatically improved. Also in relation to other commodities and we make some observations in relation to rural commodities here, these are non-discretionary export type commodities which will be more governed by supply considerations than demand considerations. So the point I'm trying to make to you is that the downturn in Asia, significant though it is, is not unqualifiedly one way. It is predominantly one way but it is not unqualifiedly one way. It does abate somewhat particularly when you take into consideration the exchange rate effect that it has had.

JOURNALIST: Mr Costello could you explain why, you say that this year and next year the Budget underlying balance is improving, but in 1999-2000 and 2000-2001 the actual Budget bottom line deteriorates. Why is that?

TREASURER: Well in the years out in 1999 and 2000 when you say it deteriorates I think it changes by about $400 million, in one, and $300 million in another, well I'll get to it. I'll get to it. Which in the context of a budget of what, $130 billion, is a very small variation. Now there are parameter effects that have gone into that and there are also policy decisions. I think you'll find, for example, that the major expenditure decision that the Government has taken since the budget was the industry statement. The biggest amount of spending under the industry statement was in 1999 and 2000 so you'll get an impact in those particular years. Parameter changes also will impact in relation to that and I think I can probably point you to the tables that deal with this in quite some detail. In relation to outlays, it's at page 21 and there will also be a statement as to the changes in relation to revenues.

JOURNALIST: Treasurer, just on that.

TREASURER: Yes.

JOURNALIST: Table 1, the underlying balance for '99, 2000, 2001 seems to have slipped about half a billion dollars each each year and ...

TREASURER: I think I said three or 400 million in 1999-2000. It's about 4, isn't it'? And in 2000-2001 it's about 3. 300.

JOURNALIST: Right. Just taking that as a cumulative amount - a bit under 5 billion, which is still a good result, the underlying balance for 1999-2000. Would that increase your resolve to hang onto that surplus regardless of the pressure to spend some of that money on tax reform? To keep that in the bank? Will you give some of that back? For example, there's an argument that you probably owe about 2 billion in bracket creep which you will probably have to give back [inaudible] surplus.

TREASURER: Well I'm not sure where you get the 2 billion from, George, but I'd be pretty sure that I probably owe less in bracket creep than any of my immediate predecessors for the last 30 years because I'm operating in the lowest inflation environment. In relation to those surpluses which build up in future years, it's my belief that if we are to achieve our overall objective. which is halving the debt to GDP ratio over the period to 2000-2001, that we have to remain on this path. Now even if you want to have a look at that table there. I'd point out to you - you know, you make a point about revenues - but even right out to 2000 on a no change basis you're still talking about revenue to GDP below 25 per cent. Now that is historically very low and you can see that from the table on page 17, certainly when Labor was trying to get the budget back into balance they had revenues - you can see this on the table on page 17 - revenue to GDP around 26, in 1987 around 27, 28. So even on a no change basis, these are very historically low revenue to GDP. And you can see from that table where the surplus is coming from. The surplus is coming because we've got outlays under control. Have a look. In the year 2000-2001, you're seeing outlays down around the 23 per cent mark. I think we note in the text this is the lowest outlay to GDP ratio since 1973. This is sort of pre-Whitlamite work, this. This is getting us undoing 25 years of want and profligacy. And if I may point out to you, these are budget surpluses that this Government is laying down because we've addressed the outlays side. They've not been built on increases in income taxes or increases in the wholesale sales taxes or increases in the company taxes. These have been built on getting outlays under control and that's what makes this fiscal consolidation unparalleled. There's only one other period in the last 20 or 30 years that you could compare to this and that would be the period back in 1988-89 and that was done on a revenue base of about 26, 27 per cent.

JOURNALIST: Mr Costello, at page 15 of this main document Mid Year Economic and Fiscal Outlook, you say in the first four paragraphs that employment growth through 1998-99 is likely to be similar to that through 1997-98. You're also forecasting over this financial year '97-'98 that the unemployment rate will fall from 8.7 to 8 per cent. So should we assume that you are also forecasting for next financial year a similar downward move in the unemployment rate?

TREASURER: Yes.

JOURNALIST: So therefore that would lead me to a conclusion that you're forecasting an unemployment rate of about 7.3 per cent?

TREASURER: No, I wouldn't put a figure and we don't put a figure on it. But what we are forecasting through 1998- 99 would be unemployment continuing to decline and going below the 8 per cent mark, yes.

JOURNALIST: Also this document was obviously prepared before the Hashimoto announcement last night in terms of the tax package in Japan. How do you think the tax package would effect these forecasts in terms of whether the risk would now be on the up side rather than the down side in terms of growth, particularly for '98-'99?

TREASURER: Well look, the obvious point is we welcome any growth in Japan and if the fiscal package in Japan has the effect of stimulating the Japanese economy into higher growth, that will be advantageous for us. It's not in Australia's interests to have a Japan growing at nought or 0.5 per cent or whatever the current indications are. And one of the reasons why we've taken a more conservative view of 1998-99 in Australian growth is particularly Korea and Japan. And I think you've probably heard me on this before. The ASEAN economies are not as significant for us, nearly as significant for us. in terms of exports as Japan and Korea. A sluggish Japan - it's been sluggish for 5 years but looking even more sluggish in the last year - is one of the factors why we have forecast down growth so significantly amongst our major trading partners. Japan is our major trading partner. It has a very significant influence in relation to that. If the stimulus in Japan does have the desired effect, and we hope it does, yes, that will aid our forecasts. But we've really had a conjunction of two events occurring in Australia. Whilst there's been substantial weakening on the external front as a result of Asia, there has been substantial strengthening on the domestic front as a result of monetary policy, principally as a result of monetary policy, and we didn't anticipate that things would be as strong on the domestic front at budget time. It's been stronger than we expected. We didn't anticipate that things would be as weak as it's turned out on the external side because of Asia at budget time. Happily for us, the two movements have counter-acted and we think a 3 3/4 forecast is right but it's right because you've had counter-veiling movements from both sides.

JOURNALIST: So what was the forecast to be without the Asian crisis? How much, what is the percentage that you've revised it down?

TREASURER: Look I think if it had not been for Asia, both this year and next year we would have seen substantially stronger growth than this, than we are now forecasting.

JOURNALIST: 1 percent? Higher? 1 1/2?

TREASURER: I've never put a figure on it and I don't think there is any point in putting figures but it depends on all sorts of assumptions as to how long you think the crisis is going to happen in Asia, how deep you think the crisis is going to be, what effect do you think the IMF packages are going to have, what the counter-veiling measures are going to be, whether the Japanese government takes a 2 trillion yen stimulatory measure or a 3 trillion yen stimulatory measure, what you think is going to happen in relation to Korea. It's just very hard to put a figure on it. But if it hadn't have been for Asia, you know, we're at the high 3 3/4. You know, you'd have been moving up into the next range if it hadn't have been for that.

JOURNALIST: So, Treasurer, would you agree with the assessment that the developments in Asia have knocked out the risk of a need for tightening of monetary policy which appears to have been a concern because of possible over-heating in the domestic economy?

TREASURER: I don't think the Australian economy is overheating. I don't think there's any evidence of that at the moment. Inflation is still comatose. The most recent wages figures have been around the right level. We've got to get that national wage case right but if we can keep them around 4 per cent. I don't think there's evidence of over-heating. Sure there's been strong retail sales but that's a good thing. We're actually trying to encourage good retail trade and you're not seeing the over-heating in the new housing market that you saw, say, in 1994. You know, sure it's picking up but I don't think anybody would say it was over-heating. It seems to be quite a gradual, sustained pick-up. So in relation to the domestic economy, look it's strong. The September retail figures were the strongest we've measured since 1982 but I don't think anyone would say it was over-heating.

JOURNALIST: Is the Japanese tax package big enough? Do you welcome it?

TREASURER: I welcome it. Yes, I welcome it. I obviously don't advise the Japanese government on how big their packages should be but, yes, I do welcome it. I think in the circumstances in Japan ... Look, the Japanese economy's been sluggish for about 5 years. There are some that say that Japanese growth, you know, could be closer to zero than 1 per cent in the next year. I'm not making any comment on that, I'm just saying that people who write these things and forecasters say it could be down nearer to zero than the 1. Now that is a low growth and obviously in Japan monetary policy can't be eased. Official rates in Japan are about 0.5 per cent from memory so when you look at a situation like that, obviously you would be thinking about a fiscal stimulus and we welcome the fiscal stimulus that's happened.

JOURNALIST: Mr Costello, in relation to the current account deficit, the outcome last year was a current account deficit of about 3.5 per cent of GDP, you're now forecasting this year that it'll be 4 1/4 per cent of GDP and at page 15 of this document you're forecasting that the current account deficit will continue to deteriorate in the next financial year. Do you think that that deterioration in the current account deficit stems back to the fact that this Government needs to do more in terms of improving the structure of the economy and, if so, what sort of additional structural improvements would you like to see - particularly in terms of the industrial relations situation?

TREASURER: Well can I make a couple of points. The first is that we had an unusually good outcome through the course of the last financial year partly driven by a couple of abnormals, including the sale of gold by the Reserve Bank. And I can't help but urge you to have a look again at that sale and ask yourself the question whether or not the timing of the sale was good. And I won't go through the figures now but just you do the figures yourself and ask yourself that particular question. So that was partly an abnormal year and you had the cashing out of the abnormals already in our budget. We've revised our current account forecast up a little because of the external events as I said earlier. What does all of this mean for Australia? It means we can't relax on the current account front. We haven't solved Australia's current account problem. We have gone a long way to improving our fiscal position and I can see the achievement of our goal. The goals in sight. It's there, we can do it, which is to produce a surplus in 1998- 99. But I have said in relation to the current account this is going to be a long one, this one. We've got a very large stock pile of foreign debt and most of our current account is still made up of servicing that foreign debt. We've got a long way to go in improving Australia's saving. The Government is starting to do its part but it has got to stay the course. We've got to encourage the private savings to develop in this country. You ask me what structural changes that we can put in place, well I think a better tax system that encourage savings would be one big measure to encourage private saving in this country. We tax earners and we say that a large part of consumption is tax free, I think that we would be smarter if we taxed consumption and gave people the break in relation to income and saving. I think that would be a very big point. We've got our savings rebate which is going to start on 1 July of next year. That is also designed to encourage people to save. Now, then you look at the production side of the economy, the export and import of goods and services. We have been doing pretty well in the last year. We've been running by and large on balance in relation to import/export in goods and services. But I think we can do better, I think we should be aiming to do better. I think there are many areas of the Australian economy where we should be working to improve productivity and industrial relations reform is a big part of that. I think we have got to keep working on industrial relations reform in this country.

JOURNALIST: So will the Government be setting out a new industrial relations reform agenda before the election?

TREASURER: Well I am sure if they will be they'll announce it in due course. I am not going to announce anything today.

JOURNALIST: Mr Costello, on tax reform, can I just ask, a basic premise of whatever overhaul you do, will it be that whatever you take out through a broadly based indirect tax will not exceed what you return in terms of personal tax cuts?

TREASURER: Will not exceed what we return.

JOURNALIST: What I'm saying you take less than you rip out.

TREASURER: Well let me put it this way, let me put it this way, that the ultimate effect of this is going to be that tax to GDP ratio is not going increase. That is nobody, that is the country as a whole, is not going to be paying more tax as a consequence of our tax reform and the reason I can say that in such a confident and water tight way is we are doing tax reform from a position of strength. That is a budget in surplus. This is very different. You have got to get this in your mind. This is very different, this was not the position in 1985 and nor was it the position in 1993. We don't need to take more revenue because our budget is going to be in surplus. This is not an argument about changing the tax arrangements so we can get more taxes. We don't need more taxes, we have got our expenditures within our tax base now. What we want is to collect taxes in a more efficient way, that's what this argument is all about. Now why? Why do we want to collect taxes in a more efficient way? Well we want to promote saving, that's one reason, we want to make the Australian economy more productive, we want to create jobs. That's what this is all about. If we can have a better tax system which makes the Australian economy more competitive, we can create more jobs, that's what this is all about.

JOURNALIST: But how much of the surplus Treasurer might the Prime Minister spend on tax cuts?

TREASURER: Well the point about all of this is that if we raise our taxes in a more efficient way and the tax to GDP ratio is the same or less, we are not increasing the taxation burden on the Australian public and we can preserve our surpluses.

JOURNALIST: Treasurer, whatever your commitment in terms of tax as a proportion of GDP not going up under the tax reform package, does that only apply to the Federal Budget or will you also ... all State Budgets, so in other words you'll give a commitment that total tax in Australia, Federal and State, will not increase as a proportion of GDP under your tax reform process.

TREASURER: I can assure you of this, we wouldn't be taking the same at the Commonwealth level and somehow getting more at state level so that the overall burden is greater. The overall burden has got to be the same or less.

JOURNALIST: How do you control the States in that regard though?

TREASURER: Well the states don't actually raise many taxes these days, that's the truth of the matter.

JOURNALIST: Some of the business people who attended the function a couple of weeks ago in Melbourne that you addressed said that you supported the introduction of a State income tax surcharge subject to it being at a uniform rate. Is that correct?

TREASURER: No I don't believe that is correct. Probably what I was asked was what if the states want an income tax. The Commonwealth is not arguing for a state income tax. I was probably asked the question what if the states start arguing for a state income tax. Now bear this in mind states can levy an income tax at the moment, none of them choose to do so. But they could do it tomorrow, I couldn't stop them, they could do it tomorrow. I made the point that they would have to do it in a uniform way and they would probably ask the Commonwealth to collect it for them and that sounded very much to me like a Commonwealth income tax.

JOURNALIST: Treasurer one of the reforms you mentioned earlier in answer to a previous question from John about structural change in the economy, the savings rebate. The advice you got from the Retirement Income Modelling Taskforce was that it wouldn't increase net national savings because the additional private sector savings would be offset by the cost of the Budget. Would you consider improving that rebate to say move to a position where you don't tax savings?

TREASURER: At all?

JOURNALIST: At all, or provide a bigger rebate than the one announced in the Budget, I mean ...

TREASURER: No.

JOURNALIST: ... a down payment on further reform.

TREASURER: Oh, well look it may be in the very long term but it is not in the time period that I am looking at. And I know you keep writing George, that I am being advised by all sorts of people to change the savings rebate, I must say to you nobody has ever said this to me. It's a funny, it's a long way for them to send their message? George through you through the papers to me or there could be another explanation. May be nobody is advising me to do that. George.

JOURNALIST: Maybe they didn't like the look of it once they saw it in the paper.

TREASURER: (laugh)

JOURNALIST: Mr Costello ... GDP numbers coming out in 2001 going 3 1/4 up to 3 1/2, yet you've enthusiastically embraced the 4 per cent target to the year 2010, it's not a great start is it? This is the upside to the cycle and you're going to go down after that.

TREASURER: I make a couple of points. What we have done here is we have got a forecast for the current year 7-8 and a forecast for 8-9. In the years after that they are projections. What that says to you, and this has always been the case in Commonwealth budgets, is we're not starting to put numbers, firm numbers, on 9, 2000, or 2000-2001 because frankly the worth of putting a number on those sorts of things is pretty low at the moment and 3 1/2, we think, is the best figure to use for your projections as you try and project revenues and outlays out into those years. So that is the point and that's why they are called projections. In relation to growth we have said that it is the overriding aim of our economic policy to so improve the Australian economy as to average growth of 4 per cent in the decade to 2010, that is from the year 2000 to the year 2010 and it is. I think that provided we keep working on economic changes that is well within our grasp. There are some people today who would say that the Australian economy will grow at 4 per cent this year, we think 3 3/4. But some people will say that's on the low side. There are some people today who are saying, not withstanding Asia, it could even grow at more than we say next year. But, you know, when you are up around 3 3/4-4, just to put that in some context, if it were, just let me get may numbers right here, if the outcome is 3.87 we'd say that was 3 3/4. If it were 3.89, we would say that was 4, because we round to the nearest quarter.

JOURNALIST: This is the upside of the business cycle .... going up here and these numbers .... going to get it above the 4 line here ... tends to go down on the other side.

TREASURER: I don't know, I don't know Tom, you're sitting in the midst of the biggest financial melt down we have ever seen in our life time in our region, in Korea. You're sitting in the middle of our major trading partner which has been a power house of the world economy, which has been subdued for five years and, you know, it is looking at a growth rate between nought and one. And these are external events beyond our control and if I had said to you two years ago would you predict the Korean economy to be in this position today, you wouldn't have said it. We are in the midst of major external challenges at the moment. Now it may well be that these countries are through their problems in the next two years and they are ripping again. It may well be that this is going to be a long period of restructuring but you would be a brave man to say we are now at the top of the business cycle and it's all down hill from here.

JOURNALIST: Mr Costello, getting back to the forecast on the unemployment rate, even though you've revised down the employment growth forecast you're still able to give a forecast for this financial year of unemployment at 8 per cent...

TREASURER: An outcome by the end of the year. But that depends, as you know, a lot on participation rates too, of course.

JOURNALIST: That's what I was going to come to. You've also revised down your expectation of the participation rate. Why couldn't your political opponents just accuse you of fiddling the figures in terms of participation rate to reach the outcome of 8 per cent in terms of the forecast.

TREASURER: Look my political opponents can accuse me of anything and they regularly do.

JOURNALIST: But it looks a bit cute ...

TREASURER: Let me ask you this question, why should you take any notice of them?

JOURNALIST: Don't you think the number ...

TREASURER: Have a look at their last mid year review. That's it, mid year review a la Labor. Any forecast for the next financial year 'oh no' that's surprising, it wasn't there. Any forecast in relation to employment growth, no. They never put out any forecasts for the future year and there is your mid year review on the budget. That was it. That was it and you know what it said - surplus. That was the 21 December 1995 and they went out of office in March of 1996. The day after the election when I said to the Secretary of the Treasury in December you said it was going to be a surplus, what are you now saying? You know what he said, $8,000 million in deficit. And when it came out that it was an understatement because it came out at $10,300 million of deficit. And, you know. the gall, we put together this Charter of Budget Honesty, to say this type of deceit should never be practised again. Who is trying to block it in the Senate. They have returned to the scene of the crime these people. It is in the interests of the Australian people to never let that kind of thing happen again and the only way you are going to get this kind of thing entrenched is by putting it into legislation. Can I say the Charter of Budget Honesty legislation is world class legislation. There are advanced economies that come to Australia and ask us about Charter of Budget Honesty legislation, why, how it works, they use it as a model. And we've got the people who it was designed to stop, in the Australian Senate, trying to prevent its passage.

JOURNALIST: Which countries have asked about it?

TREASURER: The Americans have asked about it. In fact I gave a presentation at the last IMF conference in Hong Kong on it.

JOURNALIST: inaudible

TREASURER: Pardon.

JOURNALIST: I thought Labor was trying to amend the Charter of Budget Honesty?

TREASURER: Oh yes the Labor Party says oh we're not really against the Charter of Budget Honesty, oh no we'd just like to change it here and we'd like to change it there and we'd like to change it elsewhere so that you know ...

JOURNALIST: ... I think it goes to the statement about ...

TREASURER: Well, let me ask you this, if they really wanted a Charter of Budget Honesty which was amended in this respect or that respect or the other respect why didn't they introduce it in 13 years of Government? You know, when did they get so interested in Charters of Budget Honesty?

JOURNALIST: What's actually wrong with the amendments they're proposing though ....

TREASURER: Oh no, because they want to amend the Bill so that they can have their policies costed and not put out; so that they can use the Treasury and the Finance Department to do policy work for them. They want statements of tax avoidance put as a risk in relation to this. It would just destroy the whole legislation.

JOURNALIST: ... It's already in the back of your document today though ...

TREASURER: Statements of risk but not how to go about it. We never advise tax avoiders how to go about it.

JOURNALIST: Your statement today Mr Costello ...

TREASURER: Sorry, Mr Colebatch, sorry.

JOURNALIST: I'll just come back to the international meltdown, Mr Michel Camdessus, who is the Executive Director of the IMF has made it clear that he's going to be asking countries for an increase in IMF quotas to give it more resources to tackle these sort of problems. Can you tell us what your attitude would be to such a request.

TREASURER: Well, my preliminary attitude would be that we supported the increase in Hong Kong, that we have supported the New Arrangements to Borrow and that we have provided second tier financing in relation to Indonesia and Korea and I think that is a pretty major contribution from Australia, to be frank. Can I just say in relation to the New Arrangements to Borrow, that is a new facility for the IMF which was put together as a consequence of Mexico, and Australia has played a very leading role in relation to putting the New Arrangements to Borrow in place. Not just me incidentally, it was started by Ralph Willis. Australia, because it was a second tier IMF facility, Australia was very prominent in negotiating the terms. Now that new arrangement to borrow will only come into effect if the US Congress ratifies the US involvement in it and the US congress, notwithstanding I believe requests from the Administration, has not yet ratified that. So I think it's far too premature to be talking about increases in IMF quotas when we've been trying to put together this other thing for two years and we still haven't finished that off. And what's more if the US Congress won't ratify that, what are the chances of getting an altogether separate increase. Now we've played a major role in relation to New Arrangements to Borrow and I chaired, in fact chaired an interim meeting in Hong Kong to discuss it but the whole thing only becomes operative, it's contingent upon the US contribution, the US Congress ratifying and passing it.

JOURNALIST: Mr Costello what sort of Budget are we going to see in May.

TREASURER: A good one.

JOURNALIST: ... and is tax reform going to be part of that Budget?

TREASURER: No, tax reform's not a part of the Budget. Tax reform is something that we're going to debate out in a policy sense and seek a mandate for at the next election. Now you know a lot of people say well why are you seeking a mandate for tax reform. The truth of the matter is that you have to legislate tax reform and that means you have to get legislation through the Senate, and that's why we're seeking a mandate. Just as we sought and received a mandate on the Charter of Budget Honesty Bill.

JOURNALIST: How soon will the tax package be out and how long will the Australian people have to debate that policy?

TREASURER: Well I think we've got to start debating tax now. We don't have to wait to debate tax, we should be debating it now. We should be discussing it now.

JOURNALIST: ... package in the middle of an election campaign?

TREASURER: Oh no, well announce our policy at a time that gives the Australian people a lot of information and at a time of our choosing.

JOURNALIST: Before the election campaign?

TREASURER: Oh yes, yes I've said before that we'll announce our policy before the campaign and we'll be seeking a mandate for it. Two more questions.

JOURNALIST: Is one of the items you're going to be looking at, just looking at this Tax Expenditure Statement ... tax expenditures. Is this one of the areas ... looking at this area as part of your tax reform ...

TREASURER: We always look at it Tom and you've always got to be vigilant in response to it but you wouldn't want to read too much into it. I think I announced in one Budget that we were going to continue to monitor tax expenditures and I think one of the business magazines came out with a shock horror front page, you know superannuation to end or something. It doesn't mean anything specific it just means that whereas people know where their money is going if it's an outlay, there's not nearly as much consideration of it if it's a tax expenditure. And what we're trying to do is to work hard to educate the public, and the Parliament for that matter, on tax expenditures.

JOURNALIST: It just shows your tax expenditures run about 50 per cent stronger than your outlays growth. Does that worry you?

TREASURER: Well I always prefer outlays, because they're subject to more scrutiny and see that's one of, let me give you an example, one of the changes that we made in relation to a lot of RD expenditure was to pull it out of the tax expenditure side and put it onto the outlays side and I think it's a much better way of doing things. Last question.

JOURNALIST: Have you settled on a name for your broad based indirect tax, is it a GST, ... or some other variation?

TREASURER: Broad based indirect tax will be fine.

JOURNALIST: Treasurer a final Dorothy for you, can you give a political reading of this document in the lead up to the next election.

TREASURER: What this document says is we've made enormous strides. We are within sight of our goals and by 1998-1999 we now have the opportunity to achieve them, to do the big historic turnaround in relation to the Commonwealth Government to take Australia from being a deficit and debtor nation and allow us to stand tall because we're paying our way, we're living within our means and we're getting the national mortgage under control. And we're getting the national mortgage under control at the same time as we're reducing the interest rates, and for families that have seen the great benefits of lower interest rates and repayments on their mortgages, who now have the confidence to go out there at Christmas time, they can know that the Commonwealth Government is doing the same thing, it's getting the mortgage down, the interest rates down, and what that means is in the years to come we'll have our income available to spend it on roads and bridges and education and health and all sorts of opportunities that we wouldn't have had if we hadn't done the big historic turnaround. So I . ..

JOURNALIST: Did you release it now because you need the political boost now rather than next year?

TREASURER: I released it now, to be frank, so that you could all go off and have a good Christmas and I could go off and have a good Christmas and you could all have a peaceful January and you wouldn't have me pulling you in. So I wish the Australian press gallery, all of my friends, a very happy Christmas.