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Treasurer announces budget surplus of $4.6 billion.



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This transcript has been prepared by a source external to the Department of the Parliamentary Library.

 

It may not have been checked against the broadcast or in any other way. Freedom from error, omissions or misunderstandings cannot be guaranteed.

 

For the purposes of quoting verbatim from a transcript, it is advisable to verify the transcript against the broadcast.

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PM

 

Monday 8 December 2003

Treasurer announces budget surplus of $4.6 billion

 

MARK COLVIN: First to a day of economic news that's been extremely positive for the Federal Gover nment. First the Government revealed that surging company tax receipts would see the budget surplus more than double to $4.6 billion, and next year's surplus nearly triple to $3.8 billion. 

 

The Reserve Bank Governor, Ian Macfarlane, and the Federal Government have had their differences in the past - the need to raise interest rates last week the most recent. But they agree on one thing: the Australian economy is going from strength to strength.  

 

Mr Macfarlane used his twice-yearly appearance before the House of Representatives Economics Committee to forecast that the improving economy would generate a growth rate next year of up to 4.5 per cent, one of the highest in the industrialised world - all very useful for a Government heading into an election year and contemplating further tax cuts. 

 

Michael Rowland reports.  

 

MICHAEL ROWLAND: He's the scourge of home-owners, real estate agents and the building industry, but Ian Macfarlane insists the Reserve Bank, in raising rates, hasn't singled out the housing market. 

 

IAN MACFARLANE: It is clear that despite our best endeavours to explain ourselves, a number of people think that the bank tightened monetary policy to cool down the property market. In fact, I have more than once received unsolicited advice that it would be better for us to explain our action in this way because people could more easily identify with it.  

 

The overheated property market is something that people can see around them. It is much more concrete than such concepts as inflation targeting or returning interest rates to normal.  

 

However, such an approach would not be consistent with the truth. For a start, signs of overheating in the housing market were clearly evident through the second half of 2002 and all through 2003, yet the bank did not change monetary policy.  

 

It was only when it became clear that good economic growth had returned, both globally and domestically, that rates were raised. 

 

MICHAEL ROWLAND: Mr Macfarlane spent a large part of his three-hour appearance before the Parliamentary committee attempting to justify the two rate increases. He said he felt sorry for those who've just taken out a mortgage, but believed most home owners would take the higher rates in their stride. 

 

IAN MACFARLANE: On the average mortgage, it's $60 a month or $62 dollars a month more, or something like that. And we know that half of the borrowers probably won't feel it at all, because they've been paying more than their minimum anyhow. So in terms of actually squeezing people, it's not a very big squeeze.  

 

MICHAEL ROWLAND: That may change if the RBA raises rates even further early next year. But on this front the MPs got little joy from the Reserve Bank Governor. 

 

In fact, Mr Macfarlane said he wanted to, in his words, "hose down speculation rates (which) were still on the way up", pointing out the last two increases may have already achieved the bank's broad objectives.  

 

One of these is to keep a lid on inflation, and Mr Macfarlane took issue with critics who have been arguing inflation was already well under control before the central bank started raising rates.  

 

IAN MACFARLANE: It does seem plausible to us to argue that the bank could have been confident of meeting its inflation commitments if interest rates had been held at 30-year lows in the face of the pick-up in the international and domestic economies that is currently underway.  

 

MICHAEL ROWLAND: And Mr Macfarlane expects this pick-up to be even more evident next year, forecasting an economic growth rate for 2004 of 4 per cent or maybe even higher. The bullish outlook was echoed by Federal Treasurer Peter Costello who, at the same time, was unveiling the Federal Government's mid-year economic review. 

 

Growth for this financial year has been revised upwards by half a per cent to three-and-three-quarter per cent, thanks to the improving world economy and the easing of drought conditions across much of Australia. And a boom in company tax receipts has resulted in the forecast budget surplus this year more than doubling to $4.6 billion. 

 

Peter Costello.  

 

PETER COSTELLO: We are in a much stronger position than the United States or Europe or the OECD countries, which are all running very substantial budget deficits. But the Australian financial position is strong.  

 

MICHAEL ROWLAND: So will the windfall be spent on further tax cuts? 

 

PETER COSTELLO: It's a surplus, and I think it's responsible to run a surplus. What we decide to do in next year's budget will be announced at the time of next year's budget.  

 

MARK COLVIN: The Treasurer, Peter Costello, ending Michael Rowland's report.