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Economics Legislation Committee
Fiscal Group

Fiscal Group

CHAIR: Good evening and welcome to officers from Fiscal Group and Mr Ray. I should offer you an opportunity to make an opening statement if you wish to.

Mr Ray : No, thank you.

CHAIR: Minister, prior to the 2014-15 budget, what was the trajectory for real expenditure growth that you inherited from the previous government? Did this reflect Labor's fiscal rule to limit Commonwealth expenditure growth to two per cent?

Senator Cormann: The short answer to the last part of the question is no, it did not. The spending growth trajectory reflected in MYEFO, which is the spending growth trajectory we inherited as a result of Labor's last budget, shows spending growth in real terms over the medium term of 3.7 per cent. We inherited a trajectory of 3.7 per cent real growth in payments per year in the medium term, which is of course much above the two per cent real growth in payments that the previous government talked about a lot. To achieve two per cent real growth in payments to 2024-25, we would need to reduce payments by $282 billion. The further point I would make is that, with everything we did in this budget that the Treasurer delivered a few weeks ago, real spending growth will be still 2.1 per cent in 2016-17, it will be 2.6 per cent in 2017-18 and on average 2.7 per cent in the medium term to 2024-25.

CHAIR: Just for clarity, that is after we have made the savings that we are looking to make in this budget?

Senator Cormann: After everything that we have put forward as savings measures in this budget, including the more realistic spending growth trajectory for health and education, the spending growth trajectory over the medium term on average is still is 2.7 per cent to 2024-25. In fact, $117 billion in additional savings measures would be required over the next 10 years to get us to a situation where real spending growth is limited to two per cent as a share of GDP. The point that we would make towards the alternative government is: if you are telling us that everything is easily fixed by complying with this two per cent limit of real spending growth year on year, tell us where you are going to find all of these other savings. It is one thing to say that you have got a rule like that and to have that reflected with adjustments, that I am sure Mr Ray will be able to talk through, in the forecasts and the projections for the out years, but it is quite another thing to actually make the decisions to ensure that, as a government, you comply with that rule and you actually make decisions to ensure that you can stick to that limit of two per cent. I will just say that again—with all of the decisions that we have put forward in this budget, even we have not been able to get down to the two per cent limit in real growth in spending over the medium term; we are at 2.7 per cent. On top of everything that we have done, Labor would have to identify another $117 billion worth of savings over the next decade in order to get real spending growth in payments down to two per cent over the next 10 years.

CHAIR: You mentioned that they would need to find another $117 billion in savings to get down to the two per cent they were talking about. Prior to the election, they were talking about some savings that they were going to put in place, but I believe they are now opposing those very same savings. What is the total of the savings that they announced when they were in government, but which they are now opposing in opposition?

Senator CORMANN: Right now, Labor is opposing about $40 billion worth of savings. It is sort of a moving feast, and it does change from day to day. But what we do know for certain is that out of $20 billion of savings the government put forward before the budget, $5 billion of those savings were actually initiated by the former government. Not only were the $5 billion in savings initiated by the former government, but they banked the fiscal impact of those savings in the budget.

CHAIR: Which they are now opposing?

Senator Cormann: Which they are now opposing. So they never legislated those savings; they never did the hard yards to give effect to those savings. In taking responsibility for the budget situation that we have inherited, we are now trying to implement savings that Labor in government initiated and banked in the budget but never had the guts to actually put into practice. Now they are standing in our way as we seek to implement $5 billion of those savings.

CHAIR: Again, in the context of the fact they were talking about a two per cent real growth in spending, which would require $117 billion more in savings to achieve.

Senator Cormann: It was always a bit of a furphy.

CHAIR: It sounded good.

Senator CORMANN: It was perhaps an aspiration, but it was one that they were never going to be able to achieve, because they have never told anyone how they were going to fund it. To link it to some of the judgements we have had to make in relation to the health and education funding growth trajectories, Labor made promises about how much spending would increase by over the medium term. But in practice, those promises were never funded, or at least Labor never identified what other savings they would make in order to get themselves to a two per cent spending growth trajectory in real terms, as well as funding all of the massive increases in spending in health and education.

CHAIR: Putting all that together, what is the tally of savings needed to achieve a limit of two per cent real expenditure growth, if we add together the pre-budget savings opposed by the opposition, plus savings announced in the budget, and additional savings that would be needed if we keep spending within that two per cent figure?

Senator CORMANN: Essentially, there are two figures. The spending growth trajectory we inherited from the previous government was for 3.7 per cent real growth in payments per year in the medium term, to achieve two per cent real growth in payment to 2024-25. Instead, we would need to reduce payments by $282 billion over that period. As I have mentioned earlier, even with everything we delivered in the budget in terms of savings measures—and this is for the benefit of Senator Wong, who had to leave us for a moment—real spending growth is still 2.1 per cent in 2016-17, 2.6 per cent in 2017-18, and, on average, 2.7 per cent in the medium term, to 2024-25. To reduce real spending growth in payments to two per cent, another $117 billion of additional savings measures would have to be identified, on top of everything we have put into this budget, over the next 10 years.

CHAIR: Mr Ray, could you tell me where in MYEFO it shows that underlying real growth in spending in the medium-term period, left behind by the former government, was 3.7 per cent?

Mr Ray : I think the safer way to answer that question is to leave out the 'left behind by the former government' bit and say that in MYEFO the average annual real expenditure growth of 3.7 per cent from 2016-17 to 2023-24 is set out on page 23 of MYEFO.

CHAIR: Leaving out the former government, you are saying that in the absence of—

Mr Ray : In the absence of policy change, as at MYEFO—

CHAIR: That is where we were heading.

Mr Ray : That is where you were.

CHAIR: 3.7 per cent growth in real expenditure

Mr Ray : Yes.

CHAIR: I will bring the former government in here then. The former government's fiscal strategy involved real growth in spending of two per cent. Is that correct? Was that their fiscal strategy?

Mr Ray : Technically, the fiscal strategy was achieving a surplus on the underlying cash balance on average over the cycle, maintaining tax to GDP at 23.7 per cent—which was the level they inherited from the government before that—and improving the balance sheet over time through improving net financial worth. That was the medium-term fiscal strategy that they took to the election in 2007 and they kept that all throughout their term. Under the Charter of Budget Honesty, when—

CHAIR: They kept that strategy, but not—

Mr Ray : Yes. Under the Charter of Budget Honesty, if the budget is going into deficit, a government is required to set out how it will return the budget to balance. The former government originally called it the 'deficit exit strategy'. I cannot recall what it was called in the 2013-14 budget, but in that bit they had a set of rules which said they would maintain real growth in payments to two per cent on average until the budget returned to a surplus of one per cent of GDP. It was not part of the medium-term fiscal strategy per se; it was part of that second set of rules.

Senator Cormann: The important point to make is that everyone would remember in the 2012-13 budget when the then Treasurer said that the surplus years were here, that the budget would be back in surplus four years in a row—

CHAIR: I remember that.

Senator Cormann: We know what happened to that. The truth is that, based on everything that we know now about the spending growth trajectory and the revenue growth trajectory, there is no way that we would have had surpluses as far as the eye can see without corrective action.

CHAIR: How was the two per cent assumption from their deficit exit strategy built into the previous medium-term modelling in the previous budget?

Mr Ray : The medium-term modelling is built up from a set of economic models. It is built up from a population model which feeds through into a labour force model and feeds back into the economic forecasting projections. The population model then also feeds into a series of models on expenditure heads that have demographic factors in them, such as health, education and transfer payments to households. For a range of other spending, in the medium term we use a technical assumption that is built on a reasonable view of the past, and that is that we hold a lot of spending constant as a proportion of GDP.

CHAIR: We might have been through some of that before.

Mr Ray : There is another set of spending heads that we have specific information about. For example, we had information about the path of overseas development assistance. What we do is allow all of that to work unconstrained and then we constrain it to two per cent real growth, and we do it through the spending heads, which are not driven by demographics. That is how it was done. PEFO was the last time that we did it.

CHAIR: In this budget, where does it show what the real growth in spending now projected across the medium period will be?

Mr Ray : It is in budget statement No. 3, page 3-9. There is a slight technical element to this. The number that the minister cited before was 2.7 per cent of GDP, which you will see on page 3-9. That is in the tax cap scenario. The difference between the tax cap scenario and the no tax cap scenario on the payment side is to do with public debt interest, so there is a slight difference. But in the tax cap scenario—

CHAIR: Are you saying there is a slight difference between what the minister said and what is in there?

Mr Ray : No, there is no difference.

Senator Cormann: No difference at all. We are 100 per cent consistent.

Mr Ray : He was referring to that scenario and—

CHAIR: You were just highlighting which scenario the minister was referring to?

Mr Ray : Highlighting which scenario it relates to. It is 2.7 per cent from 2018-19 to 2024-25, compared to the 3.7 per cent at MYEFO.

CHAIR: Once again, to confirm what the minister said earlier, even with all the structural decisions that have been taken in this budget, and assuming that they get through, which is what is assumed in the budget papers, in this budget real spending growth would still have been above two per cent in the medium-term period.

Mr Ray : That is correct.

CHAIR: I have some questions on hospitals and schools. There has been a lot of discussion about that in the public arena. The slower level of growth in hospitals and schools funding would still see a real growth in these areas of funding because of the new indexation arrangements—that is correct, isn't it?

Mr Ray : At the aggregate level, it is still a real increase—that is correct. But that is driven by population growth.

CHAIR: Will spending on hospitals by the federal government increase each and every year, even over the medium-term period?

Mr Ray : Correct.

CHAIR: And spending on schools will increase each and every year, even over the medium-term period?

Mr Ray : That is correct.

CHAIR: What was the gross debt on issue anticipated to reach by the end of the medium term at the time of MYEFO?

Mr Ray : Six hundred and sixty seven billion dollars.

CHAIR: And that $667 billion assumes there is no tax relief?

Mr Ray : That is correct.

CHAIR: What would it have reached if there was tax relief?

Senator Cormann: You mean tax cuts to adjust for bracket creep?


Senator Cormann: There were no tax cuts to adjust for bracket creep.

CHAIR: That is without it, isn't it—the $667 billion?

Senator WONG: It is in the document.

Senator Cormann: The $660 billion debt figure assumes that there are no income tax cuts to adjust for bracket creep. If you did include an assumption, I think there is a box somewhere in the budget papers which says that the figure would be $748 billion, from memory.

Mr Ray : It is on page 3-13.

CHAIR: For clarification, providing tax relief for bracket creep enables people who are earning incomes to maintain the real level of tax that they pay?

Senator Cormann: Mr Ray might be able to assist with the detail, but there is an assumption built into the model that revenue as a share of GDP would not go above a certain level. The only way you can ensure that that share to GDP ratio is maintained is by assuming that there will be income tax cuts to adjust for bracket creep. The important point is that, even after we have taken that into account, consistent with the decisions that we have put forward in this budget, debt would be down to $389 billion by 2023-24.

CHAIR: Taking into account the decisions that were announced in the budget?

Senator Cormann: Instead of the $748 billion.

CHAIR: Then that figure actually does include an assumption that tax relief for bracket creep is provided.

Senator Cormann: The $389 billion, yes.

CHAIR: That is right. So the $748 billion compared to $349 billion on a like-for-like basis in terms of bracket creep—

Senator Cormann: It is $748 billion compared to $389 billion, yes.

Mr Ray : I have noticed a typo.

Senator WONG: Only now?

Mr Ray : Yes, just now.

Senator WONG: See, they must have been prepared quickly. You usually fix that stuff, Mr Ray.

Mr Ray : The sentence should read 'compared to $748 billion if a tax cap had been in place', not a 'tax cut'.

CHAIR: Okay. Thank you.

Senator GALLACHER: I was advised that this is the appropriate area to ask about modelling.

Mr Ray : It depends which modelling.

Senator GALLACHER: What about the Medicare co-payment modelling? Is this the appropriate area to ask whether you have done that modelling?

Mr Ray : It is the appropriate area to ask.

Senator Cormann: Which modelling is this, sorry?

Senator GALLACHER: The Medicare $7 co-payment.

Senator WONG: Let us ask an open question, if I can assist. Did Treasury undertake any modelling or assessment of the impact of the $7 co-payment?

Mr Ray : I will try to answer with an open answer. It would not surprise you that we provided advice to the Treasurer on the Medicare co-payment.

Senator GALLACHER: The very specific question is: did Treasury undertake modelling about the impact?

Mr Ray : The issue there, Senator, is we get into extremely complex discussions about what modelling is. What I can tell you is that we provided—

Senator GALLACHER: Can you tell me your definition of 'modelling', so I can understand what you are saying to me?

Mr Ray : Did we put it through a microsimulation model? I think the answer is no.

Senator GALLACHER: What is a microsimulation model?

Mr Ray : A microsimulation model is a model such as the model that might be used to assess the impact of—I will give an example of something that was not in the budget—a change in the superannuation guarantee charge on retirement incomes over time for different cohorts. We have a microsimulation model which has I don't know how many hundred thousand bits of data in it that we use in order to do that.

Senator GALLACHER: Okay, so it wasn't a microsimulated. What other alternatives would there be in modelling?

Mr Ray : You can use a model which could be a simple single equation model. There are a range of different ways you can think about modelling.

Mr Ray : Okay, I will cut to the chase: someone has written to you under FOI and requested the modelling in relation to the Medicare $7 co-payment and you have replied that it is too big or too complex to comply with. But you have done it. Basically the reply said: 'It's just too unwieldy. It's too big a file.'

Mr Ray : I would need to have a look at the nature of the exact request.

Senator Cormann: Bear in mind that these sorts of considerations are part of the deliberative processes of cabinet, by definition. When you are putting a lodger together, the ERC has, obviously, a hell of a lot of meetings considering information and advice put forward by the various agencies of government. You would be aware and this is consistent with the way these matters were handled when you are the government. Obviously there are some exemptions in relation to FOI and other such processes when it comes to documents that are part of the deliberative processes of cabinet.

Senator GALLACHER: That is fine. All I am trying to establish is that I have been told that a request for the modelling was not complied with—that is, it has been done—

Senator Cormann: But not complied with?

Senator GALLACHER: The request for the documents, because they were too big.

Senator Cormann: But the point I am making is there are a range of reasons. This is literally a core part of the deliberative process of cabinet and there are exemptions in the FOI legislation.

Senator GALLACHER: I have no problem with that. I am just trying to seek the answers to a very specific question.

Senator WONG: Perhaps Mr Ray could answer a question, also given you are not the Treasurer.

Mr Ray : I was not aware of the exact circumstances, but now I am, I think. We received an FOI request which was quite broad in scope and we said that that would require an unreasonable diversion of resources to look into it. My understanding is that we now have an amended request that we are looking at. In the normal course of business we will probably talk to the applicant. That is where we are.

Senator GALLACHER: That is fine. That is basically all I wanted to know.

Mr Ray : We will talk to the applicant.

Senator GALLACHER: In respect of that, that is all I wanted to know. What I wanted to ask you, though, is the advice that you have given to government, has that factored in what this co-payment will do to, particularly, vulnerable people: people who are not able to pay it, people with mental illness—I could go on with a list a yard long of potentials. Was there modelling about the impact in areas where it could be extremely punitive?

Mr Ray : This is an area where we get very close to providing advice. It is not normal for us to provide information on the nature of our advice, but you can expect that for a policy of this nature we would provide quite comprehensive advice to the Treasurer.

Senator GALLACHER: Was that advice or that modelling provided to the Commission of Audit? I first heard about this Medicare $7 co-payment through the media and the Commission of Audit. Were those unelected people also privy to this modelling and advice?

Mr Ray : They certainly would not have been privy to the advice that we provided to the Treasurer, no.

Senator GALLACHER: Unless the Treasurer gave it to them?

Mr Ray : Unless the Treasurer gave it to them.

Senator GALLACHER: That is exactly right. So we are expected to sit here and accept that the Commission of Audit made a recommendation on the basis of their knowledge and experience in the medical industry without proper due diligence and proper advice from the people who are supposed to do it, which is, I am told, the Fiscal Group?

Senator Cormann: I have to make a correction here. I am fairly confident that the Treasurer would not have handed Treasury modelling to the Commission of Audit. That is just not the way that process operated. The other point I thought I would make, which has been made before, is that the Commission of Audit provided a report to government, which was one of the imports into our budget process; it was not a report from government. I am happy to take on notice and check with the Treasurer personally and directly, but I am fairly confident that the Treasurer would not have handed Treasury modelling to the Commission of Audit. The process and the way it operated was that there was a level of appropriate interaction, of course, between the Commission of Audit and all relevant agencies of government. But Mr Ray has answered your question in relation to Treasury.

Senator GALLACHER: I accept his answers.

Senator Cormann: I thought I would put that on the record.

Senator GALLACHER: I am very happy with the answer. My question, I suppose, now turns to: what were the arrangements with the government and the Commission of Audit in terms of facilitating them in order to come up with their advice to government?

Senator Cormann: We went through this in some detail, including in the Senate Select Committee on the Commission of Audit. There were a number of officers from Treasury and from Department of Finance—and I believe from some other agencies, PM&C—that were seconded to the Commission of Audit secretariat, which was headed by Peter Crone, who were specifically recruited for that purpose to run that secretariat. Of course, there was interaction in terms of information gathering—

Senator WONG: Was he bloke that is on the eminent persons contract?

Senator Cormann: Sorry?

Senator WONG: The eminent persons contract?

Senator Cormann: That is right.

Senator WONG: And you decided he wasn't an eminent person after all?

Senator Cormann: It was a decision by government to recruit him into that role.

Senator GALLACHER: I am actually trying to constrain this not to the rights or wrongs of what the government is doing; I am actually asking very specifically, in regard to vulnerable people who access doctors, who may (a) not have the money, (b) not have competency about making appointments through psychiatric illness or the like, was any modelling done and given to the Commission of Audit by anybody? Was that even taken into account?

Mr Ray : I am afraid that we are not privy to what material was in front of the Commission of Audit.

Senator Cormann: To be honest, that is a question that is appropriately put—and indeed has been put—to the Commission of Audit at various times.

Senator WONG: It is highly appropriate for him to ask that here today.

Senator Cormann: Mr Ray has provided an answer in relation to what Treasury—

Senator WONG: You might not like to listen to this.

Senator Cormann: has done, in terms of its interaction with the Commission of Audit. In terms of the where the Commission of Audit got various pieces of advice or information from, then that is really matter that only the Commission of Audit can authoritatively answer.

Senator GALLACHER: I accept that. Why I ask this question is because there are media reports that the head of the Commission of Audit recently used incorrect figures to claim there was a higher average rate of visits to doctors. We do not know the Commission of Audit head. Quite rightly, they are your advice group over there. He is in the media, being accused of using incorrect data in respect to average visits to doctors. The article actually says:

…recently ran into trouble when he used incorrect figures to claim there was a high average rate of visits to the doctor.

So my question then becomes more pertinent, because whoever was advising him did not get that right. How do I know that he got this other end of the business right?

Senator Cormann: The important point here is that the Commission of Audit provided a report to government, which was one of the inputs into the budget process. The government, as we went through all of the information and all of the options in terms of judgements that we had to make, sought advice from a range of other sources. Principally, that was the exceptional senior officers in Treasury, finance, PM&C and the like in the various portfolio agencies. They were able to provide us with all of the information that we needed in order to make the best possible decisions.

In relation to the particular issue that you are asking questions about, obviously beyond Treasury, officials from the Department of Health would have been involved in the discussion and so on. If your question is, 'Would the expenditure review of government and ultimately the cabinet have made decisions purely and solely based on findings and asserts made in the Commission of Audit report,' then the answer is no. Clearly, we tested any recommendation and any information that was put to us through that process. Appropriately, that was through all of the established channels of government and all of the established sources of advice.

Senator GALLACHER: So the buck stops with you, as the Assistant Treasurer; the Treasurer and the government. Basically, if there are vulnerable people out there who may need to visit the doctors for a psychiatric illness or whatever illness they have, it is a regular event and may—in terms of their income—tip them over the edge, you have actually looked at that. You have factored that in. Has the government actually scrutinised the effect this could possibly have on the people who do not have the capacity to pay, through no fault of their own?

Senator Cormann: The government has assessed all of the information in relation to this particular measure. Our overwhelming objective in putting that particular measure together was to ensure that access to our world-class healthcare system remained available and affordable for all and that it was sustainable, because it also remained affordable for the taxpayer.

These are the sorts of judgements that previous Labor administrations failed to make as well, because there is a real challenge. When you do have growth in utilisation, it comes on top of growth in the cost of the individual service. If you want to make sure that you manage that growth in expenditure that comes as a result of growth in utilisation, as well as growth in cost per service, you need to make certain judgements. A judgement we made is that a price signal of $7 per visit, with appropriate safety nets and appropriate safeguards for lower income Australians, was the best way to ensure that access to our world-class health system remained affordable into the future for the taxpayer and for patients.

Senator WONG: You were very upfront about that before the election too! I want to clarify a couple of things with Mr Ray on this point. I am not asking what the conclusions were or what the data said, but did Treasury conduct an assessment of the demand impact of a co-payment? Is that the term I should use?

Mr Ray : Yes, I know what you mean. The response or the elasticity. The Department of Health and the Department of Finance agreed to that in the costing process.

Senator WONG: Was that based on Treasury data?

Mr Ray : No, it would have been based on health data.

Senator WONG: Are you aware of what was agreed in the costing process?

Mr Ray : Yes, I think that has already been asked. I think finance answered that.

Senator WONG: I might have been out of the room.

Mr Ray : It was one per cent.

Senator WONG: Did you undertake what I think is called a distribution analysis? So how the co-payment might effect different cohorts, different demographics, different income groups and different family types?

Mr Ray : That is going to advice to government.

Senator WONG: I am not asking what the analysis showed. I am asking if you undertook it.

Mr Ray : Not in the way that you might think about distribution analysis in terms of direct payments to households, such as transfer payments or taxes. That is, direct payments from households to government. That sort of distribution analysis is undertaken not of a co-payment, per se, but of all services provided by government. It is undertaken by the ABS on an periodic basis and with a long lag.

Senator WONG: That was a nice diversion, Mr Ray. But I am asking what you did.

Mr Ray : As you know, we do not normally discuss what we may or what we may not have done in the advice that we provided to the government.

Senator WONG: I am not asking you what was contained in the advice.

Mr Ray : I know.

Senator WONG: The Senate is very clear about the scope of its inquiry. I am simply asking what assessment, in terms of impact, did Treasury undertake in relation to the co-payment?

Mr Ray : I understand what you are asking. I am happy to take it on notice and check.

Senator GALLACHER: The fuel excise is calculated to raise about $2.2 billion.

Mr Ray : In net terms that is correct.

Senator Cormann: That is for revenue group, as much as we hate to say and as much as we would like to be helpful. I can understand your interest.

Senator WONG: Mr Ray knows what happens on both sides of the ledger. That is why they are called fiscal group.

Senator Cormann: That is exactly what I used to say.

Senator WONG: He is not going to ask a detailed design question, I am sure.

CHAIR: Order.

Senator Cormann: I understand why he is interested.

Senator GALLACHER: Just in terms of modelling, the impact on regional areas of Australia would, to me, logically be a greater impost due to the additional kilometres that country people drive. Is that an incorrect analogy? Is that an incorrect statement?

Senator Cormann: Before Mr Ray answers this, the point I would make—

Senator WONG: He is very sensitive!

Senator Cormann: is that the decision that we have made to reintroduce indexation of the fuel excise is a decision effectively to ensure that the rate of excise remains constant and keeps in line with the pace of inflation. What was happening under the situation since 2011, when the regular indexation of fuel excise was stopped, was that in effect since them we have had regular real cuts—

Senator WONG: No new taxes!

Senator Cormann: in the rate of fuel excise. The decision that we have made is a structural decision in the context of record investment in productivity enhancing road infrastructure. In our judgement and in the context of the state of the budget more generally, it was a justified decision.

Senator GALLACHER: I am not arguing the decision. I accept that you are the government, you have made a budget and you have increased the fuel—

Senator Cormann: It is about providing a secure funding source for road funding into the future.

Senator GALLACHER: Excellent. My question is: in this fiscal division or group, are these decisions made after assessing the impact on regional areas of Australia, which logically would have a greater impost due to the additional kilometres driven?

If I cite my own example in travelling around the seat of Grey, I can pay anywhere from a $1.58 to $1.95. Not only do they already have higher prices but I think they have higher kilometres. Was any modelling done on that at the inception of this fuel excise levy?

Senator Cormann: Firstly, the point to make here is that all of the decisions that the government make in terms of the budget we assess and make judgements about their impacts on a whole range of areas, including how they impact on the community, the budget and our capacity to make future investments in important productivity enhancing road infrastructure so we can continue to build a stronger more prosperous economy. Of course all of these things are taken into account. In the end, we have to make a judgement. The question that you ask on how we get to that decision, in the final analysis, is it a question that goes to advice to government. But I can assure you that the government very carefully considered all of these matters and, in the end, made the judgements that are reflected in the budget papers.

Senator GALLACHER: I think that was a very long yes.

Senator Cormann: It was a yes, indeed. We do take these things into account.

Senator GALLACHER: I accept that. That is fine. You have mentioned the increased roads funding. So the fuel excise levy will raise revenue and you will invest it back into roads?

Senator Cormann: The fuel excise is not a new tax, incidentally. All we have done—

Senator WONG: Oh, right—you go out there and explain that. You go out there and tell them that there are—

Senator Cormann: is to ensure that the fuel excise keeps pace with inflation.

Senator WONG: no new taxes and that this is not a tax increase. What a ridiculous proposition.

Senator Cormann: That is why we made a judgement that, as has been the case in the past, prior to 2001, there should again be regularly indexation of the fuel excise.

Senator GALLACHER: In line with this increased investment in roads, the Deputy Prime Minister, the Hon. Mr Truss, and your government have instigated an adjustment of the way Infrastructure Australia works. Whether it is right or wrong, it is still in business. Infrastructure Australia would do road projects around the country and serve them up to the minister. That has been changed, hasn't it?

Senator Cormann: When we came into government, there were certainly some issues around the way Infrastructure Australia was operating. By the way, you are now well and truly going beyond the area of the fiscal group in Treasury. But, in order to be—

Senator WONG: 'In order to have the opportunity to speak a bit more I, Mathias Cormann, will now talk a bit more!'

Senator Cormann: In an abundance of helpfulness what I would say to you—and this is talking on behalf the government rather than on behalf of the Treasury—

Senator WONG: I do not know whether you or George Brandis love the sound of your own voice more, Mathias.

Senator Cormann: is that we had concerns about the way Infrastructure Australia operated when we came into government, in particular when it came to the interaction with state and territory governments. The Deputy Prime Minister is making the necessary changes and pursuing the necessary reforms in order to ensure that Infrastructure Australia can deliver the best possible value to taxpayers in the public interest. Obviously, in this whole infrastructure space, the government is making record investments. Not only are we putting record additional federal investment into productivity enhancing infrastructure; we have also come up with and put into the budget innovative ways to leverage further investment by state and territory governments and by the private sector. That is a very important part of this budget.

Senator GALLACHER: Thank you for confirming that Infrastructure Australia's remit will change under the Deputy Prime Minister, who is the leader of the Nationals. Minister, there are reports that there was immense pushback from regional MPs in respect to the excise levy. It is natural enough. I represent regional Australia and the constituents are getting a—

Senator Cormann: If I can make a general point—and I have made this on the public record before in a press conference—we understand why there inevitably is a level of concern in relation to some of the decisions that we have had to make, whether that is in relation to the fuel excise, the temporary budget repair levy or adjusting the unsustainable spending—

Senator WONG: It is not 'a level of concern'. It is outrage at the extent of the promises you have broken, Mathias. It is outrage at the extent to which you lied to the Australian people.

CHAIR: Order, Senator Wong!

Senator Cormann: I was asked a question by your colleague from South Australia—

Senator WONG: I think to suggest that people are not outraged at your lie.

CHAIR: Order!

Senator Cormann: and if you treated him with some basic courtesy—

Senator WONG: Your lying is a level of concern.

CHAIR: Senator Wong!

Senator WONG: It is completely Orwellian.

CHAIR: Come on, settle down.

Senator Cormann: Your colleague asked me the question.

Senator WONG: Oh yes, there is a minor concern that we completely lied.

CHAIR: Senator Wong!

Senator Cormann: I know that you are trying to get some news—

CHAIR: Order!

Senator Cormann: you are trying to get radio—

CHAIR: Minister, you have correctly pointed out that this line of questioning is actually in the wrong Treasury group.

Senator Cormann: I was calmly answering a question that was actually related to this.

Senator WONG: Blatant lying to the Australia people. Blatant lies—at length.

Senator Cormann: I was calmly answering a question by Senator Gallacher. So let me go back to the beginning.

CHAIR: If we could have some order please. Senator Wong, you will have an opportunity to ask questions shortly.

Senator WONG: I apologise to you. I just find it—

CHAIR: If you have issues with the comments that the minister is making, you will have an opportunity to test that shortly.

Senator WONG: I do think it is extraordinary that he calls people's outrage at the lies they have told a level of concern.

Senator Cormann: Who has the call, Chair?

CHAIR: Minister, can you please complete your answer—

Senator WONG: He says that all the lies we have told—

CHAIR: and, Minister, can I also suggest that you ignore interjections on my left.

Senator Cormann: Well, it is very hard to ignore.

CHAIR: I will try to keep her under control; you ignore her and answer the questions, so they can—

Senator Cormann: I will just go back to the question that was asked before Senator Wong rudely interrupted me while I was providing an answer to her colleague from South Australia, Senator Gallacher. I was asked was whether I was aware of concerns raised by regional members in relation to the changes we have pursued to the fuel excise. I was starting to say—and I will just confirm again—is that, obviously, we understand that when you have to make the sort of judgements that we had to make in this budget, in the face of a budget that was in a mess and in the face of debt and deficit disaster that we inherited from the previous government, then clearly, of course, there is going to be a level of concern about measures like having to make changes to the fuel excise and income tax rates in the form of a temporary budget repair levy.

Of course there is going to be concern about the sort of judgements required in order to put our spending growth trajectory on a more sustainable footing. But what I would say again, and what the Treasurer, the Prime Minister, I and everyone in the government has been saying for the last three or four weeks since we delivered the budget, is: we delivered the budget that Australia needs if we are committed to protecting our living standards and creating opportunities and stronger prosperity into the future.

We think that that is our responsibility. We have to work to protect our living standards into the future and to create opportunities for the future. Obviously, are all of these individual decisions going to be popular? No, they are not. We understand that. We did not make these decision out of fun. We did not make these decisions, because we thought there were going to be people dancing in the streets welcoming what we have done. We did it because in our judgement it is what is required to put Australia back on to a stronger trajectory for the future.

Senator GALLACHER: All I asked was whether there was any modelling done on the impact on regional transport.

Senator Cormann: Actually, that was not the question you asked. You asked me—

Senator GALLACHER: That was my initial question.

Senator Cormann: You said, 'Minister, are you aware of any concerns expressed by regional members of parliament about the changes to the excise?'

Senator GALLACHER: Yes, that was the subsequent question.

Senator Cormann: That was specifically the question you asked.

Senator GALLACHER: I think the chair said it was straying off areas of relevance to this group, but my original question was modelling—

CHAIR: Modelling is relevant.

Senator GALLACHER: in regional Australia. So my next question is: did the department do any modelling on the savings that might be achieved by altering the diesel fuel rebate?

Senator Cormann: There is no budget measure along the lines of what you are describing.

Senator GALLACHER: There is no plan to alter the diesel fuel rate?

Senator Cormann: It is manifest from the budget paper that there is no plan to alter the diesel fuel rebate—

Senator GALLACHER: I suppose I go back to modelling.

Senator Cormann: because the judgement the government has made is that the policy rationale for the diesel fuel rebate remains relevant today. The fuel excise is in effect a road-user charge. The diesel fuel rebate is in place for those sectors of the economy, for those businesses, who do not use the roads. It is for farmers, miners and so on.

Senator GALLACHER: I understand how it works, minister.

Senator CORMANN: And there are, of course, business input costs. As you would have astutely observed in the budget papers, there is no measure to make any change to the diesel-fuel rebate for these reasons.

Senator WONG: So you never considered it, therefore.

Senator GALLACHER: What I asked—perhaps ineloquently—was whether there was any modelling done prior to the budget on the diesel-fuel tax rebate. I have read about it in various areas that miners—

Senator Cormann: You should not believe everything that you read in the newspaper. I am sure you did not read that there was modelling done on the diesel-fuel rebate.

Senator GALLACHER: I did read that the mining industry lobbied very heavily to make it so it did not happen.

Senator Cormann: You are asking very hypothetical questions.

Senator GALLACHER: I am just asking if you modelled the diesel-fuel rebate prior to the budget.

Mr Ray : For as long as I can remember, the mining industry has raised this issue just before a budget, but the answer would go directly to policy advice, so it is not really a question that we can take in this committee.

Senator Cormann: The point that I would make very strongly and very firmly, consistent with what Senator Wong used to say, is that you cannot possibly ask Treasury to give comments on hypothetical scenarios based on hearsay. What we are here for is to be accountable for the budget that we have delivered and to answer questions in relation to the measures in the budget.

Senator GALLACHER: Fair enough. I will finish on this, if you like. The news story that is around at the moment, which is basically that you rubbed the Nats' nose in diesel to get the fuel excise levy up in the bush, is totally incorrect, is it?

Senator Cormann: I have seen that story and I have spoken to the journalist, and I can confirm that that story is completely inaccurate. No one that was actually involved in the process of putting this budget together and making judgements in relation to the individual measures required to repair the budget mess that we have inherited and to put Australia on a stronger trajectory for the future could possibly have made that assertion, because it is completely false.

CHAIR: I just have one question on that. Senator Gallacher raised the issue about the mining industry lobbying for the retention of the diesel-fuel rebate. Presumably—and I have certainly seen it in papers—the environmental lobby was lobbying against it. That is just a normal activity in the lead up to a budget where you have lobby groups with varying interests that try to attract the government 's interest to make sure that the government understands their perspective, is it not?

Mr Ray : What I was hinting at before is that my memory is not always good—

Senator Cormann: That is not true. His memory is very good.

Mr Ray : I think, before the 2013-14 budget, there were stories.

Senator Cormann: I remember those stories too.

Mr Ray : Before the 2012-13 budget there were stories. It is a budget-season regular.

CHAIR: My point is that it is not just one side that lobbies on this; it is usually that people with differing perspectives are constantly lobbying the government over any potential changes.

Senator Cormann: Let me make a very specific point. I am not sure whether it is lobbying, but the Greens asked me questions in Senate question time essentially suggesting that we should make a change, and somebody else says we should not make a change. The truth is that we have not made a change, which is obvious from the budget papers. We clearly do not see that there is a reason to make a change, because otherwise we would have made such a decision in the context of the budget.

Senator WONG: Senator Cormann, you have outlined the policy rationale, in part, for the rebate, which includes in particular that it is a tax on inputs, and you outlined why it is that one would not lessen it or remove it. Let me ask you this: did you ever consider removing it?

Senator Cormann: You would not be surprised to hear me say that I am not going to talk to you about the deliberation processes of cabinet. What I would say, though, is that in the lead up to a budget—and this is now not in relation to cabinet deliberations—you are torpedoed by friendly and constructive advice from a wide range of different sources with all sorts of different and mostly contradictory views. If you are asking me if I personally, prior to the budget, ever considered the policy merits of one scenario versus another, then sure, of course. I think about a whole range of different policy issues all the time so that I can make a reasonable contribution as part of the policy discussions within government. Whatever way you want to skin this cat, you would also have astutely observed in the budget papers that we made a decision to reintroduce indexation on the fuel excise, because we thought that was an important structural reform which would help us secure funding for road infrastructure into the future. We clearly did not make a decision to make any changes to the diesel-fuel rebate as it currently operates, the same as you decided not to make such a change in your last budget in 2013-14 when I am sure you would have been exposed to the same friendly and constructive advice from a range of sources as well.

Senator WONG: Is it not your problem, minister—and I notice you have commented on this on Twitter—

Senator Cormann: I corrected an inaccurate story.

Senator WONG: You commented in an attempt to get back control of the story. It appears that a very respected journalist has been backgrounded by members of your government about the diesel-fuel rebate being used to play the National party off a break and to soften and mute the opposition to the excise changes that one would otherwise have expected from people who represent regional Australia. If what your colleagues told the ABC is true, what has happened is that a Prime Minister, who has broken so many promises to the Australian people, has been also exposed as deceiving his coalition partners.

Senator Cormann: Senator Wong, there are a lot of ifs in there. There are a couple of points that I would make. Firstly—

Senator WONG: This is the backgrounding of your colleagues. It is not our story; it is your story.

Senator Cormann: If I could answer the question.

Senator WONG: I know you are sensitive about it.

Senator Cormann: I am not sensitive at all.

CHAIR: Senator Wong, you have asked your question. Please allow the minister to answer.

Senator Cormann: Firstly, I am in violent agreement with you that Mark Simkin is a respected journalist—

Senator WONG: Well he is not making it up, is he?

Senator Cormann: I totally agree that Mark Simkin is a respected journalist, but, in relation to this story, he got it wrong.

Senator WONG: Someone from your government told him. He would not have run the story unless members of your government had not backgrounded him.

CHAIR: Senator Wong, you are debating him. Allow the minister to answer, and then if you want to test what he says you can ask further questions.

Senator Cormann: If I had behaved the way you are behaving, you would have made all sorts of attacks accusing me of all sorts of things.

Senator WONG: You have done far worse, Mathias.

Senator Cormann: Let us just go back to the question. Firstly, I agree that Mark Simkin is a respected journalist. Secondly, the story that he has run tonight is inaccurate. Obviously I do not know who he has been speaking to, but the point I would make very clearly is that anyone who was involved in the actual process of putting the budget together would not have been able to come to that conclusion, because the process that the government undertook in relation to all matters related to the budget was a very cooperative, collaborative and positive process involving both Liberal and National party ministers. You would not be surprised to hear me say that the Deputy Prime Minister, in that capacity, is a very senior and highly-valued member of the expenditure review committee, and no part of the process that was undertaken in putting the budget together could possibly be characterised the way it was characterised in Mr Simkin's story tonight.

Senator WONG: As I said before, this is a story that has been generated because members of your government have backgrounded on this.

Senator Cormann: You assume that. You assert that, but who knows.

Senator WONG: I will respond to your assertion that what I said was incorrect.

Senator Cormann: I did not say that.

Senator WONG: You did. When I said that members of your government have backgrounded on this, you said that is not right.

Senator Cormann: No, I said you were assuming that.

Senator WONG: I am not assuming it. I am taking, at his word, a journalist from the national broadcaster, who you have acknowledged is a journalist of repute. Now I am happy to move onto the next point—

Senator Cormann: Sorry, you have made a comment that I have to respond to.

Senator WONG: You have already responded ad nauseam.

Senator Cormann: You have made some further comments and I am not just going to let them stand there.

Senator WONG: You played the Nats off a break, you have been caught out, can we just move on now?

Senator Cormann: I will say—

CHAIR: We are debating here again.

Senator WONG: Yes. You played the National Party off a break and you got caught out.

Senator Cormann: If you make these comments I am going to respond.

Senator WONG: That is what has happened.

CHAIR: Senator Wong! Please ask questions rather than debate.

Senator WONG: Well, I am trying to ask a question of Mr Ray—

Senator Cormann: No, you cannot come up with a political statement that has all sorts of assertions in it and not expect me to respond to your political statement.

CHAIR: Senator Wong, if you do make statements you will get—

Senator WONG: Yes I am about to. Can I have a question now please?

CHAIR: Yes, you can. Please ask it.

Senator Cormann: I would just like to correct—

Senator WONG: Thank you. Mr Ray can I ask you to—

Senator Cormann: No, sorry. I am going to respond to your statement.

Senator WONG: I have the call.

Senator Cormann: I am going to respond to your statement.

Senator WONG: I have got the call. Chair, I had the call.

Senator Cormann: I am going to respond to your statement, Senator Wong. I will say—

Senator WONG: Excuse me. Point of order, Chair.


Senator WONG: I had the call. You called me and I have a question. Thank you.

Senator Cormann: I have to respond to the statement.

Senator WONG: A point of order. I had the call and I was invited to ask a question and I am about to ask a question.

CHAIR: Senator Wong, you have been interrupting all night. The Minister has indicated he wants to make a further explanation on the basis of the conversation that you were having before when you should not have been having one. Please make your explanation, Senator Cormann, and then Senator Wong will get the call.

Senator Cormann: Thank you. I would say to the committee what I said to Mr Simkin tonight: there is absolutely no truth to the story that was run. Obviously, I am at a disadvantage because I do not know who Mr Simkin has spoken to, but what I do know is that no one that was actually involved in the process where these sorts of decisions were made could possibly and reasonably have come to the sort of conclusion that was reflected in Mr Simkin's story.

Senator WONG: Mr Ray, can I take you to an answer to questions on notice, question 3015?

Mr Ray : We do not have that one with us.

Senator WONG: I have marked my copy. Can we get a copy and give it to the department, if they do not bring their questions on notice answers to estimates?

While we are getting that copied, Mr Ray, can I take you to the historical tables in an answer to the set of dorothy dixer questions which were given in relation to MYEFO and the budget and conveniently ignored any PEFO? Can I just get you to confirm in terms of historical growth in payments, where you cite a figure of 3.7 per cent. I am at 10-6 of Budget Paper No. 1. You and I have had a conversation previously that that includes the 2008-09 year, which had a very substantial increase in payments. I am hoping that I did not write anything rude on the copy I just gave you, but it is all right, it is just lines.

Mr Ray : We have found a copy. So we can save you on rudeness.

Senator WONG: I can save my marked copy. It is all right, there was nothing expletive in it—it was just a line.

If you exclude, as you and I have discussed, by reason of the fact that there was the worst economic crisis since the Great Depression in the 2008-09 year, can you confirm that if you look at the 2009-10, 2010-11, 2011-12, 2012-13 budgets and assess the average of payment growth over those four years, that in fact it is less than two per cent? It is 1.35 per cent, I think.

Mr Ray : I think we discussed that last time.

Senator WONG: Yes; I just thought, given the evidence that we have had again and again—and we can go in a loop about the past over and over again every estimates—is that correct, Mr Ray?

Mr Ray : That is correct.

Senator WONG: Thank you. Can I go back to this question? Did I misidentify it—because it does seem to have two numbers on it—but I just took the question number. Is that the correct—

Mr Ray : We have 3014.

Senator WONG: But at the top it says 'question 3015'.

Mr Ray : It has two question numbers on the same page.

Senator WONG: Okay. You gave an answer in response to me—see on the second page, the last paragraph—where I asked you to talk about the parameter variations, which I think total $54.4 billion over the forward estimates, and I asked you to break it down. You say in this you decline to provide it to the Senate on the basis 'it would require significant resources to undertake this work'. That is not a basis on which the Senate agrees answers cannot be provided. I am happy to be helpful; if there is a way in which we can construct the question such that it matches better with how you construct the aggregate, I am happy to do that. But I do want to do that, so how would you like us to proceed?

Mr Ray : I will be very honest and say it is the first time I have seen that.

Senator WONG: You construct the aggregates. You have the 54.4. You are affirming it to major variations on page 38-39. The context of this discussion is what the changes in economic parameters do. Do you want to have a look at it?

Mr Ray : We can have a look at that, yes. You are not worried about $1 million here in a particular program?

Senator WONG: No. If that is the bit that means there is all this work we are going to have a huge fight about—

Mr Ray : That would take us through thousands of entries.

Senator WONG: Yes. I want to get some sense of what is driving the 54.4. Then I will ask the same question in relation to this budget as well.

Mr Ray : What you are asking is for us to split out to the extent we can what the economic parameters are doing rather than other variations.

Senator WONG: And are you able to give me the top 10 variations?

Mr Ray : The top 10 variations are probably already in the budget papers.

Senator WONG: I do not know if that is right, but perhaps we should go to that. You do not do that strictly by quantum. Page 326?

Mr Ray : It is done by quantum in the size of the first year—in this case the budget year—rather than the quantum across the four years.

Senator WONG: I want more detail of the 3.25 and 3.26, particularly on the economic program changes.

Mr Ray : Yes, I understand where you are going. Why don't we take that on notice and see what we can provide?

Senator WONG: Thank you. I would appreciate that. I go to the budget overview, which I am told is a Treasury document.

Mr Ray : It is the government's document.

Senator WONG: No, apparently it's a Treasury document!

Senator Cormann: No, what I said was that this is the government's document but that questions about the matters you wanted to ask about are appropriately directed to Treasury.

Senator WONG: Mathias, it's nine o'clock at night. I was being flippant.

Senator Cormann: I am just not going to let you verbal us.

Senator WONG: Oh dear; very sensitive! Mr Ray, I assume that this was drafted in Treasury and there were drafts provided to the Treasurer's office and other offices?

Mr Ray : The original draft of the document was done in the Treasury. Drafts were provided to the Treasurer's office. They may have been provided to other ministers' offices; in the case of this overview document I am not 100 per cent sure. I would be surprised if they had not been provided to certain officers.

Senator WONG: If they had not been provided to the office of the Minister for Finance, I assume he would be a bit grumpy.

Mr Ray : Yes.

Senator WONG: Approximately when was the first draft provided?

Mr Ray : Ms McCulloch advises me that the first draft was provided just before Easter.

Senator WONG: Thank you. When in relation to that—before or after—was the indexation decision which yields $80 billion of cumulative savings made?

Mr Ray : That goes to cabinet processes.

Senator WONG: I am not asking—actually I did not know that. But when was the decision made?

Mr Ray : That is a question about a cabinet process.

Senator WONG: You have been around a long time and you know decisions about timing have been asked and answered.

Senator Cormann: We might have to take that on notice.

Senator WONG: Then I will ask you. When was the decision made: before or after that?

Senator Cormann: I cannot recall. We made about 500 decisions just in relation to individual measures in the budget. There were obviously lots of decisions on all sorts of different aspects of the budget. In relation to that specific issue, I take that question on notice.

Mr Ray : I think that, when it goes to matters about cabinet, we would normally if not refer the question to PM&C at least consult with PM&C.

Senator WONG: Apparently this government likes to waive cabinet confidentiality anyway.

Senator Cormann: I do not want to provide a misleading answer, which is why I have taken the question on notice.

Senator WONG: Can you remind me when Easter was?

Mr Ray : Good Friday was 18 April.

Senator WONG: I assume there is an iterative process, changes proposed et cetera.

Mr Ray : Yes.

Senator WONG: Was the $80 billion in the original Treasury draft?

Mr Ray : I think that goes to the same question.

Senator WONG: Probably.

Mr Ray : We have taken that question on notice.

Senator WONG: Did Treasury calculate this figure?

Mr Ray : Treasury did calculate the figure, yes.

Senator WONG: When did Treasury calculate that figure?

Mr Ray : Before the budget. Again, that goes to the timing of decisions.

Senator Cormann: I might be able to assist you here. Obviously we are dealing with the graph and commentary on page 7 of the budget overview. If you look at the graph in relation to schools and to hospitals, you have the green dotted line, which represents—

Senator WONG: This is nothing to do with what I have asked.

Senator Cormann: unfunded spending promises made by the previous government. Then you have the continuous blue line, which represents the more realistic and affordable spending growth trajectory that we have reflected in the budget. The question that you asked goes to the difference between those two lines. That is where the more than $80 billion reference comes from. It is comparing the unfunded, pie-in-the-sky, aspirational spending promises made by the previous government in relation to schools and hospitals over the medium term compared to the more realistic trajectory that we have reflected in the budget as a result of decisions that we have made in the budget.

Senator WONG: Have you finished?

Senator Cormann: Yes.

Senator WONG: Thank you for reading your graph to me; I really appreciate it! I am very happy you read a graph and some paragraphs to me; I need you to do that!

Senator Cormann: It is a very important context.

Senator WONG: Mr Ray, I am asking a timing decision and I am not asking a cabinet decision on timing. I would say to you what the Clerk's advice would be: quite clearly, timing of cabinet decisions is within the purview of the Senate's inquiry. I am asking a question about your work. When did you first start working on calculating the difference that is explicated at page 7?

Mr Ray : When did we first start working on this particular calculation?

Senator WONG: Correct.

Mr Ray : Obviously sometime before the government took a decision. We would need to check our records. We do not keep records of when we first start to work on something.

Senator WONG: Did you do that as a result of a request for that calculation to be undertaken?

Mr Ray : Our original work on these calculations was part of the deliberative process of the government.

Senator WONG: Neither of those responses really go to the point. I know why you feel you are required to do that, but I am asking this question. It is a legitimate inquiry from a Senate estimates committee. It is about when you were first requested to commence these calculations.

Senator Cormann: We took that on notice earlier. That is specifically what I took on notice.

Mr Ray : I think we have taken two things on notice—just to try to be helpful, Minister. We have taken something on notice about when the decision was taken by government. The second thing on notice is when this topic first was in the budget overview document. We have also taken on notice when we first did calculations of this type, which go to the decision-making process.

Senator WONG: No, it does not actually go to the decision-making process.

Senator Cormann: It does—it absolutely does.

Senator WONG: No, well—

Senator Cormann: I have to respond to this, Senator Wong.

Senator WONG: Can I clarify my question?

Senator Cormann: You cannot make an assertion that it does not go to the decision-making process without that assertion being corrected. When we came into government, we were presented with a situation where we had a spending growth trajectory over the medium term that was running at 3.7 per cent on average year on year. We were also in a situation where there were deficits as far as the eye could see. A significant part of the reason why we had this 3.7 per cent real increase in spending year on year on average over the medium term was the unaffordable, pie-in-the-sky, unfunded spending promises the previous government made in the lead-up to the last election that were never reflected in any forward estimates in any budget. Obviously, for something to be funded you would have to show where the money comes from in the budget papers. The previous government never did that. Nevertheless, we inherited a funding growth trajectory in relation to health and schools which was not funded, so we then asked the question, appropriately: what is the difference between the pie-in-the-sky, unfunded promises to the states in relation to health and education made by the previous government and the more realistic funding growth trajectory that we believe is affordable for the Commonwealth based on the indexation formulas reflected in the budget? The difference between those two lines—the green dotted line and the continuous blue line—is more than $80 billion. That is something that, obviously, we sought advice about as appropriate. The questions that you are asking do go to the deliberative process of government and the decision making of government, because we made the judgements we made in the context of having to deal with an unsustainable, unrealistic, unaffordable spending growth trajectory that we inherited from the previous government, in which you were the minister for finance.

CHAIR: Senator Wong.

Senator WONG: Is he finished? Mr Ray, perhaps I can clarify: I am not actually asking about the decision-making process in the third or fourth question on notice you described. I am asking when you started—

Mr Ray : When did we first make a calculation of this nature.

Senator WONG: When you commenced the calculation, the work which comprises or underpins the $80 billion and this graph.

Mr Ray : When did we first started working on the work?

Senator WONG: Correct.

Mr Ray : I do not want to use the word 'modelling' because I will get myself into trouble.

Senator WONG: Shall we call them calculations?

Mr Ray : Calculations of this nature.

Senator WONG: I do not want a, 'We've done it for years; we'll take the question on notice,' answer.

Senator Cormann: Was that your trick when you were sitting here?

Mr Ray : To try to be helpful, we first worked on these calculations sometime before Easter. None of us can remember exactly the date.

Senator WONG: You did very kindly give that to me.

Senator Cormann: The 18th of April was Good Friday.

Senator WONG: Can you confirm that, with that figure, broadly you are looking at around 30 for schools and 50 for hospitals?

Mr Ray : It is a little bit under 30 for schools and a bit over 50 for hospitals.

Senator Cormann: I think Secretary Halton actually provided evidence in relation to this in the health department estimates the other day in relation to the hospital funding growth trajectory. But I just stress again that the difference we are talking about here is the difference between a pie-in-the-sky, unfunded, unrealistic, never properly reflected in the budget forward estimates type promised trajectory by the previous government and the more realistic, more affordable trajectory that is a result of decisions that we have made in this budget.

Senator WONG: Mr Ray, I think Ms Halton, as the minister helpfully reminds us, has given some evidence about this. I assume there was consultation between the Treasury and Education and Health in the calculation of this figure?

Mr Ray : Yes, we used their models.

Senator WONG: Sure. Can you tell me when you first commenced consultation with Education and Health on this calculation?

Mr Ray : The same answer: some time before Easter. I don't know exact what date.

Senator WONG: Are you able to get me those on notice?

Mr Ray : We can try.

Senator WONG: I am asking, and then we can have another discussion next time. Are you able to give me a year-on-year profile—in other words, extrapolating the two graphs into numbers?

Mr Ray : Are you asking for the plot graph?

Senator WONG: Sorry? You do not like anyone using the word 'modelling'.

Mr Ray : No, no.

Senator Cormann: Let me just clarify your question—

Senator WONG: It would be much better if you would stop interrupting. It really would help everybody, because people do not want to hear your lecture endlessly.

Senator Cormann: Senator Wong, on behalf of the government—

Senator WONG: I am about to explain, as a matter of courtesy for Mr Ray, what I meant. Maybe if you could just do with the courtesy of letting me finish, please. What I am trying to get out, Mr Ray, is if you look at the two graphs I am trying to get in each year the quantum of the gap between what is described as old spending and new spending in each of the graphs.

Senator Cormann: I just want to make sure the that we get your question absolutely right. So what you want to know is what for every year the difference is between the unfunded pie-in-the-sky spending promises that you made in the out years beyond the forward estimates, without explaining where the money was coming from; and the more realistic funding growth trajectory that we have put into the budget as a result of the decisions that we have made, which is reflected by the continuous blue line. Is that the question that you are asking us, Senator Wong?

Senator WONG: There is nothing there I need to respond to. Mr Ray, are you clear what I am asking?

Senator Cormann: We will not be able to assist you if you are not going to be able to clarify.

Senator WONG: There is nothing in that that I need to respond to. Mr Ray, are you clear about the question I have just placed on notice?

Senator Cormann: We are taking a question on notice.

Senator WONG: He is taking it on notice. I am just asking him if it is clear about my question. Is there anything we need to clarify?

Mr Ray : No, I think I am clear on your question.

Senator WONG: And this decision is essentially the termination of a number of national partnership agreements and other agreements between the Commonwealth and the states and territories? Correct?

Mr Ray : I think there were a number of different decisions taken.

Senator WONG: Sure.

Mr Ray : Someone will correct me if I get this wrong. These charts refer to, on the right-hand side on hospitals, the National Health Reform Agreement only. And on schools—what is it called?—Students First, whatever Gonski got called.

Senator WONG: Was that what Gonski got called?

Mr Ray : Apparently.

Senator WONG: I didn't realise that. But not the national partnership agreements on preventative health, public hospitals et cetera?

Mr Ray : No.

Senator WONG: But those, I think, are separately outlined in Budget Paper No. 2, would that be right?

Mr Ray : I do not know if they are separately outlined.

Senator WONG: If they aren't, do you think we could get—

Mr Ray : Not everything is separately identified in Budget Paper No. 2, but I thought that Finance official broke the costings down for you.

Senator WONG: I think so.

Mr Ray : We will check the Hansard and then we will take on notice whether there is anything to add.

Senator WONG: I remember writing down lots of numbers at that point. So in terms of these charts, then, it is really only junking Gonski and junking the Health Reform Agreement, or whatever that is up being called?

Senator Cormann: Making sure that the funding growth trajectory into the future is sustainable, affordable and realistic.

Senator WONG: So it is the ending of Gonski and the ending of the National Health Reform Agreements? That is what this—

Senator Cormann: It is the ending of—

Senator WONG: Chair!

Senator Cormann: I am responding to your question. You asked a question.

CHAIR: The minister trying to respond to your question.

Senator Cormann: That is what I am here for, Senator Wong.

Senator WONG: You don't respond; you just gives speeches.

Senator Cormann: I am here to an answer your questions.

Senator WONG: You had 'a unity ticket' on Gonski, which was a lie. Why don't you just cop it? 'A unity ticket' on Gonski, which was a lie.

CHAIR: Order, Senator Wong!

Senator WONG: Tell me to withdraw it. It was a lie.

Senator Cormann: That is unparliamentary language. I completely reject—

Senator WONG: I will say it again: it was a lie to the Australian people. It was a lie to the Australian people.

Senator Cormann: You are completely out of order.

Senator WONG: It was a lie.

CHAIR: That is out of order. I ask you to withdraw it.

Senator WONG: I am not withdrawing that. It is not unparliamentary if I'm not calling him a liar; I am saying that it was a lie.

CHAIR: I ask you to withdraw it.

Senator WONG: I am not calling him a liar; I am saying that the promise—

Senator Cormann: I am actually responding to the claim. You were asking a question before that I was still responding to and you were, again, rudely interrupting my answer. Firstly, in relation to Gonski, you would be very clear—and everyone in Australia was very clear—

Senator WONG: 'Unity ticket', 'unity ticket'.

Senator Cormann: That we made a commitment to keep the Gonski funding in place for the first four years. In fact, we have done better than the Labor Party did, because you, outrageously, ripped $1.2 billion away from schools in Western Australia, Queensland and the Northern Territory that we have put back into those schools.

In relation to the funding growth trajectory that we have enshrined in the budget as a result of the decisions that we have made, I say it again: we have made judgements on what was affordable in the budget circumstances that we have inherited from the previous government, and, very specifically, we made judgements, consistent with the commitments that we took to the election, we made judgements on what was affordable in the period beyond the forward estimates at the time of the last election, because the previous government did not actually allocate a zac in their last budget to the massive and unrealistic spending spikes in the out years. I said again: in relation to education, we are doing better than the previous government was going to do, because you ripped $1.2 billion away from schoolchildren in Western Australia, Queensland and the Northern Territory.

Mr Ray : Can I just go back. I think I took on notice that we would check. We have checked: The national partnership agreement changes decisions are set out line by line in Budget Paper No. 2.

Senator WONG: Thank you. So you have taken on notice this issue.

Mr Ray : That is the gap between the two lines, effectively.

Senator WONG: I just wanted you to confirm, Mr Ray, that the decision to include the company tax cut, the 1.5 per cent company levy and the Paid Parental Leave scheme in the contingency reserve was a government decision?

Mr Ray : The contingency reserve is about payments, so the Paid Parental Leave scheme is in the contingency reserve. The associated revenue measures have been taken into account, so there is an adjustment for them in the revenue forecasts—

Senator WONG: The revenue black box.

Mr Ray : rather than being in the contingency reserve.

Senator WONG: I should have been more clear.

Mr Ray : It was a government decision to include those in the budget figuring, which, of course, was also in MYEFO.

Senator WONG: But it is a government decision not only to include them in the budget figuring but also to not disclose the measures transparently in Budget Paper No. 2?

Senator Cormann: Until all of the detail is finalised, as we traversed in some detail.

Senator WONG: You will get a chance—

Senator Cormann: No, it is a government decision. I have already said that in the Finance estimates.

Senator WONG: I am actually not talking to you. I know you think you are the centre of attention.

Senator Cormann: You might not want to talk to me but the way this process works, Senator Wong, is that you ask questions and I decide who on behalf for the government answers them. And on this occasion what I do very openly and transparently is take full responsibility for the decisions that we have made in relation to this.

As you would be well aware—because we have discussed this in some detail in the Finance estimates—we did make a decision, pending finalisation of all the relevant detail, in particular when it comes to the interaction between our proposed fair dinkum paid parental leave scheme and pre-existing schemes in the states and territories, that we would put the provision for the paid parental leave scheme in the contingency reserve. We have also reflected related revenue measures in the budget, though without announcing the specifics until all of the detail is finalised.

Senator WONG: Mr Ray, thank you for reminding me about the distinction between contingency reserve and revenue. Are you able to show me in which item, if any—

Mr Ray : Revenue Group will be able to help you tomorrow.

Senator WONG: But I am sure you can tell me. There is not a specific line item that is—

Mr Ray : It is not as simple as it might seem, so I think we should leave it for the experts. They will be here tomorrow.

Senator WONG: But just as a conceptual issue: with decisions taken but not announced is there a provision in the financial statements on the revenue side like there is in terms of the CR?

Senator Cormann: We are not going to deal with conceptual issues. We are going to deal with this issue in the appropriate part of Treasury, which is Revenue Group tomorrow.

Senator WONG: I will ask them. I am just asking—

Mr Ray : There is no revenue equivalent of the CR but, over many years now, adjustments have been made in revenue forecasts and projections to take into account plans that a government may have or, indeed, other things such as the prospect of particular court cases et cetera. That is sort of the revenue equivalent of the CR.

Senator WONG: Could you say that again?

Mr Ray : For many years now, from time to time, in terms of the plans of government, allowances have been made in revenue numbers. I can think of some going back to the mid-2000s. And other factors are taken into account in revenue forecasts, such as the potential outcomes from court decisions et cetera. They are the sorts of things that might be in the contingency reserve if they were on the payment side.

Senator WONG: All right. I will ask Mr Heferen.

Mr Ray : He will provide you with a much more erudite answer.

Senator WONG: Or maybe easier to understand! The calculation that you have done essentially shows how much less schools and hospitals will receive under the new indexation arrangements than under those which had been previously agreed.

Senator Cormann: This is again a question that goes to advice to government. And that is not what the draft shows.

Senator WONG: How can that be advice to government?

Senator Cormann: What the graph shows—I have said this a number of times but I am happy to repeat it—is the difference between the pie in the sky unfunded promises that the previous government made in the lead-up to the last election without ever reflecting them in the budget estimates—

Senator Wong interjecting

Senator Cormann: That is because the same question keeps getting asked. It is the difference between Labor's unfunded pie in the sky promises and the more realistic, affordable funding growth trajectory that we have reflected in this budget as a result of the decisions we have made including, in particular, in relation to health and education funding. I have got to stress again that, in relation to education funding, we have done much better than the previous government because we restored $1.2 billion in funding for schools which the previous government had ripped away from schools in Western Australia, Queensland and the Northern Territory.

Senator WONG: Mr Ray, when you say 'cumulative savings of over $80 billion', should I understand that to be the quantum of how much less schools and hospitals will get when comparing the previous indexation arrangements as agreed between the Commonwealth—

Senator Cormann: The unfunded indexation arrangements.

Senator WONG: and the states and territories for schools and hospitals and the indexation arrangements that the government has now determined?

Mr Ray : Yes.

Senator WONG: Thank you. Mr Ray, can I go to the distributional analysis. Appendix C in the budget overview from the 2012-13 budget looks at the real disposable income and real net tax threshold of different household types.

Mr Ray : I do not have it with me but I am familiar with the table.

Senator WONG: You might have seen that Mr Martin, from Fairfax, and others have commented on the fact that there is no equivalent set of tables in this year's budget. The minister kindly but somewhat misleadingly referred me to the DSS publication, but that is not a distributional analysis.

Senator Cormann: You have referred to the minister misleadingly referring you to something, so I have obviously got to respond to that.

Senator WONG: I had not asked a question.

Senator Cormann: I have got to respond to that statement.

Senator WONG: You can wait till I have finished the question.

Senator Cormann: No, I have got to respond to that statement.

Senator WONG: Chair—you are just going to let him do that, aren't you?

Senator Cormann: Of course, I did refer you to the tables in the Social Services glossy, which of course provides very important detail about how much families and individuals in different scenarios either receive in payments from the government or have to pay to government by way of taxes. In our judgement, it is very important to make that information available. We think it is very important for everyone to be very clear about what families, individuals and so on receive from government in the various welfare payments funded by the taxpayer and how much various families and individuals in different scenarios and settings have to pay in terms of income tax into the budget in order to be able to fund these sorts of benefits.

I think when we had the discussion last time, you made the assertion that, at all times previously, governments had published the impact of changes in different scenarios. I am able to report that is actually not true; I have got your relevant glossy from the 2008-09 budget and, indeed, having gone through every single page, I find absolutely no such distributional analysis reflected in that particular glossy, which was of course your first budget.

Senator WONG: Mr Ray, I think you would agree that the Social Security estimates committee has simply confirmed that they are not able to replicate the sorts of distributional analyses that Treasury can undertake, the product of which you can see in the 2013 -4 budget. My question is: did Treasury undertake any distributional analyses of the budget measures or any subset of the budget measures?

Mr Ray : For a start, I think you were referring to this document, which is not a DSS document. This budget 2014-14 social services document—I won't call it a glossy—is a government document in terms of the drafting work on the document we have done in the Treasury in consultation with the Department of Social Services. It is not a DSS document; I just wanted to correct that. Did we do any distributional analyses? Yes, we did. And you can see that on page 5 of the overview, which we were talking about at some length before.

Senator WONG: Low income, middle income, higher income, average income taxpayers, average tax transfers—but not real disposable income and not any disaggregation of different types of family groups.

Mr Ray : That is correct. You just asked whether we had done some, and obviously we have.

Senator WONG: The distributional analyses in the 2013-14 budget—and you would know this, Mr Ray, but I will just take you to it for completeness—included single people on three different percentages of the average wage, sole parents, single income couples, dual income couples, single income couples with children, dual income couples with children, single pensioners and pensioner couples. Did you undertake any distributional analyses of budget measures or a subset of budget measures for that range of family type?

Mr Ray : I think that is going where we have been on a number of things. Clearly, that sort of analysis has not been published—

Senator WONG: No, but you are likely to get a Senate committee asking for it, so maybe we should start talking about whether you have in fact done it.

Senator Cormann: I would just like to make the obvious point that, whether it is through FOI or through the established processes of the Senate, documents and advice on this part of cabinet deliberations are obviously exempt from the sort of proposition that you have just put forward. Let me also make the very important point that the government made judgements—and takes responsibility for the judgements we have made—about what was the most appropriate information to provide in the context of this budget. Our judgement is that the most appropriate information in all of the circumstances is to ensure that everybody is very clear on how much they are getting in government payments, how much they are getting in welfare support payments for various income brackets and various family types and how much various families or individuals have to pay in income tax, depending on their particular income bracket. That is the information we have published in great detail in the relevant pages—I think it is from page 22 onwards—of this particular budget related publication which, as Mr Ray said, has been put together with the support of the Treasury. You might disagree with the judgements that we made, but they are the judgements that we have made and we take full responsibility for them. Your government made a similar judgement when you put together the 2008-09 budget—and I have got here the budget overview of 13 May 2008, exactly six years before our first budget was delivered.

Senator WONG: Mr Ray, could you answer my question?

Senator Cormann: I have answered it on behalf of the government.

Senator WONG: I am repeating it because—

Senator Cormann: We will take it on notice.

Mr Ray : I will take it on notice.

Senator WONG: On what basis, Mr Ray?

Senator Cormann: We have got to consider to what extent we can assist you in relation to information that is part of the deliberative processes of government.

Senator WONG: I have not actually even asked the information.

Senator Cormann: You did ask for it.

Senator WONG: No, I am asking whether you have done it. I had not got to that point, Matthias.

Senator Cormann: Mr Ray did actually say that they did do distributional analysis. I think we had gone past that.

Senator WONG: Can we just confirm that, Mr Ray?

Senator Cormann: He pointed to where it is reflected in the overview.

Senator WONG: No, in addition to this. It would be much easier—and we could have all gone home earlier—if you would just stop interrupting.

Senator Cormann: I was never hopeful that we could go home early tonight.

Senator WONG: I was—because I did not have that much. But we are definitely here until 11, everybody, because Senator Cormann insists on giving the same speech over and over again and interrupting.

Senator Cormann: I am just making sure that the position is well understood.

Senator WONG: Can I just go back—

CHAIR: Senator Wong, you have got a minute.

Senator WONG: This is a very high-level analysis that does not go through the sorts of family types that I described to you in detail. I ask again: did you do a distributional analysis, for this sort of range of family income type, of budget measures or a subset of measures? I am not asking what it showed; I am asking whether you did it. It is a perfectly legitimate question, and we can have a debate on the floor of the Senate about it if you want. But the Treasury has an obligation to provide appropriate information to this Senate committee, and I would like an answer.

Senator Cormann: And the answer that Mr Ray has already provided is that no such information was published. As to the extent to which we may or may not be able to assist you beyond that, I am taking that on notice on behalf the government.

Senator WONG: I have not asked for the document to be published.

Senator Cormann: I have taken on notice whether we are able to assist you beyond what I have said.

Senator WONG: I am going to ask the clerk for some advice tonight. We can have a discussion tonight about the response from you and Mr Ray. I am not asking—

Senator Cormann: And the clerk will tell you what she would have told you in the past: we are entitled to take questions on notice.

Senator WONG: I want to put this on the record because it is going to be important later. I am going to ask for some advice tonight because—

Senator Cormann: We are quite entitled to take questions on notice.

Senator WONG: Let me finish! Chair, do I have the call?

CHAIR: No. It is now a quarter past nine. I understand; you have said you have got to take advice. We will come back here at 9.30.

Senator WONG: I am going to put it on the record to give the department the opportunity to consider its position. Thank you.

CHAIR: And you have now done that.

Senator WONG: I have not done it! I keep being interrupted. The minister is talking over me. I cannot even talk. He is talking over me.

CHAIR: Hansard is still recording, and it is now on the record. It is a quarter past nine.

Senator WONG: I have not finished what I was saying.

CHAIR: You can continue with what you are saying at 9.30.

Senator WONG: I think Mr Ray should be given the opportunity to understand that I am not asking for the content, I am asking whether it was done.

CHAIR: The committee is now suspended. We will return at 9.30 with the continuation of the Fiscal Group.

Proceedings suspended from 21:15 to 21:29

CHAIR: Mr Ray, is there something you wish to add?

Mr Ray : Before the break, we were talking about distributional work that we may or may not have done. In an attempt to help the committee, I thought we should say that we did a range of distributional analysis as part of the policy advising that we did on the budget, some of which, as we pointed out, led to some material being published in the budget. Other distributional analysis that we did was part of the policy advising process. We are happy to take on notice whether or not we can provide details of what that work may or may not have been.

Senator WONG: The decision as to what of that was included or not included in the budget overview was obviously a government decision?

Mr Ray : It was a government decision, yes.

Senator WONG: Did that work indicate the impact of budget measures or a subset of budget measures on different family types and income levels?

Senator Cormann: They have taken that bit on notice.

CHAIR: I refer to IMF data that was referred to in the budget papers including on page 3 of the budget overview. As I understand it, according to the IMF, out of the 17 countries that they analysed or surveyed, Australia had the highest estimated growth in real government expenditure for the period 2012 to 2018 including France, the US, Sweden and New Zealand. Could you shed some light on the analysis and what it means for Australia?

Mr Ray : You have me at a disadvantage and the reason is the conversation you were having with our macro colleagues before dinner. This is analysis that has been done by the International Monetary Fund and we do not have a full sense of exactly what they did but I can tell you some things about it. It is consolidated public sector data so, in Australia's case, it includes the states and territories and local government.

As was discussed before the dinner break, in the spending growth analysis and the net debt analysis, there are different subsets of countries. They would need to explain why they did that—I do not understand why. This sort of analysis depends critically on the starting point. With those caveats, as we have discussed in this committee on a number of occasions, the Australian government's balance sheet is in a relatively strong position compared with most other advanced countries. Nevertheless, there are reasons why Australia would want to run a relatively strong balance sheet because of the nature of our economy.

As Dr Parkinson said earlier today and has said publicly, there is the need for a considered national conversation on what government can do and what the community expects of it, and on what government can do and what the community is willing to pay for. With payments growth at a very strong level, it would, over time, increase the risks. When we do the medium-term analysis that has been published in budgets now back to the government before last, and when we do intergenerational analysis consistent with the practice all around the world in this sort of analysis, it is a base case, which is quite benign.

It assumes the economy grows at trend. So in our case, it assumes the economy closes the output gap and then grows at trend. I think Dr Parkinson said earlier today—if he didn't, I know he said it before—that would mean we would have had 33 years of uninterrupted economic growth, which is—

CHAIR: Unprecedented?

Mr Ray : In Australia's case, it is unprecedented, yes.

CHAIR: Bearing in mind that the IMF data is post GFC, how significant is it that Australia would have the highest growth in real government expenditure and the third largest increase in net debt as a share of GDP over that period?

Mr Ray : Because it is post the GFC, in and of itself, it is a relevant factor that you would need to think about from a policy point of view. But the starting points matter a lot as well so our starting point is relatively strong. But one of the lessons of the GFC was that even if you had a strong starting point, if you have a major financial crisis that moves into the real economy then things can turn on you very quickly. Ireland is an example that is often used.

CHAIR: Since the GFC, there have been a number of approaches taken by other countries to their fiscal situation. Have spending cuts been damaging to long-term economic growth and prospects like in countries such as Canada and Sweden in the 1990s, and now Britain and US this decade, following the GFC?

Mr Ray : In the 1990s, Sweden was forced into it because of the financial crisis in Scandinavia. To give you a considered response, I think we need to take it on notice. But my recollection was that that was quite damaging for some time.

CHAIR: I did say long-term economic growth and prospects.

Mr Ray : Absent a shock on the price side, you would expect that the level would return to potential. In the long run, if you have got a shock then it should work itself out. What happens is if you have a fiscal contraction that goes through the real economy then over time that will be unwound so the output gap will be closed. The short-term costs for the cohort of people who have been adversely affected by that can be long-lasting and damaging to wellbeing and, in an extreme case, damaging to communities. So you want to try and avoid sharp action if you can. That is why it is generally accepted that fiscal policy is set in a medium-term context.

CHAIR: In that, the mix of the spending would also be relevant?

Mr Ray : Yes, the quality of the spending matters. In terms of the efficiency of the economy, there is a case where if you shift spending to areas that build future capacity for the economy then that can increase the supply side.

CHAIR: How does the fiscal consolidation set out in the budget compare to the pace of consolidation that occurred during both the Howard and the Hawke years?

Mr Ray : It is slower.

CHAIR: In effect, does that mean that government is withdrawing less activity from the economy than what occurred under Howard and Hawke?

Mr Ray : That is correct.

CHAIR: What are the key measures that can assist and support growth in the economy while the government finances are undergoing a fiscal consolidation?

Mr Ray : Those that would be of productive capacity on the supply side. In the shorter-term, an example would be infrastructure spending. In the longer-term, it would be things that might invest in Australia's human capital stock.

CHAIR: Would that include financial labour markets or would include things like addressing financial and labour market productivity. What about microeconomic reforms?

Mr Ray : Yes. Sorry, I thought you were talking about measures that were in the budget.

CHAIR: No, I was talking about what can be done.

Mr Ray : Anything that could lift productivity growth in Australia, so that would be improving the operation of markets in both product goods and factor market. It would be the sorts of things you were discussing plus other things such as improving the way that some of the regular markets work on the product side.

CHAIR: So there are tools at the government's disposal which can help offset some of the short-term effects that you discussed that may result from a too-sharp fiscal consolidation?

Mr Ray : There are tools but they tend to work more slowly.

CHAIR: Once again, does it depends on the sharpness of the fiscal consolidation?

Mr Ray : Yes.

CHAIR: Is the fiscal consolidation we are looking at in the budget not the sharpest Australia has looked at in previous decades?

Mr Ray : No, it is not. I think we have discussed in this committee on several occasions that if you have got an economy that is growing around trend, fiscal consolidation of the order of half to three-quarters of a per cent of GDP on average over a number of years is quite able to be accommodated by the economy without adverse impacts on real activity.

CHAIR: So it is unlikely to result in the short-term consequences that you described a few minutes ago?

Mr Ray : Correct. Across the forward estimates, it is 0.6 per cent of GDP on average and the economy can absorb that quite easily.

CHAIR: I will change the subject and come to the issue of health and education spending.

Senator GALLACHER: Mr Ray, are you aware of the analysis by the Parliamentary Library for forecast real expenditure growth between 2012 and 2018?

Mr Ray : I am aware that there is analysis of that type that has been done by the Parliamentary Library because I saw a press report, but I am not aware of the analysis itself.

Senator GALLACHER: I just noted your qualification on the IMF data and that you were not aware of all the ingredients, so to speak—my words, not yours.

Mr Ray : Correct.

Senator GALLACHER: So there is an analysis that will be available for you to have a look at from the Parliamentary Library?

Mr Ray : I beg your pardon?

Senator GALLACHER: The analysis by the Parliamentary Library, which you have cited in the press, could be made available and you could give a view on that?

Senator Cormann: If you could table it for the committee then we will take it away with us.

CHAIR: If I understand it correctly, much of the public hospital related funding is appropriated to the Treasury portfolio because it involves payment to the states?

Mr Ray : That is correct.

CHAIR: Is it correct to say that the Health Care (Appropriation) Act 1998 was repealed under the former government?

Mr Ray : We would need to go away and check. I suspect, given you asked the question the way you did—

CHAIR: It is my belief but I have not gone off and checked Hansardto make sure of that.

Mr Ray : Is that the legislation that used to support the old Australian Health Care Agreements?

CHAIR: I believe so.

Mr Ray : If that was the case then yes.

CHAIR: Is it correct that this previous appropriation act, which operated under the Howard government, appeared to provide appropriations covering a block of years? That is, initially a five-year appropriations and then later a six-year appropriations?

Mr Robinson : The funding arrangements for hospitals that pertain back in that time were for set periods of time. That is correct.

CHAIR: How are the payments to the states currently appropriated?

Mr Robinson : We make payments under the Federal Financial Relations Act, in accordance with the various agreements that are established between the Commonwealth and the states.

CHAIR: Is it the case under Federal Financial Relations Amendment (National Health Reform) Bill? Is that correct?

Mr Robinson : The FFR Act. That is correct.

CHAIR: Is it the case that the Treasurer makes determinations under that act, setting out funding only for the current year?

Mr Robinson : The determination is made annually. That is correct.

CHAIR: As opposed to how it was previously, where there used to be blocks of five or six years, depending on where you were looking?

Mr Robinson : Yes, up until 1 July this year. For the last several years, payments have been made in accordance with a formula set out under both the act and the inter-governmental agreement between the Commonwealth and the states, with determinations being made annually. That is correct.

CHAIR: Is it correct also that those payments are subject to the generally drawing right limits in the main appropriations bills? Are those drawing limits set to only provide head room for one year of spending at a time?

Mr Robinson : The drawing right limits relate to the payments that we make under national partnership agreements. They are determined annually.

CHAIR: Yes, I am correct.

Mr Ray : It is just the national partnerships that are effected by the drawing rights, not the former SPP for hospitals.

CHAIR: But it is still the case that the Treasurer makes determinations just for the current year.

Mr Ray : Yes, the Treasurer makes annual determinations.

CHAIR: On amounts in the out years, is it that just because the figure is printed in the forward estimates that does not create a legal authority for the health or Treasury portfolio to draw on funds from consolidated revenue, does it?

Mr Ray : That is correct.

CHAIR: That is because of that annual determination.

Mr Ray : Yes, at the end of the year.

CHAIR: Is it fair to say that the Constitution ensures that only the parliament has the power to appropriate money for the services of government, including monies that are provided to the states and territories?

Mr Ray : That is section 83. That is correct.

CHAIR: When the former government announced intentions to increase spending over the period from 2017-18 to 2024-25, were there full and matching appropriation bills passed for each of those years to create the appropriate funding from consolidated revenue up to the full value of the $80 billion plus underlying base funding of the medium term?

Mr Ray : Because of the way the Federal Financial Relations Act works, there would have been an appropriation. The Treasurer would have had to make a determination each year.

CHAIR: So there would be no legal right to draw against that, unless and until the Treasurer made that determination?

Senator WONG: Sorry, wasn't your evidence that he or she—in this case, he—

Mr Ray : Yes, we have not had a she yet.

Senator WONG: Correct. Well, you never know. He can only make it once a year. Is that what you have just said?

Mr Ray : Yes. We can talk you through this; what happens is that we make advances. The Commonwealth makes advances to the states ahead of that determination being made.

Mr Robinson : We make advances of the basis of estimates at budget and then at MYEFO. They are paid through the year and then there is in a sense a settling amount through the determination after the end of the financial year.

CHAIR: The advances are how far in advance?

Mr Robinson : They are paid monthly.

Mr Ray : Within the relevant financial year.

Mr Robinson : Yes, just for the relevant financial year.

CHAIR: In the health portfolio, it does not actually have any legal entitlement to ending funding in the years beyond the determination that has been made? It does not have a right to access the funding to be paid onto states?

Mr Robinson : Treasury makes the payments.

Mr Ray : As you have said, it is the Treasurer who makes the determination and not the health minister.

CHAIR: But until the Treasurer makes the determination there is no right for the states or the health departments of the states, which is probably how I should put it, to access that funding beyond the determination that has been made in any current year?

Mr Ray : Under the SPP arrangements, which are in force until 1 July—

Mr Robinson : We now operate under the transition to this activity base. Under the National Health Reform arrangements, payments for hospitals are made through the National Health Funding Body and the funding pool. They are made from Treasury through to local hospital networks. A component of that funding is made directly, via the Treasury via the funding pool, through to health departments. But beyond health, more broadly the funding is made through the Commonwealth Treasury to state treasuries.

Mr Ray : The point that I was trying to get to is that there is a relatively small proportion of this that actually goes to the state health departments. The monies go to the hospital authorities.

CHAIR: Just to follow up on answers provided by the minister earlier, you were talking about the extent to which the fiscal situation would improve under the plans set out in the budget. One thing that we did not hear anything about was the impact on the interest bill in 10 years time. What projections are there the impact on the annual interest bill?

Senator Cormann: The outlook for the structural budget balance has improved significantly since the 2014-15 MYEFO, in line with the improvement in the outlook for the underlying cash balance. That is page 329 of Budget Paper No. 1. If you go to page 317, you will actually see the projections. There as a chart there of net interest payments projected to 2024-25. You see how they come down as a result of the decisions that we have made in the 2014-15 budget. The light grey, growing interest bill per year is as at MYEFO for the previous government's last budget. The dark part of the bar is as a result of the decisions that we have made in 2014-15. You will see that by 2024-25, the interest bill goes down to just about $5 billion a year.

CHAIR: What would it have been without those decisions that are in the budget?

Senator Cormann: Over $30 billion a year. This year, we are borrowing $1 billion a month just to pay the interest on the debt that—

Senator GALLACHER: I think I have heard this before!

Senator Cormann: we have accumulated so far. If we did not take corrective action, that—

Senator GALLACHER: What about the credit card paying off the other credit card?

Senator Cormann: would go up to $30 billion a year. As a result of the decisions that we have announced in this budget, it—

Senator WONG: And the paid parental leave scheme?

CHAIR: Order.

Senator Cormann: is going down to just over $5 billion a year from 2024-25.

Senator GALLACHER: Stop the boats!

Senator Cormann: That was a very important achievement. You might think that is funny, but your government said that it could not be done. We, with determination, focused—

Senator WONG: Point of order.

Senator Cormann: and with the support of a lot hardworking officials—

CHAIR: Minister, I have a point of order.

Senator GALLACHER: It was an interjection, not a question.

Senator WONG: This is Treasury estimates.

Senator Cormann: Indeed. And this is an important issue that relates to our approach. The point I was making in response to Senator Gallacher's interjection is that we are approaching operation budget repair—

Senator WONG: It is not really called that, is it? Is it called operation budget repair? Is that in the books?

Senator Cormann: with the same focus, determination and commitment to success as Operation Sovereign Borders, which has achieved a situation where we have been able to stop the boats for the last six months, something that the previous government said could not be done. In the same way, the previous government were not able to balance the budget, even though they kept saying they would. So there are parallels here that are very relevant to the Treasury estimates we are dealing with here tonight.

CHAIR: Senator Wong.

Senator WONG: Thank you.

Senator CORMANN: That is of course a very important commitment that we have taken to the last election—

Senator WONG: Chair, I raise a point of order: I just got the call. Chair, it does not mean you are not able to speak. You are the chair. You should control the meeting.

Senator Cormann: because scrapping the carbon tax will help us build a stronger economy, which will help us with fiscal consolidation because there is a growth dividend in terms of revenue.

Senator WONG: A point of order, Chair! I have the call!

CHAIR: Minister, we have a point of order.

Senator WONG: I had the call!

Senator Cormann: Senator Gallacher was asking a question.

Senator WONG: That does not mean—

CHAIR: Minister, please ignore the interjections and respond to the senator who has the call. Senator Wong has the call.

Senator WONG: Thank you. Mr Ray, knowing your assiduous nature and your work ethic, I am sure you are very across all the questions I may have asked at Finance estimates. I did want to ask about—you are grinning at me, but it is true—the NDIS payments, which are at 3-26.

I was asking a couple of things. I asked for an explanation—which I got half an answer on, but I just want to confirm whether or not it is correct—of why there was a recognition of the payments made on behalf of the states and territories for the first time. Why that changed? Then I was asking questions about the 2017-18 impact of a substantially greater amount of payment being taken on the Commonwealth's bottom line than had been calculated in the 2013-14 budget? Are you able to cast any light on that?

Mr Ray : My recollection is that the answer that Mr Thomann gave you was that, at the time of the 2013-14 budget, the administrative arrangements for how the scheme would operate had not been settled. In particular, at that stage it had not been settled that the payments from the states and territories would come through the Commonwealth general government sector, which is now the way it works.

Senator WONG: Therefore, the effect of it is to increase, by a margin of some billion per year, the Commonwealth's payment line.

Mr Ray : Yes. It is nowhere near to the same order but in the same way that the GST works.

Senator WONG: Right. But it is not insignificant.

Mr Ray : No, it is not insignificant.

Senator WONG: The example I gave and I am afraid I do not have BP No.1 from 2013-14 budget here, but I think there was a difference of $7 billion in one financial year for the 2017-18 year. I can go back through Hansard if you like. I think in BP No.1 in 2013-14, there was an indication of the approximate cost of the 2017-18 year, which was in the order of $4 billion?

Mr Ray : That is about right.

Senator WONG: Then, if you look at page 6-28 of BP No.1, in this budget you see $11.2 billion in 2017-18. The notation I have in my budget paper is $3.8 billion, so it is a jump in excess of $7 billion in one year, which is obviously reflected on the bottom line.

Mr Ray : It is offset on the bottom line.

Senator WONG: Reflected.

Mr Ray : It is offset.

Senator WONG: Yes, fully offset, but it goes to growth in payments.

Mr Ray : It does go to growth in payments.

Senator WONG: You do not do growth in payments on a net basis.

Mr Ray : No. We are not experts on this.

Senator WONG: You are an expert on everything, Mr Ray, in my experience.

Mr Ray : I do not think that is true at all.

Senator WONG: I am not generally prone to giving compliments, either.

Mr Ray : I have teenage children who will tell you that I am not expert on most things.

Senator WONG: I have a 2½-year-old who is engaged in a war with us, so if you have any advice let us know.

Mr Ray : It does not get any better.

Senator WONG: How was it accounted for in the previous budget? The state payments were not recognised at all?

Mr Ray : No, at that stage they did not flow through our GGS.

Senator WONG: Does that new accounting transaction, for want of a better term, reflect in net debt calculations?

Mr Ray : It should not make any difference.

Senator WONG: Perhaps on notice—

Mr Ray : The reason it should not is that there is revenue and revenue expense at the same time.

Senator WONG: One would think so. What happens to the non-tax receipts which are the contributions from the states in this transaction? Have they just come into the GGS and come out again?

Mr Ray : They come into the GGS and then they go out.

Senator WONG: Regarding the statement of risks, the contingent liability in relation to the Kyoto protocol emissions reduction target has, I think, been removed. Can you explain to me why?

Mr Ray : That would be a question for our Finance colleagues, but I can—

Senator WONG: Do your best.

Mr Ray : take it on notice and ask them.

Senator WONG: Were you not part of the decision to do so?

Senator Cormann: Mr Ray is not going to be able to give you the most accurate answer possible, which is always what we endeavour to do, if it is not his area of direct responsibility. Mr Ray has taken it on notice and will assist you by getting the information from the Department of Finance.

Senator WONG: Mr Ray, is there any information you can give me at this estimates?

Mr Ray : No—not because I am being—

Senator WONG: No, that is fine. If I place that on notice here, can that be transferred to Finance? Thank you.

Mr Ray : Mr Boneham reminds me that it is actually advice from the relevant department—in this case it would have been advice from the environment department to Finance. We will take it on notice and see what we can provide.

Senator WONG: Presumably, one explanation is that the government no longer has a hard commitment to the five per cent below 2000 level, therefore there is no fiscal risk.

Senator Cormann: Mr Ray cannot possibly speculate because, as he said, he does not have the sufficient expertise to be able to give you an accurate answer. So this is a matter for the Environment portfolio or for Finance or a combination of both, but we have undertaken to see what we can assist you with on notice.

Senator WONG: Mr Ray, on the distributional analysis—and I am sorry, I do not have the article in front of me—the front page, I think, of The Australian asserted that there was Treasury modelling which refuted NATSEM modelling which had been put into the public arena. Do you recall the media report to which I am referring?

Mr Ray : I do, and I also recall that there was a correction to that media report published, I think, on the Monday and maybe online earlier.

Senator WONG: Why was the correction required?

Mr Ray : Because what was used in that media report was not Treasury analysis.

Senator WONG: Do we know where that analysis came from?

Mr Ray : This is a comment column from Mr Crowe, in The Australian of 26 May, which I think was the following Monday. It includes the following:

… to clarify an important point, this journalist made a mistake in The Weekend Australian by describing the government's work on household impact as Treasury modelling, when the figures used there and here come from calculations by government advisers based on the Treasury assumptions.

Senator WONG: So they were done in the Treasurer's office?

Senator Cormann: That is exactly what is very openly and transparently stated in the article.

Senator WONG: Before the Treasurer's office provided those numbers, that data, to The Australian, and asserted they were from the Treasury—

Senator Cormann: No, we did not assert, and it does not say that in the article. The journalist is taking responsibility himself for having made an error, which the government corrected after that error was reported.

Senator WONG: So he just assumed it was a Treasury figure?

Senator Cormann: As Mr Ray has just read out, he made an erroneous assumption, clearly.

Senator WONG: Is your evidence, as the minister representing, that Mr Crowe from The Australian wrote that these were Treasury figures, and he did so off his own bat and not because anyone in the Treasurer's office told him they were Treasury figures. Is that your evidence?

Senator Cormann: I am going to take on notice what the Treasurer's office may or may not have said—

Senator WONG: Thank you.

Senator Cormann: But my evidence very clearly is, as Mr Ray has just read out from the article by a journalist with The Australian, Mr Crowe, a highly regarded and well-respected journalist, that the journalist himself takes responsibility for having made an error. I can only point you to what Mr Crowe himself is saying. It is not unusual for advisers in government to provide information to journalists, drawing on assumptions from Treasury, but for the information that is provided to be information that is generated out of ministerial offices. There is nothing unusual in relation to that whatsoever.

Senator WONG: Do you have anything further, Mr Ray?

Mr Ray : No.

Senator WONG: Are the international net debt comparisons included in Budget Paper No. 1?

Mr Ray : The ones that have been there for a number of years? I do not think they are.

Senator WONG: I cannot find them. This is why I am asking you. I could not see where they were.

Mr Ray : There are no international net debt comparisons in Budget Paper No. 1.

Senator WONG: As you responded when I first asked, they have been included in budget papers I would suggest maybe since Mr Costello's time. Would that be right?

Mr Ray : Some versions have been included since Mr Costello was Treasurer. That is correct.

Senator Cormann: The information I have to provide you on behalf of the government is that some people erroneously seemed to suggest an international comparison of our net debt position is the most relevant thing for us to look at, when it actually is not.

What matters more than anything is the trajectory that we are on. The only reason that we are not in a worse net debt position is that in 2007 we had a strong economy, a strong budget, no government net debt, a $20 billion surplus and money in the bank. The government was collecting more than $1 billion in net interest payments on the back of a positive net asset position. Even the French Socialist, Mr Pascal Lamy, pointed out the other day that, in the context of the circumstances of the Australian economy—which, essentially, to a large degree is commodity based—we could not responsibly carry the sort of level of government debt that are carried by countries in Europe.

Of course, we are not in as bad a debt position as some other countries around the world. That is because other countries around the world had a much worse starting position than we did in 2007. But that is, from our point of view, with all due respect, not a relevant issue. The most relevant issue is that the spending growth trajectory that we were on as a result of decision of the previous government was one of the fastest spending growth trajectories in the world, according to the report released by the AMF earlier this year, and the destination we were heading for was an unsustainable destination. We made the judgements necessary to adjust that trajectory into the future.

Senator WONG: Minister, I will come back to that shortly. Can you take on notice when Treasury became aware of the error in the Australian—I assume it was after someone read the article; who took action as a result; was the Treasurer's office contacted; did Treasury contact the journalist directly—I assume it was the former; and when that occurred? I just want some timing on that.

Mr Ray : Sure. This is this government's first budget, so there were a number of changes made throughout the budget documentation.

Senator WONG: Sure. The only thing that I was going to ask on the international net debt comparisons was just to confirm with you that the decision to not include those figures was a government not a Treasury decision.

Senator Cormann: The budget papers are the government's documents and we take full responsibility for the way the budget papers are put together. In the same way as the previous government made judgements on what in their view was important to be reflected in the budget papers, we have made similar decisions. For the reasons that I have outlined before, an international comparison of our net debt position is actually completely irrelevant when it comes to assessing what needs to be done to protect our living standards and our prosperity into the future, because our circumstances here are quite different from the circumstances in Europe. We have to import capital and we have had to do so since Federation and we are more exposed to international capital markets. So, if we want to ensure that we are in the most resilient position for the future, our debt levels should be lower than what they are in other parts of the world.

Senator WONG: Thank you. Mr Ray, I actually just wanted you to have the opportunity to confirm that this was not a Treasury decision.

Senator Cormann: And I have already said that it was a government decision.

Senator WONG: Why are you so frightened of him answering 'no'?

Senator Cormann: I am entitled to answer on behalf of the government, as you well know.

Senator WONG: Mr Ray, this was not a Treasury decision?

Mr Ray : No; it is a government decision, like all of the decisions around what is published in the budget.

Senator WONG: Thank you.

Senator Cormann: It is the same as it was under the previous government.

Senator WONG: Chair?

CHAIR: I think he was just adding additional information.

Senator WONG: Really? I have the same set of questions on the higher education reforms. I hope I do not have to get the deputy clerk up again. I am not asking what the content of the analysis was; I am asking whether or not there was modelling analysis of the impact—however you want to describe it, Mr Ray; I know that modelling has a particular meaning—of the higher education changes on things such as participation et cetera.

Mr Ray : Are you asking whether it was done by the Treasury or whether it was done anywhere in government?

Senator WONG: I was asking about it being done by the Treasury. If it was not done by Treasury and someone else did it, you could refer me to them.

Mr Ray : It was just that you said 'done'.

Senator WONG: I apologise—by you or by the Treasury?

Mr Ray : No.

Senator WONG: To your knowledge, was that done elsewhere in government?

Senator Cormann: As a former finance minister, I am sure you would appreciate that the costing of the measure was done by the Department of Finance.

Mr Ray : I think it would have been done by the Department of Education and the Department of Finance jointly.

Senator WONG: In order to cost the measure?

Mr Ray : In order to cost the measure. There would have been some modelling done as part of that, because there would have needed to be an estimate of the take-up in the demand side of the equation, particularly for the measures which are expanding access.

Senator WONG: Is there any quantification of the deregulation of university fees?

Mr Ray : On?

Senator WONG: The budget.

Mr Ray : Again, that would be a matter for the Department of Education and the Department of Finance—but Education, primarily. One of the things that they would have done would have been to estimate the help receivable.

Senator GALLACHER: I think it became clear that the Department of Health had not done the modelling on the Medicare co-payment.

Senator Cormann: That is not what we said. I actually specifically referred to the fact that the health department would have been part of the advice to government in relation to that particular measure. So I said the exact opposite.

Senator GALLACHER: I was just looking for a clarification, because it appears that the modelling is done by Education.

Senator Cormann: I am not talking about modelling. What I am saying is that, when you put certain measures, it stands to reason that the relevant portfolio agency is going to be involved. In terms of costing—

Senator GALLACHER: I was seeking information; I do not need a lecture.

Senator Cormann: a measure for the Expenditure Review Committee—

Senator GALLACHER: I heard you the first time.

Senator Cormann: Obviously, on the spending side, the finance department takes a lead role.

Senator WONG: Mr Ray, I will put some question on notice to Finance, but there are two measures here which look at the budget impact of the government's higher education and I just want to be clear that the expansion of the demand driven system and sharing the costs fairly indicates the effect on the budget of reducing how much government pays per place. That is page 84 of BP2. Then there are the changes to FEE-HELP, or is that aggregated into that measure as well?

Mr Ray : Again, this is not an area where we are expert. The expanding opportunity measure that you referred to, the expansion of the demand driven system, has a number of components in it. Again, I thought that the Department of Finance might have helped you on this.

Senator Cormann: They did.

Mr Ray : In layman's terms, the expansion of the demand driven system to a broader range of institutions and a broader range of courses is one element of it and then there is the element that you referred to around the simplification of the funding clusters et cetera.

Senator WONG: Was Treasury involved in relation to this measure or the other aspect which you described, which is the effect of the introduction of a real interest rate on HELP loans? What bit of that work did you do?

Mr Ray : We did not do—

Senator WONG: Any?

Mr Ray : any of the costing work. You can assume we were involved in providing advice on the whole package.

Senator Cormann: Which I am sure is exactly the way the process used to work when you were in government and when you were the finance minister. I am sure that you would be well aware of how these sorts of measures are costed, who is involved and how the process works.

Senator WONG: What I am trying to glean—and I am not asking for the conclusions—is what modelling analysis et cetera Treasury has done to assess the impact of these changes on particular groups, on participation, on income levels and so forth, if any.

Mr Ray : I think I answered that question.

Senator WONG: No.

Mr Ray : That we hadn't done any.

Senator WONG: So the Treasury has not done anything on—just so I am clear—for example, looking at what the effect of these changes would be on lower-income families and lower-income students?

Mr Ray : No.

Senator WONG: Okay.

Senator Cormann: This is when, on behalf of the government, I have got to make an important point, because lower-income students in Australia, unlike in other jurisdictions around the world, are able to borrow 100 per cent of the fee cost from the taxpayer, which is an important aspect—

Senator WONG: Point of order, Chair.

Senator Cormann: of the system here in Australia, which means that—

CHAIR: Minister, a point of order.

Senator WONG: This is not the question that was asked.

Senator Cormann: Senator Wong always wants to shut me up with points of order, because she does not like to hear answers.

Senator WONG: Everyone is bored with you; even your officials are bored.

Senator Cormann: What? I am not going to be bullied by you, Senator Wong; I am providing answers on behalf of the government.

Senator WONG: It is not a question I have asked; it is completely unresponsive. If the minister wants to give a speech he has plenty of opportunities in the chamber to give a speech. I have a few things I would like to finish; I would appreciate being allowed to finish my questions.

CHAIR: Senator Wong, I understand what your point of order is. The minister is entitled to answer the question fully and appropriately as he considers is appropriate to ensure he does answer fully and appropriately.

Senator Cormann: And the important point here is that the sort of modelling that you are suggesting—

Senator WONG: Very little you have said is important, actually.

Senator Cormann: is actually not required, because the impact that you are talking about is actually not real.

Senator WONG: Chair, can you tell him to shut up?

Senator Cormann: Because in Australia—

Senator WONG: I have questions to do; I cannot get a word in here.

Senator Cormann: I am just providing some very important context to the question that you have asked—

Senator WONG: Look if we timed the number, the amount of time I been talking and asking questions, the amount of time instead that he has been talking, it is ridiculous.

Senator Cormann: and that is that in Australia every student is able to through the HELP system—

Senator WONG: What you are doing is allowing this to completely undermine the estimates committee process, completely.

Senator Cormann: borrow the full cost of the university degree.

Senator WONG: Thank you; Chair, if I have the call? Mr Ray, I think I just asked you to confirm that Treasury did not undertake analysis on the effect of this package on low-income households or the population of university students—in other words whether or not there would be a change in terms of how many young people from lower-income families as opposed to high-income.

Mr Ray : I think I need to be quite careful; not of the sort of analysis that I think you are pointing to. Did we when we were providing advice to government consider those questions? Yes, of course we did. But did we actually provide hard detailed modelling? No.

Senator WONG: Thank you.

Mr Ray : The reason that you went to analysis rather than—

Senator Cormann: The reason for that is what I have just explained before.

Senator WONG: Chair, seriously?

Senator Cormann: Senator Wong, you can have this confected outrage as much as you like, but I am the minister at the table. I am entitled to answer questions the way I see fit.

Senator WONG: And everyone knows that, and you are very important.

Senator Cormann: That has got nothing to do with importance.

Senator WONG: We all know how important you are, Mathias, but I am just here to ask questions.

Senator Cormann: But I can tell you know I never treated you with this sort of discourtesy.

CHAIR: Senator Wong, do you have any further questions?

Senator WONG: Yes, I do. Mr Ray, I think you pointed to the word I used, analysis, and I just wondered is there a more value-neutral word?

Mr Ray : No, analysis is fine, but I would take that to be a broader concept than modelling. I don't think I am giving anything away to say that, in order to give advice to the Treasurer and to give advice more broadly to government on this package, we would have done analysis of the sorts of questions that you asked but we did not do hard modelling.

Senator WONG: But, that data or that analysis, government has chosen not to make that public?

Mr Ray : That is a bit tricky because—I am sorry, I do not mean that you are being tricky—

Senator WONG: I try not to be!

Mr Ray : This is an analysis that is input into our advice to government. That is quite different from when we do a revenue forecast and a number gets published.

Senator WONG: I assume I have not missed, anywhere in the budget papers or in anything that Minister Pyne has released, something which demonstrates the sort of analysis you have alluded to—I have not asked you what is in it, but the sort of analysis you have alluded to where questions as to population, student population, demographic changes and the effect on low-income families are outlined.

Mr Ray : I think the answer is you have not missed anything, which would not surprise me—

Senator WONG: No, I miss a lot.

Mr Ray : but we will check.

Senator WONG: That is your answer. If you need to change it—

Mr Ray : If we have to correct, we will.

Senator WONG: I want to confirm the status of various government decisions. The government has first made a decision on the indexation changes and the reduction over the period to 2023-24 of $80 billion in schools and hospitals, as we previously discussed.

Senator Cormann: We have made a decision not to go ahead with the pie-in-the-sky unfunded spending growth trajectory that the previous government never fully funded in the forward estimates but that was made as a promise to state and territory governments. We have decided to ensure that the funding growth trajectory for schools and hospitals as a result of our budget decisions is realistic, is affordable and is more sustainable over the medium term.

Senator WONG: I think you have that on the record probably 24 times tonight. Mr Ray, there has been a government decision about indexation for states for schools and hospitals which results in some $80 billion less being provided over the period to 2023-24 than was previously agreed.

Senator Cormann: Than was previously promised.

Senator WONG: Previously agreed with the states in public agreements.

Senator Cormann: Except that you did not provide the money.

Senator WONG: Just like you have not provided for the Joint Strike Fighter. Is that imaginary too?

Senator Cormann: We are actually budgeting for what we are doing.

Senator WONG: Where is the budget provision for 2020 when the Joint Strike Fighter arrives? Is that pie in the sky too?

Senator Cormann: As you know, unlike your government, we are not imposing cuts after cuts to the Defence budget—

Senator WONG: Is that a pie in the sky too or just a fly in the sky?

Senator Cormann: and you know that we are on track to take Defence spending as a share of GDP to two per cent over the decade.

Senator WONG: Mr Ray, have I misarticulated the question?

Mr Ray : Sorry, Ms Croke is helping me. To go back to the earlier thing we were talking about, at page 8 of Budget 2014-15: Higher Education—I will not call it a glossy—

Senator WONG: Why don't you like calling it a glossy?

Mr Ray : Because that is a term that is—

CHAIR: Pejorative?

Mr Ray : I will call it a booklet.

Senator WONG: I did not know you had this aversion to the term 'glossy'! I suppose it is matt, really.

Mr Ray : There is some data in here which says that over 80,000 students will be provided additional support in 2018, then that splits that up between diploma, advanced diploma, associate degree and undergraduate bachelor courses.

Senator WONG: This is scholarships?

Mr Ray : Expanding opportunities.

Senator WONG: I have not seen that—

Mr Ray : I think that is about the widening of the demand driven system. Those numbers, which would have come from the Department of Education, are included in the budget papers.

Senator WONG: So you are answering my previous question when you said no?

Mr Ray : Because we said we would check.

Senator WONG: I just wanted you to confirm that there had been a government decision, a cabinet decision, to apply a lower rate of indexation for schools and hospitals—

Senator Cormann: A more realistic rate of indexation. Pie-in-the-sky, unfunded indexation was there before.

Mr Ray : By definition, if there is a measure in the budget, there has been a government decision.

Senator WONG: Was that a cabinet decision or not?

Senator Cormann: Every decision in the budget is ultimately endorsed by the cabinet, as you would be well aware.

Senator WONG: Did ERC consider the $80 billion?

Senator Cormann: The ERC considered all of the decisions that are at the basis of this budget. The ERC—

Senator WONG: Did ERC make a formal decision on the $80 billion?

Senator Cormann: Obviously the government as a whole was very conscious of the fact that the spending growth trajectory the previous government put the federal government on was unsustainable, in particular and including in relation to the massive, unfunded, aspirational, pie-in-the-sky spending promises beyond the forward estimates in relation to hospitals and schools. We have made decisions that are transparently reported in the budget on how we propose to put the funding growth trajectory on a more sustainable footing for the future.

Senator WONG: You are entitled not to answer, Minister, but you are leaving open—I will be perfectly frank with you—a proposition that the largest single savings measure in the budget did not go to the Expenditure Review Committee.

Senator Cormann: That is not what I am leaving open at all.

Senator WONG: I am putting that to you. You may want to fudge again and give us the same mantra or chant that you have for the last three hours; that is your decision. But I am inviting you to, on the public record, confirm to parliament that the single largest savings measure in your budget went to the Expenditure Review Committee of cabinet and was determined by that committee ahead of a cabinet meeting.

Senator Cormann: Firstly, in answer to that question, what I would say right up-front is that it is consistent with the practice of past governments, including your government. I am not going to go into the detailed deliberations that are undertaken by the Expenditure Review Committee and the cabinet. Given that we have some specific measures in the budget papers which go to the indexation of federal funding for hospitals and schools, you can be safe to assume that every single measure in the budget is ultimately the result of a decision by government taken through the usual process. In an abundance of clarity and transparency, the $80 billion figure refers to the difference between the pie-in-the-sky, unrealistic, never-funded-in-any-budget-forward-estimates promise of massive increases in spending beyond the forward estimates and the more realistic, sustainable funding growth trajectory that is the result of the decisions reflected in the budget papers. If you go to the budget overview document, our spending trajectory is reflected by the continuous blue line, whereas your pie-in-the-sky funding growth trajectory is reflected by the dotted—

Senator WONG: He is talking about the joint strike fighter.

Senator Cormann: The joint strike fighter—when I last looked, it was put by your government into the Defence Capability Plan. Wasn't that—

Senator WONG: I only have one more topic. As a matter of courtesy to Senator Wright, I would like to try and finish it expeditiously. I just invite the minister's courtesy around that.

Senator Cormann: You did ask me a question directly.

Senator WONG: This goes to the pension decisions in relation to eligibility and indexation. Mr Ray, you were here for the CEFC discussion, where I ask questions about the PBS and what had happened to departmental funding for the CEFC. That is not actually the correct term, but that is how I think about it. I was told, quite rightly, it reflects government decisions. Notwithstanding that the Senate has not dealt with it, obviously from 1 July the budget papers reflect the government's abolition of the CEFC position. Similarly, it is the case, isn't it, that, from the 2017-18 year—is that right—the budget numbers reflect the decisions in relation to pension eligibility and indexation which have been announced?

Senator Cormann: Those changes do not take effect until after the next election of course.

Mr Ray : My recollection is that both of those things commence in the 2017-18 year.

Senator WONG: So there would be an effect in the 2017-18 year?

Mr Ray : Yes.

Senator WONG: Which is already reflected in the budget figures?

Mr Ray : That is right.

Senator WONG: And that is because it is already a government policy?

Mr Ray : That is correct.

Senator Cormann: To start in the period after the next election.

Senator WONG: And cabinet has already made a decision in respect of those, including the start date?

Senator Cormann: The detail in relation to all of this is on page 203 of Budget Paper No.2.

Senator WONG: Cabinet has already made this decision; is that right, Minister?

Senator Cormann: Otherwise it would not be reflected in the budget papers. That is consistent with the answer I gave before.

Senator WONG: Thank you, that is very helpful. Mr Ray, last point: is it the case that the new pension arrangements, which commence in 2017-18 will see age pensioners receiving less in each indexation rise—which I think is six monthly—than under current arrangements?

Mr Ray : Well that—

Senator WONG: We are going to get a CPI discussion.

Senator Cormann: The important point here is that the most recent indexation was actually CPI rather than MTAWE, because MTAWE is pretty low—

Senator WONG: Minister, I think Mr Ray is trying to answer.

Mr Ray : I think the minister has made the point that I was going to make, which is that when we get there that may not be the case. That will depend on CPI inflation and MTAWE inflation. My understanding of the parameters for this costing—

Senator WONG: But aren't current arrangements: whichever is higher?

Senator Cormann: That is right, and right now CPI is higher than MTAWE.

Mr Ray : It does not quite work like that. It is a MTAWE benchmark.

Senator WONG: Yes, that's right—25 per cent.

Mr Ray : You have to get back up to the benchmark. So in terms of saying what it would be when we get there, I think it is hard to answer that question. But in terms of the budget numbers, they are based on the budget parameters and then that—

Senator WONG: Which are based on CPI.

Mr Ray : In the budget parameters, by 2017-18, wages are above—yes.

Senator WONG: Can I just reiterate what I think you are saying: if you use the budget parameters as the base, that is, in terms of wage increases, CPI et cetera, then those parameters do indicate that a CPI indexation is less than a MTAWE?

Mr Ray : Out that far.

Senator WONG: At that point.

Mr Ray : At that point. But were the measure to take effect sooner, I do not know that that would be true.

Senator WONG: Sure. Are you able to tell me the difference in outlays in 2017-18 as between the government policy position and the current indexation arrangements applying the budget parameters?

Senator Cormann: That is a savings number that is in the measure. If you go to page 203 in Budget Paper No.2, it will actually give you exactly that information.

Mr Ray : It is not split between pension type—

Senator WONG: No.

Mr Ray : But the cost is there. You would need to ask the Department of Social Services.

Senator WONG: Because $300 million in that year aggregates a number of different payments.

Senator Cormann: Sure, but it is across pensions here.

Mr Ray : Yes, across pensions.

Senator WONG: So you want me to go to DSS or can I put it on notice?

Mr Ray : You can put it on notice.

Senator WONG: I would like to disaggregate the 331.

Mr Ray : We will go to DSS for you.

Senator WONG: Thank you.

Senator WRIGHT: I would like to have a bit of a better understanding about the proportion of the $80 billion reduction in hospitals and schools funding flagged in the budget papers, which relates to school funding. What proportion of that figure will come from schools?

Mr Ray : Earlier we took a question on notice which would go to the precise numbers. Senator Wong asked us, effectively, to provide the detail of the gap between the two lines in the chart and we took that on notice.

Senator Cormann: We will provide that on notice.

Mr Ray : But I did say earlier that the schools number is something less than $30 billion, and something more than 50 is the hospitals.

Senator WRIGHT: Thank you. I realise that maybe these questions have been asked before but I am asking them just for the sake of completeness. Perhaps if I could just ask you, you could indicate if they are going to be answered on notice anyway.

I am interested in knowing—and I presume that this is what you are going to do—the reduction for schools for each year over the period from 2018 to 2024-25, year by year.

Senator Cormann: Sorry, I have to correct that—when you say 'reduction'. There is an artificial line, which is a dollar line, in the budget overview which presents an unfunded trajectory and then there is our funding growth trajectory.

Senator WRIGHT: All right. I would like to know what the difference is between those two lines—

Senator Cormann: And we have taken that on notice.

Senator WRIGHT: because Senator Wong said that the projections, while outside the forward estimates, were based—

Senator Cormann: It is what was promised, yes.

Senator WRIGHT: on public agreements that had been reached and were on the public record.

Senator Cormann: But we have taken that on notice.

Senator WRIGHT: So there are—

Senator WONG: When you said 'unity ticket' it was on the public record.

Senator Cormann: For the first four years. For the period of the forward estimates.

Senator WRIGHT: There was the little—

Senator WONG: A unity ticket on Gonski—

Senator Cormann: Over the forward estimates. In fact I—

Senator WRIGHT: Chair, I have waited—

Senator WONG: I am sorry—

Senator Cormann: In fact, Senator Wong, I was on the debate on the first day of the election campaign, with you on 7:30, where I made that explicit—

CHAIR: Please ignore the interjections from Senator Wong. Senator Wright has the call.

Senator Cormann: But we have taken the question from Senator Wright on notice.

Senator WRIGHT: For each year. And then for each year I would like a disaggregation of what the breakdown in those years will be for public schools and the breakdown for non-government schools.

Senator Cormann: That probably was beyond our earlier one.

Mr Ray : We cannot provide that, because that has not been decided yet. If you look in the budget papers, the nature of how that funding is going to be divided up is subject to future negotiations. All that we have is an estimate of the aggregate, not how it is divided up.

Let me get that right: we do not know how what is under the blue line in the chart—the new trajectory—is going to be divided up between sectors. That is what we do not know.

Senator WRIGHT: So, the area of the gap is—

Senator Cormann: No, this is not the area of the gap. This is the area below the blue line. Essentially, it is the new funding trajectory. As Mr Ray has said, the work to negotiate the detail of how that is allocated is yet to be finalised. So we have the envelope but we do not have the breakdown yet.

Senator WRIGHT: Yes. Can I ask—

Mr Ray : What is published in the budget are the splits out to 2017-18. I think those splits really refer to the 2017 school year. Those are published on page 36 of Budget Paper No. 3.

Senator WRIGHT: I do not have that with me. I did not expect to be in here asking these—

Mr Ray : But if I tell you where it is then you can look at it.

Senator WRIGHT: Yes, thank you.

Mr Ray : It also says in a footnote to that table that the final allocations:

… are subject to formal negotiations between the Commonwealth and the States and Territories and the non-government sector.

Senator WRIGHT: Can you tell me the reduction in total school funding for each state and territory for each year.

Mr Ray : I think it is the same answer. The splits of school funding out to 2017-18 are provided in Budget Paper No. 3, and beyond that there are no splits. It is not available because the negotiations with the states and territories have not even begun, get alone finished.

Senator WRIGHT: All right. Can you tell me, based on what was published in the budget papers last year, whether or not it is possible—I understand that I am asking for the difference between the two lines, essentially—to ascertain what the figure would have been on the higher line, and how that would have been disaggregated between states and territories on that line?

Mr Ray : I do not think any of us got have last year's budget papers—

Senator WRIGHT: I do not mean here; I am asking you to take it on notice.

Mr Ray : I do not think that it would be possible to get that information out of those budget papers because I do not think that that sort of information would have been published out beyond 2017. We do not think it was published but we will check.

Senator WRIGHT: Okay. You will look into it, though?

Mr Ray : We can check.

Senator WRIGHT: And, if it was, I would appreciate having that. Thank you very much. The question I have for you then is, in terms of that lower trajectory—to avoid getting into a long semantic debate: is it possible to say what school based programs will be affected by the fact that that is a lower trajectory than the one that was anticipated last year?

Mr Ray : That is not even a question for us because that depends on the decisions taken by the relevant authorities, whether they be the state governments or whether they be the relevant authorities in, for example, the Catholic school system or whatever. It is not a matter for the Commonwealth. Also, it is not clear, just because Commonwealth funding has been cut, that total funding will be cut—that, because it is lower, total funding will be lower. That is not clear.

Senator WRIGHT: No. It is pretty likely, because it is not clear, and I suppose I cannot ask you to speculate on that.

Mr Ray : I am not so sure about that. If you look at the growth in hospitals funding under the new arrangements and compare it to the growth that was under the old SPP or the growth that was under the old AHCAs, it is quite similar. So, if you think about history, it is not clear.

Senator WRIGHT: That is in relation to hospitals.

Mr Ray : That is in relation to hospitals.

Senator WRIGHT: This is about schools.

Mr Ray : Yes, I understand that.

Senator WRIGHT: So I guess you also cannot tell me what programs would be expected to be cut or have their funding significantly reduced over that period, for the same reason that you could not answer that—

Mr Ray : They are decisions of other governments and other authorities, not the Commonwealth.

Senator WRIGHT: All right. They are my questions. Thank you very much.

CHAIR: Senator Wong, you have a couple of questions you would like to put on notice?

Senator WONG: Yes. I just wanted to make sure—because we spent a lot of time on schools, as Senator Wright has just referenced—that we were clear that my question also related to the hospitals graph.

Mr Ray : Yes, clearly.

Senator WONG: Can I ask you some questions about the infrastructure package, Mr Ray?

Mr Ray : You might ask Mr Legg.

Senator WONG: This may be answered by the budget measure at 175, but I wanted to be clear. I think the Treasurer has talked about an $11.6 billion package; is that right?

Mr Legg : Yes, $11.6 billion is the Infrastructure Growth Package in this budget.

Senator WONG: Are you able to tell me how much of that is new money?

Mr Legg : I think that is all new money.

Senator WONG: How does that—

Mr Legg : They all reflect decisions made by the government in this budget.

Senator WONG: Well, that is not new money, but congratulations on saying that! I am looking for the net position.

Senator Cormann: It is $11.6 billion, as is quite transparently described in the budget papers, and that $11.6 billion is all new money.

Mr Legg : The total Commonwealth spend is $50 billion over the period through to 2019-20. But the $11.6 billion reflects decisions made in this budget about spending that was not in any base before this budget, so I think that is new.

Senator Cormann: This is the infrastructure growth package and it was quite transparently declared that that was all new money. It is, of course, a significant investment. And we have got the $500 billion asset—

Senator WONG: I will put it on notice. I am asking for the net position. I am asking: what are the overs and unders and what has been cut in order to fund it? I did not want into a tricky argument, Mr Legg, about 'Oh, this is a new decision, so it is new money.' I actually wanted to understand what the net position was for the portfolio.

Senator Cormann: I gave you the net position.

Senator WONG: So what is being saved, what is being spent and what the net position was. I think some of that is disclosed at 175 in BP2. But, rather than get into a long discussion—because the minister and you are holding the line—I will put them on notice.

Senator Cormann: It is not holding the line; it is actually accurate information.

CHAIR: Senator Wong has indicated that she will put some questions on notice in that regard.

Senator Cormann: Sure. She was not keen to listen to the answer.

Senator WONG: Because you are not really helping.

CHAIR: Do you have any further questions?

Senator Cormann: It was the most precise and accurate answer—

Senator WONG: Thank you.

Senator Cormann: There are five measures that make up the $11.6 billion.

Senator WONG: Mr Ray, there was a table that I was asking questions about—which I have just lost the reference to—in Finance and I was told to come here to ask the questions.

Mr Ray : Is that net debt?

Senator WONG: Yes. Thank you. Is it statement 7?

Mr Ray : Yes.

Senator WONG: Can we deal with that?

Mr Ray : We can. It is table 4. I cannot remember the questions.

Senator WONG: I was trying to understand what was the driving the movements in net debt over the 2014-15, 2015-16 and 2016-17 years.

Mr Ray : The short answer is it is the things that are actually listed there.

Senator WONG: Thank you.

Mr Ray : The changes in the financing requirement are a little complicated. You start with the change in the underlying cash balance and then think about investments for other policy purposes. So one of those is the change in financing for HELP debt since MYEFO.

Senator WONG: That is a net position. So you are getting the higher interest rate—

Mr Ray : No, this is actually the borrowing that we need to do in order to make the loans to students. You can see on the balance sheet that the profile of HELP loans has increased between MYEFO and budget.

Senator WONG: So this is more student debt—

Mr Ray : There are going to be more students because there is a wider demand driven—

Senator WONG: So more student debt for a range of reasons and that means that the financing requirements change.

Mr Ray : It means more borrowing. Secondly, it is not as simple as seeing a change in the underlying cash balance, because the government has committed that the savings in the health portfolio will go into the Medical Research Future Fund. So you need to back out of the change in the underlying cash balance those savings. Those are the things that are driving the change in the financing requirements. That is the first line. So the UCB and then back out the health saves and add in investments for policy purposes such as HELP. The second line is actually quite straightforward.

Senator WONG: I understand that one.

Mr Ray : That is that we have lower yields since MYEFO and therefore we do not have to issue as much debt to get the same cash—because this is market value because it is net debt. The next line is 'asset and other liability movements' and it is around all assets and liabilities, which includes the funds and WestConnex.

Senator WONG: Can I stop you there. There is obviously quite a significant increase there—or decrease, depending on which way you look at it. Are you able to break that up a little more?

Mr Ray : I think it is largely driven by the value of investments held in the newly established funds, particularly the Medical Research Future Fund, which I think we are assuming will be in debt-like instruments.

Senator WONG: Sorry, I could not hear that.

Mr Ray : We are assuming in this estimate that it will be in debt-like instruments. The investment mandate has not yet been issued.

Senator WONG: I am not an accountant—

Mr Ray : Neither am I.

Senator WONG: but in that asset and other liability movements you are assuming a growing asset, which is the fund, correct?

Mr Ray : Yes.

Senator WONG: And you are also assuming, I presume, limited payments from the fund, because that would by definition affect the value of the asset.

Mr Ray : The Medical Research Future Fund is an endowment fund. The earnings are being directed to medical research and the forward estimates, so it is not about the earnings it is about the portfolio assets that the fund is holding.

Senator WONG: You said that was the primary driver. Are you able to give me some metrics around that?

Mr Ray : If you actually want numbers, we would need to take it on notice.

Senator WONG: If you could, to the extent you can to disaggregate that line in that table, I would appreciate it. But broadly, holding that fund on the balance sheet, in the way the government has determined, has a beneficial impact on net debt? It is a question.

Mr Ray : Broadly, the impact on net debt of establishing the endowment fund, assuming that the assets of the fund are principally debt-like instruments, will be neutral. Because alternatively that cash could have been used to pay down—

Senator WONG: But that does not explain your point about asset movements.

Mr Ray : What has happened is that in the financing requirement we do not—

Senator WONG: There is an offsetting shift—

Mr Ray : Yes, that is right.

Senator WONG: Perhaps the disaggregation may help and maybe we need to reference the preceding funds which are included in the BAF and the EIF, but isn't the MRFF $11 billion?

Mr Ray : No, it is $20 billion outside the forward estimates.

Senator WONG: Yes, but this is out to 2017, whereas the figure in table 4 is $21 billion. I am just trying to understand the other $10 billion.

Mr Ray : I think the safest thing is to take it on notice. It is $12 billion—you are right.

Senator WONG: So you will explain how that works in that line.

Mr Ray : To the best of our ability.

Senator WONG: I had another topic, but I will not get it finished in time.

CHAIR: Thank you, very much, to Mr Ray and the officers from Fiscal Group for assisting us tonight. We will return at nine o'clock in the morning with Revenue Group and the Australian Taxation Office.

Committee adjourned at 22:59