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Mid year review, 28 January 1997: press conference

EOE

TREASURER: Ladies and Gentlemen.

We have never released a mid-year review of this dimension before and so what I plan to do is try and walk you through the significant parts of it and deal with it in some detail and just explain the structure of it to you.

This is the first mid-year economic and fiscal outlook review which has been prepared in accordance with the Charter of Budget Honesty. It's a first for Australian economic reporting and today I release the first ever mid-year review, some one hundred pages. I also release and this will be in the boxes, a tax expenditures statement and I think a bit later on this afternoon, the Commonwealth Financial Transactions.

When the last mid-year review was released by Ralph Willis in December of 1995, it was a three page press release with two pages of appendices. It neither reported the underlying position. nor did it give any idea of fiscal risks or contingencies and indeed it reported repayments of loans from State governments as revenue items.

Today's release is one hundred pages. For the first time ever in Australia, we report not only matters which have faired for ill or good in the Senate but we report fiscal risks in appendix E and we report contingent liabilities in that appendix well. They give you some idea, some contingent liabilities which would not hitherto have been known in Australia, some idea of the pressures which are upon the Commonwealth. Now I should hasten to add you will find some interesting things in there like Government guarantees of the Reserve Bank and things like that. We don't expect any of these to be called up but we put them out there as contingencies and, of course, if we thought there were a realistic risk, they would be appearing in the statements themselves.

- I want to just explain to you the structure of the report. If I could take you first of all to table 4, the Economic Outlook on page 6 where we update our revised forecasts as against the budget forecasts and the Economic Outlook for Australia remains favourable. Growth of GDP expected in 1996/7 is the same as the budget forecast of 3.5%, although the composition of the growth will be, we expect different. Business investment will be stronger and private consumption has eased. The solid activity and growth will be accompanied by moderate but continuing growth in employment and the mid-year revised forecast for business investment, revised up to 17% in the coming year. In relation to the prices and wages, this has been the other significant move in relation to forecasts, we are predicting inflation to be better than forecast at Budget time. The headline rate, the CPI is forecast in the mid-year review to be 1% and it would be an extraordinarily long time ago in Australia that you saw figures of that dimension. The underlying measure has been revised downwards to 2% from 2.75%. The picture that is emerging in relation to the economy is solid growth, lowered inflation, higher business investment. The growth in employment, we believe, will that forecast in the Budget, although by the end of the year, we had said in the Budget that we expected the unemployment rate would be 8.25%. You'll see there that the mid-year revised forecast is 8.5%. I direct you to the explanation on page 8 which talks about rounding and principally the effect of increases in the participation rate, although it doesn't show up, it shows up at 63.75, 63.75. As a result of rounding, we have eased up the participation rate and as a consequence, eased up what we expect to be the outcome in relation to employment.

In relation to the outcomes that are expected at this stage, in relation to the current and future years. I take you to table 1. The figure in bold is the underlying balance which is the figure that we rely on. The bottom line is the headline balance which takes into account asset sales and net advances. We expect in relation to the current year, on the basis of information to hand, that the underlying deficit will be higher than was anticipated at Budget time. And indeed in the next two years, higher, meaning that there would be a deficit still in 1998/9 of 0.4% rather than be balanced. That was predicted in relation to the Budget itself. The reason for the downward revisions relates essentially to four factors:

One is downward revisions in revenue - principally Company tax;

Second is downward revisions to inflation and wages outcomes which means that the Government will get less than it expected from fiscal drag;

Thirdly, some policy changes, although they are quite minor; and,

Fourthly, actions of the Senate, some of which the Government has accepted and some of which it has not accepted.

Table 2 sets out, in the absence of the fiscal consolidation which was achieved in the 1996/97 Budget that we would have been facing a deficit in this financial year of $11.3 billion and $11 billion in 1997/8 and $8 billion in 1998/9.

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Table 3 reconciles what the position would have been without the fiscal consolidation, as against the fiscal consolidation. What it will show you is that, as was announced at Budget time and substantially put in place, the Government tightened fiscal policy by about $3 billion in 1996/7, bringing a starting point of $11.3 billion down to $8.5 at the bottom of the table and around $7 billion in 1997/8, bringing a starting point of $11.2 billion down to about $4 billion at the bottom. That was the $7.2 billion of cumulative measures in the 1997/8 year. And the flow on effect of that fiscal consolidation in the third year with $6 billion, producing a starting point of $8 billion down to $2 billion. Cumulatively over those three years of fiscal consolidation yielding savings in relation to debt of about $16 billion.

Table 5, I interrupt myself here to point out that table 5 are the major economic parameters across to the year 2000. The significant revision in this from the Budget time estimate. is that we believe that growth will be stronger in 1997/98 than we here forecasting at Budget time.

Can I now take you to Table 6 and show you the factors that are at play in relation to changes to the Budget outcomes expected in this financial year and in future financial years. Table 6 will show you that principally the downward revisions for the outcome in 1996/97 of around $2.9 billion are as a result of parameter and other variations. The largest of which is in relation to revenue and the largest revenue change is Company tax which we expect will be lower. The Company tax collections, which we expect will be lower this financial year of the order of $1.6 billion. The Company tax collections for 1996/7 are in respect of the Company income year 1995/6 so there is a delay in collections. What this is showing is that in 1995/6 Company taxable income was not of the order which it was believed at the time of the current budget, the 1996/7 Budget.

As you will see from the press release, we believe that the bulk of that is explicable from the fact that in 1995-6, which was the company year which current taxation collections relate to, there was an increase in the corporate tax rate from 33 to 36 cents. As a result of that increase in the corporate tax rate, companies had an incentive to pull forward income into 1994-5 - that is before the higher company tax level cut in and to push back losses. As a result of the ... this is perfectly legal. As a result, this artificially inflated company tax income in the lower corporate tax year with a corresponding decline in company income in the higher company tax year - that is 1995-6 - flowing on to collections in 1996- 97. As a result of discussions with companies to date, the Tax Commissioner believes that the effect of pulling forward income into the year when the lower company tax rate applied, the effect on company tax collections in 1996-7, the current budget year, is at least $1 billion. The Tax Office has had discussions with many of the companies involved should make it entirely clear that this is normal tax planning; that they were quite entitled to carry over accumulated losses and to bring them to account, as you might expect, when the corporate tax rate was higher; they were quite entitled to adopt stop valuations which had the effect of inflating 1994-5 company income as against 1995-6 but the level to which it was done was not expected by the Commissioner of Taxation.

The other major changes are the effect of policy decisions. You will see about $1 billion there. Principally that relates to two items, one of which is the settlement with the State of Victoria of a dispute over petroleum resource rent tax and, although that shows as an outlay, you will find a corresponding jump in income from the petroleum resource rent tax because the money came back. The other very large item which explains the bulk of that figure is the expenses involved in assuming losses and restructuring from the Australian National Railways, a matter which was not budgeted at budget time and was subsequently picked up.

In relation to future years, you have a similar effect in the bottom line but a little bit different contribution in the composition. The lower company tax collections works its way across the forward estimates because the budget assumed that 1995-6 would be a base year. In fact, it was an abnormal year and when you return to the normal company tax collections and increase in accordance with growth, you find that that effects the forward estimates. But the revenue understatement which you will see rising across the forward estimate years relates to the other factor that I alerted you to. That is, we have revised downward both inflation and wages. By revising down wages, in particular, we revised down revenue from fiscal drag. If you like, the Government's loss but the taxpayers' gain because wage outcomes are not pushing people as expected into higher tax brackets.

The fourth of the factors kicks in the 1997-8 and following years. You will see down the bottom of that table the effect of Senate measures - about $400 million in 1997-8 and continuing across the forward years. We have divided those measures into two lots. The first lot are measures which the Government will not re-present to the Senate in the 1997- 98 year, totalling around about half. And the second lot - measures which the Government will re-present to the Senate - totalling in the 1997- 8 year around $200 million. The largest single item in that category is the Government's proposal to restrict benefits to migrants who would only become eligible to a range of benefits after two years in Australia. That is, not migrants who are refugee or humanitarian but migrants who come in under other schemes. You will recall the Government proposed in the budget to restrict a range of benefits for two years and that is the largest single item there.

If any of those measures when re-presented are in fact adopted by the Senate - and I'm optimistic that some of them will be - that comes directly off the bottom line deficit. In other words, the bottom line deficit as revised in the mid term review assumes none of these measures when re- presented will get through.

The remainder of the statement goes in Part Two to outlays and revenues. It gives you in outlays a very concise statement of where there have been policy changes by the Government and how they have added to outlays. Aside from the settlement of the resource rent tax case with Victoria and the cost in restructuring Australian National, they are principally measures which were not accepted by the Senate and the Government has lived with the outcome and intends not to re-present.

The revenue estimates appear in Table 20 at page 32. You'll notice that, if you look down the revenue estimates, the large changes. About 8 per cent in respect of companies, a matter I've already touched on; a large increase, although not in dollar terms so much, in percentage terms, in relation to superannuation income; and a large increase of petroleum resource rent tax - that is, the coming back into the Commonwealth net of the amount which was paid out to Victoria to settle that case, something that I've already explained.

In relation to Appendix A, they set out all of the policy decisions and the reasons for them, for matters taken by the Government. It includes measures that the Senate rejected where the Government has accepted that rejection. They are counted as policy measures of the Government at that stage. In relation to Appendix B, these are measures which have been rejected by the Senate which the Government refuses to accept and intends to re-present Appendix D has a list of tax expenditures, which was something that the Commission of Audit focused on and I am releasing a tax expenditures statement in relation to 1995-96 which will go through many of those. And Appendix E sets out a statement of risks and contingent liabilities.

In relation to the economic forecasts, what this shows is continuing solid growth. We're doing better on inflation. By doing better on inflation, we are creating a savings environment where people can be assured that prices aren't moving against them. And for employees, they don't need wage increases to chase prices. Prices are under control. And what's more, in a low inflation environment, neither are they being pushed into higher tax brackets, which appears from the Commonwealth revenue. We've got a good business investment environment, stronger than many people expected, and we're expecting stronger growth in the forthcoming financial year than we predicted at budget time.

In relation to the Commonwealth Account, there have been downward revisions. What that says is that further fiscal tightening will be required as we continue to work towards the aim of balancing the Budget over the term of this Parliament. But we've broken the back of the work. We've put in place $7 billion worth of savings over the last two years and we've made very substantial progress. In relation to further work in relation to fiscal policy, we will not be revisiting those areas where substantial savings were made in 1996/97, areas where measures are still being implemented as a result of very profound structural reform and we will not be putting at risk any measures of the important social safety net as we do those adjustments in relation to fiscal policy. We think it's important that we continue to make progress in relation to fiscal policy. We've made substantial progress. We can't say that the battle has been won. We can't sit back and we can't relax but we've broken the back of the work. We've made very substantial strides and it's important that we keep working towards that aim.

JOURNALIST: Treasurer you say that more fiscal tightening will be required - I think the Minister for Finance suggested perhaps another $2 billion worth of cuts, the cuts would be in that order. Is that what you're signalling?

TREASURER: I'm not specifying a particular figure. What I'm saying is we want to work towards balancing the accounts of the Commonwealth over the term of this Parliament. We've gone $7 billion down the road, we've broken the back of the work, there's more progress that can be made but the hard yards have been put in and we intend to keep working towards that aim.

JOURNALIST: Treasurer it's been reported that you're going to try for a Budget balance in the next Budget rather than waiting until next year. Are you going to do it in two years not three?

TREASURER: Well in this Budget according to our forward estimates that would require a fiscal tightening of about $4 billion and I think. I can assure you that I wouldn't lose any time at all looking for that. What we're talking about is getting to balance over the life of the Parliament, certainly not in the next financial year.

JOURNALIST: Mr Costello on the basis of table 1 of the document released today, to achieve balance you would have to find savings and/or changes of revenue at least equal to $2 billion and then if you took the position in terms of the projections in the last Budget when in fact you were .... savings of up to $3 billion. Do you accept that that's the order of magnitude that you'll have to be looking for?

TREASURER: Well I say I think in this press release as I said in my Budget speech that the Government will continue to work towards the aim of balancing the Budget over the term of this Parliament. That is the aim that we will continue to work towards. We, in our last Budget, worked $7 billion towards that. We've broken the back of it. I think I said at the time that we were setting ourselves a goal of around $8 billion, so totally consistent with that we're going to do further work towards the goal but the dimensions are more of the order that will get you towards that balance over the life of the Parliament than any expectation in the next financial year.

JOURNALIST: You're forecasting an unemployment rate that's going to be higher than it was in the Budget forecast. Is that a government admission that you're not doing enough to help the jobless?

TREASURER: No, we're saying by the end of the financial year we expect that unemployment will be 8 and a quarter I think we said in the Budget that by the end of the financial year we thought it would be 8 and a half. These things are rounded to the nearest quarter percent. There's been a slight change in relation to that, but principally that's as a result of a slight change in relation to the participation rate I would point out to you that there have been some strong months of jobs growth and we've got this issue, which is still unresolved, in relation to ABS sampling changes. Now we'll have to have a look at the outcome of that before we can make any hard and fast predictions as to what actually happened in relation to employment. But I do want to underline a point which I think we make in the mid-year review and I think a point which we make in the press release. We think that the big structural leap in relation to jobs in this country is going to come from changing our industrial relations system and the big improvements are going to come to the extent that people are able to take up new opportunities for flexibility and better ways of working. We note in this statement that this is the great challenge for Australia, to get the structural improvement in relation to jobs. Otherwise if we're just on the sort of cycle, things come and things go, as we've seen in Australia over a long period of time, we've got to break out of the cycle, and that's what industrial relations reform is all about.

JOURNALIST: ...expecting firms to be hiring at a time of falling private demand. Why are they going to be taking on people when there's fewer customers ...

TREASURER: Small business is facing up to a situation. Paul, where they've had three cuts in official interest rates over the last three or four months. Where they're no longer hampered by an unfair dismissal law which was one of their main complaints. Where they now have an opportunity for capital gains tax rollover relief whereby if they sell assets and trade up into a bigger business they don't get penalised by the capital gains tax. Where they're looking at a growth rate of three and a half percent this year and next year and as far as you can see good prospects down the road. Where they're looking at a fiscal account which is now moving back into balance and all of this is being done by reducing the costs of doing business, by reducing government outlays, rather than by increasing company taxes or increasing excises. Yet you are seeing now marvellous improvements which will be of assistance to small business, you're seeing strong investment going on and you are seeing the kind of low inflation growth economy which we haven't seen in Australia for a long time.

JOURNALIST: So Treasurer you've got big growth in business investment but that's all in mining and communications which aren't big job generators. As Paul pointed out small business isn't seeing the people buying things. Access Economics says unemployment has all but bottomed and will only go up again in the next couple of years. Do you accept that, and if not ...

TREASURER: No well of course I don't, what I accept is the projections that we've put here. I think that's quite plain. But in relation to small business and opportunities, you haven't seen the kind of interest rate environment that we now have in place for quite some time. That takes a while to work its way through the system.

JOURNALIST: So it's a question of holding your nerve is it. You've put all these things in place and now you just wait...

TREASURER: I don't think it's a question of holding your nerve. We've got a situation where official rates have been lowered three times. You have mortgage rates the lowest since June of '74, since pre-Whitlam days. It's a very long nerve to go back 22 years.

I think one of the things that small business, in particular will be looking for is a turn in the housing cycle. Now, a lot of people have got differing views on the turn on the housing cycle, but I think most would agree that the housing cycle's bottomed, the extent to which it comes back and the strength at which it comes back, would be a matter of some argument, but I think most people would say it will come back. That of course, is one of the areas that small business is extremely sensitive towards.

JOURNALIST: Well, when do you expect employment to start coming down below 8 l/2 percent?

TREASURER: I think unemployment, as I said earlier, I think you'll see the significant improvements in unemployment when you see the significant improvements in wage fixing and industrial relations.

JOURNALIST: When do you expect that to come in?

TREASURER: Well, you've now got new legislation in place. I think it's been in place for all of about 24 days, 95 days, or 28 days. It's now been in place for all of about 28 days. It's the extent to which people take up the opportunities which are being afforded under that. Otherwise, if you don't get that structural change, your employment's just going to follow the course of the economic cycle. And what do we know from the last 10, 15 years? Every down turn rachetted it up and every recovery only bought it back a percentage of the way it was rachetted up. You've got to break through that. You've got to get the structural changes.

JOURNALIST: ( inaudible )

TREASURER: Well, I think, Paul, that we're actually predicting lower than expected wages. So, you can wait a while..

JOURNALIST: But you're also predicting lower ..

TREASURER: ...in the future. I'm not talking about wage blowouts. I'm talking about opportunities where people can feel secure in offering employment opportunities because they're not hampered by unfair dismissal laws. Because they're not subject to inflexible rules, where they have the opportunity to manage their own businesses and where it gives confidence back to hire and fire.

JOURNALIST: What would you say to the critics who say that the ...the critics in business who claim that the compromises that had to be made in the Industrial Relation legislation mean that it doesn't offer the opportunity that you're suggesting to the extent you're suggesting.

TREASURER: Well. I think it offers very significant improvements and the key area where it offers significant improvements is the area where the biggest complaints were in relation to unfair dismissal laws. There was nothing that made people conservative and fearful about creating jobs and taking on new employees more than the contingent risk of litigation, as a consequence of unfair dismissal. That has been passed way, and you know, we had to negotiate changes to get that legislation through. I guess that is the consequence of a Senate. We've had to negotiate changes to get the bulk of our Budget through. These are obstacles you live with. These are obstacles you live with. But they can be overcome.

JOURNALIST: Mr Costello, on the fiscal policy again, you say in the statement that the Government will not be revisiting areas where substantial savings where made in the 1996 Budget. Does that mean that you'll be revisiting other areas in a major way, and does it mean that you will not be excluding some portfolios this time round like Defence, you did last time?

TREASURER: No, because the dimension of this is nothing like the dimension of what we had to do in the 1996- 7 Budget. You know, we've broken the back, we've got to do the tidying up, we've got the make further progress. But the dimension is nothing like seven billion dollars. I think many people thought the 1996- 7 Budget, seven billion dollars couldn't be done. Not only was it announced but nearly all of seven billion dollars was enacted. Now, we're arguing about .4 billion in the 1997- 8 year, but I haven't even given up on that. A lot of that's going right back to the Senate. So there'll be some of those measures which we can add into our target. But I'm making the obvious point that we did the most exhaustive, conclusive outlays rectification in living memory. We've got major changes in obvious areas, in higher education is the one that comes to mind. I mean, those are being put in place. We're obviously not going to go back into areas like that because we've done the task, we've done the job. It's a question now of making sure that we keep moving in the right direction as things develop. We keep pointing towards our ultimate aims.

JOURNALIST: ... the bulk of welfare entitlements won't be cut Mr Costello?

TREASURER: Well I say in this statement that the social safety net will remain intact.

JOURNALIST: Mr Costello.... close to $4 billion dollars worth of your problem created on the revenue side.. There's not that much more to do in the spending areas that were targeted in the last Budget. Does that mean the bulk of the fiscal tightening that you're looking for now will come from the revenue side?

TREASURER: Well when you say the bulk of it, I mean, these are small sums. But, as I've always said, you know, we're always looking at areas that need to be tightened. We're producing a major report in relation to tax expenditures. Right? So, we foreshadowed that in the last Budget. I have released a discussion paper which is now out for discussion about the system of foreign source income. That's being put around for comment I've already flagged that we'll take into account comment and we'll be making some announcements in the Budget. So, tax expenditures, anomalies, compliance are always and always will be on the cards and they'll be getting due consideration. What I'm foreshadowing to you is that the bulk of the work on the outlays side has been done.

JOURNALIST: Isn't that just sort of patchwork that you're doing in all those bits and pieces on the problem revenue side? Doesn't the fact that the tax base is slipping away by $4 billion over the next few year. I mean, doesn't that scare you, as Treasurer? Doesn't that make you think that there's a case in broadening the tax base?

TREASURER: Well, when you say that the tax base is slipping away. I'll just make two points to you. The first is, I think as we say in our fiscal risks, there are measures which affect the tax base and always will. One of them is globalisation and electronic commerce. And I say in General Risks, I think page 88, globalisation, developments in financial markets, tax competition, advances in technology. The people who can buy over the Internet is a problem, you know, that you've got to try and come to grips with, and you've got to deal with it. I'm not underestimating that problem Globalisation is another challenge in relation to the revenue base. At my initiative we did a big seminar in Sydney last year between APEC and the OECD on cooperation in the region in relation to transfer pricing. I don't want to underestimate those, and I put it there in the General Risks, that's a fair point. In relation to the mid year review changes, as against Budget time estimates, you've got this company tax situation where, essentially what happened is that the estimates for company tax collection were prepared off an abnormal year base. It was the year of income before, a tax rise cut in and you had an abnormally inflated base. And when you take that out that effects that to some degree. But the other change, principally, in relation to the variation from Budget time from mid year review is fiscal drag. Now, I don't stand here and say that's a terrible thing. From the taxpayers point of view, that's as it should be. Where you've got a low inflation environment, they are being protected against what would otherwise give revenue to the Government.

JOURNALIST: Treasurer, just on the question of taxation, at what point does the Government heed this chorus of calls to move on taxation reforms, in particular a GST...?

TREASURER:

Well, when you say 'chorus of calls', a chorus of calls from mostly people who where chorusing the calls in 1993 when they included us and when the Australian people said no. The many business organisations that where supporting this in 1993 are supporting it today. This is not a sea change. I think I could probably tell all of you more about those sorts of taxes than you could yourself. I've stood in R.S.L.'s and bowling halls all across the country when I was part of the chorus and the Australian people made their decision. What you saw in relation to that was when people think about it carefully, and when they had the opportunity to think about it in 1993, they made their decision. We announced our policy in 1996; that policy stands, there's really not much more to say about it. Talking to the Coalition, the Federal Coalition about a GST is like talking to the Pope about Catholic theology, you know, we do know quite a bit about it, actually.

JOURNALIST: ...inaudible...

TREASURER: Ahh, very controversial proposition ...

JOURNALIST: (inaudible)

TREASURER: All I'm saying is you can't give us a new angle on a GST. You know, we've been there, you know we chased every rabbit down every burrow. We know where they finish up, we know where all the arguments lead -

- JOURNALIST: Why has it suddenly become heresy then?

TREASURER: GST?

JOURNALIST:-led by a choir master who couldn't sing in tune to save his life?

TREASURER: Who? Who is the choir master,...?

JOURNALIST: Well, you were part of the chorus, you have to see who's conducting you at the time.

TREASURER: Would you like to name names?

JOURNALIST: John Hewson.

TREASURER: Oh, John Hewson. Well, look, you know, you all sit around after the event and say it was all his fault. Whereas before the event you're all predicting he was going to win, as I recall. Very easy to blame people after they've lost. But the fact of the matter is, and I took part in the debate. I mean, I've looked at it very thoroughly and as I say I reckon I've stood in a few more R.S.L.'s than you have and tried to explain it to the punters. The punters, when they were asked in an open and fair election said no. We said we wouldn't revisit that area; we won't. What more can you say?

JOURNALIST: Mr Costello, back on fiscal policy, an easy way to solve your fiscal problem, I think, quoting these documents, would be to abandon the Keating Government's L.A.W tax cuts. Can you give a commitment L.A.W tax cuts will be paid in one form or another?

TREASURER: Nice try but I'm going to remind you of a rule which we applied for the lead up to the last election and to my knowledge, every Government has applied since time immemorial that we are neither going to confirm or deny Budget speculations... and no, no very clear. So he refused to deny it so we can put it in the paper tomorrow. But the reason why we refuse to, let me remind you why we refuse to deny because you know, you start off with a hundred and you get us on the record with sort of 92 and you are left with 8. You know, it's the same practice which I followed in the lead up to last year's Budget and intend to follow it in the lead up to this year's Budget. And every Treasurer, and every Prime Minister has done it. It is now the 28th of January, I think we are brining down a Budget on the 13th of May. I want to save myself something to announce on that night. Thank you very much.

JOURNALIST: (Inaudible)

TREASURER: You know, you see, you, sometimes you can help people too much. You know we come out in August, we give you, you know a huge statement. We come out in January, we give you more information than has ever been seen in the history. We bring forward the Budget. We didn't even have to wait twelve months from one Budget to the next. You know we bring through forward the Budget. You've got a Budget coming up in May and you want me to announce it tomorrow.

JOURNALIST: Previous to that...

TREASURER: All I'm telling you, all I'm telling you and it doesn't matter if you ask me about dead fish or any other thing. I am not commenting on any specific issue. I am neither, in accordance with usual practice, ruling in or ruling out. The only thing I'm telling you, as that I've already told you.

If you wait for questions, you always get the answer. The only thing I'm telling you as I've already told you in this press release is that those areas where we have already done substantial restructuring, we won't be going back and visiting them.

JOURNALIST: Does that include diesel fuel rebate?

TREASURER: Well, you know as I say, you just illustrated why we never get into this confirm or deny but you know, you think you probably know our views on issues like that. I think we made....l don't think there's much doubt.

JOURNALIST: ...globalisations, the internet and tax competition, in the second part of that statement refers to downward pressure on the excise revenue from changes in lifestyle, less consumption of things like alcohol and tobacco and reduced petroleum consumption. How do you address that long term decline in the indirect tax base without a GST?

TREASURER: Without getting into the merits of GST's. I mean GST's don't effect excises on alcohol and tobacco. You've got a decline in alcohol and tobacco - GST's don't effect that.

You know, everything, what you win on the swings you gain on the roundabouts. You know, maybe decreased revenue from excises on tobacco and alcohol results in a net benefit to Government. Maybe it does actually because maybe what we lose in revenue we pick up in savings on health costs. Many people would argue that. You, it's like, as I've said to you, on balance, lower inflation and lower wages reduces revenue more for a Government than it saves in relation to pensions but these things always appear on both sides. Now the only reason we put that in there for what it's worth, is that we just foreshadow what has happened and what we expect to happen. Now that doesn't mean that it results in a net loss. It doesn't mean in fact that we need compensating measures at all. We just put it in there because it's a factor and I noted in exactly the same way. I note the globalisation. Now globalisation is not all bad. Australian international companies that derive in income offshore and bring it back into dividends and profits in Australia, do result in revenue which you would otherwise not get. But just as there is an upside, there is also a downside. One of the opportunities that globalisation brings is people can choose tax forums. Now what does all of this mean.

What it means is that I want to give you and the Australian people an insight as to the pressures that are continually weighing up on Government. I think there are a lot of people out there that say well you know the Government should be spending more here or the Government should be spending more there because after all you know they tax me a lot in relation to this or that. But there are all of these pressures in relation to the tax base which means that the Government has got to continually mean the net on the tax base and it means that the Government has got to continuously work on the outlays side. That's the point I'm making and I think most of you would agree, you can never sit back and say it's finished. Every Budget you work mending the tax net. Every Budget you work on the outlays because you have the pressures and for the first time. I've tried to let the Australian public have a glimpse as to what those pressures are. Now there aren't simplistic solutions in relation to all of these pressures but it gives you an idea of when you sit down and frame a Budget, you've got to take all of those pressures into account. And that's exactly what I will do so thank you very much for your time.

JOURNALIST: Inaudible

TREASURER: Happy New Year!