Sky News Australian Agenda Penny Wong 21 October 2012

Interview with Penny Wong Australian Agenda program, 21 October 2012 Peter van Onselen: We're joined now to talk about matters economic out of Adelaide by the Finance Minister Penny Wong. Ms Wong, thanks for your company. Penny Wong: Good morning Peter. Good to be with you. Peter van Onselen: No leadership talk in this interview. Can we go straight to MYEFO, I suppose. Is the budget position deteriorating? Is that what we're likely to see when the numbers come out? Penny Wong: Well, there's no doubt the global economy has - is more subdued than anyone anticipated at the time we handed down our budget. Since that time for example we've seen the IMF downgrade the forecasts for global growth and, most importantly for Australia, particularly in our region, so they've downgraded both China and India as well. And obviously that has an effect on Australia's budget. We've also seen commodity prices you as a Western Australian would know this, commodity prices have come off quite substantially since the budget. So obviously all of those things affect the revenues, and that's the circumstance in which Australia and the Government currently finds itself, bearing in mind of course we still remain in a much stronger position than any other advanced economy, the IMF projecting that we will grow faster than any other advanced economy in the year to come. Peter van Onselen: But Senator, if the global economy is in the sort of position that you talk about and if the revenue is coming off because of commodity prices, why is it so important that we still try to find a way to get to what is, at the end of the day, a wafer-thin surplus? Why not just let it trickle a little bit into deficit. That's purely a political thing, surely?

Australian Agenda

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Penny Wong

Penny Wong: The commitment to a surplus is very much grounded in the economy and whilst it is true that the global circumstances have changed, the reality is that the most recent national accounts still show Australia growing at around trend growth, and in those circumstances what you want to do is bring the budget back to surplus. And then... Peter van Onselen: Can I just interrupt and ask this though. The essence to my question is this: put politics to one side, what is the economic difference between Australia having a $1 billion deficit versus Australia having a $1 billion surplus? What's the economic difference between those two figures? Penny Wong: I've never focussed only on '12/'13 Peter. I mean, I've focussed on the forward estimates and bringing the budget back to surplus and growing surpluses over the forward estimates. And the economic rationale for that is what you've seen in terms of what the Reserve Bank's done. You want the Government at a time the economy is growing to be putting fiscal policy back on a more normal setting after the settings that had to be - the very loose settings that had to be in place because of the global financial crisis and you want monetary policy to do more work. Or to put it very simply, you want the Government to give the Reserve Bank room to move when it comes to interest rates and that's what we've seen. We think that's a - they are sensible economic settings for the economy at this time. Judith Sloan: Hi Senator, it's Judith here. Penny Wong: Morning Judith, hello. Judith Sloan: The rumour seems to be that MYEFO will be released next week. I've just had a look through when MYEFO is normally released. It looks like I would say the modal date is at the very end of November. Indeed, we have had one MYEFO in January which is allowed under the legislation. I just think in view of your discussion about the deteriorating global economy and the deteriorating Asian section of that global economy, why you'd be rushing the MYEFO. Surely there's a case for there being more information needed and there being a - I think a more informed and more measured response in perhaps four weeks to at least six weeks' time. Penny Wong: We always try to take a measured approach to these things, Judith. I was in Senate Estimates this week and David Gruen - Dr David Gruen who'd be known to both of you, one of the deputy secretaries in Treasury, he made the point when it comes to

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information that a previous Treasury secretary had said to him there's always more information, there's always one more piece of data. As you know, MYEFO is released at any point, generally in the last three months of the year. It's very unusual for it to be in January for example. I've seen some commentary about this. I just make the point that Joe Hockey last year was accusing the Government of hiding things because we hadn't released MYEFO. So I suspect there's a little bit of political positioning from - certainly from the Opposition on this issue. Judith Sloan: It's pretty clear though that the, I think, very ambitious revenue forecasts in the budget - you were having revenue growing by 14% which to most economists never looked a plausible number, in part actually because we've got very low inflation. I mean, you must be kind of thinking about plan B here, you know, are you thinking about additional tax imposts? Are you thinking about cuts? We hear on the grapevine that there are further defence cuts. You know, if you're going to make that wafer-thin surplus, there doesn't seem any way other than actually adjusting those parameters you set last May. Penny Wong: Yes, well, certainly I think you've seen the approach in the last couple of budgets. We've offset all new spending I think since late 2009 and in the last budget, and last MYEFO we took savings, not only to offset new spending but also to take into account the revenue downgrade so that... Judith Sloan: You wouldn't be running deficits if you were offsetting it, dare I say Senator. I think that's perhaps gilding the lily... Penny Wong: No, if you look at... Judith Sloan: ...if you run huge deficits. Penny Wong: Well, I think if you look at new spending and since that time we have actually offset new spending in accordance with our budget rules, and we are, as you know, engaging in a pretty big fiscal consolidation as per Peter's question. What I would say about savings though is that we'll take the same approach we've always taken which is, you know - is to take savings that do focus on our priorities, what are fair savings, what are savings which impact the least on the most vulnerable in the community? This is the approach we've taken to date, as we've found room for our spending priorities. Peter van Onselen:

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Senator, you say you'll avoid savings which impact too heavily on the most vulnerable. What about single parents? There's been a lot of discussion about angst within the Labor caucus on this particular issue. Does that mean you guys will back away from some of that? Penny Wong: Yeah, look, I understand that's a very - that's been a very difficult issue for the Labor Party and, you know, I think everybody approaches that particular policy from the same place, which is how do you best support people from welfare into work because we know that the best way to deal with inter-generational disadvantage is to break that cycle by getting people into work. And at a time when you've got unemployment levels at the level we see, which are very low by - particularly by international standards, you've got to try and get people into the workforce. We - remember the group that we're talking about is a group that was, I suppose grandfathered is the term used, for some time. All other people have entered the payment since those changes are on these new arrangements. Having said that, I think this is a discussion about the level of Newstart and there's obviously some understandable concern, not only in the Labor Caucus but in many parts of the community about the level of Newstart given the different indexation arrangements that apply. Judith Sloan: But Senator, there does seem to be an inconsistency in that approach. For example, a family on family tax benefit B with a single income, they're entitled to that tax benefit until the youngest child is 16 years of age, and yet you're having this what many people would see as a pretty harsh policy of cutting the income support for single parents, who are by and large single mothers, at the age of eight. You know, is there any discussion in the Government of trying to bring greater equity into those arrangements? Penny Wong: Well, as you probably know Judith we have, in a couple of budgets now, made some changes to the family tax system to not index thresholds so that we've essentially made - tried to make the base of those more equitable. And certainly in terms of sole parents, the focus very much is on how do you support these people into work, these families into work. And a couple of changes that we've made which I think are important: we've changed the taper rates which means that people will keep more of every dollar they earn; we've increased funding, as you know, to training and education; and we've also increased very substantially funding to child care. So these are the sorts of supports which are necessary to try and make sure we get as many people participating as possible because I think that's the best thing for families across the country. Peter van Onselen:

Australian Agenda

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Senator Wong, can you rule out further cuts to defence spending, and I ask you that because, as Judith Sloan mentioned before, there's a lot of talk that there's going to be more slicing of the defence budget. Is that something that you'll rule out or is that something that we can expect to see? Penny Wong: Peter, I think the rule in, rule out, you know we don't do that. Peter van Onselen: But you know how it works; if you don't rule it out, then the story is that "Minister won't rule out further defence spending cuts". Penny Wong: Yeah... Peter van Onselen: In light of knowing that that's tomorrow's headline, are you prepared to rule it out? Penny Wong: Thank you for telling me the approach 'The Australian' will take to this. Peter van Onselen: Well, all newspapers, in fairness. Penny Wong: And you see, it's a bit like, you know, heads you lose, tails I win, isn't it, that kind of - that kind of approach, but I'm not going to get into rule in, rule out. What I would say is we're very conscious defence has made, as have a number of portfolios, a very substantial contribution to the, you know, the fiscal strategy and the fiscal strategy is we think the right thing for the economy, and a lot of Australians have obviously benefitted from the interest rate cuts. Peter van Onselen: Just on a completely separate issue, I assume that you agree with the Prime Minister when she said that she's concerned about the dividend gouging of state governments in relation to electricity prices. You know, she's made this point a number of times that she is concerned about dividend gouging by state governments contributing to upward pressure on electricity prices. What about upward pressure on private health insurance given the dividend gouging by the Federal Government to the tune of about $400 million in relation to Medibank Private? Penny Wong: Well, I don't think it's gouging and I'd refer you to the evidence of...

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Judith Sloan: Not in the states. Penny Wong: And I'd refer you to the evidence of Medibank Private Senate Estimates consistently under questioning from the Opposition, where they have very clearly said that dividends is not what drives premium decisions and premium increases. Premium increases are driven by, you know, the health - the anticipated costs of health care for members. Peter van Onselen: But in fairness though, I mean... Penny Wong: Well, no... Peter van Onselen: Let me ask this though... Penny Wong: It's very important because Mr Sawides from Medibank Private made it very clear under questioning from Senator Cormann that the proposition you're putting to me is not correct. You know, he did say that there is a capital restructure that Medibank is engaging in. I would make the point that this is one of the reasons, and I know both of you probably don't agree with this, but this is one of the reasons I think it's sensible for Medibank to be in public hands because it does mean taxpayers get that dividend, taxpayers get the benefit of owning the business. Peter van Onselen: But I guess - help me understand this, because why is it dividend gouging when a state government decides to take revenue from electricity but it's not dividend gouging when a Federal Government decides to take revenue from Medibank Private? Penny Wong: Because Medibank Private itself has said that the dividends paid to the Government do not drive increases in premiums. I don't think the same thing can be said about the way in which some of the states have handled ownership of electricity assets. But look, I think the issue in electricity is broader and so does the Prime Minister. I mean, the Prime Minister's made very clear we have to look at how the national electricity market is working. How do we better protect consumers? How do we ensure that the cost to consumers is minimised? And certainly the priority in terms of how those rules have been run to date probably haven't reflected that, and that's why we're doing the work through the Council of Australian Governments.

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Judith Sloan: But isn't the irony, Senator, that those rules are actually rules of the Commonwealth Government and, indeed, the policy implication of this discussion about poles and wires and overinvestment driving electricity prices is that you need to privatise the asset. So another headline for tomorrow's newspaper will be "Senator advocates privatisation of electricity assets in the states". Penny Wong: Well, that would be an incorrect headline if that were written, but thank you for flagging it with me. Look, privatisation is entirely a matter for state governments. The Prime Minister's taken a much broader view and Minister Ferguson is doing a lot of good work in this area to try and work out how it is we can have rules in the market which do recognise the impact on consumers. And I think that's probably, and most commentators would look at what we've seen over the last few years and say that has been lacking, we need to have a greater focus on consumers. Peter van Onselen: All right Senator Wong, Finance Minister, we appreciate you joining us on this episode of Australian Agenda. Just one final chance: do you want to rule out defence spending cuts for MYEFO? Penny Wong: We will always take a sensible approach to savings and an approach which reflects Labor values, but we don't get into rule in, rule out. But nice to be on your show again Peter. Peter van Onselen: All right, appreciate you joining us, thanks very much. Judith Sloan: Thanks Senator. Penny Wong: Cheers.

Australian Agenda

21 October 2012

Penny Wong