Arthur Sinodinos (NSW, Liberal Party, Assistant Treasurer) Share this | Hansard source

Let me put this in context. The Mid-Year Economic and Fiscal Outlook will lay out what has happened to the budget since the election. There will be parameter revisions—as you are very familiar with, Senator Wong—which will reflect any change in the economic circumstances of the country which feed through to spending parameters; labour market pressures and the impact they may have on unemployment receipts; revenue and its impact on the economy and nominal GDP, which is the main driver of revenue for the budget; and any other changes in our economic circumstances.

The September quarter national accounts confirmed that the economy is growing at sub-trend growth. It is growing at around 2.5 to 2.6 per cent per annum, not the 3-plus per cent that we have been used to, which we call trend growth—maximum non-inflationary growth, if you like. My point is that we have sub-trend growth and soft wages and prices in the economy. The gross operating surplus, a measure in the national accounts of company profits, has been soft as well. The result is that there is softening, which has been confirmed by the national accounts. That will be reflected in the economic parameters. But guess what? We will not be hiding that; that is there.

Quite rightly, the senator, from her long experience being finance minister and a cabinet minister, will know that the Mid-Year Economic and Fiscal Outlook will also lay out discretionary decisions. For the benefit of those listening to this debate in the gallery, those are decisions of the government of the day as opposed to something that happens automatically because an economic parameter has shifted in the budget. An example is the decision like the one mentioned by Senator Wong, which is the $8.8 billion grant that will be provided to the Reserve Bank. Yes, that is a conscious decision of the government. It reflects discussions between the Treasurer and the Governor of the Reserve Bank, who is very clear in his mind that what we call the capital buffer that the Reserve Bank has to deal with fluctuations in our foreign exchange—its armoury for dealing with fluctuations in exchange rates and the like—had to be replenished because it had been reduced over time. When push came to shove, the previous government believed, in principle, in rebuilding the buffer—it had fallen to two or three per cent—but in practice they kept coming back, in the last instance for a $500 million dividend even though they had said to the Reserve Bank that the buffer should be rebuilt. So in consultations between the Treasurer and the Governor of the Reserve Bank it was agreed that the buffer would be rebuilt to about 15 per cent. That is an investment in having a strong central bank with a strong balance sheet so that when there is financial volatility in the international economy they have the firepower to deal with it. They will be very happy with that, and we take full responsibility for that decision. We will defend that decision, and, yes, it will be in there.

For those of you interested in the technicalities, the grant cannot be provided as what is called an equity injection—in other words, like a shareholding. You cannot just buy shares in the Reserve Bank and do it under the line. It had to be a grant, which means it is above the line and has an impact on the budget bottom line. We take full responsibility; we do not shy away from that. That will be there in all its glory, and we will lay out the reasons for that in the budget.

The senator talked about announced but unenacted tax measures. On coming to government, this government found there was something like 96 measures of the previous government relating to tax and superannuation which had been announced but not legislated. So the problem you have in the community is: what law do they follow? The existing law or the law as it might be if a particular proposal that was announced via press release at budget time or some other time which was expected to become law had not yet become law? What do you do? So we had to deal with those measures. We dealt with 28 of those measures as quickly as we could. I will send off another 64 for consultations with the private sector, the Board of Taxation and other bodies. And yes, in the case of some of those measures we did take a hit on revenue.

Let me give you an example: the fringe benefits tax on cars—$1.5 to $1.8 billion, fully offset in our budget deliberations from before we came to government.