Senate Finance and Public Administration Legislation Committee, , 5:24:59 to 5:47:14
The Department of Finance responds to RBA growth forecasts, budget outlook variations, and intergovernmental agreements regarding hospital funding.
Topics: Government spending, Employment, Health
Speakers: Hon Katy Gallagher, James Paterson, Matt Yannopoulos PSM, Natasha Cole, Speaker 28, Karen Grogan
>> Um and I would now ask the Department of We might just suspend for a moment while we um change up the people at the table. the Department of Finance. Would you care to make an opening statement? >> Okay, we'll just go directly to questions. Senator Sharma >> Senator Paterson.
>> Thank you. Um, Minister, what is your response to the news today that the Reserve Bank of Australia is forecasting the lowest growth growth they ever have
>> What is my response to that? >> Yes. Uh well, you know, the I leave it to the Reserve Bank to make um comment on the economy when it's you know, like I don't know what you what what you're after there.
>> Well, I mean
>> I mean we publish our growth forecasts in the budget. Um that's our responsibility. um you know we look after our areas of responsibility and the bank makes its own comments um in accordance with its mandate.
>> It's not a concern to you that the RBA is forecasting the lowest growth they ever have in the history of RBA
>> Well, I have responsibilities as Minister for Finance uh and that's working with the Treasurer around the budget and making decisions around the budget. um you know some of the uh commentary last week when they uh when they when the bank increased interest rates um you know I think part of the comments of the bank then if I recall them correctly I don't have the statement of monetary policy in front of me was around um you know essentially the strength of growth across the economy so you know I'm going to leave it to the bank to make their comments and um you know I focused on the job that I've got to do here.
>> So you're not concerned the RBA is saying the economy is going to slow to its lowest rate of growth uh in the history of its forecasts?
>> Well, I'm concerned. The thing that concerns me is the decisions that I take under my responsibilities. Um we want a strong economy. uh the public sector has a role to play there or the the budget has a role to play there and that's uh informed by the decisions that we take through the budget process
>> is 1.6% 6% growth for the year to June 2028. A strong economy.
>> Uh well, we forecast our own growth forecast, Senator Paterson. And um you know, we um make decisions in the budget. This is, you know, certainly as Minister for Finance, if you've got questions about the Treasury and Treasury portfolio, of course, they're for tomorrow. uh but the decisions that I'm involved in in the budget and making sure that we support the economy and that our decisions um that we take in the budget context uh are the right ones for the economic circumstances of the
>> Your senior economic minister in the government and the rate of growth of economy has profound implications directly for your portfolio on uh the What what's the government's plan to
Well, uh, our budgets outline the government's plan. So whether it's investing in energy, whether it's the work we're doing around productivity, whether it's the data and the digital, uh, work that's underway across government and in partnership uh, with stakeholders outside government. Um, you know, we have a strong agenda and you'll see more of it in the budget. It's not
exactly a vote of confidence from the RBA in that strong agenda if they're lowering growth forecast to the lowest they have ever predicted before.
>> Well, there your that's your commentary, Senator Paterson. I don't accept it.
>> Do you disagree? Do you think it's a
>> disagree with your I disagree with your you you know the position well one I think I never see anyone as happy as you is when there's um forecasts that are revised now.
>> Isn't that that's a bit unfair.
>> No no I I genuinely I that is how you present. Uh the government has a job to do. Um we outline our plans in the budget. you argue against most of that like if we take clean energy obviously a big opportunity for growth in the economy you don't agree with that uh you know so it's a cont you know it's a contest in terms of the policy response but we believe we get those the decisions we've taken in the last few budgets and the one that we'll take in the upcoming budget are about making the best decisions and the right decisions >> for the economic circumstances of the time
>> but we're not in government you're in government and your plans are the ones that actually affect the performance of the economy and as a result of you being government for four years, the RBA has slashed their growth forecast to the lowest they ever have. Doesn't seem to me like you're all that concerned by that or have a plan to deal with that.
>> Well, what I'm outlining to you is the plans that the government has and that we've put in place in the budget and that that we'll continue to make in the budget that's um going to be released in May. And I would put our plan against yours any day of the week. Senator Paterson, you went to the last election with bigger deficits, higher taxes, and more debt. >> And I argued at the time, and I maintain that argument now, that that was the not the right set of decisions for the economy. Uh we have a different uh approach about what we want to see happen, including um the tax cuts that will come in in July this year and the year after. and the substantial, you know, support and in and assistance we're providing in the economic transition that our economy is going through. Much of which you contest as well with your head in the stand on things like energy policy.
>> We we lost the last election, Minister. You won it. We are not governing the country. You are governing it and it is your policy.
>> Well, I'm merely drawing a comparison between what you were offering and what we are delivering and that is a difference.
>> And how's that working out?
Uh well though well I stand by the decisions that we took to the you know the election platform we took to the last campaign through the last campaign and the decisions we've taken uh in my EPO and the ones we'll take in the budget.
>> So will there be policies in the budget to turn around these anemic growth figures?
>> Well the treasur has already been clear about uh what the budget uh will be looking would look like or the general kind of elements that you would expect to see. you would expect to see uh continued effort on the savings front. Uh you would you would see uh focus on productivity and on tax reform.
>> Okay. Um chair, I'm moving to another topic if you're happy for me to continue.
>> Uh yes, please continue.
yesterday the parliamentary budget office gave evidence about the deterioration between PIO the pre-election economic and fiscal outlook and myo the midyear economic and fiscal outlook. Um how does the government account for the differences between PIO and myo in terms of the budget deficits?
Senator Richard Windia, Deputy Secretary Budget Group. Um I think the Am I right in thinking that the um evidence you're referring to related to the differences um over the medium term?
>> Correct.
in that case, Senator, the questions related to how the medium-term is forecast are really questions that is owned by Treasury and really questions for Treasury rather than questions finance can answer.
>> Finance is not responsible for contributing to those forecasts in any
way. Uh Senator those the medium-term forecasts are um >> Treasury B and Treasury.
>> So finance has no input into for example the expenditure side of those forecasts
>> senator. No it's done by treasury.
>> No. So so finance provides no data no input not consulted. This is solely Treasury
>> on the mediumterm outlook. Yes. On the forward estimates go you know knock yourself out.
>> Okay. I just want to be really clear. Um
>> that was like the sixth time.
>> Yeah. Well, let's let's be absolutely sure. Um cuz sometimes it does take followup questions. Um so finance has no insight into why the budget bottom line has deteriorated by 57 billion over seven years.
Senator, we don't Yeah, they're questions you'd have to put to Treasury to understand what goes into the model um their modeling and therefore what um uh what is presented.
>> Right. So there are no uh there's no contribution to those that deterioration or those changes that have been a result of policy decisions that finance has any visibility of.
>> Senator, as as I say, I can't because we don't because we are not responsible for them and don't don't know what goes into them. I can't give offer any commentary on what might not have caused them to move
>> over the medium over the medium term.
>> Yeah,
>> certainly where look there are um uh elements which I think the treasur has already alluded to. So the public hospital uh agreement.
>> Okay.
>> Um and we can go into this more tomorrow, but just in terms of um you know assisting cuz um the impact over the medium-term is a matter that Treasury is only in a position to answer. um some of the uh provision that we've made and we did make a provision for hospitals also provision for Henderson defense precinct um forms part of that uh also provision for the thriving kids and foundational supports which is also a part of the NDIS and some of the agreements at national cabinet. Um so they would be probably the big moving pieces
>> right so it it's not purely just forecasts it is policy decisions taken by government which is contributed to the change between PIO and LEO
>> sorry you just repeat that
>> so it's it's not just a forecasting change policy decisions made between PIO and my EO are reflected in those numbers
>> uh I would just have to check on some of that in terms of um when decisions were made.
>> Sure. But you've just given me three reasons that have contributed to the
>> Yeah. I just again I would just have to check cuz some of the um the decision timing
uh matters there. Well, uh, are you saying because it might have happened after my EO or it might have happened before PIO?
>> Uh, I just have to check, Senator Paterson. I just want to check. That's
>> I'm really confused. Um, help me understand cuz you were offering some explanations for the difference between PO and my EO. And you listed three items of expenditure. Henderson defense precinct, the health and hospitals agreement, thriving kids, and foundational supports. The only way they could have contributed to the difference between those numbers is if they occurred between PIO and Mayo. If they
>> I just want to be I just want to be very clear. >> Yeah.
>> Can you be
>> Well, I look I think it's better it's dealt with in Treasury when they can account for the medium-term impacts. Um I was just trying to be helpful in saying that there were there are some things that would impact on those medium-term outlooks.
>> Yes. And I don't want to discourage you from being helpful in the future. So I don't want to press this too much, but I just do do want to understand >> this process is it a purely forecasting exercise or is it a budget exercise in that when decisions are taken those numbers are updated?
I think that's a question for Treasury on how they do the medium-term forecast, Senator. I just honestly don't know the answer to the question.
>> All right. Um, seems like something kind of finance should be aware of
>> Senator, it's always been the division of responsibility that finance deals with the forward estimates period.
>> Yeah.
>> And Treasury forecast beyond that.
>> Yeah. So when a decision is taken by government on a policy issue that has implications beyond the forward estimates, finance doesn't provide any information to treasury about that postforward estimates impact of
>> No, we would still so to use an example that the minister offered on the hospitals agreement because it's a five-year agreement. We would be part of the costs agreement for that five-year agreement and that would be shared with the treasury. But that's not the same as providing a midterm forecast using economic parameters because in the case of that agreement, the funding allocation has been agreed as part of the decision of government.
>> Sure. And and I I wouldn't begin to presume you could answer questions on the revenue side of things. It's obviously Treasury. Sure. But if you've just told me that you do provide information to Treasury of the effect of policy decisions outside the forward estimates, then you should be able to tell me what decisions have been taken that have affected uh the medium-term, what the effect of decisions taken.
>> I'm trying to be more precise than that. When it relates to a specific policy decision y >> that had a duration that was longer than the forward estimates.
>> Yes,
>> we would be part of the costs agreement for that. Y >> that is different than >> the set of factors that the treasury would use to provide an indication of midterm uh fiscal outcomes.
>> Yeah. So for as you said miss the health and hospitals agreement is for 5 years forments is for four years. So if it is making a contribution to this deterioration, it could only be in the first year of the medium term 2930. Is
>> I I don't know because I don't have access to their model. It's and I'm not seeking to be unhelpful. I just think these are better questions for our colleagues at Treasury.
>> We will definitely ask them there. But um sometimes when we wait to ask Treasury, Treasury says you should have asked finance. So I don't want to find myself in that situation. Yeah,
>> this is Treasury's responsibility, not finance.
>> Okay, let me ask it a completely different way. What is the impact on the medium-term of the health and hospitals
>> Well, we don't do the medium-term.
>> Mr. just said that he that you do provide that information to Treasury. The fifth year has to be provided to Treasury. So, what is the impact of the fifth year of the health and hospitals agreement?
>> You meant over 10 years. Uh I don't know
whether one of my officers has that because that that fifth year has been agreed post my EFO and so we normally do not disclose decisions until the next fiscal update >> fiscal update which will be at budget >> but I don't know whether Miss Cole has something that would tell us that. I'm just trying to recollect the nature of the media release when the when the national cabinet agreed the hospitals
>> So Senator, >> I'll just get you to state Natasha Cole, first assistant secretary, social policy division.
>> Thank you.
>> The um the agreement basically consists of or the or the amount that goes into hospitals essentially consists of two parts. One part is already in the Ford estimates and is just increased, you know, according to the original agreement some time ago. Y >> uh that part is actually specified already in our systems and I'll just see if I can find the page number and reference for you. You can see that on uh page 299 of the myo publication. So that's already in there. Then there was provision made at my EO for the agreement additionality I guess in a sense which is the 25 billion referred So the component of the fifth year is the calculation of how that 25 billion spreads over the five years. I don't have that specific number for the fifth year but it is something that we could take on notice.
>> Thank you.
>> And would be normally updated at budget.
>> Thank you. So just to confirm the [clears throat] health and hospitals agreement was provisioned for in my Epho. Yes. >> Even though the decision the agreement with the states happened after my EFO.
>> That's correct.
>> Right. So
>> so you will see that under the uh in the myo book under page 294 in terms of the contingency reserve.
>> Thank you. So um the government had already decided how much they're going to give the states
before the negotiations. a provision was
>> Was it the same provision?
>> It's called responsible budgeting. That's what you do when you know you have a cost coming up. You make a provision for it and then um once agreement was reached uh the that will be updated in the budget process.
>> Right. So it it's a the provision does not encapsulate what was agreed with the states or it does.
>> We made a provision for the hospital agreement and the next uh update will uh account for the deal you know the agreed
deal. So there will be additional expenditure beyond what was provisioned for in my
>> I'm not confirming that. I'm just saying a provision was made and it will be accounted for in the budget.
>> Well, I don't understand the sensitivity around this. It's just a question about whether or not my info reflects the arrangements with the states or not.
>> Well, I'm just answering it as you would have answered, you know, as plenty of finance ministers have answered a whole
going to be additional expenditure in the budget for this or has my >> I'm saying the hospital agreement will
be accounted for in the budget. So previously it a provision was made. >> So it's it was you know not fully accounted for.
>> Well that's what I'm just trying to be
fully accounted for in the budget. You will see that in the budget.
>> So it wasn't a complete provision in May.
>> I'm confirming that Senator Paterson. >> Well what I have I have answered your question. We made a provision for hospitals and the uh the deal as it was agreed at national cabinet will be reflected in the budget papers in May.
>> And will that require additional money or was it fully provisioned for?
>> Well, you will see that reflected in the budget papers.
>> Why can't you answer that question,
>> Because it will be reflected in the budget in May.
>> You've got an agreement with the states. They presumably know you know the
>> You've have my answer, Senator Paterson. Do you know what? It's exactly the same answer that Senator Corman gave to me for six years on matters relating to uh how you update between a mifo and a budget. You don't update incrementally uh between that window. You update in the budget where you get all the numbers.
>> Okay. Thank you, chair.