HOST: Prime Minister, welcome. Now even without this $17 billion revenue writedown you talk about, this year's Budget would still be in deficit, wouldn't it?
PM: The big hit has been from the revenue writedown. What we're talking about is $17 billion this year, and then more than $60 billion over five years, so that's the substantial factor.
And any government, any prime minister sitting in this chair would have to deal with that.
The choice is, how do you deal with it.
HOST: Even without that you'd still have a deficit, wouldn't you? Of about $2.5 billion this year.
PM: David, that's mathematically true but let's gets serious here.
Where's the big issue? The big issue is in the reduction in tax money coming into the Government compared with what was expected and that issue has happened because our economy hasn't performed like this before.
So I know there's a lot of chiding of forecasters going on from the Liberal Party-
HOST: What I'm trying to get to here is that you made such a big deal about this emphatic promise of a surplus this financial year and yet even without that revenue writedown it still would have been a deficit.
PM: Well David, if the only factors we were dealing with, if revenue was still coming in at the same levels, then obviously we could focus on that slight difference between deficit figure this year and a surplus figure this year.
What is of course the unbridgeable amount is the revenue writedown.
Now, faced with those revenue writedowns, and anybody sitting in this chair would be faced with those revenue writedowns, what you've got to do is make some choices.
We've made some choices about charting a pathway to surplus, but doing it in a responsible way and making room for the big investments, the wise investments that our nation needs, including improving school education for every child and of course better supporting people with disabilities.
On the expenditure side I know the Liberal Party is running around talking about expenditure. The growth in expenditure over this Budget is over the forward estimates, the years of the Budget, is 1.3 per cent.
That's the lowest average growth of expenditure in 25 years.
HOST: Let's look at your new spending plans, and the big signature items of DisabilityCare and school funding. Now the bulk of this new spending won't come until not only after this election but after the four year forward estimate period of this Budget.
So too with the cuts you're making to pay for it. Now, are you essentially trying to lock in a future government to these reforms leaving them very little room to do anything else?
PM: David, I'm doing exactly what I said I would do. I said to the nation that I wanted to make new big spends - structural spends - things that will be in the Budget every year.
More money going into schools, more money going into supporting people with disabilities.
And I said to the nation very clearly in order to make those new big spends, I'd be asking the nation to make some big structural saves. That's exactly what we've done in accordance with our values.
So I do believe, for example, that it's appropriate to have the Medicare levy to support DisabilityCare, but also appropriate that things like superannuation changes go to support DisabilityCare, private health insurance changes go to support DisabilityCare.
I am prepared to stand and argue that getting rid of the Baby Bonus, making changes in family benefits, making changes in business tax is the right way of supporting children's education at the highest possible standard.
HOST: Let me ask you about some of the forecasts now in this Budget.
The mining tax this year is only going to raise $200 million, down from $2 billion originally forecast, but then you're saying it will grow to $2.2 billion in four years even though the peak in the mining boom is coming down.
How is that going to happen?
PM: I think you are getting confused between two phases of the mining boom.
What we're approaching is the end of the peak investment phase - that's where people are out constructing these mining ventures, thousands of workers doing the construction.
Then the construction workers leave and you go into production and the team is there dragging the ore out of the ground or getting the gas and selling it.
The tax is actually paid in that phase when you're getting the minerals, getting the gas and shipping it off overseas and making money for it.
HOST: And you're also in this Budget though hitting some of the smaller miners by ending the immediate deductibility for exploration. How's that going to impact on these smaller miners as we go through this change in the mining boom?
PM: What we're getting rid of there is a rort that has been exploited. So there will still be-
HOST: Not all rorting it though?
PM: No, no, no they're not.
There will still be proper deductions for exploration but what we've seen happen is people artificially inflating exploration.
So they explore, then they sell for a huge amount to another company that does hardly anything but then claims this enormous deduction and gets it very quickly - that's a rort and we're getting rid of it.
HOST: But there will be some smaller miners who suffer here, won't there?
PM: Well we've worked hard to make sure that these changes don't hit legitimate business practices and things like - they're called farm-in farm-out arrangements, historic arrangements - between smaller miners and bigger miners are still possible.
And there is a consultation period here where people will be able to put forward their views.
HOST: On the carbon tax, you're now saying in 2015 the price will come down to $12 a tonne when it links in with the European price. The European price overnight was trading at $4.60 Australian a tonne. Is this another optimistic forecast?
PM: The is a Treasury forecast and you can't take one day's spot price and then say how will the market be trading in a few years' time.
You've got to look at the trends over time and the way in which-
HOST: This has been the trend for a while now.
PM: And the way in which decision makers will respond to those trends. That's what Treasury has done.
So the same professionals who advised Prime Minister Howard are advising me; advised Treasurer Costello, now advising Treasurer Swan and that's their best forecast.
HOST: Do you have confidence in that Treasury advice and indeed your Treasurer after the forecasts of last year?
PM: I most certainly do. And David, let's just be very clear: yes, the Liberal Party is out there trying to criticise both Treasurer Swan and Treasury.
That criticism is that they didn't foresee an event that has never happened in our economy before.
HOST: They did forecast the iron ore price and the dollar fairly accurately.
PM: But what wasn't correctly forecast is the flow through to nominal GDP and how nominal GDP growth would compare with real GDP growth.
Now I know that that's incredibly technical, but what it ends up meaning is people are criticising - particularly the Liberal Party - the Treasurer and the Treasury for not foreseeing an event that had never happened in our economic history before over such a period of time.
We've had three quarters where nominal GDP growth has been less than real GDP growth.
Now I think it's a bit rough, just common sense to say ‘gee, bad forecasting for not foreseeing something that's never happened before.'
And when you then move away from this debate about the forecasts; the revenue is the revenue, you've got to make choices against that revenue.
This Budget lays out this Government's choices, it lays out a future of wise investments, better schools, better funding for disability.
Now the Opposition is free to make other choices and it seems from the statements of Mr Robb last night they are very focused on cutting to the bone - well that's a matter for them, lay those choices out, people will make their judgement on 14 September.
HOST: One further area that we have seen a budget blow out in is of course asylum seeker costs. They've gone up I think some $4 billion since last year's Budget.
But you are now forecasting there will be a slowdown in boat arrivals next financial year. How do you see that happening?
PM: We are putting in place the recommendations of the expert panel that's guiding government policy.
We've been stopped from putting in place some of those recommendations by the continued negativity of the Opposition - they wanted to see more boats, that was their political tactic.
One of the things we are certainly following up from the expert panel, and the Opposition can't really stop us doing this, is reviewing the refugee status determination mechanisms.
HOST: So that will slow down boat arrivals?
PM: Well I think the whole package guided by the expert panel will make a difference.
It is to be regretted that our hands are tied from putting the whole lot in place because of the negativity of the Opposition.
HOST: But this review that you talk about on determining refugee status, this is going to see more people turned away and then more people stopped trying to come?
PM: Well, it will send a message of course about how many people's claims are accepted.
We want to look at the way in which claims assessment is done, not by the public servants who do it, but at the higher levels like the refugee review tribunal.
HOST: But your intention here is to deny more people refugee status.
PM: Our intention is to see Australian acceptance rates converge to the international norms.
HOST: Finally Prime Minister, what happens if voters don't reward you for this Budget? Is there anything left in the bottom drawer that could turn Labor's fortunes around in the four months left before the election?
PM: Voters will make their decision on 14 September. This Budget is what's right for the nation in my view, guided by my values.
I've been around this nation, I've met with people with disabilities, I've met with them when they've had tears in their eyes about the level of service that they get now.
I've met elderly parents who have struggled to support their child with a disability for 20, 30, 40 years and the biggest thing they worry about is not what will happen to me when I go to residential age care.
The biggest thing they worry about is what will happen to my son or daughter when I'm physically not able to care for them anymore.
I've gone to schools where there have been teachers there who have said the new resources you've given me have meant that that boy now reads, that girl can now count. I want that for every child in every school.
I've made some tough decisions to make that possible. People can judge them. But that's me, that's this Labor Government, that's who we are.
HOST: Prime Minister thank you.
PM: Thank you.