❓ Mrs Roberts questions the Treasurer's low exchange rate assumption in the 2011-12 budget, while Mr Porter defends the Treasury's forecasting methodology, highlighting the inherent risks and reliance on long-term averages.
AnsweredQoN 297Legislative Assembly
QuestionView source ↗
STATE BUDGET 2011–12 — EXCHANGE RATE ASSUMPTION
I refer to the exchange rate assumption used in the 2011–12 budget of just 97.5c, while the current spot rate is 105.6c. (1) How does the Treasurer justify choosing such a low assumption for this budget? (2) What is the downside in dollar terms for the exchange rate holding at or near the current level? (3) Is this risk acceptable for the Treasurer to take with the state’s finances? (4) I note that the rate of population growth is projected in the Treasurer’s budget assumptions to fall over the forward estimates. What credible advice or evidence is he basing those assumptions on? Mr C.C. PORTER
I refer to the exchange rate assumption used in the 2011–12 budget of just 97.5c, while the current spot rate is 105.6c. (1) How does the Treasurer justify choosing such a low assumption for this budget? (2) What is the downside in dollar terms for the exchange rate holding at or near the current level? (3) Is this risk acceptable for the Treasurer to take with the state’s finances? (4) I note that the rate of population growth is projected in the Treasurer’s budget assumptions to fall over the forward estimates. What credible advice or evidence is he basing those assumptions on? Mr C.C. PORTER
AnswerView source ↗
(1)–(4) That is a very fair question. The spot rate is not a term that applies to exchange rates. Exchange rates are exchange rates. A spot rate is something that applies to iron ore prices, but I will come to that in a moment. The member has asked me what the spot rate of exchange is. There is no spot rate of exchange. The member will get there. Mr R.H. Cook : How do you spell “arrogant”? Mr C.C. PORTER : How does one spell “wrong”? How does one spell “does not know the difference between ‘exchange rate’ and ‘spot rate’ of iron ore and wants to be the alternative Treasurer”? How does one explain that? How does one explain “hopeless”? The member has asked a fair question. She is quite right. The situation is that in this budget we have a predicted an exchange rate in four years’ time. As the Premier pointed out, estimates are estimates. They are best judgements based on the formula that we apply. That formula was adopted in 2009, based on the fact that the previous formula was not giving us accurate predictions over the out years. The previous formula was on a rolling six-week average of exchange rate prices. Mr E.S. Ripper : Not average, just rolling. Get it right. Mr C.C. PORTER: It is an average, rolling over that period. The way in which the dollar is calculated now is to look at what the exchange rate was at the budget close date and then predict four years hence in four quarterly percentile decreases down to the long-term average. That long-term average is 74c. That was a predictive mechanism that Treasury provided and recommended to the government based on its own analysis. It is not an instruction from government to Treasury; far from it. It was Treasury’s assessment as to what was the best way to look at longterm averages for the exchange rate. When we look at an average over six weeks, that can provide some very dramatic changes. That is not a good basis for predicting a possible exchange rate in four years’ time. There are many exchange rate analysts out there. Some of them are predicting an exchange rate of $A1.70 to $US1. We could listen to them but that would be unwise. Mr C.J. Barnett : Ask George Soros. He’s got the best record. Mr C.C. PORTER : George Soros did crash the pound, so he probably could make a change himself. In any event, the member pointed out that that prediction has a level of risk involved in the budget, and that is true. That is undoubted. However, that prediction is based on Treasury best analysis. The question is: what will the US dollar to the Australian dollar exchange rate be in four years? If any of us knew the precise answer to that question, we would probably be trading on the international money market and not running for politics. This is the best estimate that Treasury can provide based on a very sound formula that it provided to us, not that we provided to it. Yes, it does involve a level of risk. I also point out, getting back to the member’s original issue about spot rates, that if she is saying to us that there is a degree of optimism in that forward prediction, that may be, but it is based on Treasury’s estimate. Equally, what we have in the budget over four years is a decrease in the projected price of iron ore per tonne from the present rate of $US138 per tonne down again to the longer run average in four quarterly percentiles. We consistently use the same type of econometric analysis to get that prediction. That has the iron ore price per tonne dropping down from $US138.80 per tonne to $US87.50. Obviously, some people might argue that that is a pessimistic scenario of overall iron ore royalty prices. When one moves one way, the other usually moves in the opposite direction. During the global financial crisis, as we suffered from problems in the international economy, the exchange rate fell and we benefited from that in the budget. Have we done something as a government that is not recommended by the people who know best in these predictive matters in Treasury? No, we have not. Is the member saying that there might be some degree of optimism with respect to the US dollar? That is the member’s view. Equally, however, is there some degree of pessimism with respect to iron ore pricing? People have put that view to me. But we are being absolutely up-front; we are accepting the analysis of the people in the area from Treasury who provide it to us. Let me say that, in terms of the pessimistic assessment of iron ore prices, if iron ore prices held steady at their present levels and did not drop to $US87.50 per tonne, the additional benefit in revenue to the state budget would be $4.7 billion over the budget period. The member’s assertion is that somehow we have been not entirely accurate, but we have been as accurate as we can be based on the fair analysis of the best predictive measures of DTF.
(1) How does the Treasurer justify choosing such a low assumption for this budget? (2) What is the downside in dollar terms for the exchange rate holding at or near the current level? (3) Is this risk acceptable for the Treasurer to take with the state’s finances? (4) I note that the rate of population growth is projected in the Treasurer’s budget assumptions to fall over the forward estimates. What credible advice or evidence is he basing those assumptions on? Mr C.C. PORTER replied: (1)–(4) That is a very fair question. The spot rate is not a term that applies to exchange rates. Exchange rates are exchange rates. A spot rate is something that applies to iron ore prices, but I will come to that in a moment. The member has asked me what the spot rate of exchange is. There is no spot rate of exchange. The member will get there. Mr R.H. Cook : How do you spell “arrogant”? Mr C.C. PORTER : How does one spell “wrong”? How does one spell “does not know the difference between ‘exchange rate’ and ‘spot rate’ of iron ore and wants to be the alternative Treasurer”? How does one explain that? How does one explain “hopeless”? The member has asked a fair question. She is quite right. The situation is that in this budget we have a predicted an exchange rate in four years’ time. As the Premier pointed out, estimates are estimates. They are best judgements based on the formula that we apply. That formula was adopted in 2009, based on the fact that the previous formula was not giving us accurate predictions over the out years. The previous formula was on a rolling six-week average of exchange rate prices. Mr E.S. Ripper : Not average, just rolling. Get it right. Mr C.C. PORTER: It is an average, rolling over that period. The way in which the dollar is calculated now is to look at what the exchange rate was at the budget close date and then predict four years hence in four quarterly percentile decreases down to the long-term average. That long-term average is 74c. That was a predictive mechanism that Treasury provided and recommended to the government based on its own analysis. It is not an instruction from government to Treasury; far from it. It was Treasury’s assessment as to what was the best way to look at longterm averages for the exchange rate. When we look at an average over six weeks, that can provide some very dramatic changes. That is not a good basis for predicting a possible exchange rate in four years’ time. There are many exchange rate analysts out there. Some of them are predicting an exchange rate of $A1.70 to $US1. We could listen to them but that would be unwise. Mr C.J. Barnett : Ask George Soros. He’s got the best record. Mr C.C. PORTER : George Soros did crash the pound, so he probably could make a change himself. In any event, the member pointed out that that prediction has a level of risk involved in the budget, and that is true. That is undoubted. However, that prediction is based on Treasury best analysis. The question is: what will the US dollar to the Australian dollar exchange rate be in four years? If any of us knew the precise answer to that question, we would probably be trading on the international money market and not running for politics. This is the best estimate that Treasury can provide based on a very sound formula that it provided to us, not that we provided to it. Yes, it does involve a level of risk. I also point out, getting back to the member’s original issue about spot rates, that if she is saying to us that there is a degree of optimism in that forward prediction, that may be, but it is based on Treasury’s estimate. Equally, what we have in the budget over four years is a decrease in the projected price of iron ore per tonne from the present rate of $US138 per tonne down again to the longer run average in four quarterly percentiles. We consistently use the same type of econometric analysis to get that prediction. That has the iron ore price per tonne dropping down from $US138.80 per tonne to $US87.50. Obviously, some people might argue that that is a pessimistic scenario of overall iron ore royalty prices. When one moves one way, the other usually moves in the opposite direction. During the global financial crisis, as we suffered from problems in the international economy, the exchange rate fell and we benefited from that in the budget. Have we done something as a government that is not recommended by the people who know best in these predictive matters in Treasury? No, we have not. Is the member saying that there might be some degree of optimism with respect to the US dollar? That is the member’s view. Equally, however, is there some degree of pessimism with respect to iron ore pricing? People have put that view to me. But we are being absolutely up-front; we are accepting the analysis of the people in the area from Treasury who provide it to us. Let me say that, in terms of the pessimistic assessment of iron ore prices, if iron ore prices held steady at their present levels and did not drop to $US87.50 per tonne, the additional benefit in revenue to the state budget would be $4.7 billion over the budget period. The member’s assertion is that somehow we have been not entirely accurate, but we have been as accurate as we can be based on the fair analysis of the best predictive measures of DTF.
(2) What is the downside in dollar terms for the exchange rate holding at or near the current level? (3) Is this risk acceptable for the Treasurer to take with the state’s finances? (4) I note that the rate of population growth is projected in the Treasurer’s budget assumptions to fall over the forward estimates. What credible advice or evidence is he basing those assumptions on? Mr C.C. PORTER replied: (1)–(4) That is a very fair question. The spot rate is not a term that applies to exchange rates. Exchange rates are exchange rates. A spot rate is something that applies to iron ore prices, but I will come to that in a moment. The member has asked me what the spot rate of exchange is. There is no spot rate of exchange. The member will get there. Mr R.H. Cook : How do you spell “arrogant”? Mr C.C. PORTER : How does one spell “wrong”? How does one spell “does not know the difference between ‘exchange rate’ and ‘spot rate’ of iron ore and wants to be the alternative Treasurer”? How does one explain that? How does one explain “hopeless”? The member has asked a fair question. She is quite right. The situation is that in this budget we have a predicted an exchange rate in four years’ time. As the Premier pointed out, estimates are estimates. They are best judgements based on the formula that we apply. That formula was adopted in 2009, based on the fact that the previous formula was not giving us accurate predictions over the out years. The previous formula was on a rolling six-week average of exchange rate prices. Mr E.S. Ripper : Not average, just rolling. Get it right. Mr C.C. PORTER: It is an average, rolling over that period. The way in which the dollar is calculated now is to look at what the exchange rate was at the budget close date and then predict four years hence in four quarterly percentile decreases down to the long-term average. That long-term average is 74c. That was a predictive mechanism that Treasury provided and recommended to the government based on its own analysis. It is not an instruction from government to Treasury; far from it. It was Treasury’s assessment as to what was the best way to look at longterm averages for the exchange rate. When we look at an average over six weeks, that can provide some very dramatic changes. That is not a good basis for predicting a possible exchange rate in four years’ time. There are many exchange rate analysts out there. Some of them are predicting an exchange rate of $A1.70 to $US1. We could listen to them but that would be unwise. Mr C.J. Barnett : Ask George Soros. He’s got the best record. Mr C.C. PORTER : George Soros did crash the pound, so he probably could make a change himself. In any event, the member pointed out that that prediction has a level of risk involved in the budget, and that is true. That is undoubted. However, that prediction is based on Treasury best analysis. The question is: what will the US dollar to the Australian dollar exchange rate be in four years? If any of us knew the precise answer to that question, we would probably be trading on the international money market and not running for politics. This is the best estimate that Treasury can provide based on a very sound formula that it provided to us, not that we provided to it. Yes, it does involve a level of risk. I also point out, getting back to the member’s original issue about spot rates, that if she is saying to us that there is a degree of optimism in that forward prediction, that may be, but it is based on Treasury’s estimate. Equally, what we have in the budget over four years is a decrease in the projected price of iron ore per tonne from the present rate of $US138 per tonne down again to the longer run average in four quarterly percentiles. We consistently use the same type of econometric analysis to get that prediction. That has the iron ore price per tonne dropping down from $US138.80 per tonne to $US87.50. Obviously, some people might argue that that is a pessimistic scenario of overall iron ore royalty prices. When one moves one way, the other usually moves in the opposite direction. During the global financial crisis, as we suffered from problems in the international economy, the exchange rate fell and we benefited from that in the budget. Have we done something as a government that is not recommended by the people who know best in these predictive matters in Treasury? No, we have not. Is the member saying that there might be some degree of optimism with respect to the US dollar? That is the member’s view. Equally, however, is there some degree of pessimism with respect to iron ore pricing? People have put that view to me. But we are being absolutely up-front; we are accepting the analysis of the people in the area from Treasury who provide it to us. Let me say that, in terms of the pessimistic assessment of iron ore prices, if iron ore prices held steady at their present levels and did not drop to $US87.50 per tonne, the additional benefit in revenue to the state budget would be $4.7 billion over the budget period. The member’s assertion is that somehow we have been not entirely accurate, but we have been as accurate as we can be based on the fair analysis of the best predictive measures of DTF.
(3) Is this risk acceptable for the Treasurer to take with the state’s finances? (4) I note that the rate of population growth is projected in the Treasurer’s budget assumptions to fall over the forward estimates. What credible advice or evidence is he basing those assumptions on? Mr C.C. PORTER replied: (1)–(4) That is a very fair question. The spot rate is not a term that applies to exchange rates. Exchange rates are exchange rates. A spot rate is something that applies to iron ore prices, but I will come to that in a moment. The member has asked me what the spot rate of exchange is. There is no spot rate of exchange. The member will get there. Mr R.H. Cook : How do you spell “arrogant”? Mr C.C. PORTER : How does one spell “wrong”? How does one spell “does not know the difference between ‘exchange rate’ and ‘spot rate’ of iron ore and wants to be the alternative Treasurer”? How does one explain that? How does one explain “hopeless”? The member has asked a fair question. She is quite right. The situation is that in this budget we have a predicted an exchange rate in four years’ time. As the Premier pointed out, estimates are estimates. They are best judgements based on the formula that we apply. That formula was adopted in 2009, based on the fact that the previous formula was not giving us accurate predictions over the out years. The previous formula was on a rolling six-week average of exchange rate prices. Mr E.S. Ripper : Not average, just rolling. Get it right. Mr C.C. PORTER: It is an average, rolling over that period. The way in which the dollar is calculated now is to look at what the exchange rate was at the budget close date and then predict four years hence in four quarterly percentile decreases down to the long-term average. That long-term average is 74c. That was a predictive mechanism that Treasury provided and recommended to the government based on its own analysis. It is not an instruction from government to Treasury; far from it. It was Treasury’s assessment as to what was the best way to look at longterm averages for the exchange rate. When we look at an average over six weeks, that can provide some very dramatic changes. That is not a good basis for predicting a possible exchange rate in four years’ time. There are many exchange rate analysts out there. Some of them are predicting an exchange rate of $A1.70 to $US1. We could listen to them but that would be unwise. Mr C.J. Barnett : Ask George Soros. He’s got the best record. Mr C.C. PORTER : George Soros did crash the pound, so he probably could make a change himself. In any event, the member pointed out that that prediction has a level of risk involved in the budget, and that is true. That is undoubted. However, that prediction is based on Treasury best analysis. The question is: what will the US dollar to the Australian dollar exchange rate be in four years? If any of us knew the precise answer to that question, we would probably be trading on the international money market and not running for politics. This is the best estimate that Treasury can provide based on a very sound formula that it provided to us, not that we provided to it. Yes, it does involve a level of risk. I also point out, getting back to the member’s original issue about spot rates, that if she is saying to us that there is a degree of optimism in that forward prediction, that may be, but it is based on Treasury’s estimate. Equally, what we have in the budget over four years is a decrease in the projected price of iron ore per tonne from the present rate of $US138 per tonne down again to the longer run average in four quarterly percentiles. We consistently use the same type of econometric analysis to get that prediction. That has the iron ore price per tonne dropping down from $US138.80 per tonne to $US87.50. Obviously, some people might argue that that is a pessimistic scenario of overall iron ore royalty prices. When one moves one way, the other usually moves in the opposite direction. During the global financial crisis, as we suffered from problems in the international economy, the exchange rate fell and we benefited from that in the budget. Have we done something as a government that is not recommended by the people who know best in these predictive matters in Treasury? No, we have not. Is the member saying that there might be some degree of optimism with respect to the US dollar? That is the member’s view. Equally, however, is there some degree of pessimism with respect to iron ore pricing? People have put that view to me. But we are being absolutely up-front; we are accepting the analysis of the people in the area from Treasury who provide it to us. Let me say that, in terms of the pessimistic assessment of iron ore prices, if iron ore prices held steady at their present levels and did not drop to $US87.50 per tonne, the additional benefit in revenue to the state budget would be $4.7 billion over the budget period. The member’s assertion is that somehow we have been not entirely accurate, but we have been as accurate as we can be based on the fair analysis of the best predictive measures of DTF.
(4) I note that the rate of population growth is projected in the Treasurer’s budget assumptions to fall over the forward estimates. What credible advice or evidence is he basing those assumptions on? Mr C.C. PORTER replied: (1)–(4) That is a very fair question. The spot rate is not a term that applies to exchange rates. Exchange rates are exchange rates. A spot rate is something that applies to iron ore prices, but I will come to that in a moment. The member has asked me what the spot rate of exchange is. There is no spot rate of exchange. The member will get there. Mr R.H. Cook : How do you spell “arrogant”? Mr C.C. PORTER : How does one spell “wrong”? How does one spell “does not know the difference between ‘exchange rate’ and ‘spot rate’ of iron ore and wants to be the alternative Treasurer”? How does one explain that? How does one explain “hopeless”? The member has asked a fair question. She is quite right. The situation is that in this budget we have a predicted an exchange rate in four years’ time. As the Premier pointed out, estimates are estimates. They are best judgements based on the formula that we apply. That formula was adopted in 2009, based on the fact that the previous formula was not giving us accurate predictions over the out years. The previous formula was on a rolling six-week average of exchange rate prices. Mr E.S. Ripper : Not average, just rolling. Get it right. Mr C.C. PORTER: It is an average, rolling over that period. The way in which the dollar is calculated now is to look at what the exchange rate was at the budget close date and then predict four years hence in four quarterly percentile decreases down to the long-term average. That long-term average is 74c. That was a predictive mechanism that Treasury provided and recommended to the government based on its own analysis. It is not an instruction from government to Treasury; far from it. It was Treasury’s assessment as to what was the best way to look at longterm averages for the exchange rate. When we look at an average over six weeks, that can provide some very dramatic changes. That is not a good basis for predicting a possible exchange rate in four years’ time. There are many exchange rate analysts out there. Some of them are predicting an exchange rate of $A1.70 to $US1. We could listen to them but that would be unwise. Mr C.J. Barnett : Ask George Soros. He’s got the best record. Mr C.C. PORTER : George Soros did crash the pound, so he probably could make a change himself. In any event, the member pointed out that that prediction has a level of risk involved in the budget, and that is true. That is undoubted. However, that prediction is based on Treasury best analysis. The question is: what will the US dollar to the Australian dollar exchange rate be in four years? If any of us knew the precise answer to that question, we would probably be trading on the international money market and not running for politics. This is the best estimate that Treasury can provide based on a very sound formula that it provided to us, not that we provided to it. Yes, it does involve a level of risk. I also point out, getting back to the member’s original issue about spot rates, that if she is saying to us that there is a degree of optimism in that forward prediction, that may be, but it is based on Treasury’s estimate. Equally, what we have in the budget over four years is a decrease in the projected price of iron ore per tonne from the present rate of $US138 per tonne down again to the longer run average in four quarterly percentiles. We consistently use the same type of econometric analysis to get that prediction. That has the iron ore price per tonne dropping down from $US138.80 per tonne to $US87.50. Obviously, some people might argue that that is a pessimistic scenario of overall iron ore royalty prices. When one moves one way, the other usually moves in the opposite direction. During the global financial crisis, as we suffered from problems in the international economy, the exchange rate fell and we benefited from that in the budget. Have we done something as a government that is not recommended by the people who know best in these predictive matters in Treasury? No, we have not. Is the member saying that there might be some degree of optimism with respect to the US dollar? That is the member’s view. Equally, however, is there some degree of pessimism with respect to iron ore pricing? People have put that view to me. But we are being absolutely up-front; we are accepting the analysis of the people in the area from Treasury who provide it to us. Let me say that, in terms of the pessimistic assessment of iron ore prices, if iron ore prices held steady at their present levels and did not drop to $US87.50 per tonne, the additional benefit in revenue to the state budget would be $4.7 billion over the budget period. The member’s assertion is that somehow we have been not entirely accurate, but we have been as accurate as we can be based on the fair analysis of the best predictive measures of DTF.
Mr C.C. PORTER replied: (1)–(4) That is a very fair question. The spot rate is not a term that applies to exchange rates. Exchange rates are exchange rates. A spot rate is something that applies to iron ore prices, but I will come to that in a moment. The member has asked me what the spot rate of exchange is. There is no spot rate of exchange. The member will get there. Mr R.H. Cook : How do you spell “arrogant”? Mr C.C. PORTER : How does one spell “wrong”? How does one spell “does not know the difference between ‘exchange rate’ and ‘spot rate’ of iron ore and wants to be the alternative Treasurer”? How does one explain that? How does one explain “hopeless”? The member has asked a fair question. She is quite right. The situation is that in this budget we have a predicted an exchange rate in four years’ time. As the Premier pointed out, estimates are estimates. They are best judgements based on the formula that we apply. That formula was adopted in 2009, based on the fact that the previous formula was not giving us accurate predictions over the out years. The previous formula was on a rolling six-week average of exchange rate prices. Mr E.S. Ripper : Not average, just rolling. Get it right. Mr C.C. PORTER: It is an average, rolling over that period. The way in which the dollar is calculated now is to look at what the exchange rate was at the budget close date and then predict four years hence in four quarterly percentile decreases down to the long-term average. That long-term average is 74c. That was a predictive mechanism that Treasury provided and recommended to the government based on its own analysis. It is not an instruction from government to Treasury; far from it. It was Treasury’s assessment as to what was the best way to look at longterm averages for the exchange rate. When we look at an average over six weeks, that can provide some very dramatic changes. That is not a good basis for predicting a possible exchange rate in four years’ time. There are many exchange rate analysts out there. Some of them are predicting an exchange rate of $A1.70 to $US1. We could listen to them but that would be unwise. Mr C.J. Barnett : Ask George Soros. He’s got the best record. Mr C.C. PORTER : George Soros did crash the pound, so he probably could make a change himself. In any event, the member pointed out that that prediction has a level of risk involved in the budget, and that is true. That is undoubted. However, that prediction is based on Treasury best analysis. The question is: what will the US dollar to the Australian dollar exchange rate be in four years? If any of us knew the precise answer to that question, we would probably be trading on the international money market and not running for politics. This is the best estimate that Treasury can provide based on a very sound formula that it provided to us, not that we provided to it. Yes, it does involve a level of risk. I also point out, getting back to the member’s original issue about spot rates, that if she is saying to us that there is a degree of optimism in that forward prediction, that may be, but it is based on Treasury’s estimate. Equally, what we have in the budget over four years is a decrease in the projected price of iron ore per tonne from the present rate of $US138 per tonne down again to the longer run average in four quarterly percentiles. We consistently use the same type of econometric analysis to get that prediction. That has the iron ore price per tonne dropping down from $US138.80 per tonne to $US87.50. Obviously, some people might argue that that is a pessimistic scenario of overall iron ore royalty prices. When one moves one way, the other usually moves in the opposite direction. During the global financial crisis, as we suffered from problems in the international economy, the exchange rate fell and we benefited from that in the budget. Have we done something as a government that is not recommended by the people who know best in these predictive matters in Treasury? No, we have not. Is the member saying that there might be some degree of optimism with respect to the US dollar? That is the member’s view. Equally, however, is there some degree of pessimism with respect to iron ore pricing? People have put that view to me. But we are being absolutely up-front; we are accepting the analysis of the people in the area from Treasury who provide it to us. Let me say that, in terms of the pessimistic assessment of iron ore prices, if iron ore prices held steady at their present levels and did not drop to $US87.50 per tonne, the additional benefit in revenue to the state budget would be $4.7 billion over the budget period. The member’s assertion is that somehow we have been not entirely accurate, but we have been as accurate as we can be based on the fair analysis of the best predictive measures of DTF.
(1)–(4) That is a very fair question. The spot rate is not a term that applies to exchange rates. Exchange rates are exchange rates. A spot rate is something that applies to iron ore prices, but I will come to that in a moment. The member has asked me what the spot rate of exchange is. There is no spot rate of exchange. The member will get there. Mr R.H. Cook : How do you spell “arrogant”? Mr C.C. PORTER : How does one spell “wrong”? How does one spell “does not know the difference between ‘exchange rate’ and ‘spot rate’ of iron ore and wants to be the alternative Treasurer”? How does one explain that? How does one explain “hopeless”? The member has asked a fair question. She is quite right. The situation is that in this budget we have a predicted an exchange rate in four years’ time. As the Premier pointed out, estimates are estimates. They are best judgements based on the formula that we apply. That formula was adopted in 2009, based on the fact that the previous formula was not giving us accurate predictions over the out years. The previous formula was on a rolling six-week average of exchange rate prices. Mr E.S. Ripper : Not average, just rolling. Get it right. Mr C.C. PORTER: It is an average, rolling over that period. The way in which the dollar is calculated now is to look at what the exchange rate was at the budget close date and then predict four years hence in four quarterly percentile decreases down to the long-term average. That long-term average is 74c. That was a predictive mechanism that Treasury provided and recommended to the government based on its own analysis. It is not an instruction from government to Treasury; far from it. It was Treasury’s assessment as to what was the best way to look at longterm averages for the exchange rate. When we look at an average over six weeks, that can provide some very dramatic changes. That is not a good basis for predicting a possible exchange rate in four years’ time. There are many exchange rate analysts out there. Some of them are predicting an exchange rate of $A1.70 to $US1. We could listen to them but that would be unwise. Mr C.J. Barnett : Ask George Soros. He’s got the best record. Mr C.C. PORTER : George Soros did crash the pound, so he probably could make a change himself. In any event, the member pointed out that that prediction has a level of risk involved in the budget, and that is true. That is undoubted. However, that prediction is based on Treasury best analysis. The question is: what will the US dollar to the Australian dollar exchange rate be in four years? If any of us knew the precise answer to that question, we would probably be trading on the international money market and not running for politics. This is the best estimate that Treasury can provide based on a very sound formula that it provided to us, not that we provided to it. Yes, it does involve a level of risk. I also point out, getting back to the member’s original issue about spot rates, that if she is saying to us that there is a degree of optimism in that forward prediction, that may be, but it is based on Treasury’s estimate. Equally, what we have in the budget over four years is a decrease in the projected price of iron ore per tonne from the present rate of $US138 per tonne down again to the longer run average in four quarterly percentiles. We consistently use the same type of econometric analysis to get that prediction. That has the iron ore price per tonne dropping down from $US138.80 per tonne to $US87.50. Obviously, some people might argue that that is a pessimistic scenario of overall iron ore royalty prices. When one moves one way, the other usually moves in the opposite direction. During the global financial crisis, as we suffered from problems in the international economy, the exchange rate fell and we benefited from that in the budget. Have we done something as a government that is not recommended by the people who know best in these predictive matters in Treasury? No, we have not. Is the member saying that there might be some degree of optimism with respect to the US dollar? That is the member’s view. Equally, however, is there some degree of pessimism with respect to iron ore pricing? People have put that view to me. But we are being absolutely up-front; we are accepting the analysis of the people in the area from Treasury who provide it to us. Let me say that, in terms of the pessimistic assessment of iron ore prices, if iron ore prices held steady at their present levels and did not drop to $US87.50 per tonne, the additional benefit in revenue to the state budget would be $4.7 billion over the budget period. The member’s assertion is that somehow we have been not entirely accurate, but we have been as accurate as we can be based on the fair analysis of the best predictive measures of DTF.
Mr R.H. Cook : How do you spell “arrogant”? Mr C.C. PORTER : How does one spell “wrong”? How does one spell “does not know the difference between ‘exchange rate’ and ‘spot rate’ of iron ore and wants to be the alternative Treasurer”? How does one explain that? How does one explain “hopeless”? The member has asked a fair question. She is quite right. The situation is that in this budget we have a predicted an exchange rate in four years’ time. As the Premier pointed out, estimates are estimates. They are best judgements based on the formula that we apply. That formula was adopted in 2009, based on the fact that the previous formula was not giving us accurate predictions over the out years. The previous formula was on a rolling six-week average of exchange rate prices. Mr E.S. Ripper : Not average, just rolling. Get it right. Mr C.C. PORTER: It is an average, rolling over that period. The way in which the dollar is calculated now is to look at what the exchange rate was at the budget close date and then predict four years hence in four quarterly percentile decreases down to the long-term average. That long-term average is 74c. That was a predictive mechanism that Treasury provided and recommended to the government based on its own analysis. It is not an instruction from government to Treasury; far from it. It was Treasury’s assessment as to what was the best way to look at longterm averages for the exchange rate. When we look at an average over six weeks, that can provide some very dramatic changes. That is not a good basis for predicting a possible exchange rate in four years’ time. There are many exchange rate analysts out there. Some of them are predicting an exchange rate of $A1.70 to $US1. We could listen to them but that would be unwise. Mr C.J. Barnett : Ask George Soros. He’s got the best record. Mr C.C. PORTER : George Soros did crash the pound, so he probably could make a change himself. In any event, the member pointed out that that prediction has a level of risk involved in the budget, and that is true. That is undoubted. However, that prediction is based on Treasury best analysis. The question is: what will the US dollar to the Australian dollar exchange rate be in four years? If any of us knew the precise answer to that question, we would probably be trading on the international money market and not running for politics. This is the best estimate that Treasury can provide based on a very sound formula that it provided to us, not that we provided to it. Yes, it does involve a level of risk. I also point out, getting back to the member’s original issue about spot rates, that if she is saying to us that there is a degree of optimism in that forward prediction, that may be, but it is based on Treasury’s estimate. Equally, what we have in the budget over four years is a decrease in the projected price of iron ore per tonne from the present rate of $US138 per tonne down again to the longer run average in four quarterly percentiles. We consistently use the same type of econometric analysis to get that prediction. That has the iron ore price per tonne dropping down from $US138.80 per tonne to $US87.50. Obviously, some people might argue that that is a pessimistic scenario of overall iron ore royalty prices. When one moves one way, the other usually moves in the opposite direction. During the global financial crisis, as we suffered from problems in the international economy, the exchange rate fell and we benefited from that in the budget. Have we done something as a government that is not recommended by the people who know best in these predictive matters in Treasury? No, we have not. Is the member saying that there might be some degree of optimism with respect to the US dollar? That is the member’s view. Equally, however, is there some degree of pessimism with respect to iron ore pricing? People have put that view to me. But we are being absolutely up-front; we are accepting the analysis of the people in the area from Treasury who provide it to us. Let me say that, in terms of the pessimistic assessment of iron ore prices, if iron ore prices held steady at their present levels and did not drop to $US87.50 per tonne, the additional benefit in revenue to the state budget would be $4.7 billion over the budget period. The member’s assertion is that somehow we have been not entirely accurate, but we have been as accurate as we can be based on the fair analysis of the best predictive measures of DTF.
Mr C.C. PORTER : How does one spell “wrong”? How does one spell “does not know the difference between ‘exchange rate’ and ‘spot rate’ of iron ore and wants to be the alternative Treasurer”? How does one explain that? How does one explain “hopeless”? The member has asked a fair question. She is quite right. The situation is that in this budget we have a predicted an exchange rate in four years’ time. As the Premier pointed out, estimates are estimates. They are best judgements based on the formula that we apply. That formula was adopted in 2009, based on the fact that the previous formula was not giving us accurate predictions over the out years. The previous formula was on a rolling six-week average of exchange rate prices. Mr E.S. Ripper : Not average, just rolling. Get it right. Mr C.C. PORTER: It is an average, rolling over that period. The way in which the dollar is calculated now is to look at what the exchange rate was at the budget close date and then predict four years hence in four quarterly percentile decreases down to the long-term average. That long-term average is 74c. That was a predictive mechanism that Treasury provided and recommended to the government based on its own analysis. It is not an instruction from government to Treasury; far from it. It was Treasury’s assessment as to what was the best way to look at longterm averages for the exchange rate. When we look at an average over six weeks, that can provide some very dramatic changes. That is not a good basis for predicting a possible exchange rate in four years’ time. There are many exchange rate analysts out there. Some of them are predicting an exchange rate of $A1.70 to $US1. We could listen to them but that would be unwise. Mr C.J. Barnett : Ask George Soros. He’s got the best record. Mr C.C. PORTER : George Soros did crash the pound, so he probably could make a change himself. In any event, the member pointed out that that prediction has a level of risk involved in the budget, and that is true. That is undoubted. However, that prediction is based on Treasury best analysis. The question is: what will the US dollar to the Australian dollar exchange rate be in four years? If any of us knew the precise answer to that question, we would probably be trading on the international money market and not running for politics. This is the best estimate that Treasury can provide based on a very sound formula that it provided to us, not that we provided to it. Yes, it does involve a level of risk. I also point out, getting back to the member’s original issue about spot rates, that if she is saying to us that there is a degree of optimism in that forward prediction, that may be, but it is based on Treasury’s estimate. Equally, what we have in the budget over four years is a decrease in the projected price of iron ore per tonne from the present rate of $US138 per tonne down again to the longer run average in four quarterly percentiles. We consistently use the same type of econometric analysis to get that prediction. That has the iron ore price per tonne dropping down from $US138.80 per tonne to $US87.50. Obviously, some people might argue that that is a pessimistic scenario of overall iron ore royalty prices. When one moves one way, the other usually moves in the opposite direction. During the global financial crisis, as we suffered from problems in the international economy, the exchange rate fell and we benefited from that in the budget. Have we done something as a government that is not recommended by the people who know best in these predictive matters in Treasury? No, we have not. Is the member saying that there might be some degree of optimism with respect to the US dollar? That is the member’s view. Equally, however, is there some degree of pessimism with respect to iron ore pricing? People have put that view to me. But we are being absolutely up-front; we are accepting the analysis of the people in the area from Treasury who provide it to us. Let me say that, in terms of the pessimistic assessment of iron ore prices, if iron ore prices held steady at their present levels and did not drop to $US87.50 per tonne, the additional benefit in revenue to the state budget would be $4.7 billion over the budget period. The member’s assertion is that somehow we have been not entirely accurate, but we have been as accurate as we can be based on the fair analysis of the best predictive measures of DTF.
The member has asked a fair question. She is quite right. The situation is that in this budget we have a predicted an exchange rate in four years’ time. As the Premier pointed out, estimates are estimates. They are best judgements based on the formula that we apply. That formula was adopted in 2009, based on the fact that the previous formula was not giving us accurate predictions over the out years. The previous formula was on a rolling six-week average of exchange rate prices. Mr E.S. Ripper : Not average, just rolling. Get it right. Mr C.C. PORTER: It is an average, rolling over that period. The way in which the dollar is calculated now is to look at what the exchange rate was at the budget close date and then predict four years hence in four quarterly percentile decreases down to the long-term average. That long-term average is 74c. That was a predictive mechanism that Treasury provided and recommended to the government based on its own analysis. It is not an instruction from government to Treasury; far from it. It was Treasury’s assessment as to what was the best way to look at longterm averages for the exchange rate. When we look at an average over six weeks, that can provide some very dramatic changes. That is not a good basis for predicting a possible exchange rate in four years’ time. There are many exchange rate analysts out there. Some of them are predicting an exchange rate of $A1.70 to $US1. We could listen to them but that would be unwise. Mr C.J. Barnett : Ask George Soros. He’s got the best record. Mr C.C. PORTER : George Soros did crash the pound, so he probably could make a change himself. In any event, the member pointed out that that prediction has a level of risk involved in the budget, and that is true. That is undoubted. However, that prediction is based on Treasury best analysis. The question is: what will the US dollar to the Australian dollar exchange rate be in four years? If any of us knew the precise answer to that question, we would probably be trading on the international money market and not running for politics. This is the best estimate that Treasury can provide based on a very sound formula that it provided to us, not that we provided to it. Yes, it does involve a level of risk. I also point out, getting back to the member’s original issue about spot rates, that if she is saying to us that there is a degree of optimism in that forward prediction, that may be, but it is based on Treasury’s estimate. Equally, what we have in the budget over four years is a decrease in the projected price of iron ore per tonne from the present rate of $US138 per tonne down again to the longer run average in four quarterly percentiles. We consistently use the same type of econometric analysis to get that prediction. That has the iron ore price per tonne dropping down from $US138.80 per tonne to $US87.50. Obviously, some people might argue that that is a pessimistic scenario of overall iron ore royalty prices. When one moves one way, the other usually moves in the opposite direction. During the global financial crisis, as we suffered from problems in the international economy, the exchange rate fell and we benefited from that in the budget. Have we done something as a government that is not recommended by the people who know best in these predictive matters in Treasury? No, we have not. Is the member saying that there might be some degree of optimism with respect to the US dollar? That is the member’s view. Equally, however, is there some degree of pessimism with respect to iron ore pricing? People have put that view to me. But we are being absolutely up-front; we are accepting the analysis of the people in the area from Treasury who provide it to us. Let me say that, in terms of the pessimistic assessment of iron ore prices, if iron ore prices held steady at their present levels and did not drop to $US87.50 per tonne, the additional benefit in revenue to the state budget would be $4.7 billion over the budget period. The member’s assertion is that somehow we have been not entirely accurate, but we have been as accurate as we can be based on the fair analysis of the best predictive measures of DTF.
Mr E.S. Ripper : Not average, just rolling. Get it right. Mr C.C. PORTER: It is an average, rolling over that period. The way in which the dollar is calculated now is to look at what the exchange rate was at the budget close date and then predict four years hence in four quarterly percentile decreases down to the long-term average. That long-term average is 74c. That was a predictive mechanism that Treasury provided and recommended to the government based on its own analysis. It is not an instruction from government to Treasury; far from it. It was Treasury’s assessment as to what was the best way to look at longterm averages for the exchange rate. When we look at an average over six weeks, that can provide some very dramatic changes. That is not a good basis for predicting a possible exchange rate in four years’ time. There are many exchange rate analysts out there. Some of them are predicting an exchange rate of $A1.70 to $US1. We could listen to them but that would be unwise. Mr C.J. Barnett : Ask George Soros. He’s got the best record. Mr C.C. PORTER : George Soros did crash the pound, so he probably could make a change himself. In any event, the member pointed out that that prediction has a level of risk involved in the budget, and that is true. That is undoubted. However, that prediction is based on Treasury best analysis. The question is: what will the US dollar to the Australian dollar exchange rate be in four years? If any of us knew the precise answer to that question, we would probably be trading on the international money market and not running for politics. This is the best estimate that Treasury can provide based on a very sound formula that it provided to us, not that we provided to it. Yes, it does involve a level of risk. I also point out, getting back to the member’s original issue about spot rates, that if she is saying to us that there is a degree of optimism in that forward prediction, that may be, but it is based on Treasury’s estimate. Equally, what we have in the budget over four years is a decrease in the projected price of iron ore per tonne from the present rate of $US138 per tonne down again to the longer run average in four quarterly percentiles. We consistently use the same type of econometric analysis to get that prediction. That has the iron ore price per tonne dropping down from $US138.80 per tonne to $US87.50. Obviously, some people might argue that that is a pessimistic scenario of overall iron ore royalty prices. When one moves one way, the other usually moves in the opposite direction. During the global financial crisis, as we suffered from problems in the international economy, the exchange rate fell and we benefited from that in the budget. Have we done something as a government that is not recommended by the people who know best in these predictive matters in Treasury? No, we have not. Is the member saying that there might be some degree of optimism with respect to the US dollar? That is the member’s view. Equally, however, is there some degree of pessimism with respect to iron ore pricing? People have put that view to me. But we are being absolutely up-front; we are accepting the analysis of the people in the area from Treasury who provide it to us. Let me say that, in terms of the pessimistic assessment of iron ore prices, if iron ore prices held steady at their present levels and did not drop to $US87.50 per tonne, the additional benefit in revenue to the state budget would be $4.7 billion over the budget period. The member’s assertion is that somehow we have been not entirely accurate, but we have been as accurate as we can be based on the fair analysis of the best predictive measures of DTF.
Mr C.C. PORTER: It is an average, rolling over that period. The way in which the dollar is calculated now is to look at what the exchange rate was at the budget close date and then predict four years hence in four quarterly percentile decreases down to the long-term average. That long-term average is 74c. That was a predictive mechanism that Treasury provided and recommended to the government based on its own analysis. It is not an instruction from government to Treasury; far from it. It was Treasury’s assessment as to what was the best way to look at longterm averages for the exchange rate. When we look at an average over six weeks, that can provide some very dramatic changes. That is not a good basis for predicting a possible exchange rate in four years’ time. There are many exchange rate analysts out there. Some of them are predicting an exchange rate of $A1.70 to $US1. We could listen to them but that would be unwise. Mr C.J. Barnett : Ask George Soros. He’s got the best record. Mr C.C. PORTER : George Soros did crash the pound, so he probably could make a change himself. In any event, the member pointed out that that prediction has a level of risk involved in the budget, and that is true. That is undoubted. However, that prediction is based on Treasury best analysis. The question is: what will the US dollar to the Australian dollar exchange rate be in four years? If any of us knew the precise answer to that question, we would probably be trading on the international money market and not running for politics. This is the best estimate that Treasury can provide based on a very sound formula that it provided to us, not that we provided to it. Yes, it does involve a level of risk. I also point out, getting back to the member’s original issue about spot rates, that if she is saying to us that there is a degree of optimism in that forward prediction, that may be, but it is based on Treasury’s estimate. Equally, what we have in the budget over four years is a decrease in the projected price of iron ore per tonne from the present rate of $US138 per tonne down again to the longer run average in four quarterly percentiles. We consistently use the same type of econometric analysis to get that prediction. That has the iron ore price per tonne dropping down from $US138.80 per tonne to $US87.50. Obviously, some people might argue that that is a pessimistic scenario of overall iron ore royalty prices. When one moves one way, the other usually moves in the opposite direction. During the global financial crisis, as we suffered from problems in the international economy, the exchange rate fell and we benefited from that in the budget. Have we done something as a government that is not recommended by the people who know best in these predictive matters in Treasury? No, we have not. Is the member saying that there might be some degree of optimism with respect to the US dollar? That is the member’s view. Equally, however, is there some degree of pessimism with respect to iron ore pricing? People have put that view to me. But we are being absolutely up-front; we are accepting the analysis of the people in the area from Treasury who provide it to us. Let me say that, in terms of the pessimistic assessment of iron ore prices, if iron ore prices held steady at their present levels and did not drop to $US87.50 per tonne, the additional benefit in revenue to the state budget would be $4.7 billion over the budget period. The member’s assertion is that somehow we have been not entirely accurate, but we have been as accurate as we can be based on the fair analysis of the best predictive measures of DTF.
Mr C.J. Barnett : Ask George Soros. He’s got the best record. Mr C.C. PORTER : George Soros did crash the pound, so he probably could make a change himself. In any event, the member pointed out that that prediction has a level of risk involved in the budget, and that is true. That is undoubted. However, that prediction is based on Treasury best analysis. The question is: what will the US dollar to the Australian dollar exchange rate be in four years? If any of us knew the precise answer to that question, we would probably be trading on the international money market and not running for politics. This is the best estimate that Treasury can provide based on a very sound formula that it provided to us, not that we provided to it. Yes, it does involve a level of risk. I also point out, getting back to the member’s original issue about spot rates, that if she is saying to us that there is a degree of optimism in that forward prediction, that may be, but it is based on Treasury’s estimate. Equally, what we have in the budget over four years is a decrease in the projected price of iron ore per tonne from the present rate of $US138 per tonne down again to the longer run average in four quarterly percentiles. We consistently use the same type of econometric analysis to get that prediction. That has the iron ore price per tonne dropping down from $US138.80 per tonne to $US87.50. Obviously, some people might argue that that is a pessimistic scenario of overall iron ore royalty prices. When one moves one way, the other usually moves in the opposite direction. During the global financial crisis, as we suffered from problems in the international economy, the exchange rate fell and we benefited from that in the budget. Have we done something as a government that is not recommended by the people who know best in these predictive matters in Treasury? No, we have not. Is the member saying that there might be some degree of optimism with respect to the US dollar? That is the member’s view. Equally, however, is there some degree of pessimism with respect to iron ore pricing? People have put that view to me. But we are being absolutely up-front; we are accepting the analysis of the people in the area from Treasury who provide it to us. Let me say that, in terms of the pessimistic assessment of iron ore prices, if iron ore prices held steady at their present levels and did not drop to $US87.50 per tonne, the additional benefit in revenue to the state budget would be $4.7 billion over the budget period. The member’s assertion is that somehow we have been not entirely accurate, but we have been as accurate as we can be based on the fair analysis of the best predictive measures of DTF.
Mr C.C. PORTER : George Soros did crash the pound, so he probably could make a change himself. In any event, the member pointed out that that prediction has a level of risk involved in the budget, and that is true. That is undoubted. However, that prediction is based on Treasury best analysis. The question is: what will the US dollar to the Australian dollar exchange rate be in four years? If any of us knew the precise answer to that question, we would probably be trading on the international money market and not running for politics. This is the best estimate that Treasury can provide based on a very sound formula that it provided to us, not that we provided to it. Yes, it does involve a level of risk. I also point out, getting back to the member’s original issue about spot rates, that if she is saying to us that there is a degree of optimism in that forward prediction, that may be, but it is based on Treasury’s estimate. Equally, what we have in the budget over four years is a decrease in the projected price of iron ore per tonne from the present rate of $US138 per tonne down again to the longer run average in four quarterly percentiles. We consistently use the same type of econometric analysis to get that prediction. That has the iron ore price per tonne dropping down from $US138.80 per tonne to $US87.50. Obviously, some people might argue that that is a pessimistic scenario of overall iron ore royalty prices. When one moves one way, the other usually moves in the opposite direction. During the global financial crisis, as we suffered from problems in the international economy, the exchange rate fell and we benefited from that in the budget. Have we done something as a government that is not recommended by the people who know best in these predictive matters in Treasury? No, we have not. Is the member saying that there might be some degree of optimism with respect to the US dollar? That is the member’s view. Equally, however, is there some degree of pessimism with respect to iron ore pricing? People have put that view to me. But we are being absolutely up-front; we are accepting the analysis of the people in the area from Treasury who provide it to us. Let me say that, in terms of the pessimistic assessment of iron ore prices, if iron ore prices held steady at their present levels and did not drop to $US87.50 per tonne, the additional benefit in revenue to the state budget would be $4.7 billion over the budget period. The member’s assertion is that somehow we have been not entirely accurate, but we have been as accurate as we can be based on the fair analysis of the best predictive measures of DTF.
In any event, the member pointed out that that prediction has a level of risk involved in the budget, and that is true. That is undoubted. However, that prediction is based on Treasury best analysis. The question is: what will the US dollar to the Australian dollar exchange rate be in four years? If any of us knew the precise answer to that question, we would probably be trading on the international money market and not running for politics. This is the best estimate that Treasury can provide based on a very sound formula that it provided to us, not that we provided to it. Yes, it does involve a level of risk. I also point out, getting back to the member’s original issue about spot rates, that if she is saying to us that there is a degree of optimism in that forward prediction, that may be, but it is based on Treasury’s estimate. Equally, what we have in the budget over four years is a decrease in the projected price of iron ore per tonne from the present rate of $US138 per tonne down again to the longer run average in four quarterly percentiles. We consistently use the same type of econometric analysis to get that prediction. That has the iron ore price per tonne dropping down from $US138.80 per tonne to $US87.50. Obviously, some people might argue that that is a pessimistic scenario of overall iron ore royalty prices. When one moves one way, the other usually moves in the opposite direction. During the global financial crisis, as we suffered from problems in the international economy, the exchange rate fell and we benefited from that in the budget. Have we done something as a government that is not recommended by the people who know best in these predictive matters in Treasury? No, we have not. Is the member saying that there might be some degree of optimism with respect to the US dollar? That is the member’s view. Equally, however, is there some degree of pessimism with respect to iron ore pricing? People have put that view to me. But we are being absolutely up-front; we are accepting the analysis of the people in the area from Treasury who provide it to us. Let me say that, in terms of the pessimistic assessment of iron ore prices, if iron ore prices held steady at their present levels and did not drop to $US87.50 per tonne, the additional benefit in revenue to the state budget would be $4.7 billion over the budget period. The member’s assertion is that somehow we have been not entirely accurate, but we have been as accurate as we can be based on the fair analysis of the best predictive measures of DTF.
I also point out, getting back to the member’s original issue about spot rates, that if she is saying to us that there is a degree of optimism in that forward prediction, that may be, but it is based on Treasury’s estimate. Equally, what we have in the budget over four years is a decrease in the projected price of iron ore per tonne from the present rate of $US138 per tonne down again to the longer run average in four quarterly percentiles. We consistently use the same type of econometric analysis to get that prediction. That has the iron ore price per tonne dropping down from $US138.80 per tonne to $US87.50. Obviously, some people might argue that that is a pessimistic scenario of overall iron ore royalty prices. When one moves one way, the other usually moves in the opposite direction. During the global financial crisis, as we suffered from problems in the international economy, the exchange rate fell and we benefited from that in the budget. Have we done something as a government that is not recommended by the people who know best in these predictive matters in Treasury? No, we have not. Is the member saying that there might be some degree of optimism with respect to the US dollar? That is the member’s view. Equally, however, is there some degree of pessimism with respect to iron ore pricing? People have put that view to me. But we are being absolutely up-front; we are accepting the analysis of the people in the area from Treasury who provide it to us. Let me say that, in terms of the pessimistic assessment of iron ore prices, if iron ore prices held steady at their present levels and did not drop to $US87.50 per tonne, the additional benefit in revenue to the state budget would be $4.7 billion over the budget period. The member’s assertion is that somehow we have been not entirely accurate, but we have been as accurate as we can be based on the fair analysis of the best predictive measures of DTF.
Have we done something as a government that is not recommended by the people who know best in these predictive matters in Treasury? No, we have not. Is the member saying that there might be some degree of optimism with respect to the US dollar? That is the member’s view. Equally, however, is there some degree of pessimism with respect to iron ore pricing? People have put that view to me. But we are being absolutely up-front; we are accepting the analysis of the people in the area from Treasury who provide it to us. Let me say that, in terms of the pessimistic assessment of iron ore prices, if iron ore prices held steady at their present levels and did not drop to $US87.50 per tonne, the additional benefit in revenue to the state budget would be $4.7 billion over the budget period. The member’s assertion is that somehow we have been not entirely accurate, but we have been as accurate as we can be based on the fair analysis of the best predictive measures of DTF.
(1) How does the Treasurer justify choosing such a low assumption for this budget? (2) What is the downside in dollar terms for the exchange rate holding at or near the current level? (3) Is this risk acceptable for the Treasurer to take with the state’s finances? (4) I note that the rate of population growth is projected in the Treasurer’s budget assumptions to fall over the forward estimates. What credible advice or evidence is he basing those assumptions on? Mr C.C. PORTER replied: (1)–(4) That is a very fair question. The spot rate is not a term that applies to exchange rates. Exchange rates are exchange rates. A spot rate is something that applies to iron ore prices, but I will come to that in a moment. The member has asked me what the spot rate of exchange is. There is no spot rate of exchange. The member will get there. Mr R.H. Cook : How do you spell “arrogant”? Mr C.C. PORTER : How does one spell “wrong”? How does one spell “does not know the difference between ‘exchange rate’ and ‘spot rate’ of iron ore and wants to be the alternative Treasurer”? How does one explain that? How does one explain “hopeless”? The member has asked a fair question. She is quite right. The situation is that in this budget we have a predicted an exchange rate in four years’ time. As the Premier pointed out, estimates are estimates. They are best judgements based on the formula that we apply. That formula was adopted in 2009, based on the fact that the previous formula was not giving us accurate predictions over the out years. The previous formula was on a rolling six-week average of exchange rate prices. Mr E.S. Ripper : Not average, just rolling. Get it right. Mr C.C. PORTER: It is an average, rolling over that period. The way in which the dollar is calculated now is to look at what the exchange rate was at the budget close date and then predict four years hence in four quarterly percentile decreases down to the long-term average. That long-term average is 74c. That was a predictive mechanism that Treasury provided and recommended to the government based on its own analysis. It is not an instruction from government to Treasury; far from it. It was Treasury’s assessment as to what was the best way to look at longterm averages for the exchange rate. When we look at an average over six weeks, that can provide some very dramatic changes. That is not a good basis for predicting a possible exchange rate in four years’ time. There are many exchange rate analysts out there. Some of them are predicting an exchange rate of $A1.70 to $US1. We could listen to them but that would be unwise. Mr C.J. Barnett : Ask George Soros. He’s got the best record. Mr C.C. PORTER : George Soros did crash the pound, so he probably could make a change himself. In any event, the member pointed out that that prediction has a level of risk involved in the budget, and that is true. That is undoubted. However, that prediction is based on Treasury best analysis. The question is: what will the US dollar to the Australian dollar exchange rate be in four years? If any of us knew the precise answer to that question, we would probably be trading on the international money market and not running for politics. This is the best estimate that Treasury can provide based on a very sound formula that it provided to us, not that we provided to it. Yes, it does involve a level of risk. I also point out, getting back to the member’s original issue about spot rates, that if she is saying to us that there is a degree of optimism in that forward prediction, that may be, but it is based on Treasury’s estimate. Equally, what we have in the budget over four years is a decrease in the projected price of iron ore per tonne from the present rate of $US138 per tonne down again to the longer run average in four quarterly percentiles. We consistently use the same type of econometric analysis to get that prediction. That has the iron ore price per tonne dropping down from $US138.80 per tonne to $US87.50. Obviously, some people might argue that that is a pessimistic scenario of overall iron ore royalty prices. When one moves one way, the other usually moves in the opposite direction. During the global financial crisis, as we suffered from problems in the international economy, the exchange rate fell and we benefited from that in the budget. Have we done something as a government that is not recommended by the people who know best in these predictive matters in Treasury? No, we have not. Is the member saying that there might be some degree of optimism with respect to the US dollar? That is the member’s view. Equally, however, is there some degree of pessimism with respect to iron ore pricing? People have put that view to me. But we are being absolutely up-front; we are accepting the analysis of the people in the area from Treasury who provide it to us. Let me say that, in terms of the pessimistic assessment of iron ore prices, if iron ore prices held steady at their present levels and did not drop to $US87.50 per tonne, the additional benefit in revenue to the state budget would be $4.7 billion over the budget period. The member’s assertion is that somehow we have been not entirely accurate, but we have been as accurate as we can be based on the fair analysis of the best predictive measures of DTF.
(2) What is the downside in dollar terms for the exchange rate holding at or near the current level? (3) Is this risk acceptable for the Treasurer to take with the state’s finances? (4) I note that the rate of population growth is projected in the Treasurer’s budget assumptions to fall over the forward estimates. What credible advice or evidence is he basing those assumptions on? Mr C.C. PORTER replied: (1)–(4) That is a very fair question. The spot rate is not a term that applies to exchange rates. Exchange rates are exchange rates. A spot rate is something that applies to iron ore prices, but I will come to that in a moment. The member has asked me what the spot rate of exchange is. There is no spot rate of exchange. The member will get there. Mr R.H. Cook : How do you spell “arrogant”? Mr C.C. PORTER : How does one spell “wrong”? How does one spell “does not know the difference between ‘exchange rate’ and ‘spot rate’ of iron ore and wants to be the alternative Treasurer”? How does one explain that? How does one explain “hopeless”? The member has asked a fair question. She is quite right. The situation is that in this budget we have a predicted an exchange rate in four years’ time. As the Premier pointed out, estimates are estimates. They are best judgements based on the formula that we apply. That formula was adopted in 2009, based on the fact that the previous formula was not giving us accurate predictions over the out years. The previous formula was on a rolling six-week average of exchange rate prices. Mr E.S. Ripper : Not average, just rolling. Get it right. Mr C.C. PORTER: It is an average, rolling over that period. The way in which the dollar is calculated now is to look at what the exchange rate was at the budget close date and then predict four years hence in four quarterly percentile decreases down to the long-term average. That long-term average is 74c. That was a predictive mechanism that Treasury provided and recommended to the government based on its own analysis. It is not an instruction from government to Treasury; far from it. It was Treasury’s assessment as to what was the best way to look at longterm averages for the exchange rate. When we look at an average over six weeks, that can provide some very dramatic changes. That is not a good basis for predicting a possible exchange rate in four years’ time. There are many exchange rate analysts out there. Some of them are predicting an exchange rate of $A1.70 to $US1. We could listen to them but that would be unwise. Mr C.J. Barnett : Ask George Soros. He’s got the best record. Mr C.C. PORTER : George Soros did crash the pound, so he probably could make a change himself. In any event, the member pointed out that that prediction has a level of risk involved in the budget, and that is true. That is undoubted. However, that prediction is based on Treasury best analysis. The question is: what will the US dollar to the Australian dollar exchange rate be in four years? If any of us knew the precise answer to that question, we would probably be trading on the international money market and not running for politics. This is the best estimate that Treasury can provide based on a very sound formula that it provided to us, not that we provided to it. Yes, it does involve a level of risk. I also point out, getting back to the member’s original issue about spot rates, that if she is saying to us that there is a degree of optimism in that forward prediction, that may be, but it is based on Treasury’s estimate. Equally, what we have in the budget over four years is a decrease in the projected price of iron ore per tonne from the present rate of $US138 per tonne down again to the longer run average in four quarterly percentiles. We consistently use the same type of econometric analysis to get that prediction. That has the iron ore price per tonne dropping down from $US138.80 per tonne to $US87.50. Obviously, some people might argue that that is a pessimistic scenario of overall iron ore royalty prices. When one moves one way, the other usually moves in the opposite direction. During the global financial crisis, as we suffered from problems in the international economy, the exchange rate fell and we benefited from that in the budget. Have we done something as a government that is not recommended by the people who know best in these predictive matters in Treasury? No, we have not. Is the member saying that there might be some degree of optimism with respect to the US dollar? That is the member’s view. Equally, however, is there some degree of pessimism with respect to iron ore pricing? People have put that view to me. But we are being absolutely up-front; we are accepting the analysis of the people in the area from Treasury who provide it to us. Let me say that, in terms of the pessimistic assessment of iron ore prices, if iron ore prices held steady at their present levels and did not drop to $US87.50 per tonne, the additional benefit in revenue to the state budget would be $4.7 billion over the budget period. The member’s assertion is that somehow we have been not entirely accurate, but we have been as accurate as we can be based on the fair analysis of the best predictive measures of DTF.
(3) Is this risk acceptable for the Treasurer to take with the state’s finances? (4) I note that the rate of population growth is projected in the Treasurer’s budget assumptions to fall over the forward estimates. What credible advice or evidence is he basing those assumptions on? Mr C.C. PORTER replied: (1)–(4) That is a very fair question. The spot rate is not a term that applies to exchange rates. Exchange rates are exchange rates. A spot rate is something that applies to iron ore prices, but I will come to that in a moment. The member has asked me what the spot rate of exchange is. There is no spot rate of exchange. The member will get there. Mr R.H. Cook : How do you spell “arrogant”? Mr C.C. PORTER : How does one spell “wrong”? How does one spell “does not know the difference between ‘exchange rate’ and ‘spot rate’ of iron ore and wants to be the alternative Treasurer”? How does one explain that? How does one explain “hopeless”? The member has asked a fair question. She is quite right. The situation is that in this budget we have a predicted an exchange rate in four years’ time. As the Premier pointed out, estimates are estimates. They are best judgements based on the formula that we apply. That formula was adopted in 2009, based on the fact that the previous formula was not giving us accurate predictions over the out years. The previous formula was on a rolling six-week average of exchange rate prices. Mr E.S. Ripper : Not average, just rolling. Get it right. Mr C.C. PORTER: It is an average, rolling over that period. The way in which the dollar is calculated now is to look at what the exchange rate was at the budget close date and then predict four years hence in four quarterly percentile decreases down to the long-term average. That long-term average is 74c. That was a predictive mechanism that Treasury provided and recommended to the government based on its own analysis. It is not an instruction from government to Treasury; far from it. It was Treasury’s assessment as to what was the best way to look at longterm averages for the exchange rate. When we look at an average over six weeks, that can provide some very dramatic changes. That is not a good basis for predicting a possible exchange rate in four years’ time. There are many exchange rate analysts out there. Some of them are predicting an exchange rate of $A1.70 to $US1. We could listen to them but that would be unwise. Mr C.J. Barnett : Ask George Soros. He’s got the best record. Mr C.C. PORTER : George Soros did crash the pound, so he probably could make a change himself. In any event, the member pointed out that that prediction has a level of risk involved in the budget, and that is true. That is undoubted. However, that prediction is based on Treasury best analysis. The question is: what will the US dollar to the Australian dollar exchange rate be in four years? If any of us knew the precise answer to that question, we would probably be trading on the international money market and not running for politics. This is the best estimate that Treasury can provide based on a very sound formula that it provided to us, not that we provided to it. Yes, it does involve a level of risk. I also point out, getting back to the member’s original issue about spot rates, that if she is saying to us that there is a degree of optimism in that forward prediction, that may be, but it is based on Treasury’s estimate. Equally, what we have in the budget over four years is a decrease in the projected price of iron ore per tonne from the present rate of $US138 per tonne down again to the longer run average in four quarterly percentiles. We consistently use the same type of econometric analysis to get that prediction. That has the iron ore price per tonne dropping down from $US138.80 per tonne to $US87.50. Obviously, some people might argue that that is a pessimistic scenario of overall iron ore royalty prices. When one moves one way, the other usually moves in the opposite direction. During the global financial crisis, as we suffered from problems in the international economy, the exchange rate fell and we benefited from that in the budget. Have we done something as a government that is not recommended by the people who know best in these predictive matters in Treasury? No, we have not. Is the member saying that there might be some degree of optimism with respect to the US dollar? That is the member’s view. Equally, however, is there some degree of pessimism with respect to iron ore pricing? People have put that view to me. But we are being absolutely up-front; we are accepting the analysis of the people in the area from Treasury who provide it to us. Let me say that, in terms of the pessimistic assessment of iron ore prices, if iron ore prices held steady at their present levels and did not drop to $US87.50 per tonne, the additional benefit in revenue to the state budget would be $4.7 billion over the budget period. The member’s assertion is that somehow we have been not entirely accurate, but we have been as accurate as we can be based on the fair analysis of the best predictive measures of DTF.
(4) I note that the rate of population growth is projected in the Treasurer’s budget assumptions to fall over the forward estimates. What credible advice or evidence is he basing those assumptions on? Mr C.C. PORTER replied: (1)–(4) That is a very fair question. The spot rate is not a term that applies to exchange rates. Exchange rates are exchange rates. A spot rate is something that applies to iron ore prices, but I will come to that in a moment. The member has asked me what the spot rate of exchange is. There is no spot rate of exchange. The member will get there. Mr R.H. Cook : How do you spell “arrogant”? Mr C.C. PORTER : How does one spell “wrong”? How does one spell “does not know the difference between ‘exchange rate’ and ‘spot rate’ of iron ore and wants to be the alternative Treasurer”? How does one explain that? How does one explain “hopeless”? The member has asked a fair question. She is quite right. The situation is that in this budget we have a predicted an exchange rate in four years’ time. As the Premier pointed out, estimates are estimates. They are best judgements based on the formula that we apply. That formula was adopted in 2009, based on the fact that the previous formula was not giving us accurate predictions over the out years. The previous formula was on a rolling six-week average of exchange rate prices. Mr E.S. Ripper : Not average, just rolling. Get it right. Mr C.C. PORTER: It is an average, rolling over that period. The way in which the dollar is calculated now is to look at what the exchange rate was at the budget close date and then predict four years hence in four quarterly percentile decreases down to the long-term average. That long-term average is 74c. That was a predictive mechanism that Treasury provided and recommended to the government based on its own analysis. It is not an instruction from government to Treasury; far from it. It was Treasury’s assessment as to what was the best way to look at longterm averages for the exchange rate. When we look at an average over six weeks, that can provide some very dramatic changes. That is not a good basis for predicting a possible exchange rate in four years’ time. There are many exchange rate analysts out there. Some of them are predicting an exchange rate of $A1.70 to $US1. We could listen to them but that would be unwise. Mr C.J. Barnett : Ask George Soros. He’s got the best record. Mr C.C. PORTER : George Soros did crash the pound, so he probably could make a change himself. In any event, the member pointed out that that prediction has a level of risk involved in the budget, and that is true. That is undoubted. However, that prediction is based on Treasury best analysis. The question is: what will the US dollar to the Australian dollar exchange rate be in four years? If any of us knew the precise answer to that question, we would probably be trading on the international money market and not running for politics. This is the best estimate that Treasury can provide based on a very sound formula that it provided to us, not that we provided to it. Yes, it does involve a level of risk. I also point out, getting back to the member’s original issue about spot rates, that if she is saying to us that there is a degree of optimism in that forward prediction, that may be, but it is based on Treasury’s estimate. Equally, what we have in the budget over four years is a decrease in the projected price of iron ore per tonne from the present rate of $US138 per tonne down again to the longer run average in four quarterly percentiles. We consistently use the same type of econometric analysis to get that prediction. That has the iron ore price per tonne dropping down from $US138.80 per tonne to $US87.50. Obviously, some people might argue that that is a pessimistic scenario of overall iron ore royalty prices. When one moves one way, the other usually moves in the opposite direction. During the global financial crisis, as we suffered from problems in the international economy, the exchange rate fell and we benefited from that in the budget. Have we done something as a government that is not recommended by the people who know best in these predictive matters in Treasury? No, we have not. Is the member saying that there might be some degree of optimism with respect to the US dollar? That is the member’s view. Equally, however, is there some degree of pessimism with respect to iron ore pricing? People have put that view to me. But we are being absolutely up-front; we are accepting the analysis of the people in the area from Treasury who provide it to us. Let me say that, in terms of the pessimistic assessment of iron ore prices, if iron ore prices held steady at their present levels and did not drop to $US87.50 per tonne, the additional benefit in revenue to the state budget would be $4.7 billion over the budget period. The member’s assertion is that somehow we have been not entirely accurate, but we have been as accurate as we can be based on the fair analysis of the best predictive measures of DTF.
Mr C.C. PORTER replied: (1)–(4) That is a very fair question. The spot rate is not a term that applies to exchange rates. Exchange rates are exchange rates. A spot rate is something that applies to iron ore prices, but I will come to that in a moment. The member has asked me what the spot rate of exchange is. There is no spot rate of exchange. The member will get there. Mr R.H. Cook : How do you spell “arrogant”? Mr C.C. PORTER : How does one spell “wrong”? How does one spell “does not know the difference between ‘exchange rate’ and ‘spot rate’ of iron ore and wants to be the alternative Treasurer”? How does one explain that? How does one explain “hopeless”? The member has asked a fair question. She is quite right. The situation is that in this budget we have a predicted an exchange rate in four years’ time. As the Premier pointed out, estimates are estimates. They are best judgements based on the formula that we apply. That formula was adopted in 2009, based on the fact that the previous formula was not giving us accurate predictions over the out years. The previous formula was on a rolling six-week average of exchange rate prices. Mr E.S. Ripper : Not average, just rolling. Get it right. Mr C.C. PORTER: It is an average, rolling over that period. The way in which the dollar is calculated now is to look at what the exchange rate was at the budget close date and then predict four years hence in four quarterly percentile decreases down to the long-term average. That long-term average is 74c. That was a predictive mechanism that Treasury provided and recommended to the government based on its own analysis. It is not an instruction from government to Treasury; far from it. It was Treasury’s assessment as to what was the best way to look at longterm averages for the exchange rate. When we look at an average over six weeks, that can provide some very dramatic changes. That is not a good basis for predicting a possible exchange rate in four years’ time. There are many exchange rate analysts out there. Some of them are predicting an exchange rate of $A1.70 to $US1. We could listen to them but that would be unwise. Mr C.J. Barnett : Ask George Soros. He’s got the best record. Mr C.C. PORTER : George Soros did crash the pound, so he probably could make a change himself. In any event, the member pointed out that that prediction has a level of risk involved in the budget, and that is true. That is undoubted. However, that prediction is based on Treasury best analysis. The question is: what will the US dollar to the Australian dollar exchange rate be in four years? If any of us knew the precise answer to that question, we would probably be trading on the international money market and not running for politics. This is the best estimate that Treasury can provide based on a very sound formula that it provided to us, not that we provided to it. Yes, it does involve a level of risk. I also point out, getting back to the member’s original issue about spot rates, that if she is saying to us that there is a degree of optimism in that forward prediction, that may be, but it is based on Treasury’s estimate. Equally, what we have in the budget over four years is a decrease in the projected price of iron ore per tonne from the present rate of $US138 per tonne down again to the longer run average in four quarterly percentiles. We consistently use the same type of econometric analysis to get that prediction. That has the iron ore price per tonne dropping down from $US138.80 per tonne to $US87.50. Obviously, some people might argue that that is a pessimistic scenario of overall iron ore royalty prices. When one moves one way, the other usually moves in the opposite direction. During the global financial crisis, as we suffered from problems in the international economy, the exchange rate fell and we benefited from that in the budget. Have we done something as a government that is not recommended by the people who know best in these predictive matters in Treasury? No, we have not. Is the member saying that there might be some degree of optimism with respect to the US dollar? That is the member’s view. Equally, however, is there some degree of pessimism with respect to iron ore pricing? People have put that view to me. But we are being absolutely up-front; we are accepting the analysis of the people in the area from Treasury who provide it to us. Let me say that, in terms of the pessimistic assessment of iron ore prices, if iron ore prices held steady at their present levels and did not drop to $US87.50 per tonne, the additional benefit in revenue to the state budget would be $4.7 billion over the budget period. The member’s assertion is that somehow we have been not entirely accurate, but we have been as accurate as we can be based on the fair analysis of the best predictive measures of DTF.
(1)–(4) That is a very fair question. The spot rate is not a term that applies to exchange rates. Exchange rates are exchange rates. A spot rate is something that applies to iron ore prices, but I will come to that in a moment. The member has asked me what the spot rate of exchange is. There is no spot rate of exchange. The member will get there. Mr R.H. Cook : How do you spell “arrogant”? Mr C.C. PORTER : How does one spell “wrong”? How does one spell “does not know the difference between ‘exchange rate’ and ‘spot rate’ of iron ore and wants to be the alternative Treasurer”? How does one explain that? How does one explain “hopeless”? The member has asked a fair question. She is quite right. The situation is that in this budget we have a predicted an exchange rate in four years’ time. As the Premier pointed out, estimates are estimates. They are best judgements based on the formula that we apply. That formula was adopted in 2009, based on the fact that the previous formula was not giving us accurate predictions over the out years. The previous formula was on a rolling six-week average of exchange rate prices. Mr E.S. Ripper : Not average, just rolling. Get it right. Mr C.C. PORTER: It is an average, rolling over that period. The way in which the dollar is calculated now is to look at what the exchange rate was at the budget close date and then predict four years hence in four quarterly percentile decreases down to the long-term average. That long-term average is 74c. That was a predictive mechanism that Treasury provided and recommended to the government based on its own analysis. It is not an instruction from government to Treasury; far from it. It was Treasury’s assessment as to what was the best way to look at longterm averages for the exchange rate. When we look at an average over six weeks, that can provide some very dramatic changes. That is not a good basis for predicting a possible exchange rate in four years’ time. There are many exchange rate analysts out there. Some of them are predicting an exchange rate of $A1.70 to $US1. We could listen to them but that would be unwise. Mr C.J. Barnett : Ask George Soros. He’s got the best record. Mr C.C. PORTER : George Soros did crash the pound, so he probably could make a change himself. In any event, the member pointed out that that prediction has a level of risk involved in the budget, and that is true. That is undoubted. However, that prediction is based on Treasury best analysis. The question is: what will the US dollar to the Australian dollar exchange rate be in four years? If any of us knew the precise answer to that question, we would probably be trading on the international money market and not running for politics. This is the best estimate that Treasury can provide based on a very sound formula that it provided to us, not that we provided to it. Yes, it does involve a level of risk. I also point out, getting back to the member’s original issue about spot rates, that if she is saying to us that there is a degree of optimism in that forward prediction, that may be, but it is based on Treasury’s estimate. Equally, what we have in the budget over four years is a decrease in the projected price of iron ore per tonne from the present rate of $US138 per tonne down again to the longer run average in four quarterly percentiles. We consistently use the same type of econometric analysis to get that prediction. That has the iron ore price per tonne dropping down from $US138.80 per tonne to $US87.50. Obviously, some people might argue that that is a pessimistic scenario of overall iron ore royalty prices. When one moves one way, the other usually moves in the opposite direction. During the global financial crisis, as we suffered from problems in the international economy, the exchange rate fell and we benefited from that in the budget. Have we done something as a government that is not recommended by the people who know best in these predictive matters in Treasury? No, we have not. Is the member saying that there might be some degree of optimism with respect to the US dollar? That is the member’s view. Equally, however, is there some degree of pessimism with respect to iron ore pricing? People have put that view to me. But we are being absolutely up-front; we are accepting the analysis of the people in the area from Treasury who provide it to us. Let me say that, in terms of the pessimistic assessment of iron ore prices, if iron ore prices held steady at their present levels and did not drop to $US87.50 per tonne, the additional benefit in revenue to the state budget would be $4.7 billion over the budget period. The member’s assertion is that somehow we have been not entirely accurate, but we have been as accurate as we can be based on the fair analysis of the best predictive measures of DTF.
Mr R.H. Cook : How do you spell “arrogant”? Mr C.C. PORTER : How does one spell “wrong”? How does one spell “does not know the difference between ‘exchange rate’ and ‘spot rate’ of iron ore and wants to be the alternative Treasurer”? How does one explain that? How does one explain “hopeless”? The member has asked a fair question. She is quite right. The situation is that in this budget we have a predicted an exchange rate in four years’ time. As the Premier pointed out, estimates are estimates. They are best judgements based on the formula that we apply. That formula was adopted in 2009, based on the fact that the previous formula was not giving us accurate predictions over the out years. The previous formula was on a rolling six-week average of exchange rate prices. Mr E.S. Ripper : Not average, just rolling. Get it right. Mr C.C. PORTER: It is an average, rolling over that period. The way in which the dollar is calculated now is to look at what the exchange rate was at the budget close date and then predict four years hence in four quarterly percentile decreases down to the long-term average. That long-term average is 74c. That was a predictive mechanism that Treasury provided and recommended to the government based on its own analysis. It is not an instruction from government to Treasury; far from it. It was Treasury’s assessment as to what was the best way to look at longterm averages for the exchange rate. When we look at an average over six weeks, that can provide some very dramatic changes. That is not a good basis for predicting a possible exchange rate in four years’ time. There are many exchange rate analysts out there. Some of them are predicting an exchange rate of $A1.70 to $US1. We could listen to them but that would be unwise. Mr C.J. Barnett : Ask George Soros. He’s got the best record. Mr C.C. PORTER : George Soros did crash the pound, so he probably could make a change himself. In any event, the member pointed out that that prediction has a level of risk involved in the budget, and that is true. That is undoubted. However, that prediction is based on Treasury best analysis. The question is: what will the US dollar to the Australian dollar exchange rate be in four years? If any of us knew the precise answer to that question, we would probably be trading on the international money market and not running for politics. This is the best estimate that Treasury can provide based on a very sound formula that it provided to us, not that we provided to it. Yes, it does involve a level of risk. I also point out, getting back to the member’s original issue about spot rates, that if she is saying to us that there is a degree of optimism in that forward prediction, that may be, but it is based on Treasury’s estimate. Equally, what we have in the budget over four years is a decrease in the projected price of iron ore per tonne from the present rate of $US138 per tonne down again to the longer run average in four quarterly percentiles. We consistently use the same type of econometric analysis to get that prediction. That has the iron ore price per tonne dropping down from $US138.80 per tonne to $US87.50. Obviously, some people might argue that that is a pessimistic scenario of overall iron ore royalty prices. When one moves one way, the other usually moves in the opposite direction. During the global financial crisis, as we suffered from problems in the international economy, the exchange rate fell and we benefited from that in the budget. Have we done something as a government that is not recommended by the people who know best in these predictive matters in Treasury? No, we have not. Is the member saying that there might be some degree of optimism with respect to the US dollar? That is the member’s view. Equally, however, is there some degree of pessimism with respect to iron ore pricing? People have put that view to me. But we are being absolutely up-front; we are accepting the analysis of the people in the area from Treasury who provide it to us. Let me say that, in terms of the pessimistic assessment of iron ore prices, if iron ore prices held steady at their present levels and did not drop to $US87.50 per tonne, the additional benefit in revenue to the state budget would be $4.7 billion over the budget period. The member’s assertion is that somehow we have been not entirely accurate, but we have been as accurate as we can be based on the fair analysis of the best predictive measures of DTF.
Mr C.C. PORTER : How does one spell “wrong”? How does one spell “does not know the difference between ‘exchange rate’ and ‘spot rate’ of iron ore and wants to be the alternative Treasurer”? How does one explain that? How does one explain “hopeless”? The member has asked a fair question. She is quite right. The situation is that in this budget we have a predicted an exchange rate in four years’ time. As the Premier pointed out, estimates are estimates. They are best judgements based on the formula that we apply. That formula was adopted in 2009, based on the fact that the previous formula was not giving us accurate predictions over the out years. The previous formula was on a rolling six-week average of exchange rate prices. Mr E.S. Ripper : Not average, just rolling. Get it right. Mr C.C. PORTER: It is an average, rolling over that period. The way in which the dollar is calculated now is to look at what the exchange rate was at the budget close date and then predict four years hence in four quarterly percentile decreases down to the long-term average. That long-term average is 74c. That was a predictive mechanism that Treasury provided and recommended to the government based on its own analysis. It is not an instruction from government to Treasury; far from it. It was Treasury’s assessment as to what was the best way to look at longterm averages for the exchange rate. When we look at an average over six weeks, that can provide some very dramatic changes. That is not a good basis for predicting a possible exchange rate in four years’ time. There are many exchange rate analysts out there. Some of them are predicting an exchange rate of $A1.70 to $US1. We could listen to them but that would be unwise. Mr C.J. Barnett : Ask George Soros. He’s got the best record. Mr C.C. PORTER : George Soros did crash the pound, so he probably could make a change himself. In any event, the member pointed out that that prediction has a level of risk involved in the budget, and that is true. That is undoubted. However, that prediction is based on Treasury best analysis. The question is: what will the US dollar to the Australian dollar exchange rate be in four years? If any of us knew the precise answer to that question, we would probably be trading on the international money market and not running for politics. This is the best estimate that Treasury can provide based on a very sound formula that it provided to us, not that we provided to it. Yes, it does involve a level of risk. I also point out, getting back to the member’s original issue about spot rates, that if she is saying to us that there is a degree of optimism in that forward prediction, that may be, but it is based on Treasury’s estimate. Equally, what we have in the budget over four years is a decrease in the projected price of iron ore per tonne from the present rate of $US138 per tonne down again to the longer run average in four quarterly percentiles. We consistently use the same type of econometric analysis to get that prediction. That has the iron ore price per tonne dropping down from $US138.80 per tonne to $US87.50. Obviously, some people might argue that that is a pessimistic scenario of overall iron ore royalty prices. When one moves one way, the other usually moves in the opposite direction. During the global financial crisis, as we suffered from problems in the international economy, the exchange rate fell and we benefited from that in the budget. Have we done something as a government that is not recommended by the people who know best in these predictive matters in Treasury? No, we have not. Is the member saying that there might be some degree of optimism with respect to the US dollar? That is the member’s view. Equally, however, is there some degree of pessimism with respect to iron ore pricing? People have put that view to me. But we are being absolutely up-front; we are accepting the analysis of the people in the area from Treasury who provide it to us. Let me say that, in terms of the pessimistic assessment of iron ore prices, if iron ore prices held steady at their present levels and did not drop to $US87.50 per tonne, the additional benefit in revenue to the state budget would be $4.7 billion over the budget period. The member’s assertion is that somehow we have been not entirely accurate, but we have been as accurate as we can be based on the fair analysis of the best predictive measures of DTF.
The member has asked a fair question. She is quite right. The situation is that in this budget we have a predicted an exchange rate in four years’ time. As the Premier pointed out, estimates are estimates. They are best judgements based on the formula that we apply. That formula was adopted in 2009, based on the fact that the previous formula was not giving us accurate predictions over the out years. The previous formula was on a rolling six-week average of exchange rate prices. Mr E.S. Ripper : Not average, just rolling. Get it right. Mr C.C. PORTER: It is an average, rolling over that period. The way in which the dollar is calculated now is to look at what the exchange rate was at the budget close date and then predict four years hence in four quarterly percentile decreases down to the long-term average. That long-term average is 74c. That was a predictive mechanism that Treasury provided and recommended to the government based on its own analysis. It is not an instruction from government to Treasury; far from it. It was Treasury’s assessment as to what was the best way to look at longterm averages for the exchange rate. When we look at an average over six weeks, that can provide some very dramatic changes. That is not a good basis for predicting a possible exchange rate in four years’ time. There are many exchange rate analysts out there. Some of them are predicting an exchange rate of $A1.70 to $US1. We could listen to them but that would be unwise. Mr C.J. Barnett : Ask George Soros. He’s got the best record. Mr C.C. PORTER : George Soros did crash the pound, so he probably could make a change himself. In any event, the member pointed out that that prediction has a level of risk involved in the budget, and that is true. That is undoubted. However, that prediction is based on Treasury best analysis. The question is: what will the US dollar to the Australian dollar exchange rate be in four years? If any of us knew the precise answer to that question, we would probably be trading on the international money market and not running for politics. This is the best estimate that Treasury can provide based on a very sound formula that it provided to us, not that we provided to it. Yes, it does involve a level of risk. I also point out, getting back to the member’s original issue about spot rates, that if she is saying to us that there is a degree of optimism in that forward prediction, that may be, but it is based on Treasury’s estimate. Equally, what we have in the budget over four years is a decrease in the projected price of iron ore per tonne from the present rate of $US138 per tonne down again to the longer run average in four quarterly percentiles. We consistently use the same type of econometric analysis to get that prediction. That has the iron ore price per tonne dropping down from $US138.80 per tonne to $US87.50. Obviously, some people might argue that that is a pessimistic scenario of overall iron ore royalty prices. When one moves one way, the other usually moves in the opposite direction. During the global financial crisis, as we suffered from problems in the international economy, the exchange rate fell and we benefited from that in the budget. Have we done something as a government that is not recommended by the people who know best in these predictive matters in Treasury? No, we have not. Is the member saying that there might be some degree of optimism with respect to the US dollar? That is the member’s view. Equally, however, is there some degree of pessimism with respect to iron ore pricing? People have put that view to me. But we are being absolutely up-front; we are accepting the analysis of the people in the area from Treasury who provide it to us. Let me say that, in terms of the pessimistic assessment of iron ore prices, if iron ore prices held steady at their present levels and did not drop to $US87.50 per tonne, the additional benefit in revenue to the state budget would be $4.7 billion over the budget period. The member’s assertion is that somehow we have been not entirely accurate, but we have been as accurate as we can be based on the fair analysis of the best predictive measures of DTF.
Mr E.S. Ripper : Not average, just rolling. Get it right. Mr C.C. PORTER: It is an average, rolling over that period. The way in which the dollar is calculated now is to look at what the exchange rate was at the budget close date and then predict four years hence in four quarterly percentile decreases down to the long-term average. That long-term average is 74c. That was a predictive mechanism that Treasury provided and recommended to the government based on its own analysis. It is not an instruction from government to Treasury; far from it. It was Treasury’s assessment as to what was the best way to look at longterm averages for the exchange rate. When we look at an average over six weeks, that can provide some very dramatic changes. That is not a good basis for predicting a possible exchange rate in four years’ time. There are many exchange rate analysts out there. Some of them are predicting an exchange rate of $A1.70 to $US1. We could listen to them but that would be unwise. Mr C.J. Barnett : Ask George Soros. He’s got the best record. Mr C.C. PORTER : George Soros did crash the pound, so he probably could make a change himself. In any event, the member pointed out that that prediction has a level of risk involved in the budget, and that is true. That is undoubted. However, that prediction is based on Treasury best analysis. The question is: what will the US dollar to the Australian dollar exchange rate be in four years? If any of us knew the precise answer to that question, we would probably be trading on the international money market and not running for politics. This is the best estimate that Treasury can provide based on a very sound formula that it provided to us, not that we provided to it. Yes, it does involve a level of risk. I also point out, getting back to the member’s original issue about spot rates, that if she is saying to us that there is a degree of optimism in that forward prediction, that may be, but it is based on Treasury’s estimate. Equally, what we have in the budget over four years is a decrease in the projected price of iron ore per tonne from the present rate of $US138 per tonne down again to the longer run average in four quarterly percentiles. We consistently use the same type of econometric analysis to get that prediction. That has the iron ore price per tonne dropping down from $US138.80 per tonne to $US87.50. Obviously, some people might argue that that is a pessimistic scenario of overall iron ore royalty prices. When one moves one way, the other usually moves in the opposite direction. During the global financial crisis, as we suffered from problems in the international economy, the exchange rate fell and we benefited from that in the budget. Have we done something as a government that is not recommended by the people who know best in these predictive matters in Treasury? No, we have not. Is the member saying that there might be some degree of optimism with respect to the US dollar? That is the member’s view. Equally, however, is there some degree of pessimism with respect to iron ore pricing? People have put that view to me. But we are being absolutely up-front; we are accepting the analysis of the people in the area from Treasury who provide it to us. Let me say that, in terms of the pessimistic assessment of iron ore prices, if iron ore prices held steady at their present levels and did not drop to $US87.50 per tonne, the additional benefit in revenue to the state budget would be $4.7 billion over the budget period. The member’s assertion is that somehow we have been not entirely accurate, but we have been as accurate as we can be based on the fair analysis of the best predictive measures of DTF.
Mr C.C. PORTER: It is an average, rolling over that period. The way in which the dollar is calculated now is to look at what the exchange rate was at the budget close date and then predict four years hence in four quarterly percentile decreases down to the long-term average. That long-term average is 74c. That was a predictive mechanism that Treasury provided and recommended to the government based on its own analysis. It is not an instruction from government to Treasury; far from it. It was Treasury’s assessment as to what was the best way to look at longterm averages for the exchange rate. When we look at an average over six weeks, that can provide some very dramatic changes. That is not a good basis for predicting a possible exchange rate in four years’ time. There are many exchange rate analysts out there. Some of them are predicting an exchange rate of $A1.70 to $US1. We could listen to them but that would be unwise. Mr C.J. Barnett : Ask George Soros. He’s got the best record. Mr C.C. PORTER : George Soros did crash the pound, so he probably could make a change himself. In any event, the member pointed out that that prediction has a level of risk involved in the budget, and that is true. That is undoubted. However, that prediction is based on Treasury best analysis. The question is: what will the US dollar to the Australian dollar exchange rate be in four years? If any of us knew the precise answer to that question, we would probably be trading on the international money market and not running for politics. This is the best estimate that Treasury can provide based on a very sound formula that it provided to us, not that we provided to it. Yes, it does involve a level of risk. I also point out, getting back to the member’s original issue about spot rates, that if she is saying to us that there is a degree of optimism in that forward prediction, that may be, but it is based on Treasury’s estimate. Equally, what we have in the budget over four years is a decrease in the projected price of iron ore per tonne from the present rate of $US138 per tonne down again to the longer run average in four quarterly percentiles. We consistently use the same type of econometric analysis to get that prediction. That has the iron ore price per tonne dropping down from $US138.80 per tonne to $US87.50. Obviously, some people might argue that that is a pessimistic scenario of overall iron ore royalty prices. When one moves one way, the other usually moves in the opposite direction. During the global financial crisis, as we suffered from problems in the international economy, the exchange rate fell and we benefited from that in the budget. Have we done something as a government that is not recommended by the people who know best in these predictive matters in Treasury? No, we have not. Is the member saying that there might be some degree of optimism with respect to the US dollar? That is the member’s view. Equally, however, is there some degree of pessimism with respect to iron ore pricing? People have put that view to me. But we are being absolutely up-front; we are accepting the analysis of the people in the area from Treasury who provide it to us. Let me say that, in terms of the pessimistic assessment of iron ore prices, if iron ore prices held steady at their present levels and did not drop to $US87.50 per tonne, the additional benefit in revenue to the state budget would be $4.7 billion over the budget period. The member’s assertion is that somehow we have been not entirely accurate, but we have been as accurate as we can be based on the fair analysis of the best predictive measures of DTF.
Mr C.J. Barnett : Ask George Soros. He’s got the best record. Mr C.C. PORTER : George Soros did crash the pound, so he probably could make a change himself. In any event, the member pointed out that that prediction has a level of risk involved in the budget, and that is true. That is undoubted. However, that prediction is based on Treasury best analysis. The question is: what will the US dollar to the Australian dollar exchange rate be in four years? If any of us knew the precise answer to that question, we would probably be trading on the international money market and not running for politics. This is the best estimate that Treasury can provide based on a very sound formula that it provided to us, not that we provided to it. Yes, it does involve a level of risk. I also point out, getting back to the member’s original issue about spot rates, that if she is saying to us that there is a degree of optimism in that forward prediction, that may be, but it is based on Treasury’s estimate. Equally, what we have in the budget over four years is a decrease in the projected price of iron ore per tonne from the present rate of $US138 per tonne down again to the longer run average in four quarterly percentiles. We consistently use the same type of econometric analysis to get that prediction. That has the iron ore price per tonne dropping down from $US138.80 per tonne to $US87.50. Obviously, some people might argue that that is a pessimistic scenario of overall iron ore royalty prices. When one moves one way, the other usually moves in the opposite direction. During the global financial crisis, as we suffered from problems in the international economy, the exchange rate fell and we benefited from that in the budget. Have we done something as a government that is not recommended by the people who know best in these predictive matters in Treasury? No, we have not. Is the member saying that there might be some degree of optimism with respect to the US dollar? That is the member’s view. Equally, however, is there some degree of pessimism with respect to iron ore pricing? People have put that view to me. But we are being absolutely up-front; we are accepting the analysis of the people in the area from Treasury who provide it to us. Let me say that, in terms of the pessimistic assessment of iron ore prices, if iron ore prices held steady at their present levels and did not drop to $US87.50 per tonne, the additional benefit in revenue to the state budget would be $4.7 billion over the budget period. The member’s assertion is that somehow we have been not entirely accurate, but we have been as accurate as we can be based on the fair analysis of the best predictive measures of DTF.
Mr C.C. PORTER : George Soros did crash the pound, so he probably could make a change himself. In any event, the member pointed out that that prediction has a level of risk involved in the budget, and that is true. That is undoubted. However, that prediction is based on Treasury best analysis. The question is: what will the US dollar to the Australian dollar exchange rate be in four years? If any of us knew the precise answer to that question, we would probably be trading on the international money market and not running for politics. This is the best estimate that Treasury can provide based on a very sound formula that it provided to us, not that we provided to it. Yes, it does involve a level of risk. I also point out, getting back to the member’s original issue about spot rates, that if she is saying to us that there is a degree of optimism in that forward prediction, that may be, but it is based on Treasury’s estimate. Equally, what we have in the budget over four years is a decrease in the projected price of iron ore per tonne from the present rate of $US138 per tonne down again to the longer run average in four quarterly percentiles. We consistently use the same type of econometric analysis to get that prediction. That has the iron ore price per tonne dropping down from $US138.80 per tonne to $US87.50. Obviously, some people might argue that that is a pessimistic scenario of overall iron ore royalty prices. When one moves one way, the other usually moves in the opposite direction. During the global financial crisis, as we suffered from problems in the international economy, the exchange rate fell and we benefited from that in the budget. Have we done something as a government that is not recommended by the people who know best in these predictive matters in Treasury? No, we have not. Is the member saying that there might be some degree of optimism with respect to the US dollar? That is the member’s view. Equally, however, is there some degree of pessimism with respect to iron ore pricing? People have put that view to me. But we are being absolutely up-front; we are accepting the analysis of the people in the area from Treasury who provide it to us. Let me say that, in terms of the pessimistic assessment of iron ore prices, if iron ore prices held steady at their present levels and did not drop to $US87.50 per tonne, the additional benefit in revenue to the state budget would be $4.7 billion over the budget period. The member’s assertion is that somehow we have been not entirely accurate, but we have been as accurate as we can be based on the fair analysis of the best predictive measures of DTF.
In any event, the member pointed out that that prediction has a level of risk involved in the budget, and that is true. That is undoubted. However, that prediction is based on Treasury best analysis. The question is: what will the US dollar to the Australian dollar exchange rate be in four years? If any of us knew the precise answer to that question, we would probably be trading on the international money market and not running for politics. This is the best estimate that Treasury can provide based on a very sound formula that it provided to us, not that we provided to it. Yes, it does involve a level of risk. I also point out, getting back to the member’s original issue about spot rates, that if she is saying to us that there is a degree of optimism in that forward prediction, that may be, but it is based on Treasury’s estimate. Equally, what we have in the budget over four years is a decrease in the projected price of iron ore per tonne from the present rate of $US138 per tonne down again to the longer run average in four quarterly percentiles. We consistently use the same type of econometric analysis to get that prediction. That has the iron ore price per tonne dropping down from $US138.80 per tonne to $US87.50. Obviously, some people might argue that that is a pessimistic scenario of overall iron ore royalty prices. When one moves one way, the other usually moves in the opposite direction. During the global financial crisis, as we suffered from problems in the international economy, the exchange rate fell and we benefited from that in the budget. Have we done something as a government that is not recommended by the people who know best in these predictive matters in Treasury? No, we have not. Is the member saying that there might be some degree of optimism with respect to the US dollar? That is the member’s view. Equally, however, is there some degree of pessimism with respect to iron ore pricing? People have put that view to me. But we are being absolutely up-front; we are accepting the analysis of the people in the area from Treasury who provide it to us. Let me say that, in terms of the pessimistic assessment of iron ore prices, if iron ore prices held steady at their present levels and did not drop to $US87.50 per tonne, the additional benefit in revenue to the state budget would be $4.7 billion over the budget period. The member’s assertion is that somehow we have been not entirely accurate, but we have been as accurate as we can be based on the fair analysis of the best predictive measures of DTF.
I also point out, getting back to the member’s original issue about spot rates, that if she is saying to us that there is a degree of optimism in that forward prediction, that may be, but it is based on Treasury’s estimate. Equally, what we have in the budget over four years is a decrease in the projected price of iron ore per tonne from the present rate of $US138 per tonne down again to the longer run average in four quarterly percentiles. We consistently use the same type of econometric analysis to get that prediction. That has the iron ore price per tonne dropping down from $US138.80 per tonne to $US87.50. Obviously, some people might argue that that is a pessimistic scenario of overall iron ore royalty prices. When one moves one way, the other usually moves in the opposite direction. During the global financial crisis, as we suffered from problems in the international economy, the exchange rate fell and we benefited from that in the budget. Have we done something as a government that is not recommended by the people who know best in these predictive matters in Treasury? No, we have not. Is the member saying that there might be some degree of optimism with respect to the US dollar? That is the member’s view. Equally, however, is there some degree of pessimism with respect to iron ore pricing? People have put that view to me. But we are being absolutely up-front; we are accepting the analysis of the people in the area from Treasury who provide it to us. Let me say that, in terms of the pessimistic assessment of iron ore prices, if iron ore prices held steady at their present levels and did not drop to $US87.50 per tonne, the additional benefit in revenue to the state budget would be $4.7 billion over the budget period. The member’s assertion is that somehow we have been not entirely accurate, but we have been as accurate as we can be based on the fair analysis of the best predictive measures of DTF.
Have we done something as a government that is not recommended by the people who know best in these predictive matters in Treasury? No, we have not. Is the member saying that there might be some degree of optimism with respect to the US dollar? That is the member’s view. Equally, however, is there some degree of pessimism with respect to iron ore pricing? People have put that view to me. But we are being absolutely up-front; we are accepting the analysis of the people in the area from Treasury who provide it to us. Let me say that, in terms of the pessimistic assessment of iron ore prices, if iron ore prices held steady at their present levels and did not drop to $US87.50 per tonne, the additional benefit in revenue to the state budget would be $4.7 billion over the budget period. The member’s assertion is that somehow we have been not entirely accurate, but we have been as accurate as we can be based on the fair analysis of the best predictive measures of DTF.
Explore WA Government Data
Search the full archive in the free dashboard, or query programmatically via API.
Explore more
Government Gazette
Appointments, regulatory notices, planning changes.
Hansard
Debates, questions, speeches and sentiment.
Tabled Papers
Reports and documents tabled in Parliament.
Committees
Committee profiles and recent reports.
Regulations
Subsidiary legislation with filters and summaries.
Bills
Proposed laws and parliamentary progress.
Acts
Current WA legislation and summaries.
Explanatory Memoranda
Bills with EMs (text/PDF) available.
Members
MP profiles, party breakdown and rankings.
Pollie Rankings
Data-driven rankings across 19 categories.
Amendment Chains
Track how schemes and regulations evolve over time.