EMMA ALBERICI, PRESENTER: Our top story is the mid-year economic and fiscal outlook, or MYEFO.

The Government came under sustained attack today for the way it has achieved its promised budget surplus.

I was joined a short time ago from our Melbourne studio by the Shadow Treasurer, Joe Hockey.

Joe Hockey, welcome to Lateline

JOE HOCKEY, SHADOW TREASURER: Great to be with you, Emma.

EMMA ALBERICI: Now you've accused the Government of cooking the books. Are you alleging some kind of fraud?

JOE HOCKEY: No, not fraud, but they're clearly shuffling money around between years, they're changing the accounting treatment of entities like the Future Fund which they're taking $2 billion out of and this year alone they're taking $417 million out of it.

And of course, they're changing the rules for everyone else. If you don't access your superannuation for a year, the Government'll take it and put it in the Australian Taxation Office and that alone is delivering $555 million this year. Combine those two initiatives alone are meant to deliver Wayne Swan's surplus.

EMMA ALBERICI: On the issue of changing the payment date of company tax, isn't that better than making businesses pay more tax?

JOE HOCKEY: Well they will pay more tax. Let's just be perfectly clear about this. If the Government's budget is $8.3 billion better off, then self-evidently there's someone out there that is $8.3 billion worse off. The fact is the Government is now playing around with the treatment of company tax so much so that any business with a turnover of more than $20 million a year is going to be slugged with additional tax to pay for Wayne Swan's budget hole. Now ...

EMMA ALBERICI: They're not actually being shrugged for more tax. They're actually just paying their tax at a different time.

JOE HOCKEY: Well, Emma, if I were your banker and I said to you, "Emma, next year you have to pay 14 months of mortgage repayments and not 12 months," you would say to me that you're paying more and you'd be absolutely right.

Well that's what companies are going to have to do next year to make the difference between Wayne Swan having an election-year deficit and Wayne Swan having an election-year surplus. That's the difference.

EMMA ALBERICI: But of course with accounting, you always get to lodge a variation so if you've paid more than you needed to pay based on your turnover, then you get that remitted back to you. But my question specifically was ...

JOE HOCKEY: But hang on, hang on, hang on, hang on, hang on.

EMMA ALBERICI: My specific question to you though was isn't it better to just change a date than to increase the amount of tax companies are being asked to pay, which is what your side of politics is suggesting?

JOE HOCKEY: I'm sorry, the Government is asking companies to pay an extra $8.3 billion in this budget. Let's not get carried away with the Government's spin. It's wrong. Companies will have to find the tax to cover 14 months in a 12-month period. So it will either come out of their capital, which means shareholders will be worse off, or it'll be extra tax out of their profits, in which case shareholders will be worse off.

The bottom line is: $8.3 billion doesn't appear in Wayne Swan's accounts if it isn't coming out of someone else's pocket.

EMMA ALBERICI: It affects less than 1 per cent of all companies in Australia and in the first year when it returns the most to government, it only hits businesses generating $1 billion or more in revenue. And isn't the Government simply continuing a process Peter Costello started back in 2000 when businesses went from paying their tax annually to paying quarterly?

JOE HOCKEY: No. And if this was such a good idea, why wasn't it front and centre of Ken Henry's review of taxation? And why hasn't it been on the table in government discussions with the business community in the government-established Business Tax Working Group? I'll tell you why ...

EMMA ALBERICI: When you said no, are you saying that your government didn't change tax payments from annually to quarterly?

JOE HOCKEY: No, but it was - no, we did quarterly, but that was all part of an overall tax package that saw - if I can just finish ...

EMMA ALBERICI: And didn't you also make a lot more revenue in the first year from doing so?

JOE HOCKEY: If I can just finish. It was part of an overall tax package that reduced company tax from 36 per cent to 30 per cent under the Coalition, that saw the abolition of financial institutions duty, the abolition of three rates of wholesale sales tax.

EMMA ALBERICI: And the introduction of the GST.

JOE HOCKEY: The abolition of bed taxes. And the GST is not paid by business; it is paid by consumers.

EMMA ALBERICI: If we concentrate our conversation on this particular measure, they're suggesting a change in when companies pay their tax. Your side of politics is talking about introducing a new tax on big businesses to pay for your parental leave scheme.

JOE HOCKEY: Well, big businesses will also be better off because they will not need to have their own paid parental leave scheme. But the biggest winners out of our scheme will be small business people. And coming from a family of small business people, I can tell you one of the great challenges was big business was able to pay paid parental leave; small business could never afford it.

Under our scheme, small business will have their paid parental leave costs covered by the Government and that money will come out of larger businesses.

EMMA ALBERICI: Can we assume then that you would reverse this and go back to quarterly tax payments?

JOE HOCKEY: Well we want to see what the implication of this decision is. The business community and everyone else in between has been taken by surprise about this initiative. For example, for businesses that do have lumpy revenue figures - for example an agricultural business might have revenue come in from the sale of grain or something else at a particular time during the year; they might have a year where they don't get much income at all. How will that work out?

And this is one of the reasons why ...

EMMA ALBERICI: I'll tell you how it will work out, but in their tax return - how it works out, Joe Hockey, is that in their tax return they get back anything they have been made to overpay. That's how it's always worked out in tax.

JOE HOCKEY: Well, you know what, Emma? You have to have the money in the first place to pay your tax. And for people in agriculture who have, for example, significant business bank overdrafts, they might not have the money to be able to pay the upfront tax that you're talking about that you seem to think is so agreeable for many businesses.

EMMA ALBERICI: If we move on, can we assume then that you applaud the decision though to reduce the baby bonus and to limit the reach of the health insurance rebate?

JOE HOCKEY: Well we've never supported changes to the Private Health Insurance Rebate that make private health insurance more expensive. We haven't done that because we want to see more Australians spend more of their money on their own health care.

And the Government now is slugging the private health sector with an additional $1.1 billion of costs. And that's just going to simply flow through to policy holders. And for the policy holders who are members of Medibank Private, because it is a government entity, the Government has been taking special dividends out of Medibank private.

This year alone they're taking out $250 per policy holder as a dividend out of Medibank Private. So, this government hates private health insurance. There's no argument about that. They originally promised never to touch it, and boy, have they been taking a baseball to it ever since.

EMMA ALBERICI: Isn't there something a little unusual about a Labor government wanting to cut welfare and the Liberals arguing to keep it?

JOE HOCKEY: Well I don't see a private health insurance rebate as welfare. I see private health insurance rebate as an important incentive for people to spend more of their own money on their own health care. It actually delivers better outcomes and it takes a lot of pressure off the universal healthcare system that is arguably part of the overall entitlement system.

EMMA ALBERICI: And the baby bonus?

JOE HOCKEY: Well the baby bonus was originally child endowment, but it was also part of a scheme to encourage Australians to have more children. It was Peter Costello who said, "Have one for mum, one for dad and one for Australia."

And the baby bonus actually is one of the initiatives that has helped to make Australia a rare commodity in developed nations and that is a nation that actually has increased its birth rate over the last few years and does not have a decreasing birth rate. And now the Government seems to want to penalise anyone that has a second or third child. I think that worked quite well in China, didn't it?

EMMA ALBERICI: Is there any evidence that says the baby bonus is directly responsible for people's decision to have more children?

JOE HOCKEY: Well I can say to you that it's pretty obvious that there has been a strong correlation in the timing between ...

EMMA ALBERICI: No, I'm asking you is there any evidence?

JOE HOCKEY: Well - and I'm answering the question, Emma. There is a strong correlation in the timing of the baby bonus and the increase of the birth rate in Australia. And that comes together with range of other things. I said it was one factor. General prosperity helps to encourage an increase in the birth rate, but so too do initiatives like tax deductibility of childcare, which is one of the initiatives we introduced in the Coalition government.

EMMA ALBERICI: How is it that your side of politics vote in favour of cutting welfare to around 100,000 single parents, but you won't support cuts to the baby bonus?

JOE HOCKEY: Well, we haven't said how we're going to vote on the baby bonus because we want to look at the entire package. And I think it's important to look at the entire package because buried deep in the package are a range of other initiatives that make life harder for families, make life harder for working mums and so we want to look at the whole picture first and we want to consult with affected parties.

I don't think that's unreasonable because everyone's been blindsided by the announcements today.

EMMA ALBERICI: Doesn't the baby bonus encourage a sense of entitlement from birth? "Here's $5,000 just for having a baby." When you just a few months ago in a speech in London argued against the so-called age of entitlement and encouraged people to wean themselves off the public purse?

JOE HOCKEY: Well it was a very good speech, even if I do say so myself, and I'm glad you raise it because the spread of entitlement is of great concern, but it was primarily directed at Europe, if you recall the speech.

I actually gave it in London and I was right to do so because the entitlement programs in Europe are now proving to be a massive burden on governments, a burden they can't deal with. The same in the United States, I might add.

And here in Australia I warned that if you were going to extend the entitlement system, then that extension was going to make us less competitive with a number of our Asian neighbours. I didn't specifically argue for a particular initiative to be wound back.

That was a bit of the Labor Party spin, but frankly, we do need to live within our means. And quite frankly, what you've seen over the last few years is a dramatic increase in the costs of a mum having a baby and all the associated costs with that and that was recognised by the Coalition government with the original baby bonus.

EMMA ALBERICI: Mr Hockey, it's very unclear how the Coalition plans to bring the budget to surplus given you're offering indexation of military super, you're commissioning the build of more submarines - these are all what you say you want to do - increase defence spending by 3 per cent ...

JOE HOCKEY: Oh, no, no, hang on, hang on, hang on.

EMMA ALBERICI: Unwinding means testing of private health insurance rebate, extending child care subsidies to nannies, paid maternity and paternity leave that represents a woman or a man's real wages for six months. How will you pay for all of that while also getting rid of the mining tax and the carbon tax?

JOE HOCKEY: Well you see, Emma, you just said for example, "How are you going to pay for paid maternity leave?" And earlier in this interview you were criticising me for a levy on business to pay for that specific program. So we actually have laid down how we're going to pay for initiatives. We've also, quite correctly, identified ...

EMMA ALBERICI: That's only one of the initiatives.

JOE HOCKEY: Well, I mean, we've also said that when it comes to the carbon tax and the mining tax, we are not going to have compensation because there'll be no tax. So we've also previously said for example that we're going to abolish the Schoolkids Bonus. Now, people sometimes report these things, others don't.

But what we've said is on the record that we're not going to proceed with the Schoolkids Bonus. We're not going to have all the green programs that are associated with raising the carbon tax and spending the carbon tax on business.

From our perspective, the budget numbers keep moving. It's like trying to hold a litre of water in your hands. This budget keeps moving; it moves on the Government at their own hand and it moves on us.

And before the next election you will see in detail never revealed before just how we're going to pay for everything and how we're going to prove to the Australian people that our economic plan is going to grow the economy and it's going to deliver prosperity that's been missing for the last few years.

EMMA ALBERICI: You'd have to concede that some of the movement in this budget has had to do with global influences that were beyond this government's control.

JOE HOCKEY: But Emma, they've been saying this for years! They've been saying it for five years! Wayne Swan keeps talking about ...

EMMA ALBERICI: Well the global financial crisis really occurred in 2007, so that was five years ago.

JOE HOCKEY: Yes, well that's right: five years ago. Wayne Swan keeps saying ...

EMMA ALBERICI: And the whole world is finding it hard to emerge from that.

JOE HOCKEY: And you know what?: the whole world would give its collective right arm to go into a global financial crisis the way Australia went in, with a budget surplus, $70 billion in the bank and an unemployment rate of 4 per cent.

The whole world would give their right arm for our minerals and our resources and our agriculture that has helped to get us through this despite a bad government.

EMMA ALBERICI: Joe Hockey, we better leave it there. Thanks so much for your time.

JOE HOCKEY: Thanks very much, Emma.