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Tuesday, 10 September 1996
Page: 3875

Mr WILLIS(8.18 p.m.) —This is a somewhat smaller audience than that for my last budget speech. I rise to support the amendment to Appropriation Bill (No. 1) 1996-97 moved by the Deputy Leader of the Opposition (Mr Gareth Evans). The government has claimed three basic virtues for this budget: it is an exceptionally honest budget, it is an economically essential budget, and it is a fair budget. None of these contentions has any validity.

With regard to budget honesty, I note that, although the Treasurer (Mr Costello) in his speech made much of budget honesty, this is a most dishonest budget. The fundamental dishonesty is the basic presumption of this budget that, because the estimated underlying budget outcome for 1996-97 is $9 billion greater than was forecast in the 1995 budget, Australia has a major fiscal problem that was left by the previous government and which a responsible government must address by substantial fiscal tightening. That is a patently ludicrous proposition.

The undeniable fact is that Australia's budgetary position is one of the best in the Western world. The latest OECD statistics for July show that Australia's budget deficit for 1995 was the equal third lowest of the top 20 OECD countries. For 1996-97 it was projected to be the equal second lowest, and that was before this budget was produced. So if we had a severe budget problem before this budget, the finance ministers in most of the other OECD countries should have been slashing their wrists.

Likewise with government debt: even though it increased significantly in the first half of the 1990s as a result of the recession, it is still at very low levels compared with most other OECD countries. The latest OECD figures show that, of the 17 countries for which information is available, Australia's government debt is the fourth lowest. At 29 per cent of GDP, it is 18 per cent of GDP below the OECD average.

Nor were we likely to increase our debt burden in the foreseeable future. The budget papers show that, without any of the fiscal tightening contained in this budget, Commonwealth government debt as a percentage of GDP would decline over the period to the end of the century. So we have a comparatively low level of government debt, and it is not on an increasing path. So much for the Treasurer's oft repeated claim that we were on a path of deficit and debt into the next century.

The fact is that, by the standards set by the European Union for entry into its single currency arrangement, Australia passed the test of fiscal rectitude with flying colours. The fiscal standard set by the European Union under the Maastricht treaty is for the budget deficit to be less than three per cent of GDP and the government debt to be less than 60 per cent of GDP. Currently, only tiny Luxembourg meets that standard—not Germany, not France, not Britain, certainly not Italy or any of the other 15 EU countries. But Australia easily met the standard before this budget.

The Commonwealth budget deficit for 1996-97 on a no policy change basis was only $3.4 billion, or 0.6 per cent of GDP, compared with the Maastricht treaty target of three per cent. Even taking our underlying budget deficit, which is not the Maastricht concept, our no policy change deficit of 1.9 per cent of GDP for 1996-97 was comfortably within the Maastricht target, as was our level of government debt. So where is the drastic budgetary problem Australia is supposed to be facing according to this government?

Clearly, by the standards of comparable countries we do not have a budgetary problem, and we do not have a government debt problem. For all this government's talk of increasing deficit and debt and budget black holes, the fact is that Labor left this country in good fiscal shape—much better than most other Western countries, and much better than that which the Prime Minister (Mr Howard) left us in 1983 when the budget deficit he handed Labor was five per cent of GDP, or over $25 billion in today's dollars.

The fact is the budget crisis that this government would have the electorate believe it is battling to overcome does not exist, but the government wants to generate a crisis mentality in the community so as to falsely denigrate the previous government and to give it the cover to do what it has always wanted to do; that is, to slash the public sector; to slash programs that assist people in need; to slash expenditure on various bodies that they have a special distaste for, like the ABC and ATSIC—in short, to give effect to the full panoply of conservative prejudices and predilections that were first paraded in Fightback. This is not a matter of economics; it is a matter of ideology.

In relation to the presentation of the budget, we see also more dishonesty. It has been altered in various ways to maximise the appearance of a budget problem. The budget papers for this year do not include the international comparisons of our budgetary and government debt positions that were included in previous years because, as I have already shown, they would contravene the government's attempts to portray Australia as having a serious budgetary problem.

Also, the government falsely portrays the underlying budget outcome as the actual budget outcome, thus the Treasurer says on page 1 of his budget speech:

The budget outcome for the past year was a deficit of $10.3 billion. If we took no corrective measures it would be $9.6 billion this year.

These figures are not the budget outcome at all. The actual budget outcome for 1995-96 was a deficit of $5,045 million; that is, about half the figure given by the Treasurer. The forecast actual budget outcome for 1996-97 is not a deficit at all. It is a surplus of $464 million, which is forecast to grow to a surplus of $6,638 million in 1997-98. But these figures, of course, are not mentioned by the Treasurer in his speech because they would not fit with his fiscal crisis rhetoric.

The figures the Treasurer gave were for the underlying budget outcome, which is the actual budget outcome minus net advances, which comprise principally proceeds of sales of government enterprises and repayments of debt by the states. This attempt to portray the underlying budget outcome as the budget outcome is most insidious. The underlying concept is no more than an analytical tool, as it is with the consumer price index. Treasury has long calculated an underlying CPI, but it is not portrayed as the CPI outcome. If it is misused in this way, then the underlying budget outcome will be seen as just the `lying' budget outcome.

Also, as part of this underhanded attempt to portray the underlying budget outcome as the budget outcome, the budget papers give little information on the actual budget outcome. Mostly they refer to the underlying balance with the actual or headline budget balance reduced to a memorandum item. Thus the budget outcome data for all the years back to 1960 is given in terms of the underlying balance with no detail given for the actual budget outcome, as has been done in previous years' budget papers.

This, again, is a totally outrageous misuse of the underlying concept. This attempt to portray the underlying budget outcome as the budget outcome is not what other countries do, as the Secretary to the Treasury admitted in an address last week.

Furthermore, there is no clear line between the actual outcome and the underlying outcome in terms of their impact on national savings, government debt or pressure on financial markets. For instance, the proceeds of asset sales do not add to national savings in the same way as most tax increases or expenditure cuts do. They do, nevertheless, reduce the government's borrowings, and so reduce pressure on financial markets from government borrowings, and also reduce the level of government debt below what it would otherwise be. But the government wants to claim the need for a tough budget to reduce government debt whilst ignoring the reduction of debt coming from asset sales.

Furthermore, not all expenditure cuts or tax increases add to national savings, thus expenditure cuts to the states, which are $1.6 billion for general purpose payments, and further large cuts in specific purpose payments do not of themselves add to national savings. Also, increased taxes on superannuation do not add to national savings, yet this is worth another $1.5 billion in this budget. So the underlying budget balance does not give an accurate picture of the additions to savings flowing from the budget or of the impact on government debt. Therefore, to use this as the budget outcome to the exclusion of the actual budget outcome is to dishonestly present the budget outcome.

In relation to broken promises, it is remarkable that in a budget which loudly proclaims the virtue of budget honesty there are myriad broken election promises. By the time the Treasurer finished his budget speech, he was knee deep in broken promises—in fact, $17 billion worth. It requires a particularly thick hide to simultaneously break promises on a wholesale scale and claim the virtue of unprecedented budget honesty. But this Treasurer has shown he has a hide of truly rhinoceros proportions. This utterly cynical approach to campaign promises has been made even more squalid by the post-election attempt to distinguish promises on the basis of their being core or non-core.

However, in respect of one broken promise, the government does not justify it as being non-core. It just baldly denies it has been broken. I refer to the now Treasurer's oft repeated specific election promise on taxation, which was not to increase any tax or to introduce any new tax. This clear promise has been utterly and undeniably broken by the general increase in the Medicare levy, the increase in the Medicare levy for higher income earners, the increase in the sales tax on government-owned private-plated cars, the increase in tax on superannuation for higher income earners, the increase in tax on imported goods through a reduction in the tariff concession system and the policy by-law, and the increase in company tax for firms engaging in research and development through a reduction in the tax concession from 150 per cent to 125 per cent.

These measures are worth $853 million this year and almost $5 billion over four years, yet this Treasurer keeps maintaining he has not broken his promise. Thus, on the ABC radio program PM on 29 August, the Treasurer, in claiming he had eschewed revenue measures in the budget, said that `it was like the dog that didn't bark'—and the dog that did not bark was the tax dog. This is just blatant denial of the undeniable.

Clearly, along with a lot of other canine utterances on budget night, we all heard the very loud bark of the tax dog. The supposed justification we have been given for this welter of broken promises is the difference of $9 billion in the current forecast for the underlying budget deficit for 1996-97 on a no policy change basis from that which was assessed at the time of the 1995 budget. But here again there is more budget dishonesty.

No attempt has been made by the government to explain why there is this difference. All we are told is that increased outlays from decisions by the former government account for $0.6 billion of this difference and the rest is due to parameter and other variations. Surely, since so much is being made of this difference, the government had a responsibility to say why this had occurred. But what is clear is that a substantial factor in this difference is the lower rate of inflation that occurred in 1995-96, and is now forecast for 1996-97, compared with the forecast for inflation in the 1995 budget.

But why should lower inflation require a tightening of budgetary policy? Lower inflation is a good economic outcome. It is not evidence of some policy failure; it is what we want to achieve. Also, lower inflation is of itself a positive for national savings. High inflation clearly has been a factor in Australia's poor private savings performance in the past. It is not some adverse development to have low inflation that requires corrective action.

Likewise, reduced forecasts for employment growth, especially for this year, have meant that employment is now expected to be about 120,000 less in 1996-97 than was forecast in the 1995 budget. This means that outlays on unemployment benefits will be much higher than previously projected. But what sense does it make to react to lower employment by substantially tightening fiscal policy thereby further reducing employment growth, or by slashing expenditure on labour market programs, or by cutting unemployment benefit entitlements or other programs of great assistance to the unemployed?

Instead of blaming and attacking the victims, what we need to redress higher unemployment is higher economic growth. That would create more jobs and reduce the budget deficit by increasing revenue and reducing expenditure on unemployment benefits.

But this budget does the reverse. It reduces economic growth. The budget papers admit that, even allowing for questionable offsetting confidence effects, the effect of the budget is a small net contractionary impact on activity in 1996-97. So on its face this budget reduces economic growth and therefore increases unemployment above what it would otherwise be. The number of unemployment beneficiary recipients is expected to grow from 802,000 last year to 829,000 this year. Employment growth is expected to be only 1½ per cent, compared with 2½ per cent last year.

Indeed, what is absolutely clear from this budget is that this government has, at the first available opportunity, run up the white flag on unemployment. Its budget employment forecasts show that over the three years 1996-97 to 1998-99 there will be an employment growth of only 5.3 per cent, compared with a rise of 8.7 per cent in the three years up to 1995-96. They expect to create only 440,000 additional jobs in the next three years, compared with 666,000 additional jobs in the previous three years, which means they expect to create 226,000 fewer jobs in three years than were created in the previous three years under Labor's policies.

What an admission! What an extraordinary up-front declaration of failure! What an abandonment of what the Prime Minister listed in his election policy speech as a major concern of a coalition government, which was to attack head-on the continuing national unemployment crisis, especially among younger Australians.

Instead, what we have in their first economic statement is a head-on attack on the unemployed—not unemployment—and the admission that they expect to nowhere near match Labor's rate of job growth. So much for all the government's assertions about how we could expect a profusion of real jobs from their industrial relations legislation, from their small business policies and from their fiscal policies. The promise of faster job growth was apparently a non-core promise which they have now jettisoned at the first available opportunity.

It is much the same with economic growth. Their forecast for economic growth over the next three years is for markedly slower growth than Labor achieved in the three years to 1995-96. In those three years economic growth was over four per cent each year, for a combined increase of 12.9 per cent. For the three years 1996-97 to 1998-99 this budget forecasts economic growth which is never above 3½ per cent in a year and which amounts to only 10.6 per cent over the three years—that is, 2.3 per cent less than in the previous three years.

So this budget is a declaration by the Howard government that they cannot match it with Labor. They cannot match it on economic growth. They cannot match it on employment growth. It is an absolute expose of all this government's rhetoric about how they would create a better economy.

But in a stupendous, rhinoceros performance the Treasurer claimed in his budget speech that Labor's period in government represented a failure and his budget would set us on a winning course. So, according to this Treasurer, high economic and employment growth represents failure and low economic and employment growth represents a winning course. Can anyone take this man seriously?

This government's economic strategy is also utterly perverse in that, whilst it claims a tough budget is needed to increase public savings to enhance national savings, it is clearly undermining national savings through its policy on private savings. The superannuation scheme that Labor put into place and proposed to dramatically expand in last year's budget provided a major boost to national savings of two per cent of GDP by the year 2000 and four per cent by the year 2020.

This required the introduction of compulsory employee contributions and the payment of the second leg of the tax cuts as a matching government contribution to employee and self-employed contributions to superannuation. But this government is apparently intent on sabotaging all that, because by legislating to remove superannuation as an award condition it is removing the mechanism for introducing compulsory employee superannuation contributions. So how are we to introduce compulsory employee contributions?

The government is also clearly prevaricating about whether it will pay the second leg of the tax cuts as matching contributions to superannuation. On the 7.30 Report on 21 August, Mr Kerry O'Brien asked the Prime Minister:

On the L-A-W law tax cuts that are now scheduled to be paid to individuals by the Government as a super contribution . . . the Treasurer's comments in the Budget documents, and again today in his speech to the Press Club, suggests that you may not pay them as super. Is it now more likely that you would restore them as a tax cut?

The Prime Minister replied:

I, I, I, I think it's too early to say.

So clearly the Prime Minister and the Treasurer are actively contemplating not paying the matching contribution to super at all but paying it as a normal tax cut, thereby breaking another election promise and causing a major loss of savings. Only a small percentage of the $4 billion or so would be saved if paid as a normal tax cut whereas, if paid as a matching contribution to super, all of it would be saved.

So what an irony. Here we have the government breaking scores of promises, attacking people in need, destroying or impairing essential programs and ripping the heart out of Australia's already small public sector all in the supposed cause of increased national savings, while simultaneously sabotaging the greatest boost to private and national savings ever put in place in the history of this country.

A responsible approach to this budget would have required fully costed promises at the last election, which Labor made but the coalition did not; a continuance of the process of fiscal consolidation, which Labor put in place despite the opposition's attempts to stop us; maintaining a pace of fiscal consolidation that did not impede economic or employment growth; taking a much tougher approach on tax avoidance, especially in relation to very wealthy people and people avoiding tax by contract employment arrangements and use of interposed entities; not slashing worthwhile programs or attacking people in need; and fully supporting the super arrangements announced last year. That would really have given us an honest, economically responsible and fair budget.