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Thursday, 20 March 2003
Page: 13207

Mr SLIPPER (Parliamentary Secretary to the Minister for Finance and Administration) (11:55 AM) —in reply—There has been a long and very substantial debate with contributions made by members from both sides of the House on these two additional estimates appropriation bills, Appropriation Bill (No. 3) 2002-2003 and Appropriation Bill (No. 4) 2002-2003. The additional estimates bills request a total of $1,454.7 million—that is, $1,191 million in expenses; $69.4 million in payments to the states, primarily under the First Home Owners Scheme; and $194.3 million in capital injections, of which $124 million is required by the Department of Defence primarily for the purpose of acquisitions for operations. This additional funding is to meet the increased cost of inventory and specialist equipment purchases. The cost of the operation in Iraq will be dealt with in the current budget processes.

These bills embody the continuing commitment of the Howard government to sound economic and financial management. The bills seek funding for ongoing Commonwealth activities, including the alleviation of the hardship being experienced by those affected by the drought, sugar industry reform measures and enhancements of the physical security at Australia's overseas posts. It is regrettable that I do not have sufficient time to deal with all of the individual matters raised by honourable members on both sides of the House. But I do, in the time available to me, wish to comment on some of the matters raised by members opposite to set the record straight.

The honourable member for Fraser claimed that, despite strong economic growth, the Howard government has left the economy extremely vulnerable. This is simply not true. Rather than being extremely vulnerable, Australia is one of the leading OECD economies. The OECD states that Australia's current and recent economic record places it amongst the top performers in the OECD. The OECD also expects the Australian economy to remain one of the top performers, projecting growth for Australia of 3.3 per cent in 2003 and 3.8 per cent in 2004. The latest Australian Bureau of Statistics business indicator survey reported a 2.5 per cent increase in nominal gross operating profits of companies in the December quarter 2002. Notwithstanding some high-profile corporate failures during the past couple of years, the Reserve Bank of Australia has indicated that businesses in aggregate are carrying low levels of debt, have strong internal funding and have generally avoided the mistakes of overinvestment that have characterised past business cycles. In terms of the labour market, there have been 1.23 million net jobs created since March 1996, when the government was elected. Employment is growing at an average annual rate of three per cent over the 12 months to February 2003, compared with a 10-year average of 2¼ per cent. The unemployment rate is six per cent, compared with the unemployment rate of 8.2 per cent when the government was elected. This snapshot of some of the more important economic indicators suggests that the Australian economy is far from vulnerable.

The honourable member for Fraser also mused about the government's view on balanced fiscal policy. Let me just say that the government's primary fiscal objective is to maintain budget balance on average over the course of the economic cycle. This is derived from the broader principles of sound fiscal management laid down in the Charter of Budget Honesty Act 1998. This approach is intended to ensure that fiscal policy is formulated within a sustainable, medium-term framework. According to the OECD, the Commonwealth's:

... medium-term fiscal policy framework safeguards the sustainability of public finances over time ... (and) ... allows policy to react to short-term fluctuations to support growth.

The member for Fraser also accused the government of failing to keep the budget in surplus after a decade of strong economic growth. The government has had a good record in terms of achieving major cash surpluses. In 1997-98 it was $1.2 billion; in 1998-99, $4.2 billion; in 1999-2000, $12.7 billion; and in 2000-01, $5.7 billion. The government estimates that the cash surplus in 2002-03 will be $2.1 billion and surpluses in the order of $5 billion per year are reported in the forward estimates. In 2001-02 the recorded cash deficit was $1.1 billion. The deficit reflects the impact of high priority expenditure to support defence operations in Afghanistan, upgrading of domestic security and the protection of Australia's borders against people attempting to arrive in our country without authorisation. I might also remind honourable members that there was a strong demand for the first home owners grant and a decline in taxation collections in early 2002.

A few honourable members opposite have claimed that this government has imposed the highest level ever of income tax. The historical cash taxation revenue statistics allow an accurate comparison of changes in the Commonwealth's tax burden over time, as equivalent accrual taxation revenue statistics are not available. The decline in Commonwealth general government sector cash taxation revenue, from 23.5 per cent of GDP in 1996-97 to an estimated 20.9 per cent in 2002-03, is a direct comparison of the Commonwealth's tax burden over time. In 2002-03 and the forward years, the Commonwealth's tax share as a proportion of GDP is projected to remain below the minimum level reached in the five years preceding the introduction of the new tax system.

Honourable members opposite have also claimed that this government is responsible for the introduction of the biggest new tax in Australia's history, namely the goods and services tax. However, under the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations, GST revenue is paid directly to the states and territories. GST revenue is not available for expenditure by the Commonwealth. Consequently, the government considers the GST to be a state tax with the Commonwealth acting as a collection agent for the states.

Honourable members interjecting

Mr SLIPPER —It is misleading to simply add GST to Commonwealth tax revenue from 2000-01 onwards and compare that with Commonwealth tax levels over time. The members opposite ought not to interject, because we inherited a failed tax system that was unfair and outdated. If the GST were to be added to Commonwealth tax revenue, then all of the state taxes it replaces should also be subtracted in calculating the overall tax share.

The member for Fraser also raised concerns about superannuation being taxed four times and about record high levels of debt. Let me start by saying that research undertaken by the Treasury supports the view that superannuation is a tax preferred investment over a working lifetime for persons in all marginal tax brackets. The government provides substantial tax concessions to superannuation savings to encourage individuals to save for their own retirement, and the 2002 tax expenditure statement estimates the aggregate size of the tax expenditure for superannuation at $10.6 billion in 2002-03. The recent OECD report into Australia has found that although superannuation is taxed at three stages—that is, at contributions, earnings and benefits—it provides a similar result as a system which only taxes end benefits. This is consistent with the findings of World Bank research that Australian superannuation taxes over a working lifetime, while applying at three stages, are not high by world standards.

In terms of debt, at the end of the 2002 December quarter Australia's net foreign debt was $354 billion, or 48.9 per cent of GDP. However, I should point out that the vast majority of this debt is owed by the private sector—at 95.8 per cent, or $333.1 billion, in the September quarter 2002. Since this government has come to office, general government foreign debt has continued to decline significantly. The general government share of net foreign debt has fallen from 17.2 per cent in the March quarter 1996 to its current level of four per cent in the September quarter 2002.

As a proportion of GDP, government foreign debt has fallen from around 50 per cent upon our election to office in March 1996, following the peak of 54 per cent in September 1995, to approximately 8 per cent in September 2002. Additionally, Australia's ability to service its external liabilities is as strong as it has been for some time. The debt servicing ratio—the amount of exports required to pay the interest on net foreign debt—was 8.7 per cent in the December quarter and is well below the peak of 20 per cent recorded in the September quarter 1990 and 11.3 per cent in March 1996. A recent Treasury Economic Roundup, released on 31 January 2003, reported Australian net private wealth at market value grew by 10.9 per cent in real terms through the year to 30 June 2002. The growth rate in real net private sector wealth during the year to June 2002 was the highest for more than a decade. Therefore, despite increasing debt in the private sector, the value of private sector wealth is growing faster. Combined with low interest rates, this gives the private sector an increased capacity to borrow without increasing their debt-servicing burden.

The honourable members for Fraser, Shortland, Hasluck, Greenway and Braddon—to name a few—all made claims that, despite record high revenues, services are declining and the government is not investing in the future. This allegation has absolutely no foundation. The government is forward-looking. It produced Australia's first ever Intergenerational Report, which identified the fiscal implications of demographic change and other pressures over the next 40 years. The government is currently examining policies to address this issue, including measures to increase workforce participation—raising workforce participation builds human capital for the future.

The government has implemented several initiatives to improve labour market efficiency and productivity: Australians Working Together, Job Network and Backing Australia's Ability. Through these initiatives the government has allowed welfare recipients to keep more of their income support payments when they take up work, has enhanced labour market efficiency and has launched a $3 billion science and innovation strategy over five years, outlining increased investment in human capital.

Over the next three years, there will be an additional 6,000 university places, an additional $624 million for competitive research grants, $429 million in project specific and general research infrastructure grants to universities and approximately $230 million for new cooperative research centres. Measures such as the prestigious Federation Fellowships and the establishment of fifteen new major national research facilities are encouraging researchers to stay in Australia. In addition, the government has committed additional resources to increasing regional university places. Further, the government has had great success in improving vocational education and training opportunities for all Australians and the literacy and numeracy of Australian schoolchildren since 1996. In the remainder of this term, the government will focus primarily on initiatives in the area of higher education, which is crucial to Australia's future in a global economy. The government will shortly announce the first set of national research priorities, which will integrate Australia's science and research effort more closely with the community's economic, social and environmental goals and help to address the long term policy issues facing Australia.

The implementation of Australia's ambitious and comprehensive national competition policy over the past seven years has made a substantial contribution to the recent improvement in labour and multifactor productivity and economic growth. The Productivity Commission estimates that Australia's GDP is now about 2½ per cent higher than it otherwise would have been, and Australian households' annual incomes are on average around $7,000 higher as a result of competition policy.

Notwithstanding the member for Fraser's criticisms of the current measures of budget performance, I would like to state that following the successful introduction of accrual accounting in the 1999-2000 budget, the Department of Finance and Administration now compiles and disseminates budget information on both cash and accruals bases. Presenting dual measures of budget performance, the underlying cash balance as well as the accruals based fiscal balance provides a fuller picture of budget performance.

The member for Chifley has claimed that the government is reducing defence expenditure by $1 billion. This is simply not correct. Quite on the contrary, the budgeted statement of financial performance of the Defence portfolio additional estimates statement 2002-03 shows appropriations from the government rising over the next two years, from $18.2 billion at the 2002-03 budget to $19.3 billion in 2004-05. In the white paper the government provided an additional $27.6 million over the 10 years from 2000-01. There are also suggestions from the honourable member for Lingiari that there has been a reduction in funding for Indigenous Education Direct Assistance. Those opposite may be interested to know that there have been no cuts to this program for the Northern Territory. Indeed, the Commonwealth has actually increased the allocation for the Northern Territory by $1.163 million from last financial year. This is an overall increase in funding under the program of more than 14 per cent.

The economic record of this government is one of our proudest achievements. Since 1996, when the Howard government came to office, the Australian economy has embarked on a long term of strong growth with an average annual economic growth of around 3¾ per cent. The OECD gives Australia strong endorsement of its macroeconomic management and notes that the economy's impressive growth performance is the result of sound medium-term macroeconomic policy framework and economic reforms. The OECD notes that structural reforms across a broad front have assisted in making the economy notably resilient to both internal and external shocks. Accordingly, the OECD holds up Australia's commitment to reform, willingness to commission and accept expert advice, and capacity to adopt innovative approaches and build constituencies that support further reforms as things that other countries could learn from.

During this long expansion, inflation has been kept low, the unemployment rate has been reduced and interest rates have fallen to historic lows. The unemployment rate has fallen from 8.2 per cent in 1996, when the government was elected, to six per cent in January 2003. Around 1.23 million jobs have been created since March 1996. Official interest rates have fallen from 7.5 per cent in 1996 to 4.75 per cent. The last change in interest rates was up 25 basis points in June 2002, a far cry from the peak of over 18 per cent under the previous Labor government. Interest rates in Australia are around the lowest in 30 years. Despite the drought and the subdued world economy, Australia's economic outlook remains solid. Following growth of 3.9 per cent in 2001-02, the economy is expected to grow by three per cent in 2002-03, supported by robust growth in consumer spending, continued strength in residential construction and strong business investment growth. The GDP grew by 0.4 per cent in the December quarter 2002 and by three per cent over 2002. This outcome is consistent with the Mid-Year Economic and Fiscal Outlook of around three per cent growth in 2002-03.

Australia is in the midst of the worst drought in 100 years. Farm output is expected to fall by 17 per cent in 2002-03, and this will detract around three-quarters of a percentage point from overall GDP, giving GDP growth of three per cent. In the December quarter 2002, farm output fell by 15 per cent. It fell by 27 per cent over 2002. Non-farm GDP, however, is expected to remain robust and grow by around 3¾ per cent in 2002-03, driven by strong growth in domestic demand. Non-farm GDP grew by 3.9 per cent over the year to December 2002. A return to strong growth is forecast in 2003-04, assuming the end of the drought and a return to normal seasonal conditions. The recent rainfalls are positive signs of an increasing likelihood that there will be a timely end to the drought.

In his contribution to the debate the honourable member for Fraser moved an amendment to the second reading motion on this bill. I have already spoken to most of the issues raised in the amendment, so I do not wish to refer to each component. However, I do want to state that the Appropriation Bill (No. 3) 2002-2003, together with the Appropriation Bill (No. 4) 2002-2003, continues the government's fiscally responsible management. Honourable members will not be at all surprised to know that the opposition amendment is not supported by the government. Appropriation Bill (No. 3) 2002-2003 supports the government's prudent response to difficult times in the world economy and world security. Together with Appropriation Bill (No. 4) 2002-2003, it provides funds which are needed in order to maintain government activities and to contribute to the strong performance of the Australian economy. I do thank honourable members for their contributions to this debate and I commend both bills to the chamber.

The DEPUTY SPEAKER (Mr Mossfield)—The question is that the words proposed to be omitted stand part of the question.

Question agreed to.

Original question agreed to.

Bill read a second time.

Ordered that the bill be reported to the House without amendment.