Mr SWAN (6:01 PM) —I move:

As I said at the National Press Club last week, this budget was a missed opportunity to set Australia up for the next generation of sustained growth and shared prosperity. This complacent government has not focused on skills development, new infrastructure or putting incentive into the tax system and it has ignored the growing burden of regulation on Australian business. In addition, it has proposed some very unfair income tax cuts. Instead of addressing crucial reform priorities, it has gambled on a once in a generation surge in world economic growth in the terms of trade.

The budget itself admits that this is a high-risk approach. The budget does not give priority to investing in the machinery of wealth creation and building the economy’s supply capacity. The benchmarks for a modern and reformist economic policy should be what it does to lift productivity and the performance of the economy within a responsible fiscal policy. Labor will seek to create wealth through world-class infrastructure, a highly trained and educated work force, research and development, and incentive to work hard. Better harnessing our national skills and potential in providing real incentive must be our goal.

Where has the government brought us to in macroeconomic management? The budget papers predict the following for the economy: a sharp decline in the rate of GDP growth; a continuing very large current account deficit, even with spectacular improvement in the terms of trade; a growth in exports in 2005-06 smaller than the predicted increase in imports; a decline in dwelling investment; a significant decline in employment growth in 2005-06 from the current level; and an increase in inflation. We should all remember that, despite the extraordinary surge in Australia’s projected terms of trade to their best level in 50 years, Australia has just experienced its 41st consecutive trade deficit. At 7.1 per cent of GDP in the December quarter of 2004, Australia’s current account deficit is now the highest in 50 years.

In 1997 the Prime Minister claimed that four per cent annual growth would be achieved through the current decade. He could do that in 1997 because of the excellent economy he had inherited. However, the government have only achieved 3.3 per cent in this decade’s first half, and we are looking at growth falling to two per cent this year and an estimated three per cent in 2005-06. To keep our prosperity sustainable, we need the government to pay attention to the skills crisis, infrastructure bottlenecks and other capacity constraints which are holding us back. This is the position now agreed with by business groups, the OECD, the Reserve Bank and most commentators. This is precisely why Labor has been arguing for years for more investment in the productive capacity of our economy.

This budget largesse is built on taking a gamble on the boom in export prices largely flowing from activity in China. This is specifically recognised in the budget papers as a key risk. Indeed, the budget papers recognise:

In addition, the budget papers themselves detail a number of further risks in this budget. These include higher oil prices and higher prices for steel, leading to higher engineering and construction costs. Another key threat is the risk to the international economic outlook of the large fundamental imbalances in current accounts. In the face of these risks it is therefore all the more imperative that we enhance skills, incentives and infrastructure investment. These should have been the focus of the budget. Instead all we got was relief for a few, not real tax reform, while around seven million hardworking Australians are missing out on tax justice.

Then of course we have the drought. That is the other significant risk failed to be mentioned in key parts of the budget. The budget papers state:

That sounds like the budget has ignored the drought’s potential to reduce production and ignored the dire impact on communities. This is what the Treasurer had to say just last week:

Well, what on earth was the Deputy Prime Minister on about last Saturday week? He certainly does not agree with the Treasurer. Deputy Prime Minister Anderson spilled the beans just five days after the budget when he told News Ltd:

Who is telling the truth here—the Deputy Prime Minister or the Treasurer?

In addition to that, Labor has been warning the government for years that their short-term approach to cutting training would come at the long-term cost to the economy. Those responsible warnings from Labor have not been heeded—just ignored and indeed denigrated by the government. They have not listened and now the skills shortage that Labor has been talking about and calling for urgent action on has come upon us. The government are still in denial that they have caused the problem. Instead they focus solely on an ideological agenda on industrial relations and put in place welfare to work measures which will simply not work. In addition to that they will punish hundreds of thousands of vulnerable Australians.

Recognising the magnitude of the skills problem, Kim Beazley has called for a trade apprenticeship school incentive scheme, which will go some of the way to addressing these skills shortages that many in the broader community have been pointing to. The government is now trying to pretend that it is concerned about skills through the proposal to create a duplicate set of Commonwealth technical colleges. These will not be enough to undo the damage that has already been done. There will not be any graduates from these institutions until at least 2010. We should note, though, that there is no new money being proposed to the existing federal training structure. So there is no across-the-board strategy in this budget to properly boost skills training—simply the Prime Minister’s pre-election gimmick where he wanted to look like he was doing something. Again, Labor have been consistent and correct in pointing to the defects in the government’s economic management. We welcome the fact that the Reserve Bank is blowing the whistle on the skills shortage issue and we continue to urge the government to do more to fix up the mess that it has created.

The government has also ignored the creeping burden of regulation that Australian business faces. We do need to improve productivity. Yet instead the government is increasing red tape. We all remember what the Prime Minister famously promised before he was elected: he would cut red tape by 50 per cent. Everyone knows that was a non-core promise. It has been comprehensively breached, not least by the GST BAS burden on small business. We now have a report in the media today about Access Economics and the Business Council of Australia showing that business regulation has in fact doubled under this government. Federal legislation and regulation are growing at more than 10 per cent a year, and the annual compliance burden for business and taxpayers could be as high as eight per cent of GDP. This is certainly not the way to ensure higher growth into the future, and it is certainly not the way to make the economy stronger for dealing with our future challenges.

Even the Business Council has put the onus directly on the Prime Minister to do something about it. Obviously it has no confidence in the Treasurer to make any impact. Dick Humphry, who is now the chairman of the BCA’s regulatory task force, summed it up well in the Financial Review today, where he said:

So what does the budget do about this critical issue to the business community? Nothing. It ignores the problem. This is just the continuing pattern of the Howard government. It collects the benefits of prior reform and coasts along, ignoring the investments that need to be made to sustain good economic performance into the future. That is why Labor has been consistently arguing for long-term policy. Long-term challenges need long-term commitment and long-term investment. Responsible policy needs constant attention, not a politically driven set of giveaways just before the election.

Of course the Treasurer does not like criticism. We know this government thinks that it should be immune from all criticism. Saturday’s back page of the Financial Review demonstrates the new lows to which the Treasurer is now stooping. An article there states the Treasurer has:

So the message from the Treasurer or his office is: praise us or there will be consequences. This is the method of tyrants and organised thugs, and it is a technique which is used by this government frequently. If it is not true, let the Treasurer come in here and state for record that he, or his office, has not been making such threats.

In the face of all of this, Labor do have a clear alternative. Our response to the budget is driven by an entirely different philosophy with three alternative wellsprings: (1) a plan for higher productivity and participation; (2) fairness for all workers, low-, middle and high-income earners; and (3) national leadership in skills and infrastructure. Kim Beazley has already addressed these issues in his budget reply. Labor stands for fairer tax cuts, spreading incentives throughout the work force, which in turn will lead to higher productivity and higher levels of participation.

The government is now embarrassed at the unfairness of its proposal and at the obvious equity and reform in Labor’s superior plan. Labor has shown how low- and middle-income earners can obtain twice the tax benefits of the government’s proposals in a responsible manner which will also boost participation. All this will still allow the top rate not to cut in until incomes reach $100,000. This government is reduced to a distortion of Labor’s proposals as it cannot attack their fairness. We had a perfect example of that from the Treasurer in the House today when he set out to distort and mislead about the impact of Labor’s fairer and more reformist package.

Labor’s proposals will see already legislated increases in the 42c and 47c thresholds from 1 July 2005, new tax cuts for low-income earners from 1 January 2006 and further tax cuts for middle and high-income earners from 1 July 2006. The implementation of Labor’s plan would see the $12 weekly tax cut made available from 1 January 2006, and senior Australians would get a tax cut from Labor. They would benefit from the increase in the 30c threshold and an increase in the income threshold for the senior Australians tax offset—all things which the Treasurer deliberately misled the House about today.

The weakness of the government’s proposals on tax is perhaps most glaringly exposed when we look at their impact on participation. This government’s budget was not up to the hard economic reform task of removing disincentives from our tax and welfare systems to boost work force participation. Labor’s tax package is designed to improve participation, particularly for those on lower incomes who are likely to have the strongest behavioural work force response. Studies of labour elasticity suggest lower income earners are more likely to re-enter the work force or work longer hours when given added incentives. Reducing effective marginal tax rates where we find low-income earners and part-time workers will have a relatively strong effect on labour market participation and hours worked. Where is the policy logic in claiming marginal tax rates matter and then directing the bulk of the relief to those on the top marginal rate? If your concern is with marginal tax rates, would you not logically start with those who are paying effective marginal tax rates exceeding 80 per cent rather than the 48.5 per cent top rate?

There is a better way, and that is what Kim Beazley showed in Labor’s budget reply—as indeed we have shown before in constructive proposals for welfare reform. This government’s proposals in that area are simply to move people from welfare to welfare without making the necessary investments in their capacity and cutting the incomes of some of the most vulnerable people in the community. When we talk about the need to invest in the capacity of the nation, it requires real welfare reform which has a correct balance between incentives on the one hand, personal responsibility on the other and the availability of skills training and child care—all of which are noticeably absent from the government’s package.

In the face of all of this, we have not seen due attention to the economic capacity of the nation. In the face of what have been in the last two years the worst trade deficits in our history by far, and in the face of a current account deficit which last year was the highest as a share of GDP in more than half a century, how can the government ignore such issues in the budget? They have again ignored repeated calls from the OECD and the Business Council of Australia, among others, for urgent attention to skills crises, infrastructure bottlenecks and other capacity constraints which are all holding us back. What is their response to some of the longer term issues that they are supposed to be addressing such as the ageing of our population and how to get productivity and participation going? We hear from them that they have a future fund, which is really code for higher taxes now locked away for the next 15 years at the expense of future economic growth, at the expense of investing in our skills development and in our infrastructure and at the expense of putting real incentive and real reform into the tax system. When you boil it down, the government’s proposal for a future fund should really have seen a budget headline that read, ‘Government proposes new multibillion dollar tax’.

Labor’s alternative to the future fund, the building Australia fund, is integrated with our fiscal policy, our pro-growth agenda and our plans for infrastructure leadership at the national level. Labor believes that the government should stick to the budget balance over the cycle fiscal rule and not increase the tax burden. Accumulated surpluses need to be available should the economy slow, otherwise the government has no alternative except to run up debt. Labor also believes that the fund should not be used exclusively for the pensions of public servants in Canberra. The focus on public sector superannuation is a distraction from the main agenda: productivity and participation.

There is broad agreement that, based on current demographic trends and policy settings, Australia will face future fiscal challenges. Where we critically differ from the Howard government is how to deal with this challenge. The debate has narrowed down to essentially two approaches: the low road, the government’s road, which involves taxing more now to pay for future fiscal challenges—that is their approach that underlies the future fund—and the high road, the Labor road, the pro-growth policy which focuses on capacity building, productivity and participation enhancing reforms.

Treasury secretary Ken Henry also expressed a preference for this second approach in a speech in May last year, arguing higher tax now is inconsistent with higher economic growth. Quoting his predecessor Ted Evans, Ken Henry argued that ‘the greatest contribution that today’s population can make to the living standard of future generations is to ensure that today’s policies are directed towards maximising future GNP.’ Labor agrees, and our policies will be framed accordingly.

Our approach, the building Australia fund announced on Thursday, means there should be a level of funds on deposit at the RBA sufficient for the Commonwealth’s short-term liquidity needs. Excess money, including the proceeds from asset sales, should be transferred to the fund to be invested according to an appropriate rate of return and degree of risk. Our building Australia fund and the availability of revenue from this fund for Infrastructure Australia will help to address the supply bottlenecks that are now impeding the Australian economy.

Sadly for the Australian people, this budget does not do enough to invest in our future prosperity and growth to ensure that we can sustain strong and shared growth into the future. This budget was a golden opportunity for real tax reform—reform which gave incentive to the great bulk of the work force that have worked so hard to create wealth in recent years.

We got no leadership on skills, no leadership on infrastructure and no enduring solution for the buck-passing that bedevils federal-state relations, and there was barely a mention of competition policy. All we got from the government was a lopsided response—a lopsided set of tax cuts that reward only very high income earners. As a consequence, they passed up the opportunity for welfare reform which invested in people and their skills and which gave them some real incentive to move from welfare to work. Instead, we got a welfare to welfare package, from a higher benefit to a lower benefit, dressed up with terms like ‘enhanced Newstart’ and so on, to disguise the fact that the government have broken the promise they made during the last election and the election before that about not cutting income. What we got was a cut to the incomes of some of the most vulnerable people in our community. At the same time, we did not get enough investment in their skills training and in their rehabilitation to give them a chance to get a toehold in the work force.

This government’s reform program is to attack the vulnerable and give a set of lopsided tax cuts to a select few in our community. We argue for a comprehensive approach to long-term economic reform—real incentive in the tax system, investment in infrastructure, leadership from the Commonwealth for infrastructure, leadership in skills and leadership in investing in the future to create a growing economy on a sustained basis. That is why Labor will oppose parts of this budget; that is why we will stand and fight for the vast majority of the Australian work force who deserve a brighter economic future. We look forward to that debate in the days ahead, particularly with the introduction of the tax legislation tomorrow.

The DEPUTY SPEAKER (Hon. DGH Adams)—Is the amendment seconded?

Mr Fitzgibbon —I second the amendment and reserve my right to speak.