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Tuesday, 9 May 2000
Page: 16086


Mr COSTELLO (Treasurer) (7:30 PM) —I move:

That the bill be now read a second time.

As we enter the new century, Australia's economic prospects are strong.

We have done some hard yards and they are now starting to show results.

We have weathered the Asian financial crisis. Our economy has grown, with strong and consistent growth in a way we have not seen for the last three decades.

Today there are 650,000 more Australians in jobs than there were four years ago. Unemployment has fallen below 7 per cent—the lowest level in 10 years—and this year it will fall further. By June next year, unemployment is forecast to fall to 6¼ per cent.

The Budget I present tonight is in surplus for the fourth year in a row, a cash surplus of $2.8 billion. This means the Government is acting responsibly. It is not spending money it doesn't have. It is not running up debts that would weigh down future generations. In fact it is not running up debts at all. In net terms this Government has not borrowed a single dollar since it was elected.

When the Coalition Government was first elected four years ago in 1996 it was given a job to do—the job of fixing the financial mess caused by Labor's splurge which ran us $80 billion into debt over five years. We set out three goals—to get the budget to surplus, to halve the ratio of debt to the economy, and to do this without increasing taxes.

We have met all these goals. By June next year, the end of the Budget period, we will have paid back $50 billion of Labor's $80 billion debt. We will have more than halved Labor debt. We will have secured a better financial future for the Nation.

When the Government came to office, nearly $9 billion of taxpayers' money was needed to pay the interest bills on Labor's debt. Today net interest bills are around $6 billion—that means a saving to taxpayers of $3 billion year after year after year. Back in the Labor days in 1995-96, the Commonwealth spent about the same on interest payments as it did on schools and hospitals. It spent nearly as much on interest payments as it did on defence.

But today we have different priorities. Paying off the debt and reducing our interest bills means that today we can spend on more important things. Spending on hospitals and schools has grown by $3.7 billion while interest payments have fallen by $3 billion. Today defence spending doubles the Government spending on its interest bills.

It has always been Government policy to fix the financial mess so we can spend taxpayers' money on more important things, on higher priorities. This Budget targets our most important priorities with measures for better health and help for families. This is a Budget which secures their future. And this Budget cuts taxes.

East Timor Levy

This time last year, we did not know that Australian troops would be required to lead a multinational force to restore order and save lives in East Timor. When the level of the engagement and the costs became known, the Government announced a one-off 12-month levy to cover the unexpected costs and keep the budget in surplus. The levy, to apply from 1 July next, phased in at 0.5 per cent after $50,000 of income and 1.0 per cent after $100,000 of income.

Our forces performed magnificently. INTERFET was able to hand over smoothly to a new UN peacekeeping force. This meant a saving on the expected cost. And our economy has grown stronger than we expected back in November last year. We can now afford to maintain the Australian Defence Force role as part of the UN force and keep the Budget in surplus. Since the levy was announced as a one-off measure to keep the Budget in surplus and the Budget will now be in surplus without it, it would not be right to proceed with the levy. Tonight I announce there will be no East Timor levy as from 1 July. It will not be introduced—not for a day.

Tax Reform

Like the last four Budgets, this Budget contains:

no increase in company tax—in fact, company tax will be cut from 36 to 34 per cent on 1 July.

no increase in the rates of wholesale sales tax—in fact, wholesale sales tax will be abolished in 53 days.

no increase in income tax—in fact, in 53 days the largest cuts in income tax ever will come into force in Australia.

On 1 July every taxpayer will receive an income tax cut. 80 per cent of Australians—some now on top rates of 43 per cent—will pay a top rate of income tax no higher than 30 per cent. Families will have their benefits increased as part of the largest overhaul of family assistance—ever—and these changes will give families more disposable income to outweigh any price rises from Goods and Services Tax.

On 1 July pensions will be increased 4 per cent. All pensions, aged pensions, service pensions, widow pensions and all allowances will increase 4 per cent. This is an advance to cover any price effect of GST. After 1 July pensions will be indexed to keep them 2 per cent higher than they would have been without tax reform.

On 1 July we introduce a New Tax System, one of the largest structural changes to the Australian economy—probably the largest—since the Second World War. It reforms income tax, indirect tax, family assistance, business tax and Commonwealth-State financial relations.

Every dollar raised by Goods and Services Tax is paid to the State and Territory Governments. It is the money that will provide the schools, the hospitals, the police, and the roads of the future. The days of State Governments relying on Financial Assistance Grants from the Commonwealth are now over. From 1 July they have revenue that grows in line with the economy. It will provide a secure base to fund their services. And from 1 July they must start to abolish narrow inefficient taxes which they no longer need to rely on. First to be abolished will be bed taxes, then after 12 months stamp duties on shares and Financial Institutions Duty will be abolished on 1 July 2001.

Australia's outdated inefficient tax system has held back our economy. It has chained our exporters who have taxes built into the price of their products when the rest of the world lets their exporters sell on world markets tax free. Our tax system has chained the manufacturing industry with a disproportionate tax burden on goods. From 1 July the New Tax System will break these shackles on our exporters and manufacturers.

The current tax system has chained business with high costs for transport. On 1 July diesel costs for heavy transport will fall 24 cents per litre and diesel costs for medium transport vehicles will fall by the same amount for transport outside the major urban areas.

On 21 September last year cuts in capital gains tax came into effect. Individuals are now liable to pay capital gains tax on only 50 per cent of their gain if they hold the asset for at least 12 months. When a small business owner wants to retire, from 55, he or she can sell any active business asset held for 15 years free of any capital gains tax. This is part of building a business tax system that is efficient and competitive, that helps business get on and create jobs. By abolishing wholesale sales tax, by lowering capital gains tax, by lowering company tax rates we are building an internationally competitive business tax regime.

Mr Speaker, the big changes—the hard yards of reform—are not easy. If reforming the tax system were easy it would have been done some time previously in the last 70 years. But the Government has taken the view that it should do the right thing—even though it may be the hard thing—where that is necessary for our country and our people to achieve their full opportunities.

Reform is hard. Some have tried to use that to their advantage—to pretend that tax reform is not needed or pretend that while the rest of the world changes Australia can just stay the same. Of course that is false. And there are some who oppose reform while hoping that one day they can take the benefits of it. But you can't take the benefits if you won't do the hard work.

The hard work of Budget repair has given us the opportunity to bring about some benefits in priority areas—families, health and improving services in regional Australia.

Regional Health Package

There are many problems faced by those in regional areas. Not all regions, but in many regions, where prices for rural products are low, times have been hard. Some people outside the cities feel left behind as the service sector and the new industries of the economy grow so strongly.

The Government which claims it has a cure-all for all the problems of the regions is not being honest. In our view it is better to focus on particular problems and try to make a real difference—to make a big difference in a defined area—than to have ill-defined proposals across a large area—to promise a lot but deliver little.

In this Budget, the Government has decided to focus on a particular problem—the lack of medical services in the regions of Australia. In the metropolitan areas there is an average of 1,000 people for each GP. Outside the cities it is 1,500 people for each GP. This is an area where we want to focus; this is an area where we want to make a real difference.

Tonight I announce a major new four year Regional Health Package of $562 million. This Package will address a key concern of rural and regional communities—more doctors and better services.

The number of GPs in rural and regional areas will be significantly boosted by increasing the number of training places for GPs and increasing the distribution of training places to rural areas. We will boost the number of GP registrars in rural and regional Australia by at least 75 in the next financial year, rising to 225 in 2002-03. Many of these registrars are likely to practise in rural and regional Australia after their training has ended.

The Regional Health Package includes a longer-term strategy to increase the number of doctors in rural communities. We will encourage students from the country to study medicine and support medical graduates who go out to practise in rural areas. To enable more students from the country to become doctors, the number of Rural Medical Undergraduate Scholarships will be doubled.

The Government will also create 100 new university places for medical students who are prepared to enter a bond to practise in rural areas for at least six years after they have qualified. The students will be paid a scholarship of $20,000 per annum for the period of their undergraduate training. During the bond they will only be able to practise in rural areas. The scholarships and additional places will cost $32 million over four years.

People in rural areas have difficulty accessing specialist medical services. This Budget introduces financial incentives and pays travel costs to specialists to go out and deliver services to regional areas and it funds communities to employ practice nurses, psychologists, physiotherapists and podiatrists at an additional $49 million over four years.

This Budget also provides for the establishment of nine new clinical schools and three new university departments of rural health to make sure that every Australian medical faculty has a regionally based clinical training facility and every Australian medical student has the opportunity to train in rural service delivery.

Regional Health Services have proved a successful way to deliver a range of medical, community health, mental health and aged care services to smaller communities which could not support stand-alone services. The Government will build on these successful services with an additional 85 services over the next four years costing $69 million.

Other Regional Measures

In addition to the Rural Health Package, this Budget contains a range of measures to strengthen the economic base of rural areas and improve the access of all Australians to important services.

The Agriculture Advancing Australia (AAA) program has played a major role in improving the competitiveness and profitability of the farming sector since it was introduced by this Government in 1997. The Government will therefore continue and enhance it over the next four years. This $309 million program will give farmers skills training, encourage innovation, improve market access for our agricultural and food exports and enhance support to families in financial difficulty.

In recognition of the high costs of education for people living in remote parts of Australia, the Government is increasing Assistance for Isolated Children. The Basic Boarding Allowance paid to children who cannot get to a government school on a daily basis will be increased by a further 10 per cent, which builds on the 20 per cent increase to this allowance announced in last year's budget.

Improving the access and participation of students from rural and regional areas to quality education is a high priority. So the Government will modify the Youth Allowance family assets test to increase access to Youth Allowance. An income test will still apply but the assets test on farm and business assets will be relaxed. Youth Allowance has proven to be successful in encouraging young people's participation in education.

Education

Our education and training system must focus on giving students skills so they have the opportunity to find meaningful jobs. This Government recognises the importance of education to ensuring our nation's future and our children's future. The apprenticeship system had been left to wither until this Government revived it in 1996. This Budget provides a very heavy investment in apprenticeships providing $2 billion over four years for the highly successful New Apprenticeships initiative.

It continues the Government's heavy investment in schooling, both government and non-government. Outlays are projected to rise by nearly a third over the next four years—one of the fastest growing areas of the budget. This expenditure is aimed at lifting literacy and numeracy. It is aimed at improving the core elements of education. And this Government wants to make sure schools are accountable for that high level funding and children are being given the skills they need for the future.

Stronger Families and Communities

A stamp of this Government has been its commitment to helping families.

Before this Government came to office the Commonwealth spent the same amount paying interest bills on Labor's debt as it spent on family assistance. In this Budget spending on families doubles the spending on interest payments.

From 1 July over 2 million families will benefit from increased family assistance. A single income family on $40,000 with two children, one under five, will receive tax cuts and increased family payments equal to $50.63 per week from 1 July.

The assets test on family assistance will be abolished. The income threshold for family payments will be eased. As a family's earnings increase less of their family assistance will be clawed back. And most importantly the level of family assistance will increase.

Families need help—and investing in families is the best way of helping children. That is why the Government has the Stronger Families and Communities Strategy. This Strategy funds initiatives to support parents and try to prevent family breakdown. The Strategy will seek to reduce problems such as family violence, and child learning problems, by prevention and early intervention.

A major component of the Stronger Families and Communities Strategy is an additional $65 million over four years to assist families juggling work and family responsibilities. Families which will particularly benefit are those working outside standard business hours; families who have a sick child; and families who live in rural and regional Australia.

The Budget also includes a package of Child Support measures. These are measures to encourage child support payers to maintain contact with their children after separation and to improve relationships after family breakdown.

A Fair and Effective Welfare System

The Government is committed to maintaining a fair and effective social welfare system. The Government wants to make sure there is help for those who need it but also to make sure our welfare system does not become a trap preventing self-reliance and self-improvement. The Government has set up an independent review of the welfare system and a final report will be released later this year to give principles for the future reform of the welfare system.

This process will build on the Government's considerable record—the work-for-the-dole initiatives and the concept of mutual obligation—the obligation of the community to the individual and the obligation of the individual, in return, to the community.

Since coming to office, this Government has worked to improve compliance, cut down on fraud, put in place eligibility criteria and make sure welfare only goes to the truly disadvantaged. These efforts in total are now saving taxpayers $750 million per year.

This Budget introduces further measures to ensure that assistance only goes to those genuinely entitled to it. In particular, we are introducing Preparing for Work Agreements to ensure those claiming unemployment payments understand their responsibilities and comply with the eligibility criteria. This is expected to deliver savings of $212 million over four years. The agreement will deliver a strong `up-front' message to all job seekers—they must meet their obligation to actively search for work and participate in a range of additional activities in return for receiving unemployment payments.

The Government will also introduce measures to ensure those who hold their assets in private trusts and private companies are treated comparably to those who hold them directly. There will not be the advantage, as there is now, to have assets in trusts and companies so they are not fully taken into account for social security purposes. This is expected to deliver savings of around $300 million over the next four years by reducing benefits to those with access to substantial assets.

Border Integrity

The rapid increase in the number of unauthorised immigrants arriving in Australia has placed considerable pressures on the Budget. The Government announced a major package last year to detect, deter and prevent the entry of illegal immigrants into Australia, including increased coastal surveillance. In this Budget, an additional $49 million over four years is allocated to additional measures to control these arrivals. We will tackle this problem with a coordinated effort across all agencies to identify and combat people smuggling. We will do it by attacking people smuggling at its source.

A long-term strategy focusing on future detention requirements for unauthorised arrivals and visa over-stayers is being introduced. The Government will build a new detention facility at Darwin to ensure appropriate detention capacity will be available in the future.

Defending Australia

The Government places a high priority on maintaining a modern and capable defence force. We have maintained defence funding in real terms since coming to office and have achieved a shift in defence resources towards combat capability and readiness. In this budget there is a one-off increase of $100 million to address immediate priorities in defence force reserves and to improve information management systems and logistics.

Veterans

Mr Speaker, it is time the nation gave our Veterans from Vietnam the recognition they deserve. This Budget carries through the government's commitment to Vietnam Veterans, with a $32 million package of measures to support them and their families through the illnesses to which they are especially susceptible.

And the care of Veterans in their own homes under the Home and Community Care Programme will be transferred to the Department of Veterans' Affairs. This will give them special care. It will also free up additional places in the general programme for other elderly citizens.

The Budget also grants entitlement to full repatriation benefits to around 2,600 veterans for their service during the Malayan Emergency and other South-East Asian conflicts in the period 1955 to 1975.

As we mark the Centenary of Federation, Australians will have the opportunity to remember with pride the role that our service men and women have played in shaping the nation and there is new funding for a commemorative program for those service men and women in this Budget.

East Timor

Mr Speaker, during the Australian-led INTERFET operations from September 1999 to early this year, around 6,500 personnel from the Australian Defence Force helped to restore peace to East Timor. Over 2,000 Australian Defence Force personnel remain in East Timor as part of the UN peacekeeping effort, along with many other Australians performing important security and humanitarian tasks. We can be very proud of the outstanding efforts of these Australians.

In 1999-2000 Australia will spend approximately $900 million as part of its commitment to East Timor. The bulk of this cost relates to the deployment of the Australian Defence Forces as the lead force in the INTERFET operation. While the expected cost of Australia's deployment in the next year has declined from previous estimates it is still substantial, at $831 million for the year.

This Budget extends Australia's assistance to relieve the suffering of the people of East Timor and rebuild the country. It provides $150 million for humanitarian relief and reconstruction for East Timor over the next four years: $100 million of this is new funding. The focus of aid in East Timor has shifted from emergency relief to long term development, to restore basic services and to improve governance.

Australia is also making an important contribution to East Timor's law and order. This Budget has allocated around $104 million over the next four years for an 80-strong police contingent.

Economic Outlook

Mr Speaker, Australia is set to continue its strong economic performance in 2000-01 with solid growth, new jobs, and low ongoing inflation.

Following three years of economic growth above 4 per cent, growth is expected to remain strong at around 3¾ per cent in 2000-01.

While domestic demand is expected to grow at a more moderate pace than in recent years, net exports should make a bigger contribution to growth flowing from a strengthening world economy and the tourism associated with the Sydney Olympics.

This shift in growth from domestic demand to exports will reduce the current account deficit, forecast to average 4¾ per cent of GDP in 2000-01, down from 5½ per cent of GDP in 1999-2000.

The strong economic growth of recent years and moderate wage outcomes has reduced the unemployment rate to around the lowest levels in a decade. The unemployment rate is expected to fall further, to 6¼ per cent by the June quarter 2001. From there on we would be on the verge of the lowest unemployment rates in a quarter of a century.

Leaving aside the one-off price-impact of changes in indirect taxes, inflationary pressures are expected to remain low. `On-going' inflation is forecast to be around 2½ per cent through the year to the June quarter 2001.

The New Tax System is expected to add around 2¾ per cent to the CPI through the year to the June quarter 2001. Households will be more than compensated for these one-off price changes through income tax cuts and increases in payments. The changes to indirect tax arrangements are therefore not expected to have any significant impact on wage settlements or ongoing inflation.

Concluding Comments

Mr Speaker, this Budget lays a strong economic and social foundation to secure the future for Australia.

We enter the new century with a budget in surplus and a debt reduction strategy better than any comparable country in the world.

We have strong prospects, and if the economy continues to grow at current rates historically low unemployment is within our reach.

We are about to accomplish the historic reform of Australia's failing tax system.

This Budget brings together our economic and our social goals: lower taxes, more jobs, better health care, stronger families.

I commend the Budget to the House.

Debate (on motion by Mr Beazley) adjourned.