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Monday, 24 May 2010
Page: 3656


Mr HOCKEY (12:11 PM) —The Treasurer has delivered a budget which he characterised, perhaps ironically, as meeting the highest standards of responsible economic management. But I am afraid that this government does not understand accountability. It has not earned the people’s trust. The Prime Minister uses other ministers to announce bad news or cancellation of projects despite saying repeatedly that the buck stops with him. This is a Prime Minister who is the master of broken election promises, policy backflips and mismanagement.

The CPRS, the greatest moral, economic and social challenge of our time, has been ditched. The school drop-off childcare centres program in schools has been dropped. The pink batts program has been abandoned save for nearly $1 billion to try to repair the botched job already. The so-called Building the Education Revolution program is behind schedule and has blowouts. The computers in schools program is over budget and has under-delivered. In fact, only 220,000 of the promised one million school computers have been delivered. And to pay for all this the much-vaunted Henry tax review took two years, cost $20 million and, of 138 recommendations, 2½ were adopted.

This year’s budget continues this trail of deception. The budget is based on claimed efficiency dividends and stronger growth from tax reform, yet the government refuses to release the detailed modelling on all 138 recommendations in the Henry review. The projected surpluses in the final two years of the forward estimates are wafer thin with a budget of close to $400 billion in 2013-14, relying on surpluses of $1 billion and, the year after, $5 billion. That claim is risky and unreal. These anticipated surpluses are also based on projections rather than forecasts and, I might say, budget forecasts and projections are only as good as the underlying economic assumptions. These assumptions include forecasts and projections of population growth in Australia, economic growth offshore, economic growth in Australia, terms of trade, exchange rates, interest rates, and so on. So these assumptions on the economic parameters, naturally enough, can vary widely from year to year, let alone the government’s claim that you can rely on them in three years time.

For example, last year’s budget forecast the Australian economy would contract by 0.5 per cent in 2009-10. This year’s budget tells us the economy will grow by two per cent. This is a massive turnaround in the space of just 12 months. Last year’s budget said the unemployment rate would peak at 8½ per cent in 2010-11. This year’s budget tells us the unemployment rate has already peaked at less than six per cent and is now heading to a low of 4.75 per cent in 2011-12.

I want to stress that I am not criticising the public servants in Treasury who prepare these forecasts. Forecasting is as much an art as it is a science. It is a difficult task and the degree of uncertainty has been much increased over recent years. But these very significant changes to the underlying forecasts do illustrate that there is a large degree of imprecision in the budget numbers. This makes it even more ridiculous that the government should claim kudos from its projected tiny surpluses in the last two years of the forward estimates.

These tiny suggested surpluses are based on five key assumptions. First, economic growth in Australia will need to remain at around trend levels—three to 3½ per cent. Second, the global economy will also need to grow at or above trend. Third, prices for key Australian commodities will need to remain high. Fourth—and this is the most heroic assumption of all, Mr Speaker; you would appreciate this—Labor will need to not have any further cost blow-outs in its programs. And, fifth, Labor will need to commit to making no new unfunded spending promises for the next four years through two elections. Mr Speaker, I cannot make assumptions about what the chair might think about those things, but I am sure that any person with an ounce of savvy would know that it is heroic to assume that a government will make no new spending announcements for one year, let alone four years, which is the key assumption in the government having a surplus in three years time.

The deficit this year of $57.1 billion will still be the biggest deficit in Australia’s peacetime history. Next year, 2010-11, it will be the second biggest at a massive $40 billion. And there will still be a peak net debt of around the same size as that which was left to Australians by Paul Keating. There is something about the $90 billion mark that Labor is attracted to. Keating left a $90 billion debt for us to pay off; Mr Rudd, the Prime Minister, is leaving a $90 billion debt for the coalition to pay off; even Anna Bligh in Queensland has a $90 billion debt that someone is going to have to pay off.

The improvement to the budget bottom line which the budget reflects is entirely due to parameter changes: stronger economic growth in Australia, above-trend growth offshore and the terms of trade being at 60-year highs. It does not rely on responsible economic management; it is not the result of hard decisions to cut reckless and wasteful government spending. Last year, the Treasurer justified his big spending budget on the grounds that it was necessary to prevent a recession in the Australian economy—so he delivered the biggest spending budget in Australia’s peacetime history. This year he notes that the budget has moved from supporting the economy to a position now where Australia is recovering strongly. In that light, we might have expected a budget with much lower spending to suit the times. But what we find is an increase in spending from 2010-2011 to 2012-13, compared with last year’s budget, totalling $26 billion. So last year was the biggest spending budget in modern history, but, as if Labor had not done what it could do at that time, this year it has an extra $26 billion of spending in a similar framework.

Even then, the Treasurer has pulled some accounting tricks to improve his financial ratios. Cancellation of the CPRS is worth, roughly, a one per cent reduction in the ratio of spending to GDP in 2013-14 and somewhat lesser amounts in earlier years. This is a significant issue. There is this mantra that the Labor Party run out before each budget where they refer to ‘the big-spending Howard years’. The big-spending Howard years to 2007 amounted to 23 per cent of GDP. At no time do Labor get as low as 23 per cent of GDP. Most certainly, in their most ambitious year, which is four years hence, they do not get to 23 per cent of GDP. If the CPRS were in, it would be nearly one per cent more than what they are already projecting.

It is also the case—and this is a telling point that was picked up by Ross Gittins—that $1.8 billion of spending in infrastructure, water and local government has been brought forward to 2009-10 from 2010-11 and later years to ensure that the forward estimates look better. Even more curious, and we are yet to get to the bottom of this, is that there is a revenue item called ‘growth dividend’ totalling $600 million over the final two years of the forward estimates. This is the additional tax expected to flow from the stronger economic growth arising from the implementation of tax reforms associated with the resources tax. It is fortunate that this notional revenue occurs in the two years when the government is expecting to record very small surpluses. This is part of the government’s claim, I assume, that the more you tax an industry the greater it will grow—and, of course, they are banking the proceeds of that, which we will see over the next few weeks.

The Treasurer claims that every dollar in new policy has been offset across the forward estimates. Let’s have a look at that. Policy decisions since the 2009-10 budget have increased net spending by $5.9 billion. That figure includes new spending measures, new taxes and savings initiatives. So all the new taxes have been spent, all the savings initiatives have been spent and, on top of that, an additional $5.9 billion has been spent for good measure. I emphasise that not a cent of the new taxes has been saved to reduce the deficit—not a cent.

This government have a history of wasteful spending and have, true to form, continued it in this budget. The government have allocated another $536 million for new health bureaucracies as part of their health reform program. That happened after the Prime Minister promised the Australian people that, as a result of his new hospital and health reform program, there would not be any new bureaucrats. For example—bureaucrats are part of the theme—an additional $12 million has been provided to the Prime Minister’s own department, adding an extra 86 full-time staff to the 618 already there. That represents a 14 per cent increase in the staffing levels in his own department.

After all that, it is good to see that the Labor Party continue to look after their mates. A one-off grant of $10 million has been provided to the Trade Union Education Foundation for ‘the development and delivery of national workplace education programs’. I can only speculate on what those programs are. It is just a lazy $10 million! It is interesting that they have brought it forward to this financial year. So the cheque is in the mail; it has to be in the mail before 30 June.

The government has sold this budget as being friendly to small business, but nothing could be further from the truth. The single biggest difficulty for small business at present is the availability and cost of finance. This is hampering the ability of small businesses to invest and grow their businesses and provide jobs. One of the key steps government can take to help small business is to prevent its competing for the scarce capital that is out there, but this government will continue to soak up scarce capital for the next two years with cumulative borrowings of $54 billion. This will deprive small businesses of scarce funds. It will force up the cost of finance.

The government are now borrowing $100 million a day just to fund their expenditure, not to repay debt. That does not pay off debt; they are borrowing $100 million a day just to fund the spending of this year, next year and the year after. What an extraordinary amount of money. As part of this process, the government want to impose a huge new tax on business by increasing the superannuation guarantee from nine per cent to 12 per cent. The question is: will this be paid by business?

It is interesting that the Minister for Finance and Deregulation should bell the cat earlier this year—despite what Tony Jones suggested on Q&A—by alluding to the fact that an increase in the superannuation guarantee would in fact come out of the take-home salaries of workers. This nine to 12 per cent is either coming out of the bottom lines of businesses, which inevitably means that they going to employ fewer people, or quite simply coming out of the take-home pay of workers. It is one or the other, but what you do know is that it is not coming out of the budget bottom line.

The government say: ‘In order to compensate business for this, we’re going to cut company tax, particularly for small business; we will bring it forward and cut it from 30 per cent to 28 per cent.’ They say, ‘This is a great windfall for small business.’ The problem is that only one-third of small businesses in Australia are incorporated. Therefore the company tax cut means very little to a lot of small businesses, and I am prepared to bet that for most small businesses an increase in the cost of the superannuation guarantee from nine per cent to 12 per cent is going to far outweigh any benefit that might come in the form of a reduction in company taxes.

This budget will continue to provide fiscal stimulus to the domestic economy at a time when the government says it is no longer needed. The government’s own forecasts have the Australian economy at or above trend growth for the next four years. The Treasurer has suggested that the government no longer need to provide fiscal stimulus, yet it is the case that in 2012 the government are going to be spending half a billion dollars on school halls to address one quarter of negative growth in 2008. So they are saying, ‘The economy is growing at trend or above, but we’ll still be spending money on school halls in two years time to keep the economy going.’ It is stimulatory, and with that sort of stimulation still out there in the economy the government will continue to run deficits and the deficits will impact on interest rates. The deficits will push interest rates higher than they should be.

The Reserve Bank has now a lifted the cash rate six times in eight months, with a cumulative increase of 1.5 per cent. But the gap between what homeowners and small business pay and the cash rate of the Reserve Bank has grown, and the net impact is that the increases by the Reserve Bank have had a more profound impact than just the increases in themselves. The interest bill on an average mortgage of $300,000 has risen by least 4½ thousand dollars a year. So let’s be very clear: the more the government borrows, the more upward pressure is on interest rates; the more the government goes down the path of spending money that it has not received and needs to borrow, the greater the upward pressure on interest rates.

Around the world we are seeing what happens when government finances are unsustainable. Greece is struggling to finance its ongoing deficits in the market. This has prompted a trillion-dollar rescue package by the European Union and the IMF. Sovereign risk is now a very real fear in the financial markets. Debt levels in Japan, Europe, the UK and the USA are at the point where the governments will be struggling to stabilise and service their debts, let alone make any progress at all in repaying them. IMF data shows that six of the G7 nations will have gross debt-to-GDP ratios of 90 per cent or more by 2014.

I wish to stress that Australia is not in this position. It is not an accident, but it has occurred despite the best endeavours of the Labor Party. They actually did inherit a $20 billion surplus, $60 billion in the Future Fund and an economy with just four per cent unemployment. But what they have to understand is that you can ruin the opportunity, and preserving the faith and trust of the markets and communities requires ongoing strong and prudent management of the budget and the economy. The economic and fiscal forecasts of government have to be credible. The actions of government have to provide a stable and predictable investment environment.

This illustrates why the coalition has decided to take a stand. We believe in responsible fiscal management. Dare I say it, we are fiscal conservatives and not pretend fiscal conservatives. Last week I released the principles which will guide the coalition in setting and implementing its policies for underwriting the future prosperity of this great nation. At the core of that is a belief in free, fair and competitive markets. It is also the case that the rights and choices of individuals are paramount. Well-functioning markets and individuals rather than governments are usually best placed to make decisions that maximise community wellbeing. We believe in small government. That is why we made the hard decisions about the $47 billion of gross savings. We believe in efficient government; that is why we went program by program through the savings measures that we are going to implement. And we are most acutely aware that the money being spent by government is in fact other people’s money. That is why whatever we can do to improve the strength of the Australian economy is going to be enhanced by collecting less tax, not more.