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Wednesday, 26 May 2010
Page: 4314

Ms O’DWYER (12:45 PM) —This is a typical Labor budget. At its core, it is a budget that will tax more, spend more and borrow more, and, because of this, Australians will owe more. It is another big-deficit budget—a budget that lacks vision and leadership; a budget of wasted opportunity; a budget of squibbed decisions; a budget of increased spending. This is a budget that ultimately does nothing to secure the Australian economy and Australia’s future during turbulent global economic times, because this is a budget built on hope—hope that Australia’s terms of trade will continue at 60-year highs; hope that China’s boom will continue, along with her investment in, and reliance on, Australia’s resources; hope that, despite bringing in a big new tax on the resources sector, that sector will continue to grow and invest in Australia; and hope that Australia will be immune from the global economic contagion that has engulfed much of the Western world. Designing a budget on hope is hardly the work of economic conservatives and prudent economic managers. This government has been exposed. For all its posturing and talk, this budget reveals the truth: that the government can not be trusted to take the difficult decisions required to build a strong future for all Australians.

Let’s look first at the deficit. The deficit this year will be $57.1 billion—the largest in Australia’s peacetime history, eclipsing Gough Whitlam’s by a country mile. Next year, we can expect a deficit of $40.8 billion, and that is assuming that there are no cost blow-outs—a big assumption when you consider the billion-dollar blow-outs in so many of the government’s programs. The net interest bill for the coming three years to 2012-13 will be over $6 billion per year. Yet the government is still as determined as ever to borrow on an unprecedented scale. Using future generations as collateral, they are racking up over $700 million per week to fund their reckless spending. At $100 million a day, Australians quite rightly want to know if they are getting value for money. The answer is a resounding no.

So what are they getting? Well, for one, they are getting a whole lot more bureaucrats. Not content with a department of over 600 people, the Prime Minister needs more, spending $12 million to add an extra 86 full-time staff. He is setting up a whole new health bureaucracy as part of his so-called health reform program, pumping $536 million into this new scheme. And he wants to make sure that you get the right spin on all of this, setting aside $74 million for his taxpayer funded pre-election advertising on the government’s $43 billion National Broadband Network, his focus-group tested climate change policy and changed funding split for health. In total, the government is spending an extra $26 billion over and above what it forecast in last year’s budget.

How does the government justify the continued borrowing and spending cycle that will result in a total of four budget deficits by 2011-12? It all apparently relates back to one quarter of negative growth in December 2008. Yet circumstances have changed. The government’s own forecast predicts growth of 3.25 per cent in 2010-11, rising to four per cent in 2011-12. The Treasury’s economic outlook states that private sector activity is expected to be the key driver of growth. Commodity prices have picked up. There is no need to continue with the big spending program that the government put in place to counter the global financial crisis. In fact, we are seeing the fiscal policy of the government in direct competition with the monetary policy of the Reserve Bank, with the government revving the engine of the economy with its ‘borrow big and spend it all’ strategy and the Reserve Bank of Australia trying to put a brake on the engine by raising interest rates six times in eight months.

When in office, the coalition knew that sound fiscal management would benefit business investment and households by keeping interest rates low. We knew that it was important to build up a strong surplus to act as a buffer against potential economic hazards. This buffer has not only evaporated under the current government; we instead have a deficit of $57.1 billion and a net debt of $93 billion. It took the Hawke and Keating governments 13 years to accumulate this much debt. It has taken Prime Minister Rudd only three. As he himself would say, this is ‘historic’. On this side of the chamber we have been critical of the government’s stimulus spending because it has involved too much borrowing and spending for too long. Far from safeguarding our economy, this continued borrowing and spending has the potential to make us vulnerable, unable to withstand any shocks or changes to the global economic environment. You only have to look to overseas examples to see the danger of exposing taxpayers to large amounts of debt.

But it is not just the size of the stimulus that is such a problem; the stimulus programs are also failing to deliver value for money and in some cases have destroyed entire sectors of our economy. I am speaking, of course, of the various botched programs of the government—ill-conceived political fixes, badly implemented and with dire consequences. Exhibit A is the government’s billion-dollar home insulation scheme. With a $1 billion blow-out, it now has to spend millions of taxpayers’ dollars fixing up the electrified roofs and dodgy installations.  The Australian people have become almost immune to the daily examples in the media of the waste and mismanagement of the Building the Education Revolution program, with taxpayers paying in some cases triple the cost for buildings that are not fit for purpose. This is reckless spending. It is reckless waste.

But the real question is: how will the government pay for all of this? Why, new taxes, of course—$17 billion in new taxes over the forward estimates period. After commissioning the Henry tax review, what it called the most significant and far-reaching review of the Australian taxation system in decades, at a cost to the taxpayer of $20 million, the government has accepted just 2½ of its 138 recommendations. Far from simplifying tax, far from reducing the number of taxes, this government has shamelessly sought to plug the gaping hole in its finances by imposing an entirely new tax, without eliminating or replacing any others—and it has called this a great reform. There were 125 taxes before the Henry tax review; now there will be 126, including a great big super new tax on our resources sector.

According to the budget papers, this is a tax that will deliver to the government $9 billion a year in revenue—revenue that will be dedicated to recurrent spending. Yes, recurrent spending. So, far from the statements by this government that the money is to provide for Australians into the future, they have not quarantined this money by putting it into a sovereign fund locked away for future generations. Every last cent will be spent. And on top of this they are using all of the accounting tricks in the book, classifying the revenue from this new tax as savings. This is simply more spin—more political trickery from a panicked government that is out of its depth.

The government says, now that it has announced this new tax, that it will consult—more spin. If the government had been interested in genuine consultation, it would have made public the Henry tax review when it was delivered in December of 2009 rather than simply making the announcement of a great new tax on 2 May without any discussion or consultation with industry and the Australian people whatsoever. We have a situation where the government have loaded the dice to get the outcome that they want. They put the Secretary to the Treasury in charge of drafting the report, then they got the Treasury to provide advice to the government on its response to the report, and now they expect the Treasury to oversee the consultation process on the new tax. It is rather like writing an exam paper, giving the answer and then marking the paper.

On 3 May Treasurer Wayne Swan said:

If you think about reforms of economy and the economic system in our lifetime, this is more significant than anything I can think of.

Obviously, the Treasurer has a very poor memory. The coalition government delivered real tax reform which took place through the introduction of a broadbased consumption tax—the GST—that eliminated a host of inefficient and distortionary taxes, including debits tax; stamp duty on marketable securities; conveyancing duties on business properties; stamp duties on credit arrangements, instalment purchase arrangements and rental/hiring agreements; stamp duties on leases; stamp duties on mortgages, bonds, debentures and other loan securities; stamp duties on cheques, bills of exchange and promissory notes; and bed taxes. That was real reform.

The measures introduced by the previous coalition government have ensured that Australia can draw upon a broad base of tax revenue without relying on any particular industry or sector to prop up the nation’s accounts. The government, however, have gone in the complete opposite direction. They have eliminated no taxes, but have instead placed a great big new tax on the mining industry, making it the highest taxed mining industry in the world at 57 per cent. That is 17 per cent higher than in the United States, 19 per cent higher than in Brazil, 27 per cent higher than in China and a whopping 34 per cent higher than in Canada. These countries are our competitors. They will be the beneficiaries of investment dollars that will flow from Australia as a result of this new tax.

Since the announcement of this tax, Australia has hit the headlines in the international media for all the wrong reasons. For the first time, questions are being asked about sovereign risk. This is because the government’s new tax will apply to the mining sector retrospectively—to existing projects. Retrospective application of tax will see companies think twice about investing in Australia, as can already be seen by the list of projects that have now been put on hold or canned. Billions of dollars will now not be invested in Australia.

Despite this, not only have the government gone so far as to say that the new tax would have no effect on the resources sector; they have claimed that investment will grow as a result. This is a brazen claim that flies in the face of logic and is completely at odds with the market’s view. The global credit-rating agency Moody’s has already said that this new tax will have a negative impact on mining companies’ access to credit, as well as creating uncertainty for future investment.

Let us look at where this tax will cut in. The government says it will cut in at the long-term government bond rate, the risk-free return rate. It claims that any profit above this rate would be a superprofit. The question has to be asked: if this is the government’s definition, what other industries will be next? Will we see new taxes applied to the banking industry? Where will it end?

The government has also sought to justify this new tax as paying for increasing superannuation from nine per cent to 12 per cent. Yet again, this is more spin. This is actually being funded by business through a three per cent levy on payroll. It in fact will cost business more to do business.

What will happen to all the self-funded retirees who have shares? We have seen with the announcement of this new tax the value of their shares and retirement incomes wiped out. There are people who would like to comfort themselves by saying this is a mining tax and therefore it will have no impact on me. They are quite wrong. It will affect every single Australian. Putting a great big new tax on digging things out of the ground will increase prices for everyone. It will increase the cost of housing, the cost of infrastructure and the cost of energy. Everyone will pay.

The resource rent tax is a desperate response by a panicked government to get revenue to pay for its increased spending and cost blow-outs. There is not an economist on the planet who will tell you that the way to increase investment in an industry is to increase its tax burden without providing any reform, but that is exactly what we are being told by the Treasurer.

This new tax typifies the government’s view of the economy as static and unchanging, as though it is fixed in a single point in time. They assume that the mining sector will continue to grow at the current pace in the future and that we will always be able to borrow against strong mining profits. The government does not understand that the economy is dynamic, that it changes, often very rapidly, from one year to the next. The global financial crisis has shown us that to assume that a particular set of economic arrangements will last is not wise. We have to be smarter about how we secure a stable and prosperous economy.

The coalition remain committed to running a budget surplus over the fiscal cycle. We will do this to take pressure off interest rates, stabilise federal government debt, restore flexibility to the budget and ensure Australia is again in a position to save for the future. We stand by our record on debt reduction and sound fiscal management. We believe our record speaks for itself. The end result will be lower interest rates for households and small businesses and a more sustainable economic future for all Australians.

Sitting suspended from 1.02 pm to 4.23 pm