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Thursday, 26 May 2011
Page: 4913


Mr HARTSUYKER (Cowper) (11:32): I welcome the opportunity to speak on Appropriation Bill (No. 1) 2011-2012 and its cognate bills. I welcome the opportunity to speak on this legislation, which appropriates the funding sought through yet another Labor budget built on deficit, borrowing and debt. This is a typical Labor budget. We heard the government speak of a budget containing tough decisions but, once again, the government's spin and rhetoric fail to be matched by its actions.

We heard the Treasurer say before the budget:

… if we are going to be Keynesians in the downturn, we have to be Keynesians on the way up again.

The Treasurer said:

… being a Keynesian means supporting a counter-cyclical fiscal policy with government making room for the private sector when economic growth is strong.

Well, by the Treasurer's own standards, the budget is a complete failure. In the true Labor tradition the budget crowds out the private sector at every opportunity in order to prop up its forecast of a 2012-13 surplus. That will only happen by the government manipulating the figures again next year.

Far from making room for the private sector, these bills will increase government competition in the debt market. In November, we were told that net debt would peak at $94 billion. On budget night it was revealed that net debt is now $107 billion, and the government is borrowing $153 million every single day. Each day we have the government out there competing against private enterprise and small business for funding and putting pressure on interest rates paid by small business and homeowners.

Appropriation Bill (No. 2) 2011-2012 seeks to increase the government's gross debt limit from $200 billion to $250 billion. So, instead of making tough decisions to produce a surplus, instead of cutting back on its spending, the government is simply increasing its debt limit and borrowing more and more taxpayers' money. Any surplus will be illusory as long as the government is paying back the debt. Cumulative interest on Labor's net debt will be more than $26 billion over the next four years. The repayments on government debt will be billions more than any surplus predicted by the government over the next four years. It is a budget built on debt and spending, and small business and householders and families will be the ones who have to pay. The Treasurer does not understand the impact of spending on interest rates. It is basic economics that record government spending and waste will increase the money supply in the economy and inflate prices. The Reserve Bank is given no choice but to increase interest rates to reduce the money supply and to reduce inflation. Interest-rate rises are not only hurting businesses but they are also increasing the cost of living. This government simply does not understand that there are many individuals and families feeling the pressure of cost of living and this budget does very little to help them. Again the government could help with inflationary pressures in the economy by easing spending and reducing government debt and competition in the credit markets.

The Treasurer states that the economy is crying out for workers but the reality is that not every sector in the economy is experiencing growth. Businesses operating in slow sectors are raising prices to deal with a combination of reduced returns, increased funding costs and higher interest rates brought about by this government. Labor simply does not understand that the government spending is inflationary and increasing inflationary pressures are adding into the cost of living. Aggregate annual inflation is currently 3.3 per cent, just about the Reserve Bank's target. But the aggregate figure does not give the full picture. According to the Reserve Bank, food prices are inflating by 11.5 per cent annualised. This has been constant over the past six months, well before the natural disasters hit Queensland. Transport costs have inflated in the March quarter by 10.6 per cent annualised, and this is hitting family budgets, workers and small business right across the country.

These pressures are being felt strongly in my electorate of Cowper. The electorate I represent is one of the most beautiful in Australia. In a geographical sense, we live in paradise: great beaches, beautiful national parks, a great subtropical climate. But behind the natural beauty of the region there are many North Coast residents struggling to make ends meet. A snapshot of the Cowper electorate provides insight into why this is so. In approximate terms the Cowper electorate has 20,000 age pensioners, 5,000 people receiving carers allowance, 9,000 on the disability support pension and 15,000 receiving Family Tax Benefit A and 11,000 receiving Family Tax Benefit B. Twenty per cent of families have only one parent and 37 per cent of couples have children. For the majority of those people the budget fails the very fundamental test of providing assistance with the increased costs of living. Indeed, the reality is that this budget locks in the Gillard government agenda, which will actually deliver a double-whammy to North Coast residents. In the first instance the budget fails to acknowledge that the rising cost of living is impacting on many low-income families and that their inflationary experience is far greater than the headline figures that are published from the Reserve Bank. Secondly, this government has made it clear that they intend to squeeze household budgets further by introducing a carbon tax. And they will be increasing it afterwards. That is one of the sinister things about this tax, that they will slip it in at a relatively low rate and then they will ramp it up. Watch this space. That will drive up the cost of everything.

Last Sunday as I completed my regular grocery shop I started to wonder about the Prime Minister and the Treasurer. I often wonder about the Prime Minister and Treasurer, I must say, but going through the aisles at Coles I wondered when was the last time the Prime Minister cruised down to the grocery store and when was the last time the Treasurer cruised down to the grocery store to buy some groceries. I guess the truth is that neither the Treasurer nor the Prime Minister has probably been to the supermarket anytime in the recent past. But the answer to that question really does not matter. The Prime Minister and the Treasurer are very much out of touch. If they were in touch with the Australian people then they would not be proposing to introduce this massive new carbon tax. They would be saying, 'We acknowledge the fact that the cost of living is rising rapidly, the fact that people are struggling to pay their mortgage, the fact that utilities are going up virtually every day of the week.' Hardly a day goes by without another headline relating to the increased cost of living. You would think that a Prime Minister and a Treasurer who are in touch with the Australian people would say, 'We mustn't do anything that is going to make this situation worse.' Our policy focus must be that we endeavour to take the pressure off the cost of living to ensure that the government is not out there in the debt market competing with the private sector, driving up interest rates. We should be trying to do that from a policy perspective. But what is the situation? It is exactly the reverse. We are going to impose a carbon tax that is going to drive up the cost of living—drive up the cost of every single thing that you buy—and we are going to tell the Australian people that it is good for them, that we are going to save the planet. I certainly commend Senator Joyce for raising the question: how does imposing a new tax cool the planet? The Prime Minister and the Treasurer have always failed to answer that question, a very important question indeed.

The carbon tax is going to make life difficult for the people on the North Coast. It is going to drive up the cost of everything they buy. It will drive up the cost of memberships in sporting clubs. It is going to adversely impact on volunteer organisations that are also struggling to make ends meet through increased electricity bills for Meals on Wheels or whatever other voluntary organisation you care to name. It is interesting that the carbon tax is off budget. It is not included in the budget at this point in time. This is a major tax reform—or we will not even call it a reform; it is a major imposition of a new tax, and it was not included in this year's budget.

Another important issue that faces Australia's financial future is how we are going to pay for the NBN and the benefit of the NBN. The budget papers detail that the government will be investing $27.5 billion in NBN Co. to build and operate the NBN. We hear from the government time and time again that the NBN should not be treated as a cost or an expense to government, yet for the NBN to be kept off balance sheet it must provide an internal rate of return above the government bond rate. The government's arrangements for the Commonwealth government business enterprises published by the Department of Finance and Deregulation state:

The required return on equity is the risk free rate plus the proportion of market risk premium appropriate to—

the enterprise. This means that in order to be kept off the government's balance sheets the NBN must at least generate returns at the risk-free rate, measured as the government bond rate. This is before we consider the market risk premium, a very important point indeed.

NBN forecasts a seven per cent internal rate of return which will just keep the project above the current 10-year government bond rate of 5.75 per cent and off the government's balance sheet. But it is becoming clear that the government and NBN Co. do not understand the risks associated with this project and any increased cost will effectively force the expenditure of the NBN onto the balance sheet as rates of return plummet. If our income does not come up to standard and up to the projections and our costs are higher than what is projected—and we already see that with the construction tender process—the IRR will fall. That will quite properly mean that the government's thinly veiled excuse for concealing the NBN from the budget figures will evaporate. It is interesting to note that on 1 April, April Fool's Day, NBN Co. indefinitely suspended their network construction tender because they felt the 14 tenderers were trying to charge too much for construction costs. It was April Fool's Day, and the government still has not woken up. The NBN Co.'s head of corporate services, Kevin Brown, all but accused the 14 tenderers of price gouging when he said:

NBN Co does not regard current pricing reflects capacity constraints in the industry , and we are progressing a different approach that we think will produce a better result.

We can ask if NBN Co. really thought that the tender submissions were in fact overpriced or whether NBN Co. are constrained by the funding being provided to them by the minister and the Prime Minister, who have no understanding of the costs and the risks in the IT industry. The government cannot increase NBN Co.'s budget because it will lower the internal rate of return for the project and therefore the IRR may ultimately fall below that hurdle rate which would require the project to be included on budget. The taxpayer component of capital expenditure for the NBN was originally $35.7 billion. We can legitimately ask whether the government lowered this amount to $27.5 billion simply because that is what it needed to produce a seven per cent IRR and keep the project off balance sheet so the government could claim a surplus next year. But without an understanding of the risks and an appropriate budget, this project is likely to blow out by billions of dollars. On Tuesday the CEO of one of the 14 tenderers, Leighton Holdings, Mr David Stewart, said the following with regard to NBN Co.'s tender process . It is quite interesting. He said:

Some of the things that people are asking us to do are impossible for us to even price.

He goes on to say:

I think if 14 contractors have come in with prices that seem like gouging, you would have to look at the contract to see what is going in those contracts because I don't think 14 contractors are necessarily missing the point.

Mr Stewart continues:

Often you find that any new enterprise that is set up as a special purpose vehicle all the experts decide that they can change all the Australian standards, change the contract conditions, change the risk profile and fix up an industry that was probably okay before they started.

The government simply does not understand the risks and price pressures in this industry, and we are heading for a financial disaster—one that is being kept out of the budget for strategic reasons and should be of great concern to all Australians. NBN Co. backed by the Prime Minister and the Treasurer are changing all the rules and destroying all the competition in order to prop up the internal rate of return.

We know competition policy rests on more competitors in the market. It produces a better outcome for consumers. It produces cheaper prices, yet with NBN Co., we are actually legislating for less competition. We are legislating to keep competition out of the market, which can only mean one thing: higher prices for consumers and a lessening in competition in the market.

This is a budget that has failed the Australian people. This is a budget that does not pass the test of being responsible. It does not pass the test of a budget that is required to deliver quality outcomes for the Australian people. This is a budget that is certainly not going to result in a surplus in 2012-13 unless we see a little more creative accounting from the Treasurer. (Time expired)