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Wednesday, 29 May 2013
Page: 4425

Mr TURNBULL (Wentworth) (11:15): For the past three years the government and the Treasurer pinned their credibility on the claim that they would return the budget to surplus this year. We learnt just before Christmas that they would not do so for the current 2012-13 financial year; instead of the long promised return to the black, Labor would deliver its fifth successive deficit. And then on budget night May 2014 we learnt that not only will this year's budget be in deficit by $19.4 billion, the fifth largest dollar deficit in our history, but barely less emphatic deficits of $18 billion and $10.9 billion are now forecast for the next two years. Altogether over those three fiscal years, where an aggregate surplus of $9 billion had been forecast a year ago, we now see this Labor government predicting it will run deficits of $48 billion.

The Prime Minister and the Treasurer claim the reason for this is a shortfall of revenue. Indeed, revenues are now not predicted to grow as quickly over the current year and the period immediately ahead as had been projected and as in previous periods immediately after a recession or slowdown. The reasons for that slow growth in revenue had been widely canvassed. Capital gains tax receipts were at a historically high level prior to the global financial crisis and they are unlikely to recover in the foreseeable future to those levels, particularly given some of the paper losses racked up during the GFC. The high level of corporate tax collections we saw prior to the GFC, which relied heavily on big profits in the resources sector, will now not be matched for some time because of commodity prices which are now significantly below their 2011 peak and the very large depreciation in investment related write-offs against taxable income that were arising in the resources sector due to the $320 billion or so of investment in new projects and new capacity between 2010 and 2014.

Of course, the high Australian dollar, off its peak, has nonetheless been a factor in reducing tax collections. Exporters revenues, measured in Australian dollars, are reduced even if the contract currency revenues, typically in US dollars, have remained the same. And of course the Australian dollar cost of exporters, whether of minerals, manufactures or services like tourism and education, cannot be passed on. And finally there is the impact of higher household savings, which since 2006 has been around 10 per cent of GDP, up from negligible levels of net savings in the early 2000s. That is a very welcome development in that it implicitly recognises the level of consumer spending of a decade ago was unsustainable and underpinned by a rising level of net debt. But it has also reduced indirect tax collections and, most of all, the collection of GST.

Despite all of this however, revenues in 2013-14 are forecast to be $103 billion higher than in Peter Costello's final 2007-08 budget. That is an increase of 38 per cent in nominal terms, or about 12 per cent in real terms, and that despite the impact of the GFC. The real problem is that spending has surged by $138 billion since Labor came to power in November 2007. That is an increase of 55 per cent in nominal terms, or 25 per cent in real terms. Profligate spending and a habitual disregard for the responsible use of taxpayers' funds has become ingrained. The government says that it has a revenue problem. Saying that the government has a revenue problem is as stupid as saying a person who is a spendthrift and regularly maxes out his credit card has a revenue problem. The government, like any spendthrift, has a spending problem; in other words, it cannot live within its means. Little wonder that almost a quarter of a century has elapsed since Labor's last surplus was delivered by Paul Keating in 1989-90 before the birth of the youngest member of the parliament.

The parlous situation that the budget is left in and that we will inherit if the people of Australia give the coalition the reins of government in September is far from being a proud legacy for the Rudd and Gillard governments. It is a shameful legacy for the current Treasurer who will have presided over the six years with the most favourable terms of trade in our modern history and delivered six successive deficits in those years including the five largest dollar shortfalls since Federation. Yet in recent weeks—and particularly since Treasury and the Parliamentary Budget Office last week published their respective opinions regarding the path over recent years of the structural budget balance—there has been a lot of finger-pointing at the Howard government as having contributed to the current state of the budget. By the structural fiscal balance, we mean the position of the budget once the effects of the economic cycle—such as an increase in unemployment benefits when the cycle slows or the offsetting decrease when growth in output and employment are rapid—are abstracted away and other one-time influences—such as the pre-GFC bubble in capital gains tax collections or the temporary fiscal stimulus measures of 2009—are also removed.

Let me state unambiguously that, had the Howard government enjoyed the wisdom of perfect hindsight, granted I might say to none of us, and had known then what we know now about the future course of commodity prices and their impact on revenues, no doubt it would have saved even more in its last four years of office than the already prodigious public sector saving it did undertake between 1996 and 2007. Of course, in that world of perfect hindsight, where you could in 2007 cast yourself forward five years and see what the future held, no doubt the many voices calling for the Howard government to save even less would no doubt have been similarly converted to thrift. The saving of the Howard years, let us recall, included paying off the entire public debt inherited from its predecessor and the establishment of the Future Fund which now has accumulated assets of $85 billion to finance the hitherto unfunded public service pension liabilities. But to somehow try and claim a moral equivalence between the Howard government and the current Labor government in responsibility for the current state of the budget is quite absurd. It is nothing more and nothing less than a framing of the issue entirely directed at getting the current government off the hook—providing it with an excuse for its own incompetence, ill discipline and mendacity about fiscal matters.

What the Parliamentary Budget Office's publication on the structural position of the budget actually shows is that in those years for which the budget balance has been calculated—which is the period since the turn of this century, the midpoint of the Parliamentary Budget Office's estimated range—was in structural surplus in every year of the Howard government except its last and even in the last year it was broadly in balance. In contrast the structural budget balance under Labor, according to the PBO's work, has been in deficit every year and is projected to remain in deficit until 2017. If that is what actually plays out, there will have been a decade of huge to modest structural deficits, all of them through a period when our terms of trade have been higher and will be higher than they have ever been before in modern times. By the end of all of this, $45 billion in cash at the bank left behind by the coalition in November 2007 will have been turned into net public debt of $191 billion.

In reality the Prime Minister and the Treasurer have engineered a permanent increase in the size of government by declining to find offsetting savings for their new programs—some of them no doubt worthy, but all of them costly. Mr Swan and Ms Gillard indulged in this profligacy because they assumed ongoing revenue gains from the resources boom and the record terms of trade of the past few years. But even that rash assumption alone does not excuse their waste and profligacy. We have seen what was plainly going to be a highly-cyclical source of income, namely the mineral resource rent tax, used to justify spreading the benefits of the boom—by which this shambolic government meant locking in a level of structural spending much higher than even the most optimistic projections for the cyclical revenues out of which that spending was supposedly to be funded.

Even that assumed Labor was capable of designing and implementing a mining tax that actually raised some revenue. In truth, we now know that the only Labor politician who can claim to have spread the benefits of the mining boom is not Wayne Swan but rather Eddie Obeid—although to be fair he did not spread to the benefits very far, just to his immediate family and friends.

Recently we have also heard the canard that, because the Howard government cut income taxes and promised further tax cuts if it were re-elected in 2007, this somehow is the reason for the precarious current state of the budget. What nonsense! The income tax cuts that occurred after 2007 were a choice that the current Treasurer, and the government of which he is a part, made. They claimed all credit for them. They did not say, 'Peter Costello made me do it. John Howard had my arms twisted up behind my back.' It was their choice. If they disagreed with those tax cuts—if they thought they were unaffordable—they should have said so in 2007. If the facts changed, such that they no longer were affordable, why did they continue with them? Or, having implemented them, why did they not repeal them?

Every government is responsible for the outcome of its budget. Unlike households that cannot increase their revenue of their own volition, the government can always raise more revenue and reduce spending, so the responsibility must lie with the government of the day; and this government has been presented with terms of trade and economic circumstances that should have seen solid growth in surplus—a rapid return to surplus, given these massive boosts we have had from the terms of trade. But no: they are anxious to blame everyone but themselves. Not only were John Howard and Peter Costello meant to be paragons of fiscal responsibility while they were in power—not only were they apparently meant to have the wisdom of 20/20 vision in both hindsight and foresight while in power, they were apparently supposed to continue to be the adults in the room after they had been voted out of office—by influencing the Labor cabinet in some ethereal manner, no doubt.

This is a total abrogation of responsibility—an admission of weakness and lack of judgement. Governments can borrow more easily than most families or businesses, as we have seen, but they ultimately need to live within their means. That is their responsibility. This government has not lived within its means despite the extraordinary advantages and immensely strong fiscal position it has inherited. We are in a situation where we are in a structural deficit and are likely to remain in a structural deficit for many years to come. The position that was inherited from the Howard years was one of a strong budgetary position and a structural surplus—or, as I noted earlier, in the last year, one that was broadly in balance. No matter how the members of this government and some members of the commentariat attempt to frame the issue otherwise, it will be this lack of fiscal responsibility—this sense that the Labor government does not understand the economy it has the charge of managing—that will in large part dictate how the nation votes on 14 September.

The big issue in this election is not going to be a particular policy—this policy or that policy; overwhelmingly, it is going to be the question of competence. The fact is that the Treasurer has been unable to deliver a surplus, despite one promise after another. He has promised a surplus on hundreds of occasions but he has been unable to deliver one. All that he can offer us is deficits year after year into the future. This underlines the ineptitude, the lack of managerial capacity and the lack of competence of this Labor government.