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Wednesday, 15 May 2013
Page: 3286

Mr HOCKEY (North Sydney) (15:11): I confess that I genuinely wanted last night's budget to be a good budget. After five budgets of overblown rhetoric and broken promises from this Labor government, I believed that Australia's finances were in a mess. I wanted the Treasurer's sixth budget to set us straight. I expected he would come clean about the state of play. I expected that he would identify the reasons why the budget was in a mess and would admit that he had basically got the numbers very wrong—very wrong last year and the year before and the year before and the year before. I expected he would lay down a believable pathway to surplus, that he, as Treasurer, would restore the sustainability of the nation's finances. But I was disappointed, and I think many Australians were disappointed. I do not have any confidence that the numbers and the promises in the Treasurer's sixth budget are any more believable than they were in his previous five budgets.

Last week, the Leader of the Opposition and I laid out benchmarks for what we believe would make a good budget. The first requirement was honesty. But straight-up in his budget speech last night, the Treasurer began the spin and excuses. Faced with his broken promise to deliver a surplus this year, he talked about the high Australian dollar 'weighing more heavily than expected on tax receipts'. As I said before, the one assumption the Treasurer got right in last year's budget papers was the Australian dollar. In last year's budget the four-year assumption that underpinned the numbers was an Australian dollar of US103c, and it has remained around there. In the previous budget it was a four-year assumption of 107c. In MYEFO, released last October, when he was still predicting a surplus, the Treasurer said:

The exchange rate is assumed to remain around its recent average level … a [US] dollar exchange rate of around 102 US cents.

The Australian dollar has subsequently been little different to the forecast—today it is actually weaker, under parity with the US dollar—so the Treasurer cannot use the Australian dollar as an excuse for his budget chaos. His own budget papers also show there is no shortfall in revenue. Next year revenue will be $80 billion higher than the last year of the coalition government—no shortage there—but spending will be $120 billion higher than the last year of the coalition. But in real terms, the fact is that in last year's budget revenue rose six per cent; this year it is projected to rise seven per cent; next year it is projected to rise 6½ per cent and so on. With any business that is having a six to seven per cent increase in revenue and is still under water, surely the directors would be sacked? But the government keeps overestimating revenue.

Last year I described revenue forecasts as a 'magic carpet ride' in my address to the Press Club: an estimated $39 billion increase in revenue that would turn a $44 billion deficit into a $1.5 billion surplus. Of course, the government were wrong. Now they are basing forward estimates for revenue from the carbon tax and the mining tax on equally ridiculous assumptions. Net receipts from the MRRT are forecast to be just $200 million this year. That is less than 10 per cent of the $3 billion forecast in last year's budget. But, despite this massive shortfall and widespread views that the commodity price boom is fading, MRRT revenue is forecast to rise strongly over the forward estimates to $2.2 billion in 2017. So the government wants us to believe that revenue will be less than 10 per cent of the forecast this year but then will rise by a factor of 10 over the next four years.

The forecasts for the carbon price also stretch credibility. The carbon price scheme links to the European system from 1 July 2015. Overnight, forward prices for European carbon permits in 2016 were at $5.57 at current exchange rates. The carbon tax revenue is based on $12.10 in 2016, a marked reduction from the originally forecast $29 a tonne. That looks pretty high. Surely, if you were preparing your budget numbers you would do it on the basis of what appears to be the most likely price today. Even stranger: the carbon price is projected to rise in a linear fashion to $18.60 in 2017 and back up to the model price of $38 per tonne by 2020.

Mr Briggs: That's a floating price!

Mr HOCKEY: That is meant to be the floating price! But what is patently clear is that if they do not have a satisfactory floating market-based price they are going to reintroduce the tax! That is what their budget assumes. Fundamentally, they are changing policy in the budget. Spending relative to GDP will be higher in every year of the forward estimates than it was in the final two years of the coalition government. So the picture is clear: the government does not have a revenue problem; it has a spending problem.

There is more. The Treasurer has made jobs and growth the centrepiece of his budget. He said:

Two simple but powerful words are at the heart of our approach—jobs and growth.

And yet, his own budget forecasts show the opposite. Real GDP growth is forecast in his budget to slow down to 2.75 per cent in 2014 and from three per cent this year. The unemployment rate is expected to rise to 5.75 per cent in the first two years, from 5.5 per cent today. So the budget comes along, and then he says: 'What spin am I going to put on it? Oh—jobs and growth!' The problem is that when he defined the spin he did not actually look at the budget, because the budget goes in absolutely the opposite direction! So promising jobs and then not delivering goes to the heart of the uncertainty facing so many families in Australia today.

The forecasts for growth in nominal GDP also look optimistic. This goes to the heart of revenue. Nominal growth is forecast at five per cent in 2013 and 2014, and then even stronger—at 5.25 per cent—in the next two years. This is a much stronger rate of growth than has been delivered in the past year or so. But the Treasurer says, 'No, no—it's a hit on our revenues.' For example, the forecast for this financial year is growth of 3.25 per cent, and over the year to the December quarter nominal growth was only two per cent.

If you bear with me, Madam Speaker, I need to get a little bit technical. Real GDP shows the volume of goods and services produced and then consumed in the economy in any given period. Nominal GDP shows the value of goods and services produced and consumed. The difference is the rate of growth of prices, measured in the case of a GDP deflator. The GDP deflator is different from our more commonly used price indicators, such as the CPI—the consumer price index—because, amongst other things, it takes into account the prices of exports. So forecasts of the prices of exports and the terms of trade are critical input into the forecasts of nominal GDP. What is surprising is that the budget forecasts the terms of trade to remain at very high levels over the next two years, with a negligible decline. I remind everyone that even at their lowest point under this government, the terms of trade are going to be much higher than they were at any time under the coalition.

So the government's claims seem odd, because the terms of trade peaked in the September quarter of 2011 and have declined in every quarter since. They were 17 per cent below the peak in the December quarter last year. So while commodity prices picked up in the March quarter, showing that there are always swings and roundabouts, they have begun falling again. Many analysts suggest that the commodity price boom is now coming off the boil. In fact, in the budget papers they identified that iron ore prices are coming down to around $100 a tonne in the next two years in response to the increased supply of commodities in the global market. Yet, the government believes that this overall decline in prices will conveniently come to an end after two years.

Why is this important? It is important because the assumption of continued high terms of trade feeds into the higher forecasts for nominal GDP. This, in turn, allows higher forecasts of company profits and taxes and, therefore, a better estimate of revenue for the budget bottom line. So, while the budget does not provide four years of forecasts of the terms of trade but it gives 15 years of expenditure in various areas, the robust near-term forecasts are a key determinant of the projected surpluses in the final years of the forward estimates.

So the forecasts are very finely balanced. Sensitivity analysis suggests that a one per cent fall in nominal GDP owing to a fall in the terms of trade of just four per cent would wipe out any—any—budget surpluses this mob are claiming. That is the bottom line, and that is the risk in this budget. That is why we do not believe the numbers announced last night.

The second requirement the Leader of the Opposition and I had was a realistic medium-term budget strategy within achievable fiscal rules. The core of the government's medium-term fiscal strategy is to achieve budget surpluses on average over the medium term. It is a worthwhile goal. However, the Treasurer has not told anyone what the medium term is. With seven years of deficits in prospect, what is the medium term? It may be a decade, two decades, a century, a millennium! We don't know. What we do know is that the two promised surpluses in the final years of the forward estimates are tiny: $850 million and $6.6 billion. And, as I have said, they are based on heroic assumptions. So his claim of a credible pathway to surplus is not honest with the Australian people.

The third criterion laid down by the Leader of the Opposition and me was that the Treasurer must present a believable strategy for stabilising and then repaying the massive Labor debt. Unfortunately, the budget papers show that the debt continues to rise. The headline cash balance, which includes the NBN and the CEFC, remains in deficit throughout the forward estimates. We never had any project anything like what they are trying to offload off budget. This means that the government will continue to borrow more and more money over the next four years, totalling around $58.2 billion. With the expected face value of Commonwealth securities on issue of $256 billion as at June 2013, it suggests gross debt is likely to exceed the $300 billion limit not only within the forward estimates but probably in the next two years. This has been confirmed by third parties such as the National Australia Bank and UBS Australia. Yet we had the charade of the Treasurer in this place trying to compare apples with oranges and alleging that we were being misleading for the Australian people. Previously he has fronted this place and given a gross debt value, a gross debt level, according to the rules of the debt cap. Today he did not have the guts to do it. Why? He doesn't know or else he is deliberately misleading the Australian people.

If this Treasurer does not know what the debt level is of this government, he is not fit to be the Treasurer of the Commonwealth. The government has flagged that it will legislate to increase the debt limit 'as it becomes necessary'. So they do not have the courage to front up with their budget papers that increase the debt without coming to this parliament and saying they are going to increase the debt level. What we do know is that the interest bill on this debt will peak at $13 billion a year—$35 million a day. That would cover the full cost of the DisabilityCare Australia program when it is fully operational.

Fourth, the Treasurer must come clean on the taxation burden he is imposing. In the range of taxation measures announced last night, 60 per cent of the so-called policy savings over the forward estimates are in fact new or increased taxes. This government maintains the fantasy that it is a low-taxing government. But the fact is there are shortfalls in revenue thanks to the incompetence of the government and it is also added to by the massive borrowings and non-tax revenue. The average call on resources of this Labor government since its election will be 25.2 per cent of GDP. That is, it is utilising more than a quarter of the nation's output. That is big government. In contrast, our call on resources as a coalition was significantly less, at 23.4 per cent, because we did not borrow tomorrow's taxes to spend today. We didn't do that. We didn't borrow money like this mob. Therefore, we weren't leaving our children with the pain.

This budget is flawed. This budget does not tell the truth. This budget is leaving a legacy of debt and deficit the likes of which Australia has never seen. Everything the Treasurer says and everything the Treasurer does is as unbelievable as all his previous budgets. Unfortunately, all Australia will have to pay. (Time expired)