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Thursday, 5 February 2009
Page: 433


Senator BRANDIS (1:10 PM) —On 6 May 2007, the then Treasurer, the member for Higgins, Mr Peter Costello, stood up in the House of Representatives to deliver the 2007-08 budget—what would turn out to be the last budget of the Howard government. Mr Costello delivered a budget which, for the 10th consecutive year, was in surplus. In the previous 12 years, Mr Costello as Treasurer had paid down the $96 billion of debt with which the then government had been saddled by its Labor predecessor. If you look at the fiscal projections which formed part of the last Costello budget, they paint a magnificent picture of the state of the Australian economy then.

In budget statement No. 1, Fiscal strategy and budget priorities, we learn that the budget surplus for 2007-08 was projected to be $10.6 billion in the black. But, if you look at the projections in the out years, you will see that the state of the Australian economy at the time of the last Costello budget projecting into the future was that in the following year, 2008-09, the year we are now in, the budget would have been in surplus to the tune of $12.7 billion. A year beyond that, in 2009-10, the budget would have been in surplus to the tune of $13.8 billion. That was the healthy, robust, solid, solvent state of the Australian economy at the time of the Liberal Party’s last budget.

As it turned out, those budget projections were wrong, but they were wrong because they underestimated the robust health of the Australian economy in that last golden year of the Howard government, when the economic circumstances of this country were such as filled individuals, households and businesses with confidence. When it came to the time of the election on 24 November 2007—only six months after Mr Costello’s last budget—the state of the economy was so healthy that the budget surplus which the incoming Rudd government inherited had been revised upwards to $21 billion. That does not include the amount of money that had been set aside prudently in capital funds such as the Future Fund and the Higher Education Endowment Fund to make provision to relieve the debt burden from the backs of future generations—from the backs of your children and my children, Mr Acting Deputy President. Australia was $21 billion in the black—not even taking into account the Future Fund and the Higher Education Endowment Fund—and that is what the Labor Party inherited from us. Twelve and a half years earlier, we had inherited $96 billion in the red from them.

Mr Acting Deputy President, you might think that a government newly in power, even a Labor government—led by a Prime Minister who announced boldly during the election campaign in a slick television commercial that he wore the badge of an economic conservative with pride—which inherited a $21 billion surplus in a growing economy would at least have a few years before it would destroy the country’s fiscal position. We know that sooner or later Labor governments always destroy the country’s fiscal position.


Senator Williams —It is the lesson of history.


Senator BRANDIS —Thank you, Senator Williams. That is the lesson of history and I will go back to it in a moment in these remarks—


Senator Mason interjecting—


Senator BRANDIS —As Senator Mason rightly points out, we on the Liberal side of politics, we neoliberals, wear our badge with pride—don’t we, Senator Mason?


Senator Mason —Absolutely!


Senator BRANDIS —Absolutely. We are always the ones who have to clean up the mess after Labor governments have destroyed the country’s fiscal position. But, nevertheless, what a difference a year makes! Mr Acting Deputy President, did you know that last Saturday it was 62 weeks since the change of government? It was 62 weeks since Mr Howard and his ministers—since I and Senator Mason—surrendered the seals of office and 62 weeks since the responsibility for the management of the Australian economy was placed in the hands, as it should have been as a result of a wonderful democratic process, of the Australian Labor Party.

In 62 weeks what has been the result? I can tell you, because the day before yesterday in the House of Representatives the Treasurer, Mr Swan, and the Minister for Finance and Deregulation, Mr Tanner, tabled the Updated Economic and Fiscal Outlook. The Updated Economic and Fiscal Outlook projects that by 2008-09 the budget will have moved into deficit to the tune of $22.5 billion, a reversal of the nation’s fiscal position of more than $40 billion in a year. In 62 weeks there has been a reversal of the country’s fiscal position of some $43 billion—that is, not quite a billion dollars a week. It took the Hawke and Keating governments 13 years to accumulate $96 billion of debt. It has taken the Rudd government little more than a year to accumulate half that already and to reverse the nation’s fiscal position by half that much already. And the Labor Party asks, ‘Why is it that you Liberals are going to vote against this so-called economic stimulus strategy?’ The reason we are going to vote against it is to protect the national interest from a Labor government gone crazy, a Labor government gone mad with its addiction to spending and borrowing as the only tool of economic management.

We do not say that there should not be stimulation of the economy to deal with the current downturn. Mr Turnbull in his statement to the nation last night and in his interviews on The 7.30 Report and other programs indicated measures which the Liberal Party—the party that could be trusted with the prudent management of the economy were we today in power—would have implemented. It would have implemented, in particular, tax cuts so that people could project forward what their savings would be and might thereby be encouraged to change their household budgets and elevate their expenditure rather than merely pay off debt and not contribute that money into the circular flow of the currency. So we do not say there should not be a stimulus. What we say is that the magnitude of this package is reckless and the targeting of the package is wrong.

There are two fallacies—two lies—that have been put about by Labor Party politicians to try and justify this reckless expenditure, this policy decision which will cripple our children and perhaps our grandchildren with debt. The first of those fallacies, which was articulated among others by the Prime Minister when he stood up in the House of Representatives on Tuesday, pale faced, panic stricken and petulant, to announce these measures, is that the reversal of the budget position is the result of the decline in the government’s revenue because of the economic slowdown.

The Prime Minister’s claim is belied by his own government’s document, the Updated Economic and Fiscal Outlook, because those with a taste for drilling into the detail of these documents will find, on page 40 in table 4.2, ‘Reconciliation of Australian Government General Government Sector Underlying Cash Balance Estimates’, a disaggregation of the extent to which the deterioration of the budget position is due to policy decisions of this government and is due to a decline in the revenue. What table 4.2 tells us is that taxation receipts estimates have been revised down by $9.5 billion in 2008-09, while the effect of policy decisions in the so-called stimulus package is recorded as $18.037 billion. That is in addition to the $10 billion economic stimulus package announced in December, which many consider was largely ineffective.

So the value of the policy measures—the decisions made by the Australian government in the last 2½ months—has been the expenditure of $28 billion. The effect of the decline of the revenue has been $9 billion. Let us not let the Labor Party get away with the lie that the budget has been driven into deficit by a decline in the revenue. Overwhelmingly, by a factor of more than three to one, the budget has been driven into deficit by advertent policy decisions made by Mr Rudd, Mr Swan and Mr Tanner. The second fallacy that is propagated by the Labor Party and in particular by Mr Rudd is that the reason these extreme measures are necessary is the global financial crisis—in which, so they say, Australia stands in the same position as every other Western nation. That is not so. The global financial crisis was generated by imprudent lending practices and deficient regulatory requirements within the United States of America. It was a problem that emerged from the United States of America, in particular from the so-called subprime housing market, and was propagated to other Western economies, including Australia’s.


Senator Mason —It was imported.


Senator BRANDIS —As Senator Mason says, it was imported. Where Australia stands in relation to this crisis is not the consequence of decisions of the previous government. On the contrary, the previous Treasurer, Mr Costello, in 1997—long before the subprime housing crisis was dreamt of—anticipated and, so as to avoid the emergence of such problems in Australia, set up the Australian Prudential Regulatory Authority. The Australian financial system has been largely quarantined from the effects of the global financial crisis. We have had no Bear Stearns, we have had no Northern Rock and we have had no collapse of a Lehman Brothers or Bank of Scotland.

In fact, over the last weekend the Deputy Prime Minister, Ms Gillard, was able to boast at the World Economic Forum in Davos that, of the 11 strongest banks in the world, four are the four big Australian banks. Mr Acting Deputy President Trood, you and I both know that in the international financial system Australia is a relatively small player. The value of our capital markets is a fraction of the aggregate value of the world’s capital markets. A decade ago, not one of the 11 strongest banks in the world would have been Australian banks, simply because of their relatively small size in international financial affairs, but today—because of the decline in the credit base of American, British, European and some Asian banks—four of the 11 strongest banks in the world are Australian. That did not happen by accident; that happened because of the foresight, prudence and judgement of Mr Peter Costello.

But do not take it from me. Let me read you some words from an address last December to the Centre for Independent Studies in Sydney, published in yesterday’s Australian newspaper. The commentator, an economist, said this:

Lax business regulation has contributed to the global financial crisis that has plunged most of the Western world into recession. But before we pronounce free markets dead and 2009 the year of reregulation, let’s analyse what went wrong.

This particular economist goes on to say:

For Australia the short answer is nothing. Australia’s financial regulation is the envy of the rest of the world. Both the International Monetary Fund and the World Economic Forum rank our financial system among the top four in the world.

Who was this sage, who was this Cassandra, who was this Daniel come to judgement who announced as recently as last December that for Australia the answer is that nothing went wrong—that, in a financial maelstrom, for Australia everything went right because our financial system is the envy of the world? Why, it was none other than Dr Craig Emerson, the Minister Assisting the Finance Minister on Deregulation—the only professional economist who sits as a minister in the Rudd government. Dr Emerson was right.

The Australian government, the Labor government, will be judged by its response to the global financial crisis. The response so far has been panic stricken and hysterical, and no more so than in a flimsy polemic, the product of a second-rate mind, published by Mr Rudd in the Monthly journal this week. Mr Rudd, contrary to the assertions of his much better educated Minister Assisting the Finance Minister on Deregulation, claimed that it was regulatory failure in Australia, in common with the other Western economies, which was to blame. It is nothing of the sort, as Dr Emerson had the understanding to point out as recently as the month before last. The Rudd government’s response to this crisis has been a panic-stricken, hysterical and wrong-headed response. We Liberals, we who proudly bear the name ‘liberal’, neo or otherwise, will not stand by to see this nation sunk in generations of debt.