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Tuesday, 10 February 2009
Page: 586

Senator MINCHIN (12:35 PM) —I rise to speak in relation to this package of spending measures that the government has presented to the parliament. I rise to speak against this legislation, the Appropriation (Nation Building and Jobs) Bill (No. 1) 2008-2009 and associated bills, which will give effect to the government’s latest, $42 billion, so-called stimulus package—and may I say I do so as someone who spent some six years as our country’s finance minister and has the dubious title of being the longest-serving person in that role, so I have some familiarity with budgets and government spending. But I join every single one of my coalition colleagues in opposing this quite massive spending program, which we as a coalition think is ill directed, is ill thought through and is far too much spending far too soon in the economic cycle.

Can I first make a few remarks about the process the government has adopted with respect to this package. There is no doubt, and I think this is evidenced by the contributions made by Treasury to the committees of the Senate which have inquired into these bills, that the government has been working on this package of measures for some time. This is not something that was created last weekend for presentation to the parliament. Given the amount of time that has been devoted to the package, the government should have allowed sufficient time for proper parliamentary scrutiny of the payments proposed in this package. It is rather extraordinary for the government to present this package and then demand of the parliament that it take no more than 48 hours to consider and pass a $42 billion spending package, much of which will involve the nation in going into debt and borrowing to fund it. We think that is very unwise and very wrong of the government.

I think the government has made a very big political mistake in proceeding in this fashion. It was the wont of the Labor opposition to accuse the Howard government of arrogance on every occasion that it could, and I think those attacks will fly back into the face of the Labor Party because of the way in which it has handled this matter. The government has clearly overplayed its hand in this matter, and I trust that the government has learned something from this. I suspect that the leadership of the government in the Senate was internally advising the government that it would be wise to allow sufficient time for proper parliamentary scrutiny and that the payments proposed to be made from this package should be designed to go out accordingly. But, having some familiarity with government, I can see all the young hotheads in the Prime Minister’s office telling the Labor Party Senate leadership, ‘Forget it: we want this out, we want it done, just do what you’re told.’ I hope in future that the leadership of the government in the Senate will have more sway with their young advisers in the Prime Minister’s office and that they will, in future, allow appropriate time for the parliament to consider packages of this kind.

Obviously, when you are dealing with a national emergency, we in the opposition are prepared to be consulted and consider ways to facilitate the parliament passing legislation rapidly, but this is not of that kind. This is a massive package which does appropriately require the sort of scrutiny it has had over the last two days in Senate committees and which it will have over the next two or three days in parliament.

Turning to the package itself, to properly analyse it does require some understanding of the circumstances which the nation does face economically. There is no doubt—and we accept—that the nation is facing a rapid deterioration in its economic circumstances. I think we do face a, potentially, quite prolonged global downturn. What we are experiencing is a global credit squeeze. I am regrettably old enough to remember the 1961 credit squeeze, which nearly destroyed the Menzies government. We are in circumstances not dissimilar, where credit is no longer available in the way in which it once was, and that is having a very dramatic effect on both this economy and those economies around the globe. We have all got to be mindful—and I raised the ’61 episode to this effect—that these sorts of episodes are inevitable, they will happen, they are bound to happen. It is the nature of modern economies that strong, sustained, low-inflationary growth is not permanent.

Whether you are a neoliberal, a neointerventionist or whatever the Prime Minister currently describes himself as, it is the reality of modern economies, whoever is running them, that the sort of growth that we have experienced in the last 15 years is not permanent, and we, certainly, in government did not expect it to be. But what we did in government, what we sought to do throughout, was to use that strong growth period to prepare Australia for the inevitability of an economic downturn while doing everything we could, obviously, as a government to delay the onset of such a downturn. That is why we were very focused in government during that period of growth on building strong surpluses, on privatising those government business enterprises that would be better run in private hands, on paying off the debt that we inherited and indeed, most importantly, on creating the Future Fund while we had the opportunity to do so to ensure that the unfunded public superannuation liabilities which this nation has would be covered. We did try very hard to make sure that the Australian economy would be more resilient in the event that a downturn occurred. That is why we had an economic reform program. That is why we took the political risks that we did in relation to reform of the labour market in order to make this a more flexible, resilient economy that could withstand the inevitability of economic downturn.

It is regrettable, and we will try to learn the lessons from their experience, that the Labor Party in opposition opposed virtually all those measures that were aimed at (a) strengthening the government’s balance sheet and (b) strengthening the Australian economy to ensure that it could more appropriately and effectively withstand the inevitable downturn that is now occurring. Certainly, we on our side are proud of our achievements over that period despite the fact that we faced resistance from many quarters, not only from the official opposition but also from the trade union movement and others. Of course, it is now the Labor Party in government who has inherited the benefits of the good work that we did, in that period that we were in office, to strengthen the government’s balance sheet and strengthen the resilience of the Australian economy. But now we do have what I described as an inevitability at some point; we have growth slowing dramatically, we have world markets deteriorating, we are an open trade-exposed economy and we cannot be immune to what is happening.

So there is the question that must be asked and, as that great Australian political figure BA Santamaria always said, ‘The question is: what is to be done?’ That is the question this nation now faces. And, in considering that question, you have got to accept that the budget naturally will tend towards deficit in a downturn. You have declining revenues from a declining tax base; you have increased expenditures through greater reliance on social welfare and other things. That is why we always said that our fiscal policy was balance over the economic cycle because, inevitably, you will tend to deficits as the economy slows. That is why you have got to build up and sustain surpluses during the growth period. But the automatic stabilisers, as they are called, will set in; you will find that the government is in fact injecting moneys into the economy in net terms by the automatic process of a decline in its revenues and increase in expenditure. The real question is: to what extent, if any, should the government actually accelerate that process of the tendency for the nation to go into deficit through discrete policy measures over and above what is naturally occurring through the structure of the budget? If it is to do so, what purpose exactly does the government have in taking discrete policy measures that will inevitably increase the likelihood of going into deficit?

We do not dispute that the government, of course, should contemplate a fiscal stimulus of some kind both to moderate the slowdown in the economy and to sustain employment levels. Indeed, the Leader of the Opposition, Malcolm Turnbull, in particular has been focusing very much on the importance of doing what we can to sustain employment.

But, given that all the debt that is incurred by a government when it goes into deficit must be repaid at some point, with interest and ultimately by taxpayers, very rigid discipline therefore must be applied and exercised in any policy endeavours which will exacerbate the deficit. As I said, the automatic stabilisers will ultimately lead to deficit budgets if the slowing of the economy is prolonged. That is inevitable and will of itself create a need to borrow to the extent that you do not have available funds to cover that deficit. But the point is that the discrete policy measures must necessarily be funded by borrowings. To the extent that discrete policy measures are going to be funded by borrowings, they must, in our view, be focused on increasing the productive capacity of the economy. If you are going into debt, why do you borrow? You do so in order to ensure that you are investing in infrastructure or reform that will enable the economy to have a greater capacity to repay that debt and to ensure the economy is stronger as it moves into a growth phase.

So, in our view, countercyclical spending using borrowed money really, must be directed at improving the productive capacity of the economy. It should not, in our strong view, be splashed around in any sort of panic reaction or in a desperate attempt simply to prevent the official growth numbers from going negative. It is our strong submission to this parliament that, on that test, this $42 billion spending package fails miserably.

One-third of this quite extraordinarily large package of $42 million, some $14.7 billion, is devoted to what the government describes as its education revolution but is actually about building assembly halls and the like at every single Australian primary school. As worthy as that might sound to many people, there are many flaws in this proposal, particularly on the basis of the test I just set. To start with, the Commonwealth does not own or operate a single primary school. The primary schools are capital assets of either state or territory governments or the private sector. So what we are being asked to do is have a transfer of wealth to state and territory governments and to the private sector by virtue of Commonwealth taxpayers and we are being asked effectively, as Commonwealth taxpayers, to make good the failure of the state and territory governments to properly equip their schools. To the extent that it is asserted that the schools are in desperate need of this spending, it is a sign of the failure of state and territory governments to properly invest in their own capital assets.

It must also be said—and perhaps I should declare an interest in that I still have a daughter at a primary school; and this is said in economic terms, not in terms of the worth of education—that this is unproductive investment. It is not like investing in a railway, a port or a power station. You do not get a return on the dollar. It is unproductive investment in that sense and I would have to say that on any fair measure it is relatively low on the scale of infrastructure priorities for this country. I must say that, while experiencing the heatwave in South Australia when this was announced, people were amazed at the government’s priorities. While South Australian citizens were unable to have reliable supplies of power or water, the government was announcing $14.7 billion for assembly halls for schools. Many an ordinary citizen would quite properly question the sense of priorities that that involves.

Nearly another one-third of this $42 billion package, $12.7 billion, is going on cash handouts. That, I think, reveals the strategy of the government. It is a political strategy and it really is a desperate attempt to sustain consumer demand on a quarter-by-quarter basis—to keep those numbers positive for as long as it possibly can. We do not have any clear, objective evidence of the efficacy of the $10.4 billion spend on exactly this same objective last December, and now we have another handout of $12.7 billion just three months later. One could ask the question: what is going to happen in the June and September quarters? Are we going to keep spending $10 billion to $12 billion on cash handouts every quarter just to sustain a positive number? This does reek of desperation and I think the Australian public are increasingly smelling that desperation.

As the Minister for Finance and Administration during the last six years of the Howard government, I was, frankly, never enthusiastic about that government’s cash handouts, but at least they had the merit of being paid from realised surpluses and could be justified as being a transfer of public savings to private individuals. But in this case we are talking about borrowing money, which taxpayers will then have to repay with interest, to provide one-off cash payments simply to try to keep the economy in positive territory. I think the public are increasingly cynical about this. There is widespread belief that the government simply has its priorities all wrong.

Another $10 billion of this package is going to build public housing and into home insulation. Again, this is frankly unproductive and unjustifiable expenditure and is based again on borrowed funds. Six billion dollars of this is going on public housing by the Commonwealth, which I think is extremely reckless. The states are going to have to implement this program. The states will end up being the beneficiaries of this because they will own the capital assets. It is very inefficient and, as I say, the states will end up owning this new public housing stock. So again it is a transfer from Commonwealth taxpayers to the state asset base. I am sure it is welcome on the part of public housing tenants, but it adds nothing to the productive capacity of the Australian economy.

We then have $3.8 billion for the so-called Energy Efficient Homes program. I think this is particularly indecent and wasteful. How on earth can this be said to be a top priority for public investment based on borrowed money? We have some $1,600 going to all 2.2 million uninsulated owner occupied homes. No doubt owners would welcome this insulation, and so would the industry, but I think this is an appalling use of public moneys. If you have just paid for insulation in your own home you are not going to be very happy, but the government will then give you a $1,600 rebate for a solar hot water system. So pity those who have already spent money on insulation and a solar hot water system. The government has not gone so far as to say what it will do for them. One has images of steak knives then being available for those people. It is a quite extraordinary situation.

For my fellow South Australians suffering from the incapacity of the state government to provide reliable power and water supplies this $3.8 billion on Pink Batts and solar hot water demonstrates an insanely profligate set of priorities, which this government stands condemned for. We will be opposing this package. It is a package which adds enormously to the nation’s debt at a relatively early stage in the economic cycle. We have heard evidence that the annual interest bill on the debt which this package alone will incur is going to be some $7.6 billion per annum. That is money that must be raised and spent on interest alone and is unavailable either for tax cuts or other more worthwhile spending. It reminds us of the fact that when we came into government we were spending $8 billion a year in 1996 dollars on interest. We were spending more on interest in 1996 than we were spending on the defence of this nation—a quite extraordinary situation for us to be in. I am appalled that this package is the start of a return to those sorts of days.

The capacity of this nation to repay that sort of debt is declining with every day. There are no longer the assets available to governments to privatise to help pay down this sort of debt. It is a great tribute to our government that we were able to privatise a substantial number of assets to remove previous debt. That is no longer an option open to governments. Of course, with the ageing of this population the capacity of this nation to generate the sorts of surpluses which would be required to pay off this debt is going to be increasingly less available. A $200 billion debt, which is what we are looking at, will require 10 years in a row of $20 billion surpluses, each dollar of which would then have to go simply to repaying the debt. That is the situation which the government is now confronting us with. We think this is wrong. It is a wrong set of priorities. We will be voting down this package. We are not saying that a fiscal stimulus is not required, but we do not believe this is the right package.