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Tuesday, 10 February 2009
Page: 663


Senator COONAN (6:12 PM) —This is an historic debate on the Appropriation (Nation Building and Jobs) Bill (No. 1) 2008-2009 and related package of bills. Not only are we debating a spending spree of measures, the magnitude of which is breathtaking in its size of $42 billion, but we are also debating the level of debt that will be visited on Australians, both old and young, in the future should the government be authorised to borrow $200 billion without a clear plan to repay it and to rebuild the budget surplus.

This does come at a time of great sadness and grief, as the nation mourns the loss of life and livelihoods and the devastation and destruction wrought by the bushfires in Victoria. I think we do need, because of these factors, to put this debate into perspective. The full extent of the bushfire horror is not yet known; some of the fires are still raging. The nation will need to stand with those affected and be ready to rebuild a large and important part of this country, which will require billions of dollars. This only serves to underscore the point that we do not always know what is ahead of us and we do not always know what calls will be made on the budget, on the taxpayer, to meet legitimate and unforseen demands and urgent expenditure in the national interest.

The coalition, as previous speakers have said, has resolved to vote against these measures. As one of the senators who agreed to a dissenting report for the inquiry of the Senate Standing Committee on Finance and Public Administration into the bills, I endorse our conclusions on the package:

  • will not achieve the objectives the Government claims;
  • is too big at this time, leaving little scope for further measures if needed later—

and we certainly know that there will be calls on us to meet urgent expenditure later—

  • is poorly thought through and a poor quality use—

or spend—

of the $42 billion of taxpayers’ money;

  • lacks ingredients that should be part of packages of this kind—measures to increase employment, productivity—

confidence—

efficiency and competitiveness; and

  • commits Australia to record amounts of debt (the Government seeks authority to borrow $200 billion)—

as I mentioned—

endangering the nation’s long-term economic security.

Unfortunately, economic conditions around the world have deteriorated—we all know that—and the G7 countries in particular are in recession. Australia is in a significantly stronger position and better able to withstand the global financial crisis, as countless of us intone from time to time. As the Senate dissenting report states:

A major reason is a long series of economic reforms ... floating of the dollar in 1983 with bipartisan support from the Coalition which then accelerated under the Howard/Costello Government.

These macroeconomic and microeconomic reforms included, of course, the liberalisation of trade and the liberalisation of capital markets. We know that a sustained period of improved regulation of the corporate and financial sector contributed, as Treasury said in their evidence. Enhancements to competition, freeing up the labour market and those sorts of measures made Australia’s economy stronger, more resilient and more dynamic, and we know that this has added immeasurably to Australians’ prosperity and living standards.

So the real question is: why, if our economy is so strong compared to those of all of the other industrialised nations—as we are reminded daily—do we need to spend more on stimulus measures than all the other industrial nations, with the exception of China, most of which are in recession? It is a really sobering question. Keeping in mind that the United States GDP contracted to 3.8 per cent in the December quarter last year and they urgently need a stimulus package, why do we, Australia, need to spend more on our stimulus package than the United States? Why do we need a larger stimulus package than all the other industrialised nations that are currently in recession? The other concerning fact is that all the other industrialised nations’ stimulus packages include tax cuts. Australia’s did not. Why is this? Why is it that, despite Australia having a far stronger economy than most industrialised nations, we have to spend more on a stimulus plan but do not have any tax relief for the taxpayers who will actually shoulder the burden of increased debt into the future?

The Prime Minister would have been better to observe the French Prime Minister, for example, whose stimulus package is much more prudent and responsible. The French stimulus package is only 1.5 per cent of GDP, and it includes spending on trains, universities, an electricity grid, power stations, roads and tunnels, courthouses and the like. It also includes business tax credits. It is a far more effective package that does not waste hard-earned taxpayers’ money on temporary and ineffective cash splashes.

We think that the government are misguided in their approach to this package. They have panicked, they are rattled, and they have tried to rush this package through without properly considering its impact. The coalition senators and indeed every non-government senator in this place rightly objected to this unseemly stampede to get these bills through. We did so because it is our job to scrutinise legislation brought forward and particularly because our children will have to bear the consequences of the mistakes this government are making.

Faced with global and domestic pressures, the government has reacted with a number of policy decisions since the May budget that have run up government debt. The Updated Economic Financial Outlook shows that accumulated deficits in 2008-09 are projected to be $118 billion. The current spending package follows earlier measures which together total almost $75 billion. A comparison of fiscal stimulus packages around the world in 2008-09 tabled by Treasury at the hearing shows that Australia’s stimulus package, at 4.9 per cent of GDP, is four times the size of the US stimulus as a proportion of GDP. The UK’s stimulus package was at 1.4 per cent of GDP, Germany’s was at 2.6 per cent, Japan’s was at 2.6 per cent and France’s was at 1.4 per cent.

One of the big downsides of borrowing money is having to pay the annual interest bill, as was highlighted by the coalition having to pay in the vicinity of $8 billion of interest per annum on the $96 billion worth of debt we inherited from Labor in 1996. While Senator Conroy claimed last week that the cost of funds used to finance the deficits would be $2.66 billion, he was only ever referring to net debt. When we talk about net debt, we mean that the amount of interest liability left after subtracting income from the government’s financial investments. Because of the strong economic management by the previous, coalition government, Labor inherited large financial investments, such as the Future Fund. These funds are profitable for the government, but the main point is that the funds are not able to be accessed by the government but are, rather, locked up to help to fund the previously unfunded superannuation entitlements of Commonwealth public servants. The simple fact is that income from investments such as the Future Fund should not be used to hide the true interest bill from government borrowing as Future Fund returns are locked up to cover a specific contingent liability. Reporter David Crowe summarises this in today’s Financial Review, in which he calculates that the actual gross interest bill to meet the government borrowing will amount to at least $7 billion a year. That amount over six years comes to $42 billion alone in an interest expense. That $42 billion is a very familiar figure to everyone who has participated in this debate.

The Commonwealth Inscribed Stock Amendment Bill 2009 is only a page long but it is far and away, in my view, the most dangerous one in this bundle of bills. If passed, this bill will allow the government to increase its borrowing limit from $70 billion to $200 billion. And $200 billion represents $9,500 of debt for every man, woman and child in Australia—and, indeed, Senator Ferguson’s approaching sixth grandchild. This is quite an amount of debt to be issued. Mr Nigel Ray of Treasury told the Senate Standing Committee on Finance and Public Administration last Thursday that the funds appropriated by the bills have already been allocated for use. The evidence confirms that $200 billion in debt is to be issued over the forward estimates. So effectively what does this mean? It means that the government has already maxed out the nation’s credit card and, as I said, lumped every man, woman and child with a debt of $9,500 each, leaving nothing in the kitty for further stimulus down the track if needed. And, as I said, it surely will be needed.

With the $200 billion debt ceiling already reached by this government—with the national credit card already maxed out—there is nothing left, no backup and certainly no plan B. The government’s willingness to enter into this level of debt, even though the Prime Minister knows this is not a silver bullet—as he has conceded—is deeply worrying. This government has failed the people of Australia because it has absolutely no plan to fall back on and no other funds to spend in the latter part of the year. It is economic mismanagement of the worst kind. The coalition, being the parties of balanced budgets, would not have allowed the budget to go into such a sustained deficit that would allow $118 billion in deficit spending over the forward estimates. Unlike Labor we do have runs on the board in terms of strong fiscal management. During the previous government the coalition’s temporary deficit in 2001-02 was just that—temporary. Unlike Labor we returned to surplus the next year despite a number of our major trading partners being in recession.

Labor’s supposed temporary deficit simply has no concrete plan to return the budget to surplus and there is no end in sight. If you need proof of this you only have to look at the deficit forecasts in the Updated Economic and Fiscal Outlook. The coalition senators did try valiantly to try to ascertain Treasury’s modelling of the stimulus package. We are concerned that the government is unable to provide evidence on whether or not the $10.4 billion cash splash before Christmas was successful. A lot of speakers have referred to this. The government claimed that it created up to 75,000 jobs and yet Treasury conceded that data on household saving and consumption of the October package would not be available until March 2009.

So we certainly cannot point to any evidence of jobs being created, but we do know that the cost of jobs under this package would be $139,000 per job. Senators would appreciate that despite not really knowing whether or not the earlier package met the mark—we certainly do not think it did—we are now being asked to vote for a package four times that size. This is a leap in the dark. This package claims to support and maintain 90,000 jobs, and we simply have no idea whether it will have the claimed effect. Treasury certainly was in no position to provide that reassurance. This package of $41.5 billion will cost $230,500 per job per year. What we know with certainty is that unemployment is rising, with 100,000 more unemployed to be added by June this year, and 300,000 in prospect.

The $42 billion that is proposed in these bills actually constitutes the second stimulus package announced by the government, and it follows on from the $10.4 billion cash-splash giveaway before Christmas. So we know that Treasury has not been able to provide evidence on whether or not the stimulus package has been effective, yet we are being asked to simply take a leap in the dark with regard to a much bigger package with a much greater outlay. We do not know whether people saved it or used it to pay off debt. We had a government that was continually forecasting gloom and doom, so no doubt a lot of people saved it because they simply did not know what they were facing.

Much has been made about arguments from economists in support of increased demand via government spending. It is interesting that in America an open letter to President Obama appeared in, I think, the New York Times, signed by a number of very significant economists, about the US stimulus package. It reinforces our view that the form of fiscal activism that is put forward in these bills is not the best policy option available. In the letter the economists state:

... it is a triumph of hope over experience to believe that more government spending will help the U.S. today. To improve the economy, policymakers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth.

The government would be wise to at least consider some of these alternative economic proposals from some pre-eminent economists both overseas and in Australia. I do not have time to go through all of them. The coalition agrees that we need to use a package to support jobs growth as a priority. Only policies that remove impediments to hiring and retaining workers, restoring confidence and encouraging investment will have the desired effect.

A serious failure on the part of the government is their unwillingness to consider the positive stimulatory effect of tax cuts as part of the package. Many leading economists support the use of tax cuts as a more effective way of stimulating economic activity than increasing expenditure. Tax cuts form part of the stimulus packages, as I said a little earlier, of all the major industrialised economies with the exception of Australia. Even the IMF conceded this in the October 2008 World Economic Outlook, which concludes:

... revenue-based stimulus measures seem to be more effective in boosting real GDP than expenditure-based measures ...

Why then did the government not include tax cuts in the stimulus plan? It seems that the government is instead more interested in pursuing spending measures. If that is the case then it is important that the government chooses to spend money on important capacity-building projects. If you commit spending of $42 billion then you need to make sure that it is a quality spend. Some people refer to this as getting bang for your buck.

Infrastructure spending is rightly acknowledged as being a vital investment, as it builds supply side capacity in the economy. This package spends a lot on housing insulation, for example, but little on economic infrastructure like roads, rail, ports, water or public transport. While there may be merit in Pink Batts and boom gates, there is little doubt in anyone’s mind that bridges, roads and tunnels add more to the economy’s productive output. Economic infrastructure would, of course, be a better priority than the now infamous Pink Batts. Let me be clear about this. While the coalition believes in investing in schools and housing, there was no serious attempt by Treasury to explain why $21 billion was to be preferred as infrastructure projects. Is the government really so bereft of ideas that the best it could come up with for a $21 billion spend was assembly halls, gyms, social housing, black spots and boom gates? Who are they kidding? The quality of this spend is being rightly criticised as being unlikely to add to the total economic wellbeing of Australians.

As will be clear from my remarks and those of my coalition colleagues, we consider that this massive spending package is fundamentally flawed. The government should start again and, with the benefit of hindsight, construct a stimulus package that provides a better assessment of what is required to meet the objectives of increasing productivity and creating jobs to better withstand the economic downturn.

The government has been unable to demonstrate that the October 2008 package succeeded in creating 75,000 jobs. Chasing one discredited cash splash with an even bigger spending package and saddling the nation with an enormous debt will not likely restore confidence in the government’s ability to handle the economy in difficult times. The coalition has always stood for low or no debt and budget surpluses over the economic cycle. After 12 years of careful and skilful economic management by the coalition, we had hoped that huge government debt was not going to burden the next generation of Australian taxpayers. Debt and deficit is the calling card of Labor governments, and the Rudd government is no exception. The Senate should vote against these bills.