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Address to the Melbourne Institute / The Australian 2012 Economic and Social Outlook Conference



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LEADER OF THE OPPOSITION THE HON. TONY ABBOTT MHR FEDERAL MEMBER FOR WARRINGAH

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2 November 2012

ADDRESS TO THE MELBOURNE INSTITUTE / THE AUSTRALIAN 2012 ECONOMIC AND SOCIAL OUTLOOK CONFERENCE, MELBOURNE

E&OE……………………….……………………………………………………………

DEREGULATING FOR A MORE PRODUCTIVE ECONOMY

This is an important and timely conference because it’s not about who is or who isn’t winning the short term political battle but about who has a plan for the long term future of our country.

My read of the public’s mood right now is that they’re sick of the spin that’s coming out of Canberra. As MPs, we can’t opt out of this government’s political diversions but the Coalition’s focus should always be on what matters for the forgotten families and the vulnerable small businesses of Australia. That’s why good policy should prevail over clever politics, reform over rancour and substance over spin.

Get the policy right, Paul Keating used to say, and the politics will look after themselves. I’m not sure how the former prime minister would have handled today’s 24/7 news cycle but long term policy considerations must always be factored into short term political management if our country is to be well governed.

Over the past two years, the Coalition has consulted widely across all parts of Australia to develop comprehensive policies to improve our nation. In five speeches earlier this year, I developed our plans for a stronger economy, stronger communities, a cleaner environment, stronger borders and modern infrastructure.

I thank all my senior colleagues for their contribution to this work, especially the Coalition’s economic team, Joe Hockey and Andrew Robb. Due to their hard work, the Coalition has an overall plan for a strong and prosperous economy and a safe and secure Australia.

As I have learned from my nine years as a Howard government minister and from my six years as Leader of the House of Representatives, good government can foster change for the better. I’m confident that the next Coalition government can build on the strengths of its predecessor which, after all, delivered more than 2 million new jobs, a 20 per cent plus increase in real wages and a doubling of Australians’ net wealth per person.

Our country is crying out for leadership. Our best days are ahead of us. The backflips and betrayals of minority government are an aberration rather than the new normal of public life.

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At the heart of good government, is sound economic management. Policy should be directed towards lower and simpler tax, fairer and more effective administration, better and more efficient services and, above all else, towards a stronger and more prosperous economy.

With a strong economy, the country can be defended, the vulnerable can be protected, and the environment can be improved. A strong economy provides the conditions where Australians can run their own lives and plan their future with confidence. The stronger the economy, the fewer the invidious choices that governments have to make.

Credible government must have a sound economic strategy. It need not embody a consensus but it must have a strong rationale, consistently pursued. Sound budget management means a sustainable surplus over the medium term because governments have to live within their means. Sound economic policy needs a productivity focus because that’s the only sustainable way to lift Australians’ standard of living.

The current government, I regret to say, has no credible plan to return to surplus. Deep down, it thinks that the state isn’t subject to the same budgetary constraints that apply to businesses and households. Governments can defy economic gravity in a way that families and businesses can’t - but not forever. As the Eurozone is discovering the hard way, there are limits even to sovereign governments’ ability to live beyond their means.

Four days before the last election, the Prime Minister was asked whether she’d resign if she failed to get the budget back to surplus, as promised, in the current financial year. “The budget is coming back to surplus” she declared. “No ‘ifs’, no ‘buts’, it will happen”.

A day later, the Treasurer declared that the budget would be in surplus by 2012-13 “come hell or high water”. In fact, Treasurer Swan has declared that the government will deliver a surplus this financial year on at least 150 separate occasions since May 2010.

On the return to surplus, Prime Minister Gillard told a community forum just before polling day that “failure is not an option” because, as she has variously said, a surplus is “the right thing to do for Australian families”, “it’s the right strategy for jobs and growth”, and “the best way we can lock in confidence about the future and send a message to the world”.

In fact, the message from last week’s MYEFO mini-budget is that this government will never deliver an honest surplus.

The great disappearing surplus rests on $5 billion of National Broadband Network spending being kept off-budget and $10 billion of accounting fiddles and money shuffles - such as spending just $1 million from the Energy Security Fund this year but $1 billion in both the year before and the year after!

Even with these tricks, the $1.1 billion surplus depends on $2 billion in mining tax revenue. It’s lucky that the government chose to deliver its mini-budget on a Monday because on the Wednesday it was revealed that the mining tax had raised no revenue whatsoever in its first quarter. Even from a government that had previously built school halls for no pupils, it takes a special genius to create a tax with no revenue.

What’s more, next year’s supposed $2.3 billion surplus rests on $5.5 billion of brought forward company tax. This paperwork-creating fiddle is the best the government can manage to turn an election year deficit into another bodgied-up surplus.

This government has a political strategy - to proclaim a surplus; but not an economic strategy - actually to deliver one.

Then there are its unfunded future commitments: a further $10.5 billion a year for the National Disability Insurance Scheme, up to $6.5 billion a year for the Gonski education changes, and - just last Friday -

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another $1.7 billion for Murray-Darling Basin infrastructure from a government that is much better at spending money than getting results.

Many of these are worthy projects but they should only be promised when they can be paid for. By mortgaging the future, the Prime Minister and the Treasurer are acting like bad tenants, trashing the house before they’re evicted.

With a softer Chinese economy, America stagnant and Europe mired in recession, more than ever, Australia needs to get its own economic house in order. Businesses and individuals borrowing too much and living beyond their means were the root cause of the Global Financial Crisis. In trying to deal with its aftermath, governments don’t seem to have grasped that you can’t solve a problem caused by too much debt and deficit with yet more debt and deficit.

To the extent that they have any validity, the current government’s boasts about how well we’re doing owe almost everything to the lucky break of the biggest commodity price boom since the gold rush of the 1850s. Yet in 2004-5, with unemployment at about 5 per cent, the Howard government delivered a 1.5 per cent of GDP surplus - despite terms of trade 40 per cent lower than last year when the current government delivered a deficit of 3 per cent of GDP.

That’s an instructive comparison. Today’s success, such as it is, has been made in China, not here. A sustainable economic strategy can’t be based on constantly rising terms of trade. A lazy government has been relying on luck that can’t last.

Despite the best terms of trade ever, it has turned consistent 1 per cent of GDP surpluses into the four biggest deficits in our history. It’s turned $70 billion of net Commonwealth assets into almost $150 billion of net debt (or nearly $7000 for every man, woman and child). And it’s now spending about $20 million a day just to pay the interest on what it’s already borrowed.

Under the current government, the participation rate has dropped, the pace of jobs growth has been 30 per cent slower, and less than half of the new jobs have been market sector jobs compared with 70 per cent under the Howard government. Under Labor, GDP per head has grown by just over one half of one per cent per year compared to well over two per cent a year under its predecessor.

Calendar 2011 was the first year in two decades with no increase in the number of jobs. Although the public may be only dimly aware of these details, the massive rise in the savings rate, to levels not seen for 20 years, in part, is their implicit vote of no confidence in the current government. People know that these are uncertain times at best and sense that they should save because their government refuses to.

The carbon tax - which the government is desperate to have the Coalition stop talking about - is not just a hit on families’ cost of living. It’s actually emblematic of this government’s failure to understand what makes an economy work: it’s a great big new tax, great big new bureaucracies, a great big new slush fund, and great big new handouts to politically-favoured constituencies.

The carbon tax is not “reform” in the tradition of cutting tariffs and floating the dollar because, as Professor Richard Blandy recently noted, “these reforms allowed the Australian economy to restructure towards areas of comparative advantage”. By contrast, the carbon tax denies our economy the comparative advantage of access to abundant fossil fuel.

On the government’s own modelling, abolishing the carbon tax alone will add nearly $5000 to annual gross national income per head by 2050. Abolishing the carbon tax alone will add a trillion dollars extra (or nearly a full year’s output) to our cumulative GDP by 2050.

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So, the first big economic reform of the next Coalition government will be to abolish unnecessary taxes. The carbon tax will go because it damages the economy without helping the environment and the mining tax will go because it’s damaged confidence and investment without actually raising any revenue.

Our next reform will be restoring prudent budget management. We’ll get spending down by reducing the size of government through natural attrition, rationalising the overlap between different levels of government, and establishing a once-in-a-generation commission of audit to make government more efficient.

The abolition of two taxes slated to raise more than $40 billion over the forward estimates makes serious savings mandatory, even though the Coalition won’t go ahead with all the associated spending. That’s why I’ve warned shadow ministers that some of our own initiatives might have to be phased in, or commence later than if the current structural budget position were not so poor.

In many portfolio areas, the policy the Coalition takes to the next election won’t involve any new spending at all but will focus on administrative changes to make people’s lives easier.

The main elements of the Coalition’s economic plan are lower taxes, lower spending, closer engagement with Asia and, crucially, higher productivity because, as Reserve Bank Governor Glenn Stevens has said: “everything comes back to productivity. It always does”.

For the Coalition, a more productive economy is a less-regulated one. For Labor, by contrast, a more productive economy is one with more government spending even though it’s much easier to spend the money than to get a result.

Today, I release the Coalition’s deregulation discussion paper arising from the red tape review that Senator Arthur Sinodinos chaired with the help of Kelly O’Dwyer and Senator David Bushby. It’s abundantly clear from their consultations that over-regulation is an incentive-destroying, job-jeopardising, family budget-consuming burden on our economy and on everyone employed in it.

According to the Australian Chamber of Commerce and Industry, 73 per cent of businesses believe that the overall regulatory compliance burden has increased in the past two years and 60 per cent of businesses spend more than $5000 a year just meeting regulatory requirements.

Red tape is feeding into poor multi-factor productivity which the ABS says fell 4.2 per cent in the four years to June last year. In August, The Economist Intelligence Unit ranked Australia as the second worst of 51 countries for productivity growth ahead only of Botswana!

For instance, the now-suspended Olympic Dam project required an environmental impact statement running to 29 chapters and 51 appendices that took three years to prepare. Applicants for the government’s paid parental leave scheme have to read 30 pages of instruction and complete a 48 page form like a tax return only without the benefit of a group certificate. This is typical of the extent to which people’s business and personal lives now involve ticking boxes rather than doing things.

Under the Coalition, every significant government agency and department will be required to quantify the costs that their reporting and compliance regimes impose. Every agency and department will be given an annual target for red tape cost reductions - cumulatively at least $1 billion a year - that will have to be met if senior public service bonuses are to be paid.

Under a Coalition government, every cabinet submission will once more contain a regulation impact statement that quantifies the compliance costs imposed and contains matching compliance cost cuts. Every year, there will be a Deregulation Report tabled in the parliament and two sitting days will be dedicated to the repeal of redundant legislation and review of regulations.

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To ensure that deregulation is taken seriously, I will take responsibility for deregulation out of the Department of Finance and into the Department of Prime Minister and Cabinet so that it will be a whole-of-government focus.

If the people running businesses have more time for innovation because they spend less time on paper work, productivity will go up. That’s why the deregulation measures announced today are such an important productivity boost.

If workers spend less time in traffic jams they will have more time at work and more time with their families. That’s why our commitments to get WestConnex built in Sydney, the East West link in Melbourne and the Gateway extension in Brisbane as well as to duplicate the Pacific Highway well within this decade, and to fund infrastructure on the basis of published cost-benefit analyses, are further important boosts to productivity.

If businesses large and small are competing on a genuinely level playing field where the most cost-effective products dominate markets regardless of who supplies them, our productivity will go up. That’s why our root and branch review of competition laws is an important productivity initiative.

If the public schools and public hospitals that comprise more than 5 per cent of our total economy are more responsive and efficient, productivity will improve. That’s why community controlled public hospitals and independent public schools, where individuals have a stake in the institution and a say at the board table, are also a productivity measure.

If more women are in the workforce our economy will be more productive. This means addressing the impediments to greater employment for women with families. We need a better childcare system that’s less geared to 8-to-6 institutional care and we need a fair dinkum paid parental leave scheme that gives women a better chance to combine families and careers.

Australia is one of only two countries where parental leave isn’t based on people’s actual wage. If people receive their actual wage while sick or on holiday, they should also receive their actual wage while on parental leave. Parental leave, after all, is supposed to be a workplace entitlement, not a welfare one.

Strategies to improve participation must also include people currently on welfare. The best form of welfare is work. That’s why more work for the dole for unemployed people and more rigorous analysis of disability pension claims to try to keep people attached to the workforce are also good for productivity.

If there are fewer strikes and if unions are better governed, our economy will be more productive. That’s why restoring the Australian Building and Construction Commission; ensuring that union officials and company officials face similar duties, accountabilities and penalties; and addressing the militancy, flexibility and productivity problems arising from the Fair Work Act are also part of a productivity agenda.

From day one, the next Coalition government will be as concerned to create wealth as to redistribute it. To restore confidence, people will need to know from day one that Australia is under new management.

That’s why I’m announcing today a Productivity Priorities Working Group, to be chaired by Steve Ciobo, with Josh Frydenberg and Dan Tehan as deputies, to consult with business and community stakeholders on the implementation of our productivity agenda so that it can effectively be implemented from day one.

Because no one owns the Liberal or the National parties, the next Coalition government will govern in the national interest, not in the interests of any particular section of the community. We understand, though, in a way that the current government palpably does not, that you can’t have strong communities without strong economies to sustain them and you can’t have strong economies without profitable private businesses.

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I will end the bad blood between government and business that is damaging investment and employment and that’s sapping the confidence that’s so important for every Australian’s prosperity. We will do government differently. We will talk to people before we make decisions rather than just recriminate about them afterwards.

Today I announce that, if elected, the Coalition will establish a new Prime Minister’s business advisory council to meet three times a year. It will be chaired by Maurice Newman, the former head of the Australian Stock Exchange and Deutsche Bank and will include representatives from the manufacturing, agricultural, services and knowledge sectors as well as from the resources sector because we will need a strong five pillar economy when the mining boom is over.

Not everything that’s good for business is good for Australia but what’s bad for business is very rarely good for our country. That’s why this council is important and will have its first meeting within six weeks of the swearing in of a new government.

My colleagues and I understand that governing this country is an honour that political parties and politicians have to earn. That’s why we are presenting a real economic strategy with a real understanding of business and a real commitment to helping every Australian worker to be as productive as possible in addition to doing the standard opposition job of holding the current government to account.

Australia is blessed with a benign climate, an abundance of natural resources, and people who respect each other and want to work together productively to make our country strong. We are a great people who know that we could make more of ourselves under a better government.

My colleagues and I are waiting for our chance to make a difference.

[ends]