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Thursday, 14 February 2008
Page: 381

Dr NELSON (2:12 PM) —My question is to the Prime Minister. Given it is a fact that the last three budgets have delivered surpluses of 1.5 per cent or more of gross domestic product, how will the surplus of 1.5 per cent of GDP in this 2008 budget reduce inflation and take pressure off grocery prices for Australian families?

Mr RUDD (Prime Minister) —I thank the honourable member for his question. When the government outlined its five-point plan to tackle inflation earlier this year, restraint in public demand was one of the measures. I will come back to the direct question which the Leader of the Opposition has put forward concerning the budget surplus target for this year. It was one part of a five-part approach. The second related to how we best encourage private savings in the economy, because it is the aggregate of private demand and public demand which of course is one-half of the overall inflation equation. Therefore, restraint is important in both. But that is not the end of the story. The rest of the inflation equation goes to the supply side. It is on the supply side I would commend to the attention of the honourable member that the government which preceded us was most lax indeed. We have been warned on 20 separate occasions by the Reserve Bank on the question of capacity constraints within the economy: skills and infrastructure. Then, on top of that—beyond skills, beyond infrastructure—is the overarching problem also of workforce participation. On these supply-side measures it is not just the Reserve Bank which issued this series of warnings. Many respected economic commentators did the same over a long period of time. And why I suspect those opposite respond so volubly to this argument when it is put forward is they happen to know that it is true. If you look at the content of each of those warnings, the sharpness of the advice which the previous government received from the institution responsible for the conduct of monetary policy in this country, they were ignored—skills, infrastructure and workforce participation.

Go back to the first of those elements, which the Leader of the Opposition raised, on how we deal with public demand and the shape of the budget surplus. We have indicated that our target for the year ahead is for a minimum budget surplus of 1.5 per cent. I note for the record that, as the government approached the election, in its official documents it was projecting a budget surplus not in excess of 1.1 per cent. If the government, as it then stood, had a different view of the shape of the budget surplus, which should have pertained in the year ahead, why did it not say so prior to the election? Or was it content simply to continue the spending binge in which it was engaged in the years leading up to the election, in the hope of stealing another election through profligate spending?