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Tuesday, 3 February 2009
Page: 14

Mr TURNBULL (Leader of the Opposition) (3:05 PM) —Throughout the Prime Minister’s remarks today, in all his public statements this week and, indeed, in his long treatise on political ideology, we see one false premise and one piece of political hypocrisy after another. Just consider one of his closing remarks which we have just heard. He outlined his proposals and he said, ‘The alternative is to do nothing.’ So there is no alternative except the proposals put up by the Prime Minister. There is no alternative, no deviation. Nobody is right other than him. Throughout this speech we heard the most extraordinary falsehoods. He said:

This fall in revenue will drive Australia into a temporary deficit even before any policy action is taken by our government.

Yet we know by looking at his own document that we were given a few hours ago—so much for working with everybody and reaching out to cooperate—that the $22 billion deficit, for the year ending June 2009, is mostly constituted of the $19 billion of extra spending. So there will be a large deficit this year. Yes, it has been contributed to by a decline in revenues—no doubt—but the largest element of that deficit is because of decisions taken by the government to increase spending.

He says that Australia is in a stronger position than other countries because—and this is the height of hypocrisy—the government, his government, built a strong surplus last year. They built it, so they say. The only full year for which the Rudd government can claim to have responsibility is 2008-09, the year we are in, and we know that, far from building a strong surplus, what he has built is a very large deficit. The only reason he started off with a strong surplus when he took office was the strong surpluses and the sound economic management by the previous government over 11½ years.

In his speech here today and, of course, at much greater length, and some would say inordinate length, in his essay in the Monthly—which seems to have been written by a number of people, but apparently he was the principal contributor—he complained about a failure of regulation and about neoliberalism. He talked about the way in which neoliberal governments, in which he includes those led by the Liberal Party in Australia, have recklessly deregulated financial markets and brought on the problems that we are now facing. Yet, only a few days ago, the Deputy Prime Minister in Davos said:

We have open and competitive markets backed up by a world class financial and prudential regulatory system.

Indeed, the Deputy Prime Minister went on:

Given the flaws exposed by the global financial crisis in financial and prudential regulation I would say our system—

by which she means our system!—

is even better than world class.

So what is going on? How could these political extremist, neoliberal deregulators create a world-class financial and prudential regulatory system, which on reflection the Deputy Prime Minister says ‘is even better than world class’?

Opposition members—She hadn’t read the essay.

Mr TURNBULL —As my colleagues are observing, she obviously had not read the essay—mind you, she is a very busy woman and it is a long essay. The reality is that today we are looking at an extraordinary turnaround in public finances—from a surplus of $22 billion projected nine months ago in the budget to a deficit forecast for this year we are currently in of $22 billion. It is as Whitlamesque in its dimensions as the Prime Minister’s political writings are Orwellian in denying reality.

We have said from the outset that we are prepared to, and indeed seek to, sit down and work cooperatively with the government on the appropriate response to the financial crisis. There is no suggestion that the government should do nothing. Governments are acting all over the world. The question is: is the right decision being taken? Is the policy that is being undertaken correct? We know that the government has already made a number of very big mistakes. We have seen the unlimited deposit guarantee on bank deposits. That was rushed and it was bungled, and within days the Governor of the Reserve Bank was writing to the Secretary of the Treasury begging him to impose a cap. In that letter, the Governor of the Reserve Bank said, ‘The lower, the better.’ The Prime Minister imposed that unlimited deposit guarantee, almost unique in the world, without speaking directly to the Governor of the Reserve Bank, yet within a few days the Reserve Bank was begging them to change it. The dislocation was enormous. Hundreds of thousands of Australians saw their investments frozen in cash management trusts and mortgage funds.

We have also seen the large payment just before Christmas. There has been a series of one-off payments. The concern that we have had, and that many Australians have had, is not that the payments will not be well used, because people who take that money and use it to pay off their debts or increase their savings are using it very wisely. There are many wise uses within the context of each household that are nonetheless not going to add to economic activity. The real question with these one-off payments is not whether the recipients will use them well or indeed whether they are appropriately distributed. The single biggest question in this climate is: will it produce an economic stimulus? We do not yet know for sure whether the cash splash in December has worked. There is a lot of anecdotal evidence to suggest that it has not been effective. But we do know that in the middle of last year, when the United States government undertook a series of one-off payments that were very similar in terms of their size as a percentage of GDP, there was quite a dramatic spike in household income and a very modest rise in household consumption or expenditure, and only a small percentage of that investment by the government in those one off-payments contributed to economic activity. In other words, as an economic stimulus it was not effective because, in times of uncertainty, one-off payments are largely saved or used to reduce debt, which of course is a very prudent thing to do in the context of a household.

That is why, around the world, leading economists have argued that a more effective way of providing a stimulus is to increase permanent income. Over time, it could cost the taxpayer—the Commonwealth—the same amount. It a question not just of the amount of money but of the timing of the tax breaks, the way in which money is returned to taxpayers and the way in which the stimulus is delivered. That is why we proposed that the tax cuts due on 1 July 2009 could be brought forward to 1 January and that indeed, for a larger stimulus, the tax cuts due on 1 July 2010 could be brought forward. These will be a substantial cost, undoubtedly, but they will nonetheless provide an increase in permanent income, and the experience is that that will provide a greater incentive because increases in permanent income provide a more effective stimulus.

Before the government knows whether its cash splash in December has been effective it is undertaking another one. If the experience in the United States proves to be the same here with the December payments, and indeed with these, then a very large amount of money will have been spent and, as I said, at the level of every household no doubt used, for the vast majority of households, very wisely, but it will have been used in a way that is ineffective as a financial stimulus. So we have concerns about that. We have concerns not about the question of stimulus but about the structure of the stimulus, the way in which it is delivered and whether it will be effective.

The other issue I turn to now is the notorious ‘Ruddbank’. The Prime Minister received a proposal from Mr Ahmed Fahour of the National Australia Bank—a proposal that is designed, quite blatantly and plainly, to get the Commonwealth government on the hook for $30 billion to underwrite commercial property values which, Mr Fahour said in his submission, could fall by 20 to 30 per cent in the absence of that support. That was his concern. He said this could come about because foreign banks, who are members of lending syndicates secured on commercial property, might pull out and take their capital back to their home countries.

When loan syndicates come to an end—when the time for repayment comes or when there is an event of default—there is always a lot of game playing and negotiation between the syndicate members. Very often you will see the smaller lenders try to bully the larger ones into taking them out. They will say, ‘Unless you give us our money back we will force an insolvency, there will be a receivership and you will lose money.’ That is why Ruddbank is plainly counterproductive, because by sitting there it provides an incentive for foreign banks to demand their money back. And, of course, the government, being in partnership in Ruddbank with the four Australian banks, who have the most to lose from any forced insolvency, will be leant on by its commercial partners to pony up the money and bail out the foreign banks for full face value. In other words, there is a monstrous conflict of interest.

But it gets worse than that. When the government announced this misconceived idea it claimed it was going to support jobs. It will not protect one job, because whether a commercial property—a shopping centre or an office building—is worth a billion dollars, $800 million or $700 million, people still come to work. Tradesmen still come and service the building. There is no change to employment. This Ruddbank fund, which was detailed in the Prime Minister’s statement here today, does absolutely nothing to support employment; it does nothing about the three top priorities for 2009, which are jobs, jobs, jobs. Self-funded retirees, who have seen their savings devastated by the stock market decline, and small businesses, who are struggling to keep their employees on the payroll, will ask this question: why is the government putting $30 billion to work at the behest of the National Australia Bank to hold up property values in one sector alone for the simple and sole reason of protecting the balance sheets and profitability of the big banks?

We turn to the investment in schools. There is a large investment in schools and in building what the Prime Minister described as 21st century libraries in primary schools. I am very relieved that he is not planning to build 19th century libraries or perhaps 22nd century libraries. We are, indeed, in the 21st century, so it goes without saying that the libraries will be 21st century libraries. But the question we have, firstly, is: can the government deliver on an investment in schools after its chaotic and incompetent computer program for schools? Secondly, this $14 billion is focused solely on primary schools. Primary schools are worthy subjects of investment, but we have a large economy with many areas of building activity that should be supported. We find there are no incentives for promoting construction activity in other parts of the economy. What about incentives for the private sector? What about private sector construction in private sector housing and private sector commercial buildings?

The real question with programs like this always has to be: are we, by this massive government investment, going to crowd out private sector investment? That is why we need to look very carefully at this package. We have heard claims that this package will support 90,000 jobs in 2008-09 and 2009-10. That is a cost equivalent to $230,000 per year per job. Again, we need to know whether those jobs, if indeed they can be delivered, can be supported in a more cost-effective way. We have to remember that it is only a few days ago that the Prime Minister said that the Ruddbank would create, or preserve, 50,000 jobs. There is no basis whatsoever for suggesting that the Ruddbank will preserve one job—not one job. It is purely designed to hold up the carrying values, the balance sheet values, of commercial property loans on the books of big banks. The Prime Minister said that the $10.4 billion stimulus—the cash flash before Christmas—would create 75,000 jobs.

Mr Hockey —Where are they?

Mr TURNBULL —Where are they, indeed? When the Treasurer was asked about it today, he said, ‘I didn’t say “create”; I said, “They’d support.”’ What does that mean?

Government members interjecting—

Mr TURNBULL —No, he did not; he said, ‘create 75,000 jobs’. These figures have been plucked out of the air at random. Where is the Treasury modelling on the 75,000 jobs? Where is the Treasury modelling on the 50,000 jobs for the Ruddbank and where is the Treasury modelling on the 90,000 jobs for this package? It would be good to see all of that so that we can scrutinise it.

The coalition are not opposed to economic stimulus, we are not opposed to a proactive and creative approach, but we have to use taxpayers’ money wisely. We must not overlook the enormity of what we are seeing today. We are seeing a budget that is going, over the course of nine months, from a $22 billion surplus to a $22 billion deficit. We are going to see $111 billion added to our national debt as a result of these measures. We are seeing a government that came into office with a Treasury that had plenty of cash at the bank and with huge, positive net assets and no negative net debt. We are now going back into debt and we are heading for a higher level of debt than the $96 billion the coalition inherited from Paul Keating in 1996. And it has happened in nine months.

This is a remarkable turnaround, and that is why we have sought again and again to sit down and work cooperatively with the government. The Prime Minister’s approach—and he makes it very clear in his speech—is that there is only one way: his way. There is no alternative, he says. The fact is that all of these measures, all of these policies, are controversial as to the impact they will have. You will find any number of economists or experts in this field who will argue that different approaches are superior. The point that I made earlier about permanent income, which was greeted with catcalls from the economic geniuses on the government benches, is in fact the conventional economic wisdom. John Taylor from Stanford University made this point eloquently before the United States Congress in explaining how the one-off payments were ineffective as a stimulus and why increases in permanent income are more effective.

So you would think that a prudent government, wanting to hedge its bets, having gone for a big cash splash in December, might have said, ‘We’ll try an increase in permanent income and we’ll bring forward the tax cuts.’ You could calibrate it in such a way that it would cost exactly the same amount of money, that it could involve exactly the same amount of investment. But the fact is that economics is as much about psychology as it is about mathematics and that people in times of uncertainty who receive a large one-off payment are more likely to save it or spend it. Only the other day, John Lipsky, from the IMF, said that people are more likely to save it or use it to reduce debt, whereas increases in permanent income are more likely to produce investment decisions and saving over a longer period.

The government needs to focus its attention on jobs. Because it has failed to provide a coherent strategy to address this crisis, it needs to look at policies that will create employment and jobs, not at ones which simply involve spending. I want to state here and now the fundamental principles upon which we will base our response to this and other stimulatory packages. Ensuring that every Australian has the opportunity to work is a fundamental responsibility of government. It is the single most important objective of economic management. That is why the coalition are going around the country now, consulting with small- and medium-sized businesses about jobs, about how they believe jobs can be created and about how government can make it easier for them to stay in business and keep people on the payroll. Well-paid, skilled and secure jobs depend on innovation and enterprise. They depend on low taxes and incentives that make it easier for businesses to invest in hiring people and to invest in capital that makes their employers more productive. Regulation is absolutely vital; good regulation is vital. The coalition in government demonstrated, as the Deputy Prime Minister has acknowledged, that good regulation can give Australia the best financial and prudential regulatory system in the world.

Ms Gillard interjecting

Mr TURNBULL —The Deputy Prime Minister says it was her regulation—APRA! APRA was created by the coalition. The entire prudential framework that we work under—the arrangements between APRA and ASIC, the ACCC and the Reserve Bank—was the creation of the coalition government.

But regulation has to be appropriate and it must not be excessive. When we met with small and medium businesses in Parramatta last week, it was very interesting to hear their concerns. When I said, ‘What can the government do to promote employment?’ they said, ‘The government should pay its bills on time.’ They said, ‘The government should reduce red tape—make it easier to tender. Why do we have to fill in a pile of forms this high? Why can’t we do it in a standardised way and do it online?’

In the end, it is the level of employment that determines how much Australia is affected by the global economic crisis. Provided unemployment stays relatively low, then Australians will continue to afford their mortgages and not be forced to sell their homes. It will also mean that fewer Australians will need to access unemployment benefits. So every arm of government policy should be directed to ensuring that Australia continues to enjoy low unemployment. That is our sole focus. We will go through this package tonight and over the days that follow, and I say this to the Prime Minister: we are prepared to sit all night; we are prepared to sit all weekend. I propose to the Prime Minister: in order to give this package the appropriate scrutiny, we agree to defer estimates for a week and have the Senate sit next week and focus on this package so that all members of this House and the Senate work together as best we can to ensure that it is the most effective package—that the measures are effective and that they will deliver the outcome that we all seek.

Above all, what we need to do is to move into the substance and the practicality of measures that will promote employment. The Prime Minister chooses to throw out a few measures today—and very large numbers are involved, but there are a number of measures there—but then he couches everything in this unbridled ideological attack which is all about creating a fantasy world in which the Liberal Party is the spearhead of some deregulating, radical right-wing movement. The fact of the matter is: the stability of this country and the economy that we enjoy—the fact that we can make these investments, that we can make these expenditures, that we can undertake these programs—is due to the 11½ years of effective economic management by the coalition. The fact that our banks are strong is due to the solid economic management of the coalition. And the Prime Minister would be better spending his time focusing on measures that will promote employment rather than ideological tirades that are more fiction than fact.