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Thursday, 27 November 2014
Page: 9573


Senator CORMANN (Western AustraliaMinister for Finance) (15:52): I would like to congratulate senators Leyonhjelm and Day for proposing this motion today. Senators Leyonhjelm and Day have demonstrated that they are committed to taking a positive and constructive approach to resolving the fiscal challenges that we are facing as a nation today.

Of course, it is a matter of public record that when we came into government in September last year we inherited a weakening economy, rising unemployment, low consumer confidence, business investment which had plateaued, a rapidly deteriorating budget position and one of the steepest debt growth and spending growth trajectories in the world. The previous, Labor government, back in 2007, inherited a strong economy and a strong budget. They inherited a budget with no government net debt, a $20 billion surplus, and about $70 billion in net Commonwealth assets. Indeed, the previous, Labor government inherited a situation where, back in 2007, the Commonwealth was collecting more than $1 billion in interest payments a year on the back of a positive net asset position.

At that time—back in 2007—federal government spending as a share of GDP was at about 23.1 per cent. Labor will say that we have had the GFC and all these issues and that that is why the whole thing turned into such a mess so quickly. I argue that that is not actually true. Labor did rapidly increase spending in their first two years in government—by 17 per cent in real terms, in fact. It was an extraordinary spike in spending in Labor's first two years in government. And that became the new base from which future spending increases kept happening, from year to year.

Even worse, in the period beyond the published budget forward estimates at the time of the last election Labor locked in a whole lot of structural spending increases in various areas of government that were never properly funded. They locked in spending growth that was taking us to spending as a share of GDP of 26.5 per cent. Why is that of concern? Why is spending at 26.5 per cent as a share of GDP of concern? If you accept the proposition, as we do—and as, I believe, Leyonhjelm and Day do—that as a government and as a country we should be living within our means, that we should not be living at the expense of our children and grandchildren and that we should not be borrowing from our children and grandchildren in order to fund a significant proportion of our living expenses today, then our revenue has to cover our expenditure.

It is a pretty basic proposition. Every family, every business across Australia, understands that unless your revenue covers your expenditure over time you keep adding to you debt and to your debt interest. At some point that will have to be paid back. If we do not pay our own way then what we are asking our children and grandchildren to do is to pay it back for us with interest, which means that they have to pay higher taxes or accept deeper spending cuts in order to make up the ground that we have lost for them. That is the fundamental unfairness of the parliament or the Senate not dealing with some of the structural challenges that we have inherited.

The problem here is that instead of spending as a share of GDP being 23.1 per cent—which it was in the last year of the Howard government—the previous, Labor government put Australia on a trajectory where spending as a share of GDP was heading for 26.5 per cent by 2023-24—and rising beyond that. Why is that a problem? If you look at tax revenue as a share of GDP over the last 20 years, you find that it averaged at about 22.4 per cent. With spending at 26.5 per cent as a share of the economy, and revenue at 22.4 per cent as a share of the economy, you will see that there is a big gap. And that gap, essentially, is what we are adding to our debt every week, every month and every year—and forcing our children and grandchildren to deal with down the track, unless we get it under control now.

To be a bit more generous in terms of the average tax take as a share of GDP, in the period between the introduction of the GST and the global financial crisis, tax revenue as a share of GDP was at 23.9 per cent. But even at 23.9 per cent there is still a significant gap between the level of revenue and the level of expenditure that the previous government has structurally locked in, on top of various spending growth pressures that we are facing in any event. Not all of it is Labor's responsibility. I readily admit that. We are, as a nation, facing some structural challenges that are the result of things like the ageing of the population. The ageing of the population means that we have falling workforce participation rates. That has an impact on our capacity to grow the economy as strongly as we might with higher participation rates.

Obviously, with the ageing of the population also comes higher levels of expenditure in health and social services, in particular. The other structural challenge that we face as a nation—it is a challenge that is particularly acute now—is that, as an economy with a relatively small population for the size of our continent and for the size of our economy, and with a very significant part of our economy being export oriented or trade exposed in terms of imports coming in, the level of commodity prices matter to us.

Now, over five of the six years of the Labor government they had the best terms of trade in 140 years. Between 2008 and 2012 we had the best prices for our iron ore exports, for our coal exports and for a number of other key exports. What would normally happen in countries like Australia, where there is that level of exposure to global fluctuations in commodities prices and the like, is that when prices are very high you put away savings and resources for a rainy day. The previous government did the exact opposite. When we were getting record prices for our commodities—when our economy was growing strongly on the back of record terms of trade—the previous government was exposing us to unsustainable levels of expenditure.

Now that the situation is turning around, now that commodity prices are coming down much faster and much deeper than had been anticipated by anyone, we are too exposed. Do not take my word for it. A couple of months ago we had a visit to Australia by a gentleman called Pascal Lamy, a former French Socialist finance minister and former head of the World Trade Organisation. None other than Pascal Lamy made the point that Australia cannot sustain the levels of debt that certain countries in Europe have incurred. Why? Because our economy is inherently more risky because of our exposure to global markets. That is, of course, exactly right.

Senator Conroy: Are you back to destroying business confidence?

Senator CORMANN: Senator Conroy is here interjecting, but the truth is that Labor put Australia on an unsustainable spending growth trajectory, recklessly and irresponsibly, and of course Senator Conroy is not able to look ahead to where the trajectory they have put Australia on is taking us. The trajectory that Labor put Australia on is taking us to a situation where consistently, as far as the eye can see, spending would exceed our revenue. That needs to be addressed by being realistic about what is likely to happen to our revenue collection in the years ahead.

There is absolutely no question that Labor put us on a spending growth trajectory to 26.5 per cent of spending as a share of GDP. If Labor, as Mr Shorten has indicated, is committed to a surplus and is not prepared to support spending cuts, what that necessarily means is that Labor would have to increase taxes as a share of GDP to 26.5 per cent in order to balance the books. That is the mathematical reality. If Mr Shorten is not prepared to bring the spending growth trajectory down, then the only way he can balance the books is by massively increasing the tax growth trajectory as a share of GDP and that of course would hurt our economy and would hurt jobs. It would cost jobs because it would make our economy fundamentally uncompetitive internationally. These are the challenges we have been facing as a government.

About 85 per cent of Commonwealth spending at a Commonwealth government level is essentially a transfer of payments through the welfare system, through the health system and payments to the states. Only a very small part of the expenditure of the Commonwealth is, unlike in the states, paid on wages for public servants. Most of it, essentially, is taking money out of taxpayers' pockets and handing it out to somebody else, whether that is through the welfare system, whether that is through the Medicare benefits system, whether that is through the pharmaceutical benefits system, whether it is through payments to the states. You name it: we are essentially just taking money from here and handing it over there. We have to do that in a way that is affordable for the country.

If we do not do this, if we continue to go down Labor's path where we are putting a significant chunk of our day-to-day living expenses on our national credit card, without ever paying any of it off, we would be in the situation where we would have to hand over that credit card to our children and grandchildren down the track for them to pay it back. Every parent knows that that would be a completely unreasonable and unfair expectation. No parent in Australia would put a chunk of their grocery bill on their credit card every week and every month and, at the end of their life, say to their kids, 'Thank you very much, Son, thank you very much, Daughter. And I now want you to pay these off.'

Senator Conroy: No, but they might buy a house and put a mortgage on it!

Senator CORMANN: 'They might buy a house and put a mortgage on it'! Well guess what? That is not the situation that Labor has put us in. Labor has not exposed the country to good debt; Labor has exposed the country to bad debt. Not even your borrowing for the NBN was a good investment. You made a complete mess of— I was going to say something unparliamentary but I stopped myself in time. You were wasting money left, right and centre on something which, quite frankly, was not value for taxpayers' money. But the real problem we have in Australia as a result of the decisions that were made by the previous Labor government, combined with the structural pressures we are facing in any event in the context of the ageing of the population and our exposure to global markets, means we are in a situation where we are borrowing to fund a large proportion of our recurrent expenditure year in, year out. The longer we do this, the longer we add to our debt in an expectation that our kids will pay tomorrow to fund other living standards today—the Labor Party can yell and scream as much as they like but that is the situation that Labor put the country in. They are wanting to force our children and grandchildren to pay higher taxes or accept deeper spending cuts down the track in order to pay for our expenditure today.

There is never an easy way to reduce government spending because the truth is, once you lock in government spending decisions, there is somebody at the other end of that spending who enjoys a benefit they do not readily want to give up. If you are able to get something for free and then somebody says, 'We want you to make a small contribution in order to help us ensure that the service you are accessing is going to be available for everyone over the medium to long term', that is not necessarily spontaneously going to be popular.

Let us talk about health for a moment. Expenditure in health has continued to grow faster than the economy for some time and will continue to grow faster than the economy for the foreseeable future, in particular and on the back of the growing demand as a result of the ageing of the population. So what do we do? Our responsibility as members of parliament, our responsibility as representatives of the people of Australia is to ensure that we put our health care system on a sustainable foundation for the future. When you have growing and potentially unlimited demand and unlimited resources, however high they are, you need to ensure that those resources are deployed in the most efficient and effective way. You need to ensure that the resources you have available are spread as far and wide as possible.

And what is our policy challenge in health? Our policy challenge in health is to ensure that all Australians can have affordable and timely access to high-quality health care in a way that is also affordable for the taxpayer. So the question becomes: when I access a medical service, should the taxpayer cover 100 per cent of the cost of that service or should I be asked to make a small contribution to accessing that service? Labor thought that it was appropriate for the patient accessing a service to pay a small co-payment when it came to accessing pharmaceuticals. So why is it not appropriate when accessing a GP service? The principle is exactly the same. We know, of course, that in tempore non suspecto, as the Romans would say, before this whole issue became political the shadow Assistant Treasurer, Mr Leigh, held that exact same view. The shadow Assistant Treasurer, Mr Leigh, who does know a bit about economics, actually made the point that a small co-payment is the absolutely appropriate way to go when it comes to ensuring we maximise the efficient allocation of limited resources to a growing demand for healthcare services and that a price signal is a proven way to achieve that.

There are, of course, a whole series of structural reforms that we have put forward in the budget—not because we enjoy hurting people or imposing pain on people but because we want to ensure that the important services of government—social services, healthcare services and all the things that governments do—continue to be affordable over the medium to long term. To those Australians who ask why the government is doing this, I would say consider what is happening to our revenue now. In December last year, the Labor Party would say, the Treasurer and I were overly pessimistic in our revenue assumptions—that the assumptions underpinning our revenue forecasts were supposedly deliberately pessimistic in order to make the budget numbers in Labor's last budget look worse than what they were. That is not what we did. We were committed to being realistic. As it turns out, we were being too optimistic. And today Labor is saying that we exaggerated the revenue that we were expecting to collect. So you cannot have it every which way. The truth is that nobody expected commodity prices to fall as much as they did. But we are responsible and we are continuing to work to fix the mess that Labor left behind.

On a final point, Mr Shorten says he is not only going to deliver a surplus but deliver it sooner than the coalition. Given that he is opposing most of our savings measures, given that he is not able to convince Labor to support their own saving measures and given that he is starting from way behind, I want to hear from Mr Shorten where he is going to cut and where he is going to cut deeper. Where is he going to increase taxes in order to not only deliver a surplus but deliver it sooner? Right now, the Leader of the Opposition, Mr Shorten, not only wants to have his cake and eat it too; he wants to sell the cake that he wants to have and eat. That is something that is just not practically possible. He will have to put his money where his mouth is, sooner or later. In the lead-up to the next election, if he does not support the savings measures that we have put forward in order to get our budget situation back under control, if he does not want to add to the deficit and if he wants to get back to surplus more quickly, he will have to say where he is going to cut and where he is going to increase taxes—in particular, because he is starting from way behind.

The coalition, of course, looks forward to more constructive suggestions in the spirit of the motion put forward by Senators Leyonhjelm and Day. We look forward to productive and positive suggestions by the Labor Party, because, in the end, we are all in this together. We cannot expose future generations of Australians to the lowering of opportunity that would follow from the continuous level of debt and deficit that are the direct result of the spending and debt growth trajectory that Labor has put Australia on. I encourage all Australians to reflect very carefully about the trajectory that we are on at present. We should all be committed to stronger growth and repairing the budget.