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Wednesday, 13 May 1987
Page: 3132

Mr KEATING (Treasurer) —by leave-Madam Speaker, I shall outline to the Parliament and to the people of Australia measures which will reduce next year's prospective Budget deficit by more than $4,000m.

These measures mark the culmination of the most intensive and exhaustive review of Commonwealth programs in living memory.

They reduce the growth rate in Government spending to its lowest level in 30 years.

They involve a massive reordering of Government spending priorities to meet the huge collapse in our terms of trade.

They build on the process of national economic change which the Government undertook in the Budget last year.

The savings in Government spending I will announce tonight centre on the abolition of unemployment benefits for 16- and 17-year olds, means testing family allowances, the abolition of the Community Employment Program, cuts in defence expenditure, sales of Government assets and cuts in Commonwealth payments to the States.

Madam Speaker, many people may wonder why these savings need to be undertaken at all.

The answer lies in the falling prices for our primary products such as wheat, sugar, coal and iron ore which have slashed our export earnings.

This loss does not fall on farmers and miners alone.

It falls on all of us.

It comes by way of increased interest rates, a reduced capacity of the economy to afford pay rises and a reduction in the capacity of all Governments to spend.

In other words, the loss of export income impacts on the living standards of us all.

But the Government has not sat idly by and watched the nation's living standards decline.

Instead we have acted decisively to turn the situation around.

Tonight I can report that Australia is winning.

Investment has begun to increase, especially in manufacturing.

The wage moderation we have asked of Australian wage and salary earners during the past few years is working.

We now have a competitive edge.

We are exporting more.

We are importing less.

And more of what we need we are now making in Australia.

The doubters and the knockers who said Australians could not do it are being proved wrong.

For the first time in its history Australia now stands on the verge of breaking away from its precarious dependence on a narrow range of primary exports.

In doing so we will free ourselves and our young people from the dictates of the international financial markets.

We are clawing back Australia's financial independence.

But to see this process through we cannot relax for a moment.

To do so would risk slipping back down the slope of international indebtedness.

Instead, we must invest more in new industries to lift exports and to recapture home markets lost to imports.

The cuts to Government spending I am announcing will directly make this possible.

By reducing the Government's call on Australian savings we free up those savings to go where Australia now really needs them, into plant and equipment for export expansion and import replacement.

That is the whole point of the exercise.

At this time we need money going into investment, not into increased Government works and services.

In this way each dollar released from the Government sector can ultimately be put to work in combating our trade problem.

Madam Speaker, as I said at the outset, tonight's Statement contributes more than $4,000m towards cutting the prospective Budget deficit for the next financial year.

The measures fall into three broad categories.

Ongoing spending reductions, receipts measures and asset sales.

The recurrent expenditure reductions announced here tonight will amount to more than $2,600m.

Reductions in Commonwealth general purpose payments to the States account for $1,000m of this figure.

The second element, receipts, amount to about $400m, and mainly reflect the Government's decision to remove sales tax and customs duty exemptions from those remaining Commonwealth Government enterprises that still enjoy these privileges.

This will bring the total recurrent, or ongoing, reductions in the prospective 1987-88 Budget deficit to over $3,000m, building to $3,300m in the year after.

The third category of savings embraces the sale of $1,000m of Commonwealth assets.

While not themselves a recurrent saving, these proceeds will be used to reduce the Commonwealth Government debt, thus providing ongoing savings in interest paid by the Government.

Madam Speaker, updated forward Estimates of budget spending show that for the next financial year, had we not acted, spending would have risen by more than $7,000m, or 2 1/2 per cent in real terms.

As a result of tonight's announcements, those forward estimates now show a real cut of 2 per cent in government spending-the biggest fall in 30 years.

It is clear that tonight's statement will enable the Commonwealth to reduce very significantly its deficit in both money terms and as a proportion of gross domestic product.

Already in four years we have cut the deficit from a prospective 5 per cent of gross domestic product to a likely 1 1/2 per cent this financial year.

Tonight's decisions will enable us to go even further and bring in next year's deficit under one per cent of GDR.

This achievement compares starkly with the United States where the federal deficit has hovered around 5 per cent of gross domestic product for five years.

The Australian achievement is even more notable because at the same time we have lifted social security payments by more than $1,500m above what was required to keep pace with inflation.;

This has been achieved by reordering priorities in earlier budgets and clamping down on cheating and fraud.

Tonight we go much further in those directions.


We are undertaking a major restructuring of unemployment benefits and education allowances.

Our competitors-countries like Japan and the United States-have placed a heavy emphasis on education and training.

We must do the same.

Already we have succeeded in increasing the number of our young people who stay to their final year of school by 39,000, a lift from 36 per cent to 50 per cent.

But more needs to be done.

Accordingly, unemployment benefits for 16-and 17-year olds are to be abolished.

They will be replaced from 1 January with a job search allowance which removes the financial incentive for young people to leave the education system.

It will be paid at the rate of $25 a week, half the existing junior unemployment rate.

New applicants for it will have to wait 13 weeks after leaving school, compared with six weeks under the old system.

The purpose of the allowance is to help defray the costs associated with finding employment.

This new structure gives a positive message to those who leave school-either find work or undertake training.

We recognise that if applied universally this new measure would place a particularly harsh burden on low income parents.

Thus, subject to a strict parental income test, an additional payment of up to $25 per week will be made available.

Besides focusing on unemployment benefits, the Government is concerned that study allowances for young people should provide a positive inducement to stay in the education system.

Consequently, we have budgeted for increases of up to 33 per cent in the rates of Austudy-the Commonwealth study allowance for secondary and tertiary students-to take effect from the beginning of 1988.

At the same time we will cancel the increase in the intermediate unemployment benefit rate planned for the beginning of 1988, so as to align it with the increased study allowance of independent and living away from home students aged 18 and over.

This will bring that allowance to $91.20 a week, up 14 per cent.

However, consistent with the requirement that Government assistance be directed to those in genuine need, access to the Austudy independent allowance is to be tightened.

These far-reaching reforms will mean that from 1988 we will have virtually eliminated any financial incentive for young people to leave the education system and shift on to welfare.

This is a dramatic change.

Also, like their younger counterparts, 18-to 20-year olds leaving education will now have to wait 13 weeks before being eligible for unemployment benefits.

In the current budgetary environment, however, this shift in favour of training to provide permanent employment can only be achieved if expenditure on temporary job creation is cut back.

We have therefore decided to abolish the community employment program, saving $100m in 1987-88 and $200m in 1988-89.

Already committed projects will be completed, but no new approvals will be given after 30 June this year.

Similarly, our Jobstart wage subsidy scheme is to be wound back.

The emphasis on training is to be extended to our approach to funding the technical and further education system.

We have decided to reduce by some $30m funding in the form of general grants to the States for the TAFE system.

Instead the Department of Employment and Industrial Relations is to spend an additional $32m on job training programs in 1987-88 and $63m in 1988-89.

Most of these funds are to be redirected to TAFE colleges, which can also seek offsets by full cost recovery on hobby and short courses.

We have also established a working group to consider future TAFE funding so that it better emphasises vocational and industry training.

These measures are a substantial further step in our reform of the education, training and income support systems, to ensure that Australia's skills training remains progressive and relevant to our times.

Madam Speaker, the Government is to take wide-ranging measures to crack down further on social welfare fraud and abuse.

These measures-and the changed unemployment benefit arrangements I have just announced-will contribute total savings of $360m from Social Security.

Whilst we will not flinch from Labor's commitment to the genuinely needy we must ensure that sponging on social security is systematically eliminated.

Last year in the Budget tough new procedures were introduced.

The special investigation teams which we established, together with tightened benefit eligibility rules, have contributed towards a cut of 27,000 in unemployment beneficiaries, saving $100m .

These efforts are to be greatly expanded in the coming year by the permanent establishment of teams in each one of Australia's nineteen social security regions.

The number of unemployment beneficiaries interviewed will more than triple to approach 100,000.

A further six teams will be established to review sole parent and sickness beneficiaries and invalid pensioners.

The crackdown will also incorporate the following measures:

from December, an assets test is to be applied to all unemployment and sickness beneficiaries over 25 years of age.

sickness benefit rates are to be reduced to the same level as for unemployment benefits, to remove an incentive for abuse.

people who have left their job voluntarily will in future have to wait longer to receive benefits.

recipients who cannot prove they have been actively seeking work will be subject to an extended penalty period.

tightened administrative procedures, including more cross checking between Government departments and the Tax Office, will be implemented.


Madam Speaker, a fair social security system must be about providing assistance to those in need, not making payments to those whose incomes are substantially above average.

It is clearly not reasonable that the taxes of low and middle income families should continue to fund benefits for the relatively well-off.

For this reason the Government has decided that an income test on joint parental incomes of $50,000 a year and above will be applied to the family allowance.

This extends to the family allowance the same income testing principle which is applied to other social security payments.

To protect large families, a further $2,500 in income will be allowed for the second and each subsequent child before the payment begins to phase out.

For example, for a family with four children the allowance will not completely phase out until their income exceeds $63,900.

The test will apply from 1 October this year and will reduce family allowance outlays by $95m in a full year.


Before completing my remarks on social security, I wish to make one final point.

Last year we asked Australia's pensioners to make a sacrifice for the good of the country by deferring pension increases for six weeks.

They have made their contribution, a contribution which should be appreciated by the whole community.

We will not be cutting pensions in this statement or the Budget.

The next increase in June will reflect the full value of indexation by the consumer price index, and will amount to nearly $12 per fortnight for a single pensioner.


Madam Speaker, the Government has also made savings of $260 million in the health and community services portfolios.

I stress that none of these changes will alter the basic concept of universal health care.

The general Medicare rebate will remain at 85 per cent for all out-of-hospital services and public hospital care will remain free as now.

However, the Government has an ongoing responsibility to ensure that the cost of the health system remains affordable to the Government and the community at large.

Consequently, we will reduce costs by focusing on the areas of high growth, overpriced services.

First, a number of schedule fees paid to doctors, but particularly for x-ray services, are to be reduced to contain costs and encourage better medical practice.

Second, after-hours consultation fees paid to doctors are to be reduced in order to curb the excessive resort to this fee by some practitioners.

Third, a smaller share of medical costs incurred by private patients in hospitals will be borne by Medicare.


The Government's commitment to create 20,000 new child care places over three years will be achieved.

By 1988 this Government will have created more child care places than all other governments since Federation.

By June 1988 all of these places will be either operational or under construction.

However, in the current circumstances we cannot afford the high cost in prospect for this program.

To curb its cost we have decided that more of the places will be provided by family day care and fewer by centres than was originally anticipated, contributing to a $33m saving.


As defence is such a large part of Commonwealth outlays it must also contribute to the cuts required for Australia to successfully reduce its trade imbalance.

Previous defence forward planning allowed for a 3 per cent real increase in the level of defence outlays.

This will now be a 1 per cent real reduction next financial year, saving $350m.

The Government has also decided that the forward planning guidance for defence spending will be reduced to a one per cent real increase in 1988-89 and a 2 per cent real increase in 1989-90.

Over the three years these reduced forward outlays figures will save the budget over $1,400m.

However, this will still allow for the essential capital re-equipment and planning needs of the defence forces as recently outlined in the Government's White Paper.


As I announced earlier, the Government is to realise $1,000m from the sale of assets by 30 June 1988.

The sales will relieve the Budget of future capital commitments and, through a reduction in the deficit, ongoing interest payments.

These sales are part of a sensible ongoing review of assets and holdings which the Government has been undertaking over recent years.

They have not been motivated by any ideological view like some privatisation campaigns overseas.

This program will include:

the sale of long term leases on all of the Commonwealth's international airport terminals;

the sale of the Williamstown Dockyard, a substantial proportion of the Government Aircraft Factory in Victoria and surplus defence property;

the sale of part of our Embassy site in Tokyo, the Commonwealth Government offices in Sydney and Melbourne and other property.

We have not priced individual assets so far as to protect the Commonwealth's interests in dealing with purchasers.


Other spending cuts of over $500m include reductions of $180m in roads, $27m in interest savings arising from changes in the timing of payments to local government and $20m off foreign aid.

The level of Commonwealth project grant funds is being restrained and we are reviewing the approval criteria to ensure they are appropriately utilised.

To date the allocation for grants in 1987-88 has been cut by $2 1/2m.


Last year we established an Efficiency Scrutiny Unit to review all sectors of the Public Service to identify areas for improvement.

This will result in simplified processing of government accounts and Commonwealth travel arrangements being contracted out to the private sector, saving over $50m in a full year.

The Government will be closely examining staff requirements before the August Budget and is committed to holding down staff numbers in 1987-88 to less than those budgeted for in 1986-87.

The review process will include the Public Service Board itself, which will be restructured to maximise efficiency while preserving the independence of public sector staffing decisions.

Wage movements also have obvious implications for the Commonwealth's staffing costs, as they do for other employers.

The recent judgment of the Conciliation and Arbitration Commission provides for employers and unions to negotiate additional pay rises in return for improvements in work practices and productivity.

The Government will adopt a rigorous approach to these additional pay claims.

Consistent with the Commission's principles, Commonwealth employing authorities will respond to union claims by requiring the removal of restrictive work and management practices and reform of outdated classification structures.

We will ensure that the gains achieved will be at least commensurate with the costs associated with any salary increases.


Madam Speaker, tonight I have described the Budget savings measures which the Government has taken to advance the process of economic change in Australia.

That change is critical in overcoming our trade problem, lowering our dependence on overseas debt and recovering our financial independence.

In making these decisions the Government has had to balance the absolute need for savings against its commitment to fairly share the burden of economic adjustment across the whole community.

But above all else we have followed through our convictions that being in Government is about facing responsibilities, not squibbing them.

The measures announced tonight will substantially lower the Budget deficit and the Government's call on Australian savings.

This is the only way we can provide genuine scope for further falls in interest rates.

This is the only way we can meet the challenge of Australia's trade deficit.

It is the only way we can secure Australia's future. I commend the statement to the House and the nation. I present a copy of the following paper:

1987-88 Budget-Initial Measures-Ministerial Statement, 13 May 1987.

Motion (by Mr Young) proposed:

That the House take note of the paper.