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Wednesday, 1 June 2005
Page: 156

Dr SOUTHCOTT (10:01 AM) —I am very pleased to have the opportunity to speak in the debate on the 2005 budget. This is the Treasurer’s 10th budget. It is the eighth budget this government has delivered which has been in surplus. A most important part of this budget is the $21 billion in tax cuts which represents, for the second time, a very significant extension of the threshold for the top marginal rate and for the second highest marginal rate. When we introduced the new tax system in 1998 we were able to ensure that everyone on incomes below $50,000 was on a marginal rate of 30c in the dollar. At that time, 80 per cent of taxpayers were on incomes below $50,000. But we were never able to implement the tax cuts we had promised because the Senate would not allow us to do so.

Last year we were able to take advantage of the Leader of the Opposition at the time, Mark Latham, who had previously made a number of comments about the fact that the top marginal rate was cutting in at an income which was too low, and we were able to increase the threshold for the top marginal rate to $80,000. The budget measures will now increase the threshold for the top marginal rate to $125,000. When you find that the steelworkers in Port Kembla are paying 48½c tax in every extra dollar they earn in overtime, you realise that our top marginal rates are cutting in at incomes which are far too low. One million Australians are living and working overseas. Many of these people will be looking at where the top marginal rate cuts in and this will be an encouragement for many of our best and brightest to return to Australia to work under a tax regime which is not so punitive.

The welfare to work changes are another very important part of this budget. Our unemployment rate of 5.1 per cent is the lowest it has been since November 1976. As Australia’s population ages over the next 20 or 30 years, we are not going to see the growth in the work force that we have traditionally seen. It is going to be more and more important to make sure, not only for our overall economy but also for individuals, that those who can find a pathway into work are able to do so, because it leads to a much more rewarding life.

The budget also contains a number of initiatives related to boosting skills. Because the economy has now been expanding for 13 years and because unemployment is now so low we are seeing a number of skills shortages emerging in the Australian economy. Because of the 13 years of economic growth we are also seeing shortages in unskilled labour. I am very pleased that we are increasing the skilled migration program by 20,000 places. This means that if you have skills which are recognised by Australia you can migrate to Australia from anywhere in the world.

The budget forecasts a growth over the next year of three per cent. This also reflects the fact that our export prices are at a record high. Australia now has the best terms of trade since 1974, particularly for iron ore and coal, and this has been very significant for what our exports are earning. As I said, unemployment, at 5.1 per cent, is the lowest since November 1976. It can go lower, but it will only go lower with changes to workplace relations and a more flexible labour market. The government is also looking at ways that it can increase the participation of people in their late 40s and 50s and encourage them back into the workplace.

Government debt has decreased from $96 billion 10 years ago, almost 19 per cent of GDP, to just $6 billion in this budget. There are very few countries that have wiped out their government debt. A couple of years ago we had a debate about whether we should maintain the debt market for Commonwealth government securities. A decision was made that it would be maintained. We will now be putting future surpluses away into our future fund, which means that the superannuation liabilities which have previously been unfunded will be covered.

There is a cash surplus in this budget of $8.9 billion, roughly one per cent of GDP. Compare this with the OECD average of budget deficits of three per cent of GDP. Australia’s position by contrast is much, much stronger. There has been comment on yesterday’s news about the current account deficit and Australia’s foreign debt. There are a couple of points that need to be made on this. First of all, Australia has a floating exchange rate. If people believe that our current account deficit or our level of foreign debt is unsustainable, it will be reflected in the exchange rate. The exchange rate currently is very strong on the trade-weighted index and also against the United States dollar at about US76c.

The other point to make is that, because we have had government budget surpluses over the last eight years, the current account deficit largely reflects private savings and investment decisions. As the OECD Economic Survey of Australia—2004, released in February 2005, states, because we have few distortions in the economy:

 ... private sector savings and investment decisions are likely to be efficient, with capital flows reflecting informed decisions about relative investment opportunities.

Moody’s has rated us ‘Aaa’ and Standard and Poor’s has given us an AAA rating. The banking system is in good shape and the financial position of firms and individuals is in good shape. The government’s share of net external debt is very low. Government debt, as I said previously, is very low—it is less than one per cent of GDP at $6 billion. It is just extraordinary and one of the lowest in the OECD. I again quote from this year’s OECD economic survey:

This places Australia in a comparatively better position than most other countries to respond to future economic shocks. To preserve this favourable position, the authorities should continue to ensure that the government does not add to aggregate external financing requirements.

Put simply, we should not be running up budget deficits; we should be, as we have been, running up budget surpluses.

The key theme of the 2004 federal election was, ‘Who do you trust to run Australia’s $800 billion economy?’ The mood of the Australian people at the moment is that they got that decision right. One of the things I find in the community is that people actually reflect on what might have been had Mark Latham become Prime Minister. After a few chuckles and so on people do reflect that it was a very close call but that they got the decision right. Our message was that it does take a lot of discipline and experience to run the Australian economy. We saw that the Labor Party’s approach would be to give into narrow sectional interests ahead of jobs and the economy. Nowhere was that better demonstrated than in Tasmania, where you had the extraordinary scene of members of the Labor Party National Executive, CFMEU members, urging their members to vote for the Liberal Party. That was a snapshot which encapsulated the overall theme of the election—that is, every day you consider—

The DEPUTY SPEAKER (Hon. IR Causley)—The member for Melbourne Ports is rising on an intervention. Will the member for Boothby accept the question?

Dr SOUTHCOTT —I would be delighted to.

Mr Danby —Can the member for Boothby name a single member of the ALP National Executive who advocated a vote for the coalition as against supporting timber workers in Tasmania? In your remarks you claimed that a member of the ALP National Executive said that timber workers should vote for the coalition. I would like you to name that person.

The DEPUTY SPEAKER —Interventions are supposed to be short. The member for Melbourne Ports will resume his seat.

Dr SOUTHCOTT —Perhaps I should clarify this. A member of the Labor Party National Executive shared the stage with the Prime Minister. I took that as implicit. I do not think he was not advocating a vote for Mark Latham. Certainly the timber workers were very happy to see the Prime Minister. I think if you look at the result in Braddon and in Bass you can see that that was strongly reflected. It does take a lot of discipline and experience to run our economy. Every day there are decisions to be made.

Let us look at the key challenges we face. First of all, there is the ageing of our economy. Since 1978, we have had a fertility rate below replacement level. At the moment it is about 1.75 or thereabouts. We expect over the next 40 years that the proportion of people over 65 will double. This has important implications in terms of increases in what we will be paying in health costs for the Pharmaceutical Benefits Scheme and so on. Having said that, I believe Australia is in very good shape to meet this challenge because of our strong retirement income system with a means-tested pension and compulsory superannuation. What this means is that our estimates are that we should only be paying about an extra two per cent of GDP over the next 40 years for the age pension. Compare this to some other countries like Canada, for example, where it is expected that they will be spending about six per cent of GDP on the age pension. The OECD average is about three per cent extra of GDP.

I believe that we are well placed to meet the challenges and opportunities. But in only 15 years time, in the decade beginning the 2020s, we expect to see growth in the work force slow. Where we would normally expect 180,000 new workers to enter the work force every year, because that has been the pattern, in the whole decade of the 2020s the work force will grow by only 120,000, and by the time we get to the decade of the 2040s our work force growth will be only 0.1 per cent. So we will not see the increases in the work force that we have always had.

But in countries with much lower fertility rates and where ageing is more advanced, such as in southern Europe, Spain, Italy, Greece, Japan, South Korea and so on, the populations will be ageing much faster. They will actually see periods of work force decline. It is not expected that we will see this in Australia. But it is important that we address the reasons why we have a very low work force participation rate amongst people aged from 45 to 64 years. We need to make sure that we take advantage of all the human capital in our society and that people are able to get the personal rewards available by working.

In terms of the approach that the government has taken, which is exemplified in this budget, what are the challenges we face? First of all, we need to increase work force participation rates, especially among the group aged from 45 to 64 years. The Prime Minister is to be commended for appointing a specific Minister for Workforce Participation, the member for Dickson, whom I am delighted to see in that position. We also need further reform of the economy, including tax reform and making sure that infrastructure is in place so that we do not have any bottlenecks in the economy and including workplace relations reform, because it is very important to have wages set at the enterprise level, not by a centralised tribunal.

Lastly, I want to touch on families. When the Howard government were elected in 1996, one of the things we did through family tax benefit part A and part B was to see that the relative position of low- and middle-income families was improved vis-a-vis the rest. For example, the family payment, which was only about $600 in 1996, is now about $1,800. We did that because we recognise the importance of families in our community, and the figures in the budget documents do show how the real incomes of dual-income families and single-income families have increased over the last 10 years.

On the skills side, skill shortages are emerging, as I have said, and there is funding in this budget to improve vocational education and training through our new Australian technical colleges. But I am also very pleased to see that we have increased our skilled migration by 20,000.

Lastly, on local issues, one of the key local things I pushed for in this budget was federal contribution to the South-West Indoor Aquatic Centre. I believe the Marion council did put in a very good submission. It was supported by all of the peak aquatic sport and swimming groups. We had a very good reception from the Minister for the Arts and Sport, Senator Rod Kemp, and the Minister for Finance and Administration, Senator Nick Minchin. I am disappointed that we were not able to get funding this year, but it is worth remembering that, for example, Mount Panorama, which I believe received $10 million in the 2001 budget, only got that at their fourth attempt and only after a very concrete contribution from the NSW state government. Having said that, it is important to note that swimming pools and aquatic centres are not normally core business of federal government, except where there is a specific case. As I have said in a previous speech, we have no FINA standard pool in South Australia. We do need one. Our local swimmers, our junior swimmers, can never compete in national championships in their own state. We cannot host a national championship because we have no FINA standard pool.