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Paper presented to the Health Services Union National Executive Meeting by Stephen Smith, Shadow Minister for Industry, Infrastructure and Industrial Relations: Sydney: 7 April 2005.



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Paper

presented to the

Health Services Union

National Executive Meeting

by

Stephen Smith MP

Member for Perth

Shadow Minister for Industry,

Infrastructure and Industrial Relations

Thursday 7 April 2005

Sydney

Thank you Michael (Williamson, President, HSU) for that introduction.

And thank you to your National Executive for the opportunity to speak to you today.

In the last Parliament for a time as Shadow Minister for Health I had the opportunity to work closely with your Union at both the national and state level.

This is the first opportunity I have had this Parliament to address your Union, and I do so wearing my three hats - Industry, Infrastructure, and Industrial Relations.

Today I want to speak to you about some broad issues impacting on our future national economic prosperity.

Having just returned from a week long trip to China, I want to focus on the economic challenges and opportunities that our nation of 20 million people, nestled in the Asia Pacific region, faces at the beginning of this Century.

International competitiveness and Industrial Relations

For Australia to prosper as a nation into the future and for us to continue as a nation to guarantee our people jobs and decent living standards, we must ensure that Australia is internationally competitive.

For Australia to remain internationally competitive, we have to move to the next level of productivity improvement.

The Howard/Costello Government would have us believe that the only effective way of doing this is by whipping workers, by slashing wages, stripping entitlements and removing safety nets.

And by doing all of that in an unfair way.

The actual details of all this will become clearer after 1 July this year when the Howard/Costello Government assumes control of the Senate.

If the current extreme attitude the Government is exhibiting to industrial relations is anything to go by, we can expect that they will accelerate their legislative prosecution of this extreme, unfair and divisive industrial relations approach as soon as their majority

materialises.

With a Minister who by his own admission contemplates the prospect that unions will be extinct in the next fifteen years, the Government’s approach is not driven by the pursuit of internationally competitive productivity improvements in the economy, but by prosecuting Australia’s lowest paid and most vulnerable in the nation’s workplaces.

This has been demonstrated in spades over the past few weeks as the Prime Minister, Treasurer Peter Costello and Minister Andrews have all expressed their desire to change the minimum wage and ‘simplify’ Awards. In their eyes, ‘simplifying’ Awards and reducing the number of allowable matters is code for stripping the Awards of the conditions Australian employees and their families have come to depend upon.

What Prime Minister Howard, Treasurer Costello, and Minister Andrews don’t mention is that the allowable matters underpin the basis of every Australian employee’s working conditions.

All of the allowable matters are relevant to employees on an Award and receiving the minimum wage, employees on Enterprise Bargaining Agreements (EBA), and also employees on an individual Workplace Agreement (AWA).

There are currently twenty allowable matters.

Here are some of those at risk as Prime Minister Howard contemplates just how far he can pare back employment entitlements:

• public holidays • annual leave and leave loadings • incentive-based payments, piece rates and bonuses • ordinary time hours of work and the times within which they are performed, rest

breaks, notice periods and variations to working hours • classifications of employees and skill-based career paths • parental leave, including maternity and adoption leave • long service leave • loadings for working overtime or for casual or shift work • employer superannuation contributions.

This is on top of Minister Andrews refusing recently to guarantee that no individual Australian employee’s wage would be lowered as a result of the Howard Government’s proposed changes to the minimum wage arrangements.

Not once has he refused. But on four separate occasions.

Minister Andrews refused to give that guarantee to the Australian Financial Review last month on 10 March.

He refused to give that guarantee when I asked him the question in the Parliament on the same day.

And he refused to give that guarantee when I challenged him on the ABC AM program on 21 March, just as he did at the Sydney Institute before Easter.

In making changes to the minimum wage and ‘simplifying’ current Awards, the Government could introduce one minimum wage for each Award. This could lead to thousands of Australian employees having their wage slashed to the lowest pay rate level of the respective Award.

In the case of an Aboriginal health worker paid at the highest level of their Award, $852.10 a week, he or she could have their wage reduced to the lowest Award pay level of $530.60, a massive loss of $321.50 a week.

The Aboriginal and Torres Strait Islander Health Services Award is used as a test case for all the other awards in the Health sector, and so a similar effect could be possible for all other award workers in the sector.

Similarly, a shop assistant employed at the highest level of the Retail and Wholesale Industry - Shop Employees Award, could have their weekly wage of $566.90 reduced by $45.10, to $521.80.

Employees in the hospitality industry face a big wage slash, with cooks on the highest paid Award level of $621.80 a week at risk of being reduced to the lowest paid level of $467.40. That’s a loss of $154.40 a week.

When the Howard Government gets control of the Senate on 1 July and embarks on such an extreme and unfair industrial relations approach, Australian employees and their families will bear the brunt, with wages reduced, entitlements stripped and safety nets

removed.

And all this in the context of their cost of living rising.

The March rise in home loan interest rates to 7.3 per cent has seen the payment on the average mortgage of $212,000 rise by $34 a month.

Families with higher mortgage loans face even larger monthly repayment increases - $48 extra a month for a $300,000 mortgage and $64 extra a month for a $400,000 mortgage.

On top of this the cost of private health insurance, rising to $21 a month for some households, and rising petrol prices are putting more and more pressure on households.

At a time when such household expenses are on the rise, Australian employees and their families cannot sustain a slashing of their wages and entitlements or a removal of their safety nets.

Clearly, I don’t share this Government’s extreme ideological approach.

On the contrary, I am in the market place for sensible industrial relations reform that is based on fairness and productivity, but not political zealotry which unfairly attacks Australia’s lowest paid employees.

I am happy to contemplate sensible industrial relations reforms that improve the productivity and efficiency of the economy, and have fairness as a central tenet.

It has been productivity improvements with fairness that has been Labor’s way.

Fair and sensible industrial relations reform from Labor has played its part in the past in building the international competitiveness of the Australian economy.

It was the Hawke/Keating Government that made the significant changes, opening up the industrial relations system to productivity imperatives by introducing enterprise bargaining.

We moved away from the centralised system of wage fixing through industry-wide awards made by the Australian Industrial Relations Commission and allowed employees and employers to reach agreements that were more attuned to the needs of particular industries and workplaces.

And the focus of these agreements was productivity improvement for the sake of international competitiveness.

This was not an easy change to make.

But it is a testament to the enduring success of enterprise bargaining that not only did it introduce the principle of collective agreements at the individual enterprise level to better meet the demands of a particular business, it also improved the working environment for employees and helped businesses to flourish.

It has an ongoing contribution to make to our international competitiveness as a nation.

The next wave of productivity improvements will not come solely from industrial relations reform and it certainly will not come from the Howard/Costello Government’s extreme industrial relations approach, based as it is on neither fairness nor productivity.

The next wave of productivity improvements has to come from us being smarter as a nation. It has to come from investing in the education and skills of our workforce. It has to come from investing in the efficient use of infrastructure, from investing in information technology infrastructure, and from investing in research and development.

And it has to come from us thinking and acting strategically in our international trading relationships.

By investing in the skills and expertise of our people, in education, research and development, in infrastructure, in the better use of information technology and in the removal of the complexity of regulation, we can continue to ensure that we are internationally competitive.

Unfortunately, it is in precisely these areas that the Howard/Costello Government has failed our nation, and the Australian people.

This is a Government that has failed to sow the seeds for our future economic growth.

This is a Government that has failed to capitalise on our nation’s good economic fortune, despite:

• 14 years of continuous economic growth. • an international economic environment characterised by strong global growth, particularly over the past year. • inflation rates returning to stable levels around the world; and • a global resources boom fuelled by China’s exceptional growth.

It has failed to do this because it has been complacent about our nation’s long-term economic future.

Instead of capitalising on this good economic fortune by looking to the long-term strategic investment in our nation’s economic future, the Government has complacently allowed the economy to drift, so that we are now faced with a situation where our economic growth is driven not by exports and sustained productivity improvements, but by debt-fuelled consumer consumption.

International competitiveness for our industry to enable trade to flourish

One area that has until recently seemingly escaped public glare has been the Howard/Costello Government’s neglect of industrial export capacity and international trade, vital to our national prosperity and wealth creation.

As a nation, Australia’s wealth and prosperity has historically stemmed from two things:

• by being a great trading nation, and • by being a safe and attractive destination for capital investment.

To be such an attractive location for foreign investment, Australia has had to be internationally competitive.

Australia’s international competitiveness over recent years was based on the reforms of the Hawke and Keating Labor Governments.

Under Labor, the Australian economy was taken away from an inwardly focused, import replacement mentality characterised by high tariff barriers and quota restrictions and focused much more directly toward becoming an outward looking competitive, productive trading nation.

Under Labor:

• We opened Australia up to the competition of the global economy by bringing down tariff levels, and floating the dollar.

• We achieved real tax reform by cutting high marginal tax rates and corporate tax while shutting down loopholes like untaxed capital gains, and fringe benefits. In the process we minimised unfairness and reduced inefficiencies in the taxation system.

• We achieved real industrial relations reform, a modern productivity-based enterprise system, but with real safety nets and fundamental protections for low paid workers.

• We encouraged competition across the communications, aviation and financial services sectors.

• And we introduced a most ambitious package of microeconomic reform, through National Competition Policy.

Just as importantly, the industry and trade policy approach of the Hawke-Keating Governments also helped establish Australia as a great trading nation during those years.

Those policies placed Australia on centre-stage of the international and regional trade debate.

Australia under Labor established the Cairns Group of agricultural trading nations as an effective third voice along with the Europeans and the United States in the General Agreement on Trade and Tariffs (GATT), and later WTO, negotiations.

Australia under Labor worked with like-minded countries to establish the Asia Pacific Economic Cooperation forum (APEC) for the purpose of greater economic cooperation.

And Australia under Labor saw the prospect of closer linkages between Australia - New Zealand Closer Economic Agreement (CER) and the ASEAN free trade area.

Each of these trade policy initiatives was based on a hard-headed appreciation of what was in our nation’s long-term economic interests.

This was not an ideological battle of bilateralism against regionalism or even multilateralism, but a pragmatic realisation that putting all of your eggs into the one trade basket potentially exposed our nation to the shifting and fickle tide of the international trade environment.

That pragmatism inevitably saw the realisation that multiple advances on the trade front were necessary simultaneously if real progress was to be made to secure Australia’s long-term economic well-being.

I apply a simple test when assessing whether a bilateral or regional trade agreement should be adopted.

That test revolves around two threshold issues: firstly, whether the agreement in question is in our national interest - whether it aids and assists our long-term economic prosperity; and secondly, whether the bilateral or regional agreement also moves forward multilateral trade ambitions and interests.

Of course, the Howard/Costello Government would have you believe that they adopt the same sensible approach on trade policy as well, that is this basis on which they have been able to develop and pursue bilateral free trade agreements with countries across the globe.

What they have you conveniently ignore here though is that under their watch, Australia has moved to a situation where our trade policy agenda is focused almost exclusively on bilateral agreements - all the eggs in the one basket.

On the multilateral front, we have seen the Howard/Costello Government effectively give up the political leadership of the Cairns Group of agricultural trading nations, as Brazil and other members of the Cairns Group have struck out in a similar direction with the formation of the G20 - a direction that notably excludes Australia.

Labor remains strongly committed to further trade liberalisation through the WTO Doha Round, APEC and through individual Free Trade Agreements (FTAs) which are in the national interest and which help advance our multilateral and regional objectives.

These trade initiatives will win additional markets or a greater share of existing markets for our exporters, thereby generating economic growth, jobs and prosperity for Australians.

They will also bring pressures as well as opportunities for our local industry.

Against this background of trade liberalisation, and in an increasingly integrated and competitive global economy, it is not feasible any longer to believe that any particular level of protection into the future will either be in our national interest or indeed relevant.

China and Australia - our industry and trade relationship

My own view is that China and the United States provide two of the great individual nation-state trading opportunities available to Australia in the course of this century.

Any measures we can take with those individual countries to get in on the ground floor in terms of a trading relationship at the beginning of this century is an eminently sensible national interest thing to do.

Apart from currently being the world’s largest economy, the United States is Australia’s most important economic partner. It is, with Japan, one of Australia's two primary trading partners and ahead of all others in terms of two-way services trade and investment flows.

Looking at investment flows, the United States is the single largest investor in Australia, and we are their 8th largest provider of foreign direct investment (FDI).

In trade, the United States is our second largest merchandise export market, our most important market for services, and our largest import source for both merchandise and services.

In 2004 Australia exported goods and services worth over A$14 billion to the United States, while importing goods and services worth nearly A$27 billion.

The resulting bilateral trade deficit of approximately A$13 billion in favour of the US reflects in large part our high-tech and manufactured import requirements being sourced from American suppliers. This deficit underscores the imperative to focus on our intellectual strengths and capacity.

In the case of the Australia-US Free Trade Agreement, it was with this in mind that Labor came to the conclusion that the Agreement was in our long-term national interest.

The great opportunities in trade between Australia and the United States are now in terms of our intellectual strength, not necessarily our physical labour, but our intellectual capacity.

As with the United States, no one can doubt the absolute importance of China to the global economy and to Australia’s future economic well being.

This is hardly surprising.

From the time that Deng Xiaoping announced in 1978 the ‘four modernisations’ we have witnessed stellar economic growth from China.

With GDP increasing by 9.7 per cent annually during the 1980s, 10.7 per cent annually during the 1990s, and since 2000 an annual growth rate of between 7 and 9 per cent, China has certainly more than made its presence felt regionally and internationally.

As a result, since 2000, China’s Gross Domestic Product in US$ terms has increased by nearly US$700 billion.

Today, the Economist Intelligence Unit has forecast that China’s GDP will be around US$1,750 billion in 2005, up from US$1,080 billion in 2000.

On a per capita basis, GDP has increased from US$853 in 2000, to an estimated US$1,300 this year. By way of comparison, Australia’s GDP per capita is US$27,000.

Australia has had an important role to play in this Chinese economic growth.

China is today Australia’s third largest trading partner for merchandise trade and our second largest overall merchandise export market.

That commercial relationship has ballooned over the past decade. Two-way merchandise trade in 2004 was valued at nearly $30 billion. That is a four-fold increase in two-way trade value since 1999.

Broken down further, the Department of Foreign Affairs and Trade (DFAT) have revealed that 9 per cent of Australia’s merchandise exports went to China in 2004. Valued at more than $10 billion, this is up significantly from the 3-4 per cent in the early to mid 1990s. Over time, merchandise exports to China have trended toward a growth rate of around 20 per cent per annum since the late 1990s.

It is a similar case with our manufacturing exports, where enormous opportunities remain. Since the late 1990s, Australian manufacturing exports have grown - admittedly from a fairly low base - at around 20 per cent per annum. Demand for industrial inputs into China’s production process has been largely responsible for this growth, but Australia has also been successful in exporting such elaborately transformed manufactures (ETMs) as telecommunications equipment for end-user application.

We are all starting to learn all too well the strength and viability of China’s productive output. As China’s Ambassador to Australia, Madam Fu Ying, remarked last year, China today manufactures one out of every two cameras, one out of every three TVs, and one out of every three air conditioners. Not to mention China’s significant industrial presence across the manufacturing and agribusiness sectors.

This shows little sign of abating, particularly given that China is today the third largest merchandise importer in the world. With total merchandise imports and exports reaching over US$850 billion in 2003, it is anticipated this trend will continue for the foreseeable future.

The challenge for us as a trading nation then is to harness the evolving and deepening relationship. So far, we have successfully managed to achieve getting in on the ground floor. Now we have to take it to the next level.

We got to the ground floor first through our early recognition of China under Gough Whitlam.

More recently, we have done this by forging a deep and strategic relationship through our petroleum and minerals resources industry.

Minerals and Petroleum Resources Exports to China

It has been China sucking in our exports of commodities across the board from our petroleum and mineral resources that has made such a significant contribution to economic growth in Australia, particularly through our great outlying States, Western Australia and Queensland.

Our minerals and petroleum resources industry are hitting the mark with every passing day, a fact which has seen the importance of these industries only recently appreciated nationally by public policy practitioners.

It has only been thanks to our minerals and petroleum resources industry off the back of booming exports to China that Australia’s Current Account Deficit has been kept at the already record-breaking 7 per cent of Gross Domestic Product.

Our Current Account Deficit weakness has been underscored this week by Australia recording its 40th successive trade deficit, setting a new record for the worst run of trade deficits recorded by any Government in Australia’s history.

That’s seen a $2.2 billion trade deficit for February - the eighth successive month that the Howard/Costello Government has recorded a trade deficit exceeding $2 billion.

We must expect, however, that at some point in the cycle, high commodity prices and China’s demand will abate.

While no one has a crystal ball, we can all be sure that commodity prices will at some point in the cycle come down from their current high, just as China’s current insatiable demand for our resources commodities will taper.

Lessons from China

As I mentioned earlier, I have recently returned from a short trip to China.

It was both an informative and eye-opening visit, providing the opportunity to see first hand the remarkable pace of industrial and economic development in that country, and in that context, assess the opportunities and challenges confronting both Australian industry and Australia as a nation.

China looms for Australia not just as a huge dynamic regional economy but the one from our region that will be absolutely critical to our economic prosperity in the years ahead.

While in China I visited three of the key economic and political centres of the country: Beijing, Shanghai and Guangzhou in Guangdong province.

Guangdong province is less often on the public radar of Australians than Shanghai or Beijing, but to give some perspective to Guangdong, Guangdong's GDP was A$210 billion in 2003, similar to that of New South Wales, with economic growth expected to continue at around 14-15 per cent per annum as it has over the last decade.

In Guangdong, China's largest provincial economy, I had the opportunity to contemplate a range of new and emerging export opportunities in the services sector, like education, environmental management and sports infrastructure development, particularly given the 2010 Asian Games will be held in Guangzhou.

In Beijing I held discussions with Chinese officials both about their view for the future of China’s economy, and where they see their relationship with Australia evolving, and how the proposed Free Trade Agreement stands in that context.

I was heartened to hear of the important contribution which Australian companies are making in Beijing for the preparation of the 2008 Olympics - in the use of systems technologies in the organisation of sporting events and infrastructures.

Leveraging off our China success to date

Now is clearly the best time for us to be leveraging from the spectacular successes that our minerals and petroleum resources industry has had so far in China by seeking out further opportunities for Australia.

We need to deepen and broaden the relationship from the focus on resources commodities exports to services and intellectual property areas.

Australia is already an active services exporter into China. According to DFAT, two-way services trade was valued at over A$1.8 billion in 2003. Last year, services exports to China were valued at over A$1.2 billion, or 3.7 per cent of our total services trade exports.

Growth is also occurring in the science and knowledge based industries such as education, finance, health and information technology.

Annual growth of Australia’s services exports to China from 1998 to 2003 averaged at around 14 per cent, with China today being Australia’s seventh largest services export market.

While we continue to do well in this area, Australia must do better. This is particularly the case given that over time we can expect China to pass even more service provision

away from State control to the private sector. I anticipate this will be particularly the case in banking and financial services, the collapse of which remains a serious threat to China’s ongoing stable economic growth.

We should not for a moment pretend that doing better in services will be easy, and the support of the Commonwealth through its networks of bureaucratic and political contacts must be enlisted to ensure Australian services exporters are able to create new or expand their existing market in China.

To be competitive in the long term as a nation in the Chinese market, we must focus this expansion on our activities in the services sector. Australian companies are today operating in a range of niche areas across the services sector, from agribusiness and architecture to minerals and resources technology and environmental services.

In your own area of health and medical services, for example: • AFT Corporation, a health care and services company, is involved in a joint venture in China to develop air purification systems for use in the health sector in China. • Several biotechnology or bioengineering firms such as AVT Holdings have

significant interests in China. • Companies such as Compumedics and IMD Group Limited are involved in the distribution of health equipment and medical devices to various areas in China; and • Pharmaceutical companies such as Chemeq and Rockeby Biomed Ltd are involved

in delivery of pharmaceuticals to particular markets in China.

All these have at their heart knowledge or science based intellectual property.

As well as this, both the Australian Government and Australian industry are involved in a number of successful health initiatives in China, a point given greater support by the fact that public health was one of the key sectors promoted for greater strategic cooperation in the Trade and Economic Framework Agreement signed between Australia and China in October 2003.

Public health is also a focus of Australia’s aid program in China. Australia and China agreed in 1999 to an ‘integrated strategy for Australian assistance in the health sector’, aimed at supporting China’s development of a sustainable and effective health system. Funded by AusAID it is a significant program, and is supplemented in the health area by several other projects, including:

• The Yunnan HIV Peer Education Project conducted by the Red Cross; and • A HIV Train the Trainers Program in Sichuan run by the Australian Federation of AIDS Organisations (AFAO); and • The LaTrobe University-Kunming Medical College health services management

training centre; and the • Lions Eye Institute - Shanghai Medical University (bio-engineered microfistula for glaucoma therapy).

An Australia-China Free Trade Agreement

The prospect of a Free Trade Agreement with China is logically now the negotiating forum in which to seek to build on our successes to date in the Chinese market.

As we move forward however, my great concern is that, in a negotiating sense, the Prime Minister has already let the horse bolt.

We can realistically expect that come the Prime Minister’s visit to Beijing later this month that Australia and China will formally agree to commence negotiations towards a Free Trade Agreement.

We can also fully expect that the Prime Minister will accede to China’s precondition that Australia grant it or deem it market economy status before such negotiations commence.

Once this has been granted, what real incentive from the Chinese perspective is there for those negotiations to continue apace?

Why, for example, would not China hasten slowly with the progress of negotiations, or demand long phase-in periods for Australian products that might be deemed to impact negatively on Chinese production, particularly agricultural production?

One area of comparative advantage Australia has with China is in agriculture. I know from recent discussions with Chinese officials that within China there is concern about what impact Australia’s relative advantage in agriculture might have on that part of the Chinese economy.

This is partly the result of regionally uneven economic development, concentrated primarily in coastal China, the south and the large urban centres. As a result, rural areas have greatly fallen behind in relative terms, which has lead to significant internal migration. Today, for example, around 90 million unregistered rural workers have moved to urban centres to work in the construction and manufacturing industries.

This is a very real concern for the Chinese, with recent high level speeches referring to the need for the harmonisation of the economic benefits between city and country, east and west. One can expect to see future moves by the Chinese authorities to ensure the city/country economic divide is not further exacerbated.

Once market economy status from Australia was in the bag, why wouldn’t the administration be tempted in this context to take negotiations on agriculture very slowly indeed. So it is reasonable to contemplate that the Chinese Government will seek to mitigate any negative impact - perceived or otherwise - that Australia’s agricultural exports may have.

This is given greater weight by the fact that, as leading trade analyst Peter Gallagher has noted, China has in place caveats on the liberalisation of agricultural imports, particularly

in those areas regarded as ‘national strategic products’ - namely, rice, wheat, maize cotton and wool - several areas in which Australia has a competitive and global advantage in.

In this context then, it has to be said that at the very least the Prime Minister’s apparent enthusiasm to concede market economy status just to get to the negotiating table rather than it emerging as part of a concluded package is short sighted indeed.

It would be much more sensible for the Prime Minister to hold the concession of market economy status in reserve over the course of negotiations rather than the approach he has clearly decided to adopt.

It is quite clear that China wants market economy status recognition from Australia as part of its macro approach with the wider international community.

But once Australia grants or deems it, where goes the real lever for making progress on some of the essential attributes of a market economy that Australian industry argue with force are either non-existent, or only present in Shanghai or Beijing, namely investment

certainty, enforceability of contracts, the rule of law, the protection of intellectual property and copyright infringement - all things essential to long-term investment in knowledge and science based services exports.

Free Trade Agreement Principles

Assuming then that Australia and China do commence FTA negotiations, what should we as a nation be seeking from such an FTA? What are some of the issues at stake?

Any such FTA needs to advance Australia’s multilateral trade objectives, our trade interests in East Asia and further integrate China into the global trading regime.

As well, it is essential if negotiations are to be relevant and fruitful that Australian industry is genuinely engaged in a constructive two-way discussion and negotiation process.

We should look to no carve-outs and avoid significantly lengthy phase-in periods.

We should seek consistent and simple rules of origin. We should seek to ensure that these rules of origin are able to work effectively in practice.

For example, the real problem for Australia's textile, clothing and footwear industry taking advantage of the US-Australia Free Trade Agreement is the United States yarn forward rule of origin. The yarn forward rule requires that, to take advantage of the US Free Trade Agreement, the yarn has to be produced in Australia, something which our industry has never really done.

As well, intellectual property protection must be adequately addressed, contract law between our two countries needs to be made more certain, and certainty and security of Australian investments must be addressed.

Conclusion

I have appreciated the opportunity to speak to you this morning.

I look forward to working closely with you over the course of this Parliament.

Thank you.

ENDS