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Address to the Victorian Employers' Chamber of Commerce and Industry, Melbourne



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Speeches

Address to the Victorian Employers’ Chamber of Commerce and Industry, Melbourne

Posted on Friday, 9 March 2012

THE COALITION’S PLAN FOR A STRONGER ECONOMY

Building a stronger economy is the foundation of the Coalition’s positive agenda for building a better Australia.

An incoming Coalition government will take specific, practical steps to manage our economy better and to deliver

hope, reward and opportunity for our fellow Australians: hope, for a brighter future; reward, for hard work; and

opportunity, for you and your family to get ahead.

As well as our plan for a stronger economy, the Coalition has achievable plans for stronger communities, a

cleaner environment, more secure borders and the infrastructure of the future. These are the five plans that I

recently outlined to the National Press Club.

Building a better Australia, though, has to start with building a stronger economy.

Today, I announce a further commitment to reduce the cost and complexity of government through the swift

establishment of a commission of audit that will examine the detail of what the Commonwealth government does

and whether it could be done better and more cost-effectively.

In the marrow of our bones, the Coalition understands that you can’t have stronger communities without a

stronger economy to sustain them and you can’t have a stronger economy without stronger, more profitable

businesses.

My basic message to Australians today is that securing our future depends more on strong citizens than on big

government; that success depends on our industry not just on our geography; and that our destiny will be

secured more by hard work than by good luck.

It would be dangerous complacency to think that economic stagnation only happens to other countries. After all,

it’s not so long ago that Lee Kwan Yew thought that Australians were destined to be the “poor white trash of

Asia”.

Take California, an economy so large that it would be in the world’s top ten, were it an independent country, and

long regarded as the most dynamic region of the most dynamic country. Too much spending and too much

bureaucracy have given California an unemployment rate three percentage points higher than the American

average, the lowest credit rating of any US state, and an “Oakies-in-reverse” flight of residents to places with

more opportunities.

Take Ireland, once regarded as the “Celtic tiger”, after big reductions in government spending, tax cuts,

consistently large budget surpluses, and massive increases in labour productivity. Between 2000 and 2007,

however, labour productivity growth halved and government outlays rose by more than 5 percentage points of

GDP. With the economy thus weakened, unemployment trebled to 14 per cent in the wake of the Global Financial

Crisis and the former miracle economy seems another Eurozone basket case.

Australia is not California and is not Ireland but we certainly can’t afford to rest on our economic laurels.

Productivity has risen by just two and half per cent over the past four years - just one tenth the rise achieved

under the Howard government. Government spending is now $100 billion a year more than it was just four years

ago.

As Adam Smith once remarked, there’s a lot of ruin in a country. Still, Australia’s comparatively strong economic

position owes far more to the reforms of previous governments than it does to the spending spree of the current

one.

The first priority of an incoming Coalition government will be to end Labor’s waste and get debt and deficits under

control as quickly as possible. This is what’s most needed to restore confidence and to get the economy moving

again.

As the Howard government demonstrated, prudent fiscal management is in the Coalition’s DNA. It’s what I

learned during nine years in the Howard ministry, seven years in the Howard cabinet and six years as John

Howard’s Leader of the House of Representatives.

As the Shadow Treasurer, Joe Hockey, declared earlier this week, the Coalition’s plan to restore our economy

means lower spending, lower taxes and higher productivity to produce higher economic growth.

Lower spending, because government has to live within its means as families and businesses do; lower taxes,

because this will take the pressure off family budgets and provide more incentive for people to do well; and

higher productivity, because it’s the foundation of greater wealth.

The result of reduced spending, reduced taxes and boosted productivity should be less pressure on interest

rates, fewer burdens on household budgets and, above all else, higher economic growth to generate more jobs,

more wealth, and better government services.

To put Labor’s fiscal recklessness into perspective, since 2007 the US budgetary position has deteriorated by

around 7 per cent of GDP, the UK budgetary position by just under 6 per cent of GDP and the Australian position

by over 5 per cent of GDP, despite the absence of an Australian banking crisis and despite the China-boom-derived maintenance of employment. Australia’s recent fiscal performance has scarcely been better than that of

countries facing far worse economic circumstances.

On close examination, Australia’s headline economic growth has largely been a function of higher population

rather than of greater prosperity. Since 2007, GDP per person is up by just 0.4 per cent per year, compared to

two and a quarter per cent per year over the term of the previous government. This helps to explain why the

Howard era now seems like a lost golden age of prosperity.

Thanks to Labor’s profligacy, all Australians are now paying a government interest bill on top of their own. This

interest bill will be due each and every year, long after the budget returns to surplus, until Labor’s debt is finally

paid off.

Notwithstanding next year’s projected $1.5 billion surplus, Treasury forecasts an ongoing $6 billion a year in

Commonwealth interest payments. That’s money that won’t be available to reduce personal or business taxes, or

to fund better roads, schools and hospitals.

With unemployment at not-much-over 5 per cent and with the terms-of-trade at record highs, there is no way that

last year’s Commonwealth budget deficit should have been close to $50 billion and this year’s should be almost

$40 billion. In 2004-5, for instance, when the unemployment rate was also at 5 per cent, the Howard government

managed to deliver a surplus of $13.5 billion, or one and a half per cent of GDP, despite terms of trade around 40

per cent lower than now.

This comparison highlights the extent to which budget settings have been structurally loosened, far beyond any

requirement to cushion the economic cycle. According to estimates published in the Treasury Economic Roundup

just over a year ago, in its first three years the Rudd/Gillard government ran structural deficits averaging well over

4 per cent of GDP. The same estimates show that the Howard government ran structural surpluses averaging

over 1 per cent for its final five years.

At the last election, the Coalition identified $50 billion of savings, for an $11 billion improvement in the budget

bottom line and a reduction of $30 billion in net debt. Labor’s post-election claim of a fiscal hole was spin and

Labor’s renewed talk of a “hole” in the Coalition’s current funding commitments is more spin.

It’s the incumbent government, in fact, which is committed to tens of billions of dollars of spending that it routinely

seeks credit for but which is either unfunded or hidden “off budget”, so as not to count towards the budget bottom

line.

If just the annual payments for the construction of the National Broadband Network alone were included in next

year’s budget, a $1.5 billion surplus would become a $2.9 billion deficit. Further down the track, there’s tens of

billions more for the NBN, all off-budget.

There’s $2 billion a year, also off-budget, to pick green energy winners. There’s a commitment to implement the

National Disability Insurance Scheme that’s not provided for anywhere in the forward estimates; and there’s an

unfunded commitment to buy 12 new submarines at a probable cost of over $30 billion. Finally there’s an ongoing

multi-billion dollar hole in carbon tax compensation funding once emitters can buy licences more cheaply on the

international market than from the Commonwealth government.

By contrast, eliminating the spending associated with the carbon tax would produce a $31 billion saving over the

current forward estimates. Eliminating both the revenue and the spending associated with the carbon tax would

produce a net improvement to the budget bottom line of over $3 billion.

Although this puts the savings task into better perspective, the Coalition does not underestimate the fiscal

challenge because the more Labor spends, the more clients of government it creates.

The Coalition remains fully committed to the signature policies we took to the last election. There will be direct

action to improve the environment and to reduce emissions, including a standing Green Army to meet the land

care challenge. We will work with the states to produce community controlled public schools and public hospitals.

We will offer incentives to employers who take on long-term unemployed young people and seniors currently on

welfare. We will reform the welfare system to strengthen the motivation to work. There will be a modest company

tax cut plus a modest levy on Australia’s 3000 most profitable companies to run a fair-dinkum paid parental leave

scheme that gives mothers six months off at their actual pay.

We have also made important commitments since the election: most notably to personal tax cuts without a

carbon tax.

All of these policies are structural reforms. They will boost participation and productivity. They will produce a

stronger economy and more prosperous citizens. Over time, they could help to re-produce the circumstances of

the later Howard years when higher economic growth enabled the government simultaneously to cut taxes,

increase spending and post higher surpluses. But in the short term they will all have to be paid for.

Besides these signature policies and a very few hyper deserving cases like military superannuants, the Coalition

will promise very little new or increased government spending at the next election. In many portfolios, the

Coalition’s pitch to voters will rest on improvements to administration and on better targeting, not on more

spending.

After all, the focus of the next election should be the carbon tax which will swing like a wrecking ball through the

Australian economy.

As Labor seems incapable of grasping, no country has ever taxed itself into prosperity. The best way to promote

economic growth is not for government to spend more but for citizens to spend more because they are less likely

than government to make irrational spending decisions and far more likely than government to insist on getting

value for their money.

Of course, there are some things that only government can do like national defence, the administration of justice,

and the regulation of finance. There are other things that government has to ensure such as the delivery of

essential services, the maintenance and upgrading of economic infrastructure and the provision of a frugal

welfare safety net. Beyond this, government action, however well-intentioned, can easily turn out to do more

harm than good.

As the Business Council has recently pointed out, it’s been 16 years since the Commonwealth government last

conducted a top-to-bottom independent review of public spending from the perspective: “if we were to start with a

clean slate, what government spending and what government programs are really required?”

The last such review was the National Commission of Audit chaired by Professor Bob Officer in 1996, following

the election of the Howard government. As David Uren has noted, by not taking for granted current spending

levels and delivery mechanisms, it’s likely that a contemporary process might identify scope for vast

improvements in the functions, efficiency, and cost of government without compromising its core business.

After beginning the carbon tax repeal process and giving the navy new instructions for responding to illegal boats,

establishing a commission of audit will be an incoming Coalition government’s most urgent task. The commission

will be asked to consider the range and effectiveness of existing Commonwealth government programmes and

agencies and to make recommendations for improvement.

This no-more-than-once-in-a-decade review of what government does and how government does it, will report

within four months to the Treasurer and the Minister for Finance. That way, the operations of government can be

improved and streamlined while a new government has maximum political capital to take hard decisions.

The commission of audit won’t replace the expenditure review committee process which continuously vets new

and existing programme spending. It will, however, supplement and draw on the work of Senator Arthur

Sinodinos’ Deregulation Taskforce to ensure that a new Coalition government delivers businesses at least a

billion dollars a year in red tape reduction cost savings.

The Commonwealth government, after all, constitutes close to a quarter of Australia’s GDP. If we are serious

about building a more productive economy, it’s vital to ensure that the Commonwealth and its agencies are only

doing what they really have to do and doing it as efficiently as they reasonably can.

For instance, a 2009 study discovered that in Victoria alone there were 65 business regulators employing 8000

staff, administering almost 2.4 million licenses, spending over $2.3 billion and recovering more than $500 million

in fees. These regulators administered 188 Acts comprising 26,096 pages as well as 218 regulations and over

370 codes of practice.

It’s likely that a similar regulatory apparatus would be discovered operating at Commonwealth level with similar

potential for pruning, and for savings in costs to business and taxpayers and in citizens’ time.

Some questions that the commission of audit might like to consider, amongst the multitude being uncovered by

the Sinodinos taskforce, include: why registering the same medical device took nine months in the United States

but four and a half years in Australia - and why it costs $400,000 to register an anti-bacterial hand-rub when the

same product with a different dye can be put on the market without registration for less than $3000?

Why does the average GP spend almost five hours (or a half a day a week) complying with what the AMA says

are government red tape requirements rather than treating patients; why is it impossible to share a birthday cake

in an aged care facility without signing a disclaimer form; and why does the same Centrelink paperwork have to

be filled in every six weeks by an employer giving work to people who are on part-benefits?

This unnecessary, intrusive and burdensome data collection could be a further place for the commission of audit

to recommend simplification and savings both for government and for citizens. Claiming the Baby Bonus or the

government’s inadequate parental leave scheme, for instance, is the latest example of how user-unfriendly

Commonwealth programmes have become.

The application has 31 pages of dense instructions and requires, in effect, the preparation of a new, prospective

tax return for the six month period commencing with the birth of a child - but without the benefit of the usual

information provided by employers on group certificates and with verifying paperwork demanded of applicants

whose income is near the cut-off threshold.

Other questions that the commission of audit might ponder could include: whether the federal health department

really needs all 6000 of its current staff when the Commonwealth doesn’t actually run a single hospital or nursing

home, dispense a single prescription or provide a single medical service; whether the federal education

department really needs all 5000 of its current staff when the Commonwealth doesn’t run a single school; and

whether we really need 7000 officials in the Defence Materiel Organisation, when the United Kingdom, with

armed forces at least four times our size, gets by with 4000 in the equivalent body?

At the last election, the Coalition pledged to shrink, through natural attrition, the Commonwealth public sector

payroll by 12,000. This would still have left Commonwealth employment at higher levels than in the last days of

the Howard government when former Finance Minister Lindsay Tanner threatened to take a “meat axe” to the

public service.

The Coalition has already committed to abolishing the Department of Climate Change and to rolling its essential

functions into the Department of the Environment. Finally, there is a multitude of government programmes that

don’t seem to involve the provision of any tangible services to the public or which involve funding other bodies to

do what they should be doing anyway. These could also be candidates for review by the commission of audit.

Along with the commission of audit, another powerful way to restrain the growth of government is to eliminate the

carbon tax. Eliminating the carbon tax is a big tax cut as well as a fundamental structural reform.

The unilateral imposition of the world’s largest carbon tax will put Australia at a serious competitive disadvantage

compared to other countries which are taking no such action. Australian manufacturing, for instance, will have to

cope not just with the high dollar but with paying a carbon tax that its competitors don’t.

Contrary to the government‘s repeated assertions, there are no countries - none - that are planning to impose an

economy wide carbon price. Not the United States. Not Canada. Not Japan. Not India, which has a coal tax of

just $1 a tonne. Not China, whose emissions are increasing each year by an amount larger than Australia’s total

emissions. Yes, there is an emissions trading scheme in Europe but it’s chock-full of exemptions and has a

carbon price less than half that proposed for Australia.

The carbon tax is economically and environmentally perverse. It will destroy Australia’s comparative economic

advantage in affordable power. It will benefit dirty industries in competitor countries and penalise relatively clean

ones here in Australia. Far from being a “market mechanism”, it’s a permanent close-to-one per cent of GDP

boost to the size of government. As the non-delivery of an invisible product to no-one, it will be open to rorting on

a massive scale - as has already occurred in Europe.

Energy-intensive industries - such as steel, cement, aluminium, plastics, glass and motor manufacturing - will be

the carbon tax’s first victims. As for the “green jobs” that it will supposedly spawn, the idea that moving from low

cost to high cost sources of energy will create jobs is, in Nigel Lawson’s phrase, “economic illiteracy of the worst

order”.

The government’s own modelling confirms this. Annual national income per person is $5000 lower by 2050 with a

carbon tax than without one. By 2050, cumulative losses of GDP under a carbon tax will come to $1 trillion. It’s as

if, between now and then, the country were to close down for almost a year.

After all that, the carbon tax will hardly reduce domestic emissions at all. On Treasury figures, Australia’s

emissions will continue to go up, not down, despite a 2020 carbon tax of $29 a tonne. Only by 2050 are

emissions forecast to decrease marginally and that’s thanks to a carbon tax that’s then reached (in current dollar

terms) $131 a tonne.

Like the carbon tax, the mining tax will also shift jobs and investment offshore. The mining industry already pays

state royalties that other companies don’t. Consequently, the effective tax rate for mining companies is often

more like 40 per cent than the standard 30 per cent corporate rate. That will just get worse with a new

Commonwealth tax grafted on top which is why abolishing the mining tax, like abolishing the carbon tax, is a vital

economic reform.

A key difference between Labor and the Coalition is that we look to bigger government as a last resort, not a first.

Labor’s health insurance means test (which is basically a new health tax) has no health policy justification

whatsoever. Labor’s carbon tax is socialism masquerading as environmentalism. Labor’s mining tax is envy

dressed up as investing in the future. As if any government that’s responsible for combustible roof batts and over-priced school halls could ever be trusted for a moment to get investment decisions right!

Finally, there’s the Coalition’s productivity agenda that Labor is incapable of matching because of its propensity

for big government and its symbiotic relationship with the union movement.

The Coalition will encourage more people into the workforce, make public institutions more effective and

responsive, cut red tape, improve competition rules, get greater value from infrastructure spending, and reform

workplace relations to encourage higher pay for better work, as I announced in a speech to the Australia Israel

Chamber of Commerce last year.

Since the fall of the Berlin Wall, it’s often said that there’s little to distinguish the economic policies of different

political parties. In fact, there are few items of conventional wisdom that are so misleading.

Labor supports a carbon tax and a mining tax. The Coalition will rescind them.

The Coalition insists that paid parental leave is a workplace entitlement. Labor thinks it’s a welfare payment.

Labor empowers union officials. The Coalition empowers workers.

Labor says it supports smaller government but has done almost nothing to bring this about. Almost the first act of

a Coalition government will be to establish a commission of audit to bring government back to manageable size.

Labor says it supports budget surpluses but has delivered the four biggest deficits in history. The Coalition has

consistently delivered budget surpluses approaching 1 per cent of GDP.

Labor regularly and flagrantly dishonours its commitments. Sixteen members of the Coalition front bench were

ministers in a government that consistently “under-promised and over-delivered”.

Economically, the differences could hardly be more stark and the right choice could hardly be more clear.

Only one side of politics, after all, would despatch its principal economic spokesman to attack the entrepreneurs

responsible for billions of dollars of investment, tens of thousands of jobs and hundreds of thousands of families’

prosperity.

If it’s alright for Wotif founder Graeme Wood to fund a new on-line paper and to give Australia’s largest ever

political donation to the Greens; and if it’s alright for the Treasurer to launch his attack on business people’s free

speech in a property developer’s hobby publication, it can hardly be subversive of our democracy for mining

leaders to advertise against job-destroying new taxes.

Playing the class war card demonstrates how little Treasurer Swan really understands running a modern

economy. Attacking people for daring to disagree shows how little this government appreciates the essentials of

democracy.

The Treasurer’s determination to attack wealth creators rather than to support them shows that you can’t trust

Labor to run the economy; any more than you can trust the current government to run programmes efficiently or

to tell the truth when it would be more convenient to lie.

[ends]