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The challenges of reform: speech to the CEDA State of the Nation Conference 2011, Canberra

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Parliament House, Canberra ACT 2600 Australia  Tel: (02) 6277 7400 Fax: (02) 6273 4110

PW 119/11 20 June 2011


***check against delivery***

Good morning - it is a great pleasure to be back here before a CEDA audience.

The theme of this event - Rethinking Australia - is a timely reminder.

It reminds all of us that our responsibility is to look ahead.

To envision where we want Australia to be, and to do what needs to be done in order to get there.

Rethinking Australia requires a focus on the future; grounded in an understanding where we are now.

Today’s tasks are defined by tomorrow’s challenges.

This was the mindset we had as we approached the first Budget of the Gillard government.

A Budget focused on meeting Australia’s future challenges.

A Budget grounded in an awareness of where Australia is today.

That we are an economy in transition.

And that this transition brings with it enormous potential and opportunity but also real challenges.

This future focus underpins three key priorities in the Budget - the return to surplus, the investment in skills and the focus on participation.

Three priorities which are all about managing change and turning it to the nation’s advantage.

The return to surplus which recognises the burgeoning investment by the private sector, and that government should not add to inevitable price pressures.

$3 billion of investment in skills, vocational training and apprenticeships to respond to capacity constraints and to build the skills a strong economy needs.

And using the once in a generation boom to bring the dignity of work to all those Australians able to work.

There’s a lot of talk these days on the transition occurring in the Australian economy, we often focus on the terms of trade, the high dollar and the investment pipeline.

All of these data sets are important.

All of these data sets mark the nature of this transition. They are drivers of enormous change.

But this change reflects a larger transition in the global economy.

Understanding the nature of this transition -millions of people moving into the global middle classes - gives a clearer sense of the dimension of the change we are living through.

Two decades ago, India and China accounted for less than ten per cent of world production. By the end of the decade it is estimated they will grow to be over a quarter of world production.

Coupled with the expectation that by 2020 there will be more middle class consumers in Asia than in the rest of the world combined, the opportunities for a high value knowledge economy like Australia are vast.

The change we are living through, and that our Budget was delivered in, is not only cyclical.

This is a structural change that extends beyond the period of any one Budget.

It will see our economy re-align as it responds to the external forces of the global economy.

It will see the reallocation of resources and effort to maximise the opportunities, to harness the growth in Asia and to capture the benefits of the boom.

This change can be confronting.

And this change will be uneven - the impacts in Queensland will be very different to those in Tasmania.

The impacts in mining towns will be different to those in the suburbs.

But in the face of change, political leaders and business leaders have a choice.

They can try to avoid it. They can rally against it.

Or they can position the country to benefit.

This is true to form of Labor Governments.

And our record stands strong.

It is built on the progressive foundations of the Labor Party.

Because we know that Australia has always done best when we have changed for the times rather than railed against them.

The arguments against tariff reform, for protectionism over an open economy have been shown to be mistaken.

Australian industry responded and embraced the global economy.

Whether it was floating the dollar, extending superannuation or opening up our economy to the world, past reforms have driven today’s prosperity.

With the benefits of these reforms before our eyes, it is easy to forget that these reforms were made in the face of trenchant criticism and opposition.

If past Labor Governments had focussed on the headlines of the day or the sloganeering of certain interests, these benefits would have been lost.

The opportunities missed.

Instead they looked ahead, just as the Gillard Government is looking ahead.

This Government has set an ambitious agenda to define where we want Australia to be - where we see Australia in 2020 and beyond.

Across the policy spectrum the Gillard Government has a reform agenda to deliver our vision for tomorrow.

Because looking to the future is at the core of our reform agenda.

So where do we want Australia to be?

Our Government is working to nurture an open and resilient economy.

To deliver strong and sustainable public finances.

To use the proceeds of the boom well, for this generation and the next.

To have a low carbon economy, and a cleaner energy future.

To see every child given the best start to life through education, and then best opportunities for employment though skills and training.

To have higher productivity through modern economic infrastructure, including fast broadband.

To have the best health care in the world on a sustainable basis.

These are reforms of substance and purpose.

Reforms that recognise that standing still will never secure our future.

Because rethinking Australia has always, and will always, require us to face up to change.

And change is often hard.

It’s much easier to argue against an idea.

To trash a reform and lower the level of debate than it is to deliver reform.

Today’s politics exemplifies this.

Today’s Opposition practices this.

It is an Opposition self-evidently hardwired to say no. They are defined almost singularly by what they oppose.

No to fast broadband

No to action on climate change

No to better retirements through higher superannuation.

No to a lower tax company tax rate.

No to getting a fair share of our resources through a mining tax (unless it is a Liberal State Government).

No to productivity enhancing infrastructure.

No to a sustainable health system.

But perhaps most surprisingly - Mr Abbott has said no to returning the budget to surplus.

Mr Abbott and his economic team have given up on fiscal credibility.

The harsh facts are that their only contribution on the fiscal front to date this term has been to add to the $11 billion black hole they ended the election with.

In contrast the Government has handed down a Budget that sets out a plan to get the budget back in the black and to the build capacity needed to respond to the changes occurring in our economy.

It is a Budget that is right for the times.

It focuses on building Australia’s future workforce, on aligning training with industry and making significant investments in skills and training.

With unemployment projected to be below 5 per cent in 2011-12, getting people trained up and ready to work is a priority.

The Budget also gets the macroeconomic settings right.

With an economy surging, returning to surplus is the fiscally responsible cause of action so that the Government is not competing with the private sector for the same resources.

Consistent with looking ahead, it is a Budget that recognises that understanding the shorter term challenges and softness in parts of our economy, the longer term outlook remains strong.

The Government’s Budget locks in a rapid fiscal consolidation, as our fiscal strategy restrains real growth in Government spending.

As we enter the boom the Government is doing its part to reduce price pressures in the economy.

As the Reserve Bank Governor Glen Stevens said last week when speaking of the need for macro-economic restraint, ‘Fiscal policy is ... playing a significant role’.

He acknowledged that, ‘The ‘fiscal impact’, calculated as the shift in the Federal budget position from one year to the next, is forecast to be minus 2 per cent of GDP in the 2011/12 fiscal year’.

This is unlike the period between 2004 and 2007, when a lack of spending restraint fuelled inflation, and added to price pressures in the economy.

But for the Government, this has required some tough decisions.

It has required some difficult saves.

The Government has set out its economic plan

We now look to the Parliament to support that plan.

Over the coming weeks a number of key pieces of legislation will come before the parliament.

Passage of these bills underpin the Government’s Budget and underpin delivery of the surplus.

So this becomes crunch time for the Opposition.

The Opposition have criticised key savings measures and stated they won’t make their position clear until the legislation is before the Parliament.

Well, I would say to Mr Hockey and Mr Robb, your D-day is fast approaching.

This parliamentary week, in the next few days, the Opposition will need to decide whether they support the phasing out of the Dependent Spouse Tax Offset, or add another $755 million to their Budget black hole.

Will the Opposition support the reforms to the Family Tax Benefit, or add another $2 billion to their budget black hole.

These questions couldn’t be clearer.

It comes down to whether the Opposition stand for budget surpluses or not.

Fiscal credibility will be demonstrated by voting responsibly, not by rhetoric.

This is well understood by some on the other side, including my predecessor Senator Nick Minchin who is reported to have said that if the Coalition wanted to block saves, it should propose alternatives.

Of course we live in, as some would say, interesting times and securing passage of our Budget isn’t the only test we face.

In climate change we see a more enduring challenge.

But the environment does not give second chances.

Placing a price on carbon is central to responding to the challenge of climate change.

We know that the path to a price on carbon isn't easy.

Steps along it were taken by former Prime Minister John Howard half a decade ago, yet we still have a way to go.

The evidence for and logic of this reform has regrettably has now been surpassed by the bitterness and short-sightedness with which some oppose it.

The argument for action has not changed; it has only become more pressing.

And as we take this reform further, the debate will become even tougher, the argument even more contested.

Today’s vested interests shout far more loudly than the silent voices of the next generation.

And achieving this reform will get harder not easier, before its resolution.

But it is a reform we must make.

As you know, reform is no easy task.

But I think in the context of the noise of today, it is important to remember that reform is lasting.

In ten years time the slogans and the headlines will be forgotten, but today’s decisions will still be shaping our economy and our nation.

Just as the changes in the past have shaped the economic and social opportunities of today.

So I say to you, if you do believe in a strong Commonwealth budget position - where do you want Australia to be in 2020?

Those that want to see Australia make the best use of the mining boom for this generation and the next - where do you want Australia to be in 2030?

And those of you who believe in action on climate change - where do you want Australia to be in 2050?

I would ask that as your conference continues, as you seek to re-think policies for Australia, listen to the next generation, and act accordingly.