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Address to the National Press Club of Australia, Canberra [and] Question and Answers.



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Speech

Address by The Hon Lindsay Tanner MP Minister for Finance and Deregulation

Canberra

12:30pm, 11 March 2009

KEN RANDALL: Ladies and gentlemen, welcome to the National Press Club and today’s National Australia Bank address. We’re very pleased today to welcome back Lindsay Tanner, the Minister for Finance and Deregulation. It’s just two months to the Budget, to which he has a big contribution, and despite his qualities as a parent, a pianist, a reader, he’s best known as the presiding officer of the razor gang which precedes most budgets; and a job in the current circumstances which is one that few of us would envy him for. But, in the context, it’s a very timely occasion to welcome him back. Please welcome Lindsay Tanner.

LINDSAY TANNER: Thanks very much, Ken, and thanks very much to The Press Club for having me as a guest again today. The Rudd Government’s got a vital objective: long-term, sustainable growth. We inherited a growing economy, but elements of that growth were, frankly, unsustainable. We’re now fighting to rekindle growth and we’re committed to ensuring that it lasts. The excesses of a booming global economy are now unravelling rapidly and fashionable economic assumptions are being swept away.

But we can’t go back to the old certainties; 1970s style regulatory approaches have been rendered obsolete by structural change in our economy. Reviving these old models makes about as much sense as returning to the days of black and white TV, or tie-dyed flares. We can’t go back to the old world.

The rapid expansion of government in the postwar era came to a grinding halt in the late 1970s, but it didn’t go into reverse. Since that time, the public sector’s share of our total economy’s been remarkably stable. It’s the nature of government involvement in the economy that’s changed, not its size.

As I pointed out in a National Press Club address in 2007, there’s now a broad consensus in the mainstream political world about the overall size of government. The Rudd Government wants to improve government, not to expand it. That’s why we remain committed to keeping tax as a proportion of the economy, on average, at or below the level we inherited from the previous government.

The spectacular implosion of the American financial system and the devastating economic contraction that’s now rippling through the world has revived dormant debates about the role of government in an advanced economy. These debates, in some cases can be arcane, but they matter; they matter a great deal. Because human beings are both instinctively competitive and collaborative. We compete with each other and we help each other.

And the century-long wrestle between what we know as capitalism and socialism, essentially reflected these two basic human instincts. It produced a remarkably durable hybrid, which we call social democracy. The great battles between the extremes of individualism and collectivism are now consigned to history. No mainstream Australian political force now seeks to either massively expand or radically shrink government.

Address to the National Press Club of Australia followed by question and answer session

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Conservatives and progressives no longer argue all that much over the absolute size of government; it’s the nature of government - it’s what we do, how we do it, that is now at the centre of public debate. The differences between Liberal and Labor are about how we go about as tasks as government, what we actually do.

As one example, for the past five or six years public debate about private health insurance has been totally dominated by the private health insurance rebate. While the longstanding public versus private debate continues to grab public attention, there are other important things happening. With my active support as Shareholder Minister, Medibank Private is seeking to transform itself from passive processor of premiums and claims to an active promoter of better health outcomes and lower costs.

By buying Australian Health Management - a small health insurer based in Wollongong - Medibank Private has acquired innovative strategies and intellectual property to manage chronic illnesses and reduce health costs. This is just one small example.

With the communist boogie long gone and the size of government no longer a central issue, the natural electoral advantage once enjoyed by conservatives has evaporated. Unwilling, or unable to make government work better, they’ve largely defaulted to handing out money to win electoral support.

So the Howard Government’s only policy with respect to Medibank Private was to privatise it. It didn’t occur to the Howard Government that it might be used to drive better health outcomes; lateral thinking wasn’t on the agenda.

And I’m delighted to note that Medibank Private today has announced that it’s gone into partnership with The Wiggles. My two small daughters, Ainsley and Remy, will also be delighted to hear that news and will no doubt be lobbying me when I get home to arrange a meeting with The Wiggles. I’ll have to see what I can do. The Shareholder Minister’s role in Medibank Private’s got to have some perks, so…

[Laughter]

…hopefully that might stand me in good stead.

The global economic carnage that we are now witnessing and experiencing, in my view, is directly linked to this newer model of conservative politics. Rigorous economic and financial management ceased to guide decision-making. Governments sat back and watched as vast global imbalances emerged, huge bubbles inflated, grotesque executive salaries soared and irresponsible risk-taking proliferated.

There are many instructive symbols of this period, many instructive images, but one has really stuck in my mind that I read in the Weekend Australian a few weeks ago. A team of traders at Deutsche Bank in New York, headed by a bloke called Boaz Weinstein, lost $1.8 billion. Weinstein and other leading figures in his team had a hobby - gambling. When they weren’t gambling with the savings of working people, they participated in top-level poker and blackjack tournaments, and apparently they were world class.

What does that tell you about the culture of the US financial system?

At the peak of the boom in 2007, 40 per cent of all corporate profits in the United States were accruing to the financial sector, which accounted for 5 per cent of all private sector jobs. The financial sector was literally milking the productive sector.

As long ago as 1984, Nobel laureate Professor James Tobin warned that western economies were throwing more and more human and financial resources into financial services, remote from the production of goods and services - what we would typically call the real economy. He predicted that this would lead to vast rewards for people in the sector out of all proportion to the social value of their work. His prediction proved to be pretty accurate.

The boom in financial services delivered enormous sums to bankers and other professionals, but much less to the wider economy that the financial sector is supposed to serve.

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Now producers in specialised areas will always tend to behave in ways that inflate their own incomes at the expense of their customers. Wall Street is probably the most extreme example of this in human history; but unfortunately they were gambling with everyone else’s money - and they were playing blindfolded. And it appears that the government and regulators didn’t notice.

Now, it’s true to say that reforming regulatory arrangements in this area will not be easy; we can’t simply restore past regulation. The world’s changed beyond recognition, both in the United States, in Australia and the rest of the developed world.

Whether we’re talking about the United States or Australia, we need a regulatory regime that’s appropriate for 2010 and beyond, not one that simple reinvents the past.

Now, these challenges have raised some questions in some people’s minds - not least the Opposition - about the Deregulation part of my title. I am the Minister for Finance and Deregulation. There have been some rather rude suggestions that I should be crossing out the ‘D’ on all the business cards and writing in an ‘R’ where the ‘D’ has previously been.

I can understand why people may be making those suggestions in the current climate; but in fact, the opposite is the case.

Deregulation is simply a shorthand term. It’s a shorthand term for reducing the regulatory burden - particularly on business - but also on the wider community. And ultimately, the regulatory burden on business is paid for by the wider community.

As we struggle to warden off the deadening effect of global recession, the last thing we want to do is increase the regulatory burden on business. That’s simply a recipe for lower productivity, less economic activity, more job losses and more business failures.

Social democracy must be based on an economy growing dynamically, productively and sustainably; an economy that offers every citizen economic opportunity, quality education, a healthy life and a decent standard of living. We need regulatory arrangements that enhance economic outcomes - not protectionism, pork-barrelling and special deals.

Now, as a kid I learned that when you cut timber, you should cut with the grain, not across the grain, not against the grain. Well, it’s the same with regulation. Good regulation cuts with the grain of the market.

We do need to strengthen regulation in some specific areas, that’s why the Government’s acted on credit regulation, licensing of rating agencies for example. It’s why we’ve reached agreement with the states to develop uniform national regulation for all financial services. And it’s why we are pursuing, at the international level, regulatory restraint on executive salaries and excessive risk taking.

The wider task of business deregulation is even more important now. Inefficient and unproductive arrangements that could be carried if we chose, in good times, become serious barriers to recovery in tough times.

As the Government now seeks to stimulate construction activity, how sensible is it to maintain conflicting licensing regimes for plumbers and electricians across different states? The Howard Government largely gave up on productivity. The Rudd Government will not repeat this mistake. We simply can’t afford to.

Our productivity agenda of investing in infrastructure and skills and reforming regulation, isn’t a luxury to be pursued only in good times. It’s a critical part of our strategy to get us through the tough times. The Hawke-Keating reforms of the 1980s are a key reason Australia is in a much better position than most other countries to deal with the international downturn we’re now facing.

Productivity is the key to long-term sustain able growth. We have to keep reforming.

Good regulation is also central to what I’d call social productivity. People who are delivering services in aged care, in childcare, in Indigenous programs, shouldn’t have to waste time and effort

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on inefficient, cumbersome compliance processes. That’s why my colleague Maxine McKew is pursuing a reform of childcare regulation.

Currently we have two sets of inspectors who visit childcare centres at different times and report to different masters. Rationalising the state licensing regime and the commonwealth accreditation regime, will produce better childcare outcomes.

In overall terms, the Government’s got no intention of slowing down on its reform agenda. It’s true the global recession makes reform harder at one level. But it also makes it even more vital. Whether it’s climate change, broadband, health and hospitals, other things, all the big reform processes we’ve initiated are going to proceed. Taking a break from reform during an economic downturn maybe tempting, that would be understandable, but it would simply be the wrong choice.

And reform isn’t just about regulation. It’s also about running government. The Rudd Government inherited an inefficient, wasteful and disorganised public sector. Whatever the Liberals claims to be good economic managers - and that’s a matter of longstanding public debate - the record shows one very clear thing, they were terrible managers of government.

From 2001 to 2007, public sector employment grew from 212,000 to 247,000, far outstripping the growth in private sector jobs. Huge sums, scandalous sums, were wasted on political advertising, on WorkChoices and dubious grants to private companies, many of them in National Party seats.

The absence of coordination led to enormous waste and inefficiency in government and at the peak of a prolonged boom, with inflationary pressures building, government spending in late 2007 was increasing at around five per cent in real terms.

When I addressed the National Press Club three months before the Rudd Government was elected, I promised action. Let me just outline a brief glimpse of the scoreboard since then.

Since we’ve been in office, we’ve cut over $4 billion from the cost of running government, over a five year time span - $4 billion from the cost of running government. That doesn’t include cuts to programs, of which there were a significant number in the Budget last year. And it doesn’t include reforms to benefits, means testing of benefits, which there were significant number in the Budget last year also. It is purely the savings from our own running costs.

The additional two per cent efficiently dividend on government agencies is saving almost $1.8 billion over that period. Abolishing the flawed access card is saving about $1.2 billion. Our initial government procurement reforms are saving about $400 million. And there’s a lengthy list of smaller savings items, all about us running ourselves, that add substantially to the tally.

We’ve saved more than $4 billion over that five year period, simply by making the operations of government much leaner. Now, that’s $4 billion that can be invested in education, or in infrastructure, or in health, or in other things, or in a mixture of all those things. It’s $4 billion we don’t have to raise from Australian taxpayers or cover with borrowings.

And these savings have hit politicians as well as public servants. We’ve cut ministerial staff. We slashed government advertising to literally a third of the level that prevailed in 2007. We’ve cut MPs printing allowances.

But there’s more to come in improving how we function as a government, and extracting greater savings and greater efficiencies. We’re intensifying the search. We are overhauling the operations of government across the board.

A week or so ago, I had the pleasure of launching the Australian Government’s TelePresence Investment. In partnership with Cisco and Telstra, we’re establishing state of the art video conferencing facilities in 20 loc ations around Australia. And frankly, they’re amazing. They are so good that you kind of lose sight of the fact that you are not in the same room as the people on the screen. No clunkiness, no voice delays, no fuzzy pictures, and the sets are even set up so that you look like you’re in the same room.

Now they’ll cost about $4 million a year to run. We expect to get some of that back from a contribution from the state governments, because we are installing them in a way that will mean

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that the states will be able to benefit as well. We’ll save much more in airfares and lost working time. We’ll improve public sector productivity. Coordinating diaries, as I’m sure everybody in this room will know, is much easier when nobody’s travelling. Meetings that might have required two weeks notice and, therefore, deferred a decision for two weeks, perhaps may happen in two days, because you haven’t got people flying backwards and forwards across the country.

We’re well advanced in reforming travel procurement generally. The Government spends over $500 million a year on travel services, but we do this in a very haphazard inefficient way. By introducing greater coordination and the kind of smart purchasing that big companies do, we’ll save taxpayers many millions of dollars.

This is just one small part of a wider reform program. The existing methods, the existing structure of our travel procurement, in the Federal Government, is a mess. We’ve had a comprehensive study done by Deloittes and that’s found that the Government is well behind many big companies in its approach to purchasing travel services. We don’t use online buying enough. We do our accommodation deals at the wrong time. We don’t use cheaper, restricted airfares enough. And we don’t exercise our buying power collectively, effectively. They’re just some of the key findings of the study.

So we’re now putting in place a coordinated travel strategy on procurement of travel services. We intend to conduct open market tenders for framework contractual arrangements in domestic and international air travel, car hire, accommodation and travel management services.

The scoping study suggests that this will save us something in the order of $26 million a year fairly quickly, if done properly. And substantially greater amounts in the long run.

Now one of the issues that I intend to pursue in this context, is frequent flyer points, both for Members of Parliament and public servants. The taxpayer indirectly pays the cost, the frequent flyer points that are built in ultimately to the cost structure of the airline, but the individual gets the benefit and it’s often not used for work purposes. Some agencies have done deals with airlines that exclude frequent flyer points. The airlines don’t like it, because it means they have to have separate records and keep government points separate from private points. I think they should be excluded across the board.

Now I can’t guarantee the outcome of a coordinated negotiation between the Government and airlines on this or any other issue. And after reading the Deloitte's report, I can tell you that the area’s a great deal more complex than you’d believe. It’s very, very complex. But the opportunities

for reform, the opportunities for improvement are substantial. And I’m going to pursue the frequent flyer points issue and we’ll see what the negotiation produces.

Now the picture is fairly similar with government property. As you’d expect we own a reasonably substantial amount of property, but we rent a very, very large amount of property, mostly office space but not only office space.

But because the existing arrangements are so decentralised and there is no overarching coordination, the quality of deals entered into by different agencies varies enormously. They sometimes can even be competing with each other for the same space, which of course tends to

push up prices. Average floor space per employee varies considerably. There’s no overall coordination and a great deal of money is effectively wasted.

These are just two prominent examples of a process that’s been dubbed razor gang stage two, which is merging into the ordinary Budget process this year.

We’re still pursuing a wide range of these efficiencies, some of them very substantial, some of them relatively small, and they will come to fruition in this year’s Budget.

The key thing is they all add up, they all add up. And as I fight the never ending war against everybody else, i.e. the spend ing ministers…

[Laughter]

…to make sure they don’t spend too much, I’m constantly kind of sprinting to stand sill. But it’s

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crucial to improve outcomes for taxpayers. It is crucial to improve outcomes.

In the midst of the most savage global downturn in decades, we don’t need less reform, we need more. We can carry waste and inefficiency in government in the good times if we choose to. We simply can’t afford it when times are tough. Finding more savings isn’t undermining temporary surges in spending to stimulate the economy, it’s complementary. Because sustained recovery doesn’t just require spending, important though that is, sustained recovery requires improvements in efficiency and productivity. And that’s why much of our spending is directed at things like education and infrastructure. It’s why we are intensifying the search for efficiency improvements within government.

One of the key elements of the Government’s Nation Building and Jobs package is a further round of microeconomic reform. Understandably, this got relatively limited media attention, but it’s a crucial part of our strategy. It includes an obligation for state governments to develop strategic infrastructure plans for their major cities. It includes national regulatory reform of the legal

profession; I’m looking forward to that.

[Laughter]

It involves - I’m a former lawyer too, so I do know where a few of the bodies are buried. It involves reform of national freight regulation and it involves a number of other initiatives.

These are part of the Nation Building and Jobs Plan because we understand that, as well as the initial stimulus, we have to have an ongoing surge of improved productivity that will stand us in good stead economically into the medium term.

We have to keep reforming. We simply have to keep reforming. The challenges are getting tougher. We can no longer afford to leave antiquated, overlapping, contradictory regulation and haphazard planning in place.

We are absolutely serious, absolutely serious about pursuing productivity reform. And the ongoing process of regulatory reform is central to the Government’s agenda.

And one final piece of the puzzle that’s really important to mention and something I am very passionate about, and that’s transparency. Inefficiency and waste flourish in secrecy. The Government’s program of reforms to financial accountability and transparency, which is called Operation Sunlight, is well advanced. There’s more to happen, but it’s well advanced.

We’re making Budget documents readable and meaningful. We’re providing detailed information about programs. Our accounts are now based on a single set of standards.

We’ve introduced strict internal accountability processes for administering government grants. And we’re experimenting with blogging as a continuous feedback mechanism to help improve government policy and regulation.

I mentioned the reform process that Maxine McKew has initiated with childcare regulation. She and I last week launched the blog that is going to be part of the consultation process. We have got a couple of other government blogs proceeding, that are all part of moving into new, more effective, more interactive ways of exchanging ideas and information and consulting with the community.

So, in conclusion, it’s true to say there’s always more to be done. We won’t find every last item of waste and inefficiency. We won’t win every battle; you get used to that when you’re the Finance Minister. But we won’t relent. We won’t relent.

Australia has just lived through a decade of lost opportunities. The sun has been shining and we’ve spent most of the time sunbaking, not making hay. Now the weather has changed and the storm is intensifying. We have to get moving.

Improving productivity is the key to generating long-term sustainable growth. There aren’t any shortcuts to improved productivity. Economic reform, in general, is the only path. Reform will also accelerate economic recovery. We have lived through a decade of soft options. When times are

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tough, soft options are no options at all.

Thank you very much.

[Applause]

Question and Answer Session

KEN RANDALL: Thank you very much Minister. As usual, we have a period of questions from our media members today. The first one is from Colin Brinsden.

QUESTION: Minister, Colin Brinsden AAP. Today’s housing finance data shows first time home - first homebuyers made up a record 26.5 per cent of new loans in January. Is the Government considering extending the deadline for the increased homeowners grant, as unsurprisingly, homelenders want you to do? Or are you concerned about having too many overstretched buyers

when interest rates inevitably go up again?

LINDSAY TANNER: I’m delighted that the evidence indicates that the initiative on the first homebuyers grant is proving to be as affective as we anticipated it would be. And that’s clearly been very important, because the housing market has been such a crucial element of other

country’s problems so it’s very important, for a variety of reasons, to sustain activity and demand in the housing sector, in the circumstances we’re in. The question of whether that grant could be - should be extended is, of course, one that along with everything else, is open for debate within the Budget context. But I’d have this say; it’s going to be a very tough Budget. It’s going to be a very tough Budget for us to deal with. And there are lots of other issues that we also have to give consideration to. So, I don’t wish to fuel any expectations about that, or indeed, any other matters. I kept getting verballed about killing about half of the good things that we are supposedly were hoping to do, until I got in the way. But I don’t wish to fuel expectations on that one. There’s no question that the data, thus far, suggests it’s been successful in its purpose. But, of course, the question of whether it should be further extended is another matter.

KEN RANDALL: Thank you. The next question is from Shane Wright.

QUESTION: Shane Wright from The West Australian Mr Tanner. You mention in your speech that so far you’ve saved $4 billion in terms of the operating costs of government. That’s about the cost of the interest payments on the debt that the Government’s going to be running up to deal with the global recession at the moment. What level of government debt, in your mind, is where you have to hit a ceiling, otherwise you’ll run yourself into, say, a Japanese position of 200 per cent government debt. Does - is there a position in the Government of saying; well, look, too much debt, we’ve got to stop, or we’ll end up with the Keating hangover of ’96.

LINDSAY TANNER: Look, it’s a very important question and one that I lie awake at night worrying about I must confess, although I’d have to say that we are a long way, away from where that point might be and I wouldn’t necessarily put a figure on it. But one of the reasons we’ve put in place a

specific strategy for getting the Budget back into surplus, is because we understand that these things are finite. And that strategy consists of once growth returns to normal levels, we will allow the ordinary recovery of tax revenues to occur. We will not increase spending beyond two per cent in real terms and we’ll require new spending initiatives to be fully off-set by savings. So that’s one of the key reasons why we are very focused on that framework as the pathway back to surplus. We are projecting debt to hit about five per cent of our total economy, five per cent of our annual production, annual GDP. That is extraordinarily low compared with the rest of the developed world. And it’s roughly around the same zone that government debt in Australia was about half-way through John Howard’s period in office and for most of the 20 years before then. So the debt levels that are projected are entirely sustainable and manageable. But we are conscious of the fact that, at some point - and I wouldn’t put a number on it - at some point, there are limits and there are issues that do start to intrude and I, perhaps more than most, am very conscious of this. But the final thing I’d say, and I’ve used this in illustration before, is that in simplistic terms the debt position we’re moving into is roughly like somebody who’s on $100,000 a year, taking out a personal loan of five grand. Sustainable. Now the question of where anything might go beyond that is, of course, something for speculation which I’m not going to enter into. But I can assure you that we are very conscious of the fact that these are not limitless possibilities and that we are very focused on the process of getting the recovery underway and getting the Budget back into surplus and diminishing

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that debt that inevitably flows from the collapse in our revenues from the global recession.

KEN RANDALL: Next question’s from Gemma Daley.

QUESTION: Hi Minister, Gemma Daley from Bloomberg. I wanted to ask you about jobs and particularly the Government forecasts, latest forecasts. Anecdotally the signs from the labour market seem to be much worse than that. What - do you think the forecast for jobs has deteriorated? Also, the UEFO figures came before we knew the bad news about China and Japan. Are the risks also more on the downside than you thought they were at the beginning of the month?

LINDSAY TANNER: We’ve clearly had some rather bracing news, particularly internationally, over the past month or two, that does give us cause for concern. Equally though, there have been some indicators, including some today, that suggest that maybe there’s different things happening out there as well. So these things are always difficult to read and you should always be careful not to overstate the significance of one set of data, one indicator, one poll of consumer confidence or business confidence, because these things do move around and sometimes they get revised. Clearly, there are serious job losses occurring in parts of the economy, and we are committed to minimising that. We can’t prevent the entirety of that, but we can do things and we are doing things to minimise that, the most important being simply to sustain economic activity, sustain money circulating, people buying and selling things. That’s what ultimately delivers jobs. Whether the anecdotal evidence suggests that the forecast of unemployment that is currently the official forecast from Treasury of hitting seven per cent in the middle of next year is an understatement I would question. I - by definition it’s hard to be precise about anecdotal evidence, but having lived through the 1990, ‘91 slowdown and - albeit in Victoria which was effected worse than any other state - that was an extraordinary experience on this front. So I’m not sure that the anecdotal material justifies a revision. That estimate, of course, does suggest that there will be a very large number of jobs lost, and so I - we’ll just have to wait for the Budget, whether it will be the automatic revision of all estimates just in the ordinary course of events for any updates, should that be required. And that’s done at arm’s length by Treasury. It’s not done by myself, Wayne Swan, Kevin Rudd. We don’t sit there saying; you know, what will we make the unemployment number? That’s done at arm’s length from government, by Treasury, as it should be.

KEN RANDALL: Question from Ben Packham. Oh, hi minister, it’s Ben Packham from The Herald Sun. You’ve touched on this issue, but I’d like to take the idea further. MPs and Senators clock up more than $8 million in domestic flights a year and a bit less than that on international travel. Almost all of that’s at the front of the plane in business class. In these economic times why shouldn’t they travel economy and, indeed, why shouldn’t bureaucrats as well?

LINDSAY TANNER: This is one of the vast number of issues that is part of that total government travel services picture. I have responsibility for part of the picture, but the question of government entitlements and, indeed, the question of public service contracts is outside my purview. The Remuneration Tribunal is involved in all kinds of micro-decisions about exactly what members of parliament get and don’t get, and included in that is travel arrangements. And, of course, Senator Faulkner has direct responsibility for those entitlement issues and equally the Deputy Prime Minister has responsibility for public service wage, or industrial relations issues generally. And in many instances one of the points made in this report is that in many instances you will have circumstances - not necessarily about this issue only - where you’ve got contracted employment in… rightly or wrongly involved in the equation. It’s easy for people to focus on these things and that’s understandable. There is a wider picture though, which I draw your attention to and I did mention it in my speech, and that is that we have done some significant things to reduce expenditure on ourselves. Some of them which have made me slightly unpopular amongst some of my closest colleagues, like ministerial staff and so forth, and I think there is always going to be scope for rethinking these things and re-examining them, but in a proper way.

KEN RANDALL: Brad Hobson.

QUESTION: Minister, Brad Hobson from Ten News. The IMF has predicted further slowdown in world growth. They’ve - the wording they’ve used is the great recession. Do you agree with that type of gloomy outlook? And given we’re facing a tough Budget should Australians prepare - be prepared for that full onslaught to hit us?

LINDSAY TANNER: One of the things that I’ve been very careful to avoid over the past few months in particular, but over the longer haul as well, is undue commentary and use of loose terminology,

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because inevitably there are lots of businesses out there who are very sensitive to shifts in community mood, and if you want to look at those national account figures for December, there’s two items of data that stand out starkly - incredible increase in household saving, and a huge fall in stocks; a huge fall in business inventories. Now that all takes you to a single word - confidence. What those data show you is that there was a huge jolt to confidence in the Australian economy in

the December quarter, and I think it’s reasonably safe to say it was pretty much in October, and the extraordinary events in the United States; the fact that you had a government obliged to guarantee the banking system; two different levels. All of those things, and just the unfolding bad news had a huge jolt for confidence. So one of the reasons, in fact the key reason that I’m avoiding playing games about, you know, should we call it this, should we call it that, is basically because I’ve got a responsibility to sustain confidence and not to undermine it. Now, others are entitled to make these observations. The IMF has to make calls, it has to make predictions, it has to make assessments; that’s fair enough. But, I’m not going to be in the game of pronouncing how bad I think things might be or how bad they might get, because that in itself can become a source of negative economic outcomes, and it’s something that it is crucial that we avoid because we’ve got real people’s jobs, real people’s livelihoods, real businesses; real workers, whose circumstances are on the line here. We’re doing everything possible to push back against that, and we’re doing everything we can to be realistic and to ensure that people realise we’ve got a pretty clear idea of the threats and the circumstances, but at the same time be positive about how we’re going to fight our way through these things.

KEN RANDALL: Question from David Uren.

QUESTION: David Uren from The Australian newspaper. Regarding the regulation, or re-regulation of the financial sector in the wake of the crisis, the Prime Minister had outlined a strategy the other day dealing with toxic assets. The, this is obviously going to be front and centre at the G20 meeting in London in a couple of weeks. My understanding is that there are quite different positions going into the G20 from Europe and from the US and Australia advancing the position that we’ve, that the Prime Minister has articulated. I’m just interested to get your comment about the importance of the G20 discussion and getting some kind of resolution given the different positions going into the meeting.

LINDSAY TANNER: Inevitably, in extraordinary circumstances, people tend to default to preconceived positions. So, if you’re French, you see the cause of all the world’s problems as the Anglo approach to economics for example. And, that’s life.

So, it’s not going to be a surprise that we’ll see different perspectives put, from, and, you know, there’ll be some pre-conceived thinking in the way we see things. That’s just human nature. You’re seeing it in the debate in the wake of the Victorian bushfires; that people naturally will default to particular things they’re passionate about or committed to as an explanation as to what went wrong or what should be done better. And, that’ll be unavoidable. I am confident that there is enough understanding around the world that somehow a more coordinated and strong response is going to be required to right the current problems in the world economy. I can’t predict how that will emerge. But, one thing I would say that I think has got very little attention in Australia, is just how profoundly important the emergence of the G20 is, both for the wor ld, but also for Australia. Because, we’re a member. We are part of this group, which covers roughly about 85 per cent of the world’s economic output. It’s got pretty well all the really major players in the world’s economy represented there, and a number of others who are middling players, such as ourselves. That’s extremely important for Australia. Really really important. And what’s also important is that, if there’s going to be a grouping that’s small enough to be manageable and capable of producing an outcome - particularly on an issue of this magnitude - but is also big enough and representative enough to genuinely reflect the bulk of world - the G20 is going to be it. And this is something I know the Prime Minister, over the course of last year, devoted a lot of energy to, and rightly so. And, if we can maintain the G20 as the central point of global dialogue on these crucial issues, I think will be enormously beneficial, and it will be great for Australia.

KEN RANDALL: David Crowe.

QUESTION: Minister, it’s David Crowe from The Financial Review. You mentioned that debt is keeping you awake at night. I thought I’d ask you about one aspect of that, that you’re probably thinking of - the States need some help from the Federal Government in terms of raising debt of their own and lowering the cost of the debt that they raise in order to fund things like infrastructure. You’re in a position to help them, although it involves possibly guaranteeing or maybe taking on some of that debt. Are you loathe to do so? Is there a risk to the Commonwealth accounts in, in

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putting more lead in your saddle bags and taking on that debt?

LINDSAY TANNER: Look I, I can’t really give you a definitive answer on that point David, because clearly the States are not kind of separate planets. So, although they are separate legal entities with their own decision making and their own budgets, they are an integral part of Australia, and by definition what goes on in any individual State is of great importance to the national government - that’s unavoidable. Whether that leads us to the proposition you’re suggesting of course is another matter. But, one way or another we do have an interest as a national government in what is going on at the State level. Now I’d have to say that we have put a lot of money over the course of the last 12 months into infrastructure, schools, hospitals, things that are very much dominated by State Government provision. So, whether it’s through the COAG process towards the end of last year, the stimulus payments that will help to build new facilities in every primary school in Australia - and a very substantial number of secondary schools - whether it’s new social housing, which is essentially, largely a domain on the States; the Federal Government is doing a great deal, a great deal to assist State Governments. That doesn’t pre-dispose any particular response on the question you raise. I haven’t had any dialogue directly with the States about it, because of course it’s the Treasurer’s responsibility. But, I think the main point here is, without indicating any particular pre-disposition, the question of what is going on in the States is a matter that we cannot simply ignore, and say, well that’s a problem for you, because, a problem for States is ultimately a problem for the nation, and, we’re the government of the nation.

KEN RANDALL: Jacob Saulwick.

QUESTION: Jacob Saulwick from The Sydney Morning Herald. Two questions if there’s time. Firstly, you said that dubbing the economic situation The Great Recession wasn’t, or might not be particularly helpful; why is calling it an economic cyclone any different? And, also, I wonder how you would characterise the success of the efficiency dividend in the last budget - whether you’d be, what do you think of the merits of another efficiency dividend, and what do you think of the idea of different sized dividends on different sized government departments?

LINDSAY TANNER: Look, I don’t have a problem with an analogy being used in classic Australian style that people can all relate to, particularly people in certain parts of the country that are used to cyclones; because the key thing about cyclones is that typically they’re relatively short-lived. They’re nasty; you’ve got to batten down the hatches; they do quite a bit of damage; but, communities get through them, normal life often resumes fairly quickly. Sometimes you’ve got some

serious reconstruction to do, but, you get over them. So, I’m not that fussed about that that kind of analogy. But, what I don’t want to enter into is the endless kind of media contest for who’s going to get the first headline or the first grab where one of the leading figures in the government said, you

know, this is the case, when in fact our responsibility is to ensure that we maximise confidence and that we are as realistic but also as positive as we humanly can be about the circumstances; because that is so central to how people behave.

On the question of the efficiency dividend; there’s a lot of misunderstanding about this, and I’ll try and give a very short answer to what’s a complex issue. There has been in place a very, for a very long time, a one and a quarter per cent efficiency dividend for the running costs of the vast bulk of agencies in the Commonwealth. It was instituted by the Hawke Government, stayed in place throughout the Howard Government, and that efficiency dividend, in effect says, well, in normal circumstances you get an increase in your funding that roughly reflects inflation; well, we’re going to take a little bit off that, because we are going to assume that you will increase productivity within your organisation roughly the same as private sector organisations do. And that does happen. You know, if you want to know what’s increased productivity across the world, this thing. We will look back - those of us who are still here - in 50 years time, and call this period of human existence the era of the mobile phone. Had extraordinary impact on productivity. Extraordinary impact. The internet, obviously, equally. But, the internet and the mobile phone, they’re becoming the same thing. Now, we can’t fund public service organisations on the assumption that none of these things have an impact. We can’t fund them on the basis that they don’t have to look for improvements in how they work. And so the efficiency dividend, the ongoing dividend, is designed to continually put pressure on managers to exploit new technologies, to exploit new ways of working to get better outcomes. And I’d argue that it’s worked.

Now, the second thing, and where the complication arises, is that on top of the ordinary efficiency dividend, when we came to Office we were committed to a one-off two per cent efficiency dividend, so a one-off shaving of two per cent on the total running costs funding pretty much across the vast bulk of government. And we’ve implemented that. There’s been a Joint Committee of Public

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Accounts and Audit inquiry into the impact of that on small agencies. The Government is considering its response. There are arguments that it has far more serious implications for some agencies, particularly smaller agencies than others. We’re happy to look at those issues on their merits but we believe that the money that’s been saved there is of enormous benefit in other ways. And we believe basically that it’s been wearable because, over the past five or six years of the Howard Government, enormous fat crept in. They were under no pressure. We had four Federal Budgets in a row with virtually no savings. Four Federal Budgets with virtually no savings. So there was a lot of stuff to be extracted, and we’re keeping at it. So individual problems have emerged in one or two instances, which we’ve acknowledged, and we’re happy to deal with those specifically. But we are committed to maintaining the position that now applies. I won’t speculate on the prospect of anything further but I would say that we don’t have a specific aggregate target for the total size of the public service. We’re not about trying to slash jobs in the public service. In fact, effectively what’s occurred is that the rapid increase, out of proportion to what’s going on - was going on in the overall economy, has been reined in. So our basic benchmark that we’ll probably pay some attention to is making sure that you’re not seeing public sector jobs go like that [indicates upward motion] out of proportion to what’s happening in the overall economy, which is what we inherited.

KEN RANDALL: Next question is from Stefanie Balogh.

QUESTION: Minister, Stefanie Balogh, Courier Mail.

Would a win by Lawrence Springborg in the Queensland state election give you headaches in pursuing cooperative federalism, and also implementing the nation building and some of the microeconomic reforms you’ve spoken about?

LINDSAY TANNER: Look, to be honest I don’t know. I haven’t met Lawrence Springborg so I don’t want to express any views about him one way or the other. But I’d have to say that thus far the states have been constructive but fighting their corner on issues in the process, both the COAG

process of investment in schools and hospitals and other things, and also the deregulation process that I’m directly responsible for. So I really couldn’t make a prediction. I would hope that whoever is in charge in any of the states understands just how important this is. We can’t afford this nonsense of having, you know, different licensing regimes for things like plumbers and electricians in different states, and people having to register in different jurisdictions, and major companies having to waste money complying with umpteen different arrangements. We had one thing that I think illustrates this point beautifully. A major manufacturing company transporting a big piece of equipment that requires one of those outsized load things, you know, with flashing lights and people on motorbikes and all the other palaver, driving up the Hume Highway, being transported from Melbourne to Brisbane. It took them two years and eight approvals from different government organisations, local and state, in order to be able to do this. That is just ludicrous but that’s the reality that prevails still, and that’s what we are seeking to undo. Now, there was always going to be parochial state interests involved in tackling these things, and different states have different approaches. But I sort of suspect that by and large the state position, you know, doesn’t necessarily change that much even if there’s a change of government. The Western Australian Government, jury is still out as to whether or not they are still going to be constructive in this area. I wouldn’t want to condemn them. There’s been one or two worrying signs but, generally speaking, I think they’ve been still constructive. So it’s not up to me to give you an a ssessment of Lawrence Springborg on this front because, frankly, I just don’t know. But if he or anybody else has got a mind that we can all go off and play our silly little parochial games of the past, I’ve got news for him, we can’t afford it. We simply can’t afford it. We’re a nation, and we’ve got a national economy that is under enormous pressure. And if we don’t improve productivity, if we don’t improve regulation, if we don’t liberate business to create jobs and invest, then we’ve got a major problem. And I think basically the people in state politics do understand this.

KEN RANDALL: Markus Mannheim.

QUESTION: Minister, Markus Mannheim, The Canberra Times. You spoke about the modern consensus on the size of government yet, at the same time, you criticise the growth of the public service under the Howard Government. We’ve got an extra 35,000 public servants since - in six years since 2001. But actually if you go back to 1999 it’s considerably more than that. Now, I know you spoke about the efficiency dividend as one way of perhaps trimming this overgrowth but that’s not going to go anywhere near getting rid of those surplus numbers that you’re suggesting. If Howard was wrong, why not get rid of those surplus staff in the coming Budget?

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LINDSAY TANNER: My criticism of the Howard Government is the trajectory and the speed. Keep in mind that as our population grows everything grows. So you would hardly be surprised to know that the scale - the size of the Federal public service in Australia in 2000 was somewhat bigger than it was in 1950; partly because the size of the population was probably double of what it was in 1950. So over time it is natural that there will be some growth. The real question is the speed of growth and the scale of growth. And my point there was that the level of growth was out of proportion to what reasonably ought to have been expected. The other thing I’d say is that public service employment is not a measurement of the size of government. It’s not a measurement of the size of government. The correct measurement is the total proportion of economic activity that is in the public sector, or that’s the one that matters to me. And, if anything, what that rapid escalation in public sector employment shows you is that although the relative size of government wasn’t changing that much - because if you look at the data one tax revenue, spending, it did start to drift up but certainly not with the same level of dramatic increase - what that tells you is that the Howard Government was spending more and more on itself and less and less on the people of Australia. That’s the bottom line and that’s what’s going on here, is that the more money that’s being spent on government itself, the less is actually being spent on actual services, on universities, on schools, all of these things, particularly given mind that most, not all, but most people in the federal public sector are not direct service deliverers. A fair proportion are but not at the same level as in the states. So I can understand why there is a degree of nervousness in Canberra about our views of these issues but we’re basically committed to the wider outcomes. We don’t regard public service employment as an objective per se. It’s a dimension of a wider question, and that is what value for money are Australians getting from their government? What are the outcomes? That’s the key question.

KEN RANDALL: And one more question today, it’s from Peter Martin.

QUESTION: Hello, Peter Martin of The Age. You said earlier it’s going to be a very tough Budget. Now I assume you meant tough to prepare, not tough, in what was in it. But it does raise the question…

[Laughter]

…what parts of it should we look at, that may in fact be tough, or will, given the economic circumstances, there in fact, be very little pain in the Budget?

LINDSAY TANNER: I did mean tough to prepare. Maybe I was being a little bit self-obsessed in that, because of course, I’m involved in the preparation. But yeah, it will be tough to prepare, because we’ve got enormous challenges. And we’ve got spending needs emerging that weren’t there a year ago, particularly on things like labour market programs. So the circumstances in which we have to put this Budget together are very challenging. We’ve got a commitment to do something about the aged pension which, whichever way you look at it, is expensive. But one way or another, we have to deliver on that commitment. So, yes, it’s going to be tough in the sense of being tough for people like Wayne Swan and myself who are down in the engine room putting it together and making everything add up. It’s tough because instead of asking ourselves exactly how big do we want this surplus to be, we’re there confronting - because of the collapse in revenues from the global recession - we’re confronting very substantial deficits. So the set of things that we have to work through, impose very, very strong disciplines on us. As to the question of tough on the wider community, I’ll just have to let you wait and see what exactly emerges in the Budget. And we’re only at the relatively early stage of the pr ocess too, so we, you know, we’ve obviously got a number of ERC meetings already under our belt and things have been happening. But there’s a long way to go and I’m not looking forward to the balance of this month and early April, because I kind of know what’s like. I’ve done it once and you spend a lot of time in rooms that have no windows, with the same people, wandering through mountains of paper and eating jelly beans and nuts that are sitting on the table and drinking lots of coffee. And it’s, you know, it’s good when it’s over. It’s a very challenging process and this one will be more challenging in terms of getting the ingredients right and getting the positioning right and the specific decisions right, than I think a Bud… any Budget for a long time. And the same will be true of countries all around the world, because the wider circumstances are so challenging.

KEN RANDALL: Thank you very much.

- ends -

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Media Contact: Website:

Nardia Dazkiw - 0418 144 690 www.financeminister.gov.au

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