HON. WAYNE SWAN MP
FEDERAL MEMBER FOR LILLEY
2015 BUDGET (REPLY)
FEDERATION CHAMBER, CANBERRA
THURSDAY, 30 SEPTEMBER 2015
***CHECK AGAINST DELIVERY***
Mr. Deputy Speaker,
The budget handed down last week by Joe Hockey puts the political interest of the Liberal Party ahead of the national economic interest.
The best than can be said of this Budget is that after spending five years undermining the confidence and weakening economic growth through their irresponsible and fictitious rhetoric of a budget emergency the Coalition have finally realised how much damage they've done to the Australian economy.
Sadly this Budget provides no lasting sustainable policies to bring down unemployment and boost economic growth and rebalance investment across the economy.
Nor does it wipe away the stench of unfairness from last year's budget.
Last year's effort was classic trickledown economics.
It was a declaration of class and intergeneration war against low and middle income earners. This budget continues the war with savage cuts in family payments to low income earners and an $80 billion hit to their schools and hospitals. These measures further undermine the confidence the Government says it is seeking to stimulate among consumers.
This budget is a big spending; big taxing budget which if delivered by the Labor Party would have provoked cries of fiscal vandalism from the Coalition.
Instead the Coalition have dubbed this the "have a go" budget which attempts to restore confidence to an economy which has had its confidence smashed.
Before the budget, consumer confidence was down 13 per cent while business confidence was down a whopping 23 per cent from the election.
With confidence so low economic growth has slowed and, over the forward estimates, is predicted to be around 2.5 per cent in 2014-15 and 2015-16.
This growth rate isn't enough to stop unemployment from rising let alone lower unemployment, which for the first time in a decade has a six in front of it.
By comparison Labor kept unemployment with a five in front of it and created around a million new jobs even as the global economy experienced its deepest economic downturn since the Great Depression.
Over that same period while virtually every other advanced economy went backwards the Australian economy grew by 15%.
In the week since the Budget was handed down both ACOSS and NATSEM have showed how the Coalitions second budget is just as harsh on low and middle income families as the first.
NATSEM modelling shows that nine out of ten of the lowest income families lose out under the Abbott Government's Budget, while nine out of ten of the wealthiest families benefit.
- While a family with a dual income of $120,000 and two children will be $3,272 a year worse off by 2018-19 or over $60 a week.
Joe Hockey and Tony Abbott used to say that surpluses are in their DNA. They don't say that any more, and for obvious reasons. But when a budget designed to be less unfair than last year's manages to produce these kind of terrible effects, we know there's something else truly in their DNA - an inability to see and practise fairness in anything they do.
The third test the budget fails is the credibility test.
(1) The rather heroic assumption that wages will grow faster than inflation paving the way for sturdy personal income tax collections. Yet over the past year to March 2015, there was almost no growth in real wages.
(4) The final heroic assumption is that non-mining business will shrug off the pessimism which saw business confidence plummet 23% before the Budget and investment will grow at a pace not seen since before the GFC.
Let me say that again slowly. Deficits for 2014, 2015 and 2016, an astonishing 4 times larger than the budget they inherited.
The Coalition is increasing the tax take as a proportion of GDP every year across the forward estimates. In fact taxation revenue as a share of GDP is forecast to rise by between 0.3 and 0.5 percentage points every year for the next five years.
Right now what the Australian economy really needs is a series of well targeted economic policies which kick start economic growth.
The Government's primary stimulatory policy is a worthy measure but also a vote-buying exercise. As Ross Gittins observed "[the instant asset write off] is unlikely to be enough to make a difference to the economy's growth rate and the net effect of all measures in the budget will be mildly contractionary."
If the Coalition hadn't bound their hands on by demonising debt financing the Government could use the record low interest rates to invest in infrastructure and prime the Australian economy for another period of economic growth but instead we have economic luddites running the Government.
By getting the big economic calls right during the GFC and ushering in sweeping long-term productivity-enhancing reforms in its wake, Labor primed Australia for the transition from mining sources of growth to non-mining sources of growth.
This transition remains the central economic challenge our country faces, one which the Coalition has bungled comprehensively through two budgets and two MYEFOs.
The first test this Budget fails is the jobs test. In the most benign global economic conditions for eight years Joe Hockey's Budget forecasts six per cent unemployment across the forecast period.
This means 800,000 people unemployed Australians is the new norm and leaves us a small sized economic shock away from having a million people unemployed in Australia.
When this Government came to power, in September 2013, unemployment was at 5.7 per cent and it has not been lower than this level since then.
The worst part of the Government's so called ‘stimulus' package in the Budget is that unemployment stays high for much long than they forecast at the last Budget.
The second test this budget fails is the fairness test.
ACOSS estimates the 2015 Budget will cut $15 billion over four years from basic services which support vulnerable groups.
And above all what NATSEM modelling shows us is that Tony Abbott and Joe Hockey have their sights firmly set on low and middle income families.
Under this budget:
- A family with a single income of $65,000 and two children will be $6,165 a year worse off by 2018-19 or over $115 a week.
The Prime Minister has been quick to criticise this modelling because it doesn't account for second round effects. Leaving aside that the Budget is not crafted on second round effects, even if he did it would be worse because he is literally taking money out of the pockets of households and undermining confidence.
Here are just four of Joe Hockey's heroic assumptions and forecasts, which fundamentally compromise the credibility of the Budget:
(2) Even though there has been almost no growth in real wages the budget forecasts strong increases in household consumption. How is weak wage growth with strong consumption a logical assumption?
(3) The forecast that nominal GDP growth will rise from 1.5% in 2014-15 to 5.5% by 2016-17 is optimistic but admittedly not unheard of. However this would imply a return to the solid real GDP growth typical of the early 2000s, an unlikely prospect with the Coalition's current policy settings.
This assumption is undermined by the fact that capital expenditure has consistently come in below market expectations.
So really what we have at the moment is a budget which is a house of cards with key assumptions that look like they were developed with all of the manipulation of Frank Underwood.
The fourth test this Budget fails is the Coalition's own debt and deficit test.
When the Coalition came to office they had spent five years claiming there was a debt and deficit disaster that was causing a budget and economic emergency.
The deficits across the 2014, 2015, 2016 financial years are four times what they were under the independently prepared and verified PEFO.
Mr Hockey and Mr Abbott sort of style themselves as a fiscal fire brigade. You call these guys when your house is on fire and after they've been there for 2 hours the whole street is in flames!
There has been a great deal of debate about the structural deficit in the budget. It is absolutely clear that Australia needs a clear pathway back to surplus consistent with trend growth and an accompanying fiscal consolidation. But when it comes to this pathway it requires action on both spending and revenue fronts.
It also means ensuring a credible pathway to surplus - and once you get there you build on that. That is the mark of the quality of measures undertaken to improve the sustainability of the Budget. This Budget doesn't do that and that's even when it continues to include savings that simply will not pass into legislation.
Independently prepared PBO papers confirm the structural deficit is a hangover from the Coalition's last term in office when Peter Costello cracked open the rum crates and the vault at the Treasury and managed to spend 94% [or $314 billion of $334 billion] of the revenue "write-ups" from the mining boom. In fact PBO papers indicate two-thirds of the 5 percentage point decline in revenue can be attributed to the tax cuts undertaken by Peter Costello.
Indeed, Joe Hockey must be getting spending tips from Peter Costello because in every year of the forward estimates the Budget has higher spending as a proportion of GDP than Labor except for one year, the year we initiated the stimulus package that saved Australia from recession.
That deals with the claims of being a low-spending government. What about low-taxing?
This means the tax take in every year across the forward estimates will be higher under Joe Hockey than it was under the last Labor government.
And it's not just higher taxing that weighs so heavily on working Australians - it's who's paying it. By allowing multinational corporations to profit shift the Coalition is effectively placing more of the tax burden on working Australians and killing any hope of relief from bracket creep.
Much of the claimed improvement in the Budget is from personal tax increases which as the Grattan Institute has shown contributes $25 billion over the forwards.
The final aspect of this fiscal fairy tale is the Coalition being the party of low debt.
When the Coalition came to government they used their shamefully political 2013 MYEFO to blame Labor for supposedly taking Australia to $667 billion gross debt within a decade.
I think Emma Alberici was right in her interview with Mathias Corman after the budget, of the $667 billion gross debt figure she said: "They were your figures. With respect that is a nonsense figure that you continue you to trot out that you made up yourselves. In the PEFO figure, which is the one you should be referring to it was about $370 billion."
In the next financial year, the face value of gross debt is expected to be around $412 billion on its way to $518 billion at the end of the forward estimates and $573 billion by the end of the decade.
The fifth test this budget fails is the productivity test.
The only way to boost growth in both the short term and long term is to invest in the productive capacity of the economy, this means investing in infrastructure and investing in education.
Now, we know Tony Abbott has dubbed himself the infrastructure Prime Minister but in actual fact (as Alan Kohler described it) Tony Abbott's "efforts on infrastructure have been pathetic."
Since Tony Abbott became Prime Minister not a single infrastructure project has begun, infrastructure investment has plummeted to levels not seen since the Howard government and the Government's own budget papers confirm there will be a real decline in infrastructure investment of 11.2% between 2014-15 and 2018-19.
But even with first-class infrastructure investment we can only achieve our full productive capacity if we fund the enablers of growth and opportunity. By outlining a program which invests in education Labor has shown our ongoing commitment to improving social mobility and driving economic growth through investment in human capital.
Real long term structural reform is preparing the next generation of Australians for the jobs of tomorrow. Teaching coding in schools, incentivising current and future generations to be the best scientists, technologists, engineers and mathematicians in the world will ensure Australia continues to be an economic powerhouse. And supporting small businesses, startups, early stage and research intensive industries with better access to what they need most - capital - is about building the jobs and industry of the future. This is Labor's vision for Australia.
By comparison Tony Abbott and Joe Hockey are pushing forward with the $80 billion cuts to schools and hospitals. This is isn't structural reform, it's just shifting essential productivity enhancing spending onto the states and leaving it unfunded.
The cuts to health and education cuts plus further hidden cuts to things like dental will hit working families who want the peace of mind know that they will get access to health and their kids can get a good education.
The sixth (and final) test this budget fails is the growth test.
I find it very hard to see how the instant asset write off will have the desired effect of boosting demand and driving a sustained lift in investment when you consider that ATO data suggests only 37 per cent of incorporated businesses with a turnover of less than $2 million will be eligible for the instant asset write off.
A better way is the sensible and sustainable approach that Labor put in place for three years and which followed a recommendation of the Henry Tax Review.
Instead of supporting this measure the Liberal Party caused havoc for small businesses and their advisers getting rid of scheme. Now confronted with their political fate, they've brought back this measure temporarily - providing no certainty for small business investment.
We need a sustained boost to investment which supports nation building.
There is a need to address the structural deficit? Absolutely.
But it needs to be done in a fair and equitable manner which supports jobs, promotes growth and investments in Australia's human capital so that Australia is prepared future economic challenges.
The Australian people deserve better than a Budget which fails the growth test and fails the fairness test.
