Speech - A Smart Nation




"A Smart Nation"


TUESDAY, 21 MAY 2013


Good to be here.

I want to thank David [Hetherington] and his energetic team of thinkers and writers who are casting a giant shadow from a relatively small organisation – one that's very worthy of your support. Today, I thought I'd come at the Budget from a different angle. I want to step back and talk about the battle for reform in this country. It's a struggle that has raged right through our modern political history. I came to politics with the core belief that being in government means being about reform. Because reform means making things better. It's a belief that's taken me from a dusty classroom in Nambour some 50 years ago to the Treasurer's office in the heart of the political capital. That word 'reform' can sometimes be interpreted narrowly – as it usually is on the right of Australian politics. So let me be clear what I mean by it.

I don't mean 'reform' as a blogger from the Institute of Public Affairs or a member of Tony Abbott's Shadow Cabinet might mean reform. When people like that say 'reform' they don't mean a broad push for a better society, improving living standards, or spreading opportunities.  When they say 'reform' they're not talking about change inspired by our nation's enduring values, summed up by that great idea of the fair go. They're not talking about 'progress'.  What they're talking about is taking things back to the way they were. That's regression. Not progression. The sad fact is that Australia's long reform journey has been frustrated, delayed and derailed at every turn by the right-wing political machine. Labor is the only party that can encompass the full dimensions of "reform": economic responsibility and progressive thinking.

We use the word progressive because it best defines us. We are the party of progress.  We believe that things can always be better.  We believe Australia can always be stronger, smarter and fairer. I've been thinking a lot about this over the past few months, as I reflect on the choice that will confront Australians on 14 September this year. I've spent a lot of time thinking about my own journey through public policy, and about the reforming traditions of the Australian Labor Party. It's taken me back to something that I learned a long time ago. An interpretation of party politics in Australia over 100 years, called initiative and resistance. It's perhaps the most cogent framework I've yet encountered to explain the countervailing forces which define Australian politics. It's a simple thesis, but a very powerful one.  While we in the Labor Party have always defined ourselves by what we stand for – by our values –  those in the Liberal Party have only ever defined themselves by what they oppose. What that means is it's always fallen to the Labor Party to bring in the big economic and social reforms which have driven our country forward.

The Liberal Party have opposed the big reforms every step of the way. Medibank in the 1970s – opposed. The great expansion of university education in the 1980s – opposed. The extension of superannuation to everyone in the 1990s – opposed. Then there are the things the Liberals claim not to have opposed but never actually got round to proposing: like the floating of the dollar or bringing down the tariff wall. And nothing has changed since then. We've just had another five and a half years of them opposing reform and opposing progress. Carbon pricing – opposed. The National Broadband Network – opposed. The Gonski school reforms – opposed. And on Thursday night, Mr Abbott stood up in the Parliament and gave a sneak peek of his plans to scrap our reforms to gradually increase the Superannuation Guarantee rate from 9 to 12 per cent. The Liberals have never supported national superannuation. Mr Abbott has already told us he believes that:  'Compulsory superannuation is one of the biggest con jobs ever foisted by government on the Australian people.'  That's the Liberal Party way. When they came to Government in 1996, they shelved Keating's superannuation increase. So based on form, Australians are entitled to assume that Mr Abbott will scrap our increase to the retirement incomes of 8.4 million Australians. That would reduce our national superannuation savings pool by more than $500 billion by 2037. It would put further pressure on the long term sustainability of the Budget as our population ages. And it would rip $127,000 out of the retirement savings of a 30-year-old worker on average wages by the time they retire. At every turn in our history, the Liberal Party refrain has been the same.

Now is not the time, they say. Things don't need to change, they say.  Their cynical political strategy is to manufacture a sense of crisis to justify taking the axe to the big reforms we need for the future. They contrive a false debate on our low and responsible levels of borrowings, and attack the forecasts of our finest public officials, all as a smokescreen to cut to the bone and return to surplus at any cost. Well, I've always believed that the purpose of a strong economy and budget is to give us the foundation to reform. If a country with all of our economic strength can't make the investments that will define us for the future, then who can? When can we tackle the big reforms, if not when our economy has grown 13 per in five years, while unemployment starts with a '5', at the same time inflation and official interest rates both start with a '2'?

That's what my sixth Budget was all about. Big reforms fully funded by structural savings that will improve the budget bottom line by over $300 billion by the end of the decade. As all of you here know well, you don't do $300 billion worth of structural savings in just one Budget alone. This is a course we've charted from Day 1 – it's one of the constant threads that runs through all six of my budgets. The structural savings we've made have helped improve Australia's medium term fiscal sustainability. I'd really encourage you all to have a read of Statement Four in Budget Paper No. 1, which shows that Australia remains very well placed on the key indicators of fiscal sustainability.  Central to this is our clear and credible path to surplus and plan to reduce our already low debt levels, consistent with our fiscal strategy. To complement these key indicators, there are also a range of analytical measures that can shed light on fiscal sustainability. One of these is the structural budget position, an indicator which seeks to adjust the budget balance for changes in the business cycle and other temporary influences like the terms of trade. You might be aware that the Treasury has long had concerns about the use of structural balance estimates as a tool for setting fiscal policy in real time. That scepticism is largely based on the fact that estimates of the structural budget position are highly sensitive to a range of assumptions, like the long term level of the terms of trade. It's also very challenging to capture the relationship between economic activity and revenues over time, which obviously varies with economic conditions – something we've seen starkly in the wake of the GFC.

While estimates of the structural budget position can vary significantly, what they all tend to show is that the decisions toward the end of the last government put the structural budget position on a downward trajectory. They also show that the structural savings that this Government has put in place are strengthening the structural position of the budget. Of course, other factors have been weighing on the structural budget position in recent years, like a persistently lower tax-to-GDP ratio. Since we came to office, the level of tax receipts as a share of the economy has itself been held down in part by structural factors. These factors include tax deductions from record mining investment and the structural changes in the economy in the post-GFC environment. It's also important to remember that while productivity-enhancing investments can impact the budget bottom line, they also improve fiscal sustainability over time by increasing the economy's potential output.  These fiscal sustainability benefits are not generally captured in structural budget estimates, because they are very hard to measure. Similarly, while measures like our stimulus have had a temporary impact on the structural budget position, it has also delivered fiscal sustainability benefits – through preserving our skills base and economic capacity.

To further inform this important debate, I've asked my department to release a research paper on Australia's structural budget balance, which will be out later this week. This paper builds on the Government's unprecedented steps to improve transparency around our fiscal position. That includes our steps to publish 10-year projections of the budget balance and net debt from our first budget, and which we have extended to funding of some pretty big long term reforms in this budget. The Government will continue to consider further measures to improve transparency in this area, in consultation with Treasury.   Of course, measures that improve fiscal sustainability – like our structural saves – are another point of obstruction for the Liberal Party. They've fought us every step of the way, opposing responsible measures like means-testing the private health insurance rebate, and arguing against abolishing the Baby Bonus.

The structural savings we've been putting in place have made room for the investments Australia needs for the future Especially in education. We all understand the power of education to transform lives and transform our nation.

In 1990, Bob Hawke articulated Labor's vision for Australia. We could no longer be content to be 'the lucky country'. We must aspire to be 'the clever country'.  In the 23 years since then we've come along in leaps and bounds. In the last five years, we've jumped three places to become the 12th largest economy in the world, with only the 51st largest population. We achieved this because we've got the big economic calls right. But also because we've continued the proud tradition of Labor governments investing in education, skills and innovation. Australia punches above its weight in the global economy because we know the key to our success is working smarter, not just harder. It's no coincidence that education is our 4th biggest export, worth over $15 billion annually to our economy. It's no coincidence that students travel across the world to study at Australian universities – about a quarter of a million this year alone.  And it's not just our world class universities that set Australia apart. We also boast some of the most highly regarded scientific and research institutions in the world – with some great stories to tell.] Like the CSIRO. Many Australians wouldn't know that the wireless technology we now take for granted on our laptops or mobile phones grew out of the pioneering work of the CSIRO on radio astronomy.

I think a lot of Australians would be proud to know that we've been selling this home-grown technology all over the world. But one of the smartest things we've done as a nation is never taken our success for granted. We have one of the strongest economies in the world, but we cannot be complacent. We've got a high level of productivity, but productivity growth was in structural decline for over a decade. I think we're all encouraged by the productivity upswing we're starting to see, but we must work together – government, business and workers – to lock it in and help drive sustainable long-term economic growth. That's why we're investing in infrastructure, education, skills and training to help our workers succeed and our businesses prosper. Just think about some of the investments we're making. In infrastructure, like $448 million to upgrade and widen South Road between Torrens Road and the River Torrens to eliminate major points of delay and ensure traffic flows more smoothly.

In education, with the number of Commonwealth-supported places across Australia up by 149,000 students under this Government – that's twice the number of university students in the whole of South Australia.  Or the $1.2 billion we're investing in Trades Training Centres that will benefit more than 1,070 schools across the country. That's a huge opportunity for the estimated 18,000 young Australians currently learning a trade and building a career. And we're pioneering the creation of cutting-edge new Industry Innovation Precincts around Australia, to bring our best and brightest together in ideas hubs to produce the technologies of the future. But we know that the life of an innovator starts in school, where young minds are shaped and talents are nurtured. That's why we've set the ambitious goal of putting the Australian school system in world's top five by 2025, and putting our students in the world's top five countries in the world for reading, science and maths. Because while our economy has powered ahead, our school system has fallen behind.  If we want to win the economic race in the Asian Century, we know we must win the education race. Since 2000, Korea has overtaken us in reading and maths, and Hong Kong has overtaken us in reading, maths and science. In 2009, Singapore and Shanghai outperformed us in reading, maths and science. Our current school funding system is broken – it's failing our children. Now is the time to invest in our future, with schools across Australia to share in an extra $9.8 billion in funding over the next six years.

We'll ensure that every disadvantaged Australian child gets more funding, no matter where they go to school. But we'll also ensure funding grows for every school, with schools on average across the country getting an extra $1.5 million over six years. Just this morning I was over at Prospect Primary School with Kate Ellis, talking to the teachers and the kids about the investments we're making. I know Kate was really proud of the difference we'll be making for education outcomes at schools like Prospect Primary, not just as the local member, but also as Minister for Early Childhood.  It was just a fantastic feeling to look around the school assembly and in the classroom at the faces of all these young Australians and think about what this investment will mean for them and their teachers. Literacy coaches to help students who fall behind in their reading. More training and mentoring for teachers.  Extra resources for school libraries. Specialist language assistance. The investments we are making will ensure our children are equipped to take up the high-skill, high-wage jobs of the future. Investing in education isn't just a moral imperative, it's an economic imperative. The smart investments we are making will help drive productivity and economic growth for the long term. PwC's recent report made it clear that if we were to accept our current declining trend in education performance, our economy would end up $1.5 trillion smaller than it should be over the life of a child born today. On the other hand, if we increase Year 12 completion rates to 90 per cent, we'll increase workforce productivity by 0.6 per cent a year and lift our GDP growth by 0.65 per cent a year. If we invest in our schools to lift them up to a world-class standard, we can generate $3.6 trillion for the national economy over the same period.

So as a nation, we have a choice. We can invest in our kids, our economy and our future. Or we can fail our children and hold our nation back. Labor believes education is the great enabler that smashes down barriers and builds a country of opportunity. Last week, Mr Abbott confirmed he does not share this belief.  The Liberals would put Australia at the back of the class. While Mr Abbott left a lot of questions unanswered in his Budget reply, we got a sneak peak of his plan to slash and burn. He will cut to the bone on funding for our schools – with one and a half million dollars being ripped from each school on average. He will use his Commission of Cuts to rip away our investments in education, putting politics first and our kids last. That's something this Labor Government will never accept. These are the big, long-term reforms we need to build a stronger, smarter, fairer Australia. An Australia which continues to punch above its weight in the world. We are a young and optimistic country. But we can only continue to be an optimistic country if we put in place the big reforms we need to make us a smarter and fairer nation. Because equality of opportunity is the key to an optimistic society.