Speech - Productivity: The Untold Story Of Budget 2012




"Productivity: The Untold Story Of Budget 2012"


FRIDAY, 11 MAY 2012


Thanks, it's good be here to talk about the Budget and how we are spreading the benefits of the boom to strengthen our economy. It's obviously great to be back in my home town, in what has to be the busiest week of my year.

I'd like to acknowledge State Labor Leader Annastacia Palaszczuk and Brisbane City Council Labor Leader, Cr Milton Dick.

When I spoke in Brisbane post budget last year, it was just months after this state was ravaged by the most costly natural disasters in this country's history. And while we've made great progress since then in rebuilding this great state, the spirit and energy about the place remains the same.

Queensland not only epitomises the resilience of our country – it also sits on the cusp of some incredible opportunities unfolding in our region. It's one of the reasons why the Commonwealth has invested so heavily in infrastructure, skills and education – helping to unlock the great economic potential both here in Queensland and around the country.

In the next few days I'll be heading off around the country to talk to Australians about what the Budget means for them and how it came together. I'll be travelling through just about every state, talking to chambers of commerce, social advocates and think tanks - but most importantly, to ordinary Australians going about their business.

It's a chance to talk directly to different parts of the business community and the broader community about the challenges in our patchwork economy and the opportunities that flow from our place in the region.

I think it's particularly appropriate that I start that process here talking to an organisation like CEDA - which itself is focussed on the big policy debates and the long-term economic challenges.

At the National Press Club this week I spoke about this Budget showing that you can have big investments in the fair go and big investments in productivity and probably the best set of books in the developed world.

This Budget shows that with a disciplined approach to spending we can return the budget to surplus on time and as promised. But more than that – this Budget shows that with a disciplined approach to spending we can also make room for new investments in priority areas:

  • We can invest in our productivity agenda, putting in place the foundations needed for long-term growth
  • We can spread the benefits of the boom to all corners of our nation
  • And we can protect those in our community who are most vulnerable

Over coming days I'll be talking in more detail about these aspects of our Budget. The big social policy reforms – like the beginning of Australia's first National Disability Insurance Scheme. The incentives for small business to innovate and invest – like the new loss carry back arrangements. And how we're helping families and business adjust to transitions underway in the global economy – now and into the future.

But first I want to start by giving you a sense of the economic context which shaped the Budget. And then move on to what I think is really the untold story of the Budget so far, and that's the productivity story.

There's no treasurer or finance minister in the world that can put together a budget in 2012 without taking account of the economic events that have marked the past four years. As everyone in this room knows well, these years represent one of the most dramatic and formative chapters in world economic history.

This is a period that has tested the foundations of the global financial architecture and found it profoundly wanting. And a period which saw global demand fall off a cliff and some 27 million people in around the world join the ranks of the unemployed. Of course, the global economy on the whole looks a bit better than it did late last year when the turmoil in Europe was at fever pitch.

Despite persistent challenges in the housing and labour market, the recovery in the US continues at a moderate pace, and financial market conditions have not yet returned to the extreme risk aversion of late last year. But despite some improvements, Europe remains deeply scarred from these events, and continues to cloud the global outlook.

The euro area's unemployment rate sits stubbornly in double-digits and continues to reach new record highs, and their economy appears to have re-entered recession along with the UK. In fact it has now taken the UK longer to reach its pre-crisis level of output than it did during the Great Depression. Financial markets also remain skittish, and recent political events in Greece and France serve as a reminder that this volatility will be with us for some time.

Of course, what's happening in North Atlantic economies isn't the only dynamic occurring in the global economy. Because washing over this fragile global outlook is the tidal shift of the global economy from west to east.

The rise of Asia is something CEDA, with characteristic vision, was thinking about as far back as the 1960s. By the middle of this year, it's expected that the combined GDP of the developing world will actually overtake that of the advanced economies. And for the next two years, around three-quarters of global growth is expected to be produced by emerging economies, particularly China and India.

The time for predictions has passed. We now live in the Asian century. We understand this in Queensland, because we are at the forefront of the mining boom. In resources alone, Queensland has a massive $120 billion investment pipeline with more than half at an advanced stage. This is creating jobs right across the state, not just in the great mining regions.

The benefits aren't just confined to Central Queensland or Mackay, the boom is also turbo charging sections of manufacturing sector right here in South East Queensland. Take for example the Brisbane based pipe systems manufacturer Vinidex, awarded a multi-million dollar contract to supply 3,200km pipes for APLNG's Curtis Island project. Or the Logan based ATCO Structures, awarded a major contract to design and manufacture temporary accommodation for 2,600 workers on Curtis Island. Or Sedgman, a resource services company here in Brisbane, that has become, like so many great Australian companies, the supplier of choice for the great mining regions of the world. This demonstrates that the world does not just come here for our resources, but also our know how and our expertise. And in Queensland, we already understand that this is much broader than a mining story.

As the Asian middle classes swell to over a billion people in this decade, all of our sectors stand to benefit from their demands – our mining sector, tourism, manufacturing and our rural economy. But this doesn't hinge on our geography or geology. Our success in the Asian Century will be determined by our ability to take hold of the opportunities that come right across our economy. And to do this we must drive productivity right across our economy.

While our level of productivity is among the top dozen worldwide, we need to continue to grow our productivity. Central to this is investment in education, to build on our already highly skilled workforce.

Australia is uniquely placed to reap the benefits of this profound change because of our strong economic fundamentals, which have been built on a legacy of reform and a history of good decisions. We have strong and credible macroeconomic settings, and the will and the courage to put in place tough, transformative reforms that underwrite long term prosperity. Because of this, we are now in our 21st year of consecutive economic growth – a record unmatched by any other advanced economy over this period. And we're expected to outperform every single major advanced economy over the next two years. I don't for a moment discount the profound impacts on our economy from this reweighting of global growth.

Sections of our patchwork economy are under pressure from a higher dollar – one of the consequences of the shift in global dynamics and the mining boom that's underway. And ongoing global uncertainty has also bred a more cautious consumer with a lower appetite for credit, and changing consumer spending patterns have meant difficult adjustments for parts of our retail sector. But one thing that distinguishes us from many of our counterparts is that we face this period of transition from a position of strength.

With solid economic growth, low unemployment, contained inflation and a record investment pipeline, Australia is the envy of the world. But another one of our key strengths is our strong public finances – characterised by very low levels of a debt and a Budget returning to surplus light years ahead of most other advanced economies.

In recent days, weeks, months and even in recent years, I've spoken a lot about the importance of returning the budget to surplus. I won't cover all this ground again here today, but it's fair to say that in these uncertain global times, it has become more important than ever.

Financial markets are keeping a judicial eye on the credibility of fiscal and economic policy of governments in every corner of the world. One of Australia's significant achievements in the eyes of global investors has not only been our strong fiscal position, but also our clear and consistent fiscal strategy since the onset of the GFC. A fiscal strategy that has led us to make savings totalling $33.6 billion in this budget, building on more than $100 billion of savings identified in our last four budgets. And a fiscal strategy that has delivered a record of consistent and credible fiscal discipline.

Because of this sustained focus on savings, we've pushed payments as a proportion of GDP down to 23.5 per cent in 2012-13, and it's held at around this level over the remaining years of the forward estimates. Keeping payments to GDP below 24 per cent for four consecutive years is something that has not been achieved for around 30 years, and is a clear sign of broad-based restraint.

But strong and credible macroeconomic foundations should never come at the expense of getting our economic, human and social capital ready for the opportunities ahead. That's why each of my five budgets has continued to build on an ambitious program of reform. To lift our productive capacity, and to make the most of opportunities in the Asian Century.

At the height of the GFC, even while we were stepping in to support demand and jobs, we were also putting in place the foundations for long-term growth. We've invested $36 billion in the roads, rail and ports needed to boost productivity and expand our economy.

In 2012-13, we'll be injecting $879 million into Queensland through the Nation Building Program – including major investments for the Bruce Highway from Cooroy to Curra ($388 million) and along the Cardwell Range ($90 million).

A further $400 million will be paid to Queensland next month as the final milestone payment on the Ipswich Motorway – Dinmore to Goodna upgrade – finishing six months ahead of schedule.

During the coming year we'll also see the start of new projects –like the new Moreton Bay Rail Link, with a Commonwealth contribution of $742 million.

We're also investing in the National Broadband Network, and putting a price on carbon, which will drive investments in clean energy.

We are also supporting small businesses to invest to lift their productive capacity, through loss carry back and providing more than half a million Queensland businesses with access to the $6,500 instant asset write off.

But what I really want to focus on today is what we are doing in the areas of education and skills – because there's a lot going on in this space that often flies under the radar. And there are few more worthy goals than opening the door for Australians to participate in the workforce. Opening the door for rewarding and well-paid jobs. And opening the door for businesses to grow and compete, by helping them get the skilled workers they need.

Last year we announced a new National Workforce Development Fund, which now totals $700 million over five years. The Fund was set up to co-invest in training schemes with Australian businesses, ensuring that the training was relevant to business and that there was a good job at the end of it. It represented a new approach to training, a new approach that put industry at the heart of the training effort. And it's been a great success, with 50,000 training places already committed and business chipping in a dollar for every dollar committed by the Government.

Here in Queensland we have 73 approved projects with more than 6,700 places committed with an additional 75,000 to come online in Queensland over the next five years. Like a small resources company in Central Queensland that is targeting youth and mature age workers as part of training 42 workers in drilling, and training and assessment. Or three large employers training 278 workers in rail operations in regional Queensland. But it is broader than mining-related sectors.
There's also around a dozen community care organisations in Queensland seeking more than 1,200 training places. This is crucial to delivering the Government's reforms – NDIS, aged care, and improved child care access and quality.

We also understand the need to modernise our training system. That's why it was so important that the PM secured the agreement of the States and Territories to a new $1.75 billion reform package. This will guarantee that every Australian who wants one can get a training place – up to Certificate III, and will provide students with access to HELP-style income contingent loans, to help meet the costs of study.

In addition to the National Workforce Development Fund, we're also building on this reform momentum by investing another $100 million in new skills initiatives in this year's budget to improve training quality.

We've also made major investments in education from early childhood right through to university. Our decision to uncap university places from 1 January this year is a striking example of reform in this area. It means that almost 150,000 more students could get started on a degree this year compared to 2007, with 24,000 of those in Queensland.

We're providing over $5.2 billion to universities over the five years to 2015 to fund these uncapped places, with the largest increases expected to be in health, education and science. This means more doctors, nurses, teachers, professors, scientists and innovators – helping to build a stronger and sustainable future for this country. And Queensland is already receiving it's share – with $1.1 billion worth of Commonwealth Grant Scheme funding paid to Queensland Universities in 2012.

But despite the strength of our economy and the huge opportunities ahead, we know many feel like this is somebody else's boom. That's why, at the heart of this budget, is a plan to spread the benefits of the boom to families and small businesses across the country.

We were originally intending to provide this support through a reduction in the company tax rate, but we could not secure the necessary support in the Senate. In fact we have the bizarre situation where not only is the party of Menzies opposing a cut to the company tax rate, but they actually want to raise it to 31.5 per cent.

Of course, the Gillard Government will continue working with the business community to build consensus on business tax reform. But we were not prepared to stand by and let the Liberals in particular block our plan to spread the benefits of the mining boom more fairly. That's why we are now adopting an alternative approach – delivering $5 billion in support to help families and low income households make ends meet. And of course putting more money in the pockets of households will only help boost spending in our businesses.

Here in Queensland more than 335,000 families will receive an increase of up to $600 in their Family Tax Benefit Part A payments from 1 July next year.

And 295,000 Queenslanders will receive a new Supplementary Allowance of $210 for singles and $350 for couples, to help meet the cost of essential services.

And in June the parents of over half a million Queensland schoolkids will receive a new cash payment directly deposited into their accounts - $410 for each primary school child and $820 for each high school child.

We have every reason to be optimistic about the future. Our economy walks tall in the world and for the first time in our history we are in the right part of the world at the right time. With the right policy settings we can turn this mining boom into an opportunity boom.

I said at the outset that I was proud of this Budget, because it shows that we can return the Budget to surplus while making room for key investments that the country needs now and into the future.

It's another down payment on our future prosperity, but it also gives a nod to all the hard-working families that are trying to make ends meet in these times of change.

It doesn't stand in isolation; it's part of our long-term project to build on our economic strengths, position us for success in the Asian century and give more Australians the confidence to grasp opportunities.

This Budget, like the previous four, helps us deal with the near term challenges of a transforming economy in a changing world. And it sets our sights on a bright future for Australia, and for all Australians as the winners, not the victims, of change.

Thank you. I look forward to your questions.