HON. WAYNE SWAN MP
FEDERAL MEMBER FOR LILLEY
NATIONAL PRESS CLUB POST-BUDGET ADDRESS
"The Budget And The Fair Go In The Asian Century"
PARLIAMENT HOUSE, CANBERRA
WEDNESDAY, 9 MAY 2012
***CHECK AGAINST DELIVERY***
Thanks very much, Laurie [Wilson] for that introduction and thanks to everyone here for coming along. Of all the Budget week rituals I think I enjoy this one most. That's partly because it's one of the rare opportunities for my family to come along as well. They feel the ups and downs of the Budget process as much as anyone, so I appreciate them being here.
I also want to acknowledge my colleagues – especially Penny and the others on the ERC team – and all the officials and staff here as well. It was terrific that Julia and Penny and I had the chance to personally thank some people behind the scenes last night.
Today I'm grateful for this chance to go beyond the numbers and talk a bit about the context in which the Budget is shaped. I want to focus on the surplus, consolidation and the role of fiscal policy. And I have some reflections on the parts of the Budget I'm proudest of and that speak loudest of our values. Then, I want to finish on the transitions underway in our economy and the nature of the economic debate.
As I told my caucus colleagues on Monday, you don't get to choose the economic cards you're dealt but you do get to decide how you play them. The real measure of a government is not just what it does when it's dealt good cards but what it does when it's dealt some pretty ordinary ones.
This job is an absolute privilege but it's a fact that my five budgets have come amid some very rugged economic times. We've been through the worst global recession in 80 years, with an aftermath in some countries as long and turbulent as the Great Depression. You know by now that, despite all this, our actions helped ensure the domestic economy is now more than 7 per cent larger than before the GFC. By contrast, output in the UK, Europe and Japan is today still below where it was at the beginning of 2008 – with the UK and euro area back in recession.
If we look ahead, our economy is expected to grow a further 8.5 per cent by mid-2014, again more than the big developed economies. And now with our economy returning to trend growth, stepping back into surplus allows room for business to expand and gives the RBA the flexibility to cut rates if it sees fit. Returning to surplus is also our best defence, creating a fiscal buffer against future turbulence and is a clear sign of a strong economy.
As we began the road to this Budget, we got a stark reminder of just how important this is.
On the same day we delivered MYEFO last year, Fitch upgraded Australia's sovereign credit rating to AAA. For the first time in our history, we were rated AAA by all three global credit ratings agencies.
While our strengths were being recognised, Europe was struggling to contain a sovereign debt crisis. Following a bitter partisan debate about its debt cap, the United States, lost its AAA rating – unthinkable a few years earlier. As a result nine countries either lost their AAA rating or were put on negative watch. By the end of last year, Australia was one of only eight countries with both a AAA rating and a stable outlook from all three agencies. When we came to office four years earlier, Australia was not in this club – despite the fact it had twice as many members as it does today.
So with an economy head and shoulders above our peers and with governments being punished around the globe for lax fiscal policy, we recommitted to our task of returning the budget to surplus.
I've spoken previously about revenue write-downs that made it harder to get there, but I want you to consider a couple of facts:
As a share of GDP, tax revenue is at its lowest level for nearly twenty years. Put another way, Peter Costello saw revenues increased by almost 2 percentage points of GDP during his term while in my five Budgets revenues have fallen by more than 1½ percentage points of GDP.
If we had the same average tax-to-GDP ratio as the previous Government, revenue in 2012-13 would be $24 billion higher. This would give us a surplus of around $25 billion – the largest nominal surplus in Australia's history. That's why you should all have a good laugh when you hear my opponents talk about high taxes, when they're lower now than at any time under the previous Coalition government.
There have been a lot of factors contributing to this – from the lower company taxes paid by a booming mining sector as a share of their income to the lower capital gains tax receipts following the GFC. This has made returning to surplus and providing for key priorities more difficult and that's forced some difficult decisions.
The worst part of being Treasurer is watching the bottom fall out of revenue then having minister after minister traipse into the room and have the ERC shave their plans back or tell them no.
But the commitment we made at the depths of the crisis in 2009 to get back to surplus is one of the best policies we've put in place. It's a powerful signal of credibility to nervous markets. More than that, it puts a marker in the ground in cynical times, and says there is a proper, reliable basis to our economic policies.
To be honest, there have been plenty of late nights in the last few weeks thinking through every aspect of our economic settings. We determined that we would return to surplus only if we were satisfied we could do it without imposing too great a burden on households and businesses – on jobs and on confidence. A surplus for the right reasons, and not at any cost.
So yes, there's pain there but we have upheld our values in this Budget as in our previous four.
We continue to support growth and jobs, we are spreading the opportunities of our natural wealth, and we are looking after those less fortunate.
Our savings measures have been crafted to protect the frontline services Australians rely on in health and education. They have allowed us to put in place the policies that will help us profit from future opportunities.
Some of you here have focused on the size of the consolidation. This is obviously significant, but you can't equate that with the impact on the economy. While revenues haven't recovered as quickly as anticipated, improving economic growth will continue to make a significant contribution to the budget turnaround. Our saves have also been targeted with an eye to minimising the impact on our economy and on the community. The return to surplus supports confidence and provides scope to monetary policy.
Let's look at the significance of this rebalancing between fiscal and monetary policy in a bit of depth. And have a think about a crucial difference between Australia on the one hand, and most of the advanced world – including Europe, Japan, the UK and the US – on the other. In each of these economies, interest rates are at or close to zero. As economists put it, these economies are in a liquidity trap, where there's no more room to move on conventional monetary policy. So the fiscal tightening that these economies are undertaking cannot be offset by conventional monetary easing.
That's having a severe effect on those economies' activity.
But in Australia, monetary policy has room to move as fiscal policy is tightened. With economic activity in Australia returning to more normal levels, fiscal policy is focused squarely on medium-term challenges, leaving monetary policy to focus on near-term demand management of the economy, consistent with its inflation target. At the same time, by returning to surplus, we enhance our resilience.
I know there will be some who will disagree with our assessment of where the economy's at and where it's going. This is a time-honoured budget week ritual, and I'd be spoiling the fun to object too loudly. But it won't surprise you that I went back and had a quick read of the criticisms made around the 2009-10 Budget. A few of you here will remember them, you might even have made them yourselves!
Plenty of people objected to our assessment at the time – the Opposition, of course, but also people who know something about economics. But as history shows, our analysis was the right one, and that Budget helped growth recover and put us on the track back to surplus.
Delivering on our fiscal strategy through three difficult years has been a case of saying what we'll do and then doing it. It's been a vital element of the Government's fiscal credibility in exceptionally turbulent global economic waters.
I note that credibility has been resoundingly endorsed – with re-affirmed AAA ratings from all three ratings agencies since the Budget last night. As other countries have been downgraded, or put on bailout programs, or forced to take emergency fiscal measures (or all three), Australia has risen above the fray as a strong, fiscally credible economy.
There are those who say that doesn't matter. There are those who say the surplus in this year's Budget isn't important, or that it's more a political goal than an economic one. Let me be extremely clear about what they're really saying. They are saying that we should walk away from the fiscal strategy we outlined in February 2009. They're entitled to say that, but let's not pretend that they're calling for anything other than breaching that fiscal strategy, which has been praised by the IMF, the OECD, and the ratings agencies. Indeed, the IMF only on Monday applauded our commitment to return to surplus this coming year and others have come out since.
Now I say it would be foolish and dangerous to walk away from that strategy when global financial markets have a watching brief on any government that fails to achieve its fiscal targets. With debt out of control in much of the developed world, it's important to remember our debt is peaking at just one tenth of the major advanced economies. We're talking around 9 per cent of GDP here and falling, not 9-0, where major advanced economies are heading.
The next point I want to make is that this Budget is the final nail in the coffin for any notion that you must choose between fiscal discipline, big social reforms, and investments in productivity.
I'd like to think we've broken forever the misguided notion that to do good Labor things you have to open the fiscal floodgates – you don't.
We proved in the Budget 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. Some Budgets have just one or two parts of this equation and I'm proud that this Budget has the trifecta.
Yes, this is a surplus Budget and yes it made room for us to address cost of living and business pressures but above all it is a fair go Budget. As I said last night, it is good for families, for students, and for the needy because it will help them to make ends meet and get ahead. None more significant than laying the foundations for the NDIS, which will fundamentally change the way disability support is delivered and so also change lives. But also aged care and dental care for people who can't currently afford it.
This Budget will help struggling businesses – supporting businesses that risk being left behind by the mining boom. And investments in our future economy, so we can grasp the opportunities of the Asian Century.
When I touched earlier on the cards we'd been dealt as a Government, I mentioned the GFC but not the other set of challenges associated with a patchwork economy in transition. At the same time as managing the GFC, we've been focused on the most profound shift in global activity since the US replaced the UK as the world's biggest engine of growth more than 100 years ago.
I believe the success of modern Australia has always hinged on its ability to change and adapt. Perhaps you've heard me express my admiration for the two Treasurers that delivered more Labor budgets than me: Ben Chifley who rebuilt Australia's post-war economy and Paul Keating who put in place some of the most fundamental, long-term economic reforms that have underpinned 21 years of uninterrupted growth. That admiration comes from the way they steered the Australian economy through difficult but essential transformations. Fast forward to now and the challenge for all five of my budgets to date has been to manage new transformations, and to make Australians big winners from the Asian Century.
This Government understands the huge structural changes underway as the weight of global economic growth moves from west to east. As ERC was just getting down to its detailed deliberations, we got a clear reminder of the impact on our own economy with the first indication for capital investment for 2013-14.
Currently, according to the Bureau of Resources and Energy Economics, the size of the resources pipeline is $456 billion. More than half of these projects are either already under construction or committed to construction. This is bringing about fundamental transformation in our economy, with mining and related industries set to grow around 9 per cent on average in the next two years.
But this will be much more than a mining boom.
I have previously spoken about the Asian Century and its opportunities across our economy – opportunities for service providers, for manufacturers, and for farmers and food makers. We prepare for these great opportunities from a position of strength.
Our economy is among the strongest in the world. We have a highly skilled workforce, with productivity levels in the top dozen nations worldwide. And we have a huge resource endowment.
We are building on these strengths with this and the four Budgets before it.
What we've seen up until now – and will continue to see – are some contradictory forces re-shaping our economy, with boom times for some and pressure from the strong dollar hurting others. These tensions in our economy – those patchwork pressures – mean that our policies have to work a lot harder.
Rebalancing fiscal and monetary policy is central to this. The surplus gives the Reserve Bank room to reduce rates if appropriate – helping to take pressure off those sectors feeling the full brunt of the strong dollar and typically the most sensitive to interest rate movements.
There's a lot of talk about establishing a sovereign wealth fund to capitalise on a terms-of-trade boom, but what's not well understood is that what really matters is whether national savings rise.
As Budget Statement 4 outlines, the return to surplus is helping to build national savings.
In total, the Government's fiscal consolidation is expected to improve total government saving by around 3 per cent of GDP over the next three years. Combined with the boost to national savings from the increase in the superannuation guarantee, this will help safeguard against global uncertainties and will increase our economic resilience.
But there is a broader role for policy, both to manage the transition and take hold of the opportunities of the Asian Century. Returning to surplus is not enough, without making investments in our economic future, in skills, education and infrastructure. And just like our previous four Budgets, this one delivers in these important areas.
Now, I want to make some comments about the nature of our political debate and what it means for the policies in this Budget. I've deliberately not mentioned politics in this speech, because this budget is about something much more important.
A lot of you have written that this was an attempt to change the political game. It's true to say this is a game-changing Budget but in a different way.
I'd like to think what we did last night helped change the national conversation so that it resolves around one simple question: Do we want more Australians to have a stake in our economic success or less?
We want more people with a stake; our opponents want the benefits of this extraordinary time in our history to flow to the Clive Palmers of this country. Some will call that a Robin Hood budget, but I just call it a fair go budget. A fair go because it recognises those millions of Australians on low and middle-incomes who feel like this is somebody else's boom.
And let me make this last point. This Budget will be scrutinised line by line over the coming weeks. Our measures will be contested in the media and in the Parliament. Some will question whether it is right to return to surplus. Others will say our surpluses should be bigger. I welcome that contest of ideas - it is how it should be.
But I'm also going to make a wild wager with you. I suspect – call it an inkling – that the Opposition won't support all our savings measures. We've already got the really whacko situation where the Liberal Party of Menzies has blocked a business tax cut, and is now actually opposing the Schoolkids Bonus which gives real cost of living relief to families.
Normally, that would be politics as usual and no-one would much care. But after five Budgets and four MYEFOs and literally months of my life going over the figures, I have delivered savings – very big savings – in every single one of those Budgets and those MYEFOs, so I think I can say this: The Opposition has a $70 billion hole in their numbers. That's their own announcement on breakfast television, not a number I dreamed up. And they haven't got the faintest clue how to fill it.
To me, it looks like they're about to reject these savings. Well, beggars can't be choosers. They will seek to pull the same stunt they pulled at the last election of rebuffing all public scrutiny and trying to skate through without saying how that $70 billion hole will be filled. So be as tough as you like on my Budget, but I'd ask you to offer the same scrutiny for the alternative.
But we are a Labor government that does the right thing by Australia, that puts Australia first. And that's what this Budget does. Because at the end of the day, I want to help make us a fairer and more prosperous nation. And I think on just about any measure, as a nation, we can be proud of what we've achieved.
Our nation walks tall in the global economy, with solid growth, low unemployment, contained inflation, sound public finances and a huge investment pipeline. And this Budget further demonstrates the great gap that has opened up between the performance of the Australian economy over the last four years, and the performance of most other advanced economies.
This is easily lost in the cut and thrust of day to day debate, because it is all too easy to focus on the difficulties, rather than the opportunities we face. Just as it is all too easy to dismiss the huge achievements we have made in the face of the most difficult global conditions in living memory. There are those that would rather hijack the debate and talk our economy down for their own self-interest. But when they do, they talk down the achievements of every Australian.
As a nation we are at our best when the voices of the optimists drown out the pessimists. We are on the cusp of something great. Australia doesn't need to be just a passenger in the Asian Century. With the right decisions, we can make this the Australian Century as well.
But to do this we must invest in our future – through skills and infrastructure. We must invest in our economy – through returning the budget to surplus and tackling the big reforms. And we must invest to bring along those less fortunate – through better aged care, better hospitals and an NDIS.
At the same time ensuring ordinary working people and pensioners get a fair go from this mining boom.
That's what this Budget and the ones that come before it set in place, and it's why I commend it to you. Thank you.
