Federal Opposition Leader Tony Abbott has delivered a speech on the economy to The Sydney Institute.
Whilst containing no new policy initiatives, the speech attempts to broaden Abbott’s campaign against the government into the prevailing discussion about China and the economic crisis in Europe.
Abbott reiterated his proposals for budget cuts, improved economic growth, productivity reform and workforce participation.
AUDIO of the speech will be posted here once it becomes available.
Official transcript of Tony Abbott’s speech to The Sydney Institute.
Almost 50 years ago, an influential book described Australia as the “lucky country”.
Author Donald Horne meant that we’d relied on our luck rather than on our insights or on our hard work to get where we are but the irony was largely missed.
As if to prove his point, the tag passed into popular use and ever since has helped to reinforce the complacent expectation that something would always turn up to keep us safe and prosperous.
There is a complacent assumption from people who should know better that Australia is largely immune to the economic turmoil threatening Europe because China’s growth guarantees our future prosperity.
There’s no doubt that the China boom has sustained Australia’s economic success over the past decade.
There should equally be no doubt that the boom will one day end. Otherwise, it would be the first never-ending boom in human history.
Even if China’s expansion does have several decades left to run; even if it does prove largely impervious to economic downturns elsewhere in the world; even if it does change from being investment to consumption driven without reducing the need for Australia’s iron ore and coal; and even if it is then replaced by an equally-benign-to-Australia India boom, it’s important to make the most of our luck rather than to take it for granted.
The next 100 years may well turn out to be the “Pacific century” but it will only do so if its peoples work harder and have more entrepreneurial flair than their rivals.
Even in a Pacific century, there will be no free ride for non-paying passengers.
The lesson of the Eurozone crisis is that a terrible judgment is eventually pronounced against countries and peoples that live beyond their means.
The turmoil in Europe is largely a function of governments consistently living beyond their means in the expectation that someone else will pick up the bill.
The iron law of economics and the constant lesson of history is that grief eventually comes to governments, no less than it does to companies or to families that spend more than they raise or borrow more than they can readily repay.
Australia now faces a crisis mini-budget because the government has ignored these disciplines.
The current government has been blind to the failures of Europe and the successes of the Howard government.
A crisis mini-budget is now necessary (regardless of how the government tries to spin it away) because Labor has turned an inherited surplus into the four largest deficits in our history and we’re now staring down the barrel of the fifth substantial deficit in a row.
The situation in the various economies of Europe vindicates the Coalition’s consistent critique of the Rudd/Gillard government’s polices. It demonstrates that the difference between economic strength and weakness is the rigour with which government spending has been managed in the short term and the vigour with which economic reform has been pursued in the long term.
In Greece, which is being massively bailed out and is in political crisis and economic gridlock, the budget deficit is 8 per cent of GDP, net interest payments (even at subsidised rates) are 10 per cent of government outlays and net government debt is about 140 per cent of GDP.
Growth this year is tipped to be negative 5 per cent and unemployment sixteen per cent and rising steeply.
In Italy, where the former Prime Minister has just resigned over the sovereign debt crisis, the budget deficit is 4 per cent of GDP, net interest payments are over eight per cent of government outlays and net government debt is 100 per cent of GDP.
This year, growth is expected to be just a half a per cent and unemployment over 8 per cent and going up.
In Britain, despite the biggest spending cuts in 50 years, the budget deficit is still over eight per cent of GDP, net interest payments are 5 per cent of government outlays and net government debt is 73 per cent of GDP.
Growth is forecast to be just over one per cent and unemployment 8 per cent plus and rising.
Even in the United States, which has accepted the need to get debt and deficits under control but has yet to produce a clear plan to do so, the budget deficit is over nine per cent of GDP, net interest payments are over four per cent of government outlays and net government debt is 73 per cent of GDP.
Growth is forecast to be one and a half per cent and unemployment about 9 per cent.
By comparison, Australia’s collective budget deficits are just under four per cent of GDP, Commonwealth net interest payments under 2 per cent of government outlays and net government debt, Commonwealth and state, about 8 per cent of GDP.
Our growth is expected to be one and three quarters per cent and our unemployment rate about five and a quarter per cent.
Our immediate economic prospects may be relatively good but that’s not grounds for complacency or self-congratulation especially as international sentiment about Australia is weakening.
A World Bank report released last month showed that Australia’s “ease of doing business” ranking had fallen from 8th to 15th since 2007.
The World Economic Forum’s Global Competitiveness Index released in September, had Australia’s overall ranking fall from 16th to 20th in the past year.
Our macro-economic environment slipped from 17th to 26th, our burden of government regulation from 60th to 75th, and our budget balance from 67th to 86th– just one place behind Italy, in fact.
As the Forum pointed out in this year’s report, more debt means higher taxes and higher taxes mean less business activity.
If Australia’s terms of trade had been at their average over the 1980s and 90s, rather than at an all time high, last year’s Commonwealth budget deficit would (all other things being equal) have been more like $120 billion (or over 8 per cent of GDP) instead of the $48 billion actually posted (based on the sensitivity analysis in the budget papers).
A decade of such performances would put us in much the same position as some of the southern European countries.
Of course, we don’t have a large black economy, as bloated a public sector or a tendency to retire at 50.Still, the dangers are clear.
In the 1990s, the economic performance of Australia and Britain was quite similar.
Both went through severe recessions early in the decade.
In the second half of the nineties, growth averaged about three and a half per cent in Australia and 3 per cent in the UK; unemployment averaged about 8 per cent in Australia and 7 per cent in the UK; and the government deficit averaged about 1 per cent of GDP in Australia compared with just over 2 per cent in the UK. Net government debt in 1995 was almost identical at 25 and 26 per cent of GDP respectively.
Two factors have contributed to the divergence since then.
One was the China boom.
The other was the prudent economic management of the Howard/Costello government.
The Australian budget was in strong surplus averaging almost 1 per cent of GDP between 1996 and 2007.
Over much the same period, the Blair/Brown government allowed the UK budget deficit to average about 3 per cent of GDP with debt steadily growing despite the good years of the last decade.
To give credit where it’s due, the Hawke/Keating Labor government deregulated financial markets, reduced tariffs, and began the process of privatisation and even workplace relations reform.
Building on this, not only did the Howard/Costello government transform the Commonwealth’s fiscal position, it enshrined Reserve Bank independence, strengthened bank regulation, extended workplace reforms (albeit taking these too far in the end) and began serious welfare reform.
The Rudd/Gillard government, by contrast, has turned a consistent $20 billion surplus into the four largest deficits in our history and a $70 billion net asset position into $107 billion of net Commonwealth debt.
It’s rolled back not just the final round of the Howard government’s workplace changes but some of the Keating government’s changes too.
As a result, days lost through strikes, though still very low by earlier standards, are over three times greater now than in the last year of the Howard government.
Australia’s current economic position owes far more to the reforms of previous governments than to the spending spree of the current one.
Since 2007, the US budgetary position has deteriorated by about 7 per cent of GDP, the UK budgetary position by just under 6 per cent of GDP and the Australian position by over 5 per cent of GDP (despite the absence of an Australian banking crisis and despite the China-boom-derived maintenance of employment).
In other words, Australia’s recent fiscal performance has been scarcely better than that of others facing much worse circumstances.
Our current strength, such as it is, is due to what we took into the Global Financial Crisis rather than the way we’ve managed it.
Although headline economic growth has remained solid, GDP per person has increased by just one half of one per cent since late 2007 compared to annual growth of two and a quarter per cent between 1996 and the end of the Howard government.
This is why so many people are convinced that Australia is a rich country at serious risk of becoming poorer.
As much as any other government, ours has made the fundamental mistake of thinking that a crisis largely caused by too much spending and too much borrowing could be addressed by yet more spending and yet more borrowing – with a preference for yet more taxing should the deficit need to be reined in.
To every problem, the current government’s response has been a new tax, a new regulation or a new bureaucracy.
It’s making our industries less competitive with a unilateral carbon tax that’s all economic pain for no environmental gain.
It’s damaging the mining industry with a success tax on our biggest exports that doesn’t give smaller miners a fair go.
And it’s spending $50 billion plus connecting fibre to almost every home whether they need it, want it or can afford to pay more for it while our roads are clogged, our railways antiquated and ships wait expensively at sea because our ports can’t cope.
The government has made our economy less productive by closing down the live cattle trade in a panicked over-reaction to a TV programme.
It’s progressively closing down much of the Tasmanian forestry industry as part of its alliance with the Greens.
It’s spending $2 billion to close down the brown coal power stations that have been the source of Victoria’s cheap-power comparative advantage in manufacturing, and it’s spending $11 billion to buy and close Telstra’s copper network.
In other words, it’s spending billions in borrowed money to put people out of work, not into it.
Next year’s OECD growth forecast for the Eurozone has already been cut from 2 per cent to just 0.3 per cent and there could easily be worse to come.
In the short term, even a managed break-up of the Euro would probably cause a significant recession in Europe.
A disorderly break-up could be more confidence-crushing than the collapse of Lehman Brothers which sparked the Global Financial Crisis.
The French and the German attachment to the Euro is deep but it’s hard to have one monetary policy for seventeen different fiscal policies or to see the southern Europeans long allowing their domestic policies to be dictated from Berlin.
Yet the more threatening the world economic situation becomes, the more the Australian government insists that it’s the best possible time to clobber our economy with a carbon tax and a mining tax.
After insisting for months that it was on track to deliver the promised budget surplus next year, the government is finally talking about new spending cuts but is apparently proposing to announce them in December, after parliament has risen, with the Mid-Year Economic and Fiscal Outlook statement.
The government’s complacency about debt and deficit, at a time when household savings are at a generational high, largely explains the collapse in its standing as an economic manager.
Government ministers seem to be on a different planet from struggling small businesses and families doing it tough.
A recent survey of company directors showed that a massive 83 per cent believed that the government didn’t understand business.
An astonishing 49 per cent nominated the government itself as one of the three key obstacles to business in Australia.
Only the government’s most hardened apologists claim that it’s competent and credible.
The computers in schools programme turned out to cost more than twice the forecast (and to take two years longer to deliver).
The original mining tax was ultimately going to raise twice the initially forecast revenue.
No one now believes that the National Broadband Network can be built for the $36 billion that the government still insists upon even though the initial construction tender collapsed.
The government’s forecasts for the carbon tax assume, in Treasury’s words, “comparable carbon pricing in other major economies from 2015-16”.
President Obama’s statement last week that the United States would not be introducing a carbon tax or an emissions trading scheme, on top of Canada’s equivalent declaration at the Commonwealth Heads of Government Meeting in Perth, showed that the government’s key assumption is unrealistic and self-serving.
The Centre for International Economics, making the much more realistic assumption of a “patchy” international carbon market, has forecast a 2020 carbon price (in current dollars) of $43 a tonne (not $29), a cumulative carbon tax-induced loss of output of $180 billion (not $32 billion), households over $11,000 worse off over the period (not $5000) and power prices up 30 per cent by 2020 (far higher than the 10 per cent the government asserts for the initial impact of the tax).
The government presented its carbon tax modelling report with the title “Strong growth, Low Pollution”.
Under the carbon tax, according to the government’s own modelling, gross national income per person will rise 1.5 per cent a year over the coming decade but this is actually one-third lower than the 2.4 per cent average annual growth rate achieved between 1990 and 2010 without a carbon tax.
Curiously, and again this is according to the government’s own modelling, Australia’s domestic emissions will actually rise over the decade to 2020 under the carbon tax at an average rate of three quarters of a per cent a year.
This is actually three times faster than the average quarter per cent a year growth in domestic emissions recorded over the preceding two decades without a carbon tax!
Incidentally, the carbon tax assumptions provide an astonishing counterpoint to the government’s rationale for another of its mega-schemes, the NBN.
With the carbon tax, the government assumes that technology will change rapidly with fundamental breakthroughs within the next 10 to 15 years.
With telecommunications, the government assumes that no technology will emerge to challenge fibre as a delivery mechanism.
The government insists that a carbon tax is needed to create a competitive market, to unleash what Prof. Garnaut terms the “genius of the market” no less. With the NBN, though, it not only insists on picking the single technology for the next generation but directs that competition with this new network be shut down.
If the government’s carbon tax assumptions are not worth the paper they’re written on, neither is the forecasting and neither is the compensation package based on the forecasting.
The forecasting must be done again based on more realistic expectations and the compensation package must be recast, based on the new figures, if struggling families are not to be ripped off.
Without more tax cuts and pension increases, there is no adequate compensation for the carbon tax.
Without more spending cuts, only a miracle could deliver the promised budget surplus next year.
An urgent mini-budget must be presented to the parliament if the government is to have any economic credibility.
Earlier this month, Deloitte Access Economics said that next year’s budget position had slipped from a $3.5 billion surplus to a $1.9 billion deficit, a net turnaround of $5.4 billion. Last week, the consultancy Macroeconomics said that slower growth and sluggish receipts would put the budget in deficit to the tune of $6 billion next year – not the promised $3.5 billion surplus – without policy change.
The government now needs a mini-budget containing at least $6 billion in savings if it is to rescue the surplus it’s guaranteed and it should recall parliament to allow its new policy to be scrutinised.
Make no mistake: there is a better way. Government’s economic task is twofold: to live within its means; and to make the changes needed to build a more productive economy with higher economic growth.
Getting these economic fundamentals right is the best way to ensure that Australia develops as a sophisticated and diverse economy.
It’s much more likely than a mining tax to foster a five pillar economy, with strong manufacturing and agricultural sectors as well as a resources one; a strong services economy including banking, retail and tourism; and a strong knowledge economy including education, skills, research and IT.
This is essential if Australia’s standard of living is to remain high with secure, well-paid jobs.
The Coalition believes that the first challenge for government is to live within its means – as families and other households do.
Lower spending means lower taxes.
Less borrowing means lower interest rates.
Lower taxes and lower interest rates mean less pressure on families’ cost of living.
We will end Labor’s toxic taxes.
We will end Labor’s waste and start to repay Labor’s debt.
Above all, we will restore hope, reward and opportunity by getting our country back on track.
If the government is looking for mini-budget savings the obvious place to start is the programmes that have become bywords for waste: discontinuing the computers in schools programme which parents are now having to pay for anyway could save over half a billion dollars.
Not proceeding with the extra bureaucracies associated with the largely business-as-usual hospital reforms that no one will notice could save well over half a billion dollars.
Not proceeding with the so-called GP super clinics which are delivering new buildings, not more doctors, could save about $200 million.
Big savings could be made in the government’s $350-a-throw set-top box programme since Gerry Harvey can supply and install them for just half the price.
Vastly reducing the number of consultancies (which have cost over $2 billion over the past four years) would produce significant savings.
Reducing government travel (such as most of the 49 public servants set to go to the Durban climate change conference) would show taxpayers that their government no longer thinks that money grows on trees.
After all, a government which can’t be trusted on small spending decisions can’t be trusted with big ones.
The current government, for instance, recently sold the parliament house billiard tables for $5000 and then spent $102,500 – I am not making this up – to establish whether this was good value for money.
The quicker the government returns to surplus, the quicker it can start repaying debt and reducing interest repayments.
Just this year, these will be over $5.5 billion.
To put it another way, just this year the Gillard government will spend more on debt repayments than its combined annual spending on: the ABC, SBS and other broadcasting ($1.645b), cultural heritage such as the Australia Council ($1.051b), Aboriginal health programs ($768m), legal services ($841m) and science and research capacity ($549m).
The Coalition will deliver personal income tax cuts and a fair deal for pensioners without a carbon tax.
We will deliver company tax cuts without a mining tax.
This will require significant cuts to government spending.
This won’t be easy but it is achievable and it will be spelt out, in detail, in good time before the election.
Since becoming opposition leader, I’ve said “no” to a carbon tax because I say “yes” to affordable power.
I’ve said “no” to a mining tax because I say “yes” to investment and jobs in our strongest industry.
I’ve said “no” to mandatory pre-commitment for poker machines because I say “yes” to more effective counselling and “yes” to a less intrusive nanny state.
The Coalition hasn’t just talked about lower spending.
We’ve demonstrated, through the savings we took to the last election, a determination to take the hard decisions to deliver it.
At the coming election, we will trim the Commonwealth public service by at least 12,000 via natural attrition to save at least $4 billion over the forward estimates period.
Not proceeding with the carbon tax, alone, will deliver $31 billion in savings over the period, with a net improvement of $4 billion in the budget bottom line.
As the Coalition has maintained almost since the GFC hit, a swift return to surplus matters because lower spending means less borrowing and less upward pressure on interest rates.
Cutting spending is the precondition for tax cuts that don’t just churn money from one pocket to the other. Deloitte Access Economics has estimated recently that a $13 billion reduction in Commonwealth spending would allow interest rates to be a percentage point lower than otherwise would be needed to contain inflation against the backdrop of the mining boom.
Building a stronger economy, though, requires more than getting the budget into order.
The second challenge is to implement polices that will boost economic growth.
The Coalition has a six point plan to boost productivity: genuine welfare reform to lift participation in work; public sector reform to deliver better, more cost-effective services; red tape reform to cut business regulatory costs by at least $1 billion a year; competition reform to ensure that large and small businesses are competing on a genuinely level playing field; infrastructure reform to ensure best value from Commonwealth spending; and, finally, labour market reform to encourage higher pay for better work.
The Coalition has a four point plan for participation reform: mandatory work for the dole for unemployed people under 50; the extension of welfare quarantining for long term unemployed people from the Northern Territory to the rest of Australia; disability pension reforms to prevent the “parking” of people on welfare whose problems might not be permanent or fully incapacitating; and cutting off the dole for fit young people in areas where unskilled work is readily available.
Getting more people into the workforce and especially more people more productively into the workforce will mean a larger economy, a bigger tax base and more ability for the government to fund better services without punishing tax increases or spending cuts elsewhere.
The government’s own budget papers, for instance, suggest that a 1 per cent increase in growth through higher productivity and participation would produce an ongoing improvement in the budget bottom line of about $4.4 billion a year that would then be available to fund tax cuts or better services.
The Coalition already has many of the policies it needs for the next election because it retains the ones it took to the last election.
Some will require adjustment to take account of what the government’s done subsequently or tougher fiscal circumstances.
Mostly, though, the policies we take to the next election will be refined and developed versions of the policies we took to the last one.
Sensible political parties, even in opposition, don’t reinvent themselves from one election to the next but find ways of giving contemporary expression to values that don’t change.
We won’t keep Labor’s National Broadband Network because there’s no need for a government monopoly on services that a competitive market can provide.
There will be a fair dinkum paid parental leave scheme because women need real options to combine family and a career if workforce participation is to be maximised.
More trees (often planted by the Coalition’s new Green Army), better soils and smarter technology remain the best way to reduce emissions, not a great big new tax on jobs and families’ cost of living.
The next Liberal National government will be different from the last but we’ve well and truly assimilated the lessons of the Howard government in which no fewer than 16 members of the shadow cabinet served as ministers.
Unlike our opponents, we understand in the marrow of our bones that you can’t have a society without an economy to sustain it and you can’t have an economy without businesses that can make a profit.
That’s why our plan is for a stronger economy for a stronger Australia.
Australians’ natural confidence is subdued, notwithstanding our habitual optimism, environmental endowments and comparatively good economic prospects.
People know that we can be better than this.
They know that we have to make our luck, not just count on it.
A stronger economy, better services, more opportunities for work, and more secure borders are all achievable, once a great country has the better government it deserves.
