Joe Hockey’s National Press Club Budget Address

Shadow Treasurer Joe Hockey addressed the National Press Club today on last week’s Federal Budget.

Transcript of Joe Hockey’s post-Budget Address to the National Press Club.

Joe HockeyIn a part of my north shore electorate our Prime Minister describes as “privileged,” I have watched the fate of a small convenience store unfold over the last thirty five years. Whilst the shop has changed ownership it has only ever been a small family business usually operated by recent migrants to Australia.

Some months ago I dropped by late at night to buy some milk and I had a chat to the owner, lets call him “Sam” for the sake of anonymity.

During our conversation his young son was by his side doing his school homework on the shop counter.

Sam lamented to me how business had collapsed since the milk price had dropped to just one dollar a litre. Passing trade had fallen and his understocked shelves reflected the drop in sales. I admitted that there was little I could do to prevent a price discounting war between supermarkets. I did not want to create false hope.

At about this same time Sam was being hit with much higher electricity bills.

In order to save some outgoings he turned off his fridges at night and placed blankets over his freezer. His electricity bill dropped from around $600 a month to $300.

Since then Sam‘s electricity bill has been creeping back up to more than $500. He is very anxious about what the bill will look like after July. There is little more that he can do to reduce his electricity bill.

In the meantime, his customers have not come back and they can still buy milk down the road for just $1 a litre.

Of course there are billions of dollars of carbon tax compensation for some power stations and companies like Blue Scope Steel. There is no compensation for Sam or over two million similar small businesses.

The limited income tax and pension compensation for many Australians will not be enough to blunt the direct and indirect impact of the carbon tax.

I doubt that Sam’s family income is large, they live at the back of the shop, not in a waterfront residence such as Kirribilli House.

They may qualify for some form of compensation but nothing will compensate their small business for the day to day dislocation and rising costs. Nothing will compensate their business for the carbon tax.

Julia Gillard calls these people “privileged”. Yeah right.

As Shadow Treasurer and as a local member I constantly ask myself how I can help that shop owner, his family and families like him all over Australia.

Sam’s family is not privileged.

He and his wife work 12-15 hours a day. He would know that prosperity does not come from more government handouts funded with borrowed money. Of course they could do with the money in the budget but this handout mentality is not something he would instinctively welcome.

Prosperity is not built through compensation for a new tax or more welfare handouts.

And I have never heard of a government that has successfully taxed its way towards higher economic growth.

Prosperity only comes through growing the economic pie rather than simply reallocating the pieces.

In a volatile global economy we must work to create an environment where there is an incentive for risk and innovation. We need to provide stability and predictability.

We need to give Sam, his family and his customer’s confidence.

It is against this background that I want to offer some analysis of the 2012 Budget and provide some further insight into our economic plans.

The Federal Budget is more than a set of statistics.

It is more than a forest of forecasts.

It is a statement about much more than the fiscal and the financial.

It is a window into:

  • A Government’s honesty and honour;
  • A Government’s competence and capacity; and
  • A Government’s substance and sustainability.

This Budget fails on each of these counts.

Moreover not even the Government believes it is a credible and enduring document. The four year Budget died just seven days after its delivery as the Minister for Finance flagged new tax increases for the NDIS and the Treasurer flagged new tax decreases for companies.

The Budget makes new promises and it breaks old promises. It is all about taking money from one person and giving it to another rather than working to grow the economy for everyone.

The promise of a surplus is welcome. After spending four years justifying the largest dollar deficits in Australian history, and after years of deriding any link between fiscal and monetary policy, the Treasurer has now come to his senses and realised that it is good to live within our means during the best terms of trade in over one hundred years.

As I have said consistently, a better mix of policy would be to have monetary policy carrying more of the burden for demand management and for fiscal policy to be more focused on the supply side of the economy. Grudgingly the government now agrees.

Given that we will not know if a surplus promised is a surplus delivered until September 2013, the history of broken promises and the lack of genuine commitment to fiscal consolidation make me doubt the Treasurer’s new promise of a surplus.

I suspect the Treasurer is simply seeking political credit for making a promise he has not yet delivered.

My scepticism about genuine fiscal consolidation is proven by the Treasurer’s extraordinary shuffling of money.

As you can see from this table, from his own Budget papers, the Treasurer is projecting an extraordinary drop in spending in just one year, which happens to be the year he promises a surplus.

A large chunk of this spending pause is achieved by artificially bringing forward spending into the current financial year which finishes on June 30. Of course the taxpayer money will still be spent…it is just an accounting trick to cook the books.

We already know that the Government is taking a novel approach to compensation for injury by paying $1.5 billion to people this year before the carbon tax actually starts on 1 July. Although if you believe their ads it has nothing to do with the carbon tax….they just want to give you money.

We also know that the Coal Sector Jobs Package seems to save jobs this year, give up on jobs next year but then it has a change of heart and starts saving jobs the year after and in subsequent years.

It seems as though nation building also takes a holiday in 2013 as the Government brings forward $1.3 billion of spending a few months so it does not appear in next year’s accounts.

And of course there seems to be just one year, the first surplus year, when we don’t have to spend money on clean energy, but every other year we need to spend over $1 billion.

But wait there is more. By paying Local Councils $1.1 billion in grants just a few weeks earlier, the Government is able to further artificially reduce expenditure next financial year.

Other money shuffles such as the panicked changes to the Schoolkids cash splash have increased expenditure this year and artificially reduced expenditure next year.

Additionally the Government is relying on a surge in revenue in its surplus year. They expect to collect an extra $39 billion in revenue in the next twelve months and this magic carpet will take them from a $44 billion deficit to a $1.5 billion surplus.

As you can see revenue next year is also artificially inflated with special one off dividends such as those from EFIC and the Reinsurance Pool Corporation.

My doubts about next years promised surplus reflect the same scepticism I have held each year under Labor.

For example in the current year the deficit has blown out to $44 billion. A doubling of the deficit from what was promised just twelve months ago.

And despite the Treasurer moaning about losing revenue he was never going to get, almost half of this blow-out was due to his own increased expenditure.

In addition to these fiddles the Government is pushing expenditure out into future years. It is a burden we will have to deal with.

The “delay” in the Joint Strike Fighter program along with other adjustments to the Defence capital equipment program delivers savings over the four years of $5.5 billion. But it still must eventually be paid.

Then there is the pipeline of big new spending commitments but with only nominal funding provided.

My friends in the conservative government in the United Kingdom warned me that the outgoing Labour Prime Minister Gordon Brown made big announcements with insufficient funding in the dying days of government.

Julia Gillard has done the same, allocating only minimal funding to expensive new programs like the NDIS and the submarine program. The Prime Minister has not even touched the sides of the funding needs for these important programs.

When it comes to spending cuts the Government is still running a line that spending is down even though as a percentage of GDP, which is their preferred measure, they never reach as low as the last two years of the Coalition Government.

In the end the Government is still spending around $100 billion a year more than in the last Howard/Costello budget. And the public service is still almost 20,000 employees larger despite some modest job cuts this year.

The legacy of all this is higher debt.

The Government’s net debt projection for the current financial year blew out from $107 billion to $142 billion, a deterioration of one third in the last twelve months.

If the Treasurer is true to his word that the Government is now living within its means, then net debt would be coming down…but it isn’t.

Net debt continues to rise next year and the year after to a new peak of $145 billion, the highest on record. This continues the record of Labor governments which have increased net debt every year since 1990.

And the cost of servicing that debt also continues to rise. Net debt interest will rise to $8.2 billion a year. That would fully fund the NDIS or would be enough to build eight new teaching hospitals a year. It is $22m a day in interest alone.

The Labor Government has now sought increases in the debt limit of the Commonwealth from $75 billion, to $200 billion, to $250 billion and now $300 billion. On each occasion they promise not to exceed the total debt limit.

Well, enough is enough. The Coalition is going to keep them to their promises.

We do not accept the current proposed justification for an increase in the Commonwealth debt limit to $300 billion. In Parliament we will move an amendment to the Appropriations bills before the House to excise this measure and seek to have a separate debate about the $50 billion increase in the debt ceiling.

One of the reasons why Government debt keeps rising while the Budget is supposedly in surplus is that spending on the NBN and Clean Energy Finance Corporations are “off budget” and are financed through increased Government borrowings.

The Treasurer says this is normal accounting but the $50 billion NBN and the $10 billion CEFC are not “normal”. Their size and asset quality are not on a par with a Qantas floated for $2 billion, Commonwealth Bank floated for $8 billion, or Medibank Private valued at around $4 billion.

Nor is their asset quality the same. For example the CEFC is offering taxpayer funded credit for green projects where the banks will not….and on this basis it does not seem a good business proposition.

And the business case for the NBN is so poor that the government refuses to have a cost/benefit analysis.

If both entities are treated on budget then the $1.5 billion surplus forecast for next year would be a $4.3 billion deficit. Add in the $8 billion of money shuffles and the deficit would be $12 billion.

This Budget does not generate business or consumer confidence.

Numerous decisions in the Budget send confused messages to the community.

For example, in the same year that the Government has imposed a $1.8 billion Flood Levy that had a negative impact on consumer confidence, it is now handing back more than that in the Schoolkids cash splash and the advance payments for carbon tax compensation. In numerous cases people are paying the Flood Levy and then getting it back in handouts.

The Coalition opposed the Flood Levy because the new tax was unnecessary, and for the money raised it would have a negative impact on confidence.

We have opposed the Schoolkids cash splash because there is no defined purpose for the additional spending, and there is no requirement for the money to be spent on education.

After talking up a tough Budget the Treasurer is now handing out money “no strings attached’. This is a confused Budget strategy that undermines consumer confidence.

In the end we all know that the handouts are a sugar hit to make up for the carbon tax.

We know that the changes to FTB A and the supplementary payments are also additional compensation for the carbon tax.

However the Government has played the spin game by trying to tie these increases to the Mining Tax and its class war on some Australians.

The Mining Tax itself is a great example of the Government’s confused economic strategy.

Remember the proceeds of the Mining Tax were originally intended to go towards Company Tax cuts to rebalance a “patchwork economy”. Instead, five versions later, it is being used for Family payments. It is now all about creating a political wedge and shoring up the Prime Minister’s vote…inside and outside caucus.

Australians are wise to this Government’s play book.

From a structural perspective the Budget has left behind some significant policy challenges. Not least the challenge in Defence expenditure which as a share of GDP will next year reach its lowest level since 1938.

And meaningful tax reform remains as elusive as ever under this Government.

There was great hope and big expectations when Wayne Swan commissioned the Henry Tax Review. He described it as the ‘most comprehensive inquiry into our tax system in over 50 years’.

Initially, out of 138 proposals from two years of hard work, the government chose to adopt only a handful. And those recommendations were being implemented on an ad-hoc basis.

The Government has created confusion and uncertainty for business by introducing or increasing 26 new taxes in the last 4 ½ years.

That confusion is now compounded by this Budget in which two Henry Tax Review measures met their death and another two are on death row.

The company tax cut was alive, then it was dead (and apparently the Coalition were guilty of the murder) and now it apparently lives again… maybe.

The standard deduction for expenses for PAYE taxpayers is gone.

The 50% discount on tax on interest earnings is gone.

And the increased limit for concessional tax on superannuation contributions for the over 50s has been deferred for two years…so I suppose that is also gone.

The Government has created confusion by embracing the Coalition’s previous proposal to introduce a tax loss carry back for business. However it is now ignoring its own Business Tax Review Group which said more time was needed to get the details right for this measure.

We will not have the same policy uncertainty.

We will remove the Carbon Tax and we will remove the Mining tax.

One is a tax on families and economic growth and the other is a tax on job creation and success.

And so as not to replace these taxes with new large taxes the Coalition will reduce government spending to make up for the shortfall.

We will not go to the next election with a grab bag of big promises. My colleagues will not be raising expectations that cannot be paid for.

We are absolutely determined to live within our means and we will have genuine savings to achieve that goal.

But forgive me if I remain cautious about making such savings announcements 15 months away from the scheduled election. Given the $22 billion deterioration in the Budget in the last twelve months and with another Budget scheduled before the election, we do not know what the fiscal starting point will be.

For that reason we will not be announcing our savings until closer to the next election, as previously stated, but rest assured we are committed to making those significant savings.

Indeed over $12 billion of savings which this Government has made, were savings originally identified by the Coalition. On many occasions they ridiculed our savings, and then they adopted them.

Our Economic Plan

Our Economic plan offers Australians a roadmap that delivers Hope, delivers Reward and delivers Opportunity in an uncertain world.

1. Improve Public Finances

In the first place we will Improve Public Finances.

Based on the numbers presented last Tuesday night we will achieve a surplus in our first year in office and we will achieve a surplus for every year of our first term.

Our surpluses will be real. They will not be based on moving payments and revenue around in the same way this Government has in the Budget.

Firstly, we will release all of our costed and verified policies and savings prior to the election day. Our public accountability on our promises will be of a higher standard than what the Labor Party offered the electorate in 2007. It will certainly be more accountable and more open to scrutiny than what the Labor Party offered at the 2010 election.

Secondly, if elected, one of my earliest administrative tasks to improve public finances will be to meet with senior public servants to identify the real commercial value of the NBN and the Clean Energy Finance Corporation and their treatment in the Budget.

Thirdly, we remain absolutely committed to the full privatisation of Medibank Private and we will proceed with the sale at the first responsible opportunity.

Fourthly, we will immediately commence our program to consolidate Departments including merging the Department of Climate Change into the Department of Environment. We will not leave people uncertain about our changes within the public sector. Unlike Labor which dresses up redundancies as “efficiency dividends” we will not leave our hard working and quality public servants guessing about the impact of change.

Fifth, within four months, the Commission of Audit will report on the findings of its top-to-bottom independent review of public spending to identify savings and efficiencies in addition to those we have already identified in Opposition. This is a one off Commission and not an ongoing quango.

Sixth, we will initiate greater transparency in the budget numbers by publishing the structural deficit position in the Budget Papers and MYEFO each year.

Seventh, in the first 100 days I will initiate a meeting with my Treasury counterparts in the States and Territories. This will be an essential first step on the much promised but rarely delivered commitment to better Commonwealth State Relations. I already have an excellent working relationship with most of the Treasurers but there will be much to resolve in confused areas of responsibility and expenditure such as infrastructure funding and the NDIS.

I will make further announcements on other measures prior to the election.

2. Lower and Simpler Taxation

The second pillar in our economic growth plan will be to have lower and simpler taxes.

If we are elected to Government, our first task will be to repeal the Carbon Tax. No ifs and no buts and I have no doubt that this will pass through the Parliament.

We will also repeal the Mining Tax. This structurally flawed tax is not what our economy needs.

It will reduce our international competitiveness, it will impose a significant administrative burden even on companies which wont initially have to pay the tax; and it does not replace supposedly inefficient royalties, but instead builds in an additional layer of taxation on top of royalties and company tax.

We will offer personal tax cuts on today’s personal tax rates that will not be funded by a carbon tax, but by prudent savings in Government expenditure.

We will also offer a modest cut in company taxes. This too will be funded from the Budget and will not be funded by a carbon or mining tax.

There will be a levy on large business to fund our participation enhancing Paid Parental Leave Scheme.

Overall taxes will be lower under the Coalition when compared with Labor in the same financial year.

Good tax administration is almost as important as the tax policies we put in place.

Today I am also announcing a Coalition initiative that will provide the Tax office with a greater understanding of the practical implications of ATO decisions.

There is a view that the ATO needs to draw on broader sources of expertise and perspectives, particularly in regards to its management, culture, business dealings, and other organisational matters, to improve its administration. There are concerns that the ATO has an inwardly focused culture and that it fails at times to appreciate the impact of its decisions on business taxpayers, including small and micro businesses.

The Commissioner’s governance of the ATO is supported by three Second Commissioners of Taxation. The Commissioner and the Second Commissioners are seven year, statutory appointments.

The Coalition will expand the number of Second Commissioners.

While appointments will be based on merit, these four additional appointments (part time) will be individuals who have deep experience in the private sector.

These Second Commissioners will be based outside of Canberra. Ideally they will include appointments from regional Australia and small business.

I believe there is significant room for improvement in the way the ATO does its job. As an organisation with over 20,000 employees and extraordinarily broad legal and administrative powers it must be properly held to account.

This initiative is just the start, I can foreshadow that the Coalition will have more to say in the policy space of tax administration ahead of the next election.

3. Boost Productivity

The Coalition has a compelling strategy to help lift productivity. As the election approaches we will provide more detail on our six point productivity plan to grow the economic pie, and to provide incentives for innovation and investment.

First we will undertake genuine welfare reform that will lift participation in work. We will also insist on work for the dole and there will be our Green Corps as part of our Direct Action Climate Change Policy.

Second will be public sector reform to deliver better, more cost-effective services, including by repairing the now calcified Commonwealth State reform process. This includes my previously announced scheme for financial incentives for states to reduce costs in areas such as building and construction.

The third step will be red and green tape reduction to cut business regulatory costs by at least $1 billion a year. And Tony Abbott recently announced a new one stop shop for environmental approvals for major construction projects, whilst maintaining high environmental standards.

Fourth will be competition reform to ensure that large and small businesses are competing on a genuinely level playing field.

Fifth will be infrastructure reform to ensure best value from Commonwealth spending. This will include mandatory cost/benefit analysis for projects over $100m.

And the sixth, and final step, will be labour market reform to encourage higher pay for better work, including a re-instatement of the ABCC with all of its previous powers and resources.

4. Closer Engagement with Asia

The fourth pillar in our plan for growth is a closer engagement with the world’s fastest growing economic region across Asia.

Recently I gave a speech in Hong Kong which offered some initiatives that will facilitate that closer engagement.

The Coalition believes that even though Australia is already a major supplier of iron ore, coal, and other commodities to the Asian region, we should be looking to broaden our trade links in services such as tourism, education, health and financial services.

Tony Abbott added to these commitments in his Budget in Reply speech by pledging to work with State Governments to boost the number of year 12 school students studying foreign languages – particularly Asian languages – to 40 per cent within a decade. This very important initiative will enable more person to person commerce particularly in the services sectors.

Conclusion

Our economic plan has not changed in the wake of the recent government budget.

It is a plan that aims to grow the pie rather than to simply reallocate pieces to other people.

My friend Sam, from the local corner store, is an aspirational man.

He wants his son to have a good education, he wants his family to have a better life.

Sam’s family is the Australian story that we all know.

I am sure he does not want his Prime Minister to turn Australians against Australians because of where they live.

I am sure he does not want his Treasurer to turn Australians against Australians because of how much they earn.

And I am sure he wants to be able to trust his government.

Australia is an ambitious nation with great and bountiful opportunity. We do not need a government that divides us as a people.

We want a government that provides all Australians with hope for the future, reward for hard work and innovation, and opportunity for a better life.

Statement from Shadow Treasurer Joe Hockey.

Liberal Party Budget Banner

Today, I gave my Post Budget Address to the National Press Club.

In my speech, I highlighted a number of key differences between the Coalition’s responsible approach to financial management versus Wayne Swan and Labor’s ‘cash splash’ mentality:

“Prosperity is not built through compensation for a new tax or more welfare handouts.

“And I have never heard of a government that has successfully taxed its way towards higher economic growth.

“Prosperity only comes through growing the economic pie rather than simply reallocating the pieces.”

Under Labor, net debt continues to blow out, going from $107 billion to $142 billion in the current financial year and reaching a peak of $145 billion next financial year – meaning interest repayments will rise to $8.2 billion a year.

I also noted how:

  • Labor used tricky accounting to concoct its dodgy surplus by shuffling billions of dollars of expenditure from next year to this year, and
  • Labor ‘cooked the books’ by keeping the billions spent on the NBN and Clean Energy Fund ‘off Budget’.

In start contrast to Labor’s reckless Budget, I outlined key planks of the Coalition’s financial plan that will deliver hope, reward and opportunity to all Australians:

  1. Improve Public Finances through a return to a ‘real’ surplus;
  2. Lower and Simpler Taxation by repealing the carbon tax, the mining tax, reduced personal tax and announced today, the expansion of the role of the Commissioners of Taxation to improve tax administration;
  3. Boost Productivity through genuine welfare reform, a more effective public sector, reducing red and green tape, and better value for money from Commonwealth spending;
  4. Closer Engagement with Asia by broadening our reelationship with Asia beyond commodities.

Only Tony Abbott and the Coalition will provide all Australians with hope for the future, reward for hard work and innovation, and opportunity for a better life.

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