BUDGET SPEECH 2003-04
DELIVERED ON 13 MAY 2003 ON THE SECOND READING
OF THE APPROPRIATION BILL (N0. 1) 2003-04
BY
THE HONOURABLE PETER COSTELLO, M.P.
TREASURER OF THE COMMONWEALTH OF AUSTRALIA
Mr Speaker, I move that the Bill now be read a second time.
When I brought down last year's Budget we announced a major upgrade of
Australia's defence and security.
We decided to make that investment because our security situation had
changed, the threat of terror had become more direct, and closer to home.
We did not know how close to home the threat would come. The tragic events
in Bali on 12 October last year saw 88 innocent Australians die at the
hands of criminal terrorists.
We cannot take our security for granted. Tonight I will announce further
measures to upgrade Australia's security and border protection.
At the time of last year's Budget I reported to the House on the deployment
and funding of Australian forces engaged in the War on Terror. At that
time our Defence Force personnel were engaged in Afghanistan.
Since then, the brave men and women of the Australian Defence Forces
have again served in theatres of war, this time in Iraq and the Persian
Gulf. This Budget provides funding to cover that commitment. And tonight
I will announce further measures to upgrade our defence capacity.
This year we were tested by terror and war overseas. And this year we
were tested at home with the most extensive drought recorded in Australian
history. And bushfires savaged life and property.
This year we were tested again as the international economy turned down,
making it harder for our economy.
We have been knocked around by some of these events. We have been tested.
But we are resilient.
And the Australian economy is resilient. The international body, the
OECD, says Australia is "...notably resilient to shocks, both internal
and external."
We have put in some hard work to get to this point. And that has given
us a lot of insulation against these kinds of shocks. We will need it
again for the shocks that will come in the future.
I do not pretend that things will be easy in the next year. But I do
believe that Australia will weather the shocks much better than comparable
countries.
We want to keep our Budget in surplus. Tonight I announce the sixth surplus
of this Government. In 2003-04 the Commonwealth Budget will be in surplus
- a surplus of $2.2 billion.
We want to invest in priority areas, defence, security, education, and
health.
And consistent with those objectives we want to keep our taxes as low
as possible. That is why tonight I am announcing an income tax cut for
every Australian taxpayer.
Cutting personal income tax
Mr Speaker, on 1 July 2000 the Government introduced the largest income
tax cut Australia has ever had. From 1 July this year, three years later,
income tax will be cut again.
This will be done in two ways. For low income earners, the low income
tax offset will be increased. For other taxpayers, income tax thresholds
will be lifted.
The upper income limit for the 17 per cent rate will be raised from $20,000
to $21,600, the upper income limit of the 30 per cent rate will be raised
from $50,000 to $52,000, and the upper income limit of the 42 per cent
rate will be raised from $60,000 to $62,500.
The low income tax offset will rise from $150 to $235. The low income
tax offset currently phases out at four cents in the dollar for every
dollar over $20,700. This limit will be lifted and aligned with the other
changes so that withdrawal will occur with each dollar earned over $21,600.
As a result of these changes the offset will phase out completely at $27,475.
This means that taxpayers earning between $20,000 and $27,475 will get
the benefit of both increased thresholds and increased tax offset. Some
will get tax cuts up to $329 per annum or a tax saving of 10.7
per cent on their current tax bill.
A taxpayer on $45,000 will receive a tax cut of $208, a taxpayer on $55,000
will receive a tax cut of $448 and a taxpayer on $65,000 will receive
a tax cut of $573.
The measures I am announcing tonight cut income tax for 9 million Australians.
The tax cut will amount to $2.4 billion in 2003-04 and $10.7 billion across
the forward estimates.
Strong defence
Mr Speaker, the security of our people and our nation is the Government's
first priority. Today we are faced with the dangers of rising international
terrorism and weapons of mass destruction. The Government is committed
to confronting these threats to our security and defending our values
and our way of life.
During the last few months Australia deployed more than 2,000 personnel
as part of the international coalition to disarm Iraq. The deployment
included a Special Forces Task Group, many of whom operated behind enemy
lines, a squadron of F/A-18 Royal Australian Air Force Hornet Fighter
aircraft, three Royal Australian Navy Frigates and transport and surveillance
aircraft including Hercules and P-3C Orions. Our young Australians served
with great distinction. They made a very significant contribution to the
downfall of Saddam Hussein's regime and to the liberation of the Iraqi
people. They have accomplished their mission. We salute their service.
The cost of this deployment and some contributions to rehabilitation
activities such as the deployment of personnel to the Office of Reconstruction
and Humanitarian Assistance, is budgeted to amount to $645 million.
The Government has also committed a further $100 million for urgent humanitarian
relief and reconstruction for the Iraqi people.
This spending is over and above normal defence expenditure. It is in
addition to the Defence White Paper which provides the most comprehensive
upgrade of our defence capabilities in 25 years, increasing spending by
$27 billion over a decade.
And Australia continues its defence commitment to East Timor with a battalion
of three rifle companies and around 1,000 personnel all up costing around
$500 million this year.
In total, tonight I am announcing new defence spending of $2.1 billion
over five years. Total defence spending will rise to $15 billion in 2003-04.
In this Budget, additional funding of $157 million will establish a Special
Operations Command. This will deliver an additional 334 combat and support
personnel to supplement Australia's existing special forces, including
an additional commando company and a maritime terrorist capability in
the 4th Royal Australian Regiment. This will increase Australia's capacity
to respond to terrorism.
The Government will also provide an additional $1.1 billion to augment
logistics and support funding for a range of platforms and equipment,
including the F/A-18 fighter aircraft; Hercules transport aircraft; Collins
class submarines; and a range of transport vehicles. This funding is vital
if the Australian Defence Force is to remain well equipped to cope with
heightened levels of operation and respond to unforeseen events both at
home and abroad.
It is, however, the quality of its people that has been the core strength
of Australia's military forces. This has been clearly demonstrated in
East Timor, Afghanistan and, most recently, in Iraq. Army and Air Force
are presently experiencing better recruitment and retention rates with
separations at ten year lows. To capitalise on this favourable recruiting
environment, the Government will increase funding by $103 million
over three years, which will enable the ADF to exceed the personnel targets
envisaged by the White Paper for this period. The White Paper target is
54,000 personnel by 2010.
Enhancing Australian security
After the terrorist attacks on 11 September, the Government strengthened
Australia's domestic security arrangements at a cost of $1.3 billion over
five years. These included measures to put Protective Services Officers
on selected flights, doubling AFP strike team capability, a Regiment to
respond to chemical, biological, radiological, nuclear and explosive incidents
and a second Tactical Assault Group.
After the Bali atrocity, the Government commissioned a further review
of security arrangements. As a result of this review, the Government announced
further measures at a cost of around $100 million over four years.
Let there be no doubt about our resolve to protect Australians against
terrorist threats. This Budget commits an additional $411 million over
five years to continue the upgrade of our domestic security arrangements.
Critical security infrastructure at our shipping ports, airports, as
well as our nuclear research and military facilities will be upgraded.
The new international code of practice for maritime security will be introduced.
More funding will be provided to increase the use of container X-ray facilities
at Australian ports. The Government will enhance our border processing
systems to identify and track persons of concern.
Intelligence that is timely and accurate is critical if we wish to prevent
terrorist incidents. Our intelligence agencies must play an increased
role in identifying and responding to possible risks to Australia and
our interests.
This is why the Government is providing an additional $152 million
which will enhance Australia's intelligence capacity. Part of this funding
will go to agencies such as the Australian Security and Intelligence Organisation
and the Australian Secret Intelligence Service to enhance their counter-terrorism
capabilities. The Office of National Assessments will receive more funding
to work on terrorism through dedicated liaison capacity with counterpart
agencies in Washington and London.
And, as a lasting legacy to those who lost their lives in the terrorist
attack of October 2002, the Government is allocating $10.5 million
to be used to fund a new intensive care centre for the Sanglah Hospital
in Denpasar, also to construct a community eye treatment centre in Bali,
and to fund an ongoing medical and health scholarship programme. These
initiatives are a practical living memorial to the victims of the tragedy.
Investing in education
Mr Speaker, tonight the Government is announcing far-reaching reforms
to Australia's higher education system.
These reforms will free up universities, and allow them to build on their
strengths. Universities will gain access to increased Commonwealth support
and have more flexibility in setting course fees.
In total, the Government will commit an additional $1.5 billion over
the next four years to higher education. By 2009-10, with the reforms
fully in place, there will be an extra $870 million per year spent by
the Commonwealth on higher education. This represents a real increase
of 17 per cent over ten years.
Universities wishing to increase their research capacity will have greater
scope to do so. Universities wishing to build teaching excellence will
have greater scope to do so.
The Government will invest $775 million over the next four years on extra
Commonwealth grants for universities. This will include a 7½ per
cent increase in base funding by 2007. The package will also provide new
funding of $123 million over four years towards the costs of education
in regional campuses.
Our universities must provide the quality courses that our students want
and our nation needs. And to ensure that students and the community get
the best value from our investment, the Government will be seeking significant
improvements in governance and workplace relations within the sector.
From 2005, universities will have flexibility in setting fees for Commonwealth
supported places. They can cut them. Except for teaching and nursing,
they can increase them to a maximum of 30 per cent above HECS. It is up
to the institution whether it wants to attract students, and up to the
student as to whether the course offers value. Universities will be able
to specialise in their areas of strength.
The Government is also reforming the system of student loans so that
all students will be able to study without the need to pay any up-front
fees. A new comprehensive Higher Education Loans Programme called HELP
will assist students from January 2005. Students will be able to access
funds to meet their course fees by drawing on income-contingent loans,
whether they are HECS or full fee-paying students.
For students in Commonwealth supported places, HECS will continue as
part of the new HELP system. A new FEE-HELP programme will be introduced
for students who pay full fees. A new OS(Overseas)-HELP programme will
assist those students who need financial assistance to study overseas.
The Government expects these loan arrangements to generate an additional
$800 million for students to invest in their higher education.
At present students are required to make HECS repayments when their income
reaches $24,365 a year. From 2005 this threshold will be lifted to $30,000.
To enhance access and participation by financially disadvantaged students
in higher education, the Government will establish three new scholarship
programmes costing $162 million over 4 years.
There is a clear imperative to address the shortage of teachers and nurses
in our schools and hospitals. The Budget will set aside an additional
$161 million over the next four years for teaching and nursing and other
priorities. This includes at least 574 extra places in nursing by
2007.
Ensuring that all Australians have up to date vocational and educational
training is a continuing priority for the Government. We will provide
$3.6 billion over the next three years for a new Australian National Training
Authority Agreement with the States and Territories.
Australia has a quality education and training system. Over 200,000 international
students recognise this by choosing to study here each year. They generate
over $5 billion in export earnings each year. The Government will
build on our achievements in this area by providing an extra $113 million
over four years for quality assurance and the promotion of Australian
education and training in overseas markets. This will largely be financed
by extra charges for overseas students. It will develop a stronger educational
system in Australia.
Providing accessible and affordable health care
Mr Speaker, this Government is committed to ensuring Australia has a
first rate health care system.
In 1995-96, Commonwealth spending on health amounted to around $18½
billion. In 2003-04, we expect to spend over $31 billion on health. Since
coming to office, this Government has increased health spending by around
65 per cent. The Government has invested in strengthening public hospitals,
enhancing Medicare, and providing financial assistance to Australians
who take out health insurance.
Improvements to Medicare recently announced by the Prime Minister allocate
new spending of $917 million over five years to make Medicare services
more affordable and accessible.
The reforms will provide more doctors where they are needed most, with
an additional 150 GP trainee places each year targeted to rural and outer-metropolitan
areas.
234 new medical school places each year will be bonded so that when their
training has been completed, these doctors will start practising in areas
of shortage.
The Government's spending on public hospitals will increase to record
levels under the recently announced $42 billion Australian Health Care
Agreements. This is more than $10 billion of additional funding for
public hospitals over the current agreement - a growth of 29½
per cent over five years, or over 17 per cent in real terms. States and
Territories that at least match the rate of growth in the Commonwealth's
contribution and deliver on reporting commitments will receive the Commonwealth's
maximum contribution.
This Budget is setting aside $253 million over five years for a Pathways
Home Initiative to help people discharged from hospital, particularly
the elderly, to make a smooth and easy transition back home.
The $42 billion in public hospital funding is on top of the contribution
the Commonwealth is making to take pressure off the public hospital system
by increasing the coverage of health insurance. Private health insurance
has jumped from 30 per cent of Australians in January 1999 to
44 per cent in December 2002 as a result of the 30 per cent
private health insurance rebate and other Government initiatives. More
than 8.7 million Australians now have private health insurance cover.
Illegal drug use is an enormous burden on our society in terms of waste
and cost to human life. We will continue to fight this menace. Since 1997,
the Government has committed extensive resources to the Tough on Drugs
Strategy. The challenges remain immense but there has been recent evidence
of some success.
Enhancements to our law enforcement capabilities have been instrumental
in detecting the smuggling of illicit drugs into Australia. They have
resulted in several significant seizures, like the recent interception
of the North Korean vessel the Pong Su, and its deadly cargo of heroin
destined for Australian streets.
Tonight I announce measures that strengthen our ability to disrupt supplies
of illicit drugs and prevent the production of illicit drugs on our shores.
Additional funding will be provided to identify and seize the ill-gotten
gains of those who have benefited from supplying drugs to our community.
The new and continuing measures announced in this Budget will allocate
$316 million over the next four years for the Tough on Drugs Strategy.
On 8 April 2003 the Government gazetted Severe Acute Respiratory Syndrome
(SARS) as a quarantinable disease. Border protection measures against
SARS are an essential first line of defence, and will be maintained for
as long as they are necessary. The Commonwealth is funding health personnel
to detect possible cases of SARS at international airports at a cost of
$2.2 million over two years.
More help for people with disabilities and their carers
Mr Speaker, the Government understands that people with disabilities
and their carers face special challenges in getting employment and participating
fully in the community.
In this Budget, the Government will increase funding by $135 million
over four years to community organisations providing disability employment
services. Grants will be larger according to the level of disability of
the person they support in the workplace. It is expected this will help
an extra 6,000 people have the opportunity of a job and the self respect
that comes with it.
The Government will also spend $25 million over three years to help organisations
providing employment for people with disabilities. This funding will improve
the viability of these organisations and support the payment of better
wages to their employees.
Parents of children with ongoing high support needs will also benefit
from the additional funds of $26 million over four years to fund more
carers. Around 1,250 extra families will be helped under this measure.
Rebuilding after drought and fire
Mr Speaker, the past year has seen many communities ravaged by the devastating
effects of drought and fire. People have lost their lives, their homes,
their livelihood. An institution of great importance to our heritage and
scientific learning was lost in the ACT.
The Government expects to provide a total around $740 million in 2002-03
and the next two years in assisting farmers, small businesses and regional
communities through the most extensive drought ever recorded. This funding
will provide direct income support, personal counselling, tax relief and
interest rate relief for those in need.
In 2002-03, the Commonwealth spent over $8 million helping the States
and Territories with aircraft to battle terrible bushfires and will provide
continuing support for aerial firefighting in the next fire season.
The Government is working with the States and Territories to establish
a national approach to natural disaster mitigation including bushfires
and floods. Conditional on States and Territories matching funding and
the implementation of more effective land use and building controls, the
Commonwealth will provide $68 million over five years for this purpose.
The Government will also assist the rebuilding of the Mount Stromlo Observatory.
Australia's heritage
Mr Speaker, the stories of our past, our people, their struggles, and
the places, and anniversaries that make us Australians need to be preserved.
It is important that these achievements are treasured and shared with
future generations.
So tonight the Government is announcing the establishment of a National
Heritage List which will identify Australia's places of national significance
and preserve them so that future Australians will know of them, their
history, and what they mean to us. Some of these places will be outside
Australia like Anzac Cove, a place that helped to define our nationhood,
our values, and holds a special place in the hearts of all Australians.
Through partnerships between government, industry and the community these
places will be kept as part of the Australian story forever. The programme
is allocated $52 million.
Building sustainable industry
Mr Speaker, the Government is encouraging Australian industry to be internationally
competitive, laying the foundation for more jobs and higher living standards.
The five-year $3 billion Backing Australia's Ability package, announced
in January 2001, demonstrates this Government's commitment to pursuing
excellence through innovation.
To facilitate long-term projects this Budget allocates continuing funding
into 2006-07 for the R&D Start Programme, the Australian Research
Council, and the Cooperative Research Centre programme.
In addition, a further $20 million in funding in 2003-04 is allocated
to support the Commonwealth Scientific and Industrial Research Organisation's
(CSIRO) Flagship Programme. The Flagships are a partnership of leading
Australian scientists, research institutions and commercial companies
undertaking research to advance new industries and jobs, healthier and
more productive lives and better use of environmental resources.
The Government is finalising the White Paper on our innovative land transport
package, AusLink. AusLink will improve planning for the Land Transport
network, result in more private investment and better transport links.
Funding has been provided in this budget to progress the development of
the programme.
Energy reform
Mr Speaker, the Government is making an announcement tonight about the
long-term tax treatment of alternative fuels to petrol and diesel.
A substantial transitionary period is provided for producers and consumers
to adjust to the new arrangements which will be fully effective by 2012.
This will provide certainty for investment decisions.
Tonight I am announcing a package of measures to encourage the early
supply and take-up of cleaner diesel and petrol. A significant improvement
is the ongoing reduction of sulphur in diesel. This will facilitate the
adoption of new engine technologies with further reductions in harmful
vehicle emissions.
Reform of international taxation
Mr Speaker, to maintain Australia's status as an attractive place for
business and investment, the tax system needs continually to adapt to
the international business environment.
Tonight I announce the outcome of the Government's review of Australia's
international tax arrangements.
The Government will implement a balanced package of reforms to help Australian
companies compete better overseas and encourage foreign companies to establish
regional headquarters in Australia. We want these companies to provide
job opportunities for Australians.
The Government will simplify the application of the controlled foreign
company and foreign investment fund rules. It will also modernise Australia's
tax treaty network, and reduce taxes on certain forms of business income
earned by Australian companies offshore.
Economic outlook
Mr Speaker, despite a weak global economy, heightened international tensions
and the most extensive drought ever recorded, Australia has proved very
resilient over the past year. Growth was solid, investment surged and
over 230,000 new jobs were created.
Looking forward, there is a larger than usual element of risk surrounding
the near-term outlook for Australia. While our fundamentals are sound,
the international outlook is difficult. There are looming problems in
the major economies, as well as heightened international tensions, including
the Korean Peninsula, and the risk of the further spread of SARS.
Nonetheless, there remain good reasons to be positive about Australia.
Productivity growth will continue and prospects for business investment
look strong.
Economic growth is forecast to be 3¼ per cent in 2003-04, and inflation
is expected to ease to 2¼ per cent through the year, within the Government's
medium-term target band of 2-3 per cent.
The unemployment rate is expected to remain steady at around 6 per cent.
Moderate wage pressures and the tax cuts announced tonight should assist
further jobs growth in the future.
Concluding remarks
Since coming to office, this Government has implemented economic policies
providing for strong and sustainable growth. By June this year we will
have reduced Labor's net debt by around $63 billion.
Interest rates are at around their lowest levels in 30 years. Unemployment
is around its lowest rate in 10 years. More than 1 million jobs have been
created since March 1996.
Our continued resilience and prosperity rely on our ability to plan today
to confront the challenges of tomorrow. And, while the current uncertain
global outlook calls for continued careful economic management, we cannot
let this near-term outlook distract us from the need to work on important
reforms to ensure our future prosperity.
The tax reductions announced tonight will assist families working hard
on their own budgets. The reforms I have announced tonight in education,
in health, in energy and tax will make Australia stronger in the years
ahead. This Budget is a further step on the journey to secure Australia's
future.
I commend this Budget to the House.
