Shadow Treasurer Chris Bowen has addressed the National Press Club on the ALP’s approach to economic policy.
- Listen to Bowen’s speech (24m – transcript below)
- Listen to Bowen take questions (37m)
- Watch Bowen’s complete appearance (61m)
Transcript of Shadow Treasurer Chris Bowen’s Address to the National Press Club.
THE END OF AUSTRALIAN EXCEPTIONALISM?
I first acknowledge the traditional owners of the land on which we meet, the Ngunnawal and Ngambri people, and acknowledge elders past and present and emerging, as well as re-commit myself to the task of eradicating Indigenous disadvantage in Australia.
I’d also like to acknowledge my fellow members of Labor’s economic team today.
One of the pleasures of being Shadow Treasurer is working with Labor’s first rate economic team.
Shadow Minister for Finance Dr Jim Chalmers, the Shadow Assistant Treasurer Andrew Leigh and the Shadow Assistant Minister for Treasury, Matt Thistlethwaite. They are all here today. They are a formidable team in opposition, they’ll be important reformers in Government.
Well, there is no question Australia’s AAA credit rating is under real threat.
When Australia received its third AAA credit rating in the aftermath of the global recession, it was symbolic of an Australian exceptionalism.
Around the world, bigger economies than ours were being stripped of the coveted rating.
When Labor came to office in 2007, 16 countries had the “triple triple-A” or three triple-A ratings with a stable outlook. We weren’t one of them.
When we left office, we were one of only 8 countries with the same three AAA ratings and a stable outlook.
We joined the club just as it was becoming much more exclusive.
It was about this time that the OECD described Australia as “The Iron Man” economy. This is part of a broader story of Australian exceptionalism.
We are now in our twenty-sixth year of uninterrupted economic growth, the longest period in our history and the second longest of any developed country in the history of the world.
We grew through the most challenging global circumstances in eighty years.
On the back of reforms which took a moribund, protected and underperforming economy in the 1970s, this exceptionalism has served Australia particularly well.
We’ve performed better than most other comparable economies.
Since the early 1980s Australia has seen its real GDP per capita grow by 84%, higher than Japan, the U.S., Germany and Canada.
But this exceptionalism is coming under severe pressure, and not just when it comes to the budget and the AAA rating.
We hear the Treasurer tell the Australian people that the economy continues to perform strongly.
That the economy is “transitioning successfully”.
That the government is committed to “jobs and growth”.
Yet the facts tell a more complicated story.
Despite living standards rising by 70 per cent since the mid-1980s, they are now lower than they were back in 2013.
When Australians are asked “Are you better off than you were three years ago”, they are entitled to accurately answer “no”.
This after living standards rose by more than 7 per cent during the previous Labor Government, and we faced a global financial crisis.
Home ownership has collapsed to its worst level in 60 years.
It is true that Australia’s headline growth rate is around trend, but there are underlying trends which are concerning and, frankly simply being ignored by the government.
Several quarters in recent times have had one-off factors holding them up, avoiding a very disappointing quarter.
Even the International Monetary Fund’s latest staff concluding statement for Australia released just two weeks ago noted that achieving 3 per cent growth has been in part due to “temporary factors”.
For instance if it wasn’t for an unusual spike in Government spending in the June quarter this year, the economy would have recorded a negative quarter of growth.
This patchy growth story is partly why we are seeing the disappearance of full time jobs, with some disturbing trends in underemployment.
Despite a growing population, there are now fewer people in full time work than there were a year ago.
And there are now 90,000 fewer full time jobs than there were at the beginning of the year.
While unemployment is below 6 per cent, underemployment is at a record high.
This underutilisation of labour in Australia is why wages are growing at their slowest rates on record.
At some point, this band-aid and rubber band version of economic growth comes under unsustainable pressure.
And the government lacks a plan.
They talk about jobs and growth but in truth the centre piece of their jobs and growth plan, the company tax cut, makes the economy just 1% bigger in twenty years’ time.
This is why the majority of 31 prominent Australian economists in an Economic Society of Australia survey agreed that “Australia will receive a bigger economic growth dividend in the long-run by spending on education than offering an equivalent amount of money on a tax cut to business investment”.
So the Government’s approach is hardly the stuff of celebration.
And it’s the budget and fiscal policy in which the yawning gap between the government’s pre-government rhetoric and government performance has been at its biggest.
I’m not going to run over the recent history of the Liberals multi-faceted failed approach to deficit reduction today.
But I do need to remind you briefly how ordinary their performance has been.
Since the Liberals and Nationals came to office, we have around $4500 more government debt for every person in Australia.
In the 38 months the coalition has been in office, Commonwealth government debt has risen by $109 billion. That’s around $3 billion a month[4].
We now have one of the fastest growing debt trajectories in the developed world.
The Government is quick to blame a government that left office in 2013 for all its problems, but our budget is getting worse now while other countries’ budgets have been improving.
Since 2013 government debt in Australia, as a proportion of the economy, has grown by around 50%[5].
Over the same time period debt of the United Kingdom and the United States has been relatively stable, and in Canada, New Zealand and Germany it has actually fallen.
And now we are on negative watch for one of our AAA ratings.
But instead of dealing with it, the Government seems intent on investing most of its effort in a blame game.
The Treasurer has actually stood at the despatch box and said that if Australia loses its AAA rating it will be the fault of Bill Shorten and me.
It’s as if he doesn’t realise he’s been sworn in as Treasurer.
Can you imagine Paul Keating or Peter Costello putting their hands up in the air and saying “it’s all too hard, I’ll just give up. I’ll just blame the Opposition”. Because that’s what Scott Morrison is doing.
Over the last two years we’ve seen a government increasingly raise the white flag on budget repair.
Even the former Prime Minister Tony Abbott made the same argument on the weekend, although he and I would strongly disagree on the policy prescription to fix it.
The Government so engaged in the blame game, so determined to say any downgrade in our credit rating is everyone else’s fault, is quick to point an accusatory finger: it’s Labor’s fault because of what we did in 2009. Its Labor’s fault because of what we do now. Its international circumstances.
Yet the budget papers tell the story.
Cumulative policy decisions over the forward estimates periods in the 2015 Budget and beyond have actually delivered fiscal deterioration of $10.9 billion.
Put more simply, the Budget would have been better off if Malcolm Turnbull and Scott Morrison hadn’t bothered turning up.
To put this into context, on the eve of the 2013 election when the budget was in better shape than it is now, Penny Wong and I delivered an Economic Statement with policy decisions that improved the budget by $8.1 billion over the forward estimates.
Despite the rhetoric and the lecturing, the facts make it clear that the Government has been part of the problem, not the solution.
Last year’s budget deficit came in eight times higher than was envisaged at the 2013 Pre-election and Fiscal Outlook.
As the budget task has become more urgent, Government actions have become less urgent.
As an example, when the budget repair levy was introduced, the budget deficit for 2016-17 stood at around $10 billion.
The deficit is now closer to $40 billion.
Yet in the last Budget, the government effectively gave a tax cut to millionaires by not continuing the budget repair levy beyond its current expiry.
In fact, when it comes to the savings that have occurred over the last couple of years, it can be argued that Labor is directly responsible for many of them.
Labor argued the case for a crackdown on multinational tax avoidance. The Government dragged its feet then 18 months after our announcement delivered a package.
Labor announced an increase in the tobacco excise. The Government criticised it and then adopted it.
Labor announced a high income superannuation package. The Government railed against it and then adopted large parts of it.
Labor announced a crackdown on VET Fee Help rorts.
The Government complained about it, and then announced its own crackdown.
There is a pattern of behaviour here.
When it comes to budget repair measures, the government criticises, opposes, then adopts.
Maybe they might even see the light on negative gearing and capital gains tax reform.
Of course, we have also opposed the unfair measures from the disastrous 2014 budget.
They represented a fundamental breach of faith with the Australian people and ripped away at the social fabric of the nation. They undermined trust and confidence which set back fiscal reform in Australia.
When Scott Morrison calls on Labor to support more savings measures, he is asking us to support those measures from the 2014 budget, a budget which effectively cost Tony Abbott and Joe Hockey their jobs because it was so ill-conceived.
The Government has dropped some of the measures from that budget, but others live on, unlamented but counted in the forward projections.
· Making unemployed young people wait four weeks before receiving income support robbing them of a basic subsistence; or
· making people pay more to see the doctor through freezing indexation of the Medicare benefits schedule; or
· Giving Australians the highest age pension age in the developed world.
These are examples of things that have failed in the Parliament, failed the fairness test in the community and will not pass.
To present a true account of the books, the Government should accept the reality and remove them from the budget projections.
Now the Government would have a valid point about Labor and the budget if we had opposed their fundamentally unfair measures, but had not provided alternatives.
But of course, we have provided alternatives.
While the budget has gone backwards because of Government decisions, in fact it could have been so much better if the Government had adopted a more responsible approach.
The Government’s latest apparent triumph is that it’s managed to get $20 billion of savings through the parliament, much of them as I said before on the back of savings initially put forward by Labor.
But it could be so much better.
If the Government scrapped its corporate tax cut and adopted negative gearing and capital gains tax reform, the budget would be $87 billion better off over the next ten years.
In the short run, the challenge is the Mid-Year Economic forecast, avoiding slippage in return to surplus and avoiding a downgrade in our credit rating.
Yet the government continues to cling to its unloved $50 billion tax cut for big business in the face of further downgrades.
Deloitte has already belled the cat already suggesting that due to record low wages the budget will lose ground.
This is something I predicted during the election campaign. The Treasurer of course said we were wrong.
Dropping the company tax cut for big business and taking up Labor’s negative gearing and capital gains reforms would add more than $4 billion to the budget bottom line in 2020-21, a substantial amount that would effectively double the existing surplus, get us out of the danger zone by helping the government avoid the slippage we can ill afford and help secure the AAA rating.
And even worse, the Government’s actions will have an increasing, not decreasing impact on the structural deficit.
The Governments company tax cut has an impact over the forward estimates, but a much bigger one by the end of the decade.
By the end of the next decade, the company tax cut would cost the budget around $14 billion a year.
If we made such a reckless promise, the Government, and many of you, would accuse us of profligacy. And they’d be right.
Labor’s reforms to negative gearing and capital gains on the other hand would save around $8 billion annually by the end of the decade. Even then, they would not be fully mature.
The Government could make these changes today and would remove a structurally damaging budget measure, replacing it with a structurally beneficial one.
And it is structural improvement that is the key to sustainable and important budget repair.
Measures which are well calibrated and don’t cause an unnecessary shock to the real economy but which build gradually and inexorably to improve the budget over time are what the budget needs.
And as you know, Labor also put forward a stronger and more fiscally sustainable package on super tax concessions that would have seen the Budget better off by $1.4 billion over the forward estimates and by $18.9 billion over the medium-term.
At the exact time the AAA is under pressure, Malcolm Turnbull and Scott Morrison are spending time formulating new tax concessions that largely benefit high income earners.
But like, I suspect most of you, I don’t hold out much hope for Mr Turnbull and Mr Morrison adopting a sensible approach. In fact, I’m of the view that the most likely outcome is that neither Mr Turnbull or Mr Morrison will be in their current positions by the time of the next election.
So I don’t intend to spend much more time today talking about them. Instead, I’ll spend the rest of this speech talking about the approach Labor will take both before the next election, and, if it goes to plan, in office after the next election.
I have previously talked about why, as the alternative treasurer, I think fiscal repair is important.
But it’s briefly worth recapping.
Losing the AAA would drive up government borrowing costs, diverting resources from important social investments and government priorities.
The loss of the Commonwealth’s AAA rating would inevitably flow through to a downgrade for the states, further cramping their fiscal headroom.
But a downgrade in our sovereign rating would also likely see our major banks face a downgrade from AA.
This would see our banks face more difficult offshore borrowing conditions with some flow on effects to households with mortgages, and for small businesses wanting to grow.
This is not an esoteric debate between economists, focused on theory and accounting and prestige.
A downgrade in Australia’s sovereign credit rating has real world consequences for Australian institutions and mortgage holders.
Just adding a modest 20 basis points to an average mortgage holder would have them paying up to $720 more per year.
Middle income owner occupiers who having competed with investors to get in to the market, and forced to borrow record amounts debt in recent years, are now facing an environment where the outlook for interest rates is shifting, with rises potentially on the cards next year.
With growth and jobs under pressure, the loss of our AAA credit rating and downgrades to our banks would ricochet through the economy through higher mortgage costs for households and businesses at precisely the wrong time.
This is not to mention the impacts a downgrade would have on confidence in the community.
But even worse, a downgrade would damage the nation’s resilience to future economic shocks.
As Alan Oster says, were our banks to be downgraded following the loss of our AAA credit rating, “Australia’s finance sector would act as an accelerator of any local downturn – rather than, in the past, where it has tended to act as a moderator”.
So a downgrade now would help amplify any future economic downturn, when previously our three prized AAA credit ratings have helped cushion us against them.
Given the elections in the United States, together with Brexit and heighted global economic uncertainty that goes with it, now is the time to build on, not lose, our economic buffers.
Continuing structural deficits would of course also stymie the ability of future treasurers to respond to global downturns.
That’s why Labor has taken the approach we have.
It’s unusual for an Opposition to have been so forward leaning on budget repair.
Since the election we have announced less than $100 million worth of confirmed spending commitments, (for example, the allocation of $43 million to provide extra resources so that victims of domestic violence should no longer be subject to cross-examination by suspected perpetrators).
And I’ve already reminded you of the budget improvements we have committed to on superannuation worth $1.4 billion over four years and $18.9 billion over ten.
We’ve done it because to do the difficult things necessary for the budget we need a mandate.
It was a big call to go to the last election promising negative gearing reform for example.
But it was necessary. And I believe we’ve won the public policy debate.
Current negative gearing and capital gains tax concessions are unfair, are a serious a drag on the budget and are major distortions in our tax system which encourage leverage and debt levels that are worrying well-qualified observers of the Australian economy.
The list of practitioners, commentators and experts who have now called for reform of negative gearing is now very long indeed.
The IMF. The Grattan Institute. The Committee for the Economic Development of Australia. The Murray Financial Systems Inquiry. Joe Hockey and Jeff Kennett. The NSW Liberal Government.
The Financial Systems inquiry sounded the alarm last year on the risk to financial stability in Australia, particularly referencing investment in housing stating that in Australia “the tax treatment of investor housing, in particular, tends to encourage leveraged and speculative investment”.
It’s in this context that more recently and worrying the IMF specifically named Australia amongst a very small group of countries that are continuing to accumulate debt at a “fast pace” and Standard & Poor’s has said Australia’s foreign debt had reached “extreme” levels.
Despite these warnings from its own advisers and eminent organisations that negative gearing and capital gains concessions distort investment choices and encourage excessive borrowing and leverage, the government continues to sit on its hands.
It was Jeff Kennett who on the back of our announcement earlier this year is on the record as saying, “it is an eminently supportable concept that’s been put forward by the Labor Party”.
And just last week, what can only be described as a remarkable intervention from the planning minister in the NSW Liberal Government who came out to prosecute the case for change.
He can see firsthand the difficulties confronting young aspiring first home buyers in places like Sydney.
He can see that people in Sydney in particular are being forced to take on previously unimaginable levels of debt, with homes now costing 12 times the average salary.
Rob Stokes, described by Mike Baird just yesterday at this podium as the most credentialed Planning Minister in history, was making the same point Labor has consistently been making now for a long time when he said:
“We should not be content to live in a society where it’s easy for one person to reduce their taxable contribution to schools, hospitals and other critical government services – through generous federal tax exemptions and the ownership of multiple properties – while a generation of working Australians find it increasingly difficult to buy one property to call home.”
The fact is that we do have a housing affordability crisis in this country.
Young people and their parents look at the housing in despair, and hope for a government that does care.
Negative gearing and capital gains taxation reform is vital for budget repair, but it’s important to put first time home buyers a more level playing field too.
Not every budget positive measure needs to have negative social consequences.
Reforming negative gearing and capital gains concessions is good for the budget and good for housing affordability too.
The policy we took to the last election on negative gearing and capital gains tax reform is the policy we will take to the next election.
But there is more to do.
I remember saying at this podium early last term that we would lay out detailed budget policies and we would not want for courage.
I know not all of you believed me.
But the approach we took was the right one: seeking a mandate for reforms, explaining our policies and fighting for the merits.
Some might assume that with this Parliament so close, we would draw up the bridge on policy boldness and adopt a small target strategy, riding on the coat tails of what has already been done, but doing little more.
That’s not our intention. The last thing the nation needs is a government with a thin mandate. We are continuing to look at ways to improve the budget consistent with our values.
Accordingly, Bill Shorten, Jim Chalmers and I will announce further savings in several tranches next year.
As we’ve done with previous savings, tobacco excise, superannuation for example, these savings will be well thought through, and will be driven by our principles.
We will continue leading the policy debate putting ourselves forward as the alternative government.
We’ll make investments in important priority areas for us like health and education.
But we’ll pay for them, and more.
And our budget bottom line will reflect that responsible approach.
Conclusion
A Shorten Labor led Government will have an important task, a full agenda.
In my recent speeches, “The Case for Openness”, “The Case for the Middle Class” and “The Case for Opportunity”, I outlined at a high level the approach we would take as a government and I would take as Treasurer to some of the economic and social challenges and opportunities facing us in this rapidly changing geo-economic environment.
But of course, managing the budget is a necessary pre-requisite.
For too many years, the Australian public have been fed simplistic solutions. “Vote for us and it’ll be ok, there’ll be surge to growth and confidence and the budget will return to surplus”.
But it doesn’t work like that.
Tough decisions are necessary.
A mandate for reform is necessary.
We’ve made hard decisions, and they’ll be more to come.
And we’ll seek a mandate to implement them.
And that will make us a better government, the type of government Australians deserve, and we are determined to provide.
