Thanks very much, David Uren, and to Professor Paul Jensen, the acting director of the Melbourne Institute, for inviting me here today.
Can I also acknowledge the Melbourne Institute, The Australian and the Productivity Commission in hosting such a significant series of conferences.
An optimistic future
Let me start by saying that I'm both a realist and an optimist. While cognisant of the economic challenges we face, I'm also very optimistic about Australia's economic future.
We know that Australians will not be intimidated out of their prosperity by being overwhelmed by the uncertainties and volatilities of the world in which we live and the transition that is taking place in our economy.
While we cannot control what comes our way we can control how we respond and how we frame our policies. Our policies are designed to protect Australia's national economic interests and back Australians as they achieve their economic opportunity and financial security in a transitioning economy.
First and foremost it's about jobs. For Australians to have confidence in our economy and our future, they must have confidence in their jobs and their personal financial situation.
A growing economy is the best and only real way to guarantee jobs for the future and to support a strong welfare safety net that ensures people and families do not get left behind.
Our way forward is to promote growth and build resilience and diversity in our economy so that Australians can face a more complex economic world with confidence.
Our plan is to build a strong National Platform for Economic Growth and Jobs that backs Australians who are out there every day making their way in the world, working hard, saving for their future, and investing in their capabilities and opportunities.
Our plan is designed to back Australia and Australians to earn more.
National Plan for Economic Growth
The Turnbull Government is already building on efforts initiated since the last election to establish the key pillars to support a strong national platform for growth and jobs in our economy:
- Infrastructure investment
- Trade liberalisation
- A strong Budget
- A resilient financial system
- A better tax system
- A coordinated productivity and competition agenda
- Greater workforce participation; and
These are our apps for growth and jobs.
We are implementing our $50 billion national infrastructure plan to unlock the economic potential of our cities, regions and rural areas and better connect Australia - customers and businesses, products and markets, services and the users of those services, researchers and their collaborators, friends and families.
We are aligning our economy with the fastest growing and largest economies in the world through the most ambitious trade push in generations - opening up new markets and opportunities for Australian businesses like never before.
We are working to establish a new and exciting innovation culture in our economy that recognises and backs entrepreneurialism, more effectively converts ideas and innovation into commercialised products and services, and realises the productivity gains in small and large enterprises that can produce stronger profits and higher real wages for employees.
Through our response to the Financial System Inquiry we are continuing to enhance the strength and resilience of our banking and financial systems to provide surety in a dynamic and volatile global economy - providing stability, certainty, choice and protection.
We are exercising strong fiscal discipline to repair the structural weaknesses in our budget, that we inherited from Labor, and to protect our AAA credit rating. This means first and foremost controlling our expenditure. To achieve a surplus our plan is to ensure that expenditure is less than revenue, not to increase revenue and taxes to chase ever higher levels of spending.
We want to see more people in the workforce - increased workforce participation - and foster a modern, collaborative and more flexible workplace that allows Australians to realise their full potential in the workplace - which is what productivity is all about. This is what is necessary to back businesses to employ more people and to deliver real growth in wages that will support higher living standards.
As Adam Boyton from Deutsche recently reminded me, both the pre 1993 and post 2007 period saw relatively low growth in productivity and real wages while by contrast between 1993 and 2007 average productivity growth ran at 1.9 per cent, compared to 1.4 per cent, and real wages grew by 1.7 per cent compared to 0.2 per cent. Re-establishing the nexus between strong productivity growth and growth in real wages will be good news for employers and employees alike.
In our response to the Harper Report, we will give Australians greater choice, better services and better government through a renewed focus on improving competition and productivity in the delivery of products and services in the public and private sphere alike.
And finally we are working on changes to our tax and welfare systems to back Australians who have chosen to work, save and invest.
Our goal is to deliver a better tax system, with a better mix and a better combination of taxes at state and federal level that helps us to grow our economy. We will achieve stronger revenues by having a stronger economy where Australians earn more - not by placing a greater tax burden on our economy.
This includes working collaboratively with State and Territory Governments who, as key potential beneficiaries from these changes, must be key participants and contributors.
And when it comes to our payments systems, the best form of welfare for those able to work, is a job. We know that the combination between our welfare and tax systems is working when we know that people who are able to work are better off in work than they are on welfare. That is what a fit for purpose welfare system for working age Australians looks like.
This is the Turnbull Government's plan for an agile and dynamic Australian economy, fit for purpose in the 21st century that will deliver jobs and economic opportunity.
This is a plan Australians can have confidence in because it is fundamentally a plan about them, their abilities and their efforts.
It is a plan that backs Australians who are dealing with the challenges of a transitioning economy and seizing the opportunities that will see Australia expand and diversify our economy.
The need for change
In the time remaining I would like to turn briefly to two of the pillars I have described as part of our National Platform for Economic Growth and Jobs.
These are competition policy and a better tax system.
The diversity and promise of our economy today is, as we all know, the result of tough reforms by governments, and the bravery of the Australian people in allowing them to travel this path.
The Hawke-Keating and Howard-Costello governments understood that Australia, for all its virtues, could not stand still and would walk forward.
Competition policy is the type of big-ticket change that will be the key to lifting innovation and productivity, to help us to realise our potential.
There will be no commodity boom to paper over failure to drive productivity improvements in our economy in the years ahead.
The promise of competition is, after all, about greater choice and opportunity - not for some Australians, but all Australians.
As Professor Harper reminded me greater competition is not measured by how many competitors there are, but how many choices are available to consumers and whether the goods and services they are provided are being delivered as efficiently and effectively as possible.
Ultimately, competition is about getting better outcomes for consumers.
Competition reform is a sure path to tread. We've been down it before - and it proved a winner for consumers and businesses alike.
Back in 1993, the Hilmer report on national competition policy set us up for a decade of pro-competitive reforms under former Prime Ministers Keating and Howard.
For instance, Optus entered the market as Australia's second telecommunications provider; Australia Post joined the corporate space; government businesses were made more commercially minded.
These changes led to big gains for the economy.
By 2005, the Productivity Commission reported improvements in key infrastructure sectors in the 1990s - to which competition reforms directly contributed - increased Australia's GDP by 2.5 per cent, or $20 billion.
The Harper Review has shown us that there is a new frontier available, making 56 recommendations on how to revitalise and reshape competition in a modern Australia and in turn boost productivity.
It is a call for innovation - in how we think; in how we invest. And, most importantly, it is a call for greater choice.
Now, the Government is currently considering all the recommendations - which, I should say, span most sectors of the economy and all levels of government.
In particular it highlights the significant gains for consumers in the area of human services which will be a key growth sector of our economy moving forward. We expect to make a formal response soon.
States and territories
But it is not a reform agenda the Commonwealth can traverse alone.
Many of the recommendations in the Harper Review are in areas of joint responsibility - such as human services and roads - or state and territory responsibility, such as commercial planning and zoning regulations.
That is why state and territory involvement is critical. And it is why at the recent Treasurers' meeting I put the Harper reforms back on the agenda to reboot competition reform in Australia.
At this meeting it was clear that there is a pragmatic appetite for governments to work together to see how we can make the most of the opportunities in front of us.
A better tax system
Finally on tax policy, there is strong evidence that Australians are paying too much for their tax system - the economic costs are too high. It has been a long time between services.
Australia's tax system was designed in a different era, and a different economy. It was not designed to deal with multinational trade, increasing global competition for investment, the internet, the digital economy and an ageing population.
It is true that we have already moved to tax the digital economy. We have made great progress and been ahead of the curve to ensure that multinationals are paying their fair share of tax on the income they earn in Australia. But we would be foolish to think that these measures, that we will continue to pursue, hold the answers alone, as some naively argue.
Many features of the existing system will, over time, limit jobs growth and make it less attractive to invest in Australia, affecting Australia's continuing prosperity. Other features of our personal income tax system discussed in the briefing paper make it less attractive for people to work, save and invest.
Personal income tax is the largest source of government revenue. Since the mid-1970s it has consistently raised around half of the Australian Government's tax receipts and continues to be a stable and predictable source of revenue.
Australia relies more on income tax (personal and company) than any other country in the OECD except Denmark.
Around 2 per cent of individuals collectively pay around 22 per cent of total personal income tax.
Australia's top marginal tax rate is higher than the OECD average and relatively high by international standards. As a proportion of total tax revenue, personal income tax in Australia is the second highest amongst OECD countries.
As a result the inflation tax - or bracket creep as it is also known - next year the average wage earner is forecast to move into the second highest tax bracket.
Around 300,000 Australians are expected to move into the second highest tax bracket over the next two years. If there were no tax cuts for 10 years, nearly half of all taxpayers will be in the top two tax brackets - an increase from around 27 per cent today to 43 per cent in 10 years.
This means that next year the average wage earner will be taxed up to 37 cents in the dollar on what they earn, but on less than half of every dollar they spend, they will pay only 10c in tax through the GST.
Today around three quarters of people working to pay tax, pay more than 30c on every dollar they earn. 15 years ago 75 per cent paid no more than 30c on each dollar.
Income tax has become the silent tax for many Australians, particularly young Australians.
When they go to the ATM to draw out their cash they do not see, as they do with the GST on their sales receipt, the 19c or 32.5c or 37c or 45c that has been deducted in income tax - let alone the extra 2c for the Medicare levy. They just take the cash.
Income tax has become too often out of sight and therefore too often out of mind in comparison to the GST, yet the tax you are paying is just as real and a lot higher.
We do want Australians to earn more, but I also want them to take home more.
I would prefer to leave to them how they choose to spend, save and invest their own money in a way that best suits them and their families.
These aren't the only costs associated with an inefficient and costly tax system. According to a 2013 Australian Tax Forum study, the costs of navigating the tax system for an average taxpayer have grown by about 73 per cent since 1995.
To achieve a better a tax system, Australia needs to carefully consider the impact of income tax, especially personal income tax, on economic growth and living standards.
Of course these are not the only items on the table for discussion. The PM has made it clear other areas of commonwealth taxes such as generous superannuation concessions are also under the microscope as well as broader tax integrity measures. But let's not also forget state taxes and charges that raise almost $85 billion a year - more than the GST. These taxes cannot be quarantined from the discussion either and I have put them on the agenda for our next Treasurer's meeting.
We are engaged in a good faith process with the states and territories to see how we can improve our tax system to better support jobs and growth.
There has been no serious reform of our tax system since the Howard and Costello changes 15 years ago. All other so-called reforms since then have been a failure.
We have no intention to rush to failure in this critical area, as we lay out the case for a better tax system.
While I appreciate the interest in jumping to the features stage of the process, the Government has not yet put forward any preferred option or proposal. The only current public advocates for changing the GST are State Governments and former Labor Premiers. We will continue to build accord on the objectives and benefits of creating a better tax systems that supports jobs and growth in our economy and will not allow the process to be undermined by ‘rule in' or ‘rule out' debates.
We will be patient and clear headed. Of course there will be imaginative, frustrated, innocent as well as malevolent speculation. However, it is our responsibility and in particular my role to get the job done - that is where my focus will remain and I will apply the same discipline as in previous tasks.
Australians have some of the highest living standards in the world, driven by a quarter of a century of uninterrupted economic growth.
Australia's economic growth is driven not only by the abundance of our natural resources, but by the entrepreneurship, hard work and drive of Australian workers and businesses and that is what we want to back.
The role of Government is to ensure that policy settings provide the environment that backs Australians to seek out and capitalise on their opportunities as millions of Australians are doing every day.
A journalist recently asked me at a media conference - is the great Australian dream over?
I said no.
As Liberals it is our cause to champion the politics and policy of optimism.
That is why we are building this strong national platform for growth and jobs in our economy.
In closing I'd also like to wish you all the best for the rest of this conference and I look forward to working with many of you in my role as Treasurer.