Thank you for the invitation to be here today.
We're about a month out from this year's Budget.
You won't be surprised to know that I won't be using this address to preview its measures.
However, it is an opportunity to reflect on how far we've come in the past twelve months and take stock of the progress we have made in implementing the 2016–17 Budget.
The 2016-17 Budget was not just another Budget. It was a national economic plan. It was a plan designed to steer our economy through one of our most significant and remarkable transitions.
That journey continues:
- as we move from the mining investment boom to a more diversified and even more outward looking economy
- as we absorb the impacts of globalization and technological change, that have had both positive and negative impacts on Australians, and
- as we adjust to the significant stability and security of supply issues that changes to energy production give rise to, impacting our traditional competitive advantage.
And as that journey continues so does our plan.
In last year's Budget I said we needed to focus on jobs and growth. This year's budget will continue this unapologetic focus.
There's nothing empty about fighting for jobs and growth. Because lifting the living standards of hard-working Australians and their families, depends on jobs and growth. And jobs and growth are significant contributors to wealth.
Unless you are driving economic growth, you cannot secure the jobs, wages and services that Australians rely on. That is why economic growth is once again the starting point for this year's Budget.
At the same time, as a Government, in this year's Budget we must also live within our means so we can affordably and sustainably deliver the services that Australians rely on, such as Medicare, schools and hospitals.
This is why we must continue on our disciplined path of managing the Budget, and why our achievements to date are so important.
And we will ensure the Budget works to place downward pressure on the cost of living – especially on energy costs and housing.
Since last year's Budget we've made good progress on implementing our national economic plan.
Let me begin with the progress we have been making in our banking and financial system.
Financial Systems Stability
Since becoming Treasurer I have consistently stressed and jealously guarded the resilience, strength and stability of our financial system.
Following the comprehensive Financial System Inquiry, the Government has accepted, acted and continues to act on all but one of the report's recommendations, because the biggest decisions Australians make – buying a home, providing for our retirement or starting a business – are all supported by our financial system and it is imperative that it remain strong.
The Government has endorsed the steps our banking regulator, APRA, is taking on capital requirements to ensure that our banks are unquestionably strong.
APRA's focus on bank capital builds on the actions already taken to bolster bank liquidity arrangements in recent years. Both the content and timing of regulatory changes take into account developments in the Australian economy and in international financial regulatory frameworks.
And we have seen real improvements in capital adequacy ratios as a consequence. Tier 1 capital adequacy ratios have increased from 7.5 per cent in mid-2008 to 11.6 per cent by the end of 2016.
This is especially important as:
1. our banks source a considerable share of their funding offshore, reflecting Australia's position as a net importer of capital, and
2. our banks provide the bulk of the domestic credit that local firms and households receive.
Notwithstanding the progress being made, there is more to do to ensure Australian banks maintain their strong positioning compared to the rest of the world.
APRA has decided that it does not make sense to wait any longer for an agreement on Basel IV to be reached in order to deal with the question of 'unquestionably strong'.
However, In pressing ahead APRA will keep a close eye on trends in the rest of the world..
While still hopeful that we will see an agreement, it is important Australia continues to move forward and our regulator will continue to enjoy the strong confidence of the Government as it acts to calibrate the resilience and stability of our financial system to international standards while doing what is necessary to suit our national needs.
APRA has also been adopting measures – with the full support of the Council of Financial Regulators – to address the risks associated with household debt and housing lending.
Australian household debt has risen over recent years and is high by international standards, rising from 105 to 123 per cent of GDP, or $2.1 trillion, over the past decade.
Australian households are the fourth most indebted in the OECD – behind only Denmark, the Netherlands and Norway.
However, as alluded to by Governor Lowe on Tuesday evening, we should also bear in mind that low interest rates, increasing household assets, and our debt concentration in higher income households, provide some comfort.
The net worth of households has risen by around 80 per cent, with household assets increasing to $11.7 trillion over the past decade, which is five times greater than its debts.
Interest rates have fallen faster than debt has increased, meaning that the share of income going to interest payments has actually fallen over the past decade from 11.4 to 8.5 per cent.
Balances in offset and redraw facilities remain high at around 17 per cent of outstanding loan balances or around 2 ½ years of scheduled repayments at current interest rates. These offset facilities, although popular in Australia, are not available in most countries and are not recognised in many household debt calculations.
The distribution of debt is also skewed towards high income households. Households in the top two income quintiles hold around 60 per cent of Australian household debt.
APRA began implementing measures in response to concerns about declining lending standards and growth in lending to housing investors in December 2014.
Last week APRA took further action with a carefully calibrated and proportionate set of measures to limit the share of housing lending that is interest-only.
The decision by APRA to announce these measures was the right one.
Australian government regulators will continue to carefully monitor risks to household balance sheets, and promote sound lending practices by Australian financial institutions, fully backed by the Turnbull Government.
We are also addressing the problems in our banking and financial system to ensure our banks and financial institutions are held to account, by ensuring customer disputes are heard and resolved, that we are maintaining competitive pressures in the system to ensure that customers get the best deal and that there are serious sanctions in place to deal with bad behaviour and malfeasance.
Minister O'Dwyer is taking action through the Ramsay review to put in place a more effective, more accessible and more affordable dispute resolution process for banking customers. She is moving on the Australian Small Business and Family Enterprise Ombudsman (Carnell Report) recommendations, on a last resort compensation scheme and providing access to redress for past disputes. Together we have acted on the ASIC capability review to increase the resources and powers of ASIC to deal with malfeasance in the banking and financial system.
We are supporting new innovation though our FinTech agenda, which has included the establishment of a world leading regulatory sandbox. We have received the Productivity Commission's final report on Data Availability & Use and will be considering the recommendations carefully. The PC can now move onto a new task to implement the Murray Inquiry's recommendation to review competition in the banking and financial sector.
And our permanent standing inquiry into the Banking and Financial system by the House of Representatives Economics Committee, led by David Coleman, continues to keep the tension in the cord on progressing necessary reforms and informing our ongoing agenda, while holding the banks to account.
This is a big agenda that is not only making our banking and financial system more resilient and unquestionably strong - but more accountable and competitive to meet the needs of consumers and our dynamic economy.
Enterprise Tax Plan
Moving to tax.
On Friday the Turnbull Government passed legislation through the Senate that will deliver tax cuts for around 3.2 million small and medium Australian businesses, employing over 6.5 million workers - that's more than half of Australia's workforce.
Australia cannot rely solely on our resource advantages to secure jobs in the future.
If we wish to continue to see our living standards rise — to create more jobs with higher wages — then we need to ensure our tax system encourages investment and enterprise.
As I've said on many occasions, you don't get a job in a business that is shut. And you don't get a pay rise in a business going backwards.
That's why reducing the taxation burden on businesses is common sense.
These tax cuts will allow small and medium sized businesses to invest more, employ extra staff and pay higher wages - putting more money in the pockets of hardworking Australians.
Our Government has delivered every tax cut promised for this term of government – inside the first year.
Unlike Labor, we don't need convincing about the merits of having an internationally competitive corporate tax rate. That is why we acted and worked so hard to get this first stage passed.
But we believe the full plan should be implemented.
The gains will be felt from the start and once fully implemented, our policy will permanently increase the size of the economy by more than 1 per cent of GDP – that's more than $17 billion in today's dollars every single year.
The economic plan I outlined in last year's budget committed to fixing specific problems in our tax system.
In the past year, we've continued to toughen up on multinationals. Australia now has some of the toughest laws in the world to combat multinational tax avoidance.
We're making sure multinationals pay their fair share of tax so that Australian citizens get the tax from the profits earned in Australia, from Australian consumers, that is needed to fund vital infrastructure and services.
The Australian Taxation Office has today confirmed that measures including our Multinational Tax Avoidance Legislation will enable us to claw back around $2.9 billion in additional tax liabilities this year. The Government has also succeeded in legislating our Diverted Profits Tax, further preventing multinationals from shifting profits made in Australia offshore to avoid paying tax.
The Diverted Profits Tax commences on 1 July, and is conservatively expected to raise $100 million in revenue a year from 2018–19.
This comes on top of other moves to set up a Tax Avoidance Taskforce, increase penalties, and strengthen whistleblower protections which are expected to raise almost $4 billion over the budget and forward estimates.
In the area of superannuation, the Government's reforms go to the fairness, sustainability, flexibility, and integrity of the system.
Better targeted tax concessions make the super system more sustainable as the population ages and fiscal pressures increase. Superannuation was never designed to be the sole savings vehicle to allow tax-free wealth creation. This is why it is important to legislate the objective of superannuation to provide income in retirement and take pressure off the pension system.
That's why we have reduced generous superannuation tax concessions at the top end.
At the same time, 3.1 million Australians will benefit from the Low Income Superannuation Tax Offset.
We've also made changes to increase flexibility and choice in superannuation to support how people work and save in our modern economy.
In the area of income tax, the Government delivered hard-working Australians some modest relief, so when they earn more, they won't be taxed more.
By pushing up the tax threshold on the middle tax bracket from $80,000 to $87,000 per year, we'll keep average full-time wage earners on the lower rate for longer.
We appreciate that is a modest change. But, as I said last year, we prefer to leave a dollar in Australians' pockets than take it for the Government's pocket.
Innovation and Science Agenda
Another part of our plan is boosting innovation by backing in new and start-up businesses.
We have made it easier for entrepreneurs to access a larger pool of investors through a crowd-sourced equity funding framework, enabling unlisted public companies with less than $25 million in assets and annual turnover to raise up to $5 million in any 12 month period through crowdfunding platforms.
We've strengthened tax incentives available to investors in start-ups and are encouraging an entrepreneurial culture in Australia by providing a 20 per cent non-refundable carry forward tax offset on investments in qualifying companies (capped at $200,000 per investor per year), and a 10-year exemption on capital gains tax (provided investments are held for 12 months or more).
And we're looking to improve our insolvency laws to encourage more entrepreneurs, in addition to positioning ourselves as one of the world's leading regulatory jurisdictions for FinTech.
Defence industry plan
Our defence industry plan is part of our wider jobs and growth agenda.
It makes sense. A strong local defence industry promotes innovation and technology, and the pipeline of work embodied in the continuous build approach will provide advanced manufacturing jobs for Australians for decades to come.
The defence plan creates new high-tech jobs in Australia — including 5,200 direct jobs in naval shipbuilding, not to mention other jobs right across the supply chain.
The multibillion Offshore Patrol Vessel project, which will see the construction of 12 new Australian-built vessels, is expected to create around 400 direct jobs, with construction starting in Adelaide in 2018 before moving to Western Australia in 2020.
Further, as part of a $306 million project that will create up to 207 jobs, 19 Pacific Patrol Boats will be built in Western Australia. Construction of the first replacement Pacific Patrol Boat by Austal is scheduled to commence later this month.
The Turnbull Government is also establishing the Maritime Technical College to support the significant workforce expansion and skilling needs for naval shipbuilding and sustainment.
We are also purchasing and will maintain 72 aircraft as part of the global F-35 Joint Strike Fighter program which will create 2,600 extra defence industry jobs by 2023, more than doubling the current associated workforce of 2,400, and provide a multi-million dollar economic injection into the Australian economy.
Delivering our economic plans also means ensuring Australian businesses can continue to take advantage of new export opportunities.
In the face of rising protectionist sentiment, it's more important than ever to keep our eyes firmly fixed on the benefits of trade and investment.
The Prime Minister recently highlighted how 'the China-Australia Free Trade Agreement, now just over a year old, has opened even wider, the doors of opportunity'.
The results are worth repeating: bottled wine exports are up 38 per cent; fresh navel orange exports up 46 per cent; skin care products up 82 per cent; abalone exports more than doubled; and Chinese imports of Australian lobster quadrupled.
The Korea-Australia Free Trade Agreement, entered into just over two years ago, is also providing export opportunities – growth opportunities – for our businesses.
Results for 2016 compared to 2014, before the agreement came into force, show exports of fresh or chilled boneless beef grew by 57 per cent, fresh Australian cherries are more than 10-fold higher, and exports of chipping potatoes and shelled macadamias have tripled.
The Japan-Australia Economic Partnership Agreement is also boosting trade and investment. Again, annual results for 2016 show solid trade growth compared to 2014 before the FTA came into force.
Australian exports of fresh or chilled boneless beef grew by 23 per cent, fresh table grapes were 50-fold higher, frozen beef tongue, a popular dish in many Japanese restaurants, more than doubled, and prepared and preserved abalone exports grew by 87 per cent.
That's just a snapshot, but I think you get the picture.
These sort of deals have contributed to the strong recent trade performance we have seen, with export values increasing by 30 per cent through the year to February and the two largest trade surpluses in our history occurring in the past three months. These improved performances have also contributed to Australia's current account deficit narrowing to its lowest level as a share of GDP since 1980.
In Australia, if you're against trade, you're against jobs — against jobs of the future as our economy transitions from the strength of our resources sector.
And the Government is continuing its record $50 billion investment in Australia's land transport infrastructure.
Right now, there are more than 1,000 bridge, road, and rail projects underway around Australia.
Here in New South Wales, we are investing $3.5 billion in WestConnex, $2.9 billion in our Western Sydney Infrastructure Plan that will support a future Western Sydney Airport, and $2.2 billion through our Asset Recycling program – including $1.7 billion for Sydney Metro.
Across the country, we remain committed to backing nation-building infrastructure with significant investments in the Bruce Highway in Queensland ($6.7 billion), the North South Corridor in South Australia ($1.7 billion) and the Midland Highway in Tasmania ($400 million) and Monash Highway in Melbourne and the Forrestfield Airport Link ($490 million contribution) in Perth.
These and many other projects, including our city deals, around the country will reduce congestion, better connect our products to domestic and international markets, and support jobs and investment growth.
The Turnbull Government remains committed to continuing to support our vital nation-building infrastructure program and to getting more value for taxpayers for every dollar we invest.
Repairing the Budget
Finally, the Government has not shied away from the Budget repair task.
The predominant way to restore the Budget to balance is by getting expenditure under control.
Since we were first elected in 2013 we have reduced the growth in expenditure from over 3.5 per cent to less than 2 per cent and reduced the growth in debt by around two thirds, which when Labor left office was growing at 34 per cent per annum.
Since last year's Budget, almost $25 billion of budget repair measures have been successfully implemented and legislated.
That is around two thirds of the task, with $22 billion being achieved by December last year.
Our mid-year update in December confirmed that Government payments as a share of GDP have declined since the 2016 PEFO — from 25.8 per cent of GDP to 25.2 per cent of GDP in 2016–17 — and remain steady at 25.2 per cent of GDP over the forward estimates.
The mid-year update also once again projected a return to balance in 20-21. The combination of these results played an important role in all three ratings agencies affirming our AAA status following the mid-year update.
Our achievements in Budget repair have also enabled us to move forward on initiatives like our Jobs for Families package, which delivers more affordable child care for hard working Australian families that had been frustrated by Labor and the Parliament for almost two years. As the original author of the package I was very pleased to see it finally pass the Parliament.
The passage of the Jobs for Families legislation reinforces two important principles that motivate our commitment to budget repair.
First of all, you don't spend money you don't have.
Secondly, by achieving savings you can make the investments needed to deliver and support the services that Australians rely on.
The budget repair challenge continues as we finalize this year's budget, in the face of continued spending pressures, including the funding gap for the NDIS left by Labor which must be closed.
The Budget will need to address these unavoidable spending pressures and Labor's continued refusal to cooperate on repairing the budget will mean that the Government must enter into often transactional arrangements with the cross bench to get things done.
On Budget night last year the Government delivered an economic plan for our nation.
It was the right plan then and it is the right plan now.
We're delivering on that plan, notwithstanding the parliamentary challenges we face.
The business community of Australia has an important role to play in conditioning the environment for the positive economic policies the Turnbull Government is working to deliver.
We know Labor will continue to oppose us, especially when it comes to budget savings and implementing our enterprise tax plan. Not because they don't think it's right - but because they have chosen to play cheap politics with our economy.
Australians readily accept that supporting and backing in the efforts of small and medium sized businesses is good for our economy and good for jobs. However, they remain less convinced about the contributions of larger businesses.
Large businesses employ millions of Australians. Their investments fuel our economy and support the millions of small and medium sized businesses that depend on their success. The Coalition understands this. We know that for Australians to have secure jobs and better wages, all our businesses need to grow and succeed.
That is why we put our full enterprise tax plan in our budget, we took it to an election, we won the election, we put the legislation in the parliament and secured far more than our critics believed we would. But this task cannot be pursued by the Government in isolation.
Business has a critical role to play in demonstrating to the Australian people that as their business grows, their employees will benefit. And that job starts with the conversations they have in their own businesses.
When I walk into a small and medium sized business, the owner is on the floor and in regular contact with their employees. The success of that business is a shared enterprise. What's good for the business, employees know is ultimately good for them. That is why unions are so often shown the door in such businesses, because employees know that their interests are best served by working as part of a team with the business owner.
I have raised consistently with large business representatives the need to address the broader collective reputation issues large businesses have with the Australian public that are being cynically exploited by an opportunistic Labor Party.
If such issues are not addressed then the casualty will be growth, jobs and the public services that depend on a strong economy.
Large business needs to apply itself collectively and urgently to this task of communicating their value, not for the sake of the Government, but in the interests of the Australian economy, their employees and their own shareholders.
Labor has no plan for the economy. They haven't proposed a single measure that will grow the economy or generate jobs. Their alternative is higher debt, higher taxes and higher spending, which combined represent a triple A threat to our triple A economy.
By contrast, the Turnbull Government has a clear national economic plan to drive jobs and growth and we are sticking to it.
That is the fundamental job of any good government. That is what the Turnbull Government is focused on — and that's what you will see in my next Budget in May.
Thanks very much.