A tremendous campaign was waged here in Higgins and Kelly you did an outstanding job, demonstrating not just your great skills when it comes to the Treasury portfolio matter, but as a grass roots politician who focuses on her community where she’s able to, she’s able to bring together such tremendous support like we see here this morning and that is reflected across her community.
I think that was a tremendous result Kelly.
And thank you, together with Mathias Cormann who’s here with me this morning and many other colleagues who’ve already been acknowledged.
But to Mathias, together with the Prime Minister and the rest of the ERC the depth in progress that we have brought together the Budget, which I will speak a little bit about this morning and then provide the opportunity for some questions up here on the panel and to get into a bit more of the detail.
But it would be remiss of me if I didn’t acknowledge Peter Costello in this his home room and his home town and Peter you are the standard by which all other Treasurer’s seek to aspire to.
You are our greatest federal Treasurer of all time. It will have to be some time before we even trouble the scoreboard on that one to reach your heights. I want to thank you personally for the great encouragement you give me and the advice that you often are providing both when I ask for it and sometimes when I don’t, but it’s always good advice because it’s based on a wealth of experience and understanding.
I mean Peter know these papers better than anyone and it’s ‘cause he lived them for such a long time and he put Australia in such a strong economic position.
And for Kelly and I and for Mathias and the rest of the team that’s a standard that we seek to aspire to, Peter, so it’s a great privilege to be here with you, both as a friend and as a mentor, thank you very much. Could you please acknowledge a great Treasurer.
And I could say as a Sharks supporter coming to Melbourne after last year’s grand final as I’m pleased to be coming to Melbourne but you wouldn’t have the faintest idea what I was talking about in rugby league so I think I’ll just move on to the matters at hand.
Budgets are all about choices. And before I go into a bit more detail about the choices that we’ve made in this Budget, what we believe are the right choices to secure those better days ahead. Because I believe there are better days ahead and that’s not just me saying that, the Governor of the Reserve Bank’s saying that, the IMF’s saying that, the World Bank’s saying that, economists all around the world are saying that.
Mathias and I have both recently been over the course of the last few months at G20 meetings where you come together with your colleagues and the turn in sentiment globally it is there, it is visible, it’s credible, it’s palpable. And there’s also an acknowledgment that Australia is well positioned to grow into that global growth because of the choices that we’ve been making over a long period of time, 25 years of consecutive economic growth, 26 this year and soon that will surpass the longest standing record of economic growth in recorded economic history.
There’s significant things that have been happening in the Australian economic, but they don’t happen by accident. The growth doesn’t just fall from the sky, it is the product of the hard work, the discipline of Australian people who refuse to be denied their prosperity regardless of the challenges that have come our way.
The tenacity of this economy and it's resilience is world renowned. And at the end of the day, if we make the right choices on policy, what we are simply is doing is this and that is unleashing, supporting, encouraging, guiding the great vision and economic passion of Australians to ensure that they continue to build opportunities for themselves, their communities, their families, those they love, to ensure that they have the support in the future that they would want for themselves and certainly they want to see for their children.
So that is our responsibility, and you’ve got to make the right choices to do that. And that’s what we’ve done in this Budget.
Last night the Labor Party made a few other choices, they weren’t the right choices, to secure the better days ahead for our economy. What we saw last night from the Labor Party and excuse me was the straight out, political 'Bill-dust" when it comes to what is needed in this country.
What we saw was the leader of the opposition, who frankly is too addicted to politics and cranky ideology, rather than doing what the Australian people want politicians to do these days and that is just to focus on getting the job done. To wherever possible work together to achieve the things that need to be done, to come together on solutions.
We saw no choice for an economic plan last night. There is no economic plan from those who would pretend to want to run this country in the Labor Party. There were no solutions there was just more ideological fringe dwelling, shouting at the clouds, playing to a union dominated base and that’s no way to run a country, it’s no way to behave in politics in my view.
The way that we should be behaving in politics is the way that we set out in this year’s Budget, to try and bring people to the middle ground where things get done. One of the things I admire greatly about the Howard Costello years and its Budgets, is that they were practical documents, things that actually were able to be implemented and things that actually took the country forward and that they could gain support around. And I believe that’s why the Budget I handed down on Tuesday night is very much in that tradition of pragmatic work and getting the job done policy making, with the eye to the future to ensure that we continue the country’s movement forward.
It is not the right choice to put a housing tax on our economy. It is not the right choice to have company tax at 30 per cent ten years from now, ten years from now, when we see all the rest of the world going in the opposite direction. That is not the right choice to have a company tax at 30 per cent ten years from now. It is not the right choice, absolutely not the right choice to have a top marginal tax rate of 49.5 per cent. That is economic madness. When you combine a 30 per cent tax rate ten years from now and a 49.5 per cent top marginal tax rate ten years from now, you are resigning the country to economic ruin. That is not a sensible, practical plan for the country, it is just pure ideologically driven politics. We don’t need that sort of political warfare in this country and I certainly hope that there are others in the Parliament that will eschew that type of negative approach and to focus on what’s necessary.
So let’s turn to our plan shall we. In this Budget we have a responsible and fairer turn to a balanced Budget, it’s pragmatic. The statement I released with Mathias in at the end of last year, we’ve improved upon and the balance, the 2021 takes us up to $7.4 billion over the Budget and the forward estimates. And if you look at the second chart you can see that that balance is expected to be maintained over the medium term and in fact a slightly higher balance projected over that medium term as a result of the measures we’ve put in this Budget and that occurs after dealing with the practical reality that for some $13.5 billion in net terms of savings measures we were unable to get through the Parliament have been reversed.
That doesn’t mean they were things and problems that didn’t need solving, those problems still need solving, but the Parliament and the Senate in particular has said they will not be supporting those measures. We’ve already been able since the last election to get $25 billion through of savings and other Budget improvement measures passed and implemented. And many said we couldn’t get that done after the last election but we did along with restoring law and order to the building and construction industry, the Registered Organisations Bill, there’s a whole raft of legislation that particular Mathias has played such a strong role in negotiating through the Senate.
But you’ve got to be real when it comes to your nation’s finances and the books and the Budgets have got to be credible and they’ve got to be honest if they’re to be respected, and that’s what we’ve done in this set of, in this set of numbers that we’ve outlined with the Budget this week.
Because see that dotted line there, that dotted line is what happens with the balance if you lift the tax to GDP cap, which we have imposed on ourselves at 23.9 per cent. Which I stress will be remained under over the full Budget and forward estimates period. Now that light blue line is where we’ll hold ourselves to account when it comes to taxes as a share of GDP but I guarantee the Labor Party will not. Nothing will ever constrain them when it comes to taxing the Australian people, nothing will ever constrain them. And so what you have is a commitment from us not just to bring the Budget responsibly and fairly back to balance but to keep it there and to keep the tension in the cord when it comes to issues of taxation because we understand that if you allow taxes as a share of the economy to go over that then you run the great risk of driving your economy into the ground which is something we can and we will not do.
But the other thing that we revealed in the Budget this week, and Alan Kohler who will be up here speaking with us shortly, and Alan has particularly emphasised the point about how you treat debt in our Budgets, and it is important to understand where you raise the debt. Now if I was showing you this chart ten years ago it would be showing you the proportion of borrowing requirements we no longer need because Peter Costello had paid down the debt. It was zero. But today that’s not the case, and the debt was run up again under the previous Government and what this chart shows is where that debt was run up. It’s one thing to borrow for nation building infrastructure, but it’s entirely another thing when you have had to borrow to pay for everyday expenses. If you put the food bill on the credit card it never ever ends well if you do that over a period of time.
That’s what the country’s been doing for the last ten years, you can see there that 45 per cent of the growth in that debt we have today has come from social security and welfare, 21 per cent from health, 10 per cent from education. Now that’s not saying that those are unimportant issues, of course they’re important issues. Health, education, the operational everyday expenses on these things, on hospitals and schools, on the welfare payments that are paid today, all of that should be paid for from the tax revenue we collect each year.
It should not be paid for by putting that burden on future generations and failing to respect those future generations. It should be paid for by living within our means and ensuring what comes in is only what goes out when it comes to these everyday expenses. So that’s what the debt, that’s 75 per cent of the debt has in particular been built up in those everyday expenditures. But when we look at what the forward estimates are showing, in 2018-19 the net cash flow from recurrent activities, in other words when that goes positive, which happens in 2018-19 for the first time in a decade we will no longer be raising new borrowings to pay for everyday expenditure.
Now this a significant return point for good financial management, getting ourselves back into the position with where we are borrowing and we’d prefer not to be borrowing at all, but we also need to ensure that we pursue our nation building agenda and growing our economy by investing in important infrastructure and other important programs like our naval ship building program and things of that nature. But we get back into the position in just over a year from now by ensuring that we only are raising borrowings to pay for those longer term procurement and other programs which provide long lasting benefits to future generations. And I think that is a very important turning point in this Budget.
Now people say what have you been doing with expenditure? Well on expenditure our projection, our tracking on expenditure as a share of the economy is an improvement on last year’s Budget and it gets us down to 25 per cent, a quarter of the economy over the Budget and forward estimates. And that is after having to reverse net $13.5 billion, $13.5 billion leaving more on the payments side well over the $14 almost $15 billion, in savings measures we’ve had to reverse.
So having to swallow that and keep expenditure at down to 25 per cent of the economy approaching the long term average which is 24.8 per cent, to be able to do that and to ensure that payments growth is under two per cent, it’s at 1.9 per cent we’ve continued to keep the tension in the cord on payments and keep expenditure under control. But we’ve also been pragmatic in what we’ve had to do on the revenue side to ensure that we maintain that trajectory to a Budget balance, which I’ve already outlined to you.
So turning to the plan, oh just quickly sorry on a couple of other points, so this is the projections on gross debt and net debt and you can see the net debt falling from around almost just under 20 per cent of GDP and falling down over the forward estimates to around just over eight per cent and that reflects a real reduction nominally in the amount of debt on net debt as well.
Remember when Peter talked about paying back Labor’s debt, the $96 billion worth of debt, that was $96 billion worth of net debt and that’s what that Government so successfully achieved. So you can see that as a share of the economy and indeed it’s true in nominal terms that we are paying down that debt over the forwards on the next decade by the program that I’ve outlined.
Now you’ll note there that there was an increase in the face value of Commonwealth Government securities on issue on the gross debt on the left hand side and one of the reasons for that is because of another important decision we’ve made and that is, and Peter and I Mathias have been working on this for some time. The Future Fund is one of the great legacies of the Howard Costello years and it’s, it’s fantastic that Peter is running the Future Fund. And what these two charts show is something incredibly important and I don’t think it’s really been picked up in any significant form in the coverage although I’ve mentioned it on many occasions. It is true that we can draw down on the Future Fund in 2021, that’s what the legislation says, we could do that. Nothing against the legislation that was passed and how it was set up but it wouldn’t be a good decision it wouldn’t be the right choice. Cause you see as the chart on the left hand side shows if we were to draw down on the Future Fund in accordance with what the legislation shows, the Future Fund will basically evaporate over a much shorter period, but guess what doesn’t evaporate, the unfunded superannuation liabilities which extend out to 2126-27, a century, a century.
So what we’ve decided to do, is we’ve decided that we’re going to allow Peter and the Future Fund team to keep doing the job to keep building that fund up and in this Budget we’ve projected over the medium term, not to touch the Future Fund. And what that means is it goes to a position of maturity where it can then be drawn down over a century to ensure that all of those liabilities are met by that fund. Now this is incredibly important, there aren’t too many times you get to make a decision in politics which will benefit a century of taxpayers but that’s what this is. By holding out for another ten years, and yes that does mean we have to issue more Government securities to pay for those bills in the short term, but given that Peter’s doing such a great job with the Future Fund and the earnings have been so strong. I mean why would we take money off him where he’s earning up to seven per cent when we can borrow at less than three? That would just be a dumb call. And so I’m pleased to have worked with Peter and the Future Fund together with Mathias to ensure that a century of taxpayers will thank us for the work that we’ve done in this Budget and it will be have to be a discipline maintained over the next decade. I guarantee you if Bill Shorten became prime minister after the last election he would have been raiding the till on that Future Fund within a heartbeat and it’s very important that we continue to protect it and do everything we can to ensure that we do that. So that’s what respecting future taxpayers is all about.
Now in this Budget there has been very strong commitments in the area of infrastructure.
In the area of infrastructure investment what you can see here is we, together with the capital commitments we’ve done and our recurrent funding, we have lifted, we have lifted the overall level of investment in productive infrastructure, economic infrastructure in this country compared to the Labor years. I mean this is very much a national infrastructure building Budget. Road by road, rail by rail and runway by runway, this is a Budget that invests in this big infrastructure, whether it’s the Melbourne to Brisbane inland railway, whether it’s what we’re doing in assessing and proving up the case on the Tulla link out to the airport, whether it’s the duplication of the Geelong- Waurn Ponds line which will connect Geelong better to Melbourne. And actually in doing so address actually housing affordability issues and giving people more, more of a better choice when they choose to live in a place like Geelong and be able to access the employment in the major Melbourne CBD. These are important programs, that are building not only our national infrastructure but the state infrastructure here in Victoria. There’s the north- east, north-east rail line upgrade, but not just on rail where we’ve established a $10 billion national rail program, which projects like the Tulla rail link can potentially feed into, but there’s also the ongoing investments in places like the Monash Freeway and the Princess Highway east and we remain committed to the east west link. If you look in the Budget you’ll find we remain committed to building the east-west link when there’s a Government in Victoria that’s prepared to do that. And that’s clear that won’t be the current Government.
But the funds are there and available, and they haven’t been completely depleted by the Andrews Government then there is a real opportunity to see that road built. Now they spent over $1 billion not building the road, that has to be some sort of record in Australian politics or in state politics, over $1 billion not to build a road, it is extraordinary. Every time I hear Tim Pallas going along to a Federal Government about infrastructure funding, I just shake my head, 'mate you spent over $1 billion not building a road', that is not something that really puts you in a position of any standing to be making arguments about the good expenditure on infrastructure in this country.
But we’re also prepared to work through with the Victorian State Government as a good federal Government must always regardless of the stripes of that Government and recently we saw in Western Australia, and Mathias Cormann was critical to the negotiation of this arrangement with the new Western Australian Government. Within a matter of weeks we were able to resolve issues around the Perth freight, within a matter of weeks, but it took well over a year and still going with the Victorian State Government to try and land arrangements around the redeployment of the east-west link funding but also keeping our east-west commitment alive. And that’s because in Western Australia there was a pragmatism and a willingness to get on and get the job done and get an outcome for people in that state. But we have been constantly frustrated with the politics been played always out of Victoria with the state government in trying to get agreements on funding. It’s always about keeping the fight going you can see when you’re trying to deal with Victoria, rather than just trying to get things done.
And we want to get things done and we’re keen to engage with the Victorian Government now and there has been an opening, we’ll talk to them about their shares in the Snowy Hydro Scheme. But we’ve said, if we’re going to increase our shareholding in the Snowy Hydro Scheme, in our discussions with the Victorian State Government, if you walk away with that capital, you’ve got to invest it in infrastructure in Victoria. You can’t use it to go around and use that money, to pay off all your union mates in all the special deals that union agreements you do in the public sector unions and lot, that’s not what that money’s for. If that money’s going to come out of Snowy, then that money’s got to go into roads and rail and bridges and infrastructure in Victoria.
Now I’m confident that’s the view that they’ll have, but I certainly hope so but gee I hope this is not just going to be another episode of playing politics on such an important issue and I hope we’re able to work through all of those names.
So a big infrastructure program that supports our enterprise tax plan and what we see here is we’re getting Australia to the lowest corporate tax rate in 50 years. Now that’s a plan to drive investment in our national economy, to grow our economy to support more and better paid jobs in this country.
And what Bill Shorten said last night is the reverse of that. We’ve already legislated company tax cuts for companies up to a turnover of $50 million. That is signed, sealed, legislated and delivered. Last night Bill Shorten made it crystal clear that if he’s elected he’s putting those taxes back up. Bill Shorten is saying that he wants to put his hand in the till of every single company in this country, he’s a till raider, that’s what he wants to do, he wants to go through and put his hand in the till of every single, in particular small business, in this country. Now that’s not a plan to support more and better paid jobs.
In our view we need to continue down the path of reducing the tax burden on businesses because we know that you can’t get a job in a business that’s shut, and you certainly can’t get a pay rise in a business that’s not going forward. So that’s why we increased the small business turnover from $2 to $10 million that’s why we’ve extended the instant asset write off and that’s why we’ve followed on from the Harper review report, that we initiated, and we created a $300 million fund to work with the states and territories to start in the regulation reform area of cutting red tape for small business. And last night Bill Shorten said he wouldn’t do that. So he wants small business to have higher taxes, he wants small business to have more red tape.
And the other thing we learnt last night is the $3,000 limit on tax deductions for your tax advice, I mean that actually includes legal expenses by the way. So if your ever think you might one day have a disagreement with the Australian Taxation Office, Bill Shorten says we won’t give you a tax deduction for taking the Tax Office on. Now Kelly looks after tax administration for this country, and they do a great job the Tax Office, they really, really do. But it has to be every citizen’s right, every taxpayers right, that if they’re in a position where they’re in disagreement with the ATO, then they should be able to go for it and have these matters resolved if it comes to that. And what Bill Shorten said last night is he won’t give you a tax deduction to dispute your tax concern. Now that is a very dangerous thing for him to do, he wasn’t clear about it last night but I can assure you that’s what the measure actually does.
So when it comes to company tax, when it comes to tax yes it has to be fair, we’ve all got to pay our fair share, tax is not optional but it should be as low as possible and that’s certainly the view of this Government, and taxes will always be lower under a coalition Government, as they always have been.
So in conclusion, Kelly there are some issues we can deal with on the panel, but this is a Budget which as you said is focused on security, it’s focused on opportunity and it is a fair Budget, it is a fair Budget. It’s a budget that makes the right choices to secure better days ahead. It’s a budget that grows our economy to support more and better paid jobs. It’s a budget that chooses to guarantee the essential services that Australians rely on, to give the confidence to go out there and participate in our economy, get a job, be involved, make good choices for their families. It’s a Budget that puts downward pressure on the cost of living including in housing, where here in Melbourne at Maribyrnong we’ll be releasing land for 6,000 new homes, here in Melbourne to relieve pressure on housing affordability in this city alone. And it’s a Budget as I outlined at the outset which clearly is living within its means. And that’s why I believe it’s a fair Budget and that’s why I believe it’s an honest Budget but most of all it’s a Budget and a Government that can be trusted to make the right choices for Australians.
Thank you very much.