ADDRESS TO GRIFFITH BUSINESS SCHOOL’S POLICY MAKERS AND SHAPERS SERIES

Let me first acknowledge the elders and cultures of the Yugarabul, Yugerra, Jagera and Turrbal people, and all the first Australians.

I’m very grateful for the opportunity to be here today; to David for that kind introduction; to all of you, including our VC, Professor Ian O’Connor, for making the time; and to Peter Van Onselen who will direct traffic in the discussion and then interview me for GU’s A Middle Ground podcast later on. I’ve already reminded Peter I nominated him for a Logie once, so hopefully he takes it easy on me.

 

Can I also particularly thank my friend Anne Tiernan and her team for bringing us all together today.

 

I begin with a little bit of Griffith-specific trivia that this crowd might appreciate: if Labor wins the next election, it’ll be the first time the Treasurer and Finance Minister will both have Griffith degrees, given Chris Bowen’s Master of International Relations is from here as well.

 

When Anne and I met as Griffith students in the 1990s I was also knocking around with Anthony Chisholm – now a senator – and former Queensland Treasurer Andrew Fraser who studied here too.  I’m really pleased you’ve appointed Andrew to the University Council.

 

When Anthony and I arrived here it was the final weeks of the Keating Government, during the 1996 election campaign. Keating lost office on my 18th birthday, precisely one week after Anthony’s.

 

The economy we studied here 22 years ago would be barely recognisable today.

 

The mining boom was still to come, manufacturing and agriculture made up a greater share of the economy than they do now; and while service industries were rising, they weren’t at today’s levels.

 

The economy had started to pick up, but the RBA was still focused on the current account deficit and unemployment, then at around nine percent.

 

We were only then five years into a record-setting 27 years of continuous economic growth.

 

Just around the corner was the Asian Financial Crisis, the tech wreck, much later the big boom in resource prices – an opportunity sadly missed as $314 billion of the $334 billion in Budget upgrades during the latter Howard years were spent in what the IMF has described as the most profligate government in the last half-a-century.

 

That was before the Global Financial Crisis brought the sharpest synchronized downturn in the global economy since the Great Depression.

 

It’s quite remarkable that Australia grew right throughout that period and that enviable record of continuous growth is not now seriously at risk, at least not in the immediate future.

 

But the point I want to make today is that our economy is growing despite the current economic policy settings, not because of them.

 

Our economy and Budget should both be stronger in global conditions as good as these.

 

And we should be investing in the drivers of growth, productivity and resilience; ensuring the benefits are fairly shared; and making structural improvements to the bottom line.

 

 

Unfortunately these will not be the defining features of the federal Budget handed down in precisely one week.

 

Granted, there’s a lot we don’t know about it, but some things we do.

 

We know Scott Morrison doesn’t like being called Santa Claus.

 

We know that after sustained pressure the Government has backflipped on its plan to jack up income taxes on seven million working Australians.

 

We know there’ll be some long overdue infrastructure spending.

 

What makes this all possible is not some recent onset of economic genius but the fact this Budget is being framed in the best global economic conditions for a decade or so, geo-political and share market turbulence notwithstanding.

 

The IMF World Economic Outlook said last month that “the global economic upswing that began around mid-2016 has become broader and stronger”, and growth among advanced economies was expected to keep surging.

 

This is helping the Budget enormously.

 

Chris Richardson, in his typically colourful way, explained in Deloitte’s Budget Monitor just yesterday, that “the rivers of gold are running again”, seeing “a humongous improvement” in the Budget in recent months – a pace of improvement he claims has only happened twice before.

 

Already since this time last year, we’ve seen something like $10 billion in tax receipts upgrades in the mid-year and monthly updates, and we expect to see much more of this next week.

 

Yet this won’t fundamentally change the fact that Scott Morrison and Mathias Cormann still preside over a deficit far bigger than predicted in the 2014 Budget; gross debt crashing through half-a-trillion dollars with no peak in sight; and net debt is actually double what they inherited in 2013.

 

And remarkably, both kinds of debt are growing faster per month under this Government than under Labor, which had that GFC to contend with.

 

In fact, if you look at the monthly AOFM figures since they first began in 2001, Mathias Cormann has the worst record as Finance Minister, presiding over an almost $4.5 billion per month increase in net debt– over $670 million a month more than the next highest.

 

With strong global growth, there is no excuse for these fiscal failures.

 

Right across the Budget, Australia is underperforming.

 

We’ve dropped from 8th to 15th among advanced countries on general government gross debt as a percentage of GDP and our fiscal consolidation ranks us 25th among advanced economies. 

 

The IMF’s Fiscal Monitor showed while general government gross debt as a percentage of GDP has significantly increased in Australia since 2013, it’s stabilised or fallen for most other advanced economies, including the UK, Japan, Canada, France, Germany, the G20 and Euro area as a whole.

 

We’ve gone from leader to laggard.

 

We’re underperforming economically too.

 

Growth in the most recent National Accounts was weaker than expected and below trend.

 

Investment was feeble, and again below market expectations.

 

Productivity has been stuttering along. GDP per hour worked fell in six of the last 12 quarters; a rate not seen since the GFC.

 

Perhaps most troubling of all though is the data on the people-facing part of the economy.

 

The latest National Accounts show living standards actually went backwards in the last quarter and Real Net National Disposable Income Per Capita – the widely accepted proxy for living standards – has grown six times slower under this Government than the previous one.

 

Wages are stagnant and barely keeping pace with inflation.

 

Over the past two years the wages share of income has fallen and the profit share has risen.

 

So it’s not hard to see why so many people aren’t as quick to give the Government a pat on the back as Scott Morrison is.

 

 

Against a backdrop of declining living standards, growing inequality, poor investment and general underperformance, current government policies are remarkable for striking out in so many wrong directions at once.

 

Of course we welcome the Government’s Medicare Levy backflip.

 

But ditching a tax hike they should never have proposed does nothing to fundamentally change the Liberals’ Budget philosophy: to favour the top end of town at the expense of middle Australia.

 

They’re still attacking disposable income by going after penalty rates for some our lowest-paid and most-vulnerable workers;

 

Still cutting $17 billion of investments in human capital especially in our schools, on top of cuts to TAFEs and universities, when we need our people tooled-up and trained-up for the jobs of the future;

 

Still vandalising the Budget with a huge handout to big multinational corporations, which now costs $65 billion but we know will be more when the Budget numbers are updated next week, much of which will spray around offshore, and will see at least $13 billion of it flow to the four big banks.

 

Still locking in the biggest tax concessions which flow overwhelmingly to those who need them least, costing the Budget tens of billions of dollars each year at the expense of higher priorities;

 

Still wasting billions of dollars on contractors, consultants and labour hire companies when in many cases public servants could do a better job at a lower cost;

 

And still staking the return to surplus on $2 billion worth of ‘zombie’ measures over four years, which have little chance of passage, but which artificially and dishonestly prop up the bottom line.

 

What does this tell us?

 

Judged on their actions to date, we have a Government which seems to think that people are paid too much to work on weekends; pensioners are too well off; multinationals and banks pay too much tax; the safety net is too generous; and schools and skills are over-funded.

 

These are all absurd propositions and the Budget offers the Coalition a chance to change course.

 

 

Bill Shorten did a terrific job only yesterday pointing out the stark differences in the Government’s approach to the Budget compared with Labor’s.

 

We would happily fight an election on any or all of these issues, and we likely will.

 

On their own, the company tax cuts proposed by the Coalition will probably end up the most decisive – and divisive – difference between the parties when we go to the polls in the next four to 11 months.

 

But the political contest is not my main focus today.

 

There’s plenty of that in the commentary.

 

And besides, we don’t even know who we will be facing, or when.

 

And all of this distracts from a deeper and more enduring problem, that under the current Budget settings we have fiscal and economic policy working at cross purposes.

 

What Chris Bowen and I, along with our economic team, are working on is realigning those fiscal and economic policies and objectives.

 

Let me spend the rest of my time up here today talking about how, but first why.

 

 

We start by recognising something which is not often appreciated: that budget repair and the right kind of people-powered, inclusive economic growth can be complementary; not at odds.

 

Nobody is more committed to making the Budget more sustainable than we are.

 

No opposition has put more effort into improving the bottom line.  And not just in a temporary sense but in a structural sense.

 

Why? 

 

Because responsible fiscal repair is more important now than ever – to prepare us for a future downturn, to provide insurance for Australia’s credit rating and to make room for better and more targeted investments that promote the right kind of economic growth.

 

It makes sense to run temporary deficits amid dangerous economic conditions, but persistent deficits compromise a government’s ability to invest in human and physical capital.

 

For our entire period in government, we struggled with the legacy of the worst global crisis in 70 years that destroyed our revenues, and then a slow and grudging global recovery, and an Australian tax base that recovered even more slowly, complicated by an extremely high exchange rate.

 

An unsustainable fiscal position leaves government with less room and flexibility to protect the most vulnerable in society and invest in priorities like health and education.

 

Budget repair not only can be, but should be, a progressive objective.

 

It needn’t be unfair.  On the contrary.

 

We’re already demonstrating you can improve the bottom line and make the Budget fairer at the same time. And we’ve done it in the best and most up-front way you can – by telling the people our plans well in advance of an election, by wearing the political heat for the unpopular bit, but ultimately by being able to argue the fairness of our measures.

 

Big, progressive structural reforms are necessary because it’s possible under the current fiscal settings that we could just pass into surplus and then fall back into deficit quite easily.

 

 

Investing in more inclusive growth doesn’t require enormous outlays either.

 

What matters, as always, are the priorities.

 

So let me give you three tests we will assess the Budget against, three principles which will guide our response and to the further policies we develop in the months ahead.

 

The first is investment in productivity and inclusive growth.

 

That means encouraging business to invest here, the purpose of Labor’s Australian Investment Guarantee, which allows business to immediately deduct 20 per cent of any new eligible asset worth more than $20,000.

 

This not only costs one-seventh of the Government’s company tax cuts but, as independent modelling from the Victorian University’s Centre for Policy Studies points out, is more effective in stimulating investment and improving national welfare than company tax cuts.

 

It means investing in people, their schools and skills.

 

In infrastructure.

 

And co-investing in renewable energy and advanced manufacturing.

 

All areas where we have released detailed and costed policies.

 

 

That’s the first principle: investment in productivity and growth.

 

The second is tax reform which makes lasting, structural improvements to the Budget which grow over time.

 

That’s why we’ve had the political courage to take on tax breaks once deemed too sensitive to go near, like dividend imputation cash refunds; the taxation arrangements around family trusts; negative gearing and capital gains; high-end superannuation concessions; multinational tax avoidance and tax havens; and plenty of other measures, including a cap on deductions for managing tax affairs.

 

We recognise that if we don’t deal with these concessions the Budget will be increasingly consumed by them into the future, crowding out those more important investments in growth and productivity.

 

Consider this as evidence:

 

In new numbers just released, we have seen a 30 percent increase in the number of millionaires who pay no tax – not a cent, nothing, nada – in Malcolm Turnbull’s Australia.

 

The same data from Friday showed that between 2012-13 and 2015-16 the number of property investors who own at least five properties grew at triple the rate (13 per cent) of the number of investors who own just one investment property (four per cent).

 

The negative gearing tax concession costs the Budget about $3.6 billion.  More than we spend federally on vocational education or paid parental leave.

 

Then there’s the fact Australia foregoes more on the capital gains tax discount than it spends on Government funding for public schools or support for veterans or childcare assistance.

 

And the discount is estimated to have doubled since 2013-14 to be $10.3 billion this year, and on average will have grown at 15 per cent a year to 20-21. It’s growing five times faster than higher education spending and twice as fast as support for carers.

 

We cannot accept a status quo that sees the Turnbull Government hand the biggest tax breaks to those who need them least.

 

Building a stronger budget and a fairer tax system is about closing loopholes and tightening laws – but not just that.

 

 

It also means cracking-down on companies and employers who are operating outside the law.

 

That’s why we need to put a spotlight on the so-called ‘black economy’ – a $25 billion drain on our economy in 2012 according to the ABS, which most experts agree has only grown.

 

I’m talking about:

 

Dodgy labour hire firms paying casuals cash-in-hand – which means lower wages for the worker, no superannuation contribution and tax avoidance for the company;

 

‘Gig-economy’ jobs, inflicting industrial-scale underpayment;

 

ABN fraud, using multiple or incorrect business numbers to avoid paying tax, to avoid paying clients and to avoid paying workers; and

 

Phoenixing, where companies liquidate to skip-out on debts they owe to employees and creditors – only to bob up a week later with a different name.

 

These problems have been left to fester for too long and attempts so far to tackle them have been half-hearted.

 

Dodgy operators are ducking the law, they’re using cash transactions to bank profits outside the system and it’s working Australians who are left to pick up the tab.

 

You can’t be serious about budget repair and stronger surpluses while you’re standing by and allowing this kind of industrial scale tax evasion to go unchecked.

 

 

So structural tax reform, and investment in growth, are two big priorities.

 

The third is savings which spare the most vulnerable.

 

Ever since the horrendous Budget in 2014, notorious for its cruelty and callousness, the poorest have been asked to carry the heaviest burden.

 

Even now, harsh savings measures that can’t pass, or haven’t passed, the Parliament are propping up the Budget bottom line.

 

As long as these measures, including axing the Energy Supplement for two million vulnerable Australians, remain in the Budget, it is in many ways just one big fiscal fairy tale that isn’t worth the paper it’s written on.

 

 

And at the same time as vulnerable people are lectured about tightening their belts they see a Government spraying billions of extra dollars on contractors, consultants and labour hire.

 

The Government refuses to say how much exactly it spends on contractors.

 

But just last week the ABS told a Parliamentary inquiry it spends double on hiring an IT contractor than it would cost to hire a permanent employee – a perfect example of a “false economy”, where a perceived saving on public servants ends up costing taxpayers more in consultants.

 

Based on our analysis of the AusTender website, this Government has more than tripled labour hire spending, from $201.1 million in its first year in 2013-14, to more than $750 million in 2016-17.

 

Of course, the Finance Minister has already tried to argue that these numbers – his own numbers, incidentally, from his own Government’s own website – aren’t reliable.

 

We need to make sure taxpayers know how much of their money is going to contractors, consultants and labour hire.

 

Labor will develop a plan to overhaul the reporting of procurement data and procurement management systems, which would require procurement and government spending data to be collected on a central database, including contract reporting and consultancy spending.

 

We will require agencies to keep records of sub-contractors used; we will set clear definitions for contractors and consultants and establish broader reporting categories to ensure all data is adequately captured and transparently reported; and we will require all departments to properly track the status of their non-APS workforce, including the number, level, cost and length of service of labour-hire firms.

 

By hollowing out the public service and imposing arbitrary caps, the Liberals are forcing Government agencies to spend more taxpayer money on less.

 

I’ll have more to say on the future of the public service, focusing on the issues around the ASL cap, labour hire, and more on our procurement framework. 

 

 

This is just some of the policy work we’ve been doing.

 

We also need to think longer term, avoid the fiddles and fixes, and find ways where better budgeting can lead to better outcomes for Australians.

 

Since February last year, I’ve been consulting with experts and other interested parties on ways to improve the budget process.

 

We need better, more transparent, more forward-looking budgeting to lead to better, more-transparent and more forward-looking policy decisions.

 

Already Chris Bowen has flagged changes to forecasting in the Budget.

 

Labor is working on a much greater focus on medium-term pressures including longer term projections of major revenue and spending items and major new measures.

 

There needs to be more independent scrutiny of these issues to ensure the public is well informed. That is why we have included 10-year costings for our major initiatives, not just four-year ‘forwards’.

 

The Intergenerational Report is an example of long-term projections that were particularly politicised in 2015 and thus dismissed.  That’s why last term we committed to asking the PBO to do it in future.

 

We are also looking at re-introducing cameos to better understand distributional impacts; how to give the PBO greater capacity to inform the public on long-term pressures on the Budget; and how modelling and projections of broader economic benefits could be further used to better evaluate Budget proposals in areas like social policy and early interventions.

 

This is in addition to the fiscal rules which we will release in advance of the election.

 

 

But first we have this 2018 Budget to respond to.

 

I’m grateful for the opportunity to be back here at Griffith and hope I’ve been able to give you a sense of how we will approach it.

 

Whenever the election is, we want to enter Government through the front door of well-considered policy, hard-work and preparation, not sneak through the back door thanks to the overwhelming disillusionment with the other side of politics.

 

I hope my contribution today has given you a sense of that, and I look forward to the discussion.