ADDRESS TO THE INSTITUTE OF PUBLIC ACCOUNTANTS FEDERAL BUDGET BREAKFAST
PARLIAMENT HOUSE, CANBERRA
WEDNESDAY, 9 MAY 2018
ANDREW LEIGH, SHADOW ASSISTANT TREASURER: Thanks Steve. It’s great to be back at this budget brekkie. I acknowledge the traditional owners of the land the Ngunnawal people and pay my respect to elders past and present.
I know many of you here in the Great Hall are Canberrans. But for those of you who aren't, welcome to the best city in Australia - as certified by the OECD. I acknowledge our hosts, the Institute of Public Accountants, Canberra Business Chamber and Chartered Accountants Australia and New Zealand. And all of you for being here to engage in this important conversation about the Australian economy.
I want to start as I have in previous years by talking about the broad context in which this budget is being handed down. We've seen the IMF upgrade its growth forecasts for two thirds of the world's economies. Deloitte’s Chris Richardson commented that ‘the rivers of gold are flowing again’. He says it is ‘raining revenue’ on the budget. That's largely due to the upgrades to the world economy. But at the same time, we have significant local and global risks. Locally, we’re worried about the fact that the household debt to income ratio is the highest that it has ever been. Globally, we just had the announcement this morning that President Trump is pulling the United States out of the Iran Nuclear Deal. Another reminder that while growth forecasts have been upgraded, fragility remains in the system.
In terms of the Government's budget, we've seen net debt double over the course over the course of this Government. The talk of ‘debt and deficit disasters’, the debt trucks that were so readily seen when Prime Minister Turnbull was then Opposition Leader, seemed to have all but vanished.
What should a good budget do in that context? It should address productivity, the engine of growth for the Australian economy. It should look to reduce risks, ensuring that our housing market isn't so fragile and making sure that Australians as they are going about their day to day lives are less vulnerable to the vicissitudes of the global economy
Of course, it needs to tackle fairness. Inequality in Australia is now at a 75 year high. Any budget which doesn't recognise that the gap between rich and poor is grown markedly over the last decade has its head in the sand about a fundamental economic issue that has attracted the attention of everyone from the IMF to the OECD to central banks.
I've always commented in the past about what I like about a budget because one of the dangers of Opposition is you just end up focusing on the things you dislike. In that spirit, I commend the Government for some modest reforms to superannuation - for example, ensuring that for young people life insurance is opt-in. In terms of the first set of tax cuts, we'd said we will back those first tranche. It's interesting to see the shift from a Treasurer that was saying that poor people don't drive cars to a Treasurer that is now saying that we're going to give you a tax cut that allows you to help fill up the petrol tank. It's good to see the Government moving on that. But for someone on $50,000, a $500 tax cut only makes up for a 1 per cent slower wage growth. That doesn’t compensate for the fact that wage growth has been several percentage points lower over recent years than in decades past.
Many Australians will feel that the tax cuts simply don't give them back what they've lost in sluggish wages. Certainly for somebody who is copping a $77 penalty rate cut to their weekly wages, a $10 a week tax cut isn’t going to compensate. As to the longer run tax cuts, you'd have to re-elect Malcolm Turnbull twice in order to see the benefits of those. And so we'll hold back from any signing up to later round tax cuts.
The 2019-20 surplus is as wafer thin as you can get. 0.1 per cent of GDP is minuscule. As UNSW economist Richard Holden has noted, something as simple as the change in timing of tobacco excise can make or break a surplus of that scale.
We've still got considerable cuts to schools. When leading economists were asked by the Economic Society whether they prefer school investment or company tax cuts as a growth driver, most say that investing in schools is a better way of driving economic productivity.
We've seen in the United States the first round benefits of the big business company tax cuts have gone to share buy backs rather than wage increases. It's a point that even Republican Marco Rubio has recently made.
We've got cuts to the ABC, cuts again to overseas aid. We've got the $14 per fortnight cut to pensioners in the form of the energy supplement and the attempt to move our pension age to 70, which would make it the highest in the advanced world.
The budget doesn't tackle a set of tax loopholes that economists across the ideological spectrum have identified. There's a debt deduction loophole that allows multinational firms to shift their profits offshore. Labor identified it three years ago, but this budget still doesn't close that loophole.
We've had everyone from the Financial Stability Review to outgoing Treasurer Joe Hockey to the Grattan Institute saying our combination of the capital gains tax discount and negative gearing is acting not only to drive home ownership down to its lowest level in 60 years but also to create risk in the system. Tackling those tax concessions will be a fundamental priority for a Shorten Labor Government.
We have a system now where trust distributions are being used to create a two class tax system. Labor would address trust distribution to mature aged beneficiaries in the same spirit that then Treasurer Howard in the early 1980s addressed trust distributions to young Australians.
We'd close the tax loophole that sees cash refundability of franked dividends, something that only Australia does. And when you're the only country in the advanced world with a particular tax loophole, you do need to ask yourself, is this sustainable? Is this something we can continue to do? Most tax deductions are not refundable. With the exception of pensioners, Labor would close it.
Many of you are from Canberra so it would be remiss of me not to close with a couple of remarks about how the budget particularly affects Canberra. We've got national institutions such as the National Library and National Archives losing staff. Parking will cost more in the Parliamentary Triangle. We've seen over the course of the Abbott and Turnbull Government's not the 12,000 public servants that they said would go, but 14,044 public service jobs gone. That's almost literally a decimation of the federal public service.
We need to recognise how radical that is. In the Republican primaries a couple of years back it was only Rand Paul, the most extreme candidate, who said that he would decimate the US public service. But that's what the Abbott and Turnbull Government have done to our public service. You see it now with public servants having to work harder, with services being debilitated, problems with the tax office website, problems with the Census, problems with people waiting longer than ever on hold to get help from Centrelink.
In terms of infrastructure, Canberra again gets significantly less than our fair share. In terms of pork-barrelling of public service jobs, it continues apace with the Australian Pesticides and Veterinary Medicines Authority still being set to move to Armidale at a cost to the federal budget and a cost to the approval processes for those critical veterinary medicines that every cat and dog owner in Australia relies on. It's pork-barrelling pure and simple. As Canberra Business Chamber chief executive Robin Hendry has said, the exodus of agencies out of Canberra has to stop.
This is the third time I’ve addressed this gathering. I very much look forward to being back next year. My only hope, Steve, is that next year I might be moved one spot up the pecking order: talking to you about the priorities of a Labor budget, having been delivered by Treasurer Chris Bowen.
Thank you very much.
Authorised by Noah Carroll, ALP, Canberra