Appropriations Bills No. 3 & 4
11 February 2016
It will please the House, I am sure, to know that the opposition does not intend to block supply. We will support the appropriation bills, which, combined, appropriate an additional $2.2 billion for the 2015-16 financial year, largely to reflect measures in the 2015-16 Mid-Year Economic and Fiscal Outlook, as well as machinery-of-government changes resulting from the leadership change last year.
The 2015-16 MYEFO was released on 15 December last year, passing largely unnoticed. But those who were following it would have noticed that the deficit was again up. The deficit blew out by $26 billion over the forward estimates—a blowout of $120 million a day between the 2015-16 budget and the 2015-16 MYEFO. Most economists would not regard the No. 1 test of economic management as being a government's ability to deliver razor-thin surpluses. That is why independent economists would not generally regard a Treasurer like Peter Costello as being Australia's best ever Treasurer. Certainly, that is reflected in the fact that poor old Peter never managed to get the Euromoney award, unlike treasurers Keating and Swan.
The coalition before the election did make clear that they thought that debt and deficits were the signal test of economic leadership, so we need to assess them on that test. On that basis, net debt for 2016-17 is nearly $100 billion higher than forecast in the 2013 Pre-election Economic and Fiscal Outlook. Gross debt headed to $550 billion by the end of the forward estimates. The Pre-election Economic and Fiscal Outlook, prepared independently by the secretaries of Treasury and Finance during the election period, had the budget returning to surplus at the end of the forward estimates period. Now the budget is not forecast to return to surplus until 2020-21, largely on the back of bracket creep. Most of the work of returning the budget to surplus is due to bracket creep. Of course, if the Treasurer gets his way and is able to prevent bracket creep occurring, it is entirely possible that the return to surplus stage could blow out even further still, past 2020-21.
The economic context for all of this is absolutely critical. We need strong productivity growth in Australia in order to sustain living standards. Productivity growth in the years since the global financial crisis, in labour productivity terms, has been 2.4 per cent, which is around the level of the last 40 years—2.3 per cent. Labour productivity growth in the period since the global financial crisis has not been bad, but the question that many independent economists are asking is: where will the productivity growth of the future come from? A glass half full person might well point to some of the stimulatory factors: an Australian dollar at 70 US cents stimulating our exporters; the lowest global interest rates, if you believe in analysis by the Bank of England, in 5,000 years, stimulating businesses that seek to borrow; oil sitting at around $30 a barrel, which is good for manufacturers and transport-intensive industries; and other potentially positive signs—bipartisan interest in innovation, for one.
But there is a range of concerns on the horizon. Net disposable income per capita has been falling for six consecutive quarters. We often make the mistake in this country of thinking that GDP is our best proxy for living standards. It is not. GDP is adjusted to account for inflation, but it is not adjusted to account for population growth. Given that Australia over the last decade has been enjoying more rapid population growth than any other country in the OECD, failing to adjust for population growth is going to skew the metrics of living standards. Adjusting also for income accruing to foreign shareholders gives you a more precise measure of living standards. Net disposable income per capita is a measure which I believe we ought to be paying considerable attention to in Australia. That is now down two per cent since 2013. Real living standards are down two per cent since the coalition government took office.
We have had a huge share market shock this year. The earnings outlook in the Australian share market is now lower than the earnings outlook on the British stock market, the US stock market or the Japanese stock market. ASX dividend payout ratios are now above 60 per cent. We want companies to be paying out dividends, but to be paying dividends of such scale suggests a degree of timidity among boards as to their potential for making productive investments. Geopolitical concerns are everywhere from the South China Sea to the Middle East. There is significantly higher inequality with inequality now sitting at about a 75-year high in Australia. We have the highest carbon emissions per person in the advanced world and there is too little innovation. Just six per cent of ASX 300 firms say that Australia is a 'highly innovative' nation. We need more innovation if we are to enjoy that long run of productivity growth.
We have had capital expenditure falling. The latest data from September 2015 showed the worst quarterly fall since records began in 1987. This is not just a drop in mining capital expenditure, which all of us expected to decline as we moved from the construction to the production phase of the mining boom; capital expenditure is falling right across the economy. This is entirely at odds with what we were led to expect when the coalition government won office. Former Prime Minister Abbott used to say that he would be an 'infrastructure Prime Minister' and yet we have had steady falls in public sector capital investment growth. We have consumer and business confidence far lower than when the Abbott-Turnbull government took office. Consumer confidence on the Westpac measure is eight per cent lower than it was in the 2013 election. The NAB business confidence measure is 10 points lower than at the 2013 federal election. The transition from the mining boom and the fall in commodity prices are reflected in the budget, but we do not see from this government a clear plan to deal with that. If Peter Costello can deal with an Asian financial crisis and Wayne Swan can deal with a global financial crisis, surely t