AUSTRALIA DESERVES A BETTER, FAIRER BUDGET
INSTITUTE OF PUBLIC ACCOUNTANTS BUDGET BREAKFAST
PARLIAMENT HOUSE, 3 APRIL 2019
Thank you for inviting me along to what is now my sixth of these post-budget breakfasts. I acknowledge the traditional owners, the Ngunnawal people, on whose lands we meet today and pay my respects to their elders past and present. I thank host Leigh Sales and my counterpart Zed Seselja, the Institute of Public Accountants and Canberra Business Chamber. I started speaking at these breakfasts in 2014. Since that time, we've had three prime ministers, three treasurers. My opposing number today is the sixth person against whom I’ve squared off.
At the outset, I want to say something about where the overall economy is going, because we can get too focused on the fiscal situation and not think enough about the global and national economic context.
If you take global bond yields as a reasonable economic forecasting tool, you'd be pretty worried. They're negative in Germany, they're massively down in the US, the UK and Canada. The OECD last month downgraded its growth forecasts. In the US, fiscal stimulus is now fading. Just to listen to today's news, you've got the collapse of the Brexit talks again and suggestions that the US might pull out of NATO. China raises a range of challenges, including debt and political stability.
Here in Australia we have significant challenges around consumer spending. We've seen a lot of big names go bust in retail - Roger David, Laura Ashley, Toys R Us, Dick Smith, Bi-Lo, Angus and Robertson. As private sector economist Callum Pickering says “the retail sector continues to come under intense pressure from persistently low wage growth”.
What we've seen in this budget is again the triumph of hope over experience. Wage growth this year was projected a couple of years ago to be three and a half per cent. It's turned out to be closer to two and a half per cent. Yet the budget is forecasting again that it will go back to three and a half per cent without a set of policies to underpin that. But the wage slowdown hasn't hurt the budget as much as you might think, partly because pensions are indexed to wages, so slow wage growth reduces both outlays as well as receipts for the Commonwealth Government.
What has hit the budget is a big upturn in corporate profits. Just to give you some sense of that, two years ago, corporate tax revenue was a little under $70 billion. Now it's almost $100 billion and forecast to stay at that level. The trouble is, we know historically that the corporate tax take is the most volatile income stream for the budget. Making permanent decisions based on uncertain income isn’t good budgeting.
The decline in retail spending is a big issue for many of the businesses in the room. But it's less of an issue for the federal budget because GST revenue goes to the states and territories. So as Deloitte’s Chris Richardson sums it up, “the economy zigs and the budget zags”.
Overall, we’ve got inequality up, emissions up, energy prices up, and household debt up. We've got wage growth down, home ownership down, and savings down. The numbers that should be going up are going down. The numbers should be going down are going up.
We've also got an economy that's not diverse enough, that has too many of its eggs in too few baskets. It’s an economy in which we've seen a seven-fold increase in mergers over the last generation, but yet a decline in the business start-up rate, which is lower this decade than it was last decade.
Turning now to the budget. The Treasurer’s starting point last night was a projected surplus. It's important to be clear about what this means. Back in 2013, the Coalition promised they would never use the national credit card. They've now been on a six year credit spending binge. This year's promise is that they will finally put the national credit card away.
During that period, they have doubled net debt which is now almost $15,000 per person. The projected return to surplus is based on a $9 billion uptick in corporate profits, part of which can be linked to the unexpected dam tragedy in Brazil leading to increased demand for our iron ore prices. A quarter of the projected surplus is based on reduced spending on people with disabilities.
So it is a fragile promise indeed. As Leigh Sales pointed out in her interview with the Treasurer last night, it is only a projected surplus.
The budget does include tax cuts. We welcome those. Last year, the Government voted against Labor's plan to give bigger, better and fairer tax cuts to people earning $125,000. This year that's their policy. We welcome that backflip. We're a little disappointed that people earning under $40,000 will be left out and if we win office we'll need to sort that out.
But it's also the case that the tax cuts have been constructed in a way in which to get at least economic bang for the buck. As you know, the growth benefits of cutting taxes come when people know as they work that they're facing a lower marginal tax rate schedule. You don't get that effect when you get to the end of the financial year and say ‘surprise, here’s a tax cut’. So the growth benefit of these tax cuts could have been considerably larger if the Coalition had done the right thing a year ago and voted for Labor's tax plan.
By the way, the Treasurer claimed last night that taxes will always be lower under the Coalition. I draw your attention to his own Budget Papers, which show that taxes are now higher as a share of the economy than during any year at the Rudd-Gillard Governments.
There are, of course, things the budget we support. We think it's terrific that the government has come on board with our policy of commuter carparks, with Labor-supported projects such as the Gladstone Port access road. We're pleased to see the extension of the tax office's multinational tax avoidance taskforce, whose principal role will continue to be to enforce multinational tax laws that the Coalition voted against in 2012 and 2013. We don't however think that the Australian Tax Office needs to have $24 million - nearly $1 for every Australian - to run a massive ad campaign talking about what the government is doing on multinational tax.
For Canberra, it's slim pickings indeed. William Slim Drive gets $20 million. That's one tenth of what Labor would put in to light rail stage two, which is a $200 million investment. Unless you think the Kings Highway is a Canberra road – and I’d just like to point out that only 4 of its 140 kilometres sit in the ACT - this is disappointing news for Canberra. There's a mystery Canberra land sale, the details of which we're not told. There's a saving of considerable magnitude which has been made but not announced. Based on past record, that could easily be yet another cut to the public service.
So what would a Shorten Labor Government do differently? For businesses of all sizes we would offer the same corporate tax rates as the Coalition. On top of that, Labor would offer an Australian Investment Guarantee, allowing more rapid writeoff for assets for larger investments than covered by the instant asset write-off.
We’d get wages going again. That's good for business. Shortsighted businesses think they can have low-paid workers and high-paid customers. Smart businesses recognise that their workers and customers are the same people. We'll increase wages through cracking down on the misuse of labour hire, not to fill temporary vacancies, but to replace entire workforces. We’ll have a living wage for the lowest paid. We’ll restore penalty rates, which overwhelmingly go to those who spend all of their pay cheques.
We'll invest in productivity through human capital boosting investments, right through from increasing early childhood to 3 year olds to putting $14 billion into our public schools, a review of VET and an uncapping of university places which will see 200,000 more Australians go to university over the coming decade.
Following the success of the Keating Government’s competition reforms in the early 1990s, Labor has a similarly ambitious competition agenda, because it's vital that we're an economy that gives a go to the Davids as well as to the Goliaths. We need to make sure that we're banning unfair contract terms and we're giving appropriate resources to our competition regulator. And I want to single out Peter Strong for his strong support for Labor's changes to access to justice, that allow small businesses to take on the big end of town. It's pretty unusual for Labor reforms to pass a parliament under a Coalition government, but we did that in February to the benefit of many Australian small businesses.
We’ll improve the productivity of government through an Evaluator General, making sure we've got a better policy feedback loop, helping improve government programs. We'll have an energy and climate policy that puts downward pressure on household power prices and on emissions, which fell 11 percent during Labor's time in office but are rising under the Coalition.
We've got to end the rort that sees two-fifths of multinational profits being channelled through tax havens. I’m guessing most Australian businesses aren't using the Caymans and the Bahamas, but plenty of multinationals are. Labor's got a strong plan to tackle multinational profit shifting.
Finally, we’ll offer consistency in personnel and consistent leadership. During almost six years in Opposition, Labor has had one leader, one Shadow Treasurer, one Shadow Infrastructure Minster, one Shadow Attorney General, one Shadow Employment Minister, one Shadow Health Minister, one Shadow Agriculture Minister, one Shadow Minister for Climate Change. For that matter, we’ve had one Shadow Assistant Treasurer. We know you, and we understand your issues. That's the sort of consistency that I know business is desperate to see.
Australia deserves better than this budget. Our challenges are bigger and our ambition should be bigger than this budget delivers. I look forward to the contest of ideas and the conversation this morning.
Authorised by Noah Carroll ALP Canberra.