Bob McMullan (Fraser, Australian Labor Party) Share this | Hansard source

It is very interesting to have the opportunity to speak in the debate on the Appropriation Bill (No. 3) 2005-2006 and the Appropriation Bill (No. 4) 2005-2006 on the day after the Treasurer has put out his ritual annual tough budget warning. I refer to yesterday’s Australian Financial Review, with the headline ‘Treasurer warns of tight budget’. I am sure that all the people who follow these things thought, ‘It must be mid-February again!’ It is perhaps a little earlier this year because of the Commonwealth Games, but essentially it is the Treasurer’s standard game—and I do not just mean this Treasurer. It is the standard game of ‘treasurers’, plural, and, in some ways, a proper and appropriate thing for them to do even in years when they do not mean it.

But this year I hope the Treasurer does mean it, because the concerns that he has articulated have been raised by a number of people in this parliament, including me, over the years, and he has pooh-poohed them over the years. He has ridiculed them, and now he is articulating them. I hope he means it and is going to pursue it. He has said two things, one of which I do not wish to pursue today, although it is a very important issue and I understand that others, including the member for Rankin, have raised it—that is, the risk that, if the budget is too stimulating, it will lead to increased interest rates. I think that is a question that the Reserve Bank’s statement has left open, but that is not where I want to go and that is not the issue I want to pursue.

The Treasurer also went on to say, ‘The country had to avoid its long history of the economy faltering after a terms-of-trade boom ended in a bust. The country believes it can relax economic policy and spend up the proceeds. Inflation gets away, and the let-down is a hard adjustment.’ He is absolutely right about that and is absolutely right that we are in danger of doing it all again. It is ironic that he should be the one making those comments, because he is substantially responsible for the fact that we are in danger of doing it all again because of the way in which the economy has been allowed to grow and grow in such an unbalanced way with a trade crisis of monumental proportions. It is hard to believe that Australia can have the best terms of trade in a generation and the worst trade outcome in a generation.

Looking at it in big-picture terms, over the last 30 years there have been two big economic management mistakes made in Australia. Of course every year everybody gets things right and wrong in economic management because it is an inexact art. But there have been two big economic management mistakes. In recent years we have been so focused on not repeating one of them that we are galloping towards the other. I refer to the enthusiasm and speed with which we are proceeding to repeat the mistakes that were made when the now Prime Minister was Treasurer in the late seventies and early eighties, when we frittered away the benefits of the resources boom.

We thought the resources boom would go on forever, we spent it in consumption and it drove up inflation, it created a trade crisis and, at the end of the day, we finished the then Treasurer and now Prime Minister, Mr Howard’s treasurership with double-digit inflation and double-digit unemployment. That prospect—not double-digit inflation and double-digit unemployment, because we are in a different global situation, but that serious question of frittering away the resources boom in short-term consumption—is what I want to pay particular attention to while we are debating these supplementary appropriation bills, as we are actually in the process of the government considering the next budget, and it is to that I wish to turn my attention.

I firstly want to refer to some recent remarks that were unfortunately very quickly retracted by the Minister for Finance and Administration, because I thought he had it right when he suggested cutting or abolishing the superannuation contributions tax was a more responsible and important reform than the current frenzy surrounding income tax and particularly income tax cuts at the top end. It is a great pity that the Treasurer seems to have overruled the finance minister and that this proposal seems to be off the table. It is very hard to believe that we are seeing a debate within the government dominated by calls for tax cuts when the official forecasts are suggesting continuing strong growth and the economy is already sucking in imports at an unsustainable rate.

As Max Walsh said in a recent article in the Bulletin, it is just not responsible—these are my words, not his, but that was the tone of his remarks—to be advocating the sort of tax cut that will lead to more consumption when excess consumption is one of those things, along with the shortage of savings, that is driving the trade crisis that Australia faces today. So this reinforces the point that cutting or abolishing the superannuation contributions tax is a much better policy option that top-end tax cuts in this year’s budget.

There is a real risk that the current and forecast surge in revenue driven by the global resources boom will not last as long as we hope. After all, basic economics tell us that the higher prices will attract increased production to meet demand, and this will inevitably slow the price boom for our resources. All booms end; this one will too. When the current Prime Minister was Treasurer, Australia frittered away the benefits of the last resources boom. We must not repeat that mistake. We need to use this temporary benefit to buy some real reform, some genuine structural change in the economy and some lasting social benefit.

One option would be a major program of infrastructure investment, but a cut in tax on superannuation contributions would deliver some real reform and deliver benefits to working Australians, yet not exacerbate the pressure on imports or interest rates. Access Economics has warned that a large tax cut and its consequences might lead the Reserve Bank to increase interest rates. This would make it at best a zero sum game and would leave many families worse off. But using the surplus to cut or abolish the superannuation contributions tax would boost the retirement incomes of all Australian workers without running these risks. The benefits would be substantial and real but would be locked up for the future—and boosting savings and retirement incomes is a significant long-term need. Such an initiative would not be just a tax; it would be genuine reform. But any step in this direction needs balanced consideration.

Last year the Treasurer delivered big superannuation tax cuts to himself and all those, including me, in higher income brackets, while low- to middle-income earners got nothing. We cannot justify doing this again. At the same time, the superannuation co-contribution scheme, which is claimed to be designed to assist those on lower incomes, is so open ended that much of the benefit flows to low-income earners in high-income households. Given that the biggest winners from abolishing the contributions tax would be high-income earners again, some balancing measures would be required. On the superannuation front, this would need to include attempts to better target the benefits from the co-contributions scheme or looking at other measures to balance the flow of benefits.

In addition, another genuine reform which might balance the flow of benefits would be to target such tax cuts as are responsible to low- and middle-income households to reduce the punitive effective marginal tax rates they face on any extra income they earn. Properly structured, this could also constitute long-term structural reform because it has the potential to address work disincentives at a time when demographics and economics are combining to put pressure on the labour market. There are many alternative packages which could be considered. The key questions to ask are: does the change address long-term economic and social challenges? Will the measures exacerbate our trade crisis? Will the proposals put upward pressure on interest rates? Abolition of, or substantial cuts to, the tax on superannuation contributions passes all these tests.

It is a great pity that our reform-shy Treasurer seems to have ruled it out. Let us hope the Prime Minister backs his new Senate leader and overrules the Treasurer. That is where the nation’s long-term economic and social interests lie. So I want to put that firmly before the parliament as a proposition that I think is far superior to the fevered pursuit of high-income tax cuts, unless those are funded by equitable base-broadening measures.

I turn now to another broad economic issue that I think the budget almost certainly will not address—because everyone is very complacent about it as the superficial statistics look good—but where I think there is a serious problem in our country. Contrary to popular belief, this year’s budget needs a jobs focus as well as needing to respond to the emerging skills crisis. It might come as a shock to many to realise how little progress we have made in lifting employment under the Howard government. On the surface things are fine. The unemployment rate is at a very low level, although it is starting to trend upwards and I expect it will continue to do so in coming months. But this does not tell the full story. Many Australian families are asking the question: if times are so good, why are we finding it so hard to get ahead?

Of course, there are many aspects to the answer to that question: changes to health insurance, the GST impact, the boom in housing and building costs, surging family debt levels et cetera. But there is a hidden explanation. So much of the employment created since March 1996 has been part-time work that we are effectively no better off on the employment front than we were in 1996. The full-time equivalent employment level has scarcely changed. These are Australian Bureau of Statistics figures. In March 1996, the full-time equivalent employment level was 77.6 per cent. In March 2005—which are the most recent figures I had access to—it had gone from 77.6 to 77.8 per cent. In other words, there was effectively no change at all. How can these two factors both be right? Unemployment is falling but the overall employment level is not rising.

The answer is the boom in part-time employment. The experience of many families reinforces this. Families which depended on a full-time job are now looking at one or more part-time jobs. Of course, there is nothing wrong with part-time work. If that is all you want, it is terrific. It is a supplement to family income or as a transition into or out of the workforce, but if you want a full-time job and cannot find one part-time work is better than nothing but a poor second-best to a full-time job. And the figures are crystal clear. The figures of the Australian Bureau of Statistics for September 2004 show 612,900 part-time workers wanted more hours. That means more than 20 per cent of part-time workers see themselves as underemployed. Of these, more than 360,000 wanted full-time work. Therefore, we should not have any nonsense suggesting that talking about underemployment is a slur on part-time workers. The two million part-time workers who are satisfied with the amount of work they have should be recognised for the legitimate contribution they are making to their families and to their community, but when we recognise that more than 600,000 part-time workers want more work the blizzard of apparently contradictory figures begins to make sense. It begins to explain how unemployment can appear low and yet wage pressures are so weak. The labour market is effectively no stronger now than it was in March 1996. This is one of the reasons that pressure on the Reserve Bank to increase interest rates is less than it would be expected to be with headline unemployment so low. The explosion in part-time work is also part of the explanation of the pressure on families to balance the budget, even in what appears to be economic good times.

Another significant aspect of this new data on the employment situation is what it shows about the vulnerability of families if the economy slows. When the economy started to slow in 1990 the full-time equivalent employment rate was above 80 per cent. It fell to 75 per cent and recovered to 77 per cent by the time of the election of the Howard government and has been stuck there ever since. This means that if the economy slows even a little, as it appears to be starting to do now, we will rapidly get to a full-time equivalent employment rate as low as or below those of the recession in 1990-91. The failure of the Howard government to create full-time jobs has left families vulnerable.

It is also very alarming that at a time of such significant underemployment Australia should be suffering a skills crisis. There is obviously no shortage of Australians available and willing to work. The skills crisis is not being caused by too much success in employment generation. It is an indictment of a decade of underinvestment in skills development and training. The 2006 budget needs an employment and skills focus. If this Treasurer’s 11th budget is as complacent on this front as his previous 10 have been, Australian working families will bear the burden.

In the remaining five minutes, I want to come back to a comment I made previously about economic debate in this country. In the lead-up to the 2005 budget in the United Kingdom, the British Institute of Fiscal Studies published an authoritative examination of the options open to the Chancellor of the Exchequer, but nothing comparable is published in Australia. The UK commentary examined questions such as: how likely is the Chancellor to meet his fiscal rules, and what has been the distributional effect of the government’s tax and benefit policy decisions to date?

Despite good work by many commentators, there is nothing to equal this in Australia—and we would be well served if there was. Similarly, after the UK budget the IFS published a comprehensive budget analysis which contained both macro-economic and distributional analysis. Although we will see much well-informed commentary after the budget, there will be no equivalent independent and authoritative analysis, and our democratic debate is the poorer for it. That is why I have been calling for some time for Australia to establish a body similar to the UK’s Institute of Fiscal Studies to enhance the quality of our economic debate here. The quality of our economic debate is not an esoteric matter which affects only economists and politicians. If it was, it would not be worth spending even a dollar on it. But the experience of previous decades shows that the quality of economic analysis and debate in any one period is a significant factor in creating the preconditions for strong economic growth in the future.

The great economic reforms of the 1980s and 1990s had their origins in the quality of the economic debate and analysis in earlier years, but the pace of reform is slowing. That is why we need to reinvigorate the economic policy debate. We cannot afford to repeat the complacency of the last period, as we did in the beginning of the 20th century, when Australia was complacent and slipped down the global economic league table. It took much debate and many difficult reforms in the 1980s and 1990s to turn this around. The signs of such complacency are re-emerging.

There are some useful elements already there to structure such a debate. If the Productivity Commission was given the role it should have in looking at the key economic issues, such as infrastructure investment and skills development, it could make an even bigger contribution to the economic debate. That would be a very substantial contribution. We already have that body, and it is very good. But we need something similar in the general area of economic policy, and fiscal policy in particular. There is a lot of rubbish talked about economic policy in Australia—we just need a factual base. We will still disagree about what measures we should take, because you bring values to bear on the data, but we need an independent source of the information. Even a cursory examination of the British Institute of Fiscal Studies makes the contrast stark.

An April 2005 briefing note assesses the government’s management of the public finances over an eight-year period and judges it against the rules it sets itself to constrain public sector borrowing and debt, and against the performance of other industrial countries over the same period. It then discusses how the public finances might evolve, given the tax and spending policies of the three main parties. That is, it looks at not just the government but at the opposition proposals and, in the case of the UK, the third party. I would be interested to see what they would think if they looked at the Greens’ approach in Australia: a very interesting but a very short piece of fiscal analysis. But in Australia the competing packages could well be assessed by such an independent institute.

A number of writers and agencies make good contributions: journalists in the media, Access Economics’s Budget Monitor and NATSEM’s important work on distributional analysis. But big gaps in Australia’s economic policy debate continue. No one initiative will solve that problem, but an Australian Institute of Fiscal Studies providing authoritative fiscal policy analysis and working beside an enhanced Productivity Commission, focusing on the big domestic and international economic policy challenges, will take us a big step forward. Economic policy debate in Australia today is dominated by simplistic slogans about surpluses and complacency built on the back of a one-off boost to our terms of trade. We cannot afford this arrogant complacency to continue. Reinforcing the institutional framework for policy analysis and debate will help.

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