Stewart McArthur (Corangamite, Liberal Party) Share this | Hansard source

I am delighted to contribute to the debate on Appropriation Bill (No. 1) 2006-2007 and cognate bills of the Commonwealth budget recently handed down by the Treasurer, the Hon. Peter Costello. The budget is an important element of the Howard government’s disciplined plan to strengthen our economy and make Australia more secure so families can plan for the future with confidence. The budget measures introduced in these appropriation bills should not be considered as a set of measures in isolation. The recent budget measures build on the reforms and tough decisions made by the Howard government over the past 10 years. The budget provides a prescription for a continuation of the sustained economic growth, job creation, low interest rates, reduced taxes and low inflation which have typified the national economy under the coalition government.

It is my assessment that the 2006 budget has been well received by the Australian community and by all serious commentators over the past two weeks. It is worth looking at the budget paper and putting on the record our pride in the achievement of the Howard government. Economic growth since 1996 has been 3.5 per cent per annum, and that economic growth is the basis of all prosperity for Australia. Gross domestic product has risen by 23 per cent in real terms since 1996 and we have the eighth highest living standards in the OECD. It is interesting that, if you look at the standard of living table, Australia has moved from 13th in 1995 to No. 8 in 2005. So here we have it on the record that the standard of living for all Australians has improved.

We have had sustained budget surpluses. The position for 2006-07 is $10.8 billion in surplus. This is particularly important as we face the challenges of our population, which is ageing rapidly. We have also seen the elimination of government debt: the $96 billion of Labor government debt from 1996 has come down to zero. This saves approximately $8 billion per year, which can be allocated to other areas of government activity. Low unemployment is a major factor. More Australians are now in jobs. The unemployment rate is now five per cent, its lowest level since 1976, whereas in the early 1990s we had an unemployment rate of 11 per cent. We have low interest rates. In March 1996 the standard variable mortgage interest rate was 10.5 per cent, whereas in 2006 it stands at about 7.5 per cent.

There has been a lot of comment on the budget about China and the impact of the commodity boom and I would like to make some comments on that important aspect of Australia’s current prosperity. Strong world economic growth, and in particular the growth of China, is driving demand for Australian commodities and forcing commodity prices higher. Higher prices for Australian resources have provided a boost to the national economy and are encouraging growth in business investment. Business investment has grown by 75 per cent over the past four years.

The budget papers show that demand for our resources by China and other economies has resulted in a huge rise in Australia’s terms of trade, representing the ratio of prices received for exports to prices paid for Australian imports. There is also a very intelligent discussion in Budget Paper No. 1 on the continuing strong growth in China and its potential impact on the world economy in future years. In particular there is analysis of the Chinese economic growth pattern relative to the rates of growth experienced in early years by Japan, the ASEAN four countries—Indonesia, Malaysia, the Philippines and Thailand—and the north-east Asian newly industrialised economies, and of the impact on Australia if growth continues. Members would recall the discussion in this parliament about the growth of Japan and other Asian economies—South Korea in particular—after the Second World War which had an impact on the Australian economy.

Whilst the general outlook for China is positive, with a beneficial flow-on for Australia, the budget papers do recognise that no-one has a crystal ball and predicting the future of commodity prices is a perilous activity. In this regard I noticed in a report in the Australian Financial Review of Friday, 12 May 2006 comments made by respected Wall Street trader Mr Bill Miller, the implications of which urge caution in estimating the longevity of the commodity boom. Mr Miller is quoted as stating:

The time to own commodities is, or at least has been, when they are down, when everybody has lost money in them, and when they trade below the cost of production … That time is not now.

This article reports that raw material prices rebounded in 2002 as a result of strong demand from China and other economies after 20 years of difficulty. Projections of a continued boom rely on an estimation that demand for commodities will remain strong despite higher prices. The Financial Review report concludes that ‘any deceleration in China’s growth rate could send raw material prices tumbling’.

As a farmer, I entirely agree with that assessment that commodity prices are very difficult to estimate and when they are at a high point, as they were with wool, cattle and other commodities, that is the time to be well prepared. Budget Paper No. 1 recognises the possibility of faltering growth in our resources export markets. It goes on to say:

Developments across the rest of the globe are also relevant to whether resource prices remain high for an extended period, and whether China and India continue to grow rapidly for many years to come … global demand and supply responses to the currently high resource prices may have a powerful moderating influence on prices, although with uncertain timing.

Nothing could be closer to the truth. None of us—in this parliament, in the financial circles or Australians generally—knows when the Chinese boom might come to an end. In fact, today’s Age newspaper reports on the Chinese concerns over the high price rises for iron ore being negotiated on the world market. The report quotes an editorial in the Chinese government owned China Daily:

… when overcapacity is looming in China’s steel industry, rising ore cost that further bites into domestic steelmakers’ profits could turn the current boom into a bust and no one will benefit.

There we have it from the other side of the globe. Even the Chinese government are concerned about this boom.

This comment from China emphasises some of the difficulty in forecasting the potential longevity of the resources boom which is underpinning economic growth in Australia and internationally. Whilst everyone in this House would hope for a prolonged, sustained growth in the economies of China and India, it is important that the Australian government take steps to establish a domestic economy that will be resilient and continue to grow in a sustained manner, irrespective of the unexpected shocks that the international economy can deliver.

Again, it is worth looking at the position of China as the second largest economy in the world. It is suggested in some of the budget papers that China could, in 15 years time, surpass the USA as the world’s biggest economy. Currently India is the fourth largest economy in the world. However, the budget papers indicate the share of international activity is rising rapidly in China—something of which we should be fully aware. Members of this House should also be very aware of the political and social stability of China which could suddenly change, given the massive project, the Three Gorges Dam, the 600 million peasants that have moved from the countryside to the cities and the fact that China has no real democracy and there is no accountability in the system. The one-child policy in China has meant that the working age population in 10 years time will be falling whereas in India the working age population will be rising for the next 40 years; likewise in the USA. There we have it: a fundamental factor in the wealth of Australia is these booming economies around the world, particularly those Asian nations.

I turn to the fundamentals of the budget. There is a strong $10.8 billion underlying cash surplus forecast for the 2006-07 year. This is the government’s ninth surplus in the last 10 budgets, unlike the previous Labor government that had a capacity to run most of their budgets in deficit, particularly in the latter years of the Keating government. By running surplus budgets, the Howard government has eliminated net debt. We have now completely paid off Labor’s $96 billion debt and by paying off that debt there will be $8 billion to spend each year, formerly spent on debt interest payments, that can be directed to help relieve the cost pressures in Australian families, to help older Australians and to secure and defend our country. Whilst the Labor Party put the government into huge debt, we have put the government onto a very strong footing for future generations.

Through good financial management, the government has established the Future Fund with an initial capital injection of $18 billion. Further contributions will be obtained from future budget surpluses and asset sales. I have said before it is important to note, in the context of the debate on these appropriation bills, that the Future Fund is a bold move by the government to invest funds today to meet the future costs of public service liabilities. I have made the point back in my electorate, and I make the point again in the House, that the Future Fund is a very courageous move by the Treasurer and the government. Historically, governments have not met these future superannuation liabilities; they have let the next generation of governments pay for them. It is not a vote winner, but this government has taken the responsible position of setting up the Future Fund to cover them, making sure that these public service liabilities will be met in future.

The Australian economy is estimated to grow stronger next year with economic growth estimated at 3¼ per cent in 2006-07 compared with a forecast of 2½ per cent real GDP this current year. Inflation, which is a very important factor, is estimated to remain at low levels, within the Reserve Bank of Australia target range, at 2¾ per cent next year. Unemployment, as I said earlier, is the lowest for 30 years at 5.1 per cent in April 2006 and further growth in employment is projected for 2006-07. I note the remarkable record of the government with over 1.7 million additional jobs created over the past decade.

I now turn to the taxation debate. There has been a big debate in the last six to nine months in Australia and in this parliament about the need for reform of the taxation system. The impact of Australia’s high marginal tax rate of 47 per cent, or 48.5 per cent with the Medicare levy, on the aspirations of our best, brightest and most skilled workers has been of significant concern to me and other commentators over the past few years. If Australia’s top marginal tax rates are too high, then we risk a brain drain out of this country as talented Australians leave to find high paid employment in lower tax countries, where they will be able to retain the benefits of their hard work and initiative. I emphasise that point. People can move around the world, they can take up work in particular occupations and they can enjoy certain tax advantages in some of the OECD countries that have a lower tax rate where their work will be appreciated and they will get considerably more benefits, whereas in the former taxation regime they were losing about half of their income at the highest tax rate level. The Treasurer announced cuts to personal income tax valued at $36 billion over four years. These tax cuts will benefit Australian families and improve their ability to meet living costs.

Mr Deputy Speaker, I seek leave to have incorporated in Hansard a table and graph showing Australian income tax rates and a comparison of the top tax rates and thresholds in the OECD.

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