Paul Fletcher (Bradfield, Liberal Party, Parliamentary Secretary to the Minister for Communications) Share this | Hansard source

I am pleased to speak on the Appropriation Bill (No. 3) 2014-2015 and cognate bills. In the time available to me today, I want to argue three propositions. Firstly, that Australia's economy is facing some significant challenges both structural and cyclical, which we need to respond to.

Secondly, the coalition has an economic plan for Australia, which will let us rise to the challenge and seize on the opportunities in front of us.

Thirdly, the Labor Party needs to stop denying reality and begin engaging on these issues, as a serious political party should.

We do face a combination of cyclical and structural challenges. As resources investment falls and key commodity prices drop that, in turn, feeds through to tax revenues growing much more slowly which, in turn, creates severe budgetary pressures.

We have inherited a huge budgetary mess from the previous Labor government, which delivered almost $240 billion worth of deficits between 2008-09 and 2013-14. This year we are paying around $14.2 billion in gross interest costs, which works out to be an average of $40 million every single day. So even if Australia's economic conditions meant that we could continue to expect very strong growth in tax revenues, we would face a big budgetary challenge. However, because of the end of the investment phase of the resources boom we cannot expect such continued strong growth in our tax revenues.

What we saw between the fiscal year 2003 and fiscal year 2008 was that, every year, revenue significantly exceeded what was budgeted—so-called parameter changes, in the jargon of Treasury, which, in some years, were as high as $30 billion, approaching two per cent of GDP. But with the resources investment boom having ended, there is no longer a huge boost to investment as resources companies rush to build new mines and plants and the prices of key commodities like coal and iron ore are down 50 per cent or more from their peak. All of this means that the budget repair task must be faced when revenues keep undershooting expectations rather than giving us pleasing and unexpected windfalls.

Then, our economy faces a number of significant structural issues. The first is our ageing population, which, as the recently issued 2015 Intergenerational report shows, involves a growing proportion of the population being aged 65 or over. Indeed, the number of Australians in this age group is projected to double in the next 40 years. The ratio of people of traditional working age to the very young and to the very elderly is falling. For every person aged 65 and over, today there are currently around four people aged between 15 and 64, which, incidentally, is down from around seven, I think, in the 1970s. In 40 years' time, that number will nearly halve.

Australians are living longer, and we have one of the longest life expectancies in the world. It is worth making the point that for all of us, as individuals, that is great news. Not only are we living longer but our so-called quality adjusted life years are also increasing. That is to say, we can expect a higher proportion of our life span to be years of quality living in which we can very much enjoy the opportunities of being alive. But this does have fiscal consequences, with important implications in growing demand for services like health and aged care, which fall very heavily on the Commonwealth budget, and, indeed, for the provision of retirement incomes—the aged pension.

Another important structural issue we are facing as a nation is the rise of Asia. This presents many opportunities, but it also presents some competitive challenges, and some of these were highlighted in the Innovation and Competitiveness Agenda issued by the government last year, which made the point that economies like China, India, Indonesia, Vietnam, Malaysia and the Philippines have grown dramatically over the past 30 years, and this is projected to continue. It is expected that by 2025 China will be the largest economy in the world. In 1985, so-called emerging Asia represented around nine per cent of the global economy. By 2025 it will be around 40 per cent. Emerging Asia has also seen its share of global manufacturing output increase from around six per cent in 1982 to 29 per cent in 2012. At the same time, its share of services exports has also grown from six per cent in 2003 to 11 per cent last year, and the important point is this in terms of the competitive pressures that face the Australian economy. As the economies of Asia invest in education, increase the skill levels of their population and move up the value chain, they are producing ever more advanced goods and services. I saw this myself over a number of years as an executive in the telecommunications sector, where the percentage of telecommunications equipment coming, particularly from Chinese vendors, started to grow and grow, and the statistics bear this out. In 2000, China produced around six per cent of the world's communication equipment. By 2010 this had increased to 26 per cent, and that is coming from brands which have rapidly become very well known globally like Huawei and ZTE.

That brings me to another structural issue that our economy is facing, which is the relentless march of technology, which is intensifying competition and fundamentally transforming the global economy. According to a 2011 report from well-known consultancy McKinsey, around a fifth of GDP growth in advanced economies over the previous five years had come from the internet and associated technologies, and, interestingly, 75 per cent of that was in sectors not traditionally seen as technology industries. Indeed, the disruption of industry after industry by a better, internet based offering is one of the great constants of modern economics. Ask Kodak about digital photography, Fairfax about SEEK or Drive.com.au, the free-to-air TV networks about Apple TV or YouTube, Angus & Robertson about Amazon, Blockbuster about Netflix, or Taxis Combined about Uber.

This transformation is having a profound industry-by-industry effect. It is also, increasingly, having a profound national impact. Some nations are doing well out of this massive economic transformation; some are facing grave threats. Certainly, we can expect a continued growth in the internet economy in Australia. In fact, according to Deloitte Access Economics, it will grow twice as fast as GDP and reach $70 billion by 2016. But, clearly, in the face of digital disruption, the first question we need to ask as policy makers is: where does a nation like Australia have a competitive advantage? We need to recognise that competition is affecting sector after sector, including in the domestic economy, in sectors which used to be protected by barriers to entry such as high costs of transport to get goods into the Australian market.

If those are some of the challenges and opportunities facing the Australian economy, it is very important that the government has an economic plan, and the coalition certainly does. It is our duty, as a government, to develop and implement a plan to respond as the global economy is changing so quickly. We have a number of strands to that economic plan. Firstly, we need to get debt and deficit under control. We cannot continue to finance spending through increased debt. Clearly, as your debt grows you become more vulnerable as a nation. With Australia, in particular, having relatively high levels of private indebtedness, it is particularly important to have a strong public sector balance sheet. To protect yourself as a nation and to avoid that vulnerability, what you want to see is a government contributing to national savings and reducing debt through budget surpluses, not adding to debt through budget deficits. We also need to address the underlying issue of rising Commonwealth spending, which, in real terms, since 2007-08, has grown by an annual average of more than four per cent, compared to three per cent during the 1980s and 1990s. Here is a little legacy of Julia Gillard, Kevin Rudd and Wayne Swan, who still is the member for Lilley. In just six years to 2013-14, government spending as a percentage of GDP has risen by around 2.5 percentage points. That is an extraordinary leap in a short period of time.

So, if our first priority is getting debt and deficit under control, the next priority is to really get our university system firing because we face, as a nation, the imperative of capturing technology driven economic growth for the reasons I spoke about earlier. It is, therefore, vital that our university system is able to perform to its full potential. In the 21st century our universities must be engine rooms of innovation and discovery, and it this reality which underpins the government's plan to give universities the freedom to set their own fees, student numbers and strategic direction. And it is fascinating to see a growing number of Labor luminaries, no longer constrained by caucus discipline, coming out in support of the sorts of changes that we are advocating to the university system.

Another priority for the coalition government in responding to economic challenges is to capture as a nation the trade opportunities in Asia in both services and products. We have a set of policies that look to the future and capture the opportunities available to Australia thanks to our geography, our endowments of natural and economic resources and the talent and creativity of our people. In just one year Trade Minister Andrew Robb has secured new free trade agreements with Korea, Japan and China which not only offer significant opportunities for our agricultural and resources exporters but also reduce barriers that until now have held back Australian services exports in these markets.

Another priority is supporting Australian business in this new, intensely competitive world. Industry Minister Macfarlane has recently updated industry policy to recognise the new imperatives of competition. He has reprioritised funding, putting money towards building better linkages between industry on the one hand and researchers in universities and institutes on the other, with the aim of leveraging Australia's considerable research strengths into new business opportunities.

Another part of the coalition's economic plan to respond to the challenges and opportunities we face is to enhance our national infrastructure to increase our productivity. From Infrastructure Minister Truss and Communications Minister Turnbull, we are seeing billions of dollars going into enabling infrastructure to make our economy more competitive and productive: a second Sydney airport; expressways to move people and freight more quickly around our major cities; and the National Broadband Network to make high-speed connections available to all Australians.

Let me turn to the third proposition that I wish to put to the House this afternoon. At a time of challenge for the Australian economy, it is incumbent upon the Labor Party to stop denying reality and begin engaging seriously on these issues—just as happened 30 years ago when Australia faced serious challenges as our heavily protected and regulated economic model left us increasingly uncompetitive. The Labor Party of today seems miles away from the Labor Party of that day, which engaged seriously with those issues. There is a challenge to our political system in 2015 to come together to address these strategic issues that we face as a nation. I quote from what respected economist Warwick McKibbin had to say in the Financial Review today:

Labor appears to cling to the fallacy that adroit fiscal policy explains Australia's success .... The continued belief in Labor's fiscal miracle appears to underlie the reluctance of current Labor leaders to acknowledge the extent of the multiple problems Australia faces. Australia can't continue to attempt to keep the economic structures of the previous century when resources—human and physical—need to be channelled into new industries.

Those are some comments by a very respected economist about the challenges our nation faces and the importance of the Labor Party engaging seriously with policy responses. Instead, I am disappointed to say, so far we have only seen some fairly silly political game playing. According to the Leader of the Opposition we do not have a serious budget problem, we simply have 'a budget task'—those were his words in the budget in reply speech last year. The shadow Treasurer dismisses Australia's federal debt challenges as mere rhetoric. He is quoted as saying: 'Debt is expected to peak at 17 per cent of GDP. Compare that to Canada—a well-run, resource-based economy, conservatively administered with debt more than double that ... or Germany at 52 per cent. We're not talking about Greece or Portugal or Ireland here.' So the shadow Treasurer seeks to dismiss the issue of government debt. He mentions Ireland, and it is instructive to look at what actually happened in Ireland. In 2007 Ireland had a debt to GDP ratio of only 11.1 per cent. But the Irish economy then fell into deep recession. Banks needed to be recapitalised with public money. The net debt to GDP ratio exploded. Six years later in Ireland, net debt as a percentage of GDP is well over 90 per cent. And here is the social consequence of that: unemployment in Ireland today, at 10.5 per cent, is more than double the rate it stood at prior to the GFC.

So despite these claims from the Labor Party that we do not need to worry about the debt to GDP ratio, if we look at Ireland and other examples around the world, ongoing budgetary mismanagement of a sort the Labor Party continues to advocate has serious social consequences, including savagely high unemployment rates—and that is an outcome the coalition is working very hard to make sure we do not face in Australia. Australia faces both cyclical and structural challenges, but our fast-changing economic circumstances also offer rich opportunities. The coalition has an economic plan for Australia which will let us rise to the challenge and seize on the opportunities. I would like to see the Labor Party join in a serious engagement with these issues in the national interest.

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