Rick Wilson (O'Connor, Liberal Party) Share this | Hansard source

I would certainly like to invite the member for Riverina when he is in Western Australia to come and help with some fencing at my place. It sounds like he is a bit of a dab hand. It is a pleasure to follow the member for Riverina. He is a great advocate for rural Australia. I will be followed tonight by the member for Grey, who is also a great advocate for rural Australia.

Today I rise to commend the Labor 2013-14 Budget Savings (Measures No. 1) Bill 2014. The bill is the second carbon tax related repeal bill legislation, legislating the removal of a proposed personal income tax from 1 July 2015. There are three points I would like to make in supporting this bill. Firstly, this legislation implements a Labor Party election promise, and this is an opportunity for them to keep that promise. Secondly, there is a lot of commentary, especially in the media and by the opposition, that there is not a budget emergency. But there is. I will talk about why our current structural deficit is a serious problem for our country to find itself in. Just in recent days it has been revealed in media reports that the opposition is holding up up to $100 billion of saving measures in the Senate. Thirdly, the first part of the carbon tax repeal bill, the actual removal of the carbon tax, has been greatly welcomed a my electorate of O'Connor, with many businesses publicly coming out in its support.

When the carbon tax was introduced by the former government, they included two rounds of personal tax cuts to compensate for the carbon price. The first round of tax cuts to compensate for the introduction of the carbon tax took effect in July 2012. This increased the first personal tax threshold to $18,200. Increasing it again to $19,400 was to take effect from July 2015. This is because, in the Labor Party's final budget, revealed in May 2013, the increase in the carbon price was not expected to occur until 2018-19 due to a revision in their carbon tax price forecast. So they deferred the tax cut until 1 July 2015.

At the time, Labor booked $1.5 billion in savings to the budget bottom line over the then forward estimates period but did not seek to introduce the legislation to reverse the personal income tax changes which it had legislated. Then, leading into the last election, the Labor Party continued to campaign on this budget saving strategy. So here we have a situation where the Labor Party lost the election but the coalition was prepared to honour their promises and remove the second round of personal tax income changes due to commence on 1 July 2015. Currently, the cost to the budget, if this bill does not pass, is $2.2 billion over the forward estimates to 2017-18. Since the election, this measure has been introduced to the parliament twice under the Clean Energy (Income Tax Rates and Other Amendments) Bill 2013 as part of the package of carbon tax repeal bills. At both those times, the Labor Party voted against this legislation. That means the Labor Party has voted against its own election commitments and has not provided any ideas for alternatives.

The government inherited an unsustainable budget position from the previous Labor government, with the deficit inherited totalling $123 billion. Without action, the budget outlook is deficits and rising debt for at least another decade. The budget would never get into surplus and the debt would never start to be repaid. The interest bill on that debt would rise to $3 billion a month. That is the equivalent of the construction of three brand-new teaching hospitals in Australia every month, and we are just spending on interest unless we address this issue.

We have already reduced the projected debt in 2023-24 to $389 billion—that is, $300 billion less than the projections that we inherited. There are many nations that have much greater government debt, but they fund it from within their own economy because they have a huge pool of domestic savings. But, in Australia, 70 per cent of the interest we pay goes overseas because Australia fails to fund itself.

Japan is a classic example where the government has an enormous debt, as a percentage of GDP, but it is the Japanese families, the 'Japanese housewives' as they were previously called years ago, who save the money and can fund the government debt. They can fund it within their own economy. Even Italy has the capacity to fund its own needs. It is a net exporter of capital. But Australia is not an exporter of capital; Australia is an importer of capital. Each year we import from the rest of the world to fund ourselves and this year we will import about $40 billion. During the global financial crisis it was a rude shock because our banks could not get offshore funding, so they relied on government credit rating. The government had a strong credit rating; therefore, we were able to fund ourselves in the international markets.

Therefore, it is so important that we have a government that lives within its means so that money becomes more accessible and more affordable for the private sector, which then uses that capital to develop the big projects in the big land that help drive our economy.

There is always a lot of talk that there is no budget emergency, but my question to the opposition is: does that mean you are happy to stay in deficit? Because, on 8 May 2012, former Treasurer and Deputy Prime Minister, the member for Lilley, said:

… importantly by coming back to surplus we give the Reserve Bank maximum flexibility to cut interest rates, should they decide to do so independently of the Government.

… coming back to surplus is about making sure we help those people sitting around the kitchen table when they're figuring out how they will make ends meet.

Here we have a clear statement that the opposition knows that being in surplus is better than being in deficit. Acknowledging the fact that there is a budget emergency, Governor Stevens, Head of the Reserve Bank of Australia, said:

… the fact that the real issues with public finances are medium-term ones is not a reason to put off taking decisions to address them. On the contrary, as experience in so many other countries demonstrates, by the time these sorts of problems have gone from being out on the horizon to on our doorstep, they have usually become a lot more difficult to tackle. Early, measured actions that have effects that build up over time are a much better approach than the much tougher response that might be required if decisions were delayed.

Phil Bowen, the Parliamentary Budget Officer, echoed this statement, saying:

It is time to start coming out [of debt and deficit], otherwise the longer you leave it the more exposed you become and the harder it is to wind it back …

He continued:

Sure we're currently at a very low level relative to the rest of the developed world, but frankly we don't want to find ourselves where the rest of the world is …

You've got to have a buffer. One of the reasons we came through the global financial crisis so well was because we started with assets.

Mr Bowen continued:

If the rate of the increase [in debt], if allowed to go unchecked, would mean that net debt would increase quite rapidly to the point where that fiscal buffer . . . would not be available …

To understand budget situations and choose appropriate solutions, it is important to distinguish between cyclical and structural components of the deficit. The cyclical component can be attributed to a weak economy. A recession drives down government revenue because many workers and businesses are no longer earning as much taxable income. At the same time, government spending rises because more people need assistance through programs such as unemployment benefits. In budget phrasing these are known as 'automatic stabilizers' because they help to maintain demand in an economy that is not producing enough for it to keep growing. The result is a temporary or a cyclical increase in the deficit. Once the economy recovers, tax revenue and government spending on assistance programs should return to normal.

If government spending exceeds tax revenue, even when the economy is strong, then the deficit is deemed to be structural. Unlike cyclical deficits, structural deficits reflect a chronic problem that must be addressed through changes in tax and spending policies.

The most effective policy changes are those affecting permanent law, such as entitlement programs and tax provisions that run on autopilot. With structural deficits, one-time spending cuts or temporary tax increases may help to relieve the pressure but cannot solve the problem.

So why should we be concerned about a structural deficit? The most basic reason to be concerned about a structural deficit is that it is generally projected to grow faster than the economy. Even assuming a strong economy, with no cyclical deficit, the current structural deficit will produce a steadily rising debt-to-GDP ratio for as far as the eye can see. Eventually, the debt burden will become too great to bear.

Although it is impossible to say exactly when it will happen, don't you think it would be foolish to risk finding out? While cyclical deficits can assist the economy to get back on track or at least smooth out the bumps, large chronic deficits pose significant risks in many ways. For one thing, deficits tend to divert savings away from more productive investments in the growth capacity of the economy. The strength of the future economy depends on an educated workforce, productive capacity, sources of energy and solid infrastructure.

If there is no financial slack in public budgets because a rising share of available resources is already committed to programs for older people and to paying interest on the national debt, it will be harder to invest in children, research and development, transportation and communication, and other factors that will promote future growth.

Phil Lewis, Professor of Economics at the University of Canberra, said in his article 'How the budget is faring':

… it can be demonstrated that Australia's economy is strong. However, there is concern that Australia, on its current trajectory, is heading for (or well on the way) to an unsustainable structural deficit. This is where the budget may most influence economic growth, as it impedes the ability of a government to plan future spending.

It is generally accepted that the actual government budget will (and should) fluctuate between deficit and surplus during, respectively, downswings and upswings in the economy. While there is a lot of public attention on whether the year-on-year budget balance is in deficit or surplus, and by how much, the structural balance is the more important concept.

Professor Lewis went on:

As I have pointed out previously … this structural imbalance is a result of irresponsible spending policies of successive governments … but particularly by the Rudd/Gillard governments. New spending initiatives, such as the Gonsky funding changes and the NDIS, have been brought in without plans to raise the revenue to pay for them, and often, without due analysis.

And bad luck for Tony Abbott—

the Prime Minister—

that he is left with unfunded big budget items in the future to deal with, as a legacy of the former government.

Professor Lewis says the answer is:

The only way to reduce the deficit is through reduced expenditure and/or increased revenue. As each idea of how this can be done is shot down on a daily basis, the Coalition government is realising what a difficult thing this is to sell. The hostile reaction to the Commission of Audit report at least might mean some of the unpopular decisions in the May budget are, by comparison, greeted with relief.

Peter Fray, on The Australianwebsite, echoed this sentiment, saying:

But we do have a structural budget problem. If the budget remains in deficit indefinitely, creditors will eventually lose confidence. Australia is unique in having run a current account deficit throughout the past 150 years and is much more dependent on the goodwill of the international capital markets than any other advanced country.

Economist Leith van Onselen said the following:

… the above headwinds mean that the budget will remain permanently in structural deficit unless action is taken on both the revenue and the expenditure sides. The debate, therefore, should not be about whether to have budgetary reform, but rather about ensuring that reform is undertaken in an efficient and equitable manner …

I have a few comments about the carbon tax repeal bill, which has been widely welcomed in my electorate of O'Connor, not just by small and medium businesses, but by local government. The City of Kalgoorlie-Boulder CEO Don Burnett said:

In the city's 2014-15 draft budget we allocated $92,000 for our 2013-14 carbon tax liability. It is estimated that future carbon tax costs for the city would be a minimum of $100,000 per annum. That impost, across all local governments in O'Connor, represents a significant saving that councils can now spend on services for ratepayers.

Businesses also were quick to welcome the repeal, with Plant Manager Tony Bessell of Western Australian Meat Marketing Co-operative at Katanning saying:

Last financial year, our energy provider's carbon charge was $20.56 per megawatt-hour and we used 8,192 megawatts, that's a carbon charge bill of $168,427, solely for our electricity usage. And that is not even taking into account the large number of suppliers we use that pass on their carbon tax component to us.

Fletcher International WA, based at Narrikup, is one of Australia's largest export abattoirs and their general manager, Greg Cross, said:

The carbon tax was a weight in our saddlebags we certainly didn't need and repealing it is a step in the right direction. The meat industry are one of the last manufacturers in Australia, with other manufacturers closing or moving off-shore. We don't want to do that but the extra cost from the carbon tax was a serious impost on us.

In a follow-up story that the Countryman and Albany Advertiser newspapers did on both these companies, the two businesses claimed the carbon tax repeal could save each business $400,000 a year on packaging and electricity alone.

If we do not fix the budget now, the pain and impact on the Australian people in the days, months and years ahead will be far greater. To quote John F Kennedy, 'It is always best to repair the roof whilst the sun is shining,' than to be in a situation where, in the middle of a cyclone, everything starts to come apart. I commend this bill to the House. I should not have to urge the Labor Party to keep its election commitments, but that is what I am here to do. Honour your promises. Keep your word to the Australian people. Help us get on with the job of fixing the economy.

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