Andrew Southcott (Boothby, Liberal Party) Share this | Link to this | Hansard source

My question is addressed to the Treasurer. Would the Treasurer outline to the House all the elements of the government’s fiscal policy? Are there any alternative proposals that could damage the economy?

Peter Costello (Higgins, Liberal Party, Treasurer) Share this | Link to this | Hansard source

I thank the honourable member for Boothby for his question. It is the government’s view that, in a growing economy as we have now, it is important that the government deliver a surplus in its budget—that is, that the government keep its expenditure within its revenues and that it add to savings at the end of the day. This government has now delivered 10 surplus budgets and cleared Australia of the Labor Party debt—the $96 billion Labor Party debt—which was in place in 1996.

The would-be Liberals on the other side, the Leader of the Opposition and his shadow Treasurer, say that their policy is a mirror image of the government’s. This was the claim by the Leader of the Opposition yesterday: ‘There isn’t a sliver of light between him and the government when it comes to fiscal policy.’ Leave aside the fact that he voted against every measure that was required to balance the budget, leave aside the fact that he was against paying off government debt, leave aside the fact that he voted against tax reform and leave aside the fact that he is opposed to industrialisation and modernisation, he says there is not a sliver of light between his economic policy and the government’s economic policy.

Let me show where a massive gap—not a sliver of light, but a massive gap—opens up between the Liberal government and the Labor Party. I said earlier that the Liberal government believes in surplus budgeting and paying off debt. Between 1996 and 2005, the state governments were also paying off debt. The Commonwealth reduced its debt from $96 billion to zero, and the states reduced their debt from $48 billion to $10 billion. So there was a net reduction in debt of $96 billion at the Commonwealth level and $38 billion at the state level.

Between 2006 and 2010, we will continue to reduce debt, this time by building savings up, with another $60 billion—so $96 billion and a $60 billion asset position. The states mirrored us for those first 10 years. They reduced by $38 billion. Now, what are the states going to do over the next five years? Will they keep their debt reduction going? No, because the states—now all controlled by Labor, as they were not back in 1996—instead of continuing to reduce debt as they did for 10 years between 1996 and 2006, will build their net debt from $10 billion to $80 billion between now and 2010.

What we had was the states following the Commonwealth with debt reduction of $38 billion, but instead of continuing to follow the Commonwealth, the states are now building $70 billion of debt between now and 2010-11. When you add together the two levels of government—the Commonwealth and the states—whilst the Commonwealth over the next five years will be building savings of $60 billion, the states will be borrowing savings of $70 billion. They will completely net out the surplus budgeting of the Commonwealth over the next five years, so that between the two levels of government in fact there will not be surplus budgeting—there will not be government putting savings back into the economy. Between the two levels of government, they will be completely netting out.

I see the Leader of the Opposition is now trying to get an instruction from the member for Melbourne as to how this situation could possibly have occurred. It occurred because, between 2005-06 and 2007-08, the states decided to start going into deficit budgeting and they decided to go into borrowing. Let me say this to the Labor Party: if there is not a sliver of light between us and the Labor Party on fiscal policy, the Leader of the Opposition will have no hesitation in condemning this move by the states into deficit and will have no hesitation in demanding that the state governments do not counteract federal fiscal policy. If there is not a sliver of light, if his fiscal policy is the mirror image, if we stand identically, he will have no trouble at all demanding that the Labor level of government do precisely what the coalition is doing—that is, get their budgets back into surplus, stop borrowing, and add in to savings.

The fact that they are borrowing at a time when the economy is strong means they are going procyclical at the wrong time. If they had wanted to do this, the time to go procyclical would have been in 1999-2000. The time not to go procyclical is in 2007-08. We await the new economic conservative, the Leader of the Opposition, who claims to support coalition policy. We await him walking to the dispatch box to say unequivocally that he condemns the Labor state level of government, that he demands surpluses and that he does not want federal fiscal policy to be countervailed by the Labor states.