Janelle Saffin (Page, Australian Labor Party) Share this | Link to this | Hansard source

My question is to the Prime Minister. Will the Prime Minister outline to the House the government’s response to today’s national accounts?

Kevin Rudd (Griffith, Australian Labor Party, Prime Minister) Share this | Link to this | Hansard source

Today’s national accounts, reflecting 0.6 per cent increased growth in the March quarter and 3.6 per cent in the year to the March quarter, reflect some moderation in overall economic growth. Today’s national accounts paint a clear picture of the economic challenges which now face the nation. We have continuing economic growth, but at the same time we have a real problem in dealing with supply-side constraints in the economy, which have had a cumulative effect in increasing inflationary pressures.

We are very much at the initial stages of a 15-round fight against inflation. Inflationary pressures have taken a long time to build in the economy and they will take a long time to turn around. Inflation is a critical challenge facing the national economy because inflationary pressures running ahead have an upwards impact on interest rates. If you have an upwards impact on interest rates, that represents a long-term drag on economic growth and therefore a long-term impact on employment as well. That is why it is important that this government places at the centre of its economic priorities the fight against inflation.

That is what the government did in January this year when we announced our five-point strategy for dealing with the inflation challenge. Remember that, at the point at which we assumed office, inflation was running at a 16-year high. Therefore, we announced a strategy which was going to have as its core elements: (1) responsible economic management through bringing about a significant budget surplus; (2) encouraging private savings; (3) increasing capacity when it comes to skills formation in the economy and dealing with skill shortages; (4) investing in infrastructure and overcoming infrastructure bottlenecks; and (5) enhancing workforce participation. This is a coherent strategy for dealing with the inflation challenge, and if there is one sobering message to emerge from the national accounts data today it is that this challenge must be addressed head on.

The government’s response in the implementation of this strategy has been clear cut. We have brought about a $22 billion surplus and, in the engineering of that surplus, we have also brought about $7.3 billion in savings in the coming year and $33 billion worth of savings across the forwards estimates. Ensuring that you are bringing about significant savings and that you are exercising appropriate restraint on expenditures is a responsible course of action for the future. Again, we have done that by ensuring that expenditure growth as a proportion of GDP has been kept low and that, similarly, tax as a proportion of GDP has been kept low as well.

The second element of the government’s budget strategy has been to deal with others of those inflationary pressures which are evident upon any analysis of the national accounts data. That means dealing with our supply-side constraints. That is why the government is clear cut in its strategy to invest in skills and invest in infrastructure. That is why we have established the Building Australia Fund to deal with infrastructure challenges for the future. On that point, I commend the Minister for Infrastructure, Transport, Regional Development and Local Government for convening today the first meeting of the advisory council of Infrastructure Australia. It is six months to the day, I think, since this government was sworn in, and we have a meeting of the advisory council of Infrastructure Australia and a Building Australia Fund, which has been part of the budget papers because this government is serious about dealing with the challenges of infrastructure bottlenecks and the constraints that they represent in terms of not just long-term economic growth but ensuring we are effectively fighting inflation. Similarly, on the skills front, there is the establishment of the Education Investment Fund of some $10 billion for the future.

We need look no further than the part of the national accounts which deals with the contribution of net exports to overall growth. The net exports contribution has been negative 0.7, and this of itself reflects the fact that we are still not overcoming infrastructure bottlenecks and skill shortages when it comes to getting our product out to market. It is very simple: we are depending at present on prices going up when it comes to demand globally for our resources, but, while we have a lot of volume coming in by way of imports, we basically have modest growth when it comes to the volume of exports leaving the country. Therefore, if we are going to deal with these challenges, we have to finally respond to those 20 consecutive warnings contained in one Reserve Bank document after another to act on capacity constraints in the economy. There was warning after warning, year after year, about skills and infrastructure, and that is nowhere more evident than in the national accounts data today and their reflection on the net contribution of exports to overall growth.

Of course, the third element of the government’s budget strategy is not only to bring about responsible economic management through a sizeable budget surplus—and to invest in our future in skills and in infrastructure to deal with these constraints and to deal with those factors which are fuelling inflationary pressures in the economy—but also to deal with the financial pressures faced by working families, working Australians and those doing it tough, because for those Australians inflation is not a charade. For those Australians inflation is not a fairy tale. For those Australians inflation is a real problem, and it is a real problem when inflation going up has an upwards impact on interest rates and that feeds through to their mortgage rates and the overall cost of living. That is why this government has been determined as part of its budget strategy to deliver a package of support for families, for individuals as well as for pensioners and carers, as I outlined to the House yesterday.

The government inherited, after 12 years in office by those opposite, inflation running at 16-year highs. We inherited 10 interest rises in a row. We have inherited these economic circumstances and, as a consequence, the real challenge we face with inflation is either to regard it as a charade, to regard it as a fairy tale or to take that fight head on. This government’s resolve is to take that fight head on. As I said before, taking on the fight with inflation is critical for this country’s long-term economic health and the wellbeing of individuals and families, who depend on the cost of credit and the cost of finance to do so much when it comes to their normal everyday lives. Fighting the fight against inflation is core business for us but I say this: the best way you can fight inflation in terms of the outlays from government is to engineer—and not render a threat to the integrity of—the budget surplus. In this process we have generated a $22 billion budget surplus. That represents responsible economic management. The contrast is a $22 billion raid on the surplus which is the essential accumulation of all the individual budget measures which those opposite have said they will oppose. The contrast on responsible economic management is clear. The government’s resolve in fighting the fight against inflation, particularly on the back of this new national accounts data, is clear. We fight the fight against inflation. That means dealing with upward pressure on interest rates. If we fail to do that then higher interest rates will flow through to economic growth and flow through to employment. We have a responsible strategy for dealing with it; those opposite do not.

Malcolm Turnbull (Wentworth, Liberal Party, Shadow Treasurer) Share this | Link to this | Hansard source

My question is addressed to the Minister for Finance and Deregulation. I refer to the minister’s remarks yesterday where he observed that real growth in expenditure next year is estimated at 1.1 per cent per annum which he said was lower than in recent years. Will the minister confirm, however, that in the following year, 2009-10, expenditure is forecast to grow in real terms by four per cent, if adjusted by the CPI, and by 5½ per cent if adjusted by reference to the non-farm GDP deflator, which is higher than in all but one of the Costello budget years? Hasn’t the government just pushed its expenditure out for 12 months to make its first budget look good?

Lindsay Tanner (Melbourne, Australian Labor Party, Minister for Finance and Deregulation) Share this | Link to this | Hansard source

I thank the member for Wentworth for his question. It appears that he has changed his position on this year’s budget yet again. So we now have a third position on the budget—it appears that the 2008 budget is now a rather good budget. But we will take that on board. We are happy for today’s endorsement. It may well change tomorrow, but we will take that on board. I notice the trickiness in the question in that he referred to two different indicators. What he did not mention is that if we use the GDP deflator indicator it would show that government spending in this year’s budget is actually going to fall in real terms. So you choose one indicator when it suits you, but you do not want to choose it when it actually suits the government. What a remarkable coincidence.

What is most astonishing about this performance is that this question is coming from the party which says that this budget is expansionary, that the budget is a high-spending budget and yet that the government should be loosening the purse strings to the tune of billions and billions of dollars. It should add $22 billion to net government spending. It should reduce the surplus by $22 billion over those years. That is the position of the opposition.

Malcolm Turnbull (Wentworth, Liberal Party, Shadow Treasurer) Share this | Link to this | Hansard source

I rise on the point of order of relevance. The minister has had more than enough time to think of the answer.

Harry Jenkins (Speaker) Share this | Link to this | Hansard source

Order! The member cannot approach the table on a point of order and make added remarks. The point of order is on relevance and the minister is responding to the question.

Lindsay Tanner (Melbourne, Australian Labor Party, Minister for Finance and Deregulation) Share this | Link to this | Hansard source

I will conclude on one point. If you would care to finally get around to reading the budget papers, which you will eventually do, no doubt, what you will find—

Harry Jenkins (Speaker) Share this | Link to this | Hansard source

Order! The minister will refer his remarks through the chair.

Lindsay Tanner (Melbourne, Australian Labor Party, Minister for Finance and Deregulation) Share this | Link to this | Hansard source

Sorry, Mr Speaker. What the member for Wentworth will find is that government spending as a proportion of GDP across the four years of the forward estimates is substantially lower than it was under the member for Higgins in the 2007-08 budget. So the percentage of GDP the government is spending as a proportion of the total economy across the forward estimates stays below the level we inherited from the former government.

Jodie Campbell (Bass, Australian Labor Party) Share this | Link to this | Hansard source

My question is to the Minister for Finance and Deregulation. How does the Rudd government’s first budget address the economic challenges and opportunities outlined in today’s national accounts?

Lindsay Tanner (Melbourne, Australian Labor Party, Minister for Finance and Deregulation) Share this | Link to this | Hansard source

I thank the member for her question. In the context of a slowing world economy, today’s national accounts provide reassuring news on economic growth but they also show that the inflation fight is very definitely far from over. As the Prime Minister said yesterday, we are still in the early rounds of what is definitely a 15-round fight. That is why the figures that I have released today, the national accounts figures, underline the importance of a tough, responsible budget—the budget that the Treasurer handed down last month—and underline the importance of the $22 billion surplus that we brought about, as the Prime Minister said.

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

Mr Costello interjecting

Lindsay Tanner (Melbourne, Australian Labor Party, Minister for Finance and Deregulation) Share this | Link to this | Hansard source

I must say I am delighted to see there is some life in the member for Higgins.

Wilson Tuckey (O'Connor, Liberal Party) Share this | Link to this | Hansard source

I rise on a point of order: standing order 75 on irrelevant and tedious repetition.

Harry Jenkins (Speaker) Share this | Link to this | Hansard source

As the member for O’Connor on further research will note, that standing order applies to speeches, not actually to answers. The only standing order that is relevant to answers is the standing order on relevance, and the minister is relevant.

Lindsay Tanner (Melbourne, Australian Labor Party, Minister for Finance and Deregulation) Share this | Link to this | Hansard source

I know that members of the opposition find it tedious that we have handed down a $22 billion surplus, but you had better get used to it. Today’s figures reinforce the need for responsible spending and dealing with the capacity constraints that we inherited after a decade of neglect under the recently revived member for Higgins. The government will not rest until we get the long-term policy settings right that will enable the building of a modern economy that will deliver sustainable, strong growth and low inflation.

I have a very simple message for the opposition here: the last thing that the Australian economy needs, the last thing that the Australian people need, is to loosen the fiscal settings that have been put in place by this government to slash the surplus and to pump more money into the economy. That is the last thing that the Australian economy needs and that is the real message that comes through from these national account figures. The opposition are endeavouring to mount a smash-and-grab raid on the surplus through the Senate. They have the swag over the shoulder, the funny mask on and they are off in the corridors of the Senate seeking to mount a smash-and-grab raid on the surplus. That is simply a recipe for higher inflation and higher interest rates. I understand that the Leader of the Opposition was out there handing out even more money this morning, but still there are no offsetting savings and no explanation of what impact this would have on inflation and interest rates. These accounts indicate that real growth eased to 0.6 per cent in the March quarter, or 3.6 per cent over the year, and they do show that families are feeling the impact of rising prices and higher interest rates, with household consumption slowing to 0.7 per cent in the quarter and 4.3 per cent over the year.

It is good news, though, that business investment continues to grow strongly, rising by 1.6 per cent in the March quarter and 6.6 per cent over the year and, as a share of the nominal economy, business investment remains at approximately its highest level since the early 1970s. Net exports detracted from GDP growth in the March quarter and reflect, as the Prime Minister indicated, ongoing weakness in export volumes and, in turn, the problems with capacity constraints that this government is so committed to tackling.

In conclusion, the Rudd government is committed to playing its part to putting downward pressure on inflation and interest rates through a responsible budget that delivers a strong surplus and invests in the future. That is something the Leader of the Opposition did not understand a few months ago. Higher inflation means higher interest rates which, in turn, tend over time to reduce economic growth and reduce employment growth. That is why it is so crucial to get inflation in check and that is why it is so crucial to run a strong surplus. I urge the opposition to think very carefully before they throw their economic responsibility credentials completely out the window in the Senate.